Royal Courts of Justice
7 Rolls Building
Fetter Lane
London, EC4A 1NL
Before :
MR JUSTICE SNOWDEN
Between:
(1) JSC MEZHDUNARODNIY PROMYSHELNNIY BANK |
(2) STATE CORPORATION “DEPOSIT INSURANCE AGENCY” |
Applicants/Claimants |
-and- |
(1) SERGEI VIKTOROVICH PUGACHEV (2) KEA TRUST COMPANY LIMITED (3) FINETREE COMPANY LIMITED (4) BRAMERTON COMPANY LIMITED (5) BLUERING COMPANY LIMITED (6) MARU LIMITED (7) HAPORI LIMITED (8) MIHARO LIMITED (9) AROTAU LIMITED (10) LUXURY CONSULTING LIMITED (11) VICTOR SERGEYEVITCH PUGACHEV |
Respondents/Defendants |
Stephen Smith QC and Patrick Harty (instructed by Hogan Lovells LLP) for the Claimants
Nicholas Cherryman (of King & Spalding International LLP) for the First and Tenth Defendants
The Second to Fifth Defendants did not appear and were not represented
Stephen Auld QC and Rachel Oakeshott (instructed by Mishcon de Reya) for the Sixth to Ninth Defendants
The Eleventh Defendant did not appear and was not represented
Hearing date: 26 August 2015
JUDGMENT
MR JUSTICE SNOWDEN:
Introduction
There are before me two applications in long-running and bitter litigation arising out of the affairs of the First Claimant bank and its founder, the First Defendant (“Mr. Pugachev”).
The essential background to the case was described briefly in a recent judgment of the Court of Appeal given on 11 August 2015, [2015] EWCA Civ 906. Paragraphs 2 to 5 of that judgment were as follows:
“2. In 1992 Mr. Pugachev, together with a partner, founded the First Claimant bank (“Mezhprom”). In November 2010 the Moscow Arbitrazh Court declared Mezhprom to be insolvent, opened liquidation proceedings and appointed the Second Claimant (“the DIA”) as liquidator. On 25th January 2011 the Russian authorities began a criminal investigation with regard to the insolvency of Mezhprom and three days later Mr. Pugachev fled Russia.
3. On 2nd December 2013 the Claimants began proceedings against Mr. Pugachev in the Moscow Arbitrazh Court. On 11th July 2014 Henderson J, the first of eight judges of the Chancery Division to have considered this case so far, granted a worldwide freezing order without notice in aid of the Moscow proceedings.
4. The worldwide freezing order contained the usual orders for disclosure. On 23rd July 2014 Mr. Pugachev provided a schedule of assets in purported compliance with that order. The stated value of the disclosed assets was $70 million. The assets listed in the schedule included interests as a discretionary beneficiary of a number of trusts.
5. On 25th July 2014 Henderson J made an order (“the trusts disclosure order”) requiring Mr. Pugachev to swear an affidavit identifying the trustee(s), settlor(s), any protector(s) and the beneficiaries of each of the trusts and details of the assets which were subject to those trusts, together with copies of the trust deeds. The trusts disclosure order was stayed pending appeal. At a hearing on notice on 29th July 2014 the worldwide freezing order was continued.”
To that summary, I would add that on 23 April 2015, the Moscow Arbitrazh Court gave a judgment against Mr. Pugachev in the sum of RUR 75.6 billion (approximately US$1.5 billion). That judgment has been the subject of an appeal which has been dismissed, but a further appeal will be heard by the Russian court in September 2015.
The first application before me is made by way of an application notice dated 12 August 2015 in which the Claimants seek an order continuing the relief that was granted ex parte by the Court of Appeal on 11 August 2015. In its judgment, the Court of Appeal allowed an appeal against a decision of Rose J and made worldwide freezing orders against the Second to Tenth Defendants. The Court of Appeal also granted further relief against Mr. Pugachev and against his son, Victor, who is the Eleventh Defendant, preventing them from exercising various powers in relation to certain trusts.
The second application was issued by the claimants on 20 August 2015 and seeks further disclosure from the Tenth Defendant (“LCL”) in support of the worldwide freezing injunctions against it and Mr. Pugachev, together with the extension of an existing order restraining Mr. Pugachev from leaving the jurisdiction and requiring him to surrender his passports and other travel documents. That latter order (“the Passport Order”) has its origins in orders made by Peter Smith J on 2 and 6 March 2015 and was most recently contained in an order of Rose J made on 27 July 2015.
The application for continuation of the worldwide freezing orders has eventually been disposed of by consent in the sense that the parties are agreed that I should make an order continuing the worldwide freezing orders, with some modifications, until further order on the basis that if any application is to be made by any of the Defendants to challenge the jurisdiction of the court and/or the continuation of the worldwide freezing orders, they should make and serve that application, supported by evidence, by Friday, 2 October 2015. If such an application is made, a timetable for the service of evidence and skeleton arguments has been agreed and the matter will be listed for a hearing to commence on 19 November 2015 with a current time estimate of three days.
The issues raised by the second application of 20 August 2015 have not, however, been agreed. The precise scope of the order sought by the Claimants has moved on from the relatively brief terms of the application notice itself but in broad terms the areas of dispute concern:
the grant of an order requiring the provision of further information by LCL to the Claimants concerning its assets and payments from its bank accounts; and
the continuation of the Passport Order (in expanded form) until further order.
