Cherkasov & Ors v Olegovich, the Official Receiver of Danyaya Step LLC

The disposition of the three applications before the court was almost, but not completely, agreed before the hearing began. What remained has, nonetheless, been unusually contentious. That is probably a function of the fact that, to put the matter neutrally, this is another step in a long-running, high-profile and extremely public dispute between various representatives of the Russian state and the three applicants, who are Mr Ivan Cherkasov (“Mr Cherkasov”), Mr William Browder (“Mr Browder”) and Mr Paul Wrench (“Mr Wrench”) (together the “Hermitage Parties”).

The historical background to the three applications is long and complex, and I shall need to deal with some of its essential elements in due course. But the present situation has arisen because Mr Nogotkov Kirill Olegovich (“Mr Nogotkov”), who was appointed in November 2015 by the Russian court as the official receiver of Dalnyaya Step LLC (“DSL”), was on 8^th July 2016 granted a recognition order under the Cross-Border Insolvency Regulations 2006 (the “CBIR”) (the “Recognition Order”).

The three applications have thrown up essentially two questions which I shall need to consider. First, whether the court should, in the circumstances, entertain a hearing to decide whether Mr Nogotkov breached his duty of full and frank disclosure in the manner alleged by the Hermitage Parties (the “threshold issue”), and secondly, if it is decided that such a hearing should be entertained, to decide the issue of whether Mr Nogotkov did in fact breach his duty of full and frank disclosure (the “FFD issue”).

The first of the three specific applications was, in essence, an application made on 27^th September 2016 by Mr Nogotkov, shortly after the Recognition Order was made, under section 236 of the Insolvency Act 1986 (“section 236”) for an order that the Hermitage Parties should provide documents and information in relation to the tax affairs of DSL (the “section 236 application”). The second application was made on 1^st November 2016 by the Hermitage Parties for an order setting aside the Recognition Order on grounds including that Mr Nogotkov had failed, when he applied for the Recognition Order, to make full and frank disclosure to the court (the “set aside application”). The third application was made on 6^th September 2017 by Mr Nogotkov for an order terminating the Recognition Order on the ground that he had obtained a judgment in Russia against HSBC Bank (RR) LLC and HSBC Management (Guernsey) Limited (together “HSBC”) which made the estate whole, so that further proceedings in England & Wales were unnecessary (the “termination application”).

I have mentioned already that the parties came close to an agreement that looked as if it might have resolved all the issues in dispute. That occurred when Mr Nogotkov said he would withdraw his section 236 application, and, somewhat later when he agreed to pay the Hermitage Parties’ indemnity costs. But even after that offer had been made, the Hermitage Parties insisted that the court should be asked to resolve the FFD issue.

In this situation, the parties’ competing positions can be summarised as follows. First, Mr Nogotkov submits that he has behaved properly as a responsible insolvency practitioner and foreign liquidator investigating allegations of asset stripping in respect of DSL, and that determination of the FFD issue would be academic and serve no useful purpose. Conversely, the Hermitage Parties submit, on the basis of facts that have been agreed (or effectively agreed for the purposes of this hearing), that Mr Nogotkov’s application for the Recognition Order and his section 236 application were part of a concerted retaliatory campaign by the Russian state against the Hermitage Parties. Their conclusions are (a) that it would be in the public interest for the FFD issue to be determined, and (b) that, in the context of the retaliatory campaign, they have legitimate reasons for wanting the court to determine it, primarily so as to expose Mr Nogotkov’s wrongdoing and prevent abuse of the English court’s procedures in the future.

As regards the FFD issue itself, the Hermitage Parties contend, in broad summary, that Mr Nogotkov ought to have disclosed to the Companies Court (a) the existence and nature of certain criminal proceedings against Mr Browder and Mr Cherkasov in Russia, (b) that he intended to make a section 236 application against the Hermitage Parties, and (c) at least, that the Hermitage Parties were likely to argue that the public policy exception contained in article 6 of schedule 1 to the CBIR was engaged, if only because the UK Home Office had refused repeated requests from the Ministry of Internal Affairs of the Russian Federation (the “MoIA”) and other Russian authorities for assistance in the criminal proceedings because “the Secretary of State [was] of the opinion that to do so [was] likely to prejudice the sovereignty, security, ordre public, or other essential interests of the United Kingdom”. In addition to those matters, Mr Nogotkov ought to have explained to the Companies Court that the tax debts allegedly owed to DSL were the same tax debts that had been the subject of the criminal proceedings against Mr Browder and a Mr Sergei Magnitsky, Hermitage’s lawyer (“Mr Magnitsky”), who was detained for a year without trial in Russia and died in custody there in 2009.

Mr Nogotkov’s response to the FFD issue was, again in broad summary, initially that, even if Mr Nogotkov actually knew some or all of the matters alleged (which is still the subject of some contention), they were not matters that needed to be disclosed on the application for the Recognition Order, because the Hermitage Parties were unaffected by that Order, and, in any event, the public policy matters complained of were not material to that application. Mr Nogotkov contended that the asset stripping of DSL, which he was investigating, was actually and temporally quite separate from an alleged US$230 million fraud perpetrated against subsidiaries of the Hermitage Fund (“Hermitage”) other than DSL, which had given rise to the claim that there was a retaliatory campaign. Once it became clear that the Hermitage Parties were asking the court to accede to their set aside application (rather than Mr Nogotkov’s termination application), Mr Nogotkov rather changed tack to argue, on the basis of new evidence that I allowed to be filed after the hearing, that he did not actually know of the relevance of the criminal proceedings and the requests that had been made by the MoIA, and that, even if there were a formal breach of the duty to make full and frank disclosure, it was an innocent one that ought (absent Mr Nogotkov’s own termination application) to have led to a continuation of the Recognition Order.

Snowden J’s judgment in In re OGX Petróleo e Gás SA [2016] EWHC 25 Ch (“OGX”) (which was reported as a Practice Note) most recently gave guidance relating to without notice applications for recognition orders under the CBIR. On OGX’s without notice application, Mann J granted a recognition order in respect of a judicial reorganisation plan under Brazilian Bankruptcy Law, which had the effect of staying certain arbitration proceedings brought in London by Nordic Trustee ASA and OSX 3 Leasing BV (“Nordic and Leasing”). Nordic and Leasing applied for the order to be set aside on grounds including material non-disclosure. The parties had agreed a draft consent order under which the automatic stay was to be lifted to permit the arbitration to continue and OGX were to pay Nordic and Leasing’s costs. Notwithstanding this agreement, Snowden J gave judgment on the material non-disclosure issue, including the following passages that have some resonance with the present case:-

“54.

… the only purpose for which recognition of the Plan was sought under the Model Law was in order to obtain a stay under article 20(1) so as to prevent the arbitration. … its sole purpose was to obtain a stay to frustrate an arbitration proceeding under a contract that OGX had freely entered into after approval of the Plan, where the claims in question under the New Charter were not subject to the Plan. That aim was, in my judgment, inconsistent with the structure and purpose of the Model Law, and was an abuse of the process for recognition of a foreign proceeding …

60.

