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Asset Tracing and Recovery Reassessed

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Asset Tracing and Recovery Reassessed Asset tracing and recovery reassessed Nicole Sandells QC Miles Harris 4 New Square Professional Liability & Regulatory Conference 4 February 2020 This material was provided for the 4 New Square Professional Liability & Regulatory Conference on 4 February 2020. It was not intended for use and must not be relied upon in relation to any particular matter and does not constitute legal advice. It has now been provided without responsibility by its authors. 4 NEW SQUARE T: +44 (0) 207 822 2000 LINCOLN’S INN F: +44 (0) 207 822 2001 LONDON WC2A 3RJ DX: LDE 1041 WWW.4NEWSQUARE.COM E: [email protected] Nicole Sandells QC Call: 1994 Silk: 2018 Nicole's practice in recent years has focused heavily on financial and property law, civil fraud, restitution, trusts, probate and equitable remedies alongside Chambers' mainstream professional indemnity work. She has significant experience of unjust enrichment, subrogation, breach of trust and fiduciary duty claims. She is never happier than when finding novel answers to tricky problems. Nicole is described as ‘a mega-brain, with encyclopaedic legal knowledge and the ability to cut through complex legal issues with ease’ and 'a master tactician who is exceptionally bright and has a fantastic ability to condense significant evidential information' (Legal 500). Apparently, she is also “exceptionally bright and a ferocious advocate. She gives tactical advice and is a pleasure to work with. Clients speak extremely highly of her.” “If you want someone to think outside of the box and really come up with an innovative position, then she’s an excellent choice.” – Chambers & Partners, 2020 Professional Negligence. Her practice has given her the opportunity to argue a number of ‘interesting’ legal points in the Court of Appeal – such as MAS(No 2) Ltd v. Chater (undue influence), Mortgage Express v Filby (subrogation, unjust enrichment, restitution), Bradford & Bingley v Rashid (also House of Lords, limitation, acknowledgment), Bank of Scotland v Joseph (land registration, priority, unilateral notices), Lloyds TSB Bank plc v Markandan & Uddin (breach of trust, completion of conveyancing transactions), Re North East Property Buyers (overriding interests, trusts), Mortgage Express v Lambert (overriding interests, overreaching, subrogation), NRAM v Evans (mistake, rectification and land registration) and Swynson v Lowick Rose (the subrogation and unjust enrichment elements). Most of those were, she says, good examples of the kinds of claims advocated in her talk today. She enjoyed two trips to the Supreme Court in 2014 (Re North East Property Buyers and AIB v Redler) followed by Swynson v Lowick Rose in 2016. Her trip to the Privy Council in July 2019 was less fun – since it was the first time she had lost in that building! Publicly, she claims the time will come for her innovative solution to a Ponzi scheme. Privately, she grudgingly admits that you can’t win them all. Miles Harris Call: 2003 Miles conducts a wide range of commercial litigation specialising in professional liability, insurance, property damage and disciplinary work. He has been recommended by the legal directories in the field of professional negligence for many years. Kind comments in the directories have included: “All that he does is measured, calm and wise” - Legal 500 ; “You want him in your corner for a tricky application hearing” - Chambers & Partners and “He provides silky smooth drafting skills and a very calm and measured approach – an absolute joy to work with.” - Legal 500 Miles acts in a wide range of cases within his areas of expertise, led and unled, from straightforward to complex high value multi-party disputes, from the County Court to the High Court and the Court of Appeal. He has also been published and lectured widely, especially in matters related to the civil liability of lawyers and insurance. Miles is also an established and accredited mediator, accepting instructions in a range of civil disputes. Miles has wide experience of all issues relating to professional liability including associated claims for recovery. He has represented both claimants and defendants in matters involving solicitors, barristers, licensed conveyancers, surveyors, managing agents, insurance brokers, financial advisers, tax consultants, accountants, auditors, architects and veterinary surgeons. ASSET TRACING AND RECOVERY REASSESSED Tricks and tools for the professional liability lawyer Nicole Sandells QC and Miles Harris Introduction Professional liability claims, especially claims against solicitors, frequently arise in circumstances where assets have been misappropriated or misallocated or a transaction is void, voidable or otherwise defective for reasons that are the professional responsibility of the defendant – but where he can feel genuinely aggrieved at being held liable while others take a windfall. Despite this sense of grievance, claimants more commonly pursue claims for damages against the apparently