Bank St Petersburg & Anor v Arkhangelsky & Ors

At hearings over the course of 17 January and 6/7 February 2014 I have had to consider a number of issues raised by the parties in this convoluted dispute, the background and substance of which I have summarised in my previous judgments (see, for example, judgments on 14 and 22 November 2013). The matters for my determination now are:

These matters have occupied the Court for some two and a half days (not including one day suggested for reading time). Five full lever-arch files were lodged. A considerable amount of Court resource has been expended in dealing with these issues, in respect of a trial set for May 2014.

There is no dispute or doubt that Mrs A has (a) realised the surrender value of the Policy (under which she is the life assured) and remitted part of the proceeds to pay legal expenses, and (b) caused or permitted monies to be paid out of Petrograd’s account in payment of fees owing to the trustees of a BVI trust (“the Acorn Trust”), in which the Defendants are the primary beneficiaries and which is the ultimate owner of a pyramid of companies formerly in or connected with the OMG group.

The Claimants contend that (a) the Policy and (b) Petrograd’s funds were ‘assets’ within the meaning of the Freezing Order; and that in surrendering the Policy and arranging for payments out of Petrograd’s account the Second Defendant “dealt” with such assets in breach of the Freezing Order.

The Claimants seek a declaration to that effect. They also seek a variation to the Freezing Order to prevent the Defendants using any part of the proceeds from the surrender of the Policy even for reasonable living and/or legal expenses (which under the Freezing Order at present would be permitted) until the Defendants have fully disclosed their assets (it being the Claimant’s case that they have not done so thus far). Over the course of the hearing it emerged that it is the latter relief that the Claimants primarily seek. They urge that it is necessary and appropriate so as to ensure that the Freezing Order is more strictly observed, and so that the Defendants are constrained to resort to and make disclosure of assets to which they have access but which they have sought (it is said) to keep safely beyond the reach of the Freezing Order.

Before considering that issue, however, a prior question has been raised on behalf of the Defendants: and that is whether the Court should entertain and seek to determine the application at all, in circumstances where (a) the usual recourse for alleged breach of a freezing order is an application for committal based on contempt of court; but (b) the Claimants have disavowed any intention, present or future, to apply on these grounds for committal; and (c) the rigorous procedural requirements for such an application have accordingly not been fulfilled.

Taking (c) first, it is well known and of fundamental importance that on an application for committal, which potentially concerns a person’s liberty, the procedural requirements laid down by CPR 81 must be scrupulously fulfilled. In particular, proper service must be effected on proper notice, and the grounds on which the application is made must identify, separately and numerically, each alleged act of contempt, including (if known) its date: CPR 81.10.

When the Claimants’ application came before the court on 20 December 2013 the Defendants strenuously argued that these requirements had not been fulfilled, and that in such circumstances they should not have to answer what amounts to an application for committal, even if not so-called. The Claimants accepted that they had not fulfilled all the procedural requirements applicable to such an application; but they made the obvious point that they were not seeking to establish contempt nor seeking committal.

Nevertheless, to ensure a fair process, I adjourned the application over from December and I required the Claimants to set out in full the detail of the alleged breach. With those safeguards, and subject to my continuing concern that the Claimants do not proceed by incremental steps towards a committal application which they have disavowed (what I termed “a game of grandmother’s footsteps”), I do not think the application should be refused on grounds of unfairness or procedural failure.

However, and as to (a) in paragraph 6 above, Mr Stroilov (acting with my permission as the McKenzie friend of the Defendants, with, in very unusual circumstances, a speaking role) also relied on Elliot v Klinger and Others [1967] 1 WLR 1165. In that case, Stamp J (as he then was) declined to grant an injunction against a third party who was alleged to have aided and abetted a breach of an undertaking given by a party to the action, and held that the proper remedy was by way of motion for committal or sequestration. Mr Stroilov submitted that the Claimants should, by parity of reasoning, not be permitted to seek declaratory relief in respect of a breach of the Freezing Order without applying for committal and affording the Defendants all the protections required in any such application (both procedural and substantive, since the criminal standard of proof is required).

I do not consider that Elliot v Klinger is really in point. In that case the injunction was sought against a non-party; there is usually no jurisdiction to grant such an injunction; the applicant sought to surmount this impediment by invoking the jurisdiction of the court to prevent or punish the breach of its orders in proceedings for contempt, but without seeking committal. The application failed. But that is a long way from this case. There is plainly jurisdiction in the Court to grant declaratory relief against an existing party to the proceedings, whether or not any other remedy is claimed; and see as to the latter CPR 40.20.

That said, however, the making of a declaration is always discretionary, and when considering whether to grant a declaration or not, the Court takes into account justice to the claimant, justice to the defendant, whether the declaration would serve a useful purpose, and whether there are any other special reasons why or why not the court should grant such relief: see Nokia Corp v InterDigital Technology Corp [2006] EWCA Civ 1618.

In this case, I can see no real utility in making a declaration, even if the alleged breaches could be established; and I can see possible injustice to the Defendants if there is any possibility (as I am concerned there would be) of the grant of such a declaration being treated as if it were a finding of contempt. It was and remains open to the Claimants to establish contempt and seek committal: I see no reason for or utility in the half-way house they propose. To that extent, the Claimants’ application fails and must be dismissed.

