Civil Fraud Quarterly Round-Up: Q4 2016

4 January 2017

Transactions Defrauding Creditors

In JSC BTA Bank v Ablyazov and another the Court considered the transfer of £1.1million from Mukhtar Ablyazov to his son in 2009 at a time when his son was 17.  The money was used by the son for investments in support of his Tier 1 investor visa.  The investments matured in March 2014 and were held in the son’s account.

The Claimant bank alleged that the money should be treated not as a gift but  as being held on trust by the son for the father on the basis that Mr Ablyazov had not intended to transfer beneficial title to the funds, alternatively that the transfer to the son should be set aside as a transaction defrauding Mr Ablyazov’s creditors under the Insolvency Act.

The Court found that whilst there was cause for scrutiny of such a large gift to such a young person, the monies were an irrevocable gift to assist with an application for an investor visa for the son.  Regardless of other findings of dishonesty against Mr Ablyazov, the visa process had genuinely been embarked upon, and given the relatively small sums involved it would be hard to believe that Mr Ablyazov would involve his son in a fraud.  The intention to make the gift to the son had been reached some time before proceedings had been commenced against Mr Ablyazov, even though the transfer was effected at a time when Mr Ablyazov may have been aware of the possibility of proceedings.

The Court considered the approach for determining when transactions were made “for the purpose of putting assets beyond the reach of creditors”.  Although such purpose need not be the dominant purpose of the transaction it must be a “purpose” of the transaction, and something which was positively intended, not merely a “consequence” of that transaction.  The transferor must be substantially motivated by the purpose of putting his assets beyond the reach of his creditors for the victim to establish such purpose and for a claim under section 423 Insolvency Act 1986 to succeed.

Contempt of Court

In Thomas Haederle v Vodaphone Group Services Ltd the Applicant had obtained a freezing injunction against a third party following a successful unfair prejudice petition.  The third party was compelled to provide financial disclosure. The Applicant then discovered that the third party had set up a company in Germany and had been undertaking consultancy work for the Respondent company, pursuant to which invoices had been raised for significant sums.  The Applicant believed that this put the third party in breach of the terms of the freezing injunction and in contempt of court. 

The Applicant applied, using CPR 31.17, for disclosure from the Respondent on the basis that the consultancy invoices would assist with the fair disposal of the committal application.  The Court agreed that the invoices should be disclosed, but only after the Respondent had taken advice from a German lawyer to ensure that complying with the disclosure order did not put the Respondent in breach of any German law.

The Defendants in Heathcliffe Properties Ltd v (1) Rasmikant Premchand Dodhia  (2) Vanita Rasmikant Dodhia deliberately failed to comply with a Court Order requiring them to attend Court to assist with the sales of various properties, the sales of which had been agreed at mediation.  It had been necessary to order the Defendants to attend Court as their behaviour had been obstructive and uncooperative throughout the proceedings and they had ceased attending Court when they were no longer legally represented.  The Defendants admitted being in breach of a Court Order and the Claimant applied for their committal. 

The Court considered the circumstances as a whole and the guidance provided by the various authorities.  Whilst the Defendants’ behaviour deserved criticism, they were first time offenders who had apologised and promised to comply with future orders.  The Court therefore imposed a fine of £25,000 each rather than a custodial sentence.

Freezing Injunctions

The case of Phoenix Group Foundation v Cochrane involved a firm of solicitors against whom a freezing injunction had been obtained to freeze money in their client account.  The Claimant was suing the Defendant for non-payment of sums due under a loan note and had obtained a worldwide freezing injunction in respect of the Defendant’s assets, which specifically covered a Polish property development site.  The solicitors informed the Claimant that they had received £2million which was intended to settle fees owed to them by the Defendant and that the source of the funds was the sale of the Polish property development site. 

The Claimant took immediate steps to freeze the funds in the solicitors’ client account.  The solicitors argued that the freezing injunction against them should not have been made as there was no risk of dissipation, no case for breach of the freezing injunction against the Defendant and because there had been material non-disclosure. 

The Court continued the freezing injunction.  The solicitors were not acting for the Defendant and she would have an opportunity to attend and be heard.  The fact that the solicitors could pay a sum equal to the money if ordered to do so did not mean there was no risk of dissipation.  There was evidence of a breach, and insufficient information had been provided about the sale of the Polish property development site.  It was right for the freezing injunction to continue.

I previously discussed the case of Kazazhstan Kagazy plc & 6 Ors v (1) Baglan Abdullayevich Zhunus (2) Maksat Askaruly Arip (3) Shynar Dikhanbayeva in my Quarter 2 civil fraud case update .  This latest decision is the appeal of the decision of the Court to refuse an application for permission to bring a contribution claim against a co-Defendant who had entered into a full and final settlement with the Claimant and for a freezing injunction (or the continuation of undertakings already provided by the co-Defendant) to support that claim.

