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 nothing to prohibit civil proceedings following criminal proceedings concerning the same matter, or vice versa - or both happening in parallel.

Parallel civil and criminal proceedings are permitted unless the defendant would face a real risk of serious prejudice that might lead to injustice. A defendant may claim he or she will suffer serious prejudice by defending both sets of proceedings and seek a stay of the civil proceedings pending the outcome of the criminal ones. However, the threshold for a defendant to successfully secure a stay of the civil proceedings is high, and courts have refused to grant a stay in cases where the risk of prejudice can be mitigated through the court’s case management powers or other safeguards.

Forum

In which court should proceedings be brought?

The vast majority of large commercial claims are heard by the Business and Property Courts, which is a division of the High Court of England and Wales. There are a number of sub-divisions of the Business and Property Courts and the appropriate one will depend on the subject matter of the dispute. For a high-value, multi-jurisdictional case including allegations of fraud, it is likely proceedings would be dealt with in the Commercial Court or Business List. There is also a specialist Financial List that handles banking and financial services claims with a value of more than £50 million that require expertise in, or are of general importance to, the financial markets. In our experience, complex international fraud cases would generally be heard in the Commercial Court in London.

Limitation

What are the time limits for starting civil court proceedings?

The limitation periods for most claims are governed by the Limitation Act 1980. In general, a claim in tort (other than for personal injury) or a simple breach of contract claim must be brought within six years of the date the cause of action accrued. For a breach of contract claim, that would be six years from the date of the breach of contract. For a tort claim, that would be six years from the date the damage is suffered. The cause of action in tort or contract arises regardless of whether or not the claimant could have known about the damage. However, where the claim is for fraud, the six years only start to run from the date the claimant discovered the fraud, or whenor she could, with reasonable diligence, have discovered it.

There is no time limit for a beneficiary to bring a civil claim against a fraudulent trustee, for example, to recover trust property retained by them. However, the trustee may be able to rely on the defence of laches if there has been undue delay coupled with sufficient prejudice.

Jurisdiction

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

The jurisdiction of the English court over commercial disputes is determined by two separate regimes: the European regime, which is largely dictated by legislation known as the ‘Recast Brussels Regulation’; and the common law regime.

Under the European regime, the basic principle is that if defendants are domiciled in England they can generally be sued in England. The European regime is thorough and prescriptive and, if it applies, jurisdiction is largely automatic.

If the parties have agreed to the jurisdiction of the English court in a contract, the European regime will apply, regardless of where the parties are domiciled. The English court will generally respect the choice of jurisdiction specified in a contract.

The common law regime applies where the European regime does not, and mainly determines jurisdiction where the defendant is domiciled outside of the European Union. Jurisdiction under the common law is based on either effective service of process or submission to the jurisdiction by the defendant.

There are a number of ways a defendant can challenge jurisdiction, for example, on the basis service was defective, England is not the appropriate forum to hear the dispute or related proceedings are pending in the courts of another country. If a defendant wishes to challenge the English court’s jurisdiction, it is important to do so before taking any steps that may be deemed to be a submission to the jurisdiction. The defendant should file an acknowledgment of service indicating a wish to challenge jurisdiction and then promptly file an application challenging the English court’s jurisdiction. These steps will not constitute submission to the jurisdiction.

The impact of the United Kingdom’s decision to leave the EU on the jurisdiction of the English court remains uncertain. If the UK agrees a withdrawal agreement with the EU, it is anticipated that there will be a transitional period during which the current European regime will continue to apply. In the event that the UK does not reach an agreement with the EU (ie, a ‘no deal’ Brexit) it is anticipated that the UK will revoke the effect of the Recast Brussels Regulation and accede to the Hague Convention on Choice of Court Agreements. The Hague Convention is largely inapplicable while the UK remains in the EU, as the Recast Brussels Regulation takes precedence. However, once the UK leaves the EU it will become an important tool in resolving jurisdiction issues.

Time frame

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

The time frame for a claim to reach trial will vary according to factors such as the number of parties and the complexity of the dispute. A case will normally be heard within 18 months of being issued, although it can take longer in complex cases.

The court can order an expedited trial provided it is satisfied that there is an objective urgency to the claim, although this is at the discretion of the judge.

Admissibility of evidence

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

Admissible evidence is limited to that which is relevant. Relevance is assessed by reference to the issues in the claim that, in turn, are defined by the parties’ statements of case. Parties are required to advance evidence that proves or disproves these issues, whether directly or indirectly relevant, or as directed by the court. Evidence comes in many different guises: it could be in the form of documents (hardcopy and electronic) disclosed by a party or oral evidence of factual witnesses or experts on whom a party intends to rely at trial. In the case of witnesses, evidence is usually provided in the first instance in a written witness statement, which stands as their evidence-in-chief at trial. To rely on that evidence, a party must usually call the witness to give oral evidence where he or she will be subject to cross-examination. This is usually in person unless the court exercises its discretion to allow evidence by remote video link (see question 7) or to allow the written witness statement in as hearsay evidence. Evidence that goes solely to a witness’ credibility is, generally, admissible at trial, although it is only indirectly relevant to the issues. In terms of expert evidence, this usually takes the form of a written report that is only admissible if the court has given permission. Their evidence is usually confined to a narrow set of issues set by the court, to which the witnesses owe their primary duty. Experts can be expected to give oral evidence at trial on the contents of their reports.

