Lyubov Andreevna Kireeva (As Trustee and Bankruptcy Manager of Georgy Ivanovich Bedzhamov) v Alina Zolotova & Anor

This is an application made by the Claimant, Ms Lyubov Kireeva, by Application Notice issued on 3 October 2023, to strike out certain paragraphs of the Defence of the First Defendant, Ms Alina Zolotova, to a claim commenced by Part 7 Claim Form issued on 11 November 2022 (“the Share Proceedings”) and/or for summary judgment in respect of the same paragraphs (“the Application”).

Ms Kireeva (“the Trustee”) acts in her capacity as the Russian Trustee and Bankruptcy Manager of Mr Georgy Bedzhamov, her appointment having been recognised at common law by order of Falk J (as she then was) made on 9 November 2022 (“the Recognition Order”) for the reasons set out in her judgment at [2022] EWHC 2676. Before me, the Trustee was represented by Mr William Willson and Ms Roseanna Darcy of Counsel; Ms Zolotova was represented by Mr Thomas Munby KC and Mr James Mitchell of Counsel.

The Second Defendant to the Share Proceedings is an English company called Basel Properties Ltd (“Basel”). It did not appear and was not represented before me; neither has it served a Defence in the Share Proceedings. Basel is the owner of a valuable Italian property called “Villa Nicolini” (at via Cappuccini 4, 6 and 10, San’ Agnello) and its single issued share (“the Share”) is registered in the name of Ms Zolotova, who is Mr Bedzhamov’s long term partner; the Share was transferred to her, or in any event into her name, on 1 April 2016.

In the Share Proceedings, the Trustee claims that at all material times before Mr Bedzhamov’s movable property (situated in England) vested in her automatically by virtue of the Recognition Order, Mr Bedzhamov was the ultimate beneficial owner of the Share, which was held for him by a series of nominees culminating in Ms Zolotova, who thus held the Share on bare trust for Mr Bedzhamov as at the moment of the bankruptcy order. Alternatively, but to the same end, Ms Kireeva claims that the transfer of the Share to Ms Zolotova in 2016 was a “sham and of no legal effect”, and again alternatively, that it was a transaction at an undervalue for the purposes of s. 423 of the Insolvency Act 1986 (“the IA 1986”) in respect of which the court should give appropriate relief.

The Trustee thus seeks, in summary: (1) a declaration that the Share is held on bare trust for her by Ms Zolotova; (2) an order that the Share be transferred to her by Ms Zolotova; and (3) albeit only “in so far as necessary”, a declaration that the transfer of the Share to Ms Zolotova in April 2016 was of no effect or should be set aside and/or that relief should be granted under s. 423 of the IA 1986 and/or rectification of Basel’s register of members.

The Share Proceedings are defended by Ms Zolotova; her Defence is dated 3 March 2023. Centrally, Ms Zolotova denies that she holds or has ever held the Share on trust for Mr Bedzhamov; her case is that, albeit through the medium of Basel, Villa Nicolini belongs to her, and has at all times belonged to her; her case in that regard and the issues that it raises, are not the subject of the Application.

However, in addition, in short summary, Ms Zolotova pleads the following points of defence, said to deprive the Trustee of standing and/or to be relevant to the court’s power to grant declaratory and other discretionary relief.

First, albeit without particulars, she denies (at paragraphs 2.1, 4.3, 4.5, 4.6 and 19.1) that Mr Bedzhamov’s movable property vested automatically in the Trustee, without further order, as a result of the Recognition Order (“the Movables Defence”); she therefore asserts that Ms Kireeva has “no interest” in Mr Bedzhamov’s assets.

Second, notwithstanding the Recognition Order, she avers (at paragraphs 2.2, 4.4 and 19.2) that the Trustee “should not continue to be recognised” as Mr Bedzhamov’s appointed trustee (and/or that she ought not to be afforded assistance by the English courts) because the petition debt (in other words, the debt by reference to which the Russian bankruptcy order was made) “has been or is being discharged”, and was “expected to be fully discharged by 9 February 2023 and may now have been discharged” (“the Recognition Defence”).

Third, she avers (at paragraphs 2.3 and 19.3-19.5) (“the Discretionary Bars”) that the “discretionary remedy of declaratory relief should not be granted” in this case both by reason of the Movables Defence and the Recognition Defence, but also because, in addition:

Those additional pleas and defences were the subject of the Application.

As a preliminary point, there was some dispute between the parties regarding the meaning and effect of the pleaded Defence and therefore as to the issues between the parties. At least potentially, the dispute was of some importance, because in her Reply dated 24 March 2023, amongst other things, Ms Kireeva pleaded at paragraph 11 that although declaratory relief would be “desirable”, it was “not necessary”, and that the “operative relief” was that sought at paragraphs 2 and 3 of the Prayer; in other words, it was pleaded that the Discretionary Bars were not relevant to the claims (the “operative” claims) for an order that the Share be transferred to her by Ms Zolotova, or for relief under s. 423 of the IA 1986, or for the rectification of Basel’s register of members, and that in consequence, I assume, there should be no (or perhaps less) objection to striking them out.

As to this, Mr Munby argued that contrary to the Reply, even as presently constituted, the Defence not only pleads the five matters as relevant to the court’s discretionary power to award declaratory relief, but also as matters relevant to its powers to award the other relief sought, all of which was also said to be discretionary. Insofar as necessary, by an Application issued on 22 January 2024, Ms Zolotova seeks permission to amend her Defence to add words at paragraphs 2.3 and 20 to “make clear” that she relies on each matter in respect of the whole of the claim (such that paragraph 2.3 would read “The discretionary remedy of declaratory relief and the other discretionary consequential relief should not be granted ….”, and paragraph 20 would read: “In the circumstances it is likewise denied that the Claimant is entitled to the consequential discretionary orders sought, or any relief”).

