JSC BTA Bank v Solodchenko & Ors

The question for the court on this application is whether the seventeenth defendant, Mr Anatoly Ereshchenko, should be ordered to attend for cross-examination in respect of his purported compliance with a disclosure order which I made against him on 3 November 2010. At the date of the disclosure order Mr Ereshchenko was not a party to the present action, although he has subsequently been joined and was due to serve his defence by 29 March 2011. Because Mr Ereshchenko was not then a party, the disclosure order against him was made under the Norwich Pharmacal and Bankers Trust jurisdiction: see CPR 31.18, Norwich Pharmacal v Customs & Excise Commissioners [1974] AC 133 and Bankers Trust v Shapira [1980] 1 WLR 1274 (CA).

The question may seem a short one, but like much else in the wider litigation of which this application forms part it has been hotly contested. The argument lasted for approximately a day, despite a half-day time estimate, with leading counsel deployed on each side: Mr Philip Marshall QC (leading Ms Emily Gillett) for the claimant JSC BTA Bank (“the Bank”), and Mr Paul Lowenstein QC for Mr Ereshchenko. I am grateful to both of them for their full and able submissions.

The wider background to the litigation has already been described in a number of judgments, and I will not repeat it. The present action in the Chancery Division (“the Chancery action”) is one of six actions (the other five are proceeding in the Commercial Court in the Queen’s Bench Division) by which the Bank seeks to trace and recover in England vast sums of money (amounting in total to some US$3.5 billion) allegedly misappropriated from it by its former chairman, Mr Mukhtar Ablyazov, and other senior managers, at times before the Kazakh government acquired control of the Bank through a national wealth fund in February 2009. Mr Ablyazov is the principal defendant in the Commercial Court proceedings. He was originally not a defendant to the Chancery action, but he has now been joined as the eighteenth defendant by an order which I made (without opposition, save on a question of costs) on 14 March 2011. The first and (until now) main defendant in the Chancery action has been Mr Roman Solodchenko, who was at the material times chairman of the Bank’s management board and is alleged to have occupied a position in the Bank’s hierarchy second only to Mr Ablyazov.

The nature of the claim advanced in the Chancery action is very briefly as follows. The Bank alleges that certain AAA-rated investment bonds (“the AAA Investments”) that it held, worth about US$300 million, have been misappropriated. In January 2009, during the global financial crisis and at a time when the Bank was insolvent, the AAA Investments were transferred from the Bank to five companies incorporated in the British Virgin Islands which are now the fourth to eighth defendants (“the BVI Defendants”), upon the instructions of Mr Solodchenko. The Bank did not receive any payment or other consideration in exchange for the transfers of the AAA Investments, and it contends that they lacked any commercial purpose or justification. The Bank alleges that the BVI Defendants are owned and controlled by Mr Ablyazov, and that he is the ultimate beneficiary of the misappropriation of its assets.

In June 2008 the BVI Defendants had entered into a futures contract with a third party, Alfa Equity Investments Limited (“Alfa”), to sell identical AAA Investments to Alfa in return for an immediate payment by Alfa to the BVI Defendants of US$300 million. In some way which is not yet clear, it seems very likely that the AAA Investments which were transferred to the BVI Defendants in January 2009 must have been used as security for this obligation. In any event, once the AAA Investments had been transferred by the Bank to the BVI Defendants in January 2009, they were then used to satisfy the obligations of the BVI Defendants to Alfa. Meanwhile, most of the US$300 million had been transferred by one or more of the BVI Defendants to four further companies (three incorporated in the BVI and one in the Seychelles) by way of loans dated 9 June 2008. These further recipients are the ninth to twelfth defendants. The Bank alleges that the so-called loans were shams, or at any rate were uncommercial and not negotiated at arm’s length.

The thirteenth defendant, Eastbridge Capital Limited (“Eastbridge”), is an English company which the Bank believes was used by Mr Ablyazov to give instructions for the transfer and disposal of the misappropriated assets. Mr Ereshchenko was a director of Eastbridge from its incorporation in September 2003 until May 2010. The Bank now claims, among other things, that Mr Ereshchenko dishonestly assisted in the transfer of the AAA Investments to the BVI Defendants in January 2009. Mr Ereshchenko’s former fellow directors of Eastbridge were Mr Alexander Udovenko, the fifteenth defendant, and a Mr Anuar Aizhulov, neither of whom can now be found either within or outside the jurisdiction.