Relevant evidence may be excluded by the court on grounds of public policy or other grounds, for example, it may be subject to privilege preventing disclosure. The fact that evidence has been unlawfully obtained is not usually a bar to admissibility in civil proceedings (see, for example, Jones v University of Warwick [2003] EWCA Civ 151). An exception is where admission would interfere with article 6 of the European Convention on Human Rights (right to a fair trial) but breach of non-article 6 rights will not necessarily lead to the exclusion of otherwise admissible evidence. By Civil Procedure Rule (CPR) 32.1 and 32.2, the court retains a wide discretion to control evidence, including the power to exclude otherwise admissible evidence altogether.

Witnesses

What powers are available to compel witnesses to give evidence?

For witnesses located within the jurisdiction, a party can apply for the court to issue a witness summons (form N20) compelling a witness to attend court to give oral evidence or produce documents under the court’s powers in CPR 34, or both. The applicant must undertake to pay the witness’ travel expenses and compensation for loss of time but these expenses (known as conduct money) are very limited in amount. Permission to serve a witness summons is not required if served at least seven days prior to the trial but otherwise the court’s permission is needed. Once validly served, failure to comply is contempt of court. A witness summons can bind a foreign witness provided he or she were within the jurisdiction when served (however temporarily) but otherwise cannot be served outside the jurisdiction.

CPR 34 also allows a party to apply for a person to attend before an examiner to give a deposition. If the deponent does not attend, the applicant can apply for an order requiring the deponent to attend or answer questions or produce documents.

CPR 34 contains some provisions regarding obtaining evidence from foreign witnesses. The English court can send a formal letter of request for judicial assistance from a foreign court. If granted, the foreign witness will be compelled to attend for examination in their home jurisdiction and the evidence then provided for use in the English proceedings. There is currently a distinction in CPR 34 between witnesses domiciled in a Regulation State of the EU and Non-Regulation States, a distinction likely to disappear once Brexit takes effect. Otherwise, there are limited powers to compel foreign witnesses to give evidence if they are outside the jurisdiction. As mentioned in question 6, the court has the power to permit witnesses to give evidence by video link (this is not just limited to foreign witnesses), which can be a useful alternative for a witness unwilling or unable to enter the jurisdiction but willing to give evidence. Other options are to file and serve a witness statement (if possible) as hearsay evidence or apply for permission to file a witness summary if the evidence they would otherwise give is known. Arguably, less weight should be placed on evidence that cannot be tested through cross-examination at trial.

Publicly available information

What sources of information about assets are publicly available?

There are several publically available sources which can be searched to find information on assets, including the following.

  • The Driver and Vehicle Licencing Agency records the registered keeper of all taxed vehicles in the UK, although ‘reasonable cause’ will be required to gain access.
  • HM Land Registry maintains a proprietorship and charges register of ownership of freehold and leasehold land interests that can be searched if the property details are known. For companies, it is possible to obtain a list of all properties owned by them (using form PN1). Technically, this is also possible for individuals, but without a court order access is restricted to the individuals themselves or persons who can satisfy HMLR they have a genuine interest (ie, trustees in bankruptcy or personal representatives).
  • Companies House maintains a database of all UK-registered private limited and public limited companies and limited liability partnerships evidencing shareholders, registered charges and company accounts, which can be downloaded.
  • Market-listed companies are required to publish information and accounts on their website and file information with the relevant stock exchange that can contain useful information on potential assets or lines of enquiry.
Cooperation with law enforcement agencies

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

A party to civil proceedings can apply for a non-party disclosure order under CPR 31.17 (see question 10) against law enforcement agencies such as the police or Crown Prosecution Service, although there is protection in CPR 31.19 to withhold disclosure on the ground it would damage the public interest (public interest immunity), which is likely to be relied on for certain material.

The CPS guidance on disclosure of material to third parties states: ‘Information may only be supplied to a person with a genuine interest in the proceedings or contemplated proceedings in question’, which includes persons engaged in or contemplating civil proceedings or solicitors acting on their behalf.

Information can be provided voluntarily and is usually dealt with by the CPS, exercising its discretion based on the material being requested. Requests for witness statements, depositions and transcripts are most common and will usually be voluntarily disclosable but the consent of the maker will be sought first. If consent is refused, documents can still be disclosed if the interests of justice require it. Records of taped interviews, written records of interviews and summaries of interviews under caution will not be disclosed without a court order (subpoena duces tecum), as the maker would usually refuse to consent to disclosure. Any request is scrutinised to ensure its relevance to the civil proceedings. Evidence will not usually be disclosed until the criminal proceedings have been completed to ensure the trial process and enquiries are not prejudiced. Any evidence disclosed is subject to confidentiality undertakings by the recipient for use solely for the proceedings in question.

