WHEN THE ASSETS DISAPPEAR FROM A JUDGEMENT DEBTOR: POTENTIAL CAUSES OF ACTION EXPLORED
The first rule of Law School is (or should be) “don’t sue anyone who doesn’t have the cash to pay”. The most meritorious case coupled with the most astute legal team is going to get blood out of a stone. The situation gets more difficult in the slippery world of corporations and limited liability where money can be transferred and disappear leaving nothing behind. That is why the judgment of Mr Justice Knowles in Marex Financial Limited -v- Garcia  EWHC 918 (Comm) makes interesting reading. It shows the possible existence of tort that could help some claimants in some situations.
The claimant had sued two limited companies for sums due on an account. There was a trial and the judge handed down a draft judgment showing the claimant had succeeded for over US$5 million. After the draft was sent out the money in the defendant companies disappeared. The defendants went into liquidation. It was the claimant’s case that the defendant was the beneficial owner of the companies and a de facto or shadow director and had dishonestly asset-stripped the companies after receiving the draft judgment.
THE CAUSE OF THE ACTION
Much of the judgment is about the preliminary issue of jurisdiction. However the interesting aspect is the cause of action:
- “Knowingly and inducing procuring the Companies to act in wrongful violation of Marex’s rights under the judgment”.
- “… the tort of intentionally causing loss to Marex by unlawful means or unlawful interference with Marex’s economic interests.”
KNOWINGLY INDUCING AND PROCURING THE COMPANIES TO ACT IN WRONGFUL VIOLATION OF RIGHTS UNDER THE JUDGMENT
The judge considered whether there was an arguable case that this tort existed. He held that it was arguable that it did.
- Non-payment of a judgment debt is an actionable wrong.
- A legal obligation arises to pay that sum.
- The judge rejected the argument that no such tort existed.
INTENTIONALLY CAUSING LOSS BY UNLAWFUL MEANS
Again the judge accepted that there was a potential cause of action under this head. The asset-stripping of the companies involved the breach of fiduciary duties owed to those companies. Further the cause of action did not fall foul of the “reflective loss” principles.
THE JUDGE’S CONCLUSION
The judge concluded that the claimant had the better argument in relation to whether it had a good arguable case in relation to the points of law. These were good arguable causes of action.
HELPING IN ENFORCEMENT
It has to be stressed that the judge was making preliminary findings in the course of the defendant’s (unsuccessful) application to dispute jurisdiction. However the potential existence of these causes of action is worth noting.