Developments in enforcing judgments – Key cases of 2022
In turbulent economic times, the enforcement of a court judgment becomes a weightier consideration for anyone embarking on litigation. It is one thing to recover a favourable judgment, but it is something else to enforce it against an unscrupulous defendant.
In the words of Lord Bingham: ‘an unenforceable judgment is at best valueless, at worst an additional source of loss’. A judgment creditor has no guarantee that it will actually receive payment. The courts do not automatically enforce judgments and it is for the judgment creditor to choose the most effective and appropriate means when a judgment debtor fails to pay.
There are a range of options open to a judgment creditor and the method (or methods) chosen will depend on the available assets. Noteworthy guidance from the courts in 2022 has touched upon many of the methods of enforcement. In this case notebook, Owen Williams, Head of Commercial and Private Client Litigation and co-author of the textbook ‘Commercial Enforcement’ (3rd ed. Bloomsbury, 2021) reviews four methods when enforcing a judgment and considers a number of key cases this year:
- Court orders to assess a judgment debtor’s finances
- Taking control of goods
- Third party debt orders
- Charging Orders
Examination orders
It is useful to obtain information about a debtor’s assets to determine whether enforcement is worthwhile. Sometimes, where assets are unknown, information can be located by searching public records or an agent may undertake investigations. Another way to gather information is that a judgment debtor can, under Part 71 of the Civil Procedure Rules (CPR), be required to attend court to provide such information for the purpose of enabling a judgment creditor to enforce a judgment or order against them.
An examination order may be obtained even if the judgment debtor has been made bankrupt.
Examination orders when the debtor is bankrupt
In Hijazi v Yaxley-Lennon [2022] EWHC 635 (QB), a high-profile case at the start of the year, the court considered whether a judgment debtor could be ordered to attend court for questioning despite the fact he was an undischarged bankrupt. The judgment debt concerned was a debt provable in the bankruptcy and the debtor would be released from the debt when he was discharged from bankruptcy.
Usually, enforcement proceedings are stayed when there is a bankruptcy. Nevertheless, in this case the court held that the debtor could still be examined. The stay was not automatic; the bankruptcy did not deprive the court of its jurisdiction to order an examination because it is only an information gathering process. The information provided during the examination showing that the debtor had substantial assets would assist the creditor in deciding whether to apply to set aside the bankruptcy.
Examination orders in public
An examination will usually take place in public.
It is perhaps not surprising that a judgment debtor would prefer to be questioned about their assets in private. This was the subject matter in Adare Finance DAC v Yellowstone Capital Management SA [2021] EWHC 2406 (Comm). Here the judgment debtor, a businessman said to be of substantial wealth, owed US $12 million and wanted to be questioned in private. It was held that in an appropriate case an examination can be conducted partly in private, but the burden was on the debtor to justify this. This had not been done here.
The general rule is that such hearings take place in public as they are part of the work of the courts. The public are entitled to attend court proceedings to see what is going on and the media has a right to report on court proceedings. The hearing of cases in open court maintained public confidence in the administration of justice. The fact that a hearing in open court may be painful, humiliating and a deterrent is not normally a proper basis for departing from the open justice principle.
Taking control of goods
Taking control of goods is a popular method of enforcement. A court document is issued that commands an enforcement agent to seize and sell a judgment debtor’s goods to raise funds to satisfy the judgment debt. If third parties claim that the goods taken control of belong to them rather than to the judgment debtor, there is a procedure to resolve any dispute. The procedure involves the third party, the enforcement agent and judgment creditor setting out their claims to the goods within certain deadlines so that the court can decide who owns the property. This year has seen two prominent cases involving third parties asserting ownership over assets.
Complex third party claims
Enforcement agents may only take control of goods that belong to the debtor.
Third party claims against goods are not always straightforward.
Appropriate concessions should be made.
