CJSC Alfa Bank (Belarus) v Lek Securities Limited UK

In an application for an interim proprietary injunction, the court applies the American Cyanamid test. A serious issue to be tried is established where the evidence provides no sensible basis for the respondent to claim an interest in assets purportedly held under a unilateral trust deed. Damages are inadequate where assets are held on trust for others and their recovery or preservation in specie is required, particularly because damages would leave the ultimate beneficial owners exposed to insolvency risk in the custody chain.

The court may grant a narrower injunction where the relevant assets are held by a third-party custodian and the immediate risk can be addressed by restraining the respondent from giving disposal instructions. A qualified cross-undertaking may properly reflect sanctions law.

The claimant, a Belarusian bank subject to an asset freeze under UK sanctions regulations, held customer funds on trust and had placed assets with the defendant under a custody and brokerage agreement.

After the defendant ceased trading and transferred some assets to Quintet Private Bank Europe SA, conflicting accounts emerged as to whether Quintet held the assets for the defendant or directly for the claimant. The defendant also supplied a unilateral trust deed concerning approximately $4.6 million of remaining assets.

The claimant sought, without notice, a proprietary freezing order pending a return date. The central issues were whether there was a serious issue to be tried, whether damages were an adequate remedy, whether narrower relief was appropriate for the Quintet assets, and whether the qualified cross-undertaking was sufficient.

1. Relief granted. Subject to refining the drafting, the court granted the injunctions sought.
2. For the Trust Deed Funds, the claimant satisfied the threshold stage of the American Cyanamid test. The evidence disclosed no sensible basis on which the defendant could claim an interest in assets purportedly held under the unilateral trust deed. The deed was of highly questionable legal effect, had not been executed by the claimant, and did not comply with the variation requirements of the brokerage agreement.
3. Damages were not an adequate remedy. The assets were held by the claimant as trustee for its customers and required protection or recovery in specie. An award of damages would leave the ultimate beneficial owners exposed to insolvency risk throughout the custody chain.
4. As to the Quintet assets, a proprietary injunction was unnecessary at the interim stage. The appropriate narrower order was to restrain the defendant from giving instructions to Quintet to dispose of, deal with or diminish the value of those assets. Any dispute concerning Quintet’s own conduct could not be regulated because Quintet was not a party.
5. The qualification to the cross-undertaking, making it subject to any necessary licence from the Office of Financial Sanctions Implementation, reflected the general law and was appropriate. The court considered it unclear what realistic loss the defendant could suffer from the proposed orders.