British Virgin Islands: The Fundamentals Of A Civil Asset Recovery Action - Part 1

Last Updated: 11 November 2008

Article by Martin Kenney & Elizabeth O'Brien

"Fraud is infinite in variety; sometimes it is audacious and unblushing; sometimes it pays a sort of homage to virtue, and then it is modest and retiring; it would be honesty itself if it could only afford it."

Per Lord MacNaughten in Reddaway v. Banham [1896] A.C. 199 at 221.

Selecting the Place of Judgment.

In constructing a model to recover concealed assets that have been fragmented, camouflaged and moved to the four corners of the earth, the selection of the location of the principal proceedings represents an issue of signal importance. Any judgment that might be obtained ordering an apparent dishonest obligor to pay will not be recognised or enforced in the jurisdictions where the fructus sceleris (the fruits of the fraud) have been reposed, unless the court which grants the principal award can be shown to have had sufficient in personam (or personal) jurisdiction over the judgment debtor to meet the high standard of review that is generally applied by foreign courts and tribunals, when asked to recognise a judgment of a court of a foreign sovereign.

A judgment will, subject to some basic requirements, almost universally be enforced abroad if it can be demonstrated that a defendant (a) was resident in the country of judgment at the time that the proceedings were instituted, (b) was served with process while he was physically present within the court's territorial jurisdiction, (c) submitted to the jurisdiction of the court by voluntarily appearing in the proceedings (e.g. by filing a Notice of Appearance or an Answer or Statement of Defence), or (d) entered into a contract prior to the institution of the proceedings which gave rise to the judgment, agreeing to submit to the jurisdiction of the court in question. These principles are far more constrained or narrow than the rules governing the limits of a court's powers over foreign defendants in a domestic litigation. For example, long-arm jurisdiction in the United States affords extra-territorial judicial power over foreign defendants who may have been participant in a wrong that has caused injury in the United States – as long as they also have had minimum contacts with the American court's territory sufficient to meet the due process standards expressed by the United States Supreme Court in International Shoe Co. v. Washington 326 U.S. 310 (1945).

Similarly, British Commonwealth courts apply the notion of 'extended jurisdiction.' This notion permits the court to exercise its power over defendants who are abroad when it is deemed appropriate for a trial to take place locally (e.g., where a claim is founded on a tort and the damage was sustained, or resulted from an act committed, within the jurisdiction of the local Commonwealth court).1 It is interesting that courts enjoy more generous jurisdiction over foreign defendants in respect of domestically venued civil proceedings – in contrast with the more conservative and narrow approach used to assess whether a foreign country's court had sufficient personal jurisdiction over a judgment debtor, for a foreign judgment to be enforced locally. 2

This point is borne out in the United States in Hunt v. BP Exploration Co. (Libya) Ltd., 492 F. Supp. 885, at p.895 (ND Tex., 1980); citing Cherun v. Frishman, 236 F. Supp. 292, at p.296 (DDC 1964). Hunt reaffirms that American courts "require for recognition of the legal effect of foreign judicial proceedings that the foreign courts have jurisdiction, not as measured by the standards abroad but as measured by their own conception of what falls within the scope of permissible exercise of judicial power." See also, Reese, "The Status in this Country of Judgments Rendered Abroad," 50 Colum. L. Rev. 783, at p.789 (1950).

Similarly, in England and Wales, this same inconsistency between how broadly an English court views its powers in taking jurisdiction over a foreign defendant, in contrast to how it views the same question when considering the enforceability of a foreign country's judgment, endures:

"A fundamental requirement for the recognition or enforcement of a foreign judgment in England at common law is that the foreign court should have had jurisdiction according to the English rules of the conflict of laws. "All jurisdiction is properly territorial," declared Lord Selborne [in Sirdar Gurdyal Singh v. Rajah of Faridkote [1894] A.C. 670, 683-684 (P.C.)], "and extra territorium jus dicenti, impune non paretur...In a personal action, ...a decree in absentem by a foreign court, to the jurisdiction of which the defendant has not in any way submitted himself, is by international law an absolute nullity. He is under no obligation of any kind to obey it; and it must be regarded as a mere nullity by the courts of every nation, except (when authorised by special local legislation) in the country of the forum by which it was pronounced."" 3

