Civil Fraud Quarterly Round-Up: Q2 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 April - June 2024.

Amendments and Pleadings

The Court allowed a late amendment to include an allegation of fraud in Aramech Resi Ltd v Panesar, despite the fact that a hearing would need to be vacated as a result. The Claimant had not been able to raise the allegation of fraud earlier, and justice required the Court to permit it to amend its claim.

In Persons Identified in Schedule 1 to the Re-Amended Particulars of Claim v Standard Chartered Plc, the Court of Appeal considered whether a decision not to strike out parts of the particulars of claim was correct.  The Appellant had sought to strike out allegations that it had mislead US authorities investigating breaches of sanctions against Iran, and allegations that individuals at management level within the Appellant were aware of a corrupt scheme to bribe Indonesian government officials. The Court of Appeal upheld the first instance decision: pleadings did not have to disclose all the evidence relied on. Fraud or dishonesty has to be properly particularised, and the case met that requirement.

 

APP Fraud

In Terna Energy Trading doo v Revolut Ltd the Court dismissed a reverse summary judgment application by the defendant electronic money institution (EMI). The claimant had alleged unjust enrichment following an authorised push payment fraud where it had transferred money to an account held with the defendant. The Court was not able to find that the defendant EMI had not been enriched, and was unable to properly consider the answers to further questions which would arise about the defence. The matter could not be summarily disposed of and would therefore need to be determined at trial.

 

Breach of Directors Duties/Fiduciary Duty

The Court was asked to consider claims of wrongful trading and misfeasance in Wright v Chappell (the BHS Group Ltd (in liquidation) claims).  The Court paid close attention to when the directors knew or ought to have known that the companies were insolvent and therefore when they should have considered the interests of the creditors of the companies (as opposed to the shareholders).  The directors were found to have continued to trade the companies at a point when there was no reasonable prospect of avoiding insolvent liquidation, and to be liable for earlier breaches of duty in respect of transactions entered into at a point when they ought to have known that insolvency was probable, even though they were not found to have engaged in wrongful trading at that date.

In UBS Switzerland AG v Kumar the Court held a director liable in respect of credit notes given to a customer at a time when the company was cash flow insolvent, and when it was inevitable that the company would enter liquidation.

 

Contempt

The Court of Appeal considered issues of service in respect of contempt proceedings in Commercial Bank of Dubai PSC v Al Sari.  In particular, whether an order for service by alternative means would automatically apply to contempt/committal proceedings. The Court of Appeal found that any application to serve contempt proceedings by alternative means had to be made within those proceedings: an order for service of “all other documents” in an earlier phase of proceedings would not be sufficient. However, the Appellants had not taken a point on service at first instance and the Court of Appeal took the view that they should not be able to raise this as a new point on appeal.

The Court of Appeal considered the sentence handed down for contempt in Isbilen v Turk (discussed in my Civil Fraud Update Q1 2024) and whilst it confirmed that the sentence was not wrong, it suspended the sentence to give the unrepresented contemnor a final chance to comply with his disclosure obligations and purge his contempt.

The hearing of an application for contempt in Mex Group Worldwide Ltd v Ford was adjourned where one respondent attended remotely, and another did not attend at all. The Court could deal with any prejudice through costs orders, and where the respondents were belatedly engaging, it was determined that it would be preferable for all parties to attend in person.

Smith v Kirkegaard (aka Engman) is another matter relating to service of contempt proceedings dealt with by the Court of Appeal. The Appellant sought relief from sanction for failing to comply with a deadline set for service in contempt proceedings against a foreign national. The Appellant’s failure to comply with the deadline was as a result of the Respondent’s attempts to avoid service. Jurisdiction had already been established over the Respondent, and an order for alternative service would ensure the contempt proceedings were brought to his attention.  The Appellant was granted relief from sanction under the Denton test, but the Court of Appeal confirmed that non-payment of a costs order could not be enforced by imprisonment for contempt.

