Business Plan 2020-21: FCA remains vigilant to potential misconduct
In ICICI Bank UK plc v Mihir Mehta & Others the Court was asked to determine whether a worldwide freezing injunction could be continued against sibling defendants in respect of a claim under a personal guarantee given by their late father. The estate was subject to Belgian inheritance law under which an heir could accept an estate with its liabilities or reject it, along with the liabilities. The first sibling (D1) had accepted the estate but argued that there was no jurisdiction for the English Court to consider the claim. The other sibling (D3) had rejected the Belgian estate but had inherited shares in an Indian company in respect of which Belgian inheritance law had no application.
The Court heard submissions on Indian law and concluded that by accepting shares in an Indian company D3 should not be deemed to accept the Belgian estate. She therefore had not accepted the estates’s liabilities and the freezing injunction was released as against her.
D1 did not deny that he had accepted the Belgian estate and had therefore also accepted the liabilities which were associated with that estate. The Court determined that it had jurisdiction to hear the claim against him. As D1 had been found guilty of forgery and money laundering in the past and had misleading statements about his father’s assets, these were sufficient, determined the Court, to constitute a real risk of dissipation of assets. The freezing injunction against D1 was therefore continued.
I mentioned the case of JSC BTA Bank v Ablyazov and Khrapunov in my Quarter 2, 2016 civil fraud case update and my Quarter 1, 2017 civil fraud case update. The most recent instalment of that case comprises an application by Mr Khrapunov to amend his application to set aside the worldwide freezing and ancillary orders against him.
In particular, Mr Khrapunov asked the Court to consider the effect of the Claimant bank’s non-disclosure of the existence of criminal proceedings against him which raised a risk of extradition if he left Switzerland to attend a cross-examination hearing in England.
The Court considered issues of proportionality and the nature of the allegations and determined that it would be for the Court considering the substantive application to determine whether the issues raised were material. The Court found that the correct approach was to allow Mr Khrapunov to amend his application to set aside so that all the allegations of misconduct could be included. This would therefore enable the Judge considering the application to determine which, if any, allegations were material
In Societe Generale v Goldas Kuyumculuk and others the Court struck out claims which had been issued, but not properly served on foreign-based defendants and had then been put ‘on hold’ for around eight years.
The Court found that there had been an abuse of process because: (1) the Claimant had obtained a freezing injunction and was therefore obliged to progress the proceedings expeditiously; (2) it was not acceptable for the Claimant to put the English proceedings on hold whilst they waited to discover the outcome of proceedings in another jurisdiction (on the assumption that if the Claimant was successful elsewhere the English proceedings would not be pursued at all); and (3) the Claimant had provided an undertaking to issue and serve the Claim Form as soon as practicable.
The Court found that as the claims were struck out, the freezing injunctions, although validly made, must be released and had been wrongly maintained since the Claimant paused the English proceedings. The Defendants therefore had the right to call on the Claimant’s cross undertaking in damages for any damage caused by the injunctions.
Contempt of Court
In the case of Kimyani v Sandhu a freezing injunction had been granted against the Defendant. At the return date further disclosure orders were made, none of which were properly complied with by the Defendant. In fact, it was discovered that the Defendant had lied about her assets and given false information about a particular transaction.
The Claimant applied to commit the Defendant to prison.
The Court found that the Defendant had failed to comply with the Court Order and her purported attempt to remedy matters was flawed and deceitful: she showed no signs of contrition or respect for Court Orders. The Court ordered a prison sentence of twelve months, which the Defendant could apply to reduce if she complied fully and promptly with her outstanding disclosure obligations.
Fraud and Trusts
In NRC Holding Ltd v Anatoly Antonovich Danilitskiy and others the Court was asked to consider the beneficial ownership of a London property which was legally owned by a company.
The Court commented that such issues were highly fact specific and found that there were a number of factors which supported the presumption that the property was held on resulting trust for the First Defendant: (1) the property had been purchased using the First Defendant’s own resources in the name of a company but without any loan or subscription of shares; (2) the company was set up solely for the purpose of holding the property: it had no other assets, did not trade and had no bank account; and (3) the property was only used by the First Defendant and his family and there was no evidence of any rent being paid.
As such, a final charging order could be made over the property in respect of a judgment debt against the First Defendant.
In Seamus Patrick McEneaney v Craig Stevens and others the Court considered whether the Claimant had the locus to bring a claim that shares had been fraudulently transferred to third parties in circumstances in which he had not included the two original shareholders as parties to the action. This was following an Order made by a Master, striking out the Claimant’s claim.
The Claimant’s claim was that two shareholders in a company held those shares on bare trust for him. When those shares were transferred they were therefore transferred in breach of trust. The Claimant brought claims against a number of parties, including the company whose shares were the subject matter of the dispute, but the purported trustees were not involved.
The Court found that the trustees were the proper claimants and had they refused to pursue an action the Claimant could have brought a derivative claim, permission for which would have required special circumstances. There were no such circumstances in this case and limitation had expired, so it was too late to join the trustees into the action. The decision to strike out the claim was upheld.
Fraud and Insolvency
The Court, considering an appeal from a Registrar, refused to review a bankruptcy order made following a statutory demand based on a judgment debt in Knight v Rainstorm Pictures Inc.
At arbitration the appellant had been found personally liable for a debt in circumstances in which he had signed documents on behalf of an entity which did not exist. The appellant tried to challenge the arbitrator’s decision on the basis of fraud in relation to bonds which had been obtained in the course of the contract, but the arbitrator refused. The appellant then asked the US Court to determine whether the entire contract was conditional on the validity of the bonds. The Court rejected the argument.
An English judgment was obtained and the appellant raised the same arguments in seeking to set aside that judgment.
The Court found that the appellant was recycling arguments which had already been considered and rejected. As such the arguments were barred by issue estoppel and res judicata and there were no grounds for a review of the bankruptcy order.
Award Obtained through Fraud
However, in the case of Stati v Republic of Kazakhstan the English Court permitted the Republic of Kazakhstan to take to trial an allegation that a Swedish arbitral award was made following the submission of false evidence.
The Claimant had applied for permission to enforce the award in both the US and the UK and had been given permission to enforce in the UK. The Defendant raised concerns about the evidence provided to support the level of the award. Investigations demonstrated that costs may have been overstated by related companies which served to inflate the loss which had been claimed.
The Court considered: (1) whether there was a prima facie case of fraud and concluded that there was; (2) whether the defendant could have discovered the fraud before the award had been made, and concluded that it could not; and (3) whether the decisions of the Swedish arbitrator and the US Court created an issue estoppel and concluded that they did not. The information was the same but the issues considered were different and should be considered at a trial in the English Court.
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