Follow the money—civil recovery and the proceeds of crime

Dispute Resolution analysis: What’s the future for civil claims and remedies involving the proceeds of crime? Elizabeth Wilkinson, legal director in the litigation and dispute resolution group at Pannone Corporate LLP, says the courts are increasingly helping claimants to recover their assets.

Original news

Relfo Ltd (in liquidation) v Varsani [2014] EWCA Civ 360, [2014] All ER (D) 59 (Apr)

The liquidator of a company had successfully brought a tracing claim against the defendant in his recovery of money paid by the company. The judge had further found that the defendant had benefited through unjust enrichment. The Court of Appeal, Civil Division, upheld the judge’s decision and held that, in order to trace money into substitutes, it was not necessary that the payments should occur in any particular order, let alone chronological order.

Novoship (UK) Ltd v Nikitin [2014] EWCA Civ 908, [2014] All ER (D) 63 (Jul)

The appellants were all involved in bribery with regard to the chartering of cargo vessels. At first instance, they were found to have acted in breach of fiduciary duty. They appealed a number of findings of fact made by the judge, and submitted that the judge had made errors in law concerning the available remedies. The Court of Appeal, Civil Division, held that the appeal would be allowed to the extent of the award of profits against the first and third defendants.

Have there been any significant cases in relation to civil recovery recently?

The decisions in Relfo and Novoship are some of the most recent decisions in this area. Given they are both Court of Appeal decisions, they are certainly some of the most influential and must be part of the trend, insofar as there is one. The trend seems to be that the courts are increasingly helping claimants to recover their property/money.

How do the decisions in Relfo and Novoship fit in with recent case law?

In Relfo, the Court of Appeal has made it easier for claimants to recover laundered funds. In order to trace money into substitutes, it is not necessary for a claimant to show, in chronological order, that one asset had been substituted for another and then another and so on. It accepted that inferences can suffice (obviously depending on the facts) where there are gaps in the ‘tracing chain’ to enable a claimant to trace. The decision in Relfo is particularly important as it allowed a ‘backwards trace’—in other words, allowed a trace through, even where one party in the chain had paid out but only on the expectation of, as opposed to actual, reimbursement.

In making its decision, the Court of Appeal has recognised the reality of what money launderers do which is, of course, to seek to make the chain as complicated and/or apparently as broken as possible in order to defeat the tracing process. A claimant still has to provide, and thus have found, the evidence that the various payments or transactions are very much linked, despite the money launderers having made every effort to make them appear unconnected—which can often be the unsurmountable hurdle. However, if the evidence has been uncovered the Court of Appeal has made the legal process of recovering it easier.

In Novoship, the Court of Appeal has widened the net for claimants by deciding that a person who is not a fiduciary himself, but who has become involved in another’s breach of fiduciary duty (either by being a knowing recipient of trust property or its traceable proceeds, or by dishonestly assisting), can still be liable to account for profits—provided there is a causal connection between the claimant’s loss and the defendant’s wrongdoing. There does not need to have been a misapplication of trust property.

On 2 October 2014, the Commercial Court made an order for the appointment of receivers over the foreign assets of two foreign defendants to help in the enforcement of an arbitration award. The same approach might well be taken to help in the enforcement of a court judgment using the Senior Courts Act 1981, s 37 which gives the High Court the power to appoint a receiver when it is just and convenient to do so.

In Cruz City 1 Mauritius Holdings v Unitech Ltd and others [2014] EWHC 3131 (Comm), [2014] All ER (D) 27 (Oct), Cruz was having difficulty enforcing a $300m award against Unitech et al. Unitech et al had been ordered to disclose their assets worldwide but had repeatedly failed to do so. A worldwide freezing order finally extracted the disclosure required and a receiver was ordered as the most appropriate method of combatting the opaque manner in which Unitech held its assets. This decision confirms the court’s commitment to enforce arbitration awards and will help claimants recover against obstructive defendants with complex group company structures.

What do you find most difficult about pursuing these types of cases? What are the challenges?

In terms of challenges, these sorts of cases are invariably very complex both factually and legally. The defendants in these sorts of cases are aiming to hide, obscure or avoid creating the evidence in the first place. Gathering or uncovering the evidence is often very difficult and very costly. National borders are often crossed and thus jurisdictional issues can muddy the waters. The legal elements of these claims are not easy involving concepts of personal and proprietary claims and different rules for common law and equitable causes of action and remedies

Do you have any helpful tips for lawyers advising in this area?

As ever with enforcement, speed is key—as is thorough costs advice for the clients, particularly to ensure the costs of enforcing do not become disproportionate to the sum being enforced.

Interviewed by Nicola Laver.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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