JSC BTA Bank v Ablyazov (Rev 1)

A standard-form freezing order restraining dealings with a defendant’s assets does not ordinarily prevent unsecured borrowing. A personal, cancellable and non-assignable right to draw under a loan facility is not an asset within such an order. Directing the lender to pay a third party merely incurs a corresponding debt; it does not dispose of, deal with or diminish the value of an asset.

Freezing orders must be construed strictly, using their ordinary meaning in context and having regard to their enforcement purpose. Clear and unequivocal additional words are required to restrain the incurring of liabilities or to include rights which have no realisable or measurable value. Disclosure may nevertheless be ordered protectively where there are sufficient grounds to believe that apparently third-party funds are controlled by the defendant and the injunction may be being breached.

The Bank had obtained a worldwide freezing order against its former chairman. After the order was made, he entered into four unsecured loan facilities totalling £40 million and directed the lenders to pay the entire amount directly to third parties for legal and living expenses.

Christopher Clarke J, in [2012] EWHC 1819 (Comm), held that the contractual drawdown rights were not assets under the standard Commercial Court order. He also held that exercising those rights did not dispose of or deal with an asset, and refused consequential disclosure.

The Bank appealed. The central issues were whether the drawdown rights fell within paragraphs 4 or 5 of the order, whether the payment directions involved prohibited dealings, and whether disclosure should alternatively be ordered because the lenders might be companies controlled by the respondent.

1. Appeal dismissed on the construction issues. The standard-form freezing order did not classify the contractual drawdown rights as assets. Nor did the respondent dispose of, deal with or diminish the value of an asset by instructing the lenders to pay third parties. Beatson LJ gave the leading judgment. Floyd and Rimer LJJ agreed.

2. A freezing order primarily preserves property which would otherwise be available to satisfy a judgment; it does not give the claimant security. The jurisdiction remains flexible enough to address sophisticated attempts to defeat enforcement. That flexibility is balanced by the requirement that an injunction carrying penal consequences be clear, unequivocal and strictly construed.

3. The ordinary meaning of a judicial order is determined from its language, background, context and purpose. The terms “assets”, “dispose of”, “deal with” and “diminish the value of” did not naturally describe exercising a right to borrow in exchange for incurring a debt. Although a contractual drawdown right is a chose in action, that classification did not establish that it was an asset for every purpose.

4. The facilities were personal, cancellable by the lenders and non-assignable without their consent. Their value could not be expressed in monetary terms. Direct payment to third parties involved the lenders’ money and created corresponding debts owed by the respondent. It could reduce his net asset position, but paragraph 4 restrained diminution in the value of particular assets, not the incurring of liabilities or a reduction in overall net worth.

5. Paragraph 5 did not alter the result. Its extended language principally addressed the nature of a defendant’s interest in an asset, including assets held through trustees, nominees or third parties. It did not state with sufficient clarity that personal drawdown rights, or money beneficially owned by an independent lender, were the respondent’s assets. A claimant wishing to restrain such borrowing must use clear additional language.

6. Disclosure remitted. The primary disclosure case failed with the construction appeal. The alternative case was protective and did not require prior proof that the lenders were the respondent’s creatures. Given earlier findings providing strong grounds for that possibility, the balance of prejudice and the appropriate disclosure order were remitted to the Commercial Court.

1. Court of Appeal (Civil Division): By [2013] EWCA Civ 928 , dismissed the appeal concerning the scope of the freezing order and remitted the alternative disclosure application to the Commercial Court.
2. Commercial Court: Christopher Clarke J, in [2012] EWHC 1819 (Comm) , held that the loan drawdown rights were not assets under the standard freezing order, held that their exercise was not a prohibited dealing, and refused consequential disclosure.