Third-party disclosure

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

There is an arsenal of powers available to the court to obtain information from innocent third parties, including:

  • As per question 7, issuing a witness summons under CPR 34 requiring a party to produce specified documents to the court. This cannot be used to fish for information or documents that may exist but must be based on a belief that the witness has the actual documents requested.
  • Making a non-party disclosure order under CPR 31.17 (which continues to apply notwithstanding the new mandatory disclosure pilot scheme in the Business and Property Courts - see CPR PD51U paragraph 1.9). This requires a party to make an application, supported by evidence, within existing proceedings (and is rarely ordered before the defence has been served) for disclosure by the third party of documents likely to support the case of the applicant or adversely affect the case of one of the other parties to the proceedings. The disclosure must be necessary to dispose fairly of the claim or save costs. Such an order requires the non-party to search for, compile and copy documents, where necessary, and the applicant is usually ordered to pay the reasonable costs of the non-party. The grant of the order is at the discretion of the court but the scope of documents that can be obtained is wider than under a witness summons; consequently, the cost implications to the applicant are higher.
Norwich Pharmacal order

This is most relevant to an innocent non-party wrongly caught up in wrongdoing (eg, a bank holding money appropriated by a fraudster). It requires the non-party to disclose documents (eg, bank account records) or other information (eg, account opening material, authorised signatories etc) to the applicant. This can provide the applicant with further lines of enquiry to trace assets.

Bankers Trust order

This relates to banks; it can require a bank to disclose the state of and documents and correspondence relating to the account of a customer to enable the applicant to locate or preserve assets.

Section 236 of the Insolvency Act 1986 powers

These empower an office holder (eg a liquidator) to compel a third-party individual to attend for private examination to answer questions or produce documents.

Order under CPR 25.1(g)

On the application of a party, the court can make an interim order directing another party to provide information about the location of relevant property or assets or about relevant property or assets which are or may be the subject of an application for a freezing injunction.

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 following are examples of the key interim remedies available in asset recovery proceedings.

Worldwide freezing orders

These prevent the respondents from dissipating or dealing with their assets anywhere in the world up to a specified value. They usually cover all assets the respondent has direct or indirect control over, whether or not legally or beneficially owned by the respondent (JSC BTA Bank v Ablyazov [2015] UKSC 64). Respondents are usually required to disclose all of their worldwide assets over a certain value, including beneficial interests in purely discretionary trusts (JSC MPB v Pugachev [2015] EWCA Civ 139). Worldwide freezing orders can be made against third parties where there is reason to believe their assets are beneficially owned by the primary respondent (TSB Private Bank International SA v Chabra [1992] 1 WLR). They can even be made against respondents whose identities are unknown (CMOC v Persons Unknown [2017] EWHC 3599). The criteria for obtaining them and domestic freezing orders are largely the same. In particular, the applicant must show there is a risk the respondent’s assets will be dissipated unless the order is made. Evidence of dishonesty is not, by itself, sufficient to show a risk of dissipation (UCB Home Loans Corp Ltd v Grace [2011] EWHC 851).

Injunctions

The court’s injunctive powers are broad and fall into two categories: ‘prohibitive’, which prevent the respondent from doing something; or ‘mandatory’, which require them to do something. Worldwide freezing orders are an example of the first, as are proprietary injunctions (ie, an injunction over specific assets in support of a proprietary or tracing claim). Where the applicant seeks a proprietary injunction, it is not necessary to show a risk of dissipation (Polly Peck International plc v Nadir [1992] EWCA Civ 3). A proprietary injunction was recently made against a third party cryptocurrency exchange holding bitcoins misappropriated from the applicant (Robertson v Persons Unknown). Notification orders do not freeze the respondent’s assets but require them to notify the applicant of any proposed dealings with the relevant assets (Holyoake v Candy [2017] EWCA Civ 92). Mandatory injunctions are typically used in asset recovery proceedings to require parties and third parties to provide information relevant to and/or in support of freezing orders (Gerald Metals v Timis (Vasile Frank) [2016] EWHC 2136).

Search and delivery up orders

Search orders require the respondent to allow the applicant to enter their premises and search for, copy, remove and detain information and documents. Alternatively, a delivery up order may be made that requires the respondent to hand over the information and materials identified in the order. Such orders can be made against third parties (Abela v Baadarani & Ors [2017] EWHC 269). It is also possible to seek a gagging or non-tipping off order to prevent the respondent from notifying others the order has been made (Hyperama Plc v Poulis & Or [2018] EWHC 3483). Such orders can be made against foreign defendants in respect of foreign premises (Cook Industries Inc v Galliher [1978] 3 All ER 945). The court has the power to make ancillary orders over material obtained, eg electronic devices can be imaged and password-cracking software used to access password-protected documents to review information pertaining to the respondent’s assets (Bank of Moscow v Chernyakov) (unreported).

Other orders

Examples include third party disclosure orders (see question 10), the appointment of receivers over a company, passport delivery up orders (see 18), interim payment orders and anti-suit injunctions.

