Civil Fraud Quarterly Round-Up: Q3 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 July - September 2023.

Contempt

Deutsche Bank AG v Sebastian Holdings, Inc Mr Alexander Vik reared its head again this quarter (previously discussed a number of times including in my Civil Fraud case update Q1 2023). This decision related to an application by Mr Vik to give evidence via video link at a hearing for his examination. Mr Vik had previously been found to be in contempt of Court for failing to comply with a Part 71 order. His custodial sentence was suspended on certain conditions, including his physical attendance at the examination hearing. The Court found that in-person attendance at the examination hearing was required by the committal order and that permission for evidence to be given by video link could only be made where it was for a good reason and served a legitimate aim. Mr Vik had not provided a good reason. The Court also commented that if Mr Vik was threatening not to attend if he could not attend remotely, it would be bowing to blackmail to accept his request: the Court should proceed on the assumption that he would attend if required to do so. It was unlikely that Mr Vik would be prevented from leaving the country at the end of the hearing and there was no denial of access to justice: Mr Vik had not provided any evidence that he was physically unable to attend in person and the hearing was for information gathering. 

Delivery Up (of crypto)

A case which was heard earlier this year, but not reported until this quarter is Joseph Keen Shing Law v Persons Unknown & Huobi Global Limited. This case related to a fraud involving crypto in which the Claimant asserted a proprietary claim over crypto assets held by an exchange (Huobi). The exchange largely cooperated with the claim and default judgment had been obtained on various proprietary claims. The Court took the following approach to repatriating the assets: (1) convert the crypto to fiat currency; (2) transfer the fiat currency to England and Wales; and (3) pay the fiat currency into the Court funds office, either directly or via the Claimant’s solicitors. The Claimant could then apply for an order for execution of the default judgment against those funds.

Derivative Claims

McGaughey v Universities Superannuation Scheme Ltd involved an appeal against a decision that two members of the Universities Superannuation Scheme had been refused permission to continue derivative claims against the directors and former directors of the scheme. The appellants’ arguments were that the directors had acted in breach of fiduciary duty for various reasons including that benefit changes were indirectly discriminatory and that the continued investment in fossil fuels without a plan for divestment was contrary to the company’s interests. The Court at first instance found that these claims were not derivative claims and that whilst claims about costs and expenses were capable of being derivative claims, it was not appropriate to exercise discretion to allow those claims to continue. The Court of Appeal agreed: for a derivative claim to be successful there needed to be a loss suffered by the company and its shareholders. In this case the Appellants were members of the scheme but that was not akin to being shareholders and they had not suffered harm or loss which was reflective of a loss or harm suffered by the company. 

Jurisdiction

The Court of Appeal considered issues of jurisdiction relating to allegations of a corrupt scheme in Crane Bank Ltd v DFCU Bank Ltd. The Claimant (Ugandan) bank alleged that Ugandan government officials and representatives of the Ugandan central bank had engaged in a corrupt scheme to take control of the Claimant to sell its assets for their own benefit. The Claimant claimed damages for unlawful means conspiracy and an account of profit or equitable compensation for the dishonest assistance in the corrupt scheme. The claims were all subject to Ugandan law and the judge at first instance held that there was no serious issue to be tried as the claims fell within the foreign act of state rule, requiring the Court to adjudicate on the lawfulness of executive acts of Uganda under its laws and within its territory. The Court of Appeal disagreed: the acts complained of were quintessentially commercial acts. Whilst the scheme involved the wrongful exercise of executive powers, the specific acts complained of were commercial. The claim was not, therefore, barred by the doctrine of foreign act of state.

Limitation

In Okunola v Barca the Claimant appealed against the decision of a deputy master that various claims in tort were statute-barred. The Claimant brought claims in 2021 in knowing receipt, breach of trust, deceit and conspiracy relating to the grant of a mortgage in or around 2011. The Court confirmed that the claim in knowing receipt was subject to a six year limitation period, rejecting the argument that, as that claim related to monies owed under a mortgage or charge, a 12 year limitation period should apply. The Claimant argued that limitation on the other claims should be postponed because of fraud, concealment or mistake. However, the Claimant had brought an earlier claim (in 2013) which showed that at that time he believed he had a worthwhile case that the mortgage was a sham. Nothing that had come to light more recently gave rise to a new cause of action, or impacted the limitation period. Other than a claim for breach of trust, the claims were therefore statute-barred. 

Privilege: the Iniquity Exception

The Claimant in Enigma Diagnostics Ltd v Boulter sought production of various documents which had been withheld by the second and third Defendants on the grounds of legal professional privilege. The Claimant alleged that the iniquity exception to privilege applied to the second and third Defendants’ documents. This was because, the Claimant alleged, the second and third Defendants knew about a fraud which involved investors’ money which should have been paid to the Claimant, being retained by a Cayman Island company owned and controlled by the first Defendant, who was a director of the Claimant. The second and third Defendants had acted for the Cayman company in its dealings with the Claimant, and were accused of dishonest assistance. The Court agreed: legal professional privilege did not attach to communications where the lawyer was instructed for the purpose of furthering fraud, even if the lawyer was unaware of the fraudulent purpose. There was a good arguable case that the second Defendant’s services were used to perpetrate a fraud on the investors, meaning there was no right to privilege in the documents it held.

