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Attachment of New York Correspondent Accounts Limited

Freezing Injunctions in Italy

Eleventh Circuit Allows Broadened Scope of Section 1782 Discovery Where Foreign Proceeding “Within Reasonable Contemplation”

Illinois Court Clarifies Right To Attachment Where Assets Transferred To Offshore Trust

Australia: Preliminary discovery is Permissible

Current Enforcement of Foreign Proceedings Through Freezing Orders in the British Virgin Islands

Enforcing Foreign Judgments in Ontario, Canada

Enforcement of U.S. Letters of Request in Canada While Facing the Risk of Self-Incrimination

British Virgin Islands Clarifies Enforcement of Foreign Judgments

Pursuing Debt Recovery and Enforcing Judgments in Hong Kong Without Delay

 

 

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Attachment of New York Correspondent Accounts Limited

Posted by International Asset Recovery Group on Mar 27, 2014 10:28:01 AM

Provisional remedies are a powerful tool for creditors. In New York, two recent cases have limited a creditor’s ability to attach funds of a defendant at a foreign bank with a correspondent banking relationship with a New York bank.

The premise of the attachment is that a foreign defendant has an attachable property interest in its “share” of its bank funds maintained with its correspondent bank in New York. In Toisa Ltd v. PT Transamudra Usaha Sejahtera, 13 CV 1407 (Sept. 20, 2013), the court found that funds held “for the benefit” of third-party customers who used the correspondent account to transact foreign business in U.S. currency was not similar to having a property interest in the account, which an attachment requires. Therefore, the court ruled that the defendant did not have an attachable interest in a correspondent’s New York account.

Likewise, in Lauritzen Bulkers A/S v. JIT Int’l Corp Ltd, 13 CV 3982 (Aug. 9, 2013), the court denied an attachment analogizing the attempt to electronic fund transfer attachments, which had been barred  in Shipping Corp of India Ltd. v. Jaldhi Overseas Pte. Ltd., 585 F. 3d 59 (2d Cir. 2009).

Hence, New York courts have decided that “neither the originator who initiates payment nor the beneficiary who receives it holds title to the funds in the account at the correspondent bank.” Signol Resources, N.V. v. Pan Ocean Oil Corp., 234 A. 2d 103, 104 (1st Dept. 1996).

-Rick Rein

Horwood Marcus & Berk Chartered

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Freezing Injunctions in Italy

Posted by International Asset Recovery Group on Feb 26, 2014 2:56:32 PM

In Italy, Article 671 of the Italian Civil Code permits a precautionary seizure of property if a creditor has a “valid fear of losing the security for his claim”. The order will prohibit the debtor from disposing of all of his assets  and not just specifically identified ones. A freezing order can be granted if: 1) the Court is persuaded that the claim has a prima facie basis based on the documentary evidence presented and 2) the Court is persuaded that should the measure be denied the time necessary to obtain a judgment on the merits may prejudice the right of the claimant. Based on case law, the Court must also be persuaded that the claim will be confirmed or ascertained in further legal proceedings on the merits and that the risk of prejudice is imminent (or has already started to produce its effects) and irreparable (the prejudice is unlikely to be remedied and/or recovered).

After submission of the application, a hearing will be scheduled where the court will render a ruling. No discussion on the merits of the case is allowed. The court can grant urgent interim relief if the timing of the hearing might cause some prejudice to the claimant. The interim relief is entered ex parte and will set a hearing 15 days later whereat the court can confirm, revoke or amend the interim decision.

The decision can be appealed within 15 days and the appeal decision will be taken within 20 days of the submission. The appeal does not suspend enforceability unless the appellate court decides, due to reason which have arisen since the interim order. The appeal decision is not subject to further appeal.

The court granting relief may also impose upon the claimant putting up security to protect the debtor in case the freezing order is later revoked or the merits of the case are decided in the debtor’s favor.

The freezing g order must be executed within 30 days from the granting. If execution is not started within that time frame, the freezing order ceases to be effective. The freezing order will also cease to exist if the legal proceeding on the merits is not started within 60 days from the granting.

