JSC Mezhdunarodniy Promyshlenniy Bank & Anor v Pugachev

The purpose of this judgment is to set out my reasons for my decision (which I communicated to the parties on 25 May 2015) not to accede to the Defendant’s application (which I heard on short notice) for a variation of orders made for the retention of his passports in order to enable him to attend in person a court hearing in Paris on 28 to 29 May 2015 relating to proceedings commenced by him in France.

Put shortly, I have concluded that it remains necessary to continue the passport order made first by Peter Smith J and subsequently extended (“the Passport Order”) in order to secure proper compliance with the Defendant’s continuing but as yet imperfectly fulfilled obligations to disclose information relevant to his assets. Those obligations were first imposed as long ago as 11 July 2014 by Henderson J to give effect to the worldwide freezing orders he made in aid of proceedings brought by the Claimants against the Defendant in the Russian courts. (I shall set out the respects in which I consider the Defendant’s compliance with those orders still to be incomplete in a revised further judgment which I shall circulate in draft to the parties as soon as possible.)

I can summarise the immediate background to this application as follows.

The Passport Order of which the Defendant seeks a limited suspension was originally made by Peter Smith J ex parte on 2 March 2015, and re-imposed in slightly more extended form (also by Peter Smith J) on 6 March 2015 (after an unsuccessful application to set aside the ex parte order).

The Claimants sought the Passport Order because they feared that the Defendant would leave this jurisdiction, and seek to evade compliance with Orders made previously for full asset disclosure, including of certain trusts of which the Defendant was (and is) a discretionary beneficiary.

These Orders included a “Trusts Disclosure Order”, being a reference to those parts of the order of Henderson J made on 25 July 2014 which required the Defendant to swear and serve an affidavit as to the identity of the trustee(s), settlor(s), and protector(s) and the beneficiaries of various trusts the existence of which the Defendant had disclosed, together with copies of relevant documentation.

Further, by the time of the Claimants’ application for the Passports Orders they had already issued an application (“the Cross-Examination Application”) to cross-examine the Defendant in connection with “his assets, asset disclosure and living expenses” and pursuant to the freezing orders and the disclosure which they required.

In making the Passport Order inter partes on 6 March 2015, Peter Smith J made clear that he was satisfied that such an order was required because the Claimants had

Amongst the matters that weighed with Peter Smith J was that although in response to the earlier ex parte order he had made the Defendant did hand over two passports, it had transpired that the Defendant had retained a third passport which he had kept back. As Peter Smith J put it:

The Passport Order made by Peter Smith J on 6 March 2015 restrained the Defendant from leaving the jurisdiction of England and Wales until the conclusion of his cross-examination on his assets and to that end required surrender of his passports (and any like identity cards or travel documents) to the solicitors for the Claimants.

The stated purposes of the Passport Order were:

An order for the cross-examination of the Defendant was made by Arnold J on 11 March 2015.

As will be more fully explained in my draft judgment in relation to it, the hearing of that cross-examination eventually spread over five days. The Passport Order continued in the meantime.

However, on Day 4 (2 April 2015) the Defendant made an application for a temporary suspension of the Passport Order. This was apparently to enable him both to make arrangements to access his HSBC account in France (which he claimed needed his personal attendance) and to visit his family over Easter. I refused that application for reasons adumbrated in an ex tempore judgment of the same date.

Thereafter, the Passport Order has continued. In particular, it has continued over two weeks whilst I have been reconsidering and revising my judgment on (a) issues of costs and (b) what further disclosure should be required of the Defendant notwithstanding the apparent conclusion of his cross-examination on Day 5 (15 April 2015), matters which were argued before me on Day 6 (20 April 2015).

The present application was informally presaged in a letter from the Defendant to the Claimants’ Solicitors (Hogan Lovells) which was circulated to me dated 18 May 2015 and which sought the consent of the Claimants to the suspension now sought.

