AKBANK T.A.S. v. MAINFORD LTD AND OTHERS

HCA3264/2016

[2020] HKCFI 396

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3264 OF 2016

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JUDGMENT

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1.  The plaintiff bank was the victim of a fraud perpetrated in December 2016.  This involved the hacking of certain computer installations as a result of which a sum of around US$100 million was abstracted from the plaintiff’s accounts held with JP Morgan Chase Bank NA and Wells Fargo Bank NA, referred to respectively here as “JP Morgan Chase” and “Wells Fargo”.  It is the plaintiff’s case that each of the 21 defendants in this action were unauthorized recipients of some of those funds, some directly from the plaintiff’s accounts, and some indirectly.

2.  Notwithstanding the number of defendants, in the trial the plaintiff’s case was, in significant measure, factually unchallenged.  Default judgments had earlier been obtained against D2 to D7, D20 and D21[1].  The plaintiff’s claim against D8 was discontinued on 9^th March 2017[2].  D9 to D15 and D17 to D19 did not file any defence.  D9, D10 and D11 were all deregistered as companies during 2017 but were restored to the register on the application of the plaintiff by an Order of the Court dated 22 July 2019.  None of D9 to D15 or D17 to D19 appeared at the trial, despite having been served with notice of the proceedings.

3.  On 5 June 2019, D16 paid a sum of HK$12,527,458.28, the equivalent of US$1,604,031.74 into Court, being the amount claimed by the plaintiff.  Shortly before the hearing, D16 accepted a sanctioned offer made by the plaintiff and therefore D16 also took no part in the hearing.  The only defendant which appeared at the trial was D1.

4.  As directed by the Court, the plaintiff produced at the hearing an (Amended) Succinct Summary of Events which I adopt as summarising the background and the steps taken by the plaintiff seeking the recovery of the misappropriated funds in Hong Kong and in this region.

The Facts/Background

5.  The plaintiff uncovered a problem with its computer systems on 8 December 2016.  That problem was, at first, not seen as being associated with a fraudulent transfer.  The SWIFT system, (the secure messaging system which provides among other things for financial transfers between banks and others) was not working.  The plaintiff’s employees were, unable to log-in to the system.  It appears that this was not an unknown occurrence, and in itself this does not seem to have caused any significant ‘alarm bells’ to ring for the plaintiff.

6.  During the course of the morning of 8 December 2016 however, the plaintiff’s staff noticed two suspicious, high value overnight transactions from the account held by the plaintiff with JP Morgan Chase.  Further investigation that morning increased suspicion over these transfers, not least because there were no corresponding instructions from customers of the plaintiff which could have given rise to, or which would explain, the transactions.

7.  As the plaintiff’s investigations continued, an additional 56 transactions were identified, all from the account held by the plaintiff with Wells Fargo, which transactions were, similarly, not matched with instructions from customers.  Subsequently, Wells Fargo was able to identify a further 31 similarly suspicious transfers out of the plaintiff’s account which occurred on the same day.  The plaintiff made attempts to block or reverse the transactions during the course of 8 December 2016.

8.  In total therefore there were 87 non-genuine transfers from the two accounts, all made during non-working hours (for the plaintiff) late on 7 December 2016.  The plaintiff adduced detailed documentary evidence explaining the above summarised circumstances of the loss of the funds, and the way in which the fraud had been discovered.  The plaintiff also called Mr. Caglar, a Senior Vice President of the Branch Operations Division to give oral evidence of this, none of which was controversial or challenged in cross examination.

9.  The funds flowing out from the plaintiff’s two accounts went to a variety of destinations, but so far as these proceedings are concerned of particular note is that funds went directly to accounts held by D1 to D14.  The only represented defendant at the trial, D1, was thus a direct recipient of part of these funds.

10.  Thereafter, transfers out were made from the accounts of several of the direct recipients to other companies located in the region (“second layer transfers”) and some of those recipients, including D1, made further onward transfers (“third layer transfers”).  The unchallenged evidence as to these transfers so far as these proceedings are concerned and which I accept, was summarised at Annexes 2 and 3 to the plaintiff’s opening submissions, and is attached as Appendix A to this judgment. 

11.  A sum of US$3,261,034.60, was credited via several transfers to the account of D1 with DBS Bank on 8 December 2016, and as referred to above, the source of those funds was the plaintiff’s account with Wells Fargo.  Virtually the whole of that amount (US$3,258,569.77) was transferred from D1’s DBS account to D15’s account in Taiwan on the same day. D15 also received money from D6.  The balance of funds held in D15’s account in Taiwan has been made the subject of an injunction in Taiwan, and the Taipei District Court granted a civil judgment in favour of the plaintiff against D15 in the sum of US$5,504,097.95.  That judgment has not been enforced due, it appears, to difficulties in effecting service on the sole director of D15.

12.  On 9 December 2016 the plaintiff filed complaints with the police in various places, including Hong Kong, and on 12 December 2016 the plaintiff obtained an injunction order against D1 in Hong Kong which order was continued to the trial.

The Plaintiff’s Claims against the Defendants

13.  The claims made by the plaintiff are made based on (i) unjust enrichment of the defendants; (ii) the existence of constructive trusts and (vii) knowing receipt by the defendants in respect of the relevant monies abstracted from its accounts.

14.  As regards the direct recipients (i.e. D1-D14) the plaintiff contends that the transactions in question were such as to give rise to a right to restitution of the funds transferred. The various defendants were enriched, at the plaintiff’s expense, unjustly, and in circumstances in which no relevant defence exists.

15.  As far as the second layer recipients are concerned, the plaintiff’s case is that these were participants in an overall scheme of co-ordinated transactions and as such liable either as recipients or as constructive trustees.

The Plaintiff’s Evidence

16.  In large measure the evidence in support of the plaintiff’s claims was contained in documents and, in most respects was unchallenged.  Witness evidence was adduced by the Plaintiff, with statements given by Mr. Caglar, and, in addition, by Mr. Egritag, a Senior Vice President of the International Banking Department; and Mr. Davutoglu, Managing Counsel of the plaintiff.  All attended at the trial and were cross examined on their evidence.

17.  Mr. Caglar described in his evidence the circumstances in which the loss was discovered, and how it was the view of the plaintiff that, given the circumstances, and the level of sophistication needed, the loss of funds was the result of a cyber attack through which the plaintiff had been made the victim of an “international crime syndicate”.  His conclusions on this seem, in the circumstances, to be reasonable and probable. Mr. Egritag corroborated Mr. Caglar’s evidence regarding the discovery of the loss and added some detail regarding the steps taken to recover the funds. That latter aspect was primarily spoken to by Mr. Davutoglu, who explained the fund flows via the direct recipients to the 2^nd and 3^rd layer recipients.  Mr. Davutoglu also stated in his evidence that “Many of the Defendants are apparently connected with each other.  For example, D1, D3-D5 share the same registered office: D2, D9-D10 and D16 share the same registered office; D7 and D11 share the same registered office; D17 and D19 share the same registered office.”  He summarised the amounts of the funds which had been recovered from various defendants both in Hong Kong and other jurisdictions.