Once the question of jurisdiction has been considered, there are other issues that should be canvassed before concluding where the principal asset recovery proceedings should be venued. Obviously, it would be seriously problematic to select a forum for the launch of the centrepiece litigation – if any judgment that might be derived therefrom would not be recognized in the countries where the debtor's assets are reposed. In broad terms, and in addition to the issue of sufficiency of jurisdiction of a court over the primary defendant, for a judgment to be recognised abroad, it:

  1. must be final and conclusive; 4

  2. must not have been obtained by fraud; 5

  3. must not be contrary to the public policy of the court that is asked to enforce it (e.g. where the underlying cause of action or judgment is repugnant to fundamental principles of local public policy); 6

  4. must not have come from a process which was contrary to the principles of natural justice (which is the formulation used by English courts),7 or from one where there was a lack of fair procedures used in the grant of the judgment (the U.S. formulation); 8 and

  5. in some civil law countries such as Spain, historically, the holder of a foreign country judgment must establish, through the introduction of objective proofs, that the court in the country which granted the award has recognised judgments deriving from, in this example, Spain. Restated, reciprocity of treatment is sometimes required as an element of proof in some especially Spanish-civil law jurisdictions. 9

The Harmonization of Multiple, Concurrent Proceedings.

The next issue that needs to be considered when designing the model for the launch of multi-jurisdictional proceedings to recover assets in the context of a serious fraud, is how multiple litigations are to be managed and harmonised so that they might achieve the disparate objectives set for each satellite proceeding, as they relate to the principal (or plenary) action.

In a pre-judgment context, multi-jurisdictional litigations designed to recover the proceeds of fraud are ordinarily launched in three waves, some of which may over-lap and be run concurrently with the other:

  1. Pre-emptive discovery litigation to compel the disclosure of confidential records under court-sanctioned seals and gags;

  2. Pre-emptive asset freezing or preservation litigation; and

  3. The principal or centrepiece proceedings to obtain a final and conclusive judgment capable of being enforced in each of the jurisdictions where assets have been preserved by judicial decree, abroad.

The old rule in the English speaking world was that courts had no power to arrest or preserve assets before judgment in stand-alone (or non-plenary) proceedings. Ordinarily, a claimant would need to first launch a traditional law suit before an Anglo-American court would consider itself able to freeze assets pending the outcome of a final adjudication of the merits of a claimant's substantive claim. Once a law suit was commenced, a plaintiff could bring, in America, an ex parte motion for a temporary restraining order leading to a preliminary injunction freezing assets, or, in the British Commonwealth, a Mareva-type injunction designed to accomplish the same end. Thus, historically, in the English speaking world, there was no way to freeze assets provisionally or pre-emptively, without launching a full-blown law suit, locally, where the asset sought to be preserved was situated.

In contrast, in civil law countries such as Switzerland, this has not been the case. Courts in the Cantons of Geneva or Zurich have the power to issue orders of asset arrest that are purely satellite to an outstanding foreign civil litigation on the merits. The usual standard of review and requisite proofs with respect to freezing assets under Swiss law must be met and established (requiring, for instance, a prima facie showing of an obligation owed by a defendant). However, the mere fact that no adjudication of the merits of a dispute will take place in Switzerland, will not act as a barrier to obtaining a Swiss asset freeze.

In the United States, if an obligation can be properly characterized as a debt (over which there is no genuine dispute that can be raised to defeat it), State pre-judgment attachment statutes afford a satellite remedy to a plaintiff who might commence a principal proceeding elsewhere. Thus, a debtor with assets in multiple states can have those assets attached, pre-judgment, under State statutory law, pending the outcome of primary proceedings venued in another part of the country. Otherwise, to freeze assets before judgment in America, an interlocutory application must be brought within the context of a full-blown litigation.

In Europe, the Brussels Convention of 1968 and the Lugano Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters provide the rules governing jurisdiction of European courts to grant satellite (or stand-alone) provisional remedies to claimants who may have launched a primary litigation in another Lugano or Brussels Convention country. Thus, a plaintiff in France has the right to compel an English court to freeze assets provisionally of a defendant which are situate in England and Wales – so long as the relevant standard of review and elements of proof required to obtain such a remedy are otherwise met or established.

