JSC Mezhdunarodniy Promyshlenniy Bank & Anor v Pugachev & Ors

This is another aspect of the general matter that I have been dealing with recently, concerning a claim brought by Mezhprombank against, amongst others, Sergei Pugachev, who was the former, I think, owner of the bank. Among other parties are his infant children by their mother Alexandra Tolstoy who represents them as their litigation friend.

The case that I am dealing with has been described as the Trusts Claim, because the issue to be resolved is essentially the validity of certain New Zealand trusts which Mr Pugachev ultimately set up. They are discretionary trusts of which the three children are at least some of the discretionary beneficiaries. What I have said as a summary is without prejudice to many of the detailed arguments that arise on the trusts claim.

The trial began. After it started, Mr Pugachev, who had hitherto played no part in this aspect of the proceeding, although he has been involved in many other aspects of the general dispute which has been going through the courts in this jurisdiction and elsewhere, instructed solicitors and counsel to appear to make what became two applications before the court.

The most important is the first, which is an application to adjourn the trial. The second was an application to set aside a default judgment given by Mr Justice Henry Carr about a year ago.

The basis of both applications was the same. A point was to be taken on Mr Sergei Pugachev's behalf that the court had no jurisdiction over him, because no application for leave to serve the proceedings out of the jurisdiction at the relevant time had been made, and no permission had been given to serve Mr Pugachev out of the jurisdiction. At that time he was in France.

On the day the applications came to court, with essentially no notice, I decided that it was not possible to deal with them then and there. I adjourned them for a couple of days to have a more orderly discussion with Mr Pugachev's counsel and the counsel in the case. That happened and I ultimately decided that the applications would be dealt with to come on today, 26 July, but there were conditions attached to that order.

The conditions were that Mr Pugachev (1) would pay into his solicitors' client account a sum to essentially stand as security for the costs of the claimants and of the 12th to 14th defendants in relation to those applications, and (2) would produce an affidavit stating the source of the funding for his legal expenses in this jurisdiction.

The background to the second aspect was that Mr Pugachev is the subject of a worldwide freezing order, which includes provisions which provide that if he is to spend money on legal expenses, he should disclose the source of that funding.

Another important aspect of the judgment I gave on that application, which must have been on 12^th or 13^th July, was that the applications had been supported by a witness statement of Mr Jenkins of Hughmans, Mr Pugachev's solicitors. That explained that, based on the instructions Mr Jenkins had received, Mr Pugachev had only become aware of this Trusts Claim in the last few weeks, or possibly a month or so; I think the date of May 2017 was mentioned. The importance of that evidence was to justify the extreme lateness of the applications.

In the judgment I gave on 13^th July, I found that, based on the evidence before me, there was a strong case that the instructions Mr Pugachev had given to his solicitors were dishonest – the natural inferences were that they were untrue and were made in order to, among other things, try and disrupt these proceedings. That was because there was clear evidence that Mr Pugachev and those working with him had been given full notice of these proceedings over a year before, including an acknowledgement of service by Natalia Dozortseva, which happened in June of 2016. Ms Dozortseva was one of the people instructing Hughmans, on Mr Pugachev's behalf.

The next thing that happened from my point of view is that I discovered yesterday that I had not received any hearing bundles for these applications. My clerk got in touch with the lawyers acting for Mr Pugachev to inquire why, and discovered that Mr Pugachev's lawyers, that is to say Hughmans and counsel, were in front of Norris J in the applications court.

Quite properly, I knew nothing more about that. No-one told me anything more about that. I may or may not have been able to draw various inferences about what I thought might be going on, but an important aspect of the way our proceedings are conducted is that solicitors and counsel can make applications of that kind to a different judge in relevant circumstances.

I was then informed overnight that Mr Samek, who was leading counsel who was appearing for Mr Pugachev, and his junior counsel and Hughmans, were not going to be appearing for Mr Pugachev on the applications today.

I also received a skeleton argument relating to the applications from Mr Akkouh for Mezhprombank which argued out the points on the merits. I am not evaluating the merits of the jurisdiction application at all but I will observe that Mr Akkouh’s skeleton includes submissions which at least set out on the face of it set out what could be a perfectly credible submissions why Mr Pugachev’s jurisdiction application is not well-founded. So it certainly is not the case that the merits of Mr Pugachev's jurisdiction application are all one way in his favour.

But Mr Akkouh’s skeleton argument also informed me that although Mr Pugachev had had the money paid into Hughmans' client account as required by the order, the claimants contended that he had not produced the affidavit of the source of funds and therefore was in breach of the order. Therefore the submission from the claimants was that these applications should be declared as standing struck out on the basis of the order I made on 13 July.

