The use of contempt and other sanctions in modern commercial fraud cases

21 May, 2014

Article by Paul McGrath QC, Essex Court Chambers and Bernard O’Sullivan, Olswang LLP in which they take a practical look at how litigators can use an application for or threat of committal and other sanctions as a tactic to dispose of litigation, published by Practical Law.

The expense of international commercial fraud litigation has encouraged many litigators, in the last decade or so, to employ what might be called “sanction-focused litigation” where the focus is not necessarily on proceeding to a full trial of the action but on asserting (appropriate) pressure on the defendant through court-ordered sanctions for disobedience to court orders. These sanctions include contempt of court but extend much further as discussed below. This has led to the possibility of avoiding the trial process altogether or significantly reducing its scope by pursuing a strategy that results in the court imposing a penalty including imprisonment for contempt on the defendant.

Increasingly what may have in the past been viewed as an incidental positive side benefit appears to have now become a strategic objective in itself with the proceedings set up to use sanctions as a tool to bring about a quick end or apply pressure for a negotiated settlement. This strategy, when invoked appropriately and proportionately, can be a useful additional route to resolve complex and costly disputes. But it is important that the “tail is not permitted to wag the dog”: the sanction-focused strategy must not become the sole focus or aim of the overall litigation.

This article seeks to examine these developments. It explores the recent explosion of contempt applications in civil fraud cases. It then discusses the strategies for applying pressure that have been used to date including cross-examination, applications surrounding legal funding and the use of unless orders as an alternative to contempt. Finally, it considers if these remedies may be more practical and cost-effective, and concludes with a discussion as to whether the English courts have gone too far or not far enough.

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