Key takeaways
Babanaft proviso does not shield wrongdoers
Third parties outside the jurisdiction can still be liable for conspiracy.
Court of Appeal overturns first instance findings
Rare example of reversing factual conclusions deemed “plainly wrong.”
Worldwide freezing orders have global reach
Defendants abroad risk liability for asset dissipation under English law.
Lakatamia Shipping Co Ltd -v- Su [2025] EWCA Civ 1389
In this case, the Court of Appeal has unanimously overturned the first instance decision and held all three Respondents liable for unlawful means conspiracy.
In doing so, the Court of Appeal has confirmed that the so-called Babanaft proviso in a worldwide freezing order will not protect third parties outside the jurisdiction who have conspired to dissipate frozen assets.
The case is also a rare example of the Court of Appeal overturning factual findings at first instance, which the Court held satisfied the high bar of being “plainly wrong”.
Hill Dickinson LLP acted for the successful appellant, Lakatamia Shipping Company Ltd (Lakatamia). Lakatamia was represented by SJ Phillips KC and James Goudkamp of 7KBW.
The background facts
This decision is the latest chapter in a long running dispute between Lakatamia and Mr Nobu Su (Mr Su). In 2008, Lakatamia entered into a contract with Mr Su regarding the purchase of freight futures. Mr Su breached that agreement and Lakatamia suffered significant losses.
In 2011, Lakatamia obtained a worldwide freezing order against Mr Su (WFO). In November 2014 and January 2015, judgment was obtained against Mr Su in the English Commercial Court in sums totalling over USD 47.6 million.
During the course of enforcement efforts, Lakatamia became aware of two villas in Monaco beneficially owned by Mr Su through a corporate structure involving a company called Cresta Overseas Ltd (Cresta). The villas were mortgaged to Barclays Bank. The loan agreement had been signed by Mr Su on behalf of Cresta and was guaranteed by Mr Su personally.
In 2015, Cresta defaulted on its mortgage. Barclays sought to enforce its security and commenced proceedings in Monaco to auction the villas to recover its loans. A Monegasque lawyer, Maître Zabaldano, was retained by Cresta Overseas to act in the proceedings.
In September 2015, Lakatamia’s Monaco lawyer wrote to the lawyers acting for Barclays, giving notice of the WFO and stating that Mr Su appeared to have an interest in Cresta. The letter was copied to Maître Zabaldano.
Lakatamia’s attempts to intervene in the Monaco auction proceedings were unsuccessful and, in October 2015, the villas were sold at auction for €65.1 million. Following distribution of the sums owed to Barclays, the balance of the auction proceeds was transferred to the client account of Maître Zabaldano.
On 21 February 2017, on Mr Su’s instruction, the sole remaining director of Cresta, Mr Chang, instructed Maître Zabaldano to transfer the remaining cash proceeds (Sale Proceeds) from his client account to the account of UP Shipping (save for €200,000 which Maître Zabaldano was instructed to retain to continue acting for Cresta in its dispute with Barclays). Cresta’s only other director, Mr Garrett, had resigned earlier the same day (a fact Maître Zabaldano was informed of).
Maître Zabaldano accordingly directed his bank to transfer the balance of the Sale Proceeds – equivalent to USD 26,712,911.68 - to UP Shipping from where the funds were subsequently dissipated.
Lakatamia subsequently brought claims for damages against Mr Su, Mr Chang and Maître Zabaldano as a result of the dissipation of the Sale Proceeds. The claims were for unlawful means conspiracy and the so-called Marex tort (being a claim for inducement to breach rights existing under a judgment).
The First Instance decision
The Deputy Judge held at first instance that all the elements of unlawful means conspiracy were established.
However, as regards Mr Chang, the Deputy Judge was not satisfied that, at the time Mr Chang gave the instruction to transfer the Sale Proceeds he knew that (1) Mr Su was bound by the WFO, and (2) Mr Su still owed the judgment debt. Accordingly, Mr Chang was not liable.
As regards Maître Zabaldano, the Deputy Judge held that Maître Zabaldano honestly believed that he was entitled to obey the instruction to transfer the Sale Proceeds to UP Shipping. The Deputy Judge considered that such honest belief negatived the intention requirement of the Marex tort.
During the course of preparing his judgment, the Deputy Judge also considered the possibility that the so-called Babanaft proviso contained in the WFO afforded Maître Zabaldano with a defence to Lakatamia’s claim for the tort of unlawful means conspiracy.
The Deputy Judge subsequently invited post-hearing written submissions on the issue. Having considered these, the Deputy Judge held that Maître Zabaldano was entitled to the benefit of the Babanaft proviso and that this effectively precluded any liability for unlawful means conspiracy.
Given the Deputy Judge’s findings in relation to Mr Chang and Maître Zabaldano, the Deputy Judge held that Mr Su could not be held liable for unlawful means conspiracy (given that it “takes (at least) two to conspire”).
The Babanaft proviso
The Babanaft Proviso is a standard form proviso included in worldwide freezing orders and provides:
“(1) Except as provided in sub-paragraph (2) below, the terms of this Order do not affect or concern anyone outside the jurisdiction of this Court.
(2) The terms of this Order will affect the following persons in a country or state outside the jurisdiction of this Court –
(a) the Defendant or their officers or agents appointed by power of attorney;
(b) any person who –
(i) is subject to the jurisdiction of this Court;
(ii) has been given written notice of this Order at his residence or place of business within the jurisdiction of this Court; and
(iii) is able to prevent acts or omissions outside the jurisdiction of this Court which constitute or assist in a breach of the terms of this Order; and
(c) any other person, only to the extent that this order is declared enforceable by or is enforced by a court in that country or state”
The Court of Appeal decision
The key issue the Court of Appeal was asked to determine was whether this proviso in fact affords a defence to liability for unlawful means conspiracy to a person outside the territorial jurisdiction of the English Court (as distinct from a defence to proceedings for contempt of court).
The Court unanimously held that the Supreme Court decision in JSC BTA Bank -v- Ablyazov (No 14) [2018] UKSC 19, [2020] AC 727 is binding authority that no such defence is available, and that the Deputy Judge’s attempts to distinguish the case were untenable.
Given the Court’s findings in relation to Lakatamia’s claims for unlawful means conspiracy, it was not necessary to determine Lakatamia’s appeal regarding the Marex tort. The decision therefore leaves open a number of issues regarding the formulation of the Marex tort, including the relevant test for intention, and whether justification is available as a defence.
Comment
This decision helpfully confirms the orthodox understanding that a defendant based outside the jurisdiction can be held liable for tortious conduct if they unlawfully conspire to dissipate assets frozen pursuant to a worldwide freezing order of the English Court.
