Supreme Court extends scope of Freezing Orders through the tort of conspiracy

May 2, 2018

Introduction

The Supreme Court has recently issued a landmark decision in the long running litigation involving Mr Mukhtar Ablyazov. In JSC BTA Bank v Khrapunov [2018] UKSC 19, the Supreme Court clarified the law in relation to unlawful means conspiracy and provided some useful guidance on what constitutes an “unlawful means”. This decision also impacts the scope and effect of Freezing Orders obtained by claimants.

Facts

Mr Ablyazov was the former chairman and controlling shareholder of JSC BTA Bank and was removed from office when the Bank was nationalised in 2009. He subsequently fled from Kazakhstan to England where he was granted asylum.

The Bank sued Mr Ablyazov in the English High Court for embezzling some US$ 6 billion of the Bank’s funds and obtained a Worldwide Freezing Order (WFO) against him, which he was later found to have breached. He was sentenced to 22 months’ imprisonment for contempt of court and has since fled the jurisdiction.

In 2015, the Bank brought a claim against Mr Ablyazov and his son-in-law, Mr Khrapunov, who lives in Switzerland. The Bank alleged that the two men were involved in an unlawful means conspiracy, pursuant to which Mr Khrapunov, who was aware of the WFO, entered into an agreement or understanding with Mr Ablyazov to help dissipate and conceal his assets. The “unlawful means” relied on were numerous breaches of the WFO in contempt of court.

Mr Khrapunov applied to the Supreme Court to challenge the jurisdiction of the English Court. The Court of Appeal and Supreme Court dismissed his appeal.

Unlawful Means Conspiracy

The Supreme Court clarified that the question of what constitutes an “unlawful means” does not depend on whether the acts complained of give rise to an independent cause of action, as Mr Khrapunov sought to argue. The correct test is whether there is a just cause or excuse for combining with one another to use unlawful means. This depends on the nature of the unlawfulness and its relationship with the resultant damage caused to the claimant.

The Court held that contempt of court, being a criminal offence, can constitute an “unlawful means” for the purposes of the tort of unlawful means conspiracy. A criminal offence could be sufficient for “unlawful means” provided that it was objectively directed against the claimant.

Jurisdiction

The place where the conspirational agreement takes place will be crucial in determining whether the English Court has jurisdiction. In this case, Mr Khrapunov entered into the agreement with Mr Ablyazov in London and this was held to be the harmful event which set the tort in motion, which meant that Mr Khrapunov could be sued in England.

The English Court arguably will have jurisdiction in conspiracy cases if it can be shown that England is the place of the event which gives rise to the damage, even if the damage occurs elsewhere. In other words, it may be sufficient to show that an agreement to conspire was made in England for the English Court to be seized of jurisdiction, even if the agreement itself is implemented abroad.

Impact on Freezing Orders

Whilst persons who are domiciled abroad are not usually bound by the terms of a Freezing Order granted by the English Court until it has been registered in the relevant jurisdiction, a third party could now fall within the English Court’s jurisdiction if they unlawfully conspire with someone in England to breach a Freezing Order and this causes damage to the claimant.

From a practical perspective, the Supreme Court has provided a useful enforcement tool for claimants in fraud cases, as they can now claim damages for conspiracy against persons resident abroad who assist defendants subject to Freezing Orders in hiding their assets without potentially having to go through the rigmarole and expense of having to get a domestic ancillary Freezing Order.

This decision will have implications for fiduciaries that hold assets for defendants outside the jurisdiction, as they could now face potential liability to claimants who have obtained Freezing Orders, even in the absence of a local ancillary Freezing Order, if it can be shown that they entered into a conspiracy with a defendant to breach the Freezing Order in England. The evidence of such an agreement could even be inferred from meetings or correspondence with the defendant.

Conclusion

Claimants in fraud cases will be particularly emboldened by this decision as it makes it easier for them to claim damages against third parties who help to frustrate Freezing Order

Samuel.Manok-Sanoian@byrneandpartners.com

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0207 842 1669

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

About Sam

Samuel is a commercial litigator who joined the firm in October 2015 with over 8 years’ experience of complex commercial and off-shore litigation. His current practice has a particular emphasis on fraud and high value multi-jurisdictional disputes in both court and arbitral proceedings.