Commercial Court clarifies scope of standard undertaking not to enforce worldwide freezing order abroad without court’s permission

The Commercial Court has recently considered the scope of the standard undertaking provided in connection with worldwide freezing orders, which requires the applicant to seek the court’s permission before seeking to enforce the order outside England and Wales, or seeking an order of a “similar nature”: Akcine Bendrove Bankas Snoras v Antonov [2018] EWHC 887 (Comm).

The court held that the claimant bank was not in breach of its undertaking by obtaining orders in Lithuania and Switzerland seizing certain of the respondent’s assets, as the foreign courts had independent jurisdiction to make the orders which did not derive from the making of the worldwide freezing order in England.

This decision provides welcome clarification as to the scope of the standard undertaking, and should provide some comfort to those seeking to secure assets abroad based on a separate and independent right or jurisdiction, where they have also obtained an English freezing order.

The decision also suggests that, where there has been a breach of the undertaking, the court may be inclined to grant retrospective permission and continue the freezing order unless the respondent can present clear evidence that the foreign order has had an oppressive or prejudicial impact.

Gareth Keillor and Rosanna Pinker in our disputes team consider the decision further below.

Background

In May 2012, the Bank commenced proceedings in the English Commercial Court against Mr Vladimir Antonov, the Bank’s majority shareholder and former Chairman of its Supervisory Board, for alleged misuse or misappropriation of the Bank’s funds, leading to its collapse in 2011. The English proceedings concerned, in particular, four groups of transactions which the Bank alleged had no commercial justification.

The Bank obtained a worldwide freezing order against Mr Antonov in support of the English proceedings, in respect of his assets up to a value of €492 million. The freezing order was made upon an undertaking provided by the Bank in the standard wording, that:

“[the Bank] will not without the permission of the court seek to enforce this order in any country outside England and Wales or seek an order of a similar nature including orders conferring a charge or other security against the Respondent or the Respondent’s assets”.

The English proceedings were stayed in December 2013, pending the outcome of ongoing extradition proceedings against Mr Antonov.

In April 2017, the Bank issued proceedings in Lithuania against Mr Antonov comprising (i) a claim in unjust enrichment, and (ii) a declaration that the transfers in question were null and void and the Bank was the beneficial owner of the relevant assets. The claims relied on, inter alia, four transactions by which Mr Antonov allegedly misappropriated the Bank’s assets, two of which overlapped in substance with the English proceedings.

The Bank then obtained two orders (the “Foreign Orders”) in support of the Lithuanian Proceedings:

  • an order granted by the Lithuanian Court, in favour of any creditors who registered their interested within a specified period, preventing the transfer of Mr Antonov’s assets; and
  • an order granted by the Zurich District Court preventing Mr Antonov from transferring ownership of specific assets in named bank accounts to the detriment of his creditors.

In June 2017, one of Mr Antonov’s creditors notified the Bank that the Foreign Orders may be in breach of the undertaking, being “order[s] of a similar nature” to the freezing order. As a result, the Bank applied for a declaration from the English Court that the Foreign Orders did not constitute a breach of the undertaking, or alternatively for an order granting retrospective permission and the continuance of the freezing order.

Decision

The Court of Appeal held that the Bank was not in breach of the undertaking as a result of the Foreign Orders.

The court first considered the original purpose of the undertaking, as set out in the Court of Appeal decision of Derby & Co Ltd v Weldon [1990] Ch 48, which was to:

  • avoid the oppression of the defendant by commencing multiple proceedings for the enforcement of the freezing order; and
  • prevent the enforcement of the freezing order from having a more far-reaching effect in the foreign jurisdiction than in England, for example by creating a security interest in favour of the claimant.

It also considered the more recent decision in In the matter of an LMAA Arbitration E,F,G v M (F v M) [2013] EWHC 895 (Comm), in which Hamblen J held that the main concern of the undertaking was the “inappropriate or oppressive extension of the WFO through its enforcement abroad or its duplication” and noted that it was “not directed at precluding the pursuit of different and independent rights to security that may be available abroad.”

Having considered the motivation behind the undertaking, the court looked at the form of the undertaking. It noted that there is potential ambiguity in the wording of the undertaking as to whether the phrase “an order of a similar nature” refers to an order which is (i) similar in nature or effect to the original freezing order, or (ii) similar to an order enforcing the original freezing order.

Taking account of the judgment in LMAA Arbitration and the language of the undertaking, the court concluded that the narrower interpretation in (ii) was correct, commenting: “It is difficult to conceive why the English Court should be concerned if the applicant … were able to obtain a freezing order or other interim relief before a foreign court irrespective of the applicant having obtained a freezing order in England and Wales.” It provided useful guidance including the following:

  • The principal concern of the undertaking is to prevent the enforcement of the freezing order in another jurisdiction having a more far-reaching effect than in England. This extends to an order of the foreign court which does not directly enforce the freezing order, but does so in substance.
  • The English court’s main concern is to prevent its own orders being used to contribute to the oppression of the defendant.
  • The undertaking is not concerned with a situation where the foreign court is exercising its own independent jurisdiction, even if the foreign order is of a similar nature or effect to the freezing order. If the jurisdiction of the foreign court does not depend on or derive from the English Court’s making of the freezing order, but arises from a different and independent right or jurisdiction, the undertaking is not engaged.

Therefore, where a party has initiated an entirely separate claim in a foreign jurisdiction, any steps taken to secure assets in support of that independent foreign action will not be considered a breach of the undertaking.

Here, the court held that the Foreign Orders could not be regarded as “enforcing” the freezing order, or being “of a similar nature” to the freezing order and the Bank had therefore not breached the undertaking.

The court considered that the most important factor was that the Foreign Orders were obtained pursuant to independent rights under Swiss and Lithuanian law, in support of the Lithuanian proceedings, and not for the purpose of enforcing the freezing order or in support of the English proceedings.

Although there was considerable overlap between the Lithuanian proceedings and the English proceedings, the court held that this was not of relevance when determining whether the undertaking had been breached as the Foreign Orders were not obtained by means of direct or effective enforcement of the freezing order.

The court also noted that neither the Lithuanian order nor the Swiss order provided the Bank with privileged rights in respect of Mr Antonov’s assets, given that both orders protected the assets of all creditors, provided that they registered their interest.

In the event that these conclusions were found to be wrong, the court considered that retrospective permission would have been granted and the freezing order maintained. The court pointed to the lack of evidence that the Foreign Orders would have an oppressive impact on Mr Antonov and noted that the risk of dissipation remained, the allegations against Mr Antonov were serious, the breach had not been deliberate and these factors outweighed any delay by the Bank in bringing the application.

Gareth Keillor
Gareth Keillor
Of Counsel
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+44 20 7466 2350
Rosanna Pinker
Rosanna Pinker
Associate
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+44 20 7466 2184

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