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Civil asset recovery

Parallel proceedings

Is there any restriction on civil proceedings progressing in parallel with, or in advance of, criminal proceedings concerning the same subject matter?

There is no restriction on parties pursuing civil proceedings in parallel with, or in advance of, criminal proceedings regarding the same subject matter. However, a party to civil proceedings may apply for a stay if it can be shown that the continuation of those proceedings will cause a real risk of serious prejudice to actual or threatened criminal proceedings, which could lead to injustice (Financial Services Authority v Anderson & Ors [2010] EWHC 308 (Ch)). This is a high threshold that is rarely met by the party applying for a stay, and there is a strong presumption against allowing such a stay; it is not enough that both proceedings arise from the same facts (R v Panel on Takeovers and Mergers, ex parte Fayed [1992] BCC 524).

Courts have refused to grant a stay in many cases where the risk of prejudice can be addressed through the court’s case management powers. In Akciné Bendrové Bankas Snoras v Antonov and another [2013] EWHC 131 (Comm), the court refused to grant the defendant’s application for a stay pending the conclusion of criminal proceedings in Lithuania, on the basis that prejudice would be suffered by delaying the claimant bank and its creditors the opportunity to pursue the claim. Instead, the court imposed a number of safeguards to address the risk of prejudice to the defendant, such as preventing the dissemination of statements of case and other defence documents beyond the claimant bank and its legal team, witnesses or experts without the court’s permission. The court held in this case that the possible prejudice that may be suffered by the defendant through disclosing its defence in civil proceedings before it does so in criminal proceedings was not sufficient to grant a stay of civil proceedings.

In Polonskiy v Alexander Dobrovinsky & Partners LLP and others [2016] EWHC 1114 (Ch), the claimant was pursuing an action in the English courts against his former lawyers, alleging improper conduct in relation to the sale of a business. The claimant was also subject to criminal proceedings in Russia, and alleged that the defendants in the English civil proceedings were being given access to their privileged documents. The claimant argued this would have a ‘chilling effect’ on the criminal proceedings and sought a stay of the civil proceedings on this basis. The court refused to grant a stay, on the basis that the claimant’s allegation lacked credibility and a stay would cause real prejudice to the defendants.

Forum

In which court should proceedings be brought?

The High Court of Justice hears the most complex claims, and claims with a value exceeding £100,000 should usually be commenced in the High Court. There are a number of separate divisions within the High Court, and claims based upon fraud will generally be brought in either the Commercial Court (within the Queen’s Bench Division) or the Business List (within the Chancery Division), although there are also a number of other specialist courts that might be appropriate for certain cases.

Claims that relate to sophisticated financial products with a value of more than £50 million, that require particular expertise in the financial markets or that raise issues of general importance to the financial markets, will be managed in a specialist financial list.

Both the Commercial Court and the Business List are used to dealing with complex fraud cases with an international element, although cases involving foreign law and conflicts of law issues are generally brought in the Commercial Court.

Limitation

What are the time limits for starting civil court proceedings?

The Limitation Act 1980 governs the limitation periods for most types of claims, and provides that claims relating to contract and tort must, in general, be brought within six years of the date that the cause of action accrued.

Equitable remedies, including claims for specific performance and injunctions, are not subject to a statutory limitation period under the Limitation Act 1980. However, there is a doctrine called laches, which applies to equitable remedies and means that the court can decline to grant relief where there has been unreasonable delay in bringing the claim.

There is no limitation period for claims brought by a beneficiary to recover trust assets or proceeds of trust property, or where there is a claim for fraudulent breach of trust. In other cases that concern fraud, the limitation period will not begin to run until the claimant has discovered, or could with reasonable diligence have discovered, the fraud.

Claims in restitution are not dealt with in the Limitation Act 1980; however, the courts have found them to be quasi-contractual and to have a corresponding limitation period of six years.

A claim must be issued by the claimant before the expiry of the relevant limitation period. It is not necessary to have served the defendant by the expiry of the limitation period. However, the claim form must be served on the defendant within four months of being issued if it is being served in the jurisdiction, and within six months of issue if it is to be served out of the jurisdiction. If a claimant seeks to extend the period of validity of the claim form, an application must be made to court under Civil Procedure Rule (CPR) 7.6.

Jurisdiction

In what circumstances does the civil court have jurisdiction? How can a defendant challenge jurisdiction?

There are two separate regimes for jurisdiction in England. First, there is the European regime, which is governed by Regulation 1215/2015 (the Recast Brussels Regulation) and the Brussels and Lugano Conventions. Secondly, there is the common law regime, which applies where the defendant is not domiciled within the EU or EEA.

Under the European regime, the starting point is domicile, and a defendant who is domiciled in England can generally be sued in England. A defendant will be domiciled in England if he or she is resident here, and the nature and circumstances of that residence indicate a substantial connection with the jurisdiction (sections 42(2) and 41A(2) of the Civil Jurisdiction and Judgments Act 1982 (CJJA)). A defendant is presumed to be domiciled in England if he or she has been resident here for three months (section 41(6) of the CJJA; Cherney v Deripaska [2007] EWHC 965 (Comm)). The material date of domicile is that on which proceedings are issued (Panagaki v Apostolopoulos [2015] EWHC 2700 (QB)).

If a defendant is not domiciled in England, but is domiciled in another EU country, then there are also certain exceptions that might give the English courts jurisdiction, for example:

  • if the claim concerns one of the matters set out in article 24 of the Recast Brussels Regulation (such as immovable property located in the jurisdiction);
  • if the parties have agreed that the English court shall have jurisdiction over the dispute (article 25 of the Recast Brussels Regulation); or
  • if the defendant ‘enters an appearance’ in the proceedings, other than to contest jurisdiction (article 26 of the Recast Brussels Regulation).

When the defendant is domiciled outside Europe, jurisdiction will be determined under the common law regime. If a defendant can be personally served within the jurisdiction, regardless of how temporarily the defendant may be in the jurisdiction, then that will be a basis for jurisdiction (although the court’s jurisdiction may be challenged on several grounds, including that another jurisdiction is a more appropriate forum, the proceedings are an abuse of process or the parties have entered into a jurisdiction agreement in favour of another jurisdiction).

If the defendant cannot be personally served in the jurisdiction, then the claimant will need to obtain permission to serve out of the jurisdiction.

This requires the claimant to show that there is a good arguable case that the claim falls within one of the categories set out in Practice Direction 6B(3.1), that there is a serious issue to be tried and that England is the proper place to bring the claim (CPR 6.37).

If a defendant wishes to dispute jurisdiction, it must do so by filing an acknowledgement of service with the court and applying for an order that the English court lacks jurisdiction or that it should not exercise its jurisdiction. Such an application will need to be made within the prescribed time limit, which varies depending on where the defendant was served and in which court the proceedings were issued. A defendant will not be deemed to have submitted to the jurisdiction by acknowledging service in order to dispute jurisdiction, or indeed by appearing before the court to contest the validity of a freezing order that has been granted against that defendant.

The English civil courts also have jurisdiction to grant a freezing order over assets located within the jurisdiction and elsewhere (section 37 of the Senior Courts Act 1981), or a Norwich Pharmacal order requiring a non-party to proceedings who is involved in the defendant’s wrongdoing to disclose documents or information to the claimant. The court will be cautious in granting either of these orders given their onerous nature on the defendant or respondent. This is discussed further in question 11.

Following the vote on 23 June 2016 by the United Kingdom to leave the EU, it is unclear precisely how the rules on jurisdiction will be affected. Under the draft withdrawal agreement dated 19 March 2018, it is anticipated that there will be a transition period from 29 March 2019 to 31 December 2020 during which the current provisions of the European regime will continue to apply to proceedings commenced before the end of that transition period. However, arrangements for jurisdiction and enforcement from 1 January 2021 will depend upon the terms of any bespoke agreement that is made between the EU and the United Kingdom.