There are other basic risks which need to be well-managed when entertaining the prospect of launching litigations the world over in the search for a remedy in the face of fraud. For instance, it is important that the plaintiff, when speaking to multiple courts, does so with one clear and consistent voice. All draft pleadings and forms of evidence must be reviewed carefully to ensure consistency of method of expression and content, legally and factually, throughout the chain of foreign counsel and expert and fact witnesses used to give voice to the plaintiff's entreaties for global relief. In short, many different voices must be made to sing in harmony. In the absence of this, the defendant will undoubtedly discover and exploit inconsistent statements which have been made by the plaintiff from one place to the next, particularly if such statements, or indeed non-disclosures of material fact, are made ex parte. One of the principal cries of a defendant whose assets have been frozen pre-emptorily is that the plaintiff spoke out of both sides of his mouth, when he made his ex parte representations to the courts involved. If this is allowed to occur, it weakens the integrity of the overall effort on behalf of the claimant.

Blocking Devices.

For a complex quilt of multiple satellite asset freezing proceedings that has been weaved into the cloth of a set of primary proceedings to hold together – it must be designed to sustain the stress of multiple and sustained attacks which will likely be launched by the defendant once he is aware that his assets have been found and frozen. The principal tools used by a defendant to sow confusion and to seek to dismantle multiple asset freeze orders fall to be considered under, inter alia, the following principal notions or remedies:

  1. Anti-suit injunctions;

  2. A plea in bar in lis alibi pendens (meaning an application by a defendant that seeks to permanently defeat the plaintiff's action on the ground that another law suit between the same parties regarding the same cause of action is pending elsewhere);

  3. An application to dismiss or to stay proceedings in one jurisdiction on the ground that it is not the most convenient form (pursuant to the doctrine forum non conveniens); and

  4. Suits instituted to obtain 'negative declarations' (e.g., where a court is asked by an alleged fraudster to declare that he is not a fraudster).

Each of these doctrines or remedies are inter-related or overlap. English courts, for instance, have the power to stay English proceedings or to restrain foreign proceedings where there are simultaneous actions pending in England and in a foreign country between the same parties and involving the same or similar issues. 10 The ancient plea in bar in lis alibi pendens was once thought to be an independent strand of remedy available under English law. However, it is now clear that the existence of simultaneous proceedings in two or more jurisdictions is simply "an additional factor relevant to the determination of the appropriate forum." 11 In Re Abidin Daver [1984] A.C. 398, 411 – 412, Lord Diplock of the English House of Lords said that where litigation was pending in a foreign land, and where the defendant to the foreign proceedings instituted litigation in England as a plaintiff, then:

"... The additional inconvenience or expense which must result from allowing two sets of legal proceedings to be pursued concurrently in two different jurisdictions, where the same facts would be in issue and the testimony of the same witnesses required, could only be justified if the would-be plaintiff in England could establish objectively by cogent evidence that there was some personal or juridical advantage that would be available to him only in the English action and which was of such importance that it would cause injustice to deprive him of it." 12

Once assets have been discovered and preserved by means of multiple ex parte freeze orders, and once the founding pleadings have been served on the defendant, it is ordinarily in the interests of both sides to attempt to stay all satellite litigation pending the outcome of the principal proceedings – wherever they may lie. Of course, a recalcitrant defendant may find tactical advantage in rejecting this notion. For example, a defendant may believe he is well-served by applying the strategy of attempting to burn the other side out financially, by filing a broad plethora of motions in each court involved concerning every conceivable issue, whether meritorious or not. Equally, a defendant may object vigorously to the plaintiff's first choice of venue for the principal litigation. A plaintiff would, therefore, be well-advised to have a plan ready to be launched to aggressively force-on the issue of the need to preserve scarce judicial and economic resources by applying for a stay of proceedings in each satellite jurisdiction. There is precedent for this. For instance, in House of Spring Gardens Ltd. et al v. Waite et al [1984] Fleet St. R. 277, an English court stayed proceedings which the plaintiffs had allowed to "go to sleep," and which involved the grant of a Mareva injunction freezing assets located in England involved in an apparent fraud – pending the outcome of the principal litigation venued in Ireland (where a parallel Mareva injunction had been granted).

Building the Foundation to the Case – Introduction.

