ABC & Ors v CDE & Ors

This is an application by the First Claimant for an order that the First Defendant has acted in contempt of this court and that he be committed to prison for that contempt. The parties are anonymous pursuant to an order of Mr. Justice Cranston dated 29 September 2008. However, I ordered that this application be heard in public pursuant to RSC Ord.52.r.6. I shall simply refer to the Claimant and to the Defendant.

On 29 September 2008 Mr. Justice Cranston made a Freezing Order against the Defendant on the application of the Claimant. On 9 October 2008 Mr. Justice King continued that order. The order provided as follows, so far as material:

The order contained a Penal Notice in the following terms:

The Defendant attended the hearing before Mr. Justice King and was represented by counsel.

By an application notice dated 29 February 2009 the Claimant alleged that the Defendant had acted in contempt of court by breaching paragraphs 5(2) and 5B of the Order by entering into two settlement agreements dated 2 December 2008 and 20 January 2009 with Mr. Artis Hartmanis to transfer his ownership rights to the property in Riga in return for settlement of a loan made by Mr. Hartmanis to the Defendant on 29 August 2008.

A hearing of that application took place on 7 and 8 April 2009. I prepared a draft judgment which was provided to the parties and was to be handed down on 1 May 2009. On that date an application was made by the Defendant that the giving of judgment be adjourned to enable him to obtain from Latvia documents which were highly relevant to the contempt application but which he had chosen not to obtain before. The particular documents he wished to obtain were those on the Court file in Latvia including the two settlement agreements which the Claimant alleged he had signed and which he said he had not signed. It was said that he had gone to Latvia after the hearing for the purpose of getting the court file but that he had been assaulted in Riga and as a result had had to spend the time in his hotel room. A medical report consistent with this account was produced. Since a contempt allegation, if proved, may lead to the imprisonment of the contemnor I decided to grant the application, albeit reluctantly having regard to the lateness of the application which had plainly been prompted by sight of my draft judgment. The Defendant flew to Riga on 2 May. He obtained a copy of the court file.

In his Fifth Affidavit sworn on 8 May 2009 he said that he also obtained “the original of the loan agreement dated 29 August 2008 between myself and Mr. Hartmanis.” However, in his Seventh Affidavit sworn on 16 July 2009 he said that his solicitors had examined the document closely and considered it to be a copy. They had asked the Defendant’s Latvian lawyers for the original but the latter replied that they did not have it.

The settlement agreements and other documents on the Court file were inspected by a forensic expert who concluded that the signatures purporting to be those of the Defendant were not his. That conclusion has not been challenged and so it is now common ground that the settlements agreements were not signed by the Defendant.

Directions for the further conduct of the contempt application were adjourned on 8 May and 9 June. Thereafter, the Claimant sought leave to amend its contempt allegation and the Defendant sought a stay of the contempt application pursuant to Articles 27 and 28 of the Judgments Regulation. Both applications were heard on 22 July 2009. For the reasons given orally that day I gave leave for the amendment and dismissed the Defendant’s application for a stay of the contempt application. So far as I am aware there has been no appeal from those decisions. I ordered that the adjourned hearing of the contempt application take place early in October 2009.

The allegations of contempt now made against the Defendant are therefore as follows:

On a date since the Freezing Order of Mr. Justice Cranston, devising a sham agreement that he purported to enter into on 29 August 2008 with Mr. Artis Hartmanis, under which Mr. Hartmanis had purportedly lent the Defendant EUR 750,000 which was due for repayment on 13 September 2008 (the “Sham Loan”). The Sham Loan formed the baiss of the proceedings in the Riga Regional Court brought by Mr. Hartmanis and which led, on 20 October 2008, to the grant of a pledge note in favour of Mr. Hartmanis over the Riga Property.

Entering into a settlement agreement dated 2 December 2008 with Mr. Hartmanis to transfer half of his ownership rights to the Riga Property to Mr. Hartmanis, in return for settlement of part of the Sham Loan (the “First Settlement Agreement”) and/or authorising or permitting a third party to sign and file at the Riga Regional Court such a settlement agreement.

On 18 December 2008, authorising or permitting Mr. Kovalis to agree and/or acquiesce to the application by Mr. Hartmanis at Riga Regional Court to approve the First Settlement Agreement and transfer half of the Defendant’s interest in the Riga Property to Mr. Hartmanis.

Entering into a settlement agreement dated 20 January 2009 with Mr. Hartmanis to transfer the remaining half of his ownership rights to the Riga Property to Mr. Hartmanis, in return for settlement of the remaining part of the Sham Loan (the “Second Settlement Agreement”) and/or authorising or permitting a third party to sign and file at the Riga Regional Court such a settlement agreement.

Authorising or permitting Mr. Kovalis to apply to Riga Regional Land register on 2 March 2009 to transfer half of the Defendant’s interest in the Riga Property to Mr. Hartmanis and/or further or alternatively failing to revoke the power of attorney granted on 3 November 2008 and thereby permitting the application to take place.

The Claimant’s allegations are denied by the Defendant. His case, taking account of the points advanced at both hearings, is as follows:

He owed money to Mr. Hartmanis who commenced proceedings against him in Riga to recover that debt.

However, he denies any active involvement in those proceedings. He did not sign the settlement agreements dated 2 December 2008 and 20 January 2009 and did not authorise anyone to sign them in his name.

He did not authorise Mr. Kovalis to do anything other than obtain documents from Latvian authorities. He did not authorise him to represent him in court and approve Mr. Hartmanis’ application or to make the application to the Land registry on 2 March 2009.

It is submitted on his behalf that he has done nothing which amounts to dealing with the Riga property. If, which is denied, he has dealt with the Riga property he was permitted by the terms of the Freezing Order to do so because he was permitted to deal with his assets “in the ordinary and proper course of business.” Paying off the loan to Mr. Hartmanis was “in the ordinary and proper course of business.”

In any event the Freezing Order did not contain a penal notice informing the Defendant that he might be imprisoned if he breaches the terms of the order, contrary to RSC Order 45 r.7(4). In those circumstances the Freezing Order may not be enforced by an order for committal.

