JSC Mezhdunarodniy Promyshlenniy Bank & Anor v Pugachev & Ors

In construing a freezing order, words such as trading business and day-to-day expenditure should ordinarily bear their natural and predictable meaning. The fact that the restrained assets are held in trusts does not justify an abnormal or wider construction.

Ordinary trust activities, including investment, distributions and loans to beneficiaries, are not ordinarily part of a trading business. Day-to-day expenditure is directed to the trustees’ administrative expenses, including expenditure on the upkeep and operation of trust assets and payments to those supplying services to the trustees. It does not extend to distributions or payments made for beneficiaries’ personal expenses or legal costs.

The claimants sought clarification of the scope of a worldwide freezing order made against the defendants and trust-related entities. The relevant provisions concerned dealings with assets in the ordinary and proper course of any trading business and in the ordinary and proper course of day-to-day expenditure.

The sixth to ninth defendants argued that those provisions permitted the trusts to make distributions or loans to beneficiaries for living expenses and legal costs, and to enter into funding arrangements involving an $800,000 payment. The court was required to construe the relevant provisions in their context.

1. Construction of “trading business”. The words were to be given their normal meaning. The addition of “trading” to the standard expression “ordinary and proper course of business” was intended to add something. The same words should, where possible, have the same meaning in order to produce predictable outcomes.
2. The existence of trusts did not justify giving “trading business” a wider meaning. Although some trusts may engage in commercial activities, investing trust assets and distributing assets to beneficiaries are not ordinarily trading activities. Loans or distributions to beneficiaries likewise fall outside that expression. On the evidence, none of the trusts had a trading business within the meaning of paragraph 8(3) of the order.
3. Construction of “day-to-day expenditure”. Paragraph 8(4), read as a whole, concerned expenditure by trustees on the administration of the trusts, rather than distributions under dispositive powers. “Suppliers and service providers” referred to persons supplying or providing services to the trustees in their capacity as trustees, and did not include persons providing services to beneficiaries.
4. The order restraining the protector from exercising powers under the trust instruments reinforced that conclusion. The trustees could not exercise the dispositive power to distribute income or capital while the protector was restrained from giving the required consent.
5. The proposed $800,000 payment was neither day-to-day expenditure nor expenditure in the ordinary and proper course of day-to-day expenditure. The apparent assignment of part of the proceeds of the BIT arbitration claim also raised a separate concern about breach of the freezing order.

The construction issues were determined against the wider interpretation advanced for the trusts.

The judgment concerned construction of a worldwide freezing order made by Mr Justice Snowden on 27 August 2015. The judgment also referred to material placed before the Court of Appeal, but no appellate decision or citation was stated.