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The Maitri Trust v Hong Fei Sheng (Hk) Trading Co Ltd And Others

Judgment Cited authorities 4 Cited in Precedent Map Related
Vincent
Judgment Date30 October 2020
Neutral Citation[2020] HKCFI 2764
Year2020
Judgement NumberHCA1984/2019
Subject MatterCivil Action
CourtCourt of First Instance (Hong Kong)
HCA1984/2019 THE MAITRI TRUST v. HONG FEI SHENG (HK) TRADING CO LTD AND OTHERS

HCA 1984/2019

[2020] HKCFI 2764

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1984 OF 2019

____________

BETWEEN

THE MAITRI TRUST Plaintiff
and
HONG FEI SHENG (HK) TRADING CO., LIMITED 1st Defendant
PRIME PACIFIC INDUSTRIES LIMITED 2nd Defendant
MAYLIK TRADE LIMITED 3rd Defendant
KA LAI TRADE LIMITED 4th Defendant
HAIYUN HONG KONG TRADING CO., LIMITED 5th Defendant
JIZHOU TRADING LIMITED 6th Defendant
SHI SHAOMIN 7th Defendant

____________

Before: Deputy High Court Judge Dawes SC in Chambers

Date of Hearing: 3 August 2020

Date of Judgment: 30 October 2020

_______________

JUDGMENT

_______________

Introduction

1. This is yet another case of email fraud which has come before the courts of Hong Kong. The facts may be shortly stated:

(1) P is a limited liability company registered in Scotland with charitable status. It operates an account with SG Kleinwort Hambros Bank Ltd (the “Maitri Account”).

(2) On 30 September 2019, P was induced by a fraudulent email into authorising a transfer of US$887,144 from the Maitri Account into a bank account held by D1 (the “Hong Fei Sheng Account”) (the “Fraudulent Scheme”).

(3) On 2 October 2019:

(a) two transfers of US$127,450 and US$127,455 respectively were made from the Hong Fei Sheng Account to a bank account held by D4 (the “Ka Lai Account”).

(b) a transfer of US$182,323.84 (the “Sum”) was then made from the Ka Lai Account into D2’s bank account held with Hang Seng Bank (the “HSB Account”).

(c) D2 then transferred the sum of US$142,000 from the HSB Account to its account with Shanghai Commercial Bank (the “SCB Account”) (the “SCB Transfer”).

2. It is common ground that P and D2 do not know each other and have never had any dealings (whether business, commercial or otherwise) prior to these proceedings. Instead, D2’s factual case is as follows:

(1) D2 was incorporated in 2007 and began operating as a food trading company in 2008. It assists clients in sourcing meat products from overseas by importing these products into Hong Kong and delivering the same to its clients.

(2) From time to time, D2’s Mainland clients face difficulties obtaining sufficient foreign currency to meet payments, and therefore effect payments to D2 via various mechanisms including third party set-offs.

(3) D2 came to receive the Sum as a result of two orders of frozen meat placed by a Mr Nam Wong (“Mr Wong”) on 2 October 2019 (the “Meat Orders”):

(i) Order WCH-114 was an order for a container of frozen beef shank in the sum of US$91,270.18. Pursuant to this order, D2 placed an order for the frozen beef shank with Wing Cheung Hong, a frozen meat supplier in the sum of US$89,966.32, and made payment of this sum to Wing Cheung Hong on the same day.

(ii) Order WCH-115 was for a further container of frozen beef shank in the sum of US$91,062.60. D2 placed an order with Wing Cheung Hong for the frozen beef shank in the sum of US$89,761.71 on the same day. Pursuant to this order, D2 made payments of US$50,000 and US$39,761.71 to Wing Cheung Hong on 3 and 4 October 2019 respectively.

(4) On 2 October 2019, D2 received the Sum from D4 on behalf of Mr Wong. This payment was effected pursuant to an Authorisation Letter signed by Mr Wong dated 1 October 2019 (the “Ka Lai Authorisation Letter”), in which Mr Wong personally authorised D4 to arrange for payment of the relevant funds to D2 on his behalf, and “confirmed that the funds come from business funds and that there is no money laundering activity involved”. According to D2, D4 was a debtor of Mr Wong’s and Mr Wong would ask Ka Lai to settle payments on his behalf from time to time.

3. By a Writ of Summons dated 30 October 2019, P brought a personal claim for unjust enrichment and a proprietary claim against D2 in respect of the Sum and/or its traceable proceeds. On the same date, Coleman J granted an ex parte injunction against D1–D3 restraining each of them from disposing or dealing with its assets to the value of US$887,144.00, and specifically, any money in, inter alia, the Hong Fei Sheng Account and the HSB Account (the “Injunction”).

