Asset Tracing and Enforcement Update – January 2015

This issue includes news updates about the disclosure of client/lawyer communications in cases of fraud, and about changes to European rules on jurisdiction and enforcement, which came into effect in the New Year. 

Disclosure of lawyer/client communications: English court considers whether privileged documents should be disclosed under the “iniquity exception” – JSC BTA Bank v Ablyazov

Communications betweena client and its lawyer for the purposes of litigation or the giving or receiving of legal advice are confidential and privileged under English law. There are very few exceptions to this important principle. One such exception may arise where the legal advice or purpose of the litigation itself are to pursue a fraud or crime. In such a case an English Court may conclude that communications between lawyer and client that further the fraud, crime or iniquity are not protected by privilege. Known as the “iniquity exception”, this means that the court may order that the relevant client/lawyer communications should be disclosed in litigation.

After a careful analysis of the relevant law, Popplewell J came to this conclusion in the latest Ablyazov judgment. In the long-running action brought by the claimant Kazakh bank, BTA Bank sought more information on the whereabouts of assets from the main defendant and his lawyers to support enforcement of judgments totalling in excess of US$4.6bn.

The judge found that certain communications between Mr Ablyazov and three of the law firms that had acted for him in the main litigation were an “abuse of the normal solicitor/client relationship” and so the “iniquity exception” applied to them. As a result, all communications between solicitor and client would need to be located, and reviewed, with any relevant communications to be handed over to the Bank’s lawyers. This huge and costly exercise was to be incurred at the expense of the defendant. It could potentially be of great benefit to the Bank but, as the current and former solicitors for Mr Ablyazov argued, it might not. The judgment, although contentious, demonstrates just how far the English court will go to help a judgment creditor dealing with an evasive and habitually dishonest debtor, to enforce a judgment or award.

Changes to the EU ‘Brussels Regulation’ on jurisdiction and enforcement: 10 January 2015

From 10 January 2015, a new regulation replacing Council Regulation (EC) 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (the Brussels Regulation) came into force. There
are five main changes to the existing rules and these changes reflect
widespread complaints about the problems of the previous regime. In summary, these changes are:

1. Far more limited scope for abusive ‘forum shopping’ where there is an exclusive jurisdiction clause

2. Jurisdiction agreements entered into by two non-EU parties will now be given greater protection

3. New discretion to stay proceedings in the EU in favour of proceedings in a non-EU state 

4. Expansion of the arbitration exclusion to protect arbitral processes

5. The automatic recognition of judgments of other member states, including ex-parte orders

These changes are significant and are already influencing how we advise clients on international litigation and enforcement strategy. Of particular relevance for parties seeking to enforce EU judgments in other EU jurisdictions is the fact that ex-parte interim decisions are to be enforceable under the new regulation (unlike previously) if proof of service of the judgment on the respondent is provided.

This will be a significant change in respect of cases where service can be effected quickly but will be less significant where service abroad will be time-consuming.

However, attempts to freeze Swiss bank accounts will not be affected by this
change since the Lugano Convention (which covers Switzerland, Norway and
Iceland) has not been amended. 

Assumptions about where companies are registered: don’t believe the name! 

A recent article in the Financial Times has highlighted an interesting trend for certain companies to project “dummy” nationalities. When we try to work out
where companies are registered, we almost always start by looking at the name; and it is all too easy to assume that a company with “GmbH” in its
name is German, for example.

However, in a recent investigation into short-selling of shares issued by Quindell plc (a UK AIM traded company), it was discovered that the companies a hedge fund used to hold the short positions had “GmbH”, “NV” and “SL” in their names, so when the market tried to work out who was behind these companies, they looked at German, Dutch and Spanish company registries. In fact, they were all Cayman companies whose names simply incorporated those acronyms as a ruse. In many countries, there’s nothing to stop companies doing this in order to make it harder for them to be tracked down. Don’t let yourself be be tricked!

Our growing international enforcement and asset tracing team

We are pleased to announce that Chris Wrigley, an experienced English lawyer from Freshfields Bruckhaus Deringer, has recently joined Osborne Clarke’s disputes team. Chris adds to our depth of asset tracing experience, having acted for the Receiver in the Ablyazov litigation. Andrew Bartlett, who heads our asset tracing team, was previously instrumental in the first ever worldwide receivership orders granted by the English court in the long running Masri v CCC litigation.