easy target with the deep pockets rather than the primary villain. However, a claimant in such circumstances may be concerned about the hurdles of establishing breach or perhaps face significant issues with causation or contributory negligence or insurance coverage – and should have mitigation, and indeed loss, in mind. After all, if he has a proprietary claim to the missing asset, which can be traced and claimed – where is the loss? And while a defendant facing a claim in such circumstances (or more especially his insurer) may feel understandably irritated that the stationary and insured target is obliged to shoulder the burden of such a claim while the parties who have actually benefited from the defect in the transaction or the misappropriated monies keep their ill-gotten gains, he will need to offer – or demand - an alternative. And don’t forget the elephant in the room – insurance cover can be pulled. Even solicitors’ minimum terms allow cover to be pulled for dishonesty in specific circumstances – and other professionals often have less generous terms. If the claim that has to be pleaded to make the case against the professional runs the risk of avoiding the policy, then looking to alternative claims and seeking the assistance of the professional and his insurer may give a better prospect of recovery. And if there’s a straightforward asset recovery claim, insurers might consider funding that rather than an expensive fight over cover … It is in such circumstances that it is invaluable to have a sound knowledge of the substantive principles relating to asset tracing and recovery so that, whether one’s client is a potential claimant or a potential defendant, an assessment of strategy and tactics is fully informed and all options are considered. Should the claimant pursue recovery action before seeking damages from a solicitor? Should the solicitor or its insurer take an assignment of any such rights, or offer an indemnity to a potential claimant to allow them to enforce them? Should they indeed join forces to track and claim the missing asset? The aim of this talk is to examine the substantive principles relevant to tracing and recovery actions with an eye to this context, although, of course, the legal principles relating to such actions apply whether or not they arise in a professional liability context. OVERVIEW For the purpose of tracing and enforcing against assets, there are two basic types of claim – and one oddity. The easiest starting point is to consider the nature of the underlying claim. How are you going to vindicate your claim? What is your legal argument for claiming the asset? The big question - is your claim proprietary or personal? The answer will dictate the remedies available – and it can change during the course of a claim or an investigation. Asset recovery really only applies to proprietary claims - the clue is in the name. The aim is to recover assets belonging to the claimant – rather than seek damages or compensation for assets that have been lost. PROPRIETARY v PERSONAL – AND THE WILD CARD Proprietary claims assert ownership of property in the hands of another – a claim against the asset not the person. They arise from theft/misappropriation, breaches of trust, and some breaches of fiduciary duty. The claim is simple – “That is mine. Give it back”. Personal claims are made against the person, not the property – the damages claim against the aggrieved professional/insurer. They arise where the property has been lost and the claim is for damages or compensation – against the wrongdoer, accessories, or third parties. The claim is more complex - “I can’t get it back – compensate me” – and there is little scope for asset recovery as such. Unjust enrichment is an oddity. It is not a proprietary claim – title has passed, which is what gives rise to the injustice. Restitution is a remedy granted not on the basis “it’s mine”, but on the basis “it should be mine – please reverse it and make them give it back.” 2 Because the remedy is a reversal of the transaction, or a form of specific performance, it is very close to a proprietary remedy – and tracing procedures can be relevant in such claims. PROPRIETARY CLAIMS Proprietary claims are based on a simple premise – until property passes through a completed transaction designed to pass title, it remains the property of the original owner who can reclaim it from whoever is holding it. Where property passes from A to B under a completed contract, property passes even if the contract is voidable. If it is merely voidable, while it is subject to being unwound, the unwinding needs to happen before you can claim the property – so you need to skip to unjust enrichment. However, where the contract is void, property remains with the original owner – subject to equity’s darling. The claim is as simple as “that is mine, you must give it back” – unless you are a bona fide purchaser for value without notice. Since that is the simplest way to recover assets – and the hardest to defend – it pays to start by looking for a trust, or a breach of fiduciary duty.
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