Kot See for v. Kung Ho Yin and Others
Read the full judgment text of HCA 2208/2019 on BabelCite. This High Court CFI judgment was delivered on 19 March 2021.
1. This is the Plaintiff’s application under O.19, r.7 RHC for judgment to be entered in default of defence against D1 (“ Kung ”) and D2 (“ Lam ”).
Cites 6 cases
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HCA 2208/2019 [2021] HKCFI 711 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 2208 OF 2019 ________________________ BETWEEN
________________________ Before: Hon Au-Yeung J in Chambers Date of Hearing: 17 March 2021 Date of Judgment: 19 March 2021 ________________________ J U D G M E N T ________________________ A. Introduction 1.This is the Plaintiff’s application under O.19, r.7 RHC for judgment to be entered in default of defence against D1 (“Kung”) and D2 (“Lam”). 2.The statement of claim relies on various causes of action against Kung and Lam, including conspiracy with other Defendants to defraud the Plaintiff. However, the present application is founded on (i) the claim in fraudulent misrepresentation against Kung; and (ii) the claims in fraudulent misrepresentation, Quistclose/constructive trust and, alternatively, restitution for unjust enrichment against Lam. 3.It is the Plaintiff’s case that the claims against Kung and Lam are severable from the claims against other Defendants. Hence, part judgment can now be entered against Kung and Lam. For the avoidance of doubt, the Plaintiff does not abandon the remainder of the claims against Kung and Lam (namely conspiracy among Kung, Lam, D3-D5 and fraudulent misrepresentation involving both Lam and D3). B. Relevant factual background 4.The facts are taken from the helpful summary of Mr Lui, counsel for the Plaintiff. 5.Between June 2016 and October 2018, the Plaintiff fell victim to a fraudulent scheme perpetrated by Kung, Lam and other conspirators and he was induced into making substantial payments to various recipients totalling HK$578.65 million, in respect of an investment scheme which did not exist. D6-D10 were nominees designated to receive funds that the Plaintiff was to transfer under the fraud. D11-D17 were amongst the nominees/recipients of traceable proceeds of the Plaintiff’s funds. 6.In around May 2016, Kung contacted the Plaintiff for the first time through a cold call. On 6 June 2016, the Plaintiff met Kung and Lam in Stanley. Kung told the Plaintiff that he could invest in “London gold” investment products which trades would be carried out by D5. 7.In around October 2016, Lam repeatedly told the Plaintiff that he had incurred losses on his investments. Lam suggested finding interested buyers to acquire the Plaintiff’s investments. 8.Between November 2016 and January 2018, Lam repeatedly informed the Plaintiff that there were buyers for his “investments” but the Plaintiff would first have to put up some “security money”; upon completion, both the sale price and security money would be recouped. The Plaintiff was later asked by Lam to put up additional security and activation capital. 9.Meanwhile, in around early July 2017 and mid-October 2017, Lam represented to the Plaintiff that he had incurred significant loan interest to settle the Plaintiff’s storage charges and needed reimbursement. 10.In reliance on and induced by the representations made by Kung and Lam in paragraphs 6-9 above, the Plaintiff paid various sums of money:
11.No sale of the Plaintiff’s investments had taken place. The Plaintiff never received any proceeds of sale or refund of any of the monies paid. 12.About a year later, in October 2018, the Plaintiff realized that he had been defrauded. Having reported the matter to the police, the Plaintiff obtained disclosure orders against recipient banks. He commenced this action on 29 November 2019. 13.In this application, the Plaintiff seeks money judgment against Kung; money judgment, declaration and equitable reliefs against Lam. C. General principles on judgment in default of defence 14.O.19, r.7 RHC provides that:
15.The general principles on entering default judgment under O.19, r.7 RHC have recently been summarized in Chau Sai Hong v Cheng Stephen Sohim [2020] HKCFI 3064, §38 (Au-Yeung J):
16.Where the plaintiff cannot obtain on summons judgment for all the reliefs he seeks, he is entitled to proceed to trial, notwithstanding the default in serving a defence: HKCP 2021, §19/7/7. 17.There is scant local jurisprudence on the meaning of “severable” under O.19, r.7(2). Mr Lui cited authorities decided under the UK Civil Procedure Rules r.12.8, under which default judgment can be obtained against one defendant “if the claim can be dealt with separately from the claim against the other defendants”. 18.The sub-rule is directed at the classic case where a claim is brought in the alternative against two defendants where there is truly only one, and there is an issue of election as not all of them can be liable. However, where the claim is against a number of defendants on a several basis, the focus is on whether the claim against the defaulting defendant can be dealt with separately, as opposed to whether the claims against other defendants can be. The court retains a discretion whether to grant default judgment: Otkritie International Investment Management Ltd v Urumov [2012] EWHC 890 (Comm), §§16-21 (Flaux J); Albesher v Ryan [2015] WHC 3058 (Comm), §4 (Judge Waksman QC); and Page v Champion Financial Management Ltd [2014] EWHC 1778 (QB), §§81-82 (Deputy Judge Picken QC obiter). 19.A default judgment is, by its nature, a procedural judgment and not on the merits. Its effect is thus simply against the defendant in default, and it is not binding on any other defendant (unless eg he is a privy such that res judicata applies). Thus, other defendants are not precluded from advancing at trial, in their defence, a case which may be inconsistent with the default judgment. See Otkritie v Urumov, §§22-27; Page v Champion, §§64, 67, 69; and Albesher v Ryan, §5. 20.O.19, r.7(2) has quite different wording from O.14, r.1. The latter provides that:
