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CRIMINAL LIABILITY AS A TOOL IN CIVIL PROCEEDINGS

criminal liabilityOur portal editor, Jonathan Fisher QC, explores the potential implications in civil law of the recent Court of Appeal decision in O’Neil v Gale concerning aiding and abetting a criminal offence.


SPEED READ

Establishing that a person acted criminally when assisting a Ponzi fraudster can help an investor seeking to recover his loss. In order to show criminal liability, it is not necessary to establish that the person knew the requirements under sections 19 and 21 of the Financial Services and Markets Act 2000 were being contravened. The elements of the offence must be known, but it is not necessary to show that a person knew these elements constituted a criminal offence.

COMMENTARY

An unfortunate reality is that, all too often, victims of collective investment frauds, sometimes known as “Ponzi” schemes, struggle in their attempts to recover damages for losses they have suffered as a result of these frauds. The primary fraudster, by the time any legal action can commence, is either bankrupt or on the verge of bankruptcy. As regards the bank or other professionals, it is very difficult in practice to succeed in a claim in an action based on negligence or a constructive trust (see Jeremy D Stone Consultants Ltd v National Westminster Bank Plc [2013] EWHC 208 (Ch)). Against this background, the recent decision of the Court of Appeal (Civil Division) in O’Neil v Gale [2013] EWCA Civ 1554 shines new light on an alternative avenue for victims to consider in their pursuit of compensatory damages.

O’Neil v Gale concerned the nature of Mrs Gale’s contribution to her husband’s Ponzi scheme which involved “risk-free” pooled betting on football matches through Betfair, a web-based betting exchange. The question raised on appeal was whether Mrs Gale’s actions amounted to the aiding and abetting of a criminal offence under sections 19 and 21 of the Financial Services and Markets Act 2000 (“FSMA”). The issue was relevant because, if Mrs Gale’s actions were found to amount to the commission of a criminal offence, she would be unable to raise the defence of change of position in the underlying claim for restitution brought against her by the claimant.

The parties were broadly in agreement as to the relevant test for establishing the offence of aiding and abetting in criminal law. Following the decision of the Court of Appeal (Criminal Division) in R v Bryce [2004] EWCA Crim 1231, in order to establish the requisite mens rea the prosecution must prove an act done by the defendant who assisted the later commission of the offence and that the defendant did the act deliberately realising it was capable of assisting the offence. It also needs to be shown that the defendant at the time of doing the act contemplated the commission of the offence by the perpetrator, i.e. he foresaw it as a “real or substantial risk” or “real possibility” and when doing the act the defendant intended to assist the perpetrator in what he was doing. It was also said in Bryce that before a person can be convicted of assisting, the defendant must at least know the essential matters which constitute the offence. If a person knows all the facts and is assisting another person to do certain things, and it turns out that the doing of those things constitutes an offence, the person who is assisting is guilty of aiding and abetting that offence. Applying these principles, the parties in O’Neil v Gale proceeded on the basis that the defendant need not know the activities in question were illegal at the time when they were committed.

In this case Mrs Gale was shown to have provided bank account facilities and a Betfair account, both in her name, to Mr Gale and permitted their use in the implementation the scheme. Mrs Gale had also paid dividends at her husband’s request. It followed that Mrs Gale had known of the existence of the scheme, the nature of her husband’s activities and the “investments” being made, and the fact that dividends were being paid.

Accordingly, the Court of Appeal (Civil Division) held that it was “inescapable that Mrs Gale had aided the commission by Mr Gale of an offence under sections 19 and 23 of FSMA”. Lord Justice Vos found that it was unnecessary for Mrs Gale to be shown to have any knowledge of the requirements under FSMA for her to be found to have assisted her husband in committing an offence under sections 19 and 23. Ignorance of the law is no excuse since a defendant need only know the essential matters constituting the offence in question; the defendant does not need to know that these matters are illegal. Therefore, as Mrs Gale knew all the elements of the offence in question, she was found to have aided the commission of an offence by her husband under sections 19 and 23 of FSMA.

Interestingly, Lord Justice Vos drew attention to the decision in R v Stringer [2012] QB 160 where the moral justification for the imposition of criminal liability on an aider and abettor was outlined. In that case, Lord Justice Toulson explained (at paragraph 48) that the moral justification for holding a defendant responsible for the crime is that he has involved himself in the commission of the crime by assistance or encouragement, and that presupposes some form of connection between his conduct and the crime.

The decision in O’Neil v Gale provides a timely reminder that there may be alternative avenues for victims of Ponzi frauds to pursue in their attempts to recover damages where actions against the primary fraudster or a bank or other professional adviser are either unlikely to succeed.  This case provides an interesting illustration of how the criminal law can be used to widen the pool of potential defendants in such cases.

Image credit: Flickr (cdogstar)

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The views expressed in this article represent those of the author and not Bright Line Law.

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