The present sole director of Eastbridge is a Mr Ramil Burganov, who was appointed in rather mysterious circumstances in or about September 2010, at a monthly salary of £4,000. By his own account, Eastbridge is now dormant, with no employees or continuing business and no assets of any significance. He says that he knows nothing about its former activities, and his present role is simply to wind up its affairs. For its part, the Bank alleges that the business formerly carried on by Eastbridge has been transferred, in whole or in part, to another English company, Park Hill Capital Limited, which is the sixteenth defendant.

The fourteenth defendant, Mr Syrym Shalabayev, is Mr Ablyazov’s brother-in-law, and he is one of the persons who according to the Bank gave instructions at the material times in the name of Eastbridge. He appears to have gone into hiding, and the Bank has been unable to trace him since he was served in Cyprus on 5 November 2010 with a freezing and disclosure order which I made on 3 November 2010.

To complete the main cast of characters, I must also refer to the second and third defendants, Mr Paul Kythreotis and Mr Jason Hercules. Mr Kythreotis is a British citizen who lives in Cyprus. He owns and operates the Starport Group of companies which provide nominee and other corporate services. Mr Hercules works with him and is the company secretary of Starport Secretaries Limited, a company within the Starport Group. Mr Kythreotis has filed extensive evidence, explaining how he and his group received and implemented instructions from Eastbridge in relation to the BVI Defendants and the further recipients. For reasons which I need not go into, the Bank believes that much of his evidence is untruthful, and he has already been the subject of one protracted set of committal proceedings.

In August 2009 the Bank obtained a world wide freezing order over the assets of Mr Ablyazov, Mr Solodchenko and others in one of the Commercial Court actions known as the “Drey Proceedings”. The disclosure eventually provided by Mr Ablyazov was described by Mr Justice Teare in a subsequent judgment as “extraordinarily inadequate”, and Mr Ablyazov was ordered to attend court to be cross-examined on two occasions. The cross-examination failed to alleviate the Bank’s concerns, and it therefore took the unusual step of applying for receivers to be appointed over Mr Ablyazov’s assets, in advance of any trial or judgment, on the basis that he could not be trusted to comply with the freezing order. Following a contested hearing, receivers were appointed by Teare J, and an appeal by Mr Ablyazov to the Court of Appeal was dismissed, as was a subsequent application by him to the Supreme Court for leave to appeal. The appointment of the receivers finally took effect from 9 November 2010. After that date, the Bank obtained significant new evidence that Mr Ablyazov had sought to conceal his ownership of a further 200 or so companies, and on 26 January 2011 the Bank applied for, and obtained, an extension to the receivership order to include Mr Ablyazov’s alleged beneficial interest in those companies and their assets.

It will be apparent from what I have already said that the wider litigation brought by the Bank against Mr Ablyazov is of very great size and complexity, and is proceeding on several fronts simultaneously. It is important not to lose sight of this broader picture when focussing on the particular role of Mr Ereshchenko in relation to Eastbridge, and the question whether he has indeed given disclosure to the best of his ability in response to the order which I made last November. It is also worthy of note, as Mr Marshall QC submitted, that not one of the first to sixteenth defendants in the Chancery action has yet advanced any positive case that the transactions involving the AAA Investments were commercially justified or otherwise legitimate.

On 26 July 2010 I granted personal and proprietary freezing orders, on a without notice application by the Bank, against Mr Kythreotis, Mr Hercules, the BVI Defendants and the further recipients. No freezing relief was sought against Mr Solodchenko, because a freezing injunction had already been obtained against him in the Drey Proceedings. On the following day, 27 July, the Bank sought and was granted freezing and associated relief in the British Virgin Islands against the eight defendants incorporated in that jurisdiction. On 6 August 2010 the relief which I had granted on 26 July was continued, in substantially the same terms, by Newey J. None of the defendants was present or represented on that occasion.

None of the defendants complied with the disclosure provisions of the July order, or the similar orders made in the British Virgin Islands. The Bank therefore brought contempt proceedings against the eight defendants incorporated in the BVI, and on 6 September 2010 an order sequestrating their assets was made. On 25 August 2010, the committal proceedings against Mr Kythreotis, to which I have already referred, were commenced in the High Court. On 22 September Proudman J made a finding of contempt against him, but following a series of further hearings, in the course of which he provided a substantial amount of belated disclosure, she decided not to impose any custodial sentence or fine on him. The Bank has appealed against that decision, and is applying to adduce fresh evidence on the appeal on the footing that the belated disclosure provided by Mr Kythreotis was in important respects incomplete and untruthful. The Bank says that this contention is strongly supported by documents which it obtained from the execution of a search order against Mr Hercules in Cyprus in November 2010. The appeal is due to be heard by the Court of Appeal in April 2011.