The above orders can be applied for ‘without notice’, meaning the respondent is not made aware of the application or hearing at which the order is to be granted. To protect the interests of respondents, the applicant is subject to a duty of ‘full and frank disclosure’ (ie, he or she must tell the court about anything that might weigh against making the order sought). Further protection is often provided to respondents in the form of a cross-undertaking in damages.

Non-compliance with court orders

How do courts punish failure to comply with court orders?

Breaches of rules, directions and orders can be punished by a variety of means, including adverse costs awards and the striking out of statements of case. It may also possible for a party to seek a debarring order against their opponent, preventing them from pursuing or defending the claim. Relief from sanctions may be available depending on the significance of the breach, the reason for it and all the circumstances of the case (Denton v TH White Ltd [2014] 1 WLR 3926).

Serious breaches of court orders may be deemed to be contempt of court, for which penalties include unlimited fines, asset seizure and imprisonment for up to two years. Breaching a freezing order is usually viewed as being very serious and can merit an immediate term of imprisonment. Where there is a continuing failure to disclose relevant information, the two-year maximum sentence is more likely to be ordered (JSC BTA Bank v Solodchenko (No. 2) [2011] EWCA Civ 1241). Custodial sentences have also been handed down where a respondent has breached an order to preserve evidence (OCS Group UK Ltd v Dadi [2017] EWHC 1727), for breach of an anti-suit injunction (Mobile Telecommunications Co KSC v HRH Prince Hussam bin Abdulaziz au Saud [2018] EWHC 3749) and for making false statements in court documents (Otkritie International Investment Management Ltd v Gersamia & Or [2015] EWHC 821).

Drectors of a company may be liable for contempt if they are responsible for the company’s breach of an order and directors outside the jurisdiction can be subject to contempt proceedings in the jurisdiction where they are responsible for a contempt by a company subject to that jurisdiction (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?

Various statutes and international agreements prescribe the English court’s ability to seek the assistance of judicial authorities in another country where a proposed witness is based, for the purpose of obtaining evidence from them. These agreements include:

  • where the witness is in an EU member state - Council Regulation (EC) 1206/2001 (the Taking of Evidence Regulation);
  • where the witness is in a Hague Convention signatory state - 1970 Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters; and
  • where the witness is based in another UK jurisdiction - Evidence (Proceedings in Other Jurisdictions) Act 1975.

There are other bilateral arrangements between the UK and other jurisdictions. The High Court also has inherent jurisdiction to issue a letter of request where no other arrangements are in place, albeit this residual power is seldom used.

If a Brexit deal is reached, it is understood that the Taking of Evidence Regulation will remain in effect during the transition period. If the UK leaves without a deal, the Hague Convention will be effective in most European states.

Disclosure orders as set out above can be utilised as a springboard to seeking similar orders in the jurisdiction where the information is held. For example, we used the fact of the grant of a Norwich Pharmacal order in England to give the grounds for a ‘1782 disclosure order’ in a US jurisdiction. It is doubtful that Norwich Pharmacal orders can be served out of the jurisdiction on a foreign respondent following AB Bank Ltd v Abu Dhabi Commercial Bank PJSC [2016] EWHC 2082 (Comm), as Teare J held that none of the jurisdictional gateways were satisfied. This may result in a court not being willing to grant an order against a foreign respondent. However, CMOC v Persons Unknown (see question 11) is authority for the proposition that orders under CPR 25.1(g) can be served out of the jurisdiction. This is because it is expressly an interim remedy and, therefore, falls squarely within one of the jurisdictional gateways relating to the service of a claim made for an interim remedy (CPR PD 6B.3.1(5)).

Assisting courts in other jurisdictions

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

The English court can assist the courts of other jurisdictions in a number of ways, including by:

  • granting interim relief (including worldwide freezing orders) in aid of foreign civil proceedings pursuant to section 25 of the Civil Jurisdiction and Judgments Act 1982. The court will make such an order where the applicant would have been granted the relief had the main proceedings been before the English court, there is real connecting link to the jurisdiction and it would not be inexpedient to do so (eg, it will not hinder the main proceedings in the foreign court);
  • taking evidence from a witness within the jurisdiction on receipt of a letter of request pursuant to the statutes, conventions and agreements referred to in question 13;
  • enforcing judgments of foreign courts pursuant to Regulation (EU) No. 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Brussels I), the Administration of Justice Act 1920, the Foreign Judgments (Reciprocal Enforcement) Act 1933 or the Civil Jurisdiction and Judgments Act 1982. Alternatively, the English court can recognise foreign judgments at common law;
  • enforcing foreign arbitration awards under the New York Convention 1958; and
  • granting disclosure orders in aid of foreign proceedings where the information is held within the jurisdiction.

If a Brexit deal is reached, it is understood that Brussels I will remain in effect during the transition period. If the UK leaves without a deal, it has indicated that judgments of other EU/EEA states will be enforced where the proceedings were initiated before exit day. Common law rules will then apply to the recognition and enforcement of EU member state judgments.

