asset tracing and recovery challenges in cis filatov...
TRANSCRIPT
Asset Tracing and Recovery Challenges in Kazakhstan, Latvia and Ukraine
Geneva
27 March 201427 March 2014
Andrew BartlettPartner, International Disputes
osborneclarke.com
Speakers
• Moderator:
– Andrew Bartlett (Partner, Osborne Clarke, UK) [email protected]
• Panel:• Panel:
– Bakhyt Tukulov (Joint Head of Litigation, Grata Law Firm, KAZAKHSTAN) [email protected]
– Aldis Alliks (Attorney-at-Law, Of Counsel, Varul, LATVIA) [email protected]
– Alexey Filatov (Head of Dispute Resolution, Vasil, Kisil & Partners, UKRAINE) [email protected]
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Themes for discussion
• What are the issues in respect of getting judgments and awards enforced in these countries – Kazakhstan, Ukraine and Latvia?
• What options are there to obtain information about a debtor’s assets?
• In practice, to what extent can you get interim relief to preserve • In practice, to what extent can you get interim relief to preserve assets?
• Are there legal means to enforce against assets held by third parties?
• The realities of litigating in local courts in these countries
• What tactics tend to be used to frustrate enforcement?
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Factual scenario
• Claimant is an international bank, Defendant is a Kazakh national residing in London
• Defendant beneficially owns assets located in Kazakhstan, Ukraine and Latvia, including land, commercial properties, shares in local and Latvia, including land, commercial properties, shares in local banks and companies
• The assets are legally owned by a large number of offshore companies (effectively controlled by the Defendant or his affiliates) and their local subsidiaries
• Defendant has right to stream of contractual revenues (in the future)
• Valuable assets have recently been transferred to defendant's family members and other affiliates
• Defendant has connections with members of the local governments3
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Recognition and enforcement of foreign judgments
• Approach to recognition
– foreign court judgments
– arbitration awards
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• Public policy exceptions
• Matters subject to the exclusive jurisdiction of local courts
• Speed & efficiency of process
• Risk of political interference
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Recognition and enforcement of foreign judgments (Kazakhstan)
• Approach to recognition: foreign court judgments and arbitral awards are not recognized and enforced unless there is an international treaty. There is no enforcement based on reciprocity.
– Kazakhstan is a party to 7 bilateral and 2 multilateral treaties on – Kazakhstan is a party to 7 bilateral and 2 multilateral treaties on legal assistance with developing countries and former USSR states (including China, India, Turkey, UAE).
– Kazakhstan is a party to 1958 New York Convention, 1961 European Convention on International Commercial Arbitration, and 1965 ICSID Convention. Foreign arbitral awards are recognized and enforced without significant difficulties.
• Public policy exceptions: applied in extremely rare situations
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Recognition and enforcement of foreign judgments (Kazakhstan) (2)
• Matters subject to the exclusive jurisdiction of lo cal courts: (i) proceedings in connection with rights to immovable property located in KZ (ii) claims against transport operators (iii) divorce proceedings between a KZ citizen and foreigner, provided both reside in KZ etc.
• Speed & efficiency of process: Foreign arbitral awards are enforced fairly quickly, from a month to six months, depending on how aggressive the respondent is. There is very little experience with enforcement of foreign judgments.
• Risk of political interference : Is not high, generally. Might be severe in extraordinary situations which may lead to impossibility of attempts to recognize and enforce a foreign arbitral award on various grounds, primarily, procedural.
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Recognition and enforcement of foreign judgments (Latvia)
• Approach to recognition: foreign court judgments and arbitration awards are recognized and enforced according to international treaties
• Special “treatment” is, of course, applicable to the court judgments passed in other EU Member Statespassed in other EU Member States
• Latvia is a party to bilateral treaties on mutual legal assistance with several non-EU countries
• Latvia is a party to 1958 New York Convention on Recognition and Enforcement of Arbitral Awards and 1965 ICSID Convention. Foreign arbitral awards are recognized and enforced without significant difficulties.
