Civil Fraud Quarterly Round-Up: Q1 2025

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 2025.

Breach of Fiduciary Duty

The Supreme Court decision in Rukhadze v Recovery Partners GP Ltd confirmed the long-standing principle that a fiduciary be required to account for profits made from the fiduciary relationship absent informed consent of the principal, rather than being subject to a “but for” test.  There was no defence available that profits would have been made by the fiduciary in any event.

Committal/Contempt

Where a defendant had breached the terms on which a committal order was suspended, by continuing to harass her former managers, (Titan Wealth Holdings Ltd v Okunola) the Court had to consider whether it would be unjust to activate the sentence.  The Court concluded that activation was appropriate and there was no other option available.

In the latest iteration of Deutsche Bank AG v Sebastian Holdings Inc (discussed a number of times included in my Civil Fraud case update Q3 2023) the claimant sought an order compelling a former director of the defendant company (subject to a judgment) to attend court to be examined about the assets of the defendant company.  The Court found that it did not have the power to make an order for examination under CPR 71.2 where the respondent was no longer a director of the defendant company, and where the respondent was not within the jurisdiction.

The second respondent in SIA Investment Industry v Pardus Wealth Ltd was found to have been in contempt of Court for failing to comply with the asset disclosure aspect of a freezing injunction.  Three months after that finding, the second respondent had still not complied with the injunction.  The Court found that this was such serious instance of contempt that the only appropriate sanction was an immediate custodial sentence of 15 months.

The Court of Appeal heard matters in the case of Barclays Bank Plc v Dylan in the first quarter of 2015.  First the Court of Appeal considered whether there were grounds for interfering with a decision to commit an individual to prison for 22 months for breaches of freezing injunctions.  The Court of Appeal disagreed with the appellant’s arguments that more weight should have been put on mitigation, the harm done and the appellant’s admission of guilt, and dismissed the appeal.  However, a second appeal relating to the first instance judge’s decision to amend the allegations set out in the application notice was allowed in part.  The judge should have adjourned the hearing to allow the alleged contemnor to consider amended complaints and it was wrong to have made findings of fact which went beyond the allegation in the application notice.

The Court of Appeal in Darby v Wang (also discussed in my Civil Fraud case update Q4 2021)  allowed an appeal against a committal to prison for contempt.  The appellant had served over nine months of an 18-month sentence and, after receiving legal advice, he accepted that he was in contempt and apologised.  As a result of the belated compliance the sentence was reduced to the length of time already served.

In Ferrey v Harrison the Court was asked to find a judgment debtor to be in contempt for failing to provide information about his means to pay that debt.  The respondent’s position was that he considered he had complied with his obligations, aside from some minor failures.  Whilst the Court did not accept the respondent’s arguments, and found the respondent to be in contempt, it suspended the sentence to enable compliance by way of production of documents.

The applicant in McGuinness v Mawer (previously discussed in my Civil Fraud case update Q3 2024)  applied for permission to bring contempt proceedings against his trustee in bankruptcy.  The applicant alleged that the respondent had knowingly or recklessly made false and misleading statements in two witness statements.  The Court gave permission: the respondent was an officer of the Court and familiar with litigation, a misleading account had been given, and it was in the public interest for parties to be frank with the Court.

Costs

In Packer v Packer the claimant amended her reply to defence when evidence was provided which demonstrated that there was no basis for allegations of fraud contained in the reply.  The decision in this case relates to the cost treatment of that amendment and whether there was a good reason to depart from the usual rule that the successful party is awarded their costs.  The Court concluded that the usual costs rule should apply, but that the costs should not include any part of the costs incurred in responding to the allegation of fraud: that would be a matter for a costs judge at the end of a trial.

Disclosure

The Court made an order compelling various banks and a company to disclose all bank accounts in the name of or under the control of the defendant in Bin Sultan Bin Abdulaziz Al Saud v Gibbs.  The defendant had failed to comply with earlier orders to disclose.  The Court agreed with the Applicant that disclosure was necessary to enforce a freezing injunction obtained against the defendant and to prevent him from dissipating assets.

Freezing injunctions

An order was made against the husband respondent to a freezing injunction made in family proceedings in AA v BB that, unless he complied with the disclosure aspect of the freezing injunction, his defence in separate proceedings relating to real estate would be struck out.  The proceedings were sufficiently connected for this to be appropriate.