Causes of action

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

‘Fraud’ is not a cause of action in English law and cases involving fraud do not necessarily involve dishonesty. However, typical causes of action in civil asset recovery include the following:

  • Fraudulent misrepresentation and deceit - party A may be liable if he or she knowingly make a false statement of fact, intending it be relied on, which is relied on by party B, who suffers loss as a result.
  • Conspiracy - encompasses either the use of unlawful means in furtherance of an agreement and an intention to cause injury to the victim or the use of lawful means in furtherance of an agreement which has as its predominant purpose the causing of injury to the victim.
  • Breach of trust or fiduciary duty - a party subject to actual or constructive trust obligations dealing with trust assets contrary to those obligations or breaching their fiduciary duty by making unauthorised profits or causing loss to their principal may be liable to pay damages or return misappropriated assets to the trust. These causes of action often give rise to proprietary claims.
  • Bribery - the payer or receiver of a bribe may be liable to pay damages to anybody that suffers loss as a result of the bribe being paid.
  • Dishonest assistance, knowing receipt and unjust enrichment - third parties who knowingly facilitate or receive the proceeds of fraud may be liable to pay damages to the victim. Even where the recipient has not acted dishonestly, he or she may be liable to return assets to the victim pursuant to a claim for unjust enrichment.
Remedies

What remedies are available in a civil recovery action?

There are a wide range of remedies available to a claimant in civil proceedings for the recovery of assets. Their availability depends on the cause or causes of action pursued. Often the availability of a particular remedy will inform the decision-making process as to what claims to bring. The remedies can be split into common law and equitable remedies. Some remedies such as rescission are available in both law and equity but with different effects. Common law remedies are generally damages for torts. In the scope of a fraud claim, these will be primarily for deceit. Equitable remedies include both personal and proprietary relief. Personal relief is against the defendant personally. Proprietary relief is against a particular asset, or assets derived from a particular asset. Personal equitable relief includes rescission, an account of profits, equitable compensation and forfeiture of fees.

Damages in deceit are to compensate for loss caused by the defendant’s fraudulent misrepresentation. Equitable remedies are available for breaches of fiduciary duty, breach of trust and causes of action related to these, such as dishonest assistance and knowing receipt.

Judgment without full trial

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

A claimant can obtain judgment without a full trial in a number of ways. A procedural default judgment can be obtained if the defendant fails to either acknowledge service of the claim or to serve and file a defence within a certain period. As the judgment is procedural, a claimant is wise to consider the enforcement steps he or she might want to take and in which jurisdictions. Many foreign jurisdictions will not recognise a procedural (as opposed to a substantive) judgment. In the event that foreign enforcement is necessary, as is often the case in fraud matters, even if default judgment is available it is often preferable to seek summary judgment, but without the defendant being able to raise a defence.

Summary judgment is a substantive judgment on the merits and will be recognised in many jurisdictions subject to reciprocal enforcement of judgments treaties or practice. It is available where the claimant has a very strong claim. The test is whether the defendant has a real prospect of defending the case at trial and, second, whether there is any other compelling reason why the case should proceed to trial. If the answer to both questions is no, summary judgment will be awarded.

It is quite possible that, during the course of fraud proceedings, a defendant will be found to be in contempt of court for breaching the terms of, or failing to comply with obligations in, a freezing injunction. As well as committal to prison, the court is able to order that a defendant be debarred from defending the claim. This will either lead to judgment being entered or the possibility for the claimant to make an application for summary judgment. This was the order made in JSC BTA Bank v Ablyazov [2012] EWHC 237 (Comm), which was upheld on appeal in JSC BTA Bank v Ablyazov [2012] EWCA Civ 1411.

A debarring order or an order striking out a defence is available for breaches of other orders as well provided there is a risk of continuing injustice to the claimant as a result.

Post-judgment relief

What post-judgment relief is available to successful claimants?

As well as methods of enforcement (see below), the same relief that is available to a claimant on an interim basis is available post-judgment to assist with enforcement. This includes freezing injunctions, the appointment of a receiver and disclosure orders. There is no longer a need to prove a good arguable case where a judgment has been obtained and the court is willing to grant wide-ranging orders to ensure its judgments are met. It is not a bar to relief that no such orders were sought on an interim basis.

It is possible to obtain orders for disclosure ancillary to a post-judgment freezing injunction, as well as under CPR 71. CPR 71 enables a judgment creditor to apply for an order that the defendant attend court to answer questions about their assets, which can also include the provision of documents. Failure to comply with an order obtained under CPR 71 can be a contempt of court.

One very powerful post-judgment remedy is a passport order, requiring the defendant to surrender their passport until compliance with a specific enforcement step (eg, an order for oral examination under CPR 71). It would not, however, be appropriate for the court to make an order for delivery of a passport until payment of a judgment debt.

An order appointing a receiver can be used creatively in relation to the assets over which an appointment can be made. In one case, a receiver was appointed over a power of revocation in a trust which had been reserved to the settlor (Tasarruf Mevduati Sigorta Fonu v Merrill Lynch Bank and Trust Co (Cayman) Ltd [2012]1 WLR 1721).

Enforcement

What methods of enforcement are available?

