Internet fraud is a very common and presumably profitable business. We have come across a number of schemes over the years, the most common one being the interception of communication and the exchange of payment details in invoices, so that the payment is diverted to a third party who then cannot be traced.
Recently, we came across a new, more sophisticated fraud or maybe just unusual consequences of it.
The facts were as follows:
A third party, who had acted as some kind of intermediary in a past transaction for a business partner of our client, concluded a contract for the delivery of chickpeas with an Asian buyer. All communications was done via email, using a “….@mail.ru” email address which had no link whatsoever to our client. The contract was on GAFTA clauses and contained an arbitration clause referring any dispute resulting from the contract to arbitration at GAFTA. That by itself would not be an unusual transation had he not named our client as the seller. Our client was completely unaware of the transaction, the signature on the (scanned) contract was forged.
It may only be assumed that the idea was to collect the purchase price and run away with the money. However, that did not work out, the transaction failed and that could have been the end of the story. They buyer, however, either believed in the transaction or was part of the scheme, so when the transaction failed, the buyer claimed damages for breach of contract from our client. He claimed that prices for chickpeas had risen in the meantime and that he had to perform a coverage purchase with another seller for a higher price.
Needless to say, our client (who is in the bunker trading business and doesn’t trade soft commodities such as chickpeas) was highly surprised to receive a demand for compensation of damages for an unfulfilled sale-purchase contract for chickpeas.
When the details and a copy of the alleged contract was provided, it became instantly clear that this never originated from our client. All communication had originated from addresses ending with “….mail.ru”. Apparently, that didn’t raise any suspicion at the buyer’s end. Our client then even managed (with the help of security services) to trace the intermediary who had concluded the contract. That person admitted that he had forged the signature and confirmed that to the buyer.
However, even that didn’t end the story and the buyer started GAFTA arbitration under rules 125 against our client. Without mentioning the pre-trial correspondence and the explanation given by our client and the intermediary, the buyer/claimant submitted the scan-copy of the contract containing the GAFTA arbitration clause and claimed that the transaction had been concluded by our client.
In theory, the matter is very straighforward: The claimant has to prove a contract and, with regard to arbitration, provide a written arbitration clause (Art. II of the New York Convention). But, given that – at first glance – there was such a contract, it took several rounds of submissions and we had to deal with quiet a lot of exhibits provided by the claimant before we could close the matter and luckily, the tribunal saw through the scheme and found that there was no valid arbitration clause.
This matter proves that fraud has many different faces nowadays. We cannot really tell why the claimant pursued a completely hopeless matter in GAFTA arbitration. Given that under Clause17.2 of GAFTA rules no. 125, the underlying party doesn’t have to compensate the winning party for costs of the arbitration, it might be that the claimant had hoped to be able to negotiate some kind of nuisance payment. But this matter also proves that arbitration is an effective tool to protect against this kind of schemes and as long as we have qualified and independent arbitrators who can see through this, the risk is manageable.