Analysis
This concerned an application by the trustees of five discretionary trusts of which the defendant was a discretionary object. The defendant was the founder of the first claimant, a Russian bank (the bank). The bank had subsequently gone into administration and the second claimant, a Russian state organisation (the DIA), had been appointed as its liquidator. The DIA sought to enforce various claims against the defendant in Russian and English proceedings. The sums involved were in the order of $2.2bn.
At a hearing before Henderson J on 11 July 2014 a freezing order was made against the defendant, together with an order for the disclosure of his assets. The disclosure order extended to ‘any assets which he has the power, directly or indirectly, to dispose of or deal with as if it were his own.’ Further, that the defendant ‘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.’
Pursuant to that order the defendant served a schedule of his assets, which identified him as a discretionary object of the trusts. At a further hearing before Henderson J the claimants made an application that the defendant disclose the identity of the trustees, settlors, protectors and beneficiaries of the trusts and details of trust assets and their value. Further, that he was to produce copies of the trust deeds if in his control. Such an order was made and it provided that anyone affected was to have liberty to apply.
The instant application was an application by the trustees of the trusts under the liberty to apply provision for the discharge or variation of the disclosure order.
The trustees provided evidence that the defendant was one of a number of discretionary beneficiaries; that he was the protector of each trust until the freezing injunction was made against him; that no distributions or loans had been made to the defendant from the trusts; that the trusts did own the defendant’s primary residence; that the trustees of the trusts were trustee companies. The sole shareholders of the trustee companies were a New Zealand solicitor and his wife. The directors of three of the five trustee companies were the same solicitor and his wife. The directors of the other two were the solicitor and a business associate of the defendant.
The trustees submitted that:
- a) There was no jurisdiction to make the order unless the trusts were shams;
- b) There was no proper reason to think that trusts were shams;
- c) There was no reason to think that the assets might be dissipated;
- d) The risk of injustice to the trustees of disclosure outweighed the risk of injustice to the claimants if it were not;
- e) If there were to be an order, there should be an undertaking in damages and a confidentiality regime in place.
The defendant had also made a separate application for permission to appeal to the Court of Appeal, which was granted on the second day of the hearing of the instant application by the trustees. The grounds were in effect very similar to the submissions advanced by the trustees in front of David Richards J and were considered by him together with them.
The claimants made submissions that the court should not entertain the trustees’ application as:
- a) Under CPR 40.9 the count may only vary or discharge an order on the application of a party directly affected; the trustees were not directly affected.
- b) The decision of Henderson J should be binding on the trustees because there was sufficient privity of interest between them and the defendant.
- c) The court should follow the decision of Henderson J as that of a court of co-ordinate jurisdiction that was not plainly wrong.
In relation to the trustees’ submissions, the claimants argued that as regards jurisdiction the trustees based their case on too restrictive an interpretation of the freezing order. The evidence suggested good grounds for believing that the defendant was in a position to control the trust assets through the corporate structure underlying the trusts and this was sufficient to ground the disclosure order made. In relation to the undertaking sought by the trustees in the alternative, the claimants submitted that there was currently no reason to think that any loss might arise from the disclosure and therefore no undertaking should currently be required.
Held:
- 1) The claimant’s submission on CPR 40.9 was not accepted. The application was made pursuant to the express liberty to apply in the order. In any event the trustees were directly affected by the order.
- 2) While there was privity of interest between a trustee and a beneficiary who controlled a trust, the claimant’s submissions on that point assumed what was not yet established: that the defendant controlled the trust.
- 3) While the decision of Henderson J was, as submitted, that of a court of co-ordinate jurisdiction, the judge’s concern in this case stemmed from the fact that the trust disclosure issue had only been raised shortly before the hearing before Henderson J and possibly had been addressed by the defendant in a rush. In any case, the grant of permission to appeal robbed this submission of much of its force.
- 4) The defendant’s submissions on jurisdiction were based on too narrow a reading of the freezing order. There was often uncertainty about the extent of a defendant’s assets at the time that such orders are made. For this reason the standard form order was drafted to include assets over which the defendant has direct or indirect control. On the evidence, there were good grounds for supposing that the defendant did control the assets in the trusts. This did not require the claimants to assert that the trusts were shams or that the trustees were untruthful. In such circumstances, the court had jurisdiction to make the disclosure orders and that it was appropriate to do so in this case.
- 5) The submission that there was no reason to think that there would be dissipation of the assets was not a good point: The risk of dissipation was a point to consider in relation to the grant of a freezing injunction, rather than a disclosure order; the dissipation concerned was out of the various company structures under the trusts, rather than by the trustees; if the trust assets were covered by the freezing order, a distribution to any beneficiary would be dissipation.
- 6) The risk of injustice to the trustees turned on disclosure of assets in Russia. This information could and would be made subject to a confidentiality regime and the confidentiality club would be restricted so as to remove the risk of prejudicial disclosure.
- 7) It was not the practice of the court to require an undertaking in damages in respect of an order for disclosure. There might be circumstances in which this was appropriate but only where the evidence indicated a real risk of loss. This was not such a case.
- 8) Subject to the identity of members of the confidentiality club, the trustees’ application was dismissed.