Despite the allegedly unsatisfactory nature of Mr Kythreotis’ disclosure, it did provide some relevant information about the role of Eastbridge. Mr Kythreotis stated, among other matters, that:

It was also apparent from a search at Companies House that Mr Udovenko had been a director of Eastbridge from September 2003 to February 2010, and that Mr Aizhulov had been a director from November 2004 to August 2009. As I have already said, Mr Ereshchenko was a director from September 2003 to May 2010. Until recently, all three of them were settled and lived in London. The Bank also contends that Mr Shalabayev was a de facto director of Eastbridge during the material period.

On the basis of this material, I made further freezing and disclosure orders against Eastbridge, Mr Shalabayev and Mr Udovenko on 3 November 2010, in very similar terms to the July order. It was following the service of this order on Mr Shalabayev in Cyprus on 5 November that he disappeared, and all subsequent attempts to trace him have been unsuccessful. The Bank has also been unable to locate Mr Udovenko or Mr Aizhulov, each of whom appears to have gone into hiding.

By the disclosure order, which I also made on 3 November 2010, I directed Mr Ereshchenko and Mr Aizhulov, within 21 days of service of the order upon them, to provide answers in writing to the questions set out in Schedules A and C to the best of their ability and after making all reasonable enquiries, and also to supply to the Bank’s solicitors copies of all documents in their control (broadly defined) which evidenced the matters set out in their answers. The order contained a standard form proviso against self-incrimination, and because the respondents were not parties it also contained an undertaking by the Bank to pay their reasonable costs incurred in complying with the order. Each respondent was also directed to swear and serve an affidavit verifying the information which he provided.

The questions set out in Schedule A to the disclosure order referred to a list of asset transfers and payments set out in Schedule B, including the relevant transfers of the AAA Investments and the payments by Alfa to the BVI Defendants, and then asked:

“(a)

What monies are left in the accounts identified in Table 2 of Schedule B below?

(b)

When did money/securities leave those accounts and in what amounts?

(c)

Who gave the instructions that money/securities should leave those accounts?

(d)

Were those instructions influenced by a suggestion or instruction made by any other individual, and if so who is that other person and what was the suggestion or instruction?

(e)

Where did the money/securities which left the accounts go to and for what purpose?

(f)

Was any and if so what consideration given and/or paid by the recipient of the money/securities?

(g)

What is the identity and address of each recipient of the money/securities?

(h)

Are the monies/securities now in the form of cash and, if so, where is that cash?

(i)

Are the monies/securities now standing to the credit of a bank account or accounts and, if so, which accounts or accounts in whose name(s) and at which bank(s)?

(j)

Were any of the monies/securities used to purchase any asset(s) or any interest in any asset(s), if so which asset(s) were purchased, by whom, on which date(s) and what has become of them and any proceeds of sale of any of them?”

It will be seen that these questions were designed to elicit information which could be used to trace the present whereabouts of the AAA Investments and the US$300 million, or their respective proceeds.

Schedule C, by contrast, was directed at discovering the beneficial ownership and control of the BVI Defendants, the further recipients, and Eastbridge itself. In relation to each of those companies, the following questions were asked:

“(a)

Who is the legal owner of the shares …?

(b)

Who is known to be or believed to be (stating which applies) the beneficial owner of the shares …?

(c)

Who gives instructions to the director(s) or agents of each of the Defendants concerning the decisions and actions they should take and generally concerning the activities of that Defendant?

(b)

Who is known to be or believed to be (stating which applies) the person who ultimately controls each of the Defendants?

(e)

Does anyone else other than the director(s) have power to act on behalf of each of the Defendants and, if so, who and how/why?

(f)

Who had/has signatory powers over the accounts at Alfa Equity and Trasta into which the Payments were paid as referred to in Schedule [B] above?”

The disclosure order was served on Mr Ereshchenko on 10 November. An extension of time for compliance was granted by agreement until 8 December, when he applied to the court for more time to consider whether to mount a challenge to the order. This application was heard by Vos J, who pointed out that it was most unsatisfactory for Mr Ereshchenko to seek further time to consider a challenge to the order when he was already out of time in complying with it. The judge emphasised that it was important not to confuse the two questions, and that there could be no excuse for failure to gather and supply the necessary information if no application to set aside the order was in fact made, or if such an application was made but subsequently failed. In the event, the judge gave Mr Ereshchenko, who was then represented by Mr George Bompas QC, until 10 December to provide evidence of the steps that he had taken to comply with the terms of the disclosure order since its service upon him on 10 November, and to state whether or not an application to set it aside would be made (and, if so, on what grounds). Faced with this ultimatum, Mr Ereshchenko decided not to challenge the disclosure order and, instead, he served a witness statement at about 4.15 pm on 10 December in purported compliance with it. This witness statement was subsequently verified by an affidavit which he swore on 15 December. In paragraph 4 of that affidavit, he said:

“For the avoidance of doubt I can confirm that I know nothing, so far as I can recall, about any of the transactions whereby US$300 million of AAA-rated investments were allegedly fraudulently transferred from the Bank to the BVI Defendants.”

