Civil Fraud Quarterly Round-Up: Q4 2024

This quarterly civil fraud update provides a summary of reported decisions handed down in the courts of England and Wales in the period of October - December 2024.

Breach of Trust

The Court refused to grant summary judgment to the claimant in Social Money Ltd v Attwells Solicitors LLP after the claimant lent money which was to be secured by a legal charge over a property, only to discover after completion that the party it had been dealing with had in fact stolen the identity of the registered owner of the property. The claimant brought claims against the firm of solicitors who had acted for the fraudulent borrower in breach of trust and breach of undertaking. The undertakings were sufficiently ambiguous that the Court was not willing to deal with them summarily, and even if there had been a breach of trust, the defendant was invoking s.61 of the Trustee Act 1925 and should be given the opportunity to have that defence considered.

Contempt

In Ouajjou v Ahmad (which I first mentioned in my civil fraud case update Q3 2024) the Court of Appeal considered whether custodial sentences of 9 months were excessive in circumstances where the contemnors had admitted they had breached a freezing injunction. The sentences were upheld. The breaches had been deliberate and the judge had taken relevant factors into consideration and given compelling reasons when imposing the sentence.

The Court struck out a contempt of court application in Hadcliffe Properties Ltd v Rind Foundation on the basis that it was an abuse of process. The allegation was that the second defendant was in breach of the disclosure requirements of a freezing injunction. The application had been issued extremely quickly in circumstances in which the parties were discussing issues of service and where there had been no wilful or knowing breach of order. The Court found that the claimant could not have had reasonable doubts that the required affidavit would not be provided. By the time the contempt application was served, the information had been provided. The pursuit of the contempt application was abusive: it involved complaints of such small value as to render the exercise pointless, and could not be seen as having been pursued for a legitimate end.

Costs

The High Court allowed an appeal against an order awarding a successful claimant only 50% of its costs in M and S Restorations Ltd v Banco Santander Totta SA. Whilst the judge was entitled to depart from the usual costs rules on the basis that the claimant had overcomplicated its case and included claims which had no factual basis, the reduction of 50% was too much. The first instance decision ignored the defendant’s failure to accept a Part 36 offer and the fact that both parties’ behaviour had been suboptimal. The claimant was awarded 75% of its costs.

Disclosure of information

The Court considered competing requests for disclosure of information by the claimant and defendants in Harrington and Charles Trading Co Limited (in liquidation) v Mehta. The claimant’s request for provision of information which it said was necessary to police a worldwide freezing order was granted, although the information requested was found to be excessive, and a limited disclosure order was made. The defendants’ request for further information pursuant to Part 18 was rejected: it was both too late (had it been genuinely required the defendants would not have been able to consent to an earlier consolidation order), and too early (insofar as the information was required to enable the defendants to prepare their evidence, where evidence was not due for many months).

Dishonest Assistance

The High Court allowed an appeal against a master’s decision to strike out a claim in Dattani v Messrs Ferns Solicitors. The existence of a restriction on title relating to an Interim Charging Order which a solicitor knew about was enough to give grounds for suspicion that a third party might have an interest in the property and therefore the proceeds of any sale. It had been premature to accept the argument that knowledge of the existence of the Interim Charging Order did not demonstrate knowledge or blind-eye knowledge of a third party interest.

Dishonesty

In MA Fastmove Ltd v Global Billpay Private Ltd the Court granted some aspects of the claimant’s application for summary judgment: namely breach of contract claims. However, the Court adjourned the application for summary judgment on a claim against the third defendant for procuring a breach of contract and a breach of trust. Whilst a defendant would not usually be personally liable for procuring a company’s breach of obligation, there was an exception where the director had acted dishonestly. The application was adjourned to allow the claimant to amend its claim against the third defendant, including the dishonesty pleaded against him.

Freezing Injunctions

The Court was asked to consider how to deal with the costs of a successful application for a freezing injunction in Reynolds v Parekh. The Court considered the decision of Dos Santos v Unitel SA (discussed in my civil fraud case update Q3 2024) and whether an interlocutory application had to have been fought “tooth and nail” for a successful party to be awarded its costs. The Court confirmed that costs decisions were fact sensitive and that the parties’ conduct would be considered. In this particular case the application for the freezing injunction was heard on notice, so both the initial application and the return date were interlocutory. The behaviour of the respondent was bad enough for costs orders to be made against him for both hearings.