The Defence of D1

18.  As far as D1 is concerned, the plaintiff’s claim against it is “misconceived”.  D1 contends that it was itself a victim of the fraud.  D1 says that it was unaware of the money being paid into its account with DBS Bank (“the DBS Account”), and was equally unaware that the money which had been so paid in, was rapidly paid out.  The relevant bank account was, submits D1, a “reserve” account which was effectively idle, and so D1 was unaware of the relevant transactions until the plaintiff commenced court proceedings.

19.  Central to D1’s position is that it played no part either in the receipt, or in the payment out of monies from its DBS account to D15.  D1 submits that the plaintiff has no evidence showing that D1 authorised or instructed any such transfer.

20.  Thus, in its submissions D1 identifies the issues in the case as being (so far as it is concerned) first whether D1 had knowledge of the transfer into its DBS account or second whether D1 ought to have had knowledge of that transfer such as would make it unconscionable in either case for D1 to ‘retain’ that money; and third whether the relevant funds were transferred out of D1’s DBS account with or without its knowledge or authorisation.

D1’s DBS Account

21.  D1 produced bank account records said to show the inactivity of its DBS account, and records showing other business transactions in the period leading up to December 2016.  D1 also called a witness, Mr. Leung Chi Tat (“Mr. Leung”) who described himself in his witness statement as the Chief Financial Officer and agent of D1.  He was neither a shareholder nor a director of D1, which was incorporated in December 2015.  He confirmed that D1 had no business dealings with the plaintiff and thus, no reason to receive money from the plaintiff.

22.  There is no dispute however that money from the Plaintiff’s Wells Fargo account was received into D1’s DBS account, and was rapidly remitted onwards.  The only oral evidence in regard to the transfer out of this account was that given by Mr. Leung on behalf of D1, which was that no instructions were given by D1 to DBS to make such a transfer.  As a negative proposition, it is on the surface unsurprising that D1 has no documentary evidence to support this assertion, and D1 points to the fact that disclosure orders made against DBS revealed no relevant instruction having been given. The oral evidence given by Mr. Leung that there was no instruction given to DBS was clearly asserted but, must be understood in context, namely that he was not himself authorised to operate the DBS (or any other) account in the name of D1 as he confirmed in the course of his evidence.  He was, in other words, reporting what he had been told.

23.  The DBS Account was solely under the control of the sole shareholder of D1, Mr. Zhu Jun. Mr. Zhu gave no evidence at the trial, but an affirmation which he had made in the proceedings on 5 January 2017 (seeking the discharge of the injunction against D1) was referred to.  In it Mr. Zhu stated that the DBS Account was, in effect not used by D1 and therefore not actively monitored.  The business was run through another account of D1 (“the Citic Account”).  Mr. Zhu’s affirmation stated that he was only informed that money had been deposited into the DBS Account after D1 was served with the injunction order on 13 December 2016.  He asked Mr. Leung to enquire with DBS Bank about the money which had been transferred into the DBS Account, and Mr. Leung was told of the transfer to Taiwan.  Mr. Zhu had not authorised anyone to transfer money out of the DBS Account, he said.

24.  His affirmation also included evidence regarding certain cancellation requests which had been issued by DBS.  The 6 such documents in evidence were dated 9 December 2016, and were signed and chopped on behalf of D1, but not dated.  Mr. Zhu’s affirmation stated that these had been signed, but had not been returned to DBS.  Inconsistently however, Mr. Leung, when asked in cross examination, was firm in his evidence that these had been returned to DBS when signed. 

25.  What is startling however is the entire absence of any evidence to corroborate D1’s assertion that the money was transferred out of its DBS Account without authorisation.  The defence rests on the assertion given by Mr. Zhu in his affirmation, and on the evidence of Mr. Leung. As mentioned earlier, D1 is not to be expected to be able to adduce documents showing something which it says did not happen.  But the circumstances that are said to have arisen are more than being out of the ordinary, they are highly unusual.  There is some confusion over the precise dates, but, at the latest by mid December 2016 D1 was aware of the transactions involving its DBS Account. Money has been, it is said, transferred out of D1’s DBS Account without authorization or report.  However there is no record of any complaint made to DBS contemporaneously (or indeed within a reasonable period), nor did D1 make any complaint to the police about such an unauthorised transfer.  D1 did not write to the parties to whom the funds were paid seeking an explanation.

26.  This inaction, it seems to me, is prima facie, inexplicable in the context of the suggestion that D1’s DBS Account has been improperly operated by means unknown, and by persons unknown.  D1 may have felt (correctly) that the funds that came into its account, and then left, were funds to which it had no claim.  But an unauthorised operation of D1’s DBS Account would surely have raised significant alarm, and caused D1 to instigate appropriate enquiries, as would the steps which were taken by the plaintiff to recover its money from D1. 

27.  While keeping in mind that the burden of proof lies on the plaintiff, the circumstances are such as to require a cogent, or at least coherent explanation from D1 as to its innocent involvement in these transactions.  It is convenient therefore to start with the explanation.

Transfer to D15

28.  The precise timing of the transfers to D15 emerged as an issue during the trial.  This is somewhat surprising given the existence of documentary records of those transfers (and the lack of any relevant pleading) but D1 submits that these transfers took place in the middle of the night and, as such, could not have been the result of instructions given by D1 to DBS.

29.  The basis for this contention was the ‘header’ to the SWIFT transmission records as obtained (by the plaintiff) from the recipient bank in Taiwan.  This is said to show, for five of the six transfers, that transmission was almost simultaneous, and during the night in Hong Kong.

30.  This proposition was put to Mr. Caglar in his oral evidence, and he answered from his own experience as an experienced banker, and the Senior Vice President of the Branch Operations Division of the plaintiff. His evidence, which I accept, is that the SWIFT messages contain both a correspondent input reference and a message output reference showing, respectively, the local time of the sender and the local time of the recipient of the message.  Most significantly, the header references on which D1 relied were not, in his view, part of the message.

31.  On that footing, the transactions out of the DBS Account would have taken place (with one exception) in the afternoon of 8 December 2016 and thus a little separated in time from the abstraction of the funds from the Wells Fargo account.  It is correct to say that these would have all taken place within a minute or so, but there is no evidence to show how such transactions would have been processed by DBS Bank staff, or that there is anything unusual in this.  I accept Mr. Caglar’s evidence, and accept that the transfers out of the DBS Account took place during the working day in Hong Kong.

Mr. Leung

32.  Mr. Leung’s witness statement set out that D1 found out that its bank accounts were frozen at the end of December 2016, and that D1 subsequently received the corresponding court orders via its company secretary, at which point in time the company secretary ceased providing company secretarial services to D1.  The injunction order was issued on 12 December 2016.