I do not agree that these amendments would not effect any alteration in the substance of Ms Zolotova’s case, for two reasons:

Furthermore, in his submissions, Mr Willson treated separately each of: (i) the Movables Defence, (ii) the Recognition Defence, (iii) the Sanctions Defence, (iv) the Maintenance and Champerty Defence, and (v) the Collateral Purpose Defence. Mr Munby treated the first two as both self-standing defences and as matters relevant to the exercise of the court’s discretion, and the other three as relevant only to the exercise of the court’s discretionary power to award declaratory (and other discretionary) relief. As a matter of pleading, as to this point, I agree with Mr Munby - the Defence explicitly raises both the Movables and the Recognition Defences as self-standing defences (by paragraphs 2.1, 2.2, 4.3, 4.4 and 4.6) but also (by paragraphs 2.3.1, 4.6.2 and 19) as matters relevant to the exercise of the court’s discretionary power to award declaratory relief; the other three matters are (by paragraphs 2.3 and 19) pleaded as relevant only to the exercise of the court’s discretion.

Accordingly, as presently pleaded, the Defence raises the Discretionary Bars in connection with the claim to declaratory relief, but not, subject to the amendment application, specifically in connection with the exercise of the court’s discretion in respect of the other claims. The (potential) consequence of these conclusions concerns the power and willingness of the court to strike out or give summary judgment before trial (and in this case, before disclosure and witness statements) in respect of matters said to affect an exercise of its discretion. One element of Mr Munby’s argument was that all of the matters raised are obviously relevant – or more importantly, could not at this stage safely be said not to be relevant – to the exercise of the court’s various discretionary powers, and that the whole claim was to discretionary relief.

Mr Bedzhamov was declared bankrupt, and Ms Kireeva was appointed as his trustee in bankruptcy, by the Arbitrazh Court in Moscow on 2 July 2018 on the petition of an unpaid creditor, VTB 24 Bank (“VTB”) based on his liability to VTB pursuant to a personal guarantee dated 23 October 2015 (“the Guarantee”) given in connection with a loan made by VTB to his sister, Ms Larisa Markus. Ms Markus is now serving a prison sentence in Russia in connection with a fraud on Vneshprombank LLP (“the Bank”) of which previously she was President. Although in the course of 2016, Mr Bedzhamov was charged in Russia in respect of the same fraud, he has, since 18 December 2015, when the Bank entered insolvency proceedings, lived outside Russia with Ms Zolotova, his long-term partner, and with their three children, first in Monaco, and subsequently, since 2017, in London; in consequence, the Russian criminal charges against him remain untried and unresolved. A Russian state corporation, the Deposit Insurance Agency (“the DIA”), acts as the Bank’s receiver and liquidator.

On 16 August 2016, in civil proceedings brought in Russia by the Bank against Mr Bedzhamov, judgment was entered in favour of the Bank by the Khamovniki District Court in the sum of Rubles 3,368,065,366 (“the Unjust Enrichment Judgment”). Notwithstanding various appeals and applications made by Mr Bedzhamov (contending that the Unjust Enrichment Judgment was obtained irregularly and in breach of natural justice, and was being maintained by fraud) that judgment remains outstanding.

In December 2018, the Bank commenced (initially anonymised) fresh proceedings against Mr Bedzhamov in England (“the Bank Proceedings”); on 27 March 2019, in connection with those proceedings a worldwide freezing order was made against Mr Bedzhamov by Arnold J (as he then was) on the Bank’s ex parte application in the sum of £1.34 billion (“the WFO”); that Order was subsequently continued on 10 April 2019, by Order of Fancourt J. In its pursuit of those proceedings, the Bank is funded by A1, as described in a judgment given by Falk J on 5 August 2020 (at [2020] EWHC 2114, [22]-[24]). It is accepted by the Trustee that in the Share Proceedings she too is funded by A1.

By an application dated 19 February 2021 (“the Recognition Application”) the Trustee sought recognition in England, at common law, both of the Russian bankruptcy order and of her appointment as trustee, and also ancillary orders “for the entrustment” of Mr Bedzhamov’s property and assets in the UK; the assets specifically identified in the Recognition Application were two properties in London together referred to as the “Belgrave Square Property”.

In the first instance, the Recognition Application was heard (on 14, 16 and 19 April 2021) and decided by Snowden J (as he then was); his judgment is at [2021] EWHC 2281; at [5] – [67] he set out the background in detail that I need not repeat, but some of which is briefly summarised above.

Also before Snowden J was the Trustee’s application (made on 16 March 2021) in substance to set aside an Order made by Falk J on 5 March 2021, on an application made by Mr Bedzhamov on 22 February 2021 (but previously notified to the Bank’s legal advisors on 6 January 2021) by which the WFO was varied to allow, in effect, the sale of the Belgrave Square Properties and the use of the sale proceeds to pay both Mr Bedzhamov’s living and other expenses, and also his legal fees incurred in defence of the Bank Proceedings.

Mr Bedzhamov contended, and the Trustee denied, that the Recognition Application was a “pincer movement” between the Bank and the Trustee, designed to deprive him of an asset otherwise available for use in funding his defence of the Bank’s claims (see [2021] EWHC 2281 at [74]). Moreover, as a result of a concession made by the Bank by letter sent by its English solicitors to Snowden J in the course of the hearing (that any sums received by the Bank from Mr Bedzhamov would, as a matter of Russian Law, be remitted to the Trustee for distribution in the bankruptcy) Snowden J said, at [101], that “What, therefore, now appears, is that the [Bank Proceedings] are being pursued, and the WFO is being maintained for the ultimate benefit of the Trustee over assets to which the Trustee claims to be entitled under Russian law. The [Bank Proceedings] do not appear to be being pursued for the benefit of the Bank to recover its claims in its own right.” He noted that although it “seems obvious” that this position must have been accepted by A1, there was no “indication as to the arrangements that (on this footing) must also have been entered into between A1 and the Trustee to regulate the provision of funding and the division of the proceeds of the [Bank Proceedings] between the Bank, A1 as funder, and the Trustee as intended recipient of the proceeds of the litigation.”

In summary, in connection with recognition, Snowden J held:

As to the consequences of recognition, as Snowden J said at [185], they were “very much the matter of dispute between the parties”. In that regard:

By Order of 25 August 2021, Snowden J therefore granted recognition, dismissed the application for assistance in relation to Mr Bedzhamov’s immovable assets, and provided, by paragraph 2, that “Insofar as any application is to be made by [the Trustee] in relation to the movable assets of Mr Bedzhamov located in England (“the Movables Application”), such application shall be made to Mrs Justice Falk”.

