Michael Redman of litigation funder Burford Capital considers the worryingly high rate of unenforced judgments and the need to develop a strategy well before a victorious day in court.
When a litigant emerges victorious from a legal fight, many assume that the walk of triumph down the court steps will be soon followed by an automatic depositing of damages in a designated bank account.
The harsh reality is that for many, the moment of victory is merely the start of another, more frustrating battle, because defeated defendants often do not automatically pay up. In many cases, they disappear and do everything in their power not to comply. Worse still, they spirit away assets through complex offshore structures, making the enforcement of those judgments a complicated process.
Figures on the size of this problem have previously been hard to come by due to the very nature of the subject itself. But the veil has been lifted by an in-depth study commissioned by Burford Capital, involving more than 200 lawyers, GCs and company executives in the UK, US and across Europe. The Burford Capital '2016 Judgment Enforcement Survey' reveals that the significant problem of hidden assets and unenforced judgments would comfortably run into billions globally.
Vast sums are going unpaid to litigants and parties successful in arbitration hearings by rogue defendants.
These are not just individuals but companies of all shapes and sizes, across all sectors. The problem means there are vast sums wiped off the balance sheets of corporations who have had their day in court – and emerged with nothing but a piece of paper saying they have won.
The survey revealed 58 per cent of corporations have not received the full value of a judgment or arbitration award in the last five years and 86 per cent of surveyed lawyers have had at least one client that has not received the full value of an award in the same time.
The breakdown of spirited-away dollars is alarming. Thirty-seven percent of corporates have unenforced judgments amounting to over $10 million (£7.67 million), and 14 percent of private practice lawyers surveyed say that the combined value of clients’ unenforced judgments totals more than $50 million (£38.35 million) over the past five years.
Another six per cent of private practice lawyers stated that the figure left unpaid to clients lay between $30 million and $50 million (£23-38.35 million), 13 per cent $10-30 million (£7.67-23 million) and 67 per cent under $10 million.
The majority of surveyed law firms (62 per cent) said their clients are typically able to recover around 70 per cent of a judgment or award. However, this came with the caveat that for many this result was only achieved after a lengthy and expensive – and often unanticipated and unbudgeted - asset recovery process.
Additionally, one in five reported that their clients typically recover under half of the value of a judgment or award.
The implications are severe. With the survey reporting that 74 per cent of in-house executives feel the ease and likelihood of recoverability is the most important factor influencing whether to pursue litigation or arbitration, if recoverability is not ensured, it can be assumed a corporation is less likely to pursue litigation.
Due to the increasingly complex ways of concealing assets, especially with regards to those hidden in offshore jurisdictions, agencies can be useful. Although there is a familiarity with specialist asset tracing services, the survey data indicates that such solutions are often underutilised. Just over half of surveyed law firms (52 per cent) have had a client that has used asset recovery services in the last five years. Comparatively few (11 per cent) are taking advantage of options to finance those services.
The picture painted by the statistics is that when there is a mind to evade judgments, the other side will already have a plan for hiding its assets.
Therefore it is advisable to act and to put in place an enforcement strategy before a judgment is reached. The plan needs to be in place well before the litigant skips down the steps of the respective court celebrating victory. Structures the other side may use or already have should be identified by the legal team, whilst the full arsenal which is available for finding and seizing assets should also be lined up.
Without a strategy being put in place, the probability of an expensive and time-consuming chase of assets hidden in the shadows from one offshore centre to another is a near certainty.
Michael Redman is a director at litigation funder Burford Capital.