33.  According to Mr. Leung it was “subsequently” that D1 received the cancellation requests referred to in Mr. Zhu’s affirmation (which were dated 9 December 2016), and only in January 2017 that it learned that money had been transferred from its DBS account to D15, and also that a small sum had been transferred to one Helen Elia.

34.  Mr. Leung confirmed that D1 did not know, and had no business dealings with D15 or any other defendant, or Helen Elia, or the plaintiff.

35.  Mr. Leung’s role within D1 was, at the least, ambiguous since although his professed job title was ‘Chief Financial Officer’, he was not a paid employee.  As he acknowledged in cross examination, rather he was working on a commission basis.  Although putting himself forward as the Chief Financial Officer, Mr. Leung had no background experience fitting him for such a role as he acknowledged in cross examination, and where he described his role as “ad hoc”.  He appeared to have no duties in regard to any financial or taxation reporting by D1, (indeed it appears there was no such reporting). In summary, his direct knowledge of what happened with D1’s DBS Account was very limited. 

D1’s Business

36.  The plaintiff is critical of the way in which D1 was run and managed within Hong Kong, with no accounts prepared or filed, no office premises, and no updated registered office address maintained with the Companies Registry.  The plaintiff also submits that the ‘nature’ of the plaintiff’s business is obscure.

37.  Mr. Zhu’s affirmation described the business of D1 as advising corporate clients on the acquisition of corporate vehicles for investment purposes in South East Asia.  Various documents were adduced in evidence by D1 which, on their face show investment by D1 in various property investment companies in Malaysia.  The nature of these investments clearly differed from that described by Mr. Zhu in the affirmation.  The sums said to have been invested were substantial, but were not evidenced by any remittance advices or receipts.

38.  The sums said to have been paid by D1 were (on the face of the documents) partial payments towards the acquisition of shareholdings in various Malaysian companies.  According to the agreements, no shares were to be issued until payment of the full investment amount was made by D1, and if the full investment was not made within a certain period of time, then the monies paid were to be refunded to D1.  Nevertheless, alongside the lack of evidence of payment, and the lack of any receipt issued to D1 there was no evidence of the investments being repaid, despite D1 ostensibly being entitled to such repayment.

39.  In summary therefore D1 appears, on the documents adduced, to be an investor in Malaysian property companies, but has received neither shares nor refunds of invested funds to which it appears to be entitled.  It does not run the type of advisory business described by Mr. Zhu in his affirmation.

Mr. Zhu

40.  The plaintiff submits also that an adverse inference should be drawn against D1 by reason of the absence of Mr. Zhu at the hearing.  It was Mr. Leung’s evidence that Mr. Zhu had handled the cancellation requests, and it was Mr. Zhu who was authorised to operate both the Citic and DBS Accounts.  Mr. Zhu did not tender a witness statement, and the only explanation offered (by Mr. Leung) for his absence was, in effect, that he was ‘too busy’.  The plaintiff submits that Mr. Zhu should however have given evidence at the trial.  The documents show that he was the contact person for the DBS Account, and had applied for electronic notification of account transactions to his mobile phone number.  On the face of the documents he would have been notified about the relevant transfers contemporaneously, and only Mr. Zhu was authorized to raise queries with DBS about the transfers.

The Unauthorised Transfer

41.  Wholly unsurprisingly, D1 and Mr. Leung come in for particular criticism from the plaintiff for the fact that no immediate written complaint was made to DBS, and no report was made to the police, after what was said to have been the unauthorised withdrawal of approximately USD3,000,000.00 from the DBS Account on 9 December 2016.  This was not D1’s money, but the plaintiff submits that a company with a legitimate business would view it as a very serious matter if one of its bank accounts had been ‘hacked’ in this way.  Mr. Leung’s evidence however was that no police report was made, and none considered necessary, merely because the matter had already been reported by the plaintiff.  To justify this position D1 submits that Mr. Leung was giving his evidence voluntarily to assist and since he was aware that the plaintiff had made a report to the Hong Kong police, it was reasonable that he saw no need to make a complaint about what was, essentially, the same matter.

42.  There are numerous questions which arise in regard to D1’s business model and operations, in particular in regard to the degree to which a frank account of its business affairs have been given. The criticism of Mr. Leung being offered as a witness in regard to matters about which he knew little is justified, and his lack of knowledge of the financial affairs of D1 probably explains the discrepancy in his evidence as to whether the transaction cancellation requests were ever returned by D1 to DBS.

43.  The submission that Mr. Zhu’s absence warrants the drawing of an adverse inference is justified in my judgment.  The explanation offered on behalf of Mr. Zhu for his absence is thin to the point of being non-existent yet it is his, and only his, knowledge of the operation of the DBS Account that is central to D1’s case.  In the circumstances, I infer that his evidence on this as set out in his affirmation would not stand scrutiny, and is to be disregarded.

44.  Separately or cumulatively, the queries that exist around D1’s business do not establish that D1 played a part in the fraud perpetrated on the plaintiff, but to the extent that D1 bears the burden of showing a defence, and specifically, of showing that, more likely than not, it was merely an innocent conduit for the plaintiff’s funds, then these matters are, in my judgment, relevant in evaluating such a defence.

Unjust Enrichment

45.  There is no issue as to the legal principles. The plaintiff has the burden of showing that the defendant was enriched, at the expense of the plaintiff, unjustly.  Once established, the question of the availability of any defence arises.  See for example Menelaou v Bank of Cyprus UK Ltd. [2016] AC 176. 

46.  D1’s position is that it was never unjustly enriched at any material time, being no more than a conduit through which unknown perpetrators siphoned funds from the plaintiff to others.  D1 refers to and relies on National Commercial Banking Corporation of Australia v Batty (1986) 160 CLR 251 at 268 in which the Court held:

“Where… because of the action of a complete stranger, money has been paid into account of the defendant, who has technically received it, although he is quite unaware of that fact, and the money is then misappropriated, still without the knowledge or intervention of the defendant, there seems to be no reason in justice or equity why the defendant should be answerable for the money simply because theoretically he had the means of knowing that the money was in the account”.

47.  Because, according to the Court, Mr. Batty neither knew nor ought to have known that he was in possession of misappropriate funds, he had no liability to the true owner.  D1 submits that it was itself in precisely the same position.

48.  D1 was, it is submitted, no more than an innocent bystander caught up in the illegal activities of unknown parties.  D1 had no knowledge of the fraudulent acts at any material time.  The transfers were made, it is submitted before D1 had knowledge of them, and indeed, it is submitted, D1 was itself the victim of hacking.

49.  It is submitted that the inherent probability of this explanation is supported by the fact that D1 retained substantial funds in its Citic Bank account rather than moving to dissipate all of its assets when the transactions took place.

50.  Finally D1 emphasises that the disclosure of the DBS bank records does not show any instruction or authorisation given to DBS by D1 to make the transfers from its account to D15.