All successful civil fraud recoveries start with a solidly-built foundation. The foundation is a well-constructed grounding pleading – the Complaint or Statement of Claim – setting-out the primary allegations of material fact in support of the relief sought, which fall under legal categories called "causes of action." A "cause of action" is defined by Black's Law Dictionary (7th Ed., p. 214) as "a factual situation that entitles one person to obtain a remedy in court from another person." The way in which a claim is framed from the beginning can have a major impact on its meaning and effectiveness. Oftentimes, lawyers will 'sue on a promissory note' or on an instrument of 'personal guarantee' – as to 'sue in fraud' is more time-consuming and complicated. However, there are no short-cuts in the restraint of fraud. If the matter is not correctly characterized for what it is from the start, any judgment that might be granted will be much more difficult to enforce – in the face of secondary fraudulent conduct calculated to avoid responsibility through the concealment of wealth. By way of illustration, it is much easier to marshal the necessary factual record required for a Court to lift, pierce or ignore a multiplicity of veils used to sequester wealth, if fraud is properly pleaded and proved from the outset – thereby linking the primary and secondary fraudulent conduct into a continuum of deceit.

What follows is a summary description of a number of the causes of action which should be entertained, if relevant, when building the grounding pleading to act as the foundation to the global effort to recover value for an apparent victim of economic crime.

Fraud at Law - the Tort of Deceit.

The tort of deceit, or fraud at law, is an ancient English tort or actionable civil wrong. 13 It consists of a false statement of fact which is made by one to another, knowingly, or without belief in its truth, or recklessly, without caring whether it is true or false, with the intent that it should be acted upon. It can be a difficult and frustrating tool to use to remedy a fraud. It is highly technical and narrowly confined to false statements. Many frauds take place without any 'statement' having been made to the wronged party (i.e., misappropriation of investment funds ex post facto; market manipulation fraud; or insider dealing). Strictly read, this tort is of no assistance to a victim of an act of non-disclosure – unless the party remaining silent can be shown to have had a duty to speak (as would a fiduciary).

The most significant problem with the tort of deceit is that it requires an examination of the state of mind of not only the wrongdoer (in establishing his intention to deceive), but also of the victim. Liability is thus predicated upon a showing of reasonable reliance on the fraudulent statement on the part of the victim. Proof of this element of the wrong thus involves an analysis of the conduct of the party alleging reliance. It involves pleading and proving the necessary mental processes of both the maker and receiver of a material, factual statement. These notions are complex and difficult to prove. Reliance, as an idea, is arguably incomprehensible to many juries. Its presence as a required element of proof makes the tort of deceit (or common law fraud) unsuitable for multiple victim cases – as each narrative needs to be tried, victim by victim.

Theoretically, fraud at law is capable of covering a multitude of situations involving fraud. False statements of fact which are actionable may be made in verbal or written format. To restate, it does not encompass silence unless a duty to speak can be inferred to exist from the circumstances – such as in the instance of a fiduciary relationship. In practice, this is not an easy tort to prove. The defence of innocent misrepresentation will almost always be asserted. The degree of wilfulness or recklessness required to successfully mount such a cause of action is such that it is relatively difficult to prove and easy to refute.

Fraud at Equity.

Fraud at equity takes a much wider view of the relevance of a person's actions. In equity, the term 'fraud' encompasses not only actual fraud, or fraud at law, but also other conduct which falls below the standards of conduct demanded by equity. Courts of equity did not stop at restraining 'moral fraud' in the ordinary sense, but also any breach of the type of obligation which a court of equity considered itself bound to enforce. Fraud at equity is often referred to as 'constructive fraud', in the sense that it is not readily defined but may be construed from objective circumstances. Snell's Equity (29th Edition) (Sweet & Maxwell, London, 1990), says that – "Fraud is far-reaching; for centuries the rule has been that fraud unravels all." 14

Constructive fraud encompasses the following headings which are broad and capable of expansive interpretation: (a) undue influence; (b) unconscionable bargains; (c) abuse of confidence; and (d) fraud on powers.

Courts have refused to define the boundaries of this extended (or constructive) fraud, because, as posited by Lord Hardwicke in 1759:

"Fraud is infinite, and were a Court of Equity once to lay down rules, how far they would go, and no farther, in extending their relief against it, or to define strictly the species of evidence of it, the jurisdiction would be cramped, and perpetually eluded by new schemes which the fertility of man's invention would contrive." 15

As a result, the concept of fraud at equity is capable of expanding to fit a variety of circumstances of fraudulent conduct which might otherwise fall foul of the requirements of actual fraud or fraud at law. The consequence is that such a cause of action provides a means of seeking redress for an infinite variety of wrongs, while not imposing any strict requirements in relation to reliance, such as is the case with fraud at law.

