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||Neutral Citation Number:  EWHC 1847 (Ch)
||Case No. HC-2014-000262
IN THE HIGH COURT OF JUSTICE
||Royal Courts of Justice
Rolls Building, Fetter Lane,
London EC4A 1NL
||13th July 2017
B e f o r e :
MR JUSTICE BIRSS
B E T W E E N:
||(1) JSCMEZHDUNARODNIY PROMYSHLENNIY BANK
||(2) STATE CORPORATION "DEPOSIT INSURANCE AGENCY"
||- and -
||(1) SERGEI VICTOROVICH PUGACHEV
||(2) KEA TRUST COMPANY LIMITED
||(3) FINETREE COMPANY LIMITED
||(4) BRAMERTON COMPANY LIMITED
||(5) BLUERING COMPANY LIMITED
||(7) HAPORI LIMITED
||(9) AROTAU LIMITED
||(10) LUXURY CONSULTING LIMITED
||(11) VICTOR PUGACHEV
||(12) ALEXIS SERGEEVICH PUGACHEV
||(13) IVAN SERGEEVICH PUGACHEV
||(14) MARIA SERGEEVNA PUGACHEV
||(The 12th, 13th and 14th Defendants by their litigation friend ALEXANDRA TOLSTOY)
STEPHEN SMITH QC, TIM AKKOUH AND CHRISTOPHER LLOYD (instructed by HOGAN LOVELLS INTERNATIONAL LLP) appeared on behalf of the Claimants.
HODGE MALEK QC AND PAUL BURTON (instructed by DEVONSHIRES SOLICITORS LLP) appeared on behalf of the Twelfth to Fourteenth Defendants.
CHARLES SAMEK QC AND NICO LESLIE (instructed by HUGHMANS SOLICITORS LLP) appeared on behalf of the First Defendant.
HTML VERSION OF JUDGMENT
Crown Copyright ©
MR JUSTICE BIRSS:
- Mr Sergei Pugachev was an oligarch. He was also a senator in Russia. He used to own the largest private bank in Russia. The bank went into liquidation. The claimants are the Russian state agency dealing with that kind of insolvency, called the DIA, and the bank itself, which is now controlled by the DIA.
- The claimants contend that Mr Pugachev misappropriated very large sums of money from the bank. There was a judgment in Russia against Mr Pugachev for a very large sum in roubles which comes to about £1 billion.
- Mr Pugachev says this is all political and that there has been expropriation by the Russian state of his assets, which were worth very large sums of money. Having fled Russia, Mr Pugachev was living in England with his partner, Ms Tolstoy, in London. They have three young children. The children are all under ten years old. The children are the 12th to 14th Defendants.
- The claimant began enforcement proceedings in England and obtained a worldwide freezing order against Mr Pugachev and various other orders.
- These were fought by Mr Pugachev, both via lawyers and counsel on his instructions. Also at times Mr Pugachev appeared as a litigant in person.
- In breach of at least one of the court's orders, Mr Pugachev fled to France where he is now living, as far as I can tell. He lives in a large chateau which he controls in the south of France. He lives there with an entourage of bodyguards and others. His entourage includes or included a lady called Natalia Dozortseva, and a gentleman called Mr Mike McNutt, at least at one time. There is clear evidence that both of them have been involved with Mr Pugachev for many years.
- He was required to disclose the whereabouts of his assets, and although he did make some disclosure, in clear breach of the orders he failed to disclose them all. One thing that was revealed was the existence of five New Zealand trusts. They ultimately hold various assets. In particular (through other companies) they hold real property in London, in the Caribbean (on the island of St Barts) and in Russia. The Russian property is known as Gorki 10. There are also other assets. The total value of these assets may be something of the order of £100 million or possibly a bit less.
- The trusts are discretionary trusts, with New Zealand companies as the trustees. The beneficiaries named in the trusts include the infant children of Ms Tolstoy. There are also other beneficiaries including at least for some of the trusts, Mr Pugachev himself. I cannot now remember, but it does not matter at this stage, whether Mr Pugachev is a named beneficiary in all five trusts.
- Following hearings which took place over a year ago, Rose J gave a judgment in February 2016 ( EWHC 192 (Ch)) finding that Mr Pugachev was in serious breach of numerous court orders and was in contempt of court. Mr Pugachev was sentenced to two years' imprisonment for this contempt, which is the maximum sentence possible ( EWHC 258 (Ch)). This prison sentence has not yet been served and Mr Pugachev's contempt of court is not purged.
