Multiple breaches of worldwide freezing orders (WFOs) in contempt of court can form the basis of an action for damages caused by 'unlawful means' conspiracy, the UK's highest court has confirmed.
The Supreme Court's decision, which confirms the outcome in two lower courts, gives Kazakhstani bank JSC BTA Bank the right to pursue the son-in-law of its former chairman for damages in an action in the English courts. The bank has outstanding judgments and a WFO against the former chairman, Mukhtar Ablyazov, who is alleged to have embezzled some $6 billion worth of the bank's funds and whose whereabouts are currently unknown. The son-in-law, Mr Khrapunov, was alleged to have assisted Mr Ablyazov in dissipating and concealing his assets while aware of the WFO.
Contempt of court, in this case by way of breach of a court order, is not in itself grounds for a damages claim. The bank instead successfully argued that contempt of court could constitute the 'unlawful means' part of an action for 'conspiracy to injure by unlawful means', because the breaches were "objectively directed" against it even if their "predominant purpose" was to further Ablyazov's financial interests.
The Supreme Court dismissed an argument put forward on behalf of Mr Khrapunov that allowing an action for conspiracy to commit a contempt of court would be inconsistent with public policy. The court ruled that there was no such policy reason restricting the remedy for contempt of court to criminal penalties only.
Alan Sheeley, civil fraud and asset recovery expert at Pinsent Masons, the law firm behind Out-Law.com, said that the ruling was "not only right in law but also means justice prevails".
"The Supreme Court has stated very clearly that Mr Khrapunov should answer for his actions," he said.
"This is another example of the English court demonstrating that it has real teeth. It will not entertain the frustration of its orders and in particular freezing orders, the 'nuclear weapon' of the civil litigator's arsenal. The allegation is that Mr Ablyazov proactively engineered, with Mr Khrapunov, a scheme to allow him to continue his lifestyle in full knowledge that it would be detrimental to the bank's position," he said. "The Supreme Court, in this case, has made it clear that such conduct is an actionable unlawful means conspiracy, rejecting Mr Khrapunov's technical arguments that there was no 'unlawful means' because, without a conspiracy, he could not have been sued for damages for breach of the freezing order made against Mr Ablyazov."
"This confirms the trend towards an expansive interpretation of what is an 'unlawful means' for the purposes of unlawful means conspiracy. This greatly assists those pursuing fraudsters as it widens the pool of potential targets that could be subject to the English courts' jurisdiction. Here, the bank is now able to pursue Mr Khrapunov even though Mr Ablyazov and his assets cannot be found."
The Supreme Court also dismissed an argument by Khrapunov that, as he is domiciled in Switzerland, the English courts had no jurisdiction over him. The Lugano Convention, to which both the UK and Switzerland are parties, allows a claim to be pursued in the jurisdiction "where the harmful event occurred or may occur". In this case, the conspiratorial agreement between Khrapunov and Ablyazov was entered into in England, even though the breaches (such as dealings in Mr Ablyazov's assets) took place elsewhere.
"[I]n entering into the agreement Mr Khrapunov would have encouraged and procured the commission of unlawful acts by agreeing to help Mr Ablyazov to carry the scheme into effect. Thereafter, Mr Khrapunov's alleged dealing with assets the subject of the freezing and receivership orders would have been undertaken pursuant to and in implementation of that agreement, whether or not he was acting on instructions from Mr Ablyazov," the court said.
"The making of the agreement in England should, in our view, be regarded as the harmful event which set the tort in motion," it said.
The court focused on the initial event – the agreement between Mr Ablyazov and Mr Khrapunov - which set in train the frustration of the freezing order by the dissipation of assets in multiple jurisdictions. This agreement was assumed to have been made in England, which meant the English courts have jurisdiction," he said. " "This is another example of the English courts baring their teeth and showing that they will not stand by when their orders are ignored by people outside the jurisdiction."
"Freezing orders are obtained and fought in very aggressive types of litigation and if a client affected by a freezing order is not advised properly it can result in very expensive costs orders against the client and possibly criminal sanctions against them as well," said Sheeley.
"This is a stark warning to all who deal with freezing orders to be very wary about playing 'fast and loose'. Freezing orders are not just an issue for oligarchs, they are obtained more routinely than people think. Corporates and individuals that become mixed up with a freezing order, either directly or indirectly, should take note of this case and make sure they seek independent legal advice as soon as possible to avoid being on the wrong end of a contempt application, which could result in imprisonment or even a claim for conspiracy," he said.
Out-Law.com, 26 March 2018