• Public policy exceptions: can be applied (no cases in practice)
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Recognition and enforcement of foreign judgments (Latvia) (2)
• Matters subject to the exclusive jurisdiction of lo cal courts: (i) proceedings in connection with title to real estate located in Latvia (ii) specific family law issues
• Speed & efficiency of process: Enforcement of foreign court • Speed & efficiency of process: Enforcement of foreign court judgments and arbitration awards is fairly fast and efficient provided all the formalities are met. There are, however, several exceptions according to the [Latvian] Civil Procedure Law when no enforcement is permitted and hence the defendant may have a tool to fight against it.
• Risk of political interference : In general, no risk
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Recognition and enforcement of foreign judgments – Ukraine (1)
Foreign judgments and arbitration awards:
• according to an international treaty
• on assumed reciprocity principle (Art. 390 (2) of CPC)
� burden of proof on the debtor/ defendant� burden of proof on the debtor/ defendant
� not always works in practice (Univermag Ukraina, 2013)
Exclusive jurisdiction of local courts
• Disputes related to Ukrainian real estate or Ukrainian public registers
• Corporate disputes in Ukrainian entities and disputes related to issuance of securities in Ukraine
• Certain specific family, IP and other matters:
- disputes between parents and children if both reside in Ukraine
- inheritance disputes if the antecessor resided in Ukraine
- IP disputes when the IP rights are to be registered/ patented in Ukraine
- bankruptcy proceedings of Ukrainian entities. 9
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Recognition and enforcement of foreign judgments - Ukraine (2)
Multilateral treaties:
• 1958 New York Convention on the Recognition and Enforcement of ForeignArbitral Awards
• 1961 European Convention on International Commercial Arbitration• 1961 European Convention on International Commercial Arbitration
• 1993 CIS (Minsk) Convention on Legal Assistance and Legal Relations inCivil, Matrimonial and Criminal Cases (CIS judgments)
Bilateral treaties:
• Ex-URSS: Lithuania; Estonia; Latvia; Moldova; Georgia; Uzbekistan
• Eastern Europe: Poland; Hungary; Czech Republic; Romania; Bulgaria
• Southern Europe and Middle East: Greece; Macedonia (FYRM); Cyprus;Turkey
• Asia: China; Korea; Mongolia; Vietnam
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Recognition and enforcement of foreign judgments – Ukraine (3)
• Public Policy Exceptions
• Article 396 CPC: Ukrainian court may refuse to enforce a foreign judgment if it wouldharm the interests of Ukraine
• Scarce jurisprudence - sometimes interpreted broadly
• Public policy under 1958 NY Convention and other treaties:
- Supreme Court 1999 (general guidance)
“public order should be understood by … determining principles … beingfundamentals of the existing state order, and connected with its independence,integrity, inviolability, main constitutional rights, freedoms, guarantees etc…”.
- Supreme Court 2010 (SCC arbitral award in RosUkrEnergo v Naftogaz)
public policy objections are groundless, as “the awards are binding only uponRosUkrEnergo AG and NJSC “Naftogaz of Ukraine” and do not influence on theindependence, integrity, sovereignty and inviolability, basic constitutional rights,liberties, guarantees as basis of Ukraine’s existent regime.”
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Recognition and enforcement of foreign judgments – Ukraine (4)
Other Practical Aspects
• Courts generally positive about recognition/ enforcement if formal requirements are met
• Strict formal rules and requirements/ judges not keen to use discretion
- NY Convention: agreement and award
- CPC: judgement: confirmation of effectiveness; confirmation of notification.
• Proceedings rather speedy:• Proceedings rather speedy:
� local court (first instance): 2-3 months average
� full proceedings (incl. appeal and cassation): 6-12 months average
• Low costs; court fees nominal
- no bonds or securities for provisional measures
• Peculiarities of enforcement of foreign interim orders
� enforcement of the foreign orders directly not provided by law but recognized by jurisprudence (e.g. freezingorder, receivership order and the partial order in BTA Bank v Ablyazov)
� some treaties provide that only final court judgments (but not interim orders) are enforced
� no enforcement of interim orders issued by arbitration tribunals
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What options are there to obtain information about a debtor’s assets?
• Land – is there a public register?
