In the long-running saga of JSC BTA Bank's claims against its former chairman and majority shareholder, Mukhtar Ablyazov, the Supreme Court recently handed down a judgment clarifying the scope of the standard form freezing order. In JSC BTA Bank v Ablyazov [2015] UKSC 64 the Supreme Court considered in particular the meaning of 'asset' under the terms of a freezing order granted in 2009 against Mr Ablyazov, and whether by instructing his lenders to pay the proceeds of certain loan agreements to his lawyers, co-defendants and other recipients, Mr Ablyazov had breached the terms of the freezing order.

The Supreme Court partially overturned the decision of the Court of Appeal, holding that the proceeds of these loan agreements were indeed 'assets' on the basis that the respondent had the power to directly or indirectly dispose of, or deal with those proceeds as if they were his own, and that Mr Ablyazov had therefore breached the freezing order. 

Background 

Mr Albyazov was formerly the chairman and majority shareholder of JSC BTA Bank (the 'Bank'). Following the Bank's nationalisation in 2009 Mr Albyazov fled to England, where he was subsequently pursued by the Bank which commenced 11 sets of proceedings seeking recovery of some US$ 10 billion that Mr Ablyazov had allegedly misappropriated. In November 2009, the Bank successfully obtained a freezing order against Mr Albyazov (the 'Freezing Order'), paragraph 5 of which stated that the Freezing Order applied to 

"all the respondents' assets whether or not they are in their own name and whether they are solely or jointly owned and whether and whether or not the respondent asserts a beneficial interest in them. For the purpose of this Order the respondents’ assets include any asset which they have power, directly or indirectly, to dispose of, or deal with as if it were their own. The respondents are to be regarded as having such power if a third party holds or controls the assets in accordance with their direct or indirect instructions". 

This wording is taken from the standard form freezing order found at appendix 5 of the Admiralty and Commercial Courts Guide (which differs from the pre-2002 form of order by providing for an "extended definition" of assets). 

Mr Albyazov had entered into a number of loan agreements between 2009 and 2010 with companies registered in the BVI. Whilst the Supreme Court proceeded on the basis that these were valid and binding loan agreements, it noted the Bank's position and the earlier Commercial Court judgment of Christopher Clarke J that there was "strong ground for believing" that these companies were "creatures or conduits" set up by Mr Ablyazov, although this does not appear to have affected the Supreme Court's reasoning. Mr Ablyazov had exercised his draw down rights under those loan agreements in full, by directing the lenders to make various payments, most significantly payments of over US$16 million to Mr Ablyazov's former solicitors. 

The Bank's case was that Mr Ablyazov's instructions in this regard amounted to a breach of the Freezing Order. However, the Bank's case had been dismissed at both first instance and by the Court of Appeal, and the Bank therefore appealed to the Supreme Court. Notably, there was no dispute as to the validity of the Freezing Order and whether it should have been ordered in the first place - the dispute related solely to the scope and interpretation of the Freezing Order. 

The Supreme Court's Analysis 

The Supreme Court considered three issues: 

  1. whether the respondent’s right to draw down under the loan agreements was an "asset" within the meaning of the Freezing Order
  2. if so, whether the exercise of that right by directing the lenders to pay sums to third parties constituted "disposing of" or "dealing with" or "diminishing the value" of an "asset"; and 
  3. whether the proceeds of the loan agreements were "assets" within the meaning of the extended definition in paragraph 5 of the Freezing Order on the basis that the respondent had power "directly or indirectly to dispose of, or deal with [the proceeds] as if they were his own". 

Lord Clarke, who gave the agreed sole judgment, gave a negative answer to the first two of these questions but upheld the Bank's appeal on the third issue. Lord Clarke began by reviewing the various arguments made in the Court of Appeal, which were rehearsed before the Supreme Court, regarding the correct approach to the construction of freezing orders. Various principles of approach and construction were advanced, including the "enforcement principle", the "flexibility principle" and the "strict construction principle". From these principles Lord Clarke distilled some key guidance as to the approach the Court should take when considering the scope of freezing orders: 

  1. "The sole question is what the Freezing Order in fact made means. It is also important to note that the answer to the question of construction does not depend upon any analysis of the respondent's conduct"(paragraph 16)
  2. "If it is desirable that a broader meaning should be given to [the freezing order] than is appropriate applying ordinary principles, the solution is not to give it a meaning which it does not have but to vary the order (and the relevant standard form of order) appropriately for the future"; accordingly, the flexibility principle is not relevant (paragraphs 17 and 18)
  3. "… orders of this kind are to be restrictively construed in accordance with Beatson LJ's strict construction principle", which had been explained by Beatson LJ in paragraph 37 of his Court of Appeal judgment where he said that "because of the penal consequences of breaching a freezing order and the need of the defendant to know where he, she or it stands, such orders should be clear and unequivocal, and should be strictly construed" (paragraph 19)
  4. "The expression 'assets' is capable of having a wide meaning. For example, it can include a chose in action. However, like any document, a freezing order must be construed in its context. That includes its historical context" (paragraph 21). 

Lord Clarke went on to consider the meaning of the term "assets", noting that it "is capable of having a wide meaning" and "can include a chose in action". Lord Clarke reviewed a number of relevant cases referred to in the Court of Appeal and in submissions before the Supreme Court, and while he recognised that the definition of assets had been cautiously and gradually extended over time by amendments to the standard form freezing order, he concluded with the summary that "[t]he cases and legal writings referred to above show that there has over the years been a settled understanding that borrowings were not covered by the standard form of freezing order" (paragraph 34). Lord Clarke did not consider it appropriate for the Supreme Court to reverse the previous cases, which would effectively overturn the clarity and certainty which the courts and legal commentators had come to attach to the meaning of the standard form freezing order as it was up to 2002. On this basis, Lord Clarke found against the Bank in relation to the first two questions outlined above, since the Bank's arguments on these questions relied upon the old standard wording of the freezing order. 

However, in relation to the third question, Lord Clarke considered that the Court of Appeal had taken too narrow an approach to the extended definition of assets found in paragraph 6 of the current standard form freezing injunction at appendix 5 of the Admiralty and Commercial Courts Guide (paragraph 5 of the Freezing Order in the present case). The relevant wording of the extended definition was as follows: "the respondents' assets include any asset which they have power, directly or indirectly, to dispose of, or deal with as if it were their own". Lord Clarke observed that "the whole point of the extended definition of "assets" is to catch rights which would not otherwise have been caught". Here, although Mr Ablyazov did not own the relevant assets, under the terms of the loan agreements he had the power to directly or indirectly dispose of or deal with them as if they were his own. The fact that by drawing down the loans Mr Ablyazov would incur a liability at some stage to reimburse the lender was rejected by Lord Clarke as immaterial. 

Significance 

This Supreme Court decision provides important guidance as to the approach to be taken when construing the specific terms of a freezing order. It also makes clear that a respondent subject to a freezing order will need to act in accordance with the terms of the order when exercising any contractual rights under a loan agreement or overdraft facility, since the funds available pursuant to such arrangements will fall within the extended definition of assets under the standard form freezing order. 

However, a potential grey area is opened up by Lord Clarke's conclusion that the focus of the extended definition "is not on assets which the respondent owns (whether legally or beneficially) but on assets which he does not own but which he has power to dispose of or deal with as if he did". It is likely that claimants will seek to rely on this formulation to apply freezing injunctions to the assets of companies or other vehicles which they say are controlled by a single director, shareholder or other individual respondent.