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Court of Appeal set aside major UK bank’s summary judgment on liability on the basis of fraudulent evidence given at the hearing

May 2013
Fraud updates
The Royal Bank of Scotland –v- Highland Financial Partners LP & others In a recent case before the Court of Appeal concerning the recovery of loan advances made under collateralised debt obligations, the claimant bank was found to have obtained summary judgment by giving fraudulent evidence. As such, all prior judgments of the High Court and Court of Appeal on liability and quantum had to be set aside. Further, the trial judge had been right to refuse the bank an anti-suit injunction against the defendants preventing them from pursuing proceedings in the USA as the bank had behaved inequitably. Background The defendants had arranged a collateralised debt obligation (CDO) involving the acquisition of a portfolio of loans and the issuance of securities by a special purpose vehicle. The claimant bank financed the purchase of the loans. When the financial markets collapsed in 2007, the securities were never issued and the transaction failed. The interim servicing deed provided for the sale of the loans by the bank, which instigated a market auction process, but purchased all the loans itself. It then sought to recover the shortfall from the defendants and obtained summary judgment on liability. In the subsequent proceedings to determine the quantum of credit due to the defendants as a result of the auction by the bank, it became evident the bank had kept the loans and transferred them from its trading book to its banking book before the auction process, and as such the process was a sham, putting the bank squarely in breach of contract and its duties as mortgagee. It was further claimed no shortfall would have arisen if the loans had been properly auctioned. The judge at the quantum hearing while acknowledging the bank’s misconduct, held that the defendants nevertheless owed some amount to the bank. Following that judgment the defendants commenced proceedings in Texas alleging fraud. The bank applied for an anti-suit injunction, and the defendants cross-applied for the original judgment on liability to be set aside. The defendant’s application was dismissed and the judge held that the Texan claim was within an exclusive English jurisdiction clause but the bank had “unclean hands” and so was not entitled to an anti-suit injunction. Both parties appealed. Court of Appeal Decision The Court of Appeal dismissed the bank’s appeal and unanimously allowed the cross-appeal allowed. Their lordships noted that there had been more than mere concealment of the transfer of the loans before auction; it was clear that the bank’s witness intentionally misled the court as to the providence of the loans at the liability hearing. As such, had it not been for the dishonest concealment of the true position, summary judgment would not have been granted on liability. The liability judgment was to be set aside as being obtained by fraud. The quantum trial, conducted on proper evidence, was therefore no longer relevant. Further, in view of the bank’s witness’ position within the bank, the trial judge had been entitled to conclude that the claim by the bank for an anti-suit injunction was sufficiently tainted as to be denied under the "unclean hands" doctrine. Comment This case illustrates the need for a party seeking equitable relief to come with “clean hands” or face having that relief denied. More importantly this case is believed to be the first in which a UK bank has had a judgment set aside on the basis of fraud, and provides a strong precedent setting out when a summary judgment may be set aside on the basis of fraud. The decision also underlines the absolute requirement of making truthful disclosure to the court. Where a party that fails to disclose relevant facts which may be of central importance to the claim, it does so at great risk. Read More

High Court ruling emphasises need to obtain specialist advice when seeking a freezing order

