JSC VTB Bank v Skurikhin & Ors  EWCA Civ 1337
21 October 2020
The question is this appeal concerned whether it was abusive for an applicant to set aside an interim order on grounds of a material change of circumstance that was in wholly in its own control and brought about at its own instigation and, moreover, could have been brought about prior to the interim order. The order was made in enforcement proceedings: a receivership over a partnership that owned the target assets, where the membership interests in the partnership were found to be indirectly owned by the judgment debtor. The material change was a resolution excluding the judgment debtor from the class of beneficiaries, said to be intended to protect the other beneficiaries from the effects of the enforcement. It was, found the Court of Appeal, a “redolent with illegitimate collateral purposes, subterfuge and manifest unfairness” (para 60).
The Claimant bank (‘VTB’) obtained summary judgments and a worldwide freezing order (‘WFO’) against the First Defendant (‘Mr Skurikhin’), a businessman with beneficial interests in and/or rights of control over the membership interests in the Second Defendant, an English LLP (‘Pikeville’), the owner of certain properties (‘the Properties’). The Fourth Respondent, a Liechtenstein foundation (‘Berenger’) was said to be beneficially entitled to the membership interests in Pikeville.
On 16 December 2014, VTB applied for the appointment of receivers over the membership interests in Pikeville by way of equitable execution to satisfy the judgment debt. Berenger was joined in and served with the application, however, did not appear at the hearing. On 21 July 2015, the application was granted (‘the Receivership Order’), on the basis that, on the balance of probabilities, Mr Skurikhin had either right to call for the assets of Berenger to be transferred to him or had de facto control of those assets (for the reasons set out at para 25).
In August 2017 the board of Berenger passed resolutions (backdated to 14 June 2017) irrevocably excluding Mr Skurikhin from the class of beneficiaries of the foundation, and providing that the beneficiaries would consist of the fifth respondent as trustee of a third-party Settlement. The Settlement also passed a resolution (backdated to 18 June 2017) confirming Mr Skurikhin’s exclusion from the Settlement as a beneficiary (together ‘the Exclusions.’)
On 12 July 2018 Berenger applied to discharge the Receivership Order on the grounds, inter alia, that the Exclusions were a material change of circumstance which meant that the Receivership Order should not continue
The Court Below
Berenger contended that there was no principle that a material change of circumstances can only arise in respect of matters over which the applicant has no control, citing Thevarajah v Riordan  UKSC 78 in support, and Lord Neuberger PSC’s obiter examples of late payments that might not be abusive:
“For instance, if the late payment was explained by the individual having inherited a sum of money subsequent to the hearing of the first application which enabled him to pay; or if the company had gone into liquidation since the hearing of the first application and, unlike the directors, the liquidator was now able to raise the money.”
By a reserved judgment dated 12 June 2019, Patricia Robertson QC (“the Judge”), dismissed the application. Finding that Lord Neuberger’s examples involved elements that were not within the control of the party, she distinguished cases involving subsequent events that make belated compliance possible – where a second application may not be an abuse – and cases where a party simply chooses not to comply and later on chooses to comply – where it is likely to be an abuse of process to rely on a belated decision as a material change. The Judge made factual findings that the Exclusions were probably brought about at Mr Skurikhin’s instigation and for his benefit to impede the way of enforcement. She therefore held at para 161 (cited at para 40) that that the alleged change of circumstances was an abuse of process, on the basis that (emphasis added):
“Authority aside, it seems to me that it may, in principle, amount to an abuse of process for a party to seek to reopen an interlocutory order on the basis of treating as a material change of circumstances a development that is wholly within that party’s own control. Ex hypothesi, if the matter is within that party’s control, it is a change they could have chosen to effect before the order was first made. Otherwise a party could test its position on one set of facts, and then, if unsuccessful, subject the other party to a series of further interlocutory hearings to see whether it can arrive at a more favourable result on variants of those facts, all of which were within its own power to bring about at the outset, had it so chosen. It cannot be right that a party can freely move the goalposts around in that way, to award itself the opportunity for a rematch. Rather, to mix metaphors, having, as it were, made its bed, by choosing on which set of facts to have the first battle, the party must usually then lie in it.”
Permission was granted in respect of the alleged material change in circumstances, and Berenger contended, inter alia, that: (i) an application could not be treated as an abuse where there had been no unlawful conduct nor any misuse of procedure, (ii) there had been no misuse of procedure, such as to re-litigate an issue that had been determined, (iii) motive and intention behind the change in circumstances were irrelevant in considering whether proceedings were an abuse; and (iv) mere delay, even a long delay, could not in itself amount to abuse of process.