I have no doubt that, if he had been properly informed, Mann J would at very least have modified the automatic stay from the outset to permit the arbitration to proceed. Further, and notwithstanding the clear intention that the public policy exception in article 6 should be interpreted restrictively, I consider that it is strongly arguable that the court must have a residual discretion to refuse recognition if satisfied that the applicant is abusing that process for an illegitimate purpose. On the exceptional facts of this case I think that Mann J might well have been justified in rejecting the application for recognition altogether.

62.

… it should not be overlooked that at the hearing on 28 July 2015 Mann J expressly asked to be told of any matters that Nordic and Leasing might have raised if they had been present which might have pointed away from the court granting OGX’s application. It is well understood that the duty of full and frank disclosure to which Mann J was referring requires disclosure of all matters that might reasonably be raised by an opposing party, whether or not the party who is appearing before the court considers that such arguments would be well founded. …

64.

For the future, however, I think that it must be made clear that foreign representatives and their advisers must ensure that the valuable process for recognition under the Model Law and the CBIR is not misused. When seeking recognition, full and frank disclosure must be made to the court in relation to the consequences that recognition of the foreign proceeding may have on third parties who are not before the court. In particular, the court should be told of any points that could be raised in relation to the modification or termination of the automatic stay and suspension which will come into effect on recognition”.

With that introduction, I shall turn to summarise the necessary relevant aspects of the complex factual and procedural background to the threshold issue and the FFD issue.

Hermitage was a Guernsey unit trust investing in Russian capital markets. Its manager was HSBC Management (Guernsey) Limited (“HSBC Guernsey”). Mr Browder was the founder and CEO of Hermitage Capital Management Limited, which advised HSBC Guernsey. Mr Cherkasov was a member of Hermitage Capital LLP, and Mr Wrench was the Managing Director of HSBC Guernsey.

Between 2001 and 2005, Hermitage pursued a strategy of acquiring shares in large state-owned or partially state-owned Russian companies and then exposing corruption in those companies by shareholder activism, leading to an increase in the value of the shares. The Hermitage Parties allege that the Russian state resented these activities and, as a result, began pursuing a retaliatory campaign against them.

On 31^st March 2004, the Federal Tax Service of Russia (“FTSR”) decided to undertake a repeat audit of DSL’s 2001 taxes. DSL was one of the Russian subsidiaries through which Hermitage invested. Mr Nogotkov says that there is prima facie evidence that the company was asset stripped as a result. He claims that, as at 24^th September 2004, DSL held assets worth about US$145 million, which were all removed between October 2004 and March 2005, primarily under the direction of Mr Cherkasov, who was in charge of DSL at the time, notwithstanding the purported appointment of a Ms Filipchenkova as DSL’s general manager in circumstances designed to conceal Mr Cherkasov’s and Mr Browder’s involvement. The details of the alleged asset stripping are irrelevant, but they involve the use of sham employment contracts to take wrongful advantage of tax concessions.

In November 2005, Mr Browder was expelled from Russia. The reason given was that he represented a threat to Russian national security.

In August 2006, DSL went into liquidation in Russia at the instance of its sole purported creditor, the FTSR. In September 2006, a Mr Dolzhenko, an insolvency practitioner, was appointed as interim manager of DSL.

In 2007, the Hermitage Parties allege that Hermitage was the victim of a US$230 million tax fraud carried out (on subsidiaries other than DSL) with the approval and assistance of the MoIA and the FTSR. The Council of Europe later described this as a “corporate raid”.

On 22^nd October 2007, DSL’s liquidation was terminated following an application by the FTSR. DSL was removed from the Russian Companies register and ceased to exist as a matter of Russian law.

After Hermitage’s lawyer, Mr Magnitsky, discovered and sought to expose the alleged fraud, he was imprisoned in Russia for a year without trial, and died in prison in 2009.

Between June 2010 and February 2013, Russian authorities made at least twelve separate requests to the UK authorities for mutual legal assistance in relation to Russian criminal proceedings against Mr Browder and Mr Magnitsky. These were all rejected, and the UK Home Office said in response to several of them that “the United Kingdom is unable to provide any of the assistance requested as the Secretary of State is of the opinion that to do so is likely to prejudice the sovereignty, security, ordre public, or other essential interests of the United Kingdom”.

In December 2012, the United States Congress passed the Sergei Magnitsky Rule of Law Accountability Act 2012, which prohibited those said to be involved in the detention and death of Mr Magnitsky from entering the United States or using the US financial system.

On 16^th March 2013, an email from Mr Andrey Pavlov (“Mr Pavlov”), a Russian lawyer said to have been instrumental in the alleged fraud, to Mr Nogotkov’s solicitors asked whether, if DSL were restored to the register, that would enable a receiver to sue Mr Browder and Mr Cherkasov in London.

In July 2013, the Russian criminal court convicted Mr Browder (in absentia) and Mr Magnitsky (posthumously) of tax evasion, in relation to taxes said to be owed by DSL for 2001. Mr Browder was sentenced to nine years’ imprisonment. Internationally, the verdict was condemned as a miscarriage of justice, including by the EU and Amnesty International.

On 12^th August 2015, Investigator Ranchenkov of the MoIA wrote to the FTSR, explaining that it had been established in an ongoing criminal investigation that Mr Browder and others had deliberately bankrupted DSL, and asking them to restore DSL to the Russian register of companies so that the liquidation could be re-opened. Investigator Ranchenkov asked that this be done immediately and that he be informed of the results in writing.

On 17^th August 2015, the FTSR purportedly restored DSL to the Russian register of companies, and applied to the Russian court to have the liquidation re-opened. Its application was granted on 9^th September 2015. On 27^th November 2015, Mr Nogotkov was appointed as official liquidator of DSL by the Kalmykian Arbitrazh Court.

In December 2015, Mr Nogotkov was given access to the Russian court files concerning (i) the 2013 criminal proceedings against Mr Browder and Mr Magnitsky and (ii) ongoing proceedings against Mr Browder and Mr Cherkasov relating to the tax liabilities of DSL and other Hermitage subsidiaries. He subsequently made copies of these files, including documents concerning the steps taken by the Russian authorities against the Hermitage Parties. These documents included at least two of the Russian authorities’ requests to the UK authorities for mutual legal assistance referred to above, and at least one of the UK Home Office’s refusals of these requests, which was in the terms set out above. I shall deal in more detail with what Mr Nogotkov says about documents of this kind in due course.

On 3^rd May 2016, Mr Nogotkov issued an application for the Recognition Order. It was supported by his affidavit dated 29^th April 2016, which described the previous appointment of Mr Dolzhenko and the creditors’ meeting which had taken place on 4^th May 2007. He said that the FTSR was the only creditor of DSL, explained the termination of the insolvency proceedings on 22^nd October 2007, and said that he was “not aware of anything having occurred in relation to [DSL] between the termination of the liquidation proceedings and the events described below”. He indicated his intention to apply under section 236 for information from former officeholders, but did not name them.