- The claimants obtained a default judgment against Mr Pugachev by the order of Henry Carr J on 22nd February 2016.
- As part of the enforcement proceedings the claimants also brought this claim, which I will call "the trusts claim". As Mr Samek QC, who represents Mr Pugachev before me, put it, the purpose of this trusts claim is to bust the trusts.
- The claimants seek to establish that either the trust deeds do not achieve anything of substance and/or that the trusts themselves or the documents setting them up are shams, so that in any event, at best, all the property held by the trustees is on a resulting trust for Mr Pugachev himself. That would be because Mr Pugachev was the settlor. In some cases a given transfer of assets into the trusts was from his older son, Mr Victor Pugachev. The claimants' case is that Victor Pugachev was at all relevant times acting as a nominee for his father, Sergei Pugachev. So in any event, the claimants say all the assets are truly held by Mr Pugachev beneficially, and are therefore amenable to this enforcement action. There is also a claim under section 423 of the Insolvency Act 1986.
- It is important to note there is no proprietary claim in these proceedings against these assets.
- On 18th May last year I gave permission to the infant children of Ms Alexandra Tolstoy and Mr Sergei Pugachev to defend the trusts in these proceedings. They were joined as 12th to 14th Defendants and appear by their mother Ms Tolstoy acting as their litigation friend. Directions were given for a trial, and this is the trial.
- It started on Tuesday, 4th July 2017, and oral evidence and cross-examination began on Monday, 10th July.
- Various judges last year gave directions on various occasions for Mr Pugachev to be served with documents relating to this dispute. In the 18th May order that I have referred to, when I gave permission for the infant children to defend the claim, I directed service of the Amended Particulars of Claim on Mr Pugachev at an email address which he had been using before, but was by then probably defunct, but also by service at his chateau in France.
- Until Monday morning, Mr Pugachev had played no part in this trial.
- On about half an hour's notice on Monday morning, Mr Samek QC, for Mr Pugachev, instructed by Hughmans, came to court to apply to adjourn the trial and for directions. This was on the basis that Mr Pugachev contends that the court has no jurisdiction over him. Although there is more to it than this, the submission is essentially that the Judgments Regulation (Recast) (1215/2012) does not apply to these proceedings, whereas, says Mr Samek, the claimants have hitherto assumed that it did. Therefore the default the judgment of Henry Carr J and my order on 18th May 2016 for service are wrongly made because, it is argued, the claimants needed permission to serve the proceedings out of the jurisdiction under the relevant rule in CPR Part 6 but they did not seek and did not obtain any such permission. Therefore the court has no jurisdiction over Mr Pugachev. For present purposes this summary is sufficient
- Mr Jenkins, the solicitor for Mr Pugachev, also explains in his witness statement that Mr Pugachev only became aware of these proceedings in May of 2017, and he had trouble making arrangements with lawyers, and that explains why this application is made, although very, very late indeed.
- The point of Mr Jenkins' evidence is that its lateness is justified by those circumstances.
- In a judgment given on Monday morning ( EWHC 1761 Ch) I decided not to adjourn the trial then and there, but to consider the matter further on Wednesday morning at 9.30 to give time before the witnesses were heard at 10:30. That happened. By then it was common ground that Mr Pugachev's application should be heard, subject to what follows, on 26 July 2017. That will be after all the cross-examination of the evidence at the trial is finished (which will finish today) but before the final speeches. So if Mr Pugachev's application succeeds, any change that needs to be made to these proceedings or any impact on them can be taken into account. That may or may not necessitate a recall of witnesses and further cross-examination and submissions, but all those matters are for another day.
- By yesterday morning Mr Pugachev had issued a further application to set aside the default judgment entered by Henry Carr J on essentially the same grounds. I decided that, to the extent that it overlaps with the first application, that set aside application can be dealt with at the same time as this jurisdiction application, but to the extent that there are substantial extra issues, they will have to go off to be dealt with on another occasion if necessary.
- I should also mention that first thing this morning, I received yet another application. This is one brought by the ex-wife of Mr Pugachev's adult son Alexander to join her children, who are also said to be beneficiaries of one of the trusts, possibly others, as co-defendants. Their mother's name is, forgive me, Julia Pugacheva and she seeks to act as their litigation friend.
