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England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> JSC Mezhdunarodniy Promyshelnniy Bank & Anor v Pugachev & Ors  EWHC 2623 (Ch) (27 August 2015)
Cite as:  EWHC 2623 (Ch)
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7 Rolls Building
London, EC4A 1NL
B e f o r e :
| (1) JSC MEZHDUNARODNIY PROMYSHELNNIY BANK
| (2) STATE CORPORATION "DEPOSIT INSURANCE AGENCY"
| (1) SERGEI VIKTOROVICH PUGACHEV
(2) KEA TRUST COMPANY LIMITED
(3) FINETREE COMPANY LIMITED
(4) BRAMERTON COMPANY LIMITED
(5) BLUERING COMPANY LIMITED
(6) MARU LIMITED
(7) HAPORI LIMITED
(8) MIHARO LIMITED
(9) AROTAU LIMITED
(10) LUXURY CONSULTING LIMITED
(11) VICTOR SERGEYEVITCH PUGACHEV
Nicholas Cherryman (of King & Spalding International LLP) for the First and Tenth Defendants
The Second to Fifth Defendants did not appear and were not represented
Stephen Auld QC and Rachel Oakeshott (instructed by Mishcon de Reya) for the Sixth to Ninth Defendants
The Eleventh Defendant did not appear and was not represented
Hearing date: 26 August 2015
Crown Copyright ©
MR JUSTICE SNOWDEN:
"2. In 1992 Mr. Pugachev, together with a partner, founded the First Claimant bank ("Mezhprom"). In November 2010 the Moscow Arbitrazh Court declared Mezhprom to be insolvent, opened liquidation proceedings and appointed the Second Claimant ("the DIA") as liquidator. On 25th January 2011 the Russian authorities began a criminal investigation with regard to the insolvency of Mezhprom and three days later Mr. Pugachev fled Russia.
3. On 2nd December 2013 the Claimants began proceedings against Mr. Pugachev in the Moscow Arbitrazh Court. On 11th July 2014 Henderson J, the first of eight judges of the Chancery Division to have considered this case so far, granted a worldwide freezing order without notice in aid of the Moscow proceedings.
4. The worldwide freezing order contained the usual orders for disclosure. On 23rd July 2014 Mr. Pugachev provided a schedule of assets in purported compliance with that order. The stated value of the disclosed assets was $70 million. The assets listed in the schedule included interests as a discretionary beneficiary of a number of trusts.
5. On 25th July 2014 Henderson J made an order ("the trusts disclosure order") requiring Mr. Pugachev to swear an affidavit identifying the trustee(s), settlor(s), any protector(s) and the beneficiaries of each of the trusts and details of the assets which were subject to those trusts, together with copies of the trust deeds. The trusts disclosure order was stayed pending appeal. At a hearing on notice on 29th July 2014 the worldwide freezing order was continued."
i) the grant of an order requiring the provision of further information by LCL to the Claimants concerning its assets and payments from its bank accounts; and
ii) the continuation of the Passport Order (in expanded form) until further order.
The Background to the Applications
"a. The first was set out in Mr. Roberts' first affidavit in support of the without notice freezing order in July 2014. He says that in January 2009, $900 million was withdrawn from the claimant Bank and transferred to three companies: CJSC Plescheevo; CJSC Sanara; and Srednie Torgovye Ryady LLC ('STR'). Mr. Roberts asserted in his First Affidavit that the DIA believes that Mr. Pugachev is the ultimate owner of these companies and Mr. Pugachev has never said to the contrary in his evidence. Mr. Roberts also said that the credit balances of about $US710 million from those three companies were later transferred to an account in the name of a Cypriot company called Safelight Enterprises Limited ('Safelight') in Switzerland. It is believed that Safelight is also beneficially owned by Mr. Pugachev.
b. The second is what has happened to the proceeds of sale, if any, of Mr. Pugachev's interests in a company referred to as EPK. EPK held a valuable coal deposit licence to exploit mines of coking coal in Siberia. Mr. Roberts, in his first affidavit, pointed to press reports that EPK was valued at US$2.5 – 3.5 billion and had been sold by Mr. Pugachev to company called Devecom Ventures Ltd ('Devecom') which is owned or controlled by a Mr. Altushkin. The counterparty to the sale of the interest in EPK to Devecom was a company called Basterre Business Corporation ('Basterre') which it now appears is controlled by Mr. Pugachev's son Viktor and it now appears that the consideration owed by Devecom to Basterre for the interest in EPK under the sale agreement was US$ 150 million. This sale is linked with the insolvency of the claimant Bank and hence with the proceedings in Moscow which these proceedings support. That link, as I understand it, is that Mr. Pugachev's shares in EPK were pledged by Mr. Pugachev as security for loans made by the Claimant Bank to various companies within Mr. Pugachev's business empire. However, shortly before the sale of the shares in EPK by Mr. Pugachev, the pledges were released by the new Chairman of the claimant Bank, leaving those loans unsecured. Ultimately the loans were not paid and when the claimant Bank went into liquidation, there was a shortfall of assets. That shortfall is the basis for the claims by the DIA against Mr. Pugachev in the Moscow court.