When such consent was refused, I directed that provided a formal application supported by evidence was made by the Defendant on 21 May 2015, I would hear it on 22 May 2015.

Such an application was made, supported by evidence in the form of a witness statement by the Defendant (his 11^th) exhibiting certain documentation said to evidence his need to attend the hearing in France to which I have referred.

The gist of the Defendant’s evidence and its exhibits was and is as follows:

On 23 April 2014 (and thus several weeks before the Claimants commenced proceedings in this jurisdiction) he instructed his French lawyers to start criminal proceedings in Paris against various officials of the Second Claimant (“the DIA”) and other Russian individuals complaining of criminal acts of intimidation and extortion allegedly perpetrated against him in France.

The senior investigating judge in the Paris Court subsequently appointed two investigating judges to investigate the case.

On 12 May 2015, the Defendant’s French lawyers received a summons or “Convocation” directed to him and inviting his attendance at 10 o’clock on 29 May 2015 at the judges’ offices in Paris.

The Defendant’s French lawyers, in a letter dated 18 May 2015 which has been redacted so that it shows neither their name and address, nor the individual signatory, have stated that the Defendant’s personal attendance is “extremely important” because:

the “convocation” signifies that the investigating judges want to interview him with regards to his complaint;

being from a judicial authority, “the attendance of the person summoned to appear in Court is mandatory”;

the interview is “important since its aim is to provide additional details to the judges, to answer their questions, to share elements on the context of the case and above all to strengthen the sincerity of the procedure and the fact that your allegations are well founded, with what is irreplaceable, i.e. a personal contact with the judges”;

non-attendance could signify a lack of interest and even lead to losing the benefit of the complaint and its termination;

video-conferencing is complicated to arrange, more impersonal and less satisfactory, and might not be permitted (depending on the Court’s indulgence);

a request for postponement could damage the case because the investigating judges have busy schedules, as demonstrated by the year’s delay in fixing the present hearing, and “it will be even more complicated to arrange a new hearing”, and also because a request to postpone “could be interpreted by the judges as a lack of commitment to the case.”

In an email to the court from the lawyer acting for the Defendant in this jurisdiction for the limited purposes of this application (Mr D Pashov, a solicitor in the employ of Luxury Consulting Limited, which appears in effect to be the Defendant’s private office), it is stated that video conferencing would not be permitted by the French Court unless the Defendant had first applied to this court for the suspension of the Passport Order.

The Defendant stressed that he sought only the suspension, and not the discharge, of the Passport Order. Furthermore, it was made clear on his behalf that he would be quite prepared to accept restrictions in respect of the custody and use of his passport during the course of his short overnight visit to France. Initially it was suggested that Mr Pashov should have custody of the Defendant’s passport at all times except when being shown to relevant border authorities. But when the Claimants rejected this, the Defendant’s counsel Ms Montgomery QC confirmed that she had instructions to agree that the relevant accompanying solicitor should be someone at Hogan Lovells and that the exercise should be paid for by the Defendant in advance.

The Defendant acknowledged that there remained outstanding an Interpol “Red Notice” which would apparently require the French authorities to arrest the Defendant pending any extradition request from Russian Federation. In his Eighth Witness Statement the Defendant had contended that this was a sufficient threat to make it unsafe for him to travel to France. However, his most recent evidence was that he had taken advice since then (which he was not prepared to disclose or waive privilege in respect of) and in its light was “confident that [he] would not be arrested if [he] travel[s] to France for the purposes of the hearing on 29 May.”

That evidence was answered by the Claimants in the 19^th witness statement of Michael Gordon Roberts (“Mr Roberts”, the partner at Hogan Lovells with conduct of the case for the Claimants), exhibiting evidence to the contrary.

