James is a Partner and Head of the Dispute Resolution team and primarily handles commercial…View Profile View all
The High Court has considered a case where companies against which a substantial judgment had been obtained had their assets stripped by the defendant who used the companies, incorporated in the British Virgin Islands, as vehicles for foreign exchange trading. The claimant sued the companies and in July 2013 a draft judgment was circulated by the trial judge which showed that the claimant had succeeded in a claim for over $5 million. The judgment was formally delivered by the Judge on 26 July 2013 and a Freezing Order was made on 14 August 2013. The companies gave disclosure of their assets under the Freezing Order which amounted to $4,392.48. It was subsequently established that after the draft judgment was circulated, the defendant procured the transfer of over $9.5 million out of the companies’ accounts held in England and then out of the companies altogether and into his personal control.
The claimant brought a claim against the defendant for damages claiming that he had induced or procured the violation of its rights under the judgment and/or for intentionally causing loss to it by unlawful means by stripping the assets out of the companies.
The defendant denied the existence of a claim for inducing or procuring another to act in wrongful violation of rights under a judgment. He argued that the claimant had rights in contract up to the date of judgment and rights in the judgment afterwards; whilst non-payment of a contract debt would be an actionable wrong, non-payment of a judgment debt was not. The claimant argued that this cause of action had first been recognised in the mid 19th century and argued that the existence of such a claim would be unsurprising given that a claim is recognised where the violation is of rights in contract. The defendant argued that there was nothing wrong in the debtor making itself “judgment proof” by dissipating assets before it is prevented from doing so by a Freezing Order. The Judge said that might be the case where there was no judgment but in this particular case the claimant had a contractual right to be paid and thereafter a right to be paid under the judgment. The Judge said that here dissipation and non-payment were the same; the defendant’s objective was the wrongful non-payment of the judgment debt and the dissipation of assets was undertaken to bring about that objective.
While both sides accepted that a claim for intentionally causing loss by unlawful means can exist, the defendant said what had been done was not unlawful for the purposes of such a claim. The claimant argued that breach of fiduciary duty by the defendant, breaches of the relevant laws in the British Virgin Islands and theft of the companies’ assets would count as unlawful means for the purpose of the claim. The Judge agreed.
The defendant also argued that the claimant could not succeed in a claim because it was the companies that had suffered a loss by the defendant’s breach of duties owed to them and only the companies could sue for that lost. The defendant argued that neither a shareholder or any other person could pursue a claim where it was simply reflective of the companies’ loss. The Judge disagreed finding that the principle upon which the defendant relied did not apply where the claimant sued for knowingly inducing and procuring a third party to act in wrongful violation of the claimant’s rights or for a defendant intentionally causing loss to the claimant by unlawful means.
The case is important because it shows that deliberate dissipation of a judgment debtor’s assets may give rise to a cause of action and thus may be of assistance to the enforcement of judgments in some cases.
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