In his witness statement of 10 December 2010 Mr Ereshchenko began by giving a brief explanation of his role and functions in relation to Eastbridge. He said that the company had been founded by Mr Udovenko, Mr Aizhulov and himself in September 2003. He had met Mr Udovenko at the London Business School where they had done an MBA together. His background was in management consultancy, whereas Mr Udovenko’s was in legal services and banking. They set up Eastbridge together, with a view to Mr Udovenko building a corporate and administration services business, and Mr Ereshchenko building a private equity and investment advisory service, concentrating in each case on clients from Russia, Ukraine and Kazakhstan. They were soon joined by Mr Aizhulov, who used to work for a deputy governor of a region in Kazakhstan “and therefore had some very useful connections”.

It soon became clear to Mr Ereshchenko “that by far the largest generator of business for Eastbridge was Mr Udovenko”, and the corporate services side of the business expanded accordingly. Mr Ereshchenko said that he worked on his own account, independently from Mr Udovenko, and focused on market research with a view to identifying potential investment opportunities for clients in Russia, Kazakhstan and Eastern Europe. However, although he travelled extensively seeking investment opportunities,

“… this resulted in few deals of any significance. My contribution to Eastbridge’s business was not significant. Mr Udovenko therefore took all decisions on behalf of the company.”

Mr Ereshchenko said that the Bank was introduced to Eastbridge as a client by Mr Udovenko in 2007, and he (Mr Ereshchenko) then took on the role of director of the Bank’s UK branch office which began to operate in about mid-2008. His role was essentially administrative, and the person he dealt with in all his dealings with the Bank was Mr Solodchenko. However, the principal client relationship between the Bank and Eastbridge was with Mr Udovenko. In 2009, as a result of the credit crunch, Eastbridge’s business was in decline, and at the end of that year Mr Udovenko stopped working for Eastbridge, before formally resigning as a director in February 2010. Mr Aizhulov had already resigned in August 2009, so by February 2010 Mr Ereshchenko was the only remaining director. He was then asked by Mr Udovenko to stay on in order to collect the debts, pay off the creditors, and wind down the business of Eastbridge. Mr Ereshchenko himself resigned as a director in May 2010, and stopped working for Eastbridge on 20 June 2010. The company’s accountants were SPW (UK) LLP (“SPW”), to whom all of Eastbridge’s documents and records were passed on a regular basis, partly for safe-keeping and partly to enable preparation of the accounts and the provision of book-keeping and company administration services. When Mr Ereshchenko left, he instructed SPW to appoint a nominee director in his place and in due course to liquidate Eastbridge.

Turning to the disclosure order, Mr Ereshchenko said that he was not a signatory on any of the accounts listed in Schedule B and he knew nothing about the establishment of the BVI Defendants or the further recipients. All of those companies were dealt with by Mr Udovenko’s side of the business. He was also unaware that he had been granted powers of attorney by four of the five BVI Defendants, from 3 March 2009 to 2 March 2010: he did not sign them, and nobody told him about them. As far as he knew, he had never signed anything or done anything in exercise of those powers.

Mr Ereshchenko also claimed to be unable to answer any of the questions in Schedule A. He said he was not a recipient of, or party to, any of the instruction emails referred to by the Bank as being at the heart of the alleged fraud, and although he had been copied into three emails in May 2009, and one in October 2009, which appeared to relate in some way to one or other of the BVI Defendants, he said that he did not recall them, they appeared to be of an administrative nature, and they dated from many months after the alleged fraud.

In paragraph 18 Mr Ereshchenko said:

“I do not have any company documents that might assist, or indeed any company documents at all.”

He then turned to Schedule C, and dealt first with the companies there listed apart from Eastbridge. He said that he knew nothing about their legal or beneficial ownership, or who ultimately controlled them. He was unable to think of any reasonable enquiries he could make in order to get answers to any of the questions. He then dealt briefly with Eastbridge, saying that he had always believed its beneficial owner to be Mr Udovenko.

In the final section of his statement, Mr Ereshchenko responded to the direction given by Vos J on 8 December:

“22.