The Background to the Applications
The relevant background to these applications is set out in a number of judgments, most significantly for present purposes a judgment of Hildyard J given on 12 June 2015, [2015] EWHC 1694 (Ch), a judgment of Rose J given on 27 July 2015, [2015] EWHC 2247 (Ch), and the judgment of the Court of Appeal to which I have already referred.
For the purposes of the applications, I can pick up the story from the judgment of Rose J. In paragraph 13 of her judgment, Rose J identified a number of aspects of Mr. Pugachev's finances that have been the particular focus of the Claimants’ enquiries into the adequacy of the asset disclosure which he gave pursuant to the original worldwide freezing order against him. Rose J described three of these as follows:
“a. The first was set out in Mr. Roberts’ first affidavit in support of the without notice freezing order in July 2014. He says that in January 2009, $900 million was withdrawn from the claimant Bank and transferred to three companies: CJSC Plescheevo; CJSC Sanara; and Srednie Torgovye Ryady LLC (‘STR’). Mr. Roberts asserted in his First Affidavit that the DIA believes that Mr. Pugachev is the ultimate owner of these companies and Mr. Pugachev has never said to the contrary in his evidence. Mr. Roberts also said that the credit balances of about $US710 million from those three companies were later transferred to an account in the name of a Cypriot company called Safelight Enterprises Limited (‘Safelight’) in Switzerland. It is believed that Safelight is also beneficially owned by Mr. Pugachev.
b. The second is what has happened to the proceeds of sale, if any, of Mr. Pugachev’s interests in a company referred to as EPK. EPK held a valuable coal deposit licence to exploit mines of coking coal in Siberia. Mr. Roberts, in his first affidavit, pointed to press reports that EPK was valued at US$2.5 – 3.5 billion and had been sold by Mr. Pugachev to company called Devecom Ventures Ltd (‘Devecom’) which is owned or controlled by a Mr. Altushkin. The counterparty to the sale of the interest in EPK to Devecom was a company called Basterre Business Corporation (‘Basterre’) which it now appears is controlled by Mr. Pugachev’s son Viktor and it now appears that the consideration owed by Devecom to Basterre for the interest in EPK under the sale agreement was US$ 150 million. This sale is linked with the insolvency of the claimant Bank and hence with the proceedings in Moscow which these proceedings support. That link, as I understand it, is that Mr. Pugachev’s shares in EPK were pledged by Mr. Pugachev as security for loans made by the Claimant Bank to various companies within Mr. Pugachev’s business empire. However, shortly before the sale of the shares in EPK by Mr. Pugachev, the pledges were released by the new Chairman of the claimant Bank, leaving those loans unsecured. Ultimately the loans were not paid and when the claimant Bank went into liquidation, there was a shortfall of assets. That shortfall is the basis for the claims by the DIA against Mr. Pugachev in the Moscow court.
c. The third aspect is a payment of US$106 million made to Mr. Pugachev’s personal bank account in December 2008 by a company called Creative Associates Service Ltd (“Creative”). Mr. Pugachev was apparently the sole shareholder of Creative at the time and this payment was said to be a dividend payable to him. Creative had received the sum as consideration on the sale of Creative’s interest in another company. The claimants want to know what has happened to this US$106 million.”
These three areas were the subject of part of the cross-examination of Mr. Pugachev that took place before Hildyard J in March and April this year. Hildyard J was asked to order a further affidavit dealing with these issues and for cross-examination to be adjourned to a later date. In paragraphs 38-40 of his judgment, Hildyard J set out what he regarded as the purpose of the exercise with which he was concerned as follows:
“38. I can be brief in this context: the test is in effect whether the court is satisfied that further evidence is necessary in order to make the freezing order more effective.
39. As it seems to me, the court must be persuaded that there is practical utility in requiring such evidence and that it is necessary to enable the freezing order properly to be policed. It will be vigilant to prevent the abuse of seeking further evidence for some other purpose: such as to expose further inconsistencies, unduly pressurise a defendant who has already been cross-examined, yield ammunition for an application for contempt, or provide further material which might be of assistance, even if not actually deployed, in the main (foreign) proceedings.
40. I consider also that the court must be satisfied that a yet further round of evidence is proportionate. That seems to me to be especially so where the freezing orders are in aid of foreign proceedings over which it has no control and where the English court is in effect being asked for relief which that foreign court could not or would not provide (see Motorola Credit Corporation v Uzan (No 2) [2003] EWCA Civ 752 at [115])."
That is an admirably concise summary of the principles of law that are applicable in relation to the applications in support of the worldwide freezing orders that are before me.
Hildyard J concluded as follows, at paragraphs 123-124:
"123. Having regard also to the proportionality of a process which has already occupied the court for so long in aid of foreign proceedings over which otherwise it has no control, I propose to limit the further evidence required to that which is necessary to (1) explain or clarify certain inconsistencies in the evidence given by and on behalf of the defendant with regard to EPK, Safelight and Creative Associates and (2) illuminate what seems to me the real and unsettling mystery of the case, which is how it is that the defendant has managed to service his living expenses as he has presented them to be and how and in what amount they are to be paid hereafter.
124. As to (1) in paragraph 123 above and the inconsistencies with regard to EPK and Safelight, what I propose to order is that the defendant should file an affidavit personally explaining to the best of his belief and having made all reasonable enquiries:
(a) whether he ever had any and if so what interest in (1) Basterre, (2) EPK, (3) JSC Sanara, (4) Plescheevo CJSC, (5), Safelight, (6) Oreon Limited or (7) Creative Associates;
(b) when and how he ceased to have such interest and if he disposed of it to whom he did so and when; and
(c) whether Devecom paid to Basterre the whole or part of the sum of US$150 million due pursuant to the share purchase agreement that he accepts he helped to negotiate.
