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England and Wales High Court (Commercial Court) Decisions
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Cite as:  EWHC 2061 (Comm)
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QUEEN'S BENCH DIVISION
The Rolls Building,
Fetter Lane, London, EC41 1NL
B e f o r e :
| (1) PJSC NATIONAL BANK TRUST
(2) PJSC OTKRITIE BANK FINANCIAL CORPORATION
|- and -
|(1) BORIS MINTS
(2) DMITRY MINTS
(3) ALEXANDER MINTS
(4) IGOR MINTS
Stephen Midwinter QC (instructed by Simmons and Simmons LLP) for the 1st, 2nd and 3rd defendants
Brian Kennelly QC (instructed by Stephenson Harwood LLP ) for the 4th defendant
Hearing dates: 11th July 2019
Crown Copyright ©
Mr. Justice Jacobs:
Risk of dissipation – legal principles
(1) The claimant must show a real risk, judged objectively, that a future judgment would not be met because of an unjustified dissipation of assets. In this context dissipation means putting the assets out of reach of a judgment whether by concealment or transfer.
(2) The risk of dissipation must be established by solid evidence; mere inference or generalised assertion is not sufficient.
(3) The risk of dissipation must be established separately against each respondent.
(4) It is not enough to establish a sufficient risk of dissipation merely to establish a good arguable case that the defendant has been guilty of dishonesty; it is necessary to scrutinise the evidence to see whether the dishonesty in question points to the conclusion that assets are likely to be dissipated. It is also necessary to take account of whether there appear at the interlocutory stage to be properly arguable answers to the allegations of dishonesty.
(5) The respondent's former use of offshore structures is relevant but does not itself equate to a risk of dissipation. Businesses and individuals often use offshore structures as part of the normal and legitimate way in which they deal with their assets. Such legitimate reasons may properly include tax planning, privacy and the use of limited liability structures.
(6) What must be threatened is unjustified dissipation. The purpose of a freezing order is not to provide the claimant with security; it is to restrain a defendant from evading justice by disposing of, or concealing, assets otherwise than in the normal course of business in a way which will have the effect of making it judgment proof. A freezing order is not intended to stop a corporate defendant from dealing with its assets in the normal course of its business. Similarly, it is not intended to constrain an individual defendant from conducting his personal affairs in the way he has always conducted them, providing of course that such conduct is legitimate. If the defendant is not threatening to change the existing way of handling their assets, it will not be sufficient to show that such continued conduct would prejudice the claimant's ability to enforce a judgment. That would be contrary to the purpose of the freezing order jurisdiction because it would require defendants to change their legitimate behaviour in order to provide preferential security for the claim which the claimant would not otherwise enjoy.
(7) Each case is fact specific and relevant factors must be looked at cumulatively.
a) The termination of the security arrangements which existed prior to the transactions in August 2017.
b) The transactions in late 2017 whereby three companies – Centimila Services Ltd. ("Centimila"), Nori Holding Ltd ("Nori") and Coniston Management Ltd. ("Coniston") – divested themselves of assets which had been returned to them as a result of the termination of the security arrangements. Two of these companies, Centimila and Nori, were within the O1 Group. The third, Coniston, was beneficially owned and controlled by Alexander Nesis. Mr. Nesis had, via another company, assisted the Defendants in connection with the termination of the security arrangements.
c) A transaction in early 2018, whereby Nori substantially reduced its capital. The shareholder resolution for a reduction in capital was dated 29 December 2017, and it contemplated that approximately US$ 200 million would be returned to its shareholder "by either transfer of the amount or payment in kind by 30 June 2018". The approval of the Cyprus court for this transaction was obtained in March 2018. It is not clear from the evidence when the transfer of the amount or the payment in kind took place, but it presumably did not take place prior to court approval in March 2018. The Claimants contend that it should not have taken place at all, given its obvious prejudicial impact on creditors, and in particular the Banks which had by that stage intimated and commenced proceedings against Nori arising from the termination of the security arrangements.
The termination of the security arrangements in August 2017
a) The bonds were long term, maturing in 2032 with no option to redeem early. Their effect was to extend the period of credit from, at most, a further three years for a further 15 years.
b) The bonds paid no coupon until maturity, except for a very small amount. The Banks would therefore receive no income at all, as compared to regular interest at commercial rates payable on all of the O1 Loans. The coupon rate was not fixed but entirely variable, and the coupon eventually payable was not compounded.
c) There was no security for the bonds such as pledges of shares or other valuable properties. Their value was entirely dependent on the long-term creditworthiness of the O1 Group: the issuer was a special purpose company, O1 Finance, but they were guaranteed by the Cypriot company at the head of the group namely O1 Group Ltd ("O1GL").
d) There had been no negotiation of the terms of the bonds in the market before their issue. A Russian bond expert engaged by the Claimants has said that he has never seen anything like the O1 Bonds. Their market value depended on their liquidity and marketability, but the Claimants' evidence was that they were illiquid and unmarketable. In view of the lack of income, the bonds represented a gamble on the financial state and asset base of two private companies (O1 Finance and O1GL) fifteen years into the future, albeit that there was a possibility in August 2017 that the repayment date would be amended to ten years. All of the Bank Otkritie employees involved in the transaction, and to whom the Claimants have since spoken, have admitted that O1 Bonds were illiquid and on non-market terms.