c. The third aspect is a payment of US$106 million made to Mr. Pugachev's personal bank account in December 2008 by a company called Creative Associates Service Ltd ("Creative"). Mr. Pugachev was apparently the sole shareholder of Creative at the time and this payment was said to be a dividend payable to him. Creative had received the sum as consideration on the sale of Creative's interest in another company. The claimants want to know what has happened to this US$106 million."
"38. I can be brief in this context: the test is in effect whether the court is satisfied that further evidence is necessary in order to make the freezing order more effective.
39. As it seems to me, the court must be persuaded that there is practical utility in requiring such evidence and that it is necessary to enable the freezing order properly to be policed. It will be vigilant to prevent the abuse of seeking further evidence for some other purpose: such as to expose further inconsistencies, unduly pressurise a defendant who has already been cross-examined, yield ammunition for an application for contempt, or provide further material which might be of assistance, even if not actually deployed, in the main (foreign) proceedings.
40. I consider also that the court must be satisfied that a yet further round of evidence is proportionate. That seems to me to be especially so where the freezing orders are in aid of foreign proceedings over which it has no control and where the English court is in effect being asked for relief which that foreign court could not or would not provide (see Motorola Credit Corporation v Uzan (No 2)  EWCA Civ 752 at )."
That is an admirably concise summary of the principles of law that are applicable in relation to the applications in support of the worldwide freezing orders that are before me.
"123. Having regard also to the proportionality of a process which has already occupied the court for so long in aid of foreign proceedings over which otherwise it has no control, I propose to limit the further evidence required to that which is necessary to (1) explain or clarify certain inconsistencies in the evidence given by and on behalf of the defendant with regard to EPK, Safelight and Creative Associates and (2) illuminate what seems to me the real and unsettling mystery of the case, which is how it is that the defendant has managed to service his living expenses as he has presented them to be and how and in what amount they are to be paid hereafter.
124. As to (1) in paragraph 123 above and the inconsistencies with regard to EPK and Safelight, what I propose to order is that the defendant should file an affidavit personally explaining to the best of his belief and having made all reasonable enquiries:
(a) whether he ever had any and if so what interest in (1) Basterre, (2) EPK, (3) JSC Sanara, (4) Plescheevo CJSC, (5), Safelight, (6) Oreon Limited or (7) Creative Associates;
(b) when and how he ceased to have such interest and if he disposed of it to whom he did so and when; and
(c) whether Devecom paid to Basterre the whole or part of the sum of US$150 million due pursuant to the share purchase agreement that he accepts he helped to negotiate.
According to whether or not the defendant had any such interest, and if so its nature, further enquiries may be justified as to what became of any sums transferred to such companies but I do not think it is appropriate to anticipate that now."
"the profile of [LCL] has begun to include management of the lifestyle assets of [Mr. Pugachev] and [the Eleventh Defendant], such as yachts and the plane as well as procurement of legal services from law firms."
In his judgment, Hildyard J described LCL as appearing to operate as a "private office" for Mr. Pugachev.
"1. The defendant must, at the latest by 4 p.m. on 17 August 2015, swear and serve on the Claimants' solicitors an affidavit setting out, to the best of his ability, and having made all reasonable enquiries:
(a) the facts and matters required by paragraphs 1(a)(i) and (ii) of the order of Hildyard J dated 12 June 2015 in respect of the following entities (i) JSC Sanara, (ii) Plescheevo CJSC, (iii) Safelight Enterprise Limited and (iv) Oreon Limited;
(b) what happened to the sums totalling approximately US$712,978,000 which were transferred by JSC Sanara and Plescheevo CJSC to an account in the name of Safelight Enterprises Limited at Société Générale Private Bank in Switzerland between about 29 December 2008 and 8 April 2009, including where those sums of money and any assets which have been acquired with all or part of those sums of money currently are;
(c) what happened to the sum of RUR 3,392,184,000 (then approximately US$106 million) which was transferred by Creative Associates Limited into an account in the name of the Defendant at Mezhprombank Plus LLC on or about 29 December 2008, including where that sum of money and any assets which have been acquired with all or part of that sum of money currently are;
(d) what happened to the sum of US$150 million (and any other sums which were paid) by Devecom Ventures Limited to Basterre Business Corporation pursuant to a share purchase agreement between them dated 9 June 2011, including where that sum of money and any assets which have been acquired with all or part of that sum of money currently are;
(e) details concerning the transfer of JSC Yenisei Industrial Corporation (also known as JSC Enisey Production Corporation) to Basterre Business Corporation prior to 9 June 2011 so far as they relate to any consideration paid in respect of the said transfer to Basterre Business Corporation, including what happened to that consideration (including how those sums have been applied and where those sums of money and any assets which have been acquired with all or part of those sums of money currently are),
and for the avoidance of doubt, including in respect of any transfer of all or part of any of the said sums of money, details of when, where, to whom, by what means and why they were so transferred."
