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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 Promyshlenniy Bank & Anor v Pugachev & Ors  EWHC 248 (Ch) (12 February 2016)
Cite as:  EWHC 248 (Ch)
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Rolls Building, Fetter Lane
London EC4A 1NL
B e f o r e :
| IN THE MATTER OF JSC MEZHDUNARODNIY PROMYSHLENNIY BANK (NO. 1027739543798)
AND IN THE MATTER OF THE CROSS-BORDER INSOLVENCY REGULATIONS 2006
(1) JSC MEZHDUNARODNIY PROMYSHLENNIY BANK
(2) STATE CORPORATION "DEPOSIT INSURANCE AGENCY"
|- and -
|(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 SERGEYEVICH PUGACHEV
for the Claimants
Mr Stephen Auld QC and Ms Rachel Oakeshott (instructed by Mishcon de Reya LLP) for the Defendant/Respondents
Hearing dates: 28th& 29th January, 1st and 2nd February 2016
Crown Copyright ©
Mr Justice Mann :
The events leading to WFO2 and this application
i) If the claimants wished to establish that the assets were already caught by WFO1 (which was apparently now thought to be possibly the subject of dispute) then they could seek to establish that in an appropriate application later on.
ii) She recorded that the claimants said that they could have relied on the directors of the former trustees not to act improperly, but that that could not be said of the new trustees. However, she found that there was not enough evidence before her to show that the new trustees were "particularly shady or particularly likely to act in an irresponsible way". Some further information might come out of the New Zealand proceedings in due course.
iii) There was a risk of conflict between a decision to grant a freezing order here and the ultimate decision in the New Zealand application.
iv) It was not known why a decision had been taken to replace the trustees; again, that might be clarified by the New Zealand proceedings.
v) The assets included luxury properties within this jurisdiction. They were not particularly liquid and she would not grant an ex parte freezing order in respect of property within this jurisdiction.
i) Bean LJ accepted that there was a good arguable case that the assets held by the trusts were in reality the assets of, or under the control of, Mr Pugachev. The evidence showed that there was a good arguable case that Mr Pugachev was taking "every possible step to keep his assets out of the reach of the court" and the terms of the trust deeds and the change of trustees reinforced that conclusion. "The case appears to me to be a classic one for a Chabra order, made in the first instance without notice to either the defendant or the third party said to be acting on his behalf."
ii) The change of trustees, against the background of breaches of WFO1, supported the inference that the change was intended to ensure that the trustees complied with Mr Pugachev's wishes and that therefore there was an increased risk of dissipation of the assets. He made the following remarks about the trustees which are particularly relevant to the discharge application before me:"As to [the directors of the new trust companies]: one of the directors of the original trustee companies was a Mr Patterson, who is accepted to be a leading New Zealand trusts lawyer. Mr Lenihan does not appear to be a solicitor of the same standing as Mr Patterson. Ms Dozortseva is a close business associate of Mr Pugachev and has herself been a party to placing misleading evidence before the court."
iii) There was no relevant delay in bringing the matter before the court.
iv) He considered there was a risk of dissipation. He noted that it could not be assumed that the original trustees had already dissipated assets and they had recently said that they had not yet transferred trust assets to the new trustees.
v) On the facts there was no relevant possibility of conflict with the New Zealand application, and a liberty to apply would fix any problem in that area.
vi) Accordingly the appeal was allowed and WFO2 was made by the Court of Appeal.
The applications before me
Discharge for non-disclosure
"No, not yet We have always reserved, we may in due course, but we wanted to find out more information".
Between that date and the hearing in the Court of Appeal the claimants are said to have advanced no new evidence to support any claim of sham and failed to bring the earlier comments to the attention of the court.
"whilst this means that the Claimants have the benefit of having registered restrictions with the Land Registry, this does not preclude a transfer of the shares in [the company]."
"43. On 6 July 2015, Mr Pugachev served his Sixth Affidavit (which was also unsworn) in which he admitted that he had indeed left the jurisdiction in breach of the Passport Order (purportedly due to concerns about his personal safety)."
In paragraph 46 he went on to refer to the scepticism expressed by Rose J at an earlier hearing (not the without notice application) about the genuineness of his professed fears for his personal safety. This material was expressly referred to in the skeleton argument placed before Rose J, and that skeleton argument was also before (and read by) the Court of Appeal. So there was reference to his reasons given for leaving in the material before the courts.
"Ms Dozortseva left the jurisdiction on 24 June 2015, the very same day that Mr Pugachev is believed to have fled. Ostensibly, she says that she travelled to France in order to attend a meeting (Dozortseva 3/4 and 12), but she has also described herself as being 'in the process of relocating'."
Accordingly, Mr Roberts' evidence clearly sets out Ms Dozortseva's professed reasons for leaving and even provides a cross-reference. That is a clear disclosure of what she had said (which is all that the claimants could have known) in material which was before the court and which the court confirmed it had read. The material appears in an Appendix which describes the individuals involved in the case.
