[View without highlighting]
[Printable RTF version]
[View ICLR summary:  WLR(D) 458]
|Neutral Citation Number:  EWHC 3547 (Ch)
|Case No: HC14DO2752
IN THE HIGH COURT OF JUSTICE
|Royal Courts of Justice
London, EC4A 1NL
|30 October 2014
B e f o r e :
MR JUSTICE DAVID RICHARDS
|(1) JSC MEZHDUNARODNIY PROMYSHLENNIY BANK
|(2) STATE CORPORATION "DEPOSIT INSURANCE AGENCY"
|- and -
|SERGEI VIKTOROVICH PUGACHEV
|- and -
|KEA TRUST COMPANY LIMITED & OTHERS
Jonathan Adkin QC (instructed by Farrer & Co LLP) for the Applicants
Stephen Smith QC and Ben Griffiths (instructed by Hogan Lovells International LLP)
for the Claimants
Hearing dates: 8 and 9 October 2014
HTML VERSION OF JUDGMENT
Crown Copyright ©
Mr Justice David Richards:
- This is an application by the trustees of five discretionary trusts to discharge or vary an order for disclosure of information relating to the trusts made against one of the discretionary beneficiaries of the trusts as part of a worldwide freezing order against him.
- On 11 July 2014, Henderson J made the freezing order against Sergei Pugachev together with an order for disclosure of assets. Pursuant to that order, as varied by a further order dated 18 July 2014, Mr Pugachev served a schedule of assets on 23 July 2014. The schedule included information that Mr Pugachev is one of a class of discretionary beneficiaries of five named New Zealand-based trusts.
- On 25 July 2014, the return date of the order made without notice on 11 July 2014, the claimants applied for and obtained from Henderson J an order that Mr Pugachev disclose to the best of his ability:
i) the identity of the trustee(s), settlor(s), any protector(s) and the beneficiaries of the trusts; and
ii) details of the trust assets on 14 July 2014, including their value and location.
He is also required to produce copies of the trust deeds in his control. This order (the trust disclosure order) contains the following liberty to apply:
"7. Anyone who is served with or notified of this order may apply to the court to vary or discharge this order (or so much of it as affects that person), but they must first inform the Applicants' solicitors. If any evidence is to be relied upon in support of the application, the substance of it must be communicated in writing to the Applicants' solicitors in advance."
- Only very short notice of the intention to apply for the trust disclosure order was given to Mr Pugachev. The claimants, of course, only learned of the existence of the discretionary trusts when they received Mr Pugachev's schedule of assets on 23 July 2014. Their solicitors raised questions about the trusts in a letter to Mr Pugachev's solicitors on 24 July 2014 to which his solicitors replied on the same day. Later in the day counsel for the claimants supplied to Mr Pugachev's counsel their skeleton argument for the return date hearing on the following day. The intention to seek disclosure in relation to the trusts was referred to in the skeleton, without in any sense being fully argued. Counsel for Mr Pugachev did not have the opportunity of dealing with this in their skeleton argument, but the matter was argued before Henderson J on 25 July 2014.
- The present application is made by the trustees of the five discretionary trusts. The application notice names the applicants as Kea Trust Co (as trustee of the London Residence Trust and the Kea Three Trust) and "the trustees" of the remaining trusts. This generic description did not comply with the requirements of CPR PD 23A para.2.1 and no good reason was advanced for permitting non-compliance with it, even assuming power to do so exists. Accordingly, I directed disclosure of the names of the applicants, which were provided in the course of the hearing by counsel. While Kea Trust Co is the trustee of two of the trusts, each of the other trusts has a separate corporate trustee. All the trustees are incorporated in New Zealand.
- The question was raised at the start of the hearing as to whether and, if so, to what extent the hearing should be in private. The hearing before Henderson J on 25, 28 and 29 July 2014 had for the most part been held in private and some information provided by Mr Pugachev, as to his living expenses and some assets, was and remains subject to a confidentiality regime. I directed, pursuant to CPR 39.2(3)(c) that the hearing should be in private but only while it was necessary to refer to the detail of the information protected by the confidentiality regime.
- It appeared to me that, in accordance with the general rule that hearings should be in public, this hearing should to the maximum extent possible be in public. Not only is an order freezing assets on a worldwide basis and requiring disclosure of worldwide assets among the most far reaching and intrusive powers available to the civil courts, but in this case the power is invoked in aid of proceedings not in England but in aid of civil proceedings brought by a Russian state body in the Russian courts. This is clearly a matter of legitimate public interest. In the event, most of the hearing was in public.
