Email fraud cases have regrettably become commonplace in Hong Kong. Most legal actions against fraudsters in Hong Kong are uncontested and result in default judgments, with debts recovered through traditional garnishee procedures and orders. However, since Halliburton BV Merkezi Hollanda Ankara Merkez Turkiye Subesi v. Sheng Yi (HK) Trade Co Ltd and Ors (HCA 1627/2016) in which Deputy Judge Cooney S.C. laid the foundation for the equitable imposition of a constructive trust on fraudulent recipients, canny claimants have seized upon the opportunity to forge a novel procedural ‘shortcut’ to redemption: bundling together vesting orders under section 52 of the Trustee Ordinance (Cap. 29) (the TO) against recipients of misappropriated funds with default judgment applications against the primary participants in the fraud. Fuelled by the court’s unquestioning acceptance of this practice, its popularity has continued to grow unchecked – until now.
Not one but two deputy High Court judges (DHCJ) have recently cast serious doubt over the legal and procedural aspects of this novel practice in two recent High Court cases, which we examine below.
Procedural element: the proper procedure for applying for a vesting order
Whilst it has been the normal practice of judgment creditors to apply for default judgment and vesting orders concurrently in the same summons, DHCJ Paul Lam SC held in Wismettac Asian Foods Inc. v. United Top Properties Limited & Ors (unrep., HCA 252/2020 & HCA 2315/2019, 10 July 2020) that this was procedurally incorrect and amounted to a procedural irregularity.
Mr Lam SC highlighted that the bank should be joined in the vesting order application before the court could consider whether such an order should be granted.1 Further, unlike vesting order applications, default judgment applications should be kept straightforward and no evidence is admissible. As such, the correct procedure is for the plaintiff to take out a vesting order application separately from the default judgment application by way of an originating summons with both the defendant (usually the recipient of the funds obtained by means of fraud) and the bank named as the respondents.2
Mr Lam SC remarked that, in most cases, the defendant would not appear at the hearings so the plaintiff could fix the originating summons for the vesting order to be heard immediately after the default judgment application, at a 9.30am slot before a judge in chambers in open court, with half an hour reserved for both matters. The court would make the vesting order in favour of the plaintiff provided that the court had already granted the default judgment in favour of the plaintiff. The plaintiff could adduce evidence such as relevant bank records proving that the current balance in the judgment debtor’s bank account represented the plaintiff’s money or its traceable proceeds, and that neither the defendant nor the bank had provided any evidence to the contrary.3
Mr Lam SC exercised his discretion in waiving such procedural irregularity, having noted that such practice had been adopted and approved by the court in many instances, and granted the vesting order as sought. However, he urged the legal practitioners to adopt the correct legal procedures in future.4