Disputes Magazine Issue 16 - Navigating the Path to Peaceful Resolution
INTRODUCTION CONTENTS
“Peace is not the absence of conflict, but the ability to cope with it.”
- Mahatma Gandhi
We are thrilled to present Issue 16 of the Disputes magazine. This edition boasts a collection of articles illuminating the complexities and contradictions at the heart of legal disputes. Drawing from a range of complementary themes: Sovereign & States, Corporate Crime & Financial Institutions. Each theme offers a comprehensive exploration of the issues at hand, bringing clarity to the ever-changing nature of legal conflicts. We thank our corporate partners, contributors, and readers for their support in putting this edition together.
Do keep an eye out as we continue to offer various engaging events within the Disputes community..
State Immunity - The Evolving Balance Between Sovereignty And Justice Sovereign & States x Sovereign Immunity Against Enforcing Investor-State Awards - Could Waning Immunity In The Uk And Us Lead To Greater Lobbying By Creditors? ..................... x
60-Seconds With: Alastair Tomson x
| Corporate
Crime
|
A Perfect Storm? Corporate Criminal Liability In 2025 x Implications Of Johnson V FirstrandWill Secret Commissions Pave The Way For Claims From Auto Abs Noteholders? x
Fraud Risk Assessments And The Failure To Prevent Fraud Offence ................... x
Incentivising WhistleblowersIs It Time For A Change? x
CONTRIBUTORS
Callum Reid-HutchingsGatehouse Chambers
William Rees - Zaiwalla & Co
Charles McKeon - Thorndon Partners
Alastair Tomson - 4 Stone Buildings
Deborah WilliamsEversheds Sutherland
Laura Welsh - Eversheds Sutherland
Caroline Greenwell - Charles Russell Speechlys
Joe Edwards - Charles Russell Speechlys
George Gilligan-CourtCharles Russell Speechlys
Brendan Weekes - Evelyn Partners
Atasi Ghosh - Financial Conduct Authority
Çağdaş Umut Vardar - Vardar Şanlı
Ecem Karaca - Vardar Şanlı
Iskander FernandezKennedys
Aadil Mohamedbhai - Serle Court
Matthew Toma - Burford Capital
Peter Maras - Reference Consulting
Crossing The Line - Greenwashing From Ethics To Corporate Crime x
World Uyghur Congress V National Crime Agency - To Infinity And Beyond? x
60-Seconds With: Aadil Mohamedbhai ........... x
| Financial
Institutions
|
How To Manage And FinanceCollection Risk Beyond The Courtroom x
Are Damages The ‘Poor Cousin’ Of Liability? A Cautionary Note On ‘Mental Bifurcation’ From A Damages Expert x
Commercial Dispute Resolution
Construction and Engineering
Costs and Litigation Funding
Insolvency and Restructuring
Insurance
Private Client
Professional Liability
Property and Real Estate +44
STATE IMMUNITY THE EVOLVING BALANCE BETWEEN SOVEREIGNTY AND JUSTICE
The Modern Challenge Of Holding States Accountable
In an era where international commerce knows no borders, the doctrine of state immunity presents a fascinating paradox. While sovereign states regularly engage in commercial activities worldwide, their historical immunity from legal proceedings can create significant obstacles for businesses seeking justice. This principle, once absolute, has evolved to reflect the complex realities of modern international trade and investment.
The doctrine of state immunity emerged from the concept that equal sovereigns cannot exercise jurisdiction over one another. However, as states increasingly participate in commercial activities,
this blanket immunity has given way to a more nuanced approach. Today’s challenge lies in balancing respect for state sovereignty with the legitimate expectations of private entities engaging with state actors.
The Legal Framework: From Common Law To Statute
Initially developed through common law, state immunity in the UK found statutory footing with the State Immunity Act 1978 (SIA). This landmark legislation codified the general principle while establishing crucial exceptions. The Act’s foundation rests on Section 1(1), which establishes the general immunity of states from UK court jurisdiction, subject to specific exceptions.
The most significant exception, found in Section 2 of the SIA, concerns cases where a state has submitted to the jurisdiction. This can occur either after a dispute arises or through prior written agreement – a provision that has gained renewed importance in recent international investment disputes.
Authored by: Callum Reid-Hutchings (Barrister) - Gatehouse Chambers & William Rees (Associate) - Zaiwalla & Co
International Conventions: Building a Global Framework
The landscape of state immunity is shaped by several key international conventions:
The ICSID Convention
The 1965 Convention on the Settlement of Investment Disputes created the International Centre for Investment Disputes (ICSID), establishing a specialized forum for resolving investment disputes between states and foreign investors. This groundbreaking convention provides a neutral platform where both states and investors can seek resolution of their disputes.
The New York Convention
The Convention on the Recognition and Enforcement of Foreign Arbitral Awards plays a crucial role in ensuring that arbitration awards can be enforced across borders. It requires member states to recognize and enforce valid foreign arbitral awards, creating a practical mechanism for holding states accountable to their commitments.
1. Service must be effected through the UK Foreign Office – a requirement that cannot be dispensed with
2. The Foreign Office must use its best endeavours to effect service
3. The requirement applies to all documents initiating proceedings against a state
This procedural framework can present practical challenges, particularly when diplomatic relations are strained. As Lady Justice Arden noted, the severance of diplomatic relations could potentially leave claimants without recourse to the courts – a sobering reminder of the practical limitations of legal processes in international disputes.
Key Holdings And Reasoning
The Court of Appeal’s analysis provides crucial clarity on several fronts:
1. Registration is Not Merely Administrative
o The Court rejected the firstinstance view that registering an ICSID award was purely ministerial
o Registration requires judicial consideration and represents a clear exercise of adjudicative jurisdiction
o This means state immunity is initially engaged under Section 1(1) of the SIA
2. Article 54 as Submission to Jurisdiction
o The Court found that by signing the ICSID Convention, states agree to enforcement in all contracting states
Recent Developments: A New Era For Investment Protection
Procedural Complexities: The Diplomatic Channel
Recent case law has clarified the procedural requirements for engaging with sovereign states in legal proceedings. The Supreme Court’s decision in General Dynamics v Libya [2021] established several crucial principles:
The 2024 Court of Appeal decision in Infrastructure Services Luxembourg v Spain marks a watershed moment in state immunity law. The case, heard alongside a parallel dispute involving Zimbabwe, addressed a fundamental question: can states use immunity to resist the registration of ICSID arbitration awards?
The stakes were significant –Infrastructure Services Luxembourg sought to enforce a €101 million award against Spain, while in the conjoined case, Border Timbers pursued a US$29.2 million award against Zimbabwe.
o This agreement constitutes a “prior written agreement” to submit to jurisdiction under Section 2 of the SIA
o The Court emphasized that Article 54’s language is unqualified and cannot be read as excluding awards against states
3. Limitations on the Decision
o The Court maintained that the SIA continues to apply to ICSID award enforcement
o Earlier Supreme Court precedent in Micula v Romania was distinguished rather than overruled
o States can still challenge tribunal jurisdiction through proper channels
Alignment With International Jurisprudence
Notably, the Court of Appeal’s decision aligns with the High Court of Australia’s 2023 analysis of the same SpainInfrastructure Services Luxembourg dispute. This international judicial harmony strengthens the precedential value of the decision and suggests an emerging global consensus on the relationship between state immunity and ICSID enforcement.
2. Investment Structure
o Evaluate available investment treaty protections
o Consider structuring investments through jurisdictions with strong bilateral investment treaties
o Maintain documentation of state commitments and representations
3. Dispute Management
o Plan for extended timelines when dealing with state entities
o Budget for the additional complexities of state-involved disputes
o Maintain awareness of diplomatic relations that might affect enforcement
Looking Ahead: The Future Of State Immunity
Practical Implications For International Business
For entities engaging with sovereign states, these developments offer crucial lessons:
1. Contract Drafting
o Ensure clear dispute resolution provisions
o Consider incorporating specific waivers of immunity
o Address enforcement mechanisms explicitly
The evolution of state immunity law reflects an ongoing recalibration between sovereign rights and commercial justice. While recent decisions have provided greater clarity, several challenges remain:
• The impact of deteriorating diplomatic relations on access to justice
• The interaction between state immunity and emerging forms of international commerce
• The balance between investment protection and state regulatory autonomy
As international commerce continues to evolve, the doctrine of state immunity will likely face new challenges and adaptations. The key will be maintaining a framework that respects both sovereign rights and the legitimate expectations of private entities engaging with state actors in the global marketplace.
