Thanh Thuy Bui and Another v. Pengchengxin Trading Co. Ltd and Another

DCCJ 1058/2022

[2022] HKDC 435

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO.1058 OF 2022

________________

________________

Coram: His Honour Judge Harold Leong in Chambers

Date of Hearing: 22 April 2022

Date of Decision: 22 April 2022

Date of Reasons for Decision: 30 May 2022

___________________

Reasons for Decision

___________________

1.This is the plaintiffs’ (“Ps”) inter partes application for a proprietary injunction.

2.At the end of the hearing, I have already granted an Injunction Order in terms of the draft order submitted by Ps (“the Injunction”) with costs be in the cause of the action.

3.I have also informed the parties that the reasons for decision will be handed down, which are as follows.

Background

4.The Injunction granted prohibits the 1^st and 2^nd defendants (“Ds”) from disposing of the sum of USD 79,704.01 in the defendants’ accounts (“Ds’ Accounts”, i.e. USD 61,706.01 in the 1^st defendant’s (“D1’s Account”) (account number 582629028838) and USD 17,998 (account number 023853708838) in the 2^nd defendant’s account (“D2’s Account”) held with The Hongkong and Shanghai Bank Corporation Limited (“HSBC”), pursuant to inter alia section 52B of the District Court Ordinance (Cap 336).

5.The court is satisfied that Ps have duly and properly effected service of these proceedings and the inter partes summons on Ds. The 1^st defendant did not attend the hearing but Mr. Nirav Ashokkumar Shah (“Mr. Shah”), a director of the 2^nd defendant, attended the hearing and was granted leave to represent the 2^nd defendant.

6.The essential background facts have been set out in great detail in the Affirmation of the 1^st plaintiff (“P1”) and needed not be repeated here.

7.In summary, the plaintiffs alleged that they were induced by fraud into transferring certain funds, including the subject funds of USD 79,704.01 in total (the “Misappropriated Funds”) for purchase of shares etc., when there was no legitimate or commercial justification in support of such transfers.

8.Ps claimed that the fraudsters intentionally impersonate the identities of real listed corporations on the website of the Hong Kong Securities and Futures Commission (“SFC”) and Ps were defrauded into making numerous transfers, including the transfers of the Misappropriated Funds.

9.HK Police investigations revealed that Ps had transferred various funds into D1’s Account and subsequently, USD 17,998 was transferred from D1’s Account to D2’s Account. The Misappropriated Funds has now been frozen by the HK Police, and as such, Ps are applying for a proprietary injunction against Ds pending the resolution of Ps’ claims against them.

Legal principles

10.For proprietary injunction, there is no need for the plaintiff to show real risk of dissipation or a good arguable case and showing a serious issue to be tried is sufficient: see Zimmer Sweden AB v KPN Hong Kong Ltd HCA 2264/2013 (unreported, 2 May 2014) at §77; Samtani v Samtani [2012] 4 HKLRD 872 at §§75-79. The plaintiff also has to show that damages will not be an adequate remedy, and that the balance of convenience is in its favour. According to DHCJ Au Yeung (as she then was) in Samtani (supra), the plaintiff must establish that (at §§75-79 & 86):

(a)  There is property which is bona fide the subject matter of the action, i.e. the plaintiff has demonstrated a proprietary claim on which there is a serious issue to be tried.

(b)  Something ought to be done for the security of the property. The plaintiff has to show that damages will not be an adequate remedy for the plaintiff.

(c)  As regards the balance of convenience:

“What is involved is an exercise in salvage, pending, and for the purpose of, the ultimate determination. It is, therefore, relevant to consider what will be involved in that determination, and how it relates to the property sought to be preserved, and what justice demands in the way of making an order for the preservation of the property so as to prevent a determination one way or the other proving abortive.”

(d)  As distinct from a Mareva injunction, there is no need for the plaintiff to show risk of dissipation of assets and a good arguable case (i.e. showing a serious issue to be tried is sufficient, which is a lower threshold).