Time frame

What is the usual time frame for a claim to reach trial?

The time frame to trial depends on a number of factors, including the complexity of the case and the nature of the claims involved, but generally cases will come to trial in around 12 to 18 months. In complex cases, it can take more time than this before a claim reaches trial.

In appropriate cases, the court will grant an order for expedition. There is also a Shorter Trials Scheme, which seeks to achieve shorter proceedings and quicker trials in certain straightforward cases, although the Shorter Trials Scheme is unlikely to be available in fraud or asset recovery cases.

Admissibility of evidence

What rules apply to the admissibility of evidence in civil proceedings?

As a general rule, evidence must be relevant to the issues in dispute between the parties to be admissible. Evidence in civil proceedings ordinarily takes the form of documents and written witness statements. Witnesses will also usually be required to provide oral testimony at trial, and will be subject to cross-examination by the opposing party’s lawyer. It is possible, in some circumstances, for evidence to be given by video link. Witness evidence is subject to strict rules, and will not be admissible if it is deemed to be ‘opinion evidence’, as it is for the witness to give evidence of facts in his or her evidence, and not to draw inferences or conclusions from those facts.

There are, in relation to evidence, a number of exclusionary rules. These rules exclude, for example, evidence that is privileged or where its disclosure would be contrary to public interest. Prior convictions in English criminal proceedings are admissible as rebuttable evidence that the defendant committed the offence for which he or she was convicted (section 11 of the Civil Evidence Act 1968); however, foreign convictions are inadmissible as such evidence unless the issues in the foreign criminal proceedings and English civil proceedings are the same (Assets Recovery Agency v Virtosu and another [2008] EWHC 149 (QB)). Hearsay evidence will not be automatically excluded, unless it is not relevant or falls within another exclusionary rule (Civil Evidence Act 1995).

The general rule is that evidence that is relevant to the facts in issue is admissible, no matter how it was obtained. This means that evidence that is ‘tainted’ or unlawfully obtained is usually still admissible in civil proceedings. However, such evidence may be inadmissible if its use would breach the other party’s right to privacy under article 8 of the European Convention on Human Rights. In determining whether evidence is admissible, the court will seek to balance the competing interests of hearing the case with all probative evidence before it, against protecting the other party’s right to privacy and discouraging the conduct by which the evidence was obtained.

Parties to civil proceedings do not need to adduce evidence that is subject to the privilege against self-incrimination (ie, evidence that would expose them to criminal proceedings in the United Kingdom (section 14 of the Civil Evidence Act 1968)). However, there are certain exclusions to this rule, in particular where the proceedings relate to the recovery of property or execution of any trust. In such proceedings, a party will not be able to rely on this rule to be excused from answering questions relating to the property or complying with orders in relation to that property. However, any statements made in this scenario will not be admissible as evidence against that party in criminal proceedings concerning fraudulent conduct (section 13 of the Fraud Act 2006).

Witnesses

What powers are available to compel witnesses to give evidence?

A witness summons (formerly known as a subpoena) may be used when a witness is unwilling to provide evidence. This is usually served by the court and compels a witness to provide certain documents or give oral evidence, or both. The general rule is a witness summons is binding if served at least seven days before the date on which the witness is required to attend court. The summons may require the witness to provide documents either prior to or at trial. Should a witness fail to comply with the summons in relation to High Court proceedings, they may be held in contempt of court and could be fined or imprisoned.

A party should pay a witness reasonable expenses and compensation for his or her time. Conduct money (a sum sufficient to cover the witnesses’ expenses for travelling to and from court, and to cover the period they are attending court (Practice Direction 34A 3.2)) must also be deposited at the court upon serving a witness summons. However, not all payment arrangements for witnesses are appropriate.

A witness summons cannot be served out of the jurisdiction in order to compel a witness from outside the jurisdiction to provide evidence a letter of request is used. This is a request from the English court to the court in another jurisdiction to take and send evidence from a witness for use in proceedings. It requires an on notice application to the English court to issue such a request. The English court has discretion as to whether to send a request under different regimes and will consider the materiality of the evidence sought and cost associated with procuring it. Once evidence has been obtained, the judge will decide its admissibility and weight.

Although there are powers available to compel a witness, parties should consider the strategic risk of using a potentially hostile witness to provide evidence in their case.

Publicly available information

What sources of information about assets are publicly available?

There are a number of sources of publicly available information on assets held in England. These include the following:

  • Her Majesty’s Land Registry: which records freehold and leasehold interests in real estate. The Land Registry lists all those who hold a registerable interest in the relevant asset and the nature of their interest;
  • the Driver and Vehicle Licensing Authority: which holds details of the ‘registered keeper’ of licensed (taxed) vehicles in the United Kingdom;
  • Companies House: which maintains a register of the officers of limited companies, the persons with significant control over the company (often the beneficial owners) and other comparable entities in the United Kingdom. Information held on the register includes filed accounts, mortgages and charges over the company’s assets, and details of any insolvency proceedings;
  • the UK Register of Civil Aircraft: which is maintained by the Civil Aviation Authority. Publicly accessible information includes the registered owner of aircraft and details of the aircraft, including the year it was built; and
  • the UK Ship Register and Small Ships Register: which is maintained by the Maritime and Coastguard Agency, records details of ships. The Small Ships Register includes yachts and other pleasure craft.

Additionally, in January 2018 the government launched a proposal to create a public register of the ‘persons with significant control’ of any overseas company that owns or purchases UK property (or bids on government procurement contracts). It is anticipated that this information will be online by 2021.

Cooperation with law enforcement agencies

Can information and evidence be obtained from law enforcement and regulatory agencies for use in civil proceedings?

In principle, it is open to law enforcement and regulatory agencies to voluntarily provide information and evidence to parties in civil proceedings, although they are generally reluctant to do so, particularly if there are ongoing criminal proceedings and disclosure might prejudice those proceedings.

However, the Crown Prosecution Service (CPS) has published guidance setting out how it will respond to requests for information, which state as follows:

Information may only be supplied to a person with a genuine interest in the proceedings or contemplated proceedings in question. The various types of proceedings are considered later on, but examples include persons who are bona fide engaged in or contemplating civil proceedings, or solicitors or insurance companies acting on their behalf. Requests must also be scrutinised to ensure that the requested material is relevant to the proceedings and that the party concerned is not conducting a ‘fishing’ exercise.

It is also possible to apply to court for a third-party disclosure order (see question 10) against the law enforcement and regulatory agencies. However, when deciding whether to grant such an order, the judge will take into account considerations such as the interests of other persons (such as the person who has provided a witness statement), as well as wider public interest considerations.

It might also be possible to obtain information through a freedom of information request or a data subject access request.

Third-party disclosure

How can information be obtained from third parties not suspected of wrongdoing?