Fraud at equity offers the equitable remedies of rescission, specific performance or declaratory relief. Another remedy that equity affords a wronged party is a declaration lifting the veil 16 of a company that is the instrument of a fraud. In Re A Company [1985] BCLC 333 (English Court of Appeal), the defendant, an individual, had created a sophisticated and intricate network of some 80 inter-related English and overseas companies and foreign trusts as a mechanism to put his English assets out of reach of his contingent creditors. The English Court of Appeal upheld an order granting Mareva injunctions (freezing assets) in the widest possible terms against the defendant and the web of companies, ignoring or lifting a whole series of veils. The legal analytical basis for doing this was the notion of fraud at equity. 17

The development of notions of constructive fraud, or fraud at equity, is recognised throughout the English common law world. 18 The most well-known equity lawyer from the United States, Mr. Justice Storey, said in his Commentaries on Equity Jurisprudence (Stevens and Haynes, London, 1884) at p. 164:

"By constructive frauds are meant such acts or contracts, as, although not originating in any actual evil design, or contrivance to perpetrate a positive fraud or injury upon other persons, are yet, by their tendency to deceive or mislead other persons, or to violate private or public confidence, or to impair or injure the public interests, deemed equally reprehensible with positive fraud, and, therefore, are prohibited by law, as within the same reason and mischief, as acts and contracts, done malo animo." 19

Statutory Causes.

There a variety of legal bases available for a victim to seek a remedy under modern statutes. These can include consumer protection laws (affording a cause of action for consumer fraud), securities fraud, insider dealing in the U.K., and in the United States, state and federal securities and civil racketeering statutes.

U.S. Federal Securities Fraud. There are four principal provisions of U.S. federal securities legislation under which the majority of suits are filed by private plaintiffs when alleging fraud involving the purchase or sale of investment securities. These are sections 11, 12(1) and 12(2) of the Securities Act 1933 and SEC Rule 10(b)(5) promulgated under the Securities Exchange Act 1934. Establishing liability under U.S. federal securities law requires, whether expressly or impliedly, for the most part, a showing involving the elements of proof required by one of the four noted provisions. Only section 12(1) of the Securities Exchange Act 1934 covers a situation in which liability may be imposed merely upon a showing of the sale of a security, where the seller has not complied with the registration provisions of section 5 of the same statute. The remainder of the provisions requires some showing of either misrepresentation, a defective sales transaction or some misleading act. Section 12(1) of the 1933 Act imposes rescission or damages liability upon anyone who offers or sells a security in violation of the registration provisions of section 5 of the 1934 Act.

While the noted provisions cover the majority of securities fraud actions filed by private plaintiffs in the United States, there are other liability provisions which may supply private plaintiffs with a damages or rescission remedy. They include both express and implied causes of action. For example, some courts in the United States have allowed an implied private damages cause of action for violations of the anti-fraud provisions of section 17(a) of the 1933 Act, 15 USC §77 Q(a). However, the trend of recent authority is to deny such an implied private damages action. There are many academic articles dealing with the question of whether such an implied civil remedy exists under section 17(a), and whether that was the intention of the U.S. Congress.

The definition of a security under US federal securities law encompasses a broad variety of contracts, including an investment contract, and 15 USC §77(e) makes it unlawful for any person, directly or indirectly, to make use of the mails or any means or instrumentality of interstate commerce for the purpose of effecting the sale of a security.

Title 15 U.S.C. §77l provides for civil liability when any person offers or sells a security in violation of section 77(e) of the title. In such case, the person purchasing a security may sue either at law or in equity to recover the consideration paid for such security with interest thereon, less the amount of any income received, upon the tender of such security, or for damages if he no longer owns the security.

Title 15 USC §77(M), however, governs the limitation of actions. It provides that where a liability is created under 15 USC §77l (1), no action can be maintained unless it is brought within one year after the violation upon which it is based. In any event, it provides that no action may be brought to enforce a liability created under §77(k) or §77l(1) of the title more than 3 years after the security was bona fide offered to the public, or under §77l(2) (including material misrepresentation), more than 3 years after the sale. If a plaintiff still owns the security, he must tender that to the defendant upon filing his complaint, in both a §12(1) and a §12(2) claim. The plaintiff in both cases must plead and prove compliance with the limitation period in order to prevail upon a cause of action. (See, Toombs v. Leone, 777 F.2d 465 (9th circuit 1985)). The 'equitable tolling' doctrine does not apply to §12(1) claims (where the offering or sale of a security when that security is not registered provides the basis for a cause of action without the necessity of proving misrepresentation). However, the doctrine does apply to §12(2) claims (where an untrue statement of a material fact or omission of a material fact necessary in order to make the statements is present).