Quincecare

A lot has already been written about the Supreme Court decision in Phillip v Barclays Bank UK Plc (including by my colleagues here) so I will keep this summary short. The Supreme Court rejected Mrs Phillip’s claim that Barclays owed her a duty to refuse to execute instructions to transfer funds where it had reasonable grounds to believe that Mrs Phillip was being defrauded. The Supreme Court confirmed that a bank’s obligation, unless instructions were unclear or there was a question about whether the instructing party had authority, was to comply with its mandate by executing instructions given by a customer or their agent acting with the necessary authority. In Mrs Phillip’s case, she was the customer and she had given the payment instructions: the bank had no obligation to clarify or verify those instructions.

Set Aside

In Finzi v Jamaican Redevelopment Foundation Inc the Privy Council (Jamaica) considered an appeal against refusal of permission to appeal the dismissal of a claim as an abuse of process. The proceedings had been commenced in 2017 and sought to set aside earlier judgments and a settlement of earlier proceedings, entered into in 2012, on the basis that they had been obtained by fraud. The fraud allegation was based on information the Appellant received in 2011, and had not deployed in the earlier proceedings. The Respondent sought summary judgment dismissing the claim and the first instance Court held that the claim was an abuse of process. The Court stated that this would be the case unless the evidence had not been available to the Appellant at the time of judgment or settlement, and could not have been discovered at that time with reasonable diligence. The Court of Appeal refused permission to appeal, but the Supreme Court subsequently held in another matter (Takhar v Gracefield Developments – which I discussed in my Civil Fraud case update Q1 2019) that there was no requirement for reasonable diligence in respect of fresh evidence in fraud cases. The Appellant therefore argued that the lower Courts had erred by applying the reasonable diligence test, alternatively that it was only necessary to demonstrate that the evidence had not been deployed, unless a deliberate decision not to rely on the material had been taken.  The Respondent argued that the Judge had not depended on the reasonable diligence requirement, but on the finding that the Appellant was in possession of the material relied on at the time the settlement was entered into. The Privy Council dismissed the appeal, applying the principle in Henderson v Henderson that a party could not raise matters in new proceedings which it could or should have raised in earlier proceedings.  The information was not new to the Appellant: he had received the information before entering into the settlement. The burden was therefore on him to explain why the information had not been deployed in the original action and to show a good reason which had significantly impeded the use of the evidence. He had offered no such explanation.

Stay of Execution

Similar arguments were raised by the third Defendant in Chiswick International Holdings Ltd v Oakvest Ltd who applied for a stay of execution of a judgment debt on the basis that the judgment had been obtained by fraud. The application was refused: the application relied on allegations which had already been included in the defence of the third Defendant, which had been struck out for failure to comply with an unless order to provide security for costs. As such those allegations had been determined by proper judicial process. There were also discretionary reasons for refusing a stay, including the fact that the third Defendant had delayed raising the fraud challenge until after he had paid part of the judgment debt.

Summary Judgment

In Verdi Law Group PC v BNP Paribas SA and others the first Defendant applied for summary judgment/strike out of the claim against it for inducing a breach of contract, unlawful and lawful means conspiracy and breach of a duty of care allegedly owed to the Claimant. The first Defendant argued that the transaction in respect of which the claim was brought was a fiction, that documents and emails relied on were forgeries, that an account it was said to have held for the second Defendant did not exist, and that the first Defendant had no other involvement in or knowledge of the transaction. The question for the Court was whether it was appropriate for the Court to determine the authenticity of documents on a summary basis. In reaching its decision, the Court considered the inherent implausibility of the transaction and the profits (€1.4bn) to which the Claimant alleged it was entitled and whilst it commented that on their own these were not points which would justify summary judgment, they were not on their own and rather provided context for the other parts of the application. The Court considered the first Defendant’s evidence to demonstrate that various documents were false, which was not answered by the Claimant. The Court concluded that if there was anything the Claimant could say in response to the first Defendant’s points, it had had the opportunity to do so, and there was nothing to suggest that it could improve on its position at trial. It was therefore clear that the primary way in which the claim was pleaded could not succeed. The Court also considered expert evidence relating to emails on which the Claimant relied, and accepted the evidence of the first Defendant’s expert that those emails were fake. The Court determined that even without conducting a mini-trial it was able to conclude that the evidence adduced by the first Defendant was compelling and the evidence adduced by the Claimant was not.  The Court granted the application, finding that the Claimant had no real prospect of succeeding on the claim and that there was no other compelling reason for the claim against the first Defendant to be disposed of at trial.

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.