Eldwick Law

Author: D C

  • What To Do If You Are Accused Of Fraud?

    What To Do If You Are Accused Of Fraud?

    If you are accused of fraud and are being investigated by the police or a regulatory body such as the SFO, NCA, HMRC, or FCA, it is essential that you contact an experienced Fraud Solicitor immediately. We see so many cases in which it is clear that if we had been instructed earlier, the investigation/prosecution would never have gone as far as it had. 

    Fraud is a complex crime and is extremely hard to prove to the criminal standard (beyond reasonable doubt). However, if you are convicted, depending on the nature and extent of the fraud, you could face up to ten years’ imprisonment.

    In addition, if you are accused of fraud, investigations can be long, extremely stressful, and cause untold damage to your business reputation. Without meticulous, smart, and proactive legal advice, a person or company could bring a civil claim for fraud against you at the same time the criminal investigation/prosecution is taking place.

    This is becoming more common as the civil test for liability (on the balance of probabilities) is lower than that required for criminal prosecution.

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    What is fraud?

    Fraud is the use of trickery to gain a dishonest advantage, which is often financial, over another person. Types of fraud include (but are not limited to):

    • Electoral fraud
    • Mortgage fraud
    • Beneficiary fraud
    • False accounting
    • Fraudulent trading
    • Fraud By false representation
    • Identity theft
    • Immigration fraud
    • Ponzi schemes
    • Debit and credit card fraud
    • Tax fraud
    • Insurance fraud

    In addition to the above, there are also many types of conspiracies to defraud. 

    How can I defend an allegation of fraud?

    The most common defence in either a criminal or civil fraud trial is that the Defendant did not act dishonestly. For example, if you are accused of making false representations you can argue that at the time you were unaware that what you said was untrue.

    In the case of identity theft, your defence may be that the person whose identity you have been accused of stealing permitted you to use their details.

    When establishing whether or not you have been dishonest, the Court will use the test set out by the Supreme Court in Ivey v Genting Casinos (UK) Ltd t/a Crockford [2017] UKSC 67, namely: 

    • What was the defendant’s actual state of knowledge or belief as to the facts?
    • Irrespective of the defendant’s belief about the facts, was their conduct dishonest by the objective standards of ordinary decent people?

    There are other general defences available for criminal fraud, for example, necessity, duress, and mistake. An experienced Fraud Defence Solicitor can swiftly examine the facts of your case and the Prosecution’s evidence and advise you on the defence/s that is most likely to achieve success.

    Do I need a Fraud Solicitor if I am asked to attend an interview under caution?

    Never, ever attend an interview under caution or even an informal ‘chat’ without your Solicitor present. 

    The powers of the police and other regulatory bodies “who are charged with the duty of investigating offences or charging offenders” to conduct interviews under caution are contained in the Police and Criminal Evidence Act 1984 (PACE 1984).

    If you believe you are innocent it is natural to assume that if you speak to the authorities and calmly tell them your side of the story they will promptly apologise, shake your hand, and the matter will be put down to a misunderstanding.

    Unfortunately, this is not how things work.

    The job of the police and regulatory authorities is to investigate suspected criminal activity with the aim of bringing a successful prosecution. Having a Fraud Solicitor at your side who can not only advise you but also ensure the interviewers do not overreach their powers. 

    When it comes to SFO investigations, it is important to note that it obtains its investigatory powers from section 2 of the Criminal Justice Act (CJA) 1987. Therefore, it can compel organisations/people to produce documents and other evidence, apply for a search warrant, and attend interviews. These are referred to as ‘compulsory powers.’ 

    Importantly, section 2 allows the SFO to insist a person attends an interview that is not conducted under caution nor subject to the Police and Criminal Evidence Act (PACE). Therefore, there is no right to silence and if you want to have a Solicitor present, they need to convince the investigator that they should attend and if they are so permitted, agree to restrictions regarding their conduct.

