Everything you wanted to know about COMMERCIAL INJUNCTIONS AND ASSET TRACING (But were afraid to ask)

 

Presented at

The Property Litigation Association Annual Conference

 at Keble College, Oxford on Friday, 23 March 2018

by

Gary Blaker QC

Selborne Chambers

 

Since taking silk in 2015 Gary Blaker QC has continued to develop his practice in all aspects of property law, professional negligence and commercial chancery litigation. In 2015 Gary was elected a Bencher of Middle Temple.

Recent directory comments about Gary include the following: “Gary’s work ethic is phenomenal, and he’s responsive, clear and concise”; “Very approachable, and very new school rather than old school”; A very bright silk, who is extremely professional and down to earth, providing really pragmatic and commercial advice”; “Incredibly user friendly, and well liked by clients for his commercial and pragmatic approach”.

In the past few years Gary has been instructed in many high value and interesting cases. He is currently awaiting judgment in the P&P/Dreamvar (property sale imposter fraud) appeal which was heard before the Court of Appeal over 4 days in late February/early March. He will be appearing in the Court of Appeal again next week in a case concerning alleged unjust enrichment in forfeiting a lease and in April will be appearing on behalf of the London Borough of Hounslow in a Chancery appeal concerning mooring rights in Brentford.  Notwithstanding a run of appellate work, Gary really enjoys appearing in trials, especially those with difficult witnesses and complex expert evidence.


Introduction

I believe that we shouldn’t compartmentalise our work as property litigators.  There are many good reasons why property litigators should have a sound understanding of law beyond, for example, landlord and tenant and real property. So many of the real issues which we encounter cannot be neatly categorised.

I hope that by the end of this seminar you will see that it is important to understand when commercial injunctions can be of immense use to the property litigator and how we can also use asset tracing methods.  This is particularly the case in a global financial system and one where property in England and Wales is of such immense value and so much is owned by people who do not actually live here.

 

A few examples

Arsene offers to buy a property in Liverpool for £1.1 million (having decided at short notice that he no longer wants to live in North London).  He gets his solicitor to pull out all the stops and complete the purchase in 1 week.  Before the solicitor is able to register the property, Arsene discovers that in fact he has purchased from an imposter who was posing as the registered owner of the property. He paid his £1.1 million to a fraudster and it has been transferred to a bank in Dubai.  What can he do now?

Theresa Ltd is the freehold owner of a property which is being used as a hostel for asylum seekers. There have been issues with the tenant, Boris Ltd concerning disrepair. Boris Ltd vacated the premises in a poor state and has lost its contract with the Home Office to provide accommodation to asylum seekers around the country.  Theresa Ltd is concerned about Boris Limited’s solvency and that if judgment is given on the debt claim brought by Boris Ltd, it will dissipate the sum received and Theresa Ltd will recover nothing in relation to the disrepair. Can Theresa Ltd protect itself?

Donald and Kim enter into a joint property venture.  They end up acquiring 10 properties together, worth a few million pounds in total.  They fall out and Donald suspects that Kim is in fact a rogue. Kim no longer accounts to Donald and there appears to be financial impropriety. Donald finds out that Kim is about to leave the country and has put the properties on the market. What steps can Donald take to protect himself?

Meghan is a top end estate agent in Kensington and has an agreement with Katherine to sell her property.  She obtains a sale price of £10 million. Upon completion Meghan is entitled to her 2% commission, £200,000 plus VAT. Katherine is emigrating, has refused to pay the sum and notwithstanding numerous requests has refused to provide any forwarding address or details.

 

All of the above, are situations that I have encountered over my time in practice and in all them there has been the need to consider whether to obtain an injunction of some kind. All of the examples fall well within the type of work that may come across the desk of a property litigator.

 

First steps

What should you do if your client discovers that it might have been the victim of a fraud. Of course the first stage is to gather information very quickly.  As it is often difficult to obtain an injunction the need for precise information at a time when panic might well have set in is imperative.

Clients often think that the first port of call should be the police.  But they might well not be the best people to contact in the first instance.  In reporting the matter to the police the client loses control.  The police may well want to secure evidence, raid premises, make arrests and carry out interviews.  But these steps can alert a fraudster which may well lead to the moving of assets and the moving of those assets outside the jurisdiction.