When a client is involved in a dispute or investigation, managing public and stakeholder interest is critical.
We are specialists in Disputes & Investigations communications. Our team is instructed by claimants and defendants in high profile domestic and international cases across a wide range of business sectors. Clients call on Byfield’s specialist expertise to support their legal strategy, or to provide alternative solutions that help them achieve their objectives.
SOVEREIGN IMMUNITY AGAINST ENFORCING INVESTOR-STATE AWARDS
COULD WANING IMMUNITY IN THE UK AND US LEAD TO GREATER LOBBYING BY CREDITORS?
It’s a good time to be an investor suing a sovereign government.
Don’t take my word for it: figures published recently by the United Nations1 found that the average arbitral award handed to claimants that win investorstate cases was more than $250 million, representing an increase of over 260% in the last decade.
It’s not just the mammoth awards that skew the percentages – over a quarter of all investment treaty claims won by investors resulted in an award exceeding $100 million.
Against this backdrop, it’s little wonder that 2024 saw the second highest number of cases on record2
administered and newly registered at the International Centre for Settlement of Investment Disputes’ (ICSID) in 2024.
Winning these arbitral awards is just the first step to putting cash in the pockets of judgment creditors. The long and winding road to enforcement is paved with obstacles for investors – not least of these the sovereign immunity defence mounted by countless States facing a steep bill.
Crucially, States paying these awards can be the result not just of enforcement litigation to force their hand. Payment can also be a political decision taken by the government in question, and decisions outside of the legal process can be influenced.
With recent developments denting the long-established immunity of governments, could their ability to fend off investors’ claims be diluted, and what does this mean for the lobbying campaigns that often accompany investors’ enforcement efforts?
‘The
King Can Do No Wrong’
The idea of sovereign immunity dates back centuries to the maxim that ‘the King can do no wrong’, meaning that governments could not be sued without their consent. States – then still the domains of Kings and Queens – were immune not only from being sued, but also from enforcement.
Fast-forward to the modern era of investment treaty disputes – where, in jurisdictions around the world, sovereignty is no longer tied to monarch – and this immunity has deliberately been watered down.
Authored by: Charles McKeon (Co-Founder) - Thorndon Partners
State parties to bilateral treaty agreements, and more complicated multilateral agreements like the now unfashionable Energy Charter Treaty, willingly expose themselves to dispute resolution mechanisms to provide investment protection to those with money to spend in their jurisdiction.
What has historically been less clear, however, is the extent to which sovereign governments can deploy the immunity argument to prevent investors brandishing multi-million dollar arbitral awards from collecting what they are owed in enforcement proceedings.
Similar questions have been asked of the US courts in recent months, notably also including Spain. As in London, sovereign immunity is creeping up the court hierarchy to appeals. The Court of Appeals for the DC Circuit found that Spain had waived its sovereign immunity4 by consenting to disputes brought under the Energy Charter Treaty.
Creeping even further still, the US Supreme Court has agreed to examine issues related to sovereign immunity5 under the Foreign Sovereign Immunities Act. A decision is expected in the summer of 2025, relating to an Indian telecommunications firm’s $1.3 billion arbitral award against a company wholly owned by Indian government.
Anglo-American Dents To Sovereign Immunity
On both sides of the pond, recent enforcement proceedings against States have chipped away at sovereign immunity. With both jurisdictions elevating sovereign immunity challenges to their highest courts, the UK and the US could cement themselves as the home of investor-state enforcement, and ultimately of asset seizure.
In London’s High Court, two recent cases have underscored England and Wales as a creditor friendly jurisdiction for investors seeking payment: solar energy investors pursuing the Kingdom of Spain in relation to reneged financial incentives for investment, and a forestry company pursuing Zimbabwe after its land was expropriated by the government.
Both cases see investors trying to enforce arbitral awards worth hundreds of millions of dollars. Both cases also see respondent States that refuse to pay these awards, deploying a number of arguments to avoid doing so. Chief among these arguments: sovereign immunity.
In October 2024, the English Court of Appeal ruled against both governments in a conjoined decision3, finding that Spain and Zimbabwe could not hide behind a sovereign immunity defence against the respective ICSID awards being registered in London.
The transatlantic perils of these enforcement proceedings for States are also becoming clearer. Chinese investors are closing in on overseas assets owned by the Nigerian government to satisfy an arbitral debt of $70 million, with a US court rejecting Nigeria’s immunity defence6. In the UK, investors pursuing Spain have secured interim charging orders7 to seize the land housing private schools owned by the Madrid government.
States can be reluctant – as we’ve seen in the examples detailed above – to pay these awards. Politicians are wary of the flak that could arise from “handing over taxpayer money” or “surrendering” to international investors. So, the electoral temptation is to stall, making it the next government’s problem.
With the judicial direction of travel in both the UK and the US appearing to favour creditors, and undermine sovereign immunity in two jurisdictions where it is not uncommon for foreign governments to own substantial assets, a key defence may be removed from States’ playbook.
Asset seizure therefore looms larger than ever for States involved in enforcement proceedings in the US and the UK. With this ‘stick’ increasingly possible for creditors, they may also feel emboldened to privately approach States with the ‘carrot’ of a settlement.
Could
Waning Sovereign Immunity Give Rise To Increased Lobbying By Investors?
You may be wondering, having made it this far through the article, why a communications firm like Thorndon Partners would be interested in following a quirk of arbitral award enforcement.
The answer is simple, ish. Paying arbitral awards is ultimately not just the outcome of protracted enforcement proceedings. It can also be a political decision taken by the Minister responsible for overseeing an issue or dispute – which can, at times, be influenced by reputational concerns.
Getting States around the settlement table can often involve pressure campaigns, with investors deploying creative tactics to pull the levers available to influence political decision making. Recent months have seen award holders write to sovereign credit rating agencies8, for example, and separately accuse governments of defaulting on their sovereign debt instruments9 by not paying arbitral awards.
Some investors, faced with the sometimes painful and expensive prospect of enforcement, simply don’t have the stomach to go ahead, instead selling their unpaid debt to a third-party. This can often spark more aggressive communications efforts from the assignees to the award, as new capital is made available to seek as quick a debt payment as possible.
Governments should be watching the sovereign immunity developments not just through a strictly legal lens: their exposure to investors’ increased lobbying should also be a cause for concern.
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What Is The Most Significant Trend In Your Practice Today?
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What Are You Looking Forward To In 2025?
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What Would You Be Doing If You Weren’t In This Profession?
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A PERFECT STORM?
CORPORATE CRIMINAL LIABILITY IN 2025
There have been landmark changes to corporate criminal liability in the past 18 months. After many years of debate and consultation regarding whether strict corporate criminal liability for financial crime should extend beyond bribery or tax evasion offences, the introduction of two major reforms under the Economic Crime and Corporate Transparency Act 2023 (ECCTA) will change the corporate liability landscape once more. These changes, together with the likely increased robustness in enforcement by investigatory and prosecuting authorities, should mean that they will feature heavily in Board and other stakeholder discussions regarding corporate risk in 2025.
This allows the conduct of a ‘senior manager’ in committing an economic crime to be attributed to a corporate, and effectively extends and codifies the longstanding common law identification principle which only allows criminal liability to be attributed to a company by way of its ‘directing mind and will’. By reducing the ‘threshold’ to ‘senior managers’, more employees, officers and other third parties will be within the scope of the offence. One of the main reasons for the introduction of this offence was due to the difficulties in attributing liability to (and prosecuting) large, complex organisations where there were no officials who could be clearly proven to be the ‘directing mind and will’ of the company in question.
The second major development in ECCTA is the introduction of the corporate offence of failing to prevent fraud (and related offences) by associated persons.
What Are The New Offences?
Firstly, a ‘senior manager’ offence has been established under ECCTA which came into force on 26 December 2023.
This offence will come into force on 1 September 2025 and will only generally apply to large companies which meet at least two of the three criteria as to turnover, size and assets. An associated person will be an employee, subsidiary or any person who acts for or on behalf of the company, and their offending acts must be intended to either directly or indirectly benefit the company (or its customers).
Significantly, there is a defence if the corporate has put in place reasonable procedures to prevent its associated persons from committing fraud offences (or that it was reasonable for a corporate not to put such procedures in place). Government guidance regarding reasonable procedures was published in November 2024, which also stated the implementation date of the offence as being 1 September 2025. Similar to the defence of ‘adequate procedures’ for the corporate offence under the Bribery Act 2010 (Bribery Act), the guidance suggests a proportionate risk based approach, which should always be led by a risk assessment.
