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Unauthorised payment fraud – Commercial Court supports recovery efforts

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

16-04-2021

Speedread

Fraudsters are constantly seeking to catch out unwitting victims by tricking them, or those that represent them, into making unauthorised payments. They will often then shift funds quickly and by sophisticated means through various bank accounts around the world in an attempt to frustrate recovery efforts.

Businesses and individuals affected by fraud need to act quickly to recover stolen funds. However, they are understandably cautious about the risk of throwing good money after bad, in particular where recovery prospects are uncertain.

In the recent decision of Foglia v Family Officer Ltd & Ors [2021] EWHC 650 (Comm), the Commercial Court in London has demonstrated that, where there is cogent evidence, it will support the efforts of victims of fraud to recover stolen funds. The victim deployed a number of methods, including non-party disclosure orders, worldwide freezing injunctions, proprietary injunctions and an application for summary judgment to dispose of the proceedings speedily, without a full (and costly) trial.

In this case, some €15 million was misappropriated from the victim. Through the quick and effective legal actions taken, the victim has recovered some €11.5 million already and, as a result of the latest judgment, now appears to have a route to recover the outstanding balance of some €3.5 million, plus interest and costs. The case provides welcome encouragement for the steps that can be taken by victims of unauthorised payment frauds to secure a recovery.

Brief facts

The Claimant, Ms Foglia, held monies through an Italian nominee company in a Cayman bank account. Fraudulent telephone calls and a subsequent fax impersonating the authorised signatory of the nominee company were made to Ms Foglia’s bank setting out payment instructions. Following receipt of these fraudulent instructions (and believing them to be legitimate), Ms Foglia’s bank transferred €15 million to a bank account held in England by the First Defendant, The Family Officer Ltd, a company owned by the Fourth Defendant, Mr Cerri.

A series of substantial payments out of these monies were then made to companies and individuals connected with Mr Cerri, including third parties to whom he owed various debts.

Mr Cerri denied the fraud, instead putting forward a detailed counter-factual position which he said explained his innocent involvement.

Once the unauthorised payment had been discovered, Ms Foglia launched a number of urgent applications in the Commercial Court in London. As a result of those interim actions, Ms Foglia successfully traced and recovered approximately €11.5 million of the €15 million that had been misappropriated. This left approximately €3.5 million (plus interest and costs) outstanding, and Ms Foglia applied to the Commercial Court for summary judgment against Mr Cerri and the related Defendants for that amount.

Identifying the perpetrator

The first key challenge often faced by a victim of an unauthorised payment fraud is that it will not know the identity of the perpetrator. The only known information might be details of the bank account to which funds were transferred. To deal with this issue in this case, the Court assisted the Claimant in at least two ways: 

  • Injunction against “Persons Unknown” - The Court can make freezing injunctions and/or proprietary injunctions against “Persons Unknown”, provided they can be identified with sufficient certainty (for example, by reference to bank account details). The real force of taking this step is that the injunction can be served on the recipient of the defrauded funds (usually an innocent bank). That would usually result in the bank taking steps to freeze the relevant bank account, preventing the onward disposal of the funds.
  • Non-party disclosure orders – The Court can also grant disclosure orders against third parties. In this case, it is apparent that a non-party disclosure order was obtained against the bank which had innocently received the funds, presumably requiring the bank to disclose the identity of the account holder and other key information about the operation of the relevant bank account.

Closing the net

After identifying the holder of the account to which the stolen funds were initially paid, Ms Foglia was then able to seek further disclosure orders to trace the subsequent movement of the funds and further freezing and/or proprietary injunctions against the companies and persons identified as having received funds and/or controlling companies that received funds.

Further evidence

Further tools of the Court were then deployed to gather additional evidence regarding the fraud:

  • Disclosure of phone records – Ms Foglia obtained a third party disclosure order against Vodafone (under the Norwich Pharmacal jurisdiction) for records regarding the mobile “burner” phone used to call Ms Foglia’s bank in order to inform them of the impending (unauthorised) payment request. This gave rise to evidence that (a) the mobile phone and SIM card had been purchased shortly before the fraud was perpetrated from a shop close to the offices of the First Defendant; (b) the mobile phone had been purchased using a bank card issued by Revolut Bank (see further below); and (c) the Vodafone cell tower through which the calls were transmitted was within 100 metres of the offices of the First Defendant.
  • Disclosure of banking records – Having identified that the relevant mobile phone was purchased using a card issued by Revolut Bank, the victim also obtained a disclosure order against Revolut Bank (also under the Norwich Pharmacal jurisdiction) seeking disclosure of the identity of the account holder of the card used to pay for the mobile phone. This revealed that the bank card belonged to a junior employee of the First Defendant, thus establishing a further link between the Defendants and the unauthorised payment.

Mr Cerri asserted that he was an innocent participant in the fraudulent activities, relying in his defence on a number of emails purporting to come from third parties whom he alleged were in reality responsible for the fraud. Crucially, it appears that Mr Cerri was unable to provide to the Court native copies of these emails. Ms Foglia’s lawyers demonstrated to the Court that these emails were in fact “spoofed”, meaning that that they were created and sent using a website which enabled users to produce emails that appear to have been sent from a genuine email account of their choice. They could not therefore be relied on in Mr Cerri’s defence, and indeed the evidence further implicated Mr Cerri and his alleged involvement in the fraud.

The availability of summary judgment

In most disputed fraud cases, the Court will require the benefit of a full trial before it will issue a final order. For a victim of fraud, this usually means 18-24 months of contested litigation, with onerous (and expensive) obligations relating to evidence gathering. Summary judgment cuts through this, avoiding the need for a trial, where the Court is satisfied that there is no real prospect of the defendant successfully defending the claim and there is no other compelling reason why the claim should be disposed of at trial.

It is unusual for the Court to grant summary judgment in a fraud case where there are disputed issues of fact. As the Judge commented in this case: “there is no bar to granting such an application, but …very considerable caution is required”.

It is clear from the full reasoning given in the Judgment that there were indeed strenuously contested factual issues that the Judge needed to weigh up. In particular, the Judge gave detailed consideration to the counter-factual narrative put forward by the Defendants to seek to exonerate themselves of the fraud. However, the Judge accepted the significant defects with the Defendants’ approach and decided that summary judgment should be given in favour of the Claimant.

Conclusions

This case is significant, demonstrating what the Judge described to be a “…a striking illustration of the assistance which this Court is able to give a defrauded party…”.

It makes clear the way in which the powers of the Court can be used to support victims of fraud, including the power to give summary judgment even in complex and contested fraud proceedings. In this case, it appears that the legal proceedings have been used by Ms Foglia effectively to make a significant recovery.

The decision should give victims of unauthorised payment frauds significant hope that by acting quickly and decisively, they can utilise the powers of the Court to achieve a successful outcome.

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