Joint Stock Company "Aeroflot Russian Airlines" v Berezovsky & Ors

I will make no order on this application save to give directions as to the hearing of the application notice dated 18^th April 2013. I will hear counsel in a moment as to the detail of appropriate directions, but the ones I provisionally think are appropriate are along these lines. The application should be heard as an interim application by order on an expedited basis. It should be on notice to the two respondents, the two executors named in the Will who have not yet renounced. It should also be on notice so far as this is possible to be done in the time available to the beneficiaries named in the Will. I will allow short service with a view to this matter being heard on Friday of next week, provided that the persons to whom notice should be given are given that notice by 4 p.m. on Tuesday of next week. I will reserve the costs of this hearing today until that hearing next Friday.

I will give brief reasons for coming to that conclusion. This is an application made in an action which began on 15^th December 2010. The claimant can conveniently be described as “Aeroflot”. There are seven defendants. The first named defendant is Boris Berezovsky, who sadly died about four weeks ago, in March 2013. The action is a substantial one involving very serious allegations of wrong-doing. Before his death Mr. Berezovsky had defended the action. No-one had applied for summary judgment or reverse summary judgment so that for all I know there are good arguable points either way in the action. It is not possible, nor desirable, for today’s purposes, to come to any provisional view as to who is right and who is wrong in this claim. I should add that the claim is for a very substantial sum of money.

Before Mr. Berezovsky’s death about four weeks ago there had not been any application made by the claimant for freezing relief against Mr. Berezovsky on the grounds that there was a sufficient risk of dissipation of his assets with a view to or with the result of his becoming judgment-proof in the event of a successful judgment being obtained against him. That is of some real significance, in my assessment, particularly in view of what I am told today in the witness statement of Mr. Botiuk in support of today’s application, which is that Mr. Berezovsky has, in other proceedings, been relatively candid that it has been his settled, consistent long term practice to put his assets beyond the reach of his creditors, and bodies whom he regarded as Russian institutions such as the claimant in these proceedings. So that was how matters were continuing during the lifetime of Mr. Berezovsky. Something has changed certainly in that Mr. Berezovsky is now deceased. Before his death and indeed only very shortly before his death he apparently executed a valid Will with relatively short provisions identifying the division of his estate between a number of beneficiaries. He named five executors, three of whom have renounced the office of executor, but two of them have not yet identified what course they will take. Those two are the respondents to the present application. One was the former partner of Mr. Berezovsky, Miss Gorbunova. The other was a daughter of Mr. Berezovsky - a Miss Berezovskya. They are named as executors and they have not yet renounced the executorship.

There result is that for a period of about four weeks or so there has been a gap as regards representation of Mr. Berezovsky’s estate. As his estate is a defendant to the present claim, an application was made to Mann J. for an order under CPR Rule 19.8 to have someone identified as a representative of the deceased’s estate to defend the on-going litigation. Mr. Justice Mann adjourned that for various reasons, not all of which have been investigated at the hearing today.

What then happened, relevant to today’s purposes, is that on Tuesday of this week solicitors acting for the claimant wrote to the remaining executors named in the Will asking for certain information to be provided as to what was to happen to the estate, suggesting that in the absence of satisfactory answers an application would be made to the court to appoint a receiver of the deceased’s estate. It seemed to be the thinking of the claimant that if there was a representative of the estate, then the problem would essentially be resolved - certainly the immediate difficulty caused by the death of Mr. Berezovsky - and the gap would be filled. During the course of submissions by Mr. Marshall QC on behalf of the claimant today, counsel referred on a number of occasions to the gap being filled by executors obtaining a grant of probate or some other grant of representation.

Against that background the order which is sought on this ex parte application is a very far-reaching order indeed. It seeks the appointment of two insolvency practitioners as receivers of the estate of the deceased. It then confers upon those receivers very extensive powers, the drafting of which would require a great deal of thought and consideration before a court would be prepared to confer the powers in question. One example of the more disturbing powers said to be required by the receivers is the power to defend legal proceedings. That would give the receivers the power to defend the present action and other similar actions brought by Aeroflot, which is the company which has applied for the appointment of these receivers. That, on the face of it, would require some justification. Indeed, Mr. Marshall did not seek to justify a power of that kind being given to the receivers. I was also disturbed, on reading the draft order, to find that the receivers were to have powers to enter premises to search for documents. One might have thought that was only something which was to do with the law of agency as between the estate and the receivers, but the draft order contains language which does not give one that confidence. The language is in the form of an especially wide penal notice on the front of the order which says “Any person who interferes with the receivers exercising their powers will be held to be in contempt of court and may be imprisoned, fined or have their assets ceased.”

The other unusual feature of this draft order is that after appointing the two insolvency practitioners as receivers, there is then a very extensive order that third parties are to deliver up to the receivers a whole range of assets, which are in part defined in Schedule 4 to the draft order. Schedule 4 identifies any possible interest that the estate might have in a whole range of specified assets. That would mean that if I made an order in the terms drafted, I would essentially be making mandatory orders against largely unidentified third parties that they deliver up a whole range of assets provided only that it should turn out in due course that the estate has some interest in those assets. That would mean that if the third party had its own interest which entitled it to detain an asset, there would be an order of the court overriding that and requiring the delivery up of the asset.