According to whether or not the defendant had any such interest, and if so its nature, further enquiries may be justified as to what became of any sums transferred to such companies but I do not think it is appropriate to anticipate that now."
The order which Hildyard J made on 12 June was that Mr. Pugachev should swear and serve on the Claimants’ solicitors an affidavit which provided the information which he had indicated should be provided.
In relation to the enquiry into Mr. Pugachev's living expenses, Hildyard J also ordered Mr. Pugachev to disclose bank statements for the period 1 January 2015 to 30 April 2015, including those in the name of LCL and any accounts from which the living expenses of either him or his family had been paid. In his original asset disclosure provided in July 2014, Mr. Pugachev had identified himself as the sole shareholder and a major creditor of LCL, and he had indicated that it had retainers with other companies owned by himself and his son. He also indicated that amongst other things,
"the profile of [LCL] has begun to include management of the lifestyle assets of [Mr. Pugachev] and [the Eleventh Defendant], such as yachts and the plane as well as procurement of legal services from law firms."
In his judgment, Hildyard J described LCL as appearing to operate as a “private office” for Mr. Pugachev.
Hildyard J also granted the Claimants liberty to apply for Mr. Pugachev, (1) to be required to give further evidence in respect of the companies referred to in the first paragraph of his order, including what had become of any sums which had been transferred, or (2) to attend for further cross-examination in connection with the affidavit which he had required to be provided by paragraph 1 of his order and/or any of the matters required to be set out therein.
To ensure compliance with his order, Hildyard J ordered that Mr. Pugachev be restrained from leaving England and Wales until 5 p.m. on the third working day after he had served the required affidavit. He also directed that the Claimants’ solicitors continue to hold Mr. Pugachev's passports that had been delivered up to them pursuant to the orders of Peter Smith J made under the Bayer AG v Winter jurisdiction on 2 and 6 March 2015.
The deadline for compliance with Hildyard J's order was Friday, 3 July 2015 at 4 p.m. At some point between 23 June 2015 and 1 July 2015, Mr. Pugachev left the country in breach of Hildyard J's order. The means by which this was achieved are still unexplained.
On 3 July 2015, albeit after the time set by Hildyard J for compliance, Mr. Pugachev did serve a further affidavit in purported compliance with the order. The affidavit was originally served in draft and only some time later was a sworn version provided that revealed that Mr. Pugachev was in France. Mr. Pugachev gave some information and asserted the privilege against self-incrimination in relation to other matters, citing the criminal proceedings which had been started against him in Russia.
The Claimants did not accept that Mr. Pugachev's affidavit complied with Hildyard J's order and they issued an application for various relief, namely (a) that Mr. Pugachev provide the information ordered to be provided by Hildyard J on the basis that he could not invoke the privilege against self-incrimination, (b) that Mr. Pugachev attend in person for a further day of cross-examination to answer more questions about the disclosure he had given, and (c) for a continuation of the order relating to Mr. Pugachev’s passports made by Hildyard J.
That application was heard by Rose J over two days and resulted in her judgment and order of 27 July 2015. Rose J declined to order Mr. Pugachev to return to the jurisdiction or attend for cross-examination, but she did order the provision of further affidavit evidence and continued the restrictions in relation to his passports and travel documents. The first part of Rose J's order was in the following terms:
"1. The defendant must, at the latest by 4 p.m. on 17 August 2015, swear and serve on the Claimants’ solicitors an affidavit setting out, to the best of his ability, and having made all reasonable enquiries:
(a) the facts and matters required by paragraphs 1(a)(i) and (ii) of the order of Hildyard J dated 12 June 2015 in respect of the following entities (i) JSC Sanara, (ii) Plescheevo CJSC, (iii) Safelight Enterprise Limited and (iv) Oreon Limited;
(b) what happened to the sums totalling approximately US$712,978,000 which were transferred by JSC Sanara and Plescheevo CJSC to an account in the name of Safelight Enterprises Limited at Société Générale Private Bank in Switzerland between about 29 December 2008 and 8 April 2009, including where those sums of money and any assets which have been acquired with all or part of those sums of money currently are;
(c) what happened to the sum of RUR 3,392,184,000 (then approximately US$106 million) which was transferred by Creative Associates Limited into an account in the name of the Defendant at Mezhprombank Plus LLC on or about 29 December 2008, including where that sum of money and any assets which have been acquired with all or part of that sum of money currently are;
(d) what happened to the sum of US$150 million (and any other sums which were paid) by Devecom Ventures Limited to Basterre Business Corporation pursuant to a share purchase agreement between them dated 9 June 2011, including where that sum of money and any assets which have been acquired with all or part of that sum of money currently are;
(e) details concerning the transfer of JSC Yenisei Industrial Corporation (also known as JSC Enisey Production Corporation) to Basterre Business Corporation prior to 9 June 2011 so far as they relate to any consideration paid in respect of the said transfer to Basterre Business Corporation, including what happened to that consideration (including how those sums have been applied and where those sums of money and any assets which have been acquired with all or part of those sums of money currently are),
and for the avoidance of doubt, including in respect of any transfer of all or part of any of the said sums of money, details of when, where, to whom, by what means and why they were so transferred.”