• Bank accounts – banking secrecy?
• Shares
• Creditors – can you get information about debts owed to debtor?• Creditors – can you get information about debts owed to debtor?
• Third parties involved in wrongdoing – eg. banks involved in money transfers
• Innocent third parties - eg. email service providers
• Disclosure of assets – can you compel a defendant or directors of a corporate defendant to provide information?
• Use of private investigators
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Obtaining information about a debtor’s assets (Kazakhstan)
• Land – is there a public register? Yes. But, general public cannot search immovable property by name of the owner, except subject to a court order or other special procedures. Information on the owner of a specific object of immovable property is freely available.
• Bank accounts – banking secrecy? Strictly observed. Limited
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• Bank accounts – banking secrecy? Strictly observed. Limited chances to legally collect this category of information, except subject to a court order or another special procedure.
• Shares: Available to general public
• Creditors – can you get information about debts owed to debtor? Only if the debtor has been declared insolvent or there is an ongoingjudicial proceeding over recovery of any debt or bankruptcy. Accounting books and records could be accessed only at the stage of enforcement of a judgment/ arbitral award.
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• Third parties involved in wrongdoing – e.g. banks in volved in money transfers: Not available, except subject to a court order or a special procedure - e.g. in the course of a criminal investigation
• Innocent third parties – e.g. email service providers: Subject to a
Obtaining information about a debtor’s assets (Kazakhstan) (2)
• Innocent third parties – e.g. email service providers: Subject to a court order or a special procedure
• Disclosure of assets – can you compel a defendant or directors of a corporate defendant to provide information: No
• Use of private investigators: becoming more popular
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Obtaining information about a debtor’s assets (Latvia)
• Land – is there a public register? Yes. It is fairly easy to find who owns real estate by address, but very difficult to find what total real estate a particular natural/legal person owns in general.
• Bank accounts – banking secrecy? Strictly observed. Very limited chances to gather this sort of information (esp. if no clue where to
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chances to gather this sort of information (esp. if no clue where to look). In general available only to the court and the criminal proceedings authorities.
• Shares: In general information is available on LLCs. However, certain kinds of shares in JSCs are not subject to public registration.
• Creditors – can you get information about debts owed to debtor?Only if there is a mortgage on real estate or a commercial pledge on shares of a company.
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• Third parties involved in wrongdoing – e.g. banks in volved in money transfers: Information can only be gathered in criminal proceedings
• Innocent third parties – e.g. email service providers: Subject to a
Obtaining information about a debtor’s assets (Latvia) (2)
• Innocent third parties – e.g. email service providers: Subject to a court order or in the course of criminal proceedings
• Disclosure of assets – can you compel a defendant or directors of a corporate defendant to provide information: No - only if a court issues a respective order
• Use of private investigators: Available and fairly efficient
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Obtaining information about a debtor’s assets Ukraine (1)• Land – is there a public register? Yes (State Land Cadastre of Ukraine)
access complicated
• Bank accounts – banking secrecy? Yes - disclosure only upon request of the law enforcement authorities / court order/ bailiff’s request
• Shares: Publicly available information on (1) shares in LLCs (2) holders of • Shares: Publicly available information on (1) shares in LLCs (2) holders of more than 10% shares in JSCs
• Creditors – can you get information about debts owed to debtor? No. Limited exceptions include bankruptcy/ insolvency or voluntary liquidation procedure and criminal proceedings
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Obtaining information about a debtor’s assets Ukraine (2)
• Third parties involved in wrongdoing – e.g. banks in volved in money transfers:
� practically possible in the course of criminal proceedings
• Disclosure of assets – can you compel a defendant or directors of a • Disclosure of assets – can you compel a defendant or directors of a corporate defendant to provide information?
� yes, but only through a court order or in criminal proceedings
• Use of private investigators:
� scarce, still no regulation
� evidence admissibility questionable
� not frequently used
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Obtaining interim relief in support of enforcement
• Is it possible to obtain free-standing interim relief in support of ongoing foreign court or arbitration proceedings?
• Is it possible to obtain interim relief in support of enforcement of a foreign judgment/award? foreign judgment/award?