So Why Should Corporates Consider The Impact Immediately?
There are a number of reasons why corporates across all sectors should be considering the impact of these offences now in relation to their business operations:
Authored by: Deborah Williams (Principal Associate & Professional Support Lawyer) and Laura Welsh (Principal Associate)Eversheds Sutherland
Identifying new and different risks – This is likely the first time that a corporate will need to consider the risks of its associated persons committing fraud on its behalf to benefit the corporate or its customers. Many companies have considered the risk of fraud being committed against itself, but not what is required for the new offence and this may take some time to do. This will require a bespoke approach depending on the business operations, group structure and specific circumstances of the company. Unlike bribery and tax evasion (which are fairly niche offences in nature and easier to identify which associated persons pose greatest risk), the risk of fraud and related offences being committed will span multiple business units and scenarios. Corporates are also unlikely to have previously considered who a ‘senior manager’ is within their business.
Impacting all sizes of companies – Although the failure to prevent fraud offence is conditional on a company’s size in order to apply, it is likely that smaller companies and other contractors will be required to consider fraud prevention procedures as a contractual requirement of being an associated person to a larger company. In addition, smaller subsidiaries of large parent companies may be caught by the offence in certain circumstances,
notwithstanding that the subsidiary does not meet the size criteria. There was considerable debate as to whether the offence should be expanded to cover all size of organisations, and this is likely to come under further review. The ‘senior manager’ offence is not limited by size of a company so will apply to all corporates.
Overlap between offences – There is significant overlap between the base offences within the two new corporate offences (the schedule of offences for the senior manager offence being more extensive) which means, to some degree, that if a ‘senior manager’ of a large company is implicated in a fraud offence then there is the potential for the corporate to be accused of either offence.
Reasonable procedures guidance – The Government published its long awaited ‘reasonable procedures’ guidance in November 2024 related to the new failure to prevent fraud offence. As was the case with the Bribery Act guidance previously, the ‘reasonable procedures’ guidance is guidance only and therefore non-prescriptive in nature. Until (and if) there are any cases which analyse ‘reasonable procedures’ in detail, corporates will not have complete comfort that the procedures put in place are completely robust for the purposes of a corporate defending an allegation of failing to prevent fraud.
For this reason, it will be best practice for a corporate to take time to digest and implement the guidance as comprehensively as possible. As stated above, organisations will have a defence if they have reasonable procedures in place to prevent fraud, or if they can demonstrate that it was not reasonable in all of the circumstances to have procedures in place. It should be noted that the guidance states that, although there may be limited circumstances where it may be deemed reasonable to not to introduce measures in relation to a particular risk, it will rarely be considered reasonable not to have even conducted a risk assessment.
In addition to the above, the anticipated approach towards enforcement of the new offences should be a factor taken into account by corporates.
The Serious Fraud Office (SFO) has already indicated that it is likely to increase the use of deferred prosecution agreements (DPAs) in relation to the new failure to prevent fraud offence.
DPAs have been used quite sparingly in relation to the corporate bribery offence (and a greater use was initially expected when they were introduced in 2014). Given some of the factors summarised above, it may be the case that the SFO offers a DPA more frequently (and a company more easily agrees to a DPA) than it perhaps would have done in relation to a bribery case. In addition, there have been indications that whistleblowers may be incentivised by authorities in future, which could increase the risk that a matter is investigated in the first place.
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IMPLICATIONS OF JOHNSON V FIRSTRAND
WILL SECRET COMMISSIONS PAVE THE WAY FOR CLAIMS FROM AUTO ABS NOTEHOLDERS?
For the past 15 years, the private credit market has been one of the fastest growing areas of the finance industry.
The IMF reported that the market exceeded $2.1 trillion globally in 2023,1 predominantly in the US and Europe, with estimates by other financial institutions putting this number closer to $3 trillion.
Private credit funds have become a fundamental source of funding for many sectors including asset-backed debt, with a growing number of financial instruments in these markets being packaged into securitised products and traded on secondary markets. These products however, once an attractive component in a diverse investment portfolio in a low-interest rate market for many investors, may not be all as promised to be.
In the motor financing market, securitised debts are known as Auto Asset-Backed Securities (ABS). Issuing these products enables motor financiers to use cashflows generated from financing agreements with customers to realise immediate credit from loans which typically mature between 3 and 5 years, as well as transfer credit risk off their books. The provider of the
financing, known as the Originator or Seller, sets up a special purpose vehicle Issuer to acquire a pool of the loans (which is usually ‘overcollateralised’ with more collateral than necessary to cushion against losses) and issue notes to investors. The Issuer receives proceeds from investors for the purchase of those notes, with the Originator in turn receiving from the Issuer the total purchase price for acquiring the loans. The Issuer makes payments on the notes over the product’s lifetime using the payments of principal and interest which the Servicer (usually the same entity as the Originator) receives from the obligors (the borrowers of the underlying loans). The notes are also structured in tranches which are ranked in a ‘waterfall’ according to their maturities and credit rating. Senior notes at the top of the waterfall are the higherrated safer investments with lower yields,
whilst the mezzanine and junior notes at the bottom have higher yields but are risker and are often the first to absorb losses once reserved funds set aside within the structure are exhausted.
Figure 1: Simplified Diagram Of An Auto Abs Structure
For investors and their investment vehicles, tranches of Auto ABS products attracting varying yields and returns can provide them with options for diversification according to their risk appetite. Other risks such as fluctuating interest or FX rates can also be hedged using derivative products. The private credit market however, inhabited by many of these products, lacks the same levels of transparency which can be found in public markets; information on
Figure 1
Authored by: Caroline Greenwell (Partner), Joe Edwards (Senior Associate) and George Gilligan-Court (Associate) - Charles Russell Speechlys
the underlying motor loans, their terms and their financial health are not always readily available to investors. The wider ABS market has also experienced recent turbulence with increasing rates of defaults on loans and many market participants having endured losses (including with other products such as Commercial Mortgage-Backed Securities). Moreover, cracks in the motor financing sector are beginning to emerge which could expose Auto ABS investors to similar losses.
“The private credit market lacks the same levels of transparency which can be found in public markets.”
Cue the Court of Appeal decision in the case of Johnson v FirstRand Bank Ltd T/A MotoNovo Finance Limited2 in October 2024, in which the Court oversaw three separate appeals (Johnson, Wrench and Hopcraft) to decide the degree of liability of motor finance lenders for failures to disclose to customers commissions which were made to credit brokers at car dealerships. The commissions included a ‘difference in charge’ model whereby the lender permits the broker to negotiate with the customer the interest rate of the credit, with commission being calculated as the difference between the lowest rate of interest in the permitted range and the agreed rate. Following an assessment by the FCA, these models have been banned since January 2021 and appropriate rules and principles were codified into the FCA Handbook.3 The case also included a ‘revenue share of advance’ model, effectively a fixed percentage commission.
The Court concluded that the concealment or secrecy of such payments can amount to a bribe: an actionable wrong at both common law and in equity which bestows a number of remedies against the payer of the bribe as the primary wrongdoer, including (where feasible) recission of the contract.4 In these proceedings, none of the three customers had provided their fully informed consent to the brokers for the payment of those commissions. In addition, the level of disclosure of the commission varied in each case which ultimately led to different outcomes. In Johnson and Wrench, the terms and
conditions disclosed the possibility of a commission being made which was “buried in the small print” of documents signed by the customers. This did not go far enough to secure fully informed consent. In Hopcraft, no disclosure was made in the documents at all. All three claimants were entitled to compensation. For Auto ABS issued with underlying loans containing commission payments, if Originators are not satisfied that the fully informed consent of customers has been obtained and that the appropriate level of disclosure has been achieved, noteholders should be alive to recourse for losses which could potentially be suffered. For example, if the Originator failed to disclose issues facing the commission this could breach the terms of the receivables sale agreements documenting the acquisition of the pool of loans by the Issuer, as well as possibly other transaction documents underpinning the structure, which could lead to an event of default (or in some cases an early amortisation of the notes) and claims for damages. MotoNovo in their own Auto ABS 2020 issuance named ‘Turbo Finance 9 plc’ warranted and represented in their Receivables Purchase Agreement that no finance document was “entered into as a consequence of any conduct constituting fraud, misrepresentation, duress or undue influence by MotoNovo”.5
“Noteholders of Auto ABS should be alive to recourse for losses which could potentially be suffered.”
