Supreme Court hearing this week on meaning of “assets” in standard form freezing order

Charlie Tomlinson

Tomorrow, a panel of five Justices of the Supreme Court will hear the appeal in JSC BTA Bank v Ablyazov concerning whether choses in action, such as a right to borrow money in accordance with a loan facility agreement, are “assets” within the meaning of the standard form freezing order, and whether they are subject to any restraint on dealing or exercise prior to trial.

The case forms part of a long-running, complex and quite exceptional litigation involving Mukhtar Ablyazov, which Christopher J, in an earlier judgment, described as “extraordinary litigation on a large scale”.  Since August 2010 the litigation has separated into various segments.

Factual background

The case began in August 2009 when Blair J granted a freezing order in favour of the appellant Bank against the respondent, the Bank’s former chairman, Mr Ablyazov, who the bank allege defrauded it of vast sums of money.

After the freezing order was made, Mr Ablyazov entered into four loan facility agreements totaling £40 million. Under the terms of the agreements, he was able to direct payments of the entire £40 million to be made from the lenders to third parties directly, which he did, whereupon he allegedly used the sums to fund his legal and living expenses. The Bank sought a declaration that Mr Ablyazov’s rights under the loan agreements (if they were valid contracts, which the Bank denied) were “assets” for the purposes of the freezing order and therefore had to comply with the terms of the freezing order. In the Commercial Court, Christopher Clarke J dismissed the Bank’s application, holding that Mr Ablyazov’s contractual rights to draw down the loans did not qualify as “assets”, and that their exercise by ordering them to be paid to a third party does not constitute “disposing” or “dealing” with an asset. The Bank appealed.

The Court of Appeal decision

In challenging the decision, the Bank argued in the Court of Appeal that “logic and consistency – not to mention certainty – dictate that all choses in action should be treated the same way for the purposes of freezing orders”. The Bank argued that if this were not the case, a defendant could evade the whole operation of the freezing order altogether if he could reduce his net assets by borrowing large sums of money on an unsecured basis. The Bank maintained that this would give rise to anomalies some would consider absurd and would bring freezing orders into disrepute.

However, the Court of Appeal rejected these arguments and dismissed the appeal. In making its decision and construing the order strictly, the court took into account the meaning of the words, terms, background and context of the order. In doing so it decided that the contractual right to draw down under the loan facility agreements did not qualify as an “asset”; a liability is not an asset. Neither did the exercise of that loan facility constitute a “disposing of” or “dealing with” an asset (Beatson LJ at paragraph 72). Mr Ablyazov instructed the third party lenders to make disbursements under the loan agreements to third parties. As Rimer LJ said, “he was not thereby disposing an asset of his, because the money paid was not his” (paragraph 101). Floyd LJ also commented that “[freezing] orders must be construed strictly, so as not to leave any doubt as to what the defendant can and cannot do”.

The Supreme Court appeal

Lord Neuberger (President of the Supreme Court), Lord Mance, Lord Kerr, Lord Clarke and Lord Hodge will hear the appeal. The issues the Supreme Court will decide are:

  • whether choses in action, such as a right to borrow money under a loan facility agreement, are “assets” within the meaning of the standard form freezing order; and
  • whether they are subject to any restraint on dealing or exercise prior to trial.

We will report further when the judgment is handed down.

JSC BTA Bank (Appellant) v Ablyazov (Respondent) (UKSC 2013/0203)

This post first appeared on the UK Supreme Court Blog (http://ukscblog.com/).

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