Both Mr Bedzhamov, in respect of the decision to recognise the Russian bankruptcy, and the Trustee, in respect of the decision declining assistance in respect of Mr Bedzhamov’s immovable property, appealed against the decision of Snowden J. The Court of Appeal’s decision is at [2022] EWCA Civ 35. Again in brief summary, it was held:

Accordingly, by the Court of Appeal’s Order of 21 January 2022, the Recognition Application was remitted to the High Court, where it was heard by Falk J. In short, following a trial which took place on 5-6 October 2022, the judge concluded that the Guarantee was not a forgery, or vitiated by fraud, and by Order of 9 November 2022, restored the recognition order; her judgment is at [2022] EWHC 2676. That order was not appealed, and the time in which to appeal or seek permission to appeal against it expired in December 2022.

The Trustee’s subsequent appeal against the Court of Appeal’s dismissal of her claim in respect of Mr Bedzhamov’s immovable property was heard by the Supreme Court on 21 and 22 November 2023, and judgment is awaited.

In the meantime, on 3 September 2021, as foreshadowed at paragraph 2 of the Order of 25 August 2021, the Trustee made an application against Mr Bedzhamov (“the Movables Application”) seeking, amongst other things, “a declaration confirming the automatic vesting of all of the Respondent’s movable property including all after acquired property … owned by the Respondent in this jurisdiction in order to take control of this for the benefit of all of the creditors of the Respondent”. Relief was specifically sought in respect of both “the Respondent’s contemporaneous movable property” and his “after-acquired movable property”.

By paragraph 10 of her Order of 9 November 2022, Falk J continued a stay of the Movables Application (ordered previously on 2 November 2021 and continued on 10 March 2022) pending the Trustee’s application for permission to appeal to the Supreme Court in respect of Mr Bedzhamov’s immovable property. The Movables Application continues to be stayed.

CPR r.3.4(2) provides:

There was no dispute about the relevant principles.

Paragraph 1.4 of Practice Direction 3A explains that a defence may fall within r.3.4(2)(a) where: (i) it consists of a bare denial or otherwise sets out no coherent statement of facts, or (ii) the facts it sets out, while coherent, would not amount in law to a defence to the claim even if true. The White Book provides further guidance, explaining at paragraph 3.4.1 that grounds (a) and (b) of r.3.4(2) “cover statements of case which are unreasonably vague, incoherent, vexatious, scurrilous or obviously ill-founded and other cases which do not amount to a legally recognisable claim or defence.”

Mr Munby referred to the summary of principles in Benyatov v Credit Suisse Securities (Europe) Ltd[2020] EWHC 85 (QB) at [57]-[60], amongst which he emphasised that:

CPR r.24.2 provides:

Again, there was no dispute regarding the principles, which although different are not wholly dissimilar to those that apply to a strike out application.

I was referred to the principles set out by Lewison J (as he then was) in Easyair Ltd v Opal Telecom Ltd[2009] EWHC 339 (Ch) at [15]:

In addition, of some significance in the present case, it is not normally appropriate by a summary procedure to decide a controversial question of law in a developing area, or to decide an action where the law is in a state of development; it is normally inappropriate to decide novel questions on hypothetical facts: see Benyatov at [52]. Similarly, that a case has ramifications beyond its own particular facts might provide a compelling reason for a trial: Benyatov at [56].

Against that background, I turn to the specific parts of the Defence in respect of which the Application is made.

In her Defence, at paragraphs 2.1, 4.3, 4.5, 4.6 and 19.1, Ms Zolotova:

Mr Willson submitted that these parts of the Defence should be struck out or summary judgment given, because:

For the following reasons, on balance, I reject this part of the Trustee’s application.

First, as was common ground, the question of the Trustee’s rights, if any, to any of Mr Bedzhamov’s movable property in England, was not before Snowden J. As he observed at [2021] EWHC 2281, [194], “… the dispute did not, however, concern movable property”. He therefore did not determine the effect of recognition on Mr Bedzhamov’s movable property.

Second, the Movables Application, subsequently issued on 3 September 2021 (pursuant to paragraph 2 of Snowden J’s Order of 25 August 2021) sought “a declaration confirming the automatic vesting of all of the Respondent’s movable property including all after-acquired property … owned by the Respondent in this jurisdiction in order to take control of this for the benefit of all of the creditors of the Respondent”. Although the Movables Application may have been issued with after-acquired property in mind, relief was nonetheless specifically sought in respect of both “the Respondent’s contemporaneous movable property” and separately, his “after-acquired movable property”. By paragraph 10 of her Order of 9 November 2022, Falk J continued the previous stay of the Movables Application, which continues to be stayed.

Third, the general rule, whilst indisputable (and not disputed by Mr Munby) is subject to various exceptions, including that it applies only if the foreign law of the bankruptcy provides for the bankruptcy to have extra-territorial effect. However, in the present case, in this respect, the Trustee has advanced no evidence of Russian law; I therefore cannot find that Russian law has the necessary effect; that is for the Trustee to establish at trial.

It follows that regardless of the undisputed content of the general rule (and indeed, regardless of the scope of the Movables Application) the effect of recognition on Mr Bedzhamov’s English movable property has not been determined by the English court (whether as against Mr Bedzhamov or otherwise) and there is no evidence on the basis of which I can now determine it; regardless of whether it comprised the real purpose of the (unresolved) Movables Application, it was certainly raised by it as an issue for determination.

In the circumstances, on balance, whilst I acknowledge that there was at the time of the hearing before Snowden J, no obvious dispute between Mr Bedzhamov and the Trustee regarding the effect of recognition on movable property, and also that Ms Zolotova’s pleading in this respect is no more than a simple denial, in my judgment Ms Zolotova is entitled to deny that the general rule has the effect contended for by the Trustee, and to make her prove her case.

As explained above, Ms Zolotova also denies the Trustee’s claims on grounds that she “should not continue to be recognised” and/or “should not be provided assistance” by the English court because the bankruptcy debt (in other words, the debt owed to VTB, on the basis of which Mr Bedzhamov was declared bankrupt in Russia) has been or is being discharged, and that therefore, the Trustee has no “proper standing”.

I agree that this part of the Defence should be struck out.

