When litigating against overseas based defendants, clients will require advice at the outset not only on the usual issues (such as how long the process will be, what the prospects of success are and how much it will cost) but also on enforcement strategy. It is often essential to identify assets in accessible jurisdictions where English judgments are recognised.
It is not unusual for a defendant to bury its head in the sand when facing litigation, particularly if commenced in a far-off jurisdiction. In these circumstances, it is important to carefully weigh the options available and the most obvious may not always be the best.
Judgment in Default or Summary Judgment?
Once served, a defendant must comply with strict time limits set by the court or risks having judgment in default entered against it.
Ordinarily, claimants ought to be proactive enforcing these deadlines to exert maximum pressure and obtain a quick and low-cost judgment. However, where the defendant is based overseas, this approach can be a mistake and undermine later enforcement. Instead, a claimant may do better to ask the court to carry out a more considered review of the merits on an application for summary judgment.
While straightforward to obtain in the absence of a defence, the risk of a default judgment is that it is a decision based on a technical fault only (i.e., the failure to submit a defence) and does not involve any evaluation of the substance of the claim. Many foreign courts will be reluctant to allow a strictly procedural error to form the basis of enforcement.
Summary judgment is a more involved and costly process, which can provide a defendant with a second bite at the cherry. A court may be more willing to provide additional time to a defendant to respond to an application for summary judgment, even where it has missed earlier deadlines to do so. There is the further risk that a judge will not grant the claimant's desired outcome once the details have been scrutinised. However, summary judgment does involve at least some level of judicial consideration of the facts of the case and may therefore be more widely enforceable.
Recent Developments - Duferco SA v CVG Ferrominera Orinoco CA 1
The recent judgment of Duferco SA v CVG Ferrominera Orinoco CA relates to exactly this balancing act. The claimant was seeking damages and interest of US$22 million against a state-owned, Venezuelan based mining company which failed to engage with the English court proceedings. The claimant had to decide how to progress its case whilst ensuring best prospects of enforcing any judgment abroad.
It opted for summary judgment on the reasoning that it would be easier to enforce a judgment on the merits than a judgment by default in a foreign jurisdiction (in this case, Venezuela).
The claimant was required to obtain the court's permission in order to apply for summary judgment (pursuant to CPR 24.4(1)) because no acknowledgment of service or defence had been filed by the defendant.
A Malek QC (the Deputy High Court Judge), citing FBN Bank (UK) Limited v Leaf Tobacco A Michailides SA & Ors. [2017] EWHC 3017 (Comm), noted that "a good and proper reason must be shown if permission was to be given" [15].
In the instant case, the claimant, Duferco, had done so by adducing evidence of a local Venezuelan lawyer who stated that the concept of default judgment was not recognised in Venezuelan law. Accordingly, an English default judgment would not be capable of enforcement there or in other jurisdictions which "take a similar approach in terms of the recognition and enforcement of default judgments" [17].
The evidence adduced by the claimant was accepted as:
"[S]howing that there is a risk that a default judgment against [the defendant] will not be capable of enforcement in Venezuela and that a judgment on the merits may be more readily enforced against [the defendant], whether in Venezuela or in other jurisdictions where it has assets." [18]
The Court went on to conclude that because the defendant had been properly served with the claim form and application for summary judgment, it had "been given every opportunity to participate in the proceedings" [18] but failed to do so. Where the defendant "has chosen not to engage with the proceedings", the judge considered "it would be unjust in the circumstances to refuse permission to apply for summary judgment" [19].
The summary judgment application was then considered in detail, with reference to the formula set out by Lewison J (as he then was), in Easyair Limited v Opal Telecom Limited [2009] EWHC 339 (Ch) at [15]. The Court noted that it was also "standard practice to draw to the judge's attention to any potential defences to the claim that [a defendant] could have raised" [40]. He concluded that the claimant had satisfied this requirement and had explained "in convincing terms the reasons for failure [of the potential defences]" [42]. Further, "There is no reason why a trial should take place. All this will cause is unnecessary delay. [The defendant] has not asked for a trial. Based on its conduct to date, there is no reason to think that [the defendant] would participate in a trial" [46].