In responding to this evidence the Claimants consulted a partner in Hogan Lovells’ Paris office, namely Antonin Levy (“Mr Levy”), who apparently specialises in white collar crime. Largely based on Mr Levy’s advice, the gist of the Claimants’ evidence (with exhibits) in response was and is that the Defendant has misrepresented the true nature and effect of the Defendant’s status in the proceedings, and of the “convocation”. In particular, according to Mr Levy:

under French law, the Defendant, as a “partie civile”, is in effect treated as the complainant, and the complaint automatically triggers an investigation by the “juge d’instruction”, who can be equated to an investigating magistrate;

a ‘partie civile’ complaint can only be filed if an initial complaint has been rejected or not actioned for more than three months;

the fact that an investigation is triggered does not connote any view as to its substance, and charges may or may not follow;

it seems that, so far, no charges have been brought (since the DIA would have had to be notified of any);

the appointment of two magistrates (rather than a single one) was almost inevitable in a case involving parties in different jurisdictions;

the attendance of a ‘partie civile’ is never mandatory, in the sense of the ‘convocation’ being a binding instruction or order the breach of which would expose the party to a sanction: it is in the nature of a formal invitation offering an opportunity to attend, rather than the equivalent of a witness summons or subpoena;

a ‘partie civile’ is entitled to request an opportunity to be auditioned by the judge(s). This is not a hearing in the sense of an interlocutory application or trial. It is an ‘audition’ with the judge(s) in their chambers (“à mon cabinet”): “little more than a meeting or appointment”;

video-conferencing is by no means unusual in such proceedings in France, and this would be a “paradigm case” for its use, given the nature of the hearing, which is informational rather than adjudicative.

Further, the Claimants expressed continuing concern about the Interpol “Red Notice”, especially since (they stated) Mr Levy had confirmed that there is

The Claimants reminded me of the earlier application made to me by the Defendant (acting in person) in the context of his professed need to visit France as a matter of great urgency and on the basis of his livelihood and that of his wife and children being at stake, the refusal of which had not in fact done any harm.

Inevitably, the Claimants also reminded me of the “merry dance” that the Defendant had led the court on in keeping back a passport (see above) as indicative of the Defendant’s propensity and willingness seriously to mislead the court, and inviting sceptical scrutiny and caution about the claims now being made as to the need for his attendance in Paris.

In summary, the Claimants urged me to refuse the application on the basis that it is not appropriate for them to run the risk of the Defendant’s flight or arrest. Although they stated that if the application succeeded it should only be on strict conditions (including the retention of the Defendant’s passport by a solicitor in Hogan Lovells at all times except at a passport inspections), they stressed that this was very much their less favoured alternative, and that it might be deficient in any event.

As to the applicable legal principles, Counsel concurred that the source of the court’s jurisdiction is section 37 of the Senior Courts Act 1981 and that the leading case on its exercise is the decision of the Court of Appeal in Bayer AG v Winter and Others [1985] 1 WLR 497.

The Court of Appeal accepted that the court could, where just and convenient, restrain by injunction a party who is the subject of a freezing order from leaving the jurisdiction in order to ensure that such order, and any ancillary disclosure obligations imposed to police it and give it full effect, should be capable of being enforced as completely and successfully as the powers of the court could procure (and see also House of Spring Gardens Ltd v Waite [1985] FSR 173 at 183, as cited by Ralph Gibson LJ at 503G-H). An order to require surrender of that person’s passport was ancillary to that restraint.

However, Ms Montgomery QC, in her excellent submissions, submitted that it would not be “just and convenient” to impose such restrictions unless they were necessary and proportionate, having especial regard to the fundamental nature of the rights (of free movement) thereby restricted. She cited in support two additional authorities.

One is another decision of the Court of Appeal: Gough and another v Chief Constable of the Derbyshire Constabulary [2002] EWCA Civ 351, [2002] QB 1213. That case concerned, not a freezing order or disclosure obligations ancillary to such an order, but a banning order (pursuant to section 14B of the Football Spectators Act 1989, “the 1989 Act”) preventing the claimants, G and S, from attending football matches in defined geographical areas and requiring them (pursuant to section 19 of that Act) also to surrender their passports to the police at specified times to prevent their attendance at designated football matches abroad, unless they could demonstrate “special circumstances” justifying an exemption to the ban on foreign travel during those times (such as travel demonstrated to be for some purpose other than going to a football match).

