Fraud and summary judgment

| Author: Secretariat | Filed under: General News
Fraud and summary judgment

Historically, where a claimant pleaded fraud, they were not entitled to make an application for summary judgment. The reason for this so called “fraud exception” was that due to the serious nature of the allegations and consequences of such, it would be inappropriate for such matters to be determined at an interim stage without defendants being afforded the opportunity to fully explore the issues at trial. This exception was abolished in England and Wales in 1992, and yet it has remained difficult to meet the threshold for summary judgment in fraud cases.

Summary

Historically, summary judgment was not available in fraud cases.
The “fraud exception” was abolished in England and Wales in 1992, yet it has remained difficult to meet the threshold for summary judgment in fraud cases.
A recent decision in Foglia v The Family Officer Ltd and others [2021] EWHC 650 (Comm) serves as an encouragement that summary judgment can be achieved even in complex fraud cases.

What is summary judgment?

The aim of the summary judgment procedure is to promote the quick determination of cases, avoid long-running litigation and save costs. Rule 24.2 of the Civil Procedure Rules sets out the grounds for summary judgment. It states that the court may give summary judgment against a claimant or defendant on the whole or part of a claim if:

(i) the claimant has no real prospect of succeeding on the claim or issue; or

(ii) the defendant has no real prospect of successfully defending the claim or issue; and

(iii) there is no other compelling reason why the case or issue should be disposed of at a trial.

Generally, courts are cautious in circumstances where there is a summary judgment application made in a complex case or where there are allegations of fraud not least because “…experience teaches us that on occasion apparently overwhelming cases of fraud and dishonesty somehow inexplicably disintegrate.”[1] This is against the historical backdrop that, prior to 1992, summary judgment was not available in fraud cases in England and Wales. Although, a narrow interpretation had led to inconsistencies in the application of this rule, meaning that summary judgment was available for certain types of case involving an element of dishonesty or fraud but not others.

Equally, the courts will not allow parties to hide behind inadequately pleaded cases of fraud in order to avoid summary judgment (for further information on the requirement for pleading fraud please see our previous article https://tenetlaw.co.uk/articles/what-are-the-requirements-for-pleading-fraud/).

It is still considered rare for judges to award summary judgment in cases of fraud, although not impossible, as the following case demonstrates.

attractive to those wanting to avoid detection.

A summary judgment is a judgment entered by a court for one party against another party summarily, i.e. without a full trial.

The facts

The case involves €15million of the Claimant’s money being diverted to accounts held by the Defendants as a result of fraudulent telephone calls made to the Cayman bank which held the Claimant’s account. Once the Claimant was aware of fraud, she made a number of urgent applications resulting in a worldwide freezing order, disclosure orders against a number of the Defendants and various non-party disclosure orders against financial institutions and others. As a result of the information produced the Claimant was able to trace and recover €11.5million, leaving £3.5million outstanding.

In a case where the fraud was perpetrated by the use of technology, it was technology that allowed the Claimant to meet the threshold for summary judgment being that the Defendants had no real prospect of defending the claim and there was no other compelling reason for the claim to go to trial.

Overwhelming evidence

The Claimant, through the use of various non-party disclosure orders, was able to link the Defendants to the fraud.

For example, through a non-party disclosure order made against Vodafone, the Claimant was able to establish that the mobile “burner” phone used to make calls to conduct the fraud was linked to the Defendants, having been purchased and used in the vicinity of the Mayfair offices of the First Defendant.

A further non-party disclosure order made against a bank was able to identify the card used to purchase the mobile “burner” phone, which was funded by the First Defendant.

This evidence coupled with the evidence of the money very quickly being dissipated to other Defendant companies and parties with whom the Defendants were connected ultimately led the court to determine that there was no real prospect of defending this claim. Another significant factor was the Defendants’ lack of action to investigate various technical issues regarding Whatsapp and email evidence in the 7 months since the application in circumstances where the Defendants wanted the opportunity to investigate such matters at trial.

attractive to those wanting to avoid detection.

A non-party disclosure order is an order for disclosure made against a party who is not involved in the proceedings, in circumstances where the documents sought are likely either to support the case of the applicant or adversely affect the case of one of the other parties to the proceedings, and disclosure is necessary to dispose fairly of the claim or to save costs.

Comment

This case demonstrates the effectiveness of non-party disclosure orders in unearthing key and compelling evidence even in complex frauds of this nature. It will also serve as an encouragement to victims of fraud that quick and decisive legal action can achieve a positive outcome. A summary judgment can save the time, costs and stress of running a piece of litigation to trial. Inevitably, the up-front costs of urgent and injunctive applications and non-party disclosure applications will be significant, but can be the difference between being able to trace and recover funds and not.

Source:  Lexology

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