"In this regard the Judge clearly erred as she referred to Mr Lenihan being a solicitor in this jurisdiction without referring to the fact that this appeared to be incorrect."
That is apparently a clear statement that he was not actually a solicitor, from which the court was obviously entitled to draw adverse inferences. It is said that this compounds the non-disclosure referred to in Claim 9.
"As to their directors: one of the directors of the original trustee companies was a Mr Patterson, who is accepted to be a leading New Zealand trusts lawyer. Mr Lenihan does not appear to be a solicitor of the same standing as Mr Patterson."
He does not say that he does not appear to be a solicitor; he refers to his standing. Therefore it does not appear that his Lordship thought he was being told that Mr Lenihan was not a solicitor at all. That, of itself, does not mean that there was no culpable non-disclosure, but it does severely reduce the practical impact of what was actually said.
Conclusions on non-disclosure
The continuation or discharge of the injunction on the merits
The New Zealand proceedings and material emerging from them
"Ms Dozortseva was coy in her response, suggesting that it may relate to a renovation project for one of the properties. She made it clear that Mr Sergei Pugachev, despite that advice received by Mr Patterson and Ms Hopkins [his wife], did not accept that he was no longer the Protector of the New Zealand Trust."
The advice received was apparently that Mr Pugachev had ceased to hold office as Protector because WFO1 meant he was under a disability within the meaning of the trust deeds.
"37. On the basis of their conclusion that Ms Dozortseva 'had ceased to act properly as a director [of the original trustees] and that she was acting' in the interests of Mr Sergei Pugachev 'to the potential detriment of the [New Zealand Trusts] beneficiaries as a whole', Mr Patterson and Ms Hopkins resolved, on 14 July 2015, to exercise powers as shareholders of the original trustees to remove Ms Dozortseva as a director of each. That left Mr Patterson and Ms Hopkins in control of the original trustees."
"41. There is nothing in the evidence to establish that the Pugachev interests have sought to influence or control Ms Dozortseva's activities, directly or indirectly. Ms Dozortseva's removal as a director was seen, as Mr Sergei Pugachev put it:
'as an 'unwarranted and impulsive course of action by Mr Patterson' as a result of which he had 'lost confidence in Mr Patterson and his ability to act appropriate as a director' of the original trustees."
"43. On the face of it, all are qualified persons to act as directors of the replacement trustees and, except for the concerns expressed by Mr Patterson in relation to Ms Dozortseva's involvement, do not appear to be under the influence of Mr Sergei Pugachev.
44. I must accept the affidavit evidence of the witnesses to whom I have referred. They have not been cross-examined on their affidavits and there is nothing to suggest that there is anything inherently implausible about their evidence. Whether or not a different conclusion might have been reached if their evidence had been tested by cross-examination, I cannot say."
"53. Based on the uncontested evidence of Messrs Sergei and Victor Pugachev, there is no reason to suggest that the Protector's power to remove the original trustee was exercised improperly."
I shall return to the strength and significance of that observation, and similar findings, in due course.
The funding arrangement
"Pursuant to paragraph 14(1) of the Order of Lord Justice Jackson, Lord Justice Ryder and Lord Justice Bean dated 11 August 2015, we notify you about the unanimous approved payment of certain legal costs which will be paid from the Wiltshire Residence Trust funds as permitted.
The total partial payment [sic] for which this message serves as notification is USD 800,000 in accordance with applicable Court orders."
It bears the signature of Mr Smit. The paragraph of the order referred to is the normal paragraph permitting the subject of a freezing order to spend reasonable moneys on legal costs.
The case for maintaining the freezing order
i) The history of this matter shows Mr Pugachev to be unreliable and untrustworthy. He had avoided making full disclosure, had broken court orders (and in particular the passport order, which had enabled him to go abroad when he should not have done so) and had been generally evasive.
ii) Protestations of openness made for and on behalf of both the old and new trustees were inconsistent with their conduct for example, the challenge by the old trustees to orders that they should disclose trust assets, and the circumstances in which the claimants were told of the change of trustees.
iii) Contrary to the submission of Mr Auld, the trusts did not demonstrate a straightforward property holding structure in which most of the property was real property. The structure showed, in some cases, layers of corporate holdings in various offshore places. Furthermore, the directors of some of those offshore companies were not the same as the directors of the new trustees; they were individuals who had a real connection to Mr Pugachev.
iv) The new trustees (or more precisely the directors of the new trustees) were not as obviously independent as they would have this court believe. This was particularly the case with Ms Dozortseva who was closer to Mr Pugachev than she actually said and who had herself demonstrated unreliability and evasiveness in compliance with her disclosure obligations. The execution of the search order referred to above revealed that the trusts were administered from the same London office as one or more non-trust companies which made money available to Mr Pugachev, with papers relating to the various trusts held in such ways as did not demonstrate a sufficient degree of independence the one from the other, or any of them from Mr Pugachev.
