Freezing orders

A freezing order made by way of security for arbitration or judicial proceedings will generally contain an exception under which the defendant is entitled to deal with its assets in the ordinary course of business. The purpose of the exception is to make sure that the claimant does not obtain undeserved security over other unsecured creditors. Once the proceedings are complete, any freezing order has a rather different function, in that it is security for execution, so that the exception may be inappropriate. The question before the Court of Appeal in Mobile Telesystems Finance SA v Nomihold Securities Inc [2011] EWCA Civ 1040 was whether a freezing order made at the same time as an order giving permission for the enforcement of an arbitration award should contain the exception. The Court of Appeal held that, until the time for applying to set aside the enforcement order has expired, the order is not final as such and the creditor is in the same position as a contractual creditor rather than a judgment creditor, so that the exception should be included.

Nomihold: the facts

MTSF, a Luxembourg company, was a member of the MTS Group which was a leading telecommunications provider in Russia, Eastern Europe and Central Asia. Nomihold was the owner of shares in a Seychelles company, Tarino Ltd, which was the indirect owner of Bitel LLC which held a mobile telecommunications licence for the whole of Kyrgyzstan. On 17 November 2005 MTSF agreed to acquire from Nomihold a 51% interest in Tarino, for the sum of US$150m in cash, and the parties also agreed a put option under which MTSF was to purchase the remaining 49% of the shares in Tarino for a further US$170m. The parties agreed that any dispute would be referred to arbitration before a tribunal constituted under the rules of the London Court of International Arbitration.