Getting At Trust Assets And Piercing The Corporate Veil

Authored by Tim Penny QC, Wilberforce Chambers

GETTING AT TRUST ASSETS

In a series of recent cases, the English courts have grappled with whether the scope of a (usually worldwide) freezing order (WFO) extends to cover assets held in trust, and further whether there is jurisdiction to require someone who claims that he/she is no more than a beneficiary under a discretionary trust to disclose the trust assets, trust deeds and other details relating to the trust and those who control the trust even before a WFO is granted against those assets.

In recent years, the definition of the word "assets" in the standard form WFO has been extended to include the following provisions (emphasis added): "Paragraph [x] applies to all the defendant's assets whether or not they are in their own name, whether they are solely or jointly owned and whether the defendants are interested in them legally, beneficially or otherwise. For the purposes of this order, the defendants' assets include any asset which they have the power, directly or indirectly, to dispose of or deal with as if it were their own. The defendants are to be regarded as having such a power if a third party holds or controls the assets in accordance with their direct or indirect instructions."

In JSC BTA Bank v Ablyazov (no.10)1, the Supreme Court held2 that the last 2 sentences of this extended asset definition includes things not in the defendant's ownership, including, in that case, the defendant's unfettered right/power to draw down loans under a loan agreement with a bank under which the bank was contractually obliged to make funds available to the defendant. "The last two sentences... are designed to catch assets which are not owned legally or beneficially, but over which the defendant has control... the focus of the second sentence... is not on assets which the defendant owns (whether legally or beneficially) but on assets which he does not own but which he has the power to dispose of or deal with as if he did".3

It would appear therefore, that in a situation where the facts suggest that a defendant exerts de facto control over trust assets and that the defendant may have been the settlor of the trust, a WFO could extend to freeze the assets of that trust. This was confirmed by the Court of Appeal in JSC BTA Bank v Solodchenko, in which Patten LJ stated "the final 2 sentences make it clear that "the respondent's assets" can include assets held by a foreign trust or a Liechtenstein Anstalt...