The world is an increasingly small place: money travels far and fast across seemingly invisible borders converting from cash into assets, back into cash, and then back into yet further assets at the click of a button.
Technology is a source of great innovation, making our lives easier in many ways – from online banking and supermarket shopping, to bidding online for valuable works of art.
Yet technology also has a lot to answer for – especially if you find yourself the victim of large-scale fraud. Computer hackers can impersonate e-mail users and cause large payments to be diverted away from the intended bank account into one controlled by the imposter; fraudsters can set up bogus or anonymous e-mail accounts from which to direct money transfers or other instructions and so blur the audit trail.
One of the hallmarks of fraud is secrecy. A lack of information can make unravelling fraud and seeking effective redress very challenging. However, even the most devious fraud will need to be documented in some form and, metaphorically speaking, ‘fingerprints’ may be left which can directly or indirectly lead either to identifying the perpetrator, or equally importantly, the money trail.
Clear orders
Over the past five decades, the English courts have been at the forefront of the development of novel and expansive remedies that have evolved to help the victims of fraud and other wrongdoing prosecute claims, and preserve evidence and assets. The following orders are all designed to either elicit vital information and/or identify and preserve valuable assets in favour of the victim of fraud.
The modern day freezing (formerly Mareva) injunction comprises an interim order that prohibits a party from disposing of or otherwise dealing with its assets. It is designed to prevent a defendant from hiding, moving, or otherwise dissipating its assets so as to render itself judgment-proof. Critically, it obliges the defendant to disclose the whereabouts of its assets so as to enable the claimant (and the court) to properly police the restraint imposed.
Having established itself as a ‘magnet forum’ it is important that the English courts continue to take the lead in the development and shaping of existing and new forms of relief.
The search and seizure (formerly Anton Piller) order is available in very serious cases and entitles the claimant (appropriately supervised) to search the defendant’s premises and seize/preserve evidence that might otherwise be destroyed or suppressed.
The Bankers Trust order can be sought by the victim of fraud to oblige a third party (such as a bank) to disclose full information to assist in the tracing of fraudulently misappropriated funds, notwithstanding any prior duty of confidence owed by the third party to its client or customer.
The English courts have always been prepared to adapt to the changing needs of the victim of the dishonest fiduciary, or the opportunistic, professional fraudster. However, inevitably judicial innovation is almost always laced with caution and restraint, and therefore may lag behind for a time. Good examples of innovation and expansion include the way in which the scope of relief under the Mareva jurisdiction extended to the disclosure and freezing of a defendant’s assets abroad (not simply those within the jurisdiction of the English courts). Later, it became possible (and of course still is) to obtain a freezing injunction from the English courts even though the substantive claim is being prosecuted in a foreign court. More recently, in exceptional cases it is now possible to obtain a Norwich Pharmacal Order against an internet service provider (ISP), which obliges the ISP to ‘monitor’ in real time the e-mail activity of a suspected fraudster or his accomplice. Moreover, in terms of service of process, the English courts have recently begun to permit service by way of social media where other forms of substituted service have been thwarted.
Hub and spoke
Inevitably, there remain gaps through which the slippery fraudster can squeeze. For example, there is no clear position on how far a third-party disclosure order (eg Norwich Pharmacal or Bankers Trust) extends where information is stored on a foreign-based server, but the defendant has the ability to access that information.
Indeed, in broad terms fraudsters will always be grateful that, for reasons of international law and comity, the English courts will rarely, if ever, make orders purporting to affect title to property abroad, or seek to control the activities abroad of foreigners who are not subject to the personal jurisdiction of the English court.
It is partly for this reason that very large and complex fraud claims need to be led and co-ordinated from a central base or hub from which to expand. If, to some greater or lesser degree, the jurisdiction of the English courts can be invoked, then with some luck and considerable judgement missing information can be secured to assist in the wider investigation of the underlying fraud. Rarely are massive frauds pulled off alone and a dishonest fiduciary or professional fraudster will require assistance in either effecting the fraud itself, or in the process of secreting the proceeds. For obvious reasons, these nefarious activities are disparate and remote, and the assistance of foreign courts, lawyers, and other experts will be needed. Having already explained the basis of any fraud claim to the English courts, and having received assistance from them, a helpful ‘springboard’ can be created from which other orders in satellite proceedings can be sought, and the net widened. In the initial stages, many of these steps can be directed against innocent third parties who can be restrained from informing any of the relevant suspected fraudsters that moves are afoot. This ‘gagging order’ was again developed by the English courts to ensure that its Mareva (and related) jurisdiction was not thwarted.
The English courts have, in one sense, created an entire jurisprudence around the need to assist the victims of fraud. There is, under English law, an inherent jurisdiction that enables the court to grant a remedy in response to the need to protect the integrity of the English court’s own proceedings and the due administration of justice. The English court will invoke such inherent powers, in particular, in cases of serious international fraud, and in the face of deliberate and wilful disobedience of its prior orders.
Having established itself as a ‘magnet forum’ it is arguably important that, in the face of an increasingly fragmented litigation market, the English courts continue to take the lead in the development and shaping of existing and new forms of relief by adapting to the needs of its users.
While, as noted earlier, foreign courts may often take their lead from the English courts, there is much to be learned from the authorities and practices of overseas courts, and a concerted effort to take account of and rationalise relevant foreign decisions wherever appropriate, could be highly beneficial in the future in helping us to mastermind complex fraud claims engineered in England, but also policed and enforced around the world.
Simon Bushell is the London chair of Latham & Watkins’ litigation department. He practices in the area of international commercial litigation and arbitration, and in particular specialises in civil fraud. Over the course of his 25-year career, Simon has undertaken numerous investigations into complex, worldwide frauds, conspiracies, insolvencies and has co-ordinated multi-jurisdictional proceedings. He is the general editor of International Fraud and Asset Tracing, co-author of Disclosure of Information: Norwich Pharmacal and Related Principles and speaks regularly on topics relating to international disputes, fraud litigation and crisis management.
Latham & Watkins is a leading international law firm serving multinational companies, start-ups, investment banks, private equity funds, venture capital firms, sovereign wealth funds, governments and other organisations. The firm’s global platform spans Asia, Europe, the Middle East and the US, and consists of internationally recognised practices across a wide spectrum of transactional, litigation, corporate and regulatory areas. Latham & Watkins has over 600 dispute resolution-focused lawyers worldwide, including leading practitioners in London focusing on banking disputes, international arbitration, public international and competition litigation.