Enforcement strategy should always be considered before proceedings are started. Otherwise, you risk investing a substantial amount of money in litigation or arbitration, only to realise that despite having the judgment, you can never actually get any money from your opponent.
This article starts by outlining possible steps you should consider before commencing proceedings. It then deals with post-award / post-judgment enforcement mechanisms available in England and Wales.
Where are the assets?
Before starting proceedings, you should identify your opponent’s assets. In some cases, this may be simple: you may know where your opponent trades, where it has money, where it has its goods, who it is trading with and so forth.
In other cases, it may be more difficult. Your opponent may be a small company registered in an opaque jurisdiction and without much internet presence. What do you do then?
Firstly, this may be self-evident, but you have to do a Google search on your opponent. You may discover that your opponent is in the news for certain lucrative transactions or that it has defrauded multiple other counterparties. Either way, it might give you an idea of what it is currently doing, whether its reputation is important to it, or whether it is simply in-existent on the web and is a mere shell.
Secondly, ask around about your opponent on the market. Is it well known? Does anyone else have problems with it? What is it doing? It may be that someone is contemplating criminal or insolvency proceedings against your opponent or its related companies. Often, as part of those proceedings, you may be able to get access to your opponent’s internal documents (it is routine for prosecutors and bankruptcy officials in Switzerland to disclose the documents to third parties with a legitimate interest in them). This, in turn, might give you an understanding of your opponents’ current financial state, whether or not it has dissipated or is likely to dissipate it assets and how its assets are being dissipated.
Thirdly, run detailed research on your opponent using corporate databases. Multiple databases are available. Some examples are:
These are usually paid databases. However, their advantage is that they crawl through multiple national corporate registries and can often provide you with company information (including corporate structure, directors, accounts and UBOs) in one click. If you do not have access to one of these, ask your lawyers if they do.
Alternatively, depending on the jurisdiction of incorporation, you may be able to find information on your opponents in national corporate registries, which are often free to access. The Companies House in the UK (www.gov.uk/government/organisations/companies-house) provides information on the date of incorporation, status, significant control of the company and has copies of accounts filed by UK companies. Other registries, especially in offshore jurisdictions, provide much less information. But you can often get details which are not publicly available if you call them and pay certain registry fees.
Fourthly, you may consider hiring an intelligence agency. If they are good, there is plenty of information they may be able to obtain entirely legally. Try speaking to Team Savante (www.teamsavante.com). If you are focusing on a specific region, see if there are intelligence agencies that specialise in that region. There may be international agencies with contacts virtually everywhere. Or there may be local agencies which, if you can find them on your own, will charge you much less than international teams.
Finally, consider if there are specialists who could help you do more in-depth internet research or to use special software to help you to identify the information you need. There are agencies who, using social media and closed databases, could draw relationship charts for you, identifying who is doing business with whom. There is an organisation called Grey List Trace, which can locate bank accounts of a person or a company using their email addresses (www.greylisttrace.com). They bounce a person’s email against spam filters of some 150 thousand banks worldwide and, depending on the filter’s response, they can tell you whether the person had communications with any given bank. They can also identify whether any given two persons exchanged emails between them, which is often helpful in criminal proceedings where two people deny knowing each other.
Taking steps to preserve assets
Once you have identified the assets, and before starting proceedings, you may want to take steps to preserve them. There are several ways to do so. Which one would be the most appropriate depends on the context in which you operate.
If you have a contract to purchase specifically identified goods and have title to those goods, but someone is trying to misappropriate them, you may want to freeze/attach those specific goods. You may either do this in the jurisdiction where the goods are located via local Courts, or you may do this in English Courts provided that they have jurisdiction to determine the underlying dispute, or the underlying dispute is subject to the jurisdiction of an arbitral tribunal seated in England.
To do this, you do not usually need to demonstrate a risk of dissipation on the part of your opponent. All you have to do is show that your goods are likely to be interfered with. For example, you may have evidence that someone is trying to sell your goods the second time round, or that someone is redirecting railway wagons with your goods in a different direction. These freezing/attachment orders are usually quick and relatively easy to obtain. In England they can be obtained within hours after an appropriate application is filed with the Court, even during weekends and during the night.