Enforcement methods available in the English courts are charging orders, writs of execution, third-party debt orders and liquidation or bankruptcy. Charging orders can be obtained over shares or real property and can be followed by proceedings for an order for sale. An order for sale can include a power for the court to sign any transfer in the event the defendant does not comply with the order.

A third party debt order is obtained against a third party who owes a debt to the judgment debtor. Commonly, this is obtained against a bank account in the defendant’s name but could be against any third-party debtor.

A writ of execution can be executed by bailiffs against property owned by the defendant, effectively seizing it and realising its value to go towards satisfying the judgment debt.

All of the above methods of enforcement can be pursued in tandem, although credit must be given for any sums recovered through enforcement. Thought should be given to the order in which enforcement steps are taken to be effective.

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?

As with all litigation in the English courts, various funding structures are available. Solicitors and barristers are able to offer conditional fee agreements, where recovery of costs is dependent on a win and based on costs incurred, or damages-based agreements, which are effectively contingency fees where a share of the damages recovered is paid to the lawyers. It is possible to obtain third-party funding, where a funder agrees to fund legal fees in return for a share of the damages. The usual rate at which a funder wishes to recover is to get their outlay back and double their outlay on top. This can be an expensive method of funding a case but sometimes even a small amount of the damages recovered is significantly better than nothing in the event proceedings cannot otherwise be pursued.

Such arrangements are usually coupled with after-the-event legal expenses insurance. This insures the claimant against losing and having to pay the other side’s costs. It is also possible to insure your own costs if the lawyers are not prepared to take all the risk themselves on a DBA or CFA. Sometimes ATE products can be used to hedge risk and make the cost of third-party funding less expensive.

Disbursement-only funding can be obtained at a lower cost than funding all of the legal costs, which can be useful if the lawyers are prepared to take a risk on fees, under a CFA or DBA, but there are likely to be significant disbursements such as experts’ fees or investigators’ fees and these cannot be put on a contingency basis.

In fraud cases, it is likely that certain steps may need to be funded by the claimant before decisions can be made on these sorts of funding arrangements, such as obtaining disclosure of the defendant’s assets or identifying assets through investigators.

The court has various powers to control costs, which is part of its mandate under CPR 1.1. The court also has significant costs management powers under CPR 3.12. In cases with a stated value of less than £10 million, unless any of the exceptions apply, costs budgets are prepared by each party and approved by the court at the first case management conference shortly after the issue of proceedings. Unless increases to budgets are agreed, it is not possible to recover costs over and above those approved by the court absent an application during the litigation due to a ‘significant development’. If the case has settled and a party wants to depart from the costs budget, he or she will need to show ‘good reason’ before a costs judge. The test of proportionality is central to costs management and costs assessment post the Jackson Reforms (April 2013), which gives the court, arguably, its most effective costs control weapon.

Criminal asset recovery

Interim measures

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

The court may make a restraint order prohibiting the suspect or defendant (as applicable) from dealing with any of their property. Restraint orders can also extend to prevent any other persons from dealing with any property they have received from the suspect or defendant (as applicable) in exchange for a consideration that was significantly less than the value of the property at the time of the transfer. Such property is called a tainted gift.

To make a restraint order, the court has to be satisfied either that a criminal investigation has started in England and Wales in relation to an offence or that proceedings for an offence have been started in England and Wales and not concluded and that there are reasonable grounds to suspect that the alleged offender or defendant (as appropriate) has benefited from their criminal conduct. The court must also be satisfied that there is a risk that assets would be dissipated if the order were not made. Restraint orders can also be made where confiscation cases are reconsidered or where a defendant absconds.

Restraint orders can be supplemented by management receivership orders, which will typically be considered in cases where the restraint order is made against a business and a prohibition on dealing in assets risks causing it to fail and so lose value.

There are limited powers of seizure. Certain law enforcement officers can do so where a person has been arrested and there is no restraint order affecting that person’s property provided the officer is satisfied that the property would otherwise be unavailable to satisfy any confiscation order or would otherwise be diminished in value. The property can only be subsequently detained under judicial oversight. Separate rules apply to the seizure of cash, which is dealt with under a civil process.

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?

No. Generally, whether and, if so, when a confiscation investigation is started is a matter for the relevant law enforcement agency. However, if on the conviction of a defendant, the prosecution does not ask the court to pursue confiscation, the judge can decide to do so if he or she believes it appropriate to do so. Such a decision by a judge would have the effect of forcing a confiscation investigation to be started.

Confiscation – legal framework

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

A confiscation order is a debt calculated by reference to the extent of the defendant’s benefit from hos or her criminal conduct subject to their ability to pay. As it is a debt, it can be enforced against any of their assets, however they were acquired, as well as any tainted gifts he or she may have made.

Ordinarily, the benefit figure is equivalent to the value of property obtained as a result of or in connection with the defendant’s criminal conduct. Different rules apply in more serious cases. If defendants are convicted of a specified serious offence or the offence of which they were convicted was committed over a period of at least six months or the defendants have a record of previous offending, then the court must treat them as if they had a criminal lifestyle. In such cases, its starting point in calculating benefit is to assume that all property transferred to them and all their expenditure within a particular period of time, generally fixed at six years before the start of the criminal proceedings against them, as well as all property they held after their conviction, represents their criminal benefit. The court must also assume that all this property is free of any other interests in it. However, the court must not make the assumptions if they are shown to be incorrect or they present a serious risk of injustice.