The Court of Appeal
Phillips LJ, with whom the other members of the Court agreed, began by considering the leading abuse of process authorities, and found no principle to support Berenger’s contention that proceedings cannot be struck down as an abuse of process where there has been no unlawful conduct, no breach of relevant procedural rules, no collateral attack on a previous decision and no dishonesty or other reprehensible conduct. Rather, Phillips LJ noted at para 51 that the power to strike out:
“…exists precisely to prevent the court’s process being abused through the lawful and literal application of the rules, and most likely would not be needed or engaged where a party was acting unlawfully or in breach of procedural rules, where established rules of law or procedural sanctions would usually suffice to protect the court process.”
From this, Phillips LJ considered that the Judge’s broad proposition at para 161 of her judgment did not purport to set out a new aspect of abuse, but rather simply recognised that such conduct might well fall within one or more of the “broad rubrics of unfairness or the bringing of the administration of justice into disrepute” referred to in Laing v Taylor Walton  EWCA Civ 1146 at para 12. Such “broad rubrics” in turn, requires the court to avoid “too dogmatic an approach to what should […] be a broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case” (Johnson v Gore Wood & Co  2 AC 1, 31B per Lord Bingham).
As regards motive, Phillips LJ accepted that a party’s motives for asserting a legal right cannot in themselves “turn a legitimate action into an abuse” (unless malice is present), but not that a party’s purpose in taking action can never render that action an abuse. As Simon Brown LJ stated in Broxton v McClelland  EMLR 485, 497 (cited at para 54) (emphasis added):
… an action is only [an abuse] if the Court’s processes are being misused to achieve something not properly available to the plaintiff in the course of properly conducted proceedings. The cases appear to suggest two distinct categories of such misuse of process: (i) The achievement of a collateral advantage beyond the proper scope of the action… (ii) The conduct of the proceedings themselves not so as to vindicate a right but rather in a matter designed to cause the defendant problems of expense, harassment, commercial prejudice or the like beyond those ordinarily encountered in the course of properly conducted litigation.”
Thus, Philips LJ (para 55) held that an examination of the motivation and intention of the party in bringing proceedings is a necessary consideration when determining what the proceedings are being used to achieve, or what they are designed to cause.
Similarly, although delay is not itself an abuse of process, abuse may arise when delay is combined with some other relevant factor, such as absence of intention to take a case to trial (Wearn v HNH International Holdings Ltd  EWHC 3542 (Ch),  per Barling J; cited at para 56).
Applied to the present facts, Phillips LJ considered that even genuinely implementing the Exclusions to protect other beneficiaries years after the receivers had been appointed would be an abuse, under the Henderson principles, by bringing the administration of justice into disrepute and by manifest unfairness. But he also found that the application was not a genuine attempt to divest Mr Skurikhin’s beneficial interest in Berenger’s assets; it was a “device, instigated by him, to further disguise his ownership and control and to frustrate the enforcement of the judgments against him as they neared fruition” (para 60).
Accordingly, Phillips LJ considered that there “could not be a clearer example of a wrongful and abusive process, one which the Judge was right to refuse to entertain” (para 68).
This case is a useful reminder that determining whether there has been an abuse of process is highly fact sensitive. It is worth noting that, although Phillips LJ considered the Judge was right to hold that, in principle, it can be an abuse of process for a party to seek to reopen an interlocutory order on the basis of treating as a material change of circumstances a development that is wholly within that party’s control, Phillips LJ was also clear that he “certainly would not suggest” that such an applicant “can never” make a second application without that second application constituting an abuse.
Phillips LJ helpfully illustrated the position by way of two “relatively extreme” examples:
If a party effected such a change immediately after losing the first hearing and issued a second application the very next day, that would self-evidently be an abuse… Equally, if a party waited several years before effecting such a change, then made a second application just as the other party, after incurring significant expense, was about to reap the benefit of the first order, that would also seem to be a clear abuse.
Both of the (relatively extreme) examples above of second applications, based on changed circumstances brought about by the losing party, reveal aspects of Henderson v Henderson abuse and, if permitted, would plainly bring the administration of justice into disrepute and would be manifestly unfair to the other party. Less extreme examples might or might not fall foul of one or more of those aspects.
Given that the vast majority of applications in practice are likely to fall within the two “relatively extreme” examples, practitioners should take a holistic approach to both the authorities and facts of any given case, taking care to avoid, as stated in Johnson, a “dogmatic” approach.