Freezing Orders: High Court Orders Sanctioned Claimant To Fortify Cross-undertaking And Provides Guidance On Asset Disclosure And Third-party Assets (England & Wales)

In VTB Bank PJSC v Kuanyshev, the High Court ordered a sanctioned claimant to fortify its cross-undertaking in damages by payment into Court, reaffirmed the purpose and scope of asset disclosure orders accompanying worldwide freezing orders, and directed a preliminary issue to determine whether assets held through a third-party structure were beneficially owned by the respondent.

Key Takeaways

1. Respondents to a worldwide freezing order (“WFO”) who seek to raise the threshold of an ancillary asset disclosure order (“ADO”) must show a genuine and evidenced burden before the Court will relax the threshold set at the ex parte stage. An ADO is not limited to identifying sufficient assets to satisfy a judgment; its purpose is to enable the applicant and the Court to understand the respondent’s entire asset position above the threshold and thereby police the WFO effectively. 
2. A sanctioned applicant for an interim injunction may be required to fortify its cross-undertaking in damages by payment into Court. The Court will accept the cross-undertaking in principle but it will scrutinise its practical value, and, where the sanctions licensing process may cause delays of months or years before any payment can be made, payment into Court may be ordered to give the undertaking real substance. This marks a more nuanced approach than the 2024 decision in Alfa Bank v Lek (ESCOU here), where the Court accepted a qualified cross-undertaking without fortification, and may reflect the English Court’s growing familiarity with the practical impact of UK sanctions and licensing regimes on the conduct of litigation and the operation of interim injunctions.
3. A third party expressly identified in a WFO as holding assets beneficially for the respondent cannot secure the removal of those references by bare assertion of ownership. Instead, the Court will inquire into the position and, where there is a good arguable case that the asset falls within the WFO’s wide definition, may direct a trial of a preliminary issue to determine ownership. 

Facts of the Case

VTB Bank PJSC (“C”), a Russian state-owned bank designated under UK and US sanctions since February 2022, commenced proceedings in Russia against Mr Timur Kuanyshev (“D1”) and a co-defendant claiming approximately US$90 million under guarantee agreements relating to a facility extended to a Russian oil company. C alleges that the borrower defaulted and the guarantors engaged in fraudulent conduct during repayment negotiations. Parallel freezing orders were obtained in Russia and the DIFC Courts.

At an ex parte hearing before the English Court, C was granted a WFO over the assets of D1 and his wife who are resident in England. The WFO included: (i) an ADO requiring disclosure of assets exceeding £5,000; (ii) a cross-undertaking in damages fortified at £100,000; and (iii) the inclusion of express references to a residential property known as St Theodore (valued at approximately £16.5 million), Mr Christopher Clayton, and his corporate group AWG, on the basis that the property might be beneficially held for the respondents. C holds approximately £243,000 at a UK bank and approximately US$81 million at a US bank’s London branch, but cannot deal with those funds without an OFSI and potentially an OFAC licence.

At the return date, the parties agreed to continue the WFO pending a set-aside application by the respondents. Three contested issues remained: (i) whether the ADO threshold should be raised; (ii) whether the fortification of C’s cross-undertaking should be increased and paid into Court; and (iii) whether references to Mr Clayton, AWG and St Theodore should be removed from the WFO.

The Decision

On the ADO threshold, the Court dismissed the application to raise the disclosure threshold from £5,000 to £25,000. Following authorities, it held that an ADO exists to police the WFO effectively, not merely to identify assets sufficient to satisfy a judgment. The respondents’ evidence of oppression was bare assertion, unsupported by detail as to the number of relevant assets or the demands of compliance.

On fortification, the Court increased the fortified amount from £100,000 to £500,000 and ordered payment into Court. Since C as a designated person cannot pay without an OFSI licence and potentially an OFAC licence – a process C’s counsel said could take six weeks to eighteen months – payment into Court requires C to apply for the necessary licences immediately, so that any delay in that process is absorbed in advance rather than arising only once compensation becomes payable under the cross-undertaking. The Court held that funds merely “ring-fenced” in C’s bank accounts could not be truly secured without confirmation from the banks, whereas payment into Court gives the Court direct control.

This contrasts with the earlier approach in Alfa Bank v Lek, where the Court accepted a cross-undertaking qualified by the need for an OFSI licence without requiring fortification, reasoning that the qualification reflected the general law and there was a low possibility of the defendant suffering recoverable damage. In the instant case, the Court went further: it accepted the cross-undertaking in principle but required substantial fortification paid into Court, recognising that the practical delays inherent in the sanctions licensing process demanded more to avoid prejudicing the respondents.

On the third-party issue, the Court followed authorities and refused to summarily remove references to Mr Clayton, AWG and St Theodore from the WFO. It found that the beneficial owners of the property remain undisclosed, the tenant company was dissolved yet purportedly entered a new tenancy, and the trust structure was reorganised just twelve days after D1 signed his guarantee in relation to the facility. The Court therefore directed a trial of a preliminary issue to determine whether St Theodore is an “asset” of the respondents. 

Read full article