The claimants in that case challenged the orders for them to surrender their passports on the grounds (a) the statutory provisions were incompatible with EU law and the basic human and common law right to leave the UK and (b) the orders were disproportionate as being neither “rationally connected to” nor “necessary to accomplish” the policy of the 1989 Act (on the basis that though the prevention of football hooliganism was a legitimate aim of public policy, a prohibition on nationals leaving the country, including one where no football match was due to be played, was not justified by that policy, nor proportionate).

The Court of Appeal, in dismissing the claimant’s appeal and accepting the compatibility of the legislation with EU and Convention law, gave guidance as to the tests to be applied both in making banning orders and in relation to restrictions on the travel of those subject to such orders.

As to banning orders pursuant to section 14B of the 1989 Act, the court held that although not criminal in nature, such are their potential consequences (including restrictions on travel) that a “balance of probabilities” would not suffice and an exacting standard of proof should be required that would, in practice, be hard to distinguish from the criminal standard.

As to restrictions on a banned person from leaving this country, however, it held in summary that:

preventing football hooligans from taking part in violence and disorder in foreign countries is an imperative reason of public interest which is capable of justifying restrictions on their freedom of movement;

the statutory test for such a restriction was (under section 19B(1) of the 1989 Act) that the enforcing authority should have determined it to be “necessary or expedient for giving effect to the banning order”; but the enforcing authority is required to consider the individual circumstances of each case, and in each case to be satisfied that such a restriction is no more than is necessary to accomplish the objective of the banning order in the individual case;

if an individual subject to a banning order pursuant to section 14B and whose travel outside this jurisdiction had been restricted pursuant to section 19 could demonstrate that, on a balance of probabilities, his or her reason for going abroad was other than attendance at a prescribed match, that would constitute “special circumstances” warranting exemption from the restriction.

It will be apparent from this analysis that the Gough case turns very largely on the specific provisions and policy behind the 1989 Act in the context of the threat of football hooliganism. In my view, the guidance it offers by analogy in the very different context of a passport order in order to give effect to a freezing order is limited. However, it serves to emphasise what to my mind are the general requirements of (a) proportionality, having regard to the fundamental nature of the right to be restricted, (b) considering the particular circumstances of each individual case, and (c) being satisfied that the restriction is necessary in the sense of being just, proportionate and reasonably required to ensure as best as the law can the achievement of the objective for which the power to be exercised is granted (to give fullest effect to the freezing order).

The second case relied on by Ms Montgomery is Young v Young [2012] EWHC 138 (Fam), [2012] Fam 198, a decision of Mostyn J. In that case, the husband had been found to be in contempt of court for failing to comply with court orders; the committal order for a prison sentence of six months was suspended for three months on condition of compliance, with a provision requiring retention of the husband’s passport by the tipstaff. Whilst he continued not to comply and whilst his passport continued to be retained, the husband applied for its return so that he could engage in charitable work abroad. He relied on his rights to liberty (also under common law and including freedom of movement) and to respect for his private life under articles 5 and 8 respectively of the Human Rights Convention, and also the right of free movement incorporated in the Treaty on the Functioning of the European Union (the successor to the Treaty of Rome).

Mostyn J refused the husband’s application. In doing so, however, he cited Council Directive 2004/38/EC of 29 April 2004 on the right of free movement as encapsulating what restrictions on such right would be proportionate and permissible, including that

He went on to set out (at [26]) what he regarded as the applicable principles in the relevant context as follows:

The applicant must establish that there is probable cause for believing that the respondent is about to quit the jurisdiction unless he is restrained.

And the applicant must further establish that the absence of the respondent from the jurisdiction will materially prejudice her in the prosecution of her action.