    There are two safeguards concerning the interview powers provided by section 2, namely:

    • The powers cannot be used to obtain information subject to legal professional privilege, and
    • Answers provided in a section 2 interview cannot be used in a prosecution case if one is brought against the Defendant for the offence under investigation. However, they can be used to prosecute the Defendant for an offence of misleading the investigation.

    Refusing to comply with the SFO when it is exercising a compulsory power or providing false or misleading information is a criminal offence and can lead to a custodial sentence.

    Concluding comments

    Fraud and the various powers given to the police and regulatory authorities to investigate it are incredibly vast and go beyond what can be explained in a single article. For example, because it is notoriously difficult to successfully prosecute fraud and corruption cases if an investigation does not meet the relevant criteria to bring a prosecution but property derived from crime can be identified, authorities can use their civil recovery powers to freeze and recover assets. 

    If you are accused of criminal fraud or a civil claim for fraud has been brought against you, please contact us immediately. If you are subject to a ‘dawn raid’ we can provide an emergency response. 

    To discuss any points raised in this article, please call us on +44 (0) 203972 8469 or email us at mail@eldwicklaw.com and/or contact our Head of Business Crime, Abbas Nawrozzadeh. 

  • Crypto Fraud: High Court Provides Legal Solutions

    Crypto Fraud: High Court Provides Legal Solutions

    The Courts in England and Wales have long been renowned as stable, specialist institutions in which companies can litigate complex commercial matters. The recent cases of Jones v Persons Unknown [2022] EWHC 2543 (Comm) and LMN v Bitflyer Holdings Inc [2022] EWHC 2954 (Comm), illustrate that the Judiciary is alive to the need to provide legal remedies in crypto fraud cases, including in situations where the identity of the fraudsters are difficult or impossible to discover.

    What is crypto fraud?

    Crypto fraud is where criminals dishonestly trick people and/or companies into parting with their cryptocurrency and/or assets via fraudulent transactions. 

    Examples of crypto fraud include:

    • Gaining access to a crypto wallet through phishing, smishing, and vishing. The cryptocurrency is then transferred to the fraudster’s account via several transactions, making it difficult to trace the funds and fraudsters.
    • Using social media platforms to advertise high-return investment or mining opportunities and asking for payment in cryptocurrency.
    • Targeting people who have been previously scammed and offering to find the funds in return for payment in cryptocurrency. The funds and the service provider then disappear.

    Jones v Persons Unknown

    In Jones v Persons Unknown, the Claimant had been fraudulently convinced to transfer the equivalent of £1.54 million in Bitcoin to a fake crypto-investment platform. The stolen Bitcoins were tracked to a wallet associated with the company Huobi, a Seychelles-based cryptocurrency exchange. 

    The case of LMN v Bitflyer Holdings Inc saw hackers access and transfer millions of dollars of cryptocurrency from the Claimant’s computer systems. The cryptocurrency transfer was traced through 26 recipient exchange addresses. Investigations showed that these exchanges were all operated by one of the Defendants or companies belonging to the same group.

    How do the decisions in Jones v Persons Unknown and LMN v Bitflyer Holdings Inc benefit victims of crypto fraud?

    It is important to remember that cryptocurrency is almost completely unregulated in the UK and its legal status varies widely around the world. Furthermore, cryptocurrency cases involve technology that is constantly evolving, and the market is enormously volatile.

    The High Court in Jones v Persons Unknown provided several case law ‘firsts’ when handing down its decision, including:

    • Creating a constructive trust between the cryptocurrency exchange to which the stolen Bitcoin was traced and the victim of the alleged crypto fraud. Although in the case of Wang v Darby [2021] EWHC 3054 (Comm) the court indicated that digital assets could, in principle, be held on trust but on the facts the Court ruled against one.
    • Making an order against the perpetrators of the fraud and the cryptocurrency exchange for the delivery up of Bitcoin.
    • Delivering the summary judgment by NFT airdrop directly into a crypto-wallet.

