With the first month of 2022 already at an end, we thought we would look at 3 key areas in which we expect to see an increase in litigation activity over the next 12 months.
In the face of increasingly difficult trading conditions for businesses caused by uncertainty over supply chains, cash flow and considering Covid-19 and Brexit, we anticipate insolvency issues and fraudulent activity to rise. Consequently, we expect to advise companies, directors, shareholders, and other stakeholders in relation to unfair prejudice petitions, fraud claims and the Quincecare duty.
1) Unfair prejudice petitions
The turbulence of the last few years has presented challenges for companies across the board and tumultuous circumstances often lead to a divergence in shareholders’ interests. An unfair prejudice petition is an important legal tool which allows the court to assist minority shareholders who may have insufficient voting power to influence decisions or matters critical to the business. This might include where there are abuses of power and breaches of the articles of association or if a shareholder is being excluded from management in circumstances where there is a legitimate expectation of participation.
A petition may be brought by a shareholder on the grounds that the company’s affairs are being, or have been conducted, in a manner that causes unfair prejudice to the interests of its shareholders or some of them (and at least the petitioner). The test as to what amounts to unfair prejudice is objective. The default remedy for a petition is an order that the petitioner’s shares are bought out at market value. However, the court has wide-ranging powers and can make any order governing the future conduct of the company, including forcing certain actions to be taken or not taken on penalty of contempt of court. For example, in Macom GmbH v Bozeat and others [2021] EWHC 1661 (Ch) the judge supplemented the provisions in the company’s articles and shareholders’ agreement with additional governance terms, such as the requirement to hold regular board meetings.
We expect to see a significant increase in the number of unfair prejudice petitions brought by minority shareholders as the challenging operating conditions for companies continue. Unfair prejudice petitions are often complex and hard fought, so it is particularly important for a party to seek legal advice at an early stage. Our team are highly experienced at advising shareholders and have acted on a variety of high-profile unfair prejudice petitions.
2) Fraud claims
There has already been a dramatic rise in the number of civil fraud cases heard in the courts of England and Wales from 2019 to 2021. Due to the continued impact of Covid-19 on the economy and a rise in insolvencies, we anticipate this upward trend will continue because in our experience, discovery of fraud typically increases during times of economic stress. In the context of fraudulent activity targeting companies and creditors, it is possible that director decisions will be scrutinised more than ever with the result that more directors are referred to the Insolvency Service following a company collapse. Our team is well versed in providing strategic advice to companies, office holders, creditors and directors facing these difficult times.
Our disputes team saw increasingly sophisticated fraud schemes relating to crypto scams and Ponzi investment schemes in 2021 and we predict that these schemes will remain prevalent in 2022. We also expect to see more fraud schemes arising out of the changing circumstances brought about by Covid-19, such as authorised push payment (APP) fraud, Covid-19 loans fraud, buy now, pay later (BNPL) fraud and ransomware attacks. With more employees working remotely, both personal and corporate IT systems are at a greater risk than even before.
If fraud is suspected, it is vital to act quickly as assets can be quickly dissipated. Rosenblatt is experienced at providing urgent advice on fraud-related claims, as well as leading asset tracing exercises and applying for interim remedies including freezing injunctions and disclosure and search orders.
3) Quincecare duty of care
Quincecare will continue to be a hot topic in 2022, with two relevant appeal hearings due to be heard in the coming months. The Quincecare duty of care provides that a bank owes an implied duty to exercise reasonable care and skill when executing customers’ instructions, which includes not executing payment instructions if there are reasonable grounds (although not necessarily proof) for believing they are an attempt to misappropriate funds.
Although the Quincecare duty was established thirty years ago, for many years defrauded customers rarely relied upon it to achieve financial recoveries from banks. 2019 was the first year in which a bank was held liable for breaking the Quincecare duty, first in Federal Republic of Nigeria (FRN) v JP Morgan Chase (JPMC) [2019] EWCA Civ 1641 and then in Singularis Holdings Ltd (in Official Liquidation) v Daiwa Capital Markets Europe Ltd [2019] UKSC 50. These decisions have heightened customer awareness of the duty, which, coupled with the willingness of the courts to award damages for breaches, has led to a resurgence of Quincecare claims.
Our team has recently acted for an insolvency practitioner advancing a Quincecare claim against a major bank, and we expect this to become an increasingly popular route for defrauded parties and insolvency practitioners to recover funds. The courts recent approach indicates that banks are expected to take a more active role in combatting fraud and so financial institutions will be interested in the outcome of the upcoming cases, Stanford International Bank Ltd v HSBC Bank plc (on appeal from the Court of Appeal: [2021] EWCA Civ 535) and Philipp v Barclays Bank UK plc (on appeal from the High Court: [2021] EWHC 10 (Comm)).
Should you require any assistance with respect to any such matters, please do contact us.
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