ELP and Gall Solicitors on Summary Judgement and Wire Frauds

In this episode of ELP’s Podcast Series, we welcome all to our international collaboration in the podcast space. This is a Joint Podcast hosted by Economic Laws Practice (ELP) in India and Gall Solicitors in Hong Kong. This podcast tries to cover some interesting issues in the dispute resolution space in both India and Hong Kong. GALL covers the enquiries revolving around the recovery of funds in case of a wire fraud while ELP covers the issue of summary judgements in India. Although the issues are diverse in concept, it would leave the listeners with interesting take-aways.

Our speakers for this episode are Shailesh Poria, Partner at Economic Laws Practice (ELP) and Ashima Sood, Partner at GALL. The session was moderated by Kajal Aswani, Partner at GALL.

Transcript

Dear Listeners 

Welcome to the Joint Podcast hosted by Gall Solicitors in Hong Kong and Economic Laws Practice in India.  I am Kajal Aswani, Partner at Gall and will be moderating the session today.

Gall and ELP have had the opportunity to collaborate on several initiatives during the lockdown and we are delighted to host out first ever podcast.

We have been internally discussing on what interesting issues in the dispute resolution space in both India and Hong Kong. While, we at GALL have been getting a lot of enquiries on recovery of funds in case of a wire fraud, ELP was keen to cover the issue of summary judgements in India.

Our podcast- therefore- will cover both these issues – though we realize both are diverse in concept – we thought it might provide for some interesting take aways for our listeners. 

With this, I would like to introduce you to our speakers, Ashima Sood who serves as Partner at GALL and Shailesh Poria, a partner in the dispute practice at ELP. 

Lets start out with you first Ashima -

KA: In this section of the podcast, we will be looking at the process of recovery of funds in case of a wire fraud where the funds have been diverted to Hong Kong.  There has been a dramatic increase in wire fraud globally, and Hong Kong is no exception.  We receive a lot of enquiries from victims in foreign jurisdictions including India looking to recover funds lost in wire fraud.

Ashima will explain the process of recovery under Hong Kong law and also share some tips and best practices on how to prevent wire fraud.

AS: Hi everyone! Unfortunately, it’s a new age of crimes, where criminals have transcended to our computers and telephones.  The most common types of scams we encounter in our practice are email scams, online investment frauds, and romance scams.  Not to bore you with stats but over 8 billion Hong Kong dollars from scam victims was laundered through Hong Kong bank accounts in 2020.  The police only managed to intercept around 3 billion dollars.  That’s a lot of hard-earned money lost to scams.

KA: So what should a victim do if they suspect that they have become a victim of wire fraud?

AS: Once the funds have been transferred to the fraudsters’ bank accounts, the fraudsters will try to dissipate the funds as quickly as possible.  There are 3 important steps the victims must take immediately upon discovering the fraud when the funds have been diverted to Hong Kong.

First and foremost, you should contact your bank to cancel the wire transfer and request them to notify the recipient bank immediately to recall the remittance.  It’s all about speed.  If you can act quickly, the banks may be able to reverse the remittance. 

Secondly, you should report the matter to the local police and to the Hong Kong police.  A police report to the Hong Kong police can be made online on their website.  If the report is made in a timely manner, there is a possibility that the fraudster’s bank account can be frozen by the police.  

The next and most important step is to engage solicitors in Hong Kong to assist you with the process of recovery.  Our clients regularly ask us whether the police will help them in recovering the funds.  The short answer is no, and it is simply necessary to commence civil proceedings and obtain a Court order for recovery. 

KA: Can you briefly explain the process and timeline for the civil proceedings?

AS: The proceedings are commenced by issuing a Writ of Summons setting out the basis of the claim and the relief sought and serving it on the fraudster, that is, the Hong Kong account holder.  

The defendant has a short period of time to indicate whether it intends to contest the proceedings. Fraudsters often remain silent, which enables the victim to apply for a default judgment. 

Upon obtaining default judgment, garnishee proceedings can be commenced to enforce the judgment against the funds in the bank account.  The bank normally does not contest the proceedings.  Once the order is obtained, the bank is able to release the funds to the victim’s designated bank account. 

If the proceedings are uncontested, the recovery process takes approximately 6 to 8 months in straightforward cases subject to the Court’s capacity.