If your goods are being transported by ship and you have a maritime claim (such as a claim for damage to goods during a sea voyage or unlawful discharge of the goods) you may want to arrest the ship in support of your claim against the shipowner. If you have good grounds for the arrest, then normally to release the ship the P&I club will provide you with a guarantee that you will be paid the sums due to you once your claim succeeds in Court or in arbitration.
If you have details of the bank account of your counterparty, you may freeze it in the jurisdiction where it is located. The procedure and requirements for doing so vary depending on jurisdiction. In some jurisdictions, the Courts simply need to verify that you have a good arguable case and will then freeze the account without exceptions. In others, you will have to demonstrate a serious risk of dissipation before the Court freezes the account, and the freezing order will be subject to multiple exceptions allowing the respondent to conduct ordinary business, pay legal fees and (for individuals) cover reasonable living expenses. In some jurisdictions, it may not be possible to freeze an account at all. For example, in Switzerland, there is a law effectively prohibiting local Courts from freezing accounts of Swiss-registered companies in support of either Swiss or foreign proceedings against them.
What if you cannot find any assets?
Worldwide freezing and disclosure orders
If you cannot find any specific assets, but you have evidence that your counterparty has been hiding its assets in the past or it is otherwise behaving dishonestly, you may be able to apply for a worldwide freezing injunction and an accompanying disclosure order to the English Courts.
The consequences of such an order are as follows:
- the respondent cannot dispose of its assets or diminish their value below a specified limit (usually the value of your claim plus interest and legal costs to completion of the claim);
- the respondent must disclose all its assets beyond a specified limit (usually above GBP10,000-GBP20,000) which the respondent controls indirectly and over which he has control even though they are not registered in his name – money on bank accounts, cars, real property, shares, rights to call for disbursement under loan agreements, money on lawyers’ client accounts are all disclosable assets;
- there are exceptions to the order: usually the respondent may pay reasonable legal fees to defend the claim from its assets, however before doing so it is obliged to inform the claimant’s solicitors and tell them where the assets are coming from;
- another exception is that the respondent may use its assets in the ordinary and proper course of business, such as to pay salaries of its existing employees, pay office rent, utility bills and so forth – this exception may be narrowed down where you have a respondent who dissipates assets by specific mechanisms which he tries to portray as ordinary and proper course of its business;
- if the respondent breaches the freezing order or the order to disclose its assets, he (where the respondent is an individual) or its directors/shadow directors (where the respondent is a company) may be pursued for contempt of Court – sanctions for contempt in these circumstances may range from a short suspended prison sentence to a custodial sentence of up to two years.
The essential issue for the court to consider when deciding whether to grant a worldwide freezing order is whether it appears to the court that it is “just and convenient to do so” (section 37(1), Senior Courts Act 1981). It has been clarified in authorities that in order to obtain a worldwide freezing and disclosure orders, you have to meet the following test:
- The claimant should have a pre-existing cause of action with a “good, arguable case”. In other words, the case must have a strong basis and be likely to stand up to scrutiny. It does not have to be fully proven at the outset; it just has to have potential.
- The English court should have jurisdiction to hear the substantive claim or have a statutory power to grant the order. If there is an English law and jurisdiction clause in the contract this will be enough to prove jurisdiction.
- Assets should exist in respect of which there is a real risk of dissipation. This can be demonstrated by reference to the respondent’s prior conduct. Fraudulent conduct is generally sufficient to demonstrate a risk of dissipation.
- The claimant needs to provide an undertaking in damages, i.e. a promise by the claimant to compensate the defendant for any damages that may result if it turns out that the freezing injunction was obtained wrongly. Often, the undertaking needs to be fortified, meaning that an amount of funds must be deposited in Court as a guarantee for the claimant’s performance of the undertaking.
Norwich Pharmacal orders
If you suspect that the information about assets you are looking for is in the hands of a third party (and may not be disclosed by the respondent in response to a worldwide freezing / disclosure order), you may apply for what is called a Norwich Pharmacal order (or “NPO”) against the holder of the information.
