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CHARLENE ASHIRU ON PROTECTING YOUR JUDGMENT: A NEW TORT OF ASSET-STRIPPING?

Many a lawyer has been met with the question: what if we liquidate the company? Charlene Ashiru writes:

Whilst it might be tempting as a Defendant company to dissipate assets to avoid Judgment debts, it is ill-advised and is unlikely to provide an easy escape. 

In Marex Financial Ltd v Sevilleja Garcia [2017] EWHC 918 (Comm), Knowles J has taken the first steps in laying the foundations to protect successful Claimants in such situations.

Facts

In July 2013 Marex obtained judgment for more than US$5m against two companies for which Mr Sevilleja is said to be the ultimate beneficial owner and controlling mind.  In August 2013, Marex obtained a freezing order against the companies, at which point the companies stated that they only held assets of US$4,392.48. 

Marex commenced proceedings against Mr Sevilleja, alleging that he is liable in tort for dishonestly stripping the companies of assets, after receipt of the draft Judgment and before a freezing order was obtained, to put the companies in a position whereby they would be unable to pay the Judgment debt.  The brief details of claim on the Claim Form stated:

“[Marex] claims damages against [Mr Sevilleja] for inducing or procuring the violation of [Marex’s] rights under [the Judgment] dated 26 July 2013, and/or for intentionally causing loss to [Marex] by unlawful means, in particular by dissipating the assets of [the Companies] as more fully set out in the attached Particulars of Claim.”

Mr Sevilleja (who is not resident in England & Wales) sought to challenge the jurisdiction of the Commercial Court on the following grounds:

  • violation of legal rights under a judgment does not exist as a tort in law;
  • the unlawful means relied upon by Marex are not, in law, unlawful means for the purposes of the tort, as they did not interfere with the companies’ freedom to deal with Marex;
  • the rule against reflective loss bars Marex’s ability (as a creditor) to show a completed cause of action in tort;
  • the proper place for Marex to bring its claim was in the BVI where all issues arising in the liquidation could be addressed and that Marex had submitted to the jurisdiction of the BVI Courts by lodging proofs of debt in the liquidations of the companies.
Decision

Knowles J found as follows:

  • on the assumed facts (the approach to be taken at the jurisdiction stage) Mr Sevilleja induced and procured the Companies not to pay the Judgment Debt and he actively joined with the Companies to meet that end through dissipation; Marex has the better of the argument for the existence of the tort of violation of legal rights under a judgment (paras.26 and 28);
  • the very point of asset-stripping in this context is to take away from the companies the freedom to meet their obligation to Marex; Marex has the better argument that the unlawful means relied upon by it are, in law, unlawful means for the purposes of the tort (paras.33 and 36);
  • the better argument is that the no reflective loss principle does not apply where the claimant sues, as here, for a defendant’s knowingly inducing and procuring a third party to act in wrongful violation of the claimant’s rights, or for the defendant’s intentionally causing loss by unlawful means; otherwise these torts would be left with little application in situations where they have a principled part to play (see paras.41-42);
  • the proper place for Marex’s claim against Mr Sevilleja is, clearly and distinctly, England and Wales as the claim stems from Mr Sevilleja’s alleged decision to cause the companies to move assets out of bank accounts in England in response to a draft Judgment in proceedings in which the English Court had jurisdiction.  Marex had not submitted to the jurisdiction of the BVI Courts; the claims against Mr Sevilleja were directed at him and, therefore, his assets, not the companies’ assets.
Practical Usage

The extent of the tort is currently unclear, but the case confirms that there may well be a cause of action against someone who deliberately dissipates a judgment debtor’s assets; indeed, Knowles J took the view that the points of law in issue were “strongly in favour of Marex.”  A claimant who has obtained a freezing order or a notification injunction at an earlier stage may not need to resort to this course of action, but for those that have not, this case may assist judgment enforcement.

Posted: 16.05.2017 at 09:39
Tags:  Comments  Commercial Law  Dispute Resolution
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