Where substantial funds are involved, it is also advisable to seek an injunctive relief over the Hong Kong bank account. An injunction application is costly to obtain but offers additional protection as the police can withdraw their administrative freeze at any time. 

Victims of cryptocurrency fraud can also seek to apply for injunctive relief in Hong Kong, particularly if they are able to trace the transaction to a cryptocurrency exchange in Hong Kong.  That being said, issues regarding the identity of the wallet holder, service on the defendant, location of the wallet, etc. do arise in cryptocurrency frauds, which increase the difficulties in the recovery exercise. Victims should, nevertheless, act promptly in making a police report and liaising with the relevant exchange to facilitate the investigation exercise at the outset.

Suing the recipient bank is not recommended as it does not owe the victim any duty of care. Likewise, pursuing the individuals behind a corporate account holder is not advisable as it is difficult to establish personal liability and they are likely to be in foreign jurisdictions with no identifiable assets, making both service of documents and enforcement difficult.

KA: That’s all very helpful.  But what happens in a scenario where the victims do not know the identity of the wrongdoer but only the relevant account number, or if the victims want to obtain details of the status of the funds before they decide to proceed with civil proceedings?

AS: Ancillary disclosure orders can be sought against the bank as part of the injunction application.

A Norwich Pharmacal application can be made against a bank to request such details without commencing any proceedings against the account holder.  Generally, a gagging order is sought against the relevant bank at the outset so that the bank is prohibited from notifying the account holder about the intended proceedings. The gagging order is obtained on the same day of the application, followed by the Norwich Pharmacal Order which can take around 2 to 4 weeks thereafter (depending on the Court’s diary).  And it takes the banks about 4 weeks to disclose the requested documents.

If it transpires that the funds have been transferred out, the victim may need to apply for separate disclosure orders against the next layer of recipient(s) in order to ascertain the status of those funds. The whole process can be quite expensive.

An application can also be made under section 21 of the Evidence Ordinance against a bank to obtain bank records, but only in ongoing civil proceedings.  

Fraudsters are often smart (I won’t deny that) and are quick to dissipate the funds in smaller tranches into multiple bank accounts.  Although the police carry out their investigation quite diligently, given their limitations arising out of confidentiality concerns, etc., sometimes it is worth obtaining the bank documentation independently from the banks, specially where substantial sums are involved, so that any recovery actions can be taken promptly.

KA: What happens if the recipient of funds comes forward and challenges the claim? 

AS: It is always possible that the recipient may have been innocently caught up in the fraud or they may seek to argue that they have already remitted out the monies while acting in good faith and without notice of the victim’s interests.  Depending on the merits of the case, victims can seek to settle with the defendant or pull the plug in such cases.  

An important thing to bear in mind for overseas victims is that Hong Kong courts have the power to order a foreign plaintiff to deposit security for the defendant’s costs of defending the action in certain circumstances.  If the defendant seeks to defend the proceedings and applies for security for costs, it can have a significant impact on the legal fees of the victims.  Continuing to pursue the action in these circumstances can be very expensive and sometimes even disproportionate to the amount of the claim involved.  

If the defendant puts forward a shadowy defence, the victim can consider applying for a summary judgment which can be obtained at an early stage in the proceedings without a full trial and can help minimise the time and costs of pursuing recovery.  Historically, summary judgment was not available in cases involving an allegation of fraud but recent amendments to the High Court rules have removed the fraud exception. 

KA: That’s indeed been a welcome development! So, to summarise, upon discovery of the fraud, victims must, one, inform the banks, two, file a police report, and three, quickly instruct solicitors to take care of the court process?

AS: Yes, and if the victims act fast and if they are fortunate, there will still be some monies left to recover.  In most cases, the civil proceedings would go uncontested, and the process of recovery can be quite straightforward.  The solicitors can help liaise with the bank and the police for the effective return of the funds.

KA: Great, Ashima can you share some practical tips to prevent wire fraud before we conclude your session?

AS: It’s always sad to see clients lose money to frauds but I guess it’s worse when you realise that it could have been prevented if best practices had been followed by the companies or individuals.   My top tips to prevent wire frauds would be:

·         Conduct regular training sessions on scams and best practices.

·         Never rely on a single source of instructions for payment requests.  Double check email addresses, spelling mistakes in emails, and always verify instructions by phone.

·         Research before investing. Verify licenses and beware of promises of high rates of return. If the deal seems too good to be true, it probably is too good to be true.