- For present purposes, only a very brief summary of the proceedings and the parties is required.
- The claimants are JSC Mezhdunarodniy Promyshlenniy Bank (the Bank) and its liquidator, appointed by the Russian court, State Corporation "Deposit Insurance Agency" (the DIA). The Russian liquidation of the Bank was recognised by an order made by Henderson J on 11 July 2014 pursuant to the Cross Border Insolvency Regulations 2006. In the affidavit made on behalf of the claimants in support of the application for the freezing order, the DIA was described as:
"A Russian "state corporation", a non-profit organisation established by the Russian state for the benefit of the public welfare and accountable, amongst other things, to the Russian Central Bank (the Central Bank). The DIA's primary purpose is to maintain and operate a deposit insurance scheme to protect individual depositors of failed Russian banks. In addition, it also acts as the liquidator, in certain circumstances, of such banks."
- The Bank was founded by Mr Pugachev in the early 1990s and it grew to become one of Russia's largest privately owned commercial banking groups. On 4 October 2010, the Russian Central Bank revoked the Bank's banking licence and appointed a "temporary administration". On 30 November 2010, the Bank was declared to be insolvent by the Russian court and placed into insolvent liquidation. The claimant's evidence is that the deficiency in the Bank's assets at that date was approximately RUR 70.1 billion (US$2.2 billion). Mr Pugachev left Russia in early 2011 and presently resides principally in London.
- The DIA, as liquidator of the Bank, has brought proceedings against Mr Pugachev in Russia, alleging that, following receipt by the Bank of substantial loans from the Russian Central Bank in order to recapitalise it in about December 2008, Mr Pugachev carried out a number of schemes designed to extract money from the Bank for the benefit of himself and companies under his control. The amounts claimed exceed US$2 billion. Similar proceedings have also been commenced in England. Mr Pugachev denies these allegations.
- The freezing order against Mr Pugachev was made under section 25 of the Civil Jurisdiction and Judgments Act 1982 in aid of the Russian proceedings. It was not made in aid of the English proceedings, although the claimants issued an application for an order in aid of those proceedings which has been adjourned generally.
- Paragraph 5 of the freezing order dated 11 July 2014 froze assets up to a value of £1,171,490,852. It applied to the assets of Mr Pugachev and to the assets of certain bodies corporate which are directly or indirectly owned or controlled by Mr Pugachev and which have no or no substantial trading activities. Paragraph 6 provides:
"Paragraph 5 applies to all the Respondent'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 the Respondent's assets include any assets which he has the power, directly or indirectly, to dispose of or deal with as if it were his own. The Respondent is to be regarded as having such power if a third party holds or controls the asset in accordance with his direct or indirect instructions."
- The present application is supported by two witness statements made on behalf of the trustees by William Malcolm Patterson. Mr Patterson is a solicitor in New Zealand and a partner with his wife in a firm which is regulated by the New Zealand Law Society. He was admitted to practice in 1965 and he describes his practice as estate planning, trust structuring and wills, both domestically and internationally. Before making this application, Mr Patterson on behalf of the trustees sought the directions of the court in New Zealand on a Beddoe application.
- As regards the discretionary trusts, Mr Patterson states:
"Each of the five Trusts is a discretionary trust domiciled in New Zealand and governed by New Zealand law. The Trustees are all New Zealand incorporated companies. The sole shareholders of each of the Trustee companies are me and Ms Hopkins [his wife]. I am also a director of each of the Trustee companies. In one of the Trustee companies Ms Hopkins is my co-director, in two of the Trustee companies Ms Natalia Dozortseva is my co-director, and in another of the Trustee companies my co-directors are both Ms Dozortseva and Ms Hopkins. It is consequently not possible for the Trust assets to be dealt with without my knowledge and agreement."
- Mr Patterson further states that Mr Pugachev is one of a number of discretionary beneficiaries of the trusts and that, although he was "the Protector" of each of the trusts, he ceased to be so as a result of the orders made against him in the present proceedings. It follows that he was the Protector of each trust when the order dated 11 July 2014 was made.
- Mr Patterson states that Mr Pugachev was not the settlor of any of the trusts, which were constituted by declarations of trusts by the trustees. He states that "assets were placed into the Trusts" and in his second witness statement he states that Mr Pugachev did not place any assets in the trusts. He does not state who did place the assets in the trusts nor whether they were assets which had originally emanated, directly or indirectly, from Mr Pugachev.