I am asked to explain what steps I have taken to date in order to comply with the Order. In fact, there is very little which I felt I could reasonably do. I have made enquiries of Mr Solodchenko as soon as I received the 3 November Order … I tried but failed to contact Mr Udovenko. I have no documents and no access to documents that might help. The only people I could turn to are already parties to the proceedings and if I was able to contact them … I cannot imagine that they would be prepared to provide information to me which they are not prepared to provide to the Bank. I believe therefore I have taken all possible steps required from me to comply with the Order.

…

24.

I am also required to explain what steps I still need to take in order to comply with the Order. I have, however, in what I have set out above, attempted in fact to comply with the Order in full. It follows that I do not intend to apply to discharge the Order. I now believe that I have complied so far as I am able …”

Late in the evening of 10 December, some five hours after his statement had been finalised and served, Mr Ereshchenko was observed by the Bank’s surveillance agents to attend the offices of SPW at about 9.00 pm, shortly after a number of document boxes had been transported there in a white van from a storage unit in North London. About an hour later, the white van returned and was reloaded with what appeared to be the same document boxes. It is now known that the licensee of the storage unit was Mr Salim Shalabayev, the brother of the fourteenth defendant.

Mr Ereshchenko made no mention whatever of this intended visit in his witness statement, nor did he refer to it in the affidavit which he swore five days later. Had it not been for the Bank’s surveillance operations (full details of which are set out in the 11^th affidavit of the Bank’s solicitor with conduct of the proceedings, Mr Christopher Hardman, dated 1 February 2011) the Bank and the court would still remain in total ignorance of this nocturnal adventure.

On 3 February 2011 the Bank made a without notice application to me for a search order in relation to the storage unit. The principal evidence in support of the application consisted of Mr Hardman’s 11^th affidavit, to which I have just referred. I granted the order, and the search was then executed on Monday 7 February. The material found consisted of 25 boxes containing documents, some computer equipment and 17 back-up tapes. Eastbridge’s solicitor was present when the search was executed, and he confirmed that the great majority of this material appeared to belong to Eastbridge. This was subsequently confirmed in a letter from Eastbridge’s solicitors, Lass Salt Garvin, dated 8 February 2011. As I will explain in more detail later on, the process of reviewing this material, dealing with issues of privilege and relevance, and obtaining access to and imaging the very extensive computer material, has proved to be slow and difficult, and is still very far from complete.

One of the orders which I made on 3 February was to give permission to join Mr Ereshchenko as a defendant. The Bank also indicated through its counsel that it would wish to seek an order for Mr Ereshchenko’s cross examination, and undertook to issue an application for that purpose before the return date for the search order on 11 February. At the hearing on 11 February Mr Ereshchenko was represented by leading counsel who now appears for him, and I gave directions for the filing of evidence on the application.

Pursuant to those directions, Mr Ereshchenko filed a second witness statement on 1 March 2011 in which, among other things, he gave for the first time his account of the events of the evening of 10 December. He said that he had been contacted by SPW, to help them find missing Eastbridge documents which were needed to ensure compliance with the disclosure order that I had made against Eastbridge on 3 November. Mr Ereshchenko did not know where the documents might be, but said that he would try to help. When he had worked for Eastbridge at its offices at Tower 42 in the City of London, some of its documents had been stored in an empty office, together with boxes of papers belonging to Mr Udovenko and Mr Shalabayev. Mr Ereshchenko speculated that the documents which SPW wanted might possibly have been in the office, and might have been mixed up with the boxes of papers belonging to Mr Udovenko and Mr Shalabayev, which Mr Ereshchenko “knew had been taken away by Syrym’s brother, Salim, at the end of September 2010 as part of the winding down of Eastbridge”.

Mr Ereshchenko therefore called Salim “sometime in December” and asked him if the boxes in question contained Eastbridge documents. Salim did not know, but was unwilling to review all the documents himself and suggested that Mr Ereshchenko should do so. Mr Ereshchenko thought this would be a good idea, and that it would be sensible to review the boxes at SPW’s offices because SPW were acting for Eastbridge and it was they who were seeking his help. It was thus arranged that the review would take place at SPW’s offices, and Mr Ereshchenko went there on 10 December having been “tied up for the whole working day” preparing and filing his witness statement. Once he reached SPW’s offices, he started to look through the boxes and quickly found the documents that SPW said were missing. He then gave these documents to SPW. While at their offices, he reviewed only four or five of the boxes. In the course of his review, he did not see anything which struck him as potentially relevant to any of the questions asked of him in the disclosure order.

By way of “clarification” of his statement in paragraph 22 of his witness statement of 10 December that he had “no access to documents that might help”, he said that he believed it to be true on that date because he “did not know what was in the boxes that were to be sent to SPW for [him] to find the missing accounting material that SPW wanted”. After his inspection at SPW’s offices had taken place, he still believed that he had no documents which were relevant to any of the questions asked. He accepted that he should have been “more precise” in his subsequent affidavit, but he was under immense pressure at the time he swore it and found it hard to function properly.

