Author: Nicola Sharp
5 September 2023
6 min read
Civil fraud is a complex and growing area of law. Over the years, we have seen increasingly complicated frauds, often with multi-jurisdictional elements handled by the courts of England and Wales.
This article looks at a few of the most notorious civil fraud cases heard in the UK.
Described as a “vast litigation behemoth” the proceedings against Mukthar Ablyazov (Mr Ablyazov) generated nearly 50 interim applications and an amount of new case law. This article does not analyse each and every decision, but you can find a summary of the judgments here.
In this article, we look at the precedents set for the procedure and standards for the recovery of assets held in separate jurisdictions worldwide.
JSC BTA Bank v Ablyazov and its related complaints, judgments and appeals involve JSC BTA Bank in Kazakhstan and its former chairman, Mr Ablyazov. The bank accused Mr Ablyazov of mismanaging and embezzling between $8 billion and $12 billion of BTA capital.
Proceedings began in 2009 and were pursued in various jurisdictions in order to recover stolen assets. One of the most recent decisions came out in December 2022 in America. After a trial about Mr Ablyazov’s embezzlement and money laundering, the bank was awarded over $218 million.
The value of the UK proceedings alone totals around $6 billion, plus interest. But through the course of proceedings, Mr Ablyazov has remained uncooperative and is currently on the run in France.
So, what can we learn from this enormous body of litigation? In broad brush terms, this litigation develops the law around the protection of assets that a successful claimant can enforce. And it demonstrates the tools at the court’s disposal to escalate orders and impose more restrictive terms on uncooperative defendants.
Freezing orders: The Supreme Court held that loans are to be considered as assets within the meaning of the standard Commercial Court form of a freezing order. This decision ended a long-running controversy over the breadth of freezing orders. A respondent can no longer enter into loans to frustrate a freezing order and the underlying claim that the freezing order seeks to protect.
Receivership orders: The bank was concerned that Mr Ablyazov had not disclosed his assets accurately, and they suspected that he may try to dissipate assets (either disclosed or not). For those reasons, the bank applied for a receivership order in support of the freezing order. This is a draconian order pursuant to which a receiver takes control of the assets in place of the defendant. It is justified in circumstances where the freezing order is inadequate protection.
This case clarified the test for the appointment of a receiver.. The Court extended the receivership in time to cover 600 of Mr Ablyazov’s undisclosed companies and it gave the receivers greater control of the assets.
Where the defendant holds assets in complicated schemes, across various jurisdictions, the receivership order is a powerful tool to protect against dissipation of the assets.
Enforcement: What can the Court do In circumstances where the defendant breaches a freezing order or a receivership order? In this case, the bank was successful in its application for a contempt of court order. That left Mr Ablyazov forbidden to defend himself in further proceedings.
However, enforcement remains an issue in this case. Despite Mr Ablyazov being charged, he is on the run in France and billions of dollars are left unaccounted for. The UK High Court of Justice has twice issued arrest warrants on him, most recently on 25 July 2019, and extended to 22 months a court-ordered detention originating in 2012 for a contempt of court judgement.
Considered to be the UK's biggest-ever fraud trial, this was a claim for fraudulent misrepresentation to the value of $5 billion (although damages in the case are expected to be lower).
Hewlett-Packard claimed that it was induced into acquiring Autonomy by dishonest statements and omissions in Autonomy’s published information and by other fraudulent misrepresentations made personally by Dr Lynch (the former CEO of Autonomy) and Mr Hussain (the former CFO of Autonomy).
The trial lasted ten months, and the Judge recorded that he believed it to be “amongst the longest and most complex in English legal history.”
This case was the first to come to trial in the English courts that addressed liability under section 90A and Schedule 10A of the Financial Services and Markets Act 2000. Under this piece of legislation, issuers are liable to people who have suffered loss as a result of misleading information in certain published information relating to securities.
Autonomy was found to have published misleading information about its business, which HP relied on in agreeing to buy Autonomy for an inflated price. Dr Lynch and Mr Hussain were liable to Autonomy as they knew about that misleading information.
One of the interesting points in this landmark case is that the Judge noted that there is no defence to a claim for fraud under the Financial Services and Markets Act 2000 (FSMA) on the basis that a claimant had the means of discovering the truth. While there is usually a presumption of “caveat emptor” in mergers and acquisitions, it is no defence to a FSMA or a fraud claim that the claimants had the means of discovering the truth; and no defence of contributory negligence or “caveat emptor” is available (see para 519 of the judgment).
Equally, directors cannot raise a defence that they omitted facts in published information on the advice of auditors or other professionals. This is a high standard to place on directors, who must take personal responsibility for their decision-making.
Bernie Madoff orchestrated what’s thought to be the largest Ponzi scheme in history, which defrauded investors out of tens of billions of dollars over the course of at least 17 years. The main criminal proceedings took place in the USA and resulted in Mr Madoff receiving a prison sentence of 150 years.
But there was spin-off civil litigation in the UK, with the most prestigious case being the claim brought by the liquidators against named directors of the London subsidiary, Madoff Securities International Ltd (MSIL). MSIL was not part of the Ponzi scheme. It was conducting its own legitimate business in London.
After a stressful trial, all the claims against each of the defendants failed. Popplewell J commended the defendants for their dignity and restraint. He said that Bernard Madoff’s fraud “blighted their lives and tainted their good names simply by association.”
MSIL was found to be used by Bernard Madoff as a vehicle to perpetrate and conceal the Ponzi scheme fraud and to launder the proceeds of the fraud.
In terms of the law, Madoff Securities International Ltd v Raven  EWHC 3147 (Comm), provides useful direction on the scope of section 212 of the Insolvency Act 1986, which applies to liquidators seeking to increase the pool of assets available for distribution to unsecured creditors.
This case isn’t part of vast and sprawling litigation. But it was a high-profile, multi-million-pound, complicated claim, which culminated in a three-month trial in 2017.
It began as a derivative claim and later developed into additional claims for deceit, breaches of fiduciary duty, bribery and secret commissions.
One of the interesting points of this judgment is that the deceit claims succeeded in fairly unusual circumstances. One of the people who was alleged to have been deceived gave no evidence at all. The other gave evidence that he was not deceived.
Of course, deceit is notoriously difficult to prove, as concealment and mis-direction lie at the heart of the tort. In this judgment, Mr Justice Nugee considered the documents closely, and the reliability of the oral evidence given by the witness who testified.
He found that one of the defendants had deliberately altered an important diagram to make the documented business plan more opaque. He was not persuaded that the people who ran the relevant trust were told where £12.5 million was being invested and came to the conclusion on the balance of probabilities that they were not told the truth.
These examples demonstrate the scale and complexity of fraud cases that the courts of England and Wales are equipped to deal with.
International litigants often choose the English courts to seek remedies for frauds that took place overseas because the courts are trusted to handle complicated matters with upstanding fairness.
We have also seen the sophistication of the remedies available to English courts and the escalating techniques being deployed against fraudsters.
The tools at the disposal of the courts, such as worldwide freezing orders, have cross-border effect to limit the damage of frauds perpetrated in multiple jurisdictions.
While a worldwide freezing order is a stringent measure, if it is considered insufficient to stop an unscrupulous defendant from dissipating their assets, then the court can impose more restrictive and punitive orders, such as a receivership order or an order for contempt of court.
Nicola is known for her fraud, civil recovery, arbitration and business crime expertise, her experience of leading the largest financial disputes and multinational investigations and her skills in devising preventative measures and conducting internal investigations for corporates.