Civil Fraud Quarterly Round-Up: Q1 2024

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 2024.

Abuse of Process

Maia Luxury Ltd v Luxierge Ltd was a case about a Birkin bag. It was the second claim brought on the same facts, after the first claim was discontinued following errors of service. The Defendants applied to strike out the claim as an abuse of process. The application failed: there had been no defence served in the first claim, and the terms on which the first claim was discontinued did not refer to future proceedings.

Contempt

A company and its director appealed against a finding of contempt with sentencing of 12 months’ imprisonment and a £75,000 fine in ADM International Sarl v Grain House International SA (formerly Compaignie Agricole de Commercialisation et de Conditionnement des Cereale et de Legumineuses SA). There had been failures of disclosure in respect of an asset disclosure order and a freezing injunction. Whilst the breaches were committed by the company, its director had known of and been responsible for those breaches. The appeal was allowed in part: some of the instances of contempt had been purged by the time of the hearing. Some of the instances depended on the wording of the underlying order which was not clear and, on an ordinary language interpretation, meant there had been no breach. The fine was reduced to £50,000 and the imprisonment was reduced to 6 months.

Issues of service of contempt proceedings were considered by the Court in ADS Securities LLC v Tennor Holding BV. The contempt proceedings were adjourned to regularise service. The alleged contemnor (a company director of the defendant) provided undertakings to ensure compliance with previously breached orders, and to serve an affidavit, setting out the defendants means against which a judgment could be enforced within 14 days. The Judge reserved any future hearings to himself.

In Isbilen v Turk the Court considered an application to commit the defendant to prison for failures to comply with the disclosure obligations in a freezing injunction. The defendant argued that he did not understand his disclosure obligations and that his breach was not intentional and could not constitute contempt. The Court clarified that it was not necessary to have intended to breach the order, merely to have intended to undertake the prohibited act. Further a lack of understanding went to penalty rather than liability.

The contemnor in Lim v Ong was sentenced to an immediate custodial sentence in respect of seven counts of contempt relating to disclosure under a freezing injunction, breaches of the weekly living expense allowance, making false statements and dissipating frozen assets.

The Court of Appeal in Navigator Equities Ltd v Deripaska (see my Civil Fraud Update Q4 2022) upheld the dismissal of a contempt application. The appellant had not proved its case to the criminal standard and had adduced no expert evidence to support its position.

The applicant in The Family (Holdings) Ltd v Ammar asked the Court to order the respondent to direct his US bank to comply with a freezing injunction. The Court refused, explaining that this went beyond the terms of the injunction and that it was an attempt to give effect to the freezing injunction outside the jurisdiction of England and Wales. The Court confirmed that if there had been breaches of a freezing injunction, contempt proceedings were where a remedy would lie.

Crypto

In Boonyaem v Persons Unknown summary judgment was granted against two identifiable defendants, but not against the anonymous and unidentifiable defendant. The Court considered issues of alternative service and also dealt with the continuation of proprietary and non-proprietary freezing injunctions.

Fraudulent Misrepresentation

The Court granted summary judgment in favour of the claimants in Lowry Trading Ltd v Musicalize Ltd. The fraud itself involved the making of false representations by the defendants that they were music promoters. The defendants had produced forged invoices and bank statements which had induced the claimants to invest money. Where there were a number of factors which led to a decision being taken, that did not mean that none of those factors were decisive. Otherwise a fraudster could escape a finding that a representation induced a decision by making so many representations that none of them could be treated as being the representation which induced the decision.

In another case involving false representations, Vegesentials Ltd v Shanghai Commercial and Savings Bank Ltd, the Court found a Taiwanese bank vicariously liable for fraudulent misrepresentations made by an employee. A relationship manager had provided a letter to the claimant company confirming that there were investors with funds totalling £20m available to invest in the claimant company. The claimant company relied on that representation and the unavailability of funds caused the collapse of its business.

Freezing Injunctions

In GFH Capital Ltd v Haigh (see my Civil Fraud Update Q4 2022) the Court of Appeal upheld the first instance decision that a freezing injunction granted under s.25 of the Civil Jurisdiction and Judgments Act, to support proceedings in Dubai, had expired on determination of the claimant’s case in the DIFC.

The Judge in Unitel SA v Unitel International Holdings BV commented that the meaning of “good arguable case” in the context of an application for a freezing injunction was confused and needed clarification by the Court of Appeal. The Judge considered the two approaches and found that the claimant had satisfied the requirements on either formulation.

Iniquity Exception

In Al Sadeq v Dechert (which has been widely written about, but discussed briefly in my Civil Fraud Update Q2 2023) the Court of Appeal considered the iniquity exception to privilege. The decision confirmed a balance of probabilities test for making out an alleged iniquity and set aside any distinction between criminal and civil proceedings. The Court of Appeal also confirmed that documents which reported on or revealed the iniquitous conduct would be caught by the exception. 

Malicious Prosecution

The Court commented in Patel v Minerva Services Delaware Inc (which I’ve discussed a few times, most recently in my Civil Fraud Update Q1 2023) when granting permission to the claimant to amend his points of claim to include an allegation of malicious prosecution, that the law on this area was still developing and it was unclear whether it extended to proceedings brought in foreign courts. However, the Court did determine that a claim in malicious prosecution cannot be brought if the proceedings in question are arbitral proceedings.

Representative Actions

In Commission Recovery Ltd v Marks and Clerk LLP the Court of Appeal upheld the first instance decision dismissing an application that the claimant could not act as a representative claimant in respect of claims in bribery, secret commissions and breach of fiduciary duty. If liability was established it would benefit all members of the claim, and so there was a common issue, making a representative action appropriate.

Sovereign Immunity

The Court of Appeal considered claims to sovereign immunity and issues of service in respect of the President of Mozambique in Privinvest Shipbuilding SAL (Holding) v Nyusi (discussed in more detail here). The only way to serve English proceedings in Mozambique was through the judicial authorities and as such papers left at a security checkpoint were not validly served. Service was therefore only effective at a later date, meaning that the President’s challenge to jurisdiction on the grounds of state immunity was made within time. That challenge was upheld.

Tax

In the Upper Tribunal decision of Ammanford Recycling Ltd v Revenue and Customs Commissioners it was confirmed that HMRC could run a fraud case against a company without specifying particular individuals in that company who knew about the fraud. However, in order to cross examine a witness on their knowledge of the fraud, HMRC must first have identified that witness as someone who it alleged to have that knowledge.

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.