Court grants final charging order over property to aid enforcement of arbitral award

Vantage Mezzanine Fund II P & others -v- Bitature & another [2024] EWHC 3117 (Comm)

The English Court had granted the claimants leave to enforce an arbitration award they had obtained against the first defendant and another.

Notwithstanding that the defendants were challenging enforcement of that award, the Court still granted a final charging order against a UK property owned by them. This would allow the claimants to have security for at least part of the judgment debt as against other creditors and potentially to satisfy some of the judgment debt through an eventual sale of the property.

The case illustrates one of the discretionary powers available to the English Court in support of arbitral proceedings, including in the enforcement of arbitral awards.

The background facts

The underlying dispute arose out of various finance agreements that were governed by Ugandan law. Although this does not appear from the judgment, press reports indicate that the claimants had extended a loan facility to companies within the Simba Group, based in Uganda. The founder, chairman and CEO of the Group is Patrick Bitature, who guaranteed the loans.

The claimants were judgment creditors who had obtained an ICC arbitration award that required the first defendant, Mr Bitature (as guarantor), and the relevant companies as borrowers, to pay the claimants over US$25 million. The second defendant was Mrs Bitature.

The claimants applied to the Commercial Court to enforce both the monetary and non-monetary elements of the arbitration award.

The Court granted a freezing injunction in relation to the monetary claims, which included the provision that the defendants would not deal with nor dispose of the leasehold title of an identified London property, which was a residential property belonging to the defendants. The defendants were primarily resident in Uganda and had leased out the London property on a three-year assured tenancy.

The Court subsequently granted the claimants leave to enforce the arbitration award and also made related orders for the payment of interest and legal costs by the defendants. Enforcement of the arbitration award is being challenged in the Commercial Court.

Charging orders

Pursuant to the Charging Orders Act 1979 (Act), the Court has a discretion to grant a charging order. Pursuant to s.1(5) of the Act, it will consider all the circumstances of the case in deciding how to exercise its discretion, including the personal circumstances of the debtor and whether any other creditor (including unsecured creditors) of the debtor would likely be unduly prejudiced as a result.

In July 2024, the Court granted an interim charging order on the London property on a without notice basis. The claimants argued that they should be granted a final charging order to give them security over the property. They would then be able to enforce that security in order to enable part satisfaction of the judgment debt owed by the first defendant and full satisfaction of the judgment debt owed by the second defendant.

The Commercial Court decision

The defendants resisted a final charging order being made. They raised various arguments which the Court addressed in turn.

Firstly, Mr Bitature alleged that he had two creditors, being Ugandan banks, to whom he owed about US$58 million. However, both banks were served with the proceedings and neither sought to raise any objection to the final charging order. It was to be assumed that they were content to limit their recovery/enforcement efforts to whatever routes were available to them in Uganda.

Secondly, it was argued that due to the tenancy, any sale pursuant to a final charging order would be a sale without vacant possession which would allegedly achieve a lower price than otherwise. However, the Court thought there was real value to be obtained by the judgment creditor if a final charging order were to be granted because it would then have security for the judgment debt. That security would protect the judgment debt against any other creditors, including in the event of any potential bankruptcy that might occur.

The Court added that arguments as to achievable sale price were best raised at the time of the possible enforcement of a final charging order, when the judgment creditor might decide to delay enforcing the charging order. There was also no evidence pointing to a sale at an undervalue arising from the tenancy. The grant of a tenancy did not necessarily diminish the sale value of the property. This was in any event a matter for expert evidence.

The Court noted that there may be other assets in other jurisdictions against which enforcement could take place, but the property was the only asset within the jurisdiction. The judgment debt existed within this jurisdiction due to the Court’s enforcement order, and the claimants were entitled to enforce against the property.

The Court highlighted that the freezing order did not give rise to any security interest and did not give any ability to enforce in its own right. It merely preserved assets so that a judgment creditor would be able to enforce against those assets. Indeed, the existence of the freezing order supported the grant of the final charging order.

The fact that the property was the defendants’ London residence carried little weight. Charging orders were regularly made against a debtor’s sole or primary residence. In this case, the defendants resided mainly in Uganda and had not resided in the London property since 2018. They, therefore, had a very limited connection with the property.

The Court also dismissed the relevance of any negotiations that were said to be underway between the parties. It had no evidence of the detail of these negotiations and could not assess whether they were material to the grant of the final charging order.

The Court noted that after the first charge to Barclays Bank was satisfied and other expenses and costs covered, the remaining equity in the property might not be significant as compared to the judgment debt. Nonetheless, the property was a significant asset, and the judgment creditor should be able to enforce against it.

The Court, therefore, granted the final charging order.

Comment

The amount that is potentially recoverable by the claimants if the property is sold may not be hugely significant in the context of the total amounts owed. However, the case usefully illustrates one of the enforcement means available to judgment creditors in similar situations.

It is reported that the claimants are also trying to enforce against assets in Uganda, but that Mr Bitature has been granted a temporary stay of execution.