Hong Kong: Vesting Orders Are Back In Vogue – Hong Kong Court Of First Instance Confirms Ability To Help Victims Of Cyber Fraud

Following on from our note, Vesting orders: back in vogue? Let's hope so, the Hong Kong Court of First Instance has since (twice) ruled it does have the jurisdiction to grant a vesting order under section 52(1)(3) Trustee Ordinance (Cap.29). A vesting order is a straightforward remedy which, in circumstances where the victim is able to trace or identify the funds, directs the party holding the stolen monies (usually a bank) to pay the money back to the victim.

The practice had been questioned in recent court cases, but two recent decisions seem to suggest that it is very much back on track.

The plaintiff in Star Theraputics Inc v. Leabon Technology (HK) Ltd [2021] HKCFI 1715, claimed to be the victim of an email fraud resulting in US$520,000 belonging to it being transferred out of its account with a bank in Silicon Valley to unknown persons among whom were the defendant. The sum of US$519,972.30 was transferred into its bank account in Hong Kong.

The plaintiff applied against the defendant and the bank (the second defendant) for a declaration that the sum remaining in the account were funds held on trust with the plaintiff and for judgment against the defendant for the sum less the balance. The plaintiff had had no dealings with the defendant.

Deputy Judge Le Pichon was satisfied that the plaintiff was the victim of an email fraud, that the sums could be traced through to the defendant's bank account and that the defendant was holding the funds as a constructive trustee on behalf of the plaintiff.

The court said that, once that was shown, a vesting order can be made pursuant to section 52(1)(e), as per the decision in Wismettac Asian Foods, Inc v. United Top Properties Limited [2020] HKCFI 1504.

Whilst Deputy Judge Le Pichon did not expressly cite or refer to 800 Columbia Project Co LLC v. Chengfang Trade Ltd [2021] 3 HKLRD 674 in her Judgment, the learned judge did refer to the "detailed analysis of the application of section 52(1)(e)" in paragraphs 40-46 of the Wismettac judgment in which the court analysed and chose not to follow the decision in 800 Columbia which held that the court's jurisdiction was not engaged where a person becomes a constructive trustee pursuant to a declaration made by the court.

Deputy Judge Le Pichon then cited her decision in Star Theraputics a few days later in Lexcom Informationssysteme GmbH v. HongkongJoyee Holdings Go Ltd [2021] HKCFI 1756, granting default judgment to the plaintiff, a company incorporated in Germany that provides IT services, after persons unknown hacked into the email account of its managing director. The fraudster sent emails to an employee in the accounting department to remit sums to two separate bank accounts, sums that eventually found their way into the defendant's bank account in Hong Kong.

The court found again that a constructive trust arose by operation of law when the sums were credited to the defendant's account with the bank. No vesting order was applied for in this case, as the plaintiff's claim against the bank holding the funds had been settled.

The decision in Star Theraputic is another welcome decision which suggests that vesting orders are back in the armoury of tools available to victims of email fraud as they fight to recover their funds.

Originally published by Hogan Lovells Engage, 28 June, 2021

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