There remains the question, however, whether the Defendants’ conduct, set in the context in which it has occurred, justifies and merits what it emerged in the course of the hearing the Claimants are really seeking, which is to prevent the Defendants using the funds realised on surrender of the Policy to pay living or legal expenses, whereby to compel them to resort to and make disclosure of other assets which they have so far (it is said) kept secret.

I would not be prepared to make any order or amendment to the Freezing Order to that effect unless persuaded (a) that the dealings in question did constitute breaches of the Freezing Order, (b) that the breaches (if established) and their context suggest that some further order or amendment is necessary to give effect to the objective of the Freezing Order, and (c) that the grant of such order or amendment would not result in irremediable injustice, such as in effect depriving the Defendants of the means of supporting themselves and their family, and in funding proper legal assistance.

Since in the particular case I consider it dispositive, I deal with the last hurdle (c) first. The essential question in this context is whether, if the Defendants were now to be prevented from using the funds realised on surrender of the Policy, even for living or legal expenses, they would or might be caused irremediable prejudice. That depends primarily on whether in truth the Defendants have other resources from which their needs may adequately be sustained.

The Defendants maintain that they have not: and indeed that is why Mrs A was forced to surrender the Policy. The Claimants, on the other hand, submit that this is not so; or at least, is not demonstrated; and they submit that the burden is on the Defendants to demonstrate that they have no other assets.

The Claimants support this submission by reference to one of the cases decided in the early days of freezing orders, namely A v C [1981] 1 QB 961, a decision of Robert Goff J (as he then was). In those days, worldwide freezing orders (under the (then) so-called Mareva jurisdiction) were unknown and the fundamental purpose of the jurisdiction was conceived as being “to prevent [foreign] parties from causing assets to be removed from the jurisdiction in order to avoid the risk of having to satisfy any judgment which may be entered against them in pending proceedings in this country” (see Iraqi Ministry of Defence v Arcepey Shipping Co SA [1981] QB 65, 70, which Goff J quoted in A v C, noting that the square-bracketed word had to be deleted “having regard to subsequent developments” in the jurisdiction).

The question before Goff J was whether the Defendants should be granted an order varying an existing order to permit them to make a payment from a disclosed fund within the scope of the order to meet legal costs in circumstances where

Goff J declined to vary the order to permit the payment on the ground that it was for the defendants to show that they had no other assets outside the scope of the Mareva order from which to pay the legal costs and, having offered no evidence at all, they had not discharged that burden of proof: see 963E-F. It was not enough to show money was due: it was necessary for them to demonstrate that a frozen account was not being run down with the intention of preserving another unfrozen account outside the scope, and thus in order to undermine the effectiveness, of the Mareva order.

In this case, however, (a) the Defendants’ assets worldwide (with some presently immaterial exceptions) have been frozen and (b) substantial evidence as to the Defendants’ means has been filed. In such circumstances, in my view, the burden shifts to the Claimants to show that the evidence of the Defendants is incredible, and that there are sufficiently strong grounds for supposing that in breach of the worldwide order the Defendants have not disclosed other assets from which they could meet their living and legal expenses to outweigh the natural concern of the court not by its own orders to cause real and irremediable prejudice.

Otherwise, if the burden were on the Defendants (as the Claimants submitted), the Defendants would be faced with the difficulty of proving a negative, a difficulty all the greater at an interlocutory stage, and exposed to a total freeze if they cannot do so; that would be unjust, and give no sufficient weight to the fact that at this interlocutory stage the facts cannot be found, and the Court must do its best to avoid irremediable unfairness or injustice.

Is the evidence filed by the Defendants incredible? Are there real grounds for supposing that they have available to them undisclosed assets which they have kept away from the purview of the Freezing Order? Are those grounds sufficient to outweigh the risk of the irremediable and serious injustice which would necessarily be occasioned if in truth the Defendants have no other substantial assets out of which to pay the living expenses of themselves and their young family and their legal costs?

The Claimants have amassed a considerable body of evidence which they submit does indeed demonstrate that the Defendants have been (a) evading their disclosure obligations to the extent of (b) even misleading the Court and (c) concealing assets. They point out that at an earlier stage of these proceedings the Defendants’ evidence was sufficiently incomplete and unsatisfactory to merit their cross-examination. They draw attention to apparent inconsistencies in the oral evidence then given by the Defendants, and to the fact that certain of their answers made it apparent that they had further documentation in their possession or control which neither had disclosed. They add that the Defendants have so far failed to execute (the Defendants contend because of impediments under French law) letters of authority which the Court directed them to execute whereby to obtain documentation and information from third parties. They rely on all these matters as setting the context for the present application in respect of the Policy and Petrograd’s funds, and they contend by reference to all such matters that the Defendants have “engaged in a deliberate campaign to conceal assets in breach of the disclosure provisions of the Freezing Order and have misled the court in doing so”.

Against this, the Defendants have filed evidence (principally in the form of a fifth affidavit of Mr Arkhangelsky (“Mr A”) made on 21 January 2014 and an 11^th Witness Statement of Mr A, which also incorporates by reference a raft of earlier affidavits and witness statements). That evidence seeks to provide reasons and excuses for earlier failures; and in his 11^th witness statement Mr A also invites the Court to treat those matters as res judicata, on the footing of their earlier consideration by the Court and the orders made in consequence (as adumbrated above). As to the new issues relating to the Policy and Petrograd’s funds, Mr A expressly states (at paragraphs 7 and 8 of his fifth Affidavit) as follows:

I do not think it necessary to rehearse it in this judgment: but I have carefully and anxiously considered this evidence of both parties. On each side it has given me grounds for concern. The Claimants do not shrink from the submission that the court should not accept the Defendants’ evidence. Against that, the Defendants point to signs of oppressive conduct on the part of the Claimants, and a determination by all means possible to drive them into penury. But I have concluded that these are not matters that I can safely and properly resolve now.