Where a party has grounds to believe that a third party is in possession of information or documents that may be relevant to a claim, he or she might be able to apply to the High Court for an order requiring the disclosure of that information. Possible options (which, depending on the type, may be taken before or after proceedings are issued) include the following:

  • an order for non-party disclosure pursuant to CPR 31.17. This requires the applicant to demonstrate that the documents sought are likely to support the applicant’s case or adversely affect the case of one of the other parties to the proceedings. The applicant must also show that disclosure is necessary to dispose fairly of the claim or save costs;
  • an order pursuant to the Norwich Pharmacal jurisdiction (after Norwich Pharmacal Co v Customs and Excise Commissioners [1974] AC 133). The applicant must show that the respondent has become mixed up in the alleged wrongdoing to make him or her more than simply a mere witness, although it is not necessary to show that the applicant intends to bring legal proceedings in respect of the alleged wrong;
  • a Bankers Trust order (following Bankers Trust v Shapira [1980] 1 WLR 1274). Such an order requires a third party to disclose any information that might assist the claimant in pursuing a proprietary claim. Such orders are typically sought against parties who inadvertently become mixed up in laundering the proceeds of fraud, for example, a bank;
  • an order under CPR 25.1.1(g) ‘directing a party to provide information about the location of relevant property or assets or to provide information about relevant property or assets, which are or may be the subject of an application for a freezing injunction’; and
  • an order pursuant to section 7 of the Bankers’ Books Evidence Act 1879. The court may make an order allowing a party to civil proceedings to inspect and take copies of any entries in a banker’s book for the purposes of such proceedings.

Additionally, under the General Data Protection Regulation (GDPR), which came into effect in May 2018, an individual can also make a data subject access request (DSAR) to obtain information on whether personal data is being processed about them. That information can be requested notwithstanding that the purposes of the request might be to use it in litigation. The DSAR is made to a data controller, which is often an employer. Under the GDPR, ‘personal data’ is defined as ‘any information relating to an identified or identifiable living individual’.

Interim relief

What interim relief is available pre-judgment to prevent the dissipation of assets by, and to obtain information from, those suspected of involvement in the fraud?

The courts in England offer claimants a wide range of interim remedies to seek to assist the victims of fraud. Such applications are usually made without giving notice to the defendant. If made without notice, the applicant must give full and frank disclosure to the court of any matters that might influence its decision (including those detrimental to the applicant’s case).

If a claimant has solid evidence of a risk that a defendant may dissipate assets in order to frustrate the enforcement of a judgment, he or she may apply to the High Court, usually without notice, for a freezing order. The effect of such an order is to prevent the defendant from dealing with any of his or her assets above a certain monetary level, either within England and Wales, or worldwide. A freezing order can affect any asset that the defendant has the power, directly or indirectly, to dispose of or deal with as if it were his or her own , including assets not legally or beneficially owned by him or her, but under his or her control (JSC BTA Bank v Ablyazov [2015] UKSC 64). The order is binding on any third party with notice of it (such as banks).

In order to obtain a freezing order, a party needs to demonstrate that it has a ‘good arguable case’ in relation to its substantive claim. This means that the claim needs to be properly arguable, although it is not necessary to persuade the judge that there is a more than 50 per cent chance of success.

Granting the order must be ‘just and convenient’ in the circumstances.

The party seeking a freezing order will usually need to provide a ‘cross-undertaking’ that it will compensate the defendant (and any third parties) if it is later found that the injunction should not have been granted and those parties suffered losses.

A freezing order will usually include a disclosure order compelling the defendant to confirm, on affidavit, the nature and location of his or her assets, which could even include a defendant’s interest in a discretionary trust (JSC Mezhdunarodniy Promyshlenniy Bank v Pugachev [2015] EWCA Civ 139).

A freezing order can also be extended to parties against whom no cause of action actually lies. In TSB Private Bank International SA v Chabra [1991] 1 WLR 231, it was held that the courts have jurisdiction (now known as the Chabra jurisdiction) to grant freezing orders against not only parties to a cause of action, but also third parties who are not party to the claim; for example, if the third party holds assets, which are in reality assets of the defendant or judgment debtor, or is a potential judgment debtor.

In rare cases, the court may direct that a receiver takes control of the defendant’s assets and manages them pending the determination of the claim to prevent assets being dissipated.

If there is an immediate risk that evidence is likely to disappear, a claimant may apply for a civil search order. This order requires a defendant to permit the claimant’s lawyers, in the presence of an independent supervising solicitor, to enter premises occupied or controlled by the defendant in order to identify and preserve evidence relevant to the case. Where a claimant seeks to recover specific property from the defendant or the traceable proceeds of that property, the court (subject to certain requirements) can grant an order for the detention, custody or preservation of that property. The court may also grant a search order against a non-party to the proceedings, where they are believed to have relevant evidence and there is good reason to grant the search order to preserve that evidence (Abela and others v Baadarani [2017] EWHC 269).

Tracing orders may require the defendant to confirm his or her dealings with a specific asset or monies over which the claimant asserts a proprietary right. The claimant may also apply for an order that the defendant deliver up his or her passport to the court, to prevent him or her from fleeing the jurisdiction until he or she has complied with the disclosure provisions in the order.

Non-compliance with court orders

How do courts punish failure to comply with court orders?

A wide range of sanctions can be used to deter parties from committing procedural breaches and encourage compliance with court orders, directions and rules. Sanctions available to the court include the power to make adverse cost awards against a defaulting party or even to strike out its statement of case, ultimately preventing it from pursuing or defending its case. Over the past few years, strict adherence to court orders, directions and rules have become a priority in civil litigation. The use, or threat, of sanctions ensures the smooth running of cases, avoiding unnecessary delays, and encourages efficiency.

A party who is sanctioned for failing to comply with a procedural deadline or order may apply for relief from the sanction under CPR 3.9. The court’s approach in respect of applications for relief from sanctions is to apply a three-stage test and consider the significance of the breach, reason for the breach and all circumstances of the case (Denton v TH White Ltd [2014] 1 WLR 3926).

A litigant or third party who deliberately acts in breach of a court order containing a penal notice (ie, a statement on the face of the order warning of the penal consequences of a breach) may be held to be in contempt. A contemnor may be fined, have his or her assets seized (also known as ‘sequestration of assets’) or even be committed to prison. Proceedings for contempt do not excuse the requirement to comply with the original order. Additionally, in JSC BTA Bank v Khrapunov [2018] UKSC 19, contempt of court was deemed to constitute the unlawful means element required for the tort of conspiracy. This means that third parties who assist a defendant to breach a freezing order could, in principle, be held liable for losses caused by that breach.

CPR 81 details the procedure by which the failure to comply with a judgment, order or undertaking may be enforced by contempt proceedings: by either an order for committal (with a maximum sentence of two years’ imprisonment or an unlimited fine, or both) or a writ of sequestration to seize property to satisfy the judgment, or similar. Deliberate failure to comply may also result in the opposing party applying to the court for a debarring order (as in JSC BTA v Ablyazov (No. 3) [2010] EWCA Civ 1141), preventing the respondent from pursuing or defending a claim, potentially in the form of a sanction attached to an unless order (eg, a court order stating that unless a party to the proceedings does some act by a specified date, its defence will be struck out).

CPR 81.4, which relates to the enforcement of a judgment, order or undertaking to do or abstain from doing an act, has extraterritorial effect. A committal application was made in respect of a foreign company director and served on him outside the jurisdiction when it was alleged that he was responsible for the contempt of a company that was subject to the jurisdiction of the English courts (see Dar Al Arkan Real Estate Development Co v Al-Refai [2014] EWCA Civ 715).

Obtaining evidence from other jurisdictions

How can information be obtained through courts in other jurisdictions to assist in the civil proceedings?

The main route for obtaining evidence from other courts is through a letter of request (also known as a letter rogatory).

In relation to letters of request made to other courts in the EU, this is governed by Council Regulation (EC) No. 1206/2001 of 28 May 2001 on cooperation between the courts of the member states in the taking of evidence in civil or commercial matters (the Taking of Evidence Regulation).

Requests made to courts outside the EU are governed by the Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters (the Hague Evidence Convention).

An application for a letter of request should be made to the court that is dealing with the substantive proceedings in support of which the evidence is sought.

Assisting courts in other jurisdictions

What assistance will the civil court give in connection with civil asset recovery proceedings in other jurisdictions?