At the short hearing before Mrs Registrar Barber on 8^th July 2016, Mr Nogotkov’s counsel (not those who appeared before me) told her that “…given that the court has jurisdiction, that there are no public policy considerations arising, and there is a purpose to this order, in the sense that [Mr Nogotkov] wishes to undertake investigations in this jurisdiction, I submit that the jurisdiction is made out and that the court should recognise the liquidation as a foreign main proceeding as we have set out in the draft order”. Mrs Registrar Barber made the Recognition Order.

On 1^st August 2016, Mr Nogotkov’s solicitors wrote to the Hermitage Parties seeking documents and information. On the same day, Mr Nogotkov published an online press release, in which he announced the granting of the Recognition Order and said that “[a]ny connection of this case with the political processes is being denied”. The online press release was later taken down. He also emailed Mr Rettman, a journalist for the EU Observer in Brussels, saying that he had been afforded powers by the English court and was gearing up for a media war.

On 9^th August 2016, the Hermitage Parties’ solicitors wrote to Mr Nogotkov’s solicitors asserting that the matters raised in the request for information “engage a complex factual and legal background involving collusion between corrupt Russian public officials and a Russian organised crime syndicate to defraud the Russian state of $230 million in tax revenue”.

On 22^nd August 2016, Mr Nogotkov made a witness statement saying: “I did not inform the Court of the alleged fraud (or the death of Mr Magnitsky) as part of the Recognition Application because I did not believe that those allegations (whether or not they are correct as a matter of fact) had any connection to [DSL] or its liquidation at all. However, given that it has now been alleged by [the Hermitage Parties’ solicitors] that the liquidation of the [DSL] is a “manifestation” of the alleged criminal scheme relating to a USD 230 million fraud and that I am “controlled” by the perpetrators of that scheme, I consider that it is only proper for this matter to be brought to the attention of the Court which granted the Order at the earliest opportunity and I do so now”.

On 23^rd August 2016, Mrs Registrar Barber directed that the Recognition Order should stand, having seen Mr Nogotkov’s statement dated 22^nd August 2016.

On 27^th September 2016, Mr Nogotkov issued his section 236 application against the Hermitage Parties, with a hearing date of 27^th October 2016. His second affidavit, of the same date, included the following:-

“18.

I have obtained (or attempted to obtain) information and/or documents from the following sources within the Russian Federation and elsewhere …

18.4.

Tverskoy District Court of Moscow … on 4 October 2004 a criminal case was started against Mr Browder. Other individuals were also charged in connection with this case, including Mr Cherkasov and Mr Dolzhenko (the previous official receiver of the Company). As the criminal case materials could have contained information relating to the Company I was given access to documents on the court file, of which I have taken copies”.

On 26^th October 2016, the Hermitage Parties issued an application for security for the costs of the section 236 application. This was accompanied by the first witness statement of Mr Stephen Richard Dillon Hayes (“Mr Hayes”), a solicitor at Kobre & Kim, the Hermitage Parties’ solicitors, which said that:-

“23.

The long history of attacks on the Hermitage Parties and Hermitage Capital includes …

23.8.

Applications made by the Russian Federation to the United Kingdom for mutual legal assistance against Mr Browder in connection with DSL, which were all rejected by the Home Office on the basis that to provide assistance to Russia in this matter would be likely to prejudice the sovereignty, security, ordre public or other essential interests of the United Kingdom. …

32.

Many of the matters described above were, and remain, material facts that should have been drawn to the Court’s attention at the time Mr Nogotkov applied for the DSL Recognition. Mr Nogotkov has not remedied these failures across two further rounds of witness evidence. They are clearly relevant to the Court’s exercise of its discretion under Article 6 of the CBIR. For example …

32.7.

The refusal of the UK Home Office to provide mutual legal assistance on the request of the Russian authorities in relation to Russian criminal proceedings against Mr Browder on the grounds that to do so would be likely to prejudice the sovereignty, security, ordre public, or other essential interests of the UK”.

On 27^th October 2016, Mr Registrar Jones made an order for directions recording the Hermitage Parties’ undertaking to issue an application to set aside the Recognition Order. On 1^st November 2016, the Hermitage Parties issued their set aside application.

On 24^th January 2017, Ms Amanda Tipples QC, sitting as a deputy judge of the High Court, gave directions for the substantive hearing of the security for costs application, which ultimately took place before Rose J on 23^rd March 2017.

On 15^th March 2017, Mr Nogotkov filed a third witness statement, including the following:-

“15.

In the hope of reducing the extent of the matters in issue on these Applications, I will not require the Challenging [Hermitage] Parties to prove allegations other than (a) where I have set out the nature of my case in relation to the issues to which those allegations are relevant; or (b) I positively state that I require the Challenging Parties to [prove] such matters. In respect of other allegations, whilst not admitting their truth, I am content for them to be assumed to be correct for the purposes of these Applications only …

98.

Once my appointment [as official receiver of DSL] had been confirmed, I started to obtain documents relating to DSL as I described [above]. I also proceeded to inspect the criminal file in the case involving DSL. …

194.1

My investigations are the same matters as those which are the subject of criminal investigations being undertaken in Russia: Whilst the subject matter may be the same, the purposes of the steps I am taking and the criminal proceedings are different. The steps I am taking are wholly separate to whatever the steps the prosecutors are undertaking in the criminal proceedings. I did not and do not consider that the mere fact that there is a parallel criminal investigation is relevant to my recognition.

194.2

I was aware that the Challenging Parties would allege that this was the latest step being taken in the campaign against Mr Browder and Hermitage: I of course knew from my reading into the case that the Challenging Parties allege that there is a campaign against them for highlighting the USD 230m Fraud. …

I stand by the evidence I made in [Nogotkov (2)] that I did not consider it appropriate or relevant to bring these matters to the Court when I made by initial application for the Recognition Order…”.

On 17^th March 2017, the Hermitage Parties filed a skeleton argument which said that “if the section 236 application against [them] were to fall away, the set aside applications would be unnecessary and would not be pursued”. This fact is relied upon by Mr Nogotkov as preventing the Hermitage Parties from credibly asking the court now to decide the FFD issue under the guise of their set aside application.

On 10^th April 2017, Rose J gave a detailed judgment, which awarded the Hermitage Parties £1 million by way of security for their costs of what has been transformed into this hearing.

On 5^th May 2017, Mr Hayes filed his fourth witness statement on behalf of the Hermitage Parties, including the following:-

“63.4

The refusal of assistance by the UK was reported by the Press Service of the Russia Interior Ministry in an article dated 2 July 2012 and by the Voice of Russia in an article of the same date...

80.

In paragraph 13 of [O’Sullivan (2), Mr O’Sullivan being the solicitor acting for Mr Nogotkov], he suggests that I should set out precisely which facts the Hermitage Parties say should have been disclosed on the without notice application. I have done so below.

81.

