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Court varies worldwide freezing order to remove from scope assets of companies in respect of which the respondent had a direct or indirect shareholding and was a director

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

01-11-2018

 

FM Capital Partners Ltd v Frédéric Marino & Ors [2018] EWHC 2889 (Comm)

Facts of the case

- FM Capital Partners (“A”) applied for, and was granted, a worldwide freezing order (“WFO”) against the third defendant (“R”).

- The WFO stated that R’s assets for the purposes of the order included “assets whether or not they are in his own name and whether or not they are solely or jointly owned and whether the Respondent is interested in them legally, beneficially or otherwise. For the purposes of this order the Respondent’s assets include any asset which he has the power, directly or indirectly, to dispose of or deal with as if it were his own. The Respondent is to be regarded as having such power if a third party (which shall include a body corporate) holds or controls the asset in accordance with his direct or indirect instruction”.

– Both A and R applied to vary the WFO. This update only deals with R’s application, which was to vary the WFO to omit inter alia references to the assets of four companies (the “Companies”) which were wholly owned (directly or indirectly) by R and in respect of which he was a director, on the grounds that those assets belonged to, and were in the control of, third parties.

The decision

– Peter MacDonald Eggers QC, sitting as a Deputy Judge of the High Court, granted R’s application and varied the WFO to no longer apply to the assets of the Companies. This was on the basis that even if R was a 100 per cent shareholder and the sole director of the company, the control he exercised was as an organ or agent of the company, and not in his own right (applying Lakatamia Shipping Co Ltd v Su [2014] EWCA Civ 636).

Analysis and practical advice

– It will only be in exceptional circumstances that a court will be persuaded to extend the application of a freezing order to assets belonging to a third party. These include where there is strong evidence that the respondent has assets in a non-trading company which he wholly owns and controls, which has no active business and which is “in truth no more than [a] pocket[] or wallet[] of that respondent”. In such circumstances, the applicant may also seek relief directly against such company by making them a defendant under the Chabra jurisdiction (TSB Private Bank International SA v Chabra [1992] 2 All ER 245).

– However, in the case of an active trading company, it should also be borne in mind that where the respondent exercises control over the assets of a company in which he is the only or principal shareholder, that conduct may in certain circumstances have the effect of diminishing the value of such shareholding. Where that shareholding is an asset which is captured by the freezing order, such conduct would therefore be in breach of it (although it should be noted that a diminishment in the value of the shareholding is unlikely to be the result of transactions in the ordinary course of the business of the company).

– This case is also of interest because it highlights an inconsistency between the Court of Appeal’s decision in Lakatamia and the Supreme Court’s decision in JSC BTA Bank v Ablyazov [2015] UKSC 64; [2015] 1 WLR 4754 insofar as:

– the Court of Appeal held that (i) the extended definition of assets (the underlined section above) does not, by itself, render the freezing order applicable to the assets of a third party and (ii) for it to apply to a particular asset, that asset must be one to which the respondent is beneficially entitled or in which the respondent is beneficially interested;

– whereas, the Supreme Court held that the extended definition captured assets which the respondent has control over and the power to dispose of or deal with as if he is the legal or beneficial owner, even if he is not.

– The distinction between these two decisions would be relevant where, for example, a respondent was a borrower under a loan facility which allowed the respondent to direct the lender to pay the proceeds of the loan facility to a third party, and where the borrower had given such a direction. Under the approach taken by the Court of Appeal, the borrower’s contractual right to the use of the proceeds would not be an asset captured by the extended definition, since the borrower would not be the legal or beneficial owner of the proceeds.

By contrast, the contractual right would constitute an asset under the approach taken by the Supreme Court, on the basis that it would be an asset over which the respondent has control. 

 

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