The United Kingdom is a signatory to the Hague Evidence Convention and will therefore comply with incoming letters of request from other signatory countries. The government has issued a guide (albeit now several years old) on the procedure and process for dealing with incoming letters of request from other courts. The guide can be found at http://webarchive.nationalarchives.gov.uk/20100210171843/http://www.tsol.gov.uk/Publications/letter_of_request.pdf.

In addition, English courts will grant freezing injunctions in England in support of proceedings in other jurisdictions, pursuant to section 25 of the Civil Jurisdiction and Judgments Act 1982 where there is reason to believe that the defendant to the foreign proceedings has assets in England. This will usually be limited to an injunction over assets in England, but in some rare circumstances (where the defendant is resident in England, and there are other good reasons) it might be possible to obtain a worldwide freezing order.

The test for such an injunction is the same as the test for a standard freezing order, including in relation to a good arguable case, except that the applicant must also demonstrate the following:

  • that the order will not be ‘inexpedient’ (see Motorola Credit Corporation v Uzan (No. 2) [2003] 1 WLR 113);
  • that it is related and ancillary to the foreign proceedings; and
  • that, where the main proceedings are taking place in another EU country, there must be a ‘real connecting link’ between England and the assets that the applicant seeks to freeze.

Where a defendant has assets in England, it is also, in most cases, relatively straightforward to enforce a judgment from the courts of another jurisdiction in England, or to enforce an arbitral award.

Causes of action

What are the main causes of action in civil asset recovery cases, and do they include proprietary claims?

English courts have developed a wide range of tools to assist the victims of fraud. Although there are a number of others, the main causes of action arising in civil asset recovery cases are as follows:

  • Breach of trust or fiduciary duty: where a person is in a fiduciary relationship with another person (broadly, a relationship of trust, confidence and loyalty) there are a number of potential claims if that person acts in breach of trust or fiduciary duty. A claim for breach of trust or fiduciary duty can lead to proprietary remedies (see question 16 for further details).
  • Dishonest assistance or knowing receipt: where a person who is liable on either the basis of dishonest assistance (if he or she acted dishonestly in assisting a fiduciary to breach his or her duties) or knowing receipt (where he or she received monies knowing that the fiduciary was in breach of duty).
  • Conspiracy: there are two forms of conspiracy under English law: lawful means conspiracy and unlawful means conspiracy. The key difference is that in lawful means conspiracy it is necessary to show a predominate intention to injure the claimant, whereas in unlawful means conspiracy, although there must be an intention to injure, it does not need to be the predominant intention (although there must be some unlawful action involved in the conspiracy).
  • Deceit or fraudulent misrepresentation: if a person makes a false representation, knowing it to be false or reckless as to the truth of the statement, intending that the representee will rely upon that statement, that person can be liable for losses suffered by the victim as a result of reliance on the statement (for example, if the representee entered into a transaction on the basis of the representation).
  • Breach of contract: claims might be available where a party has breached its contractual obligations. Additionally, there might be claims against third parties to a contract who have induced a breach of contract.
  • Restitution: a claim for unjust enrichment might be available where a party has been unjustly enriched at the expense of another party, for example, if an asset was transferred on the basis of a mistake.
  • Other torts: such as bribery and conversion (using an asset not belonging to oneself).

Remedies

What remedies are available in a civil recovery action?

The usual remedy in a civil recovery action is damages for losses suffered. However, in cases of unjust enrichment there can be an order for the restitution of the asset. A fiduciary who has acted in breach of trust can be required to given an account of profits.

Where someone has received property that was transferred in breach of trust (or breach of fiduciary duty), the victim of fraud may be able to claim a proprietary remedy to recover the specific asset (which will be held on constructive trust), unless it has been transferred to a bona fide purchaser for value, without notice of the breach of trust. In certain circumstances, where a fraudster has dealt with the asset, a victim of fraud may be able to trace the proceeds of sale or a new asset bought with those proceeds, which may mean that the victim recovers any increase in value of the asset.

Judgment without full trial

Can a victim obtain a judgment without the need for a full trial?

There are several possible routes for obtaining judgment without the need for a full trial.

First, if a defendant fails to acknowledge service, or to file a defence, then the claimant can apply for default judgment. This is a straightforward application that is dealt with by the court administratively without the need for a hearing. A defendant can apply to set aside a default judgment, but he or she must do so promptly, and will only be able to get the judgment set aside if either the court is satisfied that there is a real prospect of successfully defending the claim, or it appears to the court that there is some other good reason the judgment should be set aside, and the defendant should be allowed to defend the claim.

Secondly, it is possible to apply for summary judgment, and an order will be made where the defendant has no real prospect of successfully defending the claim or issue, and there is no other compelling reason why the case or issue should be disposed of at trial. Although it is generally difficult to obtain summary judgment in fraud claims, it is possible to do so (see Fern v Burford [2014] EWHC 762).

Finally, in some situations, such as where a defendant is found to be in breach of freezing orders, it is possible to obtain an order debarring him or her from defending the proceedings. Such orders are very unusual, but do provide another potential route for a swift judgment (given that if the defendant is unable to defend the claim, the matter is more likely to come to trial quicker).

Post-judgment relief

What post-judgment relief is available to successful claimants?

English courts will generally assist successful claimants. It is possible to obtain a post-judgment freezing order if there is a real risk that the judgment debtor will dissipate assets. In certain circumstances, it might also be possible to obtain an order appointing a receiver over assets.

There is also a power to require a judgment debtor (or an officer of a judgment debtor in the case of a corporate) to attend court to be examined about the assets of the judgment debtor. A person may be in contempt of court if he or she fails to comply with the order to attend court, or refuses to answer questions asked by the examiner.

Enforcement

What methods of enforcement are available?

There are a number of potential methods of enforcement available to a judgment creditor. These include the following:

  • A third-party debt order: this enables the judgment creditor to obtain an order that a third party must pay to the judgment creditor monies that would otherwise be paid to the judgment debtor. For example, this might be an order against a bank requiring it to pay money to the judgment creditor.
  • Attachment of earnings order: this enables a judgment creditor to obtain an order against the employer of a judgment debtor to require it to pay monies to the judgment creditor.
  • Writ of control: an order that enables a High Court enforcement officer to take control of assets of the judgment debtor and to sell those assets to satisfy the judgment debt and the enforcement costs.
  • Charging order: an order granting a charge over land that grants the judgment creditor a security interest, and enables the judgment creditor to seek an order for sale.

Additionally, it is open to a judgment creditor to seek to take action to commence an insolvency process in relation to a judgment debtor. For example, petitioning for the liquidation of a company based upon an unsatisfied judgment debt.

If a final injunction is obtained against the defendant, it may be possible to seek to enforce that injunction through contempt proceedings if a respondent does not comply with the injunction. A finding of contempt can result in a prison sentence.

Funding and costs

What funding arrangements are available to parties contemplating or involved in litigation and do the courts have any powers to manage the overall cost of that litigation?

