Cyber fraud in commodities trading: who picks up the pieces?

Lawrence Akka QC and Oliver Caplin acted for the respondent Sellers “A”, resisting a series of challenges under sections 67, 68 and 69 of the Arbitration Act 1996 to a GAFTA Board of Appeal Award. The case highlights the commercial consequences that flow from the extremely common “man in the middle” type of cyber fraud.

The dispute in arbitration arose under a contract for the sale and purchase of sunflower meal. The contract required Buyers, “K”, to make payment in “100% net cash within 2 banking days to Sellers’ bank upon presentation of scan/fax copies of the following original documents to [Buyers]…Commercial Invoice…”.

A company called Vicorus SA acted as an intermediary broker. After the goods had been loaded onto the performing vessel, Sellers sent their invoice to Buyers via Vicorus. Buyers denied receiving the invoice. Instead, it appeared that a fraudster had intercepted Vicorus’ passing on of Sellers’ invoice, and sent a fraudulent invoice directing the payment monies to the fraudster’s account instead of Sellers’.

At the hearing, the Court mainly had to grapple with whether or not the GAFTA Board of Appeal had correctly decided that Buyers’ payment of the contract price to the fraudster’s account did not satisfy their payment obligations under the sales contract. In doing so, and in upholding the Board’s decision on the point, Popplewell J gave a useful summary of the law on cash payments at paragraphs 26 to 29 of the judgment.

Aside from the specific points under debate on the appeal, the judgment will make interesting reading to anyone who would like an insight into how at least one trade tribunal saw fit to approach a “man in the middle” cyber fraud.

The judgment also contains a succinct summary of the principles the Court should apply to section 68 applications at paragraph 25 of the judgment.

Finally, the judgment briefly touches upon an interesting procedural lacuna in the 1996 Act. One of the requirements for obtaining permission to appeal under section 69 of the 1996 Act is that the point of law being challenged was put to the tribunal in the arbitration. But how does that work when the point of law being challenged concerns an issue that the tribunal determined of their own volition, without offering the parties a chance to make submissions? Ordinarily one would challenge such a decision under section 68 as a serious irregularity. But what if, for whatever reason, section 68 is unavailable?

On this point, the Judge agreed with the view expressed in Merkin on Arbitration Law that section 69 is apt to permit appeals on points adopted by a tribunal of their own motion as part of the reasons for their conclusions: see paragraph 37 of the Judgment. Where, however, section 68 is available, the Judge held that the preferred route is to remit back to the tribunal under that provision, rather than to determine the section 69 application, and that is what the Judge did here.

A copy of the judgment is attached.