- within Strategy topic(s)
The Court of Appeal has unanimously decided that standard wording used in worldwide freezing orders does not prevent civil liability arising against foreign third parties who assist with breaches of such orders.
In a reminder of the complex and potentially drawn-out process of enforcing judgment debts in an international context, the Court of Appeal has allowed an appeal by Lakatamia Shipping against a ruling that a Monegasque lawyer could not be held liable for assisting in the breach of a freezing order because of the Babanaft proviso (explained further below).
The decision is significant for its clear statement that assisting in the breach of a freezing order can found tortious civil liability for foreign parties, even though they cannot be held in contempt of court for breaching the order.
Background
Lakatamia Shipping Co. Ltd (Lakatamia) obtained a worldwide freezing order against Mr Su and companies associated with him in August 2011. Liability judgments exceeding $47.6m followed in 2014 – 2015. Including interest and costs, the judgment debt now exceeds $60m and remains unpaid.
Mr Nobu Su was the beneficial owner of Cresta Overseas Ltd (Cresta), a company owning two villas in Monaco that had been mortgaged to Barclays Bank. Mr Chang was director of Cresta.
After Cresta defaulted on the mortgage loan in 2015, Barclays Bank enforced its security over the two villas, which were sold for €65.1m. After distributions to Barclays Bank, approximately €27.1m was paid in February 2017 into the client account of Maître Arnaud Zabaldano, a Monegasque lawyer acting for Cresta.
In February 2017, on Mr Su's instructions, Mr Chang instructed Maître Zabaldano to transfer most of the money held in Cresta's client account to UP Shipping, which was controlled by Mr Su's mother. This transfer would have the effect of placing the proceeds beyond the reach of Lakatamia's freezing order.
Lakatamia had attempted to prevent the sale of the villas, but its application in Monaco failed as the materials it relied on had not been translated into French. The Monaco courts did subsequently recognise the English liability judgments in July 2017, but by then the funds were gone.
In July 2022, Lakatamia brought claims for unlawful means conspiracy against Mr Su, Mr Chang and Maître Zabaldano.
At trial, the Deputy Judge was not satisfied that Mr Chang had been aware of either the existence of the freezing order or the fact that the judgment debt remained unsatisfied. As such, he ruled that Mr Chang was not liable because he was not aware of the facts that rendered the conduct unlawful – a requirement of the tort of conspiracy.
The Deputy Judge did find that Maître Zabaldano knew of the freezing order, the judgment debt, and Mr Su's ultimate beneficial ownership of Cresta when he executed the transfer. However, by reference to the Babanaft proviso in the freezing order 1, which stated in its standard form that "the terms of this Order do not affect or concern anyone outside the jurisdiction of this court", he ruled that Maître Zabaldano, being in Monaco, could not be liable for his involvement in facilitating the breach of the order.
In light of the Deputy Judge's findings in respect of Mr Chang and Maître Zabaldano, the unlawful means conspiracy claim had to fail, as the requirement that there be at least two conspirators was not met.
Lakatamia lodged an appeal with the Court of Appeal. It challenged the judge's conclusions that Mr Chang did not have the requisite knowledge and that the Babanaft proviso meant Maître Zabaldano could not be liable. In consequence, Lakatamia contended that a conspiracy could and should be found.
The Court of Appeal allowed the appeal in its entirety.
A high bar is met: reversing findings of fact
The Deputy Judge had held that no evidence had been put forward which would suggest that Mr Chang knew that the freezing order was in place and that the judgment debt subsisted at the time he instructed Maître Zabaldano to transfer funds from Cresta's client account to UP Shipping.
That was a finding of fact. The Court of Appeal could therefore only interfere with it if the Deputy Judge had reached a conclusion that was plainly wrong, such that no reasonable judge could have come to it.
The Court of Appeal found that although this is a high bar, the test was met and the finding could not stand. It was highly implausible that Mr Chang did not have the relevant knowledge. Mr Chang had been a long-time employee of Mr Su, and a director of at least three companies that were respondents to the freezing order, such that the Court of Appeal inferred that he must have known that the freezing order was, at least in part, the reason why Cresta had defaulted on its mortgage, resulting in the Monaco villas being sold.
