Contracting with Care

Over the last couple of weeks we have seen a couple of cases which had one similarity between them. They were both cases where we were consulted by victims of what appeared to be fraudulent schemes whereby investment was sought by a Scottish based business (a limited company name was given). In one case, international investors realised after around 10 months of investment in the activities of this business in the UAE that the principal of the alleged company was a struck off director, had left a trail of corporate insolvencies and there was no limited company registered in the UK of the name they had contracted with.

Firstly, this does emphasise the need for diligence in who investors contract with; particularly if investment is going to be cross-border. This is the type of issue that diligence by local lawyers should have identified. Secondly, it is worth remembering under Scots law that the result of such representation may be that the person making the representation is personally liable given the company they purported to represent did not, and does not, exist. In some cases that might be small comfort if the fraudster has either removed all their assets from easy reach, or is insolvent themselves. However, in some cases it does mean that there is another line of attack worth taking. While fraudsters will try to move their assets between jurisdictions, international lawyers can often work effectively to make surprising recoveries.

The moral of the story is, however, to be careful who you contract with.

Eric Baijal is BBM’s head of insolvency and litigation team.