- Anyway, back to yesterday. On the jurisdiction application, the claimants submitted that I should impose conditions which must be complied with before Mr Pugachev's application should be heard. I heard the parties and reserved judgment yesterday over to today to be done first thing before the witnesses. This is my decision.
- In taking the approach I have been taking on Monday, Wednesday and today, I have been striving to minimise the disruption to the trial itself.
- The conditions sought to be imposed are set out in a draft order in the following terms:
"1. Subject to paragraph 6 below, the application be heard on [26 July] 2017 with a time estimate of one day.
2. The first defendant shall, pursuant to CPR Rule 3.1(2)(m) and (3), pay the summary of £35,000 [into court][into the client account of his solicitors (such sum to be held by said solicitors to the further order of the court)] by 4.30 pm on 19 July 2017.
3. (Provision of costs for infant children).
4. The defendant shall, by 4.30 pm on 19 July 2017, file and serve on the claimants an affidavit setting out who ultimately is providing the money being used to fund his legal expenses in connection with the application, and where that person obtained the money from. The said affidavit shall exhibit documents which evidence the answers that are given.
5. The first defendant shall attend the hearing of the application via video link in order to be cross-examined on the evidence relied upon in support of the application.
6. Unless the first defendant complies with each of paragraphs 2 to 5 above, the application shall stand struck out without further order."
- The claimants submit that a key reason why these conditions are appropriate is because the suggestion made in Mr Jenkins' evidence that Mr Pugachev was unaware of these proceedings is wrong. His evidence is as follows:
"Knowledge of these proceedings
13. Mr Pugachev has seen a Part 8 claim form on 13 August 2015 which named him as a defendant, together with Victor Pugachev (his son) and nine other corporate entities [pages 6-7]. That claim form was served apparently in support of a freezing injunction that was to be extended to those corporate entities.
14. However, no particulars of claim making the allegations now advanced in the Trusts Trial were served. Indeed no particulars of claim, so far as I understand, were served at all. Those allegations appear to have been raised in or around March 2016, and they were the subject of an order of Mr Justice Birss dated 18 May 2016 [pages 146-149]. In that Order, the learned Judge gave permission to serve the newly Amended Claim Form and the Particulars of Claim either (i) by sending them to an email address, being email@example.com; or (ii) service at a residential address, being 260 Avenue de Gairaut, 06100 Nice, France (the "Nice Address").
15. I am instructed by Mr Pugachev, and therefore believe, that he did not receive these documents. His email address was closed or inaccessible at the material time, and he did not himself receive documents sent to it. He has also informed me that he did not receive any documents in Nice.
16. In any event, I understand that Mr Pugachev was not aware of the new claim until on or around May 2017. At that time, he was approached by his ex-partner, Ms Alexandra Tolstoy. Mr Pugachev tells me that he has strained relations with Ms Tolstoy. She informed him that there was a claim on foot impugning the validity of certain trusts that had been created and which named as discretionary beneficiaries certain members of Mr Pugachev's family.
17. So far as I believe, therefore, this is the first occasion on which Mr Pugachev himself became aware of the trusts litigation. Subsequently, he has been provided with a number of documents from those proceedings. Having learnt of the claim, he set about finding English lawyers to assist him.
18. For a number of practical reasons, Mr Pugachev was unable to find English lawyers for some time. I shall explain those difficulties, and (without waiving legal professional privilege) the circumstances of my firm's instruction, below."
- This evidence is critical evidence to justify the extraordinary lateness of the application. However the claimant submits that Mr Pugachev knows full well about this matter and that the instructions to Mr Jenkins have been dishonest. The claimants do not make any suggestion that Mr Jenkins himself or his firm or Mr Samek have behaved improperly. The claimants' point is that the information given to them by or on Mr Pugachev's behalf about his knowledge of all this has not just been wrong, but dishonestly so. Deliberate lies have been told with a motive of undermining this trial. I can refer to the following key submissions.
- First, I refer to the 47th witness statement of Michael Roberts signed on 11th July 2017. Mr Roberts is a partner at the claimant's solicitors Hogan Lovells. He refers to the fact that the order I made on 18th May required service of the amended particulars at Mr Pugachev's chateau in France. He explains that the evidence shows that this service took place in June 2016. A bailiff left a card known as a "notice of visit" at the chateau, with an indication of where at a local address the documents could be obtained. Mr McNutt arrived at the bailiff's office and collected the documents. He arrived with his identity card, and produced a notarised copy of Mr Pugachev's passport, and a proxy signed by Mr Pugachev confirming Mr McNutt's authority to receive the documents on Mr Pugachev's behalf. Copies of these documents are exhibited by Mr Roberts in his witness statement.
