AML: HMRC flexes enforcement muscle to the tune of £7.8 million
In Giles v Chambers a freezing injunction was continued after the respondent transferred her interest in a property jointly owned with her husband into her husband’s sole name and failed to disclose assets. The respondent argued that she had never held any beneficial interest in the property, and that any legal interest she had in the property was held on trust for her husband. She had not mentioned that the property was held on trust when an interim charging order had previously been made and the existence of a trust was inconsistent with the records held by the Land Registry. The Court considered that these were sufficient to meet the standard required to continue the freezing injunction.
Material non-disclosure is often focussed on by respondents to challenge the continuation of freezing injunctions. In Frenkel v Lyampert and Others an injunction was not continued on the grounds of material non-disclosure of an earlier application made in the US on an inter partes basis. The respondent had been served with the US application and had made no attempt to dissipate assets. This should have been brought to the Judge’s attention relating to a risk of dissipation and would likely have resulted in the Judge requiring the application to be made on notice. There were also criticisms of the applicant for failing to flag with the original Judge modifications which had been made to the standard form of freezing injunction.
I mentioned the defendants’ application to the Supreme Court in Arcadia Energy (Suisse) SA & Others v Attock Oil International Ltd & Others on jurisdiction issues in my [Civil Fraud Quarterly Round-Up: Q4, 2016]. In this latest development two of the defendants applied for the discharge of a freezing injunction because of the applicants’ failure to give full and frank disclosure. One of those defendants also applied for the claim against him to be struck out on the grounds that it had not been sufficiently particularised and was unclear. Whilst the Court agreed that the pleadings were complex and breached the Commercial Court guide as to brevity, it disagreed that the claim was unclear as against that defendant and refused to strike out that part of the claim. The Court also agreed that the claimants’ presentation of the facts made in support of the freezing injunction could have been more “nuanced”, but that this did not constitute material non-disclosure and so refused to set aside the freezing injunction. The Court commented that the complaints levelled at the non-disclosure were at the low end of the material scale and, even if they had been made out, would not have justified setting aside the injunction in circumstances in which the defendants were facing allegations of involvement in a sophisticated, multi-million dollar fraud.
I have written about the case of SCF Tankers Ltd (formerly Fiona Trust & Holding Corp)& Others v Yuri Privalov & Others in my [Civil Fraud Quarterly Round-Up: Q4, 2016]. The Court of Appeal has now considered this case and, in particular, the decision that the claimant pay damages under the cross undertakings given in respect of a freezing injunction granted at an interlocutory stage. The freezing injunction allowed the defendants to operate their ordinary business but prohibited investment in ship-building contracts, although it did allow the defendants the right to apply for permission to use secured funds for that purpose. No such application was made by the defendants. The defendants were largely successful at trial and sought damages for losses caused by the freezing injunction. In particular, losses caused by the prohibition on investment in ship-building contracts. At first instance the claimants were ordered to pay damages of $59.8million and interest of $11.04million. The claimants appealed against that decision. The Court of Appeal found that the freezing injunction had prevented the defendants from investing in ship-building contracts. Liberty to apply did not alter the nature of the restriction imposed by the injunction. To succeed in their claim for damages the defendants only had to show that the loss would not have been suffered but for the existence of the injunction. The defendants’ failure to apply for the Court’s permission to use frozen funds for the purpose of ship-building contracts did not constitute a failure to mitigate their loss.
In Barclay Pharmaceuticals Ltd v (1) Antoine Mekni (2) Martine Leone Ollier Mekni (3) Dorian Hedy Mekni (4) Brice Anice Mekni (5) Xiaohui Wang the claimant applied, at the return date of a post-judgment freezing injunction, for an order that one of the defendants should disclose the source of his legal funding. The application was made on the basis that the funding agreement might constitute a breach of the freezing injunction. When considering the application the Court took into account the fact that the defendant had been found to be a fraudster and had paid nothing towards the judgment debt he owed. In addition, the defendant had consistently failed to comply with disclosure orders. The Court considered the prejudice to the defendant which might be suffered by being compelled to disclose the source of funds and determined that disclosure of the source of funds was something the defendant could easily provide, whereas there was a risk of real prejudice to the claimant if frozen funds were being used to fund legal costs. The Court therefore made the order sought.
Much has been written about the recent decision of the High Court in the long-running case of (1) JSC Mezhdunarodniy Promyshlenniy Bank (2) State Corporation “Deposit Insurance Agency” v Sergei Victorovich Pugachev & Others and as such it is not necessary to discuss the case in great detail for the purpose of this round-up. However, it is an interesting case in which discretionary trusts were effectively ‘busted’ on the basis that the settlor, Mr Pugachev, retained sufficient control over the decision making of the trustees for the Court to conclude that the trusts were not genuine discretionary trusts and instead the assets were held on bare trust for Mr Pugachev. The significance of this was that the trusts could be caught by a freezing injunction, be available for enforcement of judgment debts and would fall within a bankruptcy estate. The Court also considered why the trusts were established in the first place and determined that they were intended by Mr Pugachev to mislead other people about the ownership of assets. The trusts could, therefore, be considered to have been shams from the start.