    The decision to impose a constructive trust between the exchange and the Claimant followed the ruling in AA v Persons Unknown [2019] EWHC 3556 (Comm) where the Court held that crypto-assets are in fact “property” for relevant purposes. The Court followed Lord Wilberforce’s opinion in the House of Lords in National Provincial Bank Ltd v Ainsworth [1965] AC 1175 (HL) at 1247–1248, where he said: “Before a right or an interest can be admitted into the category of property, or of a right affecting property, it must be definable, identifiable by third parties, capable in its nature of assumption by third parties, and have some degree of permanence or stability.” 

    Following this AA decision, the well-established legal principle that a Claimant’s proprietary interest can be enforced by way of the imposition of a constructive trust in cases where property or money stolen or obtained by fraud is traceable in equity could be applied to litigation involving crypto assets. Many other common law jurisdictions have followed a similar approach although there are exceptions: The Court of Appeal of Singapore has expressly not decided whether cryptocurrencies are a type of property see Quoine Pte Ltd v B2C2 Ltd [2020] SGCA(I) 02. 

    In LMN v Bitflyer Holdings Inc the Claimant wanted the Court to allow it to have access to the Know Your Client data and other anti-money laundering information held by the 26 exchanges so it could resume its tracing of the misappropriated Bitcoin.

    The Court granted information orders against foreign cryptocurrency exchanges requiring:

    1. the supply of information and documentation to help identify those who hold accounts into which stolen cryptocurrency was allegedly transferred, and 
    2. where the misappropriated funds had ended up.

    These decisions assist victims of stolen cryptocurrency to trace the funds and, if a constructive trust can be established, be reimbursed by an exchange. These are incredibly powerful weapons in civil litigation involving crypto fraud as some cryptocurrencies such as Zcash and Monero provide anonymity for the sender, receiver, and holder of the funds. Bitcoin and Ether are pseudo-anonymous which is why an Information Order for disclosure of Know Your Client and anti-money laundering data is so powerful as it can reveal the identity of the people involved in the fraudulent transactions.

    What are the plans to regulate cryptocurrency in the UK?

    The Treasury is finalising plans to implement rules to regulate the crypto industry. These will include setting limits on foreign companies selling into the UK, provisions for how to deal with the collapse of companies, and restrictions on the advertising of products. The collapse of the cryptocurrency exchange FTX seems to have spurred Whitehall into urgency regarding this matter.

    The powers will be part of the Financial Services and Markets Bill, which at the time of writing is passing through the House of Lords.

    For victims of crypto fraud, the crucial step is to contact an experienced Solicitor who can advise on how to trace what has happened to the funds and apply to the Court for necessary Orders, Injunctions, and decisions to protect and restore the cryptocurrency to its rightful owner.

    Note: The points in this article reflect the law in place at the time of writing, 05 January 2023. This article does not constitute legal advice. For further information, please contact us.

    1. Since 2021 Ether transactions can be made anonymously – What is ether (ETH)? | ethereum.org
  • Rights of minority shareholders in private limited companies

    Rights of minority shareholders in private limited companies

    How can you safeguard your rights as a minority shareholder?

    1. A shareholder application to court in cases of unfairly prejudicial conduct (s.994 CA 2006)

    Commonly known as an unfair prejudice petition, a member of a company may make a petition to the court for relief where:

    • the affairs of the company are being or have been conducted in a manner that is unfairly prejudicial to interests of members generally;
    • an actual or proposed act or omission of the company is or would be prejudicial. 

    Whilst any conduct that satisfies the elements of s.994, the most important being that the conduct of the company affairs is both unfair and prejudicial, could give rise to a successful unfair prejudice petition, examples of unfairly prejudicial conduct can include:

    • circumstances where a director, who is also a majority shareholder, redirects business to himself or for his own benefit in breach of his fiduciary duties;
    • failing to allow the petitioner to be involved in the management of the company or to be consulted about decisions if the petitioner holds such rights and such exclusion is not justified by the petitioner’s misconduct;
    • exercising the power to allot shares to dilute a minority shareholder’s interest;
    • a majority shareholder awarding himself excessive and unreasonable bonuses and financial benefits. 

