By Gabriel Princewill-
The High Court has dramatically awarded the UK arm of natural resources company China Molybdenum Company (CMOC) £7m, in a case involving a worldwide freezing injunction against ‘persons unknown’ was approved for the first time.
In CMOC v Persons Unknown [2018] EWHC 2230 (Comm), the historic award in a case of this kind was warded by His Honour Judge Waksman against 28 individuals as well as ‘persons unknown’ for the recovery of money stolen through online fraud.
The case involved a sophisticated cyber fraud in which persons unknown caused CMOC’S London bank to pay out sums circa USD8 million to various accounts in 19 jurisdictions around the world. In the 9 month period between discovering the fraud and the trial, the CMOC engaged in wide asset-tracing and freezing exercise to assist its stolen funds, including 14 court applications to the Commercial Court in London with a further 7 applications to the Commercial Court in London with a further 7 applications made on paper.
DAMAGES
The court ordered the repayment of stolen money, awarded damages of approximately £7m and legal costs. The order of damages was in relation to an earlier worldwide freezing injunction imposed over the assets of ‘persons unknown’ – the first reported one of its kind ever to be granted in England & Wales against alleged perpetrators whose identity was unknown. Injunctions of this kind were formerly restricted to types of injunctions that included online libel.
This case has been hailed for its demonstration of the English Court’s ability to adapt to the increasing sophisticated nature of fraudulent enterprises which utilise hacking and technological subterfuge. Experts believe the case has the potential to turbo-charge the use of High Court actions to combat worldwide fraud.
HHJ Waksman QC who sat as a Judge of the High Court, handed down judgment against both the defined class of Persons Unknown, and a total of 28 other named Defendants. A consent order and judgment were previously entered in respect of two further named Defendants. The claims upheld included proprietary claims, damages for unlawful means conspiracy, dishonest assistance, and knowing receipt and restitution for unjust enrichment. Although not all defendants were subjected to the claims, the effect of the judgment is that each Defendant was found jointly and severally liable for the whole sum stolen, plus additional heads of loss.
Compound interest and costs were also awarded against each of the Defendants who put in claims for remedial awards. This case has been hailed for its demonstration of the English Court’s ability to adapt to the increasing sophisticated nature of fraudulent enterprises which utilise hacking and technological subterfuge. Legal experts believe the judgement will set a welcome precedent for the High Court to robustly combat worldwide fraud. Cyber fraud is one of the most invasive and pervasive form of fraud in existence today, perpetrated by criminally minded and unscrupulous individuals.
The judge also ordered assets currently held by some defendants to be held on trust for CMOC, and granted additional worldwide freezing orders and propriety injunctions against all defendants in aid of enforcement.
FREEZING INJUNCTION
CMOC had sought a freezing injunction against people who had hacked into its email system and fraudulently siphoned millions of pounds into bank accounts around the world. Although the account owners were not traceable, CMO attempted to restrain the bank accounts to which the monies had been transferred. The judge touched on the extension of the Court’s jurisdiction to make worldwide freezing orders so that they can be made against persons unknown; and the approach of the Court to consider proactively novel methods of alternative service – in this case including by Facebook Messenger, WhatsApp, and by access to online data room.
CHALLENGES
In the judgment, Waksman said a development of this nature ‘reflects the need for the procedural armoury of the court to be sufficient’ to meet challenges posed by the modern electronic methods of communication and doing business.
The injunction required 35 international and overseas banks in at least 19 jurisdictions to freeze the assets of the individuals and allegedly stolen funds, and to reveal the identity of the alleged fraudsters and the details of any onward transfers. The court is now poised to enforce the £7m judgment in various jurisdictions and investigate the individuals involved.
CMOC was advised by dispute resolution firm Cooke, Young & Keidan (CYK) who instructed counsel from 20 Essex Street and 3 Verulam Buildings.
Philip Young, partner at CYK, said:
‘‘Online crime of this kind is becoming increasingly common and it is not always easy to identify the perpetrators in order to serve an injunction upon them and to take effective steps to recover assets. We are very pleased that the Commercial Court was open to our creative approaches to tracing the funds and identifying the perpetrators and believe that this demonstrates the primacy of London as the leading jurisdiction of choice for effective dispute resolution globally.’
Paul Lowenstein QC, of 20 Essex Street, said: ‘This litigation demonstrates the willingness of the London Commercial Court to work with the victim of a novel form of cyber-fraud to provide effective and flexible remedies that allowed much of the stolen money to be rapidly frozen around the world, information regarding its whereabouts to be ordered from banks in many overseas.”