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  • Money Laundering and Fraud Update with Jewellers at Risk

    Money Laundering and Fraud Update with Jewellers at Risk

    In a scene out of a Hollywood gangster film, millions of pounds of cash were being carried into a Bradford jewellers Fowler Oldfield. Those couriering the cash had convictions for drugs offences and fraud (amongst other things). The jewellers were quite clearly serving as a money laundering front for these criminals.

    The case has attracted some attention in recent months, as the Financial Conduct Authority (FCA) has accused Natwest (who provided the gold dealer with banking services) of breaching anti money laundering regulations when handling a string of cash deposits made between November 2011 and October 2016. A first hearing has already taken place at the Westminster Magistrates’ Court on 14 April 2021 and it is an example of the FCA taking a tougher approach towards banks and therefore others that handle large amounts of cash.

    What is money laundering in simple terms?

    Money laundering is the process by which the proceeds of crime are converted into assets which appear to have a legitimate origin, so that they can be retained permanently or recycled into further criminal enterprises.

    In simple terms: It is a way for criminals to disguise the illegal source of their money and it can range from sophisticated financial schemes or like in the Fowler Oldfield case criminals turning up to a jewellers with large bags of cash. The purpose of it is all the same though – to hide ‘dirty money’ made from criminal activities such as illegal arms sales, drug trafficking, prostitution, insider trading, theft or tax evasion.

    Money laundering offences are defined in Part 7 of the Proceeds of Crime Act 2002 (POCA) and carry lengthy prison sentences.

    What are the risks posed to those in the jewellery industry?

    As the Fowler Oldfield case demonstrates, jewellers will often be a target for criminals as it is relatively easy to launder money through the selling of high-end items such as jewellery and precious metals. That is why it is vital for jewellers to be vigilant and have proper anti money laundering regulations in place, so that they are not caught unawares.

    The ways in which you can do this are relatively simple and straightforward. First, it is important that you have proper KYC principles in place for business partners that are suppliers or customers of diamonds, gold and platinum group metals or jewellery products containing these. You do that by establishing the identity of the supplier and customer, and where there is a trigger, you have proper reporting protocols in place. The failure to disclose is a separate criminal offence under Section 330 of POCA.

    Second, you take proper advice from a solicitor or lawyer on what the applicable regulations are and that you put in place proper risk assessments. Those risk assessments will establish where a report may need to be triggered, such as with customers who regularly transact through third parties, like lawyers or accountants, or those that deal in large amounts of cash.

    If you require further information on what steps you should be taking to comply with your money laundering regulations, then you should take proper legal advice.

    What are the defences to money laundering?

    Given that there are numerous offences under Part 7 of POCA, the defences will differ. If you face an allegation of concealing criminal property, which is quite common for those handling large amounts of money, then an offence will not committed if you have made an suspicious activity report (SAR) within the timescales set out in Section 338 of POCA. This defence can also apply where you can demonstrate that you intended to make the disclosure, but could not do so, because you had some reasonable excuse.

    Another defence is where you know, or had reasonable grounds to believe, that the relevant criminal conduct occurred outside the UK, or fell within the “Exceptions to Overseas Conduct”.

    If you are facing an allegation of failing to disclose, then a defence under Section 330 (6) will be if you had a reasonable excuse for failing to disclose the suspicion or under Section 330 (7) that you knew or had reasonable grounds to believe that the money laundering was occurring outside of the UK and that this money laundering was not unlawful in that country.

    What if you find yourself being accused of money laundering?

    If you have been accused of money laundering and face a criminal investigation, then it is vital that you immediately seek legal advice. A proper assessment of your internal compliance can be carried out and a solicitor will be able to work with you to establish whether you have a viable defence.

    Examples of our recent work:

  • The importance of clearly defined contracts and the litigation consequences: Apache v Euroil

    The importance of clearly defined contracts and the litigation consequences: Apache v Euroil

    Waleed Tahirkheli provides an analysis of the recent Court of Appeal decision of Apache v Euroil.

    The failure to clearly define contractual terms will inevitably lead to disputes and litigation, and in order to avoid that eventually, it is important that solicitor and other legal representatives take great care in drafting contracts when dealing with the energy sector. 

    Overview

    In 2020, the English Court of Appeal passed a decision which provided an insight into the interplay between contracts in upstream oil and gas. The Court looked at the interaction between Sale and Purchase Agreements and Joint Operation/Venture Agreements. Sale and Purchase Agreements are standard project agreements which are used across the energy sector. These contracts involve the seller agreeing to transfer part of its interest in a project to the buyer, in exchange for the buyer agreeing to undertake certain obligations in terms of the underlying asset, such as the drilling of an exploration well.