51.  The plaintiff submits that reliance by D1 on Batty is misplaced for a number of reasons, not the least being that Batty has not been followed in Hong Kong and does not represent Hong Kong law.  Further, the plaintiff submits, the “conduit pipe” line of defence advanced by D1 is available only in circumstances in which the relevant intermediary has received money specifically for the purposes of onward transmission to the “true” recipient.

52.  In Transvaal & Delagoa Bay Investment Co. Ltd. v Atkinson [1994] 1 All ER 579 the Court had to consider a claim in which money was stolen from a company and paid by the thief into the bank account of his wife.  The Court stated (at 585) that

“It is clear law that prima facie the person to whom money has been paid under a mistake of fact is liable to refund it, even though he may have paid it away to third parties in ignorance of the mistake. He has had the benefit of the windfall, and must restore it to the true owner. On the other hand, it is equally clear that an intermediary who has received money for the purpose of handing it on to a third party, and has handed it on, is no longer accountable to the sender. In such case he is a mere conduit pipe, and he has not had the benefit of the windfall.”

53.  D1 seeks to portray itself as an innocent party caught up in the acts of others, and it is established law that no restitutionary claim will be available against a defendant which has become involved in the wrongful transfer of funds merely in the capacity of an unwitting conduit for the transfer: see Shanghai Tongji Science & Technology Industrial Co. Ltd. v Casil Clearing Ltd. (2004) HKCAAR 79.

54.  On the other hand, a party which may be described as a recipient of stolen funds, even if innocent of any involvement in the misappropriation, is ordinarily under an obligation to pay an equivalent sum to the true owner if he has not given full consideration for the monies received: see Lipkin Gorman v Karpnale Ltd. [1991] 2 AC 548.

55.  It is necessary to show that a defendant to a claim in unjust enrichment received a benefit, but it is not necessary to show that the benefit continued, or was continuing as at the date of trial. Liability accrues when the enrichment takes place.  Good faith changes in position thereafter by a recipient may, of course, reduce or eliminate any liability to make restitution. 

56.  In the present case, it seems to me, that D1 prima facie came under an obligation to repay the plaintiff in respect of the funds in question once they were received into D1’s DBS Account.  That the funds have been paid out of D1’s DBS Account, and perhaps may not be recoverable by D1, does not, by itself negate the obligation owed to the plaintiff.

57.  In considering whether a “conduit” defence is made out by D1, it seems to me that a distinction is to be drawn from the cases between a relatively mechanical receipt and transmission of funds, especially if under some duty or obligation such as is owed by a bank, and a more voluntary, or less obligatory receipt and transmission of funds.  The former category is, most obviously organizations and individuals that act on the instructions of others, without the operation of a decision making element in the transmission of relevant funds.  The latter category encompasses other situations of the transmission of funds which ought not be in the defendant’s hands.

58.  D1 is not a bank or similar financial institution, and the funds it received were received in its own name and to its own account.  Nevertheless D1’s case seeks to bring itself within the first of these groups, and to do so, asserts that it was entirely uninvolved save and except to the extent that it was the owner of the bank account which was used. To establish that, it advances two critical propositions, first that it was unaware of the inflow of funds, and (second) unaware of the outflow of funds. D1 bears the burden of establishing these facts.

59.  The evidence available perhaps supports the first proposition but, in my view, certainly not the second.  The evidential burden lies on D1, in my judgment, to show not only that the relevant funds were removed from its account, but that this took place other than for value or in an unauthorised manner.  D1 relies on the latter circumstance.  However the evidence in support is negligible being, in effect, Mr. Zhu’s affirmation evidence, and I have indicated above that this cannot be relied on as presented.  There is no direct evidence of the transfer out, notwithstanding the circumstances being such that an explanation ought to be available, it being contended that the DBS Account has been operated in an unauthorized manner.

60.  D1 does not contend that it was under “banking” duties to handle the funds received to the order or account of others.  The funds were received by D1 in its own name and, on the face of things it was entitled to deal with those funds as it pleased.  They were, however, funds to which the D1 was not entitled and D1 thereby came under an obligation to repay the funds to the true owner.  That obligation was not discharged merely because the funds were then transferred out of the DBS Account, and the onus falls on D1 to show, in the circumstances, that a defence to the claim in unjust enrichment exists. 

61.  In Criterion Properties v Stratford UK Properties [2004] UKHL 28 Lord Nicholls said (obiter) that, where assets had been transferred from A to B under a transaction which was subsequently set aside, A would have a claim against B for unjust enrichment “irrespective of whether B still has the assets in question, … accountability will not be dependent on proof of fault or unconscionable conduct…” on the part of B subject of course to any defence as to change of position. 

62.  D1 claims to have been ignorant of the receipt of the funds, but that does not provide a defence to the claim in unjust enrichment.  D1 also claims that it gave no instruction to transfer the relevant funds away from its account, so that it must be presumed that this came about as a result of its account being ‘hacked’.  The evidence on this is however wholly insufficient to make it more likely than not that the transfer out of D1’s DBS account was unauthorised.  Indeed, it is improbable, on the evidence, that the transfer out was unauthorized.

63.  On balance therefore I accept that the plaintiff’s claim against D1 in unjust enrichment is made out, with no defence having been shown.

Constructive Trust

64.  The plaintiff contends that a constructive trust will be imposed on funds received by a fraudulent recipient.  In Chitty on Contracts (32^nd Ed) para.29-168, the authors state:

“Equity has employed the mechanism of a trust in order to compel the 'trustee' to convey property to the 'beneficiary' where, quite apart from the intention of the parties, the rules of Equity decide that property is in the wrong hands. The constructive trust arises by operation of law in a number of circumstances, including ... where property has been obtained by fraud, . . . or where the defendant has received property unconscionably, such as where the defendant is aware that money had been paid by mistake...”

65.  The above passage was quoted by Deputy Judge Cooney SC in Guaranty Bank and Trust Company v ZZZIK Inc Ltd [Ref], and the learned Deputy Judge further noted that:

“Even if the recipient was not a party to the fraud, if his state of knowledge is such as to make it unconscionable for him to retain the money, the defrauded claimant has a tracing remedy: Commerzbank AG v IMB Morgan plc [2005] 2 All ER (Comm) 564 at para 36.

Knowledge does not have to be acquired at the time of receipt, it can be acquired subsequently while the money is in the recipient's hands: Lewin on Trusts 19th ed, para 42-083.”

66.  Applying those principles here, it is clear to me that the evidence supports the inference that D1 had relevant knowledge of the fraud while the funds were in its hands.  In Guaranty Bank, the defendant was shown to have been aware of the fraud through the court proceedings while still in possession of the funds.  The clear inference here is that, at some stage prior to the transfer of the plaintiff’s funds away from D1’s DBS Account, D1, through Mr. Zhu, had become aware that it was in receipt of funds to which it had no claim.  In such circumstances, retention of those funds, or their disposition to others, makes the unauthorised recipient, D1 in this case, liable as a constructive trustee.