There is also a risk that once civil proceedings have commenced that they could be stayed pending the outcome of the criminal proceedings.  Courts tend to be reluctant to stay the proceedings unless there is evidence of some very obvious prejudice to the defendant.  But nevertheless, does the client want to become embroiled in satellite litigation on this issue. Also the benefit of threatening a report to the police disappears if this step has already been taken.  It has far greater effect if this is used as a tool to exert further pressure on the defendant once a freezing order is in place.

It is also not a good idea for the victim to confront the fraudster.  Again it encourages the fraudster to take action and move assets. One of the key factors in seeking this type of injunction is to move with stealth and hit the fraudster with the injunction order.

Freezing Injunctions

Most often the application for a freezing injunction is made before any court proceedings, but it can be sought during proceedings and also even after judgment is given if there is a view that assets are going to be dissipated before judgment is enforced.

 

What is a freezing injunction?

It prohibits a party from disposing of or dealing with its assets.  It is an interim remedy and can be granted over assets held in the sole name of the Respondent, the joint names or even if appropriate assets in the sole name of a third party (the Chabra jurisdiction see TSB Private Bank International SA v Chabra [1992] 1 WLR 231 where an injunction was granted against a company in which the defendant held shares.)

The type of assets that can be the subject of an order include:

  • Cash in bank accounts
  • Shares
  • Land
  • Cars and other vehicles
  • Ships and aircraft
  • Non-perishable assets
  • Bonds or other financial instruments

 

When will the court grant an order?

The Applicant will need to show in order to obtain a domestic freezing injunction:

  • A substantive cause of action
  • A good arguable case
  • Assets that exist within the jurisdiction; and
  • A risk or a real risk of the dissipation of assets

It has been held in Finurba Corporate Finance Ltd v Sipp SA [2011] EWCA Civ 465 that in addition to the above it is necessary for the court to consider:

  • The proportionality of the freezing injunction and
  • The value of the cross undertaking in damages

A substantive cause of action

In order to obtain a freezing injunction there has to be an underlying cause of action. In all the examples I have provided it is not difficult to be able to frame a cause of action, whether it is, for example, a breach of contract, a breach of trust or simply fraud.

 

A good arguable case

This is a low threshold. It is defined as a case which is more than barely capable of serious argument, and yet not necessarily one which the judge believes to have a better than 50% chance of success – per Mustill J The Niedersachsen [1983] 2 Lloyd’s Rep 600.

 

Assets in the jurisdiction

For a domestic injunction it is necessary to show that there are assets in the jurisdiction. If the dispute concerns a property or land which can be identified and specified this should be referred to in the application.

 

Risk of dissipation of assets

This is an essential requirement in order to obtain a freezing injunction. It has been held by Flaux J in Congentra AG v Sixteen Thirteen Marine SA [2009] 1 All ER (Comm) 479 that it is necessary to show:

  • There is a real risk that a judgment or award will go unsatisfied in the sense that unless restrained by injunction the defendant will dissipate or dispose of assets other than in the ordinary course of business. OR
  • Unless restrained by injunction assets are likely to be dealt with in such a way as to make enforcement of any award or judgment more difficult, unless those dealings can be justified for normal and proper business purposes.

 

What must the applicant show?

Mustill J in The Niedersachsen provided the following guidance:

It is not enough for the plaintiff to assert a risk that the assets will be dissipated. He must demonstrate this by solid evidence. This evidence may take a number of different forms. It may consist of direct evidence that the defendant has previously acted in a way which shows that his probity is not to be relied upon. Or the plaintiff may show what type of company the defendant is…so as to raise an inference that the company is not to be relied upon. Or, again the plaintiff may be able to found his case on the fact that enquiries about the characteristics of the defendant have led to a blank wall. Precisely what form the evidence may take will depend upon the particular circumstances of the case. But the evidence must always be there. Mere proof that the company is incorporated abroad, accompanied by the allegation that there are no reachable assets in the United Kingdom apart from those which it is sought to enjoin, will not be enough”.

 

What issues need to be focussed upon?

