Cyber fraud: a practical guide for asset recovery in Hong Kong

Dominic Hui and Danny Tsui
Ribeiro Hui, Hong Kong

Fake…fake…fake.  E-mails, calls, messages, websites, links, and many more until the scam results in a transfer of money to a scammer.   Money gone.  What can the victim do?  

First step – report the case to the police  

The incident should be reported to the local law enforcement agency immediately.  Equally importantly, the incident should be reported to the law enforcement agency of country where the receiving bank account is located, if different.  

This step is critical because the receiving bank would then be notified, and in turn might exercise a courtesy freeze over the receiving account.  Here in Hong Kong, such a courtesy freeze usually last for 7 to 14 days.

Second step – contact the bank 

The victim’s transferring bank should also be notified of the scam immediately. We put this as a second step because some banks would ask for proof that the alleged scam is not a mere pretext for reverting payment.  Having undertaken the first step, one could tell the bank that police report has been filed. 

Even if the transferring bank may not be able to seize the payment, it may procure a courtesy freeze from the receiving bank, and obtain information on the status of the asset in question.  

At this stage, the victim needs to deploy readily available methods immediately to trace and prevent the scammer from withdrawing the money.  In many situations, a bank may be able disclose material information that saves the victim the trouble of having to obtain disclosure orders from the court (i.e. Bankers Trust Order and/or Norwich Pharmacal Order), as these orders are often academic in a sophisticated cyber fraud.    

Notifying the banks alongside the police can improve the chance and pace of getting a quick courtesy freeze over the asset.  Time is of the essence.   

Third step – obtain a freezing order from the court of competent jurisdiction  

The aforesaid courtesy freeze will, however, not last long enough to allow an effective recovery of the funds.  

The banks are not legally obliged to freeze the account, unless otherwise mandated by a court order.  A freezing order from the court of competent jurisdiction can legally lock down the funds sitting at the scammer’s account.  This will give the victim sufficient time to go through the necessary legal procedures to obtain the relevant judgment, and ultimately effect the reversion of the assets via enforcement measures. 

Which jurisdiction?

When one considers obtaining relief from the court with the view to tracing and recovering the monies, the first question is – the court of which jurisdiction? 

Traditionally, courts of common law countries can claim jurisdiction over foreign perpetrators based on the local presence of assets. If the timing is right, an injunction or asset preservation relief can be obtained through the court of the same jurisdiction. 

However, things become tricky when one realizes that the assets have been transferred to another jurisdiction.  The convenient forum for the substantive claim and the places one requires injunctive relief may not align.

In Hong Kong, the Court of First Instance is empowered by Section 21M of the High Court Ordinance (Cap. 4) to grant interim relief in aid of substantive foreign proceedings.

To trigger Section 21M, the foreign proceedings must be capable of giving rise to a judgment which can be enforced in Hong Kong (e.g. a liquidated monetary judgment).  At the time of the interim relief application before the Hong Kong court, one should be able to show that the foreign proceedings have been commenced or are to be commenced.  In the latter, the applicant might be required to undertake to the Hong Kong court that the foreign proceedings would be launched by a specific date and time. 

Proprietary injunction v Mareva injunction

Both proprietary injunction and Mareva injunction aim to freeze the defendant’s (i.e. the scammer's) assets.

A proprietary injunction, as its name suggests, targets assets to which the plaintiff (i.e. the victim) has a proprietary claim.  A proprietary claim exists when the victim is able to assert ownership over a specific or ascertainable asset. In the context of fraudulent transfer of money, the victim may have a proprietary claim over the specific batch(es) of money transferred to the scammer’s account.  It suffices to prove that the money sitting at the scammer’s account contains the victim’s money, even when the account contains just a fraction of the victim’s money or a pool of victim’s and others’ money.  Against this background, the plaintiff is required to show to the Hong Kong court that:
1.    there is a serious issue to be tried on the merits of the plaintiff’s proprietary claim; and
2.    the balance of convenience is in favour of granting the proprietary injunction. 

A Mareva injunction, on the other hand, targets the defendant’s assets that may be used for settling the plaintiff’s monetary claim.  In theory, it is wider in scope in terms of the type of assets to be frozen.   The plaintiff is required to show the Hong Kong court that:
1.    there is a good arguable case on the plaintiff’s substantive claim against the defendant;
2.    the balance of convenience is in favour of granting the injunction; and
3.    there is real risk of dissipation of assets by the defendant. 

In the context of cyber fraud, it is not difficult to establish either that “there is a serious issue to be tried” or that “there is a good arguable case” against the scammer, because the victim can often allude to documentary evidence of the scammer’s transfer request and the transfer itself.  The balance of convenience often tips in favour of the victim if a prima facie case of fraudulent nature can be established.  The extra element of “real risk of dissipation of assets by the defendant” is often considered self-evident in cyber fraud. 

Proprietary injunctions and Mareva injunctions are not mutually exclusive.  Where the plaintiff can establish a proprietary claim, it would be wise to obtain a Mareva cum proprietary injunction against the defendant.  Here, the proprietary injunction serves to claim the highest priority over the specific assets, while a Mareva injunction can secure available funds from the defendant for recovering legal costs and serves as fallback against competing claims.