Following the lenders’ successful application for permission to appeal, Johnson v FirstRand is set to be heard in the Supreme Court on 1st - 3rd April. In a rare step made by the Government, lawyers from the Treasury recently made an application to the Court requesting permission to intervene and make submissions at the case, warning of the “considerable economic harm” which could result in a decision made against the lenders, emphasising the need to deliberate on compensation to consumers which is proportionate to the losses suffered.
Should the Supreme Court find in favour of the consumer, it could have potentially significant ramifications for the motor
finance industry; recent estimates put the total cost of compensation claims at £44 billion.6 Financial instability of motor financiers resulting from reputational damage and compensation payments (which may need to account for multiple years of interest) could ultimately impact the value of Auto ABS notes on the secondary market, with junior noteholders possibly bearing losses. Where rescission of hire purchase agreements is available to wronged customers, for instance in the event of complete non-disclosure and where rescission is a suitable remedy, this could have a major impact on underlying assets in Auto ABS structures and therefore the Originators’ ability to generate the necessary cashflows which would compromise the viability of these products. Rating agencies could downgrade the notes if confidence in the Iender’s ability to service the notes diminishes. There is also industry concern that there is not sufficient collateralisation in these pools to deal with such stresses.
Investors ranging from sophisticated institutional investors to family offices and ultra-high-net-worth individuals could be blindsided by these ramifications which diverges from the story they were possibly once told, namely that as far as the Originator was aware there had been no material breaches under the contracts which affects the amount or collectability of the receivables.7 Such express representations made by lenders may assist to overcome the difficulties previously experienced by others in bringing successful proceedings on the back of implied misrepresentations relating to inappropriate conduct.8 The Supreme Court’s decision is highly anticipated; if investors become exposed to resulting losses, they should be aware of their options for potential claims.
2 Johnson v FirstRand Bank Ltd (London Branch) (t/a MotoNovo Finance) [2024] EWCA Civ 1282
3 The rules relevant to secret commissions are helpfully summarised in the recent letter of Nikhil Rathi, Chief Executive of the FCA, to Lord Forsyth of Drumlean, Chair of the Financial Services Regulation Committee dated 17 January 2025 - https://committees.parliament.uk/publications/46298/documents/233083/default/
4 Wood v Commercial First Business Ltd & Ors [2021] EWCA Civ 471 at [92]
6 Motor Finance Online: UK intervenes in car finance mis-selling case to protect lenders, 22 January 2025 - https://www.motorfinanceonline.com/news/uk-intervenes-in-car-financemis-selling-case-to-protect-lenders/?cf-view
8 Examples include Property Alliance Group Ltd v The Royal Bank of Scotland Plc [2018]
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FRAUD RISK ASSESSMENTS
AND THE FAILURE TO PREVENT FRAUD OFFENCE
The Economic Crime and Corporate Transparency Act introduces substantial changes to the administration of companies and new offences to hold corporations to account for the conduct of their staff and senior management.
The UK’s “Failure to prevent fraud” offence1 will come into force on 1 September 2025. Under this law, large organisations2 may be held criminally liable if an “associated person”3 commits a fraud offence intending to benefit the organisation, and the organisation did not have reasonable procedures in place to prevent such fraud.
The offence applies if any act related to the underlying fraud took place in the UK, or if the gain or loss occurred in the UK.
In November 2024, the UK Home Office issued guidance on the offence4 , including commentary on six principles to inform relevant organisations’ fraud risk management efforts:
• Top-level commitment
• Risk assessment
• Proportionate risk-based prevention procedures
• Due diligence
• Communication (including training)
• Monitoring and review 1
As one of the six principles, in which the UK Home Office issued guidance, this article explores the new challenges to risk assessments from the perspective of a fraud investigation and prevention professional.
Impact Of The Failure To Prevent Fraud Offence On Risk Assessments
Historically fraud risk assessments focused on the environment under the organisation’s control, considering the harm that internal and external actors could cause to it. These assessments focus on protecting the organisation from internal threats (e.g. employee fraud) and external threats (e.g. cyberattacks), and consider the directional flow of funds, (diversion of cash receipts or fraudulent payments), locations of assets and vulnerability of staff.
With the failure to prevent fraud offence, the direction of risk changes. The harm the organisation now needs to consider and prevent sits outside of its reach – in spaces that aren’t necessarily reflected in the organisation’s records or arising in conversations that take place outside of the organisation’s premises.
Consider the following scenarios:
An overzealous volunteer at a retail store of a large charity who abuses the personal details of donors, in order to inflate the amount of gift aid to be claimed from the store’s donations.
A salesman at a large car dealership, desperate to achieve his sales target before month end, strongly asserts to a potential buyer that he can’t do any better on the price of a second-hand vehicle, knowing fully that he still has the ability to discount the price by a further 10%.
A mortgage broker might choose lenders who provide higher rates to clients to benefit their friends or secure larger commissions, rather than picking the most suitable lenders for the clients’ needs.
It could be argued that the conduct in each of these scenarios represents fraud, perpetrated by associated persons
of their respective organisations, and it follows that the organisations would be expected to implement controls and procedures to prevent these behaviours.
These underlying activities could have been classified as fraud, prior to ECCTA. However, with ECCTA it is now easier to attribute these behaviours to the employing organisation and hold the organisation accountable.
In a lot of cases, the organisation will need to distinguish between behaviour that could be described as aggressive or overzealous and behaviour that would be considered as dishonest, and therefore potentially criminal.
The organisation should then consider its existing control environment – what procedures are already in place to prevent and detect fraud, and do these controls mitigate any of the identified fraud risks.
Where there are gaps or weaknesses in the control environment - where there are fraud risks which are probable and harmful and not mitigated by existing controls and procedures - further controls and procedures should be designed to address the control gaps.
The challenge arising from the failure to prevent fraud offence is that organisations now need to assess whether controls can be implemented in what would have been considered as “outside” of the organisation’s control environment. The additional questions that now arise as a result of ECCTA include:
• What staff have outward-facing roles?
• What representations could those staff make?
Carrying Out Fraud Risk Assessments
A comprehensive fraud risk assessment starts with a thorough understanding of the organisation’s structure, operations, and significant components. This involves identifying critical business units, processes, and assets that may be susceptible to fraudulent activities.
The next phase requires the identification of potential fraud actors, their targets, and methods. This entails analysing who might perpetrate fraud (whether inside of the organisation or external parties), what they might target (e.g., assets, cash, sensitive information), and how they might execute their schemes.
Where the focus was previously to protect the organisation, the failure to prevent fraud offence now requires this identification exercise to expand beyond assuming that the organisation is the target of fraud and consider whether the organisation (its staff and agents) could be the perpetrator of the fraud.
Once the organisation and potential fraud risks are understood, the assessment should overlay those risks across the organisation as a whole, and then evaluate the probability and potential harm of those risks. This step helps prioritise risks based on their severity and likelihood, enabling organisations to allocate resources effectively.
• What behaviours could harm an external third party through fraud and potentially (directly or indirectly) benefit the organisation?
• Are there any suppliers, agents or other parties who could harm an external third party through fraud and potentially (directly or indirectly) benefit the organisation?
Risk assessors will need to weave this additional focus into the historic methodologies (research, interviews, workshops and control testing) to ensure they identify all of the fraud risks faced by or caused by the organisation. Furthermore, as the historic approach was an iterative process that reruns the “understanding the organisation”, “identifying fraud risks” and “identifying gaps in controls” exercises to ensure that the fraud risk assessment remains current and comprehensive, the “failure to prevent fraud” offence will require the organisation to revisit its fraud risk assessments whenever there are changes in its staff, structures and incentives.
Conclusion
In conclusion, ECCTA is transforming the approach to fraud risk management, necessitating a proactive and comprehensive approach to identifying and mitigating fraud risks.
By thoroughly understanding the organisation’s structure and operations, assessing potential fraud actors and their methods, and continuously evaluating and enhancing the control environment, organisations can better protect themselves and their stakeholders.
The introduction of the failure to prevent fraud offence underscores the importance of extending these efforts beyond internal controls to address external facing threats. By fostering a culture of integrity and vigilance, organisations can not only comply with legal requirements but also build trust and resilience in an increasingly complex risk environment.
For more information please contact:
NOEL CAMPBELL
Partner, Hong Kong
T +852 3983 7757
E noel.campbell@hfw.com
ANDREW WILLIAMS
Partner, London
T +44 (0)20 7264 8364
E andrew.williams@hfw.com
hfw.com
BRIAN PERROTT
Partner, London
T +44 (0)20 7264 8184
E brian.perrott@hfw.com
NICOLA GARE
Professional Support Lawyer, London
T +44 (0)20 7264 8158
E nicola.gare@hfw.com
INCENTIVISING WHISTLEBLOWERS
IS IT TIME FOR A CHANGE?