It does seem from the evidence so far that the Defendants have not been as co-operative as they could and (to my mind) should have been. There are signs, for example, that Mr A made progress in obtaining evidence from the trustees of the Acorn Trust when it suited him, but not when (earlier) it did not. I find it difficult to dispel the feeling that if the Defendants did not feel justified by their plight in adopting a stone-wall stance more complete disclosure might have been provided. Indeed, I cannot be sure at this stage that full disclosure has been made; I cannot therefore be sure that the Defendants have no other assets. But equally I cannot discard as incredible the evidence of Mr A. Indeed, I find it difficult to believe that Mrs A would have surrendered the Policy or that the Defendants would have deprived themselves of legal representation if truly they had a stash of substantial, undisclosed assets. My sense is of an attitude on the part of the Defendants of regrettable recalcitrance rather than of a deliberate concealment of assets of real value. I do not think the evidence presently compels the latter conclusion.

Nor, turning to the relative justice of the matter, and the Claimants’ position and “clean hands”, can I presently resolve whether any breach on their part is to be suggested from the disconcerting possibility that the disclosure of information as to the Defendants’ bank accounts, which was not to be used by the Claimants for any purpose except to police the Freezing Order, came to be used by the Russian tax authorities as I have described above.

In all the circumstances, and after (as I have said) considering all the evidence summarised in the skeleton arguments, I am not persuaded that the evidence of the Defendants is incredible, nor that there are sufficient grounds for supposing that in breach of the worldwide order the Defendants have not disclosed other assets from which they could meet their living and legal expenses.

I bear in mind also that the relief that the Claimants seek, of cutting off the Defendants from what the Defendants maintain is their only reliable source of living expenses, would be unusually draconian. It also seems to me that the Claimants are inviting me, in effect, to respond as if a contempt had been established, without proving it to the standard required.

I have reached the firm conclusion that the risk of doing irremediable injustice by preventing the Defendants using the proceeds of the surrender of the Policy for reasonable living or legal expenses as presently permitted by the Freezing Order is such as to outweigh other arguments to the contrary. For the avoidance of doubt, that includes any argument that the surrender of the Policy and/or the discharge of fees charged by the Acorn Trust trustees out of funds to the credit of Petrograd’s bank account in Bulgaria constituted breaches of the Freezing Order.

That means that it is strictly unnecessary to determine whether or not (a) the surrender of the Policy and the remittance of funds or (b) the application of funds of Petrograd was in each case indeed a breach. I turn to consider both out of deference to the arguments advanced and in case the matter goes further, notwithstanding my view that the matter falls to be dealt with as a matter of discretion.

By the Freezing Order the Defendants were precluded from dealing with, disposing of or diminishing the value of their assets up to a limit of £53m (in the case of the First Defendant) and £890,000 (in the case of the Second Defendant). The Freezing Order contains the optional but not unusual extended definition of assets; paragraph 7 provides that the restraint applies

Dealing first with the surrender of the Policy, its existence was disclosed from the outset. Indeed the Defendants have been transparent not only as to its existence as an asset but also their dealings with it. I can take the following summary from the Claimants’ skeleton argument of 15 January 2014, slightly amended to address or finesse matters of disputed detail:

However, the Defendants reject the contention that these facts disclose any breach of the Freezing Order. They contend that:

In my judgment, looked at through English spectacles, the Policy was clearly an asset of Mrs A, intended to be within the scope of the Freezing Order, and (as I understand the evidence) accepted by her to be so until the precipitate decision to surrender and realize its value in November 2013.

A life insurance policy would ordinarily be assignable under English law, and available to be pledged as security; and, at least in the case of a policy with a surrender value (which the Policy here must have had), it would be liable to equitable execution, even if not legal process of attachment. Even if the proceeds are written in trust (as in England would be usual), the prospective rights of the beneficiaries would not ordinarily override the right of surrender vested in the policyholder. Looking at the matter more broadly, and construing the Freezing Order as a whole and the word ‘asset’ more particularly in the way in which I would expect it “reasonably to be understood by a businessman to whom it was addressed in the light of the purpose which it was designed to serve” (see per Christopher Clarke J in JSC BTA Bank v Ablyazov and ors at [72]), I consider that at least the right of surrender would be understood to constitute an asset.

The question then is whether any special restriction under French law having the effect under that law of its proceeds on surrender, expiry or death not being available to creditors in enforcement proceedings in France, compels a different construction which results in the Policy, or at least the right of surrender, not being an asset within the meaning of the Freezing Order.

