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On 18 February 2022, the Hong Kong Court of First Instance handed down its reasons for the judgment in Hypertec Systems Inc. v Yifim Limited [2022] HKCFI 482, in which the Court affirmed its jurisdiction to grant vesting orders to help victims of cyber fraud cases recover their money transferred to bank accounts.
In this case, as a result of an email fraud, the plaintiff was deceived into transferring funds into the two defendants’ bank accounts in Hong Kong. The Court first recognised that since there was a transfer and receipt of money by way of fraud, by the operation of law, the defendants were holding the money on a constructive trust for the plaintiff, and hence the money in the bank accounts was recoverable and traceable in equity. On this basis, the Court went on to consider whether it had jurisdiction to grant vesting orders so as to compel the bank to return the funds to the plaintiff.
The legal basis for a vesting order can be found in section 52 of the Trustee Ordinance (Cap.29), the relevant part of which is restated as follows:-
“(1) In any of the following cases, namely –
[…]
(e) where stock or a thing in action is vested in a trustee whether by way of mortgage or otherwise and it appears to the court to be expedient, the court may make an order vesting the right to transfer or call for a transfer of stock, or to receive the dividends or income thereof, or to sue for or recover the thing in action, in any such person as the court may appoint,
[…]
(5) The court may make declarations and give directions concerning the manner in which the right to transfer any stock or thing in action vested under the provisions of this Ordinance is to be exercised.” [emphasis supplied in bold]
Recently, the statutory basis, and thus the jurisdiction of the court to grant vesting orders in cyber fraud cases, has been a subject of debate. Earlier, in 800 Columbia Project Company LLC v Chengfang Trade [2020] HKCFI 1293, the Court of First Instance held that the Court’s jurisdiction under section 52(1)(e) above was not engaged to justify the making of a vesting order to recover the plaintiff’s money transferred due to fraud and landed in the hands of the defendant recipients, on the basis that the statutory provision did not contemplate a constructive trustee in such circumstances. 800 Columbia Project Company LLC decision received support in Tokić DOO v Hongkong Shui Fat Trading [2020] HKCFI 1822 and Essilor Manufacturing (Thailand) v G Doulatram [2020] HKCFI 1790.
In Wismettac Asian Foods v United Top Properties [2020] HKCFI 1504, however, the Court of First Instance considered the 800 Columbia Project Company LLC case and other cases along its line, but it had instead taken a liberal approach to construe section 52(1)(e) and held that the term “trustee” extends to a constructive trustee and the expression “by way of mortgage or otherwise” includes vesting by way of operation of law (i.e. constructive trust). This has been adopted in the present Hypertec Systems Inc. case (as well as in Star Therapeutics Inc v. Leabon Technology (HK) Ltd [2021] HKCFI 1715 and Lexcom Informationssysteme GmbH v Hongkong Joyee Holdings Co Ltd [2021] HKCFI 3389), and the Court of First Instance held that:-
“Section 52(1)(e) should apply, so that a vesting order may be made upon proof that a constructive trust arose by operation of law in respect of the money extracted from the Plaintiff by fraud or mistake which ended up in the recipient’s bank account now subject to the trust.”
Nonetheless, the Court reiterated that in order for a vesting order to be made in cyber fraud cases, the following conditions must be satisfied:-
If the above two conditions are satisfied, the Court has the jurisdiction to grant the vesting order under section 52(1)(e). Under section 52(5), the effect of such an order is that the funds can be directly vested in the victim. In other words, the bank will be compelled to transfer the funds back to the victim as beneficiary under the constructive trust. Despite the recent debate in the Court of First Instance, vesting orders will likely remain as a powerful tool for cyber fraud victims to recover their money fraudulently transferred to other bank accounts.
On 4 March 2022, the Chief Justice announced a GAP period between 7 March and 11 April 2022 in response to the ongoing COVID-19 pandemic in Hong Kong.