The Court discharged a worldwide freezing injunction in CE Energy DMCC v (1) Ultimate Oil and Gas DMCC (2) Alhaji Abdulrahman Musa Bashar. Whilst the Court agreed that the claimant was entitled to complain about the second defendant’s conduct, and expressed sympathy for the claimant who had been “strung along” by the defendants over an extended period of time, the Court did not consider that the claimant had demonstrated a risk of dissipation.

A freezing injunction was granted in Revenue and Customers Commissioners v Ducas Ltd. The first respondent had contracted to provide health care workers to the NHS on the basis that it was the employer and that it would deal with deductions of PAYE, income tax and national insurance contributions. It had not made national insurance payments, and had made unjustified payments to a parent and another associated company, therefore demonstrating a risk of dissipation. HMRC was also granted freezing injunctions against the recipient companies under the Chabra jurisdiction.

The Court refused to set aside a freezing injunction granted in June 2023 in Bluehouse Capital Advisers Marketing Purchase Sale and Development of Real Estate Single Member Société Anonyme v Ioranides. The respondent had not attended the return date hearing in October 2023 and waited until June 2024 to apply to set aside. Under CPR 39.3(5) an application to set aside an order made at a hearing which the respondent had not attended could only be made if the application was made promptly. The reasons given for the delay and complaints about failure of full and frank disclosure were not accepted by the Court.

The Court granted an on notice freezing injunction in D Trading International SA v Leigh: the threshold test of a serious issue to be tried was met, and there was a risk of dissipation of assets. However, the Court imposed a time limit of three weeks on the injunction, in respect of the second and third respondents, after which time the application would need to be considered again. This was in part due to the fact that the third respondent was undertaking hospital treatment.

In Fishman v Mangazeev the Court considered that the grant of a charge over a property by the defendant without informing the claimant, in circumstances where the claimant had intended to take a first legal charge, fell below the “accepted standard of commercial morality” and demonstrated a sufficient risk of dissipation of assets. There was a serious issue to be tried as to the relationship of the parties and the scope of releases contained in an agreement, and it was just and convenient to grant a freezing injunction limited to the assets located in England and Wales.

The Court in Re Global Steel Holdings Ltd (In liquidation) held that an undetermined application to continue proceedings against an undischarged bankrupt did not prevent determination of an application for a freezing injunction against other defendants.

The Court continued a freezing injunction in Piacquadio v Sparkes where the Court was satisfied that there was a good arguable case, a real risk of dissipation (including evidence of related wrong-doing and the use of offshore structures) and complaints of multiple failures of full and frank disclosure were deemed scatter-gun and without proportion. If there had been any failure, it was inadvertent and would not have prevented the Court from continuing the order.

Likewise, in Pliego v Astor Asset Management 3 Ltd, the Court dismissed the defendants’ application to discharge or set aside a freezing order. There had been no breach of the duty of full and frank disclosure. The Court found that the claimants had properly set out the misrepresentation case as well as explaining to the Court that a party could not act dishonestly by doing what it subjectively believed was permitted by the contract it had entered into. The Court did not consider that the claimants had misled the judge at first instance on issues of delay and the timing of discovery of the fraud. The defendants’ arguments on motive and the claimants’ failure to anticipate those arguments did not constitute a failure of full and frank disclosure. 

Insolvency

The Supreme Court considered the “immovables rule” in Kireeva v Bedzhamov (discussed most recently in my civil fraud case update Q1 2023). It found that a foreign court did not have the power to make orders in respect of land in England. Any modification of that rule to enable the Court to assist a foreign trustee in bankruptcy would require parliament to intervene by way of legislation.

Limitation

In BGB Weston Ltd v In Media Trust SpA the Court considered whether a master had erred in granting permission to a claimant to amend its particulars of claim to incorporate new claims brought outside the limitation period. The Court concluded that this was an error: the master could not, absent cross examination, determine whether the claimant could, with reasonable diligence, have discovered the alleged fraud before the relevant date. The correct approach was for fresh proceedings to be brought in which issues of knowledge, discoverability and limitation could be properly considered.

