AML: HMRC flexes enforcement muscle to the tune of £7.8 million
Contempt of Court
Kevin Taylor v (1) Van Dutch Marine Holding Ltd (2) Van Dutch Marine Ltd (3) Hendrik R Erenstein (4) Ruud Koekkoek involved a claim for repayment of a loan. A freezing order was made over three vessels owned by the defendants and a disclosure order was made compelling the defendants to disclose assets. The disclosure order was not complied with.
The third and fourth defendants, who were the directors of the first and second defendants, were sentenced to six months’ imprisonment for contempt of Court. This decision was taken despite the defendants’ failure to attend at Court or submit themselves to the jurisdiction.
The third and fourth defendants had deliberately failed to comply with a disclosure order which was endorsed with a penal notice and had failed to provide the claimant with notice of the sale of two major assets.
A Court will only consider an application for contempt in the absence of the alleged contemnor in exceptional circumstances. In this case the third and fourth defendants were ordinarily resident in Monaco and had not submitted to the jurisdiction for the contempt proceedings. However, the defendants had been served with the application and had been given proper notice of the hearing, which gave them an opportunity to purge their contempt. There was no evidence before the Court that an adjournment would result in the defendants’ attendance and the claimant suffered a continued prejudice as a result of the defendants’ failure to provide disclosure as ordered.
The six month sentence was therefore granted, but suspended for one month to allow a final opportunity for the defendants to comply with the order. It is not clear whether the defendants have complied with the order.
Two defendants in Aquarius Holdings Ltd v Barber & Ors applied to discharge or vary a freezing order made against them. The application was based on allegations of material non-disclosure when the freezing injunction was obtained.
The claims were in fraudulent misrepresentation, conspiracy, breach of duty and breach of fiduciary duty. The Court found that the claims were fully arguable, there had been no material non-disclosure, and, given the defendants’ behaviour including the concealment of business relationships from which the defendants obtained profit, a risk of dissipation could be inferred. The freezing order was to remain in place.
A similar application was made in National Bank Trust v Yurov in which the defendant applied to discharge a freezing injunction on the basis that there had been a failure by the claimant to provide full and frank disclosure.
The Court considered three issues in respect of each instance of material non-disclosure:
It was decided by the Court that the undisclosed facts were not critical to the claim or the application; that the non-disclosure was innocent; and that the claimant might suffer injustice if the injunction was discharged as there was a genuine risk of dissipation of assets.
In Financial Conduct Authority v Capital Alternatives Ltd & Ors the FCA was awarded its costs of cross examining a respondent whose assets had been made subject to a freezing injunction on the basis that:
In Windrush Intercontinental SA v Bitumen Invest A/S the Court found that the continuation of a freezing injunction by agreement should have been recorded in a consent order.
The freezing order contained details of a circumstance in which it would cease to have effect over the whole sum claimed. The sum frozen was expressed in US dollars ($561,000), but the costs award forming the basis of the sum frozen was in £ GBP (£412,000). The Order stated that, if leave to appeal was refused, the injunction would cease to have effect over $412,000 but it appears that the currency should have been listed as GBP.
If the injunction no longer applied to £412,000 then, given the exchange rates at the time, it no longer froze anything, as £412,000 was greater than $561,000.
The proposed consent order corrected the error in currency in the original order and would, therefore have resulted in the freezing injunction having no effect.
The injunction was therefore released and it was found that there was not a sufficient risk of dissipation to justify making a new order.
The claim of Jonathan Edward Marsden v Barclays Bank Plc related to the alleged mis-selling of an interest rate hedging product.
The claim was brought after a settlement agreement had been entered into which purported to be “in full and final settlement of all complaints, claims and causes of action which arise directly or indirectly or may arise out of or are in any way connected with the Swaps”. The claimant argued that no consideration was provided by the bank in exchange for him entering into the settlement agreement, that the agreement was procured by economic duress and that the settlement did not include claims in relation to fraud committed by the bank.
The defendant bank was granted summary judgment. The Court found that there had been consideration and that no illegitimate threats had been made which would constitute economic duress. On the issue of fraud the Court found that as an allegation of deceit had been raised prior to the settlement agreement, the settlement had to be viewed in that context and was interpreted as covering claims in fraud.
The case of Wave Lending Ltd (Claimant) v Ghanshyam Sarup Batra (Defendant) & SFM Legal Services Ltd (Third Party) involved an application to restore a claim following a delay of almost six years.
The claim between the claimant (a mortgage lender) and the defendant (a mortgage broker) was settled in October 2009 after the trial of the claim had begun. In the course of proceedings the defendant issued a Part 20 claim against the firm of solicitors who had acted for him in the transactions. The solicitors defended the claim but went into voluntary liquidation just prior to the trial. The solicitors did not appear at trial and indicated, via their liquidator that this was because of a lack of financial resources. On the date of settlement between the claimant and the defendant, the claim against the solicitors was adjourned with permission to restore.