As to that, as it seems to me, the question is whether the effect of the French law by which in this case the Policy is expressly stated to be governed is that it (a) cannot be assigned and (b) would not be capable of being surrendered by or have any value for a potential judgment creditor concerned in any circumstances. If that is the effect of the French law it seems to me that even if the Policy or surrender value would otherwise qualify as an asset, it is not one that can be turned to account or value for the benefit of creditors, and on that basis must fall outside the scope of the Freezing Order (and see per Patten LJ in BTA v Solodchenko [2011] 1 WLR 888 at [32], where he held “the purpose of a freezing order is to prevent the dissipation of asset which would otherwise be available to satisfy a judgment in favour of the claimant”).

I have felt some anxiety in determining that issue of French law on the basis of the unanswered evidence of Professor Chilstein. That is not, of course, because I doubt his expertise; it is because I would ordinarily and for obvious reasons lean against making final assessment at an interlocutory stage without contrary evidence and cross-examination to elucidate any differences. Added to that anxiety is the consideration that I consider that my conclusion at an earlier stage to my mind is dispositive. I propose, in such circumstances, not to give a definitive answer but simply to indicate a provisional view, which is, if correct, consistent with and supportive of my earlier conclusion.

This is that the effect of the French law does indeed appear to be that (a) the right of surrender under the Policy is personal and not assignable, and (b) the Policy is immune from any process of enforcement in France. I would add to that that in such circumstances, in my view, the English Court could and would not appoint a receiver by way of equitable execution (a receiver cannot be appointed over an unassignable asset, see Keir & Hunter on Receivers and Administrators at para. 3-13, and JSC BTA Bank at [61]). Nor am I persuaded by Mr Marshall QC’s alternative argument that the English Court could or would compel Mrs A to exercise her personal right: I would certainly need more focused argument on that point before concluding otherwise.

Furthermore, in my view, the surrender of the Policy, in accordance with its terms and for a value not said of itself to constitute dissipation, is not a dealing or disposition of an asset (if such is the Policy) contrary to the objectives of the Freezing Order. The basic reason for this is simple: even if I am wrong to think that the English Court would not order Mrs A to exercise the right of surrender in question, the result of the exercise would be the realisation of the surrender value in just the manner that has in fact occurred. Put another way, the exercise of the right of surrender, far from alienating or dissipating an asset which would otherwise be available to creditors, results in assets being made available to creditors which otherwise would not have been available. Although the analogy is imperfect, some support for this seems to me to come from Camdex International v Bank of Zambia (No 2) [1997] 1 WLR 632, where it was accepted by the Court of Appeal (at least by the majority) that unissued Zambian bank notes ordered by the Bank of Zambia but not yet paid for were ‘assets’ and their transfer to Zambia was not in breach of the freezing order since only in Zambia could they have any value. Further support may be found (once again) in the judgment of Christopher Clarke J in JSC BTA Bank at [77].

For all these reasons, and it having always been accepted by the Defendants that the proceeds of surrender do fall within the scope of the Freezing Order, I am not persuaded that the surrender of the Policy did constitute a breach; and in circumstances where it is not necessary for me conclusively to determine this, I certainly decline to hold and declare that it was.

The Claimants advanced their application for a declaration that payments out of a Bulgarian bank account in the name of Petrograd constituted breaches of the Freezing Order only after and in light of evidence from Mr A in his 11^th Witness Statement dated 3 February 2014, which he made in response to the Claimants’ original application with respect to the surrender of the Policy. Mr A there revealed that “it is probably true” that payments of fees charged by the Trustees of the Acorn Trust in the BVI had “been made by Mrs Arkhangelsky’s Bulgarian company, Petrograd EOOD, through a direct debit or a direct debit style arrangement”. He went on: “There is an accountant in Bulgaria who deal with these and other payments to and from Petrograd. Petrograd is excluded from the scope of the English Freezing Order”.

The question is whether those assets fell within the scope of the Freezing Order. Again as already stated, given my conclusion that I should not make any declaration in this regard, nor agree to the variation or extension of the Freezing Order as sought by the Claimants, it is not strictly necessary for me to answer the question for the purpose of determining the applications presently before me. However, again in case the matter comes to be considered elsewhere, I set out briefly my views.

In my view:

I have concluded therefore, again consistently with my earlier conclusion that no declaration of breach or variation or extension of the Freezing Order is justified, that no unequivocal breach has, on the present evidence, been demonstrated in this regard either.

I dismiss the Claimants’ applications for declarations and a variation of the Freezing Order accordingly. It is a matter for the Bulgarian Courts whether there has been any breach of its orders.

All this said, I feel I must reiterate to the Defendants that it would have been appropriate for them to seek the guidance of this Court, rather than relying on the advice of foreign lawyers in a difficult area of English law, and that is what I would expect if any uncertainties arise as to the scope or application of the Freezing Order in the future. Furthermore, I should also acknowledge some considerable concern as to the adequacy of disclosure in this case; and my dismissal of the application is more a reflection that what is sought is futile or plainly unfair, rather than any acceptance that the Defendants have co-operated in all respects as they should.

The Claimants seek permission to re-amend the Particulars of Claim and Reply. Some of their proposed amendments have been consented to by the Defendants; but there remain in contention proposed amendments (a) as set out and underlined in green in paragraphs 57A and 57B of the draft Re-Amended Particulars of Claim; and (b) as set out in paragraphs 6.1 and 7.1 of the draft Amended Reply and Defence to Counterclaim.

