JSC Mezhdunarodny Promyshlenniy Bank & Anor v Pugachev

LORD JUSTICE FLOYD: The appellant, Mr Pugachev, is the subject of an order made in the Chancery Division initially by Peter Smith J, and then continued by Hildyard J, which restrains him from leaving the jurisdiction.

In order to ensure compliance with those orders, he has been required to hand over his passports and other travel documents to the claimants' solicitors. I will refer to the existing restraints as "the passport order."

Whilst the passport order was in force, Mr Pugachev applied to Hildyard J for the temporary return of his passport to enable him to attend a "convocation" in Paris with two French judges, "juges d'instruction", who are investigating a complaint which he has made against officials of the second claimant. The "convocation" is currently set for today.

The judge refused the application on Monday of this week, 25 May 2015, for reasons given in a draft judgment circulated on that day. Mr Pugachev appeals the judges' refusal of the temporary suspension of the passport order. We heard the appeal on an expedited basis yesterday, 28 May, and indicated we would dismiss the appeal with our reasons to follow this morning. These are my reasons:

I do not need to say much about the background to the claim. In the early 1990s, Mr Pugachev founded the joint stock company, Mezhdunarodny Promyshlenniy Bank, in Russia. On 4 October 2010, the Russian Central Bank revoked the banking licence and commenced an insolvency procedure.

On 30 November 2010, the bank was declared insolvent by the Russian court and placed into temporary administration. The court-appointed liquidator is the State Corporation, Deposit Insurance Agency, "the DIA". The bank and the DIA are the two claimants in the action.

Mr Pugachev left Russia in early 2011 and presently resides principally in London, although he is a French citizen. The deficiency in the bank's assets at the date of its entry into liquidation was approximately 70.1 billion Russian roubles, or 2.2 billion United States dollars.

The DIA, as liquidator of the bank, have 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 scheme designed to extract money from the bank for the benefit of himself and companies under his control.

The amounts claimed exceeded 2 billion United States dollars. Similar proceedings have also been commenced in England, although for smaller sums. Mr Pugachev denies all these allegations.

On 11 July 2014, Henderson J granted a freezing order in support of the Russian proceedings restraining dealings in assets worldwide up to the value of £1.17 billion.

On 25 July 2014, Henderson J made a second order, requiring Mr Pugachev to disclose all trusts of which he was a protector or beneficiary, and provide copies of all trust documents. That order, and a subsequent order made by David Richards J refusing to set aside the order at the suit of the trustees of those trusts, was unsuccessfully appealed to this court, see their judgment dated 27 February 2015, JSC Mezhdunarodny Promyshlenniy Bank & Anor v Pugachev [2015] EWCA Civ 139.

As the time for compliance with Henderson J's disclosure order approached, the claimants applied without notice to Peter Smith J for the passport order. The basis for applying for the order was not only the absence of compliance with the order but a stated intention of the claimants to apply for cross-examination of Mr Pugachev on his disclosure of assets. The evidence in support of the application suggested that there was a significant risk of flight to France or elsewhere as a means of avoiding the discovery of the full extent and location of his assets.

Peter Smith J made the order on 2 March 2015. In purported compliance with the order to hand over his passport, Mr Pugachev produced a Russian diplomatic passport, but no French passport.

When the matter returned before Peter Smith J on 6 March, Mr Pugachev was asked about other passports. When it emerged that he could not have entered the United Kingdom on his Russian diplomatic passport, because it would have been stamped, he admitted to having a French passport.

Peter Smith J, in his judgment on that day, said this:

At paragraph 30, the judge said this:

On 11 March 2015, Arnold J was asked to grant an extension of time to enable Mr Pugachev to comply with the obligation to hand over the French passport. The 'merry dance' to which Peter Smith J had referred continued. Mr Pugachev's evidence was that the passport was in a safe in a chateau in France, and that he was the only person able to access the safe.

At paragraph 8 of his witness statement of 8 March, he explained that he was unable to travel to France, partly because he had handed over his Russian passport to the claimants, and partly because of the Interpol red notice which had been issued by the claimants or other representatives of the Russian State.

He believed that the only way to open the safe was to contact the company which installed the safe and to make arrangements for them to open it. Not surprisingly, this explanation struck Arnold J as unlikely, given that the French passport was the one used to gain entry to the United Kingdom.

In response to a question from the judge, Mr Pugachev said that he had indeed entered this country using the French passport, but had subsequently sent it to France in connection with an application for a driving licence. The passport had been taken to France by his son, who had then placed it in the safe in the chateau. This of course falsified his assertion in his witness statement that he was the only person able to access the safe.

He then went on to suggest that his son could not retrieve the passport from the safe without a power of attorney. This struck the judge as being in conflict with Mr Pugachev's statement that his son had been able to access the safe in order to put the passport in, and I can see why.

The French passport is now in the hands of the claimants' solicitors. As intimated at the hearing before Peter Smith J, the claimants had by this time applied for the cross-examination of Mr Pugachev on his assets, disclosures and living expenses. A recurring theme of the claimants' complaint was that it was unclear how Mr Pugachev managed to maintain his outward lifestyle on the basis of his disclosed means.