The appeal was allowed and permission was granted to make a contribution claim.  The Court of Appeal found that the Defendants were entitled to formulate an alternative case that, if they were found liable and if it was found that there had been fraudulent conduct, the co-Defendant must also have acted fraudulently.  The co-Defendant’s settlement with the Claimant did not affect that entitlement.  The principle of contribution was that it allowed the Court to determine a just and equitable distribution of liability between wrongdoers and there was no reason to distinguish between fraudsters and other wrongdoers.

The Court also found that it was appropriate to maintain the position of the co-Defendant pending determination of the contribution claim by way of a freezing injunction or the extension of the co-Defendant’s undertakings for the benefit of the Defendants.

A powerful reminder of the risks involved when applying for a freezing injunction is provided by Fiona Trust and Holding Corp v Privalov. This dealt with the determination of costs following an award of damages made pursuant to a cross-undertaking in circumstances in which the Claimant was found to have breached the duty of full and frank disclosure when obtaining a freezing injunction.

The Defendants were largely successful in defending the claims, being found liable for a significantly smaller sum than the amount which had been frozen.  The damages awarded to the Defendants were only a small proportion of the amount they had sought pursuant to the cross-undertaking, although the Court did state that a ‘liberal’ approach to the assessment of damages should be taken.

The Court awarded the Defendants 50% of their costs, on a standard basis, to be assessed if not agreed.  The Defendants were also entitled to various reserved costs.  These would be payable in addition to the damages awarded to the Defendants under the cross-undertaking.

Another recent case involving material non-disclosure in the context of a freezing injunction is Fagbolagun v Alade.  In this case the Claimant failed to comply with an unless order and the claim was struck out.  The Claimant appealed the unless order, but the appeal was dismissed and in the meantime the Defendant issued a statutory demand for payment of costs orders.  The Claimant then made an unsuccessful application for a freezing injunction over monies paid into Court by the Defendant on a separate matter pending a further appeal of the unless order.  The Claimant went on to make a number of further applications all of which were dismissed, and two civil restraint orders were made against him.

The Claimant then made a further application for a freezing injunction.  In the supporting affidavit he set out his claim, but failed to mention the previous unsuccessful applications, his previous application for a freezing injunction or the civil restraint orders.  A freezing injunction was granted and the Claimant issued a claim form which was identical to his first claim.

The Defendant applied to set aside the freezing injunction.  The Court found that whilst the Claimant had an arguable case, there was an insufficient risk of dissipation of assets to warrant the granting of an injunction.  The Claimant should also have disclosed his previous unsuccessful application for an injunction as well as the civil restraint orders and his failure to pay costs orders.  The Claimant had also misrepresented the issues which formed the basis of his claim (works done to the Defendant’s property).  The freezing injunction was set aside, with the Court noting that had it not been set aside, it would have been discharged for the Claimant’s non-compliance as he had failed to arrange a return date hearing.  The proceedings were stayed pending payment of costs orders.  An extended civil restraint order was made against the Claimant.

In Frederic Marino v FM Capital Partners Ltd the Court of Appeal refused to vary a proprietary freezing injunction to allow the Appellant to draw down the proprietary assets in order to fund his legal and living expenses.  The obligation on the Court was to weigh up the balance of justice, but it was up to the Appellant to establish that he had no other assets which could be used.  In this instance the Appellant had disclosed that he owned other non-proprietary assets and there was therefore no need for the proprietary assets to be used.

In the case of Cattelan v Mignemi the Claimant applied for a freezing injunction to support a claim that money had disappeared following a loan agreement.  The Court refused to grant an injunction on the basis that the Claimant was unable to show a good arguable case.  There were numerous facts which pointed towards the parties having been involved in some form of money laundering arrangement and it was therefore not clear that the Court should give effect to such arrangements.

Norwich Pharmacal

The ability of the Court to make a Norwich Pharmacal Order to support claims in foreign proceedings was considered in Ramilos Trading Ltd v Valentin Mikhaylovich Buyanovsky. Any proposed claim would be brought in Cyprus or another foreign jurisdiction, such as Russia.  In respect of such proceedings any attempt to obtain information or evidence engaged the Evidence (Proceedings in Other Jurisdictions) Act 1975, which itself precluded common law remedies such as Norwich Pharmacal Orders.  The Court therefore had no jurisdiction to grant a Norwich Pharmacal Order and the application was refused.

I previously discussed the case of AB Bank Ltd v (1) HSBC Bank plc (2) Abu Dhabi Commercial Bank PJSC (3) Hong Kong & Shanghai Banking Corporation Ltd in my Quarter 3 civil fraud case update  when the Court had determined that it did not have the jurisdiction to permit service out of the jurisdiction of a Norwich Pharmacal Order. 

In the most recent decision in this matter the Second Defendant bank against whom the Norwich Pharmacal Order was granted, successfully set aside the Order and was awarded its costs on an indemnity basis.   

