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Equitable execution over trust assets just and convenient

30 September 2015

In JSC VTB Bank v Skurikhin & ors [2015] EWHC 2131 (Comm), 21 July 2015, the High Court appointed a receiver by way of equitable execution over the assets owned in equity by the first defendant, a judgment debtor. The court found that the first defendant was the beneficial owner of certain LLP membership interests. As he had de facto control over those interests, they were property subject to trust and regarded in equity as his assets. Applying the principles set down in recent case law, the court held that it was just and convenient for equitable receivers to be appointed over those assets. The appointment was necessary to meet the demands of justice that prior judgments of the court be complied with and enforced in circumstances where the first defendant was in breach of a worldwide freezing order.

Difficulties in enforcing judgments

The claimant, JSC VTB Bank, applied under s37 Senior Courts Act 1981 for the appointment of receivers by way of equitable execution over certain interests of the second defendant, Pikeville Investments LLP, of which the first defendant, Mr Skurikhin, was said to be the beneficial owner.

The claimant had obtained numerous final judgments from the Russian courts following the failure of the first defendant to pay out under personal guarantees he had given as security for loans made by the claimant to companies of which he was chairman. The claimant subsequently sought and obtained common law judgments in England based on the Russian judgments. This was on the basis that the first defendant had a beneficial interest in the membership shares of the second and third defendants, both companies incorporated in England. However his ongoing attempts to enforce those judgments had been unsuccessful. The first defendant had failed to disclose his assets in breach of a worldwide freezing order, had not attended the oral examination of his assets that had been order under CPR Part 71, and was subject to an order for immediate imprisonment.

De facto control of assets

The claimant argued that the first defendant was the true beneficial owner of certain LLP membership interests in the second defendant, which were registered in the UK to nominees. The appointment of equitable receivers over those interests would enable the receivers to sell valuable properties in Italy that were registered in the name of the second defendant and realise the proceeds for the claimant.

The first defendant had previously asserted that the true beneficial owner of the LLP membership interests was a Liechetenstein foundation, and that his interest in the assets was only that of a discretionary beneficiary under the foundation. 

Having reviewed the evidence, the court concluded that it was more likely than not that the first defendant had a right to call for the assets to be transferred to him and that he therefore had de facto control of them. The court took into account a number of matters, including evidence that the assets were part of a trust structure that appeared to have been designed to transfer monies out of Russia in an attempt to make them difficult to trace. The first defendant had failed to provide proper disclosure of his assets, or to produce evidence to show that the assets were not under his control. 

The documentation that was available indicated that the first defendant was the economic founder of the Liechenstein foundation, that he and his family were alone in being able to enjoy the benefit of the assets of the foundation, including rent-free use of the Italian properties, and that he was likely to be able to instruct the board of directors of the foundation to transfer interests out of the foundation into his own name or that of others.

When can a receiver be appointed? 

Section 37 Senior Courts Act 1981 allows the court to appoint a receiver in all cases in which it appears to the court to be just and convenient to do so, and extends to the appointment of a receiver by way of equitable execution. 

The principles relevant to the appointment of equitable receivers were established by the Court of Appeal in Masri v Consolidated Contractors (UK) Ltd (No 2) [2009] QB 450 (and distilled further in the recent case of Cruz City 1 Mauritius Holdings v Unitech & ors [2014] EWHC 3131 (Comm) which was covered in the November 2014 Litigation Review).

As these cases make clear, the demands of justice are the overriding consideration. Justice demands that judgments of the English court and English arbitration awards should be complied with and, if necessary, enforced. The court's jurisdiction is not however unfettered. Relevant considerations in determining what is "just and convenient" in the circumstances include a requirement for there to be some hindrance or difficulty in the normal processes of execution, and for the court to be satisfied that the appointment of a receiver is not fruitless. 

Justice demands equitable execution 

Three issues arose for determination in this case by Christopher Butcher QC, sitting as a Deputy High Court judge. These were: (i) over what assets may a receiver by way of equitable execution be appointed?; (ii) did the LLP membership interests fall into that category?; and (iii) was it just and convenient in the circumstances for receivers to be appointed?

The judge accepted the claimant's submissions that property subject to trust would be regarded in equity as assets of a judgment debtor if he had the legal right to call for those assets to be transferred to him or had de facto control over the assets. On the facts, the judge was satisfied that the membership interests in the second defendant fell into that category and that it was open to the court to appoint a receiver over them.

The judge further found that it would be just and convenient for equitable receivers to be appointed. The demands of justice required that the judgments of the English court be complied with and, if necessary, enforced, and there was no other obvious practical or realistic means of executing the judgments open to the claimant. There was a real prospect that the appointment of receivers would serve a useful purpose, and the judge was not satisfied that the appointment would be fruitless.

Allowing the application, the judge appointed receivers over the LLP membership interests by way of equitable execution.

Comment: This case applies the principles laid down in Masri v Consolidated Contractors (UK) Ltd (No 2) [2009] QB 450 and in Cruz City 1 Mauritius Holdings v Unitech & ors [2014] EWHC 3131 (Comm) in assessing whether or not to appoint receivers by way of equitable execution under s37 Senior Courts Act 1981. The key question here was whether the assets in question, which were held through a complex trust structure, could be regarded in equity as assets of the judgment debtor. The judge was satisfied, on the balance of probabilities, that the judgment debtor either had the right to call for the assets to be transferred to him, or had de facto control of the assets such that he could be regarded as the beneficial owner.

In considering whether the demands of justice (the overriding principle in determining the scope of the court's jurisdiction), meant that it was just and convenient to appoint a receiver by way of equitable execution, the court took into account the lengths to which the judgment debtor had gone to avoid enforcement of the judgments against his assets, including a failure to make proper disclosure of his assets in breach of the terms of a worldwide freezing order. The claimant was left with no other obvious practical or realistic means of executing the judgments. Applying the principle that the demands of justice include the promotion of the policy of English law that judgments of the English court and English arbitration awards should be complied with and, if necessary, enforced, the court found that it was just and convenient to appoint receivers by way of equitable execution over the relevant assets.