Otkritie International Investment Management Ltd & Ors v Urumov & Ors

LADY JUSTICE GLOSTER: This is an application for permission to appeal out of time against the orders of Eder J dated 10 February 2014 and 14 March 2014 in the Commercial Court. By his orders in relation to which Ms Balk seeks permission to appeal, the judge found that Ms Balk was guilty of procuring breach of contract, dishonest assistance and guilty of knowing receipt in relation to which he found her liable in the sum of $36,978,000. He made an order that judgment was entered for the Claimants in the principal sum of US $36,978,000.

He also found, and I am referring to paragraph 403 of the judgment, that she well knew that the monies were the proceeds of fraud or at the very least she must have been suspicious and deliberately chose not to inquire for fear of finding out the truth. The judge went on to say:

In a further judgment dated 14 March 2014 he concluded, after some hesitation during the course of argument at a hearing at which Ms Balk was not represented nor was she present because of her illness, that the Claimants were not obliged to take into account monies which had been received, approximately US $21,400,000, the value of 42 Avenue Road as at the date when the Claimants recovered the property and elected to retain and develop it. He held that the Claimants were not obliged to take into account, or give credit in relation to, those relevant recoveries notwithstanding the fact that, according to Ms Balk's argument, Avenue Road was purchased from the funds in respect of which she was said to have been liable either in knowing receipt or as a dishonest assister and which, according to Ms Balk, the Claimants contend that they had a proprietary interest which they could trace through into the property in respect of that part of the $36 million odd. The judge said:

He then refers to the position which he regards as straightforward in relation to certain of the Defendants. He says in relation to them:

Therefore, in effect, he did not give Ms Balk any credit for the sums received in respect of the 42 Avenue Road property.

Ms Balk appeals on a number of grounds. Her application for permission to appeal was filed on 9 June 2015 and was approximately 15 months out of time. Her grounds of appeal (in relation to the appeal she appeared in person) are fairly extensive and necessarily, perhaps, not focussed.

Basically, she says that because of her relapsing polychondritis and the consequential disabilities in relation to that, she was not fit to be cross-examined in trial in October 2013 and that basically therefore she felt under pressure to be cross-examined without any postponements.

She says that the judge was wrong to conclude, relying on her marital relationship with one of the other Defendants, Mr Urumov, and what the judge referred to as the VTL materials that she was dishonest and guilty of fraud. She complains that the judge was wrong to find that the documents, and in particular the VTL materials, showed her participation in the fraud as a dishonest participator. She claims that there is not a single banking transaction or incorporation document relating to either her or her husband or made on their instructions and that the judge was wrong to find that she and Mr Urumov controlled Vandry.

In that connection, she seeks to put in additional evidence in the form of affidavits from Ms Linden, an affidavit from Ms Dunant and an affidavit from Mr Kaufmann in the Gibraltar proceedings. She has, she says, new evidence. She applies to adduce new evidence and to remit the case back for a retrial.

The judge, in an extremely lengthy judgment which it is not necessary for me to summarise, carefully considered the evidence against Ms Balk and did so wholly separately from the participation of her husband, Mr Urumov. He reviewed the evidence extremely carefully and rejected the Claimants' claims that she was liable as a dishonest assister for Mr Urumov's breach of contract or conspiracy in relation to the larger Argentinian warrants frauds.

So he did not find Ms Balk liable for the full amount of the fraud. However, he did find her, after considering the matter in some detail, liable for the lesser fraud in relation to the sum of $36 million odd and he made adverse findings in relation to both Mr Urumov and in particular Ms Balk. He found that the VTL material was particularly damaging to Ms Balk because, as he put it, the documents bear the hallmarks of having been created as part of a money laundering exercise.

I am not prepared to give permission to appeal in relation to Ms Balk's main ground of proposed appeal, namely that the judge was wrong to conclude that she was a dishonest participant in the fraud. I do not consider that, after a trial of this length, Ms Balk has any real prospect of establishing that the judge was wrong to conclude that she was dishonest.

Nor am I persuaded that there is anything in her argument that she did not receive a fair trial because of what is no doubt her debilitating illness, which she has described and which the medical evidence supports. Obviously the court has every sympathy for Ms Balk. But the fact is that, as referred to in the judgment and in the Claimant Respondents' Jolly v Jay letters dated 24 June 2015 and 7 December 2015, Ms Balk attended many court hearings in the proceedings. She was prepared to be cross-examined. She was represented throughout the trial by highly experienced solicitors, Farrers, and leading and junior counsel, Mr Peto QC and Mr McDonagh, at trial.

