Draft with care – Hong Kong court highlights the importance of proper pleadings

The plaintiff in JSP International SRO v Alacrity Ltd [2002] HKCFI 977 is a Czech Republic registered corporation, also a wholly-owned subsidiary of a French corporation which is held by JSP Corporation, a Japanese company.

On 20 October 2020, the plaintiff’s then financial controller received a call from someone who claimed to be calling on behalf of Mr Sakai, the president of JSP Corporation. The caller asked the financial controller to prepare a bank transfer for purposes of purchasing a company, and asked her to keep the matter confidential from her colleagues. The financial controller made enquiries and determined that the call was legitimate.

Later the same day, another caller who claimed to be a lawyer appointed by Mr. Sakai sent an email to the financial controller, attaching a power of attorney that purported to be from Mr. Sakai that gave the financial controller “full authority to act” including signing, activation, and processing of payment.

Under the mistaken belief that she was acting on Mr. Sakai’s instructions, the financial controller made various transfers from the plaintiff’s bank accounts to the bank accounts held by the first tier defendants.

It was only on 5 November 2020 that the plaintiff learned about the fraud. The plaintiff reported the matter to both the Czech and Hong Kong police. The plaintiff also found out following the granting of a bankers’ books disclosure order, that there had been various transfers from the first tier defendants’ bank accounts to accounts held by other second tier defendants.

The plaintiff made an application for default judgment under RHC O.19, r.7 and sought various grounds of relief.

Unjust enrichment

The court granted restitutionary relief on the principles of unjust enrichment against both the first, as well as the second tier defendants, the court being satisfied that the latter had been unjustly enriched by funds originally transferred by the plaintiff to the first tier defendants.

Constructive trust

The plaintiff also claimed proprietary remedies, in terms of a declaration that the defendants held each of the sums transferred to their bank accounts by the plaintiff (in the case of the first tier defendants) or by the first tier defendants (in the case of the second tier defendants) together with the traceable proceeds on trust for the plaintiff, as well as the payment order to pay, release or transfer these sums to the plaintiff.

Fraudulent receipt

The Honourable Madam Justice Yvonne Cheng refused to grant the declaratory relief and payment order relief, and relied on the requirements set out in the English case Three Rivers District Council v Bank of England (No 3) [2003] 2 AC 1 for determining when a person should be considered a fraudulent recipient.

The first requirement is that one must distinctly allege and prove fraud or dishonesty and must plead all the facts, matters and circumstances to show that the defendant is dishonest. Mere negligence is insufficient, and there should be no equivocal language as it may not be sufficient to say “wilfully” or “recklessly” if the pleader in fact means “dishonestly” or “fraudulently”.

The second requirement is that the…

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