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Client Type: Individual

Fraud and summary judgment

Historically, where a claimant pleaded fraud, they were not entitled to make an application for summary judgment. The reason for this so called “fraud exception” was that due to the serious nature of the allegations and consequences of such, it would be inappropriate for such matters to be determined at an interim stage without defendants being afforded the opportunity to fully explore the issues at trial. This exception was abolished in England and Wales in 1992, and yet it has remained difficult to meet the threshold for summary judgment in fraud cases.

The one where the company sued its managing director

Advice was provided to a large manufacturing company which had been misled in relation to procurement of office copying equipment under the guise of a post franking savings scheme.

The client company had high expenditure of postal costs in relation to supply of goods to its customers. The client company was approached by a third party on the introduction of an existing postal services supplier. This resulted in the client company being misled to enter into finance agreements with numerous finance houses through a scheme which was alleged to provide savings on postal services via purchase of office equipment.

In fact, the alleged savings were being provided from the funds provided received from the finance houses in a scheme similar to a Ponzi scheme as contracts were rolled into new contracts annually.

Upon discovery of the fraudulent scheme, it became apparent that the client company’s managing director had been negligent in failing to read any of the lease agreements prior to signing them which formed part of the fraudulent scheme. The managing director had taken a sales representative’s word without assessing what was proposed or offered.

It should have been plain on the face of the agreements that he was committing the company to hundreds of thousands of pounds of debt, and that the debt from the previous annual agreement was being “rolled over” each time.

The managing director had the benefit of Directors in Office insurance which ought to have covered losses caused to the company as a result of his negligence.

The client company continued to employ the managing director given the highly commendable way he had acted since discovery of the fraud and generally throughout his many prior years of service with the company. However, the company client did consider he had been negligent with respect to his duty to exercise reasonable care, skill and diligence in accordance with s.174 of the Companies Act 2006.

Tenet were instructed to bring a claim in negligence against him for the loss sustained as a result of his negligence. The managing director in turn sought indemnity from his policy of insurance.

Following a long but successful mediation the claim against the managing director was resolved and resulted in a very substantial financial settlement from the insurance company on behalf of the managing director.

The learning point for other businesses is that where a loss is sustained as a result of fraud, think widely about the scope of cover on insurance policies and director duties innocently duped into causing a company to enter into a fraudulently misrepresented scheme or contract. It may be that cover exists even where there is not a policy overtly covering the ‘fraud risk’.

Cryptocurrencies: How are they regulated in the UK?

We’ve all heard of Bitcoin, but for a long time the concept of a “cryptocurrency” seemed to belong to another world, the online world, and was something far removed from day-to-day life. In recent years, cryptocurrencies have crept further and further into the real world with Mastercard announcing plans to support cryptocurrency payments on its network this year, and a number of traditional banks planning to welcome Bitcoin and other cryptocurrencies, eventually treating them like any other asset.

Dale v Banga & others: When is new evidence not sufficiently connected to factual matters to show a judgment has been obtained by fraud?

The principle of “fraud unravels all” relies upon new evidence being capable of demonstrating that there was “conscious and deliberate dishonesty” which was causative of the original judgment being obtained by fraud. Where the fresh evidence adduced is not sufficiently related to the issues which were before the court in the original trial, the scales of justice will favour the finality of litigation.

Recordings

Covert or illicit recording – Can it be used as evidence in a civil fraud dispute?

What if a fraud victim obtains or is in possession of an audio recording, obtained improperly, which contains information that the victim believes proves a civil fraud has been committed?  Will the Court allow such material to be admitted as evidence in support of the victim’s fraud claim?

The one where a client with the fictitious property investment scheme

We advised an individual who believed that they were investing in a property investment scheme that offered an alleged significant 20% return of investment within one year. The scheme allegedly operated by receiving monies from investors to build luxury residential properties, with the sale proceeds to then be distributed accordingly. In reality, the individual was misled in relation to the existence of the scheme and alleged return on investment.

The individual believed that they were making a sound financial investment for their family’s future that could not be matched with “high street” investment schemes. The initial investment was successful, and the individual received positive financial returns. This led the individual to being lulled into a false sense of security and reinvesting the initial returns, together with further money, into a further three alleged property investments.

It transpired that the further properties did not exist. It was a sham. Advice was provided in relation to their options for recovery which were founded in negligent/fraudulent misrepresentation.

We prepared pre-action correspondence alleging fraud against those individuals operating the company that was alleged to have misled our client dishonestly about the scheme. After a relatively short period of exchange of correspondence, the individual was able to recover a large proportion of the money they had invested in the scheme.

The Banking Protocol and financial harm

In 2017, the British Standards Institution (“BSI”) launched a code of practice for financial institutions (including banks) that sought to give recommendations to organisations for protecting vulnerable customers from financial harm. Whilst a breach of the protocol may not mean immediate reimbursement by an organisation it is certainly a helpful indicator of what standards they are expected to meet and a weapon in your arsenal if you can show breaches.

I.F.T. S.A.L. Offshore [2020] EWHC 3125

On 19 November 2020 the High Court handed down judgment in the application of I.F.T. S.A.L. Offshore [2020] EWHC 3125. This application concerned an authorised push payment where the victim had sought to obtain information from the fraudsters bank about the accounts to which the money had been inadvertently transferred.

An application was made against the bank to obtain disclosure to allow the victim to pursue the unknown fraudsters. This was made under the Norwich Pharmacal and Bankers Trust jurisdictions.Where a party receives a Norwich Pharmacal Order they are required to provide certain documents or information specified in the court order to the applicant. This application is not generally available against a respondent who is likely to be a party to the potential proceedings.

Upon receipt of the disclosure it became apparent that there was a case against the bank but under the terms of the order the victim was precluded from using the disclosure provided to pursue a claim against the bank.

I.F.T .S.A.L. Offshore made an application to vary the terms of the order so that they could use the disclosure against the bank. This was resisted by the bank but was granted by the court.

Takhar v Gracefield REVISITED

In our article “Fraud unravels all…?” (https://tenetlaw.co.uk/articles/fraud-unravels-all/)  we considered the decision of the Supreme Court in Takhar v Gracefield Developments Ltd and others [2019] UKSC 13 (20 March 2019) where the Court sought to balance two conflicting principles of legal policy, namely that fraud unravels all, and that there must be a finality to litigation.  The resulting judgment was a welcome clarification of when a judgment can be set aside for fraud. The High Court has now considered the correct test to be applied when assessing materiality, resulting in the judgment finally being set aside (Takhar v Gracefield Developments Ltd and others [2020] EWHC 2791 (Ch)).

Award Success For The Tenet Team

We’re delighted that Tenet has been named as runner up in the Clio Reisman Awards 2020 for Legal Innovation, and that Tenet’s founder, Arun Chauhan, has been highly commended in the Sole Practitioner of the Year Award in the Law Society Excellence Awards 2020.

The Clio Reisman Awards celebrate excellence and innovation within the legal profession, recognising practitioners internationally for their contribution to the field.

The Law Society’s Sole Practitioner of the Year award also commends innovative and pioneering practitioners, who bolster new and unique ways of working within the legal industry.

Contact details

Phone: 0121 796 4020

Email: hello@tenetlaw.co.uk

Fax: 0843 216 4240

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Tenet Compliance & Litigation Limited
Sterling House, 71 Francis Road, Edgbaston, Birmingham B16 8SP

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