Primeway International Ltd v Yi He (HK) Trading Co Ltd
District Court
Miscellaneous Proceedings No 730 of 2018
Deputy Judge Vincent Lung in Chambers
23 May 2018

Trusts - constructive trust - monies in defendant's bank account deposited as result of fraudulent e-mails - monies held on constructive trust - proper beneficiary of trust - whether summary judgment for declaratory relief and order to compel bank to return monies to beneficiary appropriate

P1-2 were trading and shipping companies. P2 placed an order for goods with X. P1, as the authorised agent of P2, was deceived by fraudulent e-mails into transferring monies (the Sum) into D's account held with B, a bank (the Account), believing such transfer to be a payment to X. After discovering the fraud, the police were alerted and the Sum was frozen. By originating summons, Ps sought a declaration that the Sum was held by D on constructive trust for P1, alternatively P2; and an order that B release the Sum to P1, alternatively P2. D was duly served with the proceedings and did not appear at the hearing.

Held, giving judgment to P1 by making the declaration but not the payment out order, that:

(1) When equity imposed a constructive trust on the recipient of property obtained by fraud, the court had jurisdiction at the first hearing of an originating summons to dispose of the action summarily and in Chambers where the plaintiff had shown there were no triable issues (International Automotive Components Group sro v Xuke Trading Ltd [2017] 3 HKC 137 applied). (See paras.16-19.)

(2) Ps' claim was uncontested and they had shown a genuine need for declaratory relief to affirm their proprietary interest in the Sum (Mesirow Financial Administrative Corp v Best Link Industrial Co Ltd (HCMP 1846/2015, [2016] HKEC 173) applied). (See paras.21-24.)

(3) The proper beneficiary under the constructive trust was P1 as the entity from which the Sum originated and, as a matter of commercial reality and agency law, would ultimately be reimbursed. (See paras.27-29.)

(4) No order would be made to compel B to return the Sum to P1. First, there was no application for a garnishee order. Second, there was no evidence as to any deposits and withdrawals before and after the Sum was deposited into the Account. If the Sum were "mixed" with other funds that might be subject to other trusts or third parties' rights, the usual tracing rules would dictate the beneficial title to those funds or the remaining monies thereof. (See paras.33-34, 37.)

(5) Third, to make the order sought would effectively give P1 priority over the credit balance in the Account (up to an amount equivalent to the Sum), possibly to the detriment of third parties with an equal or even better title to the same. It would be wrong in principle to do so, without giving them, or at least B, an opportunity to be heard (International Automotive Components Group sro v Xuke Trading Ltd [2017] 3 HKC 137 applied; Northeast Metal Traders, Inc v Huiguan Electronic Industry Co Ltd (DCMP 1837/2017, [2017] HKEC 2039), Dialog Services Saudi Arabia Co Ltd v Youtai International Trading Co Ltd (DCMP 1215/2017, [2017] HKEC 1454) distinguished). (See paras.35-36.)

Application

This was an application by the receiving parties under costs orders made in these three actions for a non-party to be ordered to pay costs as the real party under s.52A of the High Court Ordinance (Cap.4). The facts are set out in the judgment.

Jurisdictions: 

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