-Rick Rein

Horwood Marcus & Berk Chartered

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Eleventh Circuit Allows Broadened Scope of Section 1782 Discovery Where Foreign Proceeding “Within Reasonable Contemplation”

Posted by International Asset Recovery Group on Feb 14, 2014 1:46:33 PM

The U.S. Court of Appeal for the Eleventh Circuit recently emboldened litigants’ ability to obtain discovery under 28 U.S.C. Section 1782 for a foreign proceeding that was only “within reasonable contemplation”. In Consorio Ecuatoriano de Telecomunicaciones S.A. v. JAS Forwarding (USA), Inc., 2014 U.S. App. Lexis 531 (11th Cir. January 10, 2014), Concel filed an ex-parte application for judicial assistance in order to obtain evidence pursuant to Section 1782. Concel’s detailed application sought evidence from JAS USA relating to the invoicing and calculation of rates charged to Concel. Concel set forth that it contemplated civil and private criminal lawsuits against two of its former employees who Concel claimed may have violated Ecuador’s collusion laws in connection with processing and approving JAS’ (Ecuador) alleged inflated invoices.

The 11th Circuit recognized that future proceedings must be more than mere speculation. There must be reliable indications of the likelihood that proceedings will be instituted within a reasonable time to permit discovery under Section 1782. The Court noted that in civil law countries such as Ecuador, documentary evidence is generally submitted as an attachment to the pleading. Concel claimed that it had not yet brought any action because it was still waiting for the evidence it sought pursuant to the present discovery application. In light of this explanation of the ongoing investigation, the indicated  intent to commence a civil action against former employees and the “valid reasons” to obtain the requested discovery, the Court affirmed the district court’s determination that foreign civil proceedings were “within reasonable contemplation”.

Thus, the 11th Circuit allowed an applicant to subpoena evidence from an American company even though the applicant is not presently involved in a foreign court so long as the proceeding is “within reasonable contemplation”.

-Rick Rein

Horwood Marcus & Berk Chartered

 

 

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Illinois Court Clarifies Right To Attachment Where Assets Transferred To Offshore Trust

Posted by International Asset Recovery Group on Feb 7, 2014 12:41:07 PM

In US Bank Nat’l Assoc. v. Rose, 2014 Il App 3d 130356, an Illinois Appellate Court addressed when attachment can be applied where a borrower breaches the Antiassignment Covenant in the Promissory Note by transferring assets offshore. There, Rose signed a note that included a negative covenant not to sell, transfer, assign, pledge or encumber any of his assets without prior consent of the bank (Antiassignment Covenant). Rose then formed a limited liability company and gifted his interest in that company, a mobile home park and interests in two other companies to a Cook Islands trust where his company was the sole member. The trust explicitly excluded any trust funds from being used to satisfy claims of creditors. After the assignment, Rose signed a modification of the loan also with the Antiassignment Covenant. Rose defaulted on the loan and the bank sued, inter alia, for an attachment because of the fraudulent transfer of property first to the limited liability company and then to the trust in an effort to hide assets and the fraudulent contracting of the underlying debt.

The Court noted that to qualify for an attachment, a plaintiff must establish by a preponderance of the evidence at least one of the causes listed in the attachment statute (and here it was based on the debt being fraudulently contracted) and a “probability” of success on the merits. The Court concluded that if the factual findings establish both cause and a probability of success, the Court retains no discretion to deny attachment. The Court held that fraud was established by entering into the Antiassignment Covenant, transferring assets and being less likely able to pay any potential judgment upon default. The Court further held that there was a probability of success that the bank will succeed on its claim that Rose transferred his interests with actual intent to hinder, delay and defraud that bank. Consequently, the bank was allowed to attach assets present in the County where the lawsuit was brought.

Therefore, at least in Illinois, and likely states with similar attachment statutes, courts have no discretion but to grant an attachment where cause and probability of success have been established.

-Rick Rein

Horwood Marcus & Berk Chartered

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Australia: Preliminary discovery is Permissible

Posted by International Asset Recovery Group on Jan 21, 2014 10:46:59 AM

In Athena Investment Holdings LLC v. AJ Lucas Group Ltd1, (2013) NSWSC 1837, the Australian court clarified the issue of preliminary discovery. Athena claimed its entitlement to preliminary discovery was based on the ground that AJL made a number of misleading or deceptive representations to Athena upon which Athena had acted to its detriment. The cause of action would be s18 of the Australian Consumer Law, and also possible cause for the breach of a loan agreement in which AJL warranted that they had not provided misleading and deceptive information. The damage suffered by Athena was likely to be that had Athena been aware of AJL's true position it may have been able to place some additional protection in its agreement with AJL to ensure its efforts were not wasted, "a so called lost opportunity".