(e)  In Zimmer Sweden AB (supra), DHCJ Kent Yee affirmed the principles summarized above and noted that “[a] proprietary injunction is easier to obtain and not subject to the usual liberties inserted into Mareva relief and there is no need to prove risk of dissipation.” (at §77) (emphasis added).

Serious issue to be tried

11.With the factual bases set out above, there are a number of causes of action that Ps can rely upon, which have raised serious issues to be tried against Ds.

12.Firstly, the beneficial interests of the Misappropriated Funds have at all material times remained with Ps. Ps are therefore entitled to claim a constructive trust over the Misappropriated Funds (and their traceable proceeds) held by Ds:

a.  It is trite law that a plaintiff can bring a proprietary claim against a defendant by asserting his beneficial interest for a vindication of its existing proprietary right: see Foskett v McKeown [2001] 1 AC 102 at 108 per Lord BrowneWilkinson, at 115 per Lord Hoffmann, at 127-129 per Lord Millett. Most notably, Lord Browne-Wilkinson stated at 108 that:

“The crucial factor in this case is to appreciate that the purchasers are claiming a proprietary interest in the policy moneys and that such proprietary interest is not dependent on any discretion vested in the court. Nor is the purchasers’ claim based on unjust enrichment. It is based on the assertion by the purchasers of their equitable proprietary interest in identified property.”

b.  In this connection, it is well-established that a wrongdoer who “stole” a property (e.g. a bag of coins) would similarly hold the stolen property on a constructive trust. In Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669, Lord Browne-Wilkinson stated at 716 that:

“The argument for a resulting trust was said to be supported by the case of a thief who steals a bag of coins … I agree that the stolen moneys are traceable in equity. But the proprietary interest which equity is enforcing in such circumstances arises under a constructive, not a resulting, trust. Although it is difficult to find clear authority for the proposition, when property is obtained by fraud equity imposes a constructive trust on the fraudulent recipient: the property is recoverable and traceable in equity. Thus, an infant who has obtained property by fraud is bound in equity to restore it: Stocks v. Wilson [1913] 2 K.B. 235 , 244; R. Leslie Ltd. v. Sheill [1914] 3 K.B. 607 . Moneys stolen from a bank account can be traced in equity: Bankers Trust Co. v. Shapira [1980] 1 W.L.R. 1274 , 1282C-E: see also McCormick v. Grogan (1869) L.R. 4 H.L. 82 , 97.”

c.  In Zimmer Sweden AB (supra), DHCJ Kent Yee at §§93-94 expressed the view that for injunction purposes, it is at the very least arguable that Lord Browne-Wilkinson’s constructive trust approach in Westdeutsche (supra) remains good law:

“93. Notwithstanding this interesting controversy about the nature and applicability of a constructive trust, Mr Chang accepts that it is not necessary for this court to express any firm view on this complicated legal issue. He eventually accepts that it is at the very least arguable that the observation of Lord BrowneWilkinson in Westdeutsche Landesbank Girozentrale remains good law.

94. In my view, stripped of legal niceties, on the evidence it is clearly shown that there are serious issues to be tried between the parties and Zimmer Sweden has shown a good arguable case against KPN and BT. I am convinced that it has a sound claim for restitution and that it will be entitled to proprietary remedy relating to the Sum …”

13.Secondly, Ps had no intention to make a gift of the Misappropriated Funds to Ds and Ps had received nothing in return for the transfers. In these circumstances, it is at least arguable that a resulting trust arises over the Misappropriated Funds (or the traceable proceeds) in the hands of the 1^st defendant and 2^nd defendant: see Lee Kai Hung Kenneth v Lo Sui Lin HCMP 979/2016 (unreported, 21 July 2017) at §61.

14.Based on the above factual background, there is clearly a serious issue to be tried that, as against Ds, Ps do have proprietary rights and/or interests over the Misappropriated Funds now frozen by the HK Police and sitting in Ds’ Accounts.