At the first hearing in April evidence as to what had happened in the proceedings in Riga, Latvia, was given by Mr. Jevgenijs Salims, a lawyer who practices in Riga. The source of his evidence was that which he had learnt from speaking to officials in the Riga court and from inspecting the court file on the day before the hearing of the application. The court file is in now in evidence but although it was suggested that Mr. Salims had acted improperly in inspecting the court file and that he had not been frank when giving evidence about the Latvian law relating to powers of attorney there was no suggestion that his evidence as to the proceedings in Riga had been shown to be inaccurate (save that the signatures on the settlement agreements and certain other documents on the court file purporting to be those of the Defendant were not in fact his signature). His evidence as to those proceedings was as follows.

Mr. Hartmanis commenced proceedings on 16 October 2008 against the Defendant in the Riga court. He sought to recover a loan of Euros 750,000 allegedly made by him to the Defendant on 29 August 2008. On 20 October 2008 a decision was made entitling Mr. Hartmanis to register a pledge note on the Riga property in respect of the loan. By a settlement agreement dated 2 December 2008 and signed by the Defendant he agreed to transfer to Mr. Hartmanis one half of his ownership rights to the Riga property by way of payment for one half of the loan. By a decision dated 18 December 2008 the Riga court removed the pledge note in respect of half of the Defendant’s ownership rights to the Riga property. By a further agreement dated 20 January 2009 and signed by the Defendant he agreed to transfer to Mr. Hartmanis the remaining half of his ownership rights to the Riga property by way of payment for the remaining half of the loan. The court was to consider this agreement on 2 March 2009 but the hearing was postponed to May 2009 at the request of Mr. Hartmanis and the Defendant who informed the court that they had learnt of a pledge note on the Riga property taken out at the request of the Claimant. In those proceedings the Defendant was represented by a lawyer, Mr. Kovalis, pursuant to a Power of Attorney signed by the Defendant. Mr. Hartmanis was represented by a lawyer, Mr. Stalts, pursuant to a power of attorney.

Mr. Salims also gave evidence as to the effect of the two settlement agreements, namely, that ownership of the Riga property would be transferred from the Defendant to Mr. Hartmanis and the Defendant would be released from his obligation to repay the loan. Once the court approves the settlement agreements the proceedings will be ended and the pledge on the Riga property will be removed. Mr. Hartmanis will then be able to sell the Riga property if he so wishes.

Mr. Salims said that on 18 March 2009 an entry was made in the Land Register that Mr. Hartmanis was the owner of a half interest in the Riga property. Prior to that date the Defendant had been noted as the owner of the Riga property. The reason for the transfer of that half interest was said to be the agreement between the Defendant and Mr. Hartmanis dated 2 December 2008. These entries were seen by Mr. Salims by checking the entries of the Register online.

The Defendant exhibited a number of documents to his affidavit dated 6 April 2009. Mr. Salims confirmed that one of these documents was the power of attorney he had seen on the court file. It is dated 3 November 2008 and is in the Latvian language. It provided, so far is material, as follows:

Mr. Salims confirmed that another of the documents exhibited to the affidavit of the Defendant was the decision of the Riga court dated 18 December 2008. The translation of that decision stated that there was an open hearing before Judge Ozolina of the Riga Regional Court to consider Mr. Hartmanis’ application “to revoke part of the claim filed by Artis Hartmanis in the civil case against [the Defendant] for recovery of a debt.” The decision recorded the commencement of a claim by Mr. Hartmanis for recovery of a debt. It then recorded that “the claimant stated” that a loan agreement was concluded between the claimant and the respondent on 29 August 2008 and that pursuant to Article 3.1 the loan was to be repaid by 13 September 2008. The claimant further stated that a warning letter had been sent on 22 September 2008 in which he requested “repayment of the loan or a guarantee of repayment of the loan by taking out of a mortgage on the respondent’s property – flat no.7, Alberta iela 1, Riga.” The claimant went on to say that that the respondent sent a reply to the claimant on 3 October stating that “he is unable to repay the amount of the loan within the time limit specified in the agreement, and also stated that he has alienated his property in Lithuania and reached an agreement regarding the alienation of the flat at Alberta iela 7.” The decision further records that the “petitioner” (which I assume means the claimant) has stated that “an agreement has been reached between the claimant and the respondent for partial repayment of the debt, the terms of which provide that the respondent will meet part of his debt commitments towards the claimant using the offset principle – by alienating half of the deemed shares of the property for the benefit of the claimant, with the provision that LVL 263 551.50 of the respondent’s debt commitments will be met in return for these deemed shares of the property.” He further stated “that the lien should be lifted on half of the deemed shares of the property – flat 7, Alberta iela 1, Riga – in order to register the claimant’s ownerships rights in the land book in accordance with the aforementioned agreement.” The decision then recorded that the respondent’s “representative agreed with the opinion given in the application, and asked for part of the claim to be revoked.”

The judge is then recorded as being of the opinion that the application is justified and should be granted. The judge is also recorded as saying that “the agreement of 2 December 2008 attached to the case materials shows that the respondent [the Defendant] has alienated half of the deemed shares of the property at Alberta iela 1-7 for the benefit of the claimant.” The judge then decides to “revoke part of the secured claim specified in the decision of 20 October 2008 ……with respect to making an entry of lien rights to half of the deemed shares of the property – flat No.7, Alberta iela 1, Riga.”

At the hearing in Riga on 6 May 2009 the Claimant applied to join the Latvian proceedings in order to obtain a finding that the Hartmanis loan was a sham. That application also appears to have been in writing. There is a document to that effect dated 6 May 2009, although stamped as having been received by the court on 16 May 2009. The Defendant was represented by Mr. Kalinks. Minutes of that hearing record that Mr. Kalinks applied for the hearing to take place in private (“at a closed court hearing”). That application was rejected. Mr. Kalinks also, it seems, sought to resist the intervention of the Claimant. The court then decided to “postpone hearing of the case” until 20 January 2010. On 10 June 2009 the Defendant filed a Response to the Claimant’s contention that the Hartmanis loan was a sham. In that document he denied that he had signed or authorised any other person to sign the settlement agreements.

The Defendant gave evidence at both the April and October hearings.

At the April hearing he said that he bought the Riga property on 15 February 2008 for his parents to live there. He asked Mr. Hartmanis if he would lend him Euros 750,000 to refurbish and furnish the property and Mr. Hartmanis agreed. He said there was a written loan agreement signed “on or around 28 or 29 August 2008” prepared by Mr. Hartmanis’ lawyer, Mr. Kovalis, pursuant to which he was to pay back Mr. Hartmanis “within a month or so”. His contract with his employer was to terminate at the end of 2008 and he expected to receive a large starting bonus or “golden hello” with which he could repay Mr. Hartmanis.

