THE BOSTON CONSULTING GROUP (BRASIL) LTDA v. KAISHENG TECHNOLOGY CO., LTD AND OTHERS

HCA 573/2019 [2022] HKCFI 447 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 573 OF 2019 ____________ BETWEEN THE BOSTON CONSULTING GROUP (BRASIL) LTDA Plaintiff and KAISHENG TECHNOLOGY CO., LIMITED 1st Defendant KAY TRADING LIMITED 2nd Defendant FREEZING RAIN TRADE CO., LIMITED 3rd Defendant BESSER CHEONGSAM LIMITED 4th Defendant RKE TRADE LIMITED 5th Defendant HK BAI YI PO INTERNATIONAL TRADING CO., LIMITED 6th Defendant ____________ Before: Hon Cheng J in Chambers Date of Hearing: 25 January 2022 Date of Judgment: 25 January 2022 Date of Reasons for Judgment: 24 February 2022 REASONS FOR JUDGMENT A. INTRODUCTION By a summons of 20 December 2021, the Plaintiff sought summary judgment against the 2nd Defendant for various items of relief, principally a declaration that the 2nd Defendant holds the sum of US$650,000.10 on constructive trust for the Plaintiff (“the Sum”), and consequential and related relief. The 2nd Defendant did not attend the hearing of the application. Its sole director and sole shareholder Li Zhanquan (“Mr Li”) had earlier signed a consent summons to the entry of judgment against the 2nd Defendant (although it should be noted that Mr Li did not have leave to represent the 2nd Defendant in these proceedings). In the circumstances, I gave judgment for the Plaintiff as sought in the summons, as amended. I now give brief reasons for so doing. B. FACTUAL BACKGROUND Between 13 February and 20 February 2019, employees of the Plaintiff were deceived into making four transfers of funds from the Plaintiff into the 1st Defendant’s bank account held with the Bank of Communications in Hong Kong. The deception involved the use of messages from someone impersonating the chief executive officer of the parent company of the Plaintiff. On 14 February 2019, the opening balance of the 1st Defendant’s bank account was US$24.03. The 1st Defendant’s bank account then received one of the aforesaid transfers of the Plaintiff’s funds of US$978,282.36. The next two transactions in the 1st Defendant’s account were two remittances, totaling US$650,000.10, into the 2nd Defendant’s account (“the 2nd Defendant’s Account”), also held with the Bank of Communications in Hong Kong (“the Bank”). The Plaintiff issued a writ against the 1st Defendant on 2 April 2019. The writ was amended on 20 May 2019, adding the 2nd Defendant (and other defendants) as parties to the proceedings. On 16 October 2019, the 2nd Defendant filed its Defence, claiming to operate a trading business and to have received the Sum in the course of legitimate commercial dealings with the 1st Defendant for the sale and purchase of goods. Subsequently, in about January 2020, the Plaintiff was informed by the Hong Kong Police that Mr Li had been charged with conspiracy to deal with property known or believed to represent proceeds of an indictable offence, contrary to ss.25(1) and (3) of the Organized and Serious Crimes Ordinance (Cap. 455) and ss.159A and 159C of the Crimes Ordinance (Cap. 200), in connection with receipt of the funds originating from the Plaintiff. Mr Li pleaded guilty to the charge and was sentenced on 4 November 2020 in DCCC 701-703 & 705/2019. C. THE 2ND DEFENDANT’S DEFENCE O.14 r.1(2)(b) of the Rules of the High Court was repealed with effect from 1 December 2021. There is therefore no bar to the Plaintiff’s application for summary judgment (made on 20 December 2021) on the grounds that it involves an allegation of fraud. The 2nd Defendant did not file any evidence to oppose the application for summary judgment. On 19 January 2022, Mr Li signed a consent summons in terms largely similar to the Plaintiff’s summons for summary judgment. The summons also identified the two remittances into the 2nd Defendant’s account which are the subject of the Plaintiff’s claim and sought a declaration that these were funds held by the 2nd Defendant on trust for the Plaintiff. As noted above, Mr Li did not have any authority to represent the 2nd Defendant. However, the Plaintiff submitted that the signing of the consent summons was evidence that the funds in the 2nd Defendant’s account were in fact the Plaintiff’s and that the 2nd Defendant’s Defence was false. The Plaintiff’s solicitors had not been able to identify any evidence that the 1st Defendant had an operating trading business. The inference sought to be drawn was that the 2nd Defendant could not have legitimately expected to receive funds from it. The Plaintiff also relies on the fact of Mr Li’s conviction and the facts on which the conviction was based as set out in the Reasons for Sentence of HH Judge Stanley Chan of 4 November 2020 in DCCC 701-703 & 705/2019, citing s.62 Evidence Ordinance (Cap. 8). The Reasons for Sentence referred to the fact that the Plaintiff had been deceived into transferring funds to the 1st Defendant, US$650,000 of which was then transferred to the 2nd Defendant’s Account. In the circumstances, I agree that the 2nd Defendant has no credible defence that it received the funds originating from the Plaintiff in the course of legitimate commercial dealings with the 1st Defendant. D. THE PLAINTIFF’S APPLICATION When property has been obtained by fraud, equity imposes a constructive trust on the fraudulent recipient; the property is recoverable and traceable in equity. The constructive trust arises from the date of the circumstances giving rise to it; the function of the court is merely to declare that the trust has arisen in the past. See Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 at 714G and 716C-D. The Plaintiff sought (1) declaratory relief that the 2nd Defendant holds the Sum of US$649,976.07 (US$650,000 less US$24.03 which might arguably not be traceable as the Plaintiff’s funds) on constructive trust for the Plaintiff, (2) repayment of the Sum, (3) restitution in respect of the Sum, (4) a vesting order of the amount held by the 2nd Defendant for the Plaintiff pursuant to s.52 Trustee Ordinance (Cap. 29), (5) interest and (6) costs. The Bank had indicated that it did not object to the making of the vesting order. In the circumstances, I made an order in terms of the summons as amended. (Yvonne Cheng) Judge of the Court of First Instance High Court Mr Christopher Dobby, of Hogan Lovells, for the Plaintiff The 2nd Defendant was not represented and did not appear