NPO is a disclosure order available in England and Wales, which allows an applicant to seek disclosure from an innocent third party where that party has useful information about a respondent to your claim. NPOs are named after the House of Lords decision in Norwich Pharmacal v Customs and Excise Commissioners  AC 133.
NPOs are often used where a victim of wrongdoing does not know the identity of the wrongdoer or the location of misappropriated assets but can point to a third party that does. NPOs can provide access to vital information necessary to pursue a claim, which otherwise would be hard for applicant to obtain. Organisations like banks, internet service providers and mobile phone networks often have a considerable amount information about their users that may be highly relevant for some claims. Often these organisations will not simply hand over this information because of concerns about customer confidentiality and data protection, but they will comply with a court order directing them to give applicant access to such information.
An applicant who obtains information by means of the NPO may as a rule use it only in connection with the proceedings in question. The applicant will need to seek the court’s specific permission if it wishes to use the disclosure for any other purpose.
In order to obtain a NPO, the applicant needs to show the following:
- There is a good arguable case that there has been a wrongdoing.
- The applicant needs the order to act against the wrongdoer. It must be a just and proportionate response for the respondent to provide the information, rather than requiring the applicant to obtain the information through other means.
- The respondent has been ‘mixed up’ in the wrongdoing. It means that NPO can only be obtained against someone whose involvement in the wrongdoing goes beyond being a ‘mere witness’ to the wrongdoing.
- The respondent is likely to have relevant documents or information to provide.
- Granting the order is necessary and proportionate.
NPO may be obtained either during existing proceedings or, as it happens in most cases, in anticipation of new proceedings.
The court application will be determined by the judge at a court hearing or on paper. It may be made on notice to the respondent to give it an opportunity to confirm its position ahead of the court hearing, or without notice.
Even if notice is given to the respondent, consideration should be given to whether there is a need to prevent the wrongdoer finding out about the proceedings and any order made.
One of the remedies to make sure that the party will not find out about the NPO is a gagging order. Gagging orders prevent the respondent, for a certain period of time, from telling anyone other than its lawyers about the proceedings or the fact that the NPO has been made.
Arbitral awards – recognition in England and Wales
Arbitral awards are relatively easy to recognise in England and Wales. The winning party has to file an arbitration claim form with the Commercial Court, accompanied by the relevant evidence. The application is without notice, i.e. it is not necessary to alert the respondent to your Court application. The Court usually makes the order without a hearing. The Court order usually provides that the arbitration award is recognised and that an English Court judgment is entered in terms of the arbitration award. This then gives the winning party access to various English enforcement mechanisms (with some exceptions) as if the party were trying to enforce an English judgment.
A very important thing to note is that recognition of an arbitration award requires that you file an original of the award and the arbitration agreement with the Court. Therefore, if you have an arbitration clause in your contract, make sure that you ask your counterparty to send you an original to avoid problems with enforcement down the road. If you do not have an original, you may still be able to enforce, but it may take much longer and you might then need to take additional steps, such as asking the arbitral institution to confirm that your opponent voluntarily participated in the proceedings and did not challenge jurisdiction.
Prior to enforcing the judgment, the respondent has to be properly served with the recognition order and must be given an opportunity to object to it. Objections can only be made on limited grounds listed in the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which are beyond the scope of this article. These are, in summary:
- the arbitration agreement was invalid;
- the respondent was not notified of the arbitral proceedings or appointment of the Tribunal;
- the award goes beyond the dispute submitted to arbitration;
- the composition of the Tribunal was not as envisaged by the arbitration agreement;
- the award has not yet become binding, is set aside or suspended;
- the subject matter of the dispute is not capable of being settled by arbitration according to the law of the relevant country; and
- recognition and enforcement of the award would be contrary to public policy.
Judgments – recognition in England and Wales
If you need to recognise a foreign judgment in England, the way you do so will depend on the origin of the judgment and the matters which it resolves. There are two important distinctions.
