High Court considers conspiracy of unlawful means claim in context of pension fraud – Financial Services

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The High Court has ruled in favor of a global financial brokerage firm in its conspiracy of unlawful means claim against several companies and individuals in connection with repo fraud: ED & F Man Capital Markets Limited v Come Harvest Holdings Limited and Others [2022] EWHC 229 (Comm).

The ruling will be of broader interest to financial institutions that may have been victims of fraud perpetrated by a counterparty, or when defending a mis-selling litigation, where allegations of conspiracy of unlawful means are typically included in a series of claims.

Although the decision does not address new law, it reiterates the principles underlying the tort of conspiracy by unlawful means and provides a useful application of the test set out in Kuwait Oil Tanker vs. Al Bader & others
[2000] EWCA Civ 160. It should be noted that the court is of the view that in a lawsuit for conspiracy by unlawful means: (a) there may be different levels of intent involved in assessing the intent of the fraudster(s) to cause harm; (b) it is not necessary for a party to prove that the perpetrator(s) must have directed their actions at a specific plaintiff, as opposed to a third party or class of persons more generally; and (c) blind or Nelsonian knowledge (i.e. where a party refrains from investigating because it does not wish to confirm a particular state of affairs which it believes may exist) may sufficient to establish intent to cause harm.

In this case, the court was satisfied that the defendants knew that the global financial brokerage firm was an intended victim of the conspiracy of unlawful means, and had this not been the case, the court noted that it would have concluded that the defendants had blind -knowledge of the eyes. They also knew that it was the global financial brokerage that would suffer losses.

We examine the decision in more detail below.

Background

Between May and October 2016, the applicant’s global financial brokerage firm (MCM) completed 28 sale and buyback transactions. The counterparties to the transactions were 2 Hong Kong companies (together, the Hong Kong companies). As part of the transactions, MCM received 92 purported genuine original warehouse receipts (Deemed receipts) aimed at conferring a right of ownership on the nickel packages delivered by the warehouse storing these metals. MCM consequently provided financing to the Hong Kong companies via its own under-sale of 83 of the alleged receipts to an Australian financial services company (ANZ).

When it later emerged that the alleged receipts were forgeries that conferred no title to nickel, MCM filed a conspiracy against unlawful means suit against the Hong Kong companies on the grounds that it had been seriously disbursed for the sums she had advanced. MCM also added the following parties as defendants to the claim: (a) the sole director and shareholder of the Hong Kong companies (Mr Wong); (b) the agent and adviser of the Hong Kong Companies (Genesis); (c) the sole director and shareholder of Genesis (Mr Kao); and (d) a Singaporean brokerage house (Detroit).

MCM’s case was that Straits knew or consciously decided not to inquire into how the Hong Kong companies Mr Kao and Genesis obtained financing from MCM, ANZ and other financiers using the purported receipts. If they chose not to investigate, MCM argued that this was a situation where the criterion for “blindor Nelsonian knowledge (i.e. refraining from research when suspected) was satisfied.

However, Straits maintained that there was no evidence (documentary or otherwise) that she knew of the fraud perpetrated on MCM; nor did he have blind knowledge. Rather, she claimed that she herself had been misled by Mr. Kao and at most”hindsight as perfect vision“, you could say that Straits missed a number of “red flags” with respect to Mr. Kao and his associated companies.

Decision

The court ruled in favor of MCM, finding that the defendants conspired to injure MCM by unlawful means.

Key issues that may be of broader interest to financial institutions are presented below.

Test for Conspiracy of Illegal Means

In coming to its conclusion, the court noted that the tort of conspiracy to injure by unlawful means is prosecutable where the plaintiff proves that he suffered loss or damage as a result of an unlawful action taken. by virtue of any scheme or agreement between the defendant and another person or persons to injure him by unlawful means, whether or not it is the predominant purpose of the defendant to do so (according to Kuwait Oil Tanker).

A combination or agreement between two or more persons

The court found that there was a combination, understanding or agreement between the CEO and Straits Vice President, Mr. Wong and Mr. Kao, that Straits should take certain actions in connection with the fraud more large. The basis on which this conclusion was drawn was factual and linked to the state of knowledge of certain defendants. However, it should be noted that the court concluded that the “overt acts“de Straits were themselves strongly suggestive of a conspiracy, and what’s more, the implausible explanation offered by Straits’ witnesses and”false attempts“in evidence to explain the role Straits played only provided further”convincing evidencein support of Straits’ involvement.

Intent to injure

With respect to this element of the tort, Straits sought to argue that the defendant must have directed its actions towards a
specific applicant, as opposed to a third party or class of persons more generally, and mere recklessness as to the harm to the plaintiff was not sufficient. However, MCM argued that this was not supported, and in fact contradicted, by the cited authorities.

The court referred in its analysis on this point to OBG vs. Allan [2007] UKHL 21, where the House of Lords considered the level of intentionality required to establish liability, and emphasized the distinction between ends, means and consequences. In summary: (i) ends, where the harm to the plaintiff is the end sought by the defendant, then the requisite intent is established; (ii) means, where the injury to the plaintiff is the means by which the defendant seeks to secure his end, then the requisite intent is established; and (iii) consequenceswhere the damage is neither the end nor the means but merely a foreseeable consequence, the required intent is do not made from. The court then noted that there was another category, known as the “other side of the coin”, in determining whether the harm caused to the plaintiff was the necessary consequence of the defendant’s actions. This was differentiated from category (iii) on the basis that defendant’s gain and plaintiff’s loss are inseparably linked and tthe defendant cannot obtain one without provoking the other, and the defendant knew that was the case. In such circumstances, although the defendant’s action was not intended to harm the plaintiff, it will be considered to have intended to harm the plaintiff. The court also noted that there was no additional requirement that the precise identity of the victim be required by law to establish the required intent.

The court recognized the overlap between intention and knowledge and, in particular, the fact that blind or Nelsonian knowledge may be sufficient, which reinforced the idea that there can be no requirement of intending to harm a specific plaintiff (because in a case of blind knowledge, no investigation would have been undertaken to confirm the state of affairs, such as the plaintiff’s identity).

In any event, the court found, based on the facts, that Straits knew that MCM was an intended victim of the conspiracy of unlawful means at least from April 2016 or shortly before, and if this had not were the case, the court noted that it would have found that the CEO and VP of Straits had blind knowledge.

Similarly, the court found that the Hong Kong companies Mr. Kao and Genesis entered into an association with the intent to harm MCM through deception. In the opinion of the court, they knew that it was MCM who would suffer a loss.

Illegal means

The court agreed with the parties that this element of the tort had two constituent elements, namely (i) the illegality of the act; and (ii) whether the unlawful act is in fact the “means“by which injury is inflicted. Straits argued that the “actually the means“element of the tort consisted of two aspects, causation and intent, and that this requirement of “intention” was in addition to the separate requirement that the defendant intended to injure the plaintiff (discussed above). In contrast, MCM argued that in fact the “actually the means“The concept addressed the unlawful means and the causative elements of the tort, but not the intent.

The court held that MCM’s analysis was correct and confirmed that there was no intent requirement for this element of the tort. He concluded that MCM had sufficiently met the required threshold, given that Straits was aware of the forgeries (although it was noted that the defendant is not required to know the details of the “illegal means” deployed).

Loss

On the issue of harm, the court held that there was no doubt that MCM had suffered harm as a result of the unlawful means.

Accordingly, for all of the above reasons, the court found in favor of MCM with respect to its claim of conspiracy of unlawful means.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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