We would like to ensure that you are still receiving content that you find useful – please confirm that you would like to continue to receive ILO newsletters.
24 November 2015
The Supreme Court has unanimously found(1) that the right to draw down moneys under a loan agreement can be an 'asset' for the purpose of the standard form Commercial Court freezing order, where the order includes the wording "any asset which the respondent has the power, directly, or indirectly, to dispose of or deal with as if it were its own". The judgment provides useful guidance on the fact that without this additional wording, the term 'asset' would not extend to the right to draw down moneys. This is the first time that the Supreme Court has given guidance on post-2002 standard form Commercial Court freezing orders and its interpretation turned on the strict construction of the wording of the freezing order.
The application arose as part of the long-running litigation between JSC BTA Bank (BTA) and its former chairman and majority shareholder, Mukhtar Ablyazov.
BTA was one of Kazakhstan's four systemically important banks. When it was nationalised in early 2009, Ablyazov fled to England, where he remained. BTA contended that while Ablyazov was chairman, he presided over the misappropriation of more than $10 billion of BTA's moneys for his own benefit. BTA started proceedings in England and to date has obtained a number of judgments against Ablyazov totalling $4.4 billion.
The appeal heard by the Supreme Court concerned the interpretation and application of a freezing order that had been made against Ablyazov in November 2009. The order was in the standard form for use in the Commercial Court and Paragraph 5 of the order included the following wording, which went beyond the scope of the standard form freezing order used in the Commercial Court before 2002: "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."
Ablyazov entered into two loan facility agreements in September 2009 and April 2010. In each case, the facility agreements described him as the 'borrower' and permitted the borrower to direct the lender to transfer the proceeds of the loan facility to any third party. Each of the loans had been fully drawn down, and pursuant to them Ablyazov had directed a number of payments to third parties, including payments of $119,000 to a corporate services provider associated with him and $390,000 to lawyers acting for other defendants to BTA's claims.
In October 2011 BTA applied to the court for (among other things) a declaration that Ablyazov's rights under the loan agreements were assets for the purposes of the freezing order.
At first instance, the judge dismissed BTA's application and held that in the context, Ablyazov's right to borrow should not be regarded as an asset within the definition of the order, and that the exercise of the right to borrow did not constitute 'disposing of' or 'dealing with' assets.
Court of Appeal
The issues before the Court of Appeal were summarised as:
The court identified three principles of particular relevance to the imposition of freezing orders:
In balancing these three principles, the court found that there was no principled objection to recognising rights under a loan facility agreement as an asset. However, the court found that the standard form Commercial Court freezing order did not make choses in action (eg, those under the facility agreements) assets; further, drawing down a loan did not amount to "disposing of, dealing with or diminishing the value of assets". The appeal was therefore rejected.
BTA appealed the Court of Appeal's decision and asserted that the loan created relevant assets that could be dealt with only in accordance with the order. Its arguments were put forward on two bases:
The Supreme Court found that while 'asset' can have a wide meaning and include a chose in action, the definition of 'asset' in the pre-2002 standard form order did not include borrowings. This was a "settled understanding" from case law and legal writing.
While the leading judge noted that it would be open to the court to reverse previous case law, in the interests of clarity and in order to give certainty in the context of penal orders, it was not appropriate to do so. Therefore, the definition of 'asset' in a standard form freezing order would not extend to the right to drawn-down moneys.
However, the court considered that the extended form order in this case extended the meaning of 'asset' to include Ablyazov's right to draw down moneys under a loan. Ablyazov had the "power, directly or indirectly, to dispose of, or deal with the assets as if they were [his] own". The court held that an instruction to a lender to pay the lender's money to a third party constituted dealing with the lender's assets as if they were his own. Therefore, the right to give instructions under the loan agreements was captured by the extended wording.
The Supreme Court rejected the Court of Appeal's narrow interpretation of additional wording in Paragraph 5 of the order, clarifying that the effect of including the extra wording was to broaden the scope of the order so that it:
"catches rights which would not otherwise have been caught and in particular, the 'assets' include any asset which they have power, directly or indirectly, to dispose of, or deal with as if it were their own."
The decision provides useful clarification on the scope and application of freezing orders and shows that courts will strictly construe the wording of the order when deciding what assets will fall within scope.
From a practical perspective, when seeking a freezing order, detailed thought should be given to the assets that need to be brought into scope. The decision makes clear that in the absence of the extended wording, the right to draw down loans will not be in scope.
For further information on this topic please contact Parham Kouchikali or Emma Griffiths at RPC by telephone or email (firstname.lastname@example.org or email@example.com). The RPC website can be accessed at www.rpc.co.uk.
(1) JSC BTA Bank v Ablyazov  UKSC 64.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
ILO is a premium online legal update service for major companies and law firms worldwide. In-house corporate counsel and other users of legal services, as well as law firm partners, qualify for a free subscription.