Paragraph 2 of the order contained a provision in relation to the privilege against self-incrimination, and then paragraph 3 provided:
"3. In order to ensure compliance with this Order, and without prejudice to any question as to whether the Defendant has breached the terms of the Order of Mr. Justice Peter Smith dated 6 March 2015 as continued by the orders of Mr. Justice Hildyard dated 12 June 2015 and Mr. Justice Henderson dated 9 July 2015, restraining the Defendant from leaving the jurisdiction and requiring him to deliver up to the Claimants’ solicitors all his passports and other travel documents-
(a) if the Defendant is at any time present in the jurisdiction, he shall be restrained from leaving England and Wales until 5 p.m. on the seventh working day after he has purported to comply with paragraph 1 above (“the End Date”) (or such other date as may be provided for by further order of the Court).
(b) until 5 p.m. on the fifth working day after the end date (or such other date as is provided for by further order of the court) the defendant and any other person served with this order must not (i) make any application for, (ii) obtain or seek to obtain, and/or (iii) knowingly cause, permit, encourage or support any steps being taken to apply for, or obtain, any passport, identity card, ticket, travel warrant or other document which would enable the defendant to leave England and Wales.
(c) the solicitors for the Claimants shall continue to hold the passports of the Defendant delivered up to them pursuant to the orders of Mr. Justice Peter Smith dated 2 and 6 March 2015, as extended, to the order of the court until 5 p.m. on the fifth working day after the end date (or such other date as is provided for by further order of the court) whereupon they shall be returned to the Defendant; and
(d) without prejudice to the foregoing or to the Defendant's obligations under paragraph 1 of the order of Mr. Justice Peter Smith dated 6 March 2015 and paragraph 4 of the Order of Mr. Justice Hildyard dated 12 June 2015 (restraining the Defendant from leaving England and Wales and requiring the delivery up of all his passports and other documents of like nature) the Defendant shall, by 4 pm on 31 July 2015 deliver up to the Claimants’ solicitors any passport, identity card, ticket, travel warrant or other document which would enable the Defendant to leave England and Wales."
In her judgment, Rose J explained the orders for the provision of further evidence as follows,
“55. Although I am not satisfied therefore that it is appropriate to order further cross-examination, I am satisfied that the provision in paragraph 3 of the Hildyard Order should be implemented and that Mr. Pugachev should be required to clarify the answers that he has so far given. Those clarifications relate to the following points.
56. As regards EPK and the payment of $150 million, it is not satisfactory for him simply to say that the money was paid to Basterre which was owned by his son and that relations with his son, Viktor, are strained at present. As Mr. Smith pointed out, the relationship between Mr. Pugachev and Viktor seems to have been sufficiently amicable for him and his family to be allowed free run of the luxury boat MS Victoria when it was moored until recently on the Thames. He should be required to say what has happened to the $150 million to make enquiries of Viktor if he needs to and set out what information he finds.
57. I have already said that he must provide the information sought in paragraph 1(a)(i) of the Hildyard order because he has waived privilege. I consider that his affidavit must also include an explanation of where the money that was transferred to Safelight currently is. Again if he needs to make enquiries of his son Alexander (who was apparently the director of Safelight) then he must do so. Mr Sprange said that it is open to the Claimants to try to gain access to the Safelight bank account in Switzerland into which they know the money was transferred. But I accept what Mr. Smith says that it is very unlikely that the money is still there. The only people who know what has happened to the money are Mr. Pugachev and his son Alexander. Mr. Pugachev must find out where the money is and tell the Claimants.
58. Finally he should also provide information by way of affidavit about where the $106 million paid to him by Creative Associates currently is.”
Rose J also dealt with the continuation of the passport order very briefly:
“103. I will continue the passport order in effect for the time being. Although it appears that Mr. Pugachev has been able to travel to France, his travel may still be more limited without his passports than with them.”
As I have indicated, Rose J refused a further ex parte application by the claimants for a worldwide freezing order against the Second to Tenth Defendants on 30 July 2015 but the Court of Appeal imposed such an order on 11 August 2015. Under paragraph 12 of that order, subject to the standard form proviso as regards self-incrimination, LCL was ordered to provide the following information:
"(1) ... [LCL] must at the latest by 5 p.m. (London time) on the third working day after service of this order …and …to the best of its … abilities (and having made all reasonable enquiries) inform the [Claimants’] solicitors of:
(a) all its assets worldwide exceeding £10,000 in value as at the time this order is served whether in its own name or not and whether solely or jointly owned, giving the value, location and details of all such assets;
(b) all assets with a value exceeding £10,000 which have at any time, since 11 July 2014 been administered by [LCL] or dealt with in accordance with [Mr. Pugachev’s] direct or indirect instructions, giving the value, location and details of all such assets and the manner in which [LCL] has administered or dealt with the same."
Paragraph 13 of the Court of Appeal’s order then provided:
"Within 7 working days after the respective days specified in paragraph 12(1) above ... [LCL] acting by a director must swear and serve on the [Claimants’] solicitors affidavits setting out the above information, together with a statement disclosing whether or not there have been any changes to the assets since service."
On 17 August 2015, the solicitors acting for LCL served a letter in purported compliance with paragraph 12(1) of the Court of Appeal's order. Under paragraph 12(1)(a) the letter identified two bank accounts in the name of LCL, a euro account with a balance of €176,963.22 as at 12 August 2015 and a sterling account with a balance of £106,896.87 as at the same date. The second part of the letter indicated, in response to the asset disclosure requirement pursuant to paragraph 12(1)(b) of the Court of Appeal's order:
"Based on current information, [LCL] does not have any other assets with a value exceeding £10,000."
