The Fundamentals Of A Civil Asset Recovery Action - Part 1

Article by Martin

Kenney & Elizabeth

O'Brien

"Fraud is infinite in variety; sometimes it is

audacious and unblushing; sometimes it pays a sort of homage

to virtue, and then it is modest and retiring; it would be

honesty itself if it could only afford it."

Per Lord MacNaughten in Reddaway v.

Banham [1896] A.C. 199 at 221.

Selecting the Place of Judgment.

In constructing a model to recover concealed assets that

have been fragmented, camouflaged and moved to the four corners

of the earth, the selection of the location of the principal

proceedings represents an issue of signal importance. Any

judgment that might be obtained ordering an apparent dishonest

obligor to pay will not be recognised or enforced in the

jurisdictions where the fructus sceleris (the fruits

of the fraud) have been reposed, unless the court which grants

the principal award can be shown to have had sufficient in

personam (or personal) jurisdiction over the judgment

debtor to meet the high standard of review that is generally

applied by foreign courts and tribunals, when asked to

recognise a judgment of a court of a foreign sovereign.

A judgment will, subject to some basic requirements, almost

universally be enforced abroad if it can be demonstrated that a

defendant (a) was resident in the country of judgment at the

time that the proceedings were instituted, (b) was served with

process while he was physically present within the court's

territorial jurisdiction, (c) submitted to the jurisdiction of

the court by voluntarily appearing in the proceedings (e.g. by

filing a Notice of Appearance or an Answer or Statement of

Defence), or (d) entered into a contract prior to the

institution of the proceedings which gave rise to the judgment,

agreeing to submit to the jurisdiction of the court in

question. These principles are far more constrained or narrow

than the rules governing the limits of a court's powers

over foreign defendants in a domestic litigation. For example,

long-arm jurisdiction in the United States affords

extra-territorial judicial power over foreign defendants who

may have been participant in a wrong that has caused injury in

the United States - as long as they also have had minimum

contacts with the American court's territory sufficient to

meet the due process standards expressed by the United States

Supreme Court in International Shoe Co. v. Washington

326 U.S. 310 (1945).

Similarly, British Commonwealth courts apply the notion of

'extended jurisdiction.' This notion permits the court

to exercise its power over defendants who are abroad when it is

deemed appropriate for a trial to take place locally (e.g.,

where a claim is founded on a tort and the damage was

sustained, or resulted from an act committed, within the

jurisdiction of the local Commonwealth court).1 It

is interesting that courts enjoy more generous jurisdiction

over foreign defendants in respect of domestically venued civil

proceedings - in contrast with the more conservative and

narrow approach used to assess whether a foreign country's

court had sufficient personal jurisdiction over a judgment

debtor, for a foreign judgment to be enforced locally.

2

This point is borne out in the United States in Hunt v.

BP Exploration Co. (Libya) Ltd., 492 F. Supp. 885, at

p.895 (ND Tex., 1980); citing Cherun v. Frishman, 236

F. Supp. 292, at p.296 (DDC 1964). Hunt reaffirms that

American courts "require for recognition of the legal

effect of foreign judicial proceedings that the foreign courts

have jurisdiction, not as measured by the standards abroad but

as measured by their own conception of what falls within the

scope of permissible exercise of judicial power." See

also, Reese, "The Status in this Country of

Judgments Rendered Abroad," 50 Colum. L. Rev. 783, at

p.789 (1950).

Similarly, in England and Wales, this same inconsistency

between how broadly an English court views its powers in taking

jurisdiction over a foreign defendant, in contrast to how it

views the same question when considering the enforceability of

a foreign country's judgment, endures:

"A fundamental requirement for the recognition or

enforcement of a foreign judgment in England at common law is

that the foreign court should have had jurisdiction according

to the English rules of the conflict of laws. "All

jurisdiction is properly territorial," declared Lord

Selborne [in Sirdar Gurdyal Singh v. Rajah of

Faridkote [1894] A.C. 670, 683-684 (P.C.)], "and

extra territorium jus dicenti, impune non

paretur...In a personal action, ...a decree in

absentem by a foreign court, to the jurisdiction of

which the defendant has not in any way submitted himself, is

by international law an absolute nullity. He is under no

obligation of any kind to obey it; and it must be regarded as

a mere nullity by the courts of every nation, except (when

authorised by special local legislation) in the country of

the forum by which it was pronounced.""

