Civil Fraud Quarterly Round-Up: Q4 2022

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 2022.

Calculation of Loss

Umbrella Care Ltd v Nisa involved the assessment of quantum for breach of directors’ duties and knowing receipt. The Court confirmed that the usual rule of equitable compensation would apply: namely what sum was required to put the Claimant into the position it would have been in had the breaches of duty not occurred. The calculation of compensation for knowing receipt was to make good the amounts received by the errant director.

The Court of Appeal considered how to calculate the damages owed to the victim of an unlawful means conspiracy in ED&F Man Capital Markets Ltd v Come Harvest Holdings Ltd and confirmed that it was entitled to recover the financial loss flowing directly from the transaction in question.

Contempt of court

The Court of Appeal in Business Mortgage Finance 4 Plc v Hussain (discussed in my civil fraud update Q1 2022) confirmed that it was possible for a Court, where an alleged contemnor could be shown to have had knowledge of the terms of the order he was said to have breached, to retrospectively exercise the power to dispense with personal service of the order.  There was no requirement in the CPR that such dispensation only take place before an alleged breach of the order in question.

Another case dealing with the personal service of a contempt application is Olympic Council of Asia v Novans Jets LLP. In this case there had been breaches of a freezing injunction and the Court was asked to deal with initial issues relating to service, alternative service and to dispense with the need for personal service of a contempt application. The Court allowed for alternative service in Ukraine, despite Ukraine being party to the Hague service convention, on the basis that a contempt application should be dealt with expeditiously, the application had already been brought to the attention of the alleged contemnor, and the Russian invasion of Ukraine had increased the length of time required to effect service in Ukraine.

In Navigator Equities Ltd v Deripaska (discussed in my civil fraud update Q4 2021) the Court ordered that a committal hearing be relisted before the expiry of a general licence granted by the UK Office of Financial Sanctions Implementation to allow the Defendant to pay his legal fees (subject to a cap).

In a yet further instalment of the ‘burn it’ case of Ocado Group Plc v McKeeve (discussed in my civil fraud update Q3 2022) the Court determined that the appropriate sanction for a solicitor who deliberately interfered with the purpose of a search order by instructing the destruction of a data source was a fine of £25,000 plus a costs order, rather than a custodial sentence.

In Sahara Energy Resource Ltd v Rahamaniyya Oil & Gas Ltd the Court exercised its unfettered discretion to discharge orders made in committal proceedings where the contempt had been purged, the Claimant had been compensated and a charitable donation was also made to the Access to Justice Foundation.

The Court in Taray Brokering Ltd, Re confirmed that a penal notice is part of a Court Order and a party was not at liberty to simply add a penal notice to an order of its own volition. If no penal notice formed part of the order, the party would need to apply to Court to vary the order.

Jurisdiction and Service Out 

The Court considered whether the English Court was the proper forum in Transworld Payment Solutions UK Ltd (in liquidation) v First Curacao International Bank NV. The Court concluded that it was on the basis that the claim brought under s.213 Insolvency Act was not justiciable in Curacao, and that the claim brought in Curacao was for negative declarations which were not suitable for determination of a fraud allegation and there was a minimal risk of inconsistent decisions.

In LMN v Bitflyer Holdings Inc the Court ordered that a Norwich Pharmacal order be served out of the jurisdiction in line with the new gateway under CPR PD 6B paragraph 3.1(25). This was granted as any information obtained was likely to relate to claim which would be issued in the Courts of England and Wales.

Freezing Injunctions

The Court set aside an unless order, and then made a fresh unless order, in Ngubeni v LJC & TN Accounting Services Ltd (discussed in my civil fraud update Q1 2022). The first unless order had been made to compel compliance in full with the disclosure aspect of a freezing injunction where the disclosure first provided was inadequate. The first unless order was set aside on the basis that when it was made the Court was not aware that documents had been seized by the police and there was therefore uncertainty about whether the Defendants were actually able to provide the information requested. However, at the time of a subsequent hearing there was more certainty about the position, and there was no doubt that the Defendants were in possession of the information requested, so a fresh unless order was made.

The question of whether a freezing injunction should be discharged was adjourned by the Court in Revenue and Customers Commissioners v Malde (discussed in my civil fraud update Q1 2019).  The Defendant had been subject to a freezing injunction for seven years, without the benefit of a cross undertaking in damages, and had just successfully appealed a tax assessment at the first-tier tribunal. HMRC had been given permission to appeal to the upper tier tribunal but the question for the Court was whether the freezing injunction should remain in place. The Court considered it required a longer hearing and therefore adjourned the Defendant’s application so that it could properly consider all relevant issues including the prospect of a successful appeal, the time an appeal was likely to take to be heard and the balance of hardship to each party if the injunction was continued or discharged.

In GFH Capital Ltd v Haigh the Court confirmed that a freezing injunction which had been granted by the Dubai Courts and recognised in England had expired. The English order reinforcing the Dubai injunction stated that it would remain in place until the disposal of the claim or further Court order. The claim in Dubai had been determined in July 2018 and the freezing injunction expired at the same time. 