That letter prompted a response from the Claimants’ solicitors, Hogan Lovells, dated 19 August 2015. In that letter, Hogan Lovells stated,
"Mr. Pugachev has previously exhibited bank statements in respect of the [LCL] accounts which show that on 15 May 2015 the balance of the sterling account was just under £210,000, and on 5 June 2015 the balance of the euro account was €3,319,000. Mr. Pugachev stated that the funds in the euro account were the proceeds of sale of his wholly-owned asset Financiere Hediard SA, which funds necessarily belong to Mr. Pugachev. Indeed, Mr. Pugachev has already directed that certain of these funds be used for payment on account in respect of your fees and Rose J has already found the company to be no more than his “personal wallet”. However, in schedule 1 of [LCL’s] disclosure the balances of the two accounts are given as £106,896 and €176,963 respectively. It is, therefore, evident that significant funds, including the balance of the proceeds of sale of Hediard have been administered or dealt with by [LCL] since 11 July 2014.
Without prejudice to the Claimants’ right to seek appropriate relief from the court (including on the basis that the transfer or expenditure of the monies held by [LCL] was in breach of the original freezing injunction first granted by Henderson J in July 2014), please explain why [LCL] has failed to provide details of the relevant transactions in accordance with the requirements of paragraph 12(1)(b). In Mr. Pugachev's original asset disclosure in July 2014, he stated that [LCL] administered assets belonging to [the Eleventh Defendant] and himself. Please similarly explain why [LCL] has failed to disclose any information in respect of such assets pursuant to its obligations under 12(1)(b)."
Mr. Pugachev did not serve an affidavit by the time ordered by Rose J, namely 17 August 2015.
On 20 August 2015, the Claimants issued the application to which I have already referred. The explanation of the orders that were sought in relation to LCL followed Hogan Lovells' earlier letter of 19 August. The grounds for the application in respect of the order sought against LCL concluded,
"The Claimants also seek an order requiring [LCL] to provide details of all assets with a value exceeding £10,000 which it has at any time since 11 July 2014 administered or dealt with. At present [LCL] has failed to disclose any assets pursuant to paragraph 12(1)(b) of the freezing injunction notwithstanding that it is known to be involved in the administration of various assets closely associated with Mr. Pugachev."
In relation to the Passport Order, the grounds for the application recited the requirement to comply with Rose J's order and stated:
"The affidavit was due by 4 pm on 17 August 2015 but has not yet been served, despite no extension of time being either sought or granted and the Claimants’ solicitors having repeatedly pressed for it. The Defendant's solicitors have indicated that the affidavit is in the process of being finalised and will be served before the parties are before the court next week for the return date in respect of the freezing injunction … In the light of the Defendant's previous attempts at compliance with his court-ordered disclosure obligations, which have been found to be manifestly inadequate, the Claimants have serious concerns that the affidavit will not satisfy the Defendant's obligations pursuant to the Rose order. If the affidavit is inadequate, the Passport Order shall be continued pending proper compliance. The claimants therefore seek an extension of the Passport Order until further order."
Mr. Pugachev did serve an affidavit on 21 August 2015. Mr. Smith QC, who appeared for the Claimants, took no particular issue for this purpose with the lateness of service in itself, but he contended that the affidavit manifestly did not comply with the order of Rose J. In support of that contention, he provided me at the hearing with a note running to five closely-typed pages setting out the Claimants’ provisional view of the document provided by Mr. Pugachev.
The conclusion of the Claimants’ note was as follows:
"15. When these different payments are added up, it becomes clear that Mr. Pugachev has entirely failed to explain what happened to the overwhelming majority of the monies amounting to approximately US$700 million.
…
18 Mr. Pugachev has failed to provide any information at all regarding current assets which are not already known to the Claimants which represent part or all of the proceeds of the US$900 million or so covered by the Rose J order. In circumstances where the Rose J order expressly required him to explain 'where those sums of money and any assets which have been acquired with all or part of those sums currently are, it is clear that his 11th affidavit is manifestly inadequate."
Against that background, I turn to the two contested matters.
The Passport Order
The first issue relates to Mr. Pugachev's passports. Mr. Cherryman, who appeared on behalf of Mr. Pugachev, filed a skeleton argument prior to the hearing which stated as follows in paragraphs 15 and 16:
"15. [Mr. Pugachev] has complied with the requirement to provide the further information on the specific areas ordered by Rose J on 27 July 2015 and he served the requisite affidavit last Friday, 21 August 2015. He should, in accordance with her order, be entitled to his passports back, seven working days after that date.
16. The Claimants wish to extend the Passport Order until further order. Without prejudice to [Mr. Pugachev’s] contention that he should be entitled to his passports back as soon as seven working days have expired, he does not oppose the application to extend the Passport Order on the basis he may apply for their return, on notice, and without showing any change of circumstance."
At the hearing, however, Mr. Cherryman said that his instructions had changed and that he resisted the continuation of the Passport Order. He did not give any further explanation for the change in instructions. Mr. Smith pushed for the order of Rose J to be continued until further order in the terms of a draft which he provided to me at the hearing, but which I understand had been in discussion between the parties in advance of the hearing.
The relevant paragraph from that draft order is paragraph 11, which reads as follows:
"Until further order of the court:
"(1) If the Defendant is at any time present in the jurisdiction, he shall be restrained from leaving England and Wales until further order of the court.
(2) The Defendant and any other person served with this order must not (i) make any application for (ii) obtain or seek to obtain and/or (iii) knowingly cause, permit, encourage or support any steps being taken to apply for or obtain any passport, identity card, ticket, travel warrant or other document which would enable the defendant to leave England and Wales.