- Second, Mr Roberts explained that following the 18th May 2016 order Ms Dozortseva acknowledged service of the relevant papers which were served on the defendants referred to as the "New Trustees". They are the 6th to 9th Defendants. These New Trustees are companies which replaced as trustees of the New Zealand trusts the companies (the 2nd to 5th Defendants) which had been the original trustees of those trusts. The original trustee companies had been the trustees when these proceedings began. Ms Dozortseva was, I believe, at the relevant time, a director of the new trustee companies, but her precise status does not matter. The point is that Ms Dozortseva acknowledged service of the documents which included the Amended Particulars of Claim. Service on the New Trustees took place in May 2016 and the acknowledgement of service was in June 2016.
- It is clear that Ms Dozortseva is still involved, because Mr Jenkins in his witness statement explains that one of the people from whom he takes instructions is Ms Dozortseva.
- Third, there are documents in the bundles that show that the defence in this trusts claim of the infant children of Ms Tolstoy was, in July 2016, served on an email address which Mr Pugachev was then still using.
- Fourth, I refer to what is set out in Mr Roberts' paragraphs 24 to 26(a) and (b), which describe various other activities orchestrated by Mr Pugachev, including the following. There are references in the Russian press to the trust claims. There have been attempts to derail the sale of the property known as Old Battersea House, which is the property held by one of the five trusts I am dealing with. Those attempts to derail the sale appear to be attempts made by Mr Pugachev himself or those acting for him. There is also evidence of attempts in the early part of this year to sell another of the properties held by the trusts, the Gorki 10 property.
- Mr Roberts also mentions a letter in June 2017 from the firm, Child & Child. They act for the infant children of Mr Alexander Pugachev, the son of Sergei Pugachev and the letter seems to relate to the application I mentioned earlier. The date of this means that it is not corroborative of a point that anyone has known about this trial before the date described by Mr Jenkins. So I will not take that one into account.
- There is also further evidence which corroborates the idea that Mr Pugachev is fully aware of this trial, but the matters I have mentioned are sufficient.
- The questions I have to decide is whether to make orders requiring Mr Pugachev to take the various steps at all and whether to make them as part of a condition in an unless order.
- The claimants say that I should. They say that this application by Mr Pugachev has been exposed as a gross abuse of the process, and if Mr Pugachev had wanted to make this application, he could and should have done so long, long ago, at least a year ago or thereabouts. The timing is a transparent attempt to derail this trial.
- Mr Samek was not ready yesterday to answer the allegations of the claimants that Mr Pugachev has known all along that Mr Jenkins' evidence is wrong, so he did not make submissions about that.
- On Mr Pugachev's behalf Mr Samek submitted I should not impose these conditions. Mr Samek recognised, obviously rightly, that Mr Pugachev is an unpurged contemnor, but nevertheless, submits Mr Samek, I should not impose these conditions, particularly bearing in mind that this application is a challenge to the court's jurisdiction. That is a very important issue, which the court will always be concerned about. Mr Samek also made some further detailed points which I will address below in context.
- I am satisfied that I have the jurisdiction to make the orders sought in general and in the form of conditions. Mind you, they are all of a kind which a court would only make require at all, let alone make as conditions, in exceptional circumstances, especially as a condition of a challenge to jurisdiction. Some only in very exceptional circumstances.
- In relation to the court's general powers, I have been referred to CPR Rule 3.1(2)(m), which provides for the ability to take any step with the purpose of furthering the overriding objective, and Rule 3.1(3), which relates to the power to impose conditions, including conditions for money to be paid into court.
- I remind myself of the overriding objective, which is to do justice at proportionate cost.
- The first question I need to decide is whether Mr Pugachev should be required to attend for cross-examination, and whether that attendance should be made the subject of a condition to allow this application to be heard.
- There is power to require attendance for cross-examination on an application rather than a trial. It is a power is which is to be exercised sparingly. I refer to the decision of Vos J in Jenington v Assaubayev  EWHC 2351 which concerned asset disclosure. Paragraph 22 summarises the requirements in that sort of case and describes cross-examination in that circumstance as "very much the exception rather than the rule".