Firstly, there are judgments issued in the Commonwealth and in countries with which the UK has mutual recognition and enforcement treaties, and there are judgments issued elsewhere. Commonwealth judgments are normally enforced pursuant to English domestic statutes. Judgments originating in countries with which the UK has special conventions are enforceable pursuant to the terms of those conventions and UK domestic laws implementing them. The recognition procedure is generally simple. The judgment creditor applies to Court without notice seeking recognition of the judgment. If the judgment is recognised, this must be notified to the judgment creditor, who then has an opportunity to challenge recognition. Recognition may only be challenged on very limited grounds.
Where a judgment is issued outside of the Commonwealth or a country which is, together with the UK, party to a convention on recognition, then the enforcement process becomes more difficult. It is governed by the common law regime in the UK, which essentially means that (i) the judgment must be for a debt of a definite sum of money; (ii) the foreign Court which had issued the judgment had jurisdiction according to the rules which the English Court would apply to determine jurisdiction; (iii) fresh proceedings must be brought in England in order to have the judgment recognised, although it may be possible to speed up those proceedings by seeking a summary judgment; (iv) enforcement costs may not be recoverable.
The second important distinction is the subject matter of the judgment. Even if the judgment is issued by a state with which the UK has a recognition convention, or a Commonwealth country, it may not be recognisable under the statutory or convention regime if it does not fall within the scope of the statute or the convention. For example, the Hague Convention deals with judgments in civil and commercial matters. Therefore, for example, family judgment will not be enforceable under the Hague Convention. Under the statutory regime, it is possible to enforce a judgment for a sum of money made, for example, in the BVI. However it is not possible to enforce an injunction made in the BVI, even if it is made in a civil matter.
Post-judgment freezing and disclosure orders
Once you have your award or judgment recognised, you may seek the English Court’s assistance to enforce it.
The first thing you might want to consider is to seek a post-judgment freezing and disclosure order. A post-judgment freezing order is easier to obtain than a pre-judgment order, because there is no longer an issue of whether or not you have a good arguable case and whether or not the Court or the arbitral Tribunal have jurisdiction. Further, in the course of the underlying proceedings, you may have obtained further evidence of the risk of dissipation.
Where your underlying arbitration or litigation was in England, you can obtain a worldwide freezing and disclosure order to assist you with enforcing your judgment. Where your underlying arbitration or litigation took place elsewhere, you may also obtain a freezing and disclosure order, but it will then be limited to England and Wales.
Attendance of Court for questioning about the judgment debtor’s assets
The English Court has the power to order that the judgment debtor attend Court for questioning about its assets. There is a standard list of questions which may be asked of the judgment debtor, which includes questions about its bank accounts, properties, securities, cars, debts, salary payments and so forth. The judgment debtor is obliged to attend Court and answer the questions on oath. This means that if it is lying about its assets, it may be liable for contempt of Court or perjury. If it does not attend, the Court will almost automatically make a suspended committal order against the judgment debtor or its directors.
Contempt and perjury are discussed below, but in essence the difference is that while contempt is a civil offence leading to a prison sentence enforceable in England and Wales only, perjury is a criminal offence potentially enforceable in other jurisdictions by means of an Interpol notice or requests for extradition.
The English Court’s jurisdiction to order attendance for questioning is limited to individual judgment debtors and directors of English companies. There is no jurisdiction to order attendance by a director of a foreign company.
Third-party debt orders
Where a judgment creditor has a judgment against a judgment debtor, and the judgment debtor is owed money by a third party, the judgment creditor can ask the Court to order that the third party pay directly to the judgment creditor. This order is called a third-party debt order (“TPDO”).
Thus, if party A has a judgment against party B, party B does not pay it, and party C owes money to party B, party A can go and seek to recover the judgment directly from party C.
This will then satisfy, simultaneously, the third party’s debt to the judgment debtor and the judgment debtor’s debt to the judgment creditor.
The judgment creditor may seek a TPDO in relation to a sum of money which is payable or will become payable in the future by reason of a present obligation.
English Courts have jurisdiction to make a TPDO if the third party is an English resident and if the assets owed to the judgment debtor are situated in England. Where assets are not situated in England, English Courts may still make a TPDO against an English resident provided that (i) an English TPDO would be recognised in the jurisdiction where the assets/debt owed by the third party is located; and (ii) where there is no risk that the third party would be ordered to pay the debt twice (i.e. once to the judgment creditor and thereafter also to the judgment debtor).
