The Court of Appeal handed down judgment in the case of Michael Ward and Others v Katharine Anne Savill [2021] EWCA Civ 1378. The court considered the circumstances in which a judgment could be said to be in rem.
A judgment in rem determines the status of property on a basis which binds the whole world. This is in contrast to a judgment in personam, which is valid only between the parties.
It was upheld that the appellants could not rely on declarations made against the alleged perpetrators of a fraud for use in an ensuing asset tracing claim against an alleged recipient of proceeds of the fraud, who was not a party to the earlier fraud proceedings. This was because the alleged recipient had not been a party to the earlier proceedings, and the judgement in those proceedings was not a judgment in rem.
Case Background
The appellant claimants were 65 individuals who had invested over £18 million into what they believed were legitimate film development schemes. The promoters of the schemes were the respondent's husband, Charlie Savill, and two others.
The appellants alleged that the scheme was fictitious and the funds, which they said they had been fraudulently induced to transfer, were instead diverted to offshore entities for the benefit of the three promoters. Separately, the three promoters were convicted of conspiracy to cheat the public revenue.
In prior civil proceedings against the engineers of the fraud, the appellant investors sought damages in deceit and unlawful means conspiracy, as well as declarations relating to their beneficial ownership of the funds invested and their right to trace into property held by the defendants. In these proceedings, an order was made granting declarations (the 2018 declarations) that:
- Each of the claimants was induced to invest into the schemes … by reason of the fraudulent misrepresentation of one or more of the defendants.
- Each of the claimants has or retains a beneficial interest in the monies paid during the commission of the schemes.
- The claimants are entitled to trace into property … which represents monies invested into the schemes and subsequently paid away and the traceable proceeds thereof.
The contracts and transactions wherein the claimants had advanced their monies under the guise of investments had, therefore, been rescinded for fraudulent misrepresentation and the monies received and held on constructive trust on behalf of the claimants.
Later, the claimants sought to advance a case against the respondent, as the wife of one of the engineers of the fraud, in relation to her valuable London property (held in her name only). It was their case that the respondent was an alleged recipient of the tainted monies and that her home represents the traceable proceeds of their investments.
The claimants sought to rely on the 2018 declarations, arguing that the effect of the declarations had been to establish their continued ownership of the investment monies between the only parties relevant to that issue. The appeal was dismissed.
Conclusion
It was ruled that the 2018 declarations had not taken effect in rem. The order was only intended to take effect against the original defendants and not any prospective defendants. The effect of this was that the claimants could not automatically trace their invested monies to the respondent’s property by reason of the 2018 declarations.
In this case, the claimants needed to prove all of the elements of their case against the respondent in order to establish that they had a beneficial interest in her property. The ruling means that they must, therefore, go down the route of tracing the money and proving that the respondent purchased that particular property with the proceeds of the fraud, in order to make a successful claim.