legal

SFO 'vital participant in wrongdoing', judge states in latest ENRC judgment


The Serious Fraud Office was a ‘vital participant in the overall wrongdoing’ of now retired solicitor Neil Gerrard whom it ‘actively encouraged’ in relation to an inquiry into Kazakh mining group Eurasian Natural Resources Corporation (ENRC), the High Court has ruled. 

In a 185-page judgment, Mr Justice Waksman found that although the SFO’s wrongdoing was an ‘effective cause of the losses’ claimed by ENRC for unnecessary work, costs and wasted management time, exemplary damages against the SFO were not appropriate.

Waksman

ENRC is suing international firm Dechert and Gerrard, its former head of white-collar crime, for negligence. The mining company also alleges that, if not for the SFO’s breaches of duty, a criminal investigation, which was closed in 2023, would never have begun. The SFO denies this.

The latest judgment follows the trial held in March this year dealing with causation and loss of questions that arose in the earlier trial, which took place in 2021 and was concerned with liability.

A further trial, dubbed the Phase 2 trial, will deal with loss.

In losses, ENRC claims more than £11m from unnecessary work charged by Dechert, out of a total of more than £13m; £9.4m in unnecessary costs paid to third parties out of a total £11.9m; and over £232,000 in wasted management time. Dechert has repaid ENRC almost £9m for what accepted was unnecessary work and costs.

Against the SFO, ENRC claimed £10.6m in unnecessary fees, £8.8m in unnecessary costs and more than £214,000 in wasted management time.

The SFO said ‘none of the breaches of duty established against it led to any of the loss suffered by ENRC or that the losses were reasonably foreseeable’. 

The total quantified claim ‘so far as this trial is concerned’ totalled just under £12m.

The judge said: ‘The correct approach is to consider the overall effect of the defendants’ numerous, consecutive and concurrent wrongdoings over time to see in the end what the resulting loss is in financial terms. Once that has been done, the court can then apportion the respective responsibilities between the defendants pursuant to their contribution claims.’

Rejecting the SFO’s case, the judge said Gerrard had ‘a “willing audience” in the form of the SFO’.

‘He needed SFO officers who were prepared to countenance conversations or meetings with him when they knew he was likely to volunteer information which he should not have. Without the SFO as an audience and a receptacle for this information, there could not have been any breach [by Gerrard] at all.’

Dechert was found to have committed ‘very substantial breaches’.

The judgment said: ‘It was Dechert which took the initiative, both with ENRC in terms of seeking to expand the investigation (which in fact started before the SFO was involved) … Nonetheless, the SFO was a vital participant in the overall wrongdoing’.

Dechert and Gerrard, jointly and severally, were found to be 75% liable for the relevant damage in unnecessary costs and wasted time management while the SFO was apportioned 25% liability. For the unnecessary work damages, Dechert and Gerrard were found to be 100% liable.

Refusing to award exemplary damages against the SFO, the judge said: ‘I am quite clear that the SFO was not guilty of the kind of outrageous behaviour which would enable ENRC to surmount the high hurdle so as to obtain an award of exemplary damages. Accordingly, they will not be awarded.’



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