The jurisdiction of a freezing order was set out in the leading case of TSB Private Bank International S.A. v Chabra [1992] 1 WLR 231 (also known as the court’s Chabra-type of jurisdiction). It was held that, so long as the claimant had a good arguable cause of action against one defendant, there was power to grant an injunction against another defendant against whom no cause of action lay, provided that the claim to the injunction was ‘ancillary and incidental’ to the cause of action against the initial defendant.
But what is the scope of any jurisdiction to freeze assets in the hands of a third party, where the claimant has no cause of action against that third party and the third party does not hold the assets as a nominee of, or a trustee for, the primary defendant? This issue was considered by the High Court in Yukos Capital S.a.r.l v OJSC Rosneft Oil Company [2010] EWHC 784 (Comm.).
The claimant had successfully obtained a freezing order against various companies (the RT companies) on the grounds that the RT companies transferred funds to the bank accounts within the jurisdiction for onward transmission to the first defendant, Rosneft. At the ex parte hearing, the claimant had argued that the freezing order should be granted because there was evidence to suggest that the RT companies were controlled by Rosneft and that the RT companies were used as vehicles for the purchase and sale of oil on behalf of Rosneft. The claimant further argued that the RT companies’ London bank accounts would be available for enforcement because the assets were held as a nominee of Rosneft, or that Rosneft controlled the RT companies. The RT companies responded by asserting that the RT companies were simply intermediary purchasers of oil from Rosneft.
In seeking to have the freezing order discharged or varied, the RT companies submitted that no jurisdiction existed unless the primary defendant (that is Rosneft) was the beneficiary of the relevant money under a trust. The claimant contended that there was no jurisdictional limit on the power to injunct assets of third parties, subject to any considerations relevant to the exercise of discretion by the court.
In support of their ‘beneficial ownership’ arguments, the RT companies relied on the case of Yukong Line Ltd v Rendsburg Investments Corporation [2001] 2 Lloyd’s Reports 113, in which Lord Justice Potter cited Chabraand said: ‘Although it is plain that the court’s Chabra-type of jurisdiction would only be exercised where there are grounds to believe that a co-defendant is in possession or control of assets to which the principal defendant is beneficially entitled, it does not seem to me that the jurisdiction is limited to cases where such assets can be specifically identified in the hands of the co-defendants.’
The RT companies, therefore, contended that Lord Justice Potter’s judgment indicated that the Chabra-type jurisdiction extended to cases where assets were held by a co-defendant but where those assets were beneficially owned by the primary defendant.
Mr Justice Steel was not persuaded by the RT companies’ arguments. Steel J held that the court in Yukong was briefly summarising the Chabra-type jurisdiction and that the court in that case was not invited to consider ‘the legitimate outer reaches of the Chabra-type jurisdiction and should not be treated as having done so’.
Steel J also clarified the case of C. Inc v L [2001] 2 Lloyds Reports 459 on which the RT Companies attempted to rely, and in which Mr Justice Aikens commented on the Australian case of Paul Cardile v LED Building Proprietary Ltd [1999] HCA 18.
In Cardile, the Australian High Court set out the general principles that assets in the hands of a third party could be frozen, even though the judgment debtor did not beneficially own those assets. However, Aiken J in C. Inc v L appeared to introduce a causal link requirement between the fact that the claimant had obtained a judgment against the primary defendant and, on the basis of that judgment, a legal right to go against the assets of the third party. Steel J doubted whether a causal link was necessary and relied on HM Revenue & Customs v Egleton [2006] EWHC 2313(Ch), in which Briggs J observed that a causative condition could not be discerned in the reasoning in Cardile. Steel was also persuaded by the judgment of Judge Bartley-Jones QC in Dadourian Group International Inc. v Azury Ltd [2005] EWHC 1768 (Ch) in which the judge confirmed that the Chabra-type jurisdiction applied if it could be shown that a primary defendant had substantial control over the assets in question, even though the primary defendant may not have a legal or equitable right to the assets.
The following points can be taken from Yukos Capital:
- the main factor which the courts will consider when faced with an application for a freezing order will be whether the primary defendant exercises ‘substantial control’ over the assets which are held by a third party;
- where substantial control over the assets is shown, a freezing order will extend to that third party regardless of whether the assets which the third party holds are beneficially owned by the primary defendant; and
- claimants seeking a freezing order against a third party would be advised to ensure that their applications are supported by strong evidence which proves the above. A failure to do this is likely to result in an application for a freezing order being rejected by the courts.
Masood Ahmed is a senior lecturer in law at Birmingham City University
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