The loan was handed over in cash in the Riga property. About Euros 300,000 was spent on refurbishment and buying furniture for the property. The balance of the loan was spent “gambling in a casino in Riga” on the same day that he received the money from Mr. Hartmanis. He thought that he could repay Mr. Hartmanis straight away if he was lucky. He was not. When he did not repay the loan on time Mr. Hartmanis decided to take action to protect his own position and so made a claim in the Riga court. Pursuant to those proceedings he was given permission to register a pledge note in respect of the Riga property on 20 October 2008.

Mr. Hartmanis told the Defendant that his claim could be settled by asking the Riga Court to transfer the Riga property to him. The Defendant said that he told him that he was not allowed to “sell, charge, use as collateral or deal with” the Riga Property and gave him a copy of the Freezing Order dated 9 October 2009. But Mr. Hartmanis was determined to sell the property.

On 3 November 2008 the Defendant gave Mr. Kovalis a power of attorney which he understood would enable Mr.Kovalis to obtain documents relating to the Riga property from Latvian institutions. Mr. Kovalis assured him that the power of attorney went no further than that. So did the notary Ms. Macko. The Defendant said that he also met Mr. Hartmanis’ lawyer Mr. Kovalis on 18 November 2008 and possibly 24 November 2008 as well.

The Defendant said that he admitted to Mr. Kovalis that he owed money to Hartmanis but showed Mr. Kovalis the Freezing Order dated 9 October 2008. Mr. Kovalis asked him to sign a letter to the Riga Court and assured him that it would not contradict the Freezing Order but simply indicated that he did not object to any action Mr. Hartmanis might take in the court case. Mr. Hartmanis and Mr. Kovalis said that that they proposed that the Riga property be transferred in satisfaction of the debt. The Defendant said that he believed he was powerless to prevent that. The letter (which he believed he signed) was dated 24 November 2008 and was in Latvian (which the Defendant does not speak or read). It was translated into Russian for him by Mr. Kovalis. An English translation of it provides as follows:

The Defendant said that he did not sign any agreements dated 2 December 2008 and 20 January 2009 and that any court action taken by Mr. Hartmanis or Mr. Kovalis was without his knowledge or agreement. He said that at the end of February/beginning of March 2009 Mr. Hartmanis told him that he or Mr. Kovalis “redrafted the draft letter of 24 November 2008 which I had signed and have presented it to the Riga Regional Court as agreements of 2 December 2008 and 20 January 2009”.

For these reasons the Defendant denied that he has “knowingly breached the Freezing Orders.”

The Defendant said that he had asked Mr. Kovalis to provide copies of the documents on the court file in Riga but although he promised to do so he has not produced any. He said he planned to travel to Latvia himself during the last week of March 2009 but could not do so because his wife was delayed in Russia for health reasons and his bail conditions did not enable him and his wife to leave the country at the same time.

In cross-examination he said that he regarded the loan from Mr. Hartmanis as secured on the Riga property although he agreed there was no mortgage. He said he told Mr. Hartmanis that he had paid Euros 800,000 for the property. He said that the loan agreement was a one page document in Latvian which he signed. He did not take a copy of it. He said it contained no interest rate provision.

So far as the work of refurbishing and furnishing the Riga property was concerned that work had commenced in September 2008 and the majority of the works were complete. Some of the furniture was delivered one or two weeks before the hearing in this court. He said that the documents evidencing this expenditure were in the Riga property. He had thought they were with his parents but he was told by them the day before the hearing in this court that they were not. He said that he had put them in a folder in the Riga property.

So far as losing the balance of the loan on gambling was concerned he said that he did not remember the name of the casino in Riga but that he was there for some 5-6 hours on 29 August 2008. He lost Euros 100,000 on roulette in about 2 hours and then gambled another Euros 350,000 which he also lost. He said that he gambled such a large amount on the theory that the more he gambled the greater his chances of winning were. He said he had been in many casinos around the world but his highest previous loss had been $10,000. He was so upset at losing so much on 29 August 2008 that he had decided to gamble no more.

So far as signing the letter dated 24 November 2008 was concerned he said he did not seek any advice from an English lawyer as to whether it breached the terms of the freezing order because he did not think that it did.

He said that although he had not authorised anyone to represent him at the hearing on 18 December 2008 and had not signed any settlement agreements he had not taken any steps to have the court decision of that date set aside. He said that his wife, who was funding his defence to these contempt proceedings, had no funds with which to seek to set aside the Riga court decision of 18 December 2008 or to set aside the alleged settlement agreement dated 20 January 2009 which the Riga court is to be asked to approve in May 2009.

At the October hearing the Defendant repeated the evidence he had given in April and in some respects expanded upon it. Thus he identified the designer who was refurbishing the Riga property as Svetlana Maksimova. He said that he gave his mother Euros 300,000 of the loan from Mr. Hartmanis to repay an earlier loan from his parents. His mother was involved in the refurbishment until his father had a stroke after which the Defendant took over the refurbishment. He exhibited a folder of documents concerning the refurbishment of the property. He also identified the casino at which he had lost money as Vegas Entertainment Complex and exhibited a letter from O. Mutina confirming his attendance at the casino on 29/30 August 2008 and that he had lost a great sum of money. With regard to the Power of Attorney he said that he had also spoken to Ms. Macko’s secretary before seeing Ms. Macko. He said that he told the secretary that he wanted a power of attorney which allowed Mr. Kovalis to get documents from the Latvian institutions but not enter into agreements or sell property on his behalf. The secretary told him in Russian that the Power of Attorney was standard and would not allow him to do that. Once the Power of Attorney had been drawn up he met Ms. Macko and signed the Power of Attorney. He denied that he authorised or permitted Mr. Kovalis to apply to the Riga Land Registry on his behalf.

At the April hearing there was written evidence from Mr. Hartmanis and from Mr. Kovalis.

