4 November 2022
Fraud fundamentals – 2 of 6 Insights
You may know or suspect that you have been defrauded, but don't know the identity of the fraudster, or what has happened to misappropriated assets. There are various orders that can be sought from the English court to assist with legal proceedings, particularly with tracing and preserving assets and in this instalment of our 'Fraud fundamentals' series, we touch on some of the 'tools' that might be able to help.
Fraudsters act quickly and you should seek urgent legal advice if you have or suspect you have been defrauded. Considering who might hold relevant information and documents evidencing the fraud and identifying the location of misappropriated assets early on is important and could make all the difference to any recovery. Any delay may also hinder the prospects of obtaining orders to assist you.
While the alleged fraudster is an obvious source and it might be possible to obtain an order for 'pre-action' disclosure against them (if known), it is often difficult to obtain and you will usually not want to tip the fraudster off that you are on to them. The focus will typically be on third parties who are bound up in the fraud, innocently or otherwise. Depending on the nature of the fraud, this could include banks and typically a number of them in different jurisdictions where money has been moved into numerous accounts, quite often in quick succession.
The circumstances and parties involved will guide the different disclosure options to consider, with two main third party disclosure options in England being:
See our note regarding the amendment to the Civil Procedure Rules effective from 1 October 2022 that removes the previous uncertainty around service of these orders out of the English jurisdiction.
It may also be appropriate to apply for a search and seizure order to recover and preserve evidence and/or apply for a freezing injunction to freeze assets, such as money in bank accounts, to stop any further dissipation and increase recovery prospects. Particularly in large complex frauds, a co-ordinated approach in a number of jurisdictions will often be required which may involve applying for one or more of these orders (or others), as well as seeking judicial assistance from a foreign court such as via letters rogatory or applying to foreign courts for relief available in the relevant jurisdiction(s).
When applying to the English court for any of the above orders it will be necessary to satisfy the conditions applicable to them and it is usual for an application for these orders to be issued 'without notice' to the respondent, so as to avoid tipping off the suspected fraudster thereby giving them an opportunity to dissipate assets or destroy evidence. The applicant therefore has a duty to give full and frank disclosure to the court, requiring them to disclose all matters that are material to the court in deciding whether to grant the order, including disclosing any defence to the underlying claim that the respondent may raise. These orders typically also come with a gagging order preventing third parties (such as banks) from notifying anyone of the order (including their customer), and penal notices giving notice that failure to comply with the order may result in committal for contempt of court which includes third parties served with the injunction or non-parties knowingly aiding and abetting a breach of the injunction by the respondent.
The applicant will be required to provide a cross undertaking in damages to compensate the respondent should they suffer damage as a result of the order and it transpires that the order should never have been made.
If an order is granted, it will be served on the respondent as well as third parties so that steps may be taken to comply with it (such as banks freezing accounts) and there will be a later return court hearing at which the respondent will have an opportunity to apply to vary or set aside the order.
A key takeaway is that if you have been the subject of a fraud, it is important to take urgent action to increase the prospect of tracking down and preserving assets. Similarly, if you are the recipient of one of these orders it is important not to ignore it - prompt action should be taken, particularly in relation to a freezing injunction or search and seizure order as these can cause difficulties for your business and failure to comply may result in contempt proceedings.
To discuss the issues raised in this article in more detail, please contact a member of our team.
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