When is an Application to Court an Abuse of Process?

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.

Background

VTB brought proceedings in England based on previous Russian judgments. Its target was the chairman of various companies to which VTB had provided loans. The chairman, Mr Skurikhin ("S"), had signed personal guarantees for those loans. 

In 2014, VTB was granted separate summary judgments and had secured a worldwide freezing order ("WFO") against S. VTB intended to sell three properties used by S. The properties were located in Italy and the registered owner was an English LLP ("Pikeville"). Pikeville's membership shares were originally held on trust for S but since 2010 have been held for a foundation incorporated in Liechtenstein ("Berenger"). Berenger was believed to be connected to S, although the precise nature of the connection was unclear.

The WFO had explicitly identified that S's beneficial interest in and/or right of control over i) the properties ii) Berenger and iii) 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"), and subsequently proceedings began in Italy to obtain possession of the properties. 

In August 2017, Berenger's board resolved to irrevocably exclude S from Berenger's class of beneficiaries. Berenger applied to the Commercial Court in summer 2018 for the Receivership Order to be discharged. The grounds of Berenger's application were that S's exclusion as a beneficiary of Berenger was a material change of circumstance or, alternatively, that the Receivership Order should never have been granted by the Court. VTB contested the application on the ground that a material change of circumstance can only arise in respect of matters over which the applicant has no control. 

Commercial Court Decision and Subsequent Appeal

The Commercial Court dismissed Berenger's application, holding that the application on the basis of change of circumstances was an abuse of process. The change had been brought about by Berenger itself (and likely at S'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 S from the class of beneficiaries had not been implemented at S'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 then excluding S 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 (such as an attempt to re-try 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 S had been excluded as a beneficiary). 

VTB argued that the exclusion of S 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. 

Court of Appeal Decision

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 where there has been no unlawful conduct or breach of procedural rules, no collateral attack on a previous decision or dishonesty or other reprehensible conduct. 

Lord Justice Phillips confirmed that in principle it may be an abuse of process for a party to attempt to reopen an interlocutory order on the basis of 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 were already established.

Lord Justice 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 (for example, having no intention to proceed to trial) might be an abuse. 

Lord Justice Phillips further allowed VTB to advance its additional argument that Berenger had breached the WFO and the Receivership Order, finding amongst other things that oral evidence which Berenger asserted was necessary was in fact not relevant to the argument. He found that Berenger was in breach of the WFO when its board resolved to exclude S 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, Lord Justice Phillips stated that it was unnecessary also to consider whether Berenger had breached the Receivership Order. 

Comment

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. Furthermore, parties should carefully analyse their positions before making any applications for interlocutory orders to ensure their actions may not be characterised as abusive.