(3) The solicitors for the Claimants shall continue to hold the passports of the Defendant delivered up to them pursuant to the orders of Mr. Justice Peter Smith dated 2 and 6 March 2015 (as extended) to the order of the court until further order of the court; and.
(4) Without prejudice to the foregoing or to the Defendant's obligations under paragraph 1 of the order of Mr. Justice Peter Smith dated 6 March 2015, paragraph 4 of the order of Mr. Justice Hildyard dated 12 June 2015 and paragraph 3 of the order of Mrs. Justice Rose dated 27 July 2015 (restraining the Defendant from leaving England and Wales and requiring the delivery up of all his passports and other documents of like nature), the Defendant shall, by 4 pm on 2 September 2015, deliver up to the Claimants' solicitors any passport, identity card, ticket, travel warrant or other document which would enable the Defendant to leave England and Wales."
The starting point for my judgment in this respect is the decision of the Court of Appeal in Bayer AG v Winter [1985] 1 WLR 497. That decision was considered by Hildyard J in a judgment in the current case on 5 June 2015: [2015] EWHC 1586 (Ch). Hildyard J said at paragraphs 28 and 29:
"28. 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 the leading case on its exercise is the decision of the Court of Appeal in Bayer AG v Winter and Ors [1985] 1 WLR 497.
29. 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 v Waite [1985] FSR 173 and 183, as cited by Ralph Gibson LJ at 503 G to H). An order to require surrender of that passport was ancillary to that restraint."
Those principles outlined in those cases are reflected in the structure and wording of paragraph 3 of Rose J's order of 27 July 2015. In its opening words (“In order to ensure compliance with this Order…”), paragraph 3 makes express that it is designed to ensure compliance with the order for provision of information contained in paragraph 1 of Rose J’s order.
Paragraph 3 of Rose J's order also contained a structure under which a period of time would elapse between what was described as “purported” compliance with paragraph 1 and an “End Date”, on or following which the other restraints upon Mr. Pugachev's ability to leave the jurisdiction and the retention of his passport and travel documents would fall away.
It seems clear to me that the reference in Rose J's order to "purported” compliance did not mean that Mr. Pugachev could serve whatever he liked in purported compliance with the order and then expect to see the restrictions fall away. When pushed by me on this point, Mr. Cherryman realistically accepted that that was an extreme contention, which he did not advance. Instead it seems to me that Rose J's order envisaged there might well be a dispute about the adequacy of the affidavit provided (hence the use of the word “purported”) and provided a mechanism under which the Claimants would have a period of time after service of the affidavit to take stock. That period would give the Claimants time to assess what had been provided and to make any application in that regard that they might think appropriate (a) to challenge the adequacy of Mr. Pugachev's provision of information and (b) to seek whatever continued or additional relief they might think appropriate to ensure compliance with that order. In that regard, Rose J's order set certain time limits by reference to the “End Date”, by reference to which the restraints would fall away, but also built in the possibility of the court making an order extending those time limits.
I have considerable sympathy for the Claimants’ position because it does seem to me, at least at first glance, that there is much force in the point made by Mr Smith, by reference to the document which he produced at the hearing, that what has been provided by Mr. Pugachev is inadequate. I also have limited sympathy with Mr. Cherryman's submission that he was unable to deal with the document because it was only produced by Mr. Smith during the hearing, given that Mr. Cherryman's own skeleton argument had indicated a willingness for the Passport Order to be continued until further order.
Nonetheless, I do not think it would be appropriate, simply because the Claimants have expressed strong dissatisfaction with the contents of the affidavit provided, to make an order continuing the passport restrictions indefinitely at this hearing. That would throw the onus on to Mr. Pugachev to apply for the Passport Order to be lifted on the basis of my brief and necessarily impressionistic review of the adequacy of his evidence. It would also, I think, reverse the thrust of Rose J's order and place the burden on Mr. Pugachev to show affirmatively that he had complied with the order.
Instead, I prefer to follow the mechanism which has been established by Rose J. It seems to me that it is for the Claimants to make good their case that Mr. Pugachev's purported compliance with Rose J's order was not in fact compliance and that, for this reason, the component elements of the Passport Order should be retained. But I accept that the Claimants should have a little more time to do that than the very short period of time provided by the order made by Rose J.
I will, therefore, make an order that the date specified in paragraphs 3(a) to (c) of Rose J's order should be extended to 21 September 2015 with a proviso that if by that date the Claimants have made and served an application, supported by evidence, which includes an application for a determination that Mr. Pugachev has not complied with paragraph 1 of the order of Rose J and for the restrictions in paragraph 3 to be continued, then that date shall be further extended until after final determination of that application or further order in the meantime. I shall ask counsel to agree a precise form of wording to give effect to that ruling.
I do not, however, intend to make a further order adding to paragraph 3(d) of Rose J's order, as reflected in paragraph 11(4) of the draft produced by Mr. Smith. That, as I have indicated, would repeat the requirement for Mr. Pugachev to deliver up to the Claimants’ solicitors his passport, identity card, ticket, travel warrant or other document which would enable him to leave England and Wales on another date selected in the future, namely 2 September 2015.