The judge himself described Ms Balk as being "highly intelligent. As she herself emphasised in evidence, she has no less than three degrees from top universities". Her skeleton argument and grounds of appeal demonstrate not only a deep understanding of the issues in the case, but also underline her intelligence, despite the fact, as she herself points out, she is a lay person.

I am not satisfied that there is any mileage whatsoever in her argument that she did not have a fair trial because of her illness and that she was at an inappropriate or unfair disadvantage because of that, or that her Article 6 Convention rights were breached as a result of her giving evidence in the trial in 2013.

Nor am I persuaded that the further materials in any way should be admitted into evidence. The requirements for the admission of further evidence are not satisfied and, in any event, the evidence which she seeks to adduce does not, in my view, assist her.

I should just summarise the argument she seeks to put forward. She seeks to deploy the additional evidence to support her argument that the judge was wrong to find that she was in any way connected with Vandry, which the judge found to be a money laundering vehicle of the Urumovs that was used by them to launder millions of dollars of other fraud proceeds through the use of sham documents. Ms Balk alleged at trial that she had no interest in Vandry, but it is clear from the relevant paragraphs of the judgment that Eder J carefully considered that evidence and rejected it.

The new evidence is evidence tendered on behalf of Vandry in certain Gibraltar proceedings to the same end. However, the solicitors for the Claimant Respondents have provided the court with a judgment of Jack J of the Gibraltar High Court which records at paragraph 10 of his judgment the following:

The judgment of the Gibraltar High Court was dated 16 September 2015. Thus it is clear from this judgment that contemporaneous documents disclosed in the Gibraltar proceedings demonstrate that Ms Balk was interested in Vandry as a beneficiary of the Birchkey trust, the shareholding for Vandry.

Likewise, at paragraph 47 of his judgment dealing with the affidavit of a Ms Dunant that Ms Balk now seeks to rely upon in putting forward this further evidence, Jack J found as follows:

Therefore, the reality is, as the judgment makes clear, any attempt by Ms Balk on an appeal to rely on Ms Dunant's affidavit evidence would not assist this court in any way, and will not provide any support for her argument that the judge was wrong in relation to this issue. Since the evidence would not, in my judgment, even if it were to satisfy the test for adducing further evidence on an appeal, in any way assist the court, I see no reason either to adduce it or to take it into consideration as a reason for granting Ms Balk permission to appeal against the primary finding of the judge, namely that she was a dishonest assister in the laundering of the $36,978,000.

Those are the first two grounds of appeal in relation to which Ms Balk seeks permission, that is to say the Article 6 point and the finding of fraud against her. I am not prepared to give permission to appeal in relation to either of those issues, nor am I prepared to grant an extension of time in relation to either of those issues. They have no real prospect of success.

However, the issue which does concern me is the allocation of the proceeds of the Avenue Road property. At the moment, there is no reference to it in the grounds of appeal, but there is reference to it in Ms Balk's skeleton argument under the heading "Credit for and allocation of proprietary assets".

Ms Balk referred to a hearing on 16 June 2015 where in relation to another Defendant, a Ms Jemai, who was represented which counsel on that occasion, I gave permission to appeal in relation to this specific issue as to whether in assessing the quantum of the liability of Ms Jemai in that case (Ms Balk in this case) for equitable compensation or for damages as a dishonest assister it is correct for the court to take into account and give credit for proceeds of a proprietary claim that has been made against the particular Defendant involved as a fraudulent assister.

Ms Balk is wrong, as I have pointed out to her on a number of occasions, to say that I had said on that occasion that grounds 8 and 8A are particularly strong. I did not say any such thing. What I did do was to regard the argument put forward by Ms Jemai as having a real prospect of success, but, as is well-known, the test for granting permission to appeal on that basis is not a high hurdle to surmount. All I did was to give Ms Jemai permission to amend her grounds of appeal to run that argument. I am informed by the Claimants' solicitors that in fact since that date, Ms Jemai's amended grounds of appeal no longer seeks to run that argument.

Be that as it may, in my judgment, the allocation of proprietary assets argument does have a real prospect of success. I am not saying that it will succeed or that it is likely to succeed, but the argument, in my view, does surmount the relevant hurdle.

The position here was that by the time the default judgment against Dunant was obtained on 1 March 2012, effectively US $21,425,000 in respect of the value of 42 Avenue Road as at 23 March 2012 was received by the Claimants. That, as I have already said, was a property in respect of which the Claimants asserted as against Ms Balk a specific proprietary claim in relation to the monies that went to buy the property.