    Under s.994, the court will take into consideration past and present mistreatment and will have wide discretion with regards to the remedial order it may impose. A remedy which is commonly sought by a petitioner is a purchase order, which requires the wrongdoing member to purchase the minority shareholding of the petitioner.  The price at which these shares are sold is determined by the value of the petitioner’s shares prior to the commencement of the objectionable behaviour.

    Other remedies include the court’s authorisation of civil proceedings and their commencement in the company’s name; and the regulation of the company’s affairs in the future.

    Overall, as an oppressed minority shareholder, it is important to act quickly; the courts will reject any application they believe to have been made by a shareholder who has been inactive and has allowed the objectionable behaviour to continue. 

    Further reading: Directors’ Duties

    1. A ‘derivative action’ (s.260 CA 2006)

    A derivative claim is the process by which a minority shareholder can bring proceedings on behalf of a company against a director for breach of duty.  As the resulting compensation is sought on behalf of the company and it is the company that will benefit overall, not the individual shareholder. 

    The procedural route by which a derivative claim can be brought is governed by ss.260-264 CA 2006; this has superseded the procedural rules under common law and the uncertainty that came with it. The intention was to simplify and improve the law’s accessibility. Indeed, there was a demand for greater legislative certainty, especially in wake of Robert Maxwell’s pension fraud scandal.  

    Although leave of the court is not required to issue a derivative claim, permission must be obtained to proceed with the claim (s.261(1)). The court therefore has the power to scrutinise the claim before any additional steps are taken and it is important to ensure that a prima facie claim is made out to avoid permission being automatically rejected by virtue of s.261(2). 

    Under s.263(2), permission “must” be refused where:

    • directors, who are under a duty to promote the success of the company (s.172 CA 2006), would not seek to continue the claim; and/or
    • the cause of action arises from an act or omission that has been authorised or ratified by the company.

    The court will give “particular regard” to the perspective of company members who do not have a personal interest in the dispute (s.263(4)) and, amongst other things, the court will consider whether the applicant is acting in good faith (s.263(3)(a)). 

    Under s.264, it is also possible for a second member to take over from the first member and continue an existing derivative claim. This may occur if the first member has been conducting the claim in an inappropriate manner. 

    The way in which the court decides whether permission should be granted for a derivative claim is undoubtedly slightly arduous. Indeed, achieving overall success via a derivative claim is particularly difficult for minority shareholders overall. 

    Nonetheless, derivative claims are comprehensive in their application; they refer to any actual or intended acts or omissions concerning default, negligence, breach of trust, or breach of duty by directors. 

    1. A Shareholders’ Agreement

    A minority shareholder can also seek protection by entering into a shareholders’ agreement. This is a private contract between shareholders, which governs how they will act in relation to the company. It is important to note that, because it is private, it does not have to be registered at Companies House and, therefore, does not have to be made public knowledge. 

    By virtue of the agreement, signees are contractually bound to act in accordance with its terms. If they fail to do so, they may be sued for breach of contract. However, it is entirely voluntary and shareholders cannot be compelled to sign. Commonly, such agreements contain control mechanisms relating to profit distribution and the appointment of directors. 

    Moreover, they can provide minority shareholders with protection; in order to amend a contractual provision, all shareholders must be in agreement. In contrast, under the CA 2006, shareholder rights are determined proportionally in accordance with their voting rights.

    Indeed, a well drafted shareholders’ agreement ensures that minority rights are considered allied. They can, therefore, act as an appropriate dispute resolution mechanism and help to reduce the risk of acrimonious and costly litigation. 

    1. S.122 of the Insolvency Act 1986

    Finally, minority shareholders have the option of deploying a considerably more explosive action set out under s.122 of the Insolvency Act 1986, which provides that a minority shareholder can make an application to court to ‘wind up’ the company on ‘just and equitable’ grounds.

    This is undoubtedly a remedy of last resort; there are few winners, as it will result in the cessation of the company’s existence and, therefore, the loss of shareholder investment. There is, unsurprisingly, a high bar set here and the courts must be of the opinion that there is no better alternative.

