JSC BTA Bank v Ablyazov (Rev 1)

The Court of Appeal dismissed the Bank's appeal against Christopher Clarke J's construction of the standard Commercial Court freezing order. The court held that a contractual right to draw down under an unsecured loan facility is not, as a matter of construction of the standard form freezing order used in this case, an "asset" caught by the order and that exercising such a right by directing the lender to pay third parties does not amount to "disposing of" or "dealing with" an asset under paragraph 4(b) of the order.

The decision rested on three interrelated points: (1) the primary purpose of a freezing order is to preserve assets which would be available to satisfy a judgment (the enforcement principle); (2) freezing orders must be construed strictly because of their potentially draconian consequences; and (3) the particular nature and contractual terms of the loan facilities (personal, cancellable, non‑assignable rights which create a corresponding debt on exercise) meant they were not the type of asset the order was intended to catch. The court also held that the extended definition of "asset" in paragraph 5 of the order was drafted to deal with assets held by third parties as nominee or trustee and was not sufficiently clear to bring these drawdown rights within the order.

Background and parties: JSC BTA Bank obtained a standard Commercial Court freezing order against Mr Mukhtar Ablyazov. After the order was made, Mr Ablyazov entered into four unsecured loan facility agreements (four £10m facilities) under which he could request payments and could direct lenders to pay third parties. The Bank contended that those contractual rights to draw down were "assets" within the freezing order and that drawings paid to third parties breached the order. Christopher Clarke J had held that the drawdown rights were not assets within the order and refused consequential disclosure; the Bank appealed.

Nature of the application and procedural posture: This was an appeal from the Commercial Court (Christopher Clarke J [2012] EWHC 1819 (Comm)). The Bank sought a declaration that (i) the contractual drawdown rights were assets for the purposes of the freezing order and (ii) drawings made under those facilities could only be made in accordance with the order; it also sought disclosure of all drawings. The Court of Appeal heard the appeal and further submissions.

Issues framed by the Court:

• Whether a contractual right to draw down under an unsecured loan facility is an "asset" for the purposes of the standard Commercial Court freezing order (paragraph 4 and the extended definition in paragraph 5).
• If such a right is an asset, whether exercising it by directing the lender to pay third parties constitutes "disposing of" or "dealing with" that asset.
• Whether, in all events, the Bank should obtain disclosure of all drawings under the facilities.

Court's reasoning and conclusions: The court identified three controlling principles: the enforcement principle (freezing orders aim to preserve assets available for execution), the principle of flexibility (jurisdiction must adapt to new evasion techniques), and the strict‑construction principle (orders with penal consequences must be clear). Balancing those principles, the court concluded there is no principle preventing recognition of certain choses in action as assets, but on the facts and the construction of the standard form order used the contractual drawdown rights were not assets. The court emphasised the personal, cancellable and non‑assignable character of the rights and that money paid by lenders to third parties remained the lenders' money while generating a debt for Mr Ablyazov. The middle sentence of paragraph 5 did not make the order sufficiently clear to catch such rights. The appeal was dismissed on the main point and the Bank's primary disclosure case failed; the court remitted the Bank's alternative disclosure case (as to whether the lenders were creatures/controlled entities) to the Commercial Court for further consideration.

Subsidiary findings: The court accepted that the judge had properly taken into account the possible anomalous effects of a wider construction and the difficulty or impossibility of valuing certain loan rights; it found the earlier authorities (Cantor Index, Anglo Eastern Trust, Coutts, Deputy Commissioner v Hickey and Solodchenko) directly relevant to the analysis.

Appeal dismissed. The Court of Appeal held that, on the construction of the standard Commercial Court freezing order as used in this case, contractual rights to draw down under unsecured loan facilities did not constitute "assets" caught by the order and that exercising such rights by directing lenders to pay third parties did not amount to "disposing of" or "dealing with" an asset. The court emphasised the enforcement purpose of freezing orders, the need for strict construction of orders with penal consequences, and the particular contractual features of the facilities. The Bank's primary disclosure case failed; the Bank's alternative disclosure case was remitted to the Commercial Court for further consideration.

Appeal from the Queen's Bench Division, Commercial Court (Christopher Clarke J) [2012] EWHC 1819 (Comm). The freezing order was originally made ex parte in August 2009 and the litigation has been the subject of multiple earlier applications and appeals including prior decisions of this court referenced in the judgment (for example [2012] EWCA Civ 1411 and earlier Commercial Court judgments).