Factors include the following (although this should not be seen as an exhaustive list)

  • Has the defendant been moving assets out of the jurisdiction?
  • Has the defendant indicated that he is likely to dispose of assets? Telling you or your client that he is going to sell the house is a pretty clear indication.
  • Where are the assets and how liquid are they? The more liquid and disposable the asset the easier it is to dissipate.
  • How long has the defendant been in business? If the defendant is a newly formed SPV then questions might well be asked as to whether it can be trusted.
  • Where is the defendant incorporated? Simply being incorporated in another jurisdiction does not mean that this is itself an indicator of risk of dissipation.
  • The enforceability of English judgments in places where the defendant has substantial assets. If the assets are in the EU this might be a factor against the grant of an injunction
  • Is there any evidence of dishonesty and a failure to disclose assets?
  • What has the defendant’s behaviour been in the present dispute? Has the defendant been silent or evasive or even flatly refused to agree to preserve assets?
  • What has the defendant’s behaviour been in the past? Has it failed to pay debts or removed assets from the jurisdiction or failed to comply with court orders.  Although in Masri v Consolidated Contractors International Company [2008] EWCA Civ 303 Lawrence Collins LJ said that it does not follow from non-payment that a defendant intends to dissipate assets.

 

A holistic approach is adopted with the court being satisfied “on the whole of the evidence” before the court.  This approach was adopted by Arnold J in UCB Home Loans Corporation Ltd v Grace [2011] EWHC 851 (Ch) where even though the evidence did not point positively to dishonesty the defendants had behaved in a manner which gives rise to a risk of dissipation of assets because they had consistently put their own interests before that of the legitimate interests of their creditors.

Mere assertions of dishonesty are likely to be insufficient. This was seen in Metropolitan Housing Trust v Taylor [2015] EWHC 2897 (Ch). It was held that “Where alleged dishonesty is relied on…in support of a risk of dissipation, it is important to consider whether a good arguable case of dishonesty is established in relation to conduct relied on. If…not…that conduct is not relevant to the argument that there is a risk of dissipation.”

There are ways of trying to force the issue.  So, for example, if there is a dispute brewing and the potential claimant seeks an undertaking that a property will not be sold, or a sum will be left in a bank account and the potential defendant refuses to provide the undertaking.

Even if, however, you manage to get the defendant to refuse to enter an undertaking or they refuse to answer questions or a request regarding assets, this does not have the effect of reversing the burden of proof.  First, the application is likely to be made on a without notice basis and secondly the burden remains with the applicant.  It is the applicant that needs to show the evidence of the real risk of dissipation. Whilst a refusal to co-operate is something that will be taken into account, it is in itself unlikely to be determinative.

 

Worldwide Injunctions

In the right type of case it may well be appropriate to seek a worldwide freezing injunction. This prevents the defendant from dissipating assets located abroad and may be granted when there are insufficient assets located in England and Wales to satisfy any subsequent judgment.

It will also not always be obvious at the outset that the defendant does not have assets in the jurisdiction to be able to satisfy a judgment. Sometimes this will only become clear once an affidavit of means has been provided by the defendant.

The principles are in general the same as for a domestic freezing injunction.

It may be possible to obtain a worldwide injunction against a company even where it has no significant presence in the jurisdiction – see Mediterranean Shipping Company v OMG International Ltd [2008] EWHC 2150 (Comm).

Guidelines were set out by the Court of Appeal in Dadourian v Simms [2006] EWCA Civ 399.  They provide guidance as to what the court should consider in deciding whether a party should seek a worldwide freezing injunction. They are not exhaustive but include:

  • The grant of permission to enforce a worldwide freezing order abroad should be just and convenient for the purpose of enforcing the injunction.
  • The applicant’s interests must be balanced against the interests of other parties to the English proceedings or to third parties who may be joined to the foreign proceedings.
  • All relevant circumstances and options need to be considered in particular consideration should be given to granting relief on terms.
  • Permission should not normally be given where this would enable the applicant to obtain relief in the foreign proceedings which is superior to the relief given by a worldwide freezing injunction.
  • The evidence before the judge should contain all the information necessary for the court to make an informed decision.
  • There must be evidence of risk of dissipation of the assets in question.
  • Normally the application should be made on notice but in cases of urgency and where just to do so permission may be granted without notice.

 

A recent decision of the Court of Appeal, Ras Al Kaminah Investment Authority v Bestfort Development LLP [2017] EWCA Civ 1014, has considered the threshold that is required in relation to the presence of assets for a worldwide injunction. The applicants were six entities related to the sovereign wealth fund of the emirate of Ras Al Kaminah.  The six companies pursued investment opportunities in Georgia through two individuals. It was alleged that they diverted money into their own accounts. Proceedings were brought in the UAE and Georgia and an application was made in England for a worldwide freezing injunction. The respondents were 14 LLPs all related to the Georgian individual. Rose J refused to grant the injunction on the basis that there was insufficient evidence of assets held by the LLPs . The Court of Appeal allowed the appeal holding that it is not enough for an applicant to assert that a defendant is “a wealthy person who must have assets somewhere”.  Equally, however they said that likelihood is too high a test.