First, as I have explained, by virtue of the Recognition Order, the Russian bankruptcy has been recognised by the English court, as has the Trustee’s appointment. The time for any appeal of that Order has expired (although I note that Mr Kakkad (Ms Zolotova’s solicitor) said, at paragraph 28 of his 2^nd witness statement, that his “understanding” was that Mr Bedzhamov’s arguments based on the discharge of the VTB debt had not been “abandoned” but simply not pursued pending the outcome of the Trustee’s appeal to the Supreme Court). That Order is effective, extant and unchallenged. Until such time as it is set aside or varied, I do not accept that the Trustee’s standing or recognition is capable of being challenged, certainly not by means of a collateral attack, mounted by his partner, Ms Zolotova, in the present proceedings. A challenge would have to be made directly, against and in respect of the Recognition Order itself.

Second, Ms Zolotova’s pleaded case is advanced narrowly on the basis that the bankruptcy petition debt has been discharged; no reference is made to any other debts or creditors, or any bankruptcy expenses and costs. However, even if true that the VTB debt has been discharged (a point which I deal with below, at paragraphs 56-58) that fact alone does not obviously require the conclusion that the Russian bankruptcy would be terminated, or that the Trustee ought no longer to be recognised as such in England.

In that regard, it was not disputed that the Russian proceedings are (in common with English bankruptcy proceedings) a form of collective insolvency proceedings. As a matter of principle (and certainly this would be the position in England) one would not expect satisfaction of a single debt owed to one member of a bankrupt’s creditor class (after the commencement of the bankruptcy) to provide, of itself, any reason or grounds upon which to end the bankruptcy. That the position in Russia is the same was not positively disputed.

In addition, exhibited to Mr Elliott’s 4^th witness statement was a letter of advice dated 16 December 2023 (headed “Expert Report”) from Ms Varvara Knutova, a Russian attorney, which stated that as a matter of Russian law, the discharge of the founding bankruptcy debt does not undermine the bankruptcy order or terminate the bankruptcy (although I note that her advice, and therefore its context, was that the debt had not been extinguished as such, but in effect assigned). As to that however, I agree with Mr Munby that little weight should be attached, given that it does not comply with Part 35 of the CPR, and that no permission for it was sought or given.

Third, furthermore, the Trustee’s evidence was that there are other bankruptcy debts, in addition to that originally owed to VTB, in particular (as set out in an “Information Letter” from the Trustee exhibited to Mr Elliott’s 4^th statement) owed: (i) to the Bank, (ii) to Steklostandart Trade House LLC in the amount of 2,532,236,885.06 Rubles, and (iii) to United Production Company LLC, in the amount of 70,179,811.59 Rubles. Plainly, the Bank’s claim is keenly disputed, but the Trustee’s position is that she is not aware of any disputes in connection with the two other claims. Moreover, paragraph 17 of the Statement of Agreed Facts and Issues produced for the Supreme Court in respect of the appeal in the Recognition Application records that a debt to TD Steklostandart LLC in the sum of 3,871,173,100.23 Rubles was accepted into the register of creditors by the Arbitrazh Court (although it does not record any agreement – or for that matter, active disagreement - as to the appropriateness or otherwise of that acceptance). It is correct, as Mr Munby pointed out, that no details of these additional debts have been provided.

Fourth, the Trustee’s evidence was that in any event, the VTB debt has not as such been discharged. The true position, as explained in Mr Elliott’s evidence, was said to be that:

Mr Munby submitted:

Notwithstanding these submissions, and notwithstanding some infelicities in the first translations (improved and certified versions of which were in any event exhibited to Mr Elliott’s 7^th witness statement dated 23 January 2024) it is in my view sufficiently evidenced that in Russia, Mr Bedzhamov’s register of creditors has been amended to record the replacement of VTB by the Bank, and to include the debt owed to TD Steklostandart; in both cases, the change has been accepted by a Russian court. There is no evidential basis upon which to conclude that those changes were improper or inappropriate; Mr Bedzhamov himself has not raised any complaint in respect of the TD Steklostandart claim.

In addition, Mr Munby submitted:

I do not accept those submissions for three reasons.

First, the correct question is not whether the Recognition Order can be supported (or would now be remade) on precisely the grounds on which it was originally made, but whether there now exist grounds upon which to discharge it. I do not therefore accept that if the court were to reconsider recognition it would necessarily, as is suggested, have to consider the validity of the Bank’s claim. It would be necessary to consider any other claims and liabilities, including costs and expenses.

Second, Falk LJ’s comments were made at a time when only 2 debts/claims had been referred to, of which one was disputed, and the one which was undisputed (as a result of her judgment, and upon which she had recently made the Recognition Order) had apparently been discharged in circumstances not brought to her attention; it is not difficult to understand the court’s concern in those circumstances. However, Falk LJ was considering matters arising in the Recognition Application itself (which I am not, and as I have said, the Share Proceedings do not provide the appropriate forum in which to decide matters of recognition) and in any event, I am satisfied that the petition debt and/or rights arising out of it, have been assigned to the Bank which is now in that regard entered onto the register of Mr Bedzhamov’s creditors by virtue of the Moscow Arbitrazh Court’s decision on 15 May 2023.

Third, in any event, although there is no need to base my conclusion on this point (and the point was not greatly developed) I do not accept that in the Share Proceedings, certainly to the extent of the claim to a declaration and consequent share transfer, the court is concerned with the question whether to provide “assistance” to a recognised foreign trustee. If the Trustee is correct in respect of the applicability in this case of the general rule about movable property (and assuming she is also correct that the Share belonged beneficially to Mr Bedzhamov) then the relief which she seeks is to vindicate her subsisting, vested right to certain property rather than the assistance of the court in respect of her duties or powers as Mr Bedzhamov’s trustee (as for example, an application to examine a person with relevant information, or to seek documents relevant to the insolvency).

Accordingly:

That conclusion means that it is not strictly necessary to consider one further argument raised on the Trustee’s behalf, that even if the Recognition Order were to be set aside, she would nonetheless have standing to apply under s. 423 of the IA 1986, as a “victim” of the relevant transaction. Nonetheless, I would reject that argument. The Trustee is only a “victim” if and to the extent that she acts as Mr Bedzhamov’s trustee. Absent recognition, in this country, she would not be clothed with that authority or act in that character; she could not claim to represent Mr Bedzhamov or his creditors; she would be a person unconnected with his affairs in the eyes of the English court.