- Mr Patterson denies that the trusts have been a significant source of income for Mr Pugachev. He states in his second witness statement that no distributions have been made to Mr Pugachev by any of the trusts and, on instructions, counsel for the trustees stated that equally no loans had been made to him by any of the trusts. Following the continuation of the freezing order in late July 2014, Mr Pugachev sought permission from the claimants to request and receive a distribution and a substantial loan from one of the trusts for the purpose of meeting his living expenses and tax payments.
- It is accepted that one of the trusts owns a company which in turn owns Mr Pugachev's primary residence, in central London. Mr Patterson also discloses, for reasons to which I will later return, that the trust assets include assets located in Russia.
- The above represents the entirety of the evidence available as regards the discretionary trusts. It is however clear that Mr Pugachev has substantial connections with the trusts. His powers that he enjoyed as protector of the trusts are not explained by Mr Patterson and cannot be understood without sight of the documents constituting the trusts. Ms Dozortseva is a close business associate of Mr Pugachev. Mr Patterson says nothing to suggest the substantial involvement in the discretionary trusts of anyone other than Mr Pugachev.
- Mr Patterson's evidence was not, of course, before the court when the application for the trust disclosure order was made on 25 July 2014. In deciding that the trust disclosure order should be made, Henderson J in his judgment given on that day first held that Mr Pugachev's "interest" as a discretionary beneficiary under the trusts was an "asset" within paragraph 7(c) of the order dated 11 July 2014 which refers to:
"any interest under any trust or similar entity including any interest which may arise by virtue of the exercise of any power of appointment, discretion or otherwise howsoever."
On that basis, Henderson J stated that:
"The court has a discretion to supplement its order by ancillary directions which will enable the nature of the trust interest to be ascertained and policed by the claimants."
"25. [Counsel for Mr Pugachev] would categorise that as a fishing expedition which has no part to play at this stage. But I need to remind myself that no application is made today to discharge the freezing order, which was itself granted on the basis that I was satisfied that the usual requirements for the grant of such an order were made out. In that situation, it is important that there should be no opportunity for concealment of assets. And if Mr Pugachev's interests under the trusts are indeed as straightforward as has been submitted, then disclosure of the details of the trusts will not prejudice him in any way or give rise to applications adverse to him once the position has been properly explained.
26. It seems to me, therefore, on balance, that there is nothing to prevent me today, in the exercise of my discretion, from giving directions which are intended to flesh out the very bare details given in the disclosure letter, with a view to enabling the claimants, as I have said, to take a view on the true nature of the trusts, the nature of Mr Pugachev's interest under them, and to examine the question of whether any further steps need to be taken to safeguard the position."
- Henderson J refused permission to appeal but ordered that if an application were made to the Court of Appeal for permission to appeal, time for compliance was extended to 7 days after such application was finally determined and, if permission were given, to 7 days after dismissal of the appeal (assuming that the appeal was not successful). Mr Pugachev applied to the Court of Appeal for permission to appeal which was refused on paper on 15 August 2014 but, on a renewed oral application which happened to occur on the second day of the hearing before me, permission to appeal was granted.
- The grounds for the application stated in the application notice are:
"(i) that the information and documents concerning the Trusts which the Defendant is required to provide under its terms is confidential to the Trusts,
(ii) that there is no proper basis on which that material can be required to be provided,
(iii) that in any event no cross-undertaking in damages has been given by the Claimants in relation to any losses which might be sustained by the Trustees or beneficiaries of the Trusts as a result of the Order, and
(iv) there appears to be no confidentiality regime ordered to be in place in relation to the material.
Alternatively, the Trustees will seek to vary the Order so as to limit the material to be provided and impose an appropriate confidentiality regime."
- Before going to the substance of these grounds, it is convenient to address submissions made on behalf of the claimants that the court should not entertain the present application. Leaving aside the failure to identify each of the applicants, which was cured at the hearing, three grounds were advanced.
- First, it was submitted that, by virtue of CPR 40.9, the court may only vary or discharge an order on the application of a non-party who is "directly affected" by the order. The trustees were not directly affected and indeed had no legitimate interest in challenging the trust disclosure order. The information sought is not confidential and, in any event, the confidentiality regime meets any possible concerns in that respect.
