Enforcement Issues in Civil Fraud Cases and How to Overcome Them

Claims in civil fraud face particular challenges with enforcement. In some circumstances, even if you are successful in achieving judgment in your favour, it does not necessarily guarantee the recovery of your money.

In this article we look at some of the common barriers to enforcing a judgment, and how to overcome them.

Assets have been dissipated

The legal mechanisms to protect a claimant from the risk that a defendant will dissipate their assets are:

• Freezing orders
• Third party orders

Freezing orders restrain a defendant from dealing with their assets. We have prepared an in-depth guide on freezing orders for more information on how they work in practice.

Third party orders are a way for claimants to recover sums from anybody who owes money to the defendant. Under CPR 72 a judgment claimant can recovery money from third parties, who owe an outstanding debt to the defendant. Their debt will be paid directly to the successful claimant instead.

The defendant is uncooperative

It is not uncommon for a defendant to be uncooperative in legal proceedings in which they are accused of fraud. In those circumstances, claimants can seek:

• An order to attend court to provide information to assist enforcement
• A receivership order
• A contempt of court order

Orders to provide information

Under CPR 71 a debtor can be required to attend court to provide information that will help a judgment creditor to enforce the judgment against them. If the debtor fails to appear or comply, then they could be held in contempt of court, facing a fine, imprisonment or confiscation of assets.

Receivership orders

CPR 69 allows the court to appoint a receiver, a power which is derived from section 37 Senior Courts Act 1981. The receiver effectively takes control of the debtor’s assets. Given that the debtor effectively loses control of their assets, it is a particularly draconian order; even more restrictive than a freezing injunction.

The reason to seek a receivership order is if the creditor suspects that the debtor is not being transparent about their assets. This was the case in the high-profile Ablyazov litigation^[1]. The defendant was subject to a freezing order and an order to provide disclosure of his assets.

But that didn’t go for enough to allay the claimants’ concerns. There were large amounts of money left unexplained. The court agreed that the freezing order did not adequately protect against the risk of dissipation, while the whereabouts of significant sums were unidentified. The court appointed a receiver to deal with the assets in compliance with the freezing order.

In practice, a receiver is often an insolvency practitioner. They have the required expertise investigating assets and managing a business. Their primary duty is to collect the property over which they are appointed as receiver.

Contempt of court orders

A contempt of court order is one of the most serious orders in civil litigation and arises out of the failure to comply with a court order.

The Ablyazov litigation is a prime example of escalating enforcement mechanisms, culminating in a contempt of court order and arrest warrant. Mr Ablyazov failed to comply with court orders, breached a freezing injunction, and received a 22-month prison sentence for contempt of court. He was debarred from defending himself further in proceedings.

Death of the perpetrator

In some cases, the person responsible for committing the fraud has died either before the fraud has been discovered, or before the case has been brought to court. In those circumstances, it may be possible to achieve justice through:

• Third party debt orders (discussed above)
• Claims against third parties
• Pursuing any co-conspirators

Claims against third parties

In theory it is possible to advance claims against third parties. These may be the fraudster’s accountant, bank, fellow fiduciaries in the company or company administrators. The action would be one for accessory liability and the crucial point to prove is what any of these third parties knew in terms of ‘constructive knowledge’.

However, these claims are notoriously difficult to prove. Establishing ‘dishonesty’ on the part of the third party is usually problematic.

Pursing co-conspirators

One of the most high profile instances of an attempt to pursue co-conspirators to a fraud is the Maxwell litigation in the 1990s. Robert Maxwell perpetrated one of the ‘great frauds in history’ by looting millions from the pension fund of the Mirror Group. It was discovered that around £480 million was missing from the funds.

Robert Maxwell disappeared from his yacht in 1991, later to be found dead by apparent suicide.

Robert Maxwell’s two sons, Kevin Maxwell and Ian Maxwell, and a former executive Larry Trachtenberg, were accused of conspiring to defraud the pension plans of the Maxwell-owned companies. They denied knowledge of the fraud, saying that Robert Maxwell had not given them insight into the true position of which entities controlled which shares.

While the defendants faced pressure and sceptism about whether or not they were co-conspirators, the jury acquitted them after an eight-month trial.

However, there was some reprieve for the affected pensioners, through recovery from third parties. The majority of the missing funds was recovered through settlements from the funds and the Maxwell companies and their auditors and financial advisers.

In a more recent example, Remington Chase died in August 2023, with accusation of fraud to the value of $234 million lingering over him. It is reported that those who lost funds through Chase’s fraudulent scheme will seek recourse from the co-conspirators.

Final thoughts

The court has adapted to find ways to administer justice in cases of fraud, even where unscrupulous fraudsters seek to avoid the consequences. There is an escalating scale of mechanisms available to claimants to both protect, and recover stolen assets. While in some rare cases (like Ablyazov) enforcement remains a challenge, the tools available to a judgment creditor will often bring recourse to a judgment creditor.

Sources:

1. JSC BTA Bank v Ablyazov [2015] UKSC 64