Mr. Hartmanis confirmed that he made a loan of Euros 750,000 on August 29, 2008, to the Defendant. He said that the Defendant signed a loan agreement but no copy of the agreement was exhibited to his statement. He said that he commenced proceedings in Riga when the debt was not repaid and that the Defendant signed a document “saying he doesn’t object if that the Riga property will be taken as a repayment of his debt”. Mr. Hartmanis then said:

Mr. Kovalis said that he wrote the loan agreement but he did not exhibit a copy of it to his statement. He said he acted for Mr. Hartmanis in the proceedings commenced by him to recover his debt. He said there were meetings between him and the Defendant when he was shown the Freezing Order. He said that the Defendant issued a power of attorney “for me to get documents from Latvian government institutions, and I gave [the Defendant] an explanation letter to sign, that he cannot repay the debt.” He said that he told the Defendant “that signing the draft letter will not affect the English Freezing Order.” Echoing the terms of Mr. Hartmanis’ statement he said:

Mr. Kovalis ended his statement by saying that he represents Mr. Hartmanis but that, in response to a request from the Defendant, he will provide him with “copies of the documents of this case, which we will provide as soon as possible.”

At the October hearing there was some further written evidence.

A short statement from the Defendant’s mother was put in evidence. She said that at the end of the summer of 2008 the Defendant paid back a loan she and her husband had made him. The Defendant gave her Euros 300,000 in cash. It was spent in refurbishing the Riga property. There was also a short statement from the interior designer of the flat who said that more than Euros 300,000 had been spent in refurbishing the Riga property. Finally, there was a statement from a real estate broker in Latvia who said that towards the end of 2008 the Defendant had enquired of him as to the value of the Riga property were it to be sold. He was advised that in the current market conditions he would lose 50% of what he had paid.

A Latvian lawyer, Mr. Roberts Rimsa, gave evidence that even where a Power of Attorney is granted in wide terms the authority conferred by it may be limited by a “mandate agreement” or by “instructions”. This was not disputed by Mr. Salims.

The Claimant has made a very serious allegation against the Defendant. In effect it is said that the Defendant has set about a course of action designed to remove the Riga property from the ambit of the Freezing Order. It is said that he has done so over a number of months, involved Mr. Hartmanis in his scheme and has procured or attempted to procure court orders to give effect to his scheme. The allegation is denied and it is said on his behalf that there is no evidence of such a scheme. It is true that there is no direct evidence. However, the Claimant says that the Court can infer from a number of matters that the Defendant must have engaged in the scheme which has been alleged against him.

The Claimant must prove its allegations to the criminal standard. The Court must therefore be sure that the Defendant committed the acts alleged against him.

It is first necessary to assess the reliability of the Defendant’s evidence.

The Defendant gave evidence before me twice. His native language is Russian but he gave evidence in English of which he had a more than competent command. In one important respect, namely, that he did not sign the settlement agreements, his evidence at the April hearing is now accepted to have been true. Nevertheless, having considered the content of his evidence I have reached the conclusion that he was not a reliable witness. There were several reasons for reaching this conclusion:

First, his evidence as to the Hartmanis loan and what happened to the Euros 750,000 was surprising, improbable and weak. For example:

Although he said he borrowed a sum of Euros 750,000 from Mr. Hartmanis he said that he was not given a copy of the loan agreement. This seemed improbable given the size of the loan. That was confirmed when a copy of the settlement agreement was produced after the April hearing. It provided: “After signing the Agreement, one copy shall be issued to the Lender, the other to the Borrower.”

Although he said that the period of the loan was one month so that, on his evidence, the loan was repayable on 29 September 2008 he planned to repay the loan from a “golden handshake” which he hoped or expected to be given when starting a new job as an oil trader. But that would have been after his existing contract of employment ended in December 2008.

That evidence conflicted with the contents of the letter dated 24 November 2008 which he signed. In that letter he said that he borrowed this sum of money because he was sure that the bank would grant him a loan “in the nearest future”.

He said that he had gambled Euros 450,000 of the loan at a casino in Riga. He lost it all in one night. He had never before lost more than $10,000 yet he could not remember the name of the casino in which this calamity had befallen him. In his Sixth Affidavit sworn on 9 June 2009 he said that he had visited the casino “several times” but did not disclose its name. It was not until his Eighth Affidavit sworn shortly before the October hearing that the name of the casino was stated. He said in cross-examination that he visited the casino between the end of spring and the beginning of summer of 2009. When asked why he had not stated the name of the casino in his Sixth Affidavit (given that it had been an issue at the April hearing) he first said that he was not sure and then said that he “wanted to get documents proving it.” Ultimately he did obtain a letter dated 22 June 2009 from O. Mutina, an Administrative Director of the Casino, stating that he had stayed at the casino on 29/30 August 2008 and had “lost a great deal of money.” This was not a cogent document. It does not state what if any records were consulted. I do not therefore regard it as cogent evidence corroborating the Defendant’s evidence which remains surprising and improbable.

Moreover, his reason for gambling such a large sum of money, namely, that the probability of winning at roulette increased the more he gambled cannot seriously have been entertained.

The alleged loss of Euros 450,000 through gambling meant that only Euros 300,000 was available for refurbishing the Riga property. Yet no document was produced evidencing such a sudden reduction in the available funds. He said that there was no initial budget and that the interior designer had not produced a schedule of costs.

Secondly, an important part of his evidence made no sense. He said that Mr. Hartmanis told him that he or Mr. Kovalis re-dated the draft letter of 24 November 2008 and presented it to the Riga Court as agreements of 2 December 2008 and 20 January 2009. It is not possible to understand how a letter which did not purport to be a settlement of the claim brought by Mr. Hartmanis against the Defendant could be transformed by the change of its date into a settlement agreement.

Thirdly, he accepted that he received an English translation of the order of 18 December 2008 in about January/February or February/March 2009. The order stated that “an agreement has been reached between the claimant and the respondent” which referred to “alienating ½ of the deemed shares of the property for the benefit of the claimant”. His lack of response to what, on his evidence, must have been an apparent fraud (because he said he made no such agreement) is, at the least, very surprising. Whether or not he had the means to instruct Latvian lawyers to seek to set aside the order of December 2008 a person in the suggested position of the Defendant would surely at the very least write to the court to protest at what was apparently and improperly being done in his name.

It was suggested that this ignores the commercial realities in that the Defendant was told that a sale of the Riga property pursuant to the pledge note would realise 30-40% or even 50% less than the true value and that it was therefore commercially sensible to allow the transfer of the property in exchange for discharge of the debt to go ahead. However, the matter has to be tested on the assumption that the Defendant had not signed the settlement agreements and so had not approved of the transfer of the property. On that basis he would be the victim of a fraud and I would not expect him to sit by and allow the fraud to be committed without informing the court of what was being said, untruthfully, in his name.