In Fap Art Management GmbH & Co KG v Philbrick & Anor [2022] EWHC 603 (QB) the judgment debtor was an art dealer who had engaged in fraud. The High Court considered the ownership of 10 famous paintings which had been seized under a writ of control. A third party made a claim to the paintings which it said it had either purchased or had a share in. The judgment debtor conceded that the third party had a 50% share in two paintings and the third party was successful in establishing that they had purchased two further paintings.
Much of the judgment considers whether the third party was able to establish an interest in the other paintings pursuant to a ‘collateral agreement’ between the third party and the judgment debtor. Essentially, the collateral agreement was entered into when the judgment debtor could not repay a debt to the third party – paintings were said to be held by the third party as security for the debt. The court had to apply the law of New York as this was the governing law of the collateral agreement. The third party’s claim failed. It was held that, although there was a binding contract, it was also necessary for the third party to have perfected its security interest by the time that the enforcement agent took control: this was not established by the third party.
Looking carefully at third party claims
Parties should engage with each other at an early stage. Claims by third parties should be examined carefully with a view to avoiding litigation.
Alenezy v Shergroup [2022] EWHC 777 (QB) is a novel case which concerned liability for legal costs that were incurred due to the clamping and removal of Mr Alenezy’s highly valuable and high specification Range Rover by enforcement agents. Mr Alenezy was the brother of the judgment debtor. Mr Alenezy recovered the vehicle after he obtained an injunction and the only issue that remained was the costs of the proceedings
The enforcement agents sought to rely on the fact that Mr Alenezy had not used the procedure that is set out in Part 85 of the court rules (CPR) to force the return of the goods. It was held that although Mr Alenezy should have used the procedure in CPR Part 85, he had substantially complied with the pre-action procedure that exists under that part. (The purpose of those rules is to ensure that any disputes are clearly identified: if there is no dispute then the matter should end there and the goods returned without any need for the court to be involved.)
The enforcement agents were not entitled to manufacture a dispute where there was no doubt that a third party owned the relevant goods. The rules were not designed to create procedural loopholes to allow enforcement agents to act “with impunity”. The terms of the injunction were orders which the court could have made in accordance with Part 85. There was only a minor procedural defect.
A costs order was made in Mr Alenezy’s favour. There were no reasonable grounds to take control of the vehicle and they had failed to comply with their obligations only to take goods belonging to the debtor. The defendants had made false assertions about what had happened and had attempted to manufacture a ‘dispute’. They had acted with cavalier disregard for their obligations.
Third party debt orders
A third party debt order is a method of enforcement which allows the recovery of sums owed to a judgment debtor that are in the hands of a third party. The court’s power to make such an order is contained in the court rules in Part 72. First, an application for an interim third party debt order is made and then a further application is heard to make the third party debt order final.
Third party debt orders involving cryptocurrency
Enforcement cannot be avoided by holding funds in cryptocurrency.
In Ion Science Ltd v Persons Unknown (unreported), 28 January 2022, Master Cook in the High Court made a final third party debt order in the region of £3 million in relation to cryptocurrency. It would appear that this is the first time cryptocurrency has been made subject to such an order in this jurisdiction.
The claimants obtained judgment for £2.9m against Mirriam Corp after it failed to respond to its claim relating to an alleged cryptocurrency scam. Disclosure revealed that Mirriam Corp held cryptocurrency in an account held by Payward (a subsidiary of the cryptocurrency exchange Kraken). The claimants obtained a third party debt order against Payward in relation to that account – this is because Payward owed the cryptocurrency, held in the account, to its customer Mirriam Corp.
Third party debt orders involving pensions
Whilst money held in bank accounts is usually the target of third party debt orders, this enforcement method can be used in a much wider capacity. However, the relationship of creditor and debtor between the judgment debtor and the third party must exist for the procedure to be used. For the purposes of a third party debt order, pension funds are not debts due to the judgment debtor while they remain undrawn. A debt only arises when the policyholder draws down the fund. So, how can a judgment debtor be forced to exercise their right to draw down their pension so that it can be subject to a third party debt order?
Where a judgment debtor has a pension which remains undrawn, an injunction can be ordered to first bring about the drawdown and create the existence of a debt. Then a third party debt order may be granted.