The law set out in Rule 5.3(1) Uniform Civil Procedure Rules 2005 (NSW) states as follows:

If it appears to the court that:

  • the applicant may be entitled to make a claim for relief from the court against a person (the prospective defendant) but, having made reasonable inquiries, is unable to obtain sufficient information to decide whether or not to commence proceedings against the prospective defendant,
  • the prospective defendant may have or have had possession of a document or thing that can assist in determining whether or not the applicant is entitled to make such a claim for relief, and
  • inspection of such a document would assist the applicant to make the decision concerned.

Accordingly, the court may order that the prospective defendant give discovery to the applicant of all documents that are or have been in the person's possession and that relate to the question of whether or not the applicant is entitled to make a claim for relief.

However the application of Rule 5.3(1) by the court is subject to the following key principles:

  1. It is not necessary for the applicant to show a pleadable or prima facie case for an applicant to have a right to a claim for relief;
  2. A mere assertion, however, is not sufficient; there needs to be reasonable cause to believe that the application has a right of action against the respondent resting on some recognized legal ground;
  3. Belief must be more than suspicion, conjecture or of mere possibility. That is, the threshold should be an inclination towards the existence of a right of action, as opposed to a rejecting of the belief. There needs to be evidence directing the court to the facts in question. A more rigid view on the interpretation of Rule 5.3(1) is that if there is no reasonable cause for belief in the existence of one of the elements to the potential cause of action, the application would fail on that particular cause of action. The word "may" provides the court with the latitude to accept that it does not have to reach the view that there is a right to relief;
  4. While uncertainty with regard to one cause of action may not undermine a the reasonableness of a cause to believe, if uncertainty taints multiple elements then the validity of reasonable belief may be questioned;
  5. The question to be determined by the court is whether the applicant has sufficient information to commence proceedings in the court. An applicant is not prevented to bring an application because it already has available evidence that is sufficient to establish the prima facie case for granting relief, as it may be that the granting of the application could assist the applicant in determining the defenses available to the respondent and strength of their case.
  6. The rule is to be given the broadest possible scope subject by the court, in its discretion, preventing any misuse.

The Athena court found it is not necessary for the applicant to show a prima facie or pleadable case, and indeed that it is sufficient for the applicant to believe there is a cause of action. The court opined that in the "interests of commercial morality", the court should assist Athena to explore whether it does have a right of relief. Consequently, preliminary discovery was warranted.

-Rick Rein

Horwood Marcus & Berk Chartered

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Current Enforcement of Foreign Proceedings Through Freezing Orders in the British Virgin Islands

Posted by International Asset Recovery Group on Jan 14, 2014 3:34:36 PM

Interim injunctive relief is a powerful tool and the ability to freeze a defendant's assets to prevent dissipation before trial can be an important protective step. In Black Swan Investments I.S.A. v Harvest View Limited and Others, BVIHCV 2009/399 ("Black Swan"), Mr Justice Bannister QC, sitting in the Commercial Division of the High Court of the Virgin Islands, held that the BVI Court could and should grant injunctive relief in support of foreign proceedings in certain circumstances. The judge's reasoning was considered and approved by the Eastern Caribbean Supreme Court of Appeal in Yukos CIS Investments Limited and Others v Yukos Hydrocarbons Investments Limited and Others, HCVAP 2010/028 ("Yukos"). The inquiries were whether the claimant could obtain a foreign judgment enforceable by whatever means against local assets owned or controlled by the defendant.

In Black Swan, the Applicant sought the continuation of a freezing injunction obtained in support of proceedings in South Africa against an individual, Mr Rautenbach. Mr Rautenbach was not a party to the BVI application, but the Respondents were BVI Business Companies in which he was said to wholly own or control. The Respondents were said to be the legal owners of valuable assets within the jurisdiction and the Applicant argued that there was a significant risk of the Respondents dissipating those assets.

