Civil Fraud Quarterly Round-Up: Q1 2023

This quarterly civil fraud update provides a summary of reported decisions handed down in the courts of England and Wales in the period of January - March 2023.

Bribery

The Claimant in Public Institution for Social Security v Ruimy is a Kuwait public institution responsible for the country’s pension and social security scheme. It brought proceedings in the English High Court against the former director and a large number of other defendants alleging that its former director had received bribes of $874m.  Two Defendants applied to challenge jurisdiction, asserting that the claims against them should more properly be pursued in Switzerland. The Court disagreed, dismissing the application: there were connected allegations of bribery being considered by the English Court, and there was a risk of inconsistent judgments if the claim against parties alleged to have paid (some of) those bribes was pursued separately. Whilst there were connections to Switzerland, it was not the centre of gravity for the claim in terms of facts, documents or witnesses. England was the more appropriate forum.

Contempt of Court

Waksman J recused himself from the committal proceedings brought against Neil Gerrard in Eurasian Natural Resources Corp Ltd v Dechert LLP. The recusal was on the basis that the Judge had already made serious findings against Mr Gerrard at trial, where there were two related upcoming trials and where there was a real possibility that it would appear he had pre-judged the issue.

The Court of Appeal in Deutsche Bank AG v Sebastian Holdings Inc, Alexander Vik (see my civil fraud update Q3 2022) considered the need for permission to appeal against a finding of contempt compared to a finding against a committal order. CPR 52.3(1)(a) allowed an appeal against the latter without permission, but until a committal order had been made, permission to appeal was required against a finding of contempt of Court. If an application to appeal a committal order was made, the grounds of appeal would not be limited to issues relating to the sentence but could also challenge the finding of contempt.

Crypto-Assets

As discussed in more detail (in our Tulip Blog) the Court of Appeal in Tulip Trading Ltd v van der Laan determined that there was a serious issue to be tried about whether certain core developers who were linked to the Bitcoin blockchain owed fiduciary duties and/or duties in tort to Bitcoin owners.  Whilst the Court of Appeal noted that a successful claim would require a significant development of the law relating to fiduciary duties, it was clearly an arguable position.  The appellant was therefore given permission to serve its claim on the core software developers out of the jurisdiction.

Deceit 

In Quantum Care Ltd v Modi the Court of Appeal dismissed an appeal against a decision rejecting a claim in deceit on the basis that the Judge had failed to consider relevant evidence, arrived at an unreasonable conclusion and failed to give adequate reasons for the decision.  Whilst the initial decision did not contain an explanation of why the deceit claim had been rejected, the decision refusing an application for permission to appeal contained more detail and the two judgments considered together provided sufficient information to discern why the first instance Judge reached his decision.  The first instance Court was better placed than the Court of Appeal to consider the facts of the matter including the nature of various representations and how the parties would have interpreted those representations.

Fraudulent Trading 

The Court of Appeal considered the scope of s.213 Insolvency Act 1986 in Tradition Financial Services Ltd v Bilta (UK) Ltd. Crucially, it held that the definition of a ‘party’ to fraudulent trading under s.213 was not restricted to someone with a controlling interest in or management function of the company. Liability would be established if the party was involved in the carrying on of a fraudulent business, not if it was merely involved in a fraud.  The purpose of s.213 was to make such parties liable to the creditors of the company which had been traded fraudulently. 

Freezing Injunctions

In Invest Bank PSC v El-Husseini the Court considered an application for an extension of time to serve defences as well as a declaration about the use of funds to pay legal fees.  The applicant had given an undertaking, the terms of which mirrored a freezing injunction against a co-Defendant.  The application for an extension of time was granted. The request for a declaration about the use of funds was inappropriate: the terms of the undertaking entitled the Applicant to use funds for legal advice.  If the Claimant believed the use of funds to be unreasonable it could ask the Court to consider the position and, if the Court agreed, that Defendant could be found to be in contempt of Court.

Kireeva v Bedzhamov (a case I discussed most recently in my civil fraud update Q2 2022) involved an application for an extension of time to pay an interim costs order to allow for the sale of a property which had been released from a worldwide freezing order to provide funds to be used for legal and living expenses.  The Court determined that the extension of time for payment of the interim costs order would be the outcome which caused the least overall prejudice.

The Court of Appeal in Patel v Minerva Services Delaware Inc upheld a decision to refuse to grant freezing and proprietary injunctions (see my civil fraud update Q2 2022): there was no serious issue to be tried and no risk of dissipation of assets. 

Unlawful Means Conspiracy

The Court granted summary judgment on claims in breach of contract, breach of confidence, unlawful interference and unlawful means conspiracy in Coveris Flexibles UK Ltd v Brears. The basis for the summary judgment application was admissions made by the Defendant in an affidavit in committal proceedings. Those admissions were admissible and sufficient for the Court to grant judgment.

About the author

Mary Young is a Partner in the Dispute Resolution team. Her practice covers a wide range of areas but Mary’s particular interests and expertise lie in civil fraud and asset tracing as well as claims against professionals in negligence, breach of fiduciary duty and breach of trust.