White-collar crime remains a significant global issue in 2025, with prosecuting authorities globally implementing stronger protections and award programs for whistleblowers to encourage disclosures and combat economic crime. Last year Nick Ephgrave, the Director of the United Kingdom’s Serious Fraud Office (SFO), publicly called for the implementation of a whistleblower award program in the UK. The SFO’s five-year strategy, launched in April 2024, includes a pledge to “explore incentivisation options for whistle blowers.”1 On 10 December 2024, the Royal United Services Institute (RUSI) published research by Eliza Lockhart2, which
found that financially rewarding whistleblowers could strengthen the fight against financial crime. At a launch event held the same day at RUSI, Nick Ephgrave said that the research provides an “unanswerable” case for reform to stop the “brain drain” of intelligence from the UK to the US.
Recent Developments In The Us
The US is generally seen as the market leader in providing financial incentives to whistleblowers. In 2023, the US Securities and Exchange Commission (SEC) issued its largest ever whistleblower award of nearly $279 million3. On August 1, 2024 the Corporate Whistleblower Awards Pilot Program4 was released by the Department of Justice (DoJ) which incentivises whistleblowers to report corporate misconduct. Whistleblowers who first report misconduct internally must report the misconduct to DoJ
2 Lockhart, E. (2024). The Inside Track: The Role of Financial Rewards for Whistleblowers in the Fight Against Economic Crime. SOC ACE Research Paper No. 31. Birmingham, UK: University of Birmingham https://static1.squarespace.com/static/63e4aef3ae07ad445eed03b5/t/6756cfd024f33859fb718888/1733742545613/SOC-ACE-RP31_WhistleblowingDec+24.pdf
The views expressed in this article are strictly those of the author and not those of the FCA.
within 120 days of the internal report to be eligible for a financial award. The Pilot Program also includes measures to protect whistleblowers against retaliation.
The Current Regime In The Uk
The UK’s approach to whistleblower protection is governed by the Public Interest Disclosure Act 1998 (“PIDA 1998”) which inserted provisions into the Employment Rights Act 1996 (ERA 1996)5 to provide protection for workers reporting malpractices by their employers or third parties against any form of victimisation or dismissal. There is no financial cap on compensation for whistleblowers.
Protected From What?
A dismissal is automatically unfair if the reason, or principal reason, an employee is dismissed is because they have made a “protected disclosure”6 Workers are also protected from being subjected to any detrimental treatment on the ground that they have made a protected disclosure.7
What Is A Protected Disclosure?
For a whistleblower to be protected, they must make a qualifying disclosure, i.e.:
a) a disclosure of information which8
b) in their reasonable belief,
c) is made in the public interest, and
d) the information must relate to one or more types of failure or wrongdoing listed in legislation.9
Who Is Protected?
In addition to those covered by the general definition of “worker “contained in section 230(3) of the ERA 1996, the protection is afforded to employees, a range of others such as agency workers, homeworkers, members of limited liability partnerships, etc. There is no minimum service requirement in order to bring a whistleblowing claim (protection is a “day one right”). However, there are exceptions, for example Non-Executive Directors are generally not protected.
5 Sections 43A to 43L, section 47B and 103A, ERA 1996
6 Section103A, ERA 1996
7 Section 47B, ERA 1996
of someone obtaining legal advice, is not a protected disclosure. A disclosure is also not a protected disclosure where the person making such disclosure commits a crime in doing so (for example, under the Official Secrets Act 1989).
Current Reward Programs
The UK’s Competition and Markets Authority (CMA) offers rewards of up to £250,000 to whistleblowers who report unlawful cartel activity, and the UK HM Revenue & Customs (HMRC) offers discretionary amounts to whistleblowers who report tax fraud. HMRC reportedly paid out over £509,000 in 2023 for reports on tax fraud.12
SFO And FCA Stance
The SFO’s Director Nick Ephgrave first announced his support for paying whistleblowers in February 2024. On 10 December 2024, he noted that 86% of fines and settlements in the US in 2022 originated with whistleblowing, whereas in the SFO this figure was 5%.13
The FCA which in 201414 published a paper outlining its strong opposition to financial incentives for whistleblowers has been more open to whistleblower rewards recently. Nikhil Rathi, FCA Chief Executive, in an article published on 7 December 2024 said that he was “not in principle opposed to” the idea of remunerating those who spoke up.15
The information being disclosed does not necessarily have to be correct, but the person making the disclosure must have a reasonable belief that it is and that it is in the public interest to make the disclosure. The whistleblower does not have to prove that the facts or allegations disclosed are true.
The qualifying disclosure must also be made to one of the categories of people (such as the worker’s employer) listed in legislation10
Exceptions11
The disclosure of legally privileged information by a person to whom the information was disclosed in the course
Key Takeaways From The RUSI Report
1. Rewards achieve certain goals, but not in isolation: Reward schemes must be combined with efficient protections, such as statutory anti-retaliation provisions and strict confidentiality limits on
8 This can include conveying facts which are already known by the person the disclosure is being made to and such disclosure may be verbal or in writing.
9 Section 43B(1)(a)-(f) of the ERA 1996
10 Sections 43C to 43H of the ERA 1996 (section 43A, ERA 1996)
disclosure of a whistleblower’s identity, to be effective. Establishing an efficient regulatory body such as the Office of the Whistleblower has also been recommended.
2. Consult to customise: The report recommends that policymakers consult broadly on the design of whistleblower schemes, including how reward programmes will interact with current whistleblower policies and related legal framework.
3. Prioritise the message, not the messenger: The report highlights how evidence demonstrates that it is unrealistic to rely on whistleblowing as a tool to combat economic crime if people are expected to come forward purely out of the goodness of their hearts. A shift is therefore necessary to focus on intelligence gathering.
4. Ongoing progress, not immediate perfection: Reward programmes should be continuously monitored and adapted as economic crime activities are constantly evolving. The paper recommends starting small and building incrementally, as data is gathered, and the programme’s impact assessed.
III. Should the value of the financial incentive be determined by the value of the misconduct exposed? Or should there be fixed fee rewards depending on the type of offence to which the whistleblowing relates?
IV. Should the UK’s protections for confidentiality and anti-retaliation be enhanced?
V. Whether each regulator operating a reward scheme should have an Office of the Whistleblower (OWB) as recommended by the RUSI report or should there be one independent overarching OWB?
VI. Whether complicit insiders should qualify for whistleblower rewards?
VII. How will the whistleblowing regime interact with the existing assisting offender regime? Should there be a framework where whistleblowers who are implicated in the crime they report be given an opportunity to negotiate leniency based on their level of cooperation?
Conclusion
Government Consultation: The Way Forward?
Key issues which will need to be considered in any such consultation, include:
I. Whether legislative change will be required and how will it interact with current protections under PIDA?
II. Whether the definition of eligible whistleblowers should be widened to include anyone with relevant information?
By implementing measures such as financial rewards, greater protection and immunity, the UK can empower whistleblowers to come forward with valuable information. For instance, the US SEC receives a high number of whistleblower tips which could be attributed to the Dodd-Frank Act which contains strong antiretaliation provisions that make it illegal to terminate, demote, harass, or discriminate against an employee for reporting fraud or misconduct. In FY 2020 alone, the SEC received a record-breaking 6,900 whistleblower tips.16 By adopting reforms, the UK will not only protect individuals who expose misconduct but will be taking a critical step towards combating white-collar crime and ensuring ethical corporate governance.
CROSSING THE LINE GREENWASHING FROM ETHICS TO CORPORATE CRIME
Introduction
Greenwashing, in the literature, refers to the policy employed by companies to mislead third parties and consumers through false environmental statements and sustainability claims, first introduced by Jay Westerveld in 1986, it was originally used to describe hotels falsely promoting environmental responsibility to reduce costs.1
This term can also be expressed through various related terms with similar meanings, such as whitewashing, eco-bleaching, ecowashing, green make-up, green image washing and green sheen2, all of which suggest that a company’s policies and activities are environmentally friendly. These terms stem from unethical practices designed to create a green image for companies and have evolved into corporate crimes on a large scale today. The greenwashing activities have grown increasingly, resulting in even governments becoming potential victims or suspects of such actions.
