Most commodities contracts are cross border, often with one or more parties located in a country where gaining access or cooperation to enforce an arbitration award or court judgment can be challenging.

If your counterparty is in a 'difficult' country, is there any point in incurring the time and cost of pursuing a claim in arbitration or litigation against them at all? Alternatively, do you already have awards or judgments against parties that you have not found a way to enforce? Are they worth any more than the paper they are written on?

The most direct way to enforce an award or judgment is to find an asset which belongs to the defendant and obtain a court order in the country where it is located. But if you cannot find an asset, or if you do find an asset but it is located in a country where obtaining an attachment order over it is very difficult, or at best slow and expensive, the London court can provide additional enforcement weapons. In the right circumstances for example, if the defendant has a reputation to protect - they can prove very effective very quickly.

In our March 2017 Commodities Bulletin1 we wrote about enforcement of an LMAA Award against a Chinese counterparty achieved by obtaining a worldwide freezing order from the London court, with penal sanctions against the company's director for failing to comply with the court's orders.

But to obtain a worldwide freezing order from the London court you need to be able to establish a real risk that your counterparty will dispose of or dissipate their assets - that if the court order is not made, there is a significant risk that the award or judgment will not be enforced. What if there is no or little evidence of risk of dissipation?

In two recent cases, we obtained on behalf of our clients London GAFTA arbitration awards against two different defendants in Vietnam. Both defendants ignored initial demands for payment, perhaps thinking that they were beyond the reach of any enforcement action, but the defendants underestimated the reach of the London court.

We made applications to the court in London to enforce the awards as if they were court judgments, and at the same time for orders that the defendants give disclosure of their assets in the form of an affidavit sworn by a director within 14 days. We also applied for orders to dispense with formal requirements for service so that the orders could be served by email on the defendants.

The court made the orders, but both defendants failed to give disclosure of their assets. However, the first defendant agreed to settle the claim shortly after receiving the asset disclosure order.

If the second defendant had complied with the asset disclosure order, this could have provided invaluable information as to the extent and location of their assets which could have led to successful attachments of those assets. However, the second defendant continued to ignore the court orders and demands for payment. But their failure to comply with the asset disclosure order laid the ground for a further application against them.

We then applied to the London court for a worldwide freezing order against the second defendant, using their failure to comply with the asset disclosure order to establish the risk of dissipation of assets, which is a pre-condition of the worldwide freezing order. The failure to comply with the asset disclosure order amounted to a contempt of court, which the court took very seriously.

The court granted the worldwide freezing order which we served on a number of the second defendant's trading partners and banks as well as on the second defendant themselves. At that stage, the second defendant came to the negotiating table and agreed settlement terms.

Although not required in this case, in other cases we have also obtained court orders to commit directors of defendant companies to prison for failure to comply with asset disclosure orders. This process is described in more detail in our March 2017 Commodities Bulletin2.

In summary, no matter where a defendant is located, if they wish to continue doing business, the London court offers a cumulative series of remedies which can be used to put significant pressure on them to honour awards and judgments.

Footnotes

  1. http://www.hfw.com/Commodities-Bulletin-March-2017
  2. http://www.hfw.com/Commodities-Bulletin-March-2017#page_2

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.