Global-wide: A Asset Tracing & Recovery (Law Firms) Overview

Bridging the International Asset Tracing and Recovery Timing Gap

Despite increased awareness of international asset tracing and recovery within the legal profession, it is still an all too common experience for asset recovery practitioners, whether they are lawyers, investigators, insolvency practitioners or litigation funders, to be approached only at the moment when a judgment or an arbitral award has already been obtained.

By that time, many crucial steps have already been missed:

1. the proceedings may have been brought against parties who either do not have assets or whose assets are in jurisdictions where they cannot be reached;
2. no serious steps have been taken to identify the defendants’ assets or to secure them for enforcement;
3. the cost of enforcement has not been budgeted for.

In this review, I will attempt to show how international asset recovery should be better integrated at the start of the legal relationship and during litigation or arbitration, drawing on examples from Swiss law.

Identifying the right defendants and causes of action

The failure to anticipate enforcement frequently begins at the contractual stage, as the counterparty is too often a special-purpose vehicle whose assets are insufficient or unavailable to satisfy potential claims.

When the dispute resolution clause does not provide for arbitration, the designated court is often selected without sufficient consideration of the jurisdictions in which a future judgment may ultimately need to be enforced.

As international tracing and recovery becomes more integrated with other legal disciplines, it is to be expected that transactional lawyers and in-house counsel will give more attention to enforcement by:

1. insisting that the counterparty is solvent or obtaining collateral guarantees; and
2. ensuring that the dispute resolution clause allows for enforcement.

Failure to take enforcement into account also tends to occur at the litigation stage, as litigators too often initiate proceedings without asking themselves whether and how the judgment or award can be satisfied against the defendant.

Under Swiss law and many other legal systems, however, various doctrines may be applied to extend an arbitration clause to a third party, including on the basis of agency or apparent authority, veil-piercing (Durchgriff), abuse of right, assignment or succession, third-party beneficiary principles, or interference in the contract’s performance.

Furthermore, a breach of contract may also give rise to tortious claims against third parties, including the counterparty’s representatives, on grounds such as fraud, embezzlement or third-party interference, thereby establishing liability for damages against defendants whose assets may satisfy the claim.

Alternative causes of action and defendants should thus be considered at the outset and during the course of litigation. Unfortunately, it remains all too common for this possibility to be examined only when faced with difficulties in enforcing a judgment or award against the named defendants. By that time, limitation periods may have expired, evidence may have disappeared, and the synergy of conducting parallel proceedings may no longer be available.

An enforcement-oriented approach to dispute resolution requires claimants and their counsel to identify, from the outset, the defendants and causes of action that offer not merely the highest prospects of success on the merits, but the highest prospects of meaningful recovery.

As international asset tracing and recovery becomes increasingly integrated with litigation, litigators and arbitration practitioners will be expected to analyse not only who may be liable, but also against whom a judgment or award may realistically be enforced. This may require expanding the circle of potential defendants and considering alternative causes of action from the outset of the dispute.

Identifying and securing the defendant’s assets

Identifying the defendant’s assets only at the stage of enforcement of a judgment or arbitral award is much too late. As mentioned above, this process should ideally have begun at the time the legal relationship was entered into. In any event, waiting until substantive litigation has commenced is insufficient.

Many jurisdictions allow the obtaining of evidence before substantive proceedings are commenced. Examples include Norwich Pharmacal and Bankers Trust orders in common law jurisdictions, discovery under 28 U.S.C. § 1782 in aid of foreign proceedings in the United States, Article 145 mesures d’instruction in futurum in France, and the selbständiges Beweisverfahren in Germany. In Switzerland, Article 158 of the Swiss Code of Civil Procedure permits the taking of evidence before the commencement of proceedings, provided that a legal interest is demonstrated.

Once litigation has begun, evidence may be obtained through mutual assistance. Several jurisdictions also allow the obtaining of evidence in support of arbitration proceedings. In Switzerland, Article 185a paragraph 2 of the Private International Law Act allows foreign arbitral tribunals, or with the arbitral tribunal’s permission the parties themselves, to request evidence directly from Swiss courts. Under Article 163 paragraph 2 of the Swiss Code of Civil Procedure, which applies to domestic proceedings as well as to mutual assistance and the obtaining of evidence in support of foreign arbitration, a Swiss bank may only refuse to produce evidence if it can make a plausible case that the interest in preserving secrecy outweighs the interest in the manifestation of the truth.

Securing identified assets through freezing injunctions must also occur as soon as possible. Unlike common law jurisdictions, numerous civil law jurisdictions allow pre-judgment or pre-award freezing injunctions without requiring evidence that the defendant may dispose of assets in a manner that would frustrate enforcement. For example, in Switzerland, Article 271 of the Debt Enforcement and Bankruptcy Act allows a Swiss or foreign creditor to apply for a garnishee order against Swiss assets of a foreign debtor, provided that the underlying claim has a sufficient nexus with Switzerland.

The analysis of the availability of such remedies must continue during litigation. Litigation will provide claimants with numerous opportunities to gather evidence and information concerning assets against which their claims may be enforced, provided that this forms part of a global asset tracing and recovery strategy.

Furthermore, in the course of litigation, the availability of remedies may evolve, as, for example, defendants frequently begin concealing their assets when they realise that they may lose, thus providing evidence of a risk of dissipation. For this reason, asset monitoring should be viewed as a continuous process rather than a one-time exercise.

As international tracing and recovery becomes more integrated with other legal disciplines, it is to be expected that litigants will:

1. establish an enforcement strategy from the outset;
2. identify potential enforcement targets before proceedings are commenced;
3. conduct asset tracing in parallel with substantive litigation;
4. continuously monitor the defendant’s asset position throughout the dispute;
5. seek interim measures whenever possible; and
6. adapt the litigation strategy in light of evolving enforcement opportunities.

Conclusion

The future development of international asset tracing and recovery may lie less in the creation of new remedies than in its progressive integration with transactional practice and dispute resolution from the very outset of a legal relationship or the emergence of a claim, so as to close the timing gap that too often persists.