Civil Fraud Quarterly Round-Up: Q4 2020

7 January 2021

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

 

Freezing injunctions

In (1) Njord Partners SMA-SEAL LP (2) NPSSF Debt Co SARL (3) AIE Investments LP (4) Nordic Trustee AS v (1) Astir Maritime Ltd (2) Muhammed Tahir Lakhani (3) Muhammed Ali Lakhani the Court found that the non-disclosure of partial repayment of facilities meant that the Claimants had breached their duty of full and frank disclosure when applying for a freezing injunction.  However, the non-disclosure went to quantum rather than whether the injunction should have been granted.  As such the injunction was continued, but for a reduced sum.

The issue of what it was legitimate for a Claimant to say to third parties based out of the jurisdiction about the existence and effect of a worldwide freezing injunction was considered by the Court in (1) YS GM Marfin II LLC (2) YS GM MF VIII LLC (3) YS GM MF VII LLC (4) YS GM MF IX LLC (5) YS GM MF X LLC v (1) Muhammad Ali Lakhani (2) Muhammad Hasan Lakhani (3) Muhammad Tahir Lakhani.  The Court looked in particular at the wording of a letter under cover of which the Claimants notified various parties in other jurisdictions of the existence and effect of a worldwide freezing injunction in which the Claimants indicated that anyone who helped or permitted the Respondent to the freezing injunction to breach the terms of the same may be held to be in contempt of Court, with all the consequences which follow.  The Court found that reference to contempt when sending the freezing injunction to parties outside the jurisdiction was inappropriate, but that it did not necessitate the discharge of the freezing injunction.  Instead the Claimants were ordered to send letters correcting the position.

The property developer Defendant in Patel v Bern Investments Ltd alleged that a property, which would otherwise be subject to a freezing injunction, had already been sold but provided no clear evidence to support the position.  Given the lack of clarity in the position and the ease with which the Defendant could have provided documentary evidence to support the assertion that the property had been sold, the Court continued the injunction.

I have discussed the case of (1) Koza Ltd (2) Hamdi Akin Ipek v Koza Altin Isletmeleri AS on two previous occasions in my Civil Fraud Case Updates Q2 2019 and Q3 2020.  In the latest reported case in this saga the Court of Appeal considered the issue of costs following the dismissal of the Appellants’ appeal against an interim injunction preventing the first Appellant from using its assets to fund an arbitration.  The Appellants argued that costs should be reserved and/or that any costs should be joint and several rather than made against the second Appellant (an individual) alone.  The Court of Appeal considered the fact that the issues dealt with in the application for an injunction would not be revisited after the decision, and that the arguments raised in the appeal were much the same as had been raised at first instance.  The intention of the injunction was to protect the assets of the first Appellant and ordering it to pay the Respondent’s costs would undermine that aim.  Likewise the Respondent was the sole shareholder of the first Appellant, so any order that the first Appellant pay the Respondent’s costs would have the ultimate effect of making the Respondent bear those costs through the diminution of value of its shareholding.  The second Appellant was therefore ordered to pay the costs of the appeal.

 

Committal and Contempt

The Court confirmed the position following the changes to CPR Part 81 (as summarised by my colleagues Fiona Simpson and Abigail Onlsow here) in Deutsche Bank AG v (1) Sebastian Holdings Inc (2) Alexander Vik which was first mentioned in my Civil Fraud Case Update Q3 2018.  The Court was not prevented from looking at the test set out in the old authorities as the new Part 81 did not alter the scope or extent of the Court’s powers in relation to committal, although it is necessary to identify the type of contempt alleged and provide a short summary to enable a Respondent to understand and respond.

In Beatrice Anastasia Gavigan v Anita Elaine Norton the Court refused the Claimant’s application for permission to bring committal proceedings against the Defendant for making false statements with no honest belief in their truth.  The Claimant had not come close to establishing the strong prima facie case required, to the contrary, there was a risk that the application was brought out of a vindictive desire to harass the Defendant.

The Appellant in Sanjiv Varma v (1) Paul Atkinson (2) Glyn Mummery (Joint Liquidators of Grosvenor Property Developers Ltd (In Liquidation)) (which features in my Civil Fraud Case Updates of Q2 2020 and Q3 2019) appealed against a decision that he was in contempt of Court.  The Court of Appeal considered the new evidence submitted and found that it did not undermine the first instance assessment that the Appellant had made a false statement in an affidavit.  The Appellant, who was the sole director of the company which had been ordered by the Court to undertake certain tasks, knew about the Order and the terms of that Order and accordingly was fixed with liability for breach of that Order.