"3. In order to ensure compliance with this Order, and without prejudice to any question as to whether the Defendant has breached the terms of the Order of Mr. Justice Peter Smith dated 6 March 2015 as continued by the orders of Mr. Justice Hildyard dated 12 June 2015 and Mr. Justice Henderson dated 9 July 2015, restraining the Defendant from leaving the jurisdiction and requiring him to deliver up to the Claimants' solicitors all his passports and other travel documents-
(a) if the Defendant is at any time present in the jurisdiction, he shall be restrained from leaving England and Wales until 5 p.m. on the seventh working day after he has purported to comply with paragraph 1 above ("the End Date") (or such other date as may be provided for by further order of the Court).
(b) until 5 p.m. on the fifth working day after the end date (or such other date as is provided for by further order of the court) the defendant and any other person served with this order must not (i) make any application for, (ii) obtain or seek to obtain, and/or (iii) knowingly cause, permit, encourage or support any steps being taken to apply for, or obtain, any passport, identity card, ticket, travel warrant or other document which would enable the defendant to leave England and Wales.
(c) the solicitors for the Claimants shall continue to hold the passports of the Defendant delivered up to them pursuant to the orders of Mr. Justice Peter Smith dated 2 and 6 March 2015, as extended, to the order of the court until 5 p.m. on the fifth working day after the end date (or such other date as is provided for by further order of the court) whereupon they shall be returned to the Defendant; and
(d) without prejudice to the foregoing or to the Defendant's obligations under paragraph 1 of the order of Mr. Justice Peter Smith dated 6 March 2015 and paragraph 4 of the Order of Mr. Justice Hildyard dated 12 June 2015 (restraining the Defendant from leaving England and Wales and requiring the delivery up of all his passports and other documents of like nature) the Defendant shall, by 4 pm on 31 July 2015 deliver up to the Claimants' solicitors any passport, identity card, ticket, travel warrant or other document which would enable the Defendant to leave England and Wales."
"55. Although I am not satisfied therefore that it is appropriate to order further cross-examination, I am satisfied that the provision in paragraph 3 of the Hildyard Order should be implemented and that Mr. Pugachev should be required to clarify the answers that he has so far given. Those clarifications relate to the following points.
56. As regards EPK and the payment of $150 million, it is not satisfactory for him simply to say that the money was paid to Basterre which was owned by his son and that relations with his son, Viktor, are strained at present. As Mr. Smith pointed out, the relationship between Mr. Pugachev and Viktor seems to have been sufficiently amicable for him and his family to be allowed free run of the luxury boat MS Victoria when it was moored until recently on the Thames. He should be required to say what has happened to the $150 million to make enquiries of Viktor if he needs to and set out what information he finds.
57. I have already said that he must provide the information sought in paragraph 1(a)(i) of the Hildyard order because he has waived privilege. I consider that his affidavit must also include an explanation of where the money that was transferred to Safelight currently is. Again if he needs to make enquiries of his son Alexander (who was apparently the director of Safelight) then he must do so. Mr Sprange said that it is open to the Claimants to try to gain access to the Safelight bank account in Switzerland into which they know the money was transferred. But I accept what Mr. Smith says that it is very unlikely that the money is still there. The only people who know what has happened to the money are Mr. Pugachev and his son Alexander. Mr. Pugachev must find out where the money is and tell the Claimants.
58. Finally he should also provide information by way of affidavit about where the $106 million paid to him by Creative Associates currently is."
"103. I will continue the passport order in effect for the time being. Although it appears that Mr. Pugachev has been able to travel to France, his travel may still be more limited without his passports than with them."
