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Fraud Updates 2010
11 May
There have been two recent important decisions that will be of particular interest to victims of corporate fraud and fraud lawyers. These decisions extend the powers of Courts to freeze stolen assets.
Freezing Orders against Third Parties
In the case of Yukos Capital v OJSC Rosneft Oil Company & Others [2010] EWHC 784, the English Commercial Court considered the scope of the court's 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.
Unsurprisingly, the Defendant argued that in the absence of it having a beneficial interest in the assets in the hands of the third party, the court had no jurisdiction to freeze them.
The court rejected that argument. It concluded that in these circumstances, it should consider the extent to which the defendant has some interest in or control over the assets going beyond an actual or potential cause of action.
The third parties that were the subject of the case were special purpose vehicles with no business or assets of their own. They existed to provide a portal for the transfer to the primary defendant of the purchase monies on its oil supply contracts. The court ruled that in those circumstances there was sufficient control over the assets exercised by the primary defendant so as to justify a freezing order against them.
Although usually a freezing order is directed at assets beneficially owned by a defendant, this important ruling demonstrates how the court is prepared to exercise its jurisdiction in a flexible and adaptable manner to ensure effective enforcement of a creditor's interests and there is a fund to meet a judgment.
Offshore "stand alone" Freezing Orders
In another development, in the case of Black Swan Investments I.S.A v Harvest View Limited, the British Virgin Island High Court held that it was within its discretion to grant a "stand alone" freezing injunction in support of foreign proceedings. Previously, it had been considered necessary to bring a substantive claim in the BVI before such an injunction could be obtained.
The decision has particular relevance in offshore jurisdictions. This is because the business of companies that are incorporated in these jurisdictions is often transacted abroad and any disputes arising from those transactions are also often resolved abroad. The BVI High Court noted that it would be "highly detrimental" to the reputation of an offshore jurisdiction if potential judgment creditors seeking to have resort to judgment debtors assets located in such jurisdictions were required to first commence substantive proceedings in order to claim ancillary relief in the form of a freezing order.
This ruling should also assist clients and their fraud solicitors to persuade other offshore jurisdictions to follow the lead taken by the BVI Court and certain other offshore Courts.
If you would like any further information on the services offered by PCB, please do not hesitate to contact Steven Philippsohn or Anthony Riem.
| April 2010 |