1
In summary, companies’ unlawful profits through greenwashing have reached a point where they cannot be traced by authorities, and the line between unethical behavior and criminal acts has long been crossed.
Where The Problem Begins: Legislative Framework
Although the right to a healthy environment has been established as a fundamental right and freedom in the constitutions of many countries, it is often not regulated in a manner that ensures deterrence in the public law framework of these States. In the European Union (the “EU”) legislation, however, environmental policy began taking shape in the 1970s upon the publication of environmental action plans. Regarding the codification efforts in the EU regarding greenwashing, the Directive 2024/825 on Empowering Consumers for the Green Transition through Better Protection against Unfair Practices and Better Information3 (the “Greenwashing Directive”), published and brought into force on March 6, 2024 aims to ensure that companies present information about their sustainability policies in a reliable and realistic manner.
Authored by: Çağdaş Umut Vardar (Managing Partner) and Ecem Karaca (Associate) - Vardar Şanlı
Additionally, the Greenwashing Directive is planned to be implemented in coordination with the Proposal for a Directive on Substantiation and Communication of Explicit Environmental Claims4 (Directive No. 2023/0085), published by the EU on March 22, 2023. Key issues emphasized under the Greenwashing Directive include limiting the terms companies may use in environmental claims regarding their products or services, recognizing misleading environmental advertising policies as well as the use of false sustainability claims as criminal offenses.
Under Turkish law, sanctions for greenwashing activities remain relatively limited as of the date of this article. Consequently, such actions are generally evaluated under unfair competition law and advertising law. The precedents of the Court of Cassation on the matter primarily revolve around the regulation on “unfair competition through misleading advertisements” found in Article 55(1)(a) of the Turkish Commercial Code (Law No. 6102)5 (the “TCC”) that prohibits advertisements and sales methods in violation of the bona fide principle. In parallel, Article 61 of the Consumer Protection (Law No. 6502)6 provides for various sanctions, including suspension, correction, administrative fines or access bans, for misleading advertisements by the Advertising Board.
The most severe sanction could be imprisonment of up to two years or a judicial fine to be imposed on individuals who intentionally engage in such acts of unfair competition in accordance with Article 62 of the TCC.
Moreover, Article 63 sets out that in cases where acts of unfair competition are committed by legal entities, the directors / managers or shareholders acting on behalf of the entity will be sentenced and the underlying legal entities will be subject to security precautions applicable to legal entities used in criminal offenses (e.g., revocation of operation license, forfeiture, etc.). However, there is no other criminal sanction regulated under Turkish law that expressly addresses greenwashing activities and effectively deters corporations from engaging in such activities.
Additionally, the Advertisement Board of the Turkish Ministry of Trade (the “Advertisement Board”) imposes various administrative fines on companies making misleading environmental claims.7 Although the Advertisement Board may impose sanctions such as suspension, correction and administrative fines on unlawful and misleading commercial advertisements, these remain administrative and do not give rise to any criminal liability.
and results in significant harm. Legal frameworks must be established to monitor corporate sustainability claims, such as carbon market activities and tax returns. Greenwashing should be classified as aggravated fraud under national laws, with severe penalties.
Fraud Under The Mask Of Sustainability
At first glance, greenwashing may appear as merely an unethical marketing strategy, but it increasingly results in more serious consequences over time. The impact of these misleading activities and claims by companies has expanded beyond consumers, affecting investors, regulatory authorities and, in other words, governments. The use of fake certificates in regulated carbon markets, the manipulation of environmental, social and governance ratings by companies and fraudulent exploitation of government incentives represent some of the most common greenwashing practices in corporate activities as corporate crime.
The development of reliable audit procedures and more transparent policies for companies to carry out their activities in compliance with law will be beneficial both at the level of governments and individuals, as well as in terms of environmental impact.
For instance, pursuant to the Sustainability Auditing Regulation8, which has been recently brought into force on January 17, 2025 under Turkish law, various rules have been introduced concerning independent auditing firms and independent auditors operating in the field of sustainability, aiming to enhance the impact of sustainability audits. Frauds involving carbon credits and the applicable VAT, which led to the BlueNext collapse, clearly demonstrate abusable vulnerability of both regulated and unregulated carbon markets.
Conclusion
In light of the foregoing, limited number of criminal laws on greenwashing should be increased by lawmakers at both national and international levels with a view to bolstering the enforcement of recently introduced sustainability regulations, such as the EU’s Corporate Sustainability Reporting Directive9 and Corporate Sustainability Due Diligence Directive10, as well as Turkey’s Sustainability Audit Regulation and Sustainability Reporting Standards.
Destructive Impacts And Recommendations For Improvement
Considering the absence of effective sanctions at both national and international levels, greenwashing undermines environmental strategies
WORLD UYGHUR CONGRESS V NATIONAL CRIME AGENCY TO INFINITY AND BEYOND?
A recent Court of Appeal decision in the R (on the application of the World Uyghur Congress) v National Crime Agency appears to have changed the Proceeds of Crime Act 2002 (“POCA”) landscape, which may in turn prove to be a pivotal moment in the UK’s antimoney laundering regime.
Introduction
The case began three years prior to the Court of Appeal’s judgment, and when the World Uyghur Congress (“WUC”), an NGO which, amongst others, engages with the UN to raise awareness of the plight of the Uyghur community, provided the National Crime Agency (“NCA”) with what was seen a substantial material that evidenced serious human rights abuses that were taking place in the Xinjiang Uyghur Autonomous Region of the People’s Republic of China (“XUAR”).
WUC sought to demonstrate that cotton that was harvested in XUAR, and tainting supply chains (per POCA), which saw products being made from that very product, may have come from forced labour.
POCA – An Overview
By way of background, money laundering offences under POCA can be distilled into three categories:
a) It is an offence to deal with criminal property by concealing it, disguising it, converting it, transferring it or removing it from the UK (s.327);
b) It is an offence to facilitate the acquisition, retention, use of control of criminal property by or on behalf of another person (s.328); and
c) It is an offence to acquire, use or possess criminal property (s.329)
In each scenario, ‘criminal property’ is central to the offence; it being defined as any property which constitutes or represents a person’s benefit from ‘criminal conduct’, where the person dealing with the property knows or suspects that this is the case. ‘Criminal conduct’ is defined as conduct which (i) constitutes an offence in any part of the UK; or (ii) would constitute an offence in any part of the UK if it occurred there. It is immaterial who carries out the conduct and who benefitted from it.
Notwithstanding the above, it was the view that a person does not commit an offence under s.329 if they acquired or used or had possession of the property for adequate consideration.
The NCA’s Refusal
The NCA refused to open an investigation on (amongst others) two grounds:
1. It was a widely held view that the only sensible reading of POCA is that if adequate consideration is given for the cotton, which the WUC stated was criminal property, the very nature of the transaction meant that the relevant exception on POCA would be triggered, meaning that the cotton would be cleansed of its tainted character per s.329(2)(c); and
2. The WUC had failed to identify a specific shipment of cotton as being criminal property to allow the NCA to commence a POCA investigation.
First Instance
The NCA’s position was affirmed by the High Court, the latter agreeing that s.329 provides a defence to a person that takes possession of criminal property in return for having given adequate consideration. In addition, the High Court also agreed that POCA would require the specific criminal property to be identified before an investigation commenced.
The WUC appealed the first instance decision to the Court of Appeal in May 2024.
The appeal raised the question on whether the NCA had misdirected itself in one or more material aspects by not commencing an investigation in relation to the cotton shipments.
The Appeal
The Court of Appeal unanimously agreed with the WUC’s interpretation of POCA, ruling that the NCA has misdirected itself.
In quashing the NCA’s decision, the Court of appeal responded to the NCA’s two main arguments:
1. In turning the widely-held POCA view on its head, the Court of Appeal ruled that NCA was wrong to assume that the payment of adequate consideration at some point in the supply chain cleanses the shipment of cotton of its criminal character. Simply paying market value does not preclude, the Court of Appeal surmised, the property losing its criminal character. Any onward transfer, where there is suspicion or knowledge that the property is criminal property, would give rise to a different money laundering offence (e.g. arranging). Leaning on the case of R v Da Silva [2006] EWCA Crim 1654, the Court of Appeal noted that suspicion does not have to be clear, or firmly grounded and targeted on specific facts. Instead, the suspicion only needs to be “more than merely fanciful”.
2. With regard to the NCA’s second argument, the Court of Appeal ruled that it was not necessary to identify a particular consignment of cotton produced by forced labour before determining that there can be a proper basis for an investigation under POCA; the Court forming the view that to allow the NCA to rigidly hold on to this view point would discourage investigative bodies from commencing investigations.
