Asset Tracing and Enforcement Update: September 2015

Welcome to the latest edition of Osborne Clarke’s Asset Tracing and Enforcement Update.

In this issue we look at recent developments relating to equitable receivership – one of the less well known but potentially very
powerful remedies when it comes to international asset-tracing and enforcement.  This is gaining popularity and judicial support, as a way to enforce against assets that traditional methods may not reach. 

We then look at a recent case involving bribery in Brazil, in which the Privy Council took a pragmatic view on tracing funds through
international bank accounts.

We also highlight two recent international developments: the Hague Convention on Choice of Courts finally comes into force, aiding the enforcement of judgments between contracting states, while the UN Conference continues to make strides to assist recovery involving corruption. 

If you would like to discuss any of the content, please contact one of our experts listed below.

Court appointed receivers: When will equity step in to fill the void?

English law provides a variety of tools to a party seeking to enforce a judgment or arbitral award.  Nevertheless, particularly in an
international context, there will be times when the defendant is determined to resist enforcement and traditional enforcement methods are not sufficient.  In those circumstances, increasingly, parties are looking to the courts to appoint equitable receivers over the defendant’s property. 

Where the court does so, this can be a much more flexible, and effective, means of enforcement.

Two recent English cases consider the use of receivers in relation to a Lichtenstein Foundation and funds held by a third party (where there was no contractual right to repayment).

“Backwards tracing”: An important step forward in tracing funds internationally

In Brazil and another v Durant another, the Privy Council confirmed that backwards tracing may be permitted as a means of asset
recovery, in certain circumstances.  The court took a pragmatic view as to whether funds in Jersey constituted the proceeds of the bribes paid in Brazil.  This was despite technical difficulties in terms of proving the chain of transfers leading to the Jersey bank account. 

In our view, this represents an important step forward, with judges in the highest common law court recognising that courts need to be flexible in applying legal doctrines when faced with complex international structures and frauds.

The Hague Convention on Choice of Courts Agreements: A threat to international arbitration?

On 1 October 2015 the Hague Convention on Choice of Courts Agreements 2005 comes into force, some 10 years after the Convention was concluded.  Initially, the Convention will only have effect between Mexico and EU member states.  If the EU’s accession is followed by a procession of other states, however, the Convention could significantly shift the balance between arbitration and litigation as a forum for resolving international disputes.

The key principles of the Convention are that: an exclusive jurisdiction clause in favour of one contracting state will be respected by
another contracting state; and a judgment given by a court in one contracting state will be enforceable in another contracting state (subject to limited exceptions and formalities for recognising the judgment). 

The US and Singapore have already signed (but not ratified) the Convention, and other countries are considering doing so.  As the
number of contracting states rises, the Convention will begin to make a real difference to the enforcement of judgments between contracting states.

Action taken by UN conference to support asset recovery cases

The ability to recover assets relating to bribery and corruption can vary greatly depending on where in the world the offence takes
place and where any assets are located.  The UN Conference of the States Parties to the United Nations Convention against Corruption has produced a useful digest of global corruption cases, and has highlighted the role that the international
community has to play in supporting the recovery of assets through civil litigation.

Restraining foreign proceedings: Delay at your peril

When one party commences litigation in a foreign jurisdiction, in breach of an arbitration agreement, this can leave the other
party in a difficult position.  Should it enter into those proceedings, if only to contest jurisdiction?  If it does so but loses on jurisdiction, what should it do then?  And what injunctive relief is available in other courts?

In Ecobank v Tanoh, the Court set aside an anti-enforcement action that had been obtained on an ex parte basis.  The judge noted that Ecobank had engaged in the foreign proceedings, to contest jurisdiction, and had delayed in taking any action in
England in the meantime.  He also doubted whether the foreign disputes would have been covered by the arbitration agreement in any event.  The case is a reminder both that any delay in seeking relief from the English Courts can be costly, and that an arbitration clause may not cover all forms of dispute that can arise between the parties.