Briefings
Fraud Defence: Knock, Knock, Beware
Fraud: Claimant
Fraud: Defendant
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| August 2006 |
Company directors must know their rights when confronted with allegations of fraud.
It’s 9am and there is a knock on your client's door. He opens it and finds himself confronted by a group of people in dark suits. An official looking document is thrust towards him. He is being served with a Court Order that entitles the people outside to enter the premises and undertake a number of intrusive, and what would ordinarily be considered to be unlawful, actions in order to try to obtain incriminating evidence against him or someone he knows. Understandably, many people in this situation find themselves bewildered, frightened and distressed. He doesn't know what to do, so he calls you.
For a number of years the English Courts have been willing to assist victims of fraud (the Claimant), provided they can satisfy a number of evidential tests, by granting a wide range of intrusive Orders against individuals who they allege have defrauded them (the Defendant). These Orders may, for example, allow the Claimant’s advisers to search for and seize evidence of the alleged fraud from premises owned or used by the Defendant to identify and locate his assets and particularly any assets that have allegedly been stolen from the Claimant.
Often a Claimant and his legal team will have had weeks or even months to plan their attack. Catching a Defendant off guard to generate maximum stress and confusion is part of the intended game plan. Your client's first response is crucial and unless properly advised could severely hamper his defence.
It is important that from the outset a Defendant fully appreciates the nature of the intrusive Orders. Anyone can potentially be on the receiving end of such an Order and they certainly need not have actually been guilty of any wrongdoing. Guilty or not, the Defendant has rights. The Orders are only effective if correct procedures have been followed and unless the Defendant is properly advised he may be taken advantage of.
The key to successfully attacking an Order is to know (1) what it is, (2) what to do, (3) how to do it and (4) when to do it. This bulletin, the first of three, deals with (1) what it is. Set out below is a brief explanation of the types of Order and their intended purpose.
Orders explained
Invariably Orders are served upon a Defendant "Without Notice".
What does "Without Notice” mean?
“Without Notice" simply means that the Claimant’s legal team has made a secret application to the Court for an Order. As such, the Defendant at this initial stage has no opportunity to challenge the Claimant’s version of events. If the Claimant successfully persuades the Court that the Order should be made then the first time a Defendant will be aware of it is when the knock comes on their door.
What does the Order mean?
There are various intrusive orders that a Court can make, the most common ones are described below.
- Freezing Orders are designed to secure the Defendant's assets in order to prevent him from hiding them, spending them or transferring them to other people, places or into other assets until the Court finally decides the case. Assets are anything with value and include bank accounts, shares, properties, vehicles, jewellery and even exotic pets! Once a Defendant has been served with the Order if he tries to "deal" with any asset covered by the Order, such as even taking £10 out of his current account, he may commit a criminal offence that could result in him being sent to prison and/or fined.
The Claimant’s solicitors will usually have also served a copy of the Freezing Order on any financial institutions the Defendant deals with i.e. Banks and Building Societies. This puts them on notice that the Defendant's assets are frozen, which means that they are also prevented from dealing with his assets. It is also common practice for the Claimant's solicitor to register a restriction on the Defendant's property to prevent him from selling or re-mortgaging. This may even include a property in someone else’s name if he contributed to the purchase.
The Order will normally state a maximum weekly amount that the Defendant will be allowed to use from a nominated bank account, to cover his living expenses. Depending on his normal standard of living this is extremely unlikely to cover everything he usually spends. While it may include enough to cover normal outgoings such as mortgage payments, utility bills and basic essentials, he is certainly likely to find that any extravagant social life will have to be put on hold.
- Disclosure Orders compel the Defendant to immediately answer questions in relation to many aspects of the alleged fraud and related events. The questions will also concern the nature and location of assets or asset documentation and those that hold it for him, for example, banks, accountants, solicitors and financial advisers.
- Delivery Up Orders require the Defendant to hand over certain specified documents and information that is in his possession or held by others on his behalf (whether stored in hard copy or electronically) to the Claimant’s solicitors. The Order may require him, for example, to provide his last 3 years’ of bank statements, credit card statements, itemised telephone records and any other relevant information.
- Search Orders are not dissimilar to a police search warrant. The Order allows a search team to enter and search the premises named in the Order (which is usually the Defendant's home, office or any premises which they regularly use) and seize any evidence that is considered to be relevant to the alleged wrongdoing. In addition, the Order may provide for a computer expert to search for information stored electronically on, and indeed copy or even physically remove, computers, PDAs, mobile telephones, digital cameras and any other form of electronic data storage device found on the premises.
- Passport Delivery Up Orders compel the Defendant to hand over his passport to the Claimant’s solicitor in order to prevent him from absconding while questions specified in a Disclosure Order remain unanswered. The Order can also be served on airline companies to ensure that he is unable to travel.
- Third Party Disclosure Orders may be made against banks and other third party facilitators. This may involve seizing documents and compelling disclosures from these third parties in order to locate hidden assets and evidence of the Defendant's conduct. Often when Orders are made against these innocent third parties, they are also subject to a Gagging Order.
- Gagging Orders are combined with one or more of the Orders described above to prevent a person who has been served with an Order from not only discussing its contents but the very fact that it exists with anyone other than their legal advisers.
As can be seen from the brief explanation above, the Courts can assist Claimants by granting a wide range of intrusive Orders to investigate an alleged fraud and to ascertain the nature and extent of the alleged fraudster's involvement.
The first critical steps
For anyone presented with allegations of fraud and Court Orders, the first critical steps must be:
- Say nothing
- Do nothing
- Call an expert defence team
An experienced solicitor will ensure that, from the outset, the Claimant has fully complied with their obligations and that they do not seek to go beyond the terms of the Order during the course of the litigation and an experienced defence team will skilfully build the case in order to challenge and attack the Claimant's case.
The second bulletin will outline what to do if served with a "Without Notice Order".