The unscrupulous COVID-19 scammers

It will come as little surprise that since the start of 2020 there has been unprecedented demand across the globe for Personal Protective Equipment (PPE) – in particular for disposable face masks, gloves and surgical gowns. At the outset of the pandemic, these items were needed to supply and protect front-line health workers. Of late, there has been wider demand from the public at large as the pandemic spread. Unfortunately, opportunists see these events as a chance to cash in and profit from people’s anxieties.

In the APAC region, and being a global manufacturing hub, China has become a provider of much 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 all around the globe. There have been thousands of online PPE scams reported to the Hong Kong authorities since the start of this year.

In our experience, there have been 2 types of Covid 19 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 but is of such low quality that it does not meet the required standard. There have reports in the media of such items arriving with falsified paperwork and/or falsified kite-marking.
  • Non-existent PPE: Fraudsters offering to sell non-existent PPE. After the customer wires payment to the fraudsters’ bank account the fraudster vanishes, and no PPE is delivered. The 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. At Fitzgerald Lawyers we are happy to engage with, and where possible assist, those who are affected. What follows is a short note, and a heads-up on what to look for in any recovery action.

Where did my money go? What can be done?

1. Consider taking prompt action to preserve whatever is left in the fraudsters Hong Kong bank account, to avoid being left with a worthless paper judgement.

2. In the event of a non-existent PPE fraud, report the scam to the 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.

3. 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.

4. Consider a worldwide Mareva injunction to freeze the fraudsters assets located both in Hong Kong and abroad.

5. Factor in 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 will only preserve the funds in the fraudsters bank account, along with any other assets. An entitlement to the funds and assets must also be established by way of a civil action against the holder of the relevant bank account and/or the fraudsters (assuming 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 then apply for default judgment. Garnishee proceedings will 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 obvious, as the victim has technically 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 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 required 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 matters relating to governing law, dispute resolution clause, exemption clauses etc.

Conclusion

It is important for victims of PPE fraud to be aware of the pros and cons of the various legal options, so that an informed decision can be made. Importantly, victims should act swiftly and take steps to recover lost funds before they are dissipated by the fraudsters.