Fourthly, his failure to obtain from the Riga court a copy of the settlement agreements on the court file before the April hearing cannot satisfactorily be explained. The application to commit for contempt was issued on 26 February 2009. He accepted that he could have gone to Riga and obtained copies between 26 February and 21 March (when his wife left this country for Russia.). Indeed he accepted in cross-examination that he was in Latvia for a couple of days before his wife left for Russia. He said he was only transiting Riga whilst en route to his father who was ill but there is no evidence that he asked for assistance from Mr. Kovalis in securing copies during that visit or before. Knowing the importance of the settlements agreements and that, on his case he had neither signed them nor permitted them to be signed in his name, one would have expected the Defendant to have made stringent efforts to obtain copies of the alleged settlement agreements very shortly after 26 February 2009.

Mr. Salims gave evidence of fact at the April hearing and some evidence of Latvian law both then and at the October hearing. I did not understand that his account of the Latvian proceedings, based upon his investigations at the Latvian court, was challenged. Nevertheless, his reliability as a witness was challenged on two counts and, for completeness, I shall deal with that challenge.

First, it was suggested to Mr. Salims that Latvian law did not permit a non-party to inspect the court file and that he had done so in breach of that law. At the April hearing Mr. Salims said that a non-party was not entitled to take copies of the court file but that it was “not clear” that a non-party may not look at the court file. He said an attorney may seek information from state institutions. Mr. Salims said that he went to inspect the court file because he knew that he was to testify in London about that which he had learnt from court officials and he wished to ensure that the evidence he was to give was supported by the court file. He was permitted by the Head of Registry (who was the head of registry when Mr. Salims was himself a judge in Riga) to inspect the court file. At the October hearing it was put to him that Article 28 of the Law on Judicial Power allowed only parties to an action to have access to a court file. Mr. Salims agreed with this and it is, I think, fair to say did not have a clear or convincing explanation as to why it was nevertheless lawful for him to inspect the court file. He attempted to draw a distinction between different forms of access but that did not persuade me that his inspection of the court file was permitted by Latvian law. However, although there was no record of Mr. Salims having inspected the court file, I had no reason to doubt that he did so or that he was permitted to do so by court officials. I consider that he sought honestly to recall that which he had been told and that which he had seen. I had no reason to doubt the reliability of his recollection. At the request of Counsel for the Defendant he gave his evidence in chief in the traditional manner rather than by way of his statement being taken as his evidence in chief. He recounted carefully that which he had learnt from court officials and that which he had seen in the court files. It was not suggested at the October hearing that his recollection had been in error.

Second, it was suggested that he had not been frank with the Court in his evidence in April as to the ability of a person who grants a wide Power of Attorney to restrict its terms by a further instruction. I do not accept this is a fair criticism. The relevant passage in the transcript for 7 April is p.40 line 16- p.41 line 26.

Mr. Rimsa gave his evidence with care, as did Mr. Salims. His evidence that a wide power of attorney may be limited by a mandate agreement or by instructions was not challenged.

The allegations of contempt centre upon the Hartmanis loan and the Defendant’s role, if any, in the Riga proceedings. It is necessary to consider these two matters before deciding whether the allegations of contempt have been proved to the required standard.

The Claimant submits that the Court can be sure that there was no genuine loan. The Defendant says there was. Having considered the evidence I am unable to accept the evidence of the Defendant that a genuine loan or loan agreement was made on 29 August 2008 by Mr. Hartmanis to him and am sure that there was no such loan. My reasons are as follows:

The Claimant has been unable to put in evidence an original signed loan agreement. This is remarkable in circumstances where the copy of the alleged loan agreement records that he was provided with one.

From the date of his Seventh Affidavit, 16 July 2009, until the October hearing the evidence of the Defendant was that although he had thought that he had obtained an original loan agreement from Mr. Hartmanis after the April hearing his solicitors had inspected the document and it was not an original. There was no evidence as to where an original was. In his oral evidence the Defendant said that, contrary to the view formed by his solicitors, the document they had was an original signed loan agreement. I am unable to accept this evidence. It appears to be a last minute attempt to “produce” an original which was not supported by the Defendant’s own solicitors.

Although the Defendant procured statements from Mr. Hartmanis and Mr. Kovalis which purported to corroborate the evidence of the Defendant that there was a loan, no copy of the loan agreement was exhibited to their statements. No reason was suggested as to why Mr. Hartmanis and Mr. Kovalis could not have exhibited a copy of the loan agreement if a genuine loan agreement dated 29 August 2008 existed. I was therefore unable to give any significant weight to their statements.

Further, there is the very curious circumstance that Mr. Hartmanis produced to the Latvian Court a copy of the loan agreement which bore the forged signature of the Defendant. If Mr. Hartmanis had an original loan agreement, as is inherently likely if there was a genuine loan agreement, there can have been no reason for him to submit to the Latvian court a copy bearing a forged signature. None was suggested for this remarkable conduct.

The terms of the alleged loan are remarkable. They provide that the loan was to be repaid by 13 September 2008, which was just two weeks or so after the date of the agreement. Moreover, in the event of delay in repayment a penalty of 0.5% for each day of delay was payable. The shortness of the loan and the severity of the penalty in an agreement between persons who the Defendant said were friends suggests that the loan was not genuine.

The Defendant said that he expected to repay the loan with the assistance of a “golden handshake” on starting a new job but that would have been after December 2008. This would mean paying a penalty of 50%. And yet, when asked in April whether the loan agreement had an interest provision he said that he believed not. He said that he thought he could renegotiate the loan but he did not seek to do so. This is all most improbable.

His evidence that he gambled and lost Euros 450,000 of the loan on the very day he received the loan is most improbable because (a) he could only name the casino in his Eighth Affidavit notwithstanding that he had lost a huge sum of money at it and had visited it several times before swearing his Sixth Affidavit and (b) his reasons for gambling so much defy belief.

No documents have been identified which show that the other Euros 300,000 of the loan were received by his mother. There are no documents showing that the available funds for the refurbishment had been reduced from Euros 750,000 to 300,000.