The main types of funding arrangements available to parties to commercial litigation are as follows:

  • Conditional fee agreement (CFA): a CFA is an agreement under which the lawyer will charge no fee (or perhaps a discounted fee) if the case is lost, but the lawyer’s normal fee, typically with an uplift (referred to as a ‘success fee’) if the case is won. For CFAs entered into after 1 April 2013 (subject to limited exceptions), the success fee is not recoverable from an opponent.
  • Damages-based agreement (DBA): a DBA is an agreement under which the lawyer will charge no fee if the case is lost, but a fee calculated as a percentage share of any damages recovered if the case is won. The Damages-Based Agreement Regulations 2013 contain restrictive provisions governing DBAs. These include an apparent ban on ‘hybrid’ DBAs, under which a lawyer could receive, for example, a reduced hourly rate as the case proceeds plus a share of damages on success; under the Regulations it seems a valid DBA must be a ‘no win, no fee’ arrangement. Where the case is successful, the opponent will be liable for costs assessed on a traditional basis (essentially a reasonable hourly rate for a reasonable number of hours spent on the case), so long as this is not more than the amount payable under the DBA.
  • After-the-event (ATE) insurance: This refers to a policy of insurance taken out after a dispute has arisen. It typically covers the client against its potential liability for the opponent’s costs as well as the client’s own disbursements if the case is unsuccessful, and may also cover some proportion of the client’s own legal costs. ATE premiums are not recoverable from the losing opponent (subject to limited exceptions).
  • Third-party funding: This involves a commercial litigation funder with no connection to the proceedings agreeing to pay some or all of the client’s legal costs in return for a share of any monies recovered. Where a third party funder is involved, ATE insurance will commonly also be taken out to cover the adverse costs risk.

There is no requirement to notify an opponent where the litigation is funded by any of these methods.

The courts have the power to manage the costs of litigation through a procedure known as costs management or costs budgeting. The regime applies to Part 7 multi-track cases in all courts unless (broadly) the claim is for £10 million or more. However, the court has discretion to disapply budgeting where it would otherwise apply, or to order budgeting where it otherwise would not apply.

If the rules apply, they require that, at an early stage of the litigation, all parties (except litigants in person) file and exchange budgets setting out their estimated costs for each stage in the proceedings. The court will then make a costs management order unless it is satisfied that the litigation can be conducted justly and at proportionate cost without such an order being made. The costs management order will record the extent to which the budgets are agreed and (to the extent not agreed) record the court’s approval of the budgeted costs after making appropriate revisions.

In assessing costs at the end of the case, the court will not depart from the budgeted costs unless satisfied that there is good reason to do so.

The court also has a power to make costs capping orders, which limit the amount of future costs a party may recover. However, such orders are rarely used.

Criminal asset recovery

Interim measures

Describe the legal framework in relation to interim measures in your jurisdiction.

There are three distinct interim measures for the freezing or seizure of assets suspected to be the proceeds of crime. These measures are set out in the Proceeds of Crime Act 2002 (POCA).

First, under section 41 of the POCA, the Crown Court (the superior court of record for criminal matters in England and Wales) may make a restraint order. To make such an order, the court must be satisfied that a criminal investigation or prosecution has been commenced but not concluded, and that there is reasonable cause to suspect that the alleged offender has benefited from the criminal conduct that is the subject of said investigation or prosecution. It is not necessary for a court to be satisfied that a suspect will frustrate any later confiscation proceedings by dissipating his or her assets.

Such orders have the effect of prohibiting the defendant from dealing in any way with the restrained assets (these can include assets that are specified in the order, or the whole of the defendant’s property) unless agreed by the prosecutor or permitted by the court, and are binding on third parties with notice of the order, as well as on the defendant. Deliberate breach of a restraint order is a contempt of court (R v OB [2012] EWCA Crim 67) and is punishable by a fine, imprisonment for up to two years or both. Similarly, attempting to put the assets out of the reach of the court to circumvent the restraint order may constitute an offence of perverting the course of justice (R v Kenny [2013] EWCA Crim 1).

The defendant subject to a restraint order may draw down a limited sum from its restrained assets for living expenses, with consent from the court, but may not withdraw funds to pay for legal expenses connected to either the restraint proceedings themselves or to the underlying criminal investigation or prosecution. A defendant subject to a criminal restraint order is not prohibited from incurring new liabilities (for example, legal fees); incurring a liability is not the same as diminishing the value of the defendant’s assets (Revell-Reade v Serious Fraud Office [2013] EWHC 1483 (Admin)). However, the third party to whom the new liability is owed runs the risk that the defendant will never be in a position to settle the liability.

Where restraint orders cover the whole of the defendant’s property, it is common for an asset disclosure clause to be included in the order requiring the defendant to disclose to the court, and the prosecutor dealing with the restraint proceedings, information concerning all property, wherever situated, in which he or she has an interest.

Second, prosecutorial agencies may exercise the non-conviction based forfeiture provisions in Part 5 of the POCA by applying to the High Court for a property freezing order, pending the determination of any Part 5 claim. Such an order freezes the relevant property where there is a good arguable case that the property represents the proceeds of crime.

Third, an officer of either the police, the Serious Fraud Office or Revenue and Customs who discovers and seizes cash that he or she suspects may be the proceeds of crime, or intended for use in a crime, may apply to the Magistrates’ Court for it to be detained pending the outcome of his or her enquiries (section 294 of the POCA). This power exists regardless of whether there is any criminal investigation. Once seized and detained, an application can be made to the Magistrates’ Court to forfeit that cash.

Fourth, an enforcement authority (such as the Serious Fraud Office) may apply to the High Court for an interim freezing order to protect property that is subject to an unexplained wealth order (section 362J of the POCA, which was inserted by section 2 of the Criminal Finances Act 2017).

Proceeds of serious crime

Is an investigation to identify, trace and freeze proceeds automatically initiated when certain serious crimes are detected? If not, what triggers an investigation?

The police are under a duty to initiate an investigation where, following a complaint, there is evidence that a crime has been committed. Other investigative bodies are subject to similar obligations, albeit these are subject to certain case acceptance criteria. Although investigative bodies will consider whether, in the circumstances, steps should be taken to prevent the dissipation of suspected proceeds of crime by a suspect, not all investigations into acquisitive crimes lead to the freezing of assets.

Confiscation – legal framework

Describe the legal framework in relation to confiscation of the proceeds of crime, including how the benefit figure is calculated.

The POCA provides the legal framework for confiscating the proceeds of crime. In particular, Part 2 contains provisions for recovering the ‘benefit’ obtained by convicted defendants from their offences, whereby the benefit is the value of any property or pecuniary advantage obtained by the defendant as a result of or in connection with the criminal conduct. However, this benefit concept is deliberately broad and can, in certain circumstances, lead to the recovery of an amount that is greater than that represented by the offence in question (eg, the ‘criminal lifestyle’ provisions outlined below). Corporate entities that commit criminal offences may be subject to confiscation proceedings in an identical manner to natural persons.

The Crown Court may order property used in the commission of any offence (sometimes called the ‘instrumentalities of crime’) to be forfeited pursuant to section 143 of the Powers of Criminal Courts (Sentencing) Act 2000. The Crown Court also has specific powers in relation to drugs, firearms, things for producing counterfeit goods and other similar items, by virtue of a number of other statutes, such as the Firearms Act 1968 and the Misuse of Drugs Act 1971.

Confiscation procedure

Describe how confiscation works in practice.

A defendant will be liable for confiscation proceedings where he or she has been convicted of an offence in the Crown Court and either the prosecutor or court has determined that a confiscation hearing would be appropriate, or where he or she has been convicted of an offence in the Magistrates’ Court and is committed to the Crown Court for consideration of a confiscation order, at the prosecutors’ request.

When considering a confiscation order against a convicted defendant under the POCA, the court must determine as follows:

  • whether the defendant has benefited from the criminal conduct and, if so, what benefit has been derived; and
  • the amount of the defendant’s realisable assets available to settle a confiscation order (the ‘available amount’).

The court will then make a finding of the recoverable amount under the confiscation order, which will be the lesser of the benefit derived by the defendant from his or her criminal conduct and the available amount. The court will also specify the time in which the defendant is to pay and, upon failure to pay, the term of imprisonment the defendant is to serve.

