Shalabayev v JSC BTA Bank

A person claiming a proprietary interest in property against which a judgment creditor seeks a charging order is ordinarily entitled to have that interest determined in the enforcement proceedings. The fact that the person gave evidence, and was disbelieved, in earlier committal proceedings against the judgment debtor does not by itself make that defence a collateral attack or an abuse of process.

Whether later proceedings are abusive depends on all the circumstances. It will rarely be abusive for a non-party or non-privy to litigate an issue not previously determined between the same parties. A charging order under the Charging Orders Act 1979 can attach only the judgment debtor’s interest. Due process requires a proper opportunity to contest a claimed deprivation of third-party property rights.

The Bank held substantial judgments against Mr Ablyazov and applied for a final charging order over a flat registered in the name of Bensbourogh Trading Inc. It relied on findings in committal proceedings that Mr Ablyazov was the ultimate beneficial owner of the flat.

Mr Shalabayev, who had given evidence in the committal proceedings but had not been a party to them, claimed that he was the beneficial owner of the company and the flat. Teare J dismissed his application to intervene and obtain a trial of ownership, holding that it was an abusive collateral attack on the committal judgment, and made a final charging order.

Mr Shalabayev appealed. The central issue was whether he could be joined to resist enforcement and have his claimed proprietary interest determined.

1. Appeal allowed unanimously. Lady Justice Gloster, with whom Lady Justice King and Lord Justice Jackson agreed, held that Mr Shalabayev’s proposed defence to the charging order was not an abuse of process. He was to be joined as a respondent, permitted to adduce further evidence, and the ownership issue was to be determined by a Commercial Court judge other than Teare J. Bensbourogh should also be joined.

2. The doctrine of collateral attack is not confined by a rigid rule to previous parties or their privies. Its application is fact-sensitive. Under Secretary of State for Trade and Industry v Bairstow, a challenge by a non-party may be abusive if relitigation would be manifestly unfair or bring the administration of justice into disrepute. However, following In re Norris, it will be rare for litigation of an issue not previously decided between the same parties or privies to be abusive.

3. The committal proceedings and the charging-order proceedings served materially different functions. The former determined whether Mr Ablyazov had lied and should be punished for contempt. The latter concerned enforcement of the Bank’s judgment and whether property could be charged. As a witness, Mr Shalabayev had no right of representation, control of the proceedings, or right of appeal. He had not had a proper opportunity to advance his own proprietary case.

4. Under sections 1(1) and 2(1) of the Charging Orders Act 1979, the Bank could obtain a charge only over the judgment debtor’s beneficial interest. Section 3(5) and CPR Part 73 entitled a person claiming an interest to object and seek a determination. The Bank therefore bore the burden of proving that Mr Ablyazov, rather than Mr Shalabayev or Bensbourogh, held the relevant beneficial interest.

5. There was no issue estoppel, privity, or estoppel by conduct. Mr Shalabayev’s proprietary interests were potentially opposed to those of Mr Ablyazov, and he was under no obligation to intervene earlier in committal or receivership proceedings. The earlier findings did not bind him. Due process had to be observed before property rights could be displaced.

1. Court of Appeal (Civil Division): Allowed Mr Shalabayev’s appeal in [2016] EWCA Civ 987. It directed his and, subject to further argument, Bensbourogh’s joinder to the charging-order proceedings and remitted the ownership issue for determination by another Commercial Court judge.

2. High Court of Justice, Queen’s Bench Division, Commercial Court: Teare J had dismissed Mr Shalabayev’s intervention application as an abuse of process and made a final charging order. The earlier committal judgment was [2012] EWHC 237 (Comm).