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Claimant found to have better of the argument that director who stripped a company of its assets in order to prevent it from meeting a judgment

  • United Kingdom
  • Financial services disputes and investigations
  • Litigation and dispute management - Freezing Orders

22-08-2017

Marex Financial Limited v Carlos Sevilleja Garcia [2017] EWHC 918 (Comm)

Claimant found to have better of the argument that director who stripped a company of its assets in order to prevent it from meeting a judgment is liable in tort for (i) knowingly inducing and procuring another to act in violation of rights under a judgment and (ii) causing loss by unlawful means.

Facts of the case

  • In July 2013, Marex Financial Limited (“C”) succeeded in its claim against two British Virgin Island (“BVI”) companies (the “Companies”) controlled by Carlos Sevilleja Garcia (“D”) and was awarded sums in excess of US$5 million.
  • The draft judgment was handed down on 19 July 2013 and the final judgment on 26 July 2013. A freezing order was then obtained by C against the Companies on 14 August 2013. The Companies made disclosure of their assets pursuant to the freezing order stating them to be approximately US$4,500.
  • C brought proceedings against D, alleging he had procured the transfer of in excess of US$9.5 million out of the Companies’ accounts held in England between the draft judgment being handed down and the freezing order being granted. C claimed D was accordingly liable in tort for (i) knowingly inducing and procuring the Companies to act in wrongful violation of C’s rights under the judgment and/or (ii) intentionally causing loss to C by unlawful means.
  • D challenged jurisdiction and the judgment addresses that challenge.

The decision

Mr Justice Knowles found, inter alia, that C had the better of the argument as to:

  • the existence of the tort of knowingly inducing and procuring a violation of rights under a judgment;
  • a breach of fiduciary duty (in this case asset stripping) and the relevant provisions of BVI company law, both being “unlawful means” for the purposes of the tort of intentionally causing loss by unlawful means; and
  • the principle of no reflective loss1 not applying in these circumstances (i.e. to a creditor) on the basis that these torts would otherwise have little practical application.

Analysis and practical advice

  • While this was only an interim hearing, it is clearly good news for creditors (particularly those without the benefit of a pre-judgment freezing order), since it provides a potential further means of recovery in addition to any rights under insolvency law.
  • At the hearing, Counsel for D suggested that a tort of accessory liability in relation to the non-payment of judgment debts had the potential for altering the basis on which freezing orders are granted post-judgment. Knowles J questioned whether the facts of the case were so widespread that the tort would be invoked widely and, in any event, did not accept this as a basis on which to decline to recognise the tort.
  • Given the potential remedies in tort against them personally, parties dealing with assets post-judgment (such as directors) should give careful consideration to (i) the likelihood of such assets being the subject of any post-judgment freezing order and (ii) whether any disposal of them raises the risk of the defendant entity being unable to satisfy the judgment debt, which could in turn give rise to liability to the relevant parties.

 

 

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