A jurisdiction clause in the contract between the judgment debtor and the third parties which provides for the exclusive jurisdiction of foreign Courts (i.e. Courts outside of England and Wales) does not automatically deprive the English Court of jurisdiction to make a TPDO.
Here is an example of where TPDOs could be made in England. A judgment creditor has a judgment against an Iraqi state company. The Iraqi state company sells oil and receives payments by a letter of credit opened with an English branch of a French bank. The English Court may order that the money which the bank is obliged to pay to the Iraqi company be paid instead to the Swiss judgment creditor thus satisfying the bank’s liability to the Iraqi company and the Iraqi company’s liability to the judgment creditor.
If you have a judgment and it cannot be enforced by any other method, you can ask the English Court to appoint a receiver by way of equitable execution. His functions are analogous, in some way, to those of a liquidator in the insolvency context. An advantage of this mechanism, however, is that a company need not be placed in liquidation in order to appoint a receiver. This may be contrasted with the approach taken in many civil law systems, where one cannot collect a debt from a company without placing it into insolvency first.
A receiver can get or manage the debtor’s property so as to ensure that the judgment debt is satisfied. A receiver can also make inquiries as to the debtor’s assets and demand that the debtor or its directors provide documents that would help locate the relevant assets. Where the receiver requests documents from the debtor, but the debtor fails to provide them, the receiver (or the creditor’s solicitors together with the receiver) can seek an injunction to compel the debtor’s directors to comply. As set out below, failure to comply with an injunction can lead to committal orders (i.e. prison sentences) against the debtor’s directors.
A charging order is a court order allowing the judgment creditor to secure the judgment debt. The existence of a charging order does not mean that the creditor can obtain their judgment sum immediately. However, the order may secure it for the future. The court's power to make a charging order over a judgment debtor's property derives from section 1 (1) of the Charging Orders Act 1979 (COA 1979).
Any interest held by the debtor beneficially may be charged, under any trust or in the assets set out in section 2 of COA 1979, up to the amount of the judgment debt including interest and costs. Among such assets are:
- Securities of: government stock; stock of any body (other than a building society) incorporated in England and Wales; stock of any body incorporated outside England and Wales or of any state or territory outside the UK being stock registered in a register kept at any place within England and Wales; units of any unit trust in respect of which a register of the unit holders are kept at any place within England and Wales.
- Funds in court;
- Dividends and interest payable in respect of securities or funds in court.
There are three stages to this method of enforcement:
- Interim charging order;
- Final charging order;
- Subsequent order for sale.
Obtaining a charging order is a two-stage process:
- The creditor applies for an interim charging order. A charge is imposed over the judgment debtor's interest in the asset or assets to which the application relates. The order (and application documents) should be served on various people and the charge may have to be registered to be effective.
- The creditor applies for a final charging order. The effect of a final charging order is that 1) the interim charging order continues (with any amendments the Court may decide to make), and 2) the judgment debtor's interest in the property subject to the order is charged with payment of the sum owing under the judgment debt, interest and the costs of the application.
- Depending on the nature of assets, a further application may need to be made for an order for sale, to realise the asset subject to the charge and obtain payment.
An application for a charging order can be made at any time after judgment has been obtained and the judgment debt is due and enforceable. The charging order and subsequent order for sale method of enforcement can be used in addition to other methods of enforcement of judgment debts.
Proceedings against beneficiaries for asset stripping / Insolvency Act
Section 423 Insolvency Act 1986 provides that the English Court may unwind transactions entered into at an undervalue and make such an order as it thinks fit to protect the persons who are victims of the transaction. This section applies to companies and persons located in England and Wales, but also to foreign parties where it is established that the undervalue transaction was entered into in order to frustrate enforcement of an English arbitral award or judgment.
This effectively means that if you have a claim against a shell company, and the shell company has dissipated its assets in the course of English proceedings in order to avoid paying, you may be able to claim those assets from the physical persons behind your shell company via English Courts.
Proceedings against beneficiaries / directors for contempt of Court / perjury
You may be able to obtain multiple Court orders to preserve your position, but what happens if your opponent ignores them or, as may be the case with orders requiring information, lies to Court about its assets and financial means?
