In a helpful decision for claimants, the UK Supreme Court has confirmed that conspiring to breach a Freezing Order constitutes “unlawful means” for the purposes of the tort of Unlawful Means Conspiracy.

Introduction

A freezing order (formerly known as a Mareva injunction) has been described as one of the nuclear weapons of English litigation, allowing a claimant to freeze the assets of a debtor, pre or post judgment, and requiring that debtor to disclose where those assets are located. Breaching a freezing order can be a contempt of court and lead to the imprisonment of those involved in the breach. But proving contempt of court can be challenging and an order holding a party in contempt may be slim comfort if the debtor’s assets have all disappeared.

Conspiracy is one of a group of torts commonly known as economic torts and allows a party to recover damages from a group of defendants who have acted in concert to cause that party loss. Conspiracy claims are becoming increasingly popular in commercial fraud cases where multiple wrongdoers may be involved and the primary wrongdoer may have hidden their assets or transferred them to others.

Background to the Decision

This appeal was part of a large scale litigation between JSC BTA Bank (a Kazakh bank) (the “Bank”) and its former chairman Mukhtar Ablyazov. In 2009, the Bank issued proceedings against Mr Ablyazov alleging that he had embezzled some US$6 billion from the Bank. The Bank also obtained a worldwide freezing order against Mr Ablyazov and ancillary disclosure orders requiring him to disclose the whereabouts of his assets. Subsequently the Bank obtained a series of very substantial judgments against Mr Ablyazov, but has apparently made only modest recoveries to date.

In the present proceedings, the Bank alleged that Mr Ablyazov’s son-in-law, Mr Kharapunov, conspired with Mr Ablyazov by assisting him in concealing and dissipating his assets in breach of the worldwide freezing order obtained by the Bank. The Bank accepted that the predominant purpose of the (alleged) conspiracy was to further Mr Ablyazov’s financial interests, not to injure the Bank, and it was therefore necessary for the Bank to establish that the conspiracy involved “unlawful means”.1

The issue before the Court, therefore was whether contempt of court arising from the breach of the freezing order could constitute unlawful means for the purposes of an “unlawful means conspiracy”. Mr Kharapunov argued that conspiring to commit a contempt of court could not be considered “unlawful” for these purposes because, if not for the conspiracy, the Bank would not be able to seek damages from Mr Ablyazov alone for the contempt.

What Are “Unlawful Means”?

There are a range of actions that defendants may engage in which would result in injury to the claimant, including: breach of contract or fiduciary duties, breach of civil statutory duties, torts actionable by third parties (other than the claimant) and criminal acts. Which of these will amount to unlawful means for the purposes of a conspiracy claim has been uncertain.

Following the earlier House of Lords decision in Revenue and Customs Comrs v Total Network SL [2008] AC 1174, it is clear that a criminal offence could be “unlawful means” provided that it was objectively directed against the claimant.

In this case, the Supreme Court rejected Mr Kharapunov’s argument that “unlawful means” are only those in respect of which a claimant could bring a claim against the defendant independent of conspiracy. Although declining to lay down a clear rule for what will amount to unlawful means, the Court held that whether an act amounts to unlawful means is dependent on whether there is a just cause or excuse for the defendants’ actions. That in turn depends (i) on the nature of the unlawfulness, and (ii) its relationship with the resultant damage to the claimant.

What About Contempt of Court?

The Supreme Court was satisfied, however, that conspiring to breach a worldwide freezing order (i.e. commit a contempt of court) would constitute “unlawful means” and that a claim in damages will be available against parties who do so.

This is good news for claimants and provides a further tool to seek recovery against those who help debtors breach freezing orders.