Title 15 USC §77l (12) requires a defendant to be a 'seller' of the security. The statutory language expressly applies to "any person who offers or sells." It does not contain the broad language used in SEC Rule 10b-5, namely "in connection with" a purchase or sale. However, courts have held that the language in 15 USC §771(12) encompasses any person "whose participation in the buy or sell transaction is a substantial factor in causing the transaction to take place", such language potentially embracing attorneys, accountants, bankers and other "outsiders". However, in the 1988 case of Pinter v. Dahl 486 U.S. 622 (1988), the Supreme Court narrowed the scope of the definition of seller under this section by rejecting any "substantial-factor" test. The Pinter decision holds that in order to be a defendant under sub-section 12, one must have "directly and actively participated" in the sale in question. Assistance in the preparation of offering materials is not sufficient by itself to establish liability.

Section 12(1) imposes virtually strict liability upon the sellers of securities who violate §5 of the 1934 Act. The plaintiff under §12(2), however, must plead with sufficient particularity and prove that the defendant knew or should have known about the misstatements or omissions.

SEC Rule 10b-5 provides an implied basis for another private cause of action in securities fraud. Rule 10b-5 provides that it is unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange:

  1. To employ any device, scheme, or artifice to defraud;

  2. To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading; or

  3. To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.

While there is no express statute of limitations governing the implied rule 10b-5 private damages cause of action, and the courts have not developed any uniform federal rule to resolve this issue, the alternatives appear to suggest that guidance may be taken from the statute of limitation periods applicable to cause of actions ascertainable under other provisions governing securities law violations, varying from a one year to three year limitation period. See, re Data Access Systems Securities Litigation 843 S.2d 1537 (Third Circuit, 1988).

Civil RICO. In view of the narrowness with which the express private damages or rescission causes of action provided by sections 11 and 12 of the 1933 Act have been construed, and the trend to narrow the more expansive Rule 10b-5 implied private party damages remedy, in a case involving the United States, it is worth considering whether the use of the civil cause of action afforded to the victims of organized criminal activity under U.S. federal and state Racketeering Influenced Corrupt Organization Acts ("RICO"), may be more appropriate in a given set of circumstances. In order to violate the U.S. federal RICO statute, a person must (a) use income derived from a pattern of racketeering activity to acquire an interest in an enterprise engaged in interstate commerce, (b) acquire or maintain an interest in an enterprise engaged in interstate commerce through a pattern of racketeering activity, (c) conduct the affairs of an enterprise engaged in interstate commerce through a pattern of racketeering activity, or (d) conspire to commit (a), (b) or (c) above (See, 18 USC §1962). 'Racketeering activity' is defined as a violation of any of the many serious criminal acts listed in §1962 of Title 18.

The person seeking redress under U.S. federal RICO must establish injury to "business or property," 18 USC §1964 (c). A "pattern" of racketeering activity requires at least two acts of racketeering activity, 18 USC §1961 (5). (See, HJ Inc. v. North Western Bell Tel. Co. 109 S. Ct 2893 (1989)).

The potential advantages to a plaintiff pursuing a U.S. federal securities action under civil RICO rather than under the federal securities legislation itself include the availability of an award of treble damages plus attorneys' fees in the event of success, rather than a mere 'reimbursement' for actual damage caused. A plaintiff injured in a securities transaction is faced with considerable limitations in scope, given the requirements in relation to pleading and proof under U.S. federal securities legislation. In using civil RICO to achieve the desired ends, the plaintiff has the benefit of a liberal construction clause, forum choice and a more generous limitation period, the right to seek increased awards of damages, costs and attorneys' fees, and arguably broader rights of discovery. In addition, a civil RICO claim may be available in cases involving investment transactions 20 where no remedy exists under the federal securities laws.

RICO's construction clause states that "the provisions of this title shall be liberally construed to effectuate its remedial purposes," 18 USC §1962. Accordingly, while the strict requirements of the statute must be met, the court is able to be liberal in their interpretation, so as to give effect to the remedial purposes of the Act and provide remedies to plaintiffs where in other cases they may not be available.