    In the case of Apache North Sea Ltd v Euroil Exploration Ltd [2020] EWCA Civ 1397, the Court handled a dispute concerning a Farm-Out Agreement and an associated Joint Operations Agreement. Farm-Out Agreements (“FOA”) is a type of sale and purchase agreement through which an investor, known as the farmee, acquires an interest in an upstream project from an existing project participant, known as the farmer. A farmer will often use this type of agreement to reduce project expenditure and risk exposure in the initial stages of hydrocarbon exploration. A Joint Operation Agreement (“JOA”) functions to set out a contractual framework between contracting parties, in exploration and development operations. The JOA will set out liabilities and obligations in terms of operations, methods of conduct, formulas for participation costs and pooling (if the project requires the combination of multiple leases to form a single unit for drilling).

    The Agreement

    Apache North Sea Limited (“ANSL”) entered into an FOA with Euroil Exploration Limited (“Euroil”). In terms of the agreement, ANSL, the farmer and existing participant in the project, sold to Euroil (the farmee) minority interests in respect of two production licenses. The parties also participated in an associated Joint Operation Agreement. In terms of the FOA, Euroil agreed to pay ANSL a price consisting of a proportion of ANSL’s back costs (historically incurred survey and license costs) and ANSL’s future drilling costs in the licensed exploration area. The JOA was deemed to be in force immediately for the purpose of the FOA.

    In terms of the agreement, ANSL drilled an exploration well (“Earn-In Well”). In order to commence with drilling, ANSL leased a drilling rig on long-term basis at fixed daily rates. Unfortunately, the Earn-In Well was dry. Euroil chose not tp exercise its option to acquire any further interest in the production licenses. The operation was wound up and ANSL sent Euroil a statement for its incurred cost (“Earn-In Well Costs”). 

    The legal issue of this dispute was how much Euroil was obligated to pay ANSL for its incurred Earn-In Well Costs. The FOA provided no scope on the definition or formula for incurred costs concerning the Earn-In Well. A mechanism for the calculation of costs was however provided in the JOA. 

    ANSL argued that the intention of the agreements was that Euroil was to pay to it its total costs incurred for drilling the well. According to ANSL, these costs would be determined by the fixed rates of the long-term lease. This view was based on omission of the FOA to stipulate otherwise. ANSL argued that the FOA was the basis of the parties’ contractual and business arrangement and argued that contracts should be interpreted according to their plain meaning.  Euroil argued that the intention of the parties in the agreement had been to determine the costs, using the formulas provided in the JOA which stated that rates payable for hiring equipment should not exceed prevailing market rates. Euroil oil argued that the agreements should be read together, rather than separately. 

    The Court Decision

    The Court considered case law and authorities concerning the interpretation of contracts. The Court considered that whilst it is trite law that contracts should be interpreted in accordance with their plain meaning, when considering the meaning of the words “total costs” in terms of FOA and the JOA, the Court held that regard had to be given to the wholistic purpose of the two contracts read together, rather than individually. The Court determined that the agreements were a “package”.

    The Court therefore upheld the judgement of the High Court and Euroil was required to pay no more than £1,114,480.68 in terms of the prevailing market rate when the Earn-In Well was drilled, as opposed to the amount claimed by ANSL, being £3,280,482.46, based on the actual rate applicable to the long-term lease. The decision was not be interpreted as a precedent for contractual interpretation. Notwithstanding the above, the judgement shows the importance of clearly defined terms and obligations in complex, capital intensive oil and gas agreements. 

    Final Thoughts

    It is vital for parties to have a clear understanding of the interplay between their project contracts. Hydrocarbon exploration is capital intensive and also extremely high risk. This is due to the low percentage of exploration projects that amount to a commercial discovery. In consequence, projects tend to involve multiple parties contracting to split costs and share risk, leading to the early phase of hydrocarbon exploration containing multiple contractual agreements. This can often lead to multiple disputes which can arise from a failure to meet payment obligations, particularly if exploration has been unsuccessful. 

  • Recent Changes On Witness Statements In The Business And Property Courts

    Recent Changes On Witness Statements In The Business And Property Courts

    In yet another change for litigation solicitors, a practice direction on witness evidence has come into force, which changes how statements need to be prepared for court proceedings.

