There has been a significant rise in cybercrimes since the outbreak of COVID-19 pandemic as more people are working from home and shopping online. In 2020, the FBI reported that the number of complaints about cybercrimes to their Cyber Division was up to as many as 4,000 a day; whereas cybercrime reports in Hong Kong rose from 2,206 in 2011 to 12,916 in 2020, and the amount of money involved increased from HK$148 million to HK$2.96 billion.
Common types of fraud include e-shopping fraud, business emails and contracts scams where fraudsters impersonate the parties to the contract by using very similar email account or domain account. In these cases, fraudsters pretended to be the sellers and send imposter emails to the victim buyers, claiming that the sellers’ bank account had changed and requested for transfer of funds to other bank accounts which were in fact operated by the fraudsters.
Actions to be taken
In order to maximize the chances of recovery of the stolen funds, victims should immediately report the case to the Hong Kong Police to obtain a police freeze on the stolen funds. For overseas victims who transferred monies to a Hong Kong bank account(s), they are not required to travel to Hong Kong to report the crime and can make the report to the Joint Financial Intelligence Unit of the Hong Kong Police Force online. The police may issue a ‘letter of no consent’, which has the effect of freezing, at least temporarily, the defrauded sum which remains in the bank account.
In addition, victims should report the matter to their banks and the recipient banks and once the banks are aware of the suspected fraudulent activities, they may freeze the recipients’ bank accounts pending internal investigation.
Court Proceedings – Proprietary and Mareva Injunctions
Victims may consider applying for a Proprietary Injunction and/or a Mareva Injunction if there are still money in the bank account to which they transferred monies to.
Where a plaintiff has a proprietary claim over the monies in the bank account (e.g. the plaintiff has been induced to transfer the money as a result of the fraud), he may seek a Proprietary Injunction. A Proprietary Injunction is used to preserve the disposal of the property to which a plaintiff has a proprietary claim whereas a Mareva Injunction aims to restrain the defendant from dissipating the assets.
If the Police or the bank cannot freeze the fraudster’s bank account at the first instance, then a Proprietary Injunction is necessary. However, if there is evidence which suggests, there is a real risk of dissipation of the money usually to another party’s bank account, then a Mareva Injunction is necessary. It is important to note that the threshold to seek a Proprietary Injunction is lower than that of a Mareva Injunction as the plaintiff is only required to demonstrate that there is a serious issue to be tried on the merits. Unlike in a Mareva injunction, the plaintiff is required to prove a real risk of dissipation of assets by the defendant (Pacific Rainbow International Inc v Wolverine Tech Ltdf  HKEC 869).
Banker’s records disclosure order
Under section 21 of the Evidence Ordinance (Cap. 8), a party may apply to the court for an order that the bank discloses its records of transactions in a bank account by providing copies of entries in banker’s record for inspection or copying. This allows the plaintiff to trace the funds deposited to the fraudster’s bank account. In order to obtain a banker’s disclosure order, the Plaintiff is required to show, inter alia, that there is a real prospect that the information may lead to the location or preservation of assets to which it is making a proprietary claim. This type of order is typically applied for during proceedings.
Application for a vesting order under section 52(1)(e) of the Trustee Ordinance (Cap.29) can also be made ordering the bank to return the stolen funds to the plaintiff. However, there has been conflicting views in recent cases in which judges differed as to whether the said section 52 can be used to grant a vesting order upon the making of a declaration that the defendant holds certain sums of money in a bank account on constructive trust for a plaintiff.
In Wismettac Asian Foods, Inc. v United Top Properties Ltd and others  HKCFI 1504 (10 July 2020), Deputy Judge Paul Lam SC took the view that section 52(1)(e) is wide enough to cover vesting by way of operation of law in a constructive trust situation. Further, the Deputy Judge remarked that the bank should be joined in the application for a vesting order before the court could consider whether such an order should be granted.
However, in another case TOKIC, D.O.O. v Hongkong Shui Fat Trading Limited  HKCFI 1822 (4 August 2020), Deputy Judge Douglas Lam SC took a different view on section 52(1)(e) and dismissed the application for a vesting order. The Deputy Judge considered that the defendants in an email fraud case were no more than recipients of proceeds of fraud and not “true” trustees, constructive or otherwise, as required under section 52(1)(e). It was held that “true” trustees only referred to persons who, albeit without a formal appointment, had lawfully assumed to act in the administration of the trusts, or whose fiduciary obligations were implied from the common intention inferred from the conduct of the parties. In email fraud cases, the defendants were required by equity to account as if they were trustees only. As such, it was held that the Trustee Ordinance was not applicable to email fraud cases.
The Deputy Judge then considered an alternative remedy under section 25A(1) of the High Court Ordinance (Cap. 4) and ordered the defendants to execute such documents as may reasonably be required to instruct the banks to transfer the funds back to the plaintiff, failing which the plaintiff can apply for an order under section 25A(1) of the High Court Ordinance (Cap. 4) where the court can nominate a person to execute the documents to effect the transfer of the funds.
Individuals and businesses should bear in mind the above options in relation to any mistaken transfer of monies as a result of cyber fraud. In particular, time is of essence for maximizing recovery of loss in cyber fraud cases. Upon discovery of any cyber fraud, victims should immediately inform the relevant banks and file a police report. Victims should also seek legal advice to proactively develop a strategy with their lawyers to recover the loss at the earliest opportunity. The longer the delay in taking action against the fraudster, the greater the likelihood that victims will not be able to recover the defrauded sum as the fraudster will likely have dissipated the monies.
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