In March 2020, prior to the significant downturn that occurred as COVID-19 was declared a global pandemic, Burford Director Michael Redman and Director Daniel Hall posed a series of questions about asset recovery and judgment enforcement to a respected group of experts.

In March 2020, prior to the significant downturn that occurred as COVID-19 was declared a global pandemic, Burford Director Michael Redman and Director Daniel Hall posed a series of questions about asset recovery and judgment enforcement to a respected group of experts.

In light of the downturn, companies are increasingly likely to encounter enforcement issues, making these experts’ perspectives, excerpted below, all the more relevant in the months and years ahead.

Sixty-five percent of in-house lawyers reported that their companies have unenforced judgments or uncollected awards valued at $20 million or more, according to the 2019 Legal Finance Report. Why do so many companies fail to enforce potentially valuable judgments—and how can they avoid leaving money on the table?

Nicola Boulton: The key words in the question are “potentially valuable.” Certain and substantial immediate expense carries a lot more weight in a commercial analysis than the possibility of money later. In uncertain times, the value of keeping cash to support the business weighs especially heavy.

The analysis shifts significantly if one has a high degree of certainty about what money actually is “on the table.” Intelligent enforcement, knowing exactly what you are hunting and having an effective strategy to take it, in a reasonable time and at a reasonable cost is always the objective.

Nick Hoffman: It is almost always a question of cost—or more specifically perceived cost. The perceived cost comes in numerous forms: It is not simply the hard cost of instructing lawyers, perhaps in more than one jurisdiction, but also the time cost. As to the first of these, in the offshore world we can better arm our clients with information on the ways in which the funding of claims can be structured. There are viable alternatives to hourly rates that make the initial cost of bringing an action far more attractive, but which may not be appreciated by in-house lawyers, such as conditional fee arrangements.

In-house lawyers and general counsel need to be empowered to pitch to their boards a wider array of options, because a hard cost every month on the balance sheet can be far less attractive if the expectation is that a case may take many months or even years to complete. 

Trevor Mascarenhas: One of the problems we often encounter is that there was no thought given at the outset of the dispute as to how money will actually be recovered. Too often the emphasis is getting to judgment rather than looking at the outset at recovery and then working backwards to find the best route to collecting in the money.

But even then, companies can give up too easily on trying to enforce judgments and awards they have obtained. Sometimes this is due to a lack of awareness at the steps that can be taken. Or having spent a lot of money in getting to a judgment that has not been paid, they are reluctant to spend even more money on taking steps to try to enforce.

Some funders will look at judgments and awards with a view to purchasing them, so that the companies will get a return without having to incur further legal spend. Alternatively, it is open to the companies to go to specialists in asset recovery. The lawyer with expertise in commercial litigation or arbitration who obtained the judgment or award may not have expertise in asset recovery. Getting an opinion from an expert on the strategy for asset recovery can be every bit as important as getting an opinion from a QC or senior lawyer on the merits of the underlying claim.

There have been efforts in some jurisdictions to standardize the enforcement of foreign judgments. Is this a fair characterization? If so, how far is there to go?

Nick Hoffman: One of the most difficult issues to navigate as a lawyer acting for or against those seeking to enforce foreign judgments arises from the divergent approaches taken in different jurisdictions.

Brexit will provide a good test bed for the extent to which countries can align where previously a single regime (in one or more forms) used to be in place. The rules on private international law set out in various European instruments may continue to apply until the end of the transition period, but it will be interesting to see what remains of the old regime from the perspective of standardization. In Cayman, we continue to rely on the common law rules, save for Australian judgments. These historical anomalies are unlikely to stand the test of time if a standardized approach is adopted in most of the common law world. While there are no present plans to bring in fresh legislative amendments, we will be looking to England and its approach to Brexit for a blueprint of how legislation might look in future.

Nicola Boulton: Steps have been taken at an EU level and within certain CIS states, Ukraine for instance, which is trying to line up to an EU approach, to try to rationalize and clarify procedures. This is all helpful.

However, in many jurisdictions, as soon as there are state actors involved or any degree of political interest, then enforcement becomes far more uncertain. It is not an easy question whether standardization of enforcement is even desirable. Exported judgments carry with them the assumptions of the underlying legal system that produced them, and there may be very good reasons why those are not acceptable in the destination state.