    As at 6 April 2021, Practice Direction 57AC (“PD”) and its accompanying appendix providing a Statement of Best Practice, came into force in the Business and Property Courts. The Practice Direction brought into force changes as to the preparation, submission and contents of trial witness statements.

    What is a witness statement?

    A witness statement is a written court document which gives a record of the factual evidence surrounding a legal matter. The function of a witness statement is to set out the evidence in chief of a witness. This evidence is needed to prove the facts alleged by the party.

    Why was Practice Direction 57AC introduced?

    Over the years, lawyers have submitted numerous trial witness statements that were layered with legalese, legal submissions and provided narratives to trial documents. This has more often than not, caught the disproval of the judiciary and has eventually caused the Courts to take action. In the case of Gestmin Sgps V Credit Suisse (2013) EWHC 3560 (Comm), Leggatt J, as he then was, provided a detailed analysis as to the reliability of witness statements. In part of his analysis, he assessed the contents of witness statements and the manner in which they are prepared.

    In Gestmin Sgps at paragraph 20, Leggatt J commented on why witness statements presented to the Courts often steer away from their true purpose (which is to cover the issues that the party serving the statement requires the witness to give evidence in chief). He pointed out that witness statements are usually drafted by a lawyer who is conscious of the issues of the case. Statements then tend to focus on the precision of the legal arguments, rather than providing a factual account of events. Witness statements have also been seen to include pleadings and other material which a witness has not laid eyes on or which came into existence after the event occurred. This causes the written account of the witness’s evidence and thus their memory, to be based on the trial documents and legal interpretations, rather than actual events.

    What does the Practice Direction say?

    The Practice Direction has brought about certain changes to the manner in which witness statements are to be drafted and prepared for use in trials which take place in the Business and Property Courts.

    Content of Witness Statements

    The Practice Direction requires that witness statements contain only “evidence as to matters of facts that needs to be proved at trial by the evidence of witnesses” in relation to issues of fact, and “the evidence as to such matters that the witness would be asked by the relevant party to give, in evidence in chief”.  The witness statement must set out only matters of fact and must identify what documents, if any, the witness has referred to for the purpose of providing the evidence in the statement.

    The Statement of Best Practice provides that a witness statement should be prepared in a way that avoids any alteration or influence on the recollection of the witness. The statement should be as concise as possible and should refer to documents, only when necessary. The statement should not seek to argue the case, comment on other evidence in the case or take the Court through any of the trial documents.

    Confirmation of Compliance

    A witness statement must be verified by a Statement of Truth. In terms of Civil Procedure Rule 22.1, a statement of truth must be signed by the maker of the statement. The Practice Direction further requires that the witness statement be endorsed with a Certificate of Compliance that is to be signed by a legal representative. The Certificate of Compliance will confirm that the witness statement complies with the Practice Direction, the Statement of Best Practice and paragraphs 18.1 and 18.2 of Practice Direction 32, which set rules for the body and content of witness statements. Paragraph 18.1 provides that a witness statement should be in the intended witness’s own words and must be drafted in their own language, and paragraph 18.2 highlights that a witness statement must indicate which statements are made from the witness’s own knowledge and which are matters of information.

    Sanctions – in the event of non-compliance

    In terms of the Practice Direction, if a party fails to comply with the direction, the Court is entitled to: refuse to give or withdraw permission to rely on, whole or in part, the statement; order that the statement be re-drafted; make an adverse costs order against the non-complying party; order a witness to give their evidence, whole or in part, orally. The Court may also strike out a witness statement that is not endorsed with a Certificate of Compliance.

    Going forward

    In light of the above changes, the preparation of witness statements needs to be done with careful consideration and planning. Accurate notes need to be prepared in all interviews with Clients and statements should be drafted in accordance with these notes and should not deviate into legal arguments or take the Court through an analysis or brief of trial documents.

    News Published on Chambers & Partners

  • Furlough Fraud – Eldwick Law Fraud Solicitors

    Furlough Fraud – Eldwick Law Fraud Solicitors

    What is the furlough scheme?

    On 20 April 2020, the government introduced the ‘Coronavirus Job Retention Scheme’ (CJRS). This is commonly referred to as the ‘Furlough Scheme’. A furlough is defined as a ‘temporary leave of absence’ from work. Whilst this scheme is ultimately helping struggling businesses and individuals, there is scope for abuse of the system, also known as ‘furlough fraud’. It is important for individuals and businesses to understand the implications of the scheme and take steps to prevent fraud.