The Court found that the Claimant had acted unreasonably by not working with the Second Defendant to make a joint application for disclosure.  The Claimant was not, however, criticised for making the application on a without notice basis.

The decision to award indemnity costs reflected the finding that the Claimant, when making the application on a without notice basis, had failed to give full and frank disclosure of the effect of the Abu Dhabi Penal Code Article 379. The Second Defendant would have breached that Article had it complied with the Norwich Pharmacal Order.

Breach of Trust & Property Fraud

The case of P&P Property Ltd v (1) Owen White & Catlin LLP (2) Crownvent Ltd (t/a Winkworth) is discussed in more detail here.  It is a case of property hijack in which the genuine property owner’s identity was stolen and a sale of the property arranged.  Completion purportedly took place, with an exchange of money for executed documents.

The fraud was discovered at early stage and the transaction was never registered.  The defrauded would-be purchaser brought proceedings against the firm of solicitors who had acted for the purported vendor as well as against the estate agents who had marketed the property for sale, who had previously had dealings with the genuine owner of the property.  The claims were framed in breach of warranty of authority, negligence and breach of trust.

The Court confirmed that claims in breach of warranty of authority would always be fact-sensitive and that there was nothing to exclude such a claim being brought against an estate agent.  However, the Court found that neither the solicitors nor the estate agents had warranted that their client was who he said he was, or that he was the genuine property owner.

Whilst the Court found that the estate agents’ client due diligence and anti-money laundering checks were wholly inadequate, the estate agents did not owe a purchaser a duty of care.  Likewise, a vendor’s solicitors did not owe a duty to a purchaser.

The claim in breach of trust failed as the Court found that the solicitors received the monies as agent for the seller rather than on trust.  This does not sit comfortably with the case of Purrunsing which is discussed in some detail here.  It is worth noting that this case is being appealed, although it is not clear on what grounds the appeal has been based.

Mortgage Agency Services Number One Ltd (T/A Britannia Commercial Lending) v Cripps Harries LLP was a case in which a Claimant lender alleged fraud and conspiracy against Defendant solicitors.  A property owner and developer client of the Defendant sought to refinance a loan in respect of which he was in arrears and receivers had been appointed.  At the time of the refinancing the client already had concerns about the quality of the building in which the security properties were located.

The Claimant alleged that various misrepresentations were made about works at the properties, the existing loan and the arrangements relating to the properties themselves.

The Court found that the first solicitor involved was inexperienced and sometimes careless, but that she had not been dishonest and had not intended to mislead and that there was no evidence of dishonesty on the part of the legal executive.  The Court also commented that the Claimant had been so focussed on making a recovery on what had been a fairly disastrous loan that it attributed a dishonest motive to every feature of the case and brought some allegations which probably should not have been made.  A reminder of how careful we must be when alleging fraud.

Civil Procedure

In yet another Ablyazov-related judgment, Salim Shalabayev v JSA BTA Bank, the Court of Appeal found that the Appellant should be entitled to intervene in the Respondent bank’s application for a charging order over a property.  The Appellant had given evidence in Mr Ablyazov’s committal hearing and had been found to be an unreliable witness in respect of his ownership of the BVI Company which owned the property over which the charging order was sought.

At first instance the Judge found that the Appellant’s application to intervene in the charging order application to be a collateral attack on the findings in the committal proceedings which brought the administration of justice into disrepute as well as being an abuse of the Court’s process.  The Appellant was subsequently also found to be in contempt of Court for having breached Court orders and the Respondent bank argued that as an un-purged contemnor, the Appellant should not be heard in the appeal.

The Court of Appeal disagreed with the lower Court’s approach.  The Appellant had been a witness in the committal hearing and had not had an opportunity as a party to establish any claim to beneficial ownership of the property. There could therefore be no charge of collateral challenge or abuse of process, and the Appellant’s evidence should be properly considered.  The Court of Appeal ordered that the Appellant and the BVI Company should be joined as respondents to the charging order application.

In Billington v Davies &Ors an application by a Defendant to set aside a default judgment entered following a hearing which he did not attend and about which he claimed to be unaware was unsuccessful. 

The Court found that as the Defendant had dis-instructed his solicitors, provided an inactive email address, and had not answered any calls he had contributed to the problems which the Claimants suffered in respect of notifying him of the hearing.  He could not, therefore, claim to have been treated unfairly.

The Defendant also raised various procedural concerns with the Claim, but these were dismissed.


The Defendants in Arcadia Energy (Suisse) SA v Attock Oil International Ltd had challenged jurisdiction and although they had been unsuccessful at first instance and in the Court of Appeal, they had applied to the Supreme Court for permission to appeal.  The Court found that, pending the determination of the Supreme Court, it would be wrong to require the Defendants to plead a substantive defence in circumstances in which they were challenging jurisdiction and might never be required to submit to the jurisdiction.  The costs of defending the action would be substantial and there was no public interest aspect which would require the case to be progressed in the meantime.

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