The next thing that happened was that overnight I received emails from Mr Pugachev directly, which included various documents. Those documents included a letter to me from Mr Pugachev himself, a witness statement from Mr Pugachev dealing with the matters, and a copy of a French notary's letter with a translation from the French into English, and a notarised copy of an affidavit which sets out, or purports to set out, the source of funding in accordance with the order that I made.

When the hearing was called on this morning, I had not had a chance to look at the material beyond a very cursory skim. I informed the parties that I would adjourn the matter for an hour or so in order to try and digest the material from Mr Pugachev and decide what to do with it. I also needed time to digest some further materials which the parties had sensibly produced in relation to the hearing. So the hearing was adjourned until 2pm.

I was then able to read Mr Pugachev's material and see that in it, he essentially puts forward the following submissions. He says that he tried to comply with the order that I made in order to provide the evidence setting out the source of the funds, but his explanation for why it did not happen in time, or at least did not happen within a very short time of the deadline that was ordered, is to be laid at the door of his UK solicitors, Hughmans. I do not need to go into the detail, but that is essentially the point that Mr Pugachev is making.

It is also fair to say that as I read Mr Pugachev's material, he seems to assume that I have read a witness statement of his former solicitor, Mr Jenkins, which in fact would have been the witness statement that Hughmans were using on their application before Mr Justice Norris to come off the record. That is what had happened before Mr Justice Norris yesterday. I should say Mr Justice Norris granted the application and made a declaration that Hughmans and counsel were no longer instructed by Mr Pugachev. I have not read or seen that witness statement.

Some of the material in Mr Pugachev's material included, as I say, references to that evidence, and it did seem to me that it was at least possible that some of what he had put to me was privileged material, although nothing very surprising was said.

Nevertheless, I decided that the right course to take at that stage was to provide copies of the material that I had been sent to the lawyers acting for the claimants, that is to say the UK lawyers, Hogan Lovells London, and their counsel, and also to Mr Malek QC, counsel for the 12th to 14th defendants, and their solicitors. That would all be on the basis, for the time being, of a confidentiality club restricting the dissemination of that material and the use of it, so that it was only to be held by the UK solicitors and counsel.

I should say that in the materials sent to me Mr Pugachev had asked that the material be disseminated only on that basis. In his materials he had asked me to institute a confidentiality club of that kind, he says revealing the identity of the sources of funds would put those people at risk from the Russian state.

At this point I refer to the finding by Rose J in her judgment relating to Mr Pugachev’s contempt of court and sentencing the maximum period of imprisonment for contempt, which held that Mr Pugachev's fear of a risk of violence was genuinely held by him. That puts into context his points to me about a fear of violence.

It frequently happens that a litigant in person writes directly to the court and does not copy his or her communication to the other party. Often the court identifies that in the communication the litigants have said things which look as if they are potentially privileged material. The court will very often take a pragmatic and proportionate course by communicating back with the litigant in person and inviting them to resubmit their material in a form which the litigant accepts will be provided to their opponent, because the court is not prepared to act on the material otherwise.

That is a course that is taken with unsophisticated litigants in person. I have taken myself in the past, particularly in the Patents County Court/Intellectual Property Enterprise Court. However Mr Pugachev cannot be described as an unsophisticated litigant in person. He clearly wanted me to take the material into account. Therefore I decided, bearing in mind the overriding objective and that given that his opponents had not seen this material, the right course was to provide it to them on that limited basis, and that is what I did at about 2 o'clock today.

Also, this morning, I had received a communication from Mr Pugachev's French lawyer, a Ms Faure, telling me that she wished to send further material on Mr Pugachev's behalf to me. After that message came I decided to delay providing the material I had received from Mr Pugachev directly to the parties until I had seen what Ms Faure wanted to say, in case she said anything about that.

The material provided by Ms Faure arrived at about 5 minutes to 2 o’clock. It did not say anything about not providing the material that Mr Pugachev had provided directly, to the other parties in this case. Instead it contains further material which is all intended, as far as I can see from the very short time I have had to look at it, to support Mr Pugachev's complaints about the conduct of Hughmans solicitors.

I have yet to decide whether it is necessary or appropriate to take that material and provide it to the claimants and their lawyers or the 12th to 14th defendants and their lawyers. At first sight, it seems that the French lawyer’s material is really not of any relevance to any of the issues that I have to decide.