    The Chancellor took the unprecedented move of offering government assistance to all employers, operating on a PAYE scheme, who otherwise would not be able to pay their staff. To prevent redundancies, the government offered support by subsidising 80% of their wages. From 1 August 2020, the government will start to slowly withdraw their support. They will first require employers to meet National Insurance and pension contributions in August. Throughout September and October, the percentage of contribution to employees’ wages will subside. The scheme ends on 31st October 2020.

    Under the scheme employees are not allowed to undertake any work at all for their employer. This excludes training, for any hours that their employers claim furlough assistance from the government for.

    The CJRS has been hailed as a lifesaving measure to prevent mass unemployment and to support the ‘stay-at-home’ orders that were necessary to contain the pandemic. However, as the total cost of the scheme has swelled to £28.7bn in 12 July 2020, the obvious question becomes how the Treasury is going to be able to recoup on this unprecedented public investment.

    Furlough fraud

    In a powerful statement of intent, HMRC arrested a 57-year old man from Solihull for allegedly defrauding the CJRS of £495,000. The man had his bank accounts frozen and is alleged to be part of a wider multi-million-pound tax fraud. He is one of eight men from the West Midlands area to have been arrested as part of the investigation. Whilst the HMRC were forced to suspend its investigatory activities in April due to capacity issues, the department is back with a vengeance to clamp down on any instances of fraud.

    HMRC reported over 1,900 complaints in May alone. These were arising from alleged mis-use of the CJRS scheme. Employers were claiming government support for furloughed workers while still requiring those workers to come to work. This is a clear abuse of process. However, given the raft of Coronavirus assistance packages that have been on offer for employees, self-employed workers and small businesses , the lines are easily blurred. It can be easier than people think to essentially ‘double-claim’ on government assistance.

    HMRC have set out additional safeguards to prevent fraudulent activity within the scheme which include:

    • Proof that the employee was on the payroll from 28 February 2020, in order to prevent the creation of fake employees
    • The requirement for an employer to have already been authenticated by HMRC.
    • A four- to six-day processing period to make background checks, which should flag high-risk claims.
    • Checks made after payout to verify a claim was real.
    • A whistleblowing facility so that abuse can be reported.

    The Finance Bill 2020

    HMRC has indicated the new Finance Bill will offer a 90-day grace period. This will allow employers to refer themselves to the authorities. You can refer yourself if you believe you have benefitted too much from the CJRS and voluntarily submit yourself to a reassessment. HMRC will pursue enforcement proceedings all the way to criminal sanction for those deliberately attempting to defraud the scheme. They will show leniency in cases where over-benefitting from the scheme was not intentional and take a co-operative approach to employers who have sums that they might need to repay.

    If you are an employer benefitting from the furlough scheme, it is important to ensure you have complied with your relevant obligations. It is imperative to ensure you have read the relevant guidance, properly trained HR and payroll staff in the scheme and updated your policies and procedures.

    Eldwick Law has specialist practitioners able to give tailored advice to businesses of all sizes.

  • Franchise Disputes and Your Rights

    Franchise Disputes and Your Rights

    Our Franchise Solicitors outline your rights and advise on areas of your franchise taking advantage of the vast experience in commercial law and a variety of other legal areas that could impact your business.

    We provide you with practical and commercial advice in order to help you reach a resolution, whilst offering support from our forensic and accountancy experts.

    Should you have any queries with regard to this article or your specific situation, get in touch with our franchise solicitors.

    Contact Us

    An overview of franchise disputes and your rights

    Franchise disputes are far from uncommon and have recently been making headlines: the pizza chain, Dominos’, ongoing dispute in the UK with its franchisees over profit sharing, which in turn is affecting its ability to expand into other European territories, or even when hundreds of KFC branches ran out of chicken in 2018 resulting in a substantial loss of earnings for both the franchisor and its franchisees.

    Whether you are a franchisee or franchisor of a small national or large international business, it is important you know what your rights are in order to protect you/your business from any potential claim(s) that could follow.

    As there is no legislation in the UK that specifically regulates franchising (although there is a self-regulating body – the British Franchise Association), it is crucial that you understand the provisions set out in the Franchise Agreement and in the event of a dispute, approach experienced franchise litigation solicitors, as these types of claims can often become complicated and involve different areas of law, such as: intellectual property, contract, and insolvency.

    The Franchise Agreement

    The Franchise Agreement will govern the relationship between the parties. It will dictate the parties’ obligations to one another, and in most cases, is weighted heavily in favour of the franchisor.

