In a recent judgment, Lakatamia Shipping Co Ltd v. Nobu Su (aka Su Hsin Chi; aka Nobu Morimoto) [2021] EWHC 1907 (Comm), the High Court has confirmed that the tort of intentionally violating rights in a judgment debt, which is also known as the Marex tort, is recognized by English law. The ruling provides an additional avenue for judgment creditors to recover funds where obstruction by the judgment debtor threatens to derail their efforts.
The court also highlighted the court's discretion to consider whether adverse inferences should be drawn from a party's failure to provide proper disclosure or to call witnesses, noting that in this case, several of the missing witnesses could either have provided evidence helpful to the party that could have called them, or would likely have stayed silent.
Background
The claimant, Lakatamia Shipping Co Ltd, brought proceedings against Madam Su (as she was known), the mother of a shipping magnate, Nobu Su (aka Su Hsin Chi; aka Nobu Morimoto), who ran up huge debts by derivative trading in forward freight arrangements, in the process destroying the family business.
The claimant's action against the first to fifth defendants was based on two grounds – unlawful means conspiracy and Marex tort.
With regard to the unlawful means conspiracy, the claimant alleged the defendants (including the second defendant, Madam Su) engaged in a conspiracy to cause injury to the claimant by the dissipation of the sale proceeds of assets beneficially owned by Mr. Su (a private jet and two villas in Monaco), in breach of a worldwide freezing order made against Mr. Su in August 2011.
The claimant's claim in Marex tort alleged that Madam Su and others had knowingly procured Mr. Su's failure to discharge a November 2014 judgment debt in which Mr. Su was found personally liable to the claimant in the sum of US$38 million. That was followed by a further judgment of nearly US$10 million.
The claimant pursued Mr. Su for payment but attempts to locate the assets were continually frustrated, with Mr. Su claiming to be bankrupt. By the time of trial, the total judgment debt owed to the claimant had reached more than US$60 million.
The defendants were all related to each other, being either companies through which title was held, which were used as a vehicle for transferring funds, and which were ultimately beneficially owned or controlled by Madam Su.
Mr. Justice Bryan dismissed Madam Su's defence that she did not know about the freezing order and so could not have interfered with the claimant's rights in the judgment debt. The court rejected her evidence that she had stepped back from the business and had no real understanding of finance or business.
Instead, Bryan J was convinced that at the time of facilitating the transfers, Madam Su had full knowledge of Mr. Su owing the judgment debt. Many factors were taken into account, which included Madam Su's heavy involvement in the same business that Mr. Su controlled in relation to its day-to-day borrowings, payments and financing; her close interaction with the employees of the business during the material time, and the inherent unlikelihood that the employees did not make Madam Su aware of the judgment debt; and the fact that there were contemporaneous documents revealing that Madam Su was being kept appraised of the litigation and was asked to provide funds for Mr. Su.
The court concluded she was a "dishonest witness and consummate liar" who had lied repeatedly in her written and oral evidence.
Marex tort
The tort of intentionally violating rights in a judgment debt is derived from the cause of action outlined in Marex Financial Ltd v. Sevilleja [2017] EWHC 918 (Comm).
The court in Marex drew a close analogy to the long-recognized tort of inducing a breach of contract. To succeed in a claim of Marex tort, the court noted that five elements have to be established.
- Judgment must have been entered in the claimant’s favor.
- There must have been a breach of rights under the judgment.
- The defendant must have procured or induced the breach.
- The defendant must have had knowledge of the judgment. This knowledge element can be easily established as the law does not require any specific knowledge of the contents of the judgment, instead, the defendant’s recklessness, indifference or turning of a blind-eye to the judgment will suffice.
- The defendant must have realized that their conduct of inducing or procuring the breach would constitute a breach of rights under the judgment. It should be noted that while the defendant's intention to breach the contract must be present, no ill-will, spite or desire to injure by the defendant needs to be established.
Bryan J found a "compelling" analogy with the tort of inducing a breach of contract, saying "there would seem to be no compelling reason why, in circumstances where the law protects against intentional interference by third parties with contractual rights it should not equally protect against intentional interference with rights established by judgments."
He continued that "absent such protection, the law would perversely diminish the protection that it affords to a victim of a breach of contract where the victim has had those rights vindicated by the courts." Applying the principles, the court found all elements of the tort to be established.
