Bank St Petersburg & Anor v Arkhangelsky & Ors

By an Application Notice dated 27 February 2014 the Defendants apply for an adjournment of the trial of these proceedings for the second time.

The trial was first fixed to come on in late January 2014. Further to its first adjournment it is presently due to start on 1 May 2014. The Defendants now seek its further adjournment until the first available date after 1 December 2014.

The application is supported by two witness statements: (1) 3^rd of Pavel Stroilov with a substantial exhibit, including a 12^th witness statement of Mr Arkhangelsky made in the context of an appeal to the Court of Appeal; and (2) a statement from a Russian Professor of Economics.

The Defendants’ overall contention is that unforeseen interlocutory activity, the pendency of two appeals, and delays both in compiling evidence (especially from their proposed Russian witnesses) and in finding legal representation combine to make it impractical for them now to be anything like prepared for trial in May.

The Claimants strenuously oppose any further delay. They contend that it would be, to quote Mr Marshall QC, a “total disaster” for them after expending such resources to be ready, and having their witnesses and Counsel all ready.

They rely, perfectly understandably, on a previous judgment of mine, dated 14 November 2013, when I did adjourn the trial, but only until May and not October as the Defendants had sought.

They remind me in particular that in that context I expressly stated my determination to rigorously enforce timetables to ensure that the trial did not slip again.

They go so far as to say that, in the circumstances which they contend have not materially changed since November, I should not even permit the Defendants’ application to proceed, and that I should leave any question of any change in the trial date now to the Court of Appeal. To do otherwise, they contend, might undercut the discretion of the Court of Appeal.

The Claimants contend that, on the contrary, I should make orders now with strict sanctions to ensure compliance with a time table for evidence to save the trial date.

They apply, on what they describe in the application as “short, informal notice”, for orders that

“Unless the Defendants and Oslo Marine Group Ports LLC serve their witness evidence by 10 March 2014, they be debarred from defending the proceedings and pursuing their counterclaim and their defence and counterclaim be struck out without further order.”

Especially in the light of the Claimants’ own application, I consider it appropriate, and indeed incumbent upon me, to determine both applications notwithstanding the Claimants’ cautioning lest in determining the Defendants’ application I tread on the toes of the Court of Appeal in the determination of matters presently before it in these proceedings, which include an appeal by the Defendants against my decision in November to adjourn only until May 2014.

I am reinforced in that by the fact that at the root of both applications before me is the question whether a fair and orderly trial can take place in May 2014, now only weeks away, and barely three weeks (including over the Easter period) after the hearing of the Appeal set down for 8 and 9 April.

As the nominated trial judge, and having heard all the many interlocutory applications in these proceedings since July 2012, it seems to me that I should express my conclusions, rather than await events.

I turn, therefore, to elaborate to the limited extent necessary on the background of the applications.

These proceedings were commenced by the Claimants on 20 February 2012.

They were instituted in this jurisdiction after the collapse of proceedings brought by the Defendants in relation to substantially the same subject-matter in the BVI Commercial Court. The collapse was in consequence of the withdrawal of funds from the Defendants, who were then unable to fortify the cross-undertakings they had given as the price of obtaining freezing orders against the Claimants in the BVI.

After failed attempts (described in my judgment of 14 November 2013) to agree a Tomlin order for the stay of the BVI proceedings, such proceedings were stayed by order of the BVI Court (Bannister J) on 2 February 2012. The parties had earlier (by an exchange of letters in December 2011) voluntarily submitted to the jurisdiction of the English Court.

The BVI proceedings themselves were brought after the Claimants had secured, the Defendants contend by improper means and pursuant to unlawful conspiracies, judgments in Russia also in relation to the same subject matter.

The proceedings which culminated in those Russian judgments were commenced in the summer of 2009, and related (as do these proceedings and the BVI proceedings before them) to events in late 2008 and early 2009.

Thus, although commenced only two years ago in this jurisdiction, the dispute has a much longer history, and the events in question are now some considerable time ago.

