Civil Fraud Quarterly Round-Up: Q3 2020

9 October 2020

This quarterly civil fraud update provides a summary of reported decisions handed down in the courts of England and Wales in the period July - September 2020.


Freezing injunctions

The Court considered that a good arguable case had been pleaded in Montlake Qiaf Platform ICAV v Tiber Capital LLP & Ors.  Although there might be defences to the claim, none had been intimated.  There was also evidence that there was a risk of dissipation including a finding of such risk in other proceedings involving the defendant which involved allegations of dishonesty.  As the judgment in the other proceedings had not been appealed or set aside, it was a relevant factor for the Court to consider.  Therefore, the Court granted a worldwide freezing injunction and a proprietary injunction.

An administrator of an estate was granted a freezing injunction in Cray v Malling in respect of a property which belonged to the deceased’s estate but which had been transferred into the name of the deceased’s son (the Defendant) for tax purposes.  The Defendant lived in another jurisdiction and was marketing the property for sale despite having acknowledged that he did not own the property.  The Court therefore concluded that there was a risk of dissipation and granted the injunction.

In North of England Coachworks Ltd v Khan the Court considered an application to vary a freezing injunction to allow the Applicant to liquidate frozen assets to pay his legal costs of defending contempt proceedings.  The interest of justice was the decisive factor when considering whether to allow frozen assets to be used to cover legal fees.  The burden was on an Applicant to demonstrate that there were no other assets available; in this case he had not done so, therefore, the application was refused.

Organic Grape Spirit Ltd v Nueva IQT SL concerned an appeal against an order which prevented a Respondent to a freezing injunction spending money on developing a new business.  The Appellant could not point to a pattern of trading which would mean the new business could be considered to fall within the ordinary and proper business exception to the freezing injunction.  The Judge at first instance had not suggested that there was any bad faith, but rather had assessed the risk of the venture.   The Court of Appeal considered the principles governing freezing injunctions and business transactions and the fact that a freezing injunction was intended to restrain unjustified disposals which is why there is often an exception for the disposal of assets in the ordinary and proper course of business.  The Court should not sanction dealings which were not undertaken in good faith or which were intended to dissipate assets to avoid a judgment.  However, it was not for the Court to consider whether a business venture was reasonable or involved an acceptable degree of risk. The appeal was allowed: the Appellant should have been permitted to pursue its new business.

The Court of Appeal considered whether an injunction restraining the use of assets (which I discussed in my Civil Fraud Case Update Q2 2019) might have been an abuse of process in (1) Koza Ltd (2) Hamdi Akin Ipek v Koza Altin Isletmeleri AS .  The Claimants appealed against a decision that the First Claimant be restrained from using its assets to fund an arbitration, having given an undertaking in the underlying proceedings not to use its assets other than in the ordinary and proper course of business until trial or further order (the “Undertaking”).  The Claimants argued that the injunction frustrated the consequences of an earlier decision in which the Court of Appeal (round 1) had held that it was unable to make a declaration as to whether the First Claimant could (or could not) use its assets to fund the arbitration, instead stating that by doing so the First Claimant ran the risk of being found to have breached the Undertaking.  The Court of Appeal (round 2) found that the Defendant’s injunction application was not an abuse of process or a collateral attack on the Court of Appeal’s earlier decision and held that it could invoke its jurisdiction to make ancillary orders to enforce undertakings even where it was not possible to determine whether the threatened conduct would be a breach of that undertaking. 

The Court refused to vary a post-judgment freezing injunction which was imposed to enable enforcement of an arbitral award in John Forster Emmott v Michael Wilson & Partners Ltd.  The Applicant applied to vary the injunction to enable it to fund an appeal in legal proceedings in Australia.  The burden was on the Applicant to demonstrate that it could not fund the appeal proceedings any other way and the Court was not satisfied that it had done so, or that it had provided sufficient evidence on the merits of the appeal it wished to pursue.  The Application was therefore refused.

In GML International Ltd & Ors v Harfield the Court considered an application for a post-judgment worldwide freezing injunction. It was for an Applicant to demonstrate that there was evidence of a real risk that the judgment would not be met because of an unjustified dissipation of assets by the Defendant.  There had been findings of dishonesty against the Defendant, he knew that he owed money to the Applicant pursuant to the judgment and there had been a wilful attempt by the Defendant not to honour the judgment.  The Court therefore made a freezing injunction and disclosure order.

An Applicant’s ability to provide a cross-undertaking in damages was considered by the Court in Gould v Kay & Ors.  The Court considered carefully whether there was evidence of risk of dissipation and concluded that the behaviour of the Respondents did provide evidence of such a risk.  The Applicant had made it clear that her claim against the Respondents was that she had been duped by the Respondents into using all her money for investments, as a result was facing possession proceedings and, therefore, had no means to give a cross-undertaking in damages.  The Court exercised its discretion and made the freezing injunction without requiring the cross-undertaking.


