JSC BTA Bank v Kythreotis & Ors

A freezing order in the Commercial Court Guide which applies to assets in which the respondent is interested “legally, beneficially or otherwise” extends to assets held by the respondent as trustee or nominee for a third party. Those added words enlarge the ordinary meaning of the respondent’s assets.

By contrast, the earlier CPR form, including its provision for assets which the respondent can deal with as if they were its own, does not catch assets held solely for another’s benefit. The form must nevertheless be used consistently with the purpose of freezing relief: preserving assets available to meet a judgment. Trust assets should be included only where there are proper grounds to doubt that their apparent third-party ownership is genuine.

The Bank alleged that former officers and others had participated in a fraud involving assets worth approximately US$300 million. It obtained freezing orders against Mr Kythreotis, Mr Hercules and corporate defendants. Mr Kythreotis, who provided nominee services, said that he was not obliged to disclose assets which he held solely as trustee or nominee for third parties.

Proudman J held that the freezing order covered assets in which Mr Kythreotis had a legal, beneficial or other interest, including nominee interests. He appealed. The central issue was the construction of the Commercial Court Guide’s standard-form freezing order and whether its wording extended to trust or nominee assets beneficially owned by third parties.

Appeal dismissed. Patten LJ gave the principal judgment, with which Aikens LJ agreed; Longmore LJ agreed with the reasoning and outcome.

1. The Court held that the Commercial Court Guide form applied to assets held by the respondent as trustee or nominee for a third party. The phrase “legally, beneficially or otherwise” was disjunctive. It therefore added categories beyond beneficial ownership and expanded the assets otherwise covered by paragraph 5 of the order.
2. The additions made to the CPR specimen form in 2002 had a different and narrower effect. They clarified that assets held by a third party fell within the order where the respondent retained beneficial ownership or effective control. They did not include assets of which the respondent was merely the legal owner for another’s benefit. That construction preserved the principle in Federal Bank of the Middle East v Hadkinson [2000] 1 WLR 1695.
3. The Court rejected the suggestion in Raja v Van Hoogstraten [2004] EWCA Civ 968 that the 2002 changes had responded to, and reversed, Hadkinson. The history and language of the amendment showed the contrary.
4. The Court did not decide whether the injunction had properly been granted in this wider form. It nevertheless gave guidance. Trust assets should be included only where there are proper grounds to believe that assets apparently held for a third party in fact belong to the respondent, or another person whose assets are frozen. Courts should minimise prejudice to genuine beneficiaries by resolving title issues promptly and ordinarily extending the cross-undertaking in damages to them. The Commercial Court Guide should make the effect of its form clear and its wording should be reconsidered.

• Court of Appeal (Civil Division) — dismissed the appeal and affirmed Proudman J’s construction of the freezing order: [2010] EWCA Civ 1436.
• High Court, Chancery Division — Henderson J granted the freezing order; Newey J continued it. Proudman J held that the order covered assets held by Mr Kythreotis merely as trustee or nominee.