Semgas Supply Pte Ltd and Another v. Hong Kong Xin Chuang Decorative Material Co Ltd
Read the full judgment text of DCCJ 6395/2019 on BabelCite. This District Court judgment was delivered on 29 December 2023.
1. This is a typical email fraud case.
Cited by 4 cases · Cites 8 cases
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[2023] HKDC 1823 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO 6395 OF 2019 ———————— BETWEEN
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———————— JUDGMENT ———————— A. Introduction 1.This is a typical email fraud case. 2.Ps allege that they were defrauded by a fraudulent email, whereby it paid USD117,277.50 into Bonusis (HK) Industrial Limited’s (the 1st Defendant, D1) bank account on 25 April 2019. 3.On the very next day, D1 transferred a nearly identical sum of USD117,300 to the 2nd Defendant (D2). 4.Ps make the following claims against the Defendants (Ds):
B. Default Judgment against D1 and D2’s Failure to Appear at Trial 5.Ps took out the Writ on 26 November 2019. 6.D1 did not make an appearance. Default judgment was entered on 6 August 2020 [A/5/61]. 7.D2 was represented until 8 May 2023, when its solicitors ceased to act. D2 failed to turn up at the Pre-Trial Review and the Trial. I was informed by Mr Sim, counsel for P, that:-
8.Accordingly, I am satisfied that this is an appropriate case to proceed with trial in the absence of D2 pursuant to RDC O 35, r 1(2). 9.Since D2 did not appear:-
C. The Underlying Facts P’s Case 10.Ps’ case was that they were defrauded, as follows. 11.P1 and P2 were fellow subsidiaries of Union Energy Corporation Pte Ltd (Union Energy) [C/31/278]; [C/32/282]. 12.P1 would sometimes make payments to P2’s business partners in certain business matters on behalf of P2 [B/7/70/§4]. 13.By way of emails between 17 April 2019 and 23 April 2019 between:-
P2 placed an order for health supplements with Je-well in the total amount of USD117,227.50 [B/7/70/§6]. 14.Irene Lee subsequently asked Corrinne Tng of the Finance Department of Union Energy to arrange for payment [C/12/141-142]. 15.On 25 April 2019:
16.On 30 April 2019, Ellen Chuang of Je-well contacted Irene Lee concerning the payment of the pro-forma invoice [B/7/73/§§18-19]. It was at this point of time that the parties discovered that the 1st and 2nd Emails were not in fact sent by Ellen Chuang of Je-well; and in that sense, they are false emails. 17.Reports were made to the police authorities in Hong Kong, Singapore and Taiwan. Hong Kong police reported on 17 September 2019 that:
18.Ps’ case is supported by the witness statements of Irene Lee and Ellen Chuang and relevant documents (such as emails from the police). Both witnesses appeared before this Court to confirm their statements. I accept their evidence. D2’s Case 19.As noted above, D1 did not appear and had put forward no case. 20.On the other hand, D2 did file a Defence. In gist, their case is that:-
D. Preliminary Point – Whether D2’s Factual Case is Sustainable 21.Irrespective of the cause of action, the key point in this case is whether D2’s factual case that it received the D2 Sum for bona fide purposes in the ordinary course of business is sustainable. Ds’ Case re Justification for Receipt of Payment 22.In this regard, D2’s factual case shifted over time. 23.D2’s 1st Case – D2’s initial defence (filed on 21 May 2020 and amended on 20 January 2021) suggested that the D2 Sum was received by D2 under an agreement with a company named IOT-Innovative Oberflaehentechnologien GmbH (IOT) for the purchase of acrylic film processing machinery. D2’s 1st Case runs as follows.