4. The Injunction was continued by order of DHCJ Sherrington on 15 November 2019, and was on 17 December 2019 varied by an order of Coleman J (with the consent of the parties) so to reduce the sum injuncted against D2 from US$887,144.00 to US$182,323.84.

5. P obtained default judgment against D1 and D3–D6 on 16 July 2020.

6. There are two main applications before the Court:

(1) P’s Summons dated 31 October 2019 to continue the Injunction against D2 (as varied);

(2) D2’s Summons dated 12 November 2019 for an order that the Injunction be set aside and discharged, and alternatively for variation of the Injunction and fortification;

7. By a Summons dated 28 July 2020, D2 sought to make various amendments to its Summons dated 12 November 2019 to “put the house in order”, by setting out the various alternative positions open to the Court should it decide that the Injunction be varied. Mr Hughes sensibly did not press any objection to this (admittedly late) application for amendment, and consequently I granted an order in terms.

8. I also made an order in terms of D2’s Summons dated 29 July 2020 to adduce the 4th Affirmation of Ku Ka Chung to address issues which were said to be raised for the first time in P’s skeleton argument for the present hearing. I did so having formed the view that the matters addressed therein were clearly relevant to the issues at hand (and the points taken by P in relation to the SCB Account in their submissions), albeit not without some reluctance given the lateness of this application.

9. A final matter which ought to be noted is that on 28 July 2020, solicitors for D2 wrote to solicitors for P informing them of D2’s intention to effect payment into Court of the Sum of US$182,323.84 in the HSB Account covered by the Injunction, pending determination of its application to set aside the Injunction. As it transpired, this offer was subsequently withdrawn, and that no payment into Court was ever effected. As a result, I directed that the parties proceed with substantive argument.

Applicable legal principles

10. The relevant principles in relation to the grant of proprietary injunctions are not in dispute. As summarized by Recorder Eugene Fung SC in Zhang Yan v ASA Bullion Ltd [2019] HKCFI 179 HCA1555/2018 (unrep, 23 Jan 2019) at §11:

(1) The Court has jurisdiction to grant a proprietary injunction restraining the disposal of that property where a plaintiff asserts title to property or seeks to trace property which belongs to him.

(2) Following the American Cyanamid principles, a Plaintiff must demonstrate that: (a) there is a serious issue to be tried on the merits; (b) the balance of convenience is in favour of granting an injunction and (c) it is just and convenient to grant the injunction. It is not necessary to show any risk of dissipation of assets.

(3) A proprietary injunction must relate to a specific asset held by or under the control of the defendant, or its traceable proceeds, in respect of which a proprietary claim is raised by the plaintiff.

(4) In order to justify the grant of a proprietary injunction, the plaintiff should ordinarily adduce some reasonable evidence of the existence of the specific asset (or its traceable proceeds) and that the same is being held by or under the control of the defendant. Where the asset forming the subject matter of the proprietary claim has been dissipated and can no longer be traced, a proprietary injunction cannot ordinarily be granted.

11. As far as Mareva injunctions are concerned, it is trite that P must show that (a) there is a good arguable case on the substantive claim, (b) there are assets within the jurisdiction, (c) there is a real risk of dissipation of assets which would render the plaintiff’s judgment of no effect, and (d) the balance of convenience is in favour of the grant of an injunction: Zhang Yan §17.

Serious issue to be tried – proprietary injunction

12. D2 resists P’s proprietary claim on the basis that it was a bona fide purchaser for value without notice of the Sum, and that in any event, the Sum has been dissipated and is no longer traceable. I will deal with each argument in turn.

13. I bear in mind that P need only show its claim is not “frivolous or vexatious” in demonstrating a serious issue to be tried, and that D2 has a heavy burden of showing that there is no serious issue to be tried, since to succeed it will have to show that the claim ought to be struck out: Pacific Rainbow International Inc v Shenzhen Wolverine Tech Ltd HCA3023/2016 (unrep, 2 May 2017) at §39.

14. Of course, I am also mindful that the Court cannot resolve difficult questions of law or conflicts of evidence at this stage on the basis of affidavit evidence, but that in determining whether there is a serious issue to be tried, the Court is entitled to have regard to the strength of the parties’ competing factual claims based on the totality of the evidence: Zimmer Sweden AB v KPN Hong Kong Limited HCA2264/2013 (unrep, 2 May 2014) at §86.

15. Mr Chiu, who appeared on behalf of D2, submitted that D2 received the Sum pursuant to well-documented Meat Orders, in its ordinary course of trading. It acted at all times in good faith and gave consideration for the receipt of the Sum (in the form of the frozen beef shank). Furthermore, D2 did not at any time have actual knowledge of the Fraudulent Scheme, and in light of its longstanding trading practice of receiving payments from Mainland Chinese clients via third parties, there was nothing in the...

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