- I am not satisfied that it would be appropriate to make either order in this case. There is powerful evidence that Mr Pugachev was provided with the relevant documents at his chateau a year ago and that he knows full well about these trust claims and has done so for many, many months.
- I make it clear that on the basis of the material I have seen, there is a strong case made by the claimants that the instructions to Mr Jenkins were not only wrong but were dishonestly so; that they were knowingly false with the aim of disrupting this trial.
- Mr Pugachev may wish to make himself available for cross-examination to answer those sorts of allegations. If he does and if he does that in good time so as not to disrupt the application, then I will make sure that I can facilitate his cross-examination by video link if he wishes, despite the fact that he is an unpurged contemnor. But that is a matter for him. It would not be right in my judgment to require him to present himself for cross-examination, nor to make that a condition of even hearing his application which goes to the jurisdiction of the court, despite how late it is.
Pay costs into the solicitor's client account
- The second issue is whether I should require Mr Pugachev to pay a sum either into court or into his solicitors' client account to be held on the order of the court. The sum would be to cover the other parties' costs if he loses. The amount sought is £35,000 for the claimants' costs, and, I think I have not mentioned this before, £25,000 for the costs of the infant children.
- I recognise that this is an unusual order to make, but this is an unusual case.
- First, there is clearly a long history of non-payment of previous costs orders and the very serious flouting of court's orders previously made. I refer to Rose J's judgment on the contempt matter and her second judgment sentencing Mr Pugachev to the maximum term of imprisonment for contempt of court.
- Second, I bear in mind that these contempts stand unpurged.
- Third, in my judgment there is no risk that requiring that money to be paid in to meet an adverse costs order relating to this application would in any way stifle the application itself. It is quite apparent that Mr Pugachev has access to funds to pay his lawyers, here Hughmans and Mr Samek, and the French lawyers instructing Hughmans, which -- I think the firm is called Betto Seraglini. He is making substantial claims against the Russian state and there is clear evidence of that. By requiring this payment in as a condition of hearing the application, I would not prejudice the application.
- The application may succeed or it may fail on its merits. If it fails, it will have put the other parties to substantial cost. There is no likelihood that those costs would be paid by Mr Pugachev, even if I ordered him to do so, after the application has been heard. And, as I have said, there is no real prejudice to require him to take this step as a condition of the court entertaining the application. I say that having well in mind that the application goes to the jurisdiction of the court.
- I am satisfied that the sum itself is fair to cover the costs of the respondents of this application. This is expensive litigation, and the manner in which this application has been brought will be likely to have increased the likely cost. Ultimately the costs incurred may be less, but that is not a reason for not requiring the payment in of a total of £60,000.
- In principle when imposing a condition arising from the behaviour of a litigant the court should identify the purpose of doing so, both having regard to the past behaviour and the future.
- For the past, this condition takes into account and arises from the proven breaches of the court's orders and the unpurged contempt. Considering the future, the purpose of this order to is to avoid prejudice to the respondents to the application.
- Mr Samek submitted that if I was to make this order, I should make it on the basis that the money is to be held in the Hughmans' solicitors' client account to the order of the court, and I will make that order in that form.
- The third question is whether I should require Mr Pugachev to state where the funds are coming from. This issue starts with the wording of the freezing order against Mr Pugachev, which contains essentially standard wording as follows:
"This order does not prohibit the respondent from spending ... a reasonable sum on legal advice and representation. But before spending any money, the respondent must tell the applicant's legal representatives where the money is to come from."
- This order permits the use of frozen funds to fund legal expenses, provided Mr Pugachev notifies the claimants of its source. In relation to general principles, Mr Samek referred me to the judgment of Males J in Tidewater Marine v PhoenixTide  EWHC 2748 (Comm) at paragraphs 35 and 36 in which he summarised the relevant legal principles:
"35. The starting point is that a freezing order has been made against the defendant. Otherwise the question of use of frozen funds to pay legal expenses could not arise. This means that the court has already concluded that, even before the claimant's claim has been established, justice requires that the defendant's freedom to dispose of its own assets as it sees fit should be restrained. However, a freezing order is not intended to provide a claimant with security for its claim but only to prevent the dissipation of assets outside of the ordinary course of business in a way which would render any future judgment unenforceable. While the disposal of assets outside of the ordinary course of business is prohibited as being contrary to the interests of justice, payments in the ordinary course of business are permitted even if the consequence will be that the defendant's assets are completely depleted before the claimant is able to obtain its judgment. This has been clear since the decision of Robert Goff J in The Angel Bell  1 QB 65 in the early days of what were then called Mareva injunctions. Moreover, so long as the payment is made in good faith, the court does not enquire as to whether it is made in order to discharge a legal obligation or whether it represents good or bad business on the defendant's part.