It was submitted that the Riga Court had held that there was a loan agreement and that it would be contrary to principles of comity for this court to hold that that there was no loan made or loan agreement made on 29 August 2008. I do not accept that the Riga Court did so hold. The record of the Riga Court’s “Decision” records that it was stated by the claimant (Mr. Hartmanis) that there was such a loan agreement which appears to have been agreed by the Fist Defendant’s representative (Mr. Kovalis according to Mr. Salims). There was thus no challenge to the statement that there was such a loan agreement made on 29 August 2008. The court simply accepted what was common ground before it, namely, that a genuine loan agreement had been made on 29 August 2008. In those circumstances it is not contrary to principles of comity for this court, in circumstances where there is a dispute before it as to whether there was a genuine loan agreement made on 29 August 2008, to hold that there was no genuine loan agreement made on 29 August.

Mr. Hartmanis commenced proceedings against the Defendant on 16 October 2008. The Defendant has admitted the following conduct thereafter:

On 3 November 2008 he gave Mr. Kovalis a power of attorney. Mr. Kovalis is a Latvian lawyer who “manages” Mr. Hartmanis’ claim against the Defendant. The terms of the power of attorney authorised Mr. Kovalis to represent the Defendant in court.

On 24 November 2008 the Defendant, at the request of Mr. Kovalis, signed a letter addressed to the Riga court in which he admitted the debt owed by Mr. Hartmanis and stated that “currently we are discussing a possible settlement and try to come to an agreement regarding the procedure of the payment of the debt.”

He admitted that the statement made by Mr. Hartmanis in his witness statement dated 6 April 2009 that the Defendant “signed the document, saying he doesn’t object if that the Riga property will be taken as a repayment of his debt” was true. He also admitted that his solicitor, Sophia Purkis, was correct to state in her witness statement dated 13 March 2009 that the Defendant was told by Mr. Hartamis’ lawyers that by signing the letter dated 24 November 2008 he was “simply indicating that he did not object to any action Mr. Hartmanis might take including his proposal that the Riga Property be transferred into his name in satisfaction of the debt.”

He admitted that he had received in February 2009 an English translation of the Riga court’s decision of 18 December 2008. That stated that an agreement had been reached between Mr. Hartmanis and the Defendant whereby half of the Riga property would be alienated in favour of Mr. Hartmanis in partial repayment of the debt owed by the Defendant to Mr. Hartmanis. It further stated that the Defendant’s representative agreed with what Mr. Hartmanis’ representative had said. Yet he admitted that he did not then inform the Riga court that there was no such agreement or that the person purporting to represent him at the hearing had no authority to do so.

He admitted that he has not instructed his Latvian lawyers to seek to set aside the order made by the Court on 18 December 2008, although he has, in response to the intervention by the Claimants in the Riga proceedings seeking a declaration that the Hartmanis loan was not genuine, denied signing the settlement agreements or authorising anyone to sign them on his behalf.

These admissions are not only consistent with the Claimants’ case that the Defendant has actively participated in the Riga proceedings by agreeing that the Riga property be transferred to Mr. Hartmanis but strongly support it. It is therefore necessary to examine what the Defendant has said about these matters.

The power of attorney. The Defendant has maintained that Mr. Kovalis and the notary before whom the Defendant signed the power of attorney assured him that the power of attorney only enabled Mr. Kovalis to obtain documents relating to the Riga property from Latvian institutions. Mr. Kovalis, in his witness statement, also states that the power of attorney was to get documents from the Latvian government institutions. There are difficulties with this evidence:

The terms of the power of attorney, signed by the Defendant, plainly confer wider powers than that. Moreover, it records that the document was orally translated into Russian by the notary and that the Defendant understood the content and meaning of the document.

The notary, Ms. Macko, was examined in Riga on 11 September 2009. She was not able to recall the signing of the power of attorney by the Defendant on 3 November 2008 but said that, when a person not having a good command of Latvian issues a Power of Attorney, her usual practice was to translate the full text of the Power of Attorney into Russian (where that is the appropriate language as in this case) and to explain the consequences of the Power of Attorney and the its scope. That is consistent with what the Power of Attorney signed by the Defendant records.

It is difficult to see why the notary would in those circumstances assure the Defendant that the power of attorney went no further than authorising the obtaining of documents when its terms plainly went much further than that. None was suggested.

Mr. Kovalis supports the Defendant’s evidence but does not explain why he nevertheless represented the Defendant on 18 December 2008 before the Riga court. Without such an explanation it is impossible to place reliance on his written evidence.

The Defendant faces a serious charge of contempt of court. On his evidence the conduct of Mr. Kovalis and Ms. Macko has contributed to the circumstances which have led to this charge being made. Were his evidence true, I would expect that either his Latvian lawyers, or the Defendant himself, would have made a complaint about the use made by Mr. Kovalis of the Power of Attorney and about the assurances given by Ms. Macko. There is no evidence of any such complaint, although the Defendant has, since the April hearing, revoked the Power of Attorney.

In his Eighth Affidavit sworn in October 2009, after Ms. Macko was examined in Riga, the Defendant has said that in addition to Ms. Macko assuring him that the Power of Attorney extended only to the obtaining of documents Ms. Macko’s secretary also gave him the same assurance. This evidence was not given in April 2008. There was no explanation as to why it was not given then and no evidence that any complaint has been made to Ms. Macko about the conduct of her secretary. This does not give me confidence in its veracity.

I have concluded that the Defendant’s evidence with regard to the Power of Attorney is unreliable, as was his evidence with regard to the Hartmanis loan. I find, based upon his own representation in the Power of Attorney, that he understood its content and meaning and therefore that the Defendant intended to authorise Mr. Kovalis to represent him in court. He did not give to Mr. Kovalis a more limited mandate or instruction that the Power of Attorney must only be used for the purposes of obtaining documents.

In the course of his cross-examination Mr. Rimsa said that even if the Power of Attorney granted by the Defendant was not limited by an express mandate or instruction that it be used only for obtaining documents it would not extend, as a matter of Latvian law, to the alienation of real estate. This matter had not been raised in cross-examination with Mr. Salims. When asked whether it was mentioned in his expert’s report Mr. Rimsa said that it was not because he had not been asked about it. However, as was pointed out by counsel for the Defendant in his closing submissions, Mr. Rimsa’s report does appear to mention the point, or at least something very like it, namely Article 2301, paragraph 2, of the Civil Law which provides that a person authorised under a universal power of attorney may alienate immoveable property “if he or she does not have a special power of attorney regarding such acts, only where necessary and in order to protect his or her principal from potential losses.” However, there was no discussion in the report as to whether the Power of Attorney contained a “special power” or whether the actions of Mr. Kovalis were necessary in order to protect the Defendant from loss. Thus no case was advanced in the report that even if the Defendant had not given a limited mandate or instruction to Mr. Kovalis the latter nevertheless had no power under Latvian law pursuant to the Power of Attorney to represent the Defendant in court in proceedings in which Mr. Hartmanis sought to enforce a debt by having the Defendant’s interest in real property transferred to him. No such argument appeared in counsel’s skeleton argument and no such argument was put to Mr. Salims in cross-examination. In these circumstances I do not consider that it is appropriate for me to speculate as to whether Article 2301 paragraph 2 of the Civil law has or might have that effect.

