Wragge Lawrence Graham & Co's dedicated Insolvency Litigation team brings you its monthly update on the cases and issues affecting the insolvency and fraud investigation industry.
Even a fleeting presence in the jurisdiction at key times is sufficient for the purposes of a CPR 71 order to obtain information from a judgment debtor
The decision in Deutsche Bank AG v (1) Sebastian Holdings Inc (2) Alexander Vik  related to a CPR 71 order made without notice against Mr Vik in July 2015 (the CPR 71 Order). A CPR 71 order provides for a judgment debtor to be required to attend court to provide information, for the purposes of enabling a judgment creditor to enforce a judgment or order against him.
In this case, the court considered Mr Vik's application to vary or set aside the CPR 71 Order on five grounds, which included a contention that the CPR 71 Order was "unjustified and exorbitant" and, in the absence of exceptional circumstances, did not fall within CPR 71. A further allegation was that the CPR 71 Order was sought for a collateral purpose (i.e. not just in connection with enforcing a judgment).
The underlying facts of the case are complex, but the key points are summarised below:
- In November 2013 (the November 2013 Judgment), Sebastian Holdings Inc (SHI) was ordered to pay Deutsche Bank AG (DBAG):
- approximately $243 million; plus
- indemnity costs with an interim payment of £34 million on account of costs (the 2013 Costs Order).
- In June 2014, DBAG obtained a Non-Party Costs Order against Mr Vik in respect of the 2013 Costs Order. This decision is being appealed with a hearing date in the Court of Appeal in late 2015.
- There are ongoing, related, proceedings in the USA concerning DBAG's efforts to recover sums due from Mr Vik further to the November 2013 Judgment. In July 2015, DBAG obtained the CPR 71 Order which required that, in his capacity as an officer of SHI, Mr Vik must:
- attend court on 28 October 2015 to be examined pursuant to CPR 71 (in relation to information that could assist DBAG in enforcing the November 2013 Judgment); and
- produce related documentation (as ordered) on 14 October 2015.
- As Mr Vik was not resident or domiciled in the jurisdiction, the CPR 71 Order was served on him while he was briefly in the UK. One week after service, Mr Vik sold his shares in SHI and ceased to be a director.
- In terms of the background to the current application, Mr Justice Cooke stated:
"...I found [in my judgment of 8th November 2013] that Mr Vik treated SHI's assets as if they were his own and transferred them in order to render access to them more difficult...The whole history of the proceedings against SHI, Mr Vik's creature company.......reveals attempts by Mr Vik.....to avoid liability, to deceive the court and to conceal the true state of SHI's financial affairs....".
- Although the date of the examination of Mr Vik was postponed until December this year, the application otherwise failed and the CPR 71 Order was not set aside. Mr Vik was ordered to pay 90% of the costs of the application.
- In clarifying the intent of CPR 71, Mr Justice Cooke referred to the courts' findings that there was a basis for saying that SHI had assets which could be used to satisfy the judgment, although the location of the assets was currently unknown. As the Judge stated, these are "the very circumstances for which CPR 71.2 was designed".
- While acknowledging that the nationality and residence of the company and officer should be taken into account by the court in the exercise of its discretion under CPR 71, Mr Justice Cooke did not accept the contention made on behalf of Mr Vik that such an order should only be made on a non-resident foreigner in "exceptional circumstances", although, in fact, these circumstances were exceptional.
- Following the judgment in CIMC Raffles Offshore (Singapore) PTE Ltd v Schahim Holdings SA , Mr Justice Cooke agreed that even a fleeting presence within the jurisdiction at the time of the application and the making of the order meant that the court had jurisdiction under CPR 71. In this case, Mr Vik was present in the jurisdiction on the relevant dates.
- The CPR 71 relief granted by means of the CPR 71 Order was not extravagant or exorbitant:
"...Mr Vik is not an independent person unconnected to the English litigation and the judgment debt......he was the physical embodiment of SHI at all material times until divesting himself of his interest a week after the...order was served".
- The Judge emphasised there were strong reasons for exercising the jurisdiction under CPR 71, among which he listed the failure to give proper disclosure of SHI's assets. He stated:
"...If it is just and appropriate for this court to grant such relief, it should do so....this court should aid enforcement of its orders if it can properly do so....
While clearly based on the very specific facts of this case, this decision shows that the courts will use the powers under CPR 71, where appropriate, to facilitate recovery of judgment debts, even in relation to a non-resident individual concerning a judgment debt owed by a company not incorporated in this jurisdiction.
Mr Justice Cooke cited the Court of Appeal decision in Kuwait Airways Corporation v Iraq Airways Co  where Rix LJ stated "... CPR 71 is not available against respondents outside the jurisdiction, it is essentially a domestic aid to execution..."
Mr Vik, however, was (fleetingly) in England on the date the Part 71 Application and Order were made and on the following day, when the CPR 71 Order was served - this presence in the jurisdiction was the crucial distinction and sufficient for these purposes.
The other arguments put forward on behalf of Mr Vik were dealt with clearly and firmly by the court. As set out above, Mr Vik did succeed in having the Part 71 examination postponed until December but even this was done "reluctantly" by the court. This case suggests that the courts will seek to facilitate enforcement, wherever possible and appropriate.
Supreme Court gives guidance on the scope of a freezing order
In JSC BTA Bank v Ablyazov , the Supreme Court considered the correct construction of the Commercial Court's standard form freezing order (CCFO) in relation to assets that are not owned by the judgment debtor.
Readers will be aware of the numerous decisions that have emanated from the Ablyazov matter. By the time of the Supreme Court hearing in relation to this case, the Bank had obtained various judgments against Mr Ablyazov, totalling around $4.4 billion (all unsatisfied), plus a standard form freezing injunction. Following this, Mr Ablyazov had entered into various loan agreements ("the Loan Agreements"), which had been fully drawn down. This decision related to the Bank's application for a declaration that, in simple terms, the funds drawn down under the Loan Agreements fall within the definition of "assets" under the freezing order. The Bank had been unsuccessful at first instance and before the Court of Appeal.
Although the Bank did not win on every argument, the Supreme Court unanimously decided in the Bank's favour that the funds drawn down under the Loan Agreements did fall within the meaning of "assets" in the CCFO.
The key points of the Supreme Court judgment are:
- While freezing orders are to be restrictively construed, the expression "assets" in the CCFO is capable of having a wide meaning.
- Confirmation that a freezing order restrains the debtor from dealing with his/her assets but does not prevent him/her from borrowing money.
- Mr Ablyazov's right to draw down under the Loan Agreements was not an "asset" under the CCFO.
- The proceeds of the Loan Agreements, however, were "assets" under the CCFO as Mr Ablyazov had power to direct the lender what to do with the funds - in other words, he had control over those funds.
- The intent of the wording in the CCFO (extended in 2002) was to catch rights such as these i.e. in relation to assets which, although not owned by the debtor, were within his/her power to dispose of or deal with as if he/she did own them.
The CCFO is commonly used, and it is always important for all parties to fully understand the extent of the CCFO and what assets do and don’t fall within its scope.
This judgment serves as a reminder, and to clarify, the respondent's position in relation to the use of borrowings and credit facilities. The Supreme Court noted that the most recent freezing order forms have extended the definition of "assets" to cover those assets which the respondent controls, and not just those within the respondent's legal or beneficial ownership.