It will come as little surprise to workers in the UK health sector that since the start of 2020 there has been unprecedented demand across the globe for Personal Protective Equipment (PPE) – for disposable face masks, gloves and surgical gowns in particular. From the outset of the pandemic, these items were needed to supply and protect front-line health workers. There has also been wider demand from the general public as people have realised that face coverings can help in preventing the spread of Covid 19. Unfortunately, opportunists see these events as a chance to cash in and profit from people’s anxieties.
In the Asia region, China has been a major provider of this PPE. Many contracts for the supply of Chinese products are arranged through Hong Kong sales entities and middlemen – the supply of PPE is no exception to this rule. With this, we have witnessed a sharp increase in fraud schemes associated with PPE transactions. There have been thousands of online PPE scams reported to the Hong Kong authorities since the start of this year, and many of the victims have been NHS Trusts and other health care providers based in the UK.
In our experience, there have been 2 types of PPE fraud: -
- Low quality or defective PPE: Fraudsters assert that they will provide PPE which meets a defined standard (Chinese standard - KN95, US standard - N95, or European standard - FFP2, etc.). The PPE is delivered to the UK but is of such low quality that does not meet the required standard. There have been reports in the British media of such items arriving with falsified paperwork and/or kite-marking.
- Non-existent PPE: After the customer wires payment to the fraudsters’ bank account the fraudster vanishes, and no PPE is delivered. The UK victim then seeks recovery of the money paid.
While due diligence may not have been performed to the highest level (owing to pressures of time, or difficulty in sourcing PPE) it is regrettable that those in need have fallen victim to sophisticated fraudsters.
What follows is a short note, and a heads-up on what to look for in any recovery action brought in Hong Kong.
Where did my money go? What can be done?
- Consider instructing Hong Kong lawyers and ask them to take prompt action to preserve whatever is left in the fraudsters Hong Kong bank account. The aim is to avoid being left with a worthless paper judgement.
- In the event of a non-existent PPE fraud, report the scam via Interpol (or directly) to Hong Kong Police as soon as possible. The Hong Kong Police will likely issue a “No Consent” letter over the fraudsters bank account, which in some respects has the effect of freezing the funds in that account without the need for an injunction. Note though, that such a letter will only remain in place for a limited period of time.
- Consider applying for a proprietary injunction and/or a Mareva injunction in the Hong Kong High Court. Generally, a proprietary injunction seeks to preserve particular assets which a claimant can assert rights against in any successful action. A Mareva injunction meanwhile is designed to protect the claimant against a dissipation of general assets held by the defendant. These injunctions operate in the same way as they would do in an English court.
- Consider also a worldwide Mareva injunction to freeze the fraudsters assets located in Hong Kong and abroad.
- Factor in though the likely cost of obtaining a Mareva injunction and remember there is no guarantee that funds will remain in the fraudsters bank account once you obtain the court order.
Follow up civil action – non-existent PPE
Injunctive relief in Hong Kong (as in the UK) will only preserve the funds in the fraudsters bank account, along with any other assets held. An entitlement to those funds and assets must be established by a civil action against the holder of the relevant bank account and/or the fraudsters (if they are different).
A victim purchasing non-existent PPE may set out a case for unjust enrichment, constructive trust, knowing receipt and dishonest assistance. If the defendant stays silent following the commencement of Hong Kong proceedings, the victim should apply for default judgment, with garnishee proceedings to follow against the bank compelling them to transfer the ill-gotten funds to the victim directly.
Follow up civil action – defective PPE
The approach here is less clear-cut, as the victim has received PPE, albeit not of the required or agreed standard. Consider the following in the context of the contract with the supplier: -
- Misrepresentation: The victim may have relied on misstatements made by the fraudsters (fraudulent and/or negligent). The victim may choose to retain the products delivered items but sue for damages instead, or alternatively try to rescind the contract and secure a refund
- Express terms: The contract may specify the particulars of the PPE to be supplied and reference the requisite standard. Failure to supply PPE commensurate with the contract terms constitutes a breach.
- Implied terms: Under Hong Kong law, terms pertaining to merchantable quality, fitness for purpose and conformity with description may be implied into the contract under the Sale of Goods Ordinance (Cap. 26).
- Other factors: consider also governing law, dispute resolution clause, exemption clauses etc.
It is important for any UK victims of PPE fraud to be aware of the pros and cons of the various legal options. Importantly, victims must act swiftly and take steps to recover their lost funds before they are dissipated by the fraudsters.