Civil Fraud Quarterly Round-Up: Q2 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 April - June  2023.

Confiscation

The Court in Ahmet v Tatum granted the CPS’s application to strike out the claim. The Proceeds of Crime Act 2002 provided a complete code for dealing with disputed property rights in the context of restraint and confiscation orders. The Claimant had the right to intervene in confiscation proceedings in order for her interest in a restrained property to be considered. It was not necessary to bring a separate civil claim, and, more than that, to do so was an abuse of process.

Disclosure Orders

In Scenna v Persons Unknown the Court considered the continuation of freezing orders against parties accused of fraud and of receipt of the proceeds of the fraud. It also considered whether to make orders against two Australian banks where the recipients of the stolen money held their accounts. The Court undertook a balancing act between the need for information to be obtained by the defrauded party, and avoiding putting the bank in breach of local laws.  There was an alternative remedy available in Australia which the banks indicated they would not oppose and, whilst this would cause some inconvenience to the Claimant, it would not damage the claim. There were no exceptional circumstances to override the general rule that a disclosure order should not be made against a foreign bank on the basis that a state should refrain from requiring obedience to its authority by foreign entities in respect of conduct outside its jurisdiction. This applies particularly to banks as the documents they hold relate not only to their business, but also to the business of their customers, which will itself be subject to local confidentiality obligations. In addition, service of the claim form on the banks was set aside, as the Claimant had failed to show that England was the appropriate forum where the claimant was in Canada and the banks were in Australia.

Dishonesty

The Court of Appeal overturned a decision in Floreat Investment Management Ltd v Churchill finding that the diversion of money could properly be seen as a contractual short-cut rather than involving the dishonest diversion of funds. It was also necessary to consider dishonesty on an objective basis, i.e. whether conduct was dishonest according to the standard of ordinary decent people. On that basis the conduct complained of was not dishonest. Once the Court of Appeal had concluded that there had been no dishonesty, many of the other causes of action fell away and did not need to be considered.

The Court of Appeal considered similar issues in Re JD Group Ltd in liquidation: Bhatia v Purkiss (as liquidator of JD Group Ltd). At first instance the Court found a sole director liable for VAT fraud. The director appealed, arguing that in order to establish liability, it was necessary to establish a dishonest state of mind. The Court of Appeal disagreed, finding that to be dishonest a party must have known about the fraud, but it was not necessary to know every detail in order to be liable.

Freezing Injunctions

In Hunt v Ubhi the Court of Appeal set aside a freezing order which had been continued at a second hearing. The Court had initially allowed a departure from the default position that an unlimited cross undertaking in damages be provided, and this was continued at the return date. However, the burden was on an applicant to demonstrate why it was appropriate to depart from that default position. It was not correct to say that it was usual for a provisional liquidator to give an undertaking limited to the value of the assets in the estate.

The Court of Appeal considered a decision by the lower Court to refuse a request for a consent order in financial remedy proceedings in circumstances in which there were parallel fraud proceedings which, if successful, would wipe out the entirety of the husband’s assets. The decision in Bogolyubova v Bogolyubov was that the Court had discretion under s.33A Matrimonial Causes Act 1973 whether to make a consent order and while it would give weight to an agreement made between a couple, such an agreement would need to address the relevant circumstances including, in this case, the outstanding litigation against the husband (paying party). The appropriate approach was to adjourn approval of the consent order until after the trial of the fraud claim.

Limitation

The Court of Appeal found in Seedo v El Gamal & Others that, where limitation is being considered after a determination on the merits, the test under s.32(1)(a) Limitation Act 1980 is when the Claimant discovered (or ought reasonably to have discovered) the fraud as found by the Court, rather than the fraud as pleaded by the Claimant. Where there were a number of misrepresentations, a later one would not start a new limitation period, unless it gives rise to a separate cause of action.

Privilege

In Al Sadeq v Dechert LLP the Court considered the inequity exception to legal professional privilege. The Court confirmed that it only had to look at a defendant’s conduct, and that the question of whether a privilege-holder had any knowledge of the iniquitous conduct was a matter for trial.  Where a victim of a crime had sufficient interest in the criminal litigation to instruct a lawyer or seek legal advice, there was no reason why the documents and communications between the victim and his lawyer would not be protected by litigation privilege if the usual rules were met (litigation was in reasonable contemplation and advice on that litigation was the dominant purpose of the communications). I understand this case is being appealed and will be dealt with on an expedited basis.

Service Out

The Court upheld an order to serve proceedings out of the jurisdiction in Manek v 360 One Wam Ltd. The claim had a real prospect of success, including in relation to a limitation defence.

Setting aside judgment

The Court of Appeal dismissed an appeal seeking to overturn a refusal to set aside a judgment for fraud in Tinkler v Esken Ltd (formerly Stobart Group Ltd). The Court of Appeal considered what needed to be shown and confirmed that dishonest conduct must have had a material effect on the decision-making: in other words, that there had been a fraud on the Court. When considering new evidence, the Court at first instance had looked at that new evidence alongside the old to see if it demonstrated that the trial judge had been deceived. That was the correct approach.

Transactions defrauding creditors

I discussed the first instance decision in Invest Bank PSC v El-Husseini in my Civil Fraud Case Update Q1 2023.  The Court of Appeal has now considered the case and confirmed that a debtor could be considered to “enter into a transaction” for the purpose of s.423 even if his acts were on behalf of a company and he had no beneficial interest in the assets which were the subject matter of the transaction. 

In Emirates NBD Bank PJSC v Almakhawi the Court found that although one of the purposes of a gift of property and money from a judgment debtor to his son was estate/inheritance planning, another purpose was to put the assets beyond the reach of creditors. As such the transfers fell within the scope of s.423 Insolvency Act.

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.