Knowing Receipt

67.  The plaintiff's claim here is premised on matters including the knowledge on the part of the defendant that assets have been received which relate to, or are the proceeds of, some breach of duty (El Ajou v Dollar Land Holdings [1994] BCC 143 being referred to).  The knowledge required to be shown by a plaintiff for such purposes is knowledge which would make it unconscionable for the recipient to retain the benefit of the receipt.

68.  The plaintiff contends that the relevant facts show that a constructive trust arose over the money in D1’s hands, and that therefore D1 is to be taken to have known that the funds were traceable to a breach of duty.  I have accepted the contention that a trust was imposed.  Knowledge by D1 of the circumstances of the receipt would be appropriate as a starting point against which to consider whether "unconscionability" was established.  D1 acknowledges it had no right to receive money from the plaintiff, but says simply that it was unaware at the time that it had done so.  The facts are such that, as explained in the context of the constructive trust claim, the only conclusion to be drawn from the evidence is that D1 was involved in the transfer away of the plaintiff’s funds, and did so knowing that it had no right to those funds.  The liability in respect of knowing receipt is also established.

D9-D15; and D17-D19

69.  The cases against these defendants are contained in the documents and the witness statements.  D9 to D14 were all direct recipients of monies belonging to the plaintiff in the same way and at the same time as D1.  See Appendix A to this Judgment.  The details of the relevant transfers have been set out by the plaintiff in the Statement of Claim, and have been verified by Mr. Davotoglu, whose evidence I accept.

70.  In respect of D15, and D17-D19, the plaintiff’s case is that the relevant transfers were made in order to dissipate the funds away from the initial recipients of the fraudulent transfers.  D15, for example, was the recipient of funds transferred from D1, and also from D6.  As such D15 has received US$5,054,097.95 which originated from the plaintiff.  As regards all of these defendants the funds in question were funds that belonged to the plaintiff, and in respect of which these defendants had no right or claim.  The plaintiff contends that the circumstances were such as to impose a constructive trust on each defendant in respect of the funds so received.  I am satisfied on the evidence that the plaintiff is correct in these assertions. The receipt of these funds by these defendants was illegitimate, and as a matter of law it was unconscionable and inequitable for the defendants to retain these funds, or dispose of those funds to third parties.

71.  Accordingly I accept that D15, D17, D18 and D19 held and continue to hold the funds as specified in Appendix A on constructive trust for the plaintiff.

Application for Wasted Costs

72.  On the morning of what was scheduled to be the 2^nd day of the hearing I was informed by leading counsel for the plaintiff that D1 had been struck off as a company on 17^th August 2018.  It appeared that this came as a surprise to the legal team appearing on behalf of D1.  The hearing was adjourned, and the plaintiff took immediate steps in regard to the reinstatement of D1 to the register. The plaintiff indicated at the time its intention to apply for a wasted costs order against D1’s solicitors for costs comprising

(i)  costs of the restoration application for D1; and

(ii)  costs thrown away at trial, in particular for appearance on 17 September 2019.

73.  A statement of the alleged wasted costs was provided together with the closing submissions.  The plaintiff's submission was that, as a result of the discovery of the dissolution of D1, the trial commenced when D1 did not exist as a legal entity, and time was wasted on the second day of trial dealing with the restoration issue.

74.  In Grand Field Group Holdings Ltd v Tsang Wai Lun Wayland & Ors [2010] 5 HRC 441 at §12, Poon J (as he then was) held:-

“When a solicitor purports to act for a client in an action, he impliedly warrants that he has the authority to represent the client. If it later transpires that in fact he did not have such authority, he has acted in breach of the implied warranty. The court would normally order him to personally pay the costs needlessly incurred by the opposing party. It matters not whether the solicitor has acted bona fide and in reasonable reliance of the instructions: or that he has been deceived into believing that he had the authority to act for the client: or that quite innocently he did not know that there was no authority or the authority once existed and ceased to exist.”

75.  The scope of the warranty of the authority is said by the plaintiff to be that the party exists and has authorized the proceedings: see Nelson v Nelson [1997] 1 WLR 233 at 241 per Waller LJ.

76.  The plaintiff submits that, by reason of Huen & Partners having acted for D1 since January 2017, there were implied warranties that (i) they had authority to represent D1; and (ii) D1 remained in existence as a legal entity (and had not been struck off).  However, the plaintiff submits, these warranties turned out to be untrue, as D1 had been struck off on 17 August 2018.  Huen & Partners had, therefore, acted in breach of the implied warranty as to authority.  The plaintiff submits it relied on Huen & Partner's warranty of authority and assumed the existence of D1, until it discovered its dissolution from a company search on the evening of the first day of trial.

77.  Huen Ho Yin filed an affirmation on behalf of Huen & Partners explaining the situation.  This set out that Huen & Partners had conducted a company search when accepting instructions to act for D1, which showed that D1 was, then registered, and were unaware of the dissolution of D1.  Further, "[Huen & Partners had] no difficulty in taking instructions from the representative of the 1^st Defendant [...] [It] did not know that the 1^st Defendant was struck off by the Companies Registrar on 17^th August 2018".

78.  The rationale behind such wasted costs orders was discussed in Nelson v Nelson [1997] 1 All ER 970, in which Waller L.J. stated that “I should finally make clear two things: First, because even in the want of authority case the court is exercising its inherent jurisdiction, it must be right to say that the court ultimately has a discretion.  But second, it is of such importance that solicitors do not commence proceedings without authority leaving the opposing party without even a party or entity against whom an order for costs can be obtained, that it is difficult to contemplate circumstances where, if lack of authority leads to that result, the discretion would be exercised in favour of the solicitors.  The warranty, by analogy, however, is not a warranty of solvency or that the costs will be recovered, it is that the plaintiff exists and has authorized the proceedings and no more.”

79.  Turning to the present case, I do not accept that a wasted costs order would be appropriate.  The proceedings were commenced by the plaintiff, not by D1, and the plaintiff was able to check the ‘status’ of D1 via the Companies Registry at any time, as it eventually did.  In those circumstances, any warranty by Huen & Partners as to the existence of D1 (as to which I express no view) was limited in scope.  As is clear from Chan Chi Ming v Brilliant Rise Container Depot Ltd. [2009] 4 HKC 458, the restoration of D1 to the register avoids any ‘lacuna’ in the costs recoverable by the plaintiff.

80.  For these reasons, in the exercise of my discretion I decline to make the wasted costs order which the plaintiff seeks.

Conclusion

81.  There will be judgment entered for the plaintiff against, respectively D1, D9, D10, D11, D12, D13, D14, D15, D17, D18 and D19.  Declarations are to be made that the defendants hold the sums as specified in Appendix A on constructive trust for the plaintiff in the form sought by the plaintiff in its Statement of Claim (D1) and its Amended Annex 1 (D9-D15 and D17-D19).

82.  An order is further made for the payment out to the plaintiff forthwith of the sum of HK$12,527,458.28 paid into court by D16 on 5 June 2018.

