Disputes Yearbook 2022: Civil Fraud
As part of the acclaimed Disputes Yearbook, Legal Business interviewed members of our disputes team exploring the litigation landscape and what RPC brings to the table.
What are the major trends in civil fraud in 2022?
Dan: Crypto asset disputes are massively on the rise. I don’t think I've been involved in a sector, or type of claim, that's generated so much interest and excitement and engagement from the legal industry as crypto disputes. We are getting inundated with enquiries and every Crypto Fraud and Asset Recovery (CFAAR) network event that we put on is very well attended. Secondly, I think there's going to be a huge amount of litigation coming out of what's happening in Ukraine and Russia, which is obvious. There will be direct instructions relating to the conflict, but also downstream supply issues are also going to arise as a result. We're seeing instructions in this space already: one for example is a company in Europe that buys certain raw materials - the price of which has, as a result of the knock-on effects of the conflict, gone up drastically. Consequently, the company wants advice on whether it may get out of its contract. That is not directly linked to Ukraine or Russia at all, but there is obviously a huge global impact from what's happening there across pretty much all sectors and jurisdictions.
We can also see there's going to be a rise in ESG-related claims. They can take a number of forms, but perhaps one of the most obvious ones is Section 90 of the Financial Services and Markets Act 2000 (FSMA) claims for false or misleading statements about ESG initiatives and so forth. We've seen a couple of them come across our desks already, but there'll be more to follow. And then fourthly, the other area in which we have seen growth is authorised push payment (APP) fraud – this takes many forms, but essentially is where fraudsters deceive individuals into sending them funds to a bank account controlled by them.
How is cryptocurrency impacting the civil fraud market?
Dan: The last couple of years in particular have seen the use of cryptocurrency and other crypto assets grow exponentially among the general public looking for somewhere to put their money for potentially very attractive returns. It's becoming much more mainstream and more commonly used as an investment and payment mechanism. Fraudsters have, unsurprisingly, latched onto that and have identified that there's a number of ways to steal cryptocurrency. We’ve seen plenty of cases where people open their crypto wallet one day and everything's gone (ie a classic hacking case), and also cases where they've been confidence-tricked – for example, they've been told: “You can make a lot of money by investing in crypto, send us over £500 and we'll double it." Followed by: "Great news, we've doubled your money. How about another £5,000?” And so people get lured into 'investing' very large amounts of money/crypto and everything seems to be going terribly well until they seek to withdraw some or all of it, and realise they have been scammed. We have also seen cases – perhaps the most unfortunate of the lot – where people have instructed firms purporting to help them recover their crypto only to discover that the firm itself is also controlled by fraudsters and further large amounts of money/crypto has by then been lost to funding the 'investigations', which turn out to yield no results.
Chris: There's also more expertise in the market now; that's not just around lawyers, but there are increasing numbers of firms who have forensic accountants and specialised in-house tracing teams, and so on, who we work closely with to build the strongest case possible. It's easier from a technical point of view to identify where your stolen Ethereum or other cryptocurrency has gone. That's part of the jigsaw of trying to get a claim off the ground - understanding what's actually happened. A few years ago, perhaps that expertise wasn't so readily available.
Were there any key cryptocurrency cases from last year that civil fraud lawyers should be keeping their eyes on?
Dan: While there were a couple of earlier decisions on crypto issues, a case from 2019 called AA v Persons Unknown is widely seen as the first key crypto decision. It dealt with whether cryptocurrency is property or information and, if it was property, what type of property? The court held that it was property which is important as it allows claimants to seek proprietary relief over it. That was very much a watershed moment, because it was a very important point to determine.
There has been a steady flow of crypto decisions since then, most notably Ion Science and Toma v Murray in 2020, Reyes, Fetch.ai, and Wang v Darby in 2021, and Tulip Trading in 2022. Most of the key decisions so far have, with a few exceptions, been on an uncontested basis. But a few cases are now proceeding on a contested basis and so various legal issues will be subject to further scrutiny over the coming months and years.
Any other key cases?
Chris: There’s a line of cases related to the Quincecare duty, which is going to be a hot topic this year. We’ve got the decision in the Stanford v HSBC case, with a Supreme Court judgment expected this year following the hearing in January. That relates to the question of whether an insolvent company suffers a loss if payments are made out of its bank account that discharge contractual debts owed to a third party.
There’s also the Federal Republic of Nigeria v JP Morgan case, which RPC is instructed on. Nigeria is relying on the Quincecare duty in its claim against the bank for over US$1bn, relating to payments made out of the FRN's account when the bank was on notice there was a serious risk the payments were part of a corrupt scheme. Judgment will hopefully be handed down on that later this year. It's interesting, Quincecare has been around for 30 years. But it's only really in the last few years that people have woken up to it again, and now it's being pleaded far more regularly. But there does seem to be a willingness on the part of the judiciary to accept that its limits are not fixed and can be expanded.
In relation to authorised push payment (APP) fraud cases, we had the recent decision of the Court of Appeal in Phillip v Barclays Bank, in which the Court of Appeal overturned a decision to strike out the claim against the bank on the basis that its customer, Mrs Philipp, had herself instructed Barclays to make the payment in question directly, rather than via an agent. The Court of Appeal rejected the proposition that the duty can only arise where the payment instruction is given by an agent, potentially opening up the scope of the duty considerably.
What makes RPC’s civil fraud team stand out?
Dan: We're obviously brilliant because we are committed, commercial and collaborative in defending our clients' interests, whether on the claimant or defendant side! In seriousness, we have one of the largest civil fraud teams in the city. We've got 14 partners and more than 30 associates working on some of the largest and most complex fraud disputes in the English courts.
That means that we've got a wealth of experience within the office, and the scale to work on multiple large and complex cases at the same time. Around 70% of our work as a firm is litigation, so we've got a huge number of litigators in the firm (over 250). Even beyond our immediate fraud team of 14 partners and 30 associates, we typically would bring in other specialists across the firm to support aspects of a case, so clients really get a full service offering.
We are also highly innovative. The most recent example of this is that we are a Founder Member of the Crypto Fraud and Asset Recovery 'CFAAR' Network, which launched in August 2021. We already have over 1,100 members and it has been a huge success in bringing together professionals (both lawyers and non-lawyers) who conduct crypto-related work and providing a space to learn, share ideas, and network.
Chris: There's a virtuous circle, where you have a team who are interested and highly experienced in this work and have the opportunity to do a large amount of it. And then they have the experience and the learning to help build up the practice and work on the next case. At the same time, we have ambitions to keep growing across all career levels.
We also have lots of contacts in the market in terms of experts. As we talked about earlier: crypto tracing, experts in banking, financial markets etc - we are well-connected when it comes to putting together all the constituent parts of the case. Similarly, on funding, we have worked on funded cases for years now. We were one of the first firms to do full contingency work with 100% conditional fee arrangements and more recently damages-based agreements (DBAs). It's not that common around the City, but it’s an attractive proposition if you can put the case together with the right legal team, the right experts and the right funding.
This interview was first featured in the Legal Business Disputes Yearbook 2022.