Vesting Orders – a Powerful Tool to Assist Cyber Fraud Victims

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:-

  • it can be proved that the funds in the bank account represents the victim’s monies or traceable proceeds, and
  • the court finds it expedient to grant such an order, meaning that without such an order, it would be impossible or difficult to deal with those monies or proceeds.

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.

21 March 2022