The Iniquity Exception

In the most recent iteration of Lakatamia Shipping Co Ltd v Su (which is discussed in more detail by my colleagues here) the Court ordered the disclosure of correspondence between the Defendant and his lawyers on the basis that the iniquity exception to legal professional privilege applied. The Court held that whilst the Defendant’s lawyers were not party to wrongdoing, they had been used by the Defendant to perpetuate his ongoing contempt and attempts to conceal or dissipate assets.

Strike Out/Summary Judgment

The Court granted summary judgment on a claim in restitution in Arempa International Ltd FZC v The Accounting Group Ltd. The Defendant had received funds from the Claimant in circumstances in which payment had been mistakenly made to the wrong bank account. The Defendant had put forward no argument or evidence to indicate that it had any real prospect of defending the claim for restitution. Claims in deceit and breach of trust were not dealt with summarily as there needed to be analysis of the evidence beyond that which was appropriate for summary dismissal.

The Court of Appeal in Burnford v Automobile Association Developments Ltd upheld a first instance decision to strike out a claim, as a result of the claim being for losses which were rightly suffered by a company rather than its shareholders and that the claim was therefore barred by the reflective loss principle. The appellants argued that because the law was developing and therefore uncertain, the lower Court should not have determined the matter summarily. The Court of Appeal disagreed: even in the event that the appellants’ version of the facts was correct, the rule against reflective loss applied.

Likewise the Court of Appeal dismissed the appeal in Maranello Rosso Ltd v Lohomij BV (discussed in my civil fraud update Q3 2021) against a decision of the lower Court that all the claims brought fell within the scope of an earlier settlement agreement between the parties.  The Appellant had known about all the facts and the claims when it entered into the settlement agreement, and the lower Court had undertaken a detailed and careful consideration of the wording of the agreement, as well as an extensive review of the evidence, before concluding that the claims had already been compromised.

The Court of Appeal allowed the appeal in Trafalgar Multi Asset Trading Co Ltd (in liquidation) v Hadley & Others. An application for summary judgment/strike out of defences against claims in civil bribery was refused at first instance. The Court of Appeal concluded that even if the Defendants’/Respondents’ pleaded positions were true, they did not amount to defences to claims in civil bribery: the Claimant had not been provided with sufficient information about the transaction in question to be able to give fully informed consent.

Pre-Action Disclosure

 An application for pre-action disclosure was refused in Red Fort Capital Inc v Lockton Companies LLP on the basis that there was no evidence that the Respondent insurance brokerage firm, or its contractor (an insurance broker with decades of experience), had been involved in an underlying fraud which was being pursued in the US. There was no reason to infer dishonesty, and in the circumstances, innocence was much more probable.

Quincecare

The Supreme Court considered the Quincecare duty in Stanford International Bank Ltd (in Liquidation) v HSBC Plc and upheld the Court of Appeal’s decision. The company in liquidation which was a vehicle through which a Ponzi scheme had been operated, had suffered no loss where its bank had paid money out of its accounts in order to discharge certain debts (to ‘early’ investors). Even if those payments had been made in breach of duty, if the bank should have realised that the payments were part of the Ponzi scheme, any loss of chance to discharge the debts for less as part of a liquidation process was offset against the associated need to pay more to other creditors. 

Joinder/Addition of Parties

In Lukoil Benelux BV v Oil Distribution Terminals SL the Court ordered that five additional Defendants be added to claims brought for breach of contract, procuring breaches of contract, unjust enrichment and unlawful means conspiracy. There was evidence of a link between existing Defendants and the additional defendants. It was necessary to add the additional defendants in order to resolve all matters in the proceedings.

Likewise, in Domestic & General Group Ltd v Premier Protect Holdings Ltd (in liquidation) the Court added three additional Defendants and granted injunctions preventing them from continuing a campaign to deceive the Claimant’s customers into buying unnecessary insurance cover.

Disclosure

In Mozambique v Credit Suisse International the Court considered the issue of control of electronic documents. The Defendant applied for disclosure orders against the Claimant state on the basis that individuals employed in the Claimant’s government had used personal email accounts to send and receive communications on behalf of the Claimant. The orders sought were for the Claimant to identity which individuals on a list prepared by the Defendant had been asked to provide disclosure of accounts, and the responses received from those individuals. The Defendant also sought an order that consent to access documents be sought from any individuals it had not already asked. The definition of “control” under CPR PD51U (now 57AD) extended to documents in respect of which a party had a right to possession or inspection. The rights of the individuals to privacy had to be balanced against the efficient administration of justice. If the Claimant wanted to resist the applications on the basis that there it had no control over the relevant documents under the laws of Mozambique, it needed to put forward such evidence. However, the Defendant was entitled to know who had been asked to provide documents and what the responses were. If there were outstanding issues, the Court could then consider appropriate directions for evidence on Mozambique law.

 

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.