High Court takes a narrow view of the scope for claims against foreign third parties for assisting breaches of freezing orders

The High Court has dismissed a judgment creditor's claims against a Monaco-based lawyer despite accepting that he had carried out a client's instructions to transfer funds knowing that that would place the client's beneficial owner in breach of an English freezing order and hinder the enforcement of a judgment debt: Lakatamia Shipping Company Ltd v Su and others [2024] EWHC 1749 (Comm).

The decision examines the effect of the standard "Babanaft proviso" included in worldwide freezing orders issued by the English courts: that “the terms of this order do not affect or concern anyone outside the jurisdiction of this court” apart from the addressee of the order and other specified exceptions (introduced by Babanaft Co SA v Bassatne [1990] 1 Ch 13 (CA)). 

The court held that a person to whom the Babanaft proviso applies cannot be liable in the tort of unlawful means conspiracy merely for assisting a breach of a freezing order – ie unless their conduct was unlawful on some independent basis. The court did not consider itself bound by statements in appellate authority suggesting that, although such persons may not be liable for contempt of court, they may still incur civil liability to pay compensation for their role. The High Court's conclusion here may therefore not be the last word on the subject.

The judgment is also of interest for its consideration of whether the conduct fell within the relatively new "Marex tort" - knowingly inducing or procuring a violation of a party's rights under a judgment (Marex Financial Ltd v Sevilleja Garcia [2017] EWHC 918). Disagreeing with other first instance authority, the court held that the Marex tort:

• will not be established where a defendant honestly believed that they were entitled to facilitate the violation of the judgment rights; and
• is subject to a defence of justification (which might be available if a defendant was outside the jurisdiction, where the English judgment had no special status and did not override some higher duty).  

The decision highlights that, while the English courts regularly grant freezing orders covering a defendant's assets worldwide, they will not enforce such orders against non-parties where to do so would be to assert an exorbitant extraterritorial jurisdiction. However, it also illustrates that there is scope for differing views as to when that will be the case.

Background

The claimant company had for nearly 10 years been attempting to enforce two English High Court judgments for breach of contract against an individual, Mr Su. The judgment sum remained largely unsatisfied and the amount outstanding was said to be more than US$60 million.

Mr Su had been committed to prison for numerous breaches of a worldwide freezing order over his assets, including for failing to disclose his interest in two Monaco villas and dissipating the proceeds of their sale.

The High Court (Bryan J) had also found several third parties associated with Mr Su liable in tort for conspiracy to breach the freezing order by concealing the existence of the villa sale proceeds ("the Madam Su judgment").

The present proceedings were against different third parties, based on their involvement in the subsequent dissipation of the villa proceeds. One of those was a Monaco-based lawyer, Mr Zabaldano, who was retained by the company that was the registered owner of the villas and received the sale proceeds (Cresta). On instructions from a director of Cresta, he transferred nearly €27 million of the proceeds from its client account to another company, from where the funds were further dissipated. It was not disputed that Mr Zabaldano was aware of the existence of English judgments against Mr Su and had seen the freezing order.

The claimant alleged that Mr Zabaldano's transfer of the funds gave rise to liability in:

• unlawful means conspiracy (with Mr Su and the Cresta director); and
• the Marex tort - inducing/procuring a breach of the claimant's rights under the judgments.

Mr Zabaldano unsuccessfully challenged the court's jurisdiction to hear the claims against him and then took no active part in the proceedings.

Decision

The court (Simon Colton KC) dismissed the claims against Mr Zabaldano.

On the evidence (including that given by Mr Zabaldano in the jurisdiction challenge), the judge was satisfied that Mr Zabaldano knew that Mr Su was the beneficial owner of his client, Cresta, and that the transfer would place Mr Su in breach of the freezing order and hinder the claimant's enforcement of the judgments.

However, the judge was also satisfied that Mr Zabaldano honestly believed that he was entitled to make the transfer - on the basis that, until a Monaco court declared a foreign judgment or order enforceable in Monaco, it had no effect on any Monaco resident and could not justify him refusing to carry out the instructions of his client (who was not named in the freezing order). The judge accepted that, where the freezing order and the judgments had not been registered in Monaco, and the claimant was not actively taking steps in Monaco to seek to restrain Mr Zabaldano's actions despite knowing that he had received the funds on behalf of Cresta, it was credible that he believed his professional obligations were not overridden by any other duty. Given that his involvement was known to the claimant, it would have been exceptionally foolish for him as a senior lawyer with an unblemished record to have paid the funds away unless he believed he was entitled to do so.
 

