In 2014, the Permanent Court of Arbitration in The Hague ruled that Russia owed shareholders of the now-defunct oil giant Yukos more than $50 billion for what it described as the Russian Government’s "devious and calculated expropriation" designed to bankrupt the firm. This is the largest compensation award ever rendered--but it’s unlikely that Yukos will be seeing much of it any time soon. Why?  It’s not just the fact that paying the award would be perceived as an admission of guilt – an acknowledgement that the seizing of Yukos' assets was illegal. Even more, it’s that the enforcement of this judgment will most certainly require another long battle on the part of Yukos shareholders. Witness the 20 year legal battle faced by Franz Sedelmayer in a similar if smaller claim against Russia.

Recovery of assets

Indeed, being left with little more than a piece of legal paper after a lengthy and expensive court room battle is one of the most unpleasant outcomes of litigation and arbitration.  It means that another fight—one to actually secure the judgment--still lies ahead, and could be just as expensive and time-consuming as the case itself. 

There has been a problem with the recovery of assets for decades. Currently, this is impacted by the fact that the value of commercial arbitration cases has gone up. GAR30 reports that in 2005 there were 71 commercial arbitrations with amounts in dispute exceeding $300 million; in 2013 there were 109 cases exceeding $500 million . This is why, whilst statistics are hard to come by in regards to unpaid commercial arbitration awards due to the confidential nature of the process, it is poignant that the industry has seen a similar trend in the number of cases that have gone unpaid to that seen in securities arbitration. 

As Per Jebson wrote, at the turn of the millennium one out of three securities arbitration awards went unpaid, and up to one-half of the award amounts went unsatisfied . According to FINRA – one of the few bodies that publish data on this subject – this number had dropped to around 11 per cent by 2011.  The potential; of awards going unpaid remains an urgent problem for lawyers and businesses today. But when it comes to enforcement, options haven’t been great for companies pursuing judgment debtors. 

Turning legal paper into a monetised award is hard work. It is a challenge that requires lateral thought and creative problem solving at almost every level of the case. Often, as with the biggest claims, the sought assets are the property of goliath-sized entities: sovereign nations, state-owned enterprises, offshore shell companies and multinational corporations. Entities with clever accountants and lawyers employed to spirit away any tangible assets so they can avoid meeting the orders of the judgment made against them. 

Tracing funds

Not only does the ‘hider’ always have an advantage over the ‘seeker’ but also the odds and financial balance are stacked against the judgment creditor on almost every level. Tracing these funds and piercing the veil on these entities can thus range from quite difficult to near impossible.Many challenges depend on jurisdictions, which can further guarantee that the cost of the pursuit is hugely expensive. This is because there is a paucity of publically available information in many jurisdictions. 

Legal world clichés though they may be, cost and lack of transparency are therefore two of the bigger concerns facing the worldwide recovery mechanism. However, there is a third, compound issue as well. Huge court fees, particularly in London, mean that the war chest is empty for many litigants. That makes it impossible for them to then spend even more money finding where the assets they’re owed are buried. ‘Gaming the system’ can be all too easy for counterparty accountants and advisors.

Accountability

Applying tougher sanctions for those caught gaming the system is therefore something that should be considered by legal and financial centres across the world. Perhaps, greater accountability for these less-than-ethical facilitators who create the sophisticated structures that allow judgment debtors to hide their assets, would offer a solution. 

If they were in the firing line for enabling millions to be concealed and millions more to be lost seeking them, then they would think and act differently. Until such time it would be naïve to expect any substantive improvements that would make asset recovery easier for successful litigants and complainants.  

Creditors must continue to focus on overcoming the legal and factual hurdles standing in the way of monetizing awards. They must continue to search even when assets are concealed in the most curious of places and the most difficult of jurisdictions – whether that’s discovering, as we have, a prized Polo pony in Argentina, or a valuable parking spot in London. 

Finding new solutions

Asset recovery lawyers and corporate investigators will therefore continue to strive to find new solutions. Litigation finance companies such as Burford Capital will play an important part in marrying capital with information; funding the hunt to recover the assets of rogue defendants in the coming years. However, if real change is ever to be enforced then the real problem to address is one of accountability. Until then, the possibility of ever seeing 100 per cent  of awards being paid will remain a pipedream. And too many companies and business people will be left with pieces of legal paper.

Daniel Hall and Michael Redman, an English solicitor and an English barrister (respectively), are Judgment Enforcement Directors  at Burford Capital. They joined Burford as part of its January 2015 acquisition of the respected corporate intelligence firm, Focus, that they co-founded to help clients and law firms trace assets and enforce judgments. They specialise in investigative litigation support, asset-tracing and enforcement.