The order would also mean that if there was a bona fide dispute as to whether the estate had an interest in the asset, and if the third party failed to deliver up the asset pending the resolution of that dispute, and if it should turn out that the estate should win that dispute at some future date, then all the while during the course of bona fide litigation the third party would be committing a contempt of court.

What seems to have happened is that the fact of there being a gap in representation has led not just to draft order seeking to fill that gap and give someone authority to act and speak on behalf of the estate, but instead what is being sought is a very far-reaching order in relation to assets, the ownership of which is likely to be disputed, against third parties not all of whom are identified, that they hand over to the receivers all of these assets.

The court has jurisdiction to appoint a receiver in relation to an estate where there is no current representative. That jurisdiction is conferred by Section 37 of the Senior Courts Act 1981. I have been shown a number of authorities where the jurisdiction has been exercised. A typical case where the jurisdiction is appropriate to be exercised is where the estate is entitled to an income but in the absence of the receiver there is no-one to collect it. Alternatively the estate has liabilities which need to be serviced on a continuing basis and if there is a neglect in that respect, then a third party could claim a forfeiture or enforce a security depriving the estate permanently of a valuable asset.

In the course of his submissions Mr. Marshall suggested the possibility that those things might apply here. However, if that had been the reason for seeking the appointment of a receiver one would have wanted to be told exactly what were the sources of income which were not being collected, and what were the obligations that were not being serviced. It is possible (but no more) that in the case of a particular yacht there is a security interest where the chargee is able now to take action by reason of some neglect. But these matters were very much in the background rather than the grounds on which the application was put.

The application was really put on the ground that suddenly with the “disappearance” of Mr. Berezovsky, a man whom the claimant had acknowledged had consistently parted with his assets with a view to defeating creditors, there had suddenly, for the first time, come into existence a risk of dissipation by third parties, and that stage of affairs justified an order of the kind sought; not only that, it justified it on an ex parte application basis without any kind of notice to the third parties involved, and indeed with limited notice to the executors who have not renounced. If there had been a risk of dissipation in the past that dissipation had largely been allowed to take placeand, with the “disappearance” of Mr. Berezovsky, his nominees around the world who hold assets for him would be unable to act, lacking instructions from Mr. Berezovsky, rather than that somehow increasing the risk of future dissipation.

Mr. Marshall has said everything he could say to bring to my attention such risk as there might be that things will happen in a few days, which would be prevented if I were only to appoint the receivers which he asked me to appoint. I do not, myself, see that the appointment of receivers will radically change the position as to the risk of dissipation. If I appoint receivers and give them authority to speak on behalf of the estate, that does not of itself freeze the relevant assets of the estate and does not restrain third parties from dissipating those assets. It would, of course, allow the receiver then to decide what to do and decide whether, after all, they were going to seek some form of freezing relief - the receivers acting on behalf of the estate against third parties who were demonstrated to pose any risk of dissipation.

I am absolutely clear that I should not make any order remotely as far-reaching as the draft order that has been attached to the application. What has concerned me is whether because there is a gap in the representation of the estate, just in case there might be some asset which is put in jeopardy by neglect over the next few days or so, that I should appoint receivers to cover that risk. My decision is that I should not appoint receivers ex parte. What is needed here is a decision as to who is to represent this estate in what may be a transitional period between the death of Mr. Berezovsky and a formal grant of representation to a fit and proper person. That decision, I believe, can wait for what would essentially be another week and during that further week the parties who are interested in this estate - the beneficiaries and the executors who may still wish to take a grant - will be able to consider the future of the estate, the concerns expressed by the claimant, and when that has been done the court can decide who should be the representative. One of the essential weaknesses in the far-reaching application that has been made to me today is it seemed to be implicit that if the executors took a grant of probate the claimant’s interest in having a receiver would fall away and all the consequential orders which are sought would also fall away.

It may be that the draft order which was submitted to the court was based upon an order that has been granted in other litigation, the well-known litigation of JSC BTA Bank v Ablyazov , where I was told that a receiver was appointed in support of a freezing injunction. I can well see a court deciding to take that step in support of a freezing injunction and giving the receiver the powers he needs to support the freezing injunction. But it is entirely back to front to appoint a receiver to fill a gap in representation and then just because one is filling a gap, to suddenly give the receiver the far-reaching powers here in the draft order, but without satisfying the court that it is anything like an appropriate case for a freezing injunction in the first place.

If I had been prepared to fill the gap just in case for a week or so by appointing receivers I would not have been prepared to give them extensive powers. I might have considered defining their powers as equivalent to the powers of an executor but without being more specific than that. I would not have placed the burden of paying their remuneration on the estate without further order when the other persons involved in the estate would have a chance to have their say.

All in all, I consider the benefit that would be achieved by making a very limited order, the only kind of order I would contemplate making ex parte, would be of very limited benefit and the need for it to be made as a justification for an application ex parte in accordance with conventional principles has, in my judgment, simply not been demonstrated. I will deal with the possible risks which are referred to although not perhaps brought really to light by making the order I earlier referred to that this application will be heard on an expedited basis in seven days’ time. Beyond that I will not go.