Failure to comply with a Court order may be tantamount to contempt of Court. This is, what is called, a civil contempt, meaning that while the offending party (or its directors, if it is a company) may receive a prison sentence, that prison sentence will only be enforceable in England, and will not be exportable by way of an Interpol notice or a request for extradition of the offender from a foreign country.
Despite this being civil contempt, the requirements for committal are very strict and committal applications must be prepared very carefully. In view of these requirements, you should consider how you might make a committal application when you apply for the relevant order (e.g. a freezing injunction) in the first place. If your freezing injunction is phrased incorrectly, then you may never be able to obtain a committal order.
The requirements for a committal application are set out in full here: https://www.justice.gov.uk/courts/procedure-rules/civil/rules/part-81-applications-and-proceedings-in-relation-to-contempt-of-court#4. Essential things to note:
- the Court will not make a committal order where it was not clear from the injunction what the respondent had to do or by which deadline, nor will the Court make a committal order where it was impossible for the respondent to do what he was required to do under the injunction – make sure your injunction is worded in such a way as to ensure that a committal application can later be based upon it;
- you must clearly identify how you say your opponent has breached the injunction, which includes identification of the relevant provisions of the injunction, and listing in numbered paragraphs precisely each action (or failure to act) which you say amounts to a breach;
- both the injunction and the committal application must be personally served, unless personal service is dispensed with by the Court – if personal service is dispensed with, you must be able to demonstrate that the respondent knew about the injunction at the time of the breach;
- the injunction must include a penal notice to the effect that if the respondent breaches the injunction, he may be committed to prison for contempt of Court – the penal notice must be prominently displayed on the injunction (i.e. written in bold on the first page); and
- the facts relevant to the breach must be stated in full and in chronological order – once you make the committal application, you cannot add further facts later on.
Committal proceedings are treated as new proceedings in England, which means that an additional Court fee has to be paid and a new claim form has to be issued. They might be relatively short (exchange of witness statements and a hearing). Or they might take 1-2 years, where the Court makes directions for exchange of expert evidence, disclosure and so forth. The maximum sentence for contempt of Court is two years’ imprisonment.
Where a person is required to make a statement under oath (such as when making an asset disclosure under a worldwide freezing and disclosure order) and wilfully makes a statement material to the matter which he knows to be false, he is guilty of perjury. Perjury is a criminal offence which carries a maximum penalty of seven years in prison. As discussed above, a conviction for this offence is exportable, i.e. the English authorities may request that the person who committed it be extradited to England to serve his sentence, and an Interpol notice might be issued such that the offender may be identified and arrested while crossing a border.
While civil contempt carries a weaker penalty, its advantage is that the contempt proceedings are in your hands. Even after you start contempt proceedings, you may still agree a settlement with your counterparty. If you file a criminal complaint for perjury and it is prosecuted, it is effectively out of your hands. The prosecutor may decide to take the matter to Court and seek a conviction even if your counterparty is willing to settle with you.
In Integral Petroleum S.A. v Petrogat FZE, a saga which has led to five reported judgments of the English Commercial Court, Fortior Law’s solicitors represented the Claimant, Integral.
Integral and Petrogat had a contract whereby Integral purchased fuel oil deliverable by railway wagons from a refinery in Turkmenistan. The contract provided for LCIA arbitration in London. The ultimate destination of the cargoes was Georgia. Integral made a partial prepayment for the fuel oil. Petrogat loaded the fuel oil and provided bills of lading to Integral indicating that the cargoes were loaded to Integral and that they were headed to Georgia.
Several days later, Integral’s representatives in Turkmenistan learned that at least some bills of lading have been re-issued without Integral’s consent, and now provided that the cargo was headed to Iran to Petrogat’s other buyer. Despite Integral’s requests, Petrogat refused to redirect the cargo back to its original destination in Georgia.
Pursuant to the contract, Integral received title to the cargo on the railway wagons upon loading. Integral could not immediately identify any other assets which it could freeze. It therefore decided to seek an urgent injunction to restrain Petrogat from delivering the cargoes to Iran and compelling it to issue a letter to the effect that the cargo was Integral’s, which Integral could later use to gain possession of the cargo in Turkmenistan.
