Midsummer blues (if you’re a judgment creditor)

Imagine your clients have just got judgment for zillions against a company. You then find that the man behind it, or one of his pals, has quietly siphoned off the company’s assets to some entity in the back of beyond to make sure your clients never see their money. What can you do? Unfortunately one remedy, a suit against the person responsible for diverting the assets, now seems largely closed off. At least that seems to be the result of an important Court of Appeal decision today, Garcia v Marex Financial Ltd [2018] EWCA Civ 1468.

Foreign exchange brokers Marex had a judgment for a cool $5 million, give or take a few thousand, against a couple of BVI companies owned by one S. Hey presto, when it came to enforcement the cupboard was bare, save for a measly $4,392.48, having (on Marex’s case) been deep-cleaned by S. Marex sued S for dishonestly asset-stripping the BVI companies of something over $9 million, alleging correctly that this amounted to the tort of causing loss by unlawful means.

At this point they were met with a plea that their action was barred by the principle of reflective loss stated in Johnson v Gore Wood [2002] 2 AC 1. Marex’s claim was based on the companies’ loss through the defendants’ wrong of the assets that would have been used to pay  their debt: it was thus the companies’ claim and no-one else could be allowed to piggy-back on it. The defence did not convince Knowles J (see [2017] EWHC 918 (Comm) , noted here in this blog); but it did impress the Court of Appeal. The bar on reflective loss extended to any claim based on a wrong causing loss to the company that had a knock-on effect of causing loss to a third party: it did not matter whether the claimant was a shareholder, a stockholder, a  creditor or anyone else. Nor could the rule be sidelined where (as here) it was practically impossible for the company to sue the wrongdoer: the exception in Giles v Rhind [2003] Ch 618 applied only in rare cases where it was not only factually but legally impossible for the company to sue.

How far this decision generally eviscerates the tort of causing loss by unlawful means where the immediate victim is a company remains to be explored. The fact remains, however, that since today an English judgment against a corporate, as against an individual, defendant has become that less valuable as the ability of third parties to frustrate it with relative impunity has grown. Moral: get that freezing relief as soon as possible. It may be all you have to rely on at the end of the day.