Freezing Orders over the Assets of Third Parties

20/04/2010

Yukos Capital S.a.r.l ("Yukos") obtained a freezing injunction against OJSC Rosneft Oil Co ("Rosneft") and 11 other Defendants. The Sixth to Twelfth Defendants (referred to as the "RT Defendants") sought an order discharging the injunction against them on the basis that the Claimant had no cause of action against them and because they held assets as neither the nominee nor trustee of Rosneft, the primary Defendant.

Yukos had obtained an arbitration award against Rosneft in Russia and, in obtaining the freezing order, was seeking to protect its chance of recovery against the assets of Rosneft. The sum in question was approximately £390 million. The freezing order was a domestic order covering money held in bank accounts in this jurisdiction, albeit that the Defendants are all incorporated overseas. This application proceeded on the assumption that Rosneft owed the Claimant the sum in question and that it would seek to put its assets beyond the reach of Yukos, absent the restraint of the Freezing Order.

The RT Defendants were held to be third parties, although they are very closely connected to Rosneft. They had been established solely to effect oil trades on behalf of Rosneft and deal with the money. Mr Justice David Steel held, at paragraph 28, that:

Further, it was held that if judgment was made against Rosneft, the monies held by the RT Defendants would be available for recovery.

The RT Defendants submitted, inter alia, that the court did not have jurisdiction to make such an order against them because they did not hold the money beneficially for Rosneft, rather they had full legal title to assets totally distinct from those belonging to Rosneft. The Court held that the correct test was to "consider the extent to which the defendant [Rosneft] has some interest in or control over the asset." Rosneft's interest was "formidable".

Mr Justice David Steel's finding was that it was just and convenient to have a freezing order over the assets of the third parties, ie the RT Defendants, because had it not been in place, Rosneft would have taken steps to dissipate those assets in order to frustrate Yukos' claim. No order was in fact made in this case because the Defendants had already agreed to provide security, but the Court was invited to hand down judgment nonetheless.

Contact: henryfarris@city-law.net

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