Cherkasov & Ors v Olegovich, the Official Receiver of Danyaya Step LLC, Court of Appeal - Chancery Division, December 05, 2017, [2017] EWHC 3153 (Ch)

Issuing Organization:Chancery Division
Actores:Cherkasov & Ors v Olegovich, the Official Receiver of Danyaya Step LLC
Resolution Date:December 05, 2017
 
FREE EXCERPT

Case No: CR-2016-002375

Neutral Citation Number: [2017] EWHC 3153 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

COMPANIES COURT

IN THE MATTER OF DALNYAYA STEPL LLC (IN LIQUIDATION) AND THE CROSS-BORDER INSOLVENCY REGULATIONS 2006 AND THE INSOLVENCY ACT 1986

The Rolls Building

The Royal Courts of Justice

7 Rolls Building, Fetter Lane

London EC4A 1NL

Date: 05/12/2017

Before :

SIR GEOFFREY VOS, CHANCELLOR OF THE HIGH COURT

- - - - - - - - - - - - - - - - - - - -

Between :

- - - - - - - - - - - - - - - - - - - - -

Mr Joe Smouha QC, Mr Ciaran Keller, and Mr Watson Pringle (instructed by Kobre & Kim (UK) LLP) appeared for the applicants

Mr Daniel Bayfield QC and Mr James Willan (who did not appear on the application for a Recognition Order) (instructed by CMS Cameron McKenna Nabarro Olswang LLP) appeared for the respondent

Hearing dates: 14th , 15th and 16th November 2017

- - - - - - - - - - - - - - - - - - - - -

JudgmentNOTE

This summary is provided to assist in understanding the Court's decision. It does not form part of the reasons for the decision. The full judgment of the Court is the only authoritative document. Judgments are public documents and available on at www.bailii.org

Hearing dates: 14th, 15th and 16th November 2017

SUMMARY

SUMMARY

This decision is another step in a long-running, high-profile and extremely public dispute between various representatives of the Russian state and the three applicants, who are Mr Ivan Cherkasov (``Mr Cherkasov''), Mr William Browder (``Mr Browder'') and Mr Paul Wrench (together the ``Hermitage Parties'').

The present situation has arisen because Mr Nogotkov Kirill Olegovich (``Mr Nogotkov''), who was appointed in November 2015 by the Russian court as the official receiver of Dalnyaya Step LLC (``DSL''), was on 8th July 2016 granted a recognition order under the Cross-Border Insolvency Regulations 2006 (the ``CBIR'') (the ``Recognition Order'').

The court considered two questions, namely whether it should entertain a hearing to decide whether Mr Nogotkov breached his duty of full and frank disclosure when he applied for the Recognition Order, and secondly, if it did decide that such a hearing should be entertained, to decide the issue of whether Mr Nogotkov did in fact breach his duty to the court.

Mr Nogotkov submitted that he had behaved properly as a responsible insolvency practitioner and foreign liquidator investigating allegations of asset stripping in respect of DSL, and that determination of whether he had fulfilled his duty of full and frank disclosure would be academic and serve no useful purpose.

The Hermitage Parties submitted, on the basis of facts agreed for the purposes of the hearing, that Mr Nogotkov's applications to the court were part of a concerted retaliatory campaign by the Russian state against the Hermitage Parties. They submitted that it was in the public interest for the issue of whether Mr Nogotkov breached his duty of full and frank disclosure to be determined, and that they had legitimate reasons for wanting the court to determine it, primarily so as to expose Mr Nogotkov's wrongdoing and prevent abuse of the English court's procedures in the future. On the substantive issue, the Hermitage Parties said that Mr Nogotkov ought to have disclosed to the court the details of criminal proceedings against Mr Browder and Mr Cherkasov in Russia, and that the Hermitage Parties were likely to argue that the public policy exception contained in article 6 of schedule 1 to the CBIR was engaged, because the UK Home Office had refused repeated requests from the Ministry of Internal Affairs of the Russian Federation and other Russian authorities for assistance in the criminal proceedings because ``the Secretary of State [was] of the opinion that to do so [was] likely to prejudice the sovereignty, security, ordre public, or other essential interests of the United Kingdom''. Mr Nogotkov ought also, according to the Hermitage Parties, to have explained to the court that the tax debts allegedly owed to DSL were the same tax debts that had been the subject of the criminal proceedings against Mr Browder and a Mr Sergei Magnitsky, Hermitage's lawyer (``Mr Magnitsky''), who was detained for a year without trial in Russia and died in custody there in 2009. Mr Nogotkov responded by saying that these matters did not need to be disclosed on the application for the Recognition Order, because the Hermitage Parties were unaffected by that Order, and, in any event, the public policy matters complained of were not material to that application.

The judge decided that it was right to determine whether