Implications
The immediate (and possibly unintended) consequence to the Court of Appeal’s ruling would, one would imagine, result in an uptick in money laundering investigations on the submission of an increased number of SARs and DAMLs (stretching an already over-stretched system). There have already been concerns raised over food supply chains (e.g. the use of tomatoes as the main that have
been harvested through forced labour), or clothing bought from a well-known discount retailer based in China.
The floodgates do not appear to have been opened just yet (and even if they were, there is no way we will ever know the specifics of any SAR/ DAML requests), but the judgment underscores the importance of businesses undertaking thorough due diligence on their supply chains, and who they transact with. The increased scrutiny, will result in increased accountability, such that retailers will be required to actively consider labour practices in use across the lifecycle of a product and take, where necessary, action when presented with criminal conduct.
What Motivated You To Pursue A Career In Law?
A career in law sounded challenging and rewarding – it has not disappointed.
What Is The Most Significant Trend In Your Practice Today?
Continued increased use of anti-suit (and anti-anti-suit) injunctions.
What Would You Be Doing If You Weren’t In This Profession?
In an alternative reality, I would be a vet.
What Do You See As The Most Rewarding Thing About Your Job?
Helping people at a time when things might feel overwhelming.
What Is The Best Film Of All Time?
Amadeus. It might not be the best, but it’s my favourite. I’ve watched it at least 50 times.
What Cause Are You Passionate About?
Animal welfare and conservation.
Do You Have Any Hidden Talents?
None whatsoever!
Do You Have A New Year’S Resolution, And If So, How Do You Plan To Keep It?
None this year – I’ve broken too many in the past.
What Are You Looking Forward To In 2025?
Better work-life balance.
What Has Been Your Most Memorable Experience During Your Career So Far?
Spending one year at the UK Supreme Court with Lords Rodger and Brown and witnessing how the highest court in the land operates was very special.
What Songs Are Included On The Soundtrack To Your Life?
Fast car; One; Porcelain.
Dead Or Alive, Which Famous Person Would You Most Like To Have Dinner With, And Why?
Sir Alex Ferguson. Spending time with the greatest manager ever would be a privilege (and I would try to convince him to return…).
HOW TO MANAGE AND FINANCE COLLECTION RISK
BEYOND THE COURTROOM
Authored by: Matthew Toma (Research Director) - Burford Capital
“Are we going to get paid?”
This isn’t a purely academic concern in high-value disputes: A 2023 survey of general counsel revealed that over 70% of them held an unsatisfied award or judgment of greater than $20 million, reflecting a real risk that after investing substantial time and funds, corporate claimants may find themselves unable to collect from a recalcitrant or impecunious judgment debtor. Properly assessing this collection risk is therefore a crucial consideration for any claimant prior to initiating a dispute.
I address below the concept of collection risk, its components and how legal finance can help claimants mitigate this risk.
Understanding Collection Risk
Collection risk accounts for the possibility that the opposing party will not honour a judgment or award and can be measured in two interrelated but distinct ways: The debtor’s ability to pay and a creditor’s ability to enforce.
Ability To Pay
‘Ability to pay’ is an assessment of the debtor’s financial capacity to satisfy a future debt. Mirroring a more traditional credit risk assessment, determining a future debtor’s ability to pay requires detailed financial analysis, with a focus on cash flow, existing leverage and the ability to operate as a going concern. It may also necessitate the ability to forecast a debtor’s future economic performance. Given the often-lengthy duration of proceedings, the credit risk posed by a judgment debtor can be compared to indirectly investing in the future of debtor and, by extension, their medium-term prospects.
Such an analysis should be able to answer some fundamental questions:
• Can the debtor satisfy a judgment debt from existing cash reserves without negatively impacting its ongoing operations?
• Can the debtor service the debt from cash flow—often measured as free cash flow to firm (FCFF) — as part of a structured settlement?
• Is the debtor capable of taking on additional debt or leveraging unencumbered assets to satisfy the judgment?
• Does the claimed sum represent a manageable cost of doing business, or does it pose an existential threat to the defendant, potentially leading to insolvency?
A critical factor here is the availability of reliable financial information for the respondent. The transparency and reliability of financial information will vary considerably from jurisdiction to jurisdiction and especially between publicly traded companies and closelyheld private or offshore companies. While the former are required to publish audited financials, it can often be quite difficult to obtain reliable financial information for the latter.
Ability To Enforce
An “ability to enforce” analysis builds on the ability to pay and is predicated on compiling a comprehensive asset profile of the debtor, as well as determining whether there is a meaningful path to recovering those same assets.
This starts with traditional investigative work and legal disclosure and discovery to identify realizable assets.
Key considerations include:
• Asset identification: Are there sufficient unencumbered assets to satisfy the claimed amount?
• Asset class: What is the nature of the identifiable assets? Are you expecting to recover highly liquid publicly traded equities and prime New York real estate, or shares in a closely-held private corporation and factory facilities in rural Cambodia?
• Asset valuation: How are you valuing known assets? A claimant that is over-optimistic about the value of potential recoveries may find they’ve spent more on the claim than the amount ultimately recovered. It is therefore always prudent to adopt a conservative approach to valuing potential recoveries.
If the asset outlook is positive, the next step is to consider the legal “route to goal,” i.e., a definable legal strategy to reach those assets.
Factors to consider include:
• Enforcement mechanisms: Is the breadth of relief available to claimants in relevant jurisdictions fit for purpose? For instance, if a debtor has transferred assets out of their own name or otherwise dissipated the value of their holdings, can these transactions be unwound? If the debtor holds valuable assets through a corporate entity, can a claimant lift the corporate veil or effectively monetize that shareholding through a court-led process?
• Jurisdiction: The geographic location of assets plays a significant role in determining the viability of recovery actions. Assets located in jurisdictions with weak rule of law or lacking more nuanced enforcement mechanisms can be challenging to recover, despite their potential value.
• Duration: This is particularly relevant in a sovereign context, where enforcement can be protracted and uncertain, as seen with creditors who have spent decades pursuing unsatisfied awards.
• Preservation: Are claimants able to secure pre-action or ex parte restraints to preserve the value of known assets while claims are pending? Are you able to establish priority vis a vis potential competing creditors?
• Realization: At a practical level, how will the claimant realize value from the identified assets? Will it require a forced sale by a court officer or specialized expertise for disposal?
• Ability to pay: Shifting credit risk to the funder can alleviate concerns about the debtor’s financial capacity. For instance, the monetization or assignment of pending claims allows claimants to lock in a recovery and take money off the table without exposing themselves to the debtor’s credit risk.
• Ability to enforce: Access to deep expertise, specialized advice and substantial financial resources empowers claimants to craft comprehensive litigation and enforcement strategies. Legal finance enables claimants to fund centrally coordinated campaigns across multiple jurisdictions, leveraging financial strength to engage preferred counsel and pursue essential ancillary actions. These may include pre-action or ex parte measures to restrain assets, securing disclosure from offshore respondents and undertaking targeted enforcement actions to maximize recovery outcomes.
Ultimately, understanding how to properly assess and mitigate collection risk can increase the likelihood of converting legal paper into cash. Legal finance offers a valuable solution to manage collection risk, providing expertise, financial firepower and strategic support to achieve successful outcomes.
Mitigating Collection Risk With Legal Finance
Burford regularly helps clients in evaluating the enforceability of claims, identifying potential obstacles and developing tailored recovery strategies to properly assess and mitigate collection risk. This proactive approach to managing collection risk ensures that clients are fully informed of the potential challenges and costs associated with pursuing litigation, allowing them to make well-informed decisions.
Burford’s innovative legal finance solutions further help claimants mitigate collection risk by addressing concerns over both the ability to pay and ability to enforce:
ARE DAMAGES THE ‘POOR COUSIN’ OF LIABILITY?
A CAUTIONARY NOTE ON ‘MENTAL BIFURCATION’ FROM A DAMAGES EXPERT
Authored by: Peter Maras (Managing Director) - Reference Consulting
Introduction
This article explores whether valuation or damages (quantitative) evidence - or at least certain preliminary, structural and qualitative considerations related to quantum1 might have greater utility being considered earlier by parties in dispute.
This approach may lead to a strategic preference for avoiding the ‘mental bifurcation’ of merits and damages, even in bifurcated proceedings. Importantly, ‘mental bifurcation’ refers to the conceptual separation of liability and damages issues rather than necessarily their procedural division into separate hearings. Considering damages issues earlier does not preclude bifurcation but rather may encourage more integrated thinking.