21.Given the difference in wording between the 2 rules, at first blush, r.7(2) precludes the entering of part judgment against a defaulting defendant. 22.However, I do not see any reason against entering part judgment in favour of a plaintiff under O.19, r.7(2) so long as the Court makes clear which part of the claim it is that judgment is entered and that it is severable from the claims against that defendant and other defendants. 23.In fact, as a matter of case management, there is no reason why the Court should force a plaintiff to go to trial on distinct claims that do not concern other defendants, thereby preventing the plaintiff from getting early judgment to which it is entitled. D. Service on Kung and Lam 24.I am satisfied as to service of the writ, the statement of claim and this summons (issued on 16 February 2021) on Kung and Lam, pursuant to the respective substituted service orders of (i) Master Hui on 5 June 2020; (ii) Master Kot on 30 December 2020; and (iii) myself on 25 February 2021. 25.Neither Kung nor Lam have filed any acknowledgement of service. Nor have they filed any defence within 28 days after service of the statement of claim was effected on them. 26.Accordingly, the procedural conditions for seeking default judgment are met. E. Claims against Kung and Lam separable from claims against other Defendants 27.The Plaintiff’s case against Kung is built on fraudulent misrepresentation. The case against Lam is built on fraudulent misrepresentation, constructive trust/Quistclose trust, mistake and unjust enrichment. 28.For fraudulent misrepresentation, the Plaintiff needs to show: (i) a representation of fact; (ii) made with knowledge that it may be false; (iii) with the intention that it should be acted upon by the claimant; (iv) the claimant acted upon the false statement; and (v) suffered damage: Haifa International Finance Co Ltd v Concord Strategic Investments Ltd [2009] 4 HKLRD 29, §15 (Cheung JA). 29.I am satisfied from reading the statement of claim that:
30.Kung and Lam knew that the respective Representations made by each of them was false, had the intention that it should be acted upon by the Plaintiff. The Plaintiff acted upon the fraudulent misrepresentations and suffered damage in paying out monies as pleaded. 31.In respect of the trust claims against Lam,
32.Alternative to the preceding paragraph, as against Lam, due to his fraud, (i) Lam was enriched by the monies paid by the Plaintiff; (ii) the enrichment was at the Plaintiff’s expense; and (iii) the Plaintiff transferred the sums under an unjust factor (mistake and/or failure of consideration). It would be unjust for Lam to retain the money. See Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79, §67 (Ribeiro PJ). 33.It is apparent from the statement of claim that the Plaintiff is entitled to judgment. He was defrauded into making investments in “London gold”, maintaining an account and putting up funds for buyers, all of which were fictitious and purely for the fraudsters’ benefit. 34.The misrepresentations relevant to the Summons were made by Kung and/or Lam only. These claims are factually independent of the conspiracy alleged against Kung, Lam and D3-D5. At this stage, the Court need not inquire into eg, whether there was any unlawful combination to make these misrepresentations, who the parties to such a conspiracy were, or whether there was an intention to injure the Plaintiff. 35.As regards the claims against Lam based on trust, some of the funds received by Lam have been further remitted to other Defendants. Whether the Plaintiff has an equitable proprietary claim against those defendants or a claim in dishonest assistance/knowing receipt are independent of the declaratory relief sought against Lam. Whether those other defendants had received funds held on trust and/or assisted Lam in his dissipation of the Plaintiff’s monies remain matters for trial. 36.I am satisfied that the claims against Kung and Lam are severable from claims against other defendants. F. Reliefs 37.In principle, the relief for fraudulent misrepresentation is for damages to be assessed. However, the Plaintiff seeks quantified damages of $1,000,000 against Kung and $196,150,000 against Lam. Those sums were based on the actual amounts defrauded out of the Plaintiff as set out in the Table above. On the pleaded case, the Plaintiff is entitled to the damages with interest as claimed. 38.As for Lam, the Plaintiff seeks a declaration that various sums of money paid into Lam’s bank accounts with HSBC, Hang Seng Bank and Bank of China (Hong Kong) Ltd belong to the Plaintiff and are held by Lam on trust for the Plaintiff, for which Lam is accountable as trustee. 39.It is a general proposition that a declaration will not be granted when giving judgment without trial. However, it is a rule of practice and not of law, and will give way to the paramount duty of the Court to do the fullest justice to the plaintiff to which he is entitled: Chau Sai Hong, §39, Au-Yeung J. 40.In the interests of doing full justice to the Plaintiff, declaratory relief should be granted against Lam because it is not known if Lam might have any other creditors with competing claims. The Plaintiff has a real interest in getting a declaration of proprietary right over the funds in the bank accounts against Lam for the effective protection of the Plaintiff’s rights. 41.The declaration of trust over sums received by Lam would also facilitate the Plaintiff’s tracing into other recipients of those sums. It is thus appropriate to give an order as well for tracing, accounts and inquiries and to have Lam pay over what is due to the Plaintiff as a result. 42.In the alternative, the Plaintiff is entitled to restitution of $101,150,000 actually received by Lam. 43.Pre-judgment interest shall be at 1% above the best lending rate of HSBC and judgment rate shall apply thereafter. 44.The rest of the Plaintiff’s claims against Kung and Lam may go to trial. G. Conclusion 45.For the reasons given, the Plaintiff should be granted judgment against Kung and Lam as per the draft submitted by Mr Lui, with amendments along the lines of this judgment. 46.Costs should follow the event. On a nisi basis, I order Kung and Lam to bear the costs of the Plaintiff for this Summons. As only one solicitor appeared at this hearing, I summarily assess the costs at $162,607. 47.I thank Mr Lui for his assistance.
Mr Victor Lui, instructed by Mayer Brown, for the Plaintiff The 1st and 2nd Defendants were not represented and did not appear | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment
Further hearings and rulings under HCA 2208/2019