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Breach of freezing order by third party could qualify as “unlawful means” for purposes of tort of conspiracy to injure by unlawful means.

  • United Kingdom
  • Financial services disputes and investigations
  • Litigation and dispute management - Freezing Orders

01-05-2017

JSC BTA Bank v (1) Khrapunov and (2) Ablyazov [2017] EWCA Civ 40

Facts of the case

– JSC BTA Bank (“C”) brought a claim for unlawful means conspiracy against its former Chairman, Mr Ablyazov (“D2”) and his son-in-law, Mr Khrapunov (“D1”)

– C alleged that the Ds had conspired to breach a worldwide freezing order and receivership order made against D2 in previous English proceedings with a view to preventing C from executing against the assets of D2

– D2 lived in England before he fled the jurisdiction to avoid being committed to prison for contempt of court. He currently lives in France. D1 lives in Switzerland. Whether the court had jurisdiction against D1, depended on the terms of the Convention on Jurisdiction and the Recognitions and Enforcement of Judgments in Civil and Commercial Matters (the “Lugano Convention”)

– article 5 of the Lugano Convention permits exercise of jurisdiction by the English court if England is (i) the place where the damage occurred; or (ii) the place of the event giving risk to the damage in question

The decision

Conspiracy to Injure by Unlawful Means

– the court rejected C’s argument that damages were recoverable for a simple breach of a court order, such as a freezing order or receivership order. This is because a breach does not of itself constitute a cause of action in private law. Accordingly, the only remedy is punishment for contempt of court

– the court also rejected D1’s argument that there was a positive rule of law that damages can never be awarded for breach of a court order

– instead, the court held that the real question was whether contempt of court in the form of the alleged breaches of the freezing and receivership orders qualified as unlawful means for the purposes of the tort. It found that it did, or that it was at least arguable it did for the purposes of establishing the jurisdiction of the English courts, on the basis that they amounted to a “very serious interference with the administration of justice” and were “sufficiently reprehensible to justify treating them as unlawful means”

Jurisdictional Issues in Economic Tort Claims (Interpretation of Article 5 of the Lugano Convention)

– the place where the damage occurred is the place where the damage directly produced its harmful effects. C argued that this was England because this is where its worldwide freezing order and judgements against D2 were granted and which had been reduced in value by the alleged actions of D1. The court, however, held that this was consequential damage. Instead, the damage was suffered first, or most immediately, in the foreign jurisdiction where C’s opportunity to execute its judgments was lost or hindered (in this instance Switzerland, Belize and/or Russia)

– however, the court accepted C’s argument that England was the place of the event giving rise to the damage since this is where the conspiracy appeared to have been entered into

Analysis and practical advice

– the risk that a bank notified of a freezing order might be found in contempt of court in the event that it has wilfully failed to prevent dealing in frozen funds is well known. However, this case is a reminder that non-parties to litigation or those not subject to court orders, such as banks, are also potentially liable for claims in conspiracy where they are involved in the breach of a court order. Whilst it will normally be difficult for a claimant to prove a bank’s wrongdoing in this regard, this judgment does serve as a reminder that such conduct may open up a separate cause of action for victims of fraud distinct from contempt proceedings.