• Can an injunction/asset preservation order be obtained without notice to the defendant?
• Does the claimant have to provide a bond or security?
• Is the Defendant compensated if the injunction is set aside?
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Obtaining interim relief in support of enforcement (Kazakhstan)
• Is it possible to obtain free-standing interim reli ef in support of ongoing foreign court or arbitration proceedings? Only in aid of foreign/domestic arbitration proceedings
• Is it possible to obtain interim relief in support of enforcement of a foreign judgment/award?
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a foreign judgment/award? Only in aid of foreign/domestic arbitration proceedings
• Can an injunction/asset preservation order be obtai ned without notice to the defendant? Yes
• Does the claimant have to provide a bond or securit y? Discretionary upon a judge - generally not required
• Is the Defendant compensated if the injunction is s et aside? Yes, in theory - in practice it is extremely difficult
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Obtaining interim relief in support of enforcement (Latvia)
• Is it possible to obtain free-standing interim reli ef in support of ongoing foreign court or arbitration proceedings? No
• Is it possible to obtain interim relief in support of enforcement of a foreign judgment/award? Yes
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• Can an injunction/asset preservation order be obtai ned without notice to the defendant? Yes, both in civil and criminal cases. In civil proceedings the defendant may appeal the order.
• Does the claimant have to provide a bond or securit y? Generally, not required yet the law does permit a court to prevent a loss to the defendant in case the claim is rejected.
• Is the Defendant compensated if the injunction is s et aside? Yes - the Defendant may ask for compensation.
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Obtaining interim relief in support of enforcement – Ukraine
• No interim relief in support of foreign court / arbitration proceeding s
� Allowed by International Arbitration Act BUT no procedural rules
� Ways to circumvent: (1) parallel proceedings; (2) receiver
• Interim relief in support of enforcement of a foreign judgment/ awar davailable
• Injunction/ asset preservation order without notice to the defendant
• Security upon judge’s discretion; practically not applica ble
• Defendant compensated if the injunction is set aside
� very high standard of proof
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Are there legal means to enforce against assets held by third parties?
• Do the local courts recognise a distinction between legal and beneficial ownership?
• Can non-arm's length transfers of assets be set aside?
• Can you freeze assets held in a third party's name?• Can you freeze assets held in a third party's name?
• How do you deal with this problem in practice?
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Are there legal means to enforce against assets held by third parties? (Kazakhstan)
• Do the local courts recognise a distinction between legal and beneficial ownership? No - Kazakh courts only recognize legal ownership
• Can non -arm's length transfers of assets be set aside? By way of
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• Can non -arm's length transfers of assets be set aside? By way of invalidating such transactions according to applicable law. There are greater chances in the course of bankruptcy/rehabilitation proceedings
• Can you freeze assets held in a third party's name? Yes, in limited circumstances, e.g. if you are challenging third party’s title or the third party is to transfer the assets to the debtor
• How do you deal with this problem in practice? This is a problematic issue. You can only enforce if you invalidate third party’s title and prove the link between the debtor and the assets.
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Are there legal means to enforce against assets held by third parties? (Latvia)
• Do the local courts recognise a distinction between legal and beneficial ownership? Only if off-shore companies are involved. There is no clear legal regulation concerning trust and other beneficial ownership issues. Concerning real estate the law stipulates strictly that the owner is the person who is registered as such and the title
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that the owner is the person who is registered as such and the title can only be questioned in court and, when applicable, by criminal proceedings.
• Can non-arm's length transfers of assets be set asi de? Yes, but the only means is a claim submitted to the court.
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Are there legal means to enforce against assets held by third parties? (Latvia) (2)
• Can you freeze assets held in a third party's name? Yes, provided there is a proof that the third party is holding the assets in favour of another party, the third party is obliged to transfer the assets to the debtor, or is holding those assets without any legal grounds. Third party’s title to real estate can only be challenged by a respective claim
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party’s title to real estate can only be challenged by a respective claim in a court.
• How do you deal with this problem in practice? The problem is often unsolved in a civil case unless there is a written proof supporting the claim. The only practical means can be available in criminal proceedings.