As the reference to the 12^th Witness Statement of the First Defendant (whom with no disrespect I shall refer to as “Mr A”) may suggest, both the Defendants and the Claimants have already exchanged a mass of evidential material, albeit all of it (so far) in respect of a welter of interlocutory applications.

That follows considerable exchanges of evidence in the BVI, where (so I am told) the Defendants filed 15 witness statements exhibiting over 1200 pages of exhibits.

The contentions of the parties and the evidence of the protagonists have thus already been substantially rehearsed.

That evidence has included, moreover, days of cross-examination of both Mr A and his wife, which took place in the summer and autumn of 2013 by video-link.

Such cross-examination had been ordered after it appeared that the Defendants may not have complied fully with disclosure obligations under Freezing Orders made against them first (without notice) by Morgan J on 15 March 2012 and then continued (without opposition) by Sales J on 29 March 2012.

The procedural history reveals an unsatisfactory series of missed time limits.

It is not necessary to set each of these out. I have addressed those most salient in the period prior to my Judgment in November at paragraphs 140 to 150 in that judgment.

I have also there set out in paragraphs 151 to 154 some of the reasons advanced by the Defendants for their delays, including especially the difficult circumstances in which they have found themselves after fleeing Russia and taking up residence in exile in France (see especially paragraph 154 of that judgment).

As also appears from that judgment the Defendants are now, as they have been for some time, litigants in person. It is difficult to overstate the difficulties inherent in that fact, given (a) the complexity of the case; (b) the difficulty of proving the sort of conspiracy claims raised by their counterclaim; (c) the massive resources ranges against them; and (d) their forced residence in France and the practical impossibility of them attending Court here, for fear of arrest and extradition were they to leave France.

It was with reference to their difficult predicament that in my judgment of November 2013, I explained (amongst other matters addressed) my conclusion at that time that a trial commencement date of January 2014 could not fairly be met.

But, as mentioned above, I considered at that time that an adjournment until 1 May 2014 would constitute a fair balance between the parties’ respective and opposing interests and would suffice.

In that judgment, I expressly stated also, at paragraph 173, the following:

“The parties should be in no doubt that the Court will now rigorously enforce these time-tables. The trial must not slip again.”

Regrettably, and despite what I then said, since that judgment the pattern of delay has continued, and the progress of preparation has been further interrupted by continuing interlocutory battles (which have occupied the Court for some five full days since November 2013).

The procedural sclerosis since then may be illustrated by the following:

The nature of the continuing interlocutory battles appears from my further Judgment dated 5 March 2014 in respect of the matters in issue in hearings on 17 January and 6 to 7 February 2014.

The position now is that:

These are very considerable impediments to a fair and orderly trial. Nevertheless, the Claimants insist that:

I accept at once that the Court should be very reluctant to adjourn a long trial; and that its reluctance would be the greater if the adjournment would be for a second time, and even more so when it has previously declined such an adjournment as is sought.

I accept also that delay causes prejudice in itself, both to the parties and to other litigants.

I accept further that the Rules apply to litigants in person, as to represented parties, although there is a heightened need for the Court itself to be vigilant to ensure that the Rules are not applied in such a way as to cause unfairness.

I have taken these factors, and the evidence (including Mr Jeremy Winter’s second witness statement dated 3 March 2014) filed in support of the Claimants’ application and against the Defendants’ application, as well as the evidence of the Defendants, anxiously into account.

I have borne well in mind my previously expressed warnings and insistence that the case should proceed in accordance with timetables laid down.

Nevertheless, I have reached the firm conclusion that fairness dictates the further adjournment of this trial.

In my judgment:

For the avoidance of doubt, in my judgment there has been a material change of circumstances in consequence of the evaporation of preparation time in the heat of interlocutory battles; and I do consider that it is the Claimants who are most to blame in that regard.

