The spread of corruption at Arena Television
Given the far-reaching scope and the sophistication of the fraud that is alleged in relation to the affairs of Arena TV it seems that others, beyond that of Arena’s two directors, may have been involved in the reported scam.
Read more about the Arena TV case in our recent article and in our Spring spring edition of Disruptive Asset Finance.
Although there have been various reports that one of the directors has been located in France it appears that, so far, the men are evading the authorities. The administrators have now also turned their attention to others who may have been involved. Civil proceedings have now also been instigated against a senior finance manager of Arena (Mr Cousins) and a director of another company (Sentinel) which is said to have been a supplier to Arena (Mr Froom).
Particularly in circumstances where a fraud is sophisticated or ongoing a ring leader may be assisted in different ways by others. If the ring leaders of the fraud do not have deep pockets or if proceedings against them are unlikely to result in recovery there are a number of other claims an innocent party might consider against those who have been involved with a fraud. In complex fraud scenarios, it is common to plead multiple heads of claim in the alternative, or alongside one another in relation to different elements of the alleged fraud. Some causes of action only apply against the primary defendant whereas some are only relevant against those who have assisted in the fraud.
Unlawful means conspiracy
The claim bought against Mr Froom and Mr Cousin first seeks damages for unlawful means conspiracy from both men. The loss and damage said to have been incurred as a result of the conspiracy is estimated to be in the region of £284,764,139. Such an action is where the claimant proves that he has suffered loss or damage as a result of unlawful action taken pursuant to a combination or agreement between the defendant and another person or persons to injure him by unlawful means, whether or not it is the predominant purpose of the defendant to do so. Importantly, damages are ‘at large’ meaning the damages are not limited to the pecuniary loss that can be specifically proved. It may be that accessory liability (knowing receipt or dishonest assistance) is alternatively or additionally established in relation to participants in the conspiracy.
Dishonest assistance
The claim against Mr Froom and Mr Cousins also seeks compensation for dishonest assistance. Dishonest assistance is a fault-based cause of action. It arises from the defendant assisting a fiduciary to commit a breach of fiduciary duty (or a trustee to commit a breach of trust). The cause of action is relevant where the defendant is an accessory to the principle breach. Negligence is not enough – The defendant must have a dishonest state of mind: This is a test that has proved to be controversial. The breach of trust/fiduciary duty itself does not need to be dishonest – although often it is. For liability to attach the defendant does not need to receive property to which the trust/fiduciary obligation attached. Instead, unlike knowing receipt (below), liability depends upon the defendant’s participation in the breach of duty. The types of assistance which may render an assistant liable are not closed. Any act can potentially generate liability provided it is done with the requisite dishonest state of mind and provided also that it does in fact actually afford assistance to the breach of fiduciary duty. A party that is liable for dishonest assistance will be personally liable to the victim of the breach of the fiduciary duty/trust for any loss caused by that breach.
Knowing receipt
This cause of action is also an accessory liability (playing a role in someone else’s breach) but here the focus is on receipt rather than participation. For a claim to succeed in knowing receipt the third party defendant will receive assets which have been disposed of in breach of trust or fiduciary duty. Dishonesty of the defendant is not required to bring a claim in knowing receipt rather they will be liable if they knew that the assets are traceable to a breach of trust/fiduciary duty so that it is unconscionable for them to keep them. The third party also does not itself need to participate in the breach of trust/fiduciary duty – although participation may also be present. The claim against Mr Froom and Mr Cousins also seeks to recover specific sums based on a claim of knowing receipt – This arises in respect of sums said to have been paid under certain fictitious invoices for Mr Froom and in respect of corrupt gifts paid to Mr Cousins.
Proprietary claims
The recovery described above in respect of the fictitious invoices and corrupt gifts is also sought by way of a proprietary claim. Proprietary claims against specific property have the advantage of taking priority over claims asserted by creditors.
Where assets can be followed or traced to the hands of a third party the owner may also be able to enforce its rights in the property by way of a proprietary remedy. A claimant who wishes to bring a proprietary claim must show that the defendant received property which belongs to them, that the defendant still retains that property and that the case is one in which the grant of a proprietary remedy is justified. Where an asset has been transferred to another party, a proprietary interest in the asset can only be asserted where the transfer has been misdirected in some respect. Examples include where payment is made by mistake or if a resulting or constructive trust arises. In this case a constructive trust has been asserted: this can arise where there has been a breach of fiduciary duty.
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