Email fraud and online scams have been particularly prominent in the news of late. These are serious crimes and justify reporting to the relevant law enforcement authorities. In addition, as a response to the increased activities of email fraudsters and online criminals, some victims have been active in using the civil courts to seek redress.
A standard modus operandi of an overseas fraudster is to mimic the email account of a senior individual within a company in order to arrange unauthorised payments to the bank accounts of third parties in Hong Kong. Sometimes the third party recipients are co-conspirators; on other occasions the fraudster uses the misappropriated funds to pay off what appear to be debts owed to unsuspecting third parties.
Where significant losses are incurred the priority is to notify the recipient's bank in Hong Kong of the fraud and the victim's claim to the misappropriated funds. What usually follow are legal proceedings against one or more defendants in Hong Kong (including the account holder and any known co-conspirators). These civil proceedings normally start with a writ action supported by mareva and/or proprietary injunctive relief in order to prevent disposal of the funds in the defendant's bank account. The causes of action can include claims based on constructive trust and "money had and received". The court documents are served on the account holder and the bank.
Often the overseas fraudster cannot be located and the defendant in Hong Kong does not defend the legal proceedings. Therefore, where the plaintiff is seeking declaratory relief as to the ownership of the misappropriated funds, the plaintiff will proceed as if the proceedings are being defended and apply for judgment in default based on the Statement of Claim and any supporting affidavit(s).
The grant of declaratory relief at an interlocutory stage of proceedings (before trial) is not the norm. However, in a series of recent first instance decisions arising out of what are described as "email frauds", the courts have granted default judgments against defendants including declaratory relief as to the plaintiff's proprietary claims to the misappropriated funds. Speed is usually of the essence. Armed with a judgment, including entitlement to the misappropriated funds, the plaintiff is in a position to take enforcement proceedings against whoever holds the funds, including the defendant's bank.
What these recent first instance decisions illustrate is the courts' willingness to assist plaintiffs who have been victims of email fraud, provided that their claims can be substantiated on the basis of the court documents and service (or substituted service) has been effected on the defendant(s). Such civil redress can come with a significant legal cost and is no guarantee that a plaintiff will recover all of their money.
On the basis that prevention is better than a remedy, those who are responsible for the operation of a corporation's bank accounts should review their internal authorisation protocols and carry out periodic audits. There is no one form of fraud prevention – rather, account staff, finance managers and senior management should adopt a multi-faceted approach aimed at verifying the identity of those to whom they authorise payments, while also checking the underlying commercial transactions.
Editorial Note – Also see Industry Insights for November 2015, "Telephone Scams".