Civil Fraud Quarterly Round-Up: Q2 2018

6 July 2018

Transactions defrauding creditors

In my civil fraud quarterly round up for Q4 2016 I mentioned the first instance decision in JSC BTA Bank v (1) Mukhtar Ablyazov(2) Madiyar Ablyazov.  That decision has been considered and upheld by the Court of Appeal.  The Court of Appeal confirmed that, on the facts of this case, even though a debtor knew that there may be claims made against him, although he may have been conscious that a by-product of the transfer of assets by him to a third party would be that those assets would be put beyond the reach of his creditors, this was not a substantial purpose of the transfer and so was not made for the prohibited purpose and so not caught by s.423 Insolvency Act 1986. The Judge at first instance was entitled to reach the conclusion he reached and there was no requirement that he draw adverse inferences from the first defendant’s conduct.

Freezing Injunctions

In the case of Eastern European Engineering Ltd v Vijay Constructions (Proprietary) Ltd the Court was asked to decide whether to exercise its discretion to grant a worldwide freezing injunction following the grant of an arbitration award in favour of the claimant from an arbitral tribunal seated in France where both parties were companies registered in the Seychelles.  The Court considered the circumstances in which it was being asked to act and decided that the limited link to the jurisdiction of England and Wales and the fact that the Seychelles Court had discharged the interim measures and was likely empowered to grant injunctive relief over assets located in that jurisdiction, weighed against granting a worldwide freezing injunction.  In addition there would be a risk of conflicting orders and, as the case did not involve issues of international fraud, there were insufficient grounds to grant a worldwide freezing injunction.   The Court did, however, grant a domestic freezing injunction as there was a real risk that the judgment would go unsatisfied, particularly as the defendant had indicated it would rather be wound up than satisfy the judgment.

Akcine Bendrove Bankas Snoras v Antonov the Commercial Court considered the standard undertaking included in a freezing injunction not to enforce the order outside England and Wales “or seek an order of a similar nature including orders conferring a charge or other security on the Respondent or the Respondent’s assets”.  In this case the proceedings commenced by the claimant, in respect of which the freezing injunction had been granted, had been stayed by consent in 2013, and in 2017 the claimant issued proceedings in Lithuania and obtained orders seizing certain assets of the defendant including funds held in bank accounts. The Court was asked to determine whether the issue of those proceedings and the obtaining of those orders was in breach of the undertaking contained in the freezing injunction. The Court adopted a narrow interpretation of the undertaking and held that it should not be concerned with circumstances in which a foreign court exercised its own independent jurisdiction.  In this case the orders made were in support of foreign proceedings which did not constitute enforcement of the freezing injunction.  The Court also found that, had permission been required to issue the proceedings in Lithuania, it could have been granted on a retrospective basis as the foreign order was not of an oppressive nature.

The Court revisited the question of how a risk of dissipation of assets could be demonstrated in the case of Gulf Air BSC (C) v One Inflight Ltd & 6 Others and confirmed that as yet unproved allegations of fraud could be taken into account as could past conduct.  Further, the fact that much of the relevant property was immovable did not mean that there was no risk of dissipation as ownership of assets could easily be transferred.

The importance of full and frank disclosure when applying for an injunction on a without notice basis was confirmed by the Court in Banca Turco Romana SA (in liquidation) (acting through its liquidator Fondul de Garantare a Depozitelor Bancare) v (1)Kamuran Cortuk (2) Serkan Cortuk (3) Yesim Sakarya (4) Hasim Bora Ozerman (5) Fusun Gonen.  The claimant was found to have deliberately breached its duty of full and frank disclosure and those breaches were substantial and serious.  Such a deliberate and serious breach would almost always result in the injunction being set aside unless the merits of the application were overwhelming and the interests of justice required the continuation of the freezing relief.  This was not one of those instances and the injunction was set aside.

