Analysis
In 1992 Mr Pugachev founded the first claimant bank (Mezhprom). In November 2010 the Moscow Arbitrazh Court declared Mezhprom to be insolvent, opened liquidation proceedings and appointed the second claimant (the DIA) as liquidator. On 25 January 2011 the Russian authorities began a criminal investigation with regard to the insolvency of Mezhprom and three days later Mr Pugachev fled Russia. On 2 December 2013 the claimants began proceedings against Mr Pugachev in the Moscow Arbitrazh Court.
On 11 July 2014 Henderson J granted a worldwide freezing order without notice in aid of the Moscow proceedings. The freezing order required Mr Pugachev to provide details of his assets. Disclosure was provided in a schedule dated 23 July 2014, which disclosed assets of $70m. The assets included interests as a discretionary beneficiary of a number of trusts. On 25 July 2014 Henderson J made an order (the trusts disclosure order) requiring Mr Pugachev to swear an affidavit identifying the trustee(s), settlor(s), any protector(s) and the beneficiaries of each of the trusts and details of the assets which were subject to those trusts, together with copies of the trust deeds. At a hearing on notice on 29 July 2014 the worldwide freezing order was continued. An application by the original trustees of the trusts to set aside the trusts disclosure order was refused on 30 October 2014 by David Richards J, and an application by Mr Pugachev to set aside the worldwide freezing order was dismissed on 15 January 2015 by Mann J.
On 2 March 2015 the claimants successfully applied for an order restraining Mr Pugachev from leaving the jurisdiction and ordering him to deliver up any passport in his possession. He delivered a Russian diplomatic passport but failed to notify the claimants’ solicitors of an additional French passport. Peter Smith J determined that he was in breach of the trusts disclosure order and the passport order. On 23 April 2015 the Moscow Court gave judgment for the claimants for RUR 75.6bn (approximately $1.5bn). Mr Pugachev’s appeal against that decision was dismissed on 18 June 2015. Shortly afterwards, Mr Pugachev fled the country in breach of the passport order to the south of France. On 1 July 2015 a search order was made in relation to two residential properties and this was executed on 3 July 2015.
The original trustees of the trusts, the second to fifth respondents, were four New Zealand trust companies. On 24 July 2015 their legal representatives sent a letter to the court copied to the claimants stating that the original trustees had been given notice by Mr Pugachev and his son Victor of their removal and replacement as trustees by four newly incorporated New Zealand companies, the 6th to 9th respondents. The claimants successfully sought permission from Rose J to use information obtained from the trusts disclosure order to serve the worldwide freezing order on a London clearing bank. The bank notified the claimants that it would freeze Luxury Consulting Ltd’s bank accounts but would not freeze bank accounts held in the names of the trusts.
On 30 July 2015 the claimants applied to extend the worldwide freezing order to the original trust companies, the four new trustee companies, and Luxury Consulting Ltd. That was dismissed by Rose J on 30 July 2015 on four grounds: (1) the claimants had not adopted the correct procedure for bringing the issue of the true ownership of the trust assets before the court; (2) The claimants had delayed unduly in making the application; (3) There was no evidence of a risk of dissipation of the assets which would not already have taken place, nor that the new trust companies were likely to act irresponsibly; (4) It was not expedient to grant the relief sought because the original trustees had made an application for directions to the appropriate court in New Zealand which could deal with the matter; (5) No injunction was necessary as against Luxury Consulting Ltd because Barclays had (at least for the time being) agreed to freeze the two accounts held with them by that company. The claimants applied for permission to appeal from that order.
Held:
- 1) There was a good arguable case that the assets held by the trusts were in reality assets of, or under the control of, Mr Pugachev. The was a classic one for an order made in accordance with TSB Private Bank International SA v Chabra [1992] 1 WLR 231 made in the first instance without notice to either the defendant or the third party said to be acting on his behalf.
- 2) The claimants had not delayed unduly in applying to extend the freezing injunctions. In the present case the timings in the change of the trustees, coming shortly after Mr Pugachev’s flight from the jurisdiction and other apparent breaches of the worldwide freezing order clearly supported the inferences that the change was intended to ensure that the trustees complied with his wishes and that therefore there was an increased risk of dissipation of the assets. It was not generally the rule that delay in applying for a freezing injunction or an extension of a freezing injunction was a bar in itself to the obtaining of relief. It might mean in some cases that there was no real risk of dissipation and that if the claimant had seriously thought that there was, an application would have been made earlier.
- 3) The claimants had shown a good arguable case that there was a risk of dissipation.
- 4) The appropriate way to deal with the possibility of discord between the jurisdiction and any order which might be made in New Zealand was to give the usual liberty to all parties (including the original and new trustees) to apply on notice to a judge of the Chancery Division to vary the order.
5) Only two accounts had been frozen by Barclays, namely those disclosed by Mr Pugachev. His disclosure had repeatedly been inadequate and evasive; and there was nothing to stop Luxury Consulting Ltd opening other bank accounts, possibly in other jurisdictions, into which to receive payments on Mr Pugachev’s behalf.
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