At this point I will mention a submission that Mr Malek made in the course of this afternoon's hearing, which I wholeheartedly agree with. That is that Mr Pugachev needs to take proper advice from UK qualified lawyers. I am not criticising his French lawyers, but the English legal system and the French legal system are not the same, and I suspect that Mr Pugachev would do much better if he had the advice of UK lawyers as to what he needs to do. It may be that from the point of view of a French lawyer, to send the material that they have sent to me in the manner they have is not something which is as unusual as it is in an English court.

The question is what to do. Mr Akkouh, who appears for the claimants, makes four submissions about what I should do this afternoon. Essentially, Mr Malek's submissions were intended to assist the court, and he took care, appropriately in my judgment, not to necessarily oppose particular points made by Mr Akkouh, but to present the court with matters that needed to be taken into consideration and generally provide assistance.

Mr Akkouh’s first submission is that there are wide-ranging allegations in the material which has now been provided to the claimants' lawyers and counsel, which his clients believe is entirely false and scurrilous. He therefore submits that I should expand the scope of any confidentiality club, or remove from any confidentiality restriction at all, at least some of the material Mr Pugachev provided to me. The essential reason for that is, he says, that there are allegations which are scurrilous and untrue, and his clients should have the opportunity to rebut those allegations, which would require them to take instructions.

I have no doubt that there are allegations in the materials I have been shown which Mr Akkouh's clients would say are scurrilous and untrue. If they are relevant to something, they will be matters which his clients would be entitled to rebut, but it is not clear to me that just because that no doubt follows, it necessarily is the right thing to do at this stage in these proceedings, to relax this confidentiality regime at this point.

Apoint Mr Malek made is that it may be that the court should draw a distinction between the affidavit in purported compliance with my order, which may be regarded as something which is not confidential, and the other materials.

I see the force in Mr Malek's submission, but I also see the force in another of Mr Malek's submissions. This latter point Mr Malek made, which has resonated with me, is that it is important, in circumstances where a litigant has just ceased to be represented by UK lawyers, that the adage that justice is not just to be done but should be seen to be done, has significance. The court should not at this point act precipitously in a way which a litigant could misinterpret as not paying due regard to the matters he is trying to put before me.

I will come back to the confidentiality regime.

The next submission Mr Akkouh made is that I should make an order now pursuant to CPR PD 5A -- Part 5, and the Practice Direction relating to access to court documents, allowing his clients access to the witness statement of Mr Jenkins which went before Mr Justice Norris yesterday.

I am quite satisfied that I should not make that order at this stage. Mr Akkouh and his team had been putting submissions to me as to why I should make that order today in any event, prior to seeing the material from Mr Pugachev. However either way, there no application before me to make that order. I do not say that as a criticism, bearing in mind the speed with which events have been moving. However that application raises some important issues. An application of that kind needs proper consideration, and I am in no position to deal with it now.

As Mr Malek pointed out, an application by a solicitor for an order declaring that he ceased to be a solicitor, or has come off the record, is one of the things that is specifically drawn attention to in PD 5A, paragraph 4.2A as being an exception to general list of documents which a party to proceedings may obtain from the court file. That is obviously so because of the potentially privileged or otherwise candid nature of what a solicitor may wish to say to the court in order to have the court make a declaration of that kind.

I am not seeking to prejudice the claimants’ application if they wishes to pursue it. But now is not the time to be making an order of that kind without further consideration. Apossibility which I canvassed, and I will say no more than as a possibility, is that even if Mr Pugachev does not wish to respond to an application of that sort or make submissions relating to it, it may be that Hughmans themselves might wish to make submissions in response to that application.

Since no-one has had a chance to respond to it, I am quite sure that it would be wrong in principle for me to make an order now requiring that witness statement to be produced to Mr Akkouh's clients. I know that they would very much like to see what is in it. That is in particular because they suspect, and they may be right or they may be wrong, but there is certainly a credible case that it may contain evidence about the source of funds available to Mr Pugachev. That is a matter of great importance to the claimants, bearing in mind the worldwide freezing order and all the circumstances. I recognise that, but that is not a justification for making this order at this stage in these proceedings.

The other matter that I am asked to deal with is to declare that Mr Pugachev is in breach of the 13 July order on the basis that he has not complied with paragraph 3. Mr Akkouh submits that I should make that declaration, but at the same time provide that it is without prejudice to any application for a relief from sanction. In addition I should set a time limit for any application by Mr Pugachev for relief from sanction.