In the case of VB Football Assets v (1) Blackpool Football Club (Properties) Ltd (formerly Segesta Ltd) (2) Owen Oyston (3) Karl Oyston (4) Blackpool Football Club Ltd the Court considered whether a freezing injunction should be discharged or varied.  The respondent argued that the petitioner had charging orders in place over the respondent’s assets and as such was adequately protected and did not require a post-judgment freezing injunction.  The Court dismissed this argument on the basis that the real property which was the subject of charging orders was of insufficient value to satisfy the judgment and confirmed that the charging orders in place over shares held by the respondent only extended as far as the respondent’s beneficial interest in those shares.  Only a freezing injunction could prevent the shares from being sold and there was, therefore, a continuing need for the freezing injunction.

The Court considered similar issues in the case of State Bank of India & Others v Dr Vijay Mallya & Others and in particular looked at whether various aspects of a case might impact on the risk of dissipation for the purpose of continuing a freezing injunction.  The Court found that offers to settle did not constitute evidence that a defendant intended to satisfy judgment, particularly where there was an on-going challenge to the claim or the judgment.  The Court also determined that findings of contempt against a defendant would impact on an assessment of risk of dissipation, in particular where that contempt involved prior breach of court orders not to dissipate assets.  Where allegations against a defendant involve issues of dishonesty, those allegations can be taken into account event if they have not been proven.  The Court also considered issues of disposal of low valued (de minimis) assets, delay, material non-disclosure and the existence of complex corporate structures as part of its determination of whether to continue the injunction.

The requirement for compliance with an asset disclosure order contained in a worldwide freezing injunction was considered by the Court in PSJC Commercial Bank Privatbank v Kolomoisky with the Court confirming that the purpose of the asset disclosure order is to give effect to the freezing injunction and not to help a claimant investigate the substance of its claim.

Cross-examination on asset disclosure obligations was the subject of the most recent decision in Ilyas Khrapunov v JSC BTA Bank (see civil fraud quarterly round ups Q1 2017 and Q2 2016) with the Court considering Mr Khrapunov’s appeal against an earlier refusal to allow him to be cross-examined by video link from Switzerland.  The Court considered new evidence which had come to light that there was an increased risk of extradition proceedings being brought if Mr Khrapunov attended the UK for a hearing, and determined that cross examination by video link was unlikely to be an effective means of obtaining the necessary information.  The earlier decision was upheld and Mr Khrapunov is required to attend the High Court of England and Wales for cross examination.

The Court refused to vary an injunction to allow an individual to use money to refurbish his home in the case of Revenue & Customs Commissioners v Malde, as there was no evidence that he had no other assets which could be used.  The Court also considered whether the injunction should be discharged due to non-disclosure and found that although there had been non-disclosure of certain information, had it been raised at the initial hearing it would have made no difference and the injunction would still have been granted.


The defendants in (1) Republic of Angola (acting by & through the Ministry of Finance of Angola) (2) Banco Nacional de Angola v Perfectbit Ltd & 7 Others sought to challenge jurisdiction on the basis that one of the agreements which formed the subject matter of the claim contained an exclusive jurisdiction clause requiring disputes to be resolved in Angola.  The Court found that whilst this might have been decisive in a single defendant case, where there were other defendants against whom continuing claims would rightly be brought in England, and those claims were interlinked, there would be a risk of inconsistent judgments if proceedings were to take place in two countries.  The jurisdictional challenge therefore failed.

Contempt of Court

In Henderson & Jones Ltd v Tsimboykas & Others the Court considered how to deal with two respondents who were in contempt of Court for (1) failing to comply with the obligation to disclose assets as imposed by a freezing injunction and (2) dissipation of assets in breach of the injunction.  The respondents admitted they were in contempt of Court and, having been served with the injunction whilst in Greece, they returned to the UK to deal with the outstanding matters of the claim.  The Court found that the breaches were sufficiently serious to justify a custodial sentence but took into account the respondents’ guilty pleas, apparently genuine remorse and honesty in returning to the jurisdiction in deciding to suspend the sentence for 18 months provided that no further breach took place.