In Click Above Corben Mews Ltd v 381 Southwark Park Road RTM Co Ltd the Court was asked to clarify the scope of a freezing injunction and, if necessary, vary it to allow for the sale by receivers of leasehold flats to realise security under a charge which pre-dated the injunction.  The Court held that as the charge had priority the receivers could exercise their powers under that charge free from any later interests.  The Court also varied the injunction to clarify that the receivers were permitted to deal with and sell the leasehold properties.

The Court was also asked to vary a freezing injunction in Fishman v Mangazeev (also discussed in my Civil Fraud case update Q4 2024) in respect of the amount of living expenses a defendant subject to that injunction was entitled to spend.  The initial sum of £8,500 per week had been granted at a hearing where argument from both parties had been heard. Points which had been or could have been dealt with at the initial hearing were not to be reopened absent a change of circumstances.  Further, the claimant had asked for disclosure of worldwide assets at the initial hearing and the Court had limited disclosure to assets in England and Wales.  It was not available to the claimant to seek to make a variation of the level of living expenses conditional on further disclosure than had been granted by the Court.  The Court allowed the variation as sought by the defendant, but subject to the provision of proper (unredacted) evidence of school fees and rent due.

The Court in Otup v Brierley released a freezing injunction granted in 2015. It was arguable that the freezing injunction had in fact ceased to have effect at the point when final charging orders were granted which provided security for the debt.  In any event the injunction had served its purpose and had ceased to have effect on the payment of a settlement sum which discharged the debt owed. 

Full & frank disclosure

A freezing injunction and an access and imaging order were both set aside in J&J Snacks Food Corp v Ralph Peters & Sons Ltd on the basis of a failure of full and frank disclosure.  In particular: the need for the hearing to take place without notice had not been properly articulated or proved; the claimant had not shown a good arguable case against the defendants which would require a non-party to have been found to be a primary tortfeasor; the claimant had not established a risk of dissipation of assets.  The freezing injunction was set aside and the already imaged documents held by the independent IT expert were released to the defendants’ solicitors.

In Marinakis v Karipidis the Court dealt with a failure of full and frank disclosure in the context of an application to serve out of the jurisdiction by depriving the applicant of his costs of that exercise.  The Court refused, however, to set aside the order.

Proprietary injunction

The proprietary injunction granted in Gill v Kaur (discussed in my Civil Fraud case update Q3 2024) was continued by the Court.  The facts justified the relief sought and it was expedient to grant the relief.

Retrieval duty

The Court in Santander UK Plc v CCP Graduate School upheld the defendant bank’s appeal against a first instance decision refusing its application to strike out the claim.   The first instance decision (discussed here) found that it was at least arguable that the bank owed a duty to the claimant (which was not a customer of the bank) to retrieve the claimant’s funds on being notified of a fraud.  However, this was reversed on appeal with the Court confirming that a receiving bank does not owe a duty to third parties to retrieve their funds. A bank only owed legal duties to its own customers and such duties might include a duty to retrieve funds, as part of its existing contractual duties to comply with its customers’ instructions.

Secret commission

The Court of Appeal considered various aspects of half-secret commissions in Expert Tooling and Automation Ltd v Engie Power Ltd.  Where a party had paid commission to the agent of a principal and where the amount of that commission had not been disclosed to the principal, making it a half-secret commission, the paying party’s liability was that of an accessory to the agent’s breach of fiduciary duty.  To be found liable, therefore, the paying party must have acted dishonestly. 

s.423

The Supreme Court in El-Husseiny v Invest Bank PSC (discussed in more detail here) confirmed that s.423 Insolvency Act 1986 could apply and provide a claim against a party in circumstances in which the assets transferred, or which were the subject matter of the transaction in question, were not beneficially owned by that party.

STL Global Group Holdings Ltd v Mount Cook Land Ltd involved an application to stay or strike out a claim brought under s.423 that a transfer of a property was a transaction defrauding creditors.  The stay was proposed on the basis that a separate claim had been brought for recovery of a debt and if that claim failed, or if it succeeded and the judgment debt was paid, the claimant would no longer be a victim capable of being prejudiced and would therefore have no standing to bring a s.423 claim.  The Court rejected this argument: the circumstances of the debt claim were sufficiently uncertain that a stay could prejudice the claimant.  The strike out application was based on an open offer made by the defendants that they provide a charge over the property in question or a bank guarantee for the full value of the debt claim.  The defendants alleged that the open offer for the full value of the underlying claim made it abusive to continue the s.423 claim.  The Court held that the defendants had not shown that the offer provided everything to the claimant which it could obtain under a s.423 claim.  It was not, therefore, abusive to pursue the s.423 proceedings.

 

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.