Briefings

Fraud Defence: Knock, Knock, Beware - Company directors must know their rights when confronted with allegations of fraud.

Fraud: Claimant Fraud: Defendant

November 2006

In the first bulletin of this series, we set out a brief explanation of the types of “Without Notice Order” that can be obtained against an individual and their intended purpose.  In this bulletin, we move on to the basic Dos and Don’ts guide for anyone served with a Search Order or a Freezing Order. Anyone unlucky enough to be served with such Orders will soon realise that everything they say and do, from the moment the solicitor or process server knocks on their door, could have a significant impact on their ability to attack the Orders and ultimately to successfully defend the litigation. 

Who can be served with such Orders?

• Any individual who is suspected of committing a fraud, for example a director of a company or an employee.  Alternatively, a relative, friend or business associate of a suspected fraudster.  An individual who is named in an Order can be served anywhere the Order so permits, including their home or place of business.
• Any company that may be implicated in the suspected fraud.  The company must be served at its registered office.  Even though an individual director may not be personally suspected of committing a fraud, it is common for a Claimant to ask the Court to order that a single director, commonly the Finance Director, personally comply on behalf of the company.
• It is important to remember at this stage that only the Claimant's suspicions or allegations of fraud have been put before the Court.  The Claimant is of course bound by a duty of full and frank disclosure and the Court does have to consider the evidence carefully before granting such Orders.  However, due to the very nature of “Without Notice Orders” the Defendant will have been kept completely in the dark and have had no opportunity to present an explanation or their own version of events.

What to do, how to do it?

The Orders are often specifically designed to catch a Defendant off guard and to generate maximum confusion.  For anyone faced with such an Order, it is crucial that they remain calm and to take the following steps:

Do

• The defendant should make it clear that they want to co-operate but need to seek legal advice. 
• He should check that anyone confronting him with a Search Order also has a Supervising Solicitor (an independent solicitor) present who should take him through the provisions of the Order and any supporting documentation.  He should also inform the Supervising Solicitor that he wishes to telephone his solicitor.
• Check if there are any restrictions on who he can speak to about the Order.  A natural reaction is to speak to a close relative or a colleague but in many fraud cases it is likely that the Claimant is executing simultaneous Search Orders and Freezing Orders that include a "Gagging" provision to prevent you inadvertently "tipping off" a suspect (as described in our August 2006 briefing).  In this situation it is crucial that he does not communicate with anyone other than his solicitor.  If he does he will be in breach of the Order and possibly at risk of imprisonment.
• He should telephone his solicitor immediately and give them all the information about the Order that he has received.

Don't

• Panic
• Evade service or be abusive – he should be aware that the person serving a Search Order will prepare an Affidavit of Service and any attending Supervising Solicitor will prepare a report, both of which will be placed before the Court.  The last thing the defendant should do is to give the Claimant ammunition to use at Court to colour the Judge's view.
• Start answering questions on the spot.  Other than confirming who he is, he should not answer any questions before he has at least had an opportunity to speak to his solicitor on the telephone.  Ideally substantive questions should only be answered in the presence of his solicitor.  The Supervising Solicitor and the Claimant's representative will note the defendant's initial responses and any inconsistencies will be exploited by the Claimant.  
• Let the search team enter the premises and start the search.  The defendant's solicitor should be present before the Claimant's representatives start the search, to ensure the search team is operating legally and within the terms of the Order.  For example, the search team must only comprise those people expressly named in the Order.  The search team is only permitted to search the premises set out in the Order - it is not uncommon for an Order to include multiple premises.  The search team can only seize the class of documentation expressly referred to in the Order and is not permitted to review or seize any legally privileged documentation. 
• Damage or destroy evidence.  This includes hard copy documentation as well as information held electronically.  This would be a breach of the Order and possibly result in imprisonment.  The Claimant will usually have an IT expert on hand that can, with relative ease, ascertain whether evidence has been tampered with.  Again, this would give the Claimant ammunition to use in Court, which could be interpreted as a sign of guilt.
• Try to hide, transfer or otherwise deal with assets that are the subject of the Freezing Order. This would again be a breach of the Order and there will undoubtedly be a documentary evidence trail so it really would be only a matter of time until the Claimant found out.

As can be seen from the brief information set out above, the first response is critical and unless properly advised could severely hamper any defence. 

The first critical steps

For anyone presented with allegations of fraud and Court Orders, the first critical steps must be:

1. Say nothing
2. Do nothing
3. 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 final bulletin will outline how and when it is best to respond to "Without Notice Orders".

IMPORTANT: This briefing note is only intended as a general statement of the law and no action should be taken in reliance on it without specific legal advice. Release Date: 11 November 2006