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Expert insights: Asset recovery roundtable (Part I)

June 4, 2020
Daniel Hall & Michael Redman

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.

Read more of "Expert insights: Asset Recovery roundtable": 

Part I • Part II

To read the article in full, download the Issue 2 Burford Quarterly 2020