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Summary judgment

Considering India’s issues in respect of dispute resolution for a huge population, the Government has introduced various solutions to fast-track the justice delivery system like alternate dispute resolution mechanisms, mediation, lok adalats and so on. Provisions of summary judgment in Code of Civil Procedure is one such method to achieve a quick disposal of a commercial dispute without compromising in authority and legal principles.

·         We have Shailesh from ELP with us today who will shed some light on what these provisions are.

Summary Judgment as the name suggests is a method for disposal of a case decided on the basis of a summary procedure laid down in the Code of Civil Procedure based solely on the documentary evidence tendered to the court by the parties, without going through the  recording of the oral evidence, which is the most time consuming process. While the provision of summary judgment, is not a substitute for a regular trial, it is a tool that allows Courts to dispose of cases that do not need an elongated trial to be resolved. While a typical civil proceeding in India could take years to be decided, by way of a summary procedure the case could be settled within a year if the claim is straight forward. Detailed provisions have been set out in the Civil Procedure Code regarding documentary proof, contents of a plaint, procedure, timelines and provisions for leave to defend. This, over a period of time , will make a difference in reducing the number of pending commercial cases. 

·         That’s a very simple yet enlightening explanation Shailesh. Now diving deep into the core provisions, could you please apprise us regarding the grounds involved in seeking summary judgment. 

The unique part is that summary judgment provisions can be invoked by either of the parties to the litigation. It is not limited to the claim of the Plaintiff; rather it is extended to the counter-claim filed by the defendant as well. Application by a party for the Summary Judgment is filed not merely for deciding a claim or counter-claim but also to seek answer of any particular question on which the claim depends.

The criteria to meet before Summary Judgment may be granted are that:

(1) material facts need to be clear, and undisputed; and 

(2) the entitlement of the Judgment by the applicant must be a matter of right. Disputed facts depict a genuine issue. 

Usually, introduction of evidence contradicting applicant’s version of facts is done by a party opposing Summary Judgment. Moreover, the facts in dispute must be central to the case. Irrelevant or minor factual disputes will not defeat a motion for Summary Judgment.

The provisions related to Summary Judgment, which enable the Courts to decide claims pertaining to commercial disputes without recording oral evidence, are exceptional in nature and out of the ordinary course which a normal suit has to follow. In such an eventuality, it is essential that the stipulations are followed scrupulously; otherwise, it may result in gross injustice.

To sum  up, the court should be satisfied that:

a.            the Plaintiff has no real prospect of succeeding on the claim or the defendant has no real prospect of successfully defending the claim; and

b.            there is no other compelling reason why the claim should not be disposed of before recording of oral evidence.

The procedure for applying for a summary judgment inter alia requires the applicant to state the reason why there are no real prospects of succeeding on the claim or defending the claim and requires notice of the said application to be given to the opposite party of 30 days. The reply to such application ought to precisely identify the points of law if any,  and the reasons why the relief of summary judgment should not be granted and why there are real prospects of succeeding on the claim or defending the claim.

·         Thanks a lot, Shailesh for this. Since most commercial contracts contain Arbitration as the mode of dispute resolution, is there any fast track procedure in Arbitration as well?

Yes. Such fast track procedure is through Sec. 29B of Arbitration and Conciliation Act, 1996. Section 29 B of the Arbitration and Conciliation Act 1996 provides that the parties who are members to an arbitral proceeding or who have decided to refer their dispute to an arbitral tribunal, may at any time, even before the arbitral tribunal has been appointed, decide that their dispute be resolved through the process of fast-track arbitration as mentioned in subsection (3) of the Section.

As per subsection (3) of section 29B, in a fast-track arbitration the arbitration tribunal concludes based on written documents and pleading without going through the stage of oral hearings.

The arbitrator would be free to seek for the submission of clarifications or additional information apart from the written documents that are submitted by the parties.

Oral hearings are not forbidden, there can be oral hearings too on the request of the parties and depending upon the nature of the dispute and its necessity.

The Arbitral tribunal may take expeditious steps for coming to an amicable conclusion in minimum time. The arbitral tribunal may skip the technicalities in a situation where oral hearings are being held.

The period within which the arbitral tribunal must conclude in 6 months, which under certain circumstances can be extended.

A distinguishing factor between summary judgment and fast track procedure is that since Arbitration is by agreement of parties, the fast track procedure can be adopted only if both parties to the dispute agree to do so.