24.D2’s 2nd Case – D2 subsequently amended its defence again on 19 November 2021, and changed its case. D2’s 2nd Case runs as follows:-
Submissions by Ps’ Counsel 25.Counsel for Ps submitted that D2’s case ought not be believed, on the following main bases:-
Analysis 26.As noted above, D2 has not appeared at Trial and tendered no witnesses. D2’s case is therefore only based on D2’s pleadings and documentary evidence. 27.Having reviewed such, I am not satisfied that D2 had proven its case (ie, D2’s 2nd Case) on the balance of probabilities. 28.My reasons are as follows. 29.First, there is a distinct lack of evidence to support D2’s 2nd Case, ie, that there existed a foreign exchange transaction between Mainland Xinchuang and Ma. 30.D2 has failed to adduce relevant documents which would have assisted its case; nor had it proffered any explanation for not producing them. The issue can be tested this way. Assuming D2’s case were true, at the very least, communications between Ma and Nie concerning the foreign exchange transaction (eg, emails or WeChat messages) should exist. In this regard, it should be noted that, in D2’s initial Defence, it was pleaded that Nie contacted Ma via WeChat for the alleged foreign exchange transaction [A/3/42/§6.5]. Yet, none was produced in the present case. 31.Instead, the documentary evidence of note which had been adduced by D2 amounts to the following:
32.However, such documents are woefully incomplete:-
33.One does see from the redacted bank statement that USD473,000 is withdrawn from D2’s Bank Account. However, it does not show who the recipient is. 34.One would have thought that proving such is a straightforward matter of producing the transfer record – be it the transfer out record from D2, or the transfer in record from Mainland Xinchuang. However, neither has been produced. 35.Instead, all we have is the written notice purportedly from Mainland Xinchuang confirming its receipt of the said amount. The notice is unhelpful:-
36.In the circumstances, the evidential chain is problematic, and the lack of corroborating documentary evidence (when such ought to exist) is startling. 37.Second, the discrepancies between D2’s 1st Case and 2nd Case, which remains unexplained, are also startling. In particular:-
38.It is difficult to see how the inconsistency can be explained away (and in fact it had not been). 39.All in all, I am not satisfied that D2 has proven its case (ie, D2’s 2nd Case). It follows that any defences based on bona fide purchaser without notice and/or bona fide change of position must fail. E. Analysis – Constructive Trust 40.It remains to be decided whether or not Ps had made out the claims they had put forward. 41.The first claim sought is proprietary ie, constructive trust. Ps seek to impose a constructive trust over the Defrauded Sum, ie, USD117,277.50 so far as it continues to be standing to the credit of D2’s Bank Account (the D2 Bank Account Sum). 42.The parties have not produced the bank statements of D2’s Bank Account (save for the limited page mentioned in §31(b) above). The best information we have is information provided by the police dated 23 September 2019, ie, that there is around USD110,000 being frozen in D2’s Bank Account since August 2019 [C/18/222]. 43.The core legal principles concerning the imposition of constructive trust are trite (albeit much debate exists at its edges). Mr Sim has referred this Court to Credit One Finance Ltd v Leung Ying Lok [2020] HKCFI 2919; Guaranty Bank and Trust v Zzzik Inc (HCA 1139/2016, 18 July 2016); and ANZ Commodity Trading Pty Ltd v Excellence Raise Overseas Ltd [2023] HKCFI 179. In gist:-
44.However, a pre-requisite for the imposition of a constructive trust is that the Court is satisfied that the credit standing in D2’s Bank Account represents the traceable proceeds of D2’s property (ie the Defrauded Sum):
45.Applying the above principles, the first issue, therefore, is whether or not D2 has received and retained the traceable proceeds of the Defrauded Sum. My findings are as follows. 46.First, whilst no evidence concerning D1’s Bank Account had been adduced by parties, I am satisfied that D2 Sum is attributable to the Defrauded Sum. Given that the D2 Sum was almost identical in amount to the Defrauded Sum, the close proximity in time of the transfers, and the information provided by the police (see §17 above), it is more probable than not that the D2 Sum is attributable to the Defrauded Sum. 47.However, I am not satisfied that there is sufficient evidence to show that the Defrauded Sum can be traced into the monies currently standing in D2’s Bank Account. Crucially, D2 has adduced a redacted bank statement which shows that on the same day the D2 Sum was deposited, D2 then withdrew a sum of USD473,000 [C/52/360]. The remaining balance on 27 April 2019 was merely USD150.38. Applying the lowest intermediate rule, Ps (to put their case at the highest) would only be entitled to seek a proprietary claim over the sums standing to the credit of D2’s Bank Account up to the sum of USD150.38. 48.Moreover, I am not satisfied that Ps could even prove that the USD150.38 has not been dissipated. The bank statement adduced by D2 was issued on 30 April 2019. I have no information/evidence concerning the transactions of D2’s Bank Account in the period from May 2019 to August 2019 (ie, the month the account was frozen). Too much could have happened in between. 49.Whilst I am aware of the difficulties faced by victims of fraud in gathering evidence, the onus remains on Ps to satisfy this Court, on the balance of probabilities, that the credits standing in D2’s Bank Account represent the traceable proceeds of the Defrauded Sum. In this regard, Ps, upon receiving the redacted bank statement, could have applied for discovery of bank statements of D2 (bearing in mind that D2 was represented until 8 May 2023). In the present state of evidence, I am not satisfied that there is proper evidential basis upon which this Court may infer that the credits standing in D2’s Bank Account represent the traceable proceeds of the Defrauded Sum. 50.Ps’ claim for constructive trust therefore fails. F. Analysis – Unjust Enrichment 51.The second relief sought is personal ie, an unjust enrichment claim. Ps seek restitution for the sum of USD117,277.50. 52.It is trite that a claim for unjust enrichment involves four issues: (a) Was the defendant enriched? (b) Was the enrichment at the plaintiff's expense? (c) Was the enrichment unjust? (d) Are any of the defences applicable? 53.First, on the basis that I have rejected D2’s factual case, I am satisfied on balance that, based on the fact of actual receipt, D2 was enriched by the receipt of D2 Sum. 54.Second, on the “at the expense of” requirement, the law is set out authoritatively in Investment Trust Companies v Revenue & Customs Commissioners [2018] AC 275. As Lord Reed held, the “at the expense of” requirement can be satisfied even when the claimant and the defendant have not dealt directly with each other (at §47). Lord Reed gave the following examples:
55.In the present case, Ps and D2 did not deal directly with each other. As such, Ps rely on (i) sham, (ii) coordinated transactions, and (iii) tracing to establish the “at the expense of” element [Ps’ Closing §14].