In the course of argument in front of Eder J, he expressed the view as follows. Mr Berry, counsel for the Claimants, said:

Although the judge at the end of the day came out in favour of the Claimants' arguments and said that basically the Claimant creditors could allocate recoveries at their choice (in accordance with the normal principles that a creditor can allocate appropriate payment to whichever debt he seeks), it does seem to me that it is realistically arguable that in this sort of circumstance when the claim is one for equitable compensation that it is wrong that a Defendant, albeit a dishonest Defendant, should not be given credit for the very proceeds of the proprietary claim which was made against her. There may be a dispute as to whether or not a proprietary claim was made against her, but it certainly seems from the passage which I have read that it is reasonably arguable that there was such a claim.

So I would be minded to give permission to appeal in relation to that single issue of quantum and I would be minded, subject to the point I am going on to consider as to whether an extension of time should be granted, to permit Ms Balk to amend her grounds of appeal to strike out the other grounds of appeal and to focus solely on the quantum issue.

However, that leads me on to whether after 15 months it is appropriate that I should grant an extension of time in circumstances, where it is said by the Claimants and Respondents with some force in their Jolly v Jay correspondence, that no good reason has been put forward by Ms Balk for an extension of time. The submission is made that, and I am quoting from Steptoe and Johnson's letter of 24 June:

The legal principles applying to an extension of time application are set out in the CPR at the notes to paragraph 52.4(1). The basic rule is that a notice of appeal must be filed within 21 days. The notes go on to say:

It is now well-established by authority of this court, and I refer in particular to the Hysaj decision, that filing a late notice of appeal should be approached in the same way as applications for relief from sanction under CPR 3.9 and that a judge should address an application for relief from sanction in three stages. The three stages are first to identify and assess the seriousness or significance of the failure to comply with the rules. The second stage is to consider why the failure has occurred, that is to say whether there is a good reason for it. Then the third stage is to evaluate all the circumstances in the case so as to enable the court to deal justly with the application.

In Hysaj, Moore-Bick LJ said that it would be quite wrong to construct a special regime for applications for extensions of time in public law cases. In relation to the difficulties facing litigants in person, Moore-Bick LJ said:

In the subsequent case, Secretary of State v SS (Congo) [2015] EWCA Civ 387 -- again that was a public law case -- the court said that a delay of more than three months in filing an appeal was a serious breach, and that a party who delays by several weeks or months in applying to this court for permission to appeal can generally expect to have the delay treated as significant or serious.

At the end of the day, it seems to me that the real issue here is whether, notwithstanding that there has been a serious breach by Ms Balk, and notwithstanding the fact that it is difficult to see how her ongoing and serious medical condition was the real reason for the failure, on a evaluation of all the circumstances of this case the court should refuse to give Ms Balk permission to appeal because that would be the just result.

I have found the exercise of my discretion as to whether to grant an extension of time a difficult one. However, on balance, I propse to grant an extension. I bear in mind the clear difficulties which Ms Balk has laboured under as a result of her debilitating illness, namely relapsing polychondritis. She has told me about the fact that the illness was recurrent, which made it very difficult for her to sleep and very difficult for her to concentrate; therefore she says it was extremely difficult for her to prepare her notice of appeal. However, despite her real difficulties, I am not satisfied that she has given and adequate explanation for her 15-month delay from February 2014 until June 2015. Nonetheless, given the serious consequences for Ms Balk of there being no reduction in quantum as a result of the recoveries in respect of the Avenue Road property, which she says would lead to the result in effect that she has to wait to get credit for that amount until all other sums due under the judgment have been received, it seems to me that it is appropriate that permission to appeal in relation to that single point should be granted and that I should grant an extension of time.

In all the circumstances of this case, I consider that to be the just result. Simply looking at the delay and the reasons for it does not, in my view, produce a just result. Ms Balk clearly has been suffering from illness during the 15-month period. Although she is obviously an intelligent woman and she has the help, or one can assume she has the help, of her husband in producing the document, he too has been ill. I am not prepared to rule out her argument in relation to this point simply on the basis that she should have sought an extension of time earlier.

She still has a substantial additional liability even if credit of $21 million odd is given for the Avenue Road property. Therefore, I am not persuaded that any difficulties in ongoing enforcement, if there are such difficulties, in relation to the Claimants' attempts to enforce in other jurisdictions or this jurisdiction, will seriously impede the recovery of the judgment debts. I am not granting any stay of execution pending appeal and indeed I have not been asked to do so.

Accordingly, on that single ground relating to appropriation of the proceeds which are the $21,425,000 and the two other amounts referred to, I am going to give Ms Balk permission to appeal. That ground raised the sole issue of whether credit should be given to her for recoveries in respect of the proprietary claims of US $21,425,000, US $1,856,981 and US $439,494 and how those recoveries should be allocated. She has permission to appeal in relation to that.

She is to file by 12 January for the court's approval, that is my approval, revised grounds of appeal simply referring to grounds addressing credit for and allocation of those proprietary assets.