Detailed guidance in relation to enforcement against a judgment debtor’s pension by way of a third party debt order was provided in Lindsay v O’Loughnane [2022] EWHC 1829 (QB), Brake v Guy [2022] EWHC 1746 (Ch) and Bacci v Green [2022] EWHC 486 (Ch) in the High Court this year. A policy holder can be forced to exercise their pension rights by way of an injunction or by way of equitable execution following the appointment of a receiver (pursuant to section 37(1) of the Senior Courts Act 1981)
In the latter half of the year the Court of Appeal considered Bacci v Green [2022] EWCA Civ 1393 and confirmed that a judgment debtor may even be ordered to delegate the exercise of personal or proprietary rights to creditors (thereby shortcutting the need to appoint a receiver) to make assets available for enforcement.
Charging Orders
A charging order is a way of securing a judgment debt by imposing a charge over a judgment debtor’s beneficial interest in land, securities or certain other assets. After obtaining a charging order, the judgment creditor may then make an application for an order for sale of the property or wait for its sale in due course (either by the owners or an order obtained by other creditors).
Charging orders with an international element
In Cesfin Ventures LLC and another v Al Ghaith Al Qubaisi and another [2021] EWHC 3311 (Ch), a decision made at the end of 2021, the claimant sought to enforce a costs judgment by means of charging orders over three properties situated in England. The defendant was the registered owner, but Abu Dhabi Corporate Bank (ADCB) held a priority ranking first charge over two of the properties. Under the English Civil Procedure Rules, a claimant is required to serve creditors who have been identified in the application for a charging order or as directed by the court. Here the claimant obtained an interim charging order and was required to serve the interim order on the defendant and ADCB – they were both based outside the jurisdiction. The defendant was served but, before the court could grant a final order, it had to decide if ADCB could be served outside the jurisdiction and by alternative means.
The usual rules on service apply to the notification provisions concerning an interim charging order.
It may be necessary to seek permission to serve out (and for alternative service) when it comes to service on third parties who must be notified.
It was held that the order could be served on the third party creditor outside of the jurisdiction here. The court’s jurisdiction was established. The charging order related to property within the jurisdiction and to the extent ADCB was a party at all, it was a necessary and property party. There was a serious issue to be tried and England was clearly the appropriate forum. Alternative service in the UAE was also permitted. The court held that the diplomatic channels permitted under the UK/UAE treaty on Judicial Assistance in Civil and Commercial Matters were not exclusive. There would be delay if service was to take place via diplomatic channels and ADCB was already on notice.
Charging orders under the 2020 Debt Respite Scheme Regulations
Finally, in Lees v Kaye and another [2022] EWHC 1151 (QB), the court considered the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 which came in on 4 May 2021. The Regulations include protection to debtors who are receiving specific types of mental health crisis treatment. Action taken by creditors to enforce a qualifying debt during a moratorium is null and void under the Regulations.
Debtors who qualify can apply for a mental health crisis moratorium or a breathing space moratorium to halt enforcement action.
Practitioners must be fully aware of the provisions.
A step taken in breach of the Regulations can have serious consequences.
In this case, after success at trial, a charging order was made final against Ms Lees. A number of mental health crisis moratoria were then entered into by Ms Lees. Possession was delayed but eventually taken and sold. Ms Lees sought to challenge these steps by declaration of invalidity and injunctive relief to regain access given the existence of a moratorium at all material times. She was ultimately successful.
The moratorium had been registered and was a matter of public record. Importantly, the court considered the enforceability of charging orders where a moratorium arises. Regulation 7(13) says that nothing in Regulation 7 affects “a charging order made before the start of the moratorium”. However, it was held that this only means that the charging order is preserved and remains as security for the debt during the moratorium. The creditor is still prevented from enforcing payment of the debt. The eviction and sale of the property here was null and void under the Regulations.
Speak to a judgment enforcement specialist solicitor
If you want to discuss any of the issues raised in this article or would like to talk to a commercial litigation or debt recovery solicitor who specialises in enforcement, please contact one of the team below.