56.Accordingly, I am satisfied that the payment of D2 Sum from D1 to D2 is “at the expense” of Ps. 57.Given that both P1 and P2 are plaintiffs in the present case, it is arguably unnecessary for me to deal with whether the enrichment is at the expense of P1 or P2 (and counsel has not made that distinction in his submission). 58.That being said, my view is that enrichment is at the expense of P2, instead of P1. It should be borne in mind that it was Ps’ evidence that P1 made the payment to D1 on behalf of P2 [B/7/70/§4]; [B/7/72/§14]. It was also P2 who entered into the transaction with Je-well. Accordingly, P1 was acting as an agent on behalf of P2 in making the payment at the material time. As Lord Reed explained in ITC (Supra) at §48, a transaction made between the plaintiff and the agent, and between the agent and the defendant, is treated as a transaction directly between the plaintiff and the defendant. An agent may still bring a claim in unjust enrichment but it must account to the principal for his recovery: Goff and Jones on the Law of Unjust Enrichment (10th Edn) at §6-52; Bowstead & Reynolds on Agency (22nd Ed), §§9-099 – 9-100. In the present case, given that P1 is acting as an agent for P2, the payment is deemed to be made by P2 by virtue of the law of agency. As P2 is a co-plaintiff, there is no need to grant relief to P1 only to require it to hold on account of P2. Therefore, I consider that the D2 was enriched at the expense of P2, rather than P1. 59.Third, turning to the question of unjust factor, I agree with Ps’ counsel that P made the payment under a mistake as to the identity of the person who sent the 1st and 2nd Emails. 60.Fourth, I consider that D2 has not established any defence. In its Re-Amended Defence, D2 relied on the defence of bona fide change of position. I have already rejected D2’s case in this regard in Section D above. 61.To conclude, I find that Ps have successfully proved their claim of unjust enrichment. G. Analysis – Conspiracy to Defraud 62.Finally, Ps also rely on the cause of action of unlawful means conspiracy between D1 and D2, the unlawful means being fraud. 63.A summary of the legal principles on unlawful means conspiracy is set out by Ma CJHC (as he then was) in Pido v Compass Technology Co Ltd [2010] 2 HKLRD 537 at §17. The tort contains the following four elements:
64.In its Amended Statement of Claim, Ps’ pleaded case on the agreement issue is that:
65.Counsel for Ps, Mr Sim, rightly point out that there is no direct evidence that D1 and D2 had an agreement/combination to perpetrate fraud. 66.However, counsel invites the Court to draw an adverse inference against D2 as a party facilitating the perpetration of the fraud, referring to Hypertec Systems Inc v Yifim Limited [2022] 1 HKLRD 1141 where the Court drew an adverse inference to find an unlawful means conspiracy in the absence of positive evidence implicating the defendants with the fraud. 67.Having surveyed the evidence, I take the view that there are insufficient facts for me to infer the fraudulent conspiracy alleged. While D2’s change of case is disconcerting, the documentary evidence is not satisfactory, and D2’s abandonment of appearance at a late stage permits adverse inferences to be drawn, it is not clear to me that such is sufficient for me to infer the existence of a fraudulent conspiracy, especially given the seriousness of the charge and the concomitant requirement for cogent evidence. H. Disposition 68.Based on my analysis above, P2 succeeds on its claim for unjust enrichment. Ps fail in their constructive trust and unlawful means conspiracy claims. 69.I therefore make the following orders:-
70.I thank Counsel for the helpful assistance rendered.
Mr Sim Jing En, instructed by Angela Wang & Co, for the Plaintiffs The 2nd Defendant was not represented and did not appear |
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