May 2013
Fraud updates
Legal Costmasters Ltd v (1) Insurance & Legal Services UK Ltd (2) Jennifer Evans (3) The Personal Representatives of Michael Evans, Deceased (2013): On 30 April 2013, Seymour J held that where a claimant sought a freezing order against a defendant, but had failed to show a real risk of dissipation of assets, the order would be refused. Further, in view of the fundamental weakness of the application, costs would be ordered against the applicant on the indemnity basis, the proceedings stayed pending payment and, if no application were made to lift the stay within 3 months, the proceedings against the second defendant would be dismissed. The claimant was, amongst other things, a provider of personal injury claims referral services. In the course of its business, it had introduced a firm of solicitors to the first defendant, an insurance brokerage. Under an agreement, the first defendant paid commission to the claimant on referrals of work from the firm. The first defendant subsequently went into liquidation. The claimant alleged that the second and third defendant, who had passed away, were the “controlling minds” of the first defendant and sought to show that the commission owed to it should have been held on trust for it. The claimant alleged that the second defendant had caused the first, in breach of trust, not to hold the commission in a separate trust account and had then gone on to misapply the funds. On this basis, the claimant applied for a freezing order against the second defendant to secure the anticipated final judgment sum. Seymour J, in deciding the application against the claimant, held that its case relied on the fact that the second defendant intended to sell her property which demonstrated, according to the claimant, a real risk of dissipation. However the claimant’s managing director had accepted in evidence that the second defendant's reason for selling the property was that she wanted to downsize after her children had flown the nest, and that this had been her intention long before the claim against her was made known. There was no reason to conclude therefore that the second defendant had any desire to dissipate her assets, as she intended to acquire another property with the proceeds of sale. The purpose of a court granting a freezing order was to prevent a judgment being thwarted by a defendant dissipating assets, not merely to secure assets. Read More

April 2013

Apr 2013
PCB news
Steven Philippsohn had an article published in E-Finance & Payments Law & Policy discussing the systematic anti-money laundering failures at HSBC. Read the article here. Read More

March 2013

Mar 2013
PCB news
PCB Litigation was featured in Acquisition International on recovery of assets in cross-border business crime. click here to read
PCB Litigation has been retained by a substantial property developer in respect of a multi-million dollar dispute with a major European bank.
PCB Litigation has been retained in respect of possible multi-million dollar claims arising from the steps being taken to remove assets from Laiki Bank pursuant to the Cyprus banking rescue package.
PCB Litigation has been retained in respect of a US$300m shareholder dispute involving allegations of fraud and wrongful corporate steps in a network of offshore companies holding underlying assets in Russia.
Steven Philippsohn was interviewed on Voice of Russia regarding possible legal challenges to the Cyprus levy. Click here to read.
Steven Philippsohn was quoted on CyprusMail regarding the recovery of Cyprus deposits. Click here to read.
It has been announced today that Cyprus will be restructuring two of its largest banks, apparently leading to heavy losses to those who have deposited more than €100,000 in those banks. In advance of that decision, Russian President Vladimir Putin denounced proposals to tax deposit holders as "unfair, unprofessional and dangerous", whilst Prime Minister Dmitry Medvedev said that such a move would be "just like a confiscation of someone else's money". Russian interests are set to lose out substantially, and, indeed, it has been reported that the EU was particularly keen to target Russian money. Attention is likely to turn now to the question of whether investors are able to claim compensation for failure by Cyprus to provide fair and equitable treatment. One particular route may be arbitration under any applicable bilateral investment treaty. Claims may also be available to investors through the Cypriot Courts, and other States may seek to take action against Cyprus. PCB Litigation is currently advising a number of banks based in Russia and elsewhere in relation to these claims.
Thomson Reuters have awarded Steven Philippsohn the title of Super Civil Litigation Lawyer in their March 2013 publication.
Financial Fraud, a report produced by the Institute of Chartered Accountants, published an article by Steven Philippsohn on pursuing claims in fraud, particularly relating to finding and freezing assets. Click here to read.
One of PCB Litigation’s cases has featured in the e-commerce law reports. PCB successfully discharged a £100m freezing order and other injunctions because of the failure of the Claimants to provide proper disclosure regarding hacked evidence. Click here to read. Read More