Unlawful means conspiracy / the Babanaft proviso

The judge outlined the established elements of the tort of unlawful means conspiracy, which he found to be satisfied in this case based on his factual findings.

In particular, he noted that the Court of Appeal in Racing Partnership Ltd v Done Bros (Cash Betting) Ltd [2020] EWCA Civ 1300 confirmed that the tort requires only that a defendant knew the relevant facts that rendered the means unlawful - not that they appreciated the unlawfulness. That is, ignorance of the law is no defence in this context. The judge therefore considered himself bound to hold that Mr Zabaldano could be liable for conspiracy even though (as the judge found) he honestly believed that he was entitled to act as he did.

However, given that Mr Zabaldano was at all material times located outside of the jurisdiction, the judge had queried during the trial the relevance of the Babanaft proviso in the freezing order. As is standard, the proviso stated that (save for the respondent to the order [Mr Su] and other specified exceptions) “… the terms of this Order do not affect or concern anyone outside the jurisdiction of this Court”.

The judge rejected the claimant's initial submission that the proviso had no relevance here because an element of the tort of conspiracy - damage to the claimant - had occurred in England (in the form of a reduction in the value of the judgment debt). He accepted that damage was suffered here, and that this had been sufficient to satisfy the relevant jurisdictional gateway. However, that did not change the fact that Mr Zabaldano had been “outside the jurisdiction of this Court” within the meaning of the Babanaft proviso. He was therefore entitled to the benefit of the proviso.

The claimant's primary argument was that the proviso did not extend to protection from a conspiracy action in these circumstances. It submitted that the court was bound by authority to accept that the Babanaft proviso does not preclude a foreign third party who assists a breach of a freezing order from being liable to pay compensation via an unlawful means conspiracy claim (even if the proviso may preclude liability for contempt arising from such conduct). It noted that, in the earlier Madam Su proceedings, Bryan J had had no hesitation in accepting that that accurately reflected English law and had been definitively decided at the highest appellate level – primarily in the Supreme Court's decision in JSC BTA Bank v Ablyazov (No.14) [2018] UKSC 19 (at 23) and the Court of Appeal's judgment below in the same case ([2017] EWCA Civ 40).  

Disagreeing with Bryan J, the judge did not accept that the cited authorities had conclusively determined the question in a manner that was binding on him in the present case. Specifically:

• As to the Supreme Court's Ablyazov judgment:
  • That case related to a person who was in contempt for having breached a freezing order (akin to Mr Su), rather than an alleged assistant to the breach (akin to Mr Zabaldano). The court was therefore not considering the impact of the proviso on someone outside the jurisdiction, but rather someone already subject to the court's contempt jurisdiction.
  • Further, the Ablyazov case was distinguishable because the Supreme Court had expressly assumed that the alleged conspiracy in that case was entered into in England – which was not suggested here.
     
• As to the Court of Appeal's Ablyazov judgment:
  • The judge acknowledged that Sales LJ (with whom Gloster and Beatson LJJ agreed) had stated that, although it might not be right to subject a foreigner who benefits from the Babanaft proviso to penal sanctions for contempt, "they should not be permitted to participate in deliberate unlawful action to undermine the court's order and defeat the rights of a claimant...".  If they deliberately helped to render assets immune from execution "it is strongly arguable that justice is in favour of the imposition of civil liability…" to pay compensation.
  • However, the judge here did not read Sales LJ's statements as authoritatively deciding the point. The Court of Appeal was considering only whether there was a good arguable case that the alleged breaches qualified as unlawful means. Notwithstanding the "obvious persuasive effect of the Court of Appeal's reasoning", he considered it open to a first instance judge hearing a conspiracy claim to conclude that such breaches did not so qualify.