     

  • Freezing Orders: Russian Oligarch Gets A Second Chance

    Freezing Orders: Russian Oligarch Gets A Second Chance

    People planning to contest account freezing orders (AFOs) will welcome the recent High Court decision in National Crime Agency v Westminster Magistrates Court, 2022 EWHC 2631 Admin where Justice Rowena Collins Rice upheld a challenge by Ingliston Management Ltd (IML) and Lodge Security Team Ltd (LST), who managed the UK personal finances of a Russian oligarch, Petr Aven, whose British assets were frozen in February 2022. Mr Aven is alleged to be close to President Vladimir Putin.

    Background to the High Court decision

    Shortly before sanctions were imposed on Mr Aven, the National Crime Agency (NCA) was informed by several banks to an ‘unusual’ pattern of activity” in nine UK bank accounts held by six persons and companies connected to Mr Aven. The HSBC accounts of IML and LST were among them. The NCA obtained, on a without-notice basis, freezing orders in relation to all nine accounts, and then a search warrant, and began further investigations.

    IML and LST applied to the court to have the AFOs set aside. The District Court Judge declined to do this, however, the freezing orders were varied to allow for personal expenditure to be paid from the accounts.

    The two companies proceeded with a judicial review challenging the lawfulness of refusal to set the orders aside. The NCA brought its own challenge against the lawfulness of the decision to vary them.

    The applicable law on account freezing orders

    To assist with understanding why the High Court criticised the District Court Judge’s decision to refuse to set the AFO aside, it is useful to set out, in non-technical terms, the applicable law that both courts had to consider.

    The Proceeds of Crime Act 2002 (POCA) sets out a complex regime which allows for prosecutors to confiscate any assets purchased with the proceeds from criminal activity.

    Under section 303Z1, the NCA can apply to a Magistrates’ Court for an AFO ‘if an enforcement officer has reasonable grounds for suspecting that money held in an account maintained with a relevant financial institution (a) is recoverable property’ – that is, in effect, the proceeds of crime – ‘or (b) is intended by any person for use in unlawful conduct’. This is referred to as the threshold question.

    An AFO prevents withdrawals and payments being made from the account.

    By subsection (4) of section 303Z1, an application for an AFO may be made without notice (ex-parte) ‘if the circumstances of the case are such that notice of the application would prejudice the taking of any steps under this Chapter to forfeit money…’.

    Section 303Z4 of the Proceeds of Crime Act 2002 (POCA) empowers a court at any time to set aside or vary an AFO. Section 303Z5 provides the court can, when exercising its power under section 303Z47, make exclusions from the prohibition on making withdrawals or payments from the frozen account. Exclusions ‘may (amongst other things) make provision for the purpose of enabling a person by or for whom an account is operated (a) to meet the person’s reasonable living expenses, or (b) to carry on any trade, business, profession or occupation’. This amounts to a variation of the AFO.

    Exclusions can be made subject to conditions. By subsection (8), the power to make exclusions must be exercised: with a view to ensuring, so far as practicable, that there is not undue prejudice to the taking of any steps under this Chapter to forfeit money that is recoverable property or intended by any person for use in unlawful conduct.

    The Russia (Sanctions) (EU Exit) Regulations 2019, regulation 11 provides for an ‘asset-freeze’ in relation to persons designated for the purpose of attracting financial restrictions. It makes it a criminal offence for anyone to ‘deal with funds or economic resources owned, held or controlled by a designated person’ if they know or have reasonable grounds to suspect that they are doing so.

    The High Court decision in National Crime Agency v Westminster Magistrates Court

    IML and LST argued that the NCA’s without notice application when applying for the AFO had been ‘muddled, misleading and inadequate.’ Furthermore, the NCA had failed in its duty of candour and the Magistrates’ Court would probably have refused the without notice AFO if they had been made aware of the true facts.

    In making his decision not to set aside the AFO, the District Court Judge drew an analogy between the AFO provisions and statutory regimes under the Sexual Offences Act 2003 and Civil Procedure Rule 3.1(7). This led him to conclude that for an AFO to be set aside, a change of circumstances must be present. The High Court rejected this, commenting that it read into the POCA a non-existent restriction on the court’s powers.