These proposed but contested amendments can be summarised as follows:

The Defendants have strongly resisted each such amendment. They contend (and I quote from their written submissions) as follows:

It is evident that the Claimants are not in a position to support the alternative case with any evidence. It is only pleaded with this extraordinary qualification: “if, which is denied, for whatever reason unknown to the Bank, Mr. Arkhangelsky did not sign” any of the Disputed Documents. A party cannot aver and deny the very same matter in their pleadings; not even in alternatives.

Further, it is pleaded that some documents, not clearly identified, were received from Mr. Arkhangelsky’s company by courier. The Bank initially hoped that a witness, Ms. Blinova, would confirm that; it is now clear that she will not. The circumstances of receipt are now pleaded very vaguely. It is also known from the Bank’s own evidence (first statement of Mr. Balandin) that the alleged e-mails will not be exhibited. There is clearly no evidence at all to substantiate the averments in para 7.1.

The ‘alternative case’ is an allegation of a very elaborate fraud (forging one’s own signature to induce the Bank to give loans to third parties); as such, it is not adequately particularised. Even the documents he allegedly forged are not identified; even the dates of alleged receipt of those documents are not given. Mr. Arkhangelsky needs to know the case he has to answer.

A very good reason is needed to permit such a fundamental alteration of the Claimants’ case at such a late stage. The present directions to trial are based on the assumption that the exchange of forensic handwriting evidence in February would significantly clarify the ultimate issue. Now it seems that the forensic handwriting evidence hardly matters at all, since the Claimants seek to plead a completely new case. Such a late amendment is not justified and would be fatal for the trial date.”

I propose to deal summarily with these objections. Subject to the following, I do not consider that any has any substance. Very briefly, that is because:

That said, I have the following reservations:

whether any of the Bank’s staff is alleged to have witnessed Mr A signing a guarantee in respect of the last of the three loans pleaded;

whether it is alleged that anyone else of the Bank’s staff, apart from Ms Blinova, witnessed Mr A signing a guarantee in respect of the first two pleaded loans, and if so, who that was.

In paragraphs 97(h) of the Amended Defence and paragraphs 191 to 202 of their Counterclaim the Defendants seek to advance claims that the Claimants subjected the bank that was funding the Defendants’ litigation in the BVI, the V-Bank, and its senior managers to intimidation “by the officers of the Russian political secret police” and by this method persuaded the V-Bank to refuse to provide the bank guarantee that (it will be recalled) the Defendants had been required to provide to support their cross-undertaking given as the price of the freezing orders they obtained.

The Defendants plead that these claims are actionable under Article 1064 of the Russian Civil Code and/or under BVI law “as common law torts.”

The Claimants submit that the claims do not disclose any identified cause of action under the law said by the Defendants to be applicable, nor why it is that such law is the relevant law. They submit further that, even with a margin of appreciation, the pleading is unsustainable in its present form, lacks any proper particularisation, would be liable to be struck out as vexatious and embarrassing, and should therefore be struck out.

In my judgment dated 14 November 2013, I indicated that I was concerned about the sustainability of these allegations, and their lack of particularity; but I allowed the Defendants a further and final chance to review, revise and particularise them (see paragraphs 135 and 136 of that judgment). The Defendants, in response, have additionally pleaded (as indicated above) that the claims are actionable under BVI common law, and various other amendments (including a short summary of the requisite elements of liability under Article 1064 of the Russian Civil Code, though without a full pleading of its content). The trial being imminent, and having given the Defendants considerable latitude, and time to reformulate and particularise their pleading, I consider that I must now treat this version as their final considered case in this regard.

As to that, the Defendants have, in effect, invited me to step back from the detail and consider whether the pleading is truly such as to leave the Claimants uncertain what it is that is alleged against them. The Defendants have sought to emphasise the straightforward nature of the allegations. These are described in their skeleton argument for the hearing on 6/7 February 2014 as follows:

Even taking these explanations or particulars as if they were pleaded, and giving some (and I hope, appropriate) further latitude, given that the Defendants are not legally represented, I do not consider that these allegations are pleaded with the particularity required. I accept the Claimants’ criticisms and concerns that:

Perhaps conscious of these difficulties, the Defendants have, in the alternative to allowing these allegations to proceed to trial, encouraged me to direct that this part of the counterclaim be tried separately, and heard together with any inquiry into damages caused by the Freezing Order. I am not prepared, as matters stand, to do so: the allegations remain inadequately pleaded, and, in my judgment, cannot properly go forward. I do not entirely foreclose the possibility of further amendment if for some reason the trial date has to be put back and under a new time-table amendment would not further delay trial: but some such new circumstance would have to be demonstrated.

In paragraph 1 of the Amended Defence and Counterclaim the Defendants make certain allegations relating to the Claimant Bank’s relationship with Mrs Matviyenko, a former governor of St Petersburg and now the Chair of the Federation Council in Russia, and contend that, as a result of this relationship (particulars of which are provided in sub-paragraphs (a) to (o)) the Bank enjoys privileged relations with the state authorities in Russia.

The Defendants go on to allege (taking this synopsis from the Defendants’ own skeleton argument) that the “Claimants, in league with corrupt Russian authorities, carried out a campaign of unlawful persecution against the Defendants in Russia as part of the conspiracy to secure control of Western Terminal and Scandanavia Insurance”, and pursuant to a scheme of which the Bank’s claim in these proceedings are a further manifestation and thus an abuse of the process of this court (paragraph 79).