I set out below facts based on the knowledge that Mr Nogotkov can be taken to have had even if all of his evidence is to be believed…

83.

Facts that should have been disclosed are as follows: …

83.19

The UK government’s refusal of requests for assistance in relation to the criminal case against Mr Browder in relation to DSL on public policy grounds…”.

The articles referred to in paragraph 63.4 of Mr Hayes’ witness statement above were exhibited by the Hermitage Parties. Both articles state the basis on which the UK authorities refused to provide mutual legal assistance, namely that doing so was “most likely to harm the sovereignty, security, public order and other material interests of Great Britain”.

On 2^nd August 2017, Mr Nogotkov obtained a judgment in Russia against HSBC for causing DSL’s insolvency by transferring monies out of DSL’s accounts in breach of Russian banking regulations (the “HSBC judgment”). The judgment was said by Mr Nogotkov to be in respect of the full amount of DSL’s debts and in respect of the costs of his receivership. A first appeal was filed by HSBC on 7^th August 2017.

On 30^th August 2017, Mr Nogotkov’s solicitors wrote to the Hermitage Parties’ solicitors. The letter summarised the HSBC judgment and continued:-

“Accordingly, it appears that Mr Nogotkov will (subject to the outcome of appeals) be in a position where he can satisfy the claims admitted in DSL’s bankruptcy. …

In light of the above, the [section 236 application] and [set aside application] have been overtaken by events. …

Whilst Mr Nogotkov considers that the [section 236 application] was both proper and necessary when it was made, Mr Nogotkov is of the opinion that the appropriate course in light of the fact that he has obtained judgment against HSBC is for him to withdraw his [section 236 application] …

Mr Nogotkov will also shortly file an application to terminate recognition in light of the changed circumstances, which will render [the Hermitage Parties’] [set aside application] redundant. …

the appropriate position regarding costs should be that the parties bear their own respective costs in respect of both the [section 236 application] and the [set aside application]”.

On 6^th September 2017, Mr Nogotkov issued his termination application.

On 15^th September 2017, the Hermitage Parties’ solicitors responded to Mr Nogotkov’s solicitors’ letter of 30^th August 2017, saying:-

“We do not consider that Mr Nogotkov is entitled to an order terminating the Recognition Order on his 6 September 2017 Application.

That application should be heard at the same time as the Hermitage Parties’ application dated 1^st November 2016 [the set aside application].

[The set aside application] seeks:

a.

In paragraph 1, an order terminating the Recognition Order, which the Hermitage Parties contend should never have been made in the first place on Mr Nogotkov’s without notice application … and

b.

In paragraph 2, an order that Mr Nogotkov pay the costs of these proceedings, including the costs of both [the set aside application] and the [section 236 application].

We note that Mr Nogotkov now agrees that the substantive relief sought in paragraph 1 of [the set aside application] should be granted. However, he does not agree to the relief sought in paragraph 2 of [the set aside application]. Instead, notwithstanding his effective discontinuance shortly before trial, Mr Nogotkov suggests that there should be no order as to costs on either [the set aside application] or the [section 236 application]. There is no basis for such a result.

The Hermitage Parties intend to ask the Court to make a termination order on their [set aside application], and to pursue [the set aside application] substantively in relation to the costs of both [the set aside application] and the [section 236 application] on the indemnity basis (if those costs are not agreed). …

We (and our counsel team) provisionally estimate that a three day hearing … will be necessary … the issue as to whether indemnity costs should be ordered will of itself require consideration of the extensive evidence as to Mr Nogotkov’s failure to make full and frank disclosure…”.

On 4^th October 2017, Mr Nogotkov’s solicitors replied as follows:-

“For the reasons set out in our earlier correspondence, both Mr Nogotkov and we are confident that there is no basis for your clients to seek costs...

Nonetheless, Mr Nogotkov is mindful of the obligations on parties, under the Civil Procedure Rules, to try to resolve their disputes. He sees no benefit in the parties now incurring significant costs … in proceeding with your parties’ attempt to engage in satellite litigation. This is not in the interest of the Estate given that any costs will need to be borne by the Estate. …

In light of this and provided your clients will now agree that any future hearings can be dispensed with (in order to prevent the parties from incurring the unnecessary costs of having to attend any such hearings), Mr Nogotkov is prepared to agree that:

a.

costs be ordered in respect of the Applications on the Standard Basis;

b.

an interim payment on account in respect of your clients’ costs be made… Mr Nogotkov is prepared to make an interim payment of GBP 860,000 (the “Interim Payment Amount”) …

c.

the Interim Payment Amount shall be paid from the sum of GBP 1,000,000 paid into Court pursuant to the Order of Mrs Justice Rose…

We should be grateful if you could confirm your acceptance of the above by no later than 5:30pm London time on Friday 6 October 2017…”.

On 6^th October 2017, the Hermitage Parties’ solicitors refused Mr Nogotkov’s offer and said they would continue to seek costs on the indemnity basis.

On 13^th October 2017, Mr David Halpern QC, sitting as a deputy judge of the High Court, ordered that the time estimate for the final hearing of the three applications (the set aside application, the termination application and the section 236 application) be reduced from three to two days. In his judgment, Mr Halpern QC said that the costs issues, including the FFD issue, would be investigated at that hearing.

On 27^th October 2017, in response to the Hermitage Parties’ indication that they would continue to apply for indemnity costs, Mr Nogotkov made a fifth witness statement, which said:-

“In respect of (1) (breach of full and frank disclosure), the Challenging Parties [the Hermitage Parties] advance no further substantive evidence in [Hayes (7)]. I stand by my evidence in [Nogotkov (3)] 193-200 and will rely on the other evidence which was served on my behalf on this issue”.

On 3^rd November 2017, Mr Nogotkov’s solicitors wrote to the Hermitage Parties’ solicitors, saying that:-

“Our client has given careful consideration to the best interests of the estate. Whilst he maintains for the reasons previously set out that he was entitled to bring the proceedings and has behaved properly throughout, he does not consider it appropriate to incur the costs of preparing for and subsequently attending a further hearing in November 2017…

In those circumstances, and without making any admissions, Mr Nogotkov agrees to pay the costs of the proceedings on the indemnity basis.

Further, Mr Nogotkov agrees to pay £1.2m on account of your clients’ costs … up to the point where the [section 236 application] was withdrawn … As you propose, £1m should be drawn from the amount held at Court at Mr Nogotkov will arrange for £200,000 to be paid into your firm’s client account by 4pm Friday, 10 November 2017.

Mr Nogotkov accepts that the costs of proceedings which he is liable to pay will include your clients’ costs of the indemnity costs application up to today and that he should make a payment on account of those costs … in addition to the £1.2 million figure set out above. Mr Nogotkov offers to pay £150,000 on account of your costs which, if accepted, he will transfer to your firm’s client account by 4pm Friday, 10 November 2017. …

In those circumstances, we propose that the parties should write to the Court promptly to vacate the hearing...”.