In the case of Maidstone Borough Council v Catherine Small the Court considered what sanction would be appropriate and proportionate in circumstances in which the defendant had breached an injunction (preventing her from entering onto land to undertake work) without having taken legal advice about whether her intended actions would constitute a breach of the injunction.  The Court found that the proportionate sanction was a fine, rather than a custodial sentence or suspended sentence.


The Court found in Motortrak Ltd v FCA Australia Pty Ltd that as bribery was a separate tort, the defendant was entitled to damages as a result of bribes paid to its managing director by the claimant even where it had affirmed the agreement pursuant to which the payments had been made.  The defendant was entitled to claim for loss suffered after the affirmation of the agreement, so the date of affirmation was not something the Court needed to consider or determine.

Arbitral award obtained by fraud

In the case of (1) Anatolie Stati (2) Gabriel Stati (3) Ascom Group SA (4) Terra RAF Trans Traiding Ltd v Republic of Kazakhstan the claimants applied to enforce an arbitral award obtained in Sweden against the defendant state.  Kazakhstan applied to set aside the award on the basis that it had been obtained by fraud and directions were given that Kazakhstan’s claim should proceed to trial.  The claimants served a notice of discontinuance shortly before disclosure stating that their funders were not funding the proceedings and they, therefore, did not have the ability to continue to trial. Kazakhstan challenged the notice of discontinuance and asked the Court to set it aside on the basis that it had outstanding claims for declaratory remedies which should be decided. The Court agreed: whilst there was no need to provide reasons for discontinuing a claim, the reasons given were not credible; there were benefits to the English Court determining the question of whether the award had been obtained through fraud; and progression to trial was not disproportionate.

In RBRG Trading (UK) Ltd v Sinocore International Co Ltd the Court of Appeal considered the decision of the first instance Court that a claimant could enforce an arbitral award in England despite the fact that in the course of its dealings with the defendant, the claimant had attempted to defraud the defendant through the submission of forged documents.  These documents had been produced after the breach of contract which became the subject of the arbitration and the submission of those documents did not cause the claimant’s loss as they were not acted on by the defendant.  The decision of the lower Court was upheld: the fraud attempt had failed and therefore did not taint the arbitral award and there was no public policy reason to refuse to enforce the award.

Alternative Service

In the case of Societe General v Goldas Kuyumculuk the Court of Appeal confirmed that exceptional circumstances are needed where service by an alternative method is sought in respect of countries to which the Hague Convention applies.

Breach of Trust and Breach of Warranty of Authority

I refer to my colleague’s article, 'Property Fraud after Dreamvar' which discusses in some detail the combined appeals of P&P Property Limited v (1) Owen White and Catlin LLP (2) Crownvent Limited and Dreamvar (UK) Limited v (1) Mishcon de Reya (2) Mary Monson Solicitors Limited.  For the purpose of this summary the key decisions of the Court of Appeal were:

(1) Despite finding that both  Mishcon de Reya and Mary Monson, being the solicitors on each side of the transaction, were liable for breach of trust, the Court did not award Mishcon de Reya relief under s.61 Trustee Act even though it was found to have acted honestly and reasonably.  The Court considered the third limb of s.61: whether a trustee ought fairly to be excused for the breach of trust and decided that as Mishcon de Reya was insured it was better able to absorb the loss than the claimant.  The Court concluded, based on this reasoning that it would not be fair to the claimant to award relief to Mishcon de Reya.  Contribution proceedings were the appropriate way for liability to be determined between the two firms; and

(2) That a solicitor acting for a seller of the property warrants that she acts for the genuine owner where her client is identified in the contract as the real owner.  However, for a breach of warranty of authority to be actionable, there must have been reliance on the warranty.  All parties accepted there had been no reliance on the warranty in this case.

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