The Secret’s Out! (You Hope!)

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Is the financial secrecy of a claimant causing you problems in court proceedings? Turn the tables by making them pay security for your legal costs.

Ever wanted a quick deal on best terms? Make the other side believe that they have no alternative and are about to waste a lot of money.

Griffin Law’s experience in pursuing commercial litigation for onshore and offshore clients involves us seeing a common tactic of making the other side believe that they are never going to get their legal fees back if continuing the fight to a successful end. Those doing this will try and keep their true financial position hidden and so add further pressure to force a settlement.

The Court of Appeal in Sarpd Oil International Ltd v Addax Energy SA and another [2016] took a significant step to neuter the above tactic when a claimant had commenced a claim against a defendant. In situations such as this, the defendant has no say on if the claim will be issued and then must choose to fight it out or pay up. The court has now acknowledged that the defendant has one arm behind their back in making that decision where the claimant hides their financial information.

Sarpd was a British Virgin Island registered company and brought a claim in the English High Court. Addax knew that if it won the case and obtained an order for Sarpd to pay the legal costs, it could find that Sarpd either had insufficient or even no assets to pay those costs, that those assets maybe in a foreign jurisdiction or, most likely, it would have no means of obtaining any information to shed light on the subject.

Addax applied to have Sarpd pay into Court over £800,000 towards possible legal costs that Addax was contemplating it might have to pay. Addax failed before the High Court judge at the first attempt but wisely dusted themselves down and went off to the Court of Appeal to try again. On their second attempt they won the argument. The Court of Appeal had a very dim view on Sarpd’s failure, in the face of repeated opportunity, to show its ability to pay and made it clear the High Court had been wrong to find the burden fell on Addax.

The obvious explanation of the refusal to disclose their financial position was that Sarpd wanted, for the purposes of settlement negotiations, to leave Addax in doubt about whether it would recover its costs even if it defeated the claim. By doing so – and by then resisting having to give security for costs – the Court said Sarpd was trying to have its cake and eat it. The Court of Appeal was clearly having none of it and ordered the payment of security into court.

If companies want to keep their financial position confidential for business reasons, the Court made it clear that arrangements can always be made by the Court if there are legitimate business reasons for keeping something confidential. Sarpd and their lawyers failed to make an application for the Court to sit in private or to avoid referring in public to relevant financial amounts.

If a foreign company who is not obliged to publish accounts, has no discernible assets and declines to reveal anything about its financial position commences court proceedings in England, from now on it is clear that they must accept the risk of security as the price for financial secrecy.

Conclusions

Lawyers for defendants in this situation should remember to ask in advance of making an application to the court for claimants to make financial disclosure and make clear that, without a suitable reply, an inference as to lack of available assets would be drawn. That might be obvious – but those for Addax did not do so and it was perhaps fortunate that the Court got around that when criticising Sarpd for wasting the chance to disclose financial matters voluntarily before everyone went off to court for the application to be heard.

Lawyers for claimants, especially those recently incorporated or incorporated offshore where the financial position is not or not yet a matter of public record, will need to tread carefully if they wish to preserve secrecy. This is still possible, but likely only by being prepared to offer to show all to the court in private.  That might avoid getting the cheque book out for hefty sums by way of security.

By |2019-04-09T11:11:48+00:00April 26th, 2016|Changes in the law, Cross Border and International Litigation|Comments Off on The Secret’s Out! (You Hope!)

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