Trevor Mascarenhas: In a December 2019 UNCITRAL colloquium, a number of experts gave consideration to improving international asset recovery. UNCITRAL previously produced a model law for cross-border recognition of insolvency, and the consensus at the colloquium was to develop insolvency rules with a view to standardizing asset recovery. That would be an important step forward, but there is still a long way to go.

What are the most significant challenges facing judgment enforcement in multi-jurisdictional litigations or arbitrations?

Nicola Boulton: Having a clear enforcement target that can be enforced against is always the goal. Absent a willing paying party, knowing where assets are held and being sure that you will be able to take action against them when a judgment is obtained is fundamental. The complexities of managing this risk multiply rapidly the more jurisdictions are involved, hence the development of the Worldwide Freezing Order.

Trevor Mascarenhas: Asset recovery cases are often fast paced in order to find and freeze the assets before they can be further dissipated. Delays in the process of obtaining disclosure from banks and other third parties holding information as to assets can therefore be severely detrimental to the asset recovery process. Similarly, if the defendant is notified of the steps being taken to locate assets, those steps may be rendered ineffective, as the defendant takes further steps to dissipate assets and cover their tracks.

Unfortunately, in many jurisdictions, the process of obtaining information as to assets can be expensive and slow, and if assets have not already been caught by an effective freezing order by the time disclosure reveals their existence, they may have long since been dissipated.

Another significant issue in the tracing of assets is the lack in many jurisdictions of publicly available corporate information, particularly regarding shareholders and ultimate beneficial owners of companies. Even where disclosure of ownership information is required, many companies fail to comply, use nominees or otherwise provide false or misleading information.

Nick Hoffman: The absence of a consistent approach to judgment enforcement between states remains the most challenging aspect of cross-border work, because it affects the strategy employed and cost associated with enforcement. The Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters is a positive step forward in seeking to simplify the process by and the basis upon which a judgment will be eligible. In England for example, while judgments from outside the EU or EFTA countries are only currently enforceable if the foreign court had jurisdiction on a territorial or consensual basis, the Hague Judgments Convention would make such judgments more widely enforceable as it enters into force and is taken up by the international community.

Have the courts done enough to ensure there are consequences to recalcitrant or delinquent debtors--such as committal? If not, why?

Trevor Mascarenhas: There are different approaches by different courts. In some countries a failure to pay a judgment debt or a dishonored check can lead to imprisonment, which may seem a little too draconian. In other countries, debtors who fail to comply with orders to provide information or not to deal with assets pending enforcement may be committed to prison. However, there is a lack of international reach, so recalcitrant debtors can move countries and be largely unaffected by the sentence.

If extradition were available for contempt, that could prove to be a powerful deterrent from recalcitrant debtors breaching freezing and disclosure orders. However, that like so many other steps that could be introduced to facilitate international asset recovery, is a matter for governments and legislatures rather than the courts.

Nick Hoffman: To my mind, the short answer is “no”. Under Cayman Islands law, once a foreign judgment is domesticated, the full panoply of local remedies is available. For debts arising from cross-border commercial judgments, delinquent debtors are almost never present in the territory; thus, there are practical difficulties in using committal as a realistic option. International arrest warrants are rarely—if ever—issued to enforce these types of debts, and the courts perhaps rightly recognize that it is the debt that the judgment creditor wants, not satisfaction in the form of imprisonment. The appointment of receivers in the context of debts arising in partnerships has proven particularly effective where the proceeds of asset sales can be secured and distributed to creditors in an orderly fashion.

Nicola Boulton: Largely, yes, the courts are astute to apply sanctions to anyone not complying with the requirements of bankruptcy or breaching court orders or requirements for asset disclosure. There is a balance to be drawn between the fair application of court and statutory powers and their abuse—and no doubt there are sometimes errors. But, in my experience, debtors think they are too harsh, and creditors think that they are too lax—which suggests that they are not far off right.

In 2019, countries such as Angola and Mozambique have been working to recover lost state funds. Does this signal that nation states are actively trying to recover stolen assets? If so, what barriers are they likely to face?

