Phishing Fraud

Introduction 

Our team was recently instructed by a business client who had fallen victim to a ‘phishing’ scam where fraudsters had impersonated Court bailiffs to steal a significant amount of money from them.

Whilst this type of fraud is becoming increasing common, what marked this out as a somewhat unusual case was that the client’s solicitors, a well-known international law firm, were also taken in by and unwittingly facilitated the fraud. 

Background

1. The client was sued under a services contract in the County Court Money Claims Centre. As a consequence of the client failing to respond to the claim, the Claimant obtained judgment in default against the client in the sum of c.£155,000 (‘the Default Judgment’).

2. The client then instructed solicitors to make an application to the Court to have the Default Judgment set aside.

3. Some days later, the client was contacted by an individual alleging to be a bailiff who was under instruction to enforce the Default Judgment and was on his way to the client’s premises to collect payment. The alleged bailiff left a mobile telephone number for the client to call to make payment of the judgment sum so that the Default Judgment would not be enforced. 

4. The client then e-mailed his solicitor, who was a Partner of the firm, to advise him of the call from the alleged bailiff and provided the mobile telephone number he had been given. The solicitor then contacted the alleged bailiff, and was told to contact the ‘Warrants and Enforcement Section’ at Northampton County Court and provided him with a telephone number to call. The solicitor called this number and spoke to an individual who was purporting to work for the Court. The individual advised the solicitor that the Default Judgment could be “temporarily suspended” if the client made a payment equivalent to 25% of the total amount owing under the Default Judgment and provided bank details which he claimed were the bank details of the County Court Business Centre (‘the Fraudulent Account’).

5. The solicitor then contacted the client and told him that he had spoken to the ‘Bailiffs and Warrants Section’ at Northampton County Court and advised the client to make the payment to the Fraudulent Account. This would ‘temporarily suspend’ the enforcement process pending the outcome of the application to set aside the Default Judgment. 

6. Acting on the advice of the solicitor, the client made the payment into the Fraudulent Account. 

7. Shortly afterwards, the parties agreed by consent to set aside the Default Judgment, on terms where the client would be refunded the money it had paid to the Fraudulent Account. Of course, this money would never be refunded.

8. A few days later the solicitor acting for the client emailed the County Court Business Centre asking for details of when the refund would be paid. The County Court Business Centre of course had no knowledge of the matter. 

9. Upon making further enquiries with the Court, the solicitor became aware that the bank details provided by the alleged bailiff and individual purporting to work for the ‘Warrants and Enforcement Section’ did not belong to the Court at all, and the client had fallen victim to a fraud.

JMW’s instruction

10. JMW was instructed by the client to investigate whether the Company could bring a claim for negligence against its previous firm of solicitors for breaching its duty of care or breach of contract which caused the client loss.

11. In correspondence, the previous firm asserted that it was a ‘complex and elaborate fraud’, and the court would not seek to impose an unduly high duty of care on the firm, which would in effect extend to a duty to protect clients from the fraudulent activities of third parties.
The Law

12. The previous firm sought to argue that it did not owe a duty to the client to protect it from the fraudulent activities of third parties. In making this argument it relied on the case of Platform Funding Limited v Bank of Scotland Plc (formerly Halifax Plc). In particular, it quoted from the judgment of Rix LJ who held, inter alia: 

1) that the default obligation is one limited to the taking and exercise of reasonable care; (2) that it requires special facts or clear language to impose an obligation stricter than that of reasonable care; (3) that a professional man will not readily be supposed to undertake to achieve a guaranteed result; and (4) that if he is undertaking with care that which he was retained or instructed to do, he will not readily be found to have nevertheless warranted to be responsible for a misfortune caused by the fraud of another. It follows from the jurisprudence and from these conclusions to be derived from them, however, that it is not possible to support a blanket approach whereby, even in the absence of an express warranty, a professional's responsibility is nevertheless always limited to the taking of reasonable care.

13. JMW argued that a more persuasive line of authority is derived from cases concerning fraudulent conduct in the context of section 61 of the Trustee Act 1965.

14. For example, in the case of Santander UK Plc v R.A. Legal Solicitors , when considering whether a solicitor’s firm should be relieved from liability for releasing funds to a party that was perpetrating a fraud, Briggs LJ held: 

“In my judgment it would not be appropriate to exclude as irrelevant conduct which consisted of a departure from best or reasonable practice which increased the risk of loss caused by fraud, even if the court concludes that the fraudster would nonetheless have achieved his goal if the solicitor had acted reasonably.” 

The Outcome

15. Further to an exchange of correspondence between the parties, JMW was successful in securing a significant settlement for the client without the need to resort to what would have been hard-fought, lengthy and expensive litigation.

16. This was an important settlement for the client, as the monies transferred to the Fraudulent Account was working capital, and without it, the business would have suffered. 

Conclusion

Fraudsters are becoming increasingly more sophisticated in their methods of scamming unwary victims, as is demonstrated by the above case. Not only did they convince the victim, they also managed to convince a Partner at a major law firm who unfortunately assisted the fraudsters in achieving their aim by failing to carry out proper due diligence on the purported bailiffs, ‘Court’ personnel and the details provided by them. 

It was obvious the fraudsters had a good working knowledge of the enforcement process after judgment has been entered by the Court. It is therefore of vital importance to both clients and those who are instructed to act for them to be on guard against such ‘phishing’ attacks, and to ensure that the identities of third parties who appear to be genuine are thoroughly investigated, especially where there is a request to transfer significant amounts of money to a third party bank account.

If you have any concerns about any of the matters addressed in this article, or have been affected by a ‘phishing’ scam, please contact JMW Solicitors LLP and we may be able to assist you in recovering damages, particularly where a professional advisor was potentially negligent by unwittingly facilitating the fraud.

Daniel Adcock-Kirsh
Solicitor
Commercial Litigation

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