- I do not accept this submission. The application is made pursuant to the express liberty to apply given to non-parties by paragraph 7 of the order, not CPR 40.9. In any event, the trustees are directly affected by the order because it requires Mr Pugachev to disclose assets which are owned by them and other details of the trusts including the identity of the beneficiaries. It seems elementary that such information is confidential, albeit of course the right of the trustees to maintain its confidentiality can be overridden by the court in appropriate circumstances. Whether the confidentiality regime is a complete answer to the trustees' application and to their concerns is a matter on which they are clearly entitled to be heard.
- Secondly, the claimants submit that the decision of Henderson J is binding on the trustees because there is a sufficient privity of interest between them and Mr Pugachev to make it an abuse of process to re-litigate the question of disclosure.
- Mr Smith QC for the claimants relied on a passage in the judgment of Sir Robert Megarry V-C in Gleeson v J Wippell & Co Ltd  1 WLR 510 at 515, which was cited with approval by Lord Bingham in Johnson v Gore Wood & Co  2 AC 1 at 32. In that passage the Vice-Chancellor said that a decision in favour of one party (the defendant) in one case is not binding on a third party in a different case:
"… unless there is a sufficient degree of identity between the successful defendant and the third party. I do not say that one must be the alter ego of the other: but it does seem to me that, having due regard to the subject matter of the dispute, there must be a sufficient degree of identification between the two to make it just to hold that the decision to which one was party should be binding in proceedings to which the other is party. It is in that sense that I would regard the phrase "privity of interest"."
- The test was not satisfied in the case before the Vice-Chancellor but it was satisfied in Johnson v Gore Wood as between Mr Johnson and a company which was almost wholly owned by him and which he entirely controlled, it being as Lord Bingham put it his "corporate embodiment".
- Mr Smith laid particular stress on the closing sentence of the paragraph in Gleeson v Wippell quoted above, although not cited by Lord Bingham:
"Thus in relation to trust property I think there will normally be a sufficient privity between the trustees and their beneficiaries to make a decision that is binding on the trustees also binding on the beneficiaries, and vice versa."
- Mr Smith submitted that the evidence strongly suggests a high degree of identification between Mr Pugachev and the trustees and that the trusts are at best no more than a formal legal structure within which assets are held for the benefit of Mr Pugachev and subject to his control.
- I have no difficulty in saying that there is a privity of interest between trustees and a beneficiary who controls the trust and the actions of the trustees and is the sole or principal beneficiary. But, generally, a decision against only one beneficiary is not in my view binding on the trustees or through them the other beneficiaries. In the sentence just quoted, Sir Robert Megarry was careful to refer to a "sufficient privity between the trustees and their beneficiaries" not between the trustees and one of their beneficiaries.
- In my view, the claimants' submission assumes as fact what has yet to be established. If Mr Pugachev enjoys the degree of control over the trusts and their assets alleged by the claimants, he was and remains under an existing obligation to disclose the trust assets under paragraph 6 of the order dated 11 July 2014. The trust disclosure order was made by Henderson J not on the basis that this is established by the evidence but on the basis that the disclosure will enable the nature of the interest to be ascertained. The full facts regarding the trusts have yet to be established. It is premature to rely on the alleged privity of interest as a bar in limine to the trustees' present application. It must be remembered that no notice of the application for the trust disclosure order was given to the trustees and only very short notice given to Mr Pugachev. The trustees had no opportunity to put in evidence or be represented and make submissions before Henderson J. It is clear from the post-judgment discussion that the express liberty to apply was primarily aimed at them.
- Thirdly, the claimants submit that I should follow the decision of Henderson J as a prior decision of a court of co-ordinate jurisdiction which is not plainly wrong. This submission is limited to the legal issue of whether the court has jurisdiction in these circumstances to require disclosure by a defendant of trust assets where he asserts that he is no more than a discretionary beneficiary of the trusts. As the Court of Appeal has given Mr Pugachev permission to appeal the order of Henderson J, this point loses much of its practical significance in this case. Of course, I accept the submission in general terms. My concern in this case stemmed from the fact that the issue was raised only shortly before the hearing before Henderson J and that the issue may have been addressed by the parties, or at least by Mr Pugachev in, as Mr Adkin for the trustees asserted, a rush. In such circumstances, as opposed to those in cases such as In re Spectrum Plus Ltd  Ch 337 and IPCom GmbH & Co KG v HTC Europe Co Ltd  EWHC 2880 (Ch) on which Mr Smith relied, the court will be more concerned to understand that the relevant submissions have been put to the judge in the earlier case. I will return to this, but I do not think that I should without more reject this part of the trustees' submissions.