    The Franchise Agreement will often stipulate the terms or process to be followed in the event of a dispute, such as mediation or arbitration. However, we understand that parties cannot always reach a settlement through Alternative Dispute Resolution (“ADR”) and you may therefore have no choice but to consider litigation.

    In the event of a breach, what remedies are available?

    Within contracts, terms can be classified as a condition, warranty, or innominate term. It is important to know the distinction between each as it will affect the remedy available to the non-defaulting party (i.e. the innocent party) for breach of contract. So, what do these terms mean?

    A condition goes to the “root” of the contract. If breached, then it gives the non-defaulting party the right to either affirm the contract (continue the relationship under the contract) or terminate the contract by way of a repudiatory breach.

    A repudiatory breach is a breach in a contractual relationship that is so serious, that it would entitle the non-defaulting party to the agreement to terminate it and that party would then be released from the terms of the contract. However, it is crucial that you are certain of your position, as there are associated risks if you get it wrong. A warranty on the other hand only entitles the non-defaulting party to claim damages, not to terminate the contract.

    An innominate term is somewhere in the middle. The non-defaulting party can terminate the agreement if a breach of that term is “sufficiently serious.” The test that is often applied is from the case of Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd and is whether the non-defaulting party is deprived of “substantially the whole benefit which it was the intention of the parties as expressed in the contract that it should obtain.” The remedies available will depend on whether it is held the breach substantially deprived the non-defaulting party of the whole benefit of the contract or not.

    If it is, then the remedy available would entitle that party to terminate or affirm the contract and claim damages. However, if not, then the remedy available would be for damages only.

    Breach and termination of your franchise agreement

    If you consider there has been a breach of the Franchise Agreement, can you terminate?

    Yes, firstly depending on what clause(s) has been breached and whether it is deemed to be a condition or innominate term.

    Secondly, the Franchise Agreement itself will normally have a detailed provision dealing with termination and what the parties are required to do, such as providing notice within a stipulated time frame and in a specific format for example.

    If there is a mistake in the way this is done then the party in breach could avoid liability on the basis of a technicality, so it is key that you obtain legal advice before considering terminating your Franchise Agreement. Thirdly, you should also seek advice on your rights and obligations in the event a franchisee has given a personal guarantee.

    What should you do in the event your business is failing or you cannot reach a resolution amongst yourselves? As each individual case will depend on the facts, you should seek legal advice immediately to avoid causing any further detriment to your business or prejudicing your position. At Eldwick Law, our franchise solicitors can assist you whether in ADR or from the pre-action stage through to the conclusion at trial.

    Contact Us

  • Does an Email Constitute a Legally Binding Contract?

    Does an Email Constitute a Legally Binding Contract?

    The recent case of Athena Brands Ltd v Superdrug Stores Plc [2019] EWHC 3505, highlights employee’s liability when negotiating a contract on behalf of their employer via email.

    For a legally binding contract to be formed, an offer, acceptance of that offer and consideration is required. There must also be certainty regarding the key terms of the agreement, and there must be intention by both parties to create legal relations.

    Where an employee (agent) seeks to contract with a third party on behalf of their employer (principle), the employee must have principle authority to do so. This requires an agreement between the agent and principle, for the agent to act on the principal’s behalf. This authority can be express or implied.

    Is an email legally binding?

    In Athena Brands Ltd v Superdrug Stores Plc [2019] EWHC 3503, an email exchange took place between a Superdrug Stores buyer and Athena Brands, a manufacturer, regarding the sale of a new cosmetic product.

    The exchange of emails set out that the product would be sold to the Defendant at a set price during a 12-month period, in which the Defendant could order consignments of stock at any time via purchase orders. The sale price would have exceeded £1.3m, but in response to slower than expected sales – Superdrug stopped placing orders. The manufacturer claimed nearly £980,000 in damages.

    The Claimant alleged that the agreement also included a commitment by the Defendant to purchase a minimum amount of £1.3m of stock during this period, which the Defendant disputed on the basis that they were not committed to purchasing any products unless and until it submitted a specific purchase order.

    The Defendant alleged that there was nothing in Superdrug’s standard terms and conditions of purchase to indicate that they would agree terms for purchasing minimum quantities or would be bound by any such terms if an employee agreed them.

    The email containing the proposed terms was sent by the Claimant’s employee to the Buyer at the Defendant on 23 May 2017 and said:

    “Just to confirm, you are placing orders and committing to the yearly quantity against all lines detailed below…. We have agreed that you will call off stock… on an ad hoc basis within a 12-month period…. [there followed a table of products with quantities and prices] If you could drop me a note to confirm all the above ASAP that would be great, I shall then be in a position to push the button at this end.”

