While hearing the appeal of an application to discharge an interim order, the Court of Appeal clarified its approach to deciding when conduct is permissible and when it may amount to an abuse of process.
VTB brought proceedings in England based on previous Russian judgments. Its target was the chair of various companies to which VTB had provided loans. The chair, Mr Skurikhin, had signed personal guarantees for those loans.
In 2014 VTB was granted separate summary judgments and secured a worldwide freezing order (WFO) against Skurikhin. VTB intended to sell three properties used by Skurikhin. The properties were in Italy and the registered owner was an English LLP, Pikeville. Pikeville's membership shares were originally held on trust for Skurikhin but since 2010 they had been held for a foundation, Berenger, incorporated in Liechtenstein. Berenger was believed to be connected to Skurikhin, although the precise nature of the connection was unclear.
The WFO explicitly identified that Skurikhin's beneficial interest in and right of control over the properties, Berenger and the membership interests in Pikeville or Pikeville itself were subject to the WFO.
Following this, VTB successfully applied for receivers to be appointed over Pikeville's membership shares (the receivership order). Subsequently, proceedings began in Italy to obtain possession of the properties.
In August 2017 Berenger's board resolved to irrevocably exclude Skurikhin from Berenger's class of beneficiaries. In Summer 2018 Berenger applied to the Commercial Court for the receivership order to be discharged. The grounds of Berenger's application were that:
- Skurikhin's exclusion as a beneficiary of Berenger was a material change of circumstance; or
- the court should never have granted the receivership order.
VTB contested the application on the ground that a material change of circumstance can arise only in respect of matters over which the applicant has no control.
The Commercial Court dismissed Berenger's application, holding that the application based on a change of circumstances was an abuse of process. The change had been brought about by Berenger itself (and likely at Skurikhin's instigation or at least with his knowledge or approval) in order to obstruct enforcement of the summary judgments and VTB's attempts to recover sums through bankruptcy proceedings in Russia.
Even if the decision to exclude Skurikhin from the class of beneficiaries had not been implemented at Skurikhin's instigation, Berenger's conduct had "something of the quality of an abuse of process" in that it had stood by for three years while the receivers sought to realise the assets before excluding Skurikhin and seeking to lift the receivership order as soon as the receivers were close to successfully doing so.
Berenger was granted permission to appeal the change of circumstances ground. It argued that an application could not be treated as an abuse where nothing unlawful had been done and there had been no misuse of procedure (eg, an attempt to retry an issue already determined). Further, motive and intention were irrelevant in considering whether an abuse had occurred (relating to the first-instance judge's consideration of the reasons why Skurikhin had been excluded as a beneficiary).
VTB argued that the exclusion of Skurikhin as a beneficiary amounted to a breach of the WFO and the receivership order. Accordingly, Berenger was in contempt of court. Berenger's stance was that this new point should not be permitted on appeal where it might have changed the course of evidence given or might require further factual enquiry.
The Court of Appeal dismissed Berenger's appeal.
Lord Justice Phillips gave the main judgment. He stated that proceedings can be struck down as an abuse of process even where there has been no:
- unlawful conduct or breach of procedural rules;
- collateral attack on a previous decision; or
- dishonesty or otherwise reprehensible conduct.
Phillips confirmed that, in principle, it may be an abuse of process for a party to attempt to reopen an interlocutory order based on a material change of circumstances wholly within that party's control. He stated that the first-instance judge's approach did not amount to a new or freestanding aspect of abuse, but rather a recognition that such conduct might well fall within one or more of the broad rubrics of abuse which had already been established.
Phillips agreed with Berenger that the motives for asserting rights are themselves irrelevant, absent any malice. In such circumstances, motives cannot make a legitimate action abusive. However, it is far from the case that a party's purpose in taking action cannot render that action an abuse. Relevant considerations include whether the use of proceedings for the intended purpose is abusive, adopting a multi-factorial approach. Similarly, a delay in pursuing or taking proceedings is not in itself an abuse. However, such a delay with a particular purpose (eg, having no intention to proceed to trial) might be an abuse.
Phillips further allowed VTB to advance its additional argument that Berenger had breached the WFO and the receivership order, finding, among other things, that oral evidence which Berenger had asserted was necessary was in fact irrelevant to the argument. He found that Berenger had been in breach of the WFO when its board had resolved to exclude Skurikhin as a beneficiary and, therefore, that it was an abuse for Berenger to attempt to discharge the receivership order on that basis. Having decided that, Phillips stated that it was unnecessary also to consider whether Berenger had breached the receivership order.
Parties should not assume that they will be immune to a finding of abuse of process purely because they have not done anything unlawful or dishonest. Exploring the context of such actions is key.
Further, parties should carefully analyse their positions before making any applications for interlocutory orders to ensure that their actions cannot be characterised as abusive.
