Civil Fraud Quarterly Round-Up: Q3 2022

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 2022.

Contempt of Court

In Ocado Group Plc v McKeeve (which I discussed in my civil fraud updates of Q1 2021, Q1 2022 and Q2 2022) the Claimant sought findings of contempt against the Defendant solicitor for deliberately interfering with the execution of a search order. As the Defendant was not a respondent to the search order, the Claimant pursued an action for criminal, rather than civil, contempt. The Court considered whether the Defendant had the mens rea for criminal contempt which required an intention to interfere with the administration of justice. In respect of some aspects of the allegations, the Court concluded that the Defendant did not have a sufficient knowledge of the underlying claim to satisfy the mens rea element. However, the Court found that the concept of a search order was something the Defendant solicitor needed no explanation in order to understand and the destruction of an app which stored electronic data in order to prevent that app being searched was something which the Defendant knew would interfere with the search order. He therefore had the necessary mens rea for that action and was held in criminal contempt.

The Court in Deutsche Bank AG v Sebastian Holdings Inc (which I discussed in my civil fraud updates of Q3 2018 and Q4 2020) imposed a sentence comprising 10 months punitive element and 10 months’ coercive element for breach of a court order requiring disclosure of documents and information. The breach was intended to frustrate enforcement of a judgment and there was no mitigation which would have justified a reduction in the length of sentence. The sentence was suspended to give the contemnor a further chance to comply.

In another sentencing decision, A v B (also known as Dr Gerald Martin Smith), the Court imposed a sentence of 8 months’ imprisonment where bank accounts had been operated in breach of a restraint order. However, the sentence was suspended for 18 months as it had been the first breach of an order which had been in place for 17 years and was unlikely to have had a negative impact on the assets available to pay an underlying confiscation order.

Freezing Injunctions

In 4VVV Ltd v Spence the Court ordered that the Defendant provide information in order to ensure compliance with a freezing order. The Court considered its wide powers to ensure compliance, but also that relief should not be granted if it would be oppressive. In this case the explanation given by the Defendant about a particular payment and the reasons for withholding certain details relating to that payment had been inconsistent and the Court found that it was improbable that the Defendant did not have the information required. Further, if there were confidentiality provisions in place, the fact that the disclosure was being given pursuant to a Court order protected the Defendant. However, it was not considered necessary to order disclosure of the name of an agent who had filed accounts as there was no real need for that information.

The Court ordered the continuation of a freezing order against a director in Solid Star Ltd, Re on the basis that there was a good arguable case and a serious risk of dissipation of assets.  The underlying claim sought relief from unfair prejudice and the Court commented that it was unusual to have a freezing order in such an action, but also that given the prospect of fraud indicated by the facts disclosed in the case it was appropriate to continue the freezing order.

A group of investors obtained a freezing and preservation order over crypto assets in order to enforce default judgment in Nicholls v Little. The Respondent did not appear to have real property or bank accounts: the only assets the investors were aware of were the crypto assets in identified wallets. The Court reminded itself that it had already been determined in the cases of Vorotyntseva v Money-4 Ltd (see my civil fraud update Q4 2019) and AA v Persons Unknown (see my civil fraud update Q1 2020) that crypto assets were a form of property which could be the subject of a freezing order and found that the balance of convenience lay in making the freezing order.

In another crypto-related case (D’Aloia v Person Unknown & Others) the Court granted a freezing order, and confirmed that the English Courts would be the appropriate forum for the claim because various misrepresentations were made in England and the relevant asset was in England (the lex situs of a crypto asset being the place of domicile of its owner). The Applicant was also granted Banker’s Trust Orders against various exchanges in order to identify the recipients of his assets. Most interestingly, the Applicant was granted permission not just to serve out of the jurisdiction, but also to serve by alternative means, namely by email and by the transfer of an NFT into the accounts into which the Applicant had originally made the transfers of the assets he was seeking to recover. It was accepted that this was a novel approach, and the Court required the Orders to be served by email as well, but agreed that this would increase the prospect of the relevant parties receiving notice of the Orders and the proceedings.

The Iniquity Exception

The Court of Appeal in Candey Ltd v Bosheh (the first instance decision of which I discussed in my civil fraud update of Q1 2022) considered the iniquity exception: that privilege doesn’t attach to communications made to further a fraud or crime. The Court of Appeal considered whether there had been the necessary abuse of the solicitor/client relationship which put the advice outside the scope of a normal professional engagement such that no privilege would attach. The action being brought by the Claimant was for payment of its fees, and the Claimant sought to rely on statements made in the proceedings in which it acted, those statements were made in the course of litigation and there was nothing new which would take the case outside of the usual course of professional engagement. The iniquity exception did not, therefore, apply.

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.