It seems to me, and was not disputed by Mr. Cherryman, that Mr. Pugachev has not complied with paragraph 3(d) of the order of Rose J. Mr. Cherryman also accepted that Mr. Pugachev remains under an obligation to comply with that order even though the time specified for compliance in it has passed. In these circumstances, it seems to me that nothing would be gained by my simply repeating that order with a new and arbitrarily selected date. I am, however, content that the order which I make should record that it is without prejudice to the matters listed in the first part of paragraph 11(4) of Mr. Smith's draft, and also that it should record Mr. Cherryman's acceptance of the continuing obligations upon his client to comply with paragraph 3(d) of Rose J's order.
Additional disclosure by LCL
I now turn to the question of additional disclosure by LCL. I do so against the background, as I have indicated, that the court has and will exercise its jurisdiction to make orders to ensure that a worldwide freezing order is effective and can be policed.
The order sought in this respect by the Claimants is contained in paragraph 7 of the draft produced at the hearing and reads as follows:
"7(2) Subject to subparagraph (3) [a provision in relation to self-incrimination] [LCL] (acting by a director) must at the latest by 5 p.m. (London time) on 2 September 2015, swear and serve on the [Claimants] an affidavit:
(a) setting out to the best of its ability (and having made all reasonable enquiries) all transfers exceeding £10,000 in amount which have been made from any of its bank accounts (including its euro and sterling accounts at Barclays Bank PLC in London) at any time on or after 11 July 2014 specifying in respect of each such transfer the amount, date and method of the transfer, the identity of the transferee and the reason for the transfer;
(b) exhibiting copies of bank statements in respect of each of its bank accounts (including its euro and sterling accounts at Barclays Bank PLC in London) for the period from 11 July 2014 to the date of this Order."
Those paragraphs relate to the bank account payments that have been made since the worldwide freezing order was originally granted against Mr. Pugachev in July 2014. As I have indicated, some bank statements were provided pursuant to the order of Hildyard J covering the first four months of 2015. The content of those bank statements does not appear to have provoked any response by way of application from the Claimants.
As regards the sterling account, the bank statements disclose that Mr. Pugachev has been spending what to most people would be regarded as large amounts on a weekly basis. It should be noted that the freezing order against him has, from a relatively early date, included a provision under which he is entitled to spend a significant sum of money on a weekly basis for living expenses. The limit in that respect currently stands at £50,000. The consequence of the expenditure from the sterling account was that the balance was reduced from the £812,000 which it stood at on 7 January 2015 to about £323,000 on 27 April 2015.
The euro account statements showed a receipt of €3.75 million on 11 December 2014, which was reduced by a number of payments, such that it stood at €3.386 million on 18 March 2015.
As I have also indicated, the information provided by LCL pursuant to the Court of Appeal order of 11 August 2015 shows that the balances on the two accounts had by that stage been further reduced to £106,000 and €176,000 respectively. Mr. Smith contends that this shows that there is a real need for LCL to be required to provide details of all transfers over £10,000 that have taken place since July 2014 and to produce all its bank statements for that period because there is reason to believe that Mr. Pugachev has been evading or breaching the terms of the worldwide freezing order against him.
I do not accept that submission in relation to the expenditure on the sterling account. Throughout the period covered by the bank statements, Mr. Pugachev has had very high spending allowances under the terms of the worldwide freezing order and no point was taken in relation to the items shown on the sterling account bank statements when received, or at least none which justified an application being made to the court.
I also do not think that the fact that the balance on the account has reduced in the three to four months between the end of April and 12 August 2015 shows anything more than a continuation of the same spending pattern disclosed by the earlier bank statements. Accordingly, in my judgment there is no warrant based upon those bank statements for a wholesale disclosure and investigation exercise into all payments made from the sterling accounts of LCL going back to July 2014.
The position in relation to the euro account is, however, different. What was shown on the euro bank statements produced pursuant to the order of Hildyard J does not appear to have raised significant concerns on the part of the Claimants. But, as I have indicated, that changed with the receipt of the information on 17 August 2015, showing that payments away, totalling in excess of €3 million, had been made from that euro bank account in the intervening period between the date of the last statement and 12 August 2015.
As Hogan Lovells' letter of 19 August indicated, Mr. Pugachev has apparently told the Claimants that he has spent €1.6 million euros from the LCL account towards payment of legal fees to his current lawyers. Whether that is itself a breach of the worldwide freezing order is apparently an issue, but it is not one that I have to decide. But as Mr. Smith submitted, and Mr. Cherryman did not dispute, that still leaves about €2 million unaccounted for, which has apparently been paid away.
In my judgment, in the circumstances of this case, and given Mr. Pugachev's attitude to compliance with other court orders since at least the date upon which he fled the jurisdiction, Hogan Lovells were quite entitled to raise this issue. It is also a fact that their letter of 19 August has remained unanswered to this day. Accordingly, in order to ensure that the worldwide freezing order against Mr. Pugachev is effective and can be policed, it does seem to me that it is appropriate to order LCL to disclose bank statements for its euro bank account from the date of its last statement, which appears to be around about 18 March 2015, to today's date and to provide the information to be verified by an affidavit of a director as to all payments from the euro bank account which exceed the euro equivalent of £10,000, which I shall take, subject to any observations made to me to the contrary after I have delivered this judgment, as €13,000, from the date of the last statement that has been provided to the present date. I think that that information should be provided promptly and I shall hear counsel as to a proposed timetable for its production.
Paragraph 7(c) of the draft order sought against LCL is as follows:
"Setting out to the best of its ability (and having made all reasonable enquiries) details of all its assets worldwide with a value exceeding £10,000 in which it is interested legally, beneficially or otherwise, which for the avoidance of doubt and without limitation includes assets held by it as nominee or trustee."