On 6^th November 2017, the Hermitage Parties’ solicitors responded saying:-

“… we do not agree that it is acceptable for this matter to be resolved simply by a consent order, with no judicial consideration of Mr Nogotkov’s conduct. We are therefore writing to the Chancellor to invite him, notwithstanding your client’s agreement to pay indemnity costs, to give a judgment on the issue [of] whether there has been a failure by Mr Nogotkov … to make full and frank disclosure…”.

Also on 6^th November 2017, the Hermitage Parties filed their main skeleton argument, which included at paragraph 105 the following allegation:-

“Mr Nogotkov also knew that … requests by Russia for assistance in relation to those proceedings had been rejected by the Home Office on the basis that it would be contrary to public policy. Mr Nogotkov had access to the letters of request and the rejections. None of that was brought to the attention of the Court. It is difficult to imagine a matter more obviously relevant to whether a public policy point might be raised”.

On the same day, counsel for the Hermitage Parties wrote a 10-page letter to me asking me to direct that the court should give a substantive judgment on the FFD issue “either on the papers or, if necessary, following a hearing”, and setting out their substantive arguments as to why I should do so.

On 7^th November 2017, Mr Nogotkov’s counsel responded with a 9-page letter to me inviting me to decline the Hermitage Parties’ counsel’s invitation to determine the FFD issue or to hold a hearing to decide something that was “no longer relevant to any matter in dispute”. They too set out their substantive arguments.

Not surprisingly, I decided that I could not determine either the hotly contested threshold issue or the FFD issue (if that became necessary) without hearing the parties’ oral submissions. I duly directed the hearing that has resulted in this judgment, which (it may be recorded) ultimately occupied the court for some 9½ court hours over three days, notwithstanding the court’s encouragement to keep submissions short, and both counsel responding commendably and dealing with the matter with admirable brevity.

Initially, I indicated to the parties that I would first hear the argument on the threshold issue, and would then indicate my decision, so as to allow the argument to proceed to the FFD issue if necessary during the allotted hearing. During the course of the hearing, however, it became apparent that that course was not going to be possible, because of the complexity of the facts and the considerable inter-connectivity between the two issues. Accordingly, shortly after the start of the second day of the hearing, I indicated that I would not be able to give a decision on the threshold question, and that the parties should proceed to deploy all their arguments on both issues, so that I could reserve judgment on both issues at the end of the hearing. That is what happened.

In the course of the hearing (towards the end of the second day), it became apparent to Mr Nogotkov’s legal team (if it had not been apparent to them before) that the “agreed facts” on which the Hermitage Parties relied included a suggestion that Mr Nogotkov or his staff had access to the MoIA’s requests for assistance and the UK Home Office’s responses concerning the public policy issues involved. Accordingly, Mr Nogotkov sought at that late stage to respond by filing evidence as to what he knew. In response to my order that he file an affidavit on the point, exhibiting the indices to the criminal files he had copied, by Noon on the third day of the hearing, he produced a draft affidavit at about 1.30pm. When the hearing began at 3pm, Mr Daniel Bayfield QC, leading counsel for Mr Nogotkov, explained that, since the affidavit had been drafted, a lawyer in CMS Cameron McKenna Nabarro Olswang LLP (Mr Nogotkov’s solicitors) had discovered six further documents in the copied files that were plainly relevant. The documents referred to in the draft and the six additional documents included:-

After some discussion on the third day of the hearing, I ordered Mr Nogotkov to redraft his affidavit and file it in final form by Noon on Friday 17^th November 2017. He duly did so, exhibiting the references to a number of MoIA requests and UK Home Office responses, but denying having actually seen them himself prior to the Recognition Order. He said that “[w]hen I say I do not “recall” seeing documents in this affidavit, that is because I do not believe that I saw them at the time but I cannot now be absolutely sure”, and “[t]o the best of my recollection, I was not aware at the time I made the application for the Recognition Order that (other than the international arrest sought by Russia) any mutual legal assistance requests had been made by the Russian authorities to the UK authorities, or refused by the UK authorities.  I understand that the Challenging [Hermitage] Parties say that the making of these requests and their refusal was reported in the Russian press; I do not believe that I saw any such press reports and, if I ever had, I do not recall them. … I did not know what mutual legal assistance requests were”.

The parties had an opportunity to file yet further submissions on Monday 20^th November 2017. Mr Smouha listed the six additional documents referred to in Mr Nogotkov’s sworn affidavit of 17^th November 2017, and argued that their effect was simply to reinforce the submissions he had made orally on the FFD issue. Mr Bayfield said that Mr Nogotkov did not consider it necessary to make further submissions in the light of the affidavit.

On 22^nd November 2017, the court was informed by Mr Nogotkov’s solicitors that the Russian Court of Cassation had upheld the judgment that Mr Nogotkov had obtained against HSBC for the amounts due to DSL’s creditors (namely the tax due to the FTSR totalling Rubles1,254,205,364.88 (US$20,957,423.04), but that the Court of Cassation had overturned the ruling that HSBC should account for DSL’s expenses of the insolvency, so that HSBC was no longer liable to account for the costs of £1,807,038 and US$255,500 (including the sums payable to the Hermitage Parties). I shall refer to this judgment as the “HSBC Cassation Judgment”.

In her judgment on the Hermitage Parties’ security for costs applications (Re Dalnyaya Step LLC (in liquidation) Cherkasov and others v. Nogotkov [2017] EWHC 756 (Ch)), Rose J helpfully explained the relevant provisions of the CBIR and UNCITRAL Model Law, at paragraphs 7-20 of her judgment as follows:-

“[7] The CBIR incorporate into English law the Model Law on cross-border insolvency as adopted by the United Nations Commission on International Trade Law on 30 May 1997, known as the UNCITRAL Model Law. Regulation 2 of the CBIR provides that the UNCITRAL Model Law shall have the force of law in Great Britain in the form set out in [Schedule] 1 to the Regulations. Schedule 1 sets out the UNCITRAL Model Law with certain modifications to adapt it for application here. Regulation 2 further provides that the courts can use various instruments when interpreting the Model Law, including the Guide to Enactment of the UNCITRAL Model Law (UNCITRAL document A/CN.9/442) issued by UNCITRAL in May 1997 (the ‘UNCITRAL Guide’).

[8] The UNCITRAL Model Law as set out in [Schedule] 1 provides that it applies when assistance is sought in Great Britain by a foreign court or a foreign representative in connection with a foreign proceeding. The term ‘foreign proceeding’ is defined as a collective judicial or administrative proceeding in a foreign State pursuant to a law relating to insolvency, in which proceeding the assets and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of reorganisation or liquidation. A ‘foreign representative’ means a person or body authorised in a foreign proceeding to administer the reorganisation or the liquidation of the debtor’s assets or affairs or to act as a representative of the foreign proceeding.

[9] The relevant element of the Model Law for our purposes is art 15 which provides that a foreign representative may apply to the court for recognition of the foreign proceeding in which the foreign representative has been appointed. That application must be accompanied by specified evidence showing the commencement of the foreign proceeding and the appointment of the foreign representative.

