K v A
| Jurisdiction | England & Wales |
| Judge | Mr Justice Popplewell |
| Judgment Date | 03 May 2019 |
| Neutral Citation | [2019] EWHC 1118 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2018-000644 |
| Date | 03 May 2019 |
[2019] EWHC 1118 (Comm)
THE HON. Mr Justice Popplewell
Case No: CL-2018-000644
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERT COURTS OF ENGLAND AND WALES
COMMERCIAL COURT (QBD)
IN THE MATTER OF AN ARBITRATION CLAIM
Royal Courts of Justice
7 Rolls Buildings
Fetter Lane, London, EC4A 1NL
Michael Nolan QC (instructed by W Legal Limited) for the Claimant
Lawrence Akka QC and Oliver Caplin (instructed by Hill Dickinson LLP) for the Defendant
Hearing dates: 17 April 2019
Approved Judgment
Introduction
By a (corrected) arbitration award dated 2 October 2018 (“the Award”) the GAFTA Board of Appeal ordered the Claimant (“K”) to pay to the Defendant (“A”) US$161,616.93 plus interest as the balance of the price due from K as buyers of a cargo of sunflower meal under a contract of sale dated 16 September 2015. The shortfall arises out of complications in the payment to A's bank following the hacking of email accounts by a fraudster and forged payment instructions which gave details of a fraudulent account for payment. K seeks to challenge the Award under sections 67, 68 and 69 of the Arbitration Act 1996 (“the Act”). Having considered K's applications on paper, Butcher J rejected A's application to dismiss the section 68 application without a hearing, and ordered that it be heard together with the section 67 application and the application for permission to appeal under section 69, with the section 69 appeal to follow at the same hearing if permission were granted.
The facts
The following facts are taken from the Award or were common ground.
By a written contract confirmation dated 16 September 2015 drawn up by Vicorus SA (“Vicorus”) as intermediary broker, and signed on behalf of the parties, A agreed to sell and K agreed to buy 5,000 metric tonnes 2% more or less at sellers' option of Romanian sunflower meal in bulk for US$229 per m.t. FOB stowed/trimmed 1 safe berth, 1 safe port Galati, Romania, for shipment in the second half of October 2015.
The payment provision (with correction of an obvious typographical error) was as follows:
“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 …”
The contract also incorporated the terms of GAFTA Form 119 which provided by Clause 18:
“Notices.
All notices required to be served on the parties pursuant to this contract shall be communicated rapidly in legible form……..A notice to the Brokers or Agent shall be deemed a notice under this contract.”
On 2 November 2015 A loaded the goods on the vessel MV Sea Commander, which it was common ground constituted good delivery. At 1344 on 2 November 2015 (all times are CST unless otherwise stated) A sent an email with an attached invoice. The invoice, dated 30 October 2015, was for US$1,167,900, the correct contract price, and sought payment to Citibank NA, New York branch, account number 36323207 with a SWIFT number and a reference ending 3886. I shall refer to this as “the correct A account”. Vicorus' email account purported to show that the email was forwarded by Vicorus to K at 1505 with the attached invoice. However K denied receiving that email. K received an email which appeared to come from Vicorus at 1550 which contained an attachment directing payment to a different account at the London branch of Citibank NA.
Shortly after A had sent the first email, it sent another email to Vicorus at 1452 on 2 November 2015 with a message saying that the invoice date was being corrected. The new invoice which was attached contained the same details for the correct A account but was now dated 2 November 2015. Again Vicorus' email records purport to show that A's email with invoice attachment was forwarded by Vicorus to K at 1555 but K denies receiving that email. K received an email which purported to come from Vicorus at 1514 attaching a new invoice correcting the invoice date. The new invoice contained payment instructions for remittance via Citibank NA's New York branch in favour of Citibank NA at its London branch, giving the destination account details as sort code 185008 and account number 114111624 (reflected in an IBAN reference), with the customer beneficiary identified as A and a quoted reference “001010134806932801sheikmancons”. It emerged in due course that it was an account in the name of Ecobank. I shall refer to this for convenience as “the fraudulent account”, because it was the destination directed by the fraudster, but I should make clear that this epithet is not intended to suggest fraud or wrongdoing by Ecobank itself.
