JSC BTA Bank v A

A receiver may be appointed in support of a freezing injunction where the injunction alone gives inadequate protection because there is a measurable risk that the defendant will use an opaque asset-holding structure to breach the order or prevent assets satisfying a judgment.

An ordinary-course-of-business exception permits routine business transactions without prior approval. It does not generally cover a private investor’s reorganisation of investments, even where the investor is wealthy or controls the relevant companies. Other unobjectionable transactions require the claimant’s consent or the court’s permission. A defendant seeking declaratory clarification must provide sufficient evidence to establish that a transaction falls within the exception.

The Bank alleged that its former chairman had misappropriated substantial assets. It obtained a freezing order and later persuaded Teare J to appoint receivers over the appellant’s assets because his disclosures had been seriously inadequate and his opaque offshore structures created a risk of dissipation.

The appellant challenged the receivership, contending that such relief required certainty of an actual or imminent breach. The Bank cross-appealed against declarations that sales of banking and property investments fell within an exception for dealings in the ordinary and proper course of a business conducted personally by the appellant.

The central issues were the threshold for appointing receivers in support of a freezing order and the proper scope of the ordinary-course-of-business exception.

1. The appeal against the receivership order was dismissed. Section 37 of the Senior Courts Act 1981 empowers the High Court to appoint a receiver where that is just and convenient. Receivership is intrusive, expensive and not easily reversible. It is therefore ordinarily inappropriate where a freezing order adequately protects transparent assets. It is justified where the injunction gives inadequate protection because there is a measurable risk that the defendant may use an opaque holding structure to breach it or prevent assets satisfying a future judgment. Proof of an existing or imminent breach is unnecessary.

2. The assessment of measurable risk is primarily evaluative. The first-instance judge, who knows the litigation and evidence, is best placed to make it, and an appellate court should be reluctant to interfere. The appellant’s seriously inadequate disclosure persisted until fuller information was produced under pressure. Although fresh material indicated that he had probably told his former solicitors about certain dealings, the disclosure history amply supported the judge’s conclusion that the requisite risk existed.

3. The Bank’s cross-appeal was allowed. A freezing order prevents dissipation rather than providing security for a possible judgment. Its ordinary-course-of-business exception allows routine transactions without prior consent. The wider principle that freezing relief should not obstruct bona fide business or life does not mean that every non-dissipatory transaction falls within that express exception. Transactions outside it may still be authorised by the claimant or court.

4. The exception should receive a narrower construction. It covers a trading company’s usual purchases, disposals and payment of liabilities, and equivalent routine transactions by a regulated investment business. It does not generally cover a private investor’s alteration or concentration of investments. The investor must show that the changes themselves form part of a business which the investor carries on.

5. The sales of interests in BTA Kazan, Omsk Bank and the Eurasia Tower, and the reinvestment of proceeds in subordinated debt, were investment reorganisations rather than transactions in a business personally conducted by the appellant. They did not fall within the exception. The declarations were set aside. A defendant seeking clarification must provide evidence sufficient to establish compliance; otherwise the court may decline discretionary declaratory relief.

• Court of Appeal (Civil Division): In [2010] EWCA Civ 1141, dismissed the appellant’s appeal against the receivership order, allowed the Bank’s cross-appeal and set aside the clarification declarations.
• High Court, Commercial Court: In [2010] EWHC 1779 (Comm), Teare J appointed receivers in support of the freezing order but declared that specified disposals fell within the ordinary-course-of-business exception.