I also bear in mind the complete refusal of the Claimants to permit the Defendants any recourse to the funds in Bulgaria for the purposes of reasonable legal costs (recourse to which would be available under the provisos to the Freezing Orders made here if the funds fell within the scope of the latter orders). This is at least one factor why the Defendants have not been able to secure legal representation: and though the rules apply to them, of course, the fact remains that the immense difficulties facing a litigant in person in preparing for a trial of this nature is a weighty consideration, which in fairness must be kept in constant and careful review.

Furthermore, events since November have displaced my view then that a trial could and should fairly proceed in May. Whether or not I was wrong to think May feasible then is beside the point: I must look at the matter now, in the light of what has transpired.

I also take into account, in that context, the warnings I expressed in November, when formally handing down judgment (on 14 November 2013). I said this (reading from the transcript helpfully made available to me):

“...my stipulation that there should be no movement from 1 May is upon the premise that there aren’t other factors disorienting preparation, including possible Court of Appeal applications.”

Mr Higgo, appearing on behalf of the Bank, said:

“That’s entirely fair, my Lord.”

Later on, I stated:

“So I don’t want to be hoist on my own petard of 1 May, given that it’s not impossible that the Court of Appeal preparations or timing could affect the matter.

I do not thereby excuse the Defendants: they may have dropped heavy hints of an intention to seek to adjourn the trial in February, but they have been less than candid until now, and they have not treated Court orders with the respect that is required and insisted upon. Nevertheless, they remain entitled to a fair and orderly trial.

I propose therefore, to vacate the May date, and to adjourn the trial. I shall not set a date now. The outcomes of the hearing in the Court of Appeal will almost inevitably materially affect the issue of when a fair trial should first be possible: to take two examples: (a) the question whether Oslo Marine Group’s counterclaim is to proceed is bound to affect both the prospect of obtaining legal representation and the trial estimate; and (b) if recourse is enabled to the funds presently subject to the unqualified freezing orders made in Bulgaria that could greatly enhance the prospect of the Defendants obtaining legal representation.

I propose that the matter be restored to me once the results of the hearing in the Court of Appeal are known, so that a date can be fixed. I have notified the Clerk of the Lists accordingly.

It follows also that I do not consider that I should at present make any such ‘unless’ orders as have been sought by the Claimants. The timing of witness statements will have to be recalibrated according to the revised trial date; and I will hear submissions in that regard when the matter is restored to fix that date.

I should, however, warn the Defendants especially that it would be my intention to make orders on a final, and perhaps ‘unless’, basis when dates have been fixed. The Defendants should not let up on efforts to collate the evidence on which they rely. Any ‘unless’ order would be in such form as to bar the party from relying on a witness statement unless filed before a stipulated date: the form of ‘unless’ order presently suggested by the Claimants would be inappropriate in any event, in my view.

In addition to the main issue of an adjournment, I need to address two separate issues that were addressed at the oral hearing before me on 5 March 2014.

The first concerns the Claimants’ application for a variation of the Freezing Orders made in this jurisdiction so as to prevent the Defendants having recourse to the proceeds of the surrender of the Policy (as defined in my judgment of 5 March 2014) for any purpose, at least pending an application by them to the Court of Appeal for permission to appeal against my refusal to make such a variation for the reasons I stated in that judgment. (I refused to give such permission myself.)

The Claimants submit that such holding relief is appropriate so as not to render any appeal nugatory. The Defendants oppose any such relief on the basis that my decision was within my discretion, an appeal would be hopeless, and the variation sought would or could cause irremediable prejudice.

As I indicated on 5 March 2014, I was not then and am not now prepared to vary the Freezing Orders even temporarily to prevent the Defendants drawing living expenses on the terms and subject to the cap provided for: and I think it oppressive and ill-judged of the Claimants to have sought and to continue to seek such relief.

