The privilege against self-incrimination and its use in civil fraud proceedings

15 May 2019

In the case of FM Conway Limited v Peter Suggett & Ors [2018] EWHC 3173 (QB) the Court was asked to consider an application by the Defendant that the proceedings be stayed pending the outcome of a criminal investigation being undertaken by the police which, according to the Defendant, arose out of the same facts as the civil proceedings. In support of his application, the Defendant sought to rely on the grounds of privilege against self-incrimination.

What is privilege against self-incrimination?

The privilege against self-incrimination exempts a person from being compelled to answer a question when called as a witness, produce documents or provide information which might incriminate him in criminal proceedings and/or expose him to a penalty in England and Wales. It is based on common law privilege (Versailles Trade Finance Ltd (in administrative receivership) v Clough [2001] EWCA Civ 1509) and section 14(1) of the Civil Evidence Act 1968 (the CEA 1968).

When might a party seek to invoke this privilege?

Where a defendant can show that there is a real risk of serious prejudice which may lead to injustice, the civil court has the jurisdiction to stay the civil proceedings until the related criminal proceedings have been concluded (Jefferson Limited v Bhetcha [1979] 1 WLR).

The facts in the FM Conway case are a typical example of a situation in which the question of self-incrimination might arise.

The case concerned allegations of fraudulent invoicing carried out by subcontractors of the Claimant Company, which provided highway resurfacing services to a number of local authorities. An internal investigation revealed evidence to suggest that the Defendant had not only knowingly approved the inflated invoices, but had conspired with another employee to defraud a client of the Claimant. Following the internal investigation, the Claimant engaged an external consultancy firm to carry out a more detailed investigation, and reported the matter to the police. The consultancy prepared a detailed report which concluded that there was a prima facie case against the Defendant for fraud, specifically deceit and/or unlawful means conspiracy. This report was turned over to the Serious Economic Crime Unit for use in their criminal investigation.

The Claimant applied ex parte (i.e. without notice) for a freezing injunction against the Defendant. Under the terms of the injunction the Defendant was required to disclose information regarding his assets in the form of a sworn affidavit within 5 working days. As is standard, the injunction contained a provision that the Defendant could refuse to provide information which was likely to incriminate him, but warned that wrongful refusal to provide the information would be contempt of court.

The Defendant sought to rely on the privilege against self-incrimination to support (1) his decision not to provide the information required under the terms of the freezing injunction, and (2) his application to stay the civil proceedings pending the outcome of the criminal investigation and any subsequent criminal proceedings.  

When is a Defendant likely to be successful in arguing this privilege?

The relevant principles in relation to the grant of a stay where there are related proceedings were summarised by Gloster J in Akcine Bendrove Bankas Snoras v Antonov and another [2013] EWHC 131 (Comm) as follows:

  • it ‘is a power which has to be exercised with great care and only where there is a real risk of serious prejudice which may lead to injustice’
  • the discretion has to be exercised by reference to the competing considerations between the parties; the court has to balance justice as between the two parties; a claimant has a right to have its civil claim decided; the burden lies on a defendant to show why that right should be delayed
  • a defendant must point to a real, and not merely notional, risk of injustice
  • a defendant has a right to remain silent in criminal proceedings, and would, by serving a defence in civil proceedings, be giving advance notice of his defence, carries little weight in the context of an application for a stay of civil proceedings
  • a defendant is expected to adumbrate a positive defence at an early stage in criminal proceedings, therefore, the disclosure of a defence in civil proceedings is unlikely to disadvantage a defendant in criminal proceedings
  • a positive defence is likely to exculpate, rather than incriminate, a defendant
  • it is not enough that both the civil and criminal proceedings arise from the same facts, or that the defence of the civil proceedings may involve the defendant taking procedural steps such as exchanging witness statements and providing disclosure of documents which might not be imposed upon them in the criminal proceedings
  • a defendant has a choice between remaining silent in the civil proceedings or risk giving an indication of his defence which may be used by the prosecuting authorities, the harshness of such a choice does not provide a good ground for staying civil proceedings
  • whether safeguards can be imposed in respect of the civil proceedings which provide sufficient protection against the risk of injustice.

Potential implications for victims of fraud

The Defendant in the FM Conway case was unable to persuade the civil Court that the circumstances justified a stay of the civil proceedings. A stay of civil proceedings pending the outcome of criminal proceedings could be disastrous for a victim of fraud, potentially delaying the recovery of any money by years. Without ancillary orders available for deployment in civil proceedings, such as search orders and freezing orders, there is a very real risk that by the time any criminal proceedings have concluded and the civil proceedings can continue, any money will have been dissipated, hidden or placed out of reach by the Defendant. Of course, it might be that the police obtain a restraint order against the Defendant in order to protect against the risk of dissipation; however it is important to remember that compensating the losses suffered by victims of fraud is not the primary objective of criminal prosecutors when pursuing convictions. 

The civil courts have historically been reluctant to stay civil cases save in the most extreme circumstances, as illustrated by this most recent case. A stay is most likely if a criminal trial arising out of the same facts is imminent and there will only be a short delay caused to the civil trial.

Competing considerations – civil vs. criminal proceedings

There are many competing considerations that a victim of fraud needs to take into account when deciding what course of action to take in respect of a fraud. For example, the different standards in the burden of proof, the varying sanctions available, time, cost and reputational considerations all need to be weighed up.  

It is unknown what advice the Claimant in the FM Conway case was given at the outset in respect of the competing considerations of criminal vs. civil proceedings. However, once the matter had been reported to the Serious Economic Crime Unit the decision whether or not to investigate or prosecute was taken out of their hands. Whilst a victim of fraud is in complete control of whether to bring civil proceedings and how those proceedings progress, once the matter is reported to the police/prosecuting authorities there is no guarantee that the defendant will be investigated or prosecuted and the victim has no control over the investigation or prosecution, or any publicity in respect of the investigation or prosecution.  It is therefore vitally important that once a fraud is discovered, or even suspected, advice is sought from civil fraud specialists as well as any criminal specialist so that these competing considerations can be adequately assessed and an informed decision can be made before any formal action is taken.    

For answers to frequently asked questions on the topic of criminal vs. civil proceedings in fraud matters, including the advantages and disadvantages of each, please click here.

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