The court’s power to grant declaratory relief is discretionary: Rolls- Royce plc v Unite the Union[2010] 1 WLR 318 at [119]-[218] per Aikens LJ.

Whilst not a form of equitable relief (see Chapman v Michaelson[1909] 1 Ch 238 at 242, per Sir Herbert Cozens-Hardy) and whilst the jurisdiction is now derived from statute (s. 19 of the Senior Courts Act 1981) declarations “have throughout their history had a close affinity with equitable remedies which has left its mark upon them. This is especially evident in the discretionary nature of the declaration. This discretion is employed, as it was originally employed with regard to all equitable remedies, primarily to do justice in the particular case before the court. It is wide enough to allow the court to take into account most objections and defences available in equitable proceedings” (Zamir and Woolf, The Declaratory Judgment, paragraph 4-32).

To similar effect, Snell’s Equity 34^th Edition at 14-008, explains, “The remedy has always been discretionary ( Russian Commercial and Industrial Bank v British Bank for Foreign Trade Ltd [1921] 2 AC 438) and it is perhaps this, coupled with the fact that statute originally gave the extended jurisdiction to the Court of Chancery, which has led some to assert that declarations are a form of equitable relief ( Barnard v National Dock Labour Board [1953] 2 QB 18 CA at 31). However, the Court of Appeal has held that they are not ( Chapman , above); they are “neither law nor equity” ( Gray v Spyer [1921] 2 Ch 5549 at 557) but primarily statutory ….”

As such, in exercising its discretion, the court may consider a wide range of factors: “When considering the exercise of the discretion, in broad terms, the court should take into account justice to the claimant, justice to the defendant, whether the declaration would serve a useful purpose and whether there are other special reasons why or why not the court should grant the declaration”: per Marcus Smith J at [21], Bank of New York Mellon v Essar Steel India Ltd [2018] EWHC 3177.

In particular, Mr Munby submitted that the legality of a claimant’s purpose in seeking declaratory relief is or may be a relevant consideration, as more broadly are matters of “public policy”. As examples, amongst others, he referred to the following cases (in addition to Zamir and Woolf (above) at 4-110 to 4-120).

In Mellstrom v Garner[1970] 1 WLR 603, the court refused to grant a declaration that the claimant was entitled, according to the terms of a written agreement, to act in a manner (canvassing certain former clients) contrary to rules of the Institute of Chartered Accountants, essentially because of its inutility: “The plaintiff says — and, of course, we accept — that he has no intention at all of canvassing anyone. If he has no intention of canvassing anyone, what can be the purpose of this originating summons? If he does not canvass, it does not matter very much whether or not the clause prohibits him from doing so. He says, however, that if he did canvass (which he does not intend to do), or if the defendants falsely accused him of canvassing (which they say they do not intend to do), he would be protected by the declaration which he seeks. A more academic question I find it difficult to imagine. It is certainly not the sort of question about which the court ought, in its discretion, to make any declaration” per Salmon LJ at 606C-D. But in addition to its inutility, Harman LJ, at 605E-F also referred to the claimant’s purpose, and to the court’s proper function: “The plaintiff wanted a declaration that he was entitled to canvass customers of the firm, with certain exceptions. That would have been a gross breach of professional etiquette on his part and I do not think in any event the court would give him a declaration that he was entitled to do something which is notoriously against the rules of the Institute of Chartered Accountants. That is not the sort of thing that the court will do . The result would only be either that he would be committing that breach and would be struck off, or he would not be committing it, in which case there would be no need for the declaration.” (emphasis added). In other words, the court would not or would be reluctant to declare that a person was at least contractually entitled to do an act which he knew to be against the rules of his professional body; that would not be a proper use of the court’s powers. Although not expressly framed in these terms by Harman LJ, an application made for that purpose might be characterised as an abuse of process.

To somewhat similar effect, in Marshall v Electric Co Ltd[1945] 1 All ER 653, a case concerning the alleged right of the respondents to suspend the appellant from work for acts of indiscipline or carelessness, du Parcq LJ said at 659 (albeit in a dissenting judgment): “Such acts [of indiscipline or carelessness] are clearly breaches of contract and as such are wrongful and illegal acts, the gravity of which is increased by the fact that the country is at war. In effect, therefore, the applicant is asking the court to inform him how he would stand if he should do an unlawful act. If he intends to act lawfully, the question is merely academic. If he had it in mind to act illegally and wrongfully, it is no doubt convenient for him to know how severe the penalty is likely to be, or how easily he is likely to escape, but it seems strange that a court of law should be asked to expend time and trouble on providing him with this information. I think it right to express the doubt which I feel whether it would have been desirable or proper to grant a declaratory judgment in the present case.” Again, in addition to simple utility (whether or not the question was purely academic) and perhaps to be understood as an aspect of it, the principal source of disquiet expressed in this passage appears to have been the propriety of the use to which the court was being put by the claimant, asking the court to tell him whether certain consequences would follow were he to act in an admittedly unlawful fashion (rather than, for example, asking whether a certain course would or would not be unlawful, or even criminal). Again, the objection might be characterised in terms of an abuse or misuse of the court’s process. Essentially, the application must be made for a good purpose, but also for a proper purpose.

Unsurprisingly, the circumstances and features of cases in which declaratory relief has been refused on grounds of public policy vary widely, but might allow for the court to consider (as a matter of overall “justice”) the wider consequences of granting relief, as well as the circumstances of the particular litigants. For example:

The Trustee’s case was that, as a matter of law and principle, the points raised by Ms Zolotova are irrelevant to the exercise of the court’s discretion to grant the declaratory relief sought, and indeed, that they are a “brazen attempt to broaden the court’s discretionary exercise beyond the remit of the Rolls-Royce Principles in circumstances where it is otherwise impossible to establish that the declaratory relief sought by the Trustee would not satisfy the relevant criteria.” I will therefore return to the scope of the court’s discretion below, in the context of the specific matters relied upon by Ms Zolotova, but in summary:

I accept that each of the other claims made by the Trustee – to relief under s.423 of the IA 1986, to a transfer of title to the Share if held on trust, and to rectification of the Basel’s register of members under s. 125 of the Companies Act 2006 - is at least to some extent discretionary. However, the extent of the discretion in each case is clearly not the same and is very unlikely to be the same as that which arises in the context of declarations; the source and purpose of each power is different. Very little was said in argument to describe those differences, which I will therefore not attempt to explain. Moreover, little was said to justify in each case the possible relevance of the Discretionary Bars. My conclusions have therefore been reached without reliance on the existence of a discretion in connection with the relief sought other than the declarations.

