Double trouble

The recent Court of Appeal decision in Mote v Secretary of State for Work and Pensions and Another (2007) reflects the growing trend for parallel civil and criminal proceedings in relation to the same factual matrix, and the issues that can arise as a result.

In Mote the claimant appealed against the refusal at first instance to postpone the hearing of a civil claim against him until the conclusion of the related criminal trial. The Court of Appeal, in declining to postpone the civil proceedings, paves the way for more parallel proceedings in the coming years. Litigators in private practice and in-house increasingly need to be aware, therefore, of the interplay between civil and criminal proceedings and advise their clients accordingly.

The rise of parallel proceedings

Parallel civil proceedings have been the feature of the litigation landscape for many years. It is not unusual for the same factual matrix to give rise to several sets of proceedings, be they regulatory, disciplinary or in the civil courts. A more recent development, however, is the rise of parallel criminal proceedings. This trend can be attributed to a number of factors.

First, as a result of the increased criminalisation of business behaviour, activity traditionally considered as ‘white collar’ and dealt with through the civil system is increasingly being caught by criminal legislation.

Most notably, the Enterprise Act 2002, by which company employees may face up to five years in prison and/or an unlimited fine if they dishonestly agree to engage in prohibited cartel activities. Also the Fraud Act 2006, which provides that, where a substantive offence is committed by a body corporate, but was carried out with the “consent or connivance” of any officer, then that person, as well as the company itself, is liable.

The maximum penalty for participating in fraudulent business carried on by a company is 10 years’ imprisonment. It is likely that future legislation will bring further business activity into the criminal domain.

Second, the trend to pursue criminal proceedings where there is an option to go down the criminal or the civil route. A good example of this is the Financial Services Authority’s (FSA) first criminal prosecution for insider dealing, which was launched on 23 January 2008. The chief executive of the FSA Hector Sants has gone on record this month stating that the FSA “will use powers to prosecute matters as criminal offences and to restrain the proceeds of crime in appropriate cases”.

At the same time, regulators and law enforcement authorities in other jurisdictions, notably the US, are increasingly adopting a criminal approach. In light of the recent rash of extraditions, directors of English companies with presences in the US are rightly concerned about their potential exposure in relation to activity that they could never have anticipated would lead to potential imprisonment.

Third, the trend for victims to actively seek redress both civilly and criminally. In light of increased scrutiny by stakeholders and regulators, victims need to be seen to be pursuing all available sanctions. A successful prosecution and imprisonment can serve as a useful deterrent in relation to future behaviour and sends out a positive message to stakeholders and regulators. A good example is the NHS, which has stated publicly its parallel sanctions approach and, as a result of several high-profile claims and convictions, has achieved a 12 to one recovery on investment while deterring future activity that could have caused it further loss.

With the Serious Fraud Office busy prosecuting those involved in the alleged price-fixing of pharmaceuticals, the NHS has at the same time recovered in excess of £30m through action in the civil courts.

Interplay between proceedings

As the criminal sphere increasingly permeates what has traditionally been the domain of civil litigators, it is increasingly important to understand the complex interplay between them.

The starting point – that criminal and civil proceedings can progress simultaneously – is often a surprise to practitioners. A common misconception is that, once criminal process is invoked, civil proceedings cannot be advanced. There is, however, no general rule that criminal investigations or prosecutions must take precedence over civil proceedings.

The general approach of the courts since the late 1970s, and as recently endorsed by the Court of Appeal in Mote, is that civil proceedings should only be postponed if there is actual evidence of real risk of serious prejudice to the individual in running their criminal defence.

Even if a real risk of serious prejudice is identified, the court may be able to address it by means less radical than a wholesale stay. For example, the civil court has held that the risk of serious prejudice could be met by holding interlocutory proceedings in camera and deferring a trial itself until the criminal proceedings conclude.

Another issue that needs to be considered carefully is privilege against self-incrimination. A defendant may, in certain circumstances, invoke privilege against self-incrimination to enable them to refuse to provide particular information on the grounds that to do so would incriminate them (in the commission of a crime). It is only available to defendants who legitimately fear being prosecuted and are facing criminal charges.

The privilege against self-incrimination has also been curtailed by statute and case law. For example, section 31 of the Theft Act 1968 removes such privilege in relation to Theft Act offences. The recent Court of Appeal decision in C plc v P (2007) suggests (although it is not clear) that pre-existing documents are not protected by the privilege.

Where the privilege against self-incrimination can be invoked, it is not a ground for a stay of the proceedings. Further, the privilege only provides grounds for refusing what would otherwise be compelled. Neither the filing of a defence, nor the provision of witness statements, are considered as being ‘compelled’ for the purposes of the civil action, even though in practice the failure to produce these could result in judgment being entered.

A defendant may also attempt to argue that criminal proceedings against them are unfair and should not proceed on the basis that they should not be tried twice for essentially the same offence. The court has considered and rejected this argument, holding that, although the principle of double jeopardy applies in both civil and criminal proceedings, such a plea cannot jump between these different types of proceedings.

Those involved in parallel proceedings may also need to consider other issues, such as the use of ‘unused material’ from criminal proceedings in civil proceedings, and statutory gateways for the provision of other materials. Tactical considerations may also arise as a result of the mismatch in timing between the two sets of proceedings and findings in one impacting on the other.

The future

The Government’s fraud review has canvassed the introduction of a financial court. This would link the civil and criminal jurisdictions of the High Court and Crown Court into a ‘virtual’ court exercising both jurisdictions. This proposal, which could vastly simplify the issues that currently arise in parallel proceedings, is being considered by a working group.

But even if implemented, any change is unlikely in the immediate future. In the meantime, it is clear that the incidence of parallel civil and criminal proceedings continues to rise, and understanding the relevant issues and complex interplay between them will become increasingly important to litigators.

Tony Lewis is a partner at Peters & Peters