The Civil Courts' Weapons in the Fight Against Fraud

The civil courts in England and those that follow English law have a very powerful arsenal of weapons for use against the fraudster. The freezing order is often referred to as the nuclear weapon, but there are many other arms at a claimant’s disposal.

The value of the freezing order is that it can be obtained right at the outset. You do not have to wait until you have gone through the legal process and obtained a judgment. For example, you discover a fraud, get your lawyers onto it, put the Court on notice of an urgent application, prepare the necessary supporting affidavit and make the application, if necessary, over the telephone and out of Court hours. The order can be obtained within the day. Because of the dramatic nature of freezing orders, the Court does not grant them lightly. Various requirements need to be satisfied, but in a fairly clear case of fraud, this should not be difficult.

Disclosure orders are invariably linked to freezing orders. The defendant and others, if applicable, are ordered to disclose their assets and whereabouts. If a defendant is coy about making full disclosure, the Court is likely to be willing to order appropriate third parties to provide the information, even if they are completely innocent of any wrong-doing. Banks are regularly ordered to disclose whether the funds are still in an account with them and, if not, where the funds have been transferred.

In a recent case (a reluctant debtor, rather than a fraudster), where the money trail had gone cold and the defendant was abroad and uncommunicative, the claimant successfully applied to the Court for a disclosure order against the defendant’s financial adviser based in London. Again, a degree of coyness prevailed initially, with a statement that all the records had gone abroad. Forensic enquiry of the financial adviser’s computer system, also ordered by the Court, produced the necessary information that led to the funds.

The funds in that case were in a bank account in the Channel Islands, and the court of the island in question, having similar procedures to England, froze the account and made disclosure orders against the bank.

There is some additional help that the Court can give to someone tracking down money in this way: it is called, colloquially, a gagging order. The Court orders the third party who is required to provide information not to tell anyone, in particular the defendant, that the disclosure order has been made and is being complied with. This way, the claimant stands a chance of getting ahead of the defendant in relation to the whereabouts and movement of the money.

Another powerful ancillary weapon is the order for the seizure of the defendant’s passport. The order was famously made against Kevin Maxwell on behalf of the Maxwell pensioners. The passport seizure order can be used where the defendant has breached, for example, a disclosure order: the passport will not be returned until there has been full disclosure in accordance with the order.

The Court can also grant search and seizure orders that permit the claimant’s representatives, accompanied by an independent supervising solicitor to enter the defendant’s premises, residential and/or business, to search for and take away evidence relevant to the claim.

All these orders will have typed on them what is known as the ‘Penal Notice’. It informs the party being served with the order that non-compliance with the order will be a contempt of Court and could lead to imprisonment.

It is not unusual to discover that the money the claimant is after has been put in trust. In such circumstances, the claimant’s thoughts will turn to trust busting. Trusts can, of course, be perfectly legitimate ways of dealing with money or other assets. However, the Court will be prepared to put this to the test: was it the genuine intention of both the settler and also the trustees to establish a genuine trust or was it a sham?

It is clear from what I have said in this article that the civil court is prepared to go a long way to help the victim of fraud. Many of the powers are similar to those of the criminal authorities. There are advantages and disadvantages of the civil over the criminal routes. Control of the process and in relation to the recovery often favours the civil approach. The combination of the two may be appropriate, but thought needs to be given as to how they inter-relate.

As can be seen, the civil courts’ orders are draconian in nature. In the case of fraud, they override what are otherwise an individual’s rights. They are very effective weapons in the victim/claimant’s hands in his fight against the fraudster.