Asset Recovery Claims By Victims Of Fraud

Published date07 September 2022
Subject MatterCorporate/Commercial Law, Litigation, Mediation & Arbitration, Criminal Law, Corporate and Company Law, Directors and Officers, Professional Negligence, Securities, White Collar Crime, Anti-Corruption & Fraud
Law FirmOgier
AuthorMs Jennifer Fox, Rebecca Findlay, Oliver Payne and Jeremy Snead

As part of Ogier's ongoing series of articles on fraud and asset tracing, we will now look at a number of recovery claims that victims of fraud have brought against their service providers. This is important because often in the context of a fraud case, the main wrongdoer may have disappeared or have dissipated all of the assets, leaving the victim of fraud (or any office holders appointed over the entity) with no other avenue of recovery.

  1. Auditors - There are a number of Cayman Islands cases1 considering auditor negligence (although they are all decisions concerning strike-out applications brought by defendant auditors seeking to have the claims dismissed at an early stage of the proceedings, and so do not substantively determine the defendant's liability, but are useful in providing guidance as to the relevant tests to be applied). One of the purposes of an audit is to check the financial health of the entity being audited, and in agreeing to take on this work auditors assume certain duties. If a victim of fraud has been caused loss that might have been avoided or minimised had an auditor detected the fraud, then the victim may potentially have a claim against that auditor. In the Cayman Islands, an auditor will be prima facie liable for economic loss suffered by a plaintiff if it can be shown that the auditor issued a report containing negligent misstatements in the knowledge that the recipient (now plaintiff) would rely on it in its business dealings, that the plaintiff did in fact rely on it, and that the plaintiff suffered consequential detriment as a result.2 Potential plaintiffs should bear in mind any cap on liability in the auditor engagement terms. Also, depending on the fact pattern, it is possible that the auditor may seek to rely on the illegality defence (for further details on the application of this defence see Ogier's recent article on this here: Assistance to the creditors of insolvent fraudsters: the modern illegality defence to the rescue)
  2. Legal advisors - Similar to the above legal advisors are fiduciaries and will also owe duties of care to their clients. For example, breach of duty by inadvertence or negligence may give rise to Grand Court's summary jurisdiction to require compensatory payment by an officer of court: Att Gen. v. Carbonneau (Grand Ct.), 2003 CILR 129. Depending on the fact pattern, a party who has suffered loss could consider whether there is any cause of action against their former legal advisor.
  3. Directors (individual...

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