The cross-examination took place on a series of days starting on 23 March, and concluding on April 15 before Hildyard J. At the conclusion of the cross-examination, the claimants applied for certain further disclosure, including a further affidavit from Mr Pugachev.

Hildyard J originally delivered judgment orally on this application on 6 May 2015. However, on hearing further submissions, the judge retracted his oral judgment in order to reflect further. The date of the hearing before him, for the temporary suspension of the passport order, he had not yet delivered the final version of his judgment on that application, although he has now circulated a draft.

He has indeed decided to require further steps to be taken by Mr Pugachev, including particular steps directed to understanding how he comes to be able to afford his outward lifestyle.

The original passport order granted by Peter Smith J was expressed to expire at the conclusion of the cross-examination of Mr Pugachev, or further order, but on 15 April Hildyard J continued the order, and it remains in force.

The criminal proceedings in France, which are the subject of the "convocation" planned for today, were instigated by Mr Pugachev more than a year ago in April 2014. On 12 May this year, the investigating judges invited Mr Pugachev to present himself at their chambers, situated at the "Tribunal de Grande Instance" in Paris, in his capacity as a "partie civile".

In a letter purporting to come from his French lawyers, but unsigned, it is explained that the judges wanted to interview him with regard to his complaint. The unnamed lawyer expresses the view that it was important for Mr Pugachev to attend to provide additional details to the judges and to answer their questions in order to assess the validity of the complaint.

The letter goes on to explain that if he was not to attend, he could lose the benefit of his complaint unless this was due to force majeure. It was further suggested that the judges are not, in general, inclined to use video conferencing and also that a request for an adjournment could damage the case.

Against this, such advice as the claimants have been able to take in the time available suggests that Mr Pugachev's attendance before the French judges is not in any sense mandatory, as it would be in the case of a summons.

The "convocation" is an audition with the judges at their chambers and is in fact little more than a meeting or appointment. The claimants’ advice is that the French judges would not react adversely to the fact that Mr Pugachev was unable to attend because of the existence of the passport order.

The claimants have ascertained that the passport order has not yet been drawn to the judges' attention. Their advice is that video conferencing is now routinely conducted on appointments with "juges d'instruction" and that this is a paradigm case for its use.

Against this background, Hildyard J considered that, notwithstanding the completion of the cross-examination of Mr Pugachev, the flight risk identified (as being the basis of the passport order) still existed.

He then turned to consider whether the protections offered by Mr Pugachev would adequately mitigate the risk. These protections included an offer that a person in the employ of the claimant's solicitors should accompany Mr Pugachev to Paris, and keep possession of the passport.

The judge considered that this protection would be inadequate, concluding at paragraph 49 in his judgment as follows:

There is no dispute that the applicable legal principles are accurately summarised in the case of Young v Young [2012] EWHC 138 (Fam), a case concerning the impounding of a husband's passport in support of financial provision applications.

Mostyn J cited the Council Directive 2004/38/EC, of 29 April 2004 on the right of free movement as encapsulating what restrictions on such rights would be proportionate and permissible, including that:

Mr Doctor QC, who appeared with Mr Alexander Milner for Mr Pugachev, submitted that, whilst the judge had accurately summarised these principles, he nevertheless failed to apply them into a formal respect.

First, the judge had insufficient basis to find that there was probable cause that the defendant would not return to the United Kingdom.

Secondly, he had failed to have regard to the requirement of proportionality.

On his first submission, Mr Doctor contended initially that the test of probable cause meant that the court had to find that it was more probable than not that the defendant would not return.

In other words, the court had to have evidence which would persuade it on the balance of probabilities that the defendant would not return. Alternatively, he submitted that there must be a real risk, and there was insufficient here to establish that the defendant would not return.

The language used by Mostyn J in Young v Young, "probable cause for believing", can be traced back to Section 6 of the Debtor's Act 1889 through section 224(1) of the Supreme Court of Judicature Consolidation Act 1925, as helpfully explained by Mostyn J in Young v Young itself. What the plaintiff had to do in order to get an order under those sections was to:

I think it is clear from the contrasting language used in that provision that something less than proof on the balance of probabilities will do. It is equally clear that quite a lot more than a fear expressed on the part of the person applying for such an order is required.

By analogy with the test applied when a freezing order is applied for, I would hold as a minimum that there must be evidence from which it can be reasonably inferred that the party to be subject to the order will leave the jurisdiction and not return.

As to leaving the jurisdiction, there can be no doubt. The question is whether there is material from which it can be inferred that the defendant would make use of that opportunity to flee.

This is exactly the question which the judge sought to address, starting at paragraph 41 onwards of his judgment. He considered that the considerations which influenced Peter Smith J to grant the order still remain. Thus staying in, or not returning to, this country would continue to expose Mr Pugachev to the threat that the proceedings will expose what he called:

The proceedings thus far had also revealed some basis for supposing that Mr Pugachev was in contempt of court. Whether or not that was in fact so was of course not for the judge to decide, but a realistic prospect of such applications existed and had been made known to the defendant. See for example, the judgment of Peter Smith J of 6 March 2015 at paragraphs 40 to 45.