v) The circumstances of, and reasons given for, the appointment of new trustees demonstrates a real desire on the part of Mr Pugachev to control the trustees, and the willingness of the new trustees to enter into the funding arrangement and pay the $800,000 supports an inference that they are more likely to do his bidding. Mr Potts drew attention to the fact that the new trustees did not make a Beddoes application before making the application which ended up in front of Nugee J.
vi) All in all, the picture was not one of genuinely separate trusts, but was one in which Mr Pugachev, who had shown himself to be unreliable and unwilling to comply with court orders, was seeking to control purportedly independent discretionary trustees, and that there was a real prospect that he would seek to do so and achieve that objective.
i) The whole existence of the trusts, and their terms, pointed against any dissipation. They were genuine discretionary trusts, and their terms prevented any relevant control on the part of Mr Pugachev.
ii) It was not in Mr Pugachev's interests to exercise control over the assets so as to reduce them to his own ownership because that would be to make them potentially available to the claimants, which he would not want.
iii) The present trustees were respectable and responsible individuals and there was no good evidence to suggest otherwise. They would act properly, conscientiously and in compliance with court orders. There was nothing "dodgy" about the trustees, the trusts or the individual directors of the new trustee companies. The trusts themselves could be policed in a respectable jurisdiction with a reputable court system (New Zealand).
iv) The trustees had historically complied with orders. There has been no dissipation by the trustees in the past, and no reason to suppose that that would change in the future. They had been appropriately transparent in relation to their accounts of the trust assets. It was significant that for a considerable period of time since WFO1 the claimants had not thought it necessary or appropriate to apply for freezing order relief against the trusts. One could compare the originally disclosed trust assets with the current situation and see that there had been no dissipation. There was no evidence that the new trustees had immediately set about doing anything which would amount to a dissipation, despite the fact that some weeks elapsed between their appointment and the grant and service of WFO2.
v) The past and present individual directors had explained that the relationship between them and Mr Pugachev, and Ms Dozortseva and the rest of them, was such that neither Mr Pugachev nor Ms Dozortseva sought to apply any degree of influence or pressure, and in the case of Ms Dozortseva she was never more than one of three directors and was not in a position to compel the taking of any particular steps. The suggestion that Mr Pugachev had somehow put in stooges in place of Mr Patterson and his wife was unfounded.
vi) The fact, if it be a fact, that Mr Pugachev has behaved badly is not sufficient to found an order freezing the trust assets.
vii) The funding arrangement, and the events surrounding the payment of the $800,000, did not evidence a risk of dissipation. The evidence showed that the trustees immediately made sure that the funds paid to the lawyers were frozen and an undertaking given for their return if necessary. They procured the return of the money when it was necessary to do so. If the funding arrangement itself was in breach of an injunction it was only a breach of WFO1, which was granted long before the new trustees were appointed. One should forgive the new trustees for not spotting that the counterparty (Mr Pugachev) was in breach of the order.
viii) There was nothing sinister in this appointment of the new trustees, or its circumstances. Mr Auld relied particularly on the findings of Heath J in support of this proposition.
ix) There was no explanation for what he described as the delay in making the application. The trusts had been known about for well over a year and yet no application had been made.
x) Mr Auld made other points which were, in effect, elaborations or variations of the above principle points. I have taken into account all his submissions.
Conclusion on the risk of dissipation
Note 1 Since preparing this judgment in draft Rose J has ruled that it was a deliberate and serious breach of this courts order. [Back] Note 2 In a later hearing Rose J found that Mr Pugachev was not guilty of a contempt in relation to this departure. [Back] Note 3 Since drafting this section of this judgment I have seen the judgment of Rose J (8th February 2016) on an application to commit Mr Pugachev for various contempts. I note that she makes a positive finding that Mr Pugachev was in breach of WFO1 in entering into the funding arrangement (paragraph 167), and that she also makes a finding that the appointment of Maru was to ensure that there were trustees who would be willing to enter into the funding arrangement (paragraph 162). [Back] Note 4 See previous footnote [Back] Note 5 One of the directors is Victor, from whom Mr Pugachev claims to be estranged. I note that Rose J declined to find that this estrangement did not exist despite inconsistencies in the evidence paragraph 122. [Back]
Note 1 Since preparing this judgment in draft Rose J has ruled that it was a deliberate and serious breach of this courts order. [Back]
Note 2 In a later hearing Rose J found that Mr Pugachev was not guilty of a contempt in relation to this departure. [Back]
Note 3 Since drafting this section of this judgment I have seen the judgment of Rose J (8th February 2016) on an application to commit Mr Pugachev for various contempts. I note that she makes a positive finding that Mr Pugachev was in breach of WFO1 in entering into the funding arrangement (paragraph 167), and that she also makes a finding that the appointment of Maru was to ensure that there were trustees who would be willing to enter into the funding arrangement (paragraph 162). [Back]
Note 4 See previous footnote [Back]
Note 5 One of the directors is Victor, from whom Mr Pugachev claims to be estranged. I note that Rose J declined to find that this estrangement did not exist despite inconsistencies in the evidence paragraph 122. [Back]