    Justice Rowena Collins Rice stated that when deciding whether or not to set aside an AFO, the court must consider the threshold questions (see above). However, she ruled that this was not the case when considering an application for variation. Instead, the provisions in Section 303Z5 (see above) should be deliberated. She went on to say that the District Court Judge made a “clear error of law” in deciding to vary but not set aside restrictions on the company accounts. The High Court Judge considered “the errors and omissions . . .. to be fundamental to the extent of making [the decision] wrong, unfair, and excessively speculative.” She said the case “needs to be considered afresh, and the decision taken properly.”

    Comment on freezing orders

    This case illustrates how difficult it is for the NCA to proactively enforce sanctions. It is worth reminding you, dear reader, freezing orders are considered the law’s ‘nuclear weapon’ and the judiciary is exceptionally sensitive to any laxity in the application for an AFO and will meticulously consider setting aside and varying applications. For example, when commenting on the court’s obligations under section 303Z5 and in particular, subsection (8), Justice Rowena Collins Rice observed:

    “These tests again require close attention to the factual matrix and an evaluative decision to be taken in all the circumstances, including giving careful attention to the scheme of the Act. What constitutes someone’s reasonable living expenses? What, apart from the absence of a variation order, is stopping the person being enabled to meet those expenses? What would be the prejudicial effect of making exclusions on the taking of taking further steps towards forfeiture? And if there is a prejudicial effect, does the court assess it to be undue, and if so why?”

    It is also important to note that the fact an applicant for a setting aside order has been sanctioned does not change the court’s approach. Instead, the circumstances surrounding the sanction will provide further information for the court to consider. For example, as an alternative to the often costly and complex AFO setting aside application, a more straightforward OFSI licence covering assets not subject to the AFO may provide a better solution.

    What matters most is that if you are subject to an AFO or UK, EU, or US sanctions you must instruct an experienced solicitor to advise you. Not only will they be alive to NCA tactics, but they can also develop a strategy that has the best chance of lifting an AFO and/or sanctions and protecting your personal and professional reputation.

  • Crypto – the Prodigal Asset?

    Crypto – the Prodigal Asset?

    As Heraclitus said: “There is nothing permanent except change.”

    Every innovation is met with suspicion if not derision. Planes and trains were seen as the work of the Devil, whilst some wanted the car outlawed- ironically the very early vehicles were battery not gasoline powered.

    There was marked antipathy to UK commercial TV when launched in the 1955. Some thought it would not last and that all we needed was the BBC. Wind the clock forward and it’s the BBC having to find its niche in a world of multi-providers and new technologies providing novel ways to view programmes and pay for them. Content has changed exponentially courting questions as to what are the boundaries of free speech?

    The internet and social media have yet to be tamed and regulated. The UK’s Online Safety Bill 2022 shows the tension between free speech and protecting the vulnerable.

    Crypto and its supporting technologies are the latest to be under the gaze. Admittedly crypto has scored some own goals thanks to the gung-ho anti-regulatory mentality of FTX (and fall out consequences like Block Fi). Whilst ‘the fake it until you make it’ maxim now looks like a route map to prison food given the conviction of Elizabeth Holmes, founder of Theranos.

    Whilst we can be scathing of crypto let’s not forget it is only about 14 years that established ‘analogue’ banking was under scrutiny and pushed capitalism to the brink. The effects are still being felt economically, socially and legally.

    Crypto has the potential to be the fundamental catalyst in changing capitalism, and in the right hands (human and AI) the capacity to further democratise society.

    However, to do so it needs several important elements.

    The first important aspect is to ensure trust and transparency. Crypto using more acronyms than a tin of alphabet soup only antagonises matters and shrouds matters in mysticism when the sector should be earning trust as well as broad acceptance. Even Tesla’s Elon Musk resisted calling tyres ‘rotating mobility aids.’

    Make sure the adults are in the room. And by that I do not mean tropes of yesteryear but like-minded people from all backgrounds, ages and nationalities who are willing to embrace change but not change for changes sake. Also, don’t regard regulation and accountability as a death knell to creativity and innovation.