    The Buyer replied on 25 May 2017, stating:

    “Please go ahead with the below [referring to the claimant’s previous email and preceding chain], happy on Nature’s Alchemist…”

    The High Court found that there was a clear acceptance of Superdrug’s commitment to buying annual quantities of the product from the manufacturer. The Court ruled that nothing in Superdrug’s evidence showed that the claimant was unreasonable when it relied on the Defendant’s confirmation as binding the company.

    The Defendant’s failure to make the claimant aware of Superdrug’s policies which governed the negotiation of purchase contracts was particularly relevant to the Court’s ruling. It was found, had they done so, the outcome would likely have been different.

    Despite the fact the contract was agreed via an email exchange, it was found to be sufficiently clear to create a liability of £1.3m on the part of the Defendant. This highlights the dangers that businesses face when discussing contract terms in any sort of written form and that a legally binding contract contains a number of components that the court will assess objectively to determine validity.

    This case also serves as a reminder for employers to make clear to employees their responsibilities when acting on their employer’s behalf and the risks of failing to do so.

    At Eldwick Law, we have an expert team of contract lawyers who can assist with your claim.

    Should you have any queries with regard to this article, please do not hesitate to contact us via email: mail@eldwicklaw.com, or telephone: +44(0)203 972 8469.

     

  • Coronavirus Advance Fee Fraud

    Coronavirus Advance Fee Fraud

    Coronavirus advance fee fraud: the NHS has warned households to be vigilant about fraudsters sending out fake invitations to have the coronavirus vaccination. 

    The warning comes amid an increasing number of complaints being made about scammers attempting steal individuals’ personal details or extract payments from them. According to Action Fraud, there have been more than 1,000 reports of email scams claiming to offer vaccines in just 24 hours this week. 

    In one case, a 92-year-old woman in London was charged £160 and administered with a fake vaccine, which she was told would be reimbursed to her by the NHS. 

    Fraudsters are also sending out scam emails which include a link to register for the vaccine, and asking individuals to provide their bank details to verify their identification or make payment. 

    The NHS says that it would never ask for bank details, as the vaccine is free and no registration is required either. 

    These scams are, of course, classic examples of advance fee frauds. An advance fee fraud is one of the most common types of confidence tricks, and typically involves promising the victim a significant share or a large sum of money, or in this case a highly sought after vaccination, in return for a small amount of money up front. 

    For more information on how our expert fraud solicitors can help you, visit our Advance Fee Fraud Page

    If you would like to know how NHS would contact you, follow this link:
    Coronavirus Scam

  • The Court of Appeal Decision in Jet2 Holidays Limited v Hughes & Hughes [2019] on Contempt of Court Jurisdiction – A Year On.

    The Court of Appeal Decision in Jet2 Holidays Limited v Hughes & Hughes [2019] on Contempt of Court Jurisdiction – A Year On.

    Subject: The impact of the findings in the Jet2 Holidays Limited v Hughes & Hughes [2019] EWCA Civ 1858 on the development of the Pre-Action Protocol, as considered by the Civil Justice Council.

    Late last year the Court of Appeal handed down a landmark ruling confirming that the High Court did have jurisdiction to commit the respondents in the Jet2 Holidays Limited v Hughes & Hughes [2019] EWCA Civ 1858 for contempt of court for submitting false statements of truth at the pre-action protocol stage. A year on, the Civil Justice Council is considering the effects of the findings of Sir Terence Etherton MR, Hamblen LJ (now Lord Hamblen, Justice of the UKSC), and Flaux LJ in the context of Pre-Action Protocol Review. 

    In the Jet2 Holidays Limited, the respondents booked an all-inclusive package holiday with the appellant. The respondents later gave notice to the appellant of a claim for damages for holiday sickness – they alleged that they had contracted food poisoning as a result of eating contaminated food or drink at the hotel. In purported compliance with the Personal Injury Claims Pre-Action Protocol (PAP) each respondent provided the appellant with witness statements describing how they believed their sickness was caused as a result of the undercooked food and unhygienic conditions in the Spanish hotel. Each respondent signed a statement of truth contained within their respective witness statements. 

    The appellant subsequently obtained various images, videos and comments posted by the respondents on social media during their holiday on which both respondents and their children appeared physically well and seemed to be having an enjoyable stay at the hotel. The appellants rejected the respondents’ potential claim, and the respondents decided not to pursue their claim for damages further. As a result, the proceedings were never issued against the appellant. 