[10] Article 17 then provides:

‘Article 17. Decision to recognise a foreign proceeding
1. Subject to article 6, a foreign proceeding shall be recognised if—
(a) it is a foreign proceeding within the meaning of sub-paragraph (i) of article 2;

(b)

the foreign representative applying for recognition is a person or body within the meaning of sub-paragraph (j) of article 2;

(c)

the application meets the requirements of paragraphs 2 and 3 of article 15; and

(d)

the application has been submitted to the court referred to in article 4 ...’

[11] Article 17 is thus expressed to be subject to art 6 of the Model Law. Article 6 provides:

‘Article 6. Public policy exception

Nothing in this Law prevents the court from refusing to take an action governed by this Law if the action would be manifestly contrary to the public policy of Great Britain or any part of it.’

…

[19] The UNCITRAL Guide contains the following relevant guidance. In the section setting out general guidance on recognition, paras 29 and 30 make clear that since one of the key objectives of the Model Law is to establish simplified procedures for recognition, if the provisions of the Model Law are met, the court should recognise the foreign proceeding without further requirement.

[20] However, this is subject to art 6 about which para 30 of the UNCITRAL Guide says:

‘30. Article 6 allows recognition to be refused when it would be “manifestly contrary to the public policy” of the State in which recognition is sought. This may be a preliminary question to be considered on an application for recognition. No definition of what constitutes public policy is attempted as notions vary from State to State. However, the intention is that the exception be interpreted restrictively and that article 6 be used only in exceptional and limited circumstances (see paras 101–104). Differences in insolvency schemes do not themselves justify a finding that enforcing one State’s laws would violate the public policy of another State’”.

Mr Joe Smouha QC, leading counsel for the Hermitage Parties, submitted that Lord Neuberger MR’s judgment in Barclays Bank v. Nylon Capital LLC [2011] EWCA Civ 826 (“Nylon”) was a correct statement of the law on when the court should hear and give judgment on matters that are no longer determinative of any live issue between the parties. He submitted that Thomas and Etherton LJJ agreed with Lord Neuberger’s approach, because they said nothing to the contrary in their own judgments. Lord Neuberger said this at paragraphs 73-77:-

“73 I turn now to deal with a very different issue. After Thomas LJ had prepared his judgment in draft, and circulated it to Etherton LJ and me, the parties notified the court that they had reached agreement and effectively requested the court not to give judgment.

74 Where a case has been fully argued, whether at first instance or on appeal, and it then settles or is withdrawn or is in some other way disposed of, the court retains the right to decide whether or not to proceed to give judgment. Where the case raises a point which it is in the public interest to ventilate in a judgment, that would be a powerful reason for proceeding to give judgment despite the matter having been disposed of between the parties. Obvious examples of such cases are where the case raises a point of law of some potential general interest, where an appellate court is differing from the court below, where some wrongdoing or other activity should be exposed, or where the case has attracted some other legitimate public interest.

75 It will also be relevant in most cases to consider how far the preparation of any judgment had got by the time of the request. In the absence of good reason to the contrary, it would be a highly questionable use of judicial time to prepare a judgment on an issue which was no longer live between the parties to the case. On the other hand, where the judgment is complete, it could be said (perhaps with rather less force) that it would be a retrospective waste of judicial time and effort if the judgment was not given.

76 The concerns of the parties to the litigation are obviously also relevant and sometimes very important. If, for their own legitimate interests, they do not wish (or one of them does not wish) a judgment to be given, that request should certainly be given weight by the court. (Of course, in some cases, the parties may request a judgment notwithstanding the fact that there is no longer an issue between them).

77 Where there are competing arguments each way, the court will have to weigh up those arguments: in that connection, the reasons for any desire to avoid a judgment will be highly relevant when deciding what weight to give to that desire.”

Mr Smouha submitted that the following principles were applicable:-

Mr Smouha then argued that, applying these principles, the court should hear and give judgment on the FFD issue because:-

Finally, Mr Smouha submitted on the threshold issue that:-

Mr Bayfield submitted that Lord Neuberger was referring to cases which had been fully argued, but that, where a case had not been argued, the court either had no jurisdiction to hear argument in the absence of any live dispute, or in any event, if there was jurisdiction, the earlier the stage of proceedings, the higher the burden on the party seeking to persuade the court to give judgment. Mr Bayfield put forward the following eight reasons why the court should decline to hear argument and give judgment on the FFD issue:-

The Hermitage Parties summarised the matters that they say Mr Nogotkov knew and should have disclosed to Mrs Registrar Barber when applying for the Recognition Order as follows:-

Mr Smouha submitted that Mr Nogotkov must have been aware that the Hermitage Parties would raise these matters in opposition to his application in the context of article 6, because:-

Mr Smouha also submitted that:-

Mr Bayfield stressed that Mr Nogotkov is not (at least knowingly) part of any political or retaliatory campaign against the Hermitage Parties. He is a professional insolvency practitioner charged with investigating asset stripping within DSL in accordance with his duties under Russian law. The Hermitage Parties were not the only targets of the section 236 application. The Recognition Order had no direct consequence for the Hermitage Parties and was not the relevant ‘action’ for the purpose of article 6 of schedule 1 to the CBIR. This case falls outside the guidance given by Snowden J in OGX, and Mr Nogotkov was not required to disclose the retaliatory campaign at the recognition stage.

Mr Bayfield then submitted that, even if Mr Nogotkov breached his duty of full and frank disclosure, the court must consider whether it would have continued the Recognition Order. If it would have done so, then the order should be terminated in accordance with the application of Mr Nogotkov, and not that of the Hermitage Parties. Mr Bayfield advanced five reasons why the Recognition Order would have been continued:-

With that lengthy introduction, I can turn to the two issues that I have to decide, and can deal with them rather more shortly.

Both parties treated the question in argument as if it were one of whether a court should decide an issue once the parties were agreed as to the outcome of the litigation. It seems to me, as I mentioned at the start of the second day of the hearing to Mr Bayfield, that this is not quite such a case. Here, as described above, the parties are almost, but not completely, agreed as to the orders that should be made for the disposition of the three applications before the court and the costs of the proceedings thus far. The parties’ draft orders themselves also demonstrate that they are not completely in agreement.

Specifically, the Hermitage Parties ask the court to make an order including a recital to the following effect (which Mr Nogotkov does not agree):-

“And Upon the Chancellor having found that Mr Nogotkov did breach his duties of full and frank disclosure on his without notice application for the Recognition Order”.

Mr Nogotkov originally asked the court to make an order including a different recital recording that:-

“the termination of the Without Notice Recognition Order does not involve any finding as to whether or not it was proper for the liquidation of DSL to have been recognised in England and Wales”.

Admittedly, Mr Bayfield later made clear that he was not concerned whether or not such a recital was included, but what is clear is that the parties have never been ad idem as to the terms of the order that the court should make on the three applications.

