In a recent opinion (Masri v Consolidated Contractors International Co. SAL and others  UKHL 43) handed down in the final days of the House of Lords, their Lordships clarified a point which may be of some significance for successful claimants seeking to enforce a Court order against corporate defendants.
Enforcement is a key (but often overlooked) stage of litigation. While a claimant may succeed in obtaining a judgment in its favour, this is of limited value if the Order cannot be enforced. To assist judgment creditors (ie those who have a judgment in their favour) the Courts have developed a number of tools, including the ability to appoint receivers, freeze assets, levy execution against goods, and obtain orders for payments of debts owed by third parties (such as bank accounts).
However, commonly a judgment creditor will know little about a judgment debtor’s financial position and therefore cannot identify assets against which to bring enforcement proceedings. When this is the case, CPR Rule 71 provides a useful means of obtaining information. A judgment creditor can apply to the Court (without notice) for an order requiring a judgment debtor to provide information (including documents) on his assets to the Court while under oath, and to be questioned on those assets by a court officer or representative of the party. The examination is “not only intended to be an examination, but a cross-examination and that of the severest kind” (Republic of Costa Rica v Stronsberg (1880) 16 ChD 8). A judgment debtor who refuses to attend, or refuses to answer questions risks serious consequences. The standard form order states that “you must obey this order. If you do not, you may be sent to prison for contempt of court.” (See CPR 71.2(7)). CPR 71 is therefore a potentially powerful weapon for a judgment creditor.
CPR 71 is clear that an order can be made against any judgment debtor, including a judgment debtor located outside England and Wales1 and including in respect of that judgment debtor’s assets anywhere in the world2. It is also expressly stated that in cases where the judgment debtor is a company or an officer, an order can be obtained requiring “an officer of that body to attend court to provide information…” (CPR 71.2(b)).
The issue before the House of Lords in Masri was whether this power existed in relation to the overseas directors of a judgment debtor. The Court of Appeal had held that it did. However, the House of Lords concluded (unanimously) that CPR 71 was not conceived with corporate officers abroad in mind and, notwithstanding that there was no express exclusion in respect of them, there were no good grounds for regarding the true construction of CPR 71 as including overseas officers.
Lord Mance (with whom the other four Lords of Appeal in Ordinary agreed) considered authorities in relation to the similar power to examine overseas officers of insolvent companies but held that there were different public policy considerations in relation to the public interest in investigating those accountable for a company’s state of affairs, and private civil litigation between two parties.
The Court further held that even if CPR 71 did create a power to make an order in relation to overseas directors and officers, then CPR 6 did not provide any basis for service of any order out of the jurisdiction.
This is an unwelcome decision for claimants faced with a corporate defendant. In his judgment, Lord Mance noted that “small though the world may have become, relatively few officers of companies are likely to contemplate, late alone be able to undertake, emigration or flight to a different country in order to avoid giving information about their company’s affairs” (at paragraph 25 of the judgment). While this may be true in relation to officers of large multinationals and good corporate citizens, it is perhaps more questionable whether the same can be said about all counterparties, particularly those which may be involved in fraud proceedings.
Commonly in fraud cases, the wrongdoer is a corporate entity, often incorporated overseas, or with overseas directors with no obvious assets. Following Masri it may be significantly more difficult for claimants to obtain information on the assets of those companies. It will therefore be of crucial importance for claimants to consider issues relating to enforcement and assets at the outset, and to consider, where possible, joining individual directors or beneficial owners to a claim to permit enforcement proceedings to be brought against them directly (and for them to be examined on their assets), where appropriate.