Cross-Border Asset Tracing and Enforcement Update – October 2014

Recovering bribes from corrupt agents – FHR European Ventures v Cedar Capital Partners LLC

In the past, there has been much debate under English law as to whether an dishonest employee/agent of a business who accepts a bribe holds the money representing the bribe on trust for the business/employer or whether the business simply has a claim for compensation against the agent. This distinction is particularly important because if the bribe is held on trust for the employer, the employer has a proprietary right over the bribe and his rights take precedence over unsecured creditors and subsequent floating charges in the event of insolvency.

In addition, if a claimant has a claim to recover a proprietary interest, there is no time bar on claims whereas claims to recover damages are subject to time limits.

In the recent case of FHR European Ventures v Cedar Capital Partners LLC [2014] UKSC 45, the Supreme Court ruled unanimously that secret commissions and/or bribes are held on trust for the principal – that is, the principal/employer has a proprietary interest in the funds representing the bribe/commission. This is an important step forward in assisting businesses trying to recover bribes received by employees and agents and it appears to be based as much on grounds of public policy as on pure legal analysis. Parties should bear this helpful decision in mind when seeking to recover the proceeds of bribery/fraud where it can be argued that English law applies. However, despite clarifying the position under English law, this decision may give rise to further questions in the context of international recognition and enforcement.

DIFC proposal to enforce local judgments as arbitral awards

The Dubai International Finance Centre (DIFC) has recently consulted on an innovative proposal which seeks to make enforcement of DIFC court judgments around the world as straightforward as international arbitral awards. The proposed practice direction would allow a party which was unable to enforce a DIFC judgment to refer the matter to the LCIA in DIFC as a “dispute”. Any resulting award of the judgment sum by the LCIA-DIFC would then have the status of an arbitral award and thus within the New York Convention regime which provides for the enforcement of international arbitral awards in all 149 signatory countries.

However, the short-term practical effect of the proposal will not be significant since, in accordance with the New York Convention, the proposal envisages the parties agreeing in writing to refer the enforcement dispute to the LCIA. Securing such agreement from the debtor after a judgment seems unlikely. It therefore seems likely that the DIFC intends that parties will incorporate such an agreement into the dispute resolution provisions of the original contract. We have not seen any proposed wording but it is undoubtedly an interesting idea.

This proposal highlights the efforts that regional dispute resolution centres are going to in order to compete for international disputes, and recognises that enforcement is key to a choice of jurisdiction. That said, the ability to obtain injunctive relief in support of enforcement is also very important, and in this regard the choice of the courts (or arbitration) in a mature common law system continues to give claimants a significant advantage.

“Extending” the period for enforcement in England & Wales

A recent English case has confirmed the principle that judgment debtors should not be able to avoid enforcement simply by resisting payment until the judgment has passed its limitation date.

In Habib Bank Limited v Central Bank of Sudan [2014] EWHC 2288, the claimant bank had tried unsuccessfully to enforce a June 2006 judgment against foreign assets of the debtor for almost 6 years. In 2012, a few days before the 6-year limitation on judgments expired, Habib issued a fresh claim for the judgment debt (which was for over £100 million plus interest).

The High Court judge rejected the argument that such a claim was an abuse of process. In his decision the judge referred specifically to the fact that the 2012 claim was “necessary” to allow the claimant to maintain his right to the judgment debt beyond the 6-year point and said that “the course now taken [was] proper”.

One caveat should be noted. The judge noted that the claimant had expended “enormous efforts” in trying to enforce the judgment, so a simple failure to take steps might well not be treated the same way by the courts. The order granted also required the claimant to obtain further permission from the court to enforce against specific assets identified in future. This safeguard allows the court to ensure that they were genuinely newly discovered, rather than known assets which the claimant had been dilatory in pursuing.