This is in many ways an extraordinary set of proceedings. One of the unusual aspects is that Mr Pugachev is on the one hand clearly a highly sophisticated individual who has the wherewithal to instruct lawyers and take legal advice. On the other hand, sometimes Mr Pugachev operates as a litigant in person and does things which naïve litigants in person often do. I bear in mind another common feature of some litigants is that they try to manipulate events by instructing and de-instructing their lawyers but for all the difficulties in this case I do not believe that Hughmans coming off the record was an event engineered by Mr Pugachev for his benefit.

A common feature of dealing with litigants in person is that the court has to interpret acts which litigants in person take on their own, and which are not exactly what a qualified lawyer would do. I am not trying to be elliptical. What I am talking about is how should I interpret the materials that Mr Pugachev has already sent to me. One could interpret it as an attempt to comply with the order at paragraph 3, and essentially nothing more than an application for an extension of time, or one could interpret it as an application for relief against sanction. On any case what is really going on is that Mr Pugachev is clearly trying to communicate with the court and regards these applications as important.

Nevertheless, what is striking in Mr Pugachev's materials is none of it makes any effort at all to face up to the observation that I made in my judgment on 13 July, that the evidence in support of this application that Mr Pugachev had only just become aware of the Trust Claim was not just false, but dishonestly so. That is relevant to what I should do now.

In my judgment, I should not allow this aspect of the dispute to take up any further time between now and the end of the Trust Trial. It is quite clear -- and Mr Pugachev has now had a full opportunity if he wished to do so to put material before me to rebut this -- that Mr Pugachev has known about this Trust Trial for a very significant length of time and could, if he had wished, have taken steps much earlier to get involved in any way or apply to adjourn it or anything else.

That means that I should not spend time dealing with these applications any more today. The question is what I should do about the compliance with the order of 13 July. I am not persuaded that I should simply make a declaration that Mr Pugachev is in breach of the order. It is clear that the order was not complied with within the time that it provided for, but it is also clear that there is a lot to be said on Mr Pugachev's behalf about why it is that an affidavit was not served in that time. I cannot prejudge what the court would do in those circumstances.

Accordingly, what I am going to do is adjourn both applications with liberty to apply on anyone involved, that is to say, including Mr Pugachev, the other defendants, the claimants, Hughmans, and I cannot think of anybody else, but if they wish to come to court and explain why something else needs to be done, they have that permission.

The adjournment is over until the handing down of my judgment in the Trusts Claim. There is obviously going to be a lot to be done on that handing down, but that seems to me to be the best way of dealing with this. If Mr Pugachev feels ultimately that he has been prejudiced by the fact that his applications were not resolved before the end of the Trust Trial, then as I have said, the explanation for that is that I am satisfied on the evidence as best I can be, and Mr Pugachev has now had a chance to rebut it and he has not done so, that he has known about this Trust Trial for a quite sufficient time whereby he could have made applications of this kind much sooner.

But doing this means that I am not shutting Mr Pugachev out. He will have an opportunity to say what he wants to say to me one way or another in relation to these applications. It may be that ultimately part or all of them are successful. I will not make a declaration that he is in breach of the order, and I am not going to prejudge whether the right way of looking at this is as a belated extension of time or an application for relief from sanction.

It seems to me that bearing in mind that at least as of about 5.00 pm yesterday, Mr Pugachev was a litigant in person, and I think at about 11 o'clock, he was then using French lawyers to make his applications before this court, that is the right and fair way of proceeding. I do this, I am probably repeating myself, to emphasise that it is important in this court that even someone like Mr Pugachev, who is an unpurged contemnor, will be listened to if he makes appropriate applications and behaves in a proper way in these proceedings.

That leads me to the question of what to do about the confidentiality club. I am not persuaded that I should relax the confidentiality provisions at this stage. It seems to me that the material that has been provided relates to these applications, and there is no good reason why -- at least not having not had an opportunity to hear any submissions from anyone else -- I should relax that confidentiality club. I say that in particular bearing in mind that Mr Pugachev has asked me to produce that material with those restrictions on it.

It might be thought that the court is being too soft on someone who is an unpurged committer of contempt of court, and seems to have treated these proceedings and the court jurisdiction with little other than disdain. Nevertheless even if that is an appropriate way of looking at Mr Pugachev, he is entitled still to the due process of the court. As I said before, Rose J accepted that his fear was a genuine belief on his part, whether it was well-founded is another matter. However in those circumstances, since there is no reason I am aware of why it is urgent that I resolve any issue of the confidentiality club, I should not do so at this stage without having a chance to hear from Mr Pugachev.

That is my judgment.