Search Orders

Whilst TBD (Owen Holland) Ltd v Simons (which I first mentioned in my Civil Fraud Case Update Q1 2020) relates to copyright infringement, the guidance from the Court of Appeal relating to search orders is useful to consider.  The Court commented that the primary purpose of a search order is to preserve evidence.  Where most documentary evidence is now in digital form, stored on devices on in- cloud storage, images can be taken without affecting the data stored.  This was merely a preservation step, with disclosure and inspection being separate steps and subject to separate considerations.  In circumstances in which an order was made that devices and storage must be imaged, the Court of Appeal commented that  in most cases a search order in addition to an imaging order would be unnecessary.  If a search order was also granted, careful consideration should be given to its scope.  If an imaging order is granted, the safest way to protect a Respondent is for the images to be retained by the forensic computer expert, with a further Court hearing to determine how and when the documents contained in the images could be searched and inspected.

As discussed in more detail by my colleague Fiona Simpson here , in Calor Gas Ltd v Chorley Bottle Gas Ltd the Court included Covid-19 safety provisions in a search order.  This included the requirement for a temperature check, asking about the vulnerabilities of persons at the locations to be searched, with the search paused to allow anyone who is vulnerable or shielding to make arrangements to leave the property, social distancing by the search party and the use of hand sanitizer, gloves and facemasks by the search party.


Proprietary Claims

In an interlocutory hearing within the complex tax fraud case of Skatteforvaltiningen (Danish Customs & Tax Administration) v Solo Capital Partners LLP (In special administration) & Ors the Court considered whether  funds paid into Court by certain Defendants and over which the Claimant asserted a proprietary claim, should be released back to those Defendants to enable them to pay legal fees.  The Court ordered a payment sufficient to cover certain amounts up to January 2021 on the basis that an investment which would mature at that point was a potential source of funds to meet further expenses.  The decision was intended to balance the benefit of those Defendants continuing to be represented against the Claimant’s interest in minimising the reduction of assets against which it asserted a proprietary interest.


Crypto Assets

The Court in (1) Marian Toma (2) David True v Ciaran Murray refused to continue an injunction preventing the Defendant from dealing with Bitcoin held in an account.  Whilst there was a serious issued to be tried, the Claimants’ case was capable of being satisfied in monetary terms rather than being limited to the recovery of the Bitcoin.  Damages were, therefore, an adequate remedy.  The Court also took into account the fact that the Claimants would not be able to satisfy any cross-undertaking in damages.  The balance of convenience lay against the continuation of the injunction.


Quincecare Duty

In Stanford International Bank Ltd v HSBC Bank plc the Court refused to strike out claims based on allegations that the Defendant bank should have recognised various red flags on the basis that the Claimant had not suffered any loss because its asset position did not change (payments out were balanced by the reduction of liabilities).  The Court found that as the Claimant was insolvent at the time the relevant transactions were processed, the Claimant’s asset position needed to be carefully considered to determine whether a loss had been suffered.  The Court did, however, strike out a claim in dishonest assistance on the grounds that the dishonesty aspect of the Claimant’s claim had not been adequately pleaded.


Judgment procured by fraud

An attempt to challenge a judgment on the basis that it had been procured by fraud failed in Francesca Elu v Floorweald Ltd.  The High Court (hearing an appeal from the County Court) re-affirmed the principle that an action to set aside judgment on the basis that it had been obtained by fraud was a cause of action in itself and required fresh or new evidence or facts which were not known at the time of trial.  The issues of the truth of the evidence and the authenticity of documents were considered by the trial judge and, with one possible exception, there was no fresh evidence.  The Court considered that the public interest in the finality of litigation should prevail and struck out a statement of case seeking to appeal the judgment.


Iniquity Exception to Legal Professional Privilege

In Barrowfen Properties v (1) Girish Dahyabhai Patel (2) Stevens & Bolton LLP (3) Barrowfen Properties II the Court considered an application for disclosure of documents containing legal advice given by the Second Defendant firm to the First Defendant and, in particular, whether a breach of a director’s statutory duty would engage the iniquity exception.  Analysis of the facts of the case demonstrated strong prima facie evidence that the breaches of statutory duty had involved elements of dishonesty, bad faith, forgery and fraud, thus engaging the iniquity exception.


Passport Order

The Court refused to continue a passport order in Igor Vitalievich Protasov v Khadzhi-Murat Derev.  The Applicant(who had been appointed by the Russian Court as the Respondent’s bankruptcy manager) had applied to continue a passport order contained in a freezing order, pending the hearing of an application that the Courts of England and Wales recognise the Respondent’s Russian bankruptcy.  The application was made in circumstances in which it was claimed that the Respondent had concealed substantial assets and had only partially complied with the disclosure order contained in the freezing injunction.  The Court considered whether the passport order had secured compliance with the disclosure order, finding that a list of assets had been provided by the Respondent and any outstanding disclosure was not so serious as to require or justify the continuation of the passport order.   The passport order was not there to guarantee compliance with any future orders and no evidence had been provided by the Applicant that there was a risk that the Respondent would leave the jurisdiction.


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. 

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