3

Once the question of jurisdiction has been considered, there

are other issues that should be canvassed before concluding

where the principal asset recovery proceedings should be

venued. Obviously, it would be seriously problematic to select

a forum for the launch of the centrepiece litigation - if

any judgment that might be derived therefrom would not be

recognized in the countries where the debtor's assets are

reposed. In broad terms, and in addition to the issue of

sufficiency of jurisdiction of a court over the primary

defendant, for a judgment to be recognised abroad, it:

must be final and conclusive; 4

must not have been obtained by fraud; 5

must not be contrary to the public policy of the court

that is asked to enforce it (e.g. where the underlying cause

of action or judgment is repugnant to fundamental principles

of local public policy); 6

must not have come from a process which was contrary to

the principles of natural justice (which is the formulation

used by English courts),7 or from one where there

was a lack of fair procedures used in the grant of the

judgment (the U.S. formulation); 8 and

in some civil law countries such as Spain, historically,

the holder of a foreign country judgment must establish,

through the introduction of objective proofs, that the court

in the country which granted the award has recognised

judgments deriving from, in this example, Spain. Restated,

reciprocity of treatment is sometimes required as an element

of proof in some especially Spanish-civil law jurisdictions.

9

The Harmonization of Multiple, Concurrent

Proceedings.

The next issue that needs to be considered when designing

the model for the launch of multi-jurisdictional proceedings to

recover assets in the context of a serious fraud, is how

multiple litigations are to be managed and harmonised so that

they might achieve the disparate objectives set for each

satellite proceeding, as they relate to the principal (or

plenary) action.

In a pre-judgment context, multi-jurisdictional litigations

designed to recover the proceeds of fraud are ordinarily

launched in three waves, some of which may over-lap and be run

concurrently with the other:

Pre-emptive discovery litigation to compel the disclosure

of confidential records under court-sanctioned seals and

gags;

Pre-emptive asset freezing or preservation litigation;

and

The principal or centrepiece proceedings to obtain a

final and conclusive judgment capable of being enforced in

each of the jurisdictions where assets have been preserved by

judicial decree, abroad.

The old rule in the English speaking world was that courts

had no power to arrest or preserve assets before judgment in

stand-alone (or non-plenary) proceedings. Ordinarily, a

claimant would need to first launch a traditional law suit

before an Anglo-American court would consider itself able to

freeze assets pending the outcome of a final adjudication of

the merits of a claimant's substantive claim. Once a law

suit was commenced, a plaintiff could bring, in America, an

ex parte motion for a temporary restraining order

leading to a preliminary injunction freezing assets, or, in the

British Commonwealth, a Mareva-type injunction

designed to accomplish the same end. Thus, historically, in the

English speaking world, there was no way to freeze assets

provisionally or pre-emptively, without launching a full-blown

law suit, locally, where the asset sought to be preserved was

situated.

In contrast, in civil law countries such as Switzerland,

this has not been the case. Courts in the Cantons of Geneva or

Zurich have the power to issue orders of asset arrest that are

purely satellite to an outstanding foreign civil litigation on

the merits. The usual standard of review and requisite proofs

with respect to freezing assets under Swiss law must be met and

established (requiring, for instance, a prima facie

showing of an obligation owed by a defendant). However, the

mere fact that no adjudication of the merits of a dispute will

take place in Switzerland, will not act as a barrier to

obtaining a Swiss asset freeze.

In the United States, if an obligation can be properly

characterized as a debt (over which there is no genuine dispute

that can be raised to defeat it), State pre-judgment attachment

statutes afford a satellite remedy to a plaintiff who might

commence a principal proceeding elsewhere. Thus, a debtor with

assets in multiple states can have those assets attached,

pre-judgment, under State statutory law, pending the outcome of

primary proceedings venued in another part of the country.

Otherwise, to freeze assets before judgment in America, an

interlocutory application must be brought within the context of

a full-blown litigation.

In Europe, the Brussels Convention of 1968 and the Lugano

Convention on Jurisdiction and the Enforcement of Judgments in

Civil and Commercial Matters provide the rules governing

jurisdiction of European courts to grant satellite (or

stand-alone) provisional remedies to claimants who may have

launched a primary litigation in another Lugano or Brussels

Convention...