Saturday, 3 September 2011

Relational LLC v Hodges [2011] EWCA Civ 774: bridge across the Atlantic

There is a deep mutual suspicion between the English and American legal systems.  The English courts cannot abide the punitive nature of American litigation.  English damages are compensatory alone.  There is no “reward” for insisting on your legal rights by way of doubling or trebling your dosh.   The Americans find English law on libel unduly restrictive of free speech; the deplorably named Libel Terrorism Acts (“tourism” would have been better, but there is a breed of American that sees the two things as identical) that are finding their way through various states have the effect of barring English libel claims in the States.
The upshot is that there is no automatic recognition of judgments.  I.e. you sue an American in England and win, you can’t automatically seize their American assets.  You need to start again in the States, albeit with a judgment on your side as pretty powerful evidence.  Similarly an American has the same problem in reverse with an English defendant.
This is what happened in the instant case.  Fairly simple.  Relational had a guarantee from a Florida resident, Mr Hodges, which was signed off under Illinois law.  Mr Hodges seemingly legged it to Birmingham (West Midlands, not Alabama) when Relational sought to enforce the guarantee.  He took a bit of tracing, and indeed claimed that he was in the boozer when the process server said they’d served him at home.  The upshot was Relational scampered through to a default judgment in its favour in Illinois.  Easily enforceable in the States, but Mr Hodges had no assets there.  They were all in the UK.
So Relational sued in England based on their American judgment.  Mr Hodges raised various defences – that he hadn’t fought the thing in Illinois (although, crucially, he did appeal), that a Florida judgment extinguished liability and so on – but the really important thing was that he sought security for costs.  Given the US judgment was not enforceable in the UK, an English judgment in his favour – which would be for his costs – would not be enforceable in the US.  A Mexican stand-off, to utilize a safe third country.
Relational offered to bung £25k into the English court, but the sting in the tail was that it would ask to have that set off against the amounts owed to it by Mr Hodges under the Illinois judgment.  So essentially Mr Hodges could win the case, not owe the judgment in America, but would not get any benefit from winning; his legal costs would be swallowed up.  Relational would just say “well, OK, we can’t enforce in England, so we’ll take it out of what we owe you.”
There’s a logic there but there’s also the point that Relational had won a legit case in a legit court.  And the Court of Appeal was conscious of that.  Was it really fair to make a party that had already won pay security?  Wasn’t it more to protect English parties against oppressive suits, not ones that, on the face of it, had a very very good chance indeed of winning?
The Court of Appeal therefore dismissed Mr Hodges’ appeal against refusal, and made some more general comments.  Longmore LJ said that it would not normally be appropriate to order security from a claimant suing to enforce a pukka foreign judgment.  Because it’s up to the defendant to prove the overseas judgment was wrong; the burden of proof was reversed, and the defendant was really the claimant in those circumstances.  Same would apply in cases like Mr Hodges’ case; although the Illinois court had granted a judgment without Mr Hodges’ case being considered, Mr Hodges did submit to jurisdiction by appealing.  So the English courts ought not interfere too much with it.
It looks as if Mr Hodges’ best case would have been to leave the Illinois judgment untouched and not appeal at all.  At least then he could deny Illinois had considered the full facts and he had never agreed to its scrutiny.  But given the comments of Longmore LJ it looks to be a difficult argument – he still would have had the burden of showing the judgment was wrong, or fraudulent, or unfair.  Difficult one.

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