Civil Fraud Quarterly Round-Up: Q1 2021
Following judgment in the case of Kazakhstan Kagazy plc & 5 Others v Baglan Abullayevich Zhunus (formerly Baglan Abdullayevich Shunussov) & Others the Claimants returned to Court to request certain orders consequential to that judgment (see my previous discussion of this case in my Civil Fraud Quarterly Round-Ups for Q2 and Q4 2016 ). The Court was asked to determine a number of issues including the currency of the judgment, whether a freezing injunction should be continued post-judgment and what should become of the exceptions to the freezing injunction allowing the Defendants to use funds in the ordinary course of business, for living expenses and for legal costs.
The Court held that the currency should be the one which best expressed the losses, rather than the currency generally used by the Claimants. In this case the misappropriated funds were drawn from USD and Euro accounts, and there was no reason for the judgment to be in any other currency.
The Court continued the freezing injunction, and held that the cross-undertaking in damages provided by the Claimants should continue until the Defendants’ application for permission to appeal had been determined. The exceptions in the freezing injunction for ordinary business and living expenses were removed, but as there were further steps in the proceedings which the Defendants were compelled to take, the exception for legal expenses was left in place.
In Gresport Finance Ltd v Carlo Battaglia the Court of Appeal considered issues of limitation and fraud. The Court of Appeal confirmed that the test was whether a Claimant could, with reasonable diligence, have discovered the fraud sooner. The concept of reasonable diligence was one which a Court would need to assess on the facts and in this particular case there was no reason to doubt the evidence given that unauthorised transactions could not have been discovered sooner.
In January 2018 reports of a decision of Judge Waksman QC made in October 2017 were released. In the decision of CMOC v Persons Unknown a freezing injunction had been made against un-named individuals relating to a claim that a cyber-attack had resulted in £8 million of the Claimant’s money being transferred out of its accounts into accounts across the world. The order made also compelled the recipient banks to disclose information to assist with tracing and allowed the Claimants to use email, Facebook and online data rooms to effect service.
Solid Property Grundstuck GMBH & Co KG & Others v Singh & Others also related to a cyber-attack. In that case the Claimants asked the Court to continue a freezing injunction in circumstances in which two of the five Defendants opposed such continuation on the basis that they had nothing to do with the fraud. The Court considered whether the Claimants were able to show that they had a good arguable case against the Defendants who were opposing the continuation and found that they were able to do so. The first Defendant admitted that he had a pension, which was an asset which could be caught by a freezing injunction. The Court confirmed that where the underlying claim was one of dishonesty and involved the transfer of assets to different jurisdictions, the risk of dissipation was established. There was nothing to suggest that the continuation of the injunction would not be just and convenient, and the injunction was therefore continued.
In Andrews v Stanway & Another the Court considered an application to vary a freezing injunction to allow the Defendant to sell his share of his family home to his wife in order to release money to fund his litigation costs. The Court considered the Defendant’s past actions and the fact that he had, immediately after being informed about the freezing injunction, completed a number of transactions on his account including the withdrawal of large amounts of cash. Likewise regular payments into his account ceased when the freezing injunction was made. The Defendant had previously divested himself of assets when it suited him, all of which suggested that the Defendant had not been frank and transparent. The application was refused and the freezing injunction was not varied.
Angel Group Ltd (in Liquidation) v Julie Anne Davey also involved an application to vary an injunction, this time a proprietary injunction to which the Defendant had consented. The Defendant applied to vary the injunction to allow payment of £1.42 million for legal and expert fees. The Court considered the fact that there had been no material change of circumstances since the Defendant consented to the injunction being made. Nor had she demonstrated that she had no other source of funds from which to pay legal costs. The Court therefore concluded that it was in the interests of justice for the injunction to continue and the funds to be protected. The application was refused.
A further application was granted against ‘persons unknown’ in the case of Nicholas Ho v (1) Lloyds Bank plc (2) Persons Unknown. In this case a Norwich Pharmacal application was granted against the bank into which monies were transferred as a result of an email deception. The Court found that it was in the public interest that the bank should provide the information in circumstances in which money had been paid to the wrong account as a result of fraudsters hacking an email account. In addition, declaratory relief that the bank held the money on trust for the Claimant was granted as the Claimant had provided sufficient evidence to support such a declaration.