Provided that the principles in (i) to (v) are carefully observed a passport impounding order will represent a proportionate public policy based restraint on freedom of movement founded on the personal conduct of the respondent.”

Ms Montgomery QC commended that statement; Mr Stephen Smith QC, who appeared for the Claimants, and for whose excellent submissions I am grateful, did not dissent from them. I accept them, with necessary modifications to fit the different context of a passport order to give effect to the ancillary provisions of a freezing order. I accept in particular the need for caution, and to be satisfied that there really is a risk sufficient to justify the incursion. I turn to the application of these principles in the light of the other guidance described, and in the particular, and to some extent peculiar, context of this case.

I start with the question as to the nature and sufficiency of the risk that is said to justify refusing suspension. The parties diametrically disagreed. Mr Smith presented the risk as one that had already been established and accepted by the Court in making the Passport Order in the first place; and he pointed out that the Defendant had not sought to challenge the Passport Order itself, but had confined his application to one for suspension. Ms Montgomery, on the other hand, contended that the facts underpinning the finding of a “flight risk” on which the original Passport Order was based, and in particular, the focus on the inadequacy of the Defendant’s disclosure of trusts of which he is a beneficiary and the threat posed by the process of cross-examination, simply “no longer exist.” More specifically she submitted:

Not unusually perhaps, the reality is somewhere in the middle. Undoubtedly the provision of some considerable detail with respect to the trusts has obviously reduced the risk that the Defendant might flee for fear of exposure of their terms; but it has not entirely removed it, since there is still the possibility that the trusts provide the key to the continuing mystery as to how he is able to sustain his lifestyle, a mystery in respect of which I propose to direct further evidence.

Further, although, as presently the evidence strikes me, I would not expect any further cross-examination to be justified other than on issues relating to the further affidavit evidence I propose to direct, there remains the potential for further exposure: indeed a less amorphous and more focused enquiry may, not least in the Defendant’s perception, ultimately pose a greater risk. Only the Defendant can know the greater truth.

In addition, the process of cross-examination has given rise to other potential concerns, including (as Mr Smith emphasised) the potential for applications for contempt. I wish to make clear that in saying this I do not suggest such an application would be justified; but I have found the Defendant to have been, at its kindest, unforthcoming; the threat is there, and has expressly been floated.

Ms Montgomery also stressed factors against the “flight risk” being other than theoretical: the Defendant’s residence, with his young children and their mother in the UK in comparative safety; the unlikelihood of him wishing to hazard all that with an uncertain plan of escape; the Claimants’ surveillance resources that increase the risks of any such plan; and I would add (though I do not recall this was suggested) the damage to his other claims in the International Tribunal against the Russian state and the DIA, as well as the criminal process in France. However, these have not substantially changed since the Passport Order.

Similarly, the unsettling impression created by the “merry dance” (see paragraphs [9] and [26] above) of the Defendant’s refusal to disclose and hand over one of his passports still abides.

Furthermore, since the Passport Order, and as briefly recounted above, the Defendant has sought previously a suspension of that Order to visit France for reasons which I am bound to say have appeared to me increasingly unimpressive; and which have as a corollary increased my concern that the Defendant may no longer be accurately assessing the risks to him (including of any flight, and of implementation of the extant Red Notice).

In short, it seems to me that, objectively, the “flight risk” identified as being the basis of the Passport Order still exists; and the real question, as is perhaps implicit in Ms Montgomery’s submission to me that this was “the greatest protection” (as she put it), is that the Defendant would be accompanied and his passport retained by his companion (who she accepted, as previously mentioned, could be a solicitor from Hogan Lovells) at all times except on presentation to border control.

I have thought hard about this suggestion, and the credence it might be thought to lend to the Defendant’s reliability. I have taken into account the considerations mentioned at paragraph [45] above in this fresh light. I have not found the decision easy. But in the end, I have concluded that the protections offered are on objective analysis more apparent than real. If there is (as I have concluded there is) a flight risk, and especially if (as is possible) the Defendant commands substantial resources, the protection would in reality be insubstantial. The proposed stay is overnight when constant supervision might be difficult; and once in France, he could, if determined to do so, travel to Schengen states without a passport. I have taken into account my perception of the Defendant during the course of his cross-examination also.