This account gives rise to a number of rather obvious questions. For example, why did Mr Ereshchenko think that the documents allegedly required by SPW (including, in particular, Eastbridge’s bank statements for July and August 2010) might be found in the documents which had been taken from the office at Tower 42 for storage, when his own evidence (in paragraph 12 of his first statement) is that all Eastbridge documents were routinely sent to SPW for accounting and administrative purposes? How did he know about the boxes of papers removed from the office by Salim Shalabayev? Why were documents belonging to Eastbridge being stored by somebody who appeared to have no position with the company, and who apparently knew nothing of their contents? Why did he say on 10 December that he had no access to documents that might help, when later that very evening he was going to search through boxes of documents taken from Eastbridge’s former business premises? It is noteworthy that no corroboration or documentary evidence is provided in support of SPW’s strange request to him for assistance. Nor does he say why the matter was so urgent that the assistance had to be provided late in the evening, long after SPW’s normal closing time.

There is also a further problem. Mr Ereshchenko’s account appears to conflict with the evidence of Mr Salim Shalabayev, who swore an affidavit on 16 February 2011 in response to the order which I made on 3 February. According to this evidence, he took out the licence for the storage unit after receiving a telephone call from his brother, who said he needed him to look after some boxes for him, and told him to expect a call from a man named Tolik (short for Anatoly) in relation to this. Salim later received a telephone call from a man named Tolik, who asked him to come to collect the boxes at an address in central London. The address in question was “a very tall office building”, and he collected the boxes from a high floor (“I think it was floor 30 - something”). It appears highly probable that the man named Tolik was Mr Anatoly Ereshchenko, and that the address was Tower 42. If that is right, it was Mr Ereshchenko himself who arranged the storage of the boxes, at the request of the supposedly uncontactable Mr Syrym Shalabayev. These inferences are strengthened by a subsequent passage in Salim’s affidavit, where he says that “on one occasion Syrym called me and said that I might get a call from Tolik wanting to take away some of the boxes”. This then happened, and Salim met a driver sent by Tolik at the storage unit. A number of boxes were taken away, and then returned the next morning. Salim says that he believes this to be the event described by Mr Hardman in his 11^th affidavit. If so, it was Mr Ereshchenko who arranged for the boxes to be taken to SPW’s offices, and he did so on the instructions or at the instigation of Syrym Shalabayev.

The jurisdiction of the court to order cross-examination on an affidavit of assets ancillary to a freezing injunction is well-established. In the first such case to reach the Court of Appeal, House of Spring Gardens Limited v Waite [1985] FSR 173, Slade LJ described the nature of the jurisdiction (derived from section 37 of the Senior Courts Act 1981) at 181, as follows:

“At least in principle, cases can in my opinion arise where, on the particular facts, the court may properly take the view that the calling or recalling of a defendant for cross-examination on his affidavit is the only just and convenient way of ensuring that the exercise of this jurisdiction will be effective to achieve its purpose, by ensuring that all the relevant assets are identified before any opportunity arises for their dissipation. And this may be so even if, procedurally, the only application before it is the application for cross-examination itself … and the plaintiff has not yet seen fit to launch a motion for committal.”

Slade LJ went on at 182 to describe the proper scope of such cross-examination as being, broadly, to ascertain whether the defendants had fully and properly complied with the disclosure obligations imposed on them by the freezing order, and, in so far as they had not done so, to elicit the missing information which should have been supplied, but which they had failed to supply.

To similar effect, Cumming-Bruce LJ said at 183:

“The purpose of the cross-examination would be to elicit with greater particularity the extent and the whereabouts of the defendants’ assets. The background of applications for [freezing] injunctions is often a situation in which it is urgently necessary for the court to intervene in order to assist the plaintiff to prevent the defendant from frustrating the object of the proceedings. In such a situation an order to cross-examine upon an unsatisfactory affidavit already filed is one of the courses that the court has jurisdiction to take.”

Similar principles apply in relation to disclosure ordered against a non-party, as Morison J accepted in Kensington International Limited v Republic of Congo [2006] EWHC 1848 (Comm).