In these circumstances, I cannot see how the principles in Nylon are precisely in point. First, of course, no judgment had been prepared in this case before the dispute about whether the FFD issue should be decided arose. Secondly, the parties are not actually agreed as to how the applications before the court should be disposed of. The Hermitage Parties are asking the court to decide the FFD issue, and to make a series of costs orders that are not fully agreed. The parties remain at odds about the issues raised by the set aside application and the termination application. Mr Nogotkov submits, in substance, that the Recognition Order should be terminated pursuant to his termination application and not pursuant to the set aside application, whilst the Hermitage Parties contend that the Recognition Order should be set aside ab initio pursuant to their set aside application on the ground of material non-disclosure. It is true that it is agreed in substance that the Recognition Order should no longer continue, but it is not agreed as to whether it should be declared to terminate now or to have never been validly in existence.

Sir Anthony Clarke MR (with whom Walker and Smith LJJ agreed) said in Gawler v. Raettig [2007] EWCA Civ 1560 at paragraphs 36-7, having reviewed the authorities on academic appeals, that: “the court will not entertain an [academic] appeal between private parties in private litigation unless it is in the public interest to do so. Moreover, this is likely to be a very rare event, especially where the rights and duties to be considered are private and not public … All will depend upon the facts of the particular case and in what follows I do not intend to be too prescriptive. However, such cases are likely to have a number of characteristics in addition to the critical requirement that an academic appeal is in the public interest. They include the necessity that all sides of the argument will be fully and properly put …”.

In these circumstances, as it seems to me, I ought to consider first whether it would be in the public interest to determine the FFD issue, even though I am not certain that that question is determinative of the threshold issue in a case like the present, where there is actually an outstanding issue between the parties as to how the set aside application and the termination application should be resolved. Whilst the FFD issue is not entirely academic in the sense that Sir Anthony Clarke was using that term, it would be possible to resolve what lies between these parties without deciding it, which is how Mr Bayfield urged me to resolve the case.

In my judgment, there is a number of reasons why, on the particular facts of this case, I ought to determine the FFD issue.

First, I do not think it would be satisfactory to terminate the Recognition Order on the basis of Mr Nogotkov’s application if, in reality, he has been in breach of his duty of full and frank disclosure and if, contrary to his submissions, the order would have been set aside rather than continued had full and frank disclosure been made (as to which, see National Bank v. Yurov [2016] EWHC 1991 (Comm) per Males J at paragraphs 18 and 85). There is a material, if not critical, difference between an order setting aside a recognition order ab initio, and terminating such an order at the office holder’s own request some seventeen months after it took effect.

Secondly, I do think that it is in the public interest to determine the FFD issue. When the argument began, I asked Mr Smouha how he could do better than to have, in the public domain, the allegations that the Hermitage Parties make about their treatment, which were already recorded in paragraphs 21-26 of Rose J’s public judgment on the security for costs application. I pointed out that, without cross-examination, I could not determine the truth of the allegations that the Hermitage Parties make against either Mr Nogotkov or the Russian state. So, I asked, what logically could his clients gain from a lengthy determination of the FFD issue? I have already recorded his main answers. The core of his response, however, involved taking me to the detail of the campaign that the Hermitage Parties allege and the UK Government’s responses to the numerous international requests for assistance that the Russian state has made. He submitted that Mr Nogotkov’s appointment was just one further step in a long line of hostile actions taken against Mr Browder, Mr Cherkasov and Mr Magnitsky in particular. It needed to be made clear in a public judgment that this latest step had been wrongful and improper, so as to discourage further such steps being taken in the future as, he argued, was likely, if not inevitable. It does not seem that the Russian state has been prepared to accept “no” for an answer regarding its requests for assistance from the UK authorities. It can be noted here that it was primarily for this latter reason that I decided on the second day of the hearing that the threshold issue itself involved me looking in detail at what was said on the FFD issue, meaning that the two issues could not easily be disentangled. That is, in itself, my third reason for thinking that it is appropriate to decide the FFD issue.

Before leaving the public interest, however, it is worth highlighting the aspects of it that have led me to conclude that I need to decide the FFD issue. I am not intending to repeat the entire history, but will simply highlight the most important factors that arise from what Mr Nogotkov has accepted as being facts on the basis of which these applications can be determined. As I have already explained, there appear to have been an unprecedented number of steps taken against the Hermitage Parties and Mr Magnitsky in the last fifteen years. Whether or not these steps are properly called a “retaliatory campaign by the Russian state” does not matter. They have been ongoing for a long time and there is little or no doubt that the obtaining of the Recognition Order was a further link in the chain of events. There is no reason to suppose that those responsible for these steps, whether or not Mr Nogotkov himself is merely a pawn, are likely to give up or even to stop trying to involve or gain assistance from the UK Government or the courts of England and Wales in this process. The numerous requests for assistance in the criminal proceedings, all of which have been met with the same response from the UK Government, are clear evidence of this.

Moreover, the UK Government’s repeated response to these requests is crucial, in my judgment, to an identification of where the public interest lies. Whenever the UK Government has been specifically asked to assist elements of the Russian state in relation to Mr Browder and Mr Magnitsky and the criminal proceedings against them, it has responded by saying that the Secretary of State holds the opinion that “to do so [would be] likely to prejudice the sovereignty, security, ordre public, or other essential interests of the United Kingdom”. In matters of this kind, it is incumbent upon the court to take the views of the UK Government very seriously indeed (c.f. by analogy cases in which the court will seek the assistance or certificate of the Foreign and Commonwealth Office in relation to a sovereign recognition issue; for example, Aziz v. Aziz [2008] 2 All ER 501, Regina v. Bow Street Metropolitan Stipendiary Magistrate ex parte Pinochet Ugarte (No. 3) [2000] 1 AC 147 and Apex Global Management Limited v. Fi Call Limited and Others [2013] EWHC 587 (Ch) at paragraphs 39-48).

In my judgment, where there are serious allegations of wrongdoing, as there are here, and where the UK Government has already made clear its views about connected aspects of the case, this court cannot stand by without deciding whether or not there has indeed been inappropriate conduct. It is in the public interest for that issue to be determined, whatever effect it has on the private parties to the litigation. I emphasise, however, that this is a wholly exceptional case.