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Are there legal means to enforce against assets held by third parties? (Ukraine)
• No concept of beneficial ownership unless foreign law applied
• Non-arm's length transfers of assets can be set aside only withinbankruptcy proceedings, or if challenged by tax authorities (though otherbankruptcy proceedings, or if challenged by tax authorities (though othergrounds may be available)
• Freezing assets held in a third party's name may be available subject tocertain conditions
– evidence that in fact the property is owned by third party
– assets related to a crime (in criminal proceedings only)
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The realities of litigating in the local courts
• Reliability of decision making process
• Quality of judiciary
• Speed
• Local law issues• Local law issues
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The realities of litigating in the local courts (Kazakhstan)
• Retrial and suspension of proceedings are commonly used as a delay tactics in domestic litigation. Otherwise the proceedings in domestic courts are fairly quick (3-5 months until a binding judgment)
• Appeals of a ruling to recognize and enforce a foreign arbitral award • Appeals of a ruling to recognize and enforce a foreign arbitral award may delay enforcement by up to 6 months
• Appealing the actions of an enforcement officer, under certain circumstances, suspends enforcement until binding judgment is issued on the appeal
• Conflicting proceedings may also complicate the situation, because, under Kazakh law, findings of fact made by court in a proceeding between the parties would be binding on the same parties in another proceeding
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The realities of litigating in the local courts (Kazakhstan) (2)
• Jurisdictional challenges are less frequent
• Decision making process is reasonably reliable, except extraordinary situations involving corruption or administrative interference
• Quality of judiciary is fair to good
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• Quality of judiciary is fair to good
• Speed: high, a ruling to recognize and enforce a foreign arbitral award must be issued within 15 days upon filing (approx. three weeks in practice). It could be enforced immediately upon announcement. Domestic disputes are reviewed by courts of first instance within two months, and each of the courts of appeal, cassation, and the Supreme Court review cases within one month. A judgment becomes binding upon expiration of 15 days of receipt of judgment of the first instance court or, if appealed, immediately upon announcement by appellate court
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• Local law issues may create significant difficulties, as the law is not flexible enough to implement practices generally accepted in western jurisdictions.
The realities of litigating in the local courts (Kazakhstan) (3)
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The realities of litigating in the local courts (Latvia)
• Reliability of decision making process: It depends very much on each judge in every particular case. Unfortunately the popular saying in Latvia “how many judges – that many judgments” fairly resembles the reality. In general, the decision making process is fairly reliable and efficient. Corruption or administrative interference is next to and efficient. Corruption or administrative interference is next to nothing. Political influence has been rumoured about in a few cases, yet never proved.
• Quality of judiciary: Fairly decent. Yet the recent court reform may have a very bad influence (judges of the lowest court instance who were not to try exceptional cases now have to try all cases).
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The realities of litigating in the local courts (Latvia) (2)
• Speed: The long terms of the litigation causes the main problem in Latvia. Foreign judgments and arbitration awards are considered in a special procedural order and takes not that much of time as the “local”cases passing through all 3 court instances. It may take up to 5 years altogether to reach a verdict which becomes effective (can be no
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altogether to reach a verdict which becomes effective (can be no more appealed).
• Local law issues: The local laws are in general progressive, fairly harmonized and effective.
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The realities of litigating in the local courts - Ukraine
• Reliability of decision making process:
� depends on a court/ judge
� corruption rather often in high-value cases
� administrative / government influence most frequently re state companies� administrative / government influence most frequently re state companies
• Quality of judiciary
� Overall satisfactory, but
� Extremely formal approach
• Speed
� Generally very fast, but suspensions and retrials possible
• Local law issues
�often not flexible enough to secure efficient enforcement35
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What tactics tend to be used to frustrate enforcement?
• Jurisdiction challenges
• Delaying tactics
• Blocking orders
• Conflicting proceedings • Conflicting proceedings
• Appeals
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Asset Tracing and Recovery Challenges in Kazakhstan, Latvia and the Ukraine
Geneva
27 March 201427 March 2014
Andrew BartlettPartner, Commercial Litigation