The letter dated 24 November 2008. Although this letter does not, by its express terms, mention alienation of the Riga property, it is clear from the Defendant’s admissions that there was discussion between Mr. Hartmanis and the Defendant to the effect that this was what was intended by Mr. Hartmanis. It is to be inferred that this was the “procedure” for the payment of the debt mentioned in the final paragraph of the letter. Indeed, the Defendant said in evidence in April that Mr. Hartmanis and Mr. Kovalis mentioned to him that “they proposed that the Riga Property be transferred into Mr. Hartmanis in satisfaction of the debt, possibly in two parts.” He said that he believed that he was powerless to prevent that. He also said in evidence in October that he “did not object to the property being taken if there was Latvian proceedings to collect the debt [he] owed to him.” Thus it is clear that by 24 November 2008 the Defendant and Mr. Hartmanis were discussing a settlement of the alleged debt and that what Mr. Hartmanis was proposing mirrored the structure of the settlement later set out in the settlements agreements of 2 December 2008 and 20 January 2009.

But the Defendant also said that he gave Mr. Hartmanis a letter referring to the Freezing Order. He said that he could not deal with the Riga property because of the Freezing Order. He said it was up to the court to decide if the property could be transferred. On the basis of this evidence it was submitted on behalf of the Defendant that he did not have an active role in the Riga proceedings, only a passive role. The written statements of Mr. Hartmanis and Mr. Kovalis support the Defendant’s evidence that he told them of the Freezing Order and that he could not break it.

Even on his own evidence the Defendant was aware of the intentions of Mr. Hartmanis, namely, to have the Riga property transferred to him in satisfaction of his debt. The Defendant accepted that on 9 December 2008 at the Riga post office he had signed for a document which informed him of and summoned him to the court hearing on 18 December 2008. He appreciated that the transfer of the Riga property would be a breach of the Freezing Order. He was aware that Mr. Hartmanis wished to take the property in settlement of the debt. In circumstances where he made no attempt to write to the court informing it that he could not consent to the transfer of the property it is a reasonable inference that he was willing for the court to order that the property be transferred to Mr. Hartmanis and allowed the court so to order. In circumstances where I have found that there was no Hartmanis loan and where the Defendant intended to confer authority on Mr. Kovalis, Mr. Hartmanis’ lawyer, to represent him in court, the inference is irresistible. In my judgment that amounts to active participation in the Riga proceedings.

Failure to take action after learning of the order made on 18 December 2008. The Defendant stated that he had no funds to instruct Latvian lawyers to make representations to the court. Whether or not this is true I would have expected a person who, as the Defendant claims, had not authorised anyone to represent him and had not agreed to the transfer of the Riga property to Mr. Hartmanis, to write to the court stating those facts, especially in circumstances where contempt proceedings had been commenced in England. His failure to do so is a cogent indicator that in fact he had authorised Mr. Kovalis to act on his behalf and had agreed to the transfer of the Riga property to Mr. Hartmanis.

After the April hearing the Defendant sought, at the latest possible stage, an adjournment of the case to enable him to go to Riga and apply for the court order to be set aside. He has not made such an application. However, his response to the Claimants’ application for a declaration that the Hartmanis loan was not genuine contains precisely those allegations which would be expected to be made as part of such an application, namely, that he had not signed or authorised the settlement agreements. In the circumstances I do not consider that his failure to seek an order setting aside the courts orders should be held against him.

I can now determine whether the several allegations have been proved.

For the reasons which I have already given I have found that there was no genuine loan agreement entered into on 29 August 2008. Since (a) this alleged loan agreement was the basis of the Riga proceedings which led to the pledge of the Riga Property and the order of the court dated 18 December that half of the Defendant’s interest in the Riga Property be transferred to Mr. Hartmanis and (b) the Defendant took an active role in those proceedings by permitting the court order to be made it is to be inferred that the alleged loan was devised by the Defendant as a means by which the Riga Property might be removed from the assets of the Defendant which were the subject of the Freezing Order. I am sure that that is the correct conclusion to reach.

It is common ground that the Defendant did not place his signature on the First Settlement Agreement. The undisputed expert evidence is that the signature is not his. However, it is a reasonable inference from the facts that the Defendant (i) devised the Sham Loan and (ii) failed to advise the Riga court immediately on seeing the translation of the court order dated 18 December 2008 that he had not entered into an agreement to transfer half of his ownership rights in the Riga Property to Mr. Hartmanis that he must have authorised or procured a third party to sign the First Settlement Agreement in his name. I am sure that that is the correct conclusion to reach notwithstanding that the person who signed the First Agreement (or indeed any of the other documents on the court file which bore a forged signature) cannot be identified. The Defendant had no explanation for the forgeries of his signature on the settlement agreements.

Mr. Kovalis agreed to Mr. Hartmanis’ application on 18 December 2008 purporting to do so with the Defendant’s authority. For the reasons I have given I am sure that he in fact had the Defendant’s authority to do so pursuant to the Power of Attorney granted by the Defendant to Mr. Kovalis on 3 November 2008.

For the same reasons as I have given in finding the second allegation proved I find the fourth allegation proved.

Since the Defendant granted a Power of Attorney in terms wide enough to encompass such an application and Mr. Kovalis relied upon the Power of Undertaking when making the application it is plain that the Defendant authorised Mr. Kovalis to make this application. In addition, the Defendant did not revoke the Power of Attorney until after the April hearing.

At the April hearing reliance was placed on the exception to the Freezing Order in paragraph 11(2) which provided:

It was submitted on behalf of the Defendant that if he entered into the settlement agreements his conduct was not in breach of the Freezing Order because such “dealing with his assets” was in the ordinary and proper course of business being for the purpose of discharging his debt to Mr. Hartmanis.