Misrepresentation

The Court injuncted a lender from presenting a winding up petition in Alpha Schools (Holdings) Ltd v Signal Alpha III Fund LP. The alleged debt was disputed and there was an alleged cross-claim. It was not enough to merely assert a dispute or cross-claim, but where witness evidence had been submitted which was neither incredible nor at odds with documentary evidence, it was an abuse of process to threaten winding up.

Norwich Pharmacal and Non-Party Disclosure Orders

The Court granted a Norwich Pharmacal Order which compelled the respondent law firm in Filatona Trading Ltd v Quinn Emanuel Urquhart & Sullivan UK LLP to disclose the identity of a consultancy which had provided a report. The report was alleged to be a forgery and had been deployed in arbitral proceedings. The Court found that the conditions for a Norwich Pharmacal Order had been met and, crucially, that the identity of the consultancy was not privileged. The disclosure of the identity of the consultancy would not involve disclosure of any privileged communications or litigation strategy.

In Qatar Investment and Projects Development Holding CO W.L.L. v Elanus Holdings Ltd the Court refused to make a disclosure against a non-party where it was not clear that it had jurisdiction to do so. It also ordered that various documents disclosed voluntarily in a redacted format be treated as disclosed under CPR Part 31 such that they were protected by the limits on collateral use.

My colleagues have discussed the decision in Magomedov v 1291 Private Office Ltd in the articles here and here. The Court refused applications for service of Norwich Pharmacal applications by alternative means out of the jurisdiction on the basis that the relief sought would breach the law of the country in which the application was to be served, namely by breaching data processing laws and legislation which criminalised the disclosure of business or trade secrets. 

Privilege

As discussed in more detail by my colleagues here, the Court in Aabar Holdings SARL v Glencore Plc determined that the shareholder principle to privilege, which meant a company could not assert privilege against its own shareholder, no longer existed. The Court commented that the analogy between a company and its shareholder and a trustee and beneficiary no longer applied.  

S.423 Insolvency Act

In Malik v Messalti the Court confirmed that it was not necessary, for the purpose of s.423, for the transferor to have knowledge of the persons or class of persons who might at some point make a claim against the transferor and whose reach the transfer put the assets beyond. Actual knowledge might be relevant to the determination of whether the transfer was for a prohibited purpose but was not determinative.

The Court dismissed the claim in Invest Bank PSC v El-Husseini (which I last discussed in my civil fraud case update Q3 2023) on the basis that the claimant bank failed to prove that transfers of assets by the defendant to family members were made with the purpose of putting them out of the reach of the bank.

The defendants in Tonstate Group Ltd (in Liquidation) v Wojakowski (which I last discussed in my civil fraud case update Q2 2024) applied to set aside an order granting permission to serve a claim made under s.423 in Israel. The Court refused the application: there was a serious issue to be tried, England was the appropriate forum as the subject matter of the claim was the transfer of shares in an English company, and the claim was part of a wider dispute which was already before the English Courts. There had been no failure of full and frank disclosure which was relevant to the decision of whether to grant an order to serve out.

Tax Evasion

In Scenic International Group Ltd (in Provisional Liquidation) v Adenaike the defendants sought to set aside default judgments in respect of claims relating to the fraudulent evasion of VAT and PAYE/NIC. The Court considered that although it had to be cautious in resolving matters relating to fraud or dishonesty on a summary basis, the defendants had no real prospect of defending the claim. The Court did, however, vary the judgments in respect of the compensation payable, and in some cases directed an assessment of damages.

Unlawful Means Conspiracy

The Court granted judgment on claims in unlawful means conspiracy, causing loss by unlawful means, and making fraudulent misrepresentations in Domestic & General Group Ltd v Premier Protect Holdings Ltd (in Liquidation) (which I last discussed in my civil fraud case update Q4 2022). The claim related to a scheme whereby a company’s customers were called by fraudsters purporting to be the provider of home appliance protection plans, and induced to buy the fraudster’s policies and to cancel any existing policy. 

 

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.