Home Information Cases JSC BTA Bank v A (September 2010)

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JSC BTA Bank v A (September 2010)

Summary

A receivership order made in support of a freezing injunction was upheld in circumstances where the defendant had not initially made adequate disclosure of his assets, which were held in a manner that made it difficult to trace, and where there was a measurable risk that he would deal with them in breach of the injunction.

Facts

The appellant (M) appealed against the making of a receivership order ([ 2010) EWHC 1779 (Comm) in support of a freezing injunction issued against him. The respondent bank (J) cross-appealed against a finding that certain of M's dispositions had not breached the injunction. M held his assets through a nominee, who controlled the shareholdings in a chain of offshore companies. That structure made it difficult to trace his assets. J alleged that M had failed to disclose all of his assets and had made certain dispositions in breach of the freezing injunction. The judge found that while the dispositions had been made by M in the ordinary course of his business and did not breach the injunction, it was likely that he would try to put his assets beyond reach of any judgment. He found that it was therefore appropriate to make the receivership order. M submitted that the judge had applied the wrong test and should have held that receivership was an order of last resort, only to be used when absolutely necessary.

Held

(1) The appointment of a receiver was a very intrusive remedy and would only be appropriate where an injunction was insufficient on its own. Such cases were only likely to arise where there was a measurable risk that a defendant would act in breach of the freezing injunction or otherwise seek to ensure that his assets would not be available to satisfy any judgment. If a defendant held his assets in a transparent manner, a receivership order might well not be necessary. If, however, the method of holding was opaque and there was a reasonable suspicion that he would use that opacity to act in breach of the freezing injunction, receivership might well be appropriate (see paras 14, 17 of judgment). It was impossible to conclude that M had been doing his best to comply with the orders of the court and it was unsurprising that the judge had concluded that he wanted to make it difficult to enforce the freezing injunction and might use the structure by which he held his assets to deal with them in breach. Those were exactly the circumstances in which a receivership order would be justified. While fresh evidence showed that, contrary to the judge's findings, M had not concealed certain dealings from his own solicitors, his initial inadequate disclosure amply justified the conclusion that there was a measurable risk that he would breach the injunction (see paras 25, 29-30, 40). (2) Though it was unnecessary to consider the cross-appeal the court would do so. The freezing injunction contained a clause permitting the disposal of assets by M personally in the ordinary course of his business. It was common ground that the clause covered disposals made by a company or other entity controlled by M. The issue was not whether the transactions in question were permissible under the principles set out in Iraqi Ministry of Defence v Arcepey Shipping Co SA (1981) QB 65 QBD (Comm) and Normid Housing Association Ltd v Ralphs & Mansell (Review of Injunction) (1989) 1 Lloyd's Rep 274 (Note) CA (Civ Div), but whether M was entitled to carry them out without first seeking the consent of either J or the court, Arcepey and Normid considered. In holding that the clause should be construed as extending to the activity of holding and managing assets so long as it was not aimed at dissipating them, the judge put the matter too widely. The point of a freezing injunction was to prohibit all disposals save those permitted by express exception or by giving the defendant liberty to apply in respect of any particular intended disposal. That pointed to the standard exception about disposals in the ordinary course of business having a narrow rather than a wide meaning. The concept of the ordinary course of business would not comprehend alterations in investments by a private investor unless he could show that he was running a business by making the changes in his holdings rather than merely re-organising his investments to obtain a better outcome. The dispositions in question did not fall within the clause permitting dispositions in the ordinary course of business (see paras 58, 75-76, 80, 84).

Appeal dismissed, cross-appeal allowed

Court of Appeal
Maurice Kay LJ (VP CA Crim), Longmore LJ, Patten LJ
Judgment date
19 September 2010
References

L​TL 7/1/2011 : [2010] EWCA Civ 1141