It was submitted on behalf of the Claimant that paragraph 11(2) did not apply to the Riga property and that if the Defendant wished to deal with that property he had to seek the permission of the court or the written agreement of the Claimant as set out in paragraph 5B. I reject that submission. Paragraph 11(2) is an exception to the prohibitions contained in the order. The “preserved amount” is an exception to that exception. The “preserved property” (the Riga property) is not an exception to that exception.

However, I am unable to accept the Defendant’s submission that the exception in paragraph 11(2) is engaged because I do not accept the evidence of the Defendant that a genuine loan was made on 29 August 2008 by Mr. Hartmanis to him. Having rejected the Defendant’s evidence that there was a genuine loan agreement made on 29 August 2008 I have concluded, and am sure, for the reasons I have given that the suggestion that there was such a loan agreement was an invention by the Defendant in collusion with Mr. Hartmanis to enable the ownership of the Riga property to be transferred from the Defendant to Mr. Hartmanis in an attempt to put it beyond the reach of the Claimant. In those circumstances dealing with the Riga property by authorising the settlement agreements to be signed in his name was plainly not in the ordinary and proper course of business.

It was submitted on behalf of the Claimant that in order for a person to be found in contempt of a court order it is necessary to show that that he knew of the relevant order and with that knowledge he intended to do the act which amounted to a breach of the court order. It is not necessary to show that he intended to disobey the court order; see Stancomb v Trowbridge Urban District Council [1910] 2 Ch. 190 and Director General of Fair Trading v Smiths Concrete: re Supply of Ready Mixed Concrete [1992] QB 212. The fact that he may have believed that he was not acting in breach of the court order is no defence to a charge of contempt; In Re: Agreement of the Mieage Conference Group of The Tyre manufacturers’ Conference Ltd. [1966] 2 AER 849. These submissions were not challenged on behalf of the Defendant and I accept them.

It follows that the evidence given by the Defendant that he always tried to ensure that he complied with the Freezing Order is not relevant to the question whether he acted in contempt. In any event I am unable to accept his evidence that he always tried to ensure that he complied with the Freezing Order.

It was not suggested that the Defendant did not know of the Freezing Order. On his own evidence he plainly did. When he committed the acts alleged to be a contempt he knew of the terms of the Freezing Order prohibiting him from dealing with the Riga property. He therefore acted in contempt of court.

The final point with which it is necessary to deal is that relating to the penal notice. It was said that it did not advise the Defendant that he might be imprisoned if he acted in breach of the order and therefore the court ought not to commit him for contempt.

It is correct that the penal notice did not inform the Defendant that he might be imprisoned if he acted in breach of the order, though it did advise him that if any person assisted him to breach the terms of the order that person might be imprisoned. It ought also to have informed him that he might be imprisoned if he breached the order; see RSC Ord.45 r.7(4). The failure to do so was not addressed in evidence. The omission appears to have been a slip by those who drafted the penal notice.

However, Ord.45 r.7(6) confers a discretion on the court to enforce an order by committal for contempt notwithstanding that failure; see Sofroniou v Szgetti, a decision of the Court of Appeal dated 25 July 1990. I note from another case that it has been reported at [1991] FCR 332 but I was provided with a transcript of the shorthand notes of the judgment. At p.6 of the transcript McCowan LJ held that the discretion conferred by RSC.Ord.45 r.7(6) applied not only when there had been no service at all of a copy of the court order but also when there had been no service of the court order “in accordance with this rule” which encompassed a case where the order which had been served did not contain a penal notice. Another observation of McCowan LJ (that RSC 45 r.7(7) conferred a power to be exercised prospectively) was disapproved by the Court of Appeal in Davy International v Tazzyman [1997] 1 WLR 1256 per Morritt LJ and in Bell v Tuohy and others [2002] 1 WLR 2703 at paragraph 42 per Neuberger J but his observation as to RSC 45 r.7(6) was not commented upon.

The modern approach to the exercise of the discretion conferred by RSC Ord.45 r.7(6) is set out in Nicholls v Nicholls [1997] 1 WLR 314 which was followed in Bell v Tuohy and others [2002] 1 WLR 2703 both of which cases concerned the comparable provisions in the County Court Rules 1981 (Ord.29). In the first case Lord Woolf said as follows:

Reliance was placed by counsel for the Defendant on Harmsworth v Harmsworth [1987] 3 AER 816. In that case it was said that it would only be in an exceptional case that the procedural rules regarding committal applications could be waived. However, that case was decided before Nicholls v Nicholls in which all the authorities, including Harmsworth v Harmsworth, were reviewed. I consider that the approach described in Nicholls v Nicholls should be followed. That approach was described in Bell v Tuohy and others [2002] 1 WLR 2703 at para. 47 as the modern approach.

Counsel also relied upon the decisions of Moerman-Lenglet v Henshaw TLR Nov.25 1992 (per Chadwick J.) and Belgolaise SA v Deepak Lal Puchandani, an unreported decision of Colman J dated 24 June 1998 as suggesting a more restrictive approach to the exercise of the discretion. However, the former case pre-dated Nicholls v Nicholls and the latter did not refer to it. I consider that I should be guided by Nicholls v Nicholls.

In the present case there can be no doubt that the Defendant was aware that if he breached the Freezing Order he might be imprisoned for doing so, notwithstanding that the penal notice did not say so in terms. The letter dated 29 September 2008 served personally with the order of Cranston J. alerted him to the consequences of failure to comply with the order, “namely imprisonment, fine or seizure of assets.” He attended the return date hearing before King J. and he accepted that the learned Judge told him that the order was a serious order and referred him to the penal notice. He accepted that he read the penal notice and was advised (though he could not recall when) that if he breached the order he might be imprisoned or fined. I am therefore confident that the defect in the penal notice has not prejudiced the Defendant because, notwithstanding that defect, he appreciated that if he breached the order he might be imprisoned. A properly expressed penal notice is for the protection of the contemnor but the court must also consider the interests of the Claimant and the interests of the court in seeing that its orders are obeyed. Since there is no prejudice or injustice to the Defendant caused by the defect in the penal notice I consider that the court’s discretion should be exercised in favour of enforcing the Freezing Order notwithstanding the defect in the penal notice.

I will consider the appropriate penalty for the Defendant’s contempt of court after formally handing down this judgment and hearing such submissions as counsel on his behalf wishes to make.