Having calculated the defendant’s benefit, the court must then decide the recoverable amount and make a confiscation order in that sum. The starting point is that the recoverable amount is an amount equal to the defendant’s benefit from the conduct concerned. However, if the defendant can show that the available amount is less than that benefit, then the confiscation order is made in a sum equivalent to the available amount or in a nominal sum if the available amount is nil. For these purposes, the available amount is the aggregate of all of the defendant’s property, making allowance for obligations that have priority, and any tainted gifts that the defendant may have made.

Finally, before making the confiscation order, the judge must satisfy him or herself that the order is proportionate.

Confiscation procedure

Describe how confiscation works in practice.

On the conviction of a defendant, the judge must apply the statutory scheme for making a confiscation order if he or she is asked to do so by the prosecutor. However, this duty to proceed does not extend to cases where the judge believes that any victim of the defendant’s conduct is suing or intends to sue the defendant in the civil courts for damages arising from the defendant’s conduct. In such a case, the judge may order confiscation proceedings to proceed if he or she considers it generally appropriate to so, even if the prosecutor has not asked for them.

When confiscation proceedings are pursued, the judge will lay down a timetable for the service by the prosecution of a statement of its case, called a statement of information, and then for any response to it that the defendant may wish to make. Confiscation proceedings are conducted in open court and both parties may call witnesses, who may be cross-examined. The court may postpone confiscation proceedings for up to two years of the defendant’s conviction or longer where there are exceptional circumstances.

Agencies

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

All law enforcement agencies may do so, as may private prosecutors.

Secondary proceeds

Is confiscation of secondary proceeds possible?

This is not an issue in England and Wales. The confiscation order is a debt calculated by reference to the statutory scheme described above. As with any other debt, it may be enforced against any of the defendant’s property, however it was obtained, as well as any tainted gifts the defendant may have made.

Third-party ownership

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

The confiscation order is a debt, and is enforced against the property of the person who owes it, namely the defendant. It can also be enforced against any tainted gift the defendant may have made, namely, any transfers of property to another person for a consideration whose value is significantly less than the value of the property at the time of the transfer.

Expenses

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

Yes, but costs orders ought not to be made where the available amount is less than the benefit figure.

Value-based confiscation

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

See the description of the way in which confiscation orders are made in question 28.

Burden of proof

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

The prosecutor has the burden of establishing the benefit figure, while the defendant has the burden of proving both that the assumptions in a criminal lifestyle case should be displaced and that the available amount is less than the realisable amount. The standard of proof is the balance of probabilities.

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?

Compensation orders can be made and the Proceeds of Crime Act 2002 prioritises the payment of compensation over confiscation in cases where the defendant does not have sufficient means to satisfy both orders in full.

Confiscation of profits

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

Yes, the definition of benefit in the Proceeds of Crime Act is sufficiently wide to include profit.

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.

Yes. There are two types of in rem process.

The first relates to cash and bank accounts. Law enforcement officers may seize cash of not less than £1,000 and obtain a court order allowing its detention for a fixed period of time or obtain a court order freezing a bank account containing not less than £1,000 for a fixed period of time. In obtaining these court orders, law enforcement officers must show reasonable grounds for suspicion that the cash or money in the bank account was obtained by or in return for criminal conduct or was intended for use in such conduct. The cash or contents of the bank account may be forfeited to the state if the law enforcement agency can later prove, on the balance of probabilities, that the cash or bank account’s contents were, in fact, obtained by or in return for criminal conduct or was intended for use in such conduct.

The second is a more wide-ranging power. Certain senior criminal justice officials may seek an order from the civil court, allowing it to recover property of a minimum value of £10,000 where that property is or represents property that was obtained by or in return for criminal conduct, a concept that has recently been extended expressly to cover gross human rights abuses or violations. If the enforcement authority proves its case on the balance of probabilities, the court will make an order vesting the property in a trustee for civil recovery, who is then under a duty to realise the property and pay its proceeds to the state.

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?

As already noted, where a restraint order is already in place, preventing a person from dealing with assets, the court can appoint a management receiver to help preserve their value. This power is intended for cases where a business is subject to a restraint order. Management receivers have the powers given to them by the court in the order appointing them. Such powers can include the power to take possession of property, manage or otherwise deal with property - a concept that includes carrying on any trade or business - start, carry on or defend any legal proceedings in respect of the property and to realise so much of the property as is necessary to meet the receiver’s remuneration and expenses. As is clear from this last power, receivers are entitled to their remuneration from the assets under their management. That such expenses can be very significant and end up being borne by the owner of the property, who might not end up being convicted, means that the courts have said that he or she should keep a close control over those he or appoints to act as receivers on their behalf and that costs are not too readily incurred, particularly before any confiscation order is made.

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.