I have concluded that the protection would not be sufficient in the only circumstances in which it might be relevant and that the “flight risk” is sufficient to warrant refusing suspension.

That conclusion is, to my mind, fortified by the abiding uncertainty relating to the potential application of the Red Notice.

It is fortified further when the inherent risks are balanced against the need which the Defendant asserts warrant them being taken. As to that, I have to say that the evidence on behalf of the Defendant as to the extreme importance of his attendance in person was less than wholly impressive: it seemed to me deficient both in form (in that, as redacted, it lacked any formal imprimatur) and content (being mere assertion, without any real attempt to explain the process by reference to the legislative or procedural framework).

I find it difficult to believe that the French investigating judges would not grant a postponement of the hearing once informed of the ongoing process in this jurisdiction, or agree to participation by video conferencing if that is preferred. The (albeit hearsay) evidence of Mr Levy seemed to me to be cogent and grounded in the legislation and procedure as well as long experience. It had the advantage of chiming with what one would instinctively expect. The necessity of personal attendance has not, in my view, been demonstrated.

As to that, Ms Montgomery urged, succinctly and attractively, that the question is not whether the Defendant’s attendance at the hearing in Paris on 29 May is necessary, but whether it is truly “necessary” to prevent his leaving the jurisdiction to enable such attendance. But in light of my conclusion as to the continuing “flight risk”, and the uncertainty of the threat posed by the Red Notices (even if that threat may well be ultimately influenced if not controlled by the Claimants), I think the necessity of the latter is sufficiently established, both by reference to past assessments and present conditions.

This conclusion also accords with the more familiar approach of the courts to risk assessment in terms of what is “just and convenient”. If the “flight risk” eventuates, the damage may be irreparable. My assessment of the risk of non-attendance is that it would be a temporary set back, if it truly arises at all. That is so even though in subjective terms I well appreciate how important it may seem to the Defendant, in his quest for some redress, that he should take not the slightest risk of any judicial antipathy or scepticism in proceedings in which he is the complainant (though I have noted that in other contexts he has been more willing to explore the boundaries of the court’s patience).

In that regard, even though Ms Montgomery urged against the adoption of a test by reference to what is “just and convenient”, those are the words of the statute which provides this court’s jurisdiction, and they provide, to my mind, a salutary reminder that the court is required to proceed logically, which includes assessing whether one risk is irremediable and the other not, and not on the basis of imponderable probabilities: what is “necessary”, in other words, involves an assessment as to what is required to reduce the risk of irremediable harm, more than a forecast of the more or most likely eventualities.

Lastly, I should make clear that I have also anxiously taken into account the fact that my own decision to revise my judgment on the issue of costs and further evidence in the context of the substantive application has occasioned delay and the further extension of the Passport Order. I take some comfort in that regard that even if an order had been made on that day, any consequential testing of the further affidavit evidence by cross-examination or otherwise would almost certainly not have been completed before 29 May 2015.

In other words, even allowing for the above, the Defendant’s present predicament is really the consequence, however regrettable now, that he has not yet or presently satisfied the court that he has given full co-operation and disclosure: there remain matters to be explored, especially in relation to the prima facie disparity between his disclosed resources and his lifestyle, and the process of their exploration still, in my judgment, requires protection by the Passport Order.

For all these reasons, I refuse the Defendant’s application. The Passport Order as previously made must continue.

In light of the imminence of the hearing in Paris and the fact that in England there is a court vacation and I shall be absent during it, I should indicate that I would not be disposed to give permission to appeal: ultimately it seems to me to be a matter of discretion.

Consequential questions of costs can be dealt with either on paper or when this judgment is formally handed down (after corrections of the draft in the usual way).