The touchstone of justice and convenience for granting such orders was reiterated by the Court of Appeal in Yukong Line Limited of Korea v Rendsburg Investments Corporation of Liberia and others [1996] EWCA Civ 759, where the court unsurprisingly rejected a submission that the jurisdiction existed in theory but it would always be wrong in principle to exercise it. In the course of his judgment, Phillips LJ (with whom Kennedy LJ agreed) said this:

“In my judgment, the test is simply whether, in all the circumstances, it is both just and convenient to make the order. In applying this test, the court will have regard to the fact that it is a very considerable imposition to subject a defendant to cross-examination and consider carefully whether there are not alternative means of achieving the same end that are less burdensome. The court has to weigh the various options in order to decide which best meet the dual requirements of justice and convenience.”

Phillips LJ then quoted from the judgment of Cumming-Bruce LJ in House of Spring Gardens at 183, and continued:

“I would endorse those comments, but emphasise that, as they indicate, an order for cross-examination is an exceptional measure. There can be no question of such orders becoming a routine feature of [freezing order] proceedings. Having said that, I reject Mr Allen’s contention that cross-examination can only properly be ordered when there is no alternative form of relief available.”

I was also referred by Mr Lowenstein QC to the decision of Falconer J in CBS UK Ltd v Perry [1985] FSR 421. In that case the judge refused to order cross-examination on affidavits filed by a defendant pursuant to a search and seize order made in copyright infringement proceedings. The judge emphasised at 430 the oppressive aspect of seeking further information in this way, and said that no attempt had been made by the plaintiffs “to go back again and ask, using the same process, to see whether they could get what they wanted”. Nor had any attempt been made to administer interrogatories, or to cross-examine the other two defendants with whose stories there was said to be an inconsistency.

In my judgment the assistance which I can gain from this case is limited, because the judge was apparently not referred to the decision of the Court of Appeal in House of Spring Gardens although it had been decided some six weeks earlier. At best, it provides an example of the exercise of the discretion which the court undoubtedly has whether or not to order cross-examination.

Against this background, the basic submissions of Mr Marshall QC for the Bank are simple. He says that it would clearly be both just and convenient to order Mr Ereshchenko to attend for cross examination on his two witness statements and affidavit, because:

The main evidence relied upon as showing the inadequacy of Mr Ereshchenko’s existing disclosure, and his ability to provide further information, is of course the evidence relating to his nocturnal visit to SPW’s offices on 10 December 2010. However, there are other matters too. Most notably, a series of five emails sent between July 2008 and January 2009 referred to forthcoming coupon payments and “security interest” in substantial sums, and to the need for payments to be made to Alfa’s brokerage account, the Bank’s brokerage account, and various of the BVI Defendants. Mr Ereshchenko was either a direct recipient of, or copied into, these emails, and they included some explicit instructions to him to prepare transfer orders, to track the receipt of the money, and to sign orders from the relevant BVI companies for performance of the transactions.

On the face of it, these emails appear to evidence personal involvement by Mr Ereshchenko in dealing with the receipt and transmission of income from securities, apparently comprised in (or at least similar to) the AAA Investments, at or about the time of the alleged fraud, and involving several of the same key parties (the Bank, Alfa and the BVI Defendants). This in turn casts considerable doubt on the assertions in Mr Ereshchenko’s first witness statement that he played no significant part in Eastbridge’s business and was unable to provide any assistance in relation to the BVI Defendants. Yet all that Mr Ereshchenko has to say about these emails in his second statement is that he does not recall them, and does not remember taking any action in response to the instructions which (he accepts) were apparently given to him. He makes no attempt to address the obvious inference that he was directly involved in the running of this part of Eastbridge’s business, or to explain why he received the emails, or why he was involved with the banking arrangements of the BVI Defendants. Further, his few comments about the content of the emails add nothing to what can anyway be deduced from the face of the documents. In short, he has failed in my judgment to provide any substantive response at all.

In these circumstances, the Bank is in my view entitled to treat with scepticism, if not disbelief, Mr Ereshchenko’s bare assertion (in paragraph 41 of his second statement) that “My recollection in this regard cannot change simply because I am subjected to cross-examination”.

In any event, I am amply satisfied, on the basis in particular of the evidence relating to the events of 10 December and the five “coupon” emails, that there are strong grounds for believing Mr Ereshchenko’s existing disclosure to be seriously incomplete, and for thinking that his exposure to cross-examination might well be more productive of further information than he would like the court to believe. I am also satisfied that there is no other obvious person from whom to seek information about the role of Eastbridge and the tracing of the disputed assets, having regard to the disappearance of Messrs Aizhulov, Udovenko and Syrym Shalabayev, and the apparent attempts to make Eastbridge disclosure-proof by winding down its business and the appointment of a new director without any knowledge of prior events. The suggestion made by Mr Lowenstein QC that the Bank should first seek to question Mr Ablyazov is in my judgment an unrealistic one, given his suspected role as the chief perpetrator and beneficiary of the alleged fraud, and his established history of unsatisfactory disclosure in the Commercial Court actions which led to the making of the receivership order (see paragraph 10 above).

