In the JSC VTB Bank case, the UK court held, 'Equity Does Not Act in Vain'

In the JSC VTB Bank case, the UK court held, 'Equity Does Not Act in Vain'

The High Court of Justice Business and Property Courts of England and Wales in the Case of JSC VTB Bank held, 'Equity Does Not Act in Vain'

On 21st October 2020, in the Court of Appeal (Civil Division) on Appeal from The High Court of Justice Business and Property Courts of England and Wales Commercial Court in the case of JSC VTB Bank (Claimant) upheld that appointment of receivers is a reasonable prospect and that appointment will assist in the enforcement of a judgment or award and has dismissed the appeal.

The central issue of this appeal was whether, and subject to what qualifications, it is an abuse of process for a party to apply to set aside an interlocutory order on the grounds that there has been a material change The claimant (VTB) was granted separate summary judgments against the first defendant (Mr Skurikhin) for sums in Russian roubles equivalent, in total, to about £13.4m.

On 12 June 2014 they were granted a worldwide freezing injunction against Mr Skurikhin (the WFO), freezing his assets up to £25m. VTB thereafter sought to enforce the judgments by obtaining possession of and selling three properties in Italy used by Mr Skurikhin and his family, worth about €17m. The registered owner of the Properties being the second defendant (Pikeville), an English limited liability partnership.

Pikeville's membership shares were registered to the first to third respondents, who originally held them on trust for Mr Skurikhin, but since 2010 have held them for the fourth respondent (Berenger), a foundation incorporated in Liechtenstein. VTB contends that Mr Skurikhin either has a right to call for the assets of Berenger to be transferred to him or has de facto control of those assets.

VTB obtained summary judgment on its claims against Mr Skurikhin in March and November 2014 and the WFO was created on 12 June 2014. The WFO contained, the standard Commercial Court wording that: "The injunction applies to all of the Defendant's assets … whether or not they are in his own name and whether they are solely or jointly owned and whether the Defendant is interested in them legally, beneficially or otherwise or if they are controlled by him directly or indirectly. For the purposes of this Order, the Defendant's assets include any asset which he has the power, directly or indirectly, to dispose of or to deal with or control as if it were his own. The Defendant is to be regarded as having such power if a third party holds or controls the asset in accordance with his direct or indirect instruction".

VTB objected to Berenger's application, in so far as it was based on the exclusions, on the ground that, as matter of principle, a material change of circumstance, can only arise in respect of matters over which the applicant has no control. VTB submitted its argument that "to allow a party to have control of creating its own material change of circumstances would be pernicious."

Berenger contended that there was no such principle. Although the change was brought about by Berenger itself, it was (as the Judge held) lawful action which Berenger was entitled to take to protect itself and its beneficiaries. As Berenger contended that lawful action meant that the Receivership Order was no longer appropriate or effective, it should be discharged. It would be wrong to ignore the reality of the changed situation, and there was no principle or authority requiring the court to do so.

The Court remarked, a receiver will not be appointed if the court is satisfied that the appointment will be fruitless, for example because there is no property which can be reached in law or equity. Which is an aspect of the maxim that equity does not act in vain.

However, the Court observed a receiver may be appointed if there is a reasonable prospect that the appointment will assist in the enforcement of a judgment or award. It is unnecessary, and will generally be pointless, for the court to attempt to decide hypothetical questions as to the likely effectiveness of any order. That applies with even greater force where such questions involve disputed issues of foreign law. It will be sufficient that there is a real prospect that the appointment of receivers will serve a useful purpose." The subsequent exclusions of Mr Skurikhin as a discretionary beneficiary, despite his continued control, only served to increase the potential obstacles in VTB's path to the execution of its judgments and added to rather than detracted from the need and justification for receivers to be appointed to obtain control of identifiable tangible assets by way of equitable execution. The Court upheld that in no doubt the appointment will continue to serve a useful purpose.