Luk Wing Sze v. Hong Kong Xin Yu International Industrial Ltd and Another

DCMP 4109/2021

[2022] HKDC 303

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 4109 OF 2021

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Before:  Deputy District Judge C W Lingin Chambers (Open to public)

Date of Hearing:  1 March 2022

Date of Decision:  1 March 2022

Date of Reasons for Decision:  26 April 2022

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REASONS FOR DECISION

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Introduction

1.The Plaintiff (“P”), a female school clerk, is yet another victim of an online dating fraud. As a result of the fraud, P was lured into parting with a total of $669,985. Between 16 and 24 June 2020, P transferred the money in six batches into the bank account of a company called Hong Kong Xin Yu International Industrial Ltd (“D1”) maintained with HSBC (“the Bank”).

2.On 28 October 2021 P took out an Originating Summons against claiming, inter alia, (i) a declaration that the transferred funds are held on constructive trust for P; (ii) the funds (being the first five sums referred to below) be forthwith released and returned to P by HSBC.

3.Initially P only made claims in respect of five tranches of money, namely, the first five sums listed below. After she obtained bank statements from the Bank, she realized that she had omitted a much bigger and sixth tranche. By Summons dated 21 February 2022, she sought to amend the Originating Summons, adding the sixth tranche and seeking to join the Bank as an additional defendant.

Date of deposit (2020)	Amount ($)
16 June	100,000
17 June	100,000
18 June	70,000
19 June	100,000
20 June	50,000
24 June	249,985

4.As is usual in cases of this kind, D1 failed to acknowledge service of proceedings. P urged me to deal with the matter in the absence of D1 pursuant to RDC O 32 r 5. As I observed at the hearing the procedure differs from that recommended by Deputy High Court Judge Paul Lam SC in Wismettac Asian Foods Inc v United Top Properties Ltd [2020] 3 HKLRD 732, at [53]-[56].

5.In that case the learned Deputy Judge referred to a bifurcated procedure which includes (a) an action commenced by writ followed by an application for default judgment; and (b) a separate application by way of an originating summons for a vesting order. The former does not require any evidence but the latter does.

6.In this case what P did was to issue one set of proceedings by Originating Summons joining both D1 and the Bank as co-defendants. I can see no objection to the adoption of such a procedure, provided, of course, that P is content to prove its claim by affidavit evidence.

7.If, as in this case, the defendant makes no appearance, such proof should present no undue difficulty. (A similar course was taken by the claimant in Star Therapeutics Inc v Leabon Technology (HK) Ltd and Bank of China (HK) Ltd [2021] HKCFI 1715, with no adverse comment by the Court.) However, in a case where the facts are likely to be in dispute, the originating summons procedure is plainly unsuitable and may need to be converted into a writ action.

8.Shortly before the hearing the Bank informed the court that it did not intend to contest the application and was content to abide by any order that the Court may make.

9.At the hearing I granted an order in terms of the Summons and also the Amended Originating Summons with the addition of a vesting order in paragraph 2. I reserved my reasons which I now give.

Declaration of constructive trust

10.I do not intend to rehearse the details of the scam that was practised on P. In outline, in May 2020 P “met” the perpetrator of the swindle on a virtual dating platform. Having won her affection and confidence, her “admirer” enticed her into participating in an online ‘investment” with the promise of an irresistible return. In order to reap the profit of, or even to recover, her seed money, she was asked to invest progressively more money. One day, and inevitably, the bubble burst when her admirer disappeared together with her money without a trace.

11.Where fraud has been perpetrated, equity imposes a constructive trust on the fraudulent recipient of the stolen property which is recoverable and traceable in equity. Such a constructive trust arises by operation of law and a declaration granted upon an application for default judgment merely confirms the existence of the trust that had arisen in the past: Westdeutche Landsbank Girozentrale v Islington LBC [1996] AC 669, at 714G and 716C-D.

12.I have studied the evidence presented in the two affirmations of Luk Wing Sze in support of the claim. I am satisfied that she was the victim of a fraud, and that as a result the six transfers were directly made into D1’s account at HSBC on the dates mentioned above.

13.D1 has no apparent connection with P. It has chosen to not defend the claim at all. It has not provided any bona fide reason for receiving the six sums of money even after being notified of the claim. In the circumstances it would be unconscionable for D1 to retain the money. It therefore holds the money as a constructive trustee for P: Essilor Manufacturing (Thailand) Co Ltd v G Doulatram & Sons (HK) LTd and ors [2020] HKCFI 2489, at [65].

14.For these reasons I granted declaratory relief in respect of the six sums in terms of paragraph 1 of the Amended Originating Summons.

Vesting and return of the sixth sum

15.By paragraph 2 of the Amended Originating Summons, P seeks an order for the sixth sum of $249,985 to be released and returned to her by the Bank. According to D1’s statement of account, the sum of $249,985 was transferred by P, probably after the deduction of a small bank charge from her $250,000 deposit, on 24 June 2020. There were other transactions but at the end of the day there remained a balance of $347,393.27. Before the account was effectively frozen by police action in July or August, the total balance remained at over $3 million.

16.On this basis P seeks a vesting order in respect of the sixth sum pursuant to section 52(1)(e) of the Trustee Ordinance, Cap 29. As confirmed by Mr Ng Man Kin, P’s solicitor, at the hearing, P does not pursue a vesting order against the Bank in relation to the five other sums because they did not survive the test of the lowest intermediate balance: see Essilor, sup cit, at [71]-[72]. I need say no more about those sums.

17.Section 52(1) of the Trustee Ordinance reads, insofar as may be relevant, as follows:-

“(1) In any of the following cases, namely—

(e) where stock or a thing in action is vested in a trustee whether by way of mortgage or otherwise and it appears to the court to be expedient,

the court may make an order vesting the right to transfer or call for a transfer of stock, or to receive the dividends or income thereof, or to sue for or recover the thing in action, in any such person as the court may appoint …”

18.In Wismettac, the learned Deputy Judge conducted a comprehensive review of the authorities on this provision. He noted that there is a divergence of authority at the Court of First Instance level as to whether it applies to constructive trustees. He took the view that it does so apply. That view also accords with the preponderance of judicial opinion. With respect I agree. Thus, I hold that section 52(1)(e) does apply to a constructive trust imposed by operation of law: see ibid, at [44].

19.It is clear from the flow of funds, analysed above, that the sixth sum is traceable to the deposit made by P on 24 June 2020. Applying section 52(1)(e) to this case, I hold that the right to call for repayment of the sum, being a chose in action, became vested in D1 by reason of the constructive trust that I have already declared.

20.Furthermore, it appears to me to be expedient to make a vesting order. This is because as D1 has not appeared and cannot be located, it would be virtually impossible to procure D1 to transfer the sum in the bank account to P in the absence of a vesting order: see Wismettac, sup cit, at [45].

21.Under section 52(5) of the Trustee Ordinance the Court has a wide discretion to make declarations and give directions concerning the manner in which the right to transfer any thing in action vested under the Ordinance is exercised. I therefore made an order that the sum of $249,985 be vested in P and that the Bank do forthwith release and return to P. As P is legally aided, this is subject to the statutory first charge in favour of the Director of Legal Aid.

Mr Ng Man Kin of Kwok, Ng & Chan, assigned by the Director of Legal Aid, for the plaintiff

The 1^st defendant was not represented and did not appear

The 2^nd defendant was not represented and did not appear