UK Law and Practice Contributed by: Simon Bushell and Gareth Keillor, Seladore Legal
value, without prior notice) or instead to “trace” and recover any proceeds or new assets the fraudster obtained from the third party. In the event that the proceeds of fraudulent activity become mixed with other funds, there are rules for identifying what the wronged party is entitled to (either in terms of a share of the fund or any asset purchased with it). 1.6 Rules of Pre-Action Conduct Claims in England and Wales are governed by cer - tain “pre-action protocols” that set out the steps the courts will expect parties to take prior to commencing proceedings. These steps include: • setting out the claim in full; • providing the other side with an opportunity to respond; and • considering whether the dispute is suitable for alternative forms of dispute resolution, such as mediation, and so on. While there is no specific protocol for instances of fraud, an allegation of fraud is serious and has far- reaching consequences even if it is not proved. As noted in 2.7 Rules for Pleading Fraud , there are pro - fessional obligations not to allege fraud unless there is credible material which establishes an arguable case of fraud. Given this, any allegation of fraud must be clearly and accurately pleaded (as discussed in 2.7 Rules for Pleading Fraud ). Note that the pre-action protocols do not apply in respect of “without notice” applications, although there are other steps that must be taken in such cir - cumstances (see 2.4 Procedural Orders ). 1.7 Prevention of Defendants Dissipating or Secreting Assets A wronged party may seek an interim “freezing injunc - tion” that prevents a defendant from disposing of, or otherwise dealing with, their assets. This is intended to prevent the defendant from hiding, moving or dissipat - ing their assets in a way that makes them “judgment- proof”. Such orders typically also require the defend - ant to promptly disclose a list of their assets (which they are subsequently required to verify by way of affi -
davit). Failure to comply with the order may result in the defendant being in contempt of court, which can result in the defendant being fined or (in serious cases) imprisoned. Failure to comply is also likely to affect the defendant’s credibility and may have other con - sequences for their substantive defence of the claim. Freezing orders are in personam orders, meaning they operate over individuals, rather than over spe - cific assets. This is significant as it means they not only limit dealings with assets that are located within England and Wales (a “domestic freezing order”) but also dealings with assets that are located overseas (a “worldwide freezing order” – discussed in greater detail below). Furthermore, a freezing order can extend over various types of assets (normally bank accounts, shares and physical property, as well as things such as goodwill) provided that the defendant has a legal or beneficial interest in them. Exceptions to the freezing order (eg, reasonable living costs, legal fees, ordinary business transactions, etc) are typically defined. In certain cases, it may be possible to obtain a pro - prietary injunction where a party claims a proprietary interest in a specific asset. There will generally be very limited exceptions to such an order. An application for a freezing order is made as a stand - ard application to the court, but is a complex appli - cation, usually done without notice to the respond - ent and which requires an applicant to discharge its duty of full and frank disclosure (see 2.4 Procedural Orders ). The court fees associated with this are rea - sonably modest. However, in making such an applica - tion the claimant will typically need to provide: • an undertaking to commence a claim shortly after the injunction hearing is determined; and • a “cross-undertaking in damages”, meaning that they must compensate the defendant for any loss suffered if it is later shown that the injunction should not have been granted. It is sometimes necessary to secure the undertaking through a bank guarantee or payment into court.
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