Canada: Focus on climate change disclosure continues with LEEFF
Companies that receive LEEFF funding will be required to complete annual climate change reporting and should consider utilizing the TCFD standards to inform reporting strategies.
A right to draw down under a loan agreement was included within a freezing order.
In November 2009, in long running litigation between the appellant (a bank based in Kazakhstan) and the respondent (a former chairman and shareholder of the bank), the appellant obtained a freezing order against the respondent. It was drafted on the terms of the standard form freezing order contained at Appendix 5 of the Admiralty and Commercial Courts Guide. Between September 2009 and December 2010, the respondent entered into four loan agreements. At the time of the appeal, these loan agreements had been fully drawn down and, at the respondent’s direction, substantial amounts had been paid to the respondent’s former legal advisors and other third parties.
The appellant made an application for a declaration that the respondent’s rights under the loan agreements were included within the freezing order. It argued that they were “assets” for the purposes of the freezing order (among other things). The relevant paragraph of the Order (based on paragraph 6 of the standard form freezing order) provided:
“[The Order] applies to all the respondents’ assets whether or not they are in their own name and whether they are solely or jointly owned and whether or not the respondent asserts a beneficial interest in them. For the purpose of this Order the respondents’ assets include any asset which they have power, directly or indirectly, to dispose of, or deal with as if it were their own. The respondents are to be regarded as having such power if a third party holds or controls the assets in accordance with their direct or indirect instructions.”
The Supreme Court held that the rights to draw down were “assets” for the purposes of the Order. In particular, the respondent’s contractual rights in the loan agreements to direct the lender to pay the amounts drawn down to third parties were held to constitute dealing with the lender’s assets as if they were the respondent’s own, within the meaning of the second sentence of the relevant paragraph. The court considered the relevant terms of the loan agreements, finding that the respondent had an “unfettered” discretion to use the proceeds of the agreements as he wished, including an express power to direct the lender to transfer proceeds to third parties.
The Supreme Court also held that the extended definition of “asset” set out in the second and third sentences of the relevant paragraph (which do not appear in the pre-2002 form of freezing order), extended the meaning of “asset” to assets which the respondent did not own legally or beneficially, but over which he had control. Without the extended definition, the right to draw down under the loan agreements would not be an “asset” under the Order. In considering the meaning of “asset”, the Court also commented on the application of definitions used in the general law. It held that that while the rights under the loan agreements were likely to be considered “assets” in ordinary legal parlance, “asset” had to be considered in the context of the relevant authorities relating to freezing orders, which did not support the proposition that the right to draw down was an “asset”.
The Supreme Court also provided general guidance on construction: freezing orders are “to be restrictively construed”, in accordance with the principle that, in view of the penal consequences of breach of a freezing order by the respondent, orders should be clear and unequivocal and strictly construed. It held that the “flexibility principle”, the principle that the jurisdiction to make a freezing order should be exercised in a flexible and adaptable manner, had no role in construction; the sole question for the Court is what the freezing order means. It endorsed the approach taken by the Courts to date, which was to approach construction cautiously, while recognising that the language contained in forms of freezing order has gradually been extended.
This is an important decision for any practitioner in this area. It clarifies that the extended definition in paragraph 6 of the standard form freezing order expands the nature of the assets caught by the order, to assets not owned legally or beneficially by the respondent, including rights to draw down under a loan or other form of credit facility (subject to the precise nature of the rights). As a practical matter, where a respondent to a freezing order is exercising rights under such facilities, he or she must ensure that the rights are exercised in accordance with the terms of the order. For those seeking to obtain and enforce freezing orders, the decision expands the range of assets potentially caught by the order, which (other than loan or credit facilities) might include assets belonging to companies which could be said to be controlled by a director or shareholder.
As a general matter, the Court’s guidance that freezing orders are to be restrictively construed highlights the importance of careful and precise drafting in the preparation of orders.
En France, plus de 900 000 tonnes d’hydrogène sont produites chaque année pour couvrir les besoins de l’industrie française.