It is not disputed that an order should be made in these terms so as to reflect more accurately the restrictions imposed by the Court of Appeal on LCL in the worldwide freezing order, which the order as made by the Court of Appeal did not actually do.
Paragraph 7(d) of the draft order sought against LCL is based upon paragraph 12(1)(b) of the Court of Appeal order to which I have already referred. Paragraph 7(d) of the draft order reads as follows:
"Setting out to the best of its ability (and having made all reasonable enquiries) details of any assets with a value exceeding £10,000 which it has at any time since 11 July 2014 administered or dealt with giving in each case the value, location and details of such asset and the manner in which [LCL] has administered or dealt with such asset."
Mr. Smith suggested, and Mr. Cherryman did not advance a rival interpretation, that the reference to "administered" in the Court of Appeal order was intended to catch assets which might have been managed on behalf of Mr. Pugachev without LCL having any form of ownership interest in them. He contrasted that with the reference in the Court of Appeal order to dealing, which he submitted was intended to refer to LCL participating in transactions under which legal or equitable interests were acquired, disposed of or otherwise affected.
However, paragraph 12(1)(b) of the Court of Appeal order contained the additional wording "in accordance with the defendant's direct or indirect instructions", which might have been interpreted to mean that disclosure would only be required of assets worth over £10,000 that had been administered or dealt with (in each case) on the direct or indirect instructions of Mr. Pugachev.
As I have indicated, paragraph 12(1)(b) of the Court of Appeal order produced a nil return from LCL. Given what is known about LCL and its operations, to which I have referred earlier in this judgment, it may be that it has not dealt with assets in the sense of acquiring or disposing of a legal or equitable interest in them on the instructions of Mr. Pugachev. Rather than acting as a company owning assets in its own right or holding legal title to substantial assets for Mr. Pugachev, LCL's role seems to be, as Rose J remarked, to act as Mr. Pugachev's “personal wallet”, making payments on his behalf, and to perform a managerial role in relation to substantial assets registered in other names and appearing to belong to other persons or entities connected in some way to Mr. Pugachev.
Given that modus operandi, it seems implausible that LCL would not at least have administered, in the sense of managing, any assets of the requisite value in which Mr. Pugachev had an interest in the extended sense in which that term is used in the worldwide freezing order, as explained in paragraph 6 of that order:
"Paragraph 5 applies to all [Mr. Pugachev’s] assets whether or not they are in his own name and whether they are solely or jointly owned and whether the respondent is interested in them legally, beneficially or otherwise. For the purpose of this order, [Mr. Pugachev’s] assets include any asset which he has the power, directly or indirectly, to dispose of or deal with as if it were his own. [Mr. Pugachev] is to be regarded as having such a power if a third party holds or controls the asset in accordance with his direct or indirect instructions."
Mr. Smith submitted that one possible explanation for the nil return by LCL was that the wording "in accordance with the defendant’s direct or indirect instructions" in the Court of Appeal order might have been construed to limit the requirements for provision of information in respect of assets “administered” as well as “dealt with”. When the point was put to him, Mr. Cherryman declined to comment upon that suggestion, and in the absence of any other explanation I accept that Mr. Smith's submission may be a reasonable inference.
Whatever the literal wording of the Court of Appeal order, I do not think that such a limited interpretation could have been what the Court of Appeal intended, given especially what the Lord Justice Bean said about LCL in paragraph 40 of his judgment:
"I have already noted Rose J's vivid description of this company as Mr. Pugachev's “personal wallet”. She considered it unnecessary to grant relief against the company on the basis that Barclays have agreed to freeze two accounts which they consider are covered by the existing freezing order against Mr. Pugachev. But, as the Claimants point out, only two accounts have been thus frozen, namely those disclosed by Mr. Pugachev. His disclosure has repeatedly been inadequate and evasive and there is nothing to stop [LCL] opening other bank accounts, possibly in other jurisdictions, into which to receive payments on Mr. Pugachev's behalf. The judge appears to have accepted that a Chabra order against [LCL] would otherwise be justified. I would extend the freezing order to cover this company as well as the trusts."
In any event, I also take the view that given what is known about LCL, in order that the Claimants can effectively police compliance by Mr. Pugachev by the worldwide freezing order against him, the Claimants should be able to ascertain the nature and whereabouts of any assets of significant value that have been administered by LCL, irrespective of whether it has received instructions directly or indirectly to do so from Mr. Pugachev. That requires the deletion of the additional words to which I have referred that appeared in the Court of Appeal order.
Mr. Cherryman submitted that to make an order in this form would risk catching LCL's management or dealings with assets owned by other people, including the Eleventh Defendant, and that this would be inappropriate. I do not agree. A reading of Hildyard J's judgment shows that Mr. Pugachev has been less than forthcoming about the operations of LCL, a fact acknowledged in the Court of Appeal judgment to which I have just referred. There has been no clear statement from LCL that it conducts any significant business or operations for anyone outside of Mr. Pugachev's sphere of influence. Moreover, to the extent that LCL might be required to make reference to its administration of assets owned by the Eleventh Defendant, there is considerable evidence referred to in the judgments, which I have already mentioned, to suggest that Victor Pugachev has held assets and acted as a nominee for his father. I also note that LCL instructs the same lawyers as Mr. Pugachev and presumably does not think that this causes any conflict for LCL as regards any obligations that it might owe to any other persons.
Accordingly, I propose to make an order in the form of paragraph 7(d) of the draft produced by Mr. Smith.