Trevor Mascarenhas: With an increasing awareness as to the damage that can be caused to a country by kleptocracy, together with international pressures to stamp out bribery and corruption, I think we can expect to see states actively trying to recover stolen assets.

A particular difficulty with cases of kleptocracy is that wrongdoer control of the state or relevant state entities prevents any effective action being taken to recover assets. Even when there has been a regime change, there may be considerable uncertainty and instability with respect to the new regime, making it difficult for effective action to be taken.

Another potential barrier is that wrongdoer influence in the relevant state may make investigation of the claims and producing evidence in support particularly difficult. One of example of how that might be overcome has been the introduction in England of unexplained wealth orders, which in certain circumstances puts the burden onto the defendant to prove that property was legitimately obtained.

Nick Hoffman: Anecdotally, it seemed to be the case that for several decades it was nearly impossible for countries that had been the victim of lost or stolen state funds to take effective action to recover assets that had been concealed abroad. Angola and Mozambique’s determination to do so is a sign that there is a renewed appetite for such action and for international cooperation to support it.

Administrative procedures introduced to freeze assets rapidly, more jurisdictions proactively initiating their own investigations, confiscation of assets without the need for individual convictions, court-ordered reparations and restitution and settlement agreements--all have an important role to play where the more traditional routes have often been inadequate to support the efforts of nation states to recover stolen state funds. An equally important challenge identified by non-governmental agencies involves building the capacity of practitioners in developing countries to support asset recovery efforts. Such initiatives will help to prioritize and initiate cases, build trust with foreign counterparts and generally facilitate asset recovery efforts.

Countries with established asset recovery policies and solid legal and institutional frameworks continue to achieve success in returning the proceeds of corruption. For many less developed nations, however, there may be a disconnect between the effectiveness of the tools and expertise now available elsewhere and that of the laws and institutions that exist domestically. A lack of information and in some cases willingness will also prove significant challenges in this space.

Nicola Boulton: Nation states always want to recover lost state funds, but face both political and economic barriers.

The complexity of international recovery actions can be managed if there are the resources available to retain and support international recovery expertise and to manage the process. However, that is a significant undertaking and it usually has to be maintained and coordinated over a prolonged period.

The requirement is not just for legal expertise, but also for project management skills that cover a wide range of specialties and experience. These are seldom found within the legal profession, not least because of the political dimensions of such an undertaking and the need for work “on the ground”, coordinating criminal and civil routes to recovery.

The challenge for a state is to find the right people to quarterback a recovery, whether internally or externally, and to finance the process so that it can be carried through and achieve the return of funds.

 


 

Participants

Nick Hoffman Leads the Cayman Islands’ Litigation, Insolvency and Restructuring practice at Harney’s. He advises banks, multinational corporations and financial services professionals on insolvency and restructuring, trust litigation, financial services litigation, company disputes and fraud.

Nicola Boulton Commercial litigator at Byrne & Partners with expertise in high-value civil fraud, financial services and trust litigation. She acts for high net worth individuals, legal and financial services professionals, corporates and hedge funds, and has extensive experience in freezing order issues, other interlocutory injunctive measures and anti-money laundering issues.

Trevor Mascarenhas Partner at PCB Litigation with experience across a broad range of commercial dispute resolution matters. “A distinguished name in the English litigation market” according to Who’s Who Legal, he has been highly praised for civil fraud, asset recovery, banking litigation and commercial litigation by leading directories.

Moderators

Michael Redman | +44 (0)20 3814 3699 | mredman@burfordcapital.com

Director and co-lead of Burford’s global corporate intelligence, asset tracing and enforcement business.He has worked in complex asset recovery and enforcement, holding senior positions in both Moscow and London before co-founding Focus Intelligence Ltd., a leading asset recovery advisory boutique acquired by Burford in 2015.

Daniel Hall | +44 (0)20 3814-3696 | dhall@burfordcapital.com

Director and co-lead of Burford’s global corporate intelligence, asset tracing and enforcement business. Prior to joining Burford, Dan spent ten years investigating fraud and financial crime and later co-founded and led Focus Intelligence Ltd.