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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 1847 (Ch) (13 July 2017)
Cite as:  EWHC 1847 (Ch)
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Rolls Building, Fetter Lane,
London EC4A 1NL
B e f o r e :
B E T W E E N:
|(1) JSCMEZHDUNARODNIY PROMYSHLENNIY BANK|
|(2) STATE CORPORATION "DEPOSIT INSURANCE AGENCY"||Claimants|
|- 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)||Defendants|
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.
Crown Copyright ©
MR JUSTICE BIRSS:
"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."
"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 firstname.lastname@example.org; 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."
Pay costs into the solicitor's client account
"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."
"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.'"
"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."
"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)."
"… 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 …"
Timing and other matters