 

Search Orders

In Akhmedova v Akmedov & 9 Others (which my colleague Rebecca Niblock discusses in respect of a related action here) the Family Court granted a search order in favour of a wife against her son who, it was alleged, had helped his father put assets out of her reach following financial remedy proceedings.  The son had failed to deliver up devices pursuant to a previous Court Order and had alleged that the devices had been lost in transit.  The Court granted the search order on the basis that there was clear evidence that the son had incriminating documents in his possession which he might destroy.  Protections were put in place to minimise any COVID-19 health risks.

 

Use of Documents

The Claimant in IFT SAL Offshore v Barclays Bank Plc was granted permission to use documents in a claim against the Defendant bank which had been obtained pursuant to a Norwich Pharmacal Order granted in order to identify a fraudster at a time when there were no grounds to suspect that there might be a claim against the Defendant.   The Court applied the test of whether there were cogent and persuasive reasons to grant such permission, considered whether there was any need to refuse the request in order to prevent a speculative claim and concluded that the proper way to discourage speculative claims was by the use of summary judgment or strike out applications rather than by refusing permission to use documents obtained under a Norwich Pharmacal order.

The Court considered a slightly different request for use of documents in Libyan Investment Authority v Codeis Securities SA & Others.   The Claimant applied to use documents disclosed in one set of proceedings in other proceedings.  The Court again applied the test of whether there was a cogent reason for permitting such collateral use of documents and considered the need to balance the conflicting public interests of facilitating the just resolution of civil proceedings with the need to restrict the use of documents disclosed under compulsion which were, on a prima facie basis, to be kept confidential.  In this case the Court was satisfied that the Claimant’s application should be granted.  The documents were relevant to applications issued in another set of proceedings, there was no injustice or prejudice in permitting the documents to be used and the parties to whom the documents belonged did not object to the requested use.

 

Norwich Pharmacal

In Linda Hickox v (1) Simon Dickinson  (2) Simon C Dickinson Ltd the Court considered whether to make a Norwich Pharmacal Order in favour of a Claimant who alleged that a painting had been stolen from her.  The Defendants argued that there was a custom in the art world not to disclose theidentity of a purchaser, but this did not prevent the Court making an order in favour of the Claimant to help her determine the identity of the ultimate purchaser who had received the painting without paying the consideration.  The Defendants had acted for the ultimate purchaser on the sale and  held details of his identity.  The Court considered that there was a good arguable claim against the ultimate purchaser and that the Defendants had been mixed up in his wrong-doing and held the information sought.  The application was therefore granted.

 

Jurisdiction

The Privy Council (BVI) considered an appeal against a decision of the Eastern Caribbean Court of Appeal that Russia was the most convenient forum for a claim arising out of an alleged fraud.  The claim in Livingston Properties Equities Inc & Others v JSC MCC Eurochem & Another had been brought in the BVI to recover bribes.  The Respondents applied to set aside service of the proceedings out of the jurisdiction on the basis that Russia was the more convenient forum.  At first instance the Court disagreed because the expert evidence on Russian law was conflicting about whether Russian Courts would assume jurisdiction over non-Russian companies.  The Court of Appeal reversed that decision, concluding that Russia was where the claim should be brought.  The Privy Council considered the issue and remarked that it wasn’t enough to show that Russia was an available forum, but that it was the most appropriate forum; in this respect the judge at first instance had not erred. 

 

Crypto-Assets

In Ramona Ang v Reliantco Investments Ltd the Court considered the termination of a BitCoin trading account and the cancellation of open trades by the Defendant investment firm because of suspicions of money laundering.  The Court found that whilst the Defendant had the right to terminate the account, it had an obligation to return money deposited in the account and, in respect of open trades, was entitled to close out but not cancel those trades.  The Court also awarded  the Claimant the losses she claimed in respect of her loss of chance to invest the funds retained by the Defendant.

