Home Information Cases JSC BTA Bank v Mukhtar Ablyazov & 16 Ors (October 2011)

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JSC BTA Bank v Mukhtar Ablyazov & 16 Ors (October 2011)

Summary

The power of the court to grant a freezing injunction under the Senior Courts Act 1981 s.37 extended to making any ancillary orders which appeared just and convenient to ensure its effective operation. The court had jurisdiction to order that a defendant disclose the ultimate source of funds used to pay his legal expenses where there was a real risk that, by using a company which might in reality have been beneficially owned by him, he was thereby circumventing a freezing injunction.

Facts

The applicant bank applied for an order that the respondent (X) should state the ultimate source of the funds which were being used to pay his legal expenses. The bank had commenced nine actions against X arising out of alleged defalcations committed whilst he was its chairman, by which the bank was said to have been defrauded of over $US 4.5 billion. The bank had sought to trace the proceeds of $US 400 million paid to what were said to have been X's companies, and it obtained a worldwide freezing order against X and an interim receivership order over his assets. The latter included a provision that, before spending any money on legal advice and representation, X had to notify the bank's legal representatives in writing of the place from which the money to be spent was to be taken. X's attempts to vary the disclosure provisions were unsuccessful and in due course his solicitors indicated that two companies (W and F) had funded his defence but that his legal fees were now being paid by another company (G), registered in Belize, whose ultimate beneficial owner (UBO) was a businessman from the former Soviet Union who did not want his identity to be revealed. The bank contended that there was good reason to believe that W, F and G were, in reality, beneficially owned by X and that there was a real risk of X thereby circumventing the freezing injunction by using his own moneys to fund his defence, and that X should therefore be ordered to reveal the identity of G's UBO and the source of that person's funds, though only, in the first instance, to its lawyers. X submitted that there was no evidence that G was himself under another guise, and that the making of the order sought would be oppressive and an unacceptable invasion of a third party's privacy, especially where it was likely that, once named, that individual would be harassed in order to terminate his financing of X's defence.

Held

(1) The power of the court to grant a freezing injunction under the Senior Courts Act 1981 s.37 extended to making any ancillary orders which appeared just and convenient to ensure that it was effective to achieve its purpose, AJ Bekhor & Co Ltd v Bilton (1981) QB 923 CA (Civ Div) andMaclaine Watson & Co Ltd v International Tin Council (No2) (1989) Ch 286 CA (Civ Div) followed, JSC BTA Bank v Solodchenko (2011) EWHC 2163 (Ch), Times, September 27, 2011 applied. The s.37 power could be used to require a defendant to disclose what his assets were and where they might be found, CBS United Kingdom Ltd v Lambert (1983) Ch 37 CA (Civ Div) followed. The jurisdiction to make such an order was essentially protective: its purpose was to ensure that assets were not disposed of in disguised breach of a freezing order. There was no particular threshold which a claimant had to cross in order to secure such an order, but there had to be grounds to believe that there was a real risk of the injunction being broken. Whether the order was in fact made was likely to depend on the strength of those grounds and the considerations which militated in favour and against making it. It was not a precondition of making an order that the money in question was established to be that of a defendant (see paras 45-47 of judgment). (2) There were strong grounds for believing that W and F were actually X's creatures or conduits, and good reason to believe that G might be one as well. X operated through corporations in jurisdictions where secrecy was prized and official regulation was at a low level, and it would not be surprising to find that G was a corporation kept in reserve for X's use in case of need; there was no evidence that it had ever done anything except fund X. If no order was made, there was a risk that X would, secretly and with impunity, use assets of large value, some or all of which might belong in equity to the bank, in breach of the freezing order. That would frustrate the court's purpose in making it. If an order was made and G's UBO was disclosed to the bank's lawyers, they would examine the information given to see whether or not the identity of the UBO and his business gave any ground to suppose that he was not a bona fide third party. The further release of the name beyond the bank's solicitors and counsel could only take place with the leave of the court, and then only for good reason. In those circumstances, the considerations in favour of making the order, including that the freezing order was effective and not sidestepped, outweighed those to the contrary (paras 71, 75-76, 79, 91, 95).

Application granted

Queen's Bench Division
Christopher Clarke J
Judgment date
26 October 2011
References

​LTL 2/11/2011 : [2011] EWHC 2664 (Comm)