JSC BTA Bank v Ablyazov

A standard-form freezing order is construed restrictively, in its historical and enforcement context, because breach has penal consequences. Flexibility may justify varying future orders, but does not permit an expansive interpretation of an existing order.

Without an extended definition, a contractual right to draw down a loan is not an “asset” under the standard form, and drawing or spending borrowed money is not dealing with such an asset. An extended clause covering assets which the respondent may dispose of or deal with as if they were their own reaches money owned by a lender where the respondent has an unfettered power to direct its payment. The respondent’s repayment liability is immaterial.

JSC BTA Bank v Ablyazov concerned a freezing order made during proceedings in which the Bank alleged extensive fraudulent misappropriation by its former chairman. The respondent subsequently drew down four binding loan facilities. He directed the lenders to pay substantial sums to his solicitors and other third parties.

The Bank sought declarations that the respondent’s contractual rights were assets under the order and that drawings were restricted by its permitted-spending exceptions. The Commercial Court dismissed the application: [2012] EWHC 1819 (Comm); [2012] 2 All ER (Comm) 1243. The Court of Appeal dismissed the Bank’s appeal: [2013] EWCA Civ 928; [2014] 1 WLR 1414.

The Supreme Court considered whether the rights to draw down were assets, whether exercising those rights amounted to dealing with an asset, and whether the loan proceeds fell within the order’s extended definition because the respondent could deal with them as if they were his own.

1. Disposition. Lord Clarke delivered the judgment, with which Lord Neuberger, Lord Mance, Lord Kerr and Lord Hodge agreed. The Bank’s appeal was dismissed on the first two issues but allowed on the third.

2. A freezing order must be construed restrictively. Its meaning must be clear and unequivocal because breach may attract penal consequences and the order risks oppression. The flexibility needed to counter new avoidance methods may inform the making or variation of future orders, but it does not permit an expansive construction of an order already made. The respondent’s conduct could not alter the objective meaning of the order.

3. The historical context and enforcement purpose of the standard wording were important. A freezing order ordinarily preserves assets available to satisfy a future judgment; it does not give the claimant security. The contextual approach in Federal Bank of the Middle East Ltd v Hadkinson [2000] 1 WLR 1695 was approved.

4. Without the extended definition in paragraph 5, the respondent’s contractual rights to draw down were not “assets” within the standard form. Although a chose in action may be an asset in ordinary legal usage, there was a settled understanding that the standard wording did not prevent borrowing. Drawing down and spending borrowed money therefore did not amount to disposing of, dealing with or diminishing the value of an asset under the original wording.

5. The extended definition produced a different result. It covered property which the respondent did not own legally or beneficially but which he had power, directly or indirectly, to dispose of or deal with as if it were his own. The sentence deeming the requisite power to exist where a third party held or controlled the property under the respondent’s instructions expanded the preceding sentence; it did not restrict it.

6. The loan agreements gave the respondent an unfettered power to direct each lender to transfer the proceeds to any third party. He therefore had power to deal with the lender’s money as if it were his own, and the proceeds were assets within the extended definition. The lenders’ ownership of the money, their ability to choose the particular funds used, and the respondent’s repayment liability did not alter that conclusion. Written submissions on the form of order and costs were invited within 21 days.

1. United Kingdom Supreme Court: In JSC BTA Bank v Ablyazov [2015] UKSC 64, the court unanimously dismissed the appeal on whether the drawdown rights were assets under the original wording and whether their exercise was a dealing. It allowed the appeal on the application of the extended definition.
2. Court of Appeal: The court dismissed the Bank’s appeal from the Commercial Court: [2013] EWCA Civ 928; [2014] 1 WLR 1414.
3. Commercial Court: The Bank’s application for declarations concerning the loan rights and drawings was dismissed: [2012] EWHC 1819 (Comm); [2012] 2 All ER (Comm) 1243.