Finding the balance – Norwich Pharmacal orders

Mar 2013
Fraud updates
Norwich Pharmacal orders can be very useful in fraud cases. They allow a victim of wrongdoing to obtain information or documents from a respondent who is “mixed up” in the wrongdoing, but is unlikely to be a party to any proceedings arising from it. Norwich Pharmacal relief is most often used where the applicant requires the respondent’s help to identify the wrongdoer in order to commence a claim, or otherwise to obtain information needed to plead the case. There have been several key cases involving Norwich Pharmacal orders in 2012 and 2013. In June last year, the High Court held that Norwich Pharmacal orders cannot be used to order the provision of evidence for foreign criminal proceedings. The Court of Appeal most recently unanimously approved that decision in March 2013, confirming that Norwich Pharmacal orders cannot be used to circumvent the statutory regime for obtaining evidence for use in criminal proceedings abroad in the Crime (International Co-operation) Act 2003. In November 2012, the High Court refused to grant a Norwich Pharmacal order that would have amounted to a wide-ranging process of discovery and evidence-gathering. The first defendant was a former employee of the claimant who had been accused of misusing confidential information. However, the judge held that the requested order was not a question of identifying a wrongdoer or providing straightforward information, but instead was an “onerous undertaking” and an “impractical demand for her to undertake”. Again, in November last year, the Supreme Court clarified the approach the courts should take in deciding whether to grant Norwich Pharmacal orders taking into account data protection rights and proportionality. The Rugby Football Union (“RFU”) obtained a Norwich Pharmacal order against the operator of a ticketing website, Viagogo which required Viagogo to disclose the identities of individuals that had used the website to sell and purchase tickets to Twickenham matches at inflated prices, in breach of the terms and conditions on which the RFU had sold the tickets. Viagogo argued that this order interfered with the individuals’ rights under Article 8 of the EU Charter of Fundamental Rights, which guarantees the protection of personal data. The appeal was dismissed by both the Court of Appeal and the Supreme Court. The Supreme Court held that Norwich Pharmacal orders are a flexible tool, and will be granted when they are a "necessary and proportionate response in all the circumstances". Read More

Facing the risk of public body injunctions

Mar 2013
Fraud updates
The Supreme Court has confirmed that there is no rule demanding that where a public body such as the FSA seeks an interim injunction in exercise of its functions, it should be required to give a cross-undertaking in damages to third parties affected by that injunction. The FSA had obtained an interim freezing order against defendants. The appellant bank was notified of this in December 2012. In the freezing order, the FSA had inadvertently undertaken to cover losses and costs incurred by third parties as a result of the injunction. The FSA subsequently applied to have the undertaking removed. The appellant bank intervened to oppose the application. The High Court refused the FSA’s application, however the Court of Appeal partly reversed that decision to maintain the undertaking in respect of third party costs but not in respect of third party losses. The bank appealed. In dismissing the bank’s appeal, the Supreme Court recognised that a distinction between private claims and law enforcement actions should be maintained: In a private claim, a claimant should be prepared to “put its money where its mouth is” and back its claim against the possibility that a wrongly obtained injunction will cause unjustifiable harm to third parties; in law enforcement actions, it is not in the public interest for public authorities to back their legal actions with the public funds with which they are entrusted for the exercise of their functions. However, the Supreme Court (supporting the Court of Appeal’s decision) recognised that this does not apply to the same extent in relation to a cross-undertaking in respect of third party costs. Read the full judgment here. Please contact PCB Litigation if you require any further advice on freezing injunctions and third party losses caused thereby. Read More

February 2013

Feb 2013
PCB news
Steven Philippsohn gave a presentation on New Developments in Asset Recovery at a Conference on International Dispute Resolutions.
PCB Litigation is advising on several interest rate swaps claims.
PCB Litigation is advising a major European bank that has suffered significant losses on a series of loans.
PCB Litigation is advising as to the rights to seek disclosure in the US concerning transactions involving Russia, Liechtenstein and Switzerland.
PCB Litigation is advising on obtaining orders in Cyprus, Malta and the BVI in aid of foreign proceedings.
PCB Litigation is advising on a shareholder dispute involving BVI and Russia.
On 13th February, Steven Philippsohn gave a presentation on Asset Recovery to the British Bankers Association in London. Read More

Freezing Orders against “Non-Cause of Action Defendants”