While the uniform view is that the statute of limitations period in respect of civil securities actions may be between one and three years, in Agency Holding Corporation v. Malley-Duff and Associates 483 U.S. 143 (1987), the Supreme Court established a uniform statute of limitations for U.S. federal civil RICO actions. The court held that the similarities of purpose and structure between RICO and the Clayton Act, and the legislative intent to pattern RICO's civil provision on the Clayton Act, favoured adoption of the Clayton Act's uniform four year statute of limitations in civil RICO claims. The designation of the appropriate time for the accrual of a civil RICO claim, however, was expressly reserved by the court (and therefore can be different – depending on the venue of the case).

Footnotes

1. See, Service Ex Juris, Order 11, Rule 1(1)(f), Supreme Court Practice (1999) (London – Sweet & Maxwell).

2. In juxtaposing these two standards (involving the generous way in which a local court will consider the extent of its own powers over foreign persons – as against the standards that they require of foreign courts – which are much higher), what is good for the goose is not good for the gander.

3. See, Dicey& Morris, The Conflict of Laws (12th Ed.), Vol. 1, p.473.

4. However, in many parts of the British Commonwealth (such as England & Wales and Canada), a foreign judgment will be considered final and conclusive even though it is subject to an outstanding appeal before an appellate tribunal in the foreign country where the judgment was granted. See, Nouvion v. Freeman (1889) 15 App. Cas. 1, 13; Nouvion v. Freeman (1887) 37 Ch.D. 244, 255 (C.A.); Pan-American World Airways v. Varghese (1984) 7 D.L.R. (4th) 499, app. dismissed (1985) 15 D.L.R. (4th) 768 (Ont. C.A.); Four Embarcadero Center Venture v. Mr. Greenjeans (1988) 64 O.R. (2d) 746, app. dismissed (1988) 65 O.R. (2d) 160 (C.A.).

5. See, Rule 43, p. 505, Dicey & Morris, The Conflict of Laws (12th Ed.), in respect of the position in England and Wales (and throughout the British Commonwealth) on this point. Also see, in contrast, the position in the United States as described by Ritvo, E.A. and Dushman, M.R. in International Execution Against Judgment Debtors (United States section), release 99-2, issued October 1999, Oceana Publications, Inc. (Dobbs Ferry, New York). In this writing, the learned authors point out that in the United States, fraud is a discretionary ground for the non-recognition of a foreign judgment and that, in general, U.S. courts are reluctant to allow an attack on a foreign judgment based on such ground – particularly where it can be demonstrated that such an attack could have been raised in the foreign jurisdiction which granted the judgment. The U.S. practice seems to be to grant a stay of proceedings pending adjudication over the question abroad. Alternatively, U.S. courts will simply not allow the fraud exception to be raised as a defence to the recognition of a foreign nation judgment (See, Ginsburg, "Recognition and Enforcement of Foreign Civil Judgments: A Summary View of the Situation in the United States," 4 Int'l. Law 790, at p.729 (1970)).

6. In respect of the English and Welsh legal position regarding the principle that a foreign judgment cannot be contrary to the fundamental principles of local public policy, see Rule 44, Dicey & Morris, The Conflict of Laws (12th Ed.) p.511, Dicey & Morris have said that it would "seem that the enforcement of a judgment for exemplary or punitive damages is not contrary to public policy [in England and Wales and Canada]; and it has been held in New Zealand that, although the court will not directly or indirectly enforce a foreign public law, the enforcement of a foreign judgment for legal costs is not contrary to New Zealand public policy merely because the costs, if recovered, would be payable to a foreign legal aid fund." See, Dicey & Morris, The Conflict of Laws (12th Ed.) p. 513. The general principle followed throughout the world is that local courts will not enforce foreign country judgments based on a foreign sovereign's penal or revenue laws – although this is beginning to change with the introduction of bilateral and multi-lateral treaties governing the reciprocal enforcement of criminal confiscation orders and revenue debts (at least in respect of the information sharing procedures between foreign revenue authorities). As to the U.S. position, See, §482, Comment f, the Restatement (3rd) of the Foreign Relations Law of the United States – which indicates that U.S. courts will deny recognition to foreign judgments based on causes of action "perceived to be contrary to fundamental notions of decency and justice" which underpin the foreign country court's judgment.

