Obtaining summary judgment (judgment without full trial) has traditionally been difficult in civil proceedings in Hong Kong, save for simple debt claims and the like. This theme is reflected in the 'fraud exception' to summary judgment – namely, where a plaintiff's claim includes an allegation of fraud (as widely construed), the courts have no jurisdiction to entertain an application for summary judgment.(1) In an age of electronic scams and, in particular, email fraud, with money passing through bank accounts in Hong Kong, foreign plaintiffs are increasingly pursuing defendants in Hong Kong to recover their money. In seeking summary judgment, where appropriate, some plaintiffs are careful not to allege fraud on the part of defendants – rather, their claims may be for the return of money unjustly received by defendants for no consideration. The recent case of Laerdal Medical Ltd v Hong Kong Haocheng International Trade Ltd is a good example.(2)
The plaintiff (a foreign company whose group is in the business of supplying medical care products) was the victim of an email fraud perpetrated by unknown persons, as a result of which a large sum in euros was apparently received by the defendant. The two parties had no business relationship. The defendant (a local company apparently in the plastics business) refused to repay the money on the basis that the sum received was the same as the balance due from one of its customers in China (and in the same currency). Further, by the time of the plaintiff's claim, the defendant argued that it had used the money to pay its own supplier.
The plaintiff commenced proceedings in Hong Kong against the defendant and applied for summary judgment. No allegation of fraud was made against the defendant, although the plaintiff appears to have been the victim of a fraud.
A lower court declined to grant summary judgment at an earlier stage and the proceedings progressed to a judge for determination. In an interesting and robust judgment, the judge granted summary judgment against the defendant for the full amount.
As a matter of jurisdiction, the judge held that the fraud exception did not apply because the plaintiff's claim did not allege fraud against the defendant – rather, it was based on the defendant's unjust receipt of the money. Of particular note was the fact that the parties had no business dealings and it did not appear to be disputed that the plaintiff had been the victim of a scam.
Having decided that the court could entertain the plaintiff's application for summary judgment, the judge appears to have had little difficulty (based on the documentary evidence) in finding that there was no merit in the defendant's defence. Therefore, as an exercise of discretion, there was no reason to refuse the grant of summary judgment.
Indeed, the judge referred to the defendant's purported defence as "hopeless".(3) Its explanation for the receipt of an identical sum of money appears to have been vague and the relevant banking documentation confirmed that the money received by the defendant had come from the plaintiff's bank account. There was little or no room for doubt as to where the money had come from.
The judge was equally dismissive of the defendant's other argument that it had used the money and the loss should lie where it falls (because it was less unjust for the plaintiff to bear the loss). The defendant was not in the position of a bona fide purchaser for value and, if it was out of pocket as regards an identical sum owed by one of its customers, it had a separate claim against that customer.
The judgment is to be welcomed. Any other outcome would have been unfair to the plaintiff and may have given the defendant a potential windfall. Indeed, the defendant appears to have been unable to explain how it would account for the payment from its customer once received.
The fraud exception to the power of the court to order summary judgment is normally applied widely.(4) Therefore, recent judgments which have not applied the exception will be welcomed by those plaintiffs that have lost money as a result of (for example) email scams and that seek redress against third parties which have received the money even if they have not participated in the fraud.(5)
While appellate court decisions in Hong Kong dictate (for now) that the fraud exception is given a wide meaning, this does not appear to prevent certain first instance judges from taking a practical and no-nonsense approach to claims for the return of moneys that have been unjustly received by third parties as a result of fraud perpetrated on plaintiffs.
In this case, it also appears not to have been lost on the judge that the sum misappropriated from the plaintiff's bank account was coincidentally the same as the amount that the defendant claimed was owed to it by its own customer. This is not to suggest that the judge (an experienced one at that) did not believe in coincidences – rather, he may have not seen one quite like this before.
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(1) For further details please see "Exception to 'fraud exception' for summary judgment".