If the available amount is less than the total benefit that the defendant derived from the criminal conduct, then the difference will effectively remain as an outstanding debt to the state. If it can later be shown that the defendant is in possession of assets that may be used to settle this outstanding debt, then the prosecutor may apply to reopen the confiscation proceedings.

The purpose of UK confiscation legislation was considered by the Supreme Court in R v Waya [2012] UKSC 51. In particular, the court in this case considered whether the lower courts had gone too far in certain decisions by breaching the principles laid down in article 1 of Protocol 1 of the European Court of Human Rights (ECHR) (A1P1), which protects individuals from state interference with their possessions, and the conditions and principles necessary to justifiably do so. The case concerned the purchase of a flat by the defendant, using a combination of legitimate funds and funds that the defendant had obtained by deception from a mortgage lender. In calculating the criminal benefit to the defendant, the first instance court deducted from the then market value of the house an amount proportionate to the legitimate funds that were used by the defendant to purchase the property. The Supreme Court did not agree with this approach, stating that the POCA bestowed a discretion on courts that allowed them to ‘mould a confiscation order to fit the facts and the justice of each case’, and that the POCA should be construed strictly in a manner that avoids violation of A1P1. The court therefore decided that judges should take a proportionate and common-sense approach, assessing the true benefit to the defendant and avoiding punitive confiscation orders that are disproportionate to the actual benefit obtained by the defendant. Section 6(5) of the POCA, as amended in 2015, places this decision on a statutory footing, providing that the court must consider the extent to which it is proportionate to make the defendant pay the recoverable amount, and must only make a confiscation order if proportionate.

The decision in Waya was applied in R v Axworthy (Liam) [2012] EWCA Crim 2889. The Crown conceded that a confiscation order for £22,010 (representing the value of a Land Rover that the defendant fraudulently reported stolen, and in respect of which the defendant made an insurance claim) should be quashed. The vehicle had later been recovered near the defendant’s flat in Ibiza, meaning that a confiscation order for the total value of the car would be disproportionate to the benefit obtained by the defendant. Courts must now only grant confiscation orders that reflect the true financial benefit obtained by the offender.

When calculating benefit, no deduction is made for costs incurred in the perpetration of the fraud (R v Chahal [2015] EWCA Crim 816).

Where multiple defendants jointly obtain a benefit from criminal conduct, each individual defendant is separately liable for the whole amount of the benefit, and confiscation orders must be made against each defendant for the whole amount. However, each individual confiscation order will only be enforced to the extent that the sum in question has not been recovered in satisfaction of another confiscation order against one of the other defendants. In short, a payment by one defendant of an amount due under the confiscation order should go to reduce the amount payable by the others (R v Ahmad (Shakeel) [2014] UKSC 36).

Benefit

When ascertaining the defendant’s benefit from his or her criminal conduct, the court must first ascertain whether or not that defendant has a ‘criminal lifestyle’. This is defined in section 75 of the POCA and means that the defendant has:

  • been convicted of one of a number of specified offences set out in Schedule 2 of the POCA, including fraud, money laundering, bribery and drug trafficking;
  • engaged in a course of criminal activity (ie, been convicted of a number of offences within a defined period); or
  • committed an offence over a period of at least six months, and benefited from that conduct.

If the court determines that the defendant has a criminal lifestyle, the court must make certain assumptions in calculating his or her benefit. These are that all property transferred to him or her and all expenditure met by him or her in the six years preceding the date of conviction, as well as any property held by him or her after the date of conviction, represent the benefit he or she has obtained from his or her criminal conduct. Section 10 of the POCA provides that these assumptions can be displaced if they are shown to be incorrect, or that a serious risk of injustice would result from proceeding on the basis of these assumptions.

If the defendant does not have a criminal lifestyle, the court must decide whether he or she has benefited from the particular criminal conduct in question. If so, the court must then calculate the benefit from that specific conduct (section 8 of the POCA).

Where the benefit from the defendant’s conduct has been obtained by a limited company that is under the defendant’s control, the court may, in limited circumstances, be invited to ‘lift’ or ‘pierce’ the corporate veil and attribute some or all of that benefit directly to the defendant. An example of such action being taken by the court is where a corporate structure has been deliberately used to conceal the benefit resulting from a crime (R v Seager [2009] EWCA Crim1303).

Available amount

The available amount is the total value of the defendant’s ‘free property’, minus any priority obligations that have been satisfied (section 9 of the POCA). A priority obligation is either a fine or an order following a previous conviction, or a preferred (ie, secured) debt as defined by section 386 of the Insolvency Act 1986. The defendant bears the burden of proof for showing that the available amount is less than the benefit figure. If no sensible explanation has been provided as to what happened to the proceeds of an offence, a judge is entitled to find hidden assets in an amount equal to the full benefit figure (R v Saben [2013] EWCA Crim 575).

‘Free property’ is any property, including all real or personal property wherever located, money, choses in action and intangible property, in which the defendant holds an interest. It also includes the value of any ‘tainted gifts’ (ie, transfers at undervalue made to third parties after the relevant offence was committed or, where the defendant has a criminal lifestyle, within six years of the date the relevant offence was committed).

Variation of a confiscation order

The POCA provides for four circumstances in which a confiscation order can be varied:

  • the benefit can be reconsidered if new evidence of the defendant’s benefit becomes available (section 21 of the POCA);
  • the available amount can be reconsidered if there is evidence to suggest that it was originally under-assessed (section 22 of the POCA);
  • the order can be varied owing to the defendant’s means being inadequate to meet the confiscation order (section 23 of the POCA); and
  • an order can be made in the defendant’s absence if he or she absconds (section 29 of the POCA).

A prosecutor is able to make applications for a variation order under sections 21, 22 and 29 of the POCA, and either the defendant or the prosecutor may make an application under section 23 of the POCA. In each case, the parties can consent to a variation without a hearing where there is no dispute. For a contemporary example of a confiscation order being varied, in June 2018 the Financial Conduct Authority successfully applied under section 22 of the POCA to increase the amount owed under a confiscation order by Benjamin Wilson (who was convicted of fraud in 2014) from £1 to £31,905.33. The increase to the available amount was owing to Wilson receiving funds left to him after his mother’s death in 2015.

Agencies

What agencies are responsible for tracing and confiscating the proceeds of crime in your jurisdiction?

Numerous UK state agencies have powers to pursue the proceeds of crime under the POCA. They include the following:

  • the Serious Fraud Office (SFO);
  • the Financial Conduct Authority;
  • the CPS (Proceeds of Crime Unit);
  • Her Majesty’s Revenue and Customs;
  • the National Crime Agency; and
  • the police.

Secondary proceeds

Is confiscation of secondary proceeds possible?

A confiscation order that is made under the POCA relates to the benefit that is derived from the defendant’s criminal conduct, rather than being made in rem against any specific property. Once the court has determined the value of the defendant’s true benefit (as opposed to the more punitive approach that has previously been taken by the courts - see above), any property held by him or her may be confiscated up to that value. This includes any asset acquired using the proceeds of the original offence (as well as any lawfully obtained property).

Where the proceeds of crime are used to obtain an asset, and that asset subsequently increases in value, the defendant’s benefit will be deemed to include the increase in value (section 8o of the POCA). If, for example, a defendant buys property for £200,000 using the proceeds of crime, and the value of the property later increases to £500,000, the defendant’s benefit will be £500,000. If the defendant in fact purchased the property using a combination of £100,000 of the proceeds of crime and £100,000 of legitimate funds, his or her benefit would be proportionate to the illegitimate funds used and, in this scenario, would be £250,000 (50 per cent of the value of the asset at the time the confiscation order was made). If the defendant has a criminal lifestyle - as defined by section 75 and Schedule 2 of the POCA - then all property held by him or her at the date of conviction will be assumed to be part of his or her benefit, unless he or she can displace that assumption (see question 24).