The Court also considered the Norwich Pharmacal jurisdiction in the case of (1) Benherst Finance Ltd (2) Chestone Industry Holding v (1) Jofa Ltd (2) Joseph Fara (3) National Westminster Bank plc. The Court considered whether there was an arguable case that there had been wrongdoing, whether disclosure was necessary and then considered its discretion in respect of whether to grant an order, concluding that it was necessary, proportionate and in the interests of justice to make an order compelling disclosure.
I have previously discussed the Court of Appeal decision in JSC BTA Bank v Khrapunov in my Civil Fraud update Q1 2017 . The Supreme Court has now considered the issue of whether contempt of Court could constitute the unlawful means for the purpose of the tort of conspiracy to injure by unlawful means. The Supreme Court found that whilst damage to the Claimant bank was not the predominant purpose of the concealment of assets in breach of Court orders, that damage was more than incidental. The object of the conspiracy was to prevent enforcement by the Claimant bank of a judgment it had obtained against its former chairman. Contempt of Court is a criminal offence which can be punishable in civil proceedings. The cause of action for unlawful means conspiracy was therefore made out.
The Supreme Court also considered the issue of jurisdiction and in particular Article 5(3)(b) of the Lugano Convention which allows a claim in tort to be brought in the jurisdiction in which the harmful event occurred or may occur. In this particular case, there was a conspiratorial agreement which encouraged and procured the commission of unlawful acts. It was the agreement which constituted the harmful event and, as that was made in England, the Courts of England and Wales had jurisdiction.
In (1) Terry John Neil (2) Anthony Wright Hall v Soraya Jasmine Henderson the Court considered the deployment of forged documents in Court proceedings and whether that deployment constituted an attempt to interfere with the administration of justice and contempt of Court. The Court found that there was sufficient evidence to conclude that signatures on various documents were forgeries. However, the Court also found that the service of those forged documents did not constitute contempt of Court because it was not a step in proceedings nor a step preparatory to the issue of proceedings and was not, therefore capable of impacting on the administration of justice. Nonetheless, the Court found that deployment of forged documents in proceedings or at a hearing could impact on the administration of justice and constitute contempt of Court. The filing and service of a witness statement exhibiting false documents was not itself a contempt of Court, however, when it was then used in a Court hearing (by inclusion in the Court bundle), that use did constitute contempt of Court. In this instance the Court found that the Defendant had intended that both the Claimants and the Court would be misled into thinking that the document exhibited to her witness statement and deployed at Court was genuine and was therefore in contempt of Court.
In Singularis Holdings Ltd (In Official Liquidation) (a company incorporated in the Cayman Islands) v Daiwa Capital Markets Europe Ltd (which I discussed in my Civil Fraud Update Q1 2017 ) the Court of Appeal considered whether the fraud of a director could be attributed to the Claimant company, therefore providing the Defendant bank with a defence to a claim in negligence relating to payments made to third parties at the behest of that director. The Court of Appeal confirmed that where there was more than one director, and where there were innocent directors or shareholders, the fraudulent actions of one director could not be attributed to the company. The bank’s argument that the claim for recovery of the payments should fail on the grounds of illegality was rejected by the High Court and this decision was upheld by the Court of Appeal.
In Frederick & Others v Positive Solutions (Financial Services) Ltd the Court of Appeal considered the decision of the High Court to strike out various heads of claim against a company providing financial advice, but to allow a claim in vicarious liability to proceed. The claim in vicarious liability was based on the allegation that an agent had been able to submit false mortgage applications by virtue of his access to an online portal because of his role as agent of the Defendant company and that the Defendant company should therefore be found liable for his actions. The Court of Appeal was asked to consider whether the Defendant company could be vicariously liable for the actions of its agent.
The Court of Appeal found that the wrongdoing was an independent business of the agent and was not part of the agent’s role with the company: it was independent to the company’s business. Whilst the agent’s role with the company may have provided the opportunity for the agent to commit the wrongdoing, this was not enough to make the company vicariously liable for the agent’s actions.
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