Absence of witnesses
Bryan J relied on earlier cases and set out relevant principles in relation to adverse inferences that may be drawn from a party’s failure to call witnesses.
The court noted it was well established in Wisniewski v. Central Manchester Health Authority [1998] PIQR 324 that the court has a discretion to draw adverse inferences from the absence or silence of a witness who might be expected to have material evidence to give on an issue in an action, but is not obliged to do so, if a credible explanation is given.
Wisniewski was further considered in the recent case of Magdeev v. Tsvetkov [2020] EWHC 887 (Comm) in which Cockerill J decried the "tendency to rely on this principle in increasing numbers of cases", noting the Court of Appeal decision in Manzi v. King's College Hospital NHS Foundation Trust [2018] EWCA 1882.
The drawing of such inferences was not something to be lightly undertaken. Where a party relies on it, it is "necessary for it to set out clearly (i) the point on which the inference is sought (ii) the reason why it is said that the "missing" witness would have material evidence to give on that issue and (iii) why it is said that the party seeking to have the inference drawn has itself adduced relevant evidence on that issue."
In the present case, it was found not appropriate to draw an adverse inference from the absence of any of the potential witnesses, several of whom the court found to be of limited relevance to the matters in dispute.
In relation to a witness Bryan J did consider to be important, due to the fact that Lakatamia had previously sought a freezing injunction against the witness and whom Lakatamia had considered joining as a defendant, Bryan J "had no doubt whatsoever that [the witness] would have wished to remain silent" and hence found that no further adverse inference needed to be drawn in relation to the absence.
As to another a business associate who might have been able to shed light on what happened to the sale proceeds of the Monaco villas, Bryan J found that the absence itself was already damaging to Madam Su's defence and there was no need for the court to draw further adverse inferences.
Failure to make disclosure
The same principles set out above in relation to drawing of adverse inferences from witnesses' absence or silence are equally applicable to issues in relation to disclosure. The court is entitled to draw inferences from all available material, not limited to materials that have been disclosed but also from judges' own judicial experience of what is likely to be concealed and the inherent probabilities in deciding what the facts are.
Adverse inferences can be drawn from any deliberate suppression of documentation in any party’s control, as the judge took the view that this is analogous to the destruction of documents since the court, in effect, is deprived of the documents that should be before it.
There must, however, be a reason for the court to believe that the documents do indeed exist before concluding that documents have been concealed. Where there is doubt, the court should give the opposing party the benefit of the doubt.
In the present case, two adverse inferences were drawn in relation to failure to make disclosure. None of the fifth defendant shipping company's bank statements was disclosed and Madam Su alleged she did not know anything about the company. However, the evidence showed that a complete run of bank statements for the period not only existed but had been preserved in an orderly way. The adverse inference to be drawn was that the bank statements had been removed by Madam Su or someone on her behalf because they would have been damaging to her defence.
Another adverse inference was drawn relating to a loan in the amount of US$44 million granted to Mr. Su. The only document disclosed was a fax demonstrating the existence of the loan and no documents had been disclosed that might have shown the source of the funds.
In an attempt to explain the lack of documentation disclosed, Madam Su gave vague evidence about receiving money from "unnamed 'friends' in Hong Kong", which Bryan J found to be not credible.
He also opined that regardless of the supposed informality of the loans, there must have been a large amount of documentation involved to which Madame Su would have access, and that such documentation would be likely to reveal the source of the loans. It was not necessary for the court to draw an adverse inference but doing so would help to bolster the conclusions from the other evidence identified.
Welcome clarification
Bryan J's 218-page judgment resulted in a EUR27 million (HK$248 million) judgment in favor of the claimant, whilst explicitly recognizing that intentionally interfering with a judgment debt is an actionable wrong under English law.
Judgment creditors may welcome the decision as it will give them a further tool in their litigation armory where they suspect that a judgment debtor has sought the aid of others to avoid enforcement of the judgment by the dissipation of assets.
Indeed, the Marex tort may be a more fruitful avenue for redress than the tort of unlawful means conspiracy as it permits the pursuit of a third party, separately from the judgment debtor, without the requirement to show that the two parties conspired together.
In addition, the clarification of the principles surrounding adverse inferences will serve as a useful reference point to Hong Kong courts when they come to consider issues surrounding the absence of witnesses and inadequate discovery.
Authored by Nigel Sharman and Chloe Wong.