Third-party ownership

Is it possible to confiscate property acquired by a third party or close relatives?

The value of property that has been transferred from the defendant to a third party may be included in the calculation of a confiscation order if the property is determined to constitute a tainted gift, for the purposes of sections 77 and 78 of the POCA. The provisions operate to catch transfers of property from the defendant to a third party where the consideration given by the third party is ‘significantly less’ than the value of the property transferred; the true value of that property is then included in the defendant’s available amount for the purposes of making a confiscation order. The Court of Appeal held that the legal and beneficial interest obtained in property by the wife of a defendant subject to confiscation proceedings constituted a tainted gift owing to the lack of financial contribution made in R v Hayes [2018] EWCA Crim 682 (applying the principle in R v Richards [2008] EWCA Crim 184). Here the appellant sought to argue that no tainted gift had been made because there was no transfer of property from the defendant to the third party as the property in question was transferred from the unrelated vendors to the joint names of the appellant and his wife; therefore, there was no relevant transfer to constitute a tainted gift. The Court of Appeal dismissed this argument as artificial and stated that allowing it to succeed would undermine the statutory purpose of the confiscation regime.

Under section 10A of the POCA, third parties are entitled to make representations to the court during confiscation proceedings in relation to property that they hold, provided that (i) the defendant also holds an interest in the property, and (ii) the property is likely to be realised or otherwise used to satisfy the confiscation order. After representations have been made, the court may determine the extent of the defendant’s interest in the property.

Aside from their rights under section 10A, third parties who wish to challenge a finding that property held in their name is a tainted gift must do so at the enforcement stage. It is at the enforcement stage that an enforcement receiver is appointed (section 50 of the POCA) and where the order may become an order against certain assets. Section 69(3)(a) of the POCA provides that at the enforcement stage, a third party must be allowed to recover the value of any interest held by him or her in any assets that are the subject of an order.

Expenses

Can the costs of tracing and confiscating assets be recovered by a relevant state agency?

The Crown Court may make an order for costs (ie, expenses incurred) against the defendant where it considers it just and convenient to do so (section 18 of the Prosecution of Offences Act 1985). This may include costs incurred in the proceedings themselves as well as investigative costs (see, in a different context, Neville (Westminster City Council) v Gardner Merchant Ltd [1983] 5 Cr App R (S) 349). The POCA provides that a confiscation order will have priority over any other financial order imposed by the court, with one exception being the imposition of a compensation order. Case law suggests that it would be disproportionate to make an order for both confiscation and compensation where the loss that is the subject of the compensation order is also the criminal benefit under the confiscation order (section 13 of the POCA) (R v Jawad [2013] EWCA Crim 644). Costs will therefore only be recoverable if the defendant possesses sufficient assets, in the first instance, to satisfy the whole of the benefit derived from his or her offence.

Value-based confiscation

Is value-based confiscation allowed? If yes, how is the value assessment made?

The UK criminal confiscation regime is a value-based system, and a confiscation order made under the POCA is not made in rem against any specific property that derives directly from the defendant’s criminal conduct. Rather, the court first determines the value of the benefit that the defendant has obtained from his or her offence, and then seeks to identify any available property held by the defendant that can be confiscated to satisfy the outstanding benefit figure.

Burden of proof

On whom is the burden of proof in a procedure to confiscate the proceeds of crime? Can the burden be reversed?

Pursuant to the POCA, the burden of proof lies with the defendant in two circumstances. First, if the defendant meets the definition of criminal lifestyle as set out in section 75 of the POCA, there is an assumption that a benefit has been derived from his or her general criminal conduct. Therefore, the defendant must convince the court that, on the balance of probabilities, such an assumption is incorrect, or that applying such an assumption would result in a serious risk of injustice.

Secondly, the defendant also bears the burden of persuading the court that he or she does not have assets available to satisfy a confiscation order. If the defendant is unable to satisfy the court on this point, the court will make a confiscation order for the full benefit with a sentence in default. If the defendant is suspected of enjoying the benefit of property that is not readily identifiable - ‘hidden assets’ - he or she will have the difficult task of either providing evidence on the available amount or an explanation regarding the potential hidden assets. If he or she is unable to do so, the court will likely issue a hidden assets order (R v Dhall (Harpeet Singh) [2013] EWCA Crim 892).

In regard to the correct available amount to be taken into account in confiscation orders, the court will have regard to the principles laid down in Waya. For example, in R v Yew (Gabriel Kok) [2013] EWCA Crim 809, the court granted an appeal to reduce the value of a confiscation order, on the basis that the order failed to take into account the beneficial interest in the property that was held by the defendant’s wife. Therefore, the court found that the property had been overvalued. When establishing the value of a confiscation order, it is necessary to have clear evidence of the true available amount.

Using confiscated property to settle claims

May confiscated property be used in satisfaction of civil claims for damages or compensation from a claim arising from the conviction?

Under the POCA, the confiscated property will generally be used in order to satisfy the confiscation order prior to satisfying any other financial orders and debts owed by the defendant to unsecured creditors. This will include any civil claimants who cannot establish a proprietary claim against the seized assets (Serious Fraud Office v Lexi Holdings plc [2008] EWCA Crim 1443).

However, there are several exceptions to this general rule as set out in section 13 of the POCA. In particular, an order to compensate a party who has suffered loss as a result of the defendant’s conduct will take priority if granted by the court pursuant to the Powers of Criminal Courts (Sentencing) Act 2000. Where the defendant has the ability to pay both the confiscation and compensation orders, the court can make an order for both sums to be paid separately, (but see R v Jawad in question 28).

Confiscation of profits

Is it possible to recover the financial advantage or profit obtained through the commission of criminal offences?

Financial advantage or profit obtained through the commission of criminal offences can be the subject of a confiscation order, as it constitutes the defendant’s ‘benefit’ under the POCA. For example, in R v Mabey & Johnson plc [2009] the profits flowing from contracts obtained through bribing or corrupting foreign officials were the subject of a confiscation order.

Non-conviction based forfeiture

Can the proceeds of crime be confiscated without a conviction? Describe how the system works and any legal challenges to in rem confiscation.

Under Part 5 of the POCA, the High Court is able to make an in rem confiscation order without a conviction where the Court is persuaded, on the balance of probabilities, that the relevant property is recoverable as the proceeds of crime. Although the respondents to Part 5 proceedings are the beneficial owners of the property in question, the POCA provides that the court may make an order vesting the property in the state, and the proceedings are effectively in rem. The POCA sets out the rules for tracing recoverable property similar to the equitable jurisdiction of the civil courts.

The SFO has previously relied on Part 5 to recover assets obtained by companies who have engaged in overseas corruption. For example, in July 2012, the SFO reached an agreement with Oxford Publishing Limited to recover over £1.9 million after it self-reported corrupt sales practices in Kenya and Tanzania. However, the practice of addressing corporate criminality by the use of these powers has been the subject of judicial criticism (eg, see the sentencing remarks of Lord Justice Thomas in R v Innospec Ltd [2010] Crim LR 665).

In addition to the Part 5 civil recovery order, the Crime and Courts Act 2013 has introduced an additional tool for tackling financial crime without having to resort to a criminal prosecution - the deferred prosecution agreement. Such an agreement can be entered into between a corporate body and the prosecutor, where the former agrees to comply with certain financial penalties and requirements imposed by the agreement. Criminal proceedings are initiated but are suspended while the agreement is operative. If the corporate body complies with the requirements of the agreement, the prosecuting authority will not pursue the criminal proceedings, enabling the company to avoid prosecution. There have been four deferred prosecution agreements in the United Kingdom to date: Serious Fraud Office v Standard Bank Plc [2016] Lloyd’s Rep FC 102, Serious Fraud Office v XYZ [2016] Lloyd’s Rep FC 509, Serious Fraud Office v Rolls Royce Plc [2017] Lloyd’s Rep FC 249 and Serious Fraud Office v Tesco Stores Limited [2017] (unreported owing to reporting restrictions in place at time of publication).