They held that the right test is either “a good arguable case” or “grounds for belief” that assets are held by the respondent. Longmore LJ expressed his preference for “grounds for belief” but admitted there was little difference between the two tests.

On the facts of the case, the court found that in relation to three of the LLPs there were grounds for believing that they held assets which the sovereign fund could enforce against.

 

Arbitral proceedings

The court has a power to grant a freezing injunction in support of arbitral proceedings. Under s44(1) of the Arbitration Act 1996 the court has this power where:

  • The parties have not agreed otherwise;
  • The application has been made with the permission of the arbitral tribunal or by written agreement of the parties, unless the case is one of urgency

 

Freezing injunction in support of foreign proceedings

The court can grant a freezing injunction to support substantive proceedings brought in a foreign jurisdiction pursuant to section 25 of the Civil Jurisdiction and Judgments Act 1982.

The court will take into account whether:

  • it has in personam jurisdiction over a defendant
  • the defendant has assets in the jurisdiction
  • there are other exceptional circumstances justifying the exercise of the court’s discretion

In looking at exceptional circumstances the applicant will need to show:

  • a real connecting link between the assets and the jurisdiction of the English court
  • that it is appropriate for the English court to act as an “international policeman”
  • that it is just and expedient to grant a worldwide freezing order.

 

Cross undertaking as to damages

The need for an applicant to provide a cross undertaking in damages is one aspect of the injunction process that tends to concern and put off applicants.  They are often very wary about this provision.

A cross undertaking will almost invariably be ordered in the case of a freezing injunction. The standard form of words is:

If the court later finds that this order has caused loss to the Respondent and decides that the Respondent should be compensated for that loss, the Applicant will comply with any order the court may make

This is seen as the price of the injunction.  Further the court may request that foreign applicants or those it considers have limited funds should provide “fortification” of the undertaking. This is where it orders the applicant to provide a bank guarantee, or pay a sum into court, leave a sum in a dedicated bank account or provide security over an asset.  It can sometimes be a useful tactical step to offer fortification if you think that your client’s own balance sheet/accounts might not be looking particularly healthy. In assessing whether to order fortification the court will consider the issue of risk of ultimate injustice and will balance whether the cross-undertaking is inadequate, taking into account likely potential loss, against whether fortification would stifle the claim (see Re Bloomsbury International Ltd [2010] EWHC 1150 (Ch))

In any subsequent inquiry as to damages, the defendant must prove that the loses he alleges would not have occurred but for the injunction, but not that the injunction was the sole cause of the loss (see Soutzos v Asombang [2011] EWHC 1582 (Ch) 53.

 

What assets are covered by the order?

I explained above what type of assets can be covered by a freezing order. The most common form of order is for it to be limited to a specified sum, say £1 million.  This is a “maximum sum order”.  The order could be limited to a specific asset, where the value of that asset is larger than the claim. In exceptional circumstances the court might make an unlimited order covering all the defendant’s assets.

A freezing injunction cannot be used to “suffocate” a defendant from defending the substantive proceedings and/or meeting day to day costs, such as mortgage/rent payments, school fees, household expenses, salaries and paying suppliers. The court will determine the amount permitted for living expenses and legal costs. Usually £500 per week is considered a reasonable living expense but it is not uncommon to see far higher sums being permitted, such as £10,000 per week or a more generic “reasonable amount” for legal costs.

 

Procedure for making the application

 

  • Speed

In the majority of situations it will be necessary to act with considerable speed in order to prepare documents for a without notice application. Before starting, clients need to be aware as to how labour intensive this application process is and that consequently it can be expensive. Many potential applicants are unrealistic about what is required in order to obtain a freezing injunction and whether it really will be of benefit to them in the dispute.

  • Delay

Delay in making an application can lead to arguments as to whether it is appropriate for the court to exercise its discretion and grant the injunction. The argument which is often used is that if the defendant has not dissipated assets by that point in time, it is unlikely to do in the future (see Candy v Holyoake [2017] EWCA Civ 92). Also once an order has been made it is incumbent upon the claimant to pursue the proceedings.  Delay in the substantive proceedings can lead to the discharge of the injunction.