Mr Lowenstein’s strongest argument against requiring Mr Ereshchenko to attend for cross-examination, in my view, was that the Bank should first review and digest the material obtained from the search of the storage unit. Until this has been done, he submits, the Bank cannot be in a position to say that there are no alternative, less burdensome, ways of achieving the same end that is sought from cross-examination. He also submits that the Bank should first complete a thorough review of its own records, in view of the fact that fresh information relevant to the claim is still regularly being discovered (including the five “coupon” emails, which were found from searches of the Bank’s records). Indeed, Mr Lowenstein goes so far as to submit that, even if the court is in principle minded to order cross-examination, it should not take place until after the Bank has certified that it has completed a review of all the documentation currently within its control.

The position at the time of the hearing on 14 and 15 March was that approximately half of the hard copy material obtained from the search of the storage unit was still awaiting review by the Bank’s solicitors, and I was told it would probably take months rather than weeks to obtain full access to the voluminous material stored on the computer server. I was however informed by Mr Marshall, on instructions, that none of the hard copy material reviewed to date provides answers to any of the questions in the disclosure order.

I confess to feeling considerable surprise that the review and downloading of the material seized at the storage unit is taking such a long time, and Mr Hardman gives only the briefest of details about it in paragraph 35 of his sixth statement dated 8 March 2011. Nevertheless, I do not think it would be right for matters to proceed in the stately fashion advocated by Mr Lowenstein. The fact remains that there are strong grounds for believing Mr Ereshchenko’s disclosure, which he should have given in full by 10 December 2010 at the very latest, to be seriously inadequate; there are no positive grounds for supposing that the material taken from the storage unit will provide comprehensive answers to the questions in the disclosure order; it is a matter of urgency for the Bank to seek to recover its allegedly misappropriated assets; and in a major international fraud case of the present type it is in my judgment entirely reasonable for the Bank to seek to press ahead on several fronts simultaneously. In my view Mr Ereshchenko has brought this application on himself, by the unsatisfactory nature of his existing disclosure, and he can have no legitimate complaint if he is ordered to attend for cross-examination at the earliest convenient opportunity.

It is common ground that the focus of the cross-examination must be on ensuring compliance with the disclosure order, and that it should not be permitted to become a roving inquiry into the general merits of the action, or indeed of the claim against Mr Ereshchenko himself. The cross-examination will take place before a judge of this Division, who can be relied upon to ensure that its scope is properly controlled. The Bank is willing to undertake not to use any material thus obtained in the main proceedings, unless it has permission from the court to do so. The Bank is also willing to undertake that information obtained through any cross-examination will not be used for any committal application, unless again the court grants permission to do so. In my judgment both of these undertakings are appropriate, and they will provide important procedural safeguards for Mr Ereshchenko.

Mr Lowenstein also submits that the services of an interpreter should be available for Mr Ereshchenko, because English is not his first language and he may not fully understand language of a technical or legal nature, or the precise meaning and implications of questions which may be put to him. The Bank suggests that Mr Ereshchenko has a very good grasp of English, for a number of reasons, but does not seriously dispute that an interpreter should be available to provide Mr Ereshchenko with assistance should it prove necessary. In my view this is a question which the parties should discuss and seek to agree between their solicitors, in advance of the cross-examination. If agreement cannot be reached, I will direct that an interpreter should be available at the hearing, and the judge can then decide what use should be made of his services.

On the question of timing, Mr Marshall submitted that the cross-examination should be ordered as soon as possible, and in any event before Easter. However, Mr Lowenstein told me that he is unlikely to be available for a hearing before the start of next term, and Mr Ereshchenko naturally wishes to be represented by him if possible. In my view that is a reasonable wish, and the matter is not so urgent that Mr Ereshchenko should be obliged to instruct fresh counsel at short notice. I propose to direct that the cross-examination should take place on the first available date convenient to the parties and their counsel after Monday 9 May 2011, with a provisional time estimate of one to two days. At least five clear days before the hearing, the Bank must file and serve a bundle containing any documents on which it wishes to rely at the hearing, although for the avoidance of doubt I do not consider it appropriate for the Bank to be required to give advance notice of the questions that will be asked. I also do not rule out the possibility that there may be documents which the Bank wishes to put to Mr Ereshchenko without giving him advance notice or including them in the bundle to be served before the hearing; but good reason for adopting such a course would have to be established, to the satisfaction of the presiding judge.

For the reasons which I have given, and subject to the procedural safeguards indicated above, this application succeeds.