It is further alleged that the scheme involved (a) breach of contract in seizing the shares in Western Terminal and Scandanavia Insurance when in truth there had been no default (paragraph 178) and (b) the torts of deceit, intimidation and conspiracy to commit such torts actionable under both Russian and English law, as further pleaded in paragraphs 179 to 180. Proceedings have been brought by the Bank to assist the Russian regime in its persecution of the Defendants, and so are abusive (at paragraph 79). The alleged persecution of the Defendants by the Russian authorities is set out in detail at paragraphs 165 to 173. Additionally, it is said that “Russia is a ‘failed state’ in judicial terms” and that the integrity and independence of the Russian courts is highly suspect (at paragraphs 78 and 83).

The Defendants seek to draw these strands together, and make a sustainable claim of them (as distinct from a collation of complaints) as follows (at paragraph 173):

The Claimants submit that these allegations are (a) vexatious and scurrilous (b) imprecise and inadequately particularised (c) in any event, not justiciable and (d) an abuse of process. By Application Notice dated 3 December 2013 they ask the Court (pursuant to CPR 3.4, CPR 17.1 and/or the Court’s inherent jurisdiction) not to permit, or to delete or strike out paragraphs 1, 3 to 5, 77 to 83, 118, and 165 to 173 (as well as paragraphs 191 to 202, comprising the intimidation claim that I have already addressed) of the Amended Defence and Counterclaim.

As to (a) in paragraph 66 above, the Claimants submit that it is entirely unclear how any of the allegations made by the Defendants can be established in these proceedings or, if shown, will assist the Court in resolving the claims before it. As to the latter, they submit that the principal issue is not whether the Russian Courts properly adjudicated the Defendants’ liability to the Bank, nor whether the Defendants have in fact been subject to persecution at the hands of the Russian government, but whether Mr A is liable on the outstanding debts owed to the Bank under guarantees which the Bank claims he executed in favour of the Bank.

As to (b), they focus especially on paragraph 118: a collateral contract is alleged but no details are provided; misrepresentations on the part of the Bank through Mr Savelyev are also alleged, without any particularisation. The Claimants contend that in the circumstances, they “are unable properly to understand and to respond to the allegations made”.

As to (c), the Claimants submit that if Mr A is right that the Bank is, in bringing these proceedings, merely operating at the direction of the Russian state (which is denied), the allegations contained in the specific paragraphs cited are not matters upon which the Court should adjudicate; the various allegations made by Mr A would amount to acts of state in which this Court should not interfere, or alternatively as regards which this Court should exercise judicial restraint: Yukos Capital v OJSC Rosneft Oil [2013] 3 WLR 1329 at paras [40 to 104] and JSC Bank v Ablyazov [2011] EWHC 202 (Comm). And see generally Dicey, Morris & Collins, The Conflict of Laws (15^th Edn.), paras. 5-043 to 5-053.

Since it is capable, if correct, of determining the issue as regards all the paragraphs referred to in their favour, I shall discuss first the Claimants’ contention that the allegations in all those paragraphs are non-justiciable as being ‘acts of state’.

In doing so, I bear in mind that these are deep waters, and that this is a strike-out application made at an interlocutory stage of the proceedings, with a trial fairly imminent (due presently to commence in May 2014). In such circumstances, as it seems to me, I should strike a balance between (a) the desirable (but not always achievable) objective of confining the issues for trial to those that can properly be adjudicated (b) the caution required of the Court before embarking on any review of conduct said to constitute an act of state but nonetheless (c) the difficulties and dangers of seeking to determine at an interlocutory stage complex issues which may be affected or, at least, illuminated and better defined by findings of fact or more fact-specific examination (and see Williams & Humbert Ltd v W & H Trade Marks (Jersey) Ltd [1986] AC 368).

Put another way, I appreciate the need for robustness in these circumstances; but I do not consider that I should prevent these issues being fully addressed at trial on grounds of ‘act of state’ unless persuaded that that doctrine plainly and obviously applies.

The deep waters to which I have referred have been charted in a number of cases at appellate level, both in the USA and in this jurisdiction, though there remain uncertainties. For present purposes, I approach the doctrine on the following basis:

In the Yukos case, the Court of Appeal made plain that the Kirkpatrick case, and the others cited, were confined to the context where it was not alleged that any act of or on behalf of the state was ineffective or invalid, nor any remedy claimed in respect of such an act:

However, as it seems to me, some open act in exercise of the sovereign power of the state must be sought to be found to be invalid albeit in that wider sense.

Where the essential issue in a claim is the validity or effectiveness (in that wider sense) of an act of an organ of the state in the exercise of sovereign powers in its own territory, the claim is likely to be found to be non-justiciable (subject to exceptions such as public policy).

Thus, in JSC BTA Bank v Ablyazov [2011] EWHC 202 (Comm), Teare J decided to grant a stay on the basis that the claims were in substance “inviting the court to decide whether the nationalisation of the Bank in Kazakhstan was illegal and invalid.”