  • Affidavit

In order to make the application it is generally necessary to have an affidavit setting out all the details of the narrative, the reason why the application is made, why it is urgent, that the conditions for a freezing injunction are satisfied.  It is vital that the affidavit contains accurate information.  This of course can be difficult when information is vague and being provided at speed.  The matters set out above need to be covered in the affidavit as does the central question about the risk of dissipation.

  • Out of hours

Freezing injunctions can be obtained out of hours on the telephone with the duty judge. In a case of extreme urgency, it is possible to set up this type pf hearing (whether in the court or on the telephone) and to undertake to issue the application, file the affidavit and issue the claim later on. It is not advisable to try this unless the matter is really urgent and there is a very clear reason why the matter could not be dealt with that day during normal court hours or why it can’t wait until the following day. It is always important to get a bundle and skeleton to the judge in advance of the hearing and to make clear what the realistic reading time estimate is and what essential reading needs to take place.

  • Which court?

There is also the decision as to whether to go to the Chancery judge (court 10 Rolls Building) or the QBD judge (court 37 in the RCJ). There are pros and cons in each but it is worth remembering that the hearing in court 37 takes place in a more private environment.  In court 10 all the hearings are brought into court at the same time and the judge then decides what order to deal with them. It might be that your client is not keen to have issues concerning an alleged fraud raised in open court in front of other solicitors, counsel and possibly members of the public.

  • Full and frank disclosure

When making an application without notice there is a duty of full and frank disclosure. Thus, the applicant must disclose all relevant information including matters that are unfavourable. This duty is, akin to disclosure obligations and is ongoing. The obligation also extends to drawing the court’s attention to all the significant, legal, factual and procedural aspects of the case. This includes telling the judge of any adverse points and any possible defences that could be used by the defendant to defend the claim.  If information is provided which the applicant later finds out is incorrect then it is under an obligation to correct the information immediately. In extreme cases a failure to comply with the full and frank obligation can lead to the discharge of the injunction – see Arena Corp Ltd v Schroeder [2003] EWHC 1089.

  • What to do with the order

Parties need to be informed very quickly.  It is a good idea to have all the details of banks or the Land Registry to hand so that you are in a position to notify them about the order. It might be a good idea to have the Land Registry specifically referred to in the order. The injunction order also needs to be served personally and so process servers need to be teed up. If, for example monies are sitting in a bank account, it might well be more sensible to serve the bank before actually serving the defendant. The mandatory parts of the order including liability undertakings and asset disclosure obligations only come into effect once there has been personal service. The prohibitory parts of the order such as the obligation not to dissipate assets take effect following service by any means.

The defendant also needs to be served with the application, affidavit and evidence and a note of the without notice hearing.  This is seen as very important and judges can be very critical if that note has not been prepared and served.

The freezing injunction must contain a penal notice.  If a party breaches the terms of the order then they can be held to be in contempt of court leading to committal proceedings and a prison sentence.

  • Banks and third parties

If a bank or lender has been made a party to or notified of a freezing order then they need to carry out the following:

  • Consider the terms of the order very carefully – what has the court ordered to be done
  • Comply with the terms of the order strictly
  • Take reasonable steps to ensure that the order will not be breached

Third parties need to be very careful to ensure that they are aware as to what assets are the subject of the order. In JSC BTA Bank v Ablyazov [2015] UKSC 64 the Supreme Court held that proceeds of any loan agreement fall within the meaning of “assets”.  Therefore a bank must not allow a customer who is the subject of a freezing order to draw down on its facility unless such drawdown is used for a purpose which is permitted under the order. Banks need to be careful when permitting payments and determining whether they fall within the meaning of the “ordinary and proper course of business”. If a defendant asks the bank to dispose of an asset then the bank must ensure that this is:

  • In the ordinary course of business and
  • In the proper course of business

A bank is not prevented from exercising a right of set off it may have in respect of a facility it gave the defendant before the order was made.  Also the bank does not need to enquire as to the application or proposed application of monies withdrawn by the defendant if the withdrawal appears to be permitted by the terms of the order.

 

Affidavit of assets

An order that the defendant discloses its assets is generally essential. This puts pressure on the defendant and enables the claimant to see what assets the defendant has (or at least is prepared to declare). In many respects this might be the real “prize” that is sought by the claimant. Usually the defendant only has a short period of time in which to provide the information.