Costs

83.  On an order nisi basis, the plaintiff is to have its costs of the action against the defendants with, for the avoidance of doubt a certificate for two counsel.

APPENDIX A 

Transfers from the Plaintiff

Transfers from recipients of the First Layer Transfers (“Second Layer Transfers”)

Transfers from recipients of the Second Layer Transfers (“Third Layer Transfers”)

HCA 3264/2016
[2018] HKCFI 405

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3264 OF 2016

______________

______________

______________________

REASONS FOR DECISION

______________________

The parties

1.  Counsel for the plaintiff and counsel for the 16^th defendant (“D16”) appeared before me on 9 February 2018 on two summonses as follows:

 (a) D16’s summons dated 25 January 2018 seeking an order that the terms of a previous injunction order (as later varied) against D16 be further varied and various other orders as a consequence (“D16’s summons”); and

 (b) the plaintiff’s summons dated 6 February 2018 also seeking an order that the terms of the previous injunction order (as later varied) be a further varied, as well as a bankers’ book evidence type order against The Hongkong and Shanghai Banking Corporation (“HSBC”) in respect of accounts held in the name of D16 (“plaintiff’s summons”).

2.  HSBC did not appear at the hearing having previously written to the solicitors for the plaintiff indicating that the application would not be contested and that it will comply with any court orders served on it.

Background to the application

3.  The previous injunction order which both the plaintiff and the D16 sought to further vary (in different respects) is one of a whole series of injunction orders obtained by the plaintiff in the action seeking to restrain and trace a very substantial sum of money of which it was allegedly defrauded on or about 7 or 8 December 2016.

4.  As varied the previous injunction order restrained D16 from dealing with the total sum of US$1,604,031.74 held in an account or accounts in its name with Standard Chartered Bank (“SCB”) in Hong Kong. The sum was made up of two separate identified amounts of US dollars which the plaintiff claims it can show, relying in a large part on disclosures obtained regarding the dealings and bank accounts of other defendants or third parties, are traceable proceeds of the alleged fraud.

5.  The terms of the previous injunction order required that D16 make disclosure to the plaintiff of any assets of an individual value of more than HK$20,000 whether within or outside Hong Kong within three days of service of the order but in the event this was not done.  The best that counsel for D16 was able to offer by way of explanation was that apparently at the time D16 was unrepresented.  However, it had secured legal representation by no later than February 2017 and thereafter has participated in the proceedings.  Even if the lack of legal representation was justification for the initial default, which, of course, it is not, this still does not explain the long delay in giving disclosure as ordered.  Though in fairness I should observe that it does not appear that the plaintiff had pressed for disclosure.

6.  In any event, by the affirmation of Xu GaoFeng made on behalf of D16 and filed on 25 January 2018 in support of D16’s summons, it was revealed, seemingly for the first time, that D16 holds other monies, in different currencies, in accounts with HSBC in Hong Kong, including the sum of US$218,001.12.

7.  Not surprisingly this revelation has led to the plaintiff’s summons applying to vary the previous injunction order to extend it to cover the monies in D16’s account with HSBC, in support of which it filed the affidavit of Jeffrey Ho on 6 February 2018.  In that affidavit, it is deposed that the plaintiff’s solicitors had been provided through a telephone call with information by the Commercial Crime Bureau of the Hong Kong Police that a sum of US$210,000 was paid into D16’s account with HSBC on or about 9 December 2016.  This is only the day following the alleged fraud.

The plaintiff’s application limited to US dollar sum with HSBC

8.  The undisputed evidence before the court shows that D16’s accounts with SCB and HSBC hold, in addition to the amounts of US dollars which are specifically identified in the previous injunction order and the US dollar amount currently held with HSBC that I have already referred to, a number of amounts in other currencies, in particular Euros.  However, counsel for the plaintiff clarified to me during the course of the hearing that though sums of Euros and Hong Kong dollars are referred to in the plaintiff’s summons the application before me was limited both specifically and in total to the identified sum of US$218,001.12.  Pending obtaining disclosure from HSBC by way of the ancillary application included with the plaintiff’s summons, it is the plaintiff’s case that this sum may represent the current balance of the monies it has learnt from the police were paid into the account on or about 9 December 2016.

9.  The limiting of the claim for injunctive relief in this way is consistent with the approach of the plaintiff in relation to SCB where again there are monies held in the name of D16 in other currencies which are not identified in the injunction order, and the order is limited to two specific identified sums of US dollars and in total to the aggregate of those two sums.

10.  In short, for the present the plaintiff has limited its claims for injunctive relief against D16 to those of a proprietary nature where it believes it can trace the flow of monies to the destination account.  While the plaintiff’s pleaded claims in the proceedings also include claims in personam seeking damages for unjust enrichment these were not relied upon for the purpose of the application before me.

D16 summons

11.  I can deal with D16 summons shortly as in a very large part it was not pursued by counsel at the hearing.  Following the withdrawal of a number of items all that remained was the application of D16 that it be given leave to pay the sum of US$1,604,031.74 currently held with SCB (and, if the previous injunction order were extended as sought by the plaintiff, also the sum of US$218,001.12 currently held with HSBC) into court such that, according to the terms of paragraph 15 of the previous injunction order, the order will cease to have effect.

12.  Arguably no such order should be necessary as it is clear, at least to the lawyers, that this is already provided for by paragraph 15.  However, counsel for D16 explained that an order in express terms would likely be more readily given effect to by the banks, which very possibly is the case.

13.  The plaintiff did not oppose D16’s application to pay the monies into court and, with the making of the order I refer to below as sought by the plaintiff to extend the injunction to the sum of US$218,001.12 currently held with HSBC (and also with the addition of provision for the placing of the monies on receipt on deposit), I ordered accordingly.

Particulars of the court bank account

14.  Subsequent to the hearing, the solicitors for D16 raised with the court the need to obtain details of the High Court bank account to which SCB and HSBC could make direct electronic transfers.  It is understandable that a bank, even if acting pursuant to a court order, would prefer to make a payment into court by direct electronic transfer to the bank account of the court itself rather than by another intermediary means which might involve even a small risk of money going astray.  I therefore made an order providing that D16 be at liberty to obtain the necessary details of the High Court bank account so that they could be provided to SCB and HSBC.

The plaintiff’s application to extend the previous injunction

15.  Counsel for D16 sought to resist the plaintiff’s application to extend the previous injunction order to the sum of US$218,001.12 currently held with HSBC but he was without any evidence from D16 to assist him.  Indeed, it was D16’s position before me that it could not produce any information or better still documents, no bank statements, no bank transfer records, no contracts or other evidence of business dealings, that it might rely on to show that the sum was derived from another, an ‘innocent’, source and was not as claimed by the plaintiff (supported by evidence obtained from the police) part of the proceeds of the fraud committed on it.  The best that counsel for D16 could argue was that the mere coincidence of the date of receipt (being 9 December 2016, when the fraud is alleged to have been committed on or about 7 or 8 December 2016) was not sufficient.