As to legal expenses, although initially minded to direct that the Defendants should not within (say) the next ten working days (or such lesser or longer period as I may be persuaded of after short oral argument) apply any such proceeds out of the relevant account without my (or, alternatively, the Claimants’) prior permission, on reflection I consider that this would simply make further hearings inevitable. At Mr Stoilov’s suggestion, and with the agreement of Ms den Besten on behalf of the Claimants, I propose to continue the present regime in this regard, as set out in paragraph 8 of my order of 17 January 2014, except that (a) the period of three days’ notice should be substituted in place of the existing requirement of two days’ notice and (b) this regime will lapse (and the position will revert to that provided for in the original Freezing Orders) if the Claimants do not within the time permitted under the CPR seek permission to appeal my dismissal of their application for a variation of the Freezing Orders, or if permission to appeal, or the appeal itself, is refused.

The second and related issue may, as I understand it, have been resolved since the hearing on 5 March 2014. The issue was whether the Claimants should be required (lest they otherwise be injuncted) to continue an undertaking they had previously given (and recorded in my Order dated 17 January 2014)

“not to take any steps to enforce any judgment against the proceeds of the Policy [as defined] held in a specified account, or take any further steps to enforce any judgment against various properties in Russia listed in Schedule A [to that order].”

Mr Marshall QC had submitted that no such cross-undertaking should be required to be continued. He submitted that (a) the Freezing Orders in this jurisdiction were in part in aid of judgments for payment of assessed costs made in the BVI, which had been recognised in this jurisdiction and were plainly enforceable, and no fetter on enforcement should be placed; and (b) even if the result of enforcement would be to derive the Defendants of what (on their case) was their sole liquid source of funds, that should not deter the Court since a post-judgment freezing order did not typically contain any proviso for payment of living expenses, still less legal expenses (or so he submitted, though I must admit to some doubt that this is invariably the case).

Mr Stroilov argued that the cross-undertaking should be continued: the account number had been supplied on the faith of it, and it would be unfair and wrong for the information thus obtained to be used for the purposes of enforcement pending determination of the issues in the proceedings.

Mr Stroilov also drew to my attention in the course of the hearing on 5 March 2014 a letter from Mr Marshall’s instructing solicitors dated 15 February 2013 in which they stated as follows:

“Mr Justice Hildyard has asked us to confirm in a letter to you what we said in our email to you of 7 February, and we hereby do so:

"Thank you for this email (i.e. yours of 05 February 2013 16:26)

You have repeatedly made this allegation about our clients intending to abuse information gathered from the freezing order for illegitimate purposes. We repeatedly deny it, but apparently not clearly enough.

For the avoidance of any possible doubt about this, we confirm that our clients will not use the asset disclosure information provided by your clients pursuant to the Freezing order of 15 March 2012 (renewed on 29 March 2012) and/or pursuant to their Examination, for the enforcement of BVI costs in Russia (or elsewhere), without the permission of the English court.

Obviously, that confirmation does not apply to any information our clients have independently of the Freezing Order and Examination, or information that is in the public domain.”

At the hearing on 5 March 2012, Mr Marshall QC contended that this went further than my order of 8 August 2012 and had been written in error. I queried whether it was open to his clients to go back on what they had said.

However, by letter of 6 March 2014, Baker & McKenzie LLP, having quoted the passage from their letter of 15 February 2013 I have set out above, stated as follows:

“The point made by Mr Marshall yesterday was that this letter represented an incorrect interpretation of your lordship's order of 8 August 2012. He was right, but the letter was a confirmation of what we had already told the Defendants on a number of earlier occasions.

We therefore confirm that we will not use information concerning the balance of the proceeds of Mrs Arkhangelsky's insurance policy for the purposes of enforcement of the BVI costs order in France, without the permission of the court. We do not currently seek such permission.”

Given this clarification, for which in any event I am grateful, it seems to me that the second issue is no longer in dispute; and that the Claimants will be prepared to continue the cross-undertaking previously given. If that assumption is incorrect, the matter will have to be clarified after I have delivered this judgment, along with any other matters arising (including the timetable for any further amendments to paragraphs 6.1 and 7.1 of the Reply and paragraph 171 of the Counterclaim).