Civil liability does not stop at the border
The Court of Appeal held that the Deputy Judge's conclusion that the Babanaft proviso meant that Maître Zabaldano could not be held liable for breach of the freezing order was wrong as a matter of both principle and authority.
The proviso confirms that a foreign party cannot themselves be found in contempt of court for breach of a freezing order, but it does not prevent civil tortious liability for assisting in a breach of the order.
The Court of Appeal said that the Supreme Court's reasoning in Khrapunov 2 which clearly rejects the proposition that the proviso bars such civil claims, was binding on this subject. In Khrapunov, Lords Sumption and Lloyd-Jones indicated that there are no good policy reasons why immunity from criminal liability for contempt should preclude civil liability for conspiracy.
The Court of Appeal found that the Deputy Judge had incorrectly distinguished the Supreme Court's decision in Khrapunov by placing undue weight on the place where the relevant act occurred. Although it was admitted that Maître Zabaldano had been outside the jurisdiction when he transferred the funds, this had no bearing on the finding of liability. Additionally, the Deputy Judge had mischaracterised the reasoning of the Supreme Court judgment, believing that it dealt with the liability of the contemnor, rather than that of the assister, and, therefore, erred in reasoning that he was not bound by it.
The upshot of this conclusion is that Mâitre Zabaldano was found liable in conspiracy, along with Mr Su and Mr Chang, for breaching the freezing order.
The finding of liability for Mâitre Zabaldano is a direct result of the binding Court of Appeal authority The Racing Partnership 3 (for a fuller discussion of that case and the tort of conspiracy generally, read our article). The majority decision in The Racing Partnership was that in the tort of unlawful means conspiracy, a defendant does not need to know that their conduct is unlawful in order to be liable. Rather, they need only know the facts which render the means unlawful. Applied to this case, that meant that Mâitre Zabaldano's knowledge of the existence of the freezing order, the judgment debt, and Mr Su's ultimate beneficial ownership of Cresta when he executed the transfer were sufficient.
The result appears stark. Mâitre Zabaldano's evidence during his earlier challenge to the English court's jurisdiction was that "Lakatamia's claim did not even cross my mind when I executed the instruction from Cresta as I had no reason under Monaco law to remind myself about it or take it into account."
Further, the first instance judge's undisturbed findings concerning Mâitre Zabaldano were that he honestly believed himself professionally obliged to carry out his client's (Cresta's) instruction and execute the transfer, and that "his duty to act on his client's instructions was not overridden by any other duty." In short, although the court accepted that Mâitre Zabaldano, a senior lawyer with an unblemished record, was merely executing his client's instructions as he believed himself obliged to do, he is nonetheless now liable for conspiracy in the sum of €27m.
Comment
Primarily, this decision strengthens the hand of judgment creditors seeking to enforce judgments, emphasising once again that English worldwide freezing orders are a potent tool for preventing asset dissipation. As the Court of Appeal observed in its judgment, the possibility of tortious liability for foreign assisters ensures that there is not an easy "work around" for defendants to avoid the effects of a freezing injunction by engaging assisters located outside the jurisdiction. The Court of Appeal's confirmation that the threat of civil liability still looms over foreign assistants will act as a material disincentive to future breaches.
The decision also highlights the claimant-friendly nature of the English tort of unlawful means conspiracy. The fact that a claimant does not need to prove a defendant knew the means employed were unlawful renders it easier to establish liability, as is directly shown by the finding that Mâitre Zabaldano was liable as a co-conspirator.
Access the Court of Appeal's full judgment in Lakatamia Shipping Co. Ltd v Su and others [2025] EWCA Civ 1389.
Footnotes
1 Babanaft International Co SA v Bassatne [1990] Ch 13
2 [2018] UKSC 19, at [23]
3 The Racing Partnership Ltd and others v Sports Information Services Ltd [2020] EWCA Civ 1300
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
