8 May, 2017
In an earlier litigation bulletin (a copy of which is available here), we advised clients what to do if they had been defrauded.
This article explains how Hong Kong’s courts are also doing their part to help victims out.
The problem
Sadly, there are all too many cases these days where crimes committed abroad see the proceeds transferred to Hong Kong bank accounts. No doubt, with Hong Kong being a reputable financial centre, an instruction to remit money here does not raise any alarm with the victim. Typically, the proceeds will only be in the jurisdiction for a short period of time before being moved off shore and lost.
We are frequently instructed to help trace, restrain and recover victim’s money and have recently acted following crimes committed in America, England, Ireland, Nigeria, Mali, Singapore, Sweden and Switzerland. The most common type of fraud entails a fake or hacked email being sent to the victim with bogus payment instructions.
Once a payment is made, time is then very much of the essence. It is a race to locate the funds and restrain them before they disappear. It is then necessary to quickly obtain a judgment and enforce it. The victim, even if pursuing a proprietary or ownership claim, faces many risks. One of which is that other creditors may make a claim against the owner of the bank account.
This can then deny the victim any recovery (because other creditors have already taken everything): this is the particular issue which the Hong Kong Courts have tried to resolve.
Declaration of trust
In our experience, the owner of the bank account which the funds were remitted to is often a recently incorporated private company with its director and shareholder offshore. When sued they usually do not make an appearance to contest the claim. Until a recent sequence of High Court judgments (including DHCJ Cooney SC’s judgment in Guaranty and Trust Company v ZZZIK Inc Limited & Anor, HCA 1139/2016) the absence of the owner of the bank account has caused injustice.
With no-one defending the claim there is no trial and without, the court was reluctant to grant declaratory relief. Victims would seek declarations that the funds in the Hong Kong bank account were held on trust for them. The point would not be determined in default proceedings instead, the victim would obtain a monetary judgment on default and would only become an unsecured judgment creditor with no prior or specific rights over the funds in the bank account.
Making a declaration in the absence of the defendant In the ZZZIK Inc case, DHCJ Cooney SC stated ‘it is not the normal practice of the court to make a declaration without a trial. … this is a rule of practice and not a rule of law.’ Taking account that the paramount duty of the court is to do the fullest justice for the victim, he decided when a genuine need existed declaratory relief can be granted in the absence of the defendant.
When is there a ‘genuine need’?
DHCJ Cooney SC stated the necessary need existed when:
- The defendant bank account holder receives funds obtained by fraud.
- The victim makes a proprietary claim for the funds traced into the defendant’s bank account.
- A victim is at risk should other creditors appear.
A declaration by the court that the funds are the victim’s will earmark them as their property and put them out of the reach of the any other creditors.
This approach is obviously a welcome change. Victims of fraud can safe guard their property at an early stage. A Statement of Claim will be needed but if this is served on the defendant at the start of the litigation it will then be possible to enter judgment with the necessary declaratory relief after the passage of 14 days.
Vesting Orders
Combining the above approach with vesting orders under section 52 of the Trustee Ordinance allows a victim with the declaratory relief to then obtain their money. Vesting orders can be made when there is no prospect of the defendant transferring the victim’s money back to them. This situation will clearly exist when the defendant has disappeared. The courts are nowadays prepared to make a vesting order against a bank where the funds are held, requiring the bank to transfer the sum back to the victim.
Justice
That the courts are prepared to give declaratory relief when a need arises is an encouraging development and combining this with the relief available in the Trustee Ordinance, victims can secure their property and have it transferred back to them more quickly and with less risk than before.
For further information, please contact:
Ian Childs, Stephenson Harwood
ian.childs@shlegal.com