"(1) ... [LCL] must at the latest by 5 p.m. (London time) on the third working day after service of this order …and …to the best of its … abilities (and having made all reasonable enquiries) inform the [Claimants'] solicitors of:
(a) all its assets worldwide exceeding £10,000 in value as at the time this order is served whether in its own name or not and whether solely or jointly owned, giving the value, location and details of all such assets;
(b) all assets with a value exceeding £10,000 which have at any time, since 11 July 2014 been administered by [LCL] or dealt with in accordance with [Mr. Pugachev's] direct or indirect instructions, giving the value, location and details of all such assets and the manner in which [LCL] has administered or dealt with the same."
"Within 7 working days after the respective days specified in paragraph 12(1) above ... [LCL] acting by a director must swear and serve on the [Claimants'] solicitors affidavits setting out the above information, together with a statement disclosing whether or not there have been any changes to the assets since service."
"Based on current information, [LCL] does not have any other assets with a value exceeding £10,000."
"Mr. Pugachev has previously exhibited bank statements in respect of the [LCL] accounts which show that on 15 May 2015 the balance of the sterling account was just under £210,000, and on 5 June 2015 the balance of the euro account was €3,319,000. Mr. Pugachev stated that the funds in the euro account were the proceeds of sale of his wholly-owned asset Financiere Hediard SA, which funds necessarily belong to Mr. Pugachev. Indeed, Mr. Pugachev has already directed that certain of these funds be used for payment on account in respect of your fees and Rose J has already found the company to be no more than his "personal wallet". However, in schedule 1 of [LCL's] disclosure the balances of the two accounts are given as £106,896 and €176,963 respectively. It is, therefore, evident that significant funds, including the balance of the proceeds of sale of Hediard have been administered or dealt with by [LCL] since 11 July 2014.
Without prejudice to the Claimants' right to seek appropriate relief from the court (including on the basis that the transfer or expenditure of the monies held by [LCL] was in breach of the original freezing injunction first granted by Henderson J in July 2014), please explain why [LCL] has failed to provide details of the relevant transactions in accordance with the requirements of paragraph 12(1)(b). In Mr. Pugachev's original asset disclosure in July 2014, he stated that [LCL] administered assets belonging to [the Eleventh Defendant] and himself. Please similarly explain why [LCL] has failed to disclose any information in respect of such assets pursuant to its obligations under 12(1)(b)."
"The Claimants also seek an order requiring [LCL] to provide details of all assets with a value exceeding £10,000 which it has at any time since 11 July 2014 administered or dealt with. At present [LCL] has failed to disclose any assets pursuant to paragraph 12(1)(b) of the freezing injunction notwithstanding that it is known to be involved in the administration of various assets closely associated with Mr. Pugachev."
"The affidavit was due by 4 pm on 17 August 2015 but has not yet been served, despite no extension of time being either sought or granted and the Claimants' solicitors having repeatedly pressed for it. The Defendant's solicitors have indicated that the affidavit is in the process of being finalised and will be served before the parties are before the court next week for the return date in respect of the freezing injunction … In the light of the Defendant's previous attempts at compliance with his court-ordered disclosure obligations, which have been found to be manifestly inadequate, the Claimants have serious concerns that the affidavit will not satisfy the Defendant's obligations pursuant to the Rose order. If the affidavit is inadequate, the Passport Order shall be continued pending proper compliance. The claimants therefore seek an extension of the Passport Order until further order."
"15. When these different payments are added up, it becomes clear that Mr. Pugachev has entirely failed to explain what happened to the overwhelming majority of the monies amounting to approximately US$700 million.
18 Mr. Pugachev has failed to provide any information at all regarding current assets which are not already known to the Claimants which represent part or all of the proceeds of the US$900 million or so covered by the Rose J order. In circumstances where the Rose J order expressly required him to explain 'where those sums of money and any assets which have been acquired with all or part of those sums currently are, it is clear that his 11th affidavit is manifestly inadequate."
The Passport Order
"15. [Mr. Pugachev] has complied with the requirement to provide the further information on the specific areas ordered by Rose J on 27 July 2015 and he served the requisite affidavit last Friday, 21 August 2015. He should, in accordance with her order, be entitled to his passports back, seven working days after that date.
16. The Claimants wish to extend the Passport Order until further order. Without prejudice to [Mr. Pugachev's] contention that he should be entitled to his passports back as soon as seven working days have expired, he does not oppose the application to extend the Passport Order on the basis he may apply for their return, on notice, and without showing any change of circumstance."
"Until further order of the court:
"(1) If the Defendant is at any time present in the jurisdiction, he shall be restrained from leaving England and Wales until further order of the court.
