Funding under a freezer; putting Defendants in the chiller

Posted on 09 December 2015

Funding under a freezer; putting Defendants in the chiller

In the latest instalment of the JSC BTA Bank v Ablyazov litigation, the Supreme Court considered the construction of a freezing order.  It determined that although entering into funding agreements does not breach a freezing order, the proceeds of funding arrangements were deemed to be assets in this instance, because Ablyazov was dealing with the lender's assets as if they were his own.

What does this mean for Claimants? 

  • It gives greater justification to Claimants to ask for information as to how the other side's lawyers are being funded.  If funding agreements are in place, the terms of them will need to be examined to ensure they do not breach any freezing order.
  • The language used in freezing orders is evolving and can be stretched to meet new avoidance measures by Defendants.
  • The Court's main consideration in determining what assets fall under a freezing order will be to prevent the dissipation of assets, not to provide a claimant with security for its claim or to maintain the ratio of the respondent's assets to its liabilities.

And what about Defendants?

  • The decision will not stop defendants who are subject to freezing orders entering into funding arrangements to pay their lawyers' fees.  However, the terms of any arrangements will need to be scrutinised to limit the defendants' control over the proceeds of the loans. 
  • Defendants (and their legal advisers) will need to give greater consideration to seeking consent to payments from the proceeds of loans, if there is any doubt. 
  • The judgment gives greater argument that any assets "controlled" by a defendant would be caught by a freezing order.  This could have a particular impact on trust structures and the disclosure that needs to be made in relation to assets.
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