In Universal Business Team Pty Ltd v Lawrence Moffitt the contemnor was sentenced to 14 months imprisonment. The Court found that imprisonment was the only option in circumstances in which the defendant had admitted breaches of a search order, many of which were irremediable and designed to hinder or prevent the search order from being executed.
I discussed the case of Patel v Patel & Others in my Civil Fraud Quarterly Round-Up: Q3 2017 and in December 2017 the Court determined the sentencing of the defendants for admitted contempt of Court comprising, in particular, the bringing of a fraudulent claim by one of the defendants for relief to which he knew full well he was not entitled and the coercion of witnesses. As the contempt had been admitted, the Court’s most recent decision focused on mitigation and sentencing. The Court took into account issues such as the defendants’ good character, the threat of prison, assistance provided by some of the defendants in respect of the fraudulent claim, the influence of the first defendant who had conceived the fraudulent claim, and apologies which had been given in evidence. The Court also took the defendants’ personal circumstances into account. In respect of three of the defendants, who had assisted with, but not conceived the fraudulent claim, they were each given three month suspended sentences. The first defendant, who had designed and pursued the fraudulent claim, was sentenced to 12 months imprisonment, with the Court noting that had he not pleaded guilty, that sentence would have been 14 months.
In (1) ICBC Standard Bank plc (2) Standard Bank of South Africa Ltd (3) London Forfaiting Co Ltd (4) Amsterdam Trade Bank NV v Erdenet Mining Corp LLC the Court made an order (1) declaring that the defendant was in contempt of Court for breaches of an asset disclosure order and (2) granting permission for a writ of sequestration to be issued. The Court dispensed with the requirement to personally serve the defendant with the application on the basis that the defendant’s former solicitors had been served and had been dis-instructed as a tactical step. This also justified the Court’s decision to proceed with the application in the defendant’s absence: it had notice of the application and had waived the right to appear. An adjournment of the application would delay the matter and would not guarantee the defendant’s attendance. The Court also made an indemnity costs order against the defendant on the basis that it had acted unreasonably in respect of the application.
The Court considered whether it was able to permit service out of the jurisdiction of applications for pre-action disclosure in ED&F Man Capital Markets LLP v (1) Obex Securities LLC (2) Randall Katzenstein. The application for pre-action disclosure was issued in England after proceedings had already been commenced in the US. The respondents argued that the order permitting service of the application in the US should be set aside on the basis that (a) an application for pre-action disclosure was not a claim and the Court’s jurisdiction to permit claims to be served out of the jurisdictions did not apply and (b) the applicant had not disclosed the proceedings in the US where it was seeking materially similar documents. The Court confirmed that an application for pre-action disclosure would be classed as proceedings for the purpose of an application to serve out of the jurisdiction, even if a claim form had not been issued. In respect of the non-disclosure of the US proceedings, the Court said that it would have been better to disclose this information, but the failure to do so was not sufficiently material to make a difference to the order made.
In Maria Kovarska v Otkritie International Investment Management Ltd & Others the Court considered the claimant’s application to set aside an order made following an ex parte application by a defendant to a fraud action. The order had granted the defendant a two-year extension of time for permission to appeal, and at the same time granted permission to appeal and permission to adduce new evidence. The claimants argued that the order had been granted following serious misrepresentations and non-disclosure. It was found by the Court that the defendant had misled the Court by making various representations which were false. The Court granted the application and set aside the order.
In (1)Shahan Salekipour (2) Amir Saleem v Jashan Kaur Parmar the two claimants appealed a High Court decision that the County Court had no jurisdiction to set aside its own judgment. The claimants originally brought a claim against their former landlord, which they lost at trial, the Court having preferred the evidence of the defendant. The claimants then brought a further action asking the Court to rescind its judgment and order a new trial on the basis of evidence that one of the defendant’s witnesses had been pressured into giving false evidence. This claim was struck out as an abuse of process and an application made by the claimants to set aside the striking out was dismissed on the grounds that the County Court did not have the jurisdiction to rescind one of its own judgments, even if it was obtained by fraud. The dismissal was upheld by the High Court and the claimants appealed to the Court of Appeal. The Court of Appeal held that s.23 of the Country Courts Act 1984 gave the County Court jurisdiction to set aside one of its previous judgments if it had been procured by fraud. It also considered the possible effect of the witness’s false evidence and concluded that it could have tainted the assessment of the defendant’s credibility. It therefore set aside the striking out of the claimants’ claim.
In Sartipy v Chatsworth Court Freehold Co Ltd & Another the Court considered the circumstances in which a judgment could be set aside on the basis of fraud and confirmed that it would be necessary to establish that the evidence of fraud had not been available at the time of trial and could not have been discovered with reasonable diligence. In this particular case there was no new evidence: the information relied on to allege fraud had already been put before the Court. The claim to set aside judgment on the basis of fraud therefore failed.
In Mary Mavris v (1) Marine Xylia (2) Maria Xylia the Court held that the discovery of a new document in the possession of a third party was sufficient to show that a judgment might have been obtained by fraud. Such an issue should be determined at trial and it would be disproportionate to require the appellant to issue a new claim. Instead the case was remitted to the County Court for the fraud issue to be determined. If the County Court found that fraud was proved, the appeal would be allowed and there would be a retrial. If not, the appeal would be dismissed.
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