(2) The Defendant and any other person served with this order must not (i) make any application for (ii) obtain or seek to obtain and/or (iii) knowingly cause, permit, encourage or support any steps being taken to apply for or obtain any passport, identity card, ticket, travel warrant or other document which would enable the defendant to leave England and Wales.
(3) The solicitors for the Claimants shall continue to hold the passports of the Defendant delivered up to them pursuant to the orders of Mr. Justice Peter Smith dated 2 and 6 March 2015 (as extended) to the order of the court until further order of the court; and.
(4) Without prejudice to the foregoing or to the Defendant's obligations under paragraph 1 of the order of Mr. Justice Peter Smith dated 6 March 2015, paragraph 4 of the order of Mr. Justice Hildyard dated 12 June 2015 and paragraph 3 of the order of Mrs. Justice Rose dated 27 July 2015 (restraining the Defendant from leaving England and Wales and requiring the delivery up of all his passports and other documents of like nature), the Defendant shall, by 4 pm on 2 September 2015, deliver up to the Claimants' solicitors any passport, identity card, ticket, travel warrant or other document which would enable the Defendant to leave England and Wales."
"28. As to the applicable legal principles, Counsel concurred that the source of the court's jurisdiction is section 37 of the Senior Courts Act 1981 and the leading case on its exercise is the decision of the Court of Appeal in Bayer AG v Winter and Ors  1 WLR 497.
29. The Court of Appeal accepted that the court could, where just and convenient, restrain by injunction a party who is the subject of a freezing order from leaving the jurisdiction in order to ensure that such order and any ancillary disclosure obligations imposed to police it and give it full effect should be capable of being enforced as completely and successfully as the powers of the court could procure (and see also House of Spring Gardens v Waite  FSR 173 and 183, as cited by Ralph Gibson LJ at 503 G to H). An order to require surrender of that passport was ancillary to that restraint."
Additional disclosure by LCL
"7(2) Subject to subparagraph (3) [a provision in relation to self-incrimination] [LCL] (acting by a director) must at the latest by 5 p.m. (London time) on 2 September 2015, swear and serve on the [Claimants] an affidavit:
(a) setting out to the best of its ability (and having made all reasonable enquiries) all transfers exceeding £10,000 in amount which have been made from any of its bank accounts (including its euro and sterling accounts at Barclays Bank PLC in London) at any time on or after 11 July 2014 specifying in respect of each such transfer the amount, date and method of the transfer, the identity of the transferee and the reason for the transfer;
(b) exhibiting copies of bank statements in respect of each of its bank accounts (including its euro and sterling accounts at Barclays Bank PLC in London) for the period from 11 July 2014 to the date of this Order."
"Setting out to the best of its ability (and having made all reasonable enquiries) details of all its assets worldwide with a value exceeding £10,000 in which it is interested legally, beneficially or otherwise, which for the avoidance of doubt and without limitation includes assets held by it as nominee or trustee."
It is not disputed that an order should be made in these terms so as to reflect more accurately the restrictions imposed by the Court of Appeal on LCL in the worldwide freezing order, which the order as made by the Court of Appeal did not actually do.
"Setting out to the best of its ability (and having made all reasonable enquiries) details of any assets with a value exceeding £10,000 which it has at any time since 11 July 2014 administered or dealt with giving in each case the value, location and details of such asset and the manner in which [LCL] has administered or dealt with such asset."
"Paragraph 5 applies to all [Mr. Pugachev's] assets whether or not they are in his own name and whether they are solely or jointly owned and whether the respondent is interested in them legally, beneficially or otherwise. For the purpose of this order, [Mr. Pugachev's] assets include any asset which he has the power, directly or indirectly, to dispose of or deal with as if it were his own. [Mr. Pugachev] is to be regarded as having such a power if a third party holds or controls the asset in accordance with his direct or indirect instructions."
"I have already noted Rose J's vivid description of this company as Mr. Pugachev's "personal wallet". She considered it unnecessary to grant relief against the company on the basis that Barclays have agreed to freeze two accounts which they consider are covered by the existing freezing order against Mr. Pugachev. But, as the Claimants point out, only two accounts have been thus frozen, namely those disclosed by Mr. Pugachev. His disclosure has repeatedly been inadequate and evasive and there is nothing to stop [LCL] opening other bank accounts, possibly in other jurisdictions, into which to receive payments on Mr. Pugachev's behalf. The judge appears to have accepted that a Chabra order against [LCL] would otherwise be justified. I would extend the freezing order to cover this company as well as the trusts."