Championing Chabra: an update from the Cayman Islands Court of Appeal

In the latest act of the ongoing drama played out in the Cayman Islands courts (and, indeed, the English and BVI courts) between VTB Capital plc and Mr Konstantin Malofeev and companies connected to him, the Cayman Islands Court of Appeal has handed down a judgment of some significance. The decision clarifies the rights of plaintiffs to freeze the assets of ‘non-cause of action’ defendants (NCADs), so-called Chabra defendants, in circumstances in which the ‘cause of action’ defendant (CAD) is outside the jurisdiction of the Cayman Islands courts. Coming in the wake of a line of authorities that are themselves difficult to reconcile, such appellate authority is most valuable. This is especially true given that the decision is handed down at a time where legislative reform in this area, while anticipated, remains in the pipeline.

Prior to the latest Court of Appeal decision, this matter had already come before the Cayman Islands courts on several occasions. Proceedings had been commenced by VTB, an English-registered bank, against three defendants by generally endorsed writ dated 11 August 2011. The first defendant was Malofeev, a Russian citizen believed to be based in Moscow. The second and third defendants were two Cayman Islands companies, namely Universal Telecom Management (UTM) and Universal Telecome Strategies Fund (the Fund), said to be controlled by Malofeev. UTM and the Fund became the first and second respondents in the most recent appeal, since no appeal was brought against Malofeev. VTB sought to freeze the assets of these companies on the basis that they were, effectively, assets that could be used to satisfy a judgment against Malofeev.

The nature of Malofeev’s interest in UTM and the Fund came under scrutiny in the most recent appeal decision and it is accordingly worth recording that it was the Fund that directly held the underlying assets to which VTB sought recourse. There were two classes of shares in the Fund: participating shares and management shares. The management shares were held by UTM and the participating shares, which carried with them the economic interest in the Fund, were owned by a BVI-incorporated company of which Malofeev was the ultimate beneficial owner…

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