Where the UK has entered into a treaty with another state or states providing for the supply of mutual legal assistance, various domestic statutes provide a legal basis for a criminal justice agency to seek the assistance promised in the treaty. The request for mutual legal assistance is made in a letter of request, signed by a designated prosecutor, and submitted for onward transmission to the UK Central Authority. It will satisfy itself that the letter of request is made within the terms of the relevant treaty and then send the letter to the requested state for its action. This process can be used to obtain evidence, restrain assets or secure assistance in enforcing a confiscation order.

Within the EU, a principle of mutual recognition of judicial orders applies. This is given effect in domestic law by the Criminal Justice and Data Protection (Protocol No. 36) Regulations 2014. It provides a mechanism for a prosecutor who has obtained a restraint or confiscation order to apply to the criminal court for a certificate to the effect that there is property that is the subject of the restraint or confiscation order in another member state. On the court granting the certificate, the prosecutor should send the order and certificate directly to the appropriate authority in the member state concerned, which should, in turn, deal with it timeously and without further formality. This is correct as at 30 September 2019.

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.

Requests for assistance are made to the UK by letter of request. Such letters are received by the UK Central Authority, which reviews them for compatibility with treaty obligations and then issues them to the criminal justice agency best placed to deal with the request. Where the request for mutual legal assistance consists of protecting assets from dissipation or enforcing a confiscation order, a prosecuting authority will make an application to the Crown Court for a restraint order or the registration of the overseas confiscation order.

Where the request is for assistance in gathering evidence, such as securing a production order for banking materials, the request will be referred to a law enforcement agency to act on. However, if the request is simply to trace assets, then overseas authorities should proceed on a police-to-police basis without issuing a letter of request.

If the request comes from an EU member state and seeks recognition of a restraint or freezing order or a confiscation order, it is submitted to a relevant prosecuting authority. The English and Welsh prosecutor must review the member state’s order for compatibility with the scheme and then, assuming compatibility, submit the order to the Crown Court, which must timeously give effect to those orders. This is correct as at 30 September 2019.

Treaties

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

The full list is available from the Foreign and Commonwealth Office’s website.

Key conventions include:

  • the 1990 Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds of Crime;
  • the 2005 Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds of Crime and on the Financing of Terrorism;
  • the 2000 UN Convention against Transnational Organised Crime; and
  • the 2003 UN Convention against Corruption.
Private prosecutions

Can criminal asset recovery powers be used by private prosecutors?

If a defendant is convicted following a private prosecution, it is possible to invite the court to make a compensation order as part of the sentence, pursuant to sections 130-134 of the Powers of the Criminal Courts (Sentencing) Act 2000. Compensation will only be awarded to an individual or organisation if it can demonstrate that it has suffered loss or damage as a result of the crime.

Once a defendant has been convicted, the private prosecutor may apply to the Crown Court for a confiscation order under section 6 of the Proceeds of Crime Act 2002. The Criminal Division of the Court of Appeal approved the use of this regime by private prosecutors in R v Somaia [2016] EWCA Crim 2267. The purpose of the order is to deprive defendants of the financial benefit they obtained from their criminal conduct.

It is possible to ask the Crown Court to make both a compensation and confiscation order. When that occurs, the victim will be compensated from the monies received in response to the confiscation order.

Update and trends

Emerging trends

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

Emerging trends39 Are there any emerging trends or hot topics in civil and criminal asset recovery in your jurisdiction?

The past 18 months has seen some interesting developments in both criminal and civil asset recovery. The Criminal Finances Act 2017 introduced two significant tools for criminal asset recovery: the unexplained wealth order and the account freezing order. The former has attracted significant publicity - heralded as the ‘McMafia order’ designed to target overseas individuals who are suspected of involvement in bribery and corruption (in particular, oligarchs from the former Soviet states) - and there have been many lurid headlines about the lavish lifestyles of those made subject to the very few orders granted to date. It remains to be seen how widely such orders are used, and the Court of Appeal is expected to hand down important guidance on their use when it hears an appeal against one of them towards the end of the year.

The account freezing order, on the other hand, is less well known but has been more readily embraced by law enforcement agencies. Several hundred of these orders have been made so far, in respect of accounts containing sums ranging from the low thousands of pounds to the tens of millions. This order is, to all intents and purposes, an extension to the cash seizure and forfeiture regime under the Proceeds of Crime Act 2002 and, as an order obtained in the magistrates’ court, has the attractions of simplicity and low cost. Furthermore, the threshold for such an order to be granted is very low: a mere reasonable suspicion that the funds in the account are recoverable property (ie, they represent the proceeds of crime or are intended for use in criminal conduct). To date, no account freezing order has been successfully challenged and practitioners in this field are keeping a close watch on developments.

In the civil arena, the courts are proving to be much more willing to discharge freezing injunctions for a breach of the duty of full and frank disclosure that must be complied with when an applicant seeks a without notice order. It is, therefore, extremely important to have this in mind when preparing the application, as to seek an order and then have it discharged is the worst possible outcome for victims of fraud seeking to recover their assets.

The authors would like to thank Hannah Fitzwilliam, Richard Clayman, Daniel Staunton, Elena Matsa and Ed Smyth for their assistance with this chapter.

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