Balance of convenience

15.It is clear that the balance of convenience lies in favour of granting the proprietary injunction sought.

16.Whilst it is trite that there is no need to demonstrate a real risk of dissipation of assets when a proprietary injunction is sought, given the background of this case, there is a real risk of dissipation of assets on the part of Ds, who received the Misappropriated Funds from Ps without legitimate and/or commercial justifications.

17.Without the proprietary injunction, and in the circumstances where the administrative freeze imposed by the HK Police is lifted (which can be lifted without a Court Order), the Misappropriated Funds sitting in Ds’ Accounts may be further transferred away, causing further detriment and/or irreparable loss and damage to Ps.

18.Mr. Shah submitted that D2 was innocent and the sum of USD 17,998 was received from a client, and that D2 did not play any part in the fraud.

19.However, the proprietary injunction as sought only targets the specific amount of bank balances in Ds’ Accounts, effectively allowing Ds to operate Ds’ Accounts to carry out any legitimate commercial and/or business dealings (subject of course to seeking a lift of the administrative freeze from the HK Police, to the extent necessary).

20.As such, the proprietary injunction will unlikely cause irreparable loss and damage to Ds.

21.In any event, Ps are willing, able and ready to give an undertaking as to damages, such that Ds’ positions are adequately protected.

22.It was explained to Mr. Shah that the police action on freezing his entire account pending criminal investigation has nothing to do with the current civil claim and application. The current injunction only applied to the sum of USD 17,998 in his account and he would be able to use the rest of the money (if any) in the account should the police decided to unfreeze his account. The injunction will be discharged if the 2^nd defendant successfully defend against this claim at trial.

23.It was further explained to Mr. Shah that, alternatively, if he paid the sum of USD 79,704.01 into court, he would be able to discharge the injunction. Although the 2^nd defendant’s case is that it is innocent of fraud, the court would not assume so until the case has gone to trial and the issue is decided. This was the reason why the 2^nd defendant would be required to pay the entire sum of the Misappropriated Funds into court to protect the interests of Ps.

24.Having looking into the claimed case of the parties, I am satisfied that the balance of convenience favoured such terms in the Injunction.

No inordinate delay

25.Legally, delay per se is not fatal to a Mareva injunction application (and by analogy, a proprietary injunction). As stated in Re Chau Cham Wong Patrick [2016] 2 HKLRD 278 at §33:

“While the mere fact of delay in bringing an application for Mareva injunction or that the application is first made inter partes does not, without more, negate a risk of dissipation, delay, and the lack of proper explanation for it, is always a relevant consideration when assessing whether there is a real risk of dissipation…It is not simply the fact of delay that is so important but what it tells the court about the risk of dissipation.”

26.In other words, the Court still has to take a holistic view of the evidence (which can include the element of delay) to determine whether or not the balance of convenience is in favour of granting the injunction.

27.I find that the delay in this case is not long and unreasonable and can indeed be explained. In essence, the fact that the present application can only be taken out recently was largely caused by (i) Ps’ trust and confidence reposed in the Fraudsters, (ii) the time taken for evidence gathering on Ps’ part, (iii) the time taken for investigation on the part of the HK Police as well as (iv) the time taken for Ps’ legal advisers to offer legal advice and compile the requisite Court papers.

28.In these circumstances, there is no inordinate delay on Ps’ part and the balance of convenience still lies in favour of granting the injunction sought.

Undertaking as to damages

29.According to their Affirmations, Ps are willing, able and ready to give an undertaking as to damages. I am also satisfied that Ps have sound financial standing for that purpose. The likely loss of Ds would not exceed the amount owned by Ps.

30.It is for the above reasons that the court granted the Injunction.

Mr Tommy Cheung, instructed by M/s Fitzgerald Lawyers, for the 1^st and 2^nd plaintiffs

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

The 2^nd defendant appeared in person