Ms Zolotova pleads that the discretionary remedy of a declaration should not be granted because “the Trustee’s funder is or appears to be controlled by sanctioned individuals” (paragraph 2.3.3); that it “is to be inferred that A1 seeks a share of the proceeds of the present claims”; and that if “the relief sought is granted, it would inevitably lead to a claim by A1 which could not lawfully be satisfied. In the circumstances, the relief serves no useful purpose and/or should be refused as a matter of public policy”.

In respect of the question whether A1 (as the funder of both the Trustee and the Bank) is subject to sanctions under the Regulations, and if so (which is denied by A1) what are the consequences of that conclusion, on 27 October 2023, Mr Bedzhamov issued an application in both the Recognition and the Bank Proceedings, which was recently heard in the Business List (“the Sanctions Application”) over the course of 3 days (although at the time of hearing this Application, the Sanctions Application had not yet been heard).

Nonetheless, in the present proceedings, the Trustee seeks to strike out this part of Ms Zolotova’s Defence on the basis that it is legally misconceived (and unaffected by the Sanctions Application) because, by reference to the decision of the Court of Appeal in Mints v PJSC National Bank Trust [2023] EWCA 1132, even if A1 is controlled by sanctioned persons, the court would not be prevented from entering judgment in favour of the Trustee, or from giving the relief sought, and that the matter is not, even potentially, a discretionary bar.

For present purposes, and whilst acknowledging that the Trustee and A1 both deny that A1 is under the control of designated persons (a matter before the High Court on the Sanctions Application), I shall proceed on the basis that it is and/or that there is reasonable cause to suspect that it is (and it was not suggested by Mr Willson that I should or could realistically do otherwise on a summary basis).

In any event, I was referred to Mr Bedzhamov’s evidence in support of the Sanctions Application (contained in the 46^th witness statement of his solicitor, Mr Martin Shobbrook of Greenberg Traurig LLP made on 27 October 2023) that the original owners/controllers of A1 (Messrs Mikhail Fridman, German Khan, Alexey Kuzmichev and Peter Aven – “the Sanctioned Individuals”) are all designated persons, and that a management buy-out by a Mr Fayn (for a nominal consideration, of about £714) said to have taken place in March 2022, a week after they were sanctioned, was a sham, and that the sanctioned individuals in fact continue to own/control A1. For present purposes, that evidence, and Mr Bedzhamov’s case in that regard, is at least credible.

In addition, I was referred to the judgment of Falk LJ in Kireeva v Bedzhamov [2023] EWHC 348 at [35]-[36], in which she said:

Moreover, on 14 September 2023, A1 was sanctioned in the US. The related press release issued by the US Treasury stated that: “A1 and Investment Company A1 are investment businesses of Alfa Group, a Russia based entity connected to U.S.-designated individuals Petr Olegovich Aven, Mikhail Maratovich Fridman, German Borosovich Khan, and Alexey Viktorovich Kuzmichev. A1 and Investment Company A1 were designated pursuant to E.O. 14024 for operating or having operated in the financial services sector of the Russian Federation economy.” Having said that, I acknowledge that the Trustee’s evidence is that this was as a result of “the area of business it operates in; not because of any alleged connections to sanctioned individuals”.

In the circumstances, it is alleged by Mr Bedzhamov in the Sanction Application (and by Ms Zolotova in the present proceedings) that A1 is a person “owned or controlled directly or indirectly” (within the meaning of Regulation 7 of the Sanctions Regulations) by designated persons (in other words, the Sanctioned Individuals) and is therefore subject to Regulations 11, 12 and 14 (by virtue of the provisions at 11(7), 12(4) and 14(4)).

Those Regulations provide, in relevant part:

In each case, a person who contravenes the prohibition commits an offence.

Furthermore, by virtue of s. 60(1)(c) of the Sanctions and Anti-Money Laundering Act 2018 (“SAMLA”), “funds” (defined to mean financial assets and benefits of every kind) includes “publicly and privately traded securities and debt instruments, including stocks and shares, certificates representing securities, bonds, notes, warrants, debentures and derivative products”. The Share falls within this broad definition and is therefore potentially subject to the effects of Regulations 11, 12 and 14.

In the present case, for Ms Zolotova, it was submitted:

It was said that in the circumstances, if the court came to exercise its discretion in respect of relief, it would be highly relevant to consider the effect of the Sanctions Regulation, and of the allegation that A1 is (or there is reasonable cause to suspect that it is) owned or controlled directly or indirectly by designated persons.

Mr Willson submitted that this argument was misconceived. As stated, he relied on the decision of the Court of Appeal in Mints. That case concerned Commercial Court litigation in which the claimant banks claimed damages of some $850m, on the basis that the defendants had conspired with representatives of the claimant banks to enter into uncommercial transactions with companies connected with the defendants by which loans were replaced with worthless or near worthless bonds. The claimants were both subject to the Sanctions Regulations, and one of the issues before the court was whether or not a judgment could be lawfully entered for a designated person by the English court following a trial at which it had been established that the designated person has a valid cause of action. In respect of that issue, the court held in favour of the claimants.

In summary, the court’s reasoning was as follows.

Finally, Mr Willson drew my attention to paragraph [212] of the judgment, in which it was said:

Mr Willson argued that these principles apply equally in the present case, and that there is no principled reason to hold that whereas a designated person can proceed to judgment, a person funded by a designated person cannot.

Since the hearing of the Application (but before this judgment was handed down) I was told that the Supreme Court has given permission to appeal against the decision of the Court of Appeal in Mints.

For the following reasons, I do not accept that it would be appropriate to strike out or give summary judgment in respect of this part of Ms Zolotova’s Defence.

