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Persons unknown: Courts recognise innovative means of recovery in light of record fraud levels

  • United Kingdom
  • Financial services disputes and investigations
  • Fraud and financial crime
  • Litigation and dispute management

23-02-2021

Background

Fraud rates are stated to be at record highs, with one global survey finding that 47% of companies participating had experienced fraud within the previous 2 years (with cyber-crime prevalent)1. In the UK, cyber-crime caused business losses of £87bn in the five years to June 20202. Against that backdrop, whilst prevention is a watchword, companies will want to understand their rights of recovery against perpetrators of any fraud. Especially when it is commonly the case in instances of cyber-crime that it will be unclear who is responsible, and funds will likely have been swiftly moved out of the jurisdiction by fraudsters.

This presents a particular problem when attempting recovery of lost funds through the Courts in England and Wales. A so-called Norwich Pharmacal application provides an avenue through the Courts to obtain information from third parties, commonly financial institutions, in order to establish personal information about individuals holding accounts into which funds have been misappropriated. Those individuals can then be targeted within a legal claim, or the information used to further ongoing investigations. However, this is of limited assistance because a company is unable to serve Norwich Pharmacal applications outside of the jurisdiction. Therefore, if defrauded sums have been moved outside of England and Wales, this provides limited assistance.

CMOC v Persons Unknown (“CMOC”)3

The CMOC decision has, since 2018, provided authority for an alternative method of obtaining information about fraudsters’ identities and the location of misappropriated funds to then pursue legal action against them. This is regardless of whether or not those individuals, or their banks, are present in England or Wales. The heads of claim can be sufficiently varied to capture circumstances where the fraudster no longer has the specific funds4.

In short, CMOC was the victim of an email diversion scam, whereby unknown fraudsters had gained access to their business email account. The fraudsters were able to instruct CMOC’s London-based bank to process a series of 20 transactions in the total sums of US$6.91 million and €1.27 million (together the “Defrauded Payments”). Mindful that the prospective defendants to any litigation would be ‘persons unknown’, and that the proceeds of the Defrauded Payments had been dissipated abroad, CMOC followed a unique three stage approach, namely:

1. Claim Form – It is possible to issue Court proceedings against an individual unknown defendant, named as Person(s) Unknown. In order to do so, it is simply necessary to define a general, closed class of defendants (i.e. those who carried out, assisted or participated in the fraud, or otherwise received funds dishonestly). The named defendants can be changed as matters progress: the CMOC trial decision ultimately featured 31 defendants, each with varying levels of involvement.

2. Freezing order – CMOC’s next step after issuing proceedings was to obtain worldwide freezing orders against Person(s) Unknown. This was recognised by the Court in CMOC as an extension of the law as it previously stood.

3. Worldwide disclosure orders – CMOC was then able to obtain internationally recognised disclosure orders, so as to then pursue the fraudsters through the existing litigation.

Service of documents

One obvious issue in proceeding in this area is service of documents, particularly where multiple addresses exist. Generally, it will be necessary to serve Court documents by specific methods, including either personal service, the postal services or emails.

In CMOC, it was recognised that traditional methods, including granting an order for defendants to provide their addresses, would be toothless as they would be ignored by the fraudsters. In such circumstances, the Courts have recently shown willingness to grant authorised service by Whatsapp, Facebook Messenger and access to a data room. The latter involves sending a link by a previously approved Court method, such as email or hard copy. It would avoid a significant practical problem, namely the need to potentially expend large sums in courier costs each time service of documents is required.

Wider implications

The losses in CMOC were clearly significant, so as to justify the costs in pursuing the action. It will not always be in a business’ commercial interests to pursue losses against fraudsters. Further, it will be an unavoidably large exercise to trace funds through a series of bank accounts, which will be more pronounced the greater the amount of countries that the funds have reached (in CMOC, the funds had been dissipated to Spain, Portugal, China, Turkey, the Netherlands, Belgium and Nigeria). There is the additional issue of enforcing judgments obtained.

Further claims against persons unknown have been brought in the couple of years since CMOC, but we expect to see more of these cases in the coming year.

The Courts in England and Wales are demonstrating a clear willingness to evolve, and are open to innovative methods of service and ways of enabling recoveries. With fraud levels increasing, particularly during the pandemic, one way of deterring this in future will be to target fraudsters directly through the Courts. This sends out a message that they cannot expect to avoid repercussions any longer and should lead to higher levels of recovery of misappropriated funds than has been possible in the past. It is the right thing that the Courts continue to find ways to allow meaningful civil action against fraudsters to be taken. We expect with the increasing levels of cyber-crime, claims against persons unknown will increase in 2021 and that the Courts will continue to allow more innovative ways for fraudsters to be held liable through civil action.


[1]                 PWC Global Economic Crime and Fraud Survey 2020

[2]                 https://www.itpro.co.uk/security/cyber-security/356354/uk-businesses-spent-ps87-billion-in-five-years-tackling-cyber-crime

[3]                 CMOC v Persons Unknown [2018] EWHC 2230 (Comm)

[4]           Variously depending on the parties’ involvement, the claims were brought on the basis of dishonest assistance, unlawful means conspiracy, knowing receipt, unjust enrichment or other proprietary claims.

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