JSC VTB Bank v Skurikhin & Ors

An application to reopen an interlocutory order may be an abuse of process where the applicant created the asserted material change of circumstances. There is no absolute rule. The court must make a broad, merits-based assessment of all the circumstances, including fairness, finality, purpose, delay and the effect on the administration of justice.

Lawful conduct may constitute abuse even without breach of a procedural rule, dishonesty or a collateral attack. A party’s motive cannot by itself make legitimate proceedings abusive, but the purpose for which the court’s process is used is relevant. Delay may likewise contribute to abuse when combined with other factors.

A receiver by way of equitable execution may be appointed where there is a real prospect of assisting enforcement, even though the relevant asset is not presently amenable to legal execution.

The claimant bank held English judgments against the first defendant and obtained a worldwide freezing injunction. Receivers were subsequently appointed by way of equitable execution over membership interests in an English limited liability partnership whose assets included Italian properties used by the first defendant and his family.

A Liechtenstein foundation, which claimed the beneficial interest in those membership interests, later excluded the first defendant from its class of beneficiaries. It applied to discharge the receivership on the ground that this was a material change of circumstances. The Commercial Court dismissed the application, finding both that it was abusive and that the exclusion did not undermine the basis of the receivership.

The foundation appealed. The central question was whether, and subject to what qualifications, a party abuses the court’s process by seeking to reopen an interlocutory order because of a material change which that party brought about.

1. Appeal dismissed unanimously. A party’s application to reopen an interlocutory order because of a change which it created may amount to an abuse of process. This is not a freestanding category or an absolute prohibition. The court must apply the established broad, merits-based approach and focus intensely on the particular facts: per Phillips LJ, Lindblom SPT and Lewison LJ agreeing.

2. Abuse does not require unlawful conduct, breach of a procedural rule, dishonesty or a collateral attack. It may arise where literal use of lawful procedure is manifestly unfair, brings the administration of justice into disrepute or misuses the process for an illegitimate purpose. Although motive alone does not convert legitimate proceedings into abuse, the purpose for which proceedings are used is relevant. Delay alone is insufficient, but may contribute to abuse when combined with other circumstances.

3. The foundation could have excluded the judgment debtor, and advanced the resulting argument, before the receivership was ordered. Instead, it waited while substantial enforcement costs were incurred and acted as realisation approached. The unchallenged findings further established that the exclusion was a device instigated for the debtor’s benefit to frustrate enforcement. The application therefore engaged the principles of finality, was manifestly unfair and was wholly abusive.

4. The bank was permitted to raise a new pure point of law on appeal. The foundation had ample opportunity to respond, had suffered no detrimental reliance and could be protected in costs. The exclusion also breached the worldwide freezing order because removing the debtor’s right to receive distributions diminished the value to him of his continuing right of control. The foundation could not rely upon its own breach to discharge the receivership.

5. In any event, the asserted change was not material. The receivership rested on the debtor’s control of the foundation, which remained undiminished. Assets could still be routed through a family member, nominee or controlled company. Beneficial ownership in such circumstances is fact-sensitive and governed by ordinary equitable principles.

6. Receivership by way of equitable execution is not confined to property presently amenable to legal execution. It is sufficient that there is a real prospect that the appointment will assist enforcement. The exclusion increased the practical obstacles to enforcement and therefore reinforced, rather than removed, the continuing utility of the receivership.

1. Court of Appeal (Civil Division): The foundation’s appeal was dismissed. The court upheld the Commercial Court’s conclusions that the discharge application was abusive and that the asserted change of circumstances was not material: [2020] EWCA Civ 1337.

2. Commercial Court: Patricia Robertson QC, sitting as a deputy High Court judge, dismissed the application to discharge the Receivership Order. No neutral citation for that decision is stated in the judgment.