    In turn, the appellant sought permission to commence committal proceedings against the respondents for the contempt of court under CPR Part 81 on the basis that the allegedly false witness statements were made by the respondents, verified by a statement of truth, contrary to CPR r.32.14. HHJ Godsmark QC, sitting as Deputy High Court Judge, granted permission and listed the committal proceedings for a CCMC. However, at the CCMC hearing, which was listed before a different judge, a question arose as to whether or not the High Court had jurisdiction to commit in the light of the fact that no proceedings had ever been issued. Eventually, HHJ Robert Owen QC concluded that the High Court did not have such jurisdiction and struck out the application.

    On the appeal from that decision the Court of Appeal unanimously held that the High Court did in fact have jurisdiction to commit for contempt of court even though no claim for damages had been issued. It was held that it was sufficient that the false statements, endorsed by the statements of truth, were used during the pre-action protocol stage. In the words of the Lords Justices: 

    “36. A dishonest witness statement served in purported compliance with a PAP is capable of interfering with the due administration of justice for the purposes of engaging the jurisdiction to commit for contempt because PAPs are now an integral and highly important part of litigation architecture.”

    The decision has had a significant impact on the law around contempt and how the parties view pre-action correspondence. Firstly, CPR r.32.14 has been amended to reflect the Jet2 Holidays Limited v Hughes decision. 

    Secondly, the rules around bringing contempt proceedings have been simplified by the introduction of an updated version of CPR Part 81, which came into in force on 1 October 2020. The new version of Part 81 has reduced the number of rules from 38 to 10, which lay out a clear procedure for the commencement of contempt of court proceedings. The new approach for punishment in contempt proceedings was considered by the High Court in the recent decision in Oliver v Shaikh [2020] EWHC 2658 (QB).

    Thirdly, the Civil Justice Council (CJC) has launched a review of the Pre-action Protocols. The CJC is currently running a survey inviting anyone with experience of, or an interest in, Civil Procedure Rules to express their views on Pre-action Protocols. The survey will be open until Friday 18 December 2020. 

  • Reflective Loss: A Clarification by the Supreme Court

    Reflective Loss: A Clarification by the Supreme Court

    On the 15th July 2020 the Supreme Court handed down its judgment in the case of Sevilleja v Marex Financial Ltd [2020] UKSC 31. In this case the court grappled with the history and development of the ‘Reflective Loss’ principle and was tasked with clarifying the width of its applicability.

    Facts of the Case

    The original case was brought by an investment company, Marex Financial Ltd (‘Marex’). This was against Mr Sevilleja, the owner and controller of two companies incorporated in the British Virgin Islands. Marex had obtained judgment against the two companies, which were vehicles through which Mr Sevilleja conducted foreign exchange trading. Mr Sevilleja was accused of moving the two companies’ assets out of the jurisdiction, into accounts under his personal control. This was done in such a way as to deprive Marex of being able to enforce the judgment. Marex issued against Mr Sevilleja personally for the judgment sums, interest and costs of pursuing him. Mr Sevilleja resisted their action, contending that Marex could sue him for the losses incurred to the BVI companies, which have been placed in voluntary insolvent liquidation and relied on ‘Reflective Loss’.

    What is Reflective Loss?

    The principle has emerged from a line of cases spawned from the ancient judgment in Foss v Harbottle (1843) 2 Hare 461. In that case it was decided that the only person who can seek relief for an injury done to a company, where the company has a cause of action, is the company itself.

    This case was followed by that of Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204 which applied the principle in a modern context. It was held that in a situation where a company suffers loss, which in turn affects the value of shares held by a shareholder, the principle in Foss applies to prevent the company and its shareholders both suing for the loss. Only one of those two claims can proceed and Foss makes clear that it is the company that should be preferred.

    It is at this point that the Lord Reed, in the present case before the Supreme Court, determined that things went wrong. The court in Johnson v Gore Wood & Co [2002] 2 AC 1 made several determinations that purported to follow Prudential but, in the view of Lord Reed, misinterpreted the core of that judgment. It was held by Lord Millet in Johnson that the basis of the decision in Prudential was a desire by the court to avoid double recovery. This led to a focus, by the benches that followed, on avoiding circumstances whereby anyone connected to a company, that had a right of action in a dispute, could recover for their loss – even in circumstances where the company chose to do nothing about their right of action. The latter circumstance was justified with reference to a secondary desire expounded by Lord Millet to preserve company autonomy. It was held in Johnson that a company’s refusal to prosecute its right of action in such a way as to compensate its creditors or shareholders was, in a sense, a novus actus. It wasn’t the original defendant who had resulted in the shareholder/creditor not being able to recover their losses by remedying the original wrong done to the company, but the company itself.