During the GAP period, the capacity and operations of the judiciary will be substantially reduced, and all hearings of the courts and tribunals originally listed in the GAP period will be generally adjourned, subject to directions from the courts and the exceptions set out in the announcement, which include :
In addition, all registries, accounts and other court offices will be closed during the GAP period except for, amongst other things, supporting court business that will continue during the GAP period or filing of urgent applications subject to limitation periods or other time limits imposed by court orders or legislation.
The full list of court business that will continue during the GAP period are set out in the judiciary’s announcement (link).
On 9 February 2022, the Hong Kong International Arbitration Centre (“HKIAC“) has published its dispute resolution data for 2021.
Compared with the statistics in 2020, although the number of arbitrations submitted to HKIAC has returned to the 10-year average level after reaching its 10-year peak in 2020, there is an upward trend with the total number of dispute resolution cases submitted last year. In particular, there is a drastic 51% increase in the number of domain name disputes submitted last year.
The percentage of international arbitrations (where at least one party was not based in Hong Kong) amongst all arbitrations submitted has also seen an increase of around 10%, from 72.3% in 2020 to 81.6% in 2021. Despite the influence of the COVID-19 epidemic, the data demonstrates that Hong Kong remains and continues to be a favourable destination for resolution of international disputes.
The effectiveness of conducting arbitration in Hong Kong has also been strengthened by its tightened connection with mainland China through the implementation of the “Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the Hong Kong Special Administrative Region”. Last year, the HKIAC has handled almost twice as many applications for the preservation of evidence, assets or conduct in the mainland made under the above arrangement than in 2019.
The Law Reform Commissions’ recommended in its report in December 2021, that the existing legal rules be amended to allow lawyers to charge in “outcome related fee structures” in arbitration taking place in and outside Hong Kong. This is envisaged to bring Hong Kong in line with other major arbitral seats and further enhance Hong Kong’s competitiveness as international dispute resolution centre.
Please refer to the HKIAC’s website for the full statistics of 2021 here.
The article is a Q&A guide to joint venture laws in Hong Kong. It gives a high-level overview of joint venture laws, including regulation of joint ventures, permitted types of joint ventures, formation formalities , and a broad spectrum of other legal issues relating to joint ventures in Hong Kong.
For further information, the full article can be found here.
On 28 January 2022, the Securities and Futures Commission (“SFC”) has reprimanded and fined Citigroup Global Markets Asia Limited (“CGMAL”) HKD $348.25 million for providing mislabeled Indications of Interest (“IOIs“) to its clients and for executing IOIs without making proper prior disclosure from 2008 to 2018.
An IOI expresses a buyer’s non-binding interest in buying a security in the stock market. Broadly speaking, there are two types of IOIs. The first type of IOI is issued by a client of a licensed corporation. The execution of such IOI is known as an agency trade. A licensed corporation may only represent that an IOI is issued by its client if the IOI is backed by reasonable expectation of interest from a specific client. The second type of IOI is issued by the licensed corporation itself. The execution of such IOI is known as a facilitation trade. Conflict of interest may arise in facilitation trades, and the SFC requires licensed corporations to, amongst other things, disclose such conflict of interest to the client prior to executing the trade.
During the relevant period, CGMAL represented to its clients that the IOIs in question were backed by reasonable expectation of interest from a specific client. However, the SFC determined that CGMAL’s senior management knew or must have known that such representations were not true. When the CGMAL traders could not find clients willing to act as the buyers of the IOIs in question, the traders would execute the IOIs with CGMAL without making the required prior disclosure to the clients who are the sellers of the IOIs (“Improper Facilitated Trades”).
The SFC believes that CGMAL’s failure to correctly label the trades and failure to make proper disclosures prior to executing the Improper Facilitated Trades exposed “a culture within CGMAL which encouraged chasing revenue at the expense of basic standards of honesty and clients’ interests”. The SFC aimed to deter other licensed corporations from permitting similar failures to occur by handing CGMAL the heavy fine. The SFC has indicated that it will commence disciplinary proceedings against the senior managers responsible for permitting the failures to occur.
Licensed corporations are advised to review whether their compliance policies provide for effective monitoring in respect of its trading activities in view of the SFC disciplinary action against CGMAL.
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