e) On the day after the bonds were issued, Mr Evgeny Dankevich, who was the Bank Otkritie's most senior executive (the Chairman of its Management Board, equivalent to its CEO), was actively taking steps to obtain citizenship in the Caribbean, and has since fled to Israel and refused to cooperate with the Claimants, except in return for a full release and indemnity which the Claimants are not prepared to give. It was Mr. Dankevich who alone authorised the purchase of the O1 Bonds, using his powers to do so personally as CEO. According to one witness, Mr. Dankevich was the only person in Bank Otkritie in favour of the deal.
f) The Claimants have examined transcripts of contemporaneous telephone conversations in which various employees describe the transaction or the bonds as "crazy", "bad", "unreasonable", "folly", "strange", "bullshit", and "garbage".
g) The purchase price of the bonds was paid over to O1 Finance/ O1GL before being routed back via various companies to the borrowers and thence to the Banks as repayment of the O1 Loans. It was therefore the Banks' money that was used to repay the loans, but this was not done by simple book entries whereby the loans were replaced by the bonds. Instead, the transaction involved movements of large sums of money across a complex web of entities, so that it would not have been apparent that the Banks' money was being used to repay its loans.
h) The routing of funds included the use of the Latvian account of an entity called ICT Holding (BVI) Ltd. which was owned or controlled by a third party, Mr. Alexander Nesis.
i) The transactions were carried out with remarkable haste, with everything being accomplished on 9/10 August (Otkritie) and 21 and 25 August (Rost Bank), at a time when the intervention of CBR was imminent.
a) These were transactions which, if the Claimants' case is correct, had as their object the removal of valuable assets which were available as security to the Banks for the liabilities of the borrowers (and hence as security for any default or subsequent judgment), and their replacement by illiquid and unmarketable assets. I agree with the Claimants that, in broad terms, this can be viewed as "dissipatory" transactions. The object of the fraud was to take existing security away from the Banks.
b) The transactions were on a very substantial scale. The principal basis on which the Claimants calculate their loss is the difference between the value of the loans immediately before the replacement transactions, and the value of the O1 Bonds with which they were replaced. This amounts to US$ 572 million.
c) The means by which the replacement transactions were accomplished, and then the way in which the assets released from the pledges were dealt (as described in more detail below) involved a complex web of corporate entities in various jurisdictions.
The disposition of the (prior) security for the Otkritie Loans
The reduction in capital of Nori
The arguments of the 1st – 3rd Defendants
"…It may mean in some cases that there is no real risk of dissipation and that if the claimant had seriously thought that there was, an application would have been made earlier. But that cannot possibly be said in the present case. I agree with the observations on this topic made by Flaux J in Madoff Securities International Ltd v Raven  EWHC 3102 (Comm). If the court is satisfied on the evidence that there remains a real risk of dissipation it should grant an order, notwithstanding delay, even if only limited assets are ultimately frozen by it."
"(1) The mere fact of delay in bringing an application for a freezing injunction or that it has first been heard inter partes, does not, without more, mean there is no risk of dissipation. If the court is satisfied on other evidence that there is a risk of dissipation, the court should grant the order, despite the delay, even if only limited assets are ultimately frozen by it;
(2) The rationale for a freezing injunction is the risk that a judgment will remain unsatisfied or be difficult to enforce by virtue of dissipation or disposal of assets (see further the citation from Congentra AG v Sixteen Thirteen Marine SA ("The Nicholas M")  2 Lloyd's Rep 602;  EWHC 1615 (Comm) below). In that context, the order for disclosure of assets normally made as an adjunct to a freezing injunction is an important aspect of the relief sought, in determining whether assets have been dissipated, and, if so, what has become of them, aiding subsequent enforcement of any judgment;
(3) Even if delay in bringing the application demonstrates that the claimant does not consider there is a risk of dissipation, that is only one factor to be weighed in the balance in considering whether or not to grant the injunction sought."
"Delay on the part of a party applying for a freezing injunction gives rise to rather more elusive considerations. It can be said that any serious delay means that an applicant does not genuinely believe there is any risk of dissipation or conversely (and more cynically) that, if a defendant is prone to dissipate his assets, such dissipation will have already occurred by the time a court is asked to intervene. This latter argument assumes that a defendant is already of dubious probity and it is a curious principle that would allow such a defendant to rely on his own dubious probity to avoid an order being made against him. The former argument is also open to the objection that it is the fact of the risk rather than a claimant's apprehension of it that should govern the court's decision.
56 Nevertheless relief is often denied to an applicant who pursues his rights in a dilatory fashion; it was denied by Roth J in Anglo Financial SA v Goldberg  EWHC 3192 (Ch) where there had been several years of negotiation about the matters in dispute before an injunction was applied for… "