36. A further principle is that a defendant is entitled to defend itself and, if necessary, to spend the frozen funds, which are after all its own money, on legal advice and representation in order to do so. This is recognised by the standard wording of the usual freezing order, although the defendant's right to spend its own money on legal advice and representation is limited to expenditure of "a reasonable sum". (Despite the substantial figures for legal expenditure in this case, it was not submitted on this application that the sums which the Respondents propose to expend were unreasonable). It was held by Sir Thomas Bingham MR in Sundt Wrigley Co Ltd v Wrigley (unreported, 23 June 1995) to be "the ordinary rule" in a non-proprietary case. He put it this way:
'In the Mareva case, since the money is the defendant's subject to his demonstrating that he has no other assets with which to fund the litigation, the ordinary rule is that he should have resort to the frozen funds in order to finance his defence.'"
- Now, important points in this case are as follows.
- First, Mr Pugachev is not suggesting here that he is making an application for permission to use frozen assets to fund this application.
- Second of all, neither Tidewater, nor any of the other cases I have been referred to, are cases in which the court has been asked to impose the requirement to identify the source as a condition of making an application, and I bear that in mind.
- Third, let alone is there any case which has been cited to me where the court has been asked to -- or considered whether to - impose such a requirement as a condition for making an application challenging the jurisdiction of the court.
- Fourth I bear that in mind, recognising also that this is at a late stage, and that there is strong evidence that Mr Pugachev has known for a long time about this case and has lied to his lawyers about the state of his knowledge.
- Mr Samek also referred to the decision of Patten J in Dadourian v Simms  EWHC 1784. In that case the claimant asked the court to make an order for the disclosure of the source of funds used to fund the legal expenses of the corporate defendants. The judge refused the order. He held there was no evidence that the funds used to fund the corporate defendants' defence were coming from frozen assets at all. As I say, he refused it, and I refer particularly to paragraph 151 to the end of the judgment, and especially paragraphs 157, 158 and 156.
- In the freezing order before Patten J the provision about disclosure of the sources of funding for legal expenses was in essentially the same form as the provision I have quoted above from the freezing order before me. It was paragraph 9(1) before Patten J, and the judge said as follows:
"157. DGI [the first claimant] says that the meaning of paragraph 9(1) is clear. Before spending any money at all on legal costs, the corporate defendants must disclose the source of the money. This applies regardless of whose money it is or where it comes from."
- Therefore the submission before the judge was that this provision applied regardless of where the funds had come from. In other words it was submitted that no matter where the money came from the order should be made.
- Then in paragraph 158 the judge explains that in order for the exception which permits funds to be spent on legal fees to be applicable at all (which includes the part with a requirement to notify the source of the funds) those funds must have been from frozen funds in the first place.
- Therefore, at paragraph 161 Patten J refused the order because:
"It seems to me that in the absence of evidence indicating that the defendants have used assets covered by the freezing orders to fund their own costs, there is no basis for making the order sought. I do not accept that paragraph 9(1) of the order of 22 December 2005 has a general application divorced from the context of the order as a whole, and in the case of Azuri, the order does not even contain the provision equivalent to paragraph 9(1)."
- Now, in that case the corporate defendants were included in the freezing order as defendants under the Chabra jurisdiction, following a freezing order against the individual defendants (see paragraph 19 of the judgment). I infer, therefore, that it did not follow from the fact that there were funds available to the corporate defendants that those funds necessarily had to be funds of or from the individual wrongdoers and therefore necessarily were frozen assets. So one can understand why Patten J made the decision that he did in that case.
- The principle I would derive from Dadourian is that the court should only make such an order if it is satisfied to an appropriate standard, which I believe should be a properly arguable case, that the funding is or may be from frozen funds.