The judge therefore proceeded to analyse whether the Babanaft proviso does preclude a conspiracy action for assisting a breach of freezing orders in these circumstances. He concluded that it did, for the following reasons:

• In circumstances where the court has expressly stated in an order that its terms "do not affect or concern" a person, it would be misleading and inconsistent if such a person could, nonetheless, be liable for combining with the addressee of the order to help them dissipate assets in breach of the order.
• The judge accepted that the position would be different where the alleged co-conspirator had engaged in some independently wrongful conduct which would qualify as unlawful means without any reliance on a contempt – such as the production of false documents to deceive the English court (as in Surzur Overseas Ltd v Koros [1999] 2 Lloyd's Rep 611, cited by Sales LJ in Ablyazov). But there was no suggestion that Mr Zabaldano's transfer of the funds would have been wrongful if not for the contempt of Mr Su which it assisted.
• A conclusion that the Babanaft proviso excludes liability for contempt of court but not in tort was not supported by the expansive wording of the proviso, which on its face makes no such distinction.
• Such a distinction was also not supported by considering the purpose and policy behind the Babanaft proviso. The Babanaft judgment itself indicated that the "extraterritorial vice" the proviso aimed to avoid was that

 "… it is wrong in principle to make an order which, though intended merely to restrain and control the actions of a person who is subject to the jurisdiction of the court, may be understood to have some coercive effect over persons who are resident abroad and who are in no sense subject to the court's jurisdiction."

The judge here considered that that purpose would not be met if such persons were to be liable in tort simply for assisting (or combining) in a breach of a freezing order – ie without participating in some independently unlawful act. They would thereby be coerced, or have obligations imposed on them, just as much as if they were within the jurisdiction.

The judge concluded that the effect of the Babanaft proviso, for a person who benefits from it, is to preclude tortious liability for merely helping or permitting another to breach the freezing order. On his analysis, that should be the case regardless of whether the person had actually read or relied upon the proviso in the order.
 

The Marex tort

The judge noted that, in order to establish the Marex tort, there is no need for any independent unlawfulness in the act that is said to have induced the violation of judgment rights. A third party who knowingly assists a judgment debtor to dissipate their assets so as to hinder enforcement of the judgment is, in principle, liable - whether or not there is a freezing order in place. Therefore, the issues regarding the Babanaft proviso did not, in principle, arise in this context.

In the circumstances here, Mr Zabaldano did not induce or procure Mr Su to breach the freezing order and thereby violate the judgment rights – rather, he was himself induced by Mr Su to execute the transfer that facilitated the breach. However, the judge accepted that "any active step taken by the defendant having knowledge of the covenant by which he facilitates a breach of that covenant" may fall within the ambit of the tort (British Motor Trade Association v Salvadori [1949] Ch 556). That was clearly satisfied here.

However, the judge found that the necessary element of intention was missing:

• He considered that the same approach to intention should be taken in the context of the Marex tort as in the tort of inducing a breach of contract – where it is settled law that a defendant will not be liable if they honestly "considered that they were entitled to cause [the contractual party] to breach its obligation" (Meretz Investments NV v ACP Ltd [2007] EWCA Civ 1303, confirmed in Allen v Dodd [2020] EWCA Civ 258). The position therefore differs from that in the tort of unlawful means conspiracy, established in the Racing Partnership decision.
• On that basis, the Marex tort will not be made out where the defendant honestly believed that they were entitled to induce / facilitate the breach of the judgment or order. That was the case here, based on the court's factual findings.

Alternatively, if he was wrong that such honest belief negatives the requirement for intention in the Marex tort, the judge considered that a defence of justification was available:

• He rejected the claimant's argument (based on comments by Bryan J in the Madam Su proceedings) that there can never be a justification for encouraging or assisting a judgment debtor to hinder enforcement of a judgment. While such circumstances might be very limited, he was reluctant to conclude that there can never be such a justification.
• In particular, while there might not be scope to assert justification based solely on a private contractual right or duty, it might be available where a defendant is outside the jurisdiction "… where the English court’s order has no special status, but the defendant is subject to some higher duty".
• The fact that the English court had now held that it had jurisdiction to hear these claims did not mean that the judge must necessarily conclude that, at the time of the transfer, the English court's freezing order (not then registered in Monaco) was superior to Mr Zabaldano's obligations in Monaco.

Based on the judge's findings as to the circumstances at the time, Mr Zabaldano would have succeeded on a defence of justification if the Marex tort had been made out.