However, the fact that an organ of the state is the actor does not mean that the act is a sovereign act; and, for example, there is a clear exception in relation to acts by a state (or state enterprise) which are not governmental, but commercial: there is neither immunity for such acts, nor are they non- justiciable: see, for example, Empresa Exportada de Azucar v Industria Azucarera Nacional SA (The Playa Larga) [1983] 2 Ll Rep 171 (where breaches of contract by a Cuban state enterprise induced by the Cuban government were held not to be immune) and Korea National Insurance Corpn v Allianz Global Corporate & Specialty AG [2008] 2 CLC 837, where the Court of Appeal confirmed that there is no reason for the court to exercise restraint

Furthermore, “judicial acts will not be regarded as acts of state for the purposes of the act of state doctrine” (see the Yukos case at [73 and 87]); and that includes acts where the state is operating “under the colour” of its legal system (including by instituting processes and assessments “designed to operate according to law and to be subject to legal and indeed judicial rulings” (see ibid at [133]));

Thus, in the Yukos case, the claimant sought in England to set aside decisions by the Russian Court to annul arbitration awards made in favour of the claimants by an ICC tribunal. These awards were based on a refusal to recognise or give effect to tax assessments that had been upheld by the Russian Courts, on the ground that the Russian Court was partial and dependent, and had in effect been dictated to by the Russian state, which owned and controlled the defendant, and which had conceived the tax assessments as a means of acquiring the claimant at a huge undervalue. The defendant sought to invoke the doctrine of act of state to prevent adjudication of the claimant’s allegations of conspiracy on the part of the Russian state to steal the assets of the private group to which the claimant originally belonged, and ultimately to purloin the group itself, by forcing it into bankruptcy by unlawful tax demands and/or buying its assets in rigged auctions, all with the assistance of the Russian Court (as allegedly directed by the state). It was submitted by the defendant that these issues raised issues about the executive or administrative acts of a foreign sovereign within its own territory upon which the Courts of England should not adjudicate. The Court of Appeal concluded that the doctrine did not bar any part of the claim. The essential issue in the case was whether the decision of the Russian Court to annul the awards should be recognised. That was a judicial question in respect of judicial acts. Even if the tax demands had probably to be regarded as executive or administrative acts, they functioned, not by the exercise of state decree or promulgation, but within an existing tax code designed to operate according to law and to be subject to legal and indeed judicial rulings (see para 133). The state had sought to use its judicial system to achieve its objectives and operated under the colour of that system rather than by reference to sovereign power. There was no bar to adjudicating upon the activities of the state in the judicial, as opposed to the executive, sphere.

Two further limitations or exceptions to the doctrine may be noted, both fact- sensitive and in some ways of uncertain extent: one is where the act in question constitutes a breach of clearly established rules of international law or contrary to English principles of public policy (though particularly in the latter context, especial caution is required, and see paras 69 to 72 of the Yukos case); the other is breach of fundamental human rights or discrimination (see ibid, also at para 137) though again especial caution appears to be required.

In this case, the gist of the claim is that the Claimant Bank (not being an organ of the state), with the assistance and “close collaboration” of those having (and/or being perceived to have) influence in the state, engineered a takeover of the Defendants’ companies for negligible value on the basis of (a) false documents issued by the Bank (b) unlawful demands by the Bank to establish purported (but not real) acts of default and (c) realisations of assets at negligible prices, and then perfected the scheme with the same assistance, by (d) leaning on the V-Bank to withdraw its support and (e) starving the Defendants of funds and thus the means to object (including by these proceedings and interlocutory relief obtained), (f) confiscating their documents and (g) forcing them to flee Russia.

Subject to paragraph [76] below, I am not persuaded, at least at this stage and to the extent necessary to warrant striking these allegations out, that the doctrine applies; nor am I persuaded, if otherwise it would, that none of the limitations or exceptions does. It is not clear to me that it is the gist of the allegations in question to seek to declare, or demonstrate to be, invalid or ineffective any act of state, even in the broader sense enunciated in the Yukos case. Indeed, I am not at present convinced that the acts relied on in paragraph 165 of the Amended Counterclaim are acts of state at all: it is, to my mind, at least arguable that none of the acts was done in the exercise of sovereign power: and sub-paragraphs 165 (f) and (g) seem to me to fall within the exception accorded to legal process and judicial acts.

More troublesome, to my mind, are the allegations in paragraphs 166 to 172 of the Amended Counterclaim. However, although the sequence in which the paragraphs are set out may obfuscate this, it seems to me that in paragraphs 166 to 170 the thrust or gist is that, as a matter of existential fact, (a) the First Defendant was placed in custody a number of times (itself in any event part, presumably, of a legal process, not an executive act) and (b) the authorities conducted searches not lawful under the law of the sovereign (Russia) and brought further legal processes without informing the Defendants, contrary to the entitlements of the Defendants in Russian law; again it seems to me to be at least arguable, that these are not properly classified as acts of state, some at least relate to the judicial sphere, that none of the allegations seeks to set aside the acts as invalid or ineffective, and that even if otherwise non-justiciable, the public policy or human rights arguments should not at this stage be shut out.

I do not read paragraph 172 as averring anything further than that Russia repeatedly requested extradition, but its requests were rejected by the French court, which strongly criticised the Russian authorities. I do not, at present, see why the Defendants should be prevented from saying so.

Nor am I persuaded that paragraph 173 is non-justiciable either. I do not see presently why the Defendants should be prevented from asserting that, nor why this Court should be prevented from reviewing whether there was a conspiracy between the Claimants, and between them and the Russian authorities, using judicial process, such as is alleged; and again it seems to me that the possible application of the public policy or human rights exception should not be foreclosed either.