Sections 1 to 9 of the Criminal Finances Act 2017 amended section 362 of the POCA so as to create a new regime of unexplained wealth orders. Under this new regime, from 31 January 2018, certain UK authorities have been able to require both individuals and corporate bodies reasonably suspected of investment in or connection with a serious crime to account for possession of assets that appear to be disproportionate to their known lawful income, otherwise those assets will be presumed to be recoverable property. To make an unexplained wealth order, the High Court must be satisfied that there is reasonable cause to believe the respondent holds the property and that its value is greater than £5o,ooo. It must also be satisfied that there are reasonable grounds for suspecting the respondent’s lawfully obtained income would have been insufficient to obtain the property, and that the respondent is a politically exposed person or there are reasonable grounds for suspecting that the respondent or someone connected with them is, or has been, involved in serious crime.

Failure to respond to an unexplained wealth order within the prescribed time and without reasonable excuse will give rise to a presumption that the property specified in the unexplained wealth order is recoverable for the purposes of a civil recovery order, and may amount to contempt of court.

When a court makes an unexplained wealth order, it may also make an interim freezing order (see question 21).

Management of assets

After the seizure of the assets, how are they managed, and by whom? How does the managing authority deal with the hidden cost of management of the assets? Can the assets be utilised by the managing authority or a government agency as their own?

Where assets have been restrained pending a criminal trial, the prosecutor and the defendant’s legal representatives will attempt to reach an agreement on how the assets should be managed. However, if an agreement cannot be reached, either party can apply to court to vary the order. Both parties, including the court, should have regard to the ‘legislative steer’ set out in section 69 of the POCA. This requires the restrained property to be preserved as far as possible in order to meet any later confiscation order.

In certain situations, the Crown Court may deem it necessary to appoint a management receiver over the defendant’s assets (section 48 of the POCA). For example, the defendant may have property that he or she is incapable of managing while held on remand, or may own a corporate entity that cannot be run efficiently as significant management decisions must continually be approved by the prosecution. The management receiver has the right to receive remuneration for his or her services out of the defendant’s assets, unless the defendant is subsequently acquitted and the restraint order discharged, in which case this responsibility should lie with the prosecution. This point was addressed by the Supreme Court in Crown Prosecution Service v Eastenders Group [2014] UKSC 26, in which the assets of a group of companies were being used to remunerate the receiver appointed following the making of a restraint order. The Court held that such remuneration would be a breach of Protocol 1, article 1 of the ECHR 1950 if it was later found that the restraint and receivership orders should never have been made. In such cases, the responsibility for the receiver’s remuneration and expenses should lie with the CPS as it requested the receiver’s work to be undertaken.

Making requests for foreign legal assistance

Describe your jurisdiction’s legal framework and procedure to request international legal assistance concerning provisional measures in relation to the recovery of assets.

Enforcing restraint orders under the POCA can be difficult, as they purport to freeze the defendant’s assets regardless of where those assets may be located. Therefore, if the defendant’s assets are located overseas, enforcing the restraint order in practical terms is likely to require cooperation of the court in the relevant jurisdiction. Such cooperation can be sought by way of a mutual legal assistance (MLA) request made pursuant to either section 7 of the Crime (International Co-operation) Act 2003 or, more likely, section 74 of the POCA (which makes specific provision for MLA requests in respect of restraint and confiscation matters).

Under section 74, the prosecutor may send a letter of request to the Secretary of State, which will then be forwarded to the relevant foreign state. The letter must contain the information set out in the UK government’s Mutual Assistance Guidelines (for further information see the 12th edition, available online).

Following the decision in Perry and Others v SOCA [2012] UKSC 35, there was doubt over whether the court had jurisdiction under Part 5 of the POCA to effect civil recovery orders for property located outside of the jurisdiction, or disclosure orders on individuals located outside of the jurisdiction. However, the Crime and Courts Act 2013 expressly extended the power of the UK courts in relation to both of these matters where there is a ‘connection’ between the case and the United Kingdom. The National Crime Agency v Azam [2014] EHWC 4742 and 3573 (QB) was the first case where a foreign state (in this case, Luxembourg) recognised and enforced a UK civil recovery order.

Complying with requests for foreign legal assistance

Describe your jurisdiction’s legal framework and procedure to meet foreign requests for legal assistance concerning provisional measures in relation to the recovery of assets.

Foreign bodies may send a letter of request to the UK Home Office for help in relation to the recovery of assets. The SFO or other equivalent body will then make an application for the restraint order under the Proceeds of Crime Act 2002 (External Requests and Orders) Order 2005 (ERO). The ERO provides the Crown Court with the power to make a restraint order over the assets of a defendant against whom criminal proceedings are active in a foreign state. Furthermore, there is also a mechanism under the ERO by which funds can be repatriated, if confiscation proceedings are determined against the defendant.

On 20 June 2018, a new EU regulation was informally agreed between the European Parliament and Council concerning the mutual recognition of freezing and confiscation orders. The new regulation seeks to make it quicker and simpler for EU member states to ask each other to freeze criminal assets or confiscate criminal property. The European Parliament is expected to adopt its first-reading position on the proposal on 1 October 2018, following which the Council is expected to formally adopt the regulation.

Treaties

To which international conventions with provisions on asset recovery is your state a signatory?

The United Kingdom is a signatory to a number of international conventions on asset recovery, including the following:

  • the United Nations Convention against Transnational Organized Crime 2000;
  • the United Nations Convention against Corruption 2003;
  • the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions 1997;
  • the European Council Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime 1990; and
  • the European Union Convention on Mutual Assistance in Criminal Matters between the Member States of the European Union 2000.

Private prosecutions

Can criminal asset recovery powers be used by private prosecutors?

Section 6 of the Prosecution of Offences Act 1985 preserves the right of any person to bring a private criminal prosecution, meaning, in theory, any legal person may bring confiscation proceedings following that prosecution.

The number of private prosecutions brought by companies and high-net-worth individuals has grown exponentially over the past few years, possibly owing to cuts in funding and the lack of resources available to law enforcement agencies and regulators over the same period. Although there are some restrictions in bringing such a prosecution, and the cost of doing so can be substantial, private prosecutions can sometimes be used when a deterrent effect is important, or to bring cases that may not be possible to bring using the civil courts, for example, because of limitation or jurisdiction issues.

In 2014, the largest private prosecution brought by an individual in the United Kingdom to date resulted in a sentence of eight years’ imprisonment being imposed on Ketan Somaia for defrauding an investor, Mr Mirchandani, of US$19.5 million. This followed his conviction at the Central Criminal Court by a jury on 13 June 2014 of nine counts of obtaining a money transfer by deception, contrary to section 15A of the Theft Act 1968. Cases such as this are likely to increase in the United Kingdom following the Court of Appeal’s judgment in R (Virgin Media Ltd) v Zinga [2014] EWCA Crim 52, which held that private prosecutors may pursue confiscation proceedings even if they have no financial or personal interest in the outcome.

* The authors thank Kevin Kilgour, Holly McCann, Elizabeth Court, Jessica Chappatte and Will Merry of Herbert Smith Freehills LLP for their assistance.

Update and trends

Update and trends

Are there any emerging trends or hot topics in civil and criminal asset recovery in your jurisdiction?

No updates at this time.