- Mr Adkin advanced five principal submissions in support of the application to discharge or vary the trust disclosure order. First, there was no jurisdiction to make the order unless the discretionary trusts were shams. Second, there was no proper reason to think that the discretionary trusts were shams. Third, there was no reason to think that the trust assets might be dissipated. Fourth, the risk of injustice to the trustees if disclosure of assets is ordered outweighs the risk of injustice to the claimants if it is not ordered. Fifth, if there is to be an order, there must be an undertaking in damages and a proper confidentiality regime.
- As to jurisdiction, Mr Adkin started with the basic and incontrovertible proposition that the purpose of a freezing order is to preserve assets against which the claimant, if it obtains judgment, can enforce the judgment. A judgment against Mr Pugachev can be enforced only against his assets. A freezing order will therefore be confined to (i) those assets which are beneficially owned by Mr Pugachev, (ii) assets which he does not own but against which he has some legal right of recourse which, if exercised, would make them available for execution, and (iii) assets which there is good reason to suppose fall within (i) or (ii) above: SCF Finance v Masri  1 WLR 876, JSC BTA Bank v Kythreotis  EWCA Civ 1436,  1 WLR 888 at  and .
- Mr Pugachev has disclosed that he is a discretionary beneficiary under the five discretionary trusts. It is not in dispute that, without more, a discretionary beneficiary has no proprietary interest in the trust assets and only a right to be considered by the trustees for a distribution. Mr Adkin submitted that the assets of the discretionary trusts are not therefore assets which can be made the subject of a freezing order.
- Mr Adkin submits that therefore the trust assets could legitimately be included within the freezing order only if the claimants alleged, and the court accepted, that there was good reason to suppose that the trusts were shams and that Mr Pugachev was in truth the owner of the assets supposedly held on trust. The trusts could be found to be shams only if it was shown that not only Mr Pugachev but also the trustees were party to the shams. This would involve showing Mr Patterson, a solicitor in New Zealand of many years standing, was knowingly engaged in this essentially dishonest enterprise. There is no good reason to suppose that to be the case.
- Mr Adkin submitted, thirdly, that the purpose of a disclosure order in a case such as the present is to enable the claimant to "police" the freezing injunction, in other words to identify assets subject to the freezing order and, if appropriate, to take steps to prevent their dissipation. A disclosure order must therefore be limited to assets subject to the freezing order. For the reasons given above, he said these do not include the discretionary trusts' assets.
- The justification put forward by the claimants' solicitors in a letter dated 12 August 2014 was not, the trustees submit, a legitimate basis for the trust disclosure order. They wrote:
"It follows that our clients do not accept that, because they did not allege that the Trusts are shams at the hearing on 25 July 2014, there is no basis for the disclosure ordered by Mr Justice Henderson in the 25 July order. It is the disclosure of information and documents that will allow the position to be properly understood and considered. If, once the information is provided, it becomes apparent that there is a case to be made that the Trusts are shams, our clients fully reserve their rights to make such a case in due course."
Mr Adkin submits that the claimants are not entitled to a disclosure order for the purpose of deciding whether to mount a case that the trusts are shams. This would, in the time-honoured phrase, be a fishing expedition.
- As regards these submissions on jurisdiction, I agree with the submissions of Mr Smith QC for the claimants that the trustees base their case on too narrow a reading of the freezing order dated 11 July 2014 and of the proper scope of such an order. While fully accepting the purpose of a freezing order is to preserve assets so as to be available for enforcement if the claimants succeed in their action, standard form freezing orders have come to be drafted in a way which may cast a wider net. The reason for this is the uncertainty which frequently exists at the time when a freezing order is made as to the nature and extent of the defendant's assets. This uncertainty is the greater in circumstances where assets, which may neutrally be said to be connected with the defendant, are held in opaque corporate or trust structures.
- For this reason the standard form of freezing order has since 2002 extended not only to assets in which the defendant has a beneficial interest but also to assets as described in the second and third sentences of paragraph 6 of the order dated 11 July 2014, which I have earlier quoted.