Finally, in this regard, I do take the view that the Hermitage Parties were right to submit that they had good reason for wanting the FFD issue determined, and that Mr Nogotkov had no good reason for not wanting it determined. As I have said, the campaign against the Hermitage Parties is unlikely to stop, and judgment on the FFD issue will at least ensure that the public policy context is put before the court in any future without notice application made at the behest of the FTSR, the Russian criminal authorities, Mr Nogotkov or another liquidator. Rose J did not (and could not in the context of what she was deciding) go beyond recording Mr Nogotkov’s concession that the Hermitage Parties’ public policy argument had a reasonable prospect of success, a concession that Mr Nogotkov has now withdrawn. Mr Nogotkov has indeed attempted to buy off the determination of the FFD issue, by paying a large amount in costs in somewhat dubious circumstances. First, he has put forward an unpersuasive reason for wanting to terminate the Recognition Order. The HSBC judgment was not at the time of the hearing final and unappealable, so he could not then plausibly argue that he no longer needed the Recognition Order. The subsequent HSBC Cassation Judgment has demonstrated that Mr Nogotkov will now have to pay the Hermitage Parties’ costs himself, which casts considerable doubt on the reason he gave for wanting to make the termination application. Secondly, Mr Nogotkov’s agreement to pay indemnity costs out of the estate (as he originally intended) smacked of an attempt to protect his own reputation at the expense of the bankrupt estate. Such a course would be quite unthinkable for an English insolvency practitioner in an English insolvency. Thirdly, as Brooke LJ suggested in Prudential Assurance supra at page 2008, it was not appropriate for “powerful defendants … [to] pick and choose which judgments they were happy to see published and which judgments they were willing to pay money to suppress”.

In my judgment, as I have said, there are clear and compelling reasons why the FFD issue ought to be decided in the public interest. The court cannot willingly accept a situation in which one party can prevent it determining, where it is in the public interest to do so, whether its procedures have been flouted or abused.

The general principles as to the duty of full and frank disclosure are well known and were set out by Scrutton LJ in R v. The General Commissioners for the Purposes of the Income Tax Acts for the District of Kensington ex parte Princess Edmond de Polignac [1917] KB 486 at page 514:-

“It has been for many years the rule of the Court, and one which it is of the greatest importance to maintain, that when an applicant comes to the Court to obtain relief on an ex parte statement he should make a full and fair disclosure of all the material facts … if it finds out that the facts have not been fully and fairly stated to it, the Court will set aside any action which it has taken on the faith of the imperfect statement.”

In an equally well-known passage in Brink’s Mat Ltd v. Elcombe supra, Ralph Gibson LJ made clear at page 1356 that “[t]he applicant must make proper inquiries before making the application … The duty of disclosure therefore applies not only to material facts known to the applicant but also to any additional facts which he would have known if he had made such inquiries”.

None of that is disputed. Instead, Mr Nogotkov seeks to construe one sentence in paragraph 64 of Snowden J’s judgment in OGX as a deed. He submits that Snowden J limited the principle in relation to recognition orders when he said that “[w]hen seeking recognition, full and frank disclosure must be made to the court in relation to the consequences that recognition of the foreign proceeding may have on third parties who are not before the court” (emphasis added). Mr Nogotkov submits that only the specific consequences of the recognition order itself must be disclosed, and not the consequences of the next steps that will inevitably follow the Recognition Order (namely the section 236 application). I do not agree. I make no criticism of Snowden J’s formulation that applied specifically to the facts of the case before him, but I have no doubt that the principle extends a little further. When seeking recognition, full and frank disclosure must be made to the court in relation to the consequences for third parties that are not before the court that may flow from the recognition of the foreign proceeding, including from intended future applications enabled by the recognition order.

In this case, Mr Nogotkov intended, at the time he applied for the Recognition Order, to issue his section 236 application against the Hermitage Parties. He knew that they would say that his actions were political. That much is clear from his own press release of 1^st August 2016, in which he said that “[a]ny connection of this case with the political processes is being denied”. Article 6 of schedule 1 to the CBIR will, of course only be invoked in an exceptional case, but this was just such a case. The agreed facts are enough to demonstrate that. Mr Nogotkov knew or ought to have known that UK public policy issues would be raised by his request for the Recognition Order and the steps that he intended to take in consequence of it. He ought to have given the court the opportunity to consider whether article 6 was engaged, and whether the Recognition Order ought to be refused on the grounds that “it would be manifestly contrary to the public policy of Great Britain”, or at least whether it wanted to hear submissions on the point from the parties intended to be the subject of the future section 236 application before determining if a recognition order was appropriate.

The history of the Russian state’s actions against the Hermitage Parties were material facts of which the English court needed to be fully and fairly informed, in order to allow it to decide whether or not article 6 was engaged. Mr Nogotkov has been coy in his various affidavits and statements as to precisely what he personally knew. But that is not the relevant issue. The duty of disclosure applies not only to material facts known to Mr Nogotkov, but, as Ralph Gibson LJ said, “to any additional facts which he would have known if he had made such inquiries”. Mr Nogotkov anyway knew that the actions he was taking were highly charged politically. That was enough to make it incumbent upon him to tell the English court that political issues involving the Russian state might arise. He failed to do so.

I do not think I need to go into the detail that the parties have seen fit to do in arguing the case. My summary of the facts makes it abundantly clear that the English court ought to have been told that public policy issues might be engaged as a result of the political background I have described. In any event, Mr Nogotkov’s inquiries about the Russian criminal proceedings meant that he ought to have been aware of the UK Government’s responses to previous requests for assistance in relation to the same tax liabilities of DSL, the same Hermitage Parties and Mr Magnitsky. His failure to alert the court to the public policy issues and the political background was inexcusable, and was certainly not cured by his partial disclosure after the Hermitage Parties’ complaint of 9^th August 2016.

As for the suggestion that this court would have been likely to continue the Recognition Order, had Mr Nogotkov not sought its termination, I reject that contention. Mr Nogotkov may or may not be acting as an independent insolvency practitioner in accordance with his duties to the Russian court and the creditor of DSL, the FTSR. The fact that he has agreed to pay the Hermitage Parties’ indemnity costs out of the estate of DSL in order, at least in large measure, to protect his own professional reputation, suggests otherwise. I cannot say. But what I can say is that his status as an insolvency practitioner has no bearing on his breach of duty to the English court. Likewise, I do not think that the fact that there may be a prima facie case of asset stripping of DSL has any bearing on Mr Nogotkov’s duty to the court. The rules requiring full and frank disclosure are not abrogated by the strength of one party’s case. I cannot determine without cross-examination whether or not Mr Nogotkov’s breach of duty was, as Mr Bayfield submits, innocent or a genuine mistake. What I can say is that the circumstances I have described give me serious doubt about the mistake being a genuine one. The setting aside of the Recognition Order would have been an entirely appropriate reaction to Mr Nogotkov’s failure to inform the court of the highly political nature of the case that he intended to pursue against the Hermitage Parties, and of the UK public policy issues that it was likely to raise (of which he was or ought to have been aware).

In my judgment, Mr Nogotkov was in clear breach of his duty of full and frank disclosure when he applied for and was granted the Recognition Order.

I shall, for the reasons I have given, determine the FFD issue and make a declaration on the set aside application to the effect that Mr Nogotkov was in clear breach of his duty of full and frank disclosure when he applied for and was granted the Recognition Order. I will set aside the Recognition Order ab initio and dismiss the termination application made by Mr Nogotkov.

I invite the parties to agree a suitable order to reflect the terms of this judgment. If that order or the detailed costs orders that follow from it cannot be agreed, I would ask that skeleton arguments limited to 5 pages for each party be filed in advance of a short hearing to determine them.