Since the matter was urgent, Integral managed to list a hearing at the Commercial Court which took place during at 2 o’clock in the morning on a Sunday. The injunction was issued almost immediately, and was available for service upon Petrogat shortly after the hearing.
Having been served with the injunction, Petrogat took the position that it would deliver to Integral the cargoes covering the exact amount of Integral’s partial prepayment, but would still deliver the rest of the cargoes to Iran to its other buyer. Thus, Integral avoided the likely loss of its prepayment, even though it still lost part of the cargo to which it was entitled and the profits which it would have generated upon resale.
In the LCIA arbitration, the Tribunal ruled that Petrogat had misappropriated Integral’s cargo (the parcel shipped to Iran) and found that Petrogat was liable to Integral for damages and costs. In the course of the LCIA proceedings, Petrogat advanced a counterclaim against Integral asserting that it was somehow Integral’s fault that the entire cargo could not be loaded to it. Integral sought security for costs of defending this counterclaim. To avoid having to provide security, Petrogat asserted that it had several million US dollars in assets and provided extracts from bank statements demonstrating the same.
Despite this, upon the LCIA Tribunal issuing awards against Petrogat, Petrogat said that it could not pay. Integral therefore had to proceed with various enforcement proceedings to recover the sums due to it.
Firstly, Integral applied to have the awards recognised as judgments of the English Court. Integral obtained recognition orders relatively quickly, with accompanying costs orders in its favour.
Secondly, Integral applied for a third-party debt order against the LCIA, which held the parties’ deposits for the LCIA’s and the Tribunal’s costs. The LCIA then transferred the entire amount of the unused deposits to Integral.
Thirdly, Integral applied for appointment of a receiver to investigate the whereabouts of Petrogat’s assets and how it was possible that during the arbitration Petrogat asserted that it had several million US dollars in assets, whereas at the conclusion of the arbitration it had none. The receiver managed to obtain Petrogat’s up-to-date bank statements which showed that an amount exceeding the value of the LCIA awards has been transferred to Petrogat’s affiliated company without any apparent justification.
Fourthly, Integral applied for committal to prison of Petrogat’s de-facto and de-jure directors (two individuals) for shipping part of the cargo to Iran in breach of the initial interim injunction. The Court agreed that they had breached the injunction and made suspended committal orders against them. Integral’s global settlement proposals aimed to avoid committal proceedings remained unanswered (Integral Petroleum SA v Petrogat FZE  EWHC 558 (Comm) 12 Mar 2020).
Fifthly, since it was clear that Petrogat’s funds have been transferred out to a related company to avoid enforcement, Integral applied for an order under section 423 Insolvency Act against Petrogat’s de-jure director, de-facto director and the declared beneficial owner, and an accompanying worldwide freezing and disclosure order against these individuals. They have challenged the Court’s jurisdiction to make a section 423 order and the freezing order, but their jurisdictional challenge was dismissed. They have made limited disclosure of assets, however they have failed to provide full disclosure (Integral Petroleum SA v Petrogat FZA  EWHC 1365 (Comm) 14 May 2021).
In view of this, Integral applied for an unless order, i.e. unless the individuals comply with their disclosure obligations, judgment be entered against them for the amount of Integral’s claims. They have failed to comply, as a result of which Integral now has a judgment for its debt against three individual defendants, who have sufficient assets to cover it. It also has the option of initiating fresh committal proceedings against the three individuals, because they are again in contempt of the disclosure order. A second committal order is normally not suspended, and there is a longer sentence.
Thus, starting from a position where Integral made a prepayment to a company in an opaque jurisdiction and its cargo was about to disappear, Integral managed to:
- preserve and gain possession of the cargo for which it had made full prepayment;
- obtain its counterparty’s bank statements and identify where the money had gone;
- obtain judgments not only against its counterparty, but also its de-jure and de-facto directors and a beneficial owner; and
- put itself in a position where it can cause its counterparty’s directors and beneficial owner to be committed to prison if they are unwilling to settle.