I have referred in my reasons to Regulation 12 in particular. I am not immediately persuaded that Mr Munby’s further submissions (regarding the possibility of future breaches, by the Trustee, of Regulations 11 and 14, or of Regulation 19) are material in the context of the relief sought against Ms Zolotova. It might be argued that:

However, having said that, given my decision not to accede to the application in this respect, I need not express a final view on those arguments. Relatedly, I accept that the Defence in respect of the Sanctions Regulation is not precisely framed by reference to specific prohibitions and their application. However, it is I think sufficiently broad to encompass the arguments raised on this application.

In all the circumstances, it is simply not appropriate, in my view, to make the order sought on an interim summary basis, shortly before trial, without reference to all the facts, and shortly before, in related proceedings, there is to be a determination of the issue of A1’s status as the Trustee’s funder in connection with the Sanctions Regulation. I am able to reach that conclusion without having to allow Ms Zolotova to amend her Defence in terms explained above at paragraph 13, and without needing to consider the relevance of the Sanctions Plea to other discretionary remedies.

Ms Zolotova’s pleaded case (at paragraph 2.3.2 and 19.4) is that declaratory relief should be denied (alternatively the proceedings should be stayed generally) because the claim is being conducted under funding arrangements with A1 which “savour of maintenance and champerty” and which are thus contrary to English public policy. More specifically she states that although (pending disclosure) she does not know the specific nature and terms of the funding arrangements between the Trustee and A1:

In respect of the relevant principles of law, there was a substantial degree of common ground.

Maintenance and champerty are related but separate doctrines; champerty is a variety of maintenance. Essentially, as explained in “The Modern Doctrines of Champerty & Maintenance” by Rachael Mulheron (1^st Edition, 2023), at pp.3-4:

In In re Trepca Mines Ltd (No.2)[1963] Ch 199, 219-220, Lord Denning MR observed:

Whether conduct amounts to maintenance or champerty is a question of public policy: see for example, R (Factortame Ltd) v Transport Secretary (No.8)[2003] QB 381 at [31]-[32], and for that reason, “the law must be kept under review as public policy changes. As Danckwerts LJ observed in Hill v Archbold [1968] 1 QB 686, 697: “the law of maintenance depends upon the question of public policy, and public policy … is not a fixed and immutable matter. It is a conception which, if it has any sense at all, must be alterable by the passage of time.”

Thus, for example, in more recent times, reflecting public policy developments:

Two consequences follow from the basic principles. As was explained in R (Factortame Ltd) at [36]: “Where the law expressly restricts the circumstances in which agreements in support of litigation are lawful, this provides a powerful indication of the limits of public policy in analogous situations. Where this is not the case, then we believe one must today look at the facts of the particular case and consider whether those facts suggest that the agreement in question might tempt the allegedly champertous maintainer for his personal gain to inflame the damages, to suppress evidence, to suborn witnesses or otherwise to undermine the ends of justice”. Thus, in any one case, the agreement must be examined to see whether it tends to conflict with existing public policy insofar as directed at the protection of the administration of justice with particular regard to the interests of the defendant.

Although a champertous funding arrangement is unenforceable as between the parties to the agreement, (see for example, McFarlane v EE Caledonia Ltd (No.2)[1995] 1 WLR 366, and Dal-Sterling Group v WSP South & West [2001] 7 WLUK 436 TCC at [20]) the fact of established maintenance or champerty does not in itself provide a freestanding defence to the substantive claim (and that was the case even before the Criminal Law Act 1967, which abolished both the crimes and torts of maintenance and champerty). This was a point of particular importance to the Trustee’s Application in this respect.

Thus, for example, in Martell v Consett Iron Co Ltd[1955] Ch 363, Jenkins LJ said, at 421:

Similarly, in Stocznia Gdanska SA v Latreefers Inc (No 2)[2001] 2 BCLC 116, Morritt LJ stated at [59]:

Nonetheless, and notwithstanding the words of Jenkins LJ referred to above, it is in principle possible, albeit perhaps exceptionally, to justify a stay of the action if, in the circumstances of the case, it amounts to an abuse of court’s process. For example, in Grovewood Holdings plc v James Capel & Co[1995] Ch 80, Lightman J stayed an action being champertously funded by a liquidator, on the basis that the court could do so where the arrangement constituted a continuing abuse of process which the court, as well as the defendants, had an interest in bringing to an end.

The greater difficultly (than whether a stay is available in principle) is to identify the circumstances and point at which a champertous agreement causes the proceedings to become abusive.

In Stocznia Gdanska SA, at [55]-[58], Morritt LJ said (referring to judgments given in the Court of Appeal in Faryab v Smyth [1998] 8 WLUK 226) as follows:

This passage was relied upon in Meadowside Developments Ltd v 12-18 Hill St Management Company Ltd [2019] EWHC 2651, in which Adam Constable QC, sitting as a Deputy High Court Judge, decided that in the circumstances of that case, there was not sufficient evidence to decide (“largely if not wholly as a consequence of the refusal to disclose the terms of the funding agreement” – see [126]) whether an arrangement between the claimant (Meadowside, a company in insolvent liquidation) and a company called Pythagoras Ltd (which had been appointed, apparently, to “act as [the Liquidator’s] agents and take all steps to ascertain and recover amounts due to [Meadowside]”) was champertous, and if so, whether it was such as would justify a stay of the proceedings (see [122]-[123]).

In the circumstances, he refused (as a matter of the court’s discretion – see [42]) to give summary judgment to enforce an adjudicator’s decision under a construction contract as an exception to the ordinary position (as established by the decision of the Court of Appeal in Michael J Lonsdale (Electrical) Ltd v Bresco Electrical Services Ltd [2018] EWHC 2043 (“Bresco”)) which was that a company in liquidation, facing a cross-claim, cannot pursue an adjudication and enforce the decision.

At [53], in relation to Bresco, the Deputy Judge said that its “fundamental thrust” was that “(1) A decision will not be enforced because, where there is a cross-claim, it would deprive the responding party of its security and bring finality by default to a temporary decision. This is fundamentally incompatible with the effect of rule 14.25 [a reference to the Insolvency Rules] which gives the responding party the right to security for its cross-claim and that right should not be removed. (2) If the decision arising out of the adjudication will not be enforced, the adjudication is an “exercise in futility”. It is then the fact of futility upon enforcement that colours the wider considerations.”