The affidavit will normally have to set out the type of asset, the value and its location. It is possible to obtain even stronger orders such as third party disclosure orders and orders requiring cross examination of the defendant about his or her assets. There is generally a de minimis provision so that assets under say £500 do not have to be disclosed.

If there is a fear that the defendant is likely to leave the jurisdiction then it is also possible to obtain an order of ne exeat regno (now called a passport impoundment order) requiring delivery up of the person’s passport to the supervising solicitor.

 

The pros and cons of an application

  • Obtaining an early victory in the proceedings.
  • Is the applicant prepared to follow up the matter with subsequent applications, if necessary, for disclosure, cross-examination, committal proceedings.
  • It might be worth making the application in order to facilitate a settlement or to reach a point whereby the defendant (or both parties) provide undertakings.
  • Will an order actually prevent the defendant from dealing with assets?
  • It might be very difficult to stop dissipation of assets.

 

Alternatives

Alternative orders should always be considered as it might well be the case that a freezing order is not required.

Such orders include:

  • An order preserving property
  • A proprietary injunction
  • An order appointing a receiver to hold assets on behalf of the defendant
  • An order appointing a liquidator

An application to preserve property can be made under CPR r25.1(1)(c).  This would be where there is an actual dispute concerning the parties’ entitlement to a particular property.  The American Cyanamid principles would apply to this type of application.

A proprietary injunction is slightly different and it freezes a specific asset.  They are sometimes described as a freezing injunction but in fact they are different.  The jurisdiction to grant them is different as is the test to be applied. Different tests were applied to freezing and proprietary injunctions see –  Madoff Securities International Ltd v Raven [2011] EWHC 3102 (Comm) and Polly Peck International plc v Nadir (No 2) ]1992] 2 Lloyd’s Rep 238.  The test for a proprietary injunction is American Cyanamid and there is no need to show the risk of dissipation of assets.

If the claim is truly proprietary and thus there is no money claim then a proprietary injunction should be sought. This may well be of use in a fraud claim where it is possible to assert a claim over an identified asset or to be able to trace the proceeds of sale if, for example, a property has been sold. A proprietary injunction will mean that the claimant will be given priority over the defendant’s creditors if the defendant becomes insolvent.

It is of course possible to make an application to the Registrar at HM Land Registry for a restriction to be placed on the title. The Registrar can do this under section 42(1) of the Land Registration Act 2002. This includes entering a restriction if he considers it necessary or desirable to “prevent invalidity or unlawfulness in relation to the disposition” of property. There is however a possible tension between obtaining a restriction over a specific property which prevents the disposition of that particular property and a freezing order which permits disposition of assets, so long as assets up to a specified value remain (see Perry v Princess International Sales & Services Ltd [2005] EWHC 2042 (Comm) and Megarry & Wade (8th edition) at 7-083.)

 

Search and seizure

Whilst search and seizure orders are likely to be far less common in the property litigation context, there might be a need to preserve evidence if you are concerned that such evidence is going to be destroyed. This order requires the defendant to give the claimant’s solicitors access to premises to search for and seize specified evidence.

As with the freezing injunction it is potentially expensive but can give a victim of fraud an early advantage in proceedings. The premises to be searched must be identified in the application. Only the materials referred to in the order can be removed from the premises.

The test is that established in Anton Piller KG v Manufacturing Processes Ltd [1976] Ch 55.

The five conditions are

  • An extremely strong prima facie case;
  • Evidence of very serious damage (potential or actual) to the claimant’s interests;
  • Clear evidence that the defendant has in its possession incriminating documents/material and that there is a real possibility of the defendant destroying such material before any application inter partes can be made;
  • The harm likely to be caused to the defendant and its business must not be excessive or disproportionate to the legitimate object of the order; and
  • It must be just and convenient to make the order.

As with a freezing injunction the claimant needs to show more than it is simply in the defendant’s interests to destroy material. If the defendant has destroyed material in the past or made an explicit comment that evidence will be destroyed then this is likely to be sufficient.

The defendant is protected through:

  • The claimant having to give full and frank disclosure;
  • The claimant having to provide an undertaking as to damages;
  • An independent solicitor (“the supervising solicitor”) being appointed to supervise and report on the execution of the search. This is an independent solicitor, an officer of the court who has experience in the operation of search orders; and
  • The privilege against self-incrimination.