- On the other hand, Mr Akkouh referred to the judgment of Peter Smith J in JSC BTA Bank v Solodchenko on 17 January 2011 which is unreported. I refer to the passage from page 64-65 of the judgement which quoted by Mr Akkouh in his skeleton, in which Peter Smith J also considered the same provision in a freezing order:
"… the purpose of these provisions are clear: they are to show that, if a defendant is to have the benefit of spending money which would otherwise be frozen, he must show that there is no possibility of this money being the subject matter of a claim by the claimants from a tracing point of view. He must show that there is no possibility of this money, in reality, being his money, but being provided through a nominee to disguise the fact that it's his money. It therefore follows, in my view, that to comply with that provision he must show ultimately who has provided the money and where that person obtained the money from …"
- I have not heard full argument on the point, but I can see that there could be a conflict between these two decisions, although it may also be that when looked at fully there is not. Perhaps there is no conflict because in JSC BTA bank, it may be that it was obvious that any money spent by the defendant was likely to come from funds which ought to have been frozen, whereas in Dadourian, it was not so obviously so.
- What do I know about the funds used by Mr Pugachev to fund this application?
- Hogan Lovells, the solicitors for the claimants, asked Hughmans, Mr Pugachev's solicitors, for information about where the funds had come from. The reply was that the money had come from the French law firm, Betto Seraglini. Betto Seraglini themselves have explained that they claim privilege in answering that question. It is not suggested before me that the French professionals are not entitled to take that point. I will not draw any adverse inference from it.
- But that is not the issue. The issue is not whether the French lawyers are entitled to claim privilege in answering such a question. The question is whether Mr Pugachev himself has a proper ground to refuse to answer. All I know at the moment is that the money to fund the litigation in this country has come from French lawyers acting for Mr Pugachev. It is fanciful to think that the French lawyers themselves are funding this litigation in London out of the goodness of their heart. Clearly, there is a source funding Mr Pugachev's participation in these London proceedings, other than the French lawyers I have mentioned.
- The question is -- what is the basis of the idea that this funding is likely have to come from frozen funds? It seems to me the relevant points are these.
- First, in this jurisdiction there is a worldwide freezing order against Mr Pugachev personally. Prima facie money he has control of and the use of should be frozen money.
- Second, there has been clear non-disclosure by Mr Pugachev of his assets. In the evidence before me is an example of particular non-disclosure is what became of something like 100 million dollars, pounds or euros (the difference does not matter). That was money relating to a company called EPK.
- Third, we do also know that Mr Pugachev has sought to use money in frozen funds to fund his legal expenses in the past. That seems to me to imply that there is not an obvious, ready alternative source of funding available to Mr Pugachev, such as a rich friend.
- Bearing this in mind, I am satisfied that there is a properly arguable case that the funding for this application is likely to be coming from funds which are frozen by the worldwide freezing order.
- On that basis, therefore, I do not have to resolve any difference that may exist between Dadourian and JSC BTA Bank. I am satisfied that I should make an order requiring Mr Pugachev to disclose the source of the funding.
- The question is whether I should make this order a condition for the hearing of this application. The answer, in my judgment, is plainly yes, for similar reasons to the reasons I have considered in relation to the costs.
- I have well in mind that this application goes to the jurisdiction of the court. However, I am not satisfied that imposing this as a condition stifles Mr Pugachev's application in any way. The source will be easy to explain. It can be done so readily. I am sure that Mr Pugachev does not wish to explain where the money has come from but that is another matter. I bear in mind the previous breaches of court orders that I have mentioned, the fact that Mr Pugachev stands before me as an unpurged contemnor, and the fact that some of the proven contempts related to the very same problem of disclosure that I am now considering.
- For those reasons, it would be entirely appropriate to require Mr Pugachev, as a condition of bringing this application, to provide the information required in the draft order.
Timing and other matters
- Finally, I will deal with timing. Mr Samek submitted that if I was against him, more time should be given. I agree. 19 July is too soon and unrealistic. The hearing is to take place on 26 July. I have decided that compliance should be by 4.00 pm on Monday, 24 July. I recognise that by then the respondents are likely to have incurred costs in relation to the application, and if the order is not complied with, then it may be that those respondent's costs will never be recovered, but that is a risk that has to be taken.
- A point not addressed directly at the previous hearing is whether these conditions should also be applied to the second application by Mr Pugachev to set aside the default judgment. I will hear the parties now, if they are able to do so, as to whether I should include those conditions relating to that application as well.
- That is my decision.
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