Most people acknowledge there is an inherent risk in litigation. That is especially the case in claims of fraud. Even with a strong case, the outcome is never certain. Those who have worked with solicitors and barristers will know that they are generally cautiously optimistic when it comes to the merits of a claim, however that is not always the case. Does confidence in the merits of a case that goes on to fail indicate a problem with the legal advice?
A recent case supported the view that failure of a litigant’s claim does not mean that a solicitor’s earlier confident views about the claim were necessarily negligent. But what if the solicitor clearly got things wrong; mismanaged the claim, perhaps failed to spot or fully investigate a fraud? What are the routes for redress and how can we help?
A company’s “ESG” or “Environmental, Social and Governance” metrics are increasingly being used by investors to benchmark companies and identify material risks and growth opportunities. Not yet mainstream, companies are increasingly choosing to disclose such metrics voluntarily through annual reports or standalone sustainability reports. But should companies be wary of what representations they make about their ESG credentials? Can investors hold them to account if such statements turn out to be untrue or an exaggeration of reality?
Managing fraud investigations: an in-house perspective
Upon discovering fraud there are important issues to consider and preliminary steps which need to be taken before involving external advisors. Arun Chauhan takes us through what good practice looks like in the current fraud environment and what in-house legal teams should think about when conducting a regulatory investigation.
Assessing when a claimant could have discovered fraud…
In the recent case of European Real Estate Debt Fun (Cayman) Ltd v Treon and others [2021] EWHC 2866, the High Court took a broad view of the facts to be taken into consideration when assessing when a claimant could have discovered fraud for the purposes of the Limitation Act 1980 (the “Act”).
On 23rd June 2021, it was World Whistleblowing Day. There is much to celebrate with a noticeable shift in global attitudes towards whistleblowing and those who lift the lid on criminal or unethical conduct thanks to movements such as the #MeToo movement. However, in an online poll conducted by Tenet Compliance & Litigation, an incredible 93% of respondents stated that they still thought becoming a whistleblower would impact their career. So, what is it about whistleblowing that makes people so fearful?
There is no “one size fits all” when it comes to ways to argue and seek the Court’s assistance in fraud claims. This is largely due to the fact that the umbrella term “fraud” covers a wide variety of possible causes of action and different remedies available depending upon the nature of the claim itself. This broad menu of both causes of action and remedies allows the courts to be flexible in terms of the way that fraud is dealt with.
Indeed, where there is a pleading of fraud there is often a greater scope for recoverable damages and the courts may take a more expansive approach to loss. Two recent cases provide clarity on common remedies in fraud, namely damages for fraudulent misrepresentation and an account of profits.
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.
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’.
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.
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.
