The Asset Recovery Hub recently caught up with Tom Glasgow, Chief Investment Officer (Asia) of IMF Bentham, and Bruno Vickers, Senior Director of Investigations at GPW Asia to discuss enforcing legal awards in Asia.
Q: When and why should claimants think about enforcement?
Tom Glasgow: As a funder of commercial disputes, recovery is first and foremost in our case assessment. Most of our funding is ‘non-recourse’, which means if there is no recovery from the action, we do not receive a return on our investment. The same applies to a claimant funding their own case – if there is no ultimate recovery, the claimant may be left with significant costs and no meaningful returns.
The more you know about the respondent, the better you can strategize and assess the probable outcome in a case. This includes the likely parameters for any settlement. For example, you might have a case against a party for 100 million, but they have limited financial means and insurance cover of only 10 million. The best strategy then might be to seek an early settlement to recover as much of the insurance cover as possible, before it is used up in respondent’s defence of the claim. Similarly, some cases may not be worth pursuing at all because the likely recoveries will not justify the costs. In other cases, investigation of the respondent has helped us identify strategic assets which, when targeted for enforcement, bring strong leverage for settlement.
For this reason, we always assess cases with the ‘end point’ in mind. This means establishing whether the respondent can meet any award or settlement and, if so, to what extent. Failing that, we need to establish whether there are assets available for enforcement in a jurisdiction where it can be done within reasonable time and cost. If there is a risk that the respondent will try to hide assets, then we will also want to consider our options to preserve them.
Too often in my experience, these matters are the last to be considered by claimants and lawyers advising on prospective claims. In many cases submitted to us for funding, there has been little or no assessment of the respondents’ financial position or the practicalities of enforcement. This mindset needs to change. It is not commercial. A great legal case is worthless if there is no meaningful end point. I always say, ‘Start where you want to end up and work backwards’. Seek a view on recovery as a first step. The cost of confirming the respondent’s financial position upfront is far less than fruitless legal proceedings and the strategic insights you gain can be extremely valuable.
Q: What are some particular challenges related to enforcement and asset recovery in Asia?
Bruno Vickers: Our principal role as it relates to recovery on legal cases is investigating and mapping the asset position of counterparties. A significant challenge for such investigations in Asia is that the public record differs enormously by country and is generally quite thin relative to more developed economies. Formal record keeping on legal and detailed corporate matters, where it exists, can be incoherent, poorly maintained and not easily searchable online. Other public sources, such as corporate websites, local press and social media, can also be misleading or prone to sensationalism or censorship.
So knowing what information is available in each country and where to get it is vital. It is also important to go beyond conventional online resources; for example, in a country like Indonesia where online information is limited we’ve cracked open cases by finding valuable hard copy documents hidden in obscure archives tucked away in remote rural registries.
We also need to think laterally and probe outside the public record. This means finding human sources to generate leads, corroborate data and fill information gaps – whether it’s a disgruntled former employee, a supplier who has not been paid, a neighbouring or competing business, these sources can be an invaluable source of insight into companies about which little information is available publicly.
Thinking laterally also means going beyond fixed domestic assets such as real estate and seeking out movable assets too like cash, vessels, financial instruments in overseas accounts, or trade receivables due from overseas vendors. Just like people have a favourite watering hole, individuals and companies across the region favour certain assets and holding structures. GPW’s experience allows us to exploit these proclivities; for example, the Chinese are fond of incorporating in the BVI and buying property in Hong Kong, while Indian nationals prefer holding companies in Mauritius or real estate in the UAE and Indonesians buy property and school their children in Singapore.
A final consideration for successful recovery in this region is to look beyond the jurisdiction of the dispute or where a counterparty is based. Anyone who has tried to enforce court judgments in countries like China or India will know enforcement is rarely straight forward. Fortunately, it is unusual to find a sovereign state, company or individual operating in just one jurisdiction – also the rule of law factors that make enforcement easier in the likes of Singapore, Hong Kong or Australia are also what makes them attractive places to invest and hold assets.
Q: What trends and developments have you seen in disputes, asset tracing and enforcement in Asia?
Bruno Vickers: I see three important and positive developments related to enforcement and asset investigations in Asia.
Firstly, it is encouraging to see the growing use of Asian dispute centres to resolve regional matters. Singapore and Hong Kong are now ranked third and fourth most preferred seats globally. This may be due in part to the marked increase in disputes emanating from some of the fastest growing regional markets. Many investors rushed in to countries like Vietnam and Indonesia without undertaking proper due diligence – i.e. doing more than box ticking compliance checks to look at the reputation, track record and solvency of customers, investment targets or joint venture parties. With growing trade friction and a likely global economic slowdown in the next couple of years, we expect the number of these disputes will only increase.
Secondly, we are seeing a promising trend in some countries towards more transparency – although there is a long way to go. For example, some states in India such as Delhi now have publicly searchable property registers, while in China basic corporate information is now available from online registries, albeit only in Chinese.
A final trend is the introduction of litigation funders into the market here. Funding in enforcement has been a game changer by allowing more claimants to pursue cases they may not otherwise have the means – or expertise – to carry out. We find that funders are generally more conscious of the importance of recovery from the outset and are willing to invest resources into assessing this at the outset. From our perspective this approach is an enormous benefit to claimants and to the successful management of a case.
Tom Glasgow: I agree with Bruno; the extent and complexity of international commercial disputes is on the rise in Asia. This is not surprising given the extent of cross-border investment into and within the region, especially in the energy, infrastructure, resources and technology sectors. China’s Belt and Road Initiative is an often-cited example, but there are many more.
While global economic interests shift towards Asia, the cultural diversity in the region and a range of economic pressures gives rise to disputes, many of which result in international arbitration or cross-border insolvencies. The disputes are often complex, costly and may involve multi-jurisdictional enforcement strategies in developing countries. These are difficult matters for commercial parties navigate – they must balance the potential high costs and risks of failure against the importance of projecting a strong position and pursuing the interests of the business. Very often good claims are left aside or settled unfavourably – the risk and uncertainty is considered too high.
Related to all of this is a clear trend in the dispute finance industry: we are seeing a steady increase in the use of dispute funding by corporations, not because they lack the financial means to pursue a case, but because they wish to de-risk by sharing the costs of the dispute and benefiting from the international expertise of established funders like IMF Bentham. Essentially, companies can transfer the often-significant cost of a dispute to us, removing the downside risk from their books, while retaining the bulk of the potential upside and pursuing the company’s interests aggressively. In some cases, we are helping corporates to do this across multi-national portfolios of disputes, as innovative GCs and CFOs grow to understand the risk-mitigation and cash flow benefits of dispute finance.