16.  The only other evidence before me, which was provided by way of the affirmation of Xu GaoFeng made on behalf of D16 and filed on 25 January 2018, was originally intended to be relied upon on behalf of D16 in support of its own application to show that there was an innocent explanation for the receipt of the two sums of US dollars with SCB which the plaintiff had already injuncted.  The explanation took the form of producing invoices addressed to claimed customers showing amounts payable to D16 which closely match the US dollar sums received into D16’s account with SCB.

17.  As I say, in the event, those items of D16’s summons to which this evidence might have been relevant were not pursued before me.  The evidence also is of no direct relevance to the plaintiff’s summons seeking injunctive relief in respect of D16’s account with HSBC.  Therefore, I am not required to make any finding in this regard.  However, I will observe that I agree with counsel for the plaintiff that the evidence is very far from compelling.  Other than the two invoices no other documents to support the existence of the underlying contract and supply of the goods identified were produced.  The terms of the invoice also refer to a mix of different types of goods which it seems inherently implausible would be bought by a single customer or indeed supplied by a single supplier.  No evidence was produced regarding D16’s sourcing of the items to be supplied.  Finally, as counsel for the plaintiff pointed out, that the same typographical error in relation to the format of the date was repeated on both invoices must at least raise a question regarding the genuineness of the documents.

18.  When considering the plaintiff’s summons I have had regard not only to the recent evidence filed on behalf of both D16 and the plaintiff but also that filed on behalf of the plaintiff at the time it first obtained injunctive relief and filed subsequently as the order was varied.  I have also had regard to the pleadings of the parties, the defence of D16 being notable for the sparsity of the particulars provided in support of its claim to be an innocent third party.  I have particularly noted that the evidence shows that in addition to the involvement of D16 itself the alleged movements of the proceeds of the fraud included transfers totaling some US$2 million to an account in China in the name of a director and shareholder of D16.

19.  After considering the totality of the evidence, and notwithstanding the limited extent of the direct evidence currently available as regards the origins of the specific sum of US$218,001.12 currently held in D16’s account with HSBC, I was of the view that the plaintiff had shown a sufficiently good arguable case to justify the extension of the previous injunction order to D16’s newly revealed accounts with HSBC and specifically the identified sum of US$218,001.12.  I therefore ordered that the previous injunction order be amended accordingly.

Discovery order HSBC

20.  On D16 revealing the existence of the accounts with HSBC, the solicitors for the plaintiff wrote to D16 solicitors seeking account and other information to demonstrate the source of the funds in the account.  However, as I have already observed, D16 position in response was that it is unable to provide any such documentary evidence.  Not surprisingly, this has led to the application of the plaintiff for a bankers’ book evidence type order in respect of D16’s account with HSBC.  That application was not opposed by counsel for D16 and I ordered in the terms of the plaintiff’s application save for the amendment of the time period for provision of information and documents from 14 to 28 days.

Costs

21.  I need not deal with the subject of costs in this decision as the parties were able to reach agreement in this regard.

HCA 3264/2016

[2018] HKCFI 363

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3264 OF 2016

______________

______________

__________________________

REASONS FOR DECISION

__________________________

The application

1.  This is the plaintiff’s application by summons of 22 January 2018 for production by the Standard Chartered Bank (“SCB”) of certain banker’s records in relation to all accounts maintained with it by a company in the name of Real Friendship Limited (“Real Friendship”).  SCB is not a party to the action.  The present application is made pursuant to section 21 of the Evidence Ordinance, Cap 8 and the common law.  SCB has been notified of the application.  It did not seek to be heard, but has indicated that it will abide by any order which the court may make.

The facts in gist leading to the present application

2.  In gist, the plaintiff is the victim of a large-scale cyber fraud that first started on or about 7 or 8 December 2016.  It is the plaintiff’s case that some unidentified perpetrators, by divers fraudulent means, were able to cause funds in accounts which the plaintiff maintained with two banks to be transferred out through the international banking system to multiple recipient accounts in various jurisdictions.  Such jurisdictions included Hong Kong.  In total US$100,309,972 was so transferred out and misappropriated.  Evidence that has so far been gathered shows a strong case that the proceeds of the fraud have been diverted and laundered through layers of bank accounts maintained by many different companies and entities in different jurisdictions.  

3.  Since discovery of the fraud, the plaintiff has sought and been granted a number of Mareva injunctions and discovery orders similar to the one which it is seeking before me.  With the benefit of such orders (the latest of which being the Order dated 25 October 2017 granted by Deputy Judge Seagroatt), and in so far as relevant to the present application, the plaintiff in early December 2017 became aware of the involvement of Real Friendship.  It discovered that on 8 December 2016, sums in the total amount of approximately US$2.19 million were transferred from a bank account maintained by Real Friendship with the SCB to an account maintained by the 5^th defendant with the DBS.  One day later, two outward transfers in the total sum of US$2.19 million were effected by the 5^th defendant from that DBS account through a money exchanger to two third parties, one of whom being the sole director and shareholder of the 2^nd defendant.  It is noted that according to the pleaded case of the plaintiff, the 5^th defendant was one of the first level recipients of the fraudulent transfers, and received on 8 December 2016 from one of the plaintiff’s account six sums in the total amount of US$3,297,328.97.  It should further be noted that despite service of the Writ herein upon the 5^th defendant, no acknowledgement of service has been filed by it, and default judgment (in the sum of US$2,814,316.07, being 5 of the 6 pleaded transfers) and garnishee order absolute have been entered against it.  The 2^nd defendant was another first level recipient according to the plaintiff’s pleaded case.  Default judgment has also been entered against it.

4.  In the circumstances, the plaintiff makes the present application for further discovery from SCB of records in relation to Real Friendship so as to, amongst other things, ascertain the source(s) of those funds that it had transferred to the 5^th defendant.

Service of the application

5.  Section 21 of the Evidence Ordinance provides inter alia that:

“ (1) On the application of any party to any proceedings, the court or a judge may order that such party be at liberty to inspect and take copies of any entries in a banker’s record for any of the purposes of such proceedings.

(2) An order under this section may be made either with or without summoning the bank or any other party, and shall be served on the bank 3 clear days before the same is to be obeyed, unless the court or judge otherwise directs.

It is clear from the wording of section 21(2) that there is no statutory prerequisite or requirement for an application pursuant to section 21 to be served on the account holder.  Indeed, an order under the section may be made “without summoning … any other party.”

6.  In Chan Wai Sun & Anor v Law Shiu Kai [2003] 3 HKLRD 954, Chu J (as she then was) observed at paragraph 15 of the judgment that:

“ On the question of notice of this application, the authorities had considered that it is necessary to give notice of the application to both the bank and the holder of the account. In the present case, the summons and the affirmation had been served on Hongkong Bank, and it has no objection to it. In the case of General Profits, the difficulty is that no information about it can be obtained from the public records. It is simply not possible to serve on General Profits or to give due notice of the present application, a fact that the court has to bear in mind when deciding in what way it should exercise its discretion.”