Almost six years later, the defendant applied to restore the Part 20 claim and list it for hearing. No reasons were given for the delay. The liquidator of the firm of solicitors applied to strike out the claim on the grounds that, inter alia, no good reason had been provided for the claim to be restored, there was overwhelming evidence of fraud by the defendant in relation to the transactions in question, that indemnity insurance was not available because of the allegations of dishonesty involved and that there was no money in the liquidation to satisfy a judgment.
An order was made requiring the defendant to produce a witness statement setting out the history to date and explaining the delay. He did not comply with that order and an unless order was made that unless he produced such a statement, his claim would be struck out.
The Court determined that the defendant had not produced an adequate explanation and was therefore in breach of the unless order. The application to reinstate the Part 20 claim was dismissed and the Part 20 claim was struck out as an abuse of process.
In Eurasia Sports Ltd v Lan-Chun Tsai (aka Martin Tsai) & 10 Ors the Court looked at issues of jurisdiction in circumstances in which the claimant company was incorporated in Alderney and the defendants all resided in Peru at the relevant time.
The claimant’s claim was that the eleven defendants had defrauded the claimant by opening gambling accounts with the claimant, running up debts and neither repaying the debts nor providing the promised security. The claimant established that the High Court in London had jurisdiction to hear the claim on the basis that:
In the case of AB Bank Ltd v Abu Dhabi Commercial Bank PJSC the Court decided that it did not have jurisdiction to permit service out of the jurisdiction of an application for a Norwich Pharmacal Order.
The claimant bank sought to rely on PD6B to obtain permission to serve an application for a Norwich Pharmacal Order on a bank based in Dubai in order to obtain more information about an alleged fraud. No allegations were being made against that bank, and it was not intended that the bank would ever be a defendant in the proceedings.
Teare J noted that the gateways under PD6B were intended to aid foreign proceedings and did not apply to proceedings within the jurisdiction. Further a Norwich Pharmacal application did not amount to an interim application: the respondent would not be a defendant to substantive proceedings and the relief sought would be the final relief obtained against that respondent.
The Judge also noted that there was a concern that a Norwich Pharmacal Order in the form sought by the applicant might have involved a breach of the laws in the UAE as there were mechanisms in place in the UAE by which the applicant could have obtained the same information.
The Supreme Court considered the issue of whether a defendant will be able to rely on the defence of Illegality in Patel v Mirza.
Mr Patel’s claim was for repayment of the sum of £620,000 which he had lent to Mr Mirza. Mr Mirza’s intention was to use the money to bet on the movement of RBS shares because he believed that he was going to receive insider information about the Government’s investment in RBS. The information was never received and Mr Mirza did not use the money.
Mr Patel sought to recover the money lent and Mr Mirza defended the claim on the grounds that it should fail due to the illegality of the use to which the loaned monies were to be put.
The Supreme Court upheld the Court of Appeal’s decision that Mr Patel was entitled to restitution of the £620,000. In the leading judgment Lord Toulson said that the rationale of the illegality doctrine was to avoid circumstances in which a claim was enforced which was contrary to the public interest or harmful to the integrity of the legal system. He concluded that it was necessary to consider:
Lord Toulson said that a claimant who would otherwise have a claim in unjust enrichment should not be prevented from pursuing the claim because the money was initially provided for an illegal or prohibited purpose. The other judgments given agreed with the outcome but for the reason that in so far as restitution was possible a party should be entitled to recover any sum paid, even if that sum was paid to further an illegal arrangement. Lord Mance stated that whilst no one should be entitled to profit from an illegal arrangement, reliance on an illegal arrangement in order to restore the status quo is unobjectionable.
The Court of Appeal has considered the effect of blackmail on without prejudice correspondence in Jonathan Ferster v (1) Stuart Ferster (2) Warren Ferster (3) Interactive Technology Co Ltd.
A claim had been issued for breach of fiduciary duty against the respondent director of the third appellant company. The respondent issued a separate claim in unfair prejudice stating that the first claim had been brought for improper purposes – to compel him to buy the first and second appellants’ shares in the company at price above market value.
An offer had been made, in an email sent shortly after a failed mediation, that the respondent buy the first and second appellants’ shares for a certain price on the basis that there had been wrongdoing, as the respondent had failed to disclose a bank account, and that a swift settlement would avoid the need for committal proceedings. The Judge at first instance considered this to be an attempt at blackmail therefore falling within the unambiguous impropriety exception to privilege. The respondent was entitled to amend his unfair prejudice petition to refer to the contents of that email.
The Court of Appeal held that the critical issue was whether the privileged occasion (of mediation) had been abused. There might have been good reason to seek to commit the respondent, but the threat of committal proceedings should not have been used to seek to increase the value of the appellants’ shares. The email was worded to suggest that the appellants wanted more for their shares because of their ability to start committal proceedings not because of any genuine increase in the value of those shares. The price offered was not linked to the impropriety and the price sought for the shares could easily be redacted in the exhibited email, therefore maintaining the without prejudice aspect of the email relating to the mediation negotiations.
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