The Court granted rights of audience to an unqualified individual in Tonstate Group Ltd v Wojakovski (which I first highlighted in my Civil Fraud Update Q1 2021) on the basis that it would assist the unrepresented defendant, particularly in light of the need for his on-going compliance with any further orders made by the court during the 12 month period of suspension of a custodial order made in contempt proceedings.

 

Costs

In Thakkar v Mican the Court of Appeal considered whether, where allegations of fundamental dishonesty had failed, the default position should shift to indemnity costs. The Court found that an award for indemnity costs would always depend on the circumstances of the case, with a complete and unfettered discretion available to the Judge.  However, it did confirm that failed allegations of dishonesty might be a starting point to consider whether indemnity costs might be appropriate. It would always be the burden of the receiving party to show that indemnity costs were appropriate, rather than there being any reversal of the burden of proof.

 

Dishonest Assistance

The Court struck out various claims in Larsson v Revolut Ltd on the basis that the defendant EMI did not owe the contractual and tortious duties allegedly breached. However, it refused a strike out the claim in dishonest assistance as it was not prepared to find that there was no sufficiently arguable case that the funds were held by the defendant on a constructive trust. Further argument would be needed in order to determine that part of the claim.

 

Limitation

Upham v HSBC UK Bank Plc arose out of the failed Eclipse film tax deferral scheme. In short investors sought to recover losses from HSBC, on the basis that HSBC (through an employee who had designed the scheme) knew that various representations about the scheme were false and had been made dishonestly. The Claimants’ case in deceit failed, and the Court found that the representations made were not false.  As the Court found that there was no dishonesty, the claim in dishonest assistance also failed. Finally, the Court undertook a careful analysis of the applicability of s32 of the Limitation Act in order to conclude that the claims were time barred in any event.

 

Secret Commissions

McHale v Dunlop involved an alleged half-secret commission promised by an introducer to an investor in a scheme. The investor knew that a commission would be paid, but not the amount. The Court found that where an investment opportunity was enhanced with the promise of a share of the introducer’s commission, then a fiduciary duty arose to give an honest account of that commission. By failing to do so, the defendant was in breach of that fiduciary duty and an account of the total commission paid was ordered.

 

Strike Out

In Tinkler v Esken Ltd (Formerly Stobart Group Ltd), the Court struck out a claim in unlawful means conspiracy. The Claimant had already admitted that the conspiracy claim depended on the success of an earlier fraud claim, and that it would be an abuse of process to proceed with the conspiracy claim if the fraud claim failed. The fraud claim had already been dismissed, and the Claimant had exhausted his rights of appeal (discussed in my Civil Fraud Update Q2 2023). The admission of abuse of process was binding on the Claimant in the same way that an admission of fact would be. He had not applied to withdraw the admission, nor provided any evidence which would justify a withdrawal. Further, the conspiracy claim contained new issues which the Claimant submitted entitled him to take the conspiracy claim to trial.  However, they would involve re-litigating issues which had been determined in the fraud claim, and were therefore a collateral attack on those findings with no prospect of success.

 

Third Party Disclosure

The Court in Hussey v Barclays Bank UK Plc refused to grant a further Norwich Pharmacal application where the Respondent bank had complied with a previous order, and where the information sought was not necessary to pursue any good arguable claim. The Court did, however, release some of the Claimants from their undertakings regarding the collateral use of the documents allowing them to make complaints to the FOS, FCA and the police.

In a decision made a month before the judgment referred to under the Contempt heading above, the Court considered issues of third party disclosure in Tonstate Group Ltd (in liquidation) v Wojakovski. This time the application was against the Defendant’s brother, who was the trustee of an Israeli trust, and who would have access to and control of documents relevant to his late father’s bank accounts. The information sought was to allow the claimant to find out what had become of property to which it had proprietary claims. The Court found that, as the Respondent had been listed as a director with a UK address at the time the application was served on him, this was sufficient to establish jurisdiction for service, even though the application was not connected to the company. The Court also considered subject matter jurisdiction, and concluded that it could make the order even though the respondent third party was abroad.

 

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.