JSC BTA Bank v Mukhtar Ablyazov & Ors (2014)
A judge had been entitled to order the trial of an issue as to whether a Russian businessman was the beneficial owner of shares in a company for the purposes of freezing and receivership orders made against him.
The court had to determine whether a judge was wrong to order the trial of an issue as to the ownership of shares in a company (D).
The defendant Russian businessman (X) had stolen enormous sums of money from the claimant bank (B). B had obtained freezing and receivership orders against him. B later suspected that X was the beneficial owner of shares in D, a fact which he had failed to disclose, and the orders were amended to make specific reference to D. It was X's case that the third party companies (L) were the beneficial owners of D's shares. L and D then applied for a variation of the orders so as to remove D from their scope on the ground that it was not a company which was under the ownership/control of X. The judge held that there should be a trial of the issue of D's ownership. He found that there was a good arguable case that X and another Russian businessman (G) had entered into some form of agreement, the effect of which was that the beneficial ownership of D would remain with X, in whole or in part, whilst appearing to be distinguished by the enforcement of a pledge. The issues were whether (i) there was any good reason to suppose, or any good arguable case, that D was beneficially owned and controlled by X so that it was properly brought within the receivership and post-judgment freezing orders; (ii) it was open to the judge, as a matter of jurisdiction, to order a trial of the issue; (iii) the order made by the judge went beyond the scope of ordering an issue as to where the beneficial ownership lay.
(1) On the material before him, the judge was entitled to find that B had established that there was a good arguable case that X and G had entered into some form of agreement, the effect of which was that beneficial ownership of D would remain with X, in whole or in part, whilst appearing to be extinguished by the enforcement of the pledge. Accordingly, there was a good arguable case and good reason to suppose that that was what had happened. The judge was well justified in deciding that the issue had to be tried out. Whether or not the position was as B contended it was something that B would have to establish on the balance of probabilities (see para.67 of judgment). (2) The judge had not erred in deciding that he had jurisdiction to decide, and in deciding, that there should be a trial of the issue in question. When the orders were amended to include reference to D, X was still arguably the ultimate beneficial owner of the shares and holder of the equity of redemption. The freezing order permitted persons affected by it to apply to vary or discharge it. That is what L and D did. However, they did not have to do so. It would have been open to them to do nothing and to rely on what they claimed was the true position, namely that L were the beneficial owners of D. Once L and D had decided to make their application, it was for the court to decide how to deal with it. It could have decided that L were, or were not, the beneficial owners of D. However, it would be unlikely to do so if there was good reason, in either case, to think the opposite. What the court did not have to do was to decide whether it had and should exercise jurisdiction under CPR PD 6B. The court had made orders against X who was within its jurisdiction. He could legitimately be restrained from disposing of companies of which he was the apparent beneficial owner whether or not those companies were subject to the jurisdiction of the court and whether or not they were made parties to the proceedings. L and D's approach would have strange consequences; the supposed requirement that there be an issue between the claimant and the defendant to the resolution of which another person was a necessary or proper party was, in the instant context, inappropriate. The alternative approach, namely that there was no jurisdiction to determine the issue raised by the application but that the post-judgment freezing order and receivership order remained in effect in respect of it was equally unacceptable (paras 77-81). (3) The judge also ordered that the issue should extend to whether L were involved in a collusive breach of the freezing order and/or the receivership order. However, there was no claim of that sort advanced in any originating proceedings so that service of the claim form would not be service of a document which put forward any such claim. No permission had ever been sought to join L to any proceedings. If it was necessary to make use of CPR PD 6B para.3.3, the court would not be justified in sidestepping the procedural steps, which required an application to the judge. The part of the judge's order which raised the issue of collusive breach would be removed and the issue for determination would be confined to the question of beneficial ownership of the shares in D (paras 85, 93, 95, 98).
LTL 14/5/2014 :  EWCA Civ 602