However, he proceeded to consider the possibility of an exception to the ordinary position, in terms which he summarised at [87], and which for present purposes, it suffices to say included that “any agreement to provide funding or security which permits the company in liquidation to avoid the ordinary consequences of Bresco [2019] Bus LR 3051 cannot amount to an abuse of process.”

Against that background, the judge decided first, that the agreement was champertous (see [109]-[115], essentially because it was caught by but not compliant with the Damages-Based Agreements Regulations 2013 (SI 2013/609) and thus was necessarily contrary to public policy), and second, that in the circumstances, he was simply unable to decide the question of abuse. At [126]-127], he concluded:

In reaching that conclusion he referred specifically to the “sort of features” set out in the judgment of Simon Brown LJ in Faryab v. Smyth which is set out above at paragraph 110, but which he could not determine without further evidence.

In summary of the legal principles:

In the present case, the Trustee’s argument was that Ms Zolotova’s case in respect of maintenance and champerty should be struck out, or summary judgment given:

Having set out the legal principles above, I can deal shortly with the Trustee’s second point. In my judgment, it is misconceived, not in itself, but because it fails to engage with the discrete possibility that in certain circumstances, difficult in principle to define and impossible in fact to identify without examining the agreement itself, a champertous agreement may cause the supported proceedings to become an abuse of process. If proceedings are abusive, then as a matter of ordinary principle, the court has a wide discretion to grant relief, including the power, albeit not usually used, to strike out the proceedings altogether, as well as other less draconian powers, such as to order a stay. If the Share Proceedings were to be rendered abusive, that fact would or may be material to the exercise of the court’s discretion to grant declaratory relief. In any event, possibly, it would comprise a means of defence. Certainly, I would be unwilling on a summary application to hold otherwise.

Essentially, that short explanation defeats this part of the Application. However, in any event, neither do I accept the Trustee’s first point, in respect of the facts.

Ms Zolotova’s case was:

It is not for the court to conduct a mini-trial. As to the factual allegations, by reference to the comments made by the court in other proceedings (and whilst I accept that they were proceedings to which neither the Trustee nor Ms Zolotova was a party) I agree with Mr Munby’s submission that there is at least some reason to think that in respect of the Bank Proceedings, A1 appears to exercise a high degree of control over the Bank’s conduct, and that the arrangements between the Bank and A1 are champertous; moreover, in the circumstances, it is certainly not impossible, and would not be wholly surprising, were the same to be true in respect of the arrangements between the Trustee and A1 in respect of the Share Proceedings; manifestly, the parties and the proceedings are closely related by arrangements that have not been openly revealed - for example, there is (at least) some suspicion that the conduct of the Bank and the Trustee was co-ordinated in respect of the Recognition Application, and one possible explanation is that both are acting under the control of their common funder, pursuant to the same or similar arrangements.

In the circumstances, I cannot conclude that there is nothing in the allegation that the arrangements are champertous, and I cannot conclude that if they are, they are not such as to render the proceedings abusive. The court on this application is in much the same position as was the court in Meadowside: without any evidence of the terms of the arrangements (as a result of a decision taken by the Trustee, the supported party) and given at least some reason to think that they are champertous, it is simply not possible to conclude that there is neither champerty nor - more to the point - abuse.

Finally is the allegation of collateral purpose. That allegation was separately pleaded at paragraph 19.5 of the Defence in the following terms: that A1’s “objective in funding the Claimant and orchestrating the Claimant’s claims in this jurisdiction” is (or should be inferred to be) to deny Mr Bedzhamov “access to assets which [he] could otherwise have used to meet legal expenses”; that objective was said to be abusive and contrary to public policy.

In this respect, particular reliance was placed by Mr Munby on comments made by Falk J in [2022] EWHC 1166 at [70], that the Trustee’s belated intervention in this jurisdiction (funded by A1) was “with a view to denying access to assets that Mr Bedzhamov (and through him his legal advisers) might otherwise reasonably have expected to have available for reasonable legal and living expenses under the WFO. I can see no other rational explanation.” This was said to be a particularly important finding, because it showed a collateral purpose to the recognition proceedings “which taints those proceedings; and the proceedings against [Ms Zolotova] are just its latest manifestation”.

I agree with Mr Willson that this part of the Defence should be struck out, for the following reasons.

First, I have held above that the Recognition Defence should be struck out: the Trustee’s appointment has been recognised by an order that is valid and subsisting, as has the Russian bankruptcy, which cannot be challenged in these proceedings; as a matter of fact, Mr Bedzhamov’s register of creditors continues to include unpaid debts. If anything, the comments made by Falk J referred to at paragraph 125 above (in a judgment dated 20 May 2022) were directed at the Recognition Application, which nonetheless ultimately succeeded (the Recognition Order being made on 9 November 2022). The Recognition Order having been made and not subsequently challenged, it is difficult to accept that the Trustee is unable as such to act or exercise her consequent rights in respect of Mr Bedzhamov’s property.

The Trustee’s evidence was that the Share Proceedings are being pursued to collect assets in the continuing bankruptcy; that would, undoubtedly, be a proper purpose. It was common ground that where a claimant has two purposes, the dominant of which is illegitimate, there will be no abuse of process: JSC BTA Bank v Ablyazov [2011] EWHC 1136 at [22] and [54].

In any event, Mr Bedzhamov does not claim any interest in the Share of which to be deprived – on the contrary, as matters stand, Ms Zolotova’s defence is that it belongs to her. The comments made by Falk J were made in the context of the Trustee’s claim to the Belgrave Square Property, undoubtedly owned by Mr Bedzhamov, and in the context of the WFO and of Mr Bedzhamov’s wish to liberate his property to some extent from its effect; the present context is quite different. The Share Proceedings cannot be said by Ms Zolotova to comprise a claim made in order to deprive Mr Bedzhamov of property, which at the same time she asserts to be her own.

In the circumstances, this part of the Defence has no real prospect of success.

In summary therefore, for the reasons explained above, the Trustee’s Application succeeds in respect of the Recognition Defence and the Collateral Purpose Plea, but fails in respect of the Movables Defence, the Sanctions Plea and the Maintenance and Champerty Plea.