UK: Civil Fraud Cases And The Privilege Against Self-Incrimination

In basic terms, the privilege against self-incrimination prohibits witnesses from being compelled to answer questions, if to do so may incriminate them in criminal proceedings. Often in civil fraud cases, or cases brought to recover the proceeds of fraudulent acts, criminal proceedings are commenced by the authorities once the facts are known.

In this case, V was a company which made a claim against Mr. C. V’s Particulars of Claim alleged that Mr. C had misappropriated money using certain accounts and companies which he controlled. V claimed £11.3m for moneys had and received by Mr. C, and also for damages to be assessed following Mr. C’s alleged breaches of fiduciary duties.

The Particulars of Claim were served and in his defence to those Particulars, Mr. C stated that he could not plead to certain allegations because by doing so he might incriminate himself. (In fact, criminal proceedings were commenced, and Mr. C was charged with fraudulent trading contrary to s458 of the Companies Act 1985.)

V applied for summary judgment against Mr. C. In that application, the witness statement filed on Mr. C’s behalf stated that Mr. C could not provide a detailed defence to the civil claim without providing information which would assist a prosecution. Mr. C purported to invoke privilege against self-incrimination, and argued that it would be unfair to proceed with the summary judgment application in circumstances where he could not defend himself without prejudicing his defence in criminal proceedings.

At the first hearing before a Master in the High Court, this argument succeeded and the summary judgment application was dismissed. It was held that the circumstances of the case indicated that Mr. C had a suitably compelling reason why the case should be disposed of at trial, rather than summary judgment.

This decision was reversed on appeal. McCombe J gave judgment against Mr. C for the moneys had and received and for liability with damages to be assessed on the claim for breaches of fiduciary duties.

Mr. C appealed to the Court of Appeal, which had to decide whether a claim of privilege against self-incrimination could be invoked in a defence as an answer to an application for summary judgment.

The Court of Appeal, in discussing the elements of the privilege against self-incrimination, confirmed that the person claiming the privilege must be in a situation of being compelled by lawful authority or on "pain of punishment" to answer questions which could incriminate him.

The Court of Appeal held that pleading a defence to a summary judgment application was not a "compulsion" such that would enable the privilege to be raised. A party to litigation can choose whether to plead an affirmative defence or not. There is no strict requirement or compulsion to do so and the choice is voluntary (although the practical result might be that judgment is entered against the party who fails to plead a defence). The privilege against self-incrimination therefore does not give rise to a "right of silence" in a civil action, and the threat of criminal proceedings does not amount to a defence on its own.

The Court of Appeal did note the general discretion of the Court to stay or adjourn any case, or any application for summary judgment. Instead of claiming a privilege against self-incrimination, Mr. C could have applied to postpone the civil proceedings pending the outcome of the criminal case. However, the onus on defendants in this position is to persuade the Court that the civil proceedings should be adjourned because they could not be tried fairly or because trying them might affect the fairness of a criminal trial.

The Court of Appeal’s decision confirms that that there is no absolute right for a defendant not to have judgment entered against him in civil proceedings simply because a privilege against self-incrimination is raised. That privilege, if relevant, simply goes to the exercise of the Court’s discretion in considering the question of stay or adjournment. Claimants in civil actions are not prevented from pursuing their cases simply because doing so might cause the defendant to have to disclose, whether by a witness statement responding to a summary judgment application, or in a Statement of Case, his likely defence in contemporaneous criminal proceedings.

Claimants will often consider deferring the civil trial until the outcome of the criminal proceedings is known. A criminal conviction in relation to the same allegations being made in the civil proceedings can make it extremely difficult for the defendant’s case to succeed. One question for consideration is whether there is merit in progressing the civil action as quickly as possible to ensure that a judgment can be enforced. In V v. C, that was the course taken. In many other cases, once the defendant’s assets are secured by way of a freezing injunction, awaiting the outcome of the criminal proceedings can save costs, and have a higher prospect of success.

"© Herbert Smith 2002

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