In the second article in my series on cost effective civil fraud claims, we look at the use of freezing injunctions and how they work in claims that are lower than some of the multi-party, very high value cases many of us work on.
Freezing orders represent one of the nuclear weapons of the legal arsenal. The practicality of living under one, their extremely invasive nature and the on-going legal costs of either policing the order or complying with it, can be crippling. As such, they often form a key plank of the way civil fraud cases are run (entirely independent of their actual purpose to ensure that assets are not dissipated). They clearly have a role in the multi-party, multi-million pound litigation that hits the headlines but are they suitable in cases where the quantum might be less?
The answer is yes – potentially but there are a number of considerations:
- Is a freezing order actually necessary? Attempting to obtain one will, inevitably, lead to more expense for the client. In order to make sure that the legal tests are met, there will be significant client time and cost invested. It is worth taking a step back and assessing whether a freezing order will actually achieve the client's aims. Will assets dissipate if one is not obtained? Is the added pressure put on a defendant worth the gamble?
- How do you address the issues relating to full and frank disclosure cost effectively? As we all know, a half hearted attempt to meet full and frank disclosure can open a client up to extreme difficulty on a return date. An assessment needs to be made on the case at an early stage as to whether the complexity involved makes full and frank possible at a cost-effective level. What legal arguments might be raised from the other side? Are there any factual issues that require a substantial document review exercise to ensure that satisfaction can be reached on full and frank? By way of example, if the alleged fraud in question has been undertaken by a senior employee, it might well be argued that the actions taken were done so with a board's approval – if that is the case, would emails need to be reviewed? The position, by contrast, might be entirely different if the alleged fraud was undertaken by an external party. Taking a pro-active approach on the legal side (often with Counsel help) and on the factual side (with client assistance) is often the best way forward to make sure that a full picture can be gained.
- The granting of a freezing injunction will inevitably require a cross-undertaking in damages. Is the scale of the freezing order in proportion to the damages that might be inflicted on a defendant? If a freezing order of £400,000 causes the collapse of a company whose turnover is £5 million, is this a risk that a client is willing to take? Cross-undertakings always appear to disproportionately affect cases where the quantum is less. Is a client willing to risk giving the undertaking if the impact if things go wrong massively outstrips the damages involved?
All of this sounds interesting in theory but what of the practice? I am pleased to report that it is possible to navigate these issues. In a reported case last year, Goodman Derrick obtained a freezing order in respect of a claim where the damages were circa £350,000 (a quantum that is probably not significantly higher than some magic circle firms would charge for obtaining a freezer). Achieving this result for the client was a challenge and requires some fairly strict discipline but it is possible- it's a matter of using alternative techniques to obtain the client's goals.
Having litigated a number of cases recently where the damages, although small in the context of traditional City civil fraud matters, were crucial to the clients involved, I wanted to explore the ways in which lawyers can be thinking creatively about Civil fraud. To that end, I am writing a series of articles that will show how we can assist clients who do not have a vault of assets to spend on legal fees by creatively applying the law and technology.
The first article will come out next week and the subject will be whether it is possible to obtain a freezing order on cases where it might, traditionally, have been dismissed out of hand because of expense.
I am also forming a network of like minded fraud professionals so if you have experience in this area then please do get in touch.
Dan Dodman is a litigator with a wealth of experience in high profile, high value cases in both the commercial litigation and financial regulation sectors. He acts on a broad range of disputes, both nationally and internationally for corporate, individual and institutional clients.
Civil Fraud - Goodman Derrick
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This guide is for general information and interest only and should not be relied upon as providing specific legal advice.
If you require any further information about the issues raised in this article please contact Dan Dodman.
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