    The courts and lawyers accept that there is risk to everything. What you regulate is ensuring people know what they are letting themselves in for and that there is proper transparency and accountability. We should not protect people from failing but we should protect them from people who make failing inevitable whether because their approach to crypto business is fraudulent or just damn feckless.

    Legislators need to understand blockchain and crypto. Also, regulation should be agile and responsive. Also, keep it simple. The more complex and unfathomable the laws the more chances of creating uncertainty and loopholes that undermine the purpose of the legislation. If existing legislation works then just adapt to crypto.

    As with climate change and the Internet, crypto is a borderless market yet most legislation is derived from jurisdictions. There is already divergence on definitions of crypto assets, for instance between the proposed EU Markets in Crypto-Assets (MiCA), and the UK’s proposed amendments to the Financial Services and Markets Bill (FSMB).

    The FSMB defines a crypto asset as: 

    “Crypto asset’ means any cryptographically secured digital representation of value or contractual rights that:

    • Can be transferred, stored or traded electronically, and
    • That uses technology supporting the recording or storage of data (which may include distributed ledger technology).”

    Whilst MiCA adopts a more forensic analysis and definitions will cover certain types of NFTs (non-fungible tokens).

    Seemingly, the FSMB will not cover NFTs whilst the UK’s Digital, Culture, Media and Sport Committee launching an enquiry how best to regulate NFTs. 

    The US securities law such as the Securities and Exchange Commission (SEC) may treat certain types of NFT as securities. 

    NFTs play an increasing role in the creative industries but their application exceeds these valuable sectors.

    Ideally, crypto needs international courts and universal standards- but given the NFTs examples above it is not likely to happen any time soon. 

    Common Law should provide consistency but variation occurs, for instance compare Australia and UK court decisions as to whether crypto assets are a form of property. 

    Ensure that blockchain and also crypto are green using renewable energy. 

    The biggest goal for crypto is to re-define the application of business and also give choice as to the type of money or unit of value we use.

    We would be aghast if there was only one type of fashion, car, phone or cheese; we have choice and so it should be with money and its utility.

    Central governments and banks fear that they will lose control over collecting taxes, monetary policy and so forth; an immutable blockchain should make tax collection easier! 

    The right utility weighting can ensure crypto money has real value and not something built on quicksand. The current mantra of we value it because we do can only be taken so far.

    Currently, the wealth of a country or person is based on fairly crude profit and loss principles. 

    Smart blockchain technology can trace and account for specified qualities and once verified a value can be attributed, for instance, if a company has an excellent employment record then a value is attributed. 

    Likewise, if you can show that production does not include use of carbon or a supply chain does not exploit children then a value can be given. As such, profitability is measured in terms of additional identifiable qualities rather than just what is produced or services provided.

    Such an approach helps productivity, help stem inflation as each crypto assets would be linked and valued against identifiable parameters not just on market whim. 

    The legal groundwork exists. For instance, S414 C (7) Companies Act 2006 says companies need to take account of factors such as such as environmental matters, including the impact of the company’s business on the environment. Also, requires consideration of social, community and human rights issues. 

    Whilst the Directive on Corporate Sustainability Due Diligence and Amending Directive (EU) 2019/1937 will apply to EU and non-EU companies generating a net turnover of more than €150m in the EU in the financial year preceding the last financial year. The Directive is likely to be adopted by 2023 and take effect during the next three to five years.

    Blockchain will be a significant driver in the application of these laws and influence how companies are perceived and valued.

    This does not prevent central governments imposing rules of engagement.

    It is easy to look backwards through rose tinted glasses and resist change.  As Leo Tolstoy said: ‘Everyone thinks of changing the world, but no one thinks of changing himself” 

    One way we could change ourselves is to embrace blockchain and crypto and, like a child, nurture them so they become inspirational and constructive adults.

    Julian Wilkins of Eldwick Law

    Consultant Solicitor and Notary Public

    Member of the Chartered Institute of Arbitrators

    CEDR Accredited Mediator

  • 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.