 

Summary Judgment

In light of the fact that the Claimants had provided clear documentary evidence that the Defendants had not transferred funds as instructed, the Court in Global Metals AG & Another v Colony Capital Ltd & Others was willing to grant summary judgment in the Claimants’ claims alleging fraud and dishonesty.  Whilst the Court noted that caution was necessary in respect of applications for summary judgment in fraud claims, a defence to such an application would need to show some chance of success and, given the documentary evidence, there was no such chance.

 

Security for Costs

The Commercial Court considered applications for security for costs in Maroil Trading Inc & Another v Cally Shipholdings Inc & Others.  The Court made an order that the Claimants should give security for a proportion of the Defendants’ relevant costs. However, that did not include the Defendants’ likely costs of an additional claim against third parties which included allegations that a settlement had been procured by fraud on the basis that, even if the Claimants’ claim failed, it was unlikely that the Claimants would be ordered to pay the costs of the Defendants’ fraud claim.

 

Defence of Illegality

In Stoffel & Co v Grondona the Supreme Court considered whether conveyancing solicitors who had failed to register a transfer and charge could rely, in a claim for negligence, on the defence of illegality on the basis that their client had instructed the firm for the purpose of committing mortgage fraud.  The Court at first instance held that the Claimant’s claim was not barred by the presence of mortgage fraud and the Court of Appeal agreed.  The Supreme Court upheld the decision: the Respondent (the original Claimant) was not seeking to profit from her wrongdoing by suing the Appellant, she was seeking to recover losses.  There was no damage to the integrity of the legal system in allowing the Respondent to seek recovery from the Appellant.

 

Anonymity

The Court considered whether to anonymise the parties to a judgment granting an interim order.  The interim order related to a request for mutual legal assistance from the US in respect of investigations into the alleged misappropriation of funds.  In N v A the Court considered that whilst there had already been reporting and much of the information relevant to the allegations was in the public domain, the third Respondent had provided a suspicious activity report and it was in the public interest to protect persons making such reports.  The Court’s decision was that the first and second Respondents would be named in the judgment but the third Respondent would remain anonymous.

 

Arbitration

The Court in The Federal Republic of Nigeria v Process & Industrial Developments Ltd granted the Claimant permission to challenge an arbitral award in respect of which quantum had been determined in 2017.  In September 2019 the Defendant pleaded guilty in Nigeria to charges including conspiracy to defraud Nigeria.  The Claimant argued, and the Court accepted, that the English Court should not be used to endorse illegal conduct and that Nigeria would suffer a substantial injustice if it was not able to challenge the award.

 

Beneficial Interest in Property

In Iranian Offshore Engineering & Construction Co v Delaram Zavarei the Court considered an application for a declaration that the Respondent held a high value property on trust for her husband.  The husband was a Defendant to a claim brought by the Applicant in which fraud had been alleged against him and in respect of which judgment had been entered in sums exceeding £75 million against various Defendants including the husband.  Whilst the legal burden was on the Applicant to show that beneficial ownership did not follow the legal title, the evidential burden was on the Respondent to prove the positive case that the purchase price had been paid using her own funds or funds borrowed by her for her account.  She had failed to discharge that evidential burden other than in respect of the proceeds of sale of the previous family home.

 

Public Examination

A request for a public examination of an alleged de facto director of a company in liquidation was refused by the Court in Official Receiver (Applicant) v (1) Johannes Christian Martinus Augustinus Maria Deuss (2) Timothy Ulrich(Respondents) & Stephen John Hunt (Requesting Creditor).  The burden was on the party requesting the public examination to prove that it was necessary.  If that burden was met, it shifted to the director (the First Respondent in this case) to demonstrate that it would be oppressive to make the order.  The Court was concerned that a public examination would provide an unfair advantage in litigation brought by the requesting creditor against the director; would have no utility; was, in respect of some requests, premature; and would be oppressive. 

 

Pension Fraud

In Board of the Pension Protection Fund (Claimant) v Dalriada Trustees Ltd (Defendant) & Secretary of State for Work & Pensions (Interested Party) the Court considered the operation of the Fraud Compensation Fund in the context of compensation claims by occupational pension schemes which had been used as a vehicle for pension scams.  The Court considered the definition of ‘employer’ for the purpose of the Fund as well as looking at what would constitute an employer’s pension liabilities under a pension scheme and whether a sham scheme could become a genuine scheme when members transferred into it, or when an independent trustee was appointed.

 

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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