In ruling that the Court should grant an injunction in aid of foreign proceedings, Mr Justice Bannister QC held that:

 "it seems to me that...there are sound policy reasons why important offshore financial centres, such as Jersey and the BVI, should be in a position to grant orders in aid where necessary. The business of companies registered within such jurisdictions is invariably transacted abroad and disputes between parties who own them and others are often resolved abroad. It seems to me that when a party to such a dispute is seeking a money judgment against someone with assets within this jurisdiction, it would be highly detrimental to its reputation if potential foreign judgment creditors were told that they could not, if successful, have resort to such assets unless they were to commence substantive proceedings here in circumstances where, in all probability, they would be unable to obtain permission to serve them abroad – thus presenting them with an effective brick wall or double bind..."

 In Yukos,  the Court of Appeal provided some useful clarification of the factors to support enforcement of the Black Swan principle:

 •The Court will need to be satisfied that there is a good arguable case that the applicant will obtain a judgment which will be       enforceable by the local court against the local defendant.

•The Court will usually expect to see that the interim freezing order is necessary in aid of relief that the applicant is likely to obtain from the local court or from a competent foreign court.

•There is no requirement that the foreign cause of action be designed to obtain a money judgment, but the applicant will need to show that the potential foreign judgment will entitle him to execute a money judgment against, or control pursuant to a proprietary judgment, the local assets sought to be frozen.

•The applicant must show that there are assets within the jurisdiction against which the applicant will be able to enforce his foreign judgment.

•The failure to seek equivalent interim relief in the foreign proceedings is a discretionary factor which may mitigate against the granting of the relief sought.

• It may be appropriate, in certain circumstances, to grant interim relief in support of a foreign claim against third parties to the foreign proceedings who are resident in BVI.

Therefore, the principles espoused in Black Swan and Yukos support the English common law principle allowing a party with a foreign proceeding pursuing assets in BVI  to obtain an interim freezing order.

-Rick Rein

Horwood Marcus & Berk Chartered

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Enforcing Foreign Judgments in Ontario, Canada

Posted by International Asset Recovery Group on Jan 9, 2014 11:34:47 AM

Enforcement of foreign judgments in Ontario was clarified by the Ontario Court of Appeal in a recent decision, Yaiguaje v. Chevron Corporation, 2013 ONCA 758. There, residents of rural Ecuador harmed by Chevron’s pollution in the Lago Agrio region sought to enforce a nearly $10 billion judgment form an Ecuadorian court. The Court of Appeal found that as to the subject matter jurisdiction over the litigation “in recognition and enforcement actions relating to foreign judgments in Canadian jurisdictions, the exclusive focus of the real and substantial connection test is on the foreign jurisdiction.” Since Chevron and Chevron Canada had a significant economic relationship and Chevron Canada maintains a non-transitory place of business in Ontario, the court has jurisdiction to adjudicate a recognition and enforcement action against Chevron Canada’s indirect corporate parent that seeks seizure of shares and assets of Chevron Canada to satisfy a judgment against the corporate parent. The question of whether Chevron Canada’s assets can be accessed to pay Chevron’s judgment was not addressed at this juncture

Thus, the test for initial subject matter jurisdiction in a foreign judgment collection is whether the Ontario party has a real and substantial connection with the foreign proceeding.

-Rick Rein

Horwood Marcus & Berk Chartered

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Enforcement of U.S. Letters of Request in Canada While Facing the Risk of Self-Incrimination

Posted by International Asset Recovery Group on Dec 18, 2013 11:02:16 AM

In Treat Canada Ltd. v. Leonidas, [2012] O.J. No. 5551, the Ontario Court of Appeal considered the jeopardy to the privilege against self-incrimination in an appeal from an Ontario order enforcing a letter of request for international judicial assistance issued to the plaintiff in a U.S. class action. The class action related to an alleged conspiracy among U.S. and Canadian chocolate manufacturers to inflate prices.  The order compelled Robert Leonidas, former president and CEO of Nestle Canada, to appear for a deposition and to provide oral testimony as a witness in the class action.  Neither Nestle nor Leonidas was a defendant in the proceeding; however, the Canadian Commissioner of Competition confirmed that Leonidas would soon be charged for his involvement in the alleged conspiracy.

