In this article, Director of Legal Finance Nicola Lewis, examines how strategically deployed capital strengthens civil fraud claims at critical moments, particularly in the context of high-stakes, cross-border commercial litigation.
Civil fraud disputes are at the sharper end of commercial litigation. They are high stakes, strategically intense and hard-fought battles often arising from business relationships that have broken down between strongminded principals.
Almost all such disputes have a cross-border dynamic playing out in multiple jurisdictions and involve complex trust structures or hidden assets. Possible claims range from deceit, misrepresentation and conspiracy to misfeasance, fraudulent trading, Ponzi schemes, payment fraud and Quincecare actions.
This type of litigation is only as effective as the recovery that follows. Funding, deployed at critical junctures, strengthens both the claim and the prospects of realising actual value from a judgment.
The critical junctures
Claimants require legal teams across multiple jurisdictions (often co-ordinated by a central solicitor and counsel team) as well as investigators and experts across several disciplines.
Procedurally, these cases do not follow a standard route, but they do follow a recognisable pattern. Fraud case outcomes are determined by key inflection points where well-timed investment has the power to change the trajectory:
- Early applications (often pre-action)
- Asset tracing and preservation
- Evidence gathering
- Strategic interim applications
Funders as a strategic partner: how funders add value
Funders stress-test recovery pathways, challenge assumptions around asset recovery strategy and add discipline to budgeting. They have an enforcement-first mindset and having early discussions on identifying and securing assets can help to sharpen the claimant’s approach to the claim and ensure that resources are deployed where they maximise ultimate recoverability for all interested parties.
Funders expect an initial enforcement roadmap. They want to understand:
- What assets exist, who holds them and their value.
- Where the assets are located and whether a judgment recognition process could be necessary at an enforcement stage.
- What civil remedies are available to secure the assets.
- The experience of the legal and investigative team.
- The easy wins to target at the outset.
Interim relief: high-impact tactics that require serious investment
England & Wales remains a popular forum for claimants bringing fraud claims not least due to the extensive toolkit of interim relief available, including worldwide freezing orders.
Applications for proprietary and freezing injunctions, pre-action disclosure orders, Norwich Pharmacal Orders and Bankers Trust Orders can furnish the claimant with the evidence needed to strengthen a claim or vital information about the defendant’s asset position. Funders increasingly view these early applications as pivotal: they are opportunities to secure valuable intelligence, shape the litigation, ensure the investment is underpinned by realisable value, and materially de risk the claim.
Obtaining the relief is not straightforward. Full and frank disclosure, contested return date hearings and the potential for cross-examination of factual and expert witnesses all serve to increase costs.
Jurisdictional challenges and committal applications also often feature in fraud claims. The former takes place at the outset of a claim and generates significant up-front costs and delays to getting the claim off the ground.
The price a claimant pays for a freezing injunction is a cross undertaking in damages. The courts of England & Wales often require fortification, an obstacle for many claimants. Funders can work with after the event (ATE) insurance providers to derisk the claimant and provide fortification by way of an indemnity.
Funders as a strategic partner — key stages
Five key stages where funders can assist a claimant in bringing a fraud claim:
- Enforcement first. A preliminary focus should be identifying the assets available for enforcement of a judgment. Develop a compelling enforcement strategy, and acknowledge gaps where more evidence is required.
- Identify available asset preservation tools. Obtain legal advice on what applications, insolvency processes and other legal steps can be taken in each jurisdiction and propose an appropriate sequence to avoid tipping off the defendant.
- Move quickly on preservation. Act promptly where there is a risk of dissipation so that injunctions can be obtained before assets disappear.
- Assemble the right team. Choose lawyers and investigators with a proven track record in asset recovery. Funders regard the team’s experience as equally important to the merits of the claim.
- Budget realistically for early applications and disclosure. Be clear about the likely cost of without notice applications, disclosure exercises and asset tracing investigations in the early phase of a fraud claim.
Reproduced from Practical Law with the permission of the publishers. For further information visit www.practicallaw.com. To discuss litigation funding, contact the team.