7.  The authorities which Chu J had in mind would have included Arnott v Hayes (1887) 36 Ch D 731, where Cotton LJ, having considered the wording of section 7 of the Bankers’ Books Evidence Act, 1879 (which is materially the same as section 21 of our Evidence Ordinance), observed at page 736 of the judgment that:

“ Various objections are taken to the order. The first was that the order ought not to have been made ex parte. … I am of opinion that the [Bankers’ Books Evidence Act, 1879, s.7] does give the Judge such jurisdiction. It says that the order may be made ‘either with or without summoning the bank or any other party.’ It is urged that ‘party’ here does not mean ‘party to the action,’ but it must include parties to the action. There is, therefore, power to make the order ex parte, though under ordinary circumstances I think it better that the person whose account is to be looked at should be served.”

8.  It will no doubt be fairer to serve an application under section 21 upon the person whose account is to be inspected.  However, the bottom line remains that such service is not a statutory requirement, and the preference suggested by Cotton LJ was qualified by the words “under ordinary circumstances.”

9.  In the present case, as mentioned above, SCB has been notified of the application.  It did not seek to be heard.

10.  The 5^th defendant has also been served with the summons and the affirmation in support.  It did not appear.

11.  Real Friendship was dissolved by way of deregistration on 1 September 2017.  Notice of this application could not be served upon it.  But as I have observed above, service of the application upon Real Friendship is not a statutory prerequisite.  I find that its deregistration constitutes a special circumstance which justifies the court in proceeding with the application despite the fact that it has not been served with the summons.  The fact that Real Friendship has not been served is however a fact relevant to my exercise of discretion, which I will come back to.  I note that Chu J in Chan Wai Sun in effect adopted the same approach.  I however add that the Companies Registry has as a matter of prudence been served with the application papers, and no objection has been heard from it.

Consideration of the substantive application

12.  Whilst Mr Ng has submitted to me a number of authorities said to be relevant to the test to be applied in applications of the present nature, I note that most of them relate to cases where the underlying claims were proprietary in nature.  In that type of cases [1], the court will be more disposed towards exercising its discretion in allowing inspection of bankers’ record. The reason is obvious.  The party seeking inspection is trying to trace properties which in equity belong to him.  However, in the present case, when obtaining judgments against some of the defendants, including that against the 5^th defendant, the plaintiff abandoned its proprietary claims.  That being the case, those authorities have no direct application here.

13.  On the other hand, I find the case of Chan Wai Sun relevant and helpful.  In that case, Chu J (as she then was) adopted and applied the approach explained by Barnett J in Assets Investment PT Ltd v The United Islamic Investments Foundation (HCA 4392/1993, 21 January 1994, unreported), that:

“ In my judgment, the matters which must be demonstrated to a court before it can consider making an order under section 21 of the Evidence Ordinance are that the other party has a bank account and that there is a probability that that account will contain material germane to an issue which is to be tried between the parties. Put shortly, perhaps, the test is relevance.”

14.  At paragraph 9 of her judgment in Chan Wai Sun, Chu J further observed that:

“ The authorities have stated that the power for inspection under s.21 of the Evidence Ordinance should be exercised with great caution. In my view, that must be right especially if the inspection is directed at an account held in the name of party who is not a party to a proceeding.”

This I entirely agree.  The privacy of the account holder, and banker / customer confidence have to be respected.  Chu J then went on to observe:

“ It has been said that the power should only be exercised where it is clearly established that the account is really that of the party to the proceedings or that the party is so closely connected with it that it would be evidence against him: South Staffordshire Tramways Co v Ebbsmith [1895] 2 QB 669 at p.675.”

The relevant part of the judgment in South Staffordshire Tramways reads as follows:

“ With regard to the application for inspection of the banking account of the Dickinson Tramway Appliance Company, in that case also I think it clear that the Court has jurisdiction to order such an inspection for the reasons given by Mathew J. in Howard v. Beall; but I think that is a jurisdiction which ought to be exercised with great caution. The application is for an order to inspect before the trial an account which is primâ facie not that of a party to the suit. I am disposed to think that the rule of conduct which the Court would observe in relation to such an application—though it is impossible to define it exhaustively‌—‌would be that, if the Court were satisfied that in truth the account which purported to be that of a third person was the account of the party to the action against whom the order was applied for, or that, though not his account, it was one with which he was so much concerned that items in it would be evidence against him at the trial, and there were no reason for refusing inspection, then they might order the inspection; but, unless they were so satisfied, they ought not to do so.” (pp 674 – 675, per Lord Esher MR, emphasis added.)

15.  Whilst those italicized criteria were no doubt correct at the time when the judgment was pronounced, I have reservation as to whether it has become too restrictive in modern time.  These days, bank accounts in the international banking system can be exploited to syphon off and launder funds even though there is absolutely no connection between the holders of the accounts involved, and when one holder may not at all be concerned with the operation of the other accounts.  The imposition of such stringent and restrictive criteria in my view may unnecessarily fetter the court’s discretion under section 21.  In my view, the pivotal test should be that, and should remain that, of relevance as explained by Barnett J in Assets Investment.

16.  I have read the 14^th Affirmation of Mr Desmond Steward filed in support of the present application, and the affirmation of service of Mr Fung Wai Man.  I have heard submissions made by Mr Ng on behalf of the plaintiff.  I approach the application with great caution.  I note the scale of the fraud, that the 2^nd and 5^th defendants were according to the pleaded case of the plaintiff two of the first level recipients, and that default judgments have been entered against them.  I note the close proximity in time between the fraudulent transfers from the plaintiff’s accounts on the one hand and the transfers from Real Friendship to the 5^th defendant on the other.  I further note the outward transfers by the 5^thdefendant on the following day, and that one of the transfers was to the sole director and shareholder of the 2^nd defendant.  The information sought is clearly relevantto the fundflow of the proceeds of the fraud, to the relationship between Real Friendship and the 5^th defendant, and is potentially admissible evidence against both of them.  When exercising my discretion, I have considered the fact that Real Friendship has been deregistered and could not be served with the summons.  I have considered the importance of the maintenance of banker/customer confidence.  On the other hand, neither the 5^th defendant nor Real Friendship is going to be irreparably harmed or even inconvenienced by the order.  I put in the balance also the important policy consideration that, Hong Kong being an international city, the law should be facilitative but not obstructive when a victim of a cybercrime (like what the plaintiff is according to its case) comes to our courts for lawful redresses against the true culprits.  On the facts of this case, the balance tips clearly in favour of me exercising my discretion granting the order.  I am in all the circumstances satisfied that an order in terms of the summons ought to be made.

17.  I make no order as to costs.

Mr Tom Ng, instructed by Dentons Hong Kong LLP, for the plaintiff

The third party, Standard Chartered Bank (Hong Kong) Limited, was not represented and did not appear