Feb 2013
Fraud updates
A recent decision in the High Court has confirmed that freezing orders can be made against non-cause of action defendants (‘NCADs’), i.e. against a defendant against whom no cause of action is alleged. NCADs are typically parties to a claim by virtue of the fact that a cause of action defendant (‘CAD’) exercises control or influence over the NCAD (whether or not the CAD can actually compel the NCAD to take action with regard to particular assets). The decision was made in the ongoing case of JSC VTB Bank –v- Skurikhin & Others (unreported). In the case, Mr Skurikhin was believed to have a beneficial interest in certain English LLPs, which were joined as defendants to the proceedings, even though they were not themselves accused of any wrongdoing. The claimant sought a freezing injunction against them to prevent them (at Mr Skurikhin’s behest or otherwise) from dealing with certain valuable Italian properties that they held, which the claimant believed could ultimately be used to satisfy a judgment against Mr Skurikhin. Burton J noted that a freezing injunction will usually only be granted against an NCAD where there is good reason to believe that the CAD: i) can be compelled to cause the assets held by the NCAD to be used for the purpose of satisfying a judgment; or ii) that there is some other process of enforcement by which the clamant can obtain recourse to the assets held by the NCAD.
He was also satisfied, in accordance with the principles set out in the Privy Council decision in Tasarruf Mevduati Sigorta Fonu v Merrill Lynch Bank and Trust Company (Cayman)Ltd [2012] 1WLR 1721 and the decision of Mr Gabriel Moss QC in Blight v Brewster [2012] EWHC 56 (Ch) that the CAD, Mr Skurikhin, had sufficient powers of revocation as a discretionary beneficiary of the trusts that owned the NCAD that he could in equity be regarded as having rights tantamount to ownership to compel him to cause the assets held by the NCAD to be used for the purposes of satisfying a judgment.
Please contact PCB Litigation if you require any further advice on freezing and recovering assets from non-cause of action defendants. Read More

Shift Towards Implied Duty Of Good Faith In English Law

Feb 2013
Fraud updates

The recently-published High Court judgment of Yam Seng Pte Ltd v International Trade Corp indicates a shift towards an implied duty of good faith in long term contracts.

The claimant, a Singaporean company, claimed damages for breach of contract and misrepresentation against the defendant, an English company. The primary issue was whether a duty of good faith was to be implied into the contract.

The judge explained the importance of recognising the doctrine of good faith and fair dealing in all contractual relationships, but especially those involving a longer-term relationship, such as joint venture agreements, franchise agreements and long-term distributorship agreements. Historically, English contract law has not recognised a general duty to perform contracts in good faith, and has drawn “a sharp distinction” between fiduciary relationships containing onerous disclosure obligations, and other contractual relationships in which no duty of disclosure is supposed to operate. (more…)

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A Principal’s Proprietary Right Over Agent’s Bribe

Feb 2013
Fraud updates

At the end of January 2013, the Court of Appeal handed down a judgment with important implications in bribery cases. Recent case law had suggested that where an agent had received a bribe or secret commission, the principal could only assert ownership of that payment if it could be shown that it came from the principal’s own assets and at all times remained the principal’s property. However, the Court of Appeal examined numerous previous English cases and concluded the principal may be able to assert a proprietary claim without establishing that chain of ownership. A proprietary claim can be very important as it enables the principal to trace the payment into the hands of third parties or to recover the payment ahead of unsecured creditors where the agent is insolvent.

The ruling was made in the case of FHR European Ventures LLP & Others v Ramsey Neil Mankarious & Others [2013] EWCA Civ 17. Mr Mankarious had acted as the claimants’ agent in respect of the purchase of a hotel. However, unbeknown to the claimants, Mr Mankarious had also entered into an “Exclusive Brokerage Agreement” with the hotel’s vendor under which he would receive a fee of €10 million on completion of the sale to the claimants. The sale duly completed for around €210 million. (more…)

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January 2013

Jan 2013
Latest news
PCB Litigation advised a global financial institution on claims in multiple jurisdictions relating to asset misappropriation.
PCB Litigation advised a global institution on asset recovery strategies in US, BVI and Cyprus. Read More

December 2012

Dec 2012
Latest news
PCB Litigation obtained an Order discharging a £100m worldwide freezing order made against one of its clients.
PCB Litigation obtained judgment for in excess of US$150 million for a financial institution. Read More