The Court of Appeal found that the order did not breach Leodinas's Charter rights. The Court ruled  that requiring Leonidas to testify would raise public policy concerns that reflect on the fairness of the Canadian criminal justice system if the Commissioner was later able to access his testimony to assist in the preparation of the criminal case against him.  Despite these public policy concerns, the Court concluded that appropriate conditions could be put in place to ensure that Leonidas's immunity rights were protected while honoring Canada's comity obligations to the U.S.  In particular, the Court imposed the following conditions:

1. The Commissioner was to provide notice to Leonidas before taking any step to seek access to the transcript of his evidence;

2. The Commissioner was not to seek or receive information regarding the contents of Leonidas's testimony from anyone with knowledge or possession of those contents;

3. The Commissioner was not to seek a court order to access Leonidas's testimony unless he was not charged, but instead became a witness for the prosecution or if he was charged and testified in a subsequent proceeding against him; and

4. In the event the Commissioner wished to obtain an order to access Leonidas's testimony, the order had to be sought and obtained from the Ontario Superior Court, on notice to Leonidas.

The Court further found that it was not necessary to decide whether the Charter protection against self-incrimination extends to preclude a Canadian prosecutor from obtaining access to compelled testimony in a U.S. proceeding for the purpose of a criminal investigation.  Instead, the Court relied on the Commissioner's undertaking not to do so. 

The Court's decision demonstrates a confidence that the imposition of conditions can mitigate the risk.

-Rick Rein

Horwood Marcus & Berk, Chartered

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British Virgin Islands Clarifies Enforcement of Foreign Judgments

Posted by International Asset Recovery Group on Dec 12, 2013 3:30:53 PM

The Court of Appeal in the British Virgin Islands (BVI) on December 5, 2013  brought much needed clarity to the Eastern Caribbean Civil Procedure Rules (the CPR) relating to service out of foreign judgments.. The previous restrictive reading of the BVI CPR had led to the situation that foreign judgments obtained in all but a small number of countries could not be enforced in the BVI because there was no "gateway" to provide for service out of the jurisdiction.

Part 7.5(3)(b) of the CPR states that service out of a claim for enforcement of a foreign judgment may be granted only if it has been registered in the High Court "pursuant to Part 72" of the CPR. Part 72 of the CPR only applies to certain countries, such as England and Wales. Judgments from jurisdictions including the USA, Canada, and most European countries are registrable only at common law and not under Part 72 and therefore, it was previously thought service out could not be granted for enforcement claims based on such judgments.

This had caused an undesirable barrier to those wishing to register a foreign judgment in the BVI against a foreign judgment debtor from a non-Part 72 country, who had assets in the BVI.  It produced the odd situation that the registrability of a judgment depended on the chance of where the judgment had been entered. It also raised questions about the ability for  injunctive relief in support of foreign proceedings based on the ability to enforce a future foreign judgment.

 At first instance before the BVI High Court Commercial Division, the application was refused because the court felt constrained by the strict wording of the CPR. However, the Court of Appeal agreed that Part 7.3(5)(b) should be read as granting permission to enforce any judgment made "by a foreign court or tribunal and amenable to be enforced at common law".  This judgment brings the BVI back into line with many other countries which make no automatic distinction between the location of the judgment, but rather leave that to be considered in the court’s discretion on the enforcement application itself.

 

-Rick Rein

Horwood Marcus & Berk Chartered

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Pursuing Debt Recovery and Enforcing Judgments in Hong Kong Without Delay

Posted by International Asset Recovery Group on Nov 13, 2013 3:20:08 PM

Two recent Hong Kong cases highlight the importance for creditors to pursue their actions promptly. In Re Li Man Hoo, re Foo Shuk Man Patty, the Court of Appeal, in addressing the ability to recover a judgment debt in a bankruptcy proceeding, the 12 year limitation period under Section 4(4) of the Limitation Ordinance applies to enforcement and bankruptcy. Further, the court held that an enforcement action of a judgment debt must be taken within 12 years from the date on which the judgment arose.

 In the other case, Bank of China (Hong Kong) Limited v. China International Business Investigation comp any Limited and Ors, when a recovery action is commenced, the court has discretion to refuse to award contractual interest to a creditor where there has been undue delay in proceeding on the action. There, the creditor took 10 years to enforce after not delaying in proceeding on the debt.

-Rick Rein

Horwood Marcus & Berk

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