Litigation of fraud cases is on the rise, reflecting the attractiveness of the English and Welsh courts as avenue for litigants. Senior associate Charlie Mercer wrote in The Banker about these trends, in an article reproduced here.
Recent data produced by litigation specialists Stewarts and litigation analytics platform Solomonic confirms what lawyers like myself have long suspected: that civil fraud litigation is on the rise.
Stewarts and Solomonic recently worked together to analyse litigation trends in England and Wales (based mainly on data held by Solomonic, looking at two main measures: claims issued since 2019 and judgments given since 2014).
What does the data say?
The key trend arising from both data sets is that, despite a recent decrease, fraud claims have increased since the start of each period, both as standalone figures and proportionally in the context of other types of claims. Instinctively, one might look to explain that as due to an increase in fraudulent behaviour, but this belies other contributing factors. Aside from macro-economic issues, an increased awareness of and willingness to bring fraud claims (both by those in the UK and abroad) may play a part.
Another key trend is that fraud disputes arising over the periods monitored have most commonly and consistently occurred within the banking and finance sector. Although striking, this trend is hardly surprising. Financial institutions and transactions are often at the heart of such disputes. A case in point is the mammoth litigation brought by The Republic of Mozambique against Credit Suisse and others about loans to finance a tuna fishery and other projects backed by sovereign guarantees, which Mozambique alleges were enabled by fraud and bribery. The three-month trial commenced in October (minus Credit Suisse’s new parent UBS due to a last-minute settlement). Another is the claim by the Ukrainian bank, PJSC Commercial Bank PrivatBank, against its former owners alleging misappropriation of $1.9bn, which is also in the middle of a long-running trial.
This dominance reflects the findings of a recent study by the Association of Certified Fraud Examiners, which found that the banking and financial services industry was affected by the greatest number of cases of occupational fraud (i.e. fraud against an organisation by an insider). Even fraud claims centred on other sectors will inevitably interplay with the financial system in some respect. For example, the proceeds of fraud may be held by a bank, in which case the victim might seek to freeze or identify those assets. As one might expect, financial institutions are often where the money is.
Why are the English courts so appealing?
The English courts are particularly well equipped to deal with these types of issues, which is one of the reasons they have historically been so attractive to foreign litigants. For example, they have powerful remedies at their disposal. These include the so-called “nuclear weapons” of worldwide freezing orders and search orders, which (respectively) enable the court to freeze a defendant’s assets worldwide pending trial and permit a claimant’s lawyers to enter the defendant’s premises and seize relevant evidence.
They also include Quincecare claims, named after a landmark case from the late 1980s, which are based on a bank’s duty to enquire into and refrain from processing payments believed to be attempts at defrauding the customer (recently clarified by the Supreme Court to be part of the general duty of a bank to act with reasonable care and skill). Remedies aside, the data shows that fraud claims have a roughly equal success and failure rate when they reach the judgment stage, a slightly better success rate than other tort claims and significantly better than negligence claims. This shows the English courts are willing and able to assess fraud issues and make findings of fraud where appropriate.
A final trend to highlight is the rise of cryptoasset disputes since 2019, which coincides with the emergence of cryptoassets into the mainstream, their development into a legally recognised asset class and, less positively, the recent turmoil in the industry. What is perhaps surprising is that relatively few crypto-related fraud cases are making it to court. This is in contrast to the wider prevalence and value of crypto-related fraud; the UK’s fraud reporting agency, Action Fraud, recently found there has been a 40% rise in crypto fraud in the UK over the last year, surpassing £300m for the first time. This may reflect anecdotal experience that the vast majority of such frauds concern amounts that are uneconomic to pursue in High Court litigation.
That said, when those cases have reached the English courts, they have been at the forefront of efforts to develop the law rapidly to enable victims to take recovery action. This makes the English courts arguably the leading venue to bring crypto-related fraud claims worldwide.
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