Court appointed receivers: When will equity step in to fill the void?

English law provides a variety of tools to a party seeking
to enforce a judgment or arbitral award. 
Nevertheless, particularly in an international context, there will be times when the defendant is determined to
resist enforcement.  Where this is the case, traditional enforcement methods (such as charging orders
over real property or third party debt orders) will not be sufficient.  In those circumstances,
increasingly, parties are looking to the courts to appoint equitable receivers
over the defendant’s property.  Where the
court does so, this can be a much more flexible, and effective, means of enforcement.

Two recent English cases have highlighted increasing
judicial support for this mechanism and have provided clarification in relation
to the appointment of receivers over:

• assets held by a Lichtenstein Foundation; and
• funds held by third parties (where there was no contractual right to repayment).

Members of Osborne Clarke’s international enforcement team
have been involved in the leading cases on the appointment of receivers over
international assets.

Appointing an
equitable receiver: Key legal principles

The English court’s statutory power to appoint a receiver to
preserve assets or assist enforcement is defined very generally but the scope
of the powers has been clarified in case law.

The leading modern case of Masri v Consolidated Contractors International UK Ltd and others (No 2)
[2008] EWCA Civ 303 (in which the author was acting for the claimant) set
out the key principles behind the exercise of this remedy.  As expanded on in subsequent cases such as Tasarruf Mevduati Sigorta Fonu v Merril
LynchBank and Trust Company (Cayman) Ltd & Others [2011] UKPC 17, these
include the following:

• the overriding consideration of justice includes the promotion of the policy of English law that
  English judgments and awards should be complied with and, if necessary,
  enforced;
• a court will not exercise its discretion to appoint a receiver unless there is some hindrance or difficulty
  in using the normal enforcement methods. 
  That hindrance could be either legal or practical; and
• a court must be satisfied that there is a reasonable prospect that the appointment will
  serve a useful purpose.

One of the more difficult issues, which has been considered
in these latest two cases, is the scope of assets which equitable receivers can
be appointed over.

De facto control over
third party interests

Enforcement often falls into difficulty when assets are held
through convoluted trust arrangements. 
The recent case of JSC VTB Bank v
Pavel Skurikhin & Others [2015] EWHC 2131 (Comm) considered when those
assets can be considered in equity as assets of the defendant, and therefore
subject to equitable enforcement.

This judgment was the latest development in the long-running
proceedings between VTB and Mr Skurikhin, against whom VTB has now obtained 25
final judgments from Russian courts.  VTB
was looking to enforce against three valuable properties in Italy, which were
owned by an English limited liability partnership, Pikeville LLP.  The membership interests in Pikeville were
held by three third parties, as nominees for a Lichtenstein foundation, the
Berenger Foundation.  VTB claimed that Mr
Skurikhin had de facto control over the Berenger Foundation, and that the
membership interests in Pikeville should be considered to be his assets.  The respondents argued that he was no more
than a discretionary beneficiary and, as such, those interests could not be
considered to be his assets.

The Judge considered the cases and legal principles
discussed above, as to what assets an equitable receiver may be appointed over.  The judge referred to Masri, Tasarruf and Blight & Others v Brewster [2012] EWHC
165 (Ch), in which the right to draw 25% of the value of a pension as a
lump sum was considered “tantamount to ownership” of that 25%,
allowing a receiver to be appointed over that right. 

The Judge held that equitable receivers could be appointed
over “whatever may be considered in
equity as the assets of the [defendant]“.  Property held in trust or a similar foreign
arrangement would be regarded as the defendant’s assets if the defendant “has the legal right to call for those assets
to be transferred to him or to his order, or if he has de facto control over
the trust assets“.

Having considered expert evidence from Lichtenstein lawyers,
the Judge was satisfied that Mr Skurikhin did have de facto control over the
Berenger Foundation and, therefore the membership interests in Pikeville.  He therefore granted an order appointing
equitable receivers over those interests.

Contractual rights to
assets

In Merchant
International Company Ltd v Natsionalna Aktsionerna Kompaniia Naftogaz Ukrainy
[2015] EWHC 1930 (Comm) the Court considered when contractual rights, or
even a mere expectation, to receive assets could leave those assets amenable to
equitable receivership.  

The claimant (MIC) sought to appointed receivers over $25m
in an account held by Naftogaz with Bank of New York Melon (BNY Melon).  The funds related to a series of notes that
had been issued by Naftogaz, and (essentially) represented the surplus after
the notes had been redeemed by the noteholders. 

Naftogaz attempted to resist the appointment of a receiver
on the basis that its contract with BNY Mellon did not provide it with a right
to demand the funds held in the account relating to the notes.  The court agreed with this, finding that the
contractual arrangements had “succeeded
in preventing [BNY Melon] becoming Naftogaz’s debtor in relation to the fund.” 

Nevertheless, the Judge considered that Naftogaz had
“other rights” against BNY Melon by which it could obtain
payment.  BNY Melon did not claim to be
entitled to keep the funds for itself and the judge considered that any other
interpretation would flout business common sense.  He therefore ordered the appointment of
equitable receivers over Naftogaz’s interests in the funds.

The Judge went on to say that, even if Naftogaz did not have
clear contractual rights, he would have appointed receivers on the basis that
Naftogaz had a “sufficient
expectation of being paid” to make it appropriate to appoint a
receiver. 

A powerful weapon in
the enforcement armoury

With these latest decisions, the English courts have
emphasised the importance they place on complying with judgments and awards
(whether domestic or foreign).  English
law can be used to reach assets that are held by a third party subject to trust
or contractual arrangements, even where the defendant does not have an explicit
legal right to call on those assets.

The appointment of an equitable receiver still does not
guarantee satisfaction of a judgment or award. 
If any respondents refuse to comply, however, a claimant could seek
further assistance from the English courts, in the form of committal
proceedings against those parties.  And the
prospect of a third party such as a professional trustee receiving a custodial
sentence means that, in practice, equitable receivership can be a very
effective weapon for a claimant looking to enforce a judgment or award.