- The evolution of these sentences as part of the standard form freezing order is analysed by Patten LJ in JSC BTA Bank v Kythreotis. He said at :
"… the power to deal with or dispose of the asset as if it were his own is a reference to a case where the legal owner is not the defendant but a third party yet it is the defendant who retains the power to direct how the asset shall be dealt with. This is not, in my view, a partial definition of the preceding words. It is a comprehensive one. And it makes clear that "the Respondent's assets" can include assets held by a foreign trust or a Liechtenstein Anstalt when the defendant retains beneficial ownership or effective control of the asset." (emphasis added)
At , Patten LJ repeated that the two sentences were designed "to make it clear that "his assets" include assets held by a third party in respect of which the defendant retains beneficial ownership or control." (emphasis added)
- Mr Smith submits that the evidence discloses good grounds for supposing that Mr Pugachev is in a position to control assets held within the trust structures. I agree with this submission, on the basis of some of the evidence on which the claimants rely.
- In particular, one of the trusts indirectly owns Mr Pugachev's principal residence in central London. The evidence shows that, while he is liable to pay a significant amount of rent for his occupation, the rent was allowed to accrue without being paid and, it appears, he can dictate or at the very least influence when, and even perhaps if, it is paid. Further, Mr Pugachev and his family have clearly enjoyed a very expensive lifestyle, but none of his disclosure indicates how it was funded. The absence of such disclosure gives rise to a reasonable inference that it was funded by companies held within one or more of the trusts.
- There are clearly strong connections between Mr Pugachev and the trusts, but neither he nor the trustees put forward any evidence to establish that they are at arms length. Trustees who conduct the affairs of a trust independently of a defendant whose only interest is as a discretionary or other beneficiary could be expected to come forward with evidence to establish that the trust's directly or indirectly held assets were not under his control.
- I should mention that I found some of the matters relied on by the claimants in this respect as rather less than compelling. An attempt to show that Mr Pugachev had used trusts to conceal his ownership and/or control of very significant assets in Russia, while he was still resident there, did not sit easily with his disclosure of his control of those assets to the Russian Central Bank and in prospectuses for public bond issues. Nonetheless, this evidence does show that Mr Pugachev was accustomed to hold assets within trusts and the trustees in question were based at the same residential address in New Zealand as Mr Patterson and his wife. The claimants also suggested that the trusts may well own a business making artificial blood in the United States but this, it has to be said, was based on very flimsy evidence.
- While the claimants reserve their position on whether the discretionary trusts are shams, it was no part of their case before me that the trusts are shams. They did not assert that the trustees were untruthful in their evidence that they had not made distributions or loans to Mr Pugachev or that he could dispose of trust assets without their knowledge. Rather, it was their case that there were good grounds for thinking, as indicated above, that the underlying assets were not directly held by the trustees but were held in a corporate structure, with the trustees holding the shares in the companies at the top of those structures. The claimants did not dispute that there could be no dealings in the shares in those top companies without the knowledge of the trustees and in particular of Mr Patterson. But it is their contention that there is good reason to believe that Mr Pugachev controls the assets held by companies within the corporate structure over which the trustees themselves do not or may well not have direct control. Without knowing the corporate structure and the directors of the companies within it, it is of course not possible to be certain about this.
- In these circumstances, it seems to me clear that the court has jurisdiction to order disclosure relating to the trusts for the purpose of ascertaining the true position, in particular as to the extent, if any, of Mr Pugachev's control of assets held within the trust structures. Where uncertainty exists as to the true position of the assets owned or controlled by a defendant, the court has power to order the cross-examination of the defendant on his affidavits of disclosure. This is not a means of building a case for committal for contempt of court in failing to comply with the court's order for disclosure but is essentially a form of oral discovery. A defendant may be cross-examined as to his possible ownership or control of assets, which have not been disclosed by him, where there is good reason to do so. Equally, in my view, the court has jurisdiction to order written disclosure.
- I concur therefore with Henderson J that the court has jurisdiction to make the trust disclosure order and that it was appropriate to do so in this case. The trustee's application to discharge the order on this basis therefore fails. I should add that, since the hearing before me, I have had an opportunity of reading the transcript of the hearing before Henderson J. Most of the submissions made to me were made and developed by leading counsel for Mr Pugachev before Henderson J, although it is fair to say that counsel for the trustees on the present application has had a fuller opportunity to cite relevant authorities and to develop the submissions extensively in writing as well as orally and that the trustees have had the opportunity to put in evidence.
- I turn now to the other grounds advanced on behalf of the trustees for the discharge or variation of the trust disclosure order.