    How was Johnson Wrongly Decided?

    Lord Reed was respectfully critical of Lord Millet’s interpretation of the reasoning in Prudential and concluded that he had departed too far from the very limited scope that Prudential was intended to have. Lord Reed determined that there were two fundamental assertions that gave rise to Lord Millet’s misadventure. The first being a misjudgement of what shareholding in a company actually represents. He described a share as representing “a proportionate part of the company’s net assets” and that “if these are depleted the diminution in its assets will be reflected in the diminution in the value of the shares”. Lord Reed disagreed, instead concluding that shares are simply “a right of participation in the company on the terms of the articles of association”. He goes on to highlight that it is an “unrealistic assumption that there is a universal and necessary relationship between changes in a company’s net assets and changes in its share value”. Lord Reed also determined that to view Prudential, and therefore Foss, through the lens of ‘double-recovery’ was to mischaracterise the nature of legal loss. By linking the value of the loss to the company intrinsically to the value of the shares, Lord Millet is conceding that the shareholder has suffered a legal loss – albeit one that he then denies them recovery for. Lord Reed concludes that this is a perversion of Foss and entirely not what Prudential intended. He concluded that those two cases, when read together, in fact do not recognise the reduction in value of a company’s shares (as a result of a wrong done to it) as being a legal loss at all.

    Lord Reed, in support of his conclusion, highlighted the principal logical inconsistency with the fact that Lord Millet’s approach to Reflective Loss was based upon avoiding ‘double-recovery’ but led to situations where neither the company nor its shareholders had recovered for an actionable loss.

    Conclusion

    Lord Reed concluded in Sevilleja that “the critical point is that the shareholder has not suffered a loss which is regarded by the law as being separate and distinct from the company’s loss, and therefore has no claim to recover it.” This is contrasted against creditors or employees, who may have other rights of action that arise separately from any shareholding, and does not prejudice those parties from pursuing their cases, as the law would otherwise allow. Thus it can be said that the rule on ‘Reflective Loss’ has been narrowed to account for what Lord Reed would suggest was a wrong-turn at Johnson that opened the door to the principle from Foss being more widely interpreted than the judgment in Prudential intended.

    It is important that those wishing to invoke the exception to the rule against reflective loss carefully explore whether claims can be brought by the company, rather than shareholders or creditors. It is crucial that legal advice is obtained early on to clarify the claimants position. At Eldwick Law, we are experts in commercial law. Contact our commercial lawyers today for a consultation.

  • Breach of Planning Enforcement Notices and Confiscation

    Breach of Planning Enforcement Notices and Confiscation

    The recent case of R (Kombou) v Wood Green Crown Court is a sobering lesson for anyone facing a criminal prosecution, and who is considering pleading guilty with potential Confiscation proceedings looming.

    Case background

    The defendant entered guilty pleas at the Magistrates’ Court to breaches of a Local Authority (Enfield Council) planning enforcement notice. The offences related to unauthorised conversion of a house into 8 separate units.

    The defendant sought to change his plea when the matter was committed to the Crown Court and the Local Authority pursued Confiscation proceedings. He applied to vacate his guilty plea but the Crown Court refused his application.

    The defendant challenged, by way of Judicial Review, the Crown Court’s decision to refuse permission to vacate his guilty plea. The defendant argued that the Local Authority was improperly motivated because of the benefit which they would derive from the Home Office’s Asset Recover Incentivisation Scheme (“ARIS”).

    The High Court rejected his challenge, finding that the fact that the Local Authority had considered bringing confiscation proceedings did not mean the decision to prosecute had been motivated by an improper consideration; there was nothing to support the argument that the decision to prosecute was improperly motivated.

    There is some background to the case but one of the reasons the defendant pleaded guilty was because he thought it was possible that the case might end without Confiscation proceedings.

    Local Authorities are increasingly relying on planning enforcement notices to prosecute and recover any ‘ill gotten gains’. Local Authorities will receive 37.5% of the money recovered – it’s big business, and so one may naturally be critical of the motivations to prosecute here. The Court concluded that there were no improper motivations in this case, however.

    How can we help?

    If you are facing a Local Authority investigation or prosecution, it’s important to get early advice from an experienced team of lawyers. Early representation can make all the difference.