The "merry dance" on which Mr Pugachev had led Peter Smith J and Arnold J showed that he was prepared to go as far as misleading the court in order to keep hold of his passport, something that he would not need to do if he simply anticipated making trips abroad when a pressing necessity arose.

As Fox and Ralph Gibson LJJ pointed out in Bayer AG v Winter [1986] 1 WLR 497, at 502E and 503F respectively, such orders can always be varied if they would cause embarrassment or hardship.

The judge added to that the circumstance that Mr Pugachev had previously put forward a suspension of the order based on a pressing need to go to France to set up online banking, which required him to attend a branch of HSBC in France in person, grounds which the judge describes as "increasingly unimpressive".

I think it is a fair inference that if someone puts forward reasons which turn out, on examination, to be incorrect, that the court is entitled to look for the real reasons elsewhere: in the present case, there were ample reasons for Mr Pugachev to leave the country and not return. I therefore reject this first ground of appeal.

One starts the analysis of Mr Doctor's second ground, on the basis that there does exist a sufficient risk of Mr Pugachev not returning to the jurisdiction to justify the passport order.

Mr Doctor accepts that the public policy of requiring litigants to obey court orders is one of sufficient importance to allow a restriction on the freedom of movement of an EU citizen, provided it is proportionate.

However, he submits that in the present circumstances to prevent Mr Pugachev from attending a meeting, given the protections he has offered, is not a proportionate exercise of any power to restrict his movement.

If Mr Pugachev were not to return to the jurisdiction, the claimants would lose the assistance of the court to obtain the maximum possible protection from their freezing order. There are further steps which the judge proposes to direct in order to get to the bottom of the continuing mystery of Mr Pugachev's assets.

As against this, the judge had to weigh the prejudice to Mr Pugachev if he is prevented from attending the "convocation" in France, and take into account the protections which were offered by the defendant.

I have to say that I am unimpressed by Mr Pugachev's evidence of the importance of attending the "convocation". Despite having the invitation since 12 May, he has not explored the possibility of the use of video conferencing.

As to the impact of non-attendance in person, the judge was inclined to place greater reliance on the evidence from the claimants' side on this topic. He was plainly entitled to do so.

On the adequacy of the safeguards against flight, the judge noted that he was concerned about the ability to prevent flight at night. By the time we heard the matter, it was proposed that Mr Pugachev would leave, accompanied by a solicitor for the claimants on the 05.00am Eurostar to Paris today, and return the same day.

It is suggested that this removes such lingering doubts as there might be as to the security of the plan. I do not accept that argument. The judge's example of night-time supervision was just an example of how he considered that the protections offered were more apparent than real.

It seems to me, by way of another example, that it would be impossible for a solicitor to prevent Mr Pugachev from slipping away in a crowded station or street. The fact that the solicitor could retain possession of his passport is of little assistance. Mr Pugachev would be in France, where he is a citizen, and would in any event be free to move throughout the Schengen area, as the judge observed.

Some reliance was placed on the existence of the Interpol red notice, on the basis that if Mr Pugachev went to France he might be prevented by arrest from returning to the United Kingdom and possibly extradited to Russia.

Mr Pugachev's position is that on advice, which he has not disclosed, this no longer poses a threat. It is not clear what has changed since he told Arnold J in his witness statement that the red notice was one reason why he could not go to France to collect the passport. However, I very much doubt that Mr Pugachev would wish to return to France if there existed a danger of his arrest and extradition to Russia.

I would not, myself, place much weight on that consideration, although it may be a further example of the way in which Mr Pugachev appears to tailor his evidence to the particular objective he has immediately in mind. I am not persuaded the red notice was anything other than a makeweight factor for the judge, either.

I have no doubt, therefore, that the judge properly considered whether the restriction on Mr Pugachev was justified and proportionate taking into account the principles which he set out and which I have reproduced above. There is no basis on which this court could properly intervene. I would therefore dismiss this appeal.

LORD JUSTICE BEAN: Like Lord Justice Floyd, I would reject Mr Doctor's primary submission that a Bayer v Winter order, restraining a defendant from leaving the country and providing for the temporary impounding of his passport, requires the claimant to show that it is "more probable than not" that the defendant intends to flee the jurisdiction.

I, too, would apply the analogy of applications for freezing injunctions. If the evidence, viewed objectively, demonstrates a real risk that the defendant will leave this country in order to frustrate the court's processes, that is sufficient to give the court jurisdiction, provided that the restriction is proportionate in all the circumstances of the case.

For the reasons set out by Floyd LJ, with which I agree, there is ample evidence from which Hildyard J was entitled to find that there is indeed a real risk that if Mr Pugachev is allowed to travel to Paris, he may not return to England; and that the temporary restriction of his freedom of movement imposed by the passport order is proportionate in the circumstances of this case.