- First, it was submitted that there was no reason to think that the trust assets may be dissipated. This is not, in my judgment, a good point for three reasons. First, the risk of dissipation is relevant not so much to an order for disclosure as to the grant of a freezing injunction. Secondly, the risk of dissipation which the claimants suggest is not a dissipation by the trustees but a dissipation of assets out of companies held within the trust structures. Third, if the trust assets do fall within the extended definition of assets in the freezing order, a distribution to any beneficiary, not just Mr Pugachev, is a dissipation because it is a gratuitous transfer. It is after all the duty of the trustees of discretionary trusts to consider whether to make such transfers to one or more of the beneficiaries.
- Secondly, the trustees submit that the risk of injustice to them if the trust disclosure order stands outweighs the risk of injustice to the claimants if it is discharged. This turns on the disclosure of assets located in Russia. As I earlier mentioned the trustees have confirmed that there are trust assets which are located in Russia. The trustees have expressed their concern that if information concerning those assets is disclosed to individuals at the DIA or in the Moscow office of the claimants' solicitors, there is a risk of dissemination of that information within Russia and a consequential risk of what they describe as hostile action against the assets.
- Membership of a confidentiality club was agreed in August 2014 between the solicitors acting for Mr Pugachev and for the claimants. It was agreed that two named individuals at the DIA as well as unnamed persons at the Moscow office of the claimants' solicitors should be within the confidentiality club. Mr Pugachev and his solicitors did not object to the inclusion of those persons, even though he knew that the same regime would apply to information provided pursuant to the trust disclosure order. Nonetheless, depending on what ultimately emerges about the discretionary trusts, the trustees have or may have a legitimate separate interest in the protection of assets held directly or indirectly by the trusts.
- Persons resident in Russia are not subject to the personal jurisdiction of the English court and in any event may become subject to requirements of disclosure imposed under Russian law. It may be that the claimants will be able to demonstrate that it is necessary for disclosure to be made to persons who are not subject to the jurisdiction of this court, but until then I consider it desirable that disclosure should be restricted to those who are subject to the jurisdiction of this court. Accordingly, I will restrict membership of the confidentiality club in relation to disclosure pursuant to the trust disclosure order, at least as regards assets located in Russia and I will hear submissions as to whether this restriction should apply to other assets, to the London office of the claimants' solicitors and to counsel instructed in these proceedings on behalf of the claimants, with liberty to the claimants to apply for wider disclosure.
- Thirdly, the trustees submit that the claimants should give an undertaking in damages in respect of the trust disclosure order. Subject to certain very limited exceptions, it is of course required of a party who obtains an interim injunction to give an undertaking in damages, to compensate the respondent, if the court so orders, for any loss it may suffer as a result of the injunction being wrongly granted. An injunction is defined in the Glossary to the CPR as a court order prohibiting a person from doing something or requiring a person to do something, and paragraph 5.1(1) of CPR 25A PD requires any order for an injunction, unless the court orders otherwise, to contain an undertaking in damages. The trustees submit that because the trust disclosure order requires Mr Pugachev to do something, namely to provide disclosure, and because the disclosure relates to the trusts and its assets, the trustees should have the benefit of an undertaking in damages. The trusts disclosure order does not contain an undertaking in damages.
- The claimants accept that, if the trustees were able to show by credible evidence that there was a real risk of loss to them flowing from a disclosure pursuant to the trust disclosure order, it might well be appropriate for the court to require an undertaking in damages, but they point out correctly that no evidence of particular loss has been adduced.
- It is not, so far as I am aware, the practice of the court to require an undertaking in damages in respect of an order for disclosure, whether against a party or a third party. For example, if, as commonly occurs, banks and other persons are required to provide information to claimants seeking to trace assets or obtain evidence of wrongdoing, it is not I think usual to include an undertaking in damages in the order, as opposed to an undertaking to pay the cost of compliance with the order. There might be circumstances in which this was appropriate but only if there was evidence which indicated that there was a real risk of loss. As a general practice, undertakings in damages are required only in respect of injunctions in the ordinarily understood sense of that word, that is an order that a party either refrain from taking a step which they assert they are entitled to take or take a step which they assert they are not required to take.
- Accordingly, I reject the submission that the trust disclosure order should be varied so as to include an undertaking in damages in favour of the trustees.
- It follows that, subject to the identity of the members of the confidentiality club, I dismiss the trustees' application.
Copyright Policy |
Donate to BAILII