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Navigating the changing global enforcement landscape

  • Daniel Hall, Michael Redman

The year 2017 saw a variety of rulings and other developments that impact the risk and expense of enforcing judgments, particularly in high-stakes multinational matters. Below, we provide an overview of the bad and good news for clients and firms, and perspective on managing enforcement risk in 2018—and how Burford can help.

New enforcement challenges

Immunity protections for sovereigns

The so-called “Yukos Law”[1] in France holds that parties can enforce against property belonging to a foreign state following an ex parte application only with prior authorization of a judge. Authorization will be granted only if the state consents and if there is a connection between the property and the entity against which the proceeding was directed.

Enforcement in the wake of the new law will still be possible, but will be more challenging. Cases will be higher risk and require specialist counsel—becoming more expensive as a result.

Security not required for appeal

The UK Supreme Court overturned a ruling that Nigeria’s national oil company was required to provide security for costs as a condition for challenging a $340 million award.[2] The court found the hurdle to impinge on the award debtor’s rights of challenge for the sake of improving the award creditor’s prospects of satisfying its award, stressing that courts have other ways of achieving such an outcome.

With one less obstacle to challenging an award, the arbitration process will likely become more time-consuming, causing award holders to be even more uncertain when—or if—they’ll be recompensed.

Procedural hurdles for ICSID award holders

New York’s Second Circuit ruled that that ICSID award applications must be governed by the Foreign Sovereign Immunities Act, suggesting that creditors of foreign states may no longer have their awards recognized on an ex parte basis by the state.[3]

The decision casts doubt on other enforcement proceedings pending in the previously creditor-friendly New York courts. To avoid additional procedural challenges, parties seeking to enforce an ICSID award may choose to change venues to the federal district courts in the District of Columbia.

Good news for judgment creditors

Control of offshore accounts matters

It’s no secret that the possibility of obscuring the true beneficiaries of offshore accounts enables recalcitrant judgment debtors to exploit the technicality of ownership to hide valuable assets from judgment creditors. But the tide appears to be turning. Recent judgments and Cortuk point to focus shifting from ownership to control in enforcing against offshore accounts.[4]

Going forward, accounts that would otherwise have been off-limits due to ownership may become fair game if connection to the debtor can be made via modus operandi—greatly improving the chances of the award-holder being made whole.

Consequences for recalcitrant judgment debtors

In Marex Financial v Sevilleja Garcia,[5] the UK’s High Court found in favor of the claimant, who alleged the defendant had committed a tort when he stripped the companies of their assets between judgment and the obtaining of a post-judgment freezing order—demonstrating the court’s willingness to punish individuals who try to avoid paying judgment debts.

Despite being a positive step forward, the ruling’s usefulness for judgment creditors is limited: The act of not complying simply creates an additional tort, which has no monetary value and doesn’t necessarily guarantee payment.

What to expect in 2018

The number of unenforced judgments and awards remains virtually unchanged. But the tools available to judgment creditors are changing, and for the better.

The volume of potential evidence available to judgment creditors grows by the day. Partners with specialized expertise in asset recovery can use this evidence to create actionable plans for securing payment.

But expertise comes at a cost—one that may be prohibitive to claimants that have already spent considerable sums of money only to end up with a piece of unenforced legal paper.

As a result, the use of litigation finance is likely to play a larger role in enforcement proceedings. For many judgment creditors, bundling financing with asset recovery services can mean the difference between realizing the value of an unenforced claim and simply giving in to the very expensive stalling tactics of a recalcitrant judgment debtor.

[1] Marie Danis, “Sovereign immunity: A Convenient amendment to the Spain II law?” August Debouzy, 4 Jan. 2017. Available at https://www.august-debouzy.com/en/blog/943-sovereign-immunity-a-convenient-amendment-to-the-sapin-ii-law.

[2] I PCO (Nigeria) Limited (Respondent) v Nigerian National Petroleum Corporation (Appellant) [2017] UKSC 16.

[3] Mobil Cerro Negro Ltd et al v. Bolivarian Republic of Venezuela (2d Cir. 2017)

[4] MSF v Merrill Lynch Bank [2011] UKPC 17 and more recently SC Mezhdunarodniy Promyshlenniy Bank v Pugachev [2015] EWCA Civ 139.

[5] Marex Financial Ltd v Sevilleja Garcia [2017] EWHC 918 (Comm).