  • 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.

     

  • 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.

  • Unexplained Wealth Orders: Justified Seizure?

    Unexplained Wealth Orders: Justified Seizure?

    Unexplained Wealth Orders (“UWO”) are posing an increasing threat to the assets of private individuals. At a moment’s notice, authorities such as the HMRC and CPS can seize assets where they suspect the property is criminal property. The economy has taken a significant knock and all of the signs suggest authorities such as the HMRC are looking to UWO rather than proceed by way of a criminal prosecution.

    Put simply, a UWO requires the responding party to explain what interest they have in whatever property is named in the order, how they obtained the property, and how it is held.

    Applications for such orders can be made without notice to the High Court by enforcement authorities including the Serious Fraud Office, Her Majesty’s Revenue and Customs, and the National Crime Agency. Applicants must:

    1. Specify or describe the property in respect of which the order is sought; and

    2. Specify the person who they believe holds the property.

    The threshold tests for obtaining an order are relatively low. Before deciding whether to issue a UWO, the court needs to be satisfied of the following:

    1. That there is reasonable cause to believe the respondent holds the property;

    2. That the value of the property is greater than £50,000;

    3. That there are reasonable grounds for suspecting that the known sources of the respondent’s lawfully obtained income would have been insufficient to enable the respondent to obtain the property;

    Thereafter, for most applications, the court will be asked to consider there are reasonable grounds for suspecting that the person affected by the order or a person connected with that person is or has been involved in serious crime (whether in the UK or elsewhere).

    Many commentators discussing UWO focus on people suspected to have suspicious political connections or “politically exposed persons” (PEP). It is important to stress, UWO have an impact well beyond PEP and can affect any individual.

    If the individual does not provide satisfactory evidence of how their assets were acquired, these assets can be held as ‘recoverable property’ for the purposes of a civil recovery order under the Proceeds of Crime Act.

    The order may also be accompanied by an interim freezing order, as an unexplained wealth order alone will only lead to investigation, rather than the assets being frozen or seized. This is typically imposed to prevent any assets being disposed of before the unexplained wealth order process is complete. However, this could lead to a number of innocent people fighting to retain their assets on the basis of an assumption of fraud.

    In National Crime Agency v Baker and ors [2020] EWHC 822 (Admin), the High Court discharged three unexplained wealth orders brought against two high profile Kazakhstan individuals relating to three London properties worth over £80m. In this case, following a detailed examination of the evidence, the court found the source of ownership of the properties were no longer unexplained. In this case, all properties were subject to freezing orders whilst the unexplained wealth order process was being carried out.

    Whilst it is a complex task for agencies to prove how individuals obtained their wealth and identify ownership of assets, especially overseas, it seems that unexplained wealth orders are being used as an alternative to impair the individual in question, as it would be onerous to arrest and charge the individual with a criminal offence based on investigative purposes.

    Further, this type of order places the burden on the individual, rather than the enforcement agency to evidence the source of the wealth. The threshold for an obtaining an order is relatively low as the civil standard of proof applies, making it easy for agencies to pursue anyone they believe worth investigating. The authorities only have to be satisfied that the evidence is strong enough on the balance of probabilities that there has been a serious criminal act.

    In Baker, the Court emphasised the relatively limited purpose of UWOs as an investigative tool as once property and asset ownership has been explained, the purpose of the order falls away. The nature of an unexplained order seems draconian and unnecessary, especially as it places such as unfair burden on the individual. It seems these orders are being used as an alternative for bringing criminal charges, making it wholly unfair on the individual. The individual in question must prove the burden themselves and undergo an investigation, whilst their assets are likely to be frozen and tried without a jury. This seems wholly unfair and a cause for change regarding the nature of unexplained wealth orders, due to their detrimental effect on those who could be innocent individuals.

    Being investigated can be extremely daunting and as the threshold for investigation is low, it is crucial that you obtain the right legal guidance as early as possible. Eldwick Law have a team of lawyers who are experts in this area of law and can assist you with your case, no matter how big or small.