This case provides a useful framework for litigators to ensure that the requirements for obtaining summary judgment are satisfied.
The recent case of Banco San Juan Internacional Inc v Petróleos De Venezuela S.A. [2020] EWHC 2937 (Comm), concerned a similar application for summary judgment, again concerning a Venezuelan state-owned company as the defendant, that resulted in two hearings before summary judgment was ultimately granted. At the first hearing on 31 July 2020 2, the judge adjourned the application for summary judgment to allow the defendant (which had engaged with the proceedings only a short time before) the opportunity to a prepare substantive response on the basis that US sanctions had essentially prevented the defendant from complying with its contractual obligations.
In allowing the defendant the opportunity to participate, the judge was clear that the claimant's decision to opt for summary (rather than default) judgment had been decisive:
17. If I were approaching the question before me purely by reference to the likelihood of an arguable defence turning up if the case adjourns, it might lead me to refuse the application sought. However, the point that has ultimately weighed with me is as follows. This is a case in which it would have been open to BSJI to seek judgment in default of acknowledgment of service. Understandably they did not want to do so, because of the greater ability to enforce a judgment on the merits, a judgment in which any suggested defences have been considered and found not to be arguable. In the circumstances of the present hearing -- and I will say a little more about that in a moment – I should be concerned if it appeared that there had not been the chance today for PDVSA to say what it wanted to say, such that any judgment was really not a summary judgment on the merits that should bring those enforcement benefits as compared with a default judgment.
...
19. In these circumstances, with great reluctance, I am going to allow an adjournment...
By curious coincidence, Mr Malek QC appeared for the defendant in that case at the subsequent hearing of the summary judgment applications.
Enforcement of foreign judgments
The issue is not unique to judgments obtained in England. In a recent webinar hosted by the Centre for Art Law, one of the authors of this article asked Dean Nicyper, US Head of Litigation at Withersworldwide, what his preference would be when seeking to enforce a US judgment against assets abroad. He was unequivocal in his response, "[foreign courts] will often enforce US judgments on the merits but it is much more difficult to enforce default judgments. So, that becomes problematic." 3
The nature of the judgment is certainly relevant when enforcing in England and European jurisdictions. For example (and while the UK has now left the EU) Article 34.2 of Council Regulation (EC) No. 44/2001 (the Judgments Regulation) provides:
"A judgment shall not be recognised ... where it was given in default of appearance if the defendant was not served with the document which instituted the proceedings or with an equivalent document in sufficient time and in such a way as to enable him to arrange for his defence unless the defendant failed to commence proceedings to challenge the judgment when it was possible for him to do so."
Conclusion
It is essential to consider enforcement not only at the outset of a case, but on an ongoing basis as the case evolves. Where a defendant fails to engage (depending on the location of that defendant and its assets) deciding what form of judgment to seek may be the difference between recovery and being left with nothing to show from a seemingly successful litigation.
About Astraea Group
Astraea Group works with major multi-nationals (including FTSE 100, Dow Jones and SSE listed companies), governments, state owned entities, statutory authorities, banks, financial service providers, financial service regulators, and private and public sector companies. We litigate, arbitrate and mediate in the UK and across numerous international jurisdictions, and have been admitted as advocate or worked in countries including Singapore, Malaysia, Thailand, US, Russia, Ukraine, Iceland, France, Germany, Spain, Italy, Uruguay, Australia, New Zealand, BVI, Cayman, Jersey and Isle of Man.
If you would like advice in relation to any of the issues discussed in this article, please give us a call or send an email.
Footnotes
1. Duferco SA v CVG Ferrominera Orinoco CA [2021] EWHC 824 (Comm)
2. Banco San Juan Internacional Inc v Petróleos De Venezuela S.A. [2020] EWHC 2145 (Comm)
3. Art Law Lunch Talk: Lessons Not Learned, Fraudsters in the Art Market, 10 March 2021, https://www.youtube.com/watch?v=AU7dQOpujsU [from 1:05:00]
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.