One could even say that the practice of valuation or damages in this context is the ‘application of numbers to law’. It is an exercise which may be best undertaken contemporaneously, at least at the case theory stages. Equally, the ‘numbers’ are not always selfcontained, they may have overlap with jurisprudential and factual issues.
Strategic Value Of Early Damages Analysis
A commercially savvy strategy increasingly adopted by some counsel is to obtain preliminary damages advice early in a dispute.
This approach can:
• assist in understanding the factual matrix and framing the cause(s) of action to be pleaded; and
• shape the pleaded case by identifying critical facts and their implications for liability and damages outcomes.
1 For example, accounting and tax treatment or key threshold facts likely to support key assumptions in the final damages assessment. Of course, final and more precise assumptions would crystallise during the iterative process of undertaking the formal valuation or damages opinion, modelling and report writing. However, there are typically categories of assumptions which might be thought to bridge certain kinds of inherent factual gaps in financial analysis, and these are the kind which we suggest may have relevance at this early stage. For example, facts supporting the transferability of an asset can affect its market value, or facts supporting assumptions about the extent to which the plaintiff / claimant could or should have mitigated their losses. One might draw a parallel with the initial due diligence mechanism in a transactional context.
In a sense, this could be seen as working the case back-to-front and front-to-back, with a view to ‘winning’ at both the liability and damages hurdles. Some, including litigation funders, might view it as a financially results-oriented approach to managing and realising value from legal claims as an intangible asset class. And therefore, might be seen as a prudent approach when funding is anticipated.
For example, given the growth in technology and start-up disputes, quite often there is much head scratching when the plaintiff / claimant entity is not profitable. “How can we claim ‘loss of profits’? There aren’t any profits!”
Where profitability is often absent – but financial value is not - damages experts can perhaps assist to frame claims differently. Instead of ‘loss of profits’, might the focus shift to the loss in the value of existing client relationships or some other identifiable intangible assets (including the old goodwill catch-all)?
This framing not only impacts the cause(s) of action but may also determine applicable law(s), case law, jurisprudence and which facts are critical to be pleaded and proven. Such can be the interdependency between damages and liability.
• Existing Jurisprudence: The existing jurisprudential nexus between the law of contract, economic bargains, and damages / compensation;2
• Arbitration’s Origins: In arbitral contexts, arbitration more closely embracing its genesis as an alternative, more commercially and technically focused dispute resolution forum in which nonlegal factors and expertise may have a greater role, holistically, to play in the resolution of disputes;
• Efficiency in Arbitration: Scholarship which suggests that the bifurcation of proceedings (whether damages / liability or otherwise), may not necessarily provide the anticipated efficiency gains;3
• Evolving Expert Roles: Experts are increasingly playing a more strategic role as part of disputes teams, moving beyond their traditional role as ‘instruction takers’4. In this light, an integrated approach may be seen as more consistent with the modern role of experts - assisting the legal team, and ultimately the tribunal or judge, to deconstruct economic and legal bargains of parties and to test the facts and assumptions that underlie them; and
• Commercial Desire by Clients for Settlement: Settlement is generally regarded as being aided by the full parties’ cases, including on damages, being known. Early consideration of damages can expedite this timeline and hence potentially facilitate settlement sooner.
Practical Risks Of ‘Mental Bifurcation’
Res judicata risks in arbitration5 underscore the dangers of overlooking damages considerations early. Facts that may appear innocuous – or may even be absent in evidence - at liability stage, such as facts relating to key contract (customer or suppliers) interpretation, technological capabilities, regulatory environment or assumptions about market conditions, may have significant relevance at damages quantification stage (including supporting – or undermining - assumptions underpinning expert financial models).
Being aware of such issues early mitigates risks of inconsistency and enhances case strategy. A form of factual res judicata risk could also be said to apply in litigation contexts, where appeals are almost entirely on points of law.
A Jurisprudential And Practical Nexus
An integrated approach to liability and quantum may be congruent with several key considerations:
Don’t Damages ‘Flow’ From Liability?
This integrated approach contrasts with a mindset6 that appears to assume that damages are a logical consequence of liability being established. That is, “Win
2 Given economic and legal concepts are often intertwined and interdependent, it may be most efficient for a multi-disciplinary team to sift through matters in parallel – and in consultation with each other - to untangle the issues and articulate the optimal case theory. See eg LLC, A.L. (2023). The Case Against the Bifurcation of Arbitration Proceedings • Aceris Law. [online] Aceris Law. Available at: https://www.acerislaw.com/the-case-against-the-bifurcation-of-arbitration-proceedings/
3 See eg Ibid, L. Greenwood, “Revisiting Bifurcation and Efficiency in International Arbitration Proceedings”, in Maxi Scherer (ed), Journal of International Arbitration, Kluwer Law International 2019, Volume 36 Issue 4
4 See eg Secretariat Consulting PTE Ltd & Ors v A Company [2021] EWCA Civ 6 (11 January 2021))
5 See eg LLC, A.L. (2023). The Case Against the Bifurcation of Arbitration Proceedings Aceris Law. [online] Aceris Law. Available at: https://www.acerislaw.com/the-case-against-thebifurcation-of-arbitration-proceedings/ citing CBI and Kentz (CJKV) v. Chevron Australia; French, T., Bond, P. and Harries, A. (2024). High Court judgment: Dangers of bifurcated arbitration proceedings. [online] Lexology. Available at: https://www.lexology.com/library/detail.aspx?g=cbddf4fa-4ec4-4399-a5d8-5f38633049cd [Accessed 8 Jan. 2025].
6 Has this mindset come from the often paraphrased principle from Hadley v Baxendale (1854) where damages ‘flow’ from the breach?
on liability, and the damages and ‘the quantum number’ somehow naturally follows.” And that there is some kind of ‘self-evident’ or ‘correct’ number to be revealed.
This assumption might be reflected in such practices as where damages are pleaded as being ‘to be assessed’ without more specific formulation at the statement of claim stage.
However, this mindset can overlook harsh realities particularly for plaintiffs / claimants: liability ‘in’ does not always equal damages ‘out’, and ‘zero is also a number’.’
While bifurcation may offer cost benefits by deferring (or in some cases, avoiding) detailed damages analysis, this does not necessarily necessitate ‘mental bifurcation’ where damages are treated as an after-thought, inevitability, or a standalone enterprise.
Parties can work behind the scenes to develop congruent damages and liability case theories even in bifurcated proceedings, ensuring pleaded facts and evidence aligns with both.
Further, considering damages earlier might improve the economics of the case for the client, providing the client more certainty on likely expected damages - who may perhaps become more invested in seeing the case through to a numeric outcome, or at least assist with a ‘go or no go’ decision.
Breaking Down The ‘Facts’ Of Expert Evidence
As a practical tool, the author suggests that it may be useful to consciously deconstruct the factual underpinnings of quantitative expert evidence.
Such a deconstruction might assist with understanding where critical facts and assumptions supporting damages quantification interact with (or must be pleaded in addition to) those supporting liability. Experts rarely disagree on
numeric calculations. Instead, disputes often focus on modelled assumptions, which are built on a combination of the factual matrix (sourced from client data or independent research) and professional judgement. This judgement often incorporates established rules, such as accounting or valuation standards, or industry ‘rules of thumb’.
Assumptions (and the explicit or implied facts underlying them) often bridge factual gaps required to set the model, especially given that damages assessments frequently involve an informed professional judgement about an alternative future ‘but for’ scenario.
Experts frequently rely on independently sourced research and data and therefore parties might not be in full control of their own side’s factual matrix. Such research and data can sometimes contradict the client’s factual claims - for instance, publicly available competitor data might reveal market practices inconsistent with the client’s pleadings. One might call such research and data ‘expert evidence introduced facts’ which may not be subject to the same level of strategic control as the facts used in pleadings or witness statements. Such potential inconsistencies might be best identified, understood, and reconciled at an earlier stage, rather than attempting to address them after factual affidavits or witness statements have been filed.
Conclusion
This article aims to encourage a more integrated approach to liability and damages in disputes and cautions against ‘mental bifurcation’ even in bifurcated proceedings. By paying greater attention to the overlap between the liability factual matrix –and that required or implied by expert damages evidence – case strategy and quantitative outcomes for clients may be enhanced. By contrast, addressing damages earlier and integrating such insights into the framing of cause(s ) of action and liability case theories can also be strategically advantageous.
