A recent ruling by the High Court in London has highlighted the benefits to businesses of using freezing orders to protect and recover assets, as well as the willingness of the courts in England and Wales to support the enforcement of judgments, experts in civil fraud and asset recovery have said.
Alan Sheeley and Bill Geiringer of Pinsent Masons, the law firm behind Out-Law, were commenting after the High Court refused a businessman permission to vary the terms of a worldwide freezing order (WFO) issued against him in an attempt to use frozen assets to fund his legal expenses.
In January 2020, the High Court in London ruled that Sergey Belyaev, Ilya Yurov and Nikolay Fetisov, were liable for more than $800m in damages payable to National Bank Trust in respect of dishonest transactions they had caused National Bank Trust to enter into during their stewardship of the company. Last month, an application for permission to appeal against that judgment was rejected by the Court of Appeal as "totally without merit".
In February last year, the High Court granted National Bank Trust a WFO against the three men to protect assets to satisfy the judgment against the three individuals. A freezing order is designed to prevent the dissipation of assets.
Under the terms of the February 2020 WFO, and unlike Yurov and Fetisov, Belyaev was granted living expenses of £17,000 a month – an amount that was subject to review – along with a further "reasonable sum" for legal expenses.
Following a further hearing in June 2020, Belyaev's legal expenses allowance was removed on the basis that his solicitors had ceased to act for him, while his living allowance was adjusted down to £8,000 a month.
In September last year, Belyaev brought a new application to firstly vary the terms of the WFO issued so as to reinstate his legal expenses allowance and secondly allow him permission to sell off his 50% interest in some of his frozen assets. Those assets included three vehicles, including a Porsche 911 sports car, and two properties in the US.
In his application, Belyaev also asked the High Court to stay the execution of rulings in the US, Switzerland and Finland obtained against him by National Bank Trust. Granting a stay of execution effectively prevents judgments being acted on or enforced for a prescribed period of time. Belyaev requested a stay in this case so as to raise legal claims against National Bank Trust alleging that the January 2020 ruling by the High Court was procured by fraud, according to the latest judgment.
Belyaev further asked the High Court to remove his wife from the scope of the WFO. In June last year, the High Court held that Belyaev was the beneficial owner of money held in an account in his wife's name and that National Bank Trust was entitled to enforce against it.
In his ruling, Daniel Toledano QC, sitting as a deputy judge of the High Court, confirmed that case law in England and Wales puts the "burden of persuasion" on defendants seeking access to frozen assets to fund legal or living expenses to show that no other assets are available for that purpose. In this case, the judge said there were "a number of reasons" why Belyaev was "unable to discharge the burden of persuasion".
The judge considered evidence that National Bank Trust presented which alleged that Belyaev had failed to disclose assets worth $3.8m – including a gun collection located in Connecticut in the US – during earlier proceedings in the case. The judge said Belyaev had been given the chance to "explain the position" but that there had not been "a legitimate explanation for the Connecticut gun collection and his failure to refer to it".
In respect of the legal expenses allowance, the judge also considered the fact that unidentified third parties had helped fund Belyaev's "substantial" legal costs in resisting enforcement against him in the US and Finland. The judge said Belyaev had not suggested "that any of the third parties in question would not be prepared to continue funding his legal representation", nor was there evidence that those third parties did not have the means to continue doing so.
The judge also considered that there is "at least a real prospect" that Belyaev's wife would fund the living and legal expenses he may incur. Both Belyaev and his wife had accepted in proceedings before the court that the assets held by Belyaev's wife had been accumulated largely as a product of Belyaev's income from his employment at National Bank Trust.
Daniel Toledano QC also rejected Belyaev's application to remove his wife from the scope of the WFO, as well as his application for a stay of the execution of the judgments in the US, Switzerland and Finland. He said that "the interests of justice would not be served by a stay".
Alan Sheeley of Pinsent Masons said: "The ruling should encourage claimants who have secured a successful judgment. Too often enforcement is scuppered by a judgment debtor's tactics of trying to deplete assets, often by using them for living or legal expenses, so they are not available to satisfy a judgment. The court has sent a reminder that in a post-judgment context, the law will weigh heavily in favour of the judgment being satisfied."
Bill Geiringer, also of Pinsent Masons, said: "The ruling confirms that not only are worldwide freezing injunctions a powerful tool to protect assets pre- and post-judgment, but that the court will not sit by and allow frozen funds to be used for legal and living expenses, in an attempt to prevent a judgment being satisfied, when there are other assets available. This is an important reminder of the principle that if frozen funds are to be used for living and legal expenses, there is a high burden on the applicant to prove there are no other assets available for this purpose, which includes the possibility of securing third party funding."
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