The search order should not be seen as part of a fishing expedition to obtain information.  This type of order is about the preservation of evidence.

 

Asset tracing

Money can be moved around the world with great ease. It makes tracing assets difficult and expensive.  It is an exercise where in more complex cases professional assistance of investigators in likely to be necessary. This will involve building a team of forensic accountants, solicitors, counsel and investigators who nowadays use high levels of technology and psychological profiling to trace assets.

But asset tracing is difficult. Orders can be obtained in a court in England and the claimant finds that it is unable to persuade a bank in another jurisdiction to provide access to the account. This is particularly the case if there are other proceedings still on going in another jurisdiction.

 

Bankers Trust orders

A Bankers Trust order is a very useful way of facilitating an asset tracing exercise (see Bankers Trust Co v Shapira [1980] 1 WLR 1274).  It is often used with a freezing injunction and is specific type of third party disclosure order. It is available where:

  • There is a fairly clear cut case of fraud; and
  • The claimant seeks disclosure of confidential documents (usually) from the defendant’s bank in order to support a proprietary claim to trace assets

In order to be exercised there needs to be a clear case that the claimant has been deprived of relevant funds and they have been held by or passed through a bank.

The claimant needs to show that a real prospect exists that the information might lead to the location or preservation of assets to which it makes a proprietary claim.

In order to make a useful and successful application, the claimant should bear in mind the following practical matters:

  • There needs to be clear evidence of fraud and in particular evidence of the defrauded party’s funds being deposited in the fraudster’s bank account and any other third party bank account.
  • Be very clear what period is being covered. Usually this will be from the date of the fraud.  It is also important to try and be clear about what accounts are being covered by the order.
  • Act as quickly as possible. As money can be transferred around the world at great speed, the sooner an application is made, the easier it is going to be to trace the assets.
  • The application will usually be made together with a freezing injunction application.
  • The claimant has to pay the bank’s expenses in providing the disclosure.
  • The claimant must provide an undertaking in damages to the bank.
  • The speed of response from the bank will depend upon the internal management structures in the bank. It is therefore important to get a sealed order as soon as possible and to serve it on the right department of the bank.

 

It doesn’t have to be made against a bank. Last year an order was obtained against Christies, a jeweller and a safe deposit company in relation to a collection of jewellery and watches which had been stolen from the Greek billionaire Minos Kyriakou.

So it is very useful if a claimant thinks that it has been the victim of a fraud and monies have been dissipated. It is a way of seeking to be able to trace where the money has gone.  So in the P&P/Dreamvar property fraud situations, if the fraud had been discovered sooner, this would have been a sensible application to make.

 

 

Norwich Pharmacal

This requires the respondent to disclose certain documents or information to the applicant. The respondent must be a party involved or mixed up with wrongdoing. They are unlikely to be a party to the proceedings.

The order can be used before proceedings are commenced in order to:

  • Identify wrongdoers and therefore determine the identity of the defendant
  • Identify the full nature of the wrongdoing – for example by obtaining bank statements
  • Trace assets
  • Obtain the source of information contained in an application
  • Enable a potential claimant to plead its case

 

The applicant needs to show:

  • There has arguably been wrongdoing;
  • There is a real prospect that the respondent is mixed up with, facilitated or is involved in the wrongdoing;
  • The respondent has relevant information which can be the subject of an order; and
  • The order is necessary and proportionate.

In the fraud context this is often obtained against banks, a company administrator or trust manager, in order to obtain information about the bank account where money has been deposited. The order is often accompanied by a “gagging order” preventing the bank from informing the client that account information has been disclosed.  The Norwich Pharmacal order should not be confused with the Bankers Trust order.  There are similarities but they are different. The Norwich Pharmacal is geared to discovering the identity of wrongdoers or evidence of wrongdoing.  The Bankers Trust is aimed far more at tracing assets and protecting the claimant’s proprietary interests.

Where proceedings have already been commenced then attested copies from the bank’s books may be ordered under the Bankers’ Books Evidence Act 1879.
 

General overview and conclusions

Whilst many property litigators will go through their careers without having to consider the need to obtain a commercial injunction or carry out an asset tracing exercise, this is, in my view, likely to become less common.  A global world where property in the UK is highly valued and often seen as a prize asset together with an open land register will only encourage fraudulent activity. It is therefore vitally important that property litigators are au fait with the panoply of commercial remedies that are in fact available.

 

March 2018

 

 

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