Furthermore, even if conspiracy is not established, all these matters seem to me potentially to be of relevance in determining whether it is more likely than not that the relationship between the parties was commercial, authentically documented and legitimately concluded, or not.

However, that does not necessarily mean that the allegations can all go forward as they are presently pleaded; and I turn to consider the objections to the pleas on the less elevated basis of want of particularity and vexatiousness.

In doing so, and as indicated before, my focus is on whether the allegations are, on a flexible and constructive approach, sufficient to convey to the Claimants the case they have to meet: litigants in person such as the Defendants, must abide by the rules, but there is a necessary latitude to be given in terms of the precision of language to be expected, and the Court may be more ready to supplement what is said by reference to the evidence adduced by that litigant.

Thus, for example, though paragraph 83 of the Amended Defence is loosely pleaded, I think it is sufficiently ‘saved’ by paragraph 94 for the purposes of alerting the Claimants to the allegation intended and which they must meet.

The allegations in paragraph 97h. of the Amended Defence, though presented as a particular of the allegation in paragraph 97, is in reality a different allegation that the Second Defendant, Mr Savelyev, dishonestly put pressure on V-Bank to withdraw its support from the Defendants and cause the freezing order in the BVI against the Claimants to be discharged (as indeed occurred). I think I can take it that the “dishonesty” asserted against Mr Savelyev is in intentionally procuring that result: but the Defendants should identify all the facts and circumstances that they intend to rely on as demonstrating that this was his intention.

Further, the Defendants must similarly identify (a) who it was at the V-Bank whom (a) Mr Savelyev and (b) “FSB officers” allegedly pressurised, and what was the means of doing so, stating whether and if so what consequences it is alleged he and/or they suggested would follow if the V-Bank did not comply. The Defendants should also identify the FSB officers involved, or if it cannot, provide all facts and matters relied on in support of the allegation that unidentified FSB officers were so involved.

Paragraph 118 of the Amended Counterclaim is criticised by the Claimants as lacking particularity: and I agree, if read on its own. But I think it is sufficiently saved by the Defendants confirming (as by amendment they have now pleaded) that the “collateral contract” asserted is the product of the matters pleaded in paragraphs 113 and 114. If that is not so, and some other collateral contract is intended to be relied upon, its parties, terms, date, form and manner of conclusion must be identified.

Turning to paragraph 165, and the particulars given under it:

In relation to paragraph 166 of the Amended Defence each occasion of harassment, its date and circumstances, and the individuals concerned, must be identified, as also must each occasion of police custody, stating what the charge was.

As regards paragraph 168, the form and date and terms of the search order, and the alleged authority for it, must be identified.

Paragraph 171 seems to me to invite an enquiry as to the substance of myriad unidentified criminal cases, which I do not think appropriate or proportionate; it should be deleted or recast to be confined to its second sentence, appropriately amended and recast to identify the case and each occasion on which the Defendants were not timeously and adequately notified.

As to paragraph 173, each legal action brought against the Defendants should be identified. I would be disposed to strike out the words “ill-conceived”, subject to any objections by the Defendants.

I have in the preceding paragraphs used the word “identified” to denote that I would consider it sufficient if the particulars and facts relied on are clearly identified in the Defendants’ Witness Statements. If they are not, I invite the parties to agree the (short) time for their formal particularisation and evidential support.

All these pleading matters are to be reviewed at the PTR: I would propose to order that any not addressed to my satisfaction by then be struck out. Further, I give permission to the Claimants to apply if the inclusion of these amendments is likely to upset the timetable for trial.

There is another dispute between the parties as to the scope of the expert evidence required on Russian Banking Practice. In particular, the Defendants seek evidence of the matters set out in paragraphs 17 to 24 of the draft list of issues for experts (which is appended to this Judgment for convenience of reference). The Claimants submit it is not required, and is not appropriate.

As explained by Evans-Lombe J in Barings Plc v Coopers & Lybrand (No. 2) [2001] Ll Rep. Bank. 85:

In Mann v Messrs Chetty and Patel (A firm) [2000] EWCA Civ 267 the Court of Appeal stated that in deciding whether to allow expert evidence the Court has to make a judgment on at least thee matters:

how cogent the evidence will be;

how helpful it will be in resolving any of the issues in the case; and

how much it will cost and the relationship of that cost to the sums at stake.

I have not been provided with details as to (c) above. But taking all these other factors into account and put shortly, I consider that the only matters on which I might be assisted by such expert evidence are those adumbrated in paragraphs 20, 21, and possibly 23 (if there is a standard practice and procedure, but otherwise not).

My provisional view is that I would also be assisted by (a) evidence on the process of public auction to realise sums for general creditors, and the rights in that regard of any secured creditor (such as the Claimant Bank) and (b) a valuation of the chattels (paragraph 31) and real property (paragraph 32). I should, however, be assisted by a description of what is proposed as to (b), and as to both (a) and (b) how long it would take and how much it would cost.

In the end I did not understand there to be great dispute about a relatively small adjustment to the timetable for exchange of witness statements, though the Claimants did not agree it: and I extend the time to 25 February 2014.

I would ask the parties to seek to agree in draft an order for my consideration once they have had an opportunity to consider a draft and before formal handing down of this judgment.

If that can be agreed it should not be necessary to require attendance. If, however, there are other matters to be addressed, these should be notified as soon as possible to my clerk.