7. See, Rule 45, Dicey & Morris, The Conflict of Laws (12th Ed.) p. 514.

8. See, Carl Zeiss Stiftung v. V.E.B. Carl Zeiss, Jena 293 F. Supp. 892 (SDNY, 1968), modified, 433 F. 2d 686 (2d Cir., 1970), cert. denied, 403 US 905 (1971). In Carl Zeiss, the court refused to recognize an East German judgment based on its conclusion that courts from that country were not independent, as they, "orient their judgment according to the wishes of the leaders of the Socialist state," Id. Carl Zeiss is one of the rare examples in which a lack of fair procedures in the foreign litigation was used to deny recognition of a foreign judgment in the United States.

9. Article 953 of the Spanish Code of Civil Procedure provides that if a foreign judgment "comes from a country that by jurisprudence does not execute judgements rendered in Spain, such judgments shall have no force in Spain." See also, Quintana, I., International Execution of Judgments – Spain, Oceana Publication, p. SPA-16.

10. See, Dicey & Morris, The Conflict of Laws (12th Ed.) p.405.

11. See, Dicey & Morris, The Conflict of Laws (12th Ed.) p.405.

12. See, Dicey & Morris, The Conflict of Laws (12th Ed.) p.405 – 406.

13. According to Clerk & Lindsell on Torts (1989) (Sweet & Maxwell – London), at p. 1012, the "modern development" of the tort of deceit dates from Pasley v. Freeman, (1789) 3 T.R. 51. In this case, a defendant represented to a plaintiff that a third party was creditworthy. This representation was false. When the party who had suffered loss as a result of relying on this representation brought an action, the court found that he had an action in deceit if it could be established that (a) the defendant intended that the plaintiff should act in reliance on the false statement, and (b) the defendant knew that the statement was untrue; or had no belief in its truth; or was reckless as to its truth. Also, the plaintiff had to establish that he, in fact, did rely on he impugned representation. If all these elements are present, a defendant will be liable in deceit for the damage caused.

14. Citing Master v. Millar (1791) 4 T.R. 320 at 337; May v. Platt [1900] 1 Ch. 616 at 623; London General Omnibus Co. Ltd. v. Holloway [1912] 2 K.B. 72 at 81; and Lazarus Estates Ltd. v. Beasley [1956] 1 Q.B. 702 at 712.

15. This quotation derives from Snell's Equity (28th Ed), citing, in footnote 35 on page 551, that it is from a letter from Lord Hardwicke to Lord Kames dated 30 June 1759, printed in Parkes' History of the Court of Chancery (1828), p. 508.

16. Or to use the American lawyer's term, 'piercing the veil'.

17. It is important to be in a position to identify the source of the norms that can be used to lift, set-aside, pierce or ignore a corporate veil – which otherwise has the effect of separating business and personal capital, and severing responsibility for conduct through the introduction of a corporation into a fraud narrative. The leading treatise in the English Conflict of Laws is by Dicey & Morris. In their treatise, The Conflict of Laws (11th Edition), at p. 1135, the learned editors indicate that the "cases at least establish that the law of the place of incorporation determines... the extent of an individual member's [meaning shareholders] liability for the debts or engagements of the corporation." (Citing Risdon Iron & Locomotive Works v. Furness [1906] 1 K.B. 49 (English Court of Appeal), and more recently, in the fourth supplement, J.H. Rayner v. the Department of Trade and Industry [1990] 2 A.C. 418 – as well as the case of Kutchera v. Buckingham International Holdings Ltd. [1988] I.R. 661).

18. This development having been received in the United States. This was confirmed by the American work, William R. Anson in Principles of the Law of Contract (which was quoted in the edition by Arthur L. Corbin 3rd Am. ed. 1919), where it is said that – "the use of the term fraud has been wider and less precise in Chancery than in the common law courts... Thus "fraud" at common law is a false statement ... [while] : fraud in equity has often been used as meaning unconscientious dealing."

19. At p. 228 of his Commentaries on Equity Jurisprudence, Storey also reflected on the need of equity to help creditors in the face of creditor fraud -:

"It must be a fundamental policy of all enlightened nations to protect and sub-serve the rights of creditors; and a great anxiety to afford full relief against frauds upon them has been manifested, not only in the civil law, but, from a very early period, in the common law also."

20. There is considerable doubt as to what types of transaction are included in the classification "investment contract." Case law evinces a tendency to construe the term narrowly.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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This article is part of a series: Click The Fundamentals Of A Civil Asset Recovery Action - Part 2 for the next article.
 
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