Background

Under Order 13 Rule 5, Rules of the High Court (Cap. 4A) ("O. 13, r. 5"), a plaintiff can apply for judgment in default if the defendant fails to file an acknowledgment of service within 14 days of service of the Writ, or fails to serve the defence on the plaintiff within 42 days. This is a quick and cost-effective way of entering judgment against a defendant without having to take the claim all the way to trial.

The wording of O. 13, r. 5 suggests that in circumstances where a plaintiff has obtained injunctive relief prior to applying for default judgment, it would need to abandon a claim for injunctive relief before the Court can enter default judgment against the defendant.

A recent e-mail fraud case held that where a plaintiff who had already obtained a Mareva injunction over the defendant's assets subsequently applies for default judgment against the defendant, the Court can exercise its inherent jurisdiction, and still award default judgment.

Facts

The Plaintiff brought proceedings as a result of an e-mail fraud in which the Plaintiff was induced to make certain payments to the 1st Defendant as an investment in a company listed on the NASDAQ exchange ("Payments"). The Payments were made to the 2nd, 3rd and 4th Defendants' bank accounts. It was clear that the Plaintiff was induced to make the Payments as a result of the 1st Defendant's fraud. The other Defendants nonetheless failed to return the Payments to the Plaintiff.

On 11 March 2016, the Plaintiff issued a Writ against the Defendants claiming that the Payments had been made as a result of fraudulent misrepresentations. The Plaintiff was seeking judgment against the 1st Defendant for both a liquidated sum and damages to be assessed, as well as Mareva injunctions against all four defendants. That same day, the Court granted the Mareva injunctions.

The Plaintiff served the Writ on the 1st Defendant by e-mail and fax. The e-mail addresses and fax numbers which the Plaintiff used had been supplied to the Plaintiff by individuals with whom he had previously dealt, who purported to represent the 1st Defendant. In the circumstances, Au Yeung J considered that service upon the 1st Defendant by e-mail and fax was sufficient. The Plaintiff served the remaining Defendants by hand at their registered offices.

None of the Defendants responded to the Writs, and consequently, the Plaintiff applied for default judgment.

First application for default judgment

At first instance, Recorder Linda Chan SC took the view that she had no jurisdiction under O. 13, r. 5 to give a final judgment in default and dismissed the application. The Recorder was concerned with the following passage contained in §13/6 of Hong Kong Civil Procedure 2016 which stated that: "…the effect of para.(1) is to preclude a plaintiff from entering judgment in default of notice of intention to defend in every case in which the indorsement on the writ contains or includes a claim which is not squarely within rr.1 to 4 of this Order…If, therefore, there is indorsed on the writ a claim for an…injunction… the plaintiff cannot enter judgment in default of notice of intention to defend, unless he expressly and finally abandons every such remedy or relief."

The Recorder dismissed the application for default judgment, but continued the Mareva injunction. The Recorder also expressed concerns about the adequacy of service upon the 1st Defendant.

Second application for default judgment

On 13 May 2016, having considered the issue raised by the Recorder, the Plaintiff issued a new Summons for default judgment. The Plaintiff drew the Court's attention to the judgment of Stewart Chartering Ltd. v. C. & O. Managements SA [1980] 1 W.L.R. 460 (also quoted in the notes to O. 13, r. 5 in Hong Kong Civil Procedure 2016).

The Stewart Chartering Ltd. case identified the paradoxical situation where although a plaintiff has obtained an injunction designed to prevent a defendant from removing its assets out of the jurisdiction (so as to prevent the plaintiff from satisfying her judgment), a plaintiff is inhibited from obtaining default judgment, which would be the next step ordinarily taken for a plaintiff to enforce her claim against the defendant. In these circumstances, the Court has power under its inherent jurisdiction to enter default judgment against the Defendant.

Judgment

The Court accepted the Plaintiff's submission that the course adopted in the Stewart Chartering Ltd. case should be adopted on these facts, and held that it would be plainly wrong if the Plaintiff was not able to enter a default judgment enabling its monetary losses to be properly assessed only upon the basis that it must lose the Mareva injunction - an outcome which would allow the Defendants to defeat the whole purpose of the Mareva injunction, and to spirit their funds (if any) out of the jurisdiction, which would effectively render the Plaintiff's default judgment worth no more than the paper it was written on.

Accordingly, the Court exercised its inherent jurisdiction and ordered final judgment in default against all of the Defendants in the action. The Court also ordered that the Mareva injunction be continued until the damages had been assessed and the judgments have been satisfied.

Take-away points

  • E-mail fraud is becoming increasingly common. Although this is an important judgment because it resolves the apparent paradox under O. 13, r. 5, it applies specifically to Mareva injunctions because of the inherent impracticality of requiring a plaintiff to give up its Mareva injunction in order to enter default judgment. The exception under O. 13, r. 5 is unlikely to apply to other types of injunctive relief.
  • Often in cases of e-mail fraud, a Mareva injunction is not strictly necessary because upon being notified of a criminal fraud, the police will often freeze the fraudster's bank account (see HWB's December 2015 Insurance law Alert, "Closing the net on e-mail scammers"). This latest case on the subject is interesting because although the fraudulent representation was made by the 1st Defendant, the money was not transferred into the 1st Defendant's bank account (and was instead transferred to the 2nd - 4th Defendants' bank accounts), which is why a Mareva injunction was necessary in the first place.
  • Seeking legal advice immediately upon becoming aware of possible e-mail fraud is crucial because this allows a plaintiff to identify and freeze the funds in the fraudster's bank account before the fraudster has a chance to transfer the funds elsewhere.
  • Effecting proper service of legal proceedings in cases of e-mail fraud can be tricky as the perpetrator is often difficult to track down. This recent case however, highlights the Court's practical and forward-thinking approach where, although the defendant may not have been served personally, other methods of service may well be sufficient.

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Disclaimer: The information contained in this article is intended to be a general guide only and is not intended to provide legal advice. Please contact pr@hwbhk.com if you have any questions about the article.