Later that afternoon K emailed A directly asking for the invoice to be reissued with K's correct name and A responded by email directly to K that it would do so.
At 0911 on the following day, 3 November 2015, A sent an email both directly to K and to Vicorus attaching a new invoice. The invoice corrected K's name but was otherwise in the same terms as that which had been sent to Vicorus the previous day, therefore seeking remittance in favour of the correct A account at the New York branch of Citibank NA. Vicorus' email records purport to show that the email sent to Vicorus was forwarded to K at 0946. K denies receipt of the emails, both that sent directly from A and that purportedly forwarded from Vicorus. At 0929 K received an email purporting to come from A with a new invoice which repeated the remittance details given the day before, seeking remittance in favour of the fraudulent account at Citibank NA's London branch and giving the sheikmancons reference.
It was common ground that the invoices received by K providing for payment into the London account were fraudulent. At the hearing before the GAFTA First Tier Tribunal and the Board of Appeal, there were rival allegations as to where the fraudulent email manipulation had taken place, whether at any or all of the offices or servers of A, K, and/or Vicorus; submissions were made on the basis of rival allegations as to who was at fault for the manipulation, and who bore vicarious liability. In the Award, the Board of Appeal concluded that on the evidence adduced it was impossible to determine where or how the fraudulent manipulation had taken place, and it decided the appeal on that basis.
On 5 November 2015 K instructed its bank, Rietumu Bank, Riga, to make payment of the full price to A. The instruction was for a SWIFT payment via Deutsche Bank Trust Company America's New York account, through Citibank NA New York as an intermediary, in favour of the fraudulent account at the London branch of Citibank NA. On the same day, and in response to a request for an update as to payment from A, K confirmed by email that the payment had been made.
A requested a SWIFT confirmation of the payment for the purposes of tracking the funds, and at 2016 on 5 November 2015 K sent a copy of the SWIFT payment confirmation to A which identified the destination account as the fraudulent account in London. A however received a SWIFT confirmation purporting to be sent at 2028 on 5 November from K confirming that the amount had been remitted for credit to the correct A account. Although not expressly stated in the Award, the implication from other findings is that this had been manipulated by the fraudster.
On 6 November 2015 A sent K a message that no funds had been received and seeking payment. A asked K to confirm that the reference number had been added, and requesting if it had not that K do so immediately.
There are two further emails which purport to be from K to A. One asked A to confirm that the reference number which needed to be added was the sheikmancons one. The Award's findings accept that this was received by A. The second attached a further SWIFT confirmation showing payment to the fraudulent account at Citibank NA London Branch. There is no finding that this was received in this form by A.
A then sent a further message chasing payment and asking K to check with their bank, identifying that payment should have been made to Citibank NA New York Branch for account 36323207, i.e. to the correct A account. On 9 November at 0924 A again chased K for payment. On 10 November 2015 A continued to chase K for payment and relayed a recent advice from Citibank NA in New York that the funds were not visible and had not been received on their side.
On 13 November 2015, K emailed A asking for confirmation that funds had been credited to A's account. K advised that its bank had been told by Citibank NA New York branch that the latter had had payment confirmed by the London branch on 10 November 2015. It also recorded that Citibank NA London branch had sent a message through the banking chain requesting confirmation from the buyers' side that all due diligence had been performed on the payment “as last payment for same beneficiary has been recalled because fraudulent.” That may explain the fact that the funds were not removed from the fraudulent account in London.
The payment of US$1,167,900 was converted by Citibank into £ sterling before being credited to the fraudulent account (in the name of Ecobank) in the amount of £768,372.45. The reasons for the conversion are not the subject of any findings, but it may simply have been the result of that being a £ sterling denominated account in London.
By 23 November 2015 the parties suspected fraud. Funds remained in the Ecobank account in London. On that date A emailed K stating that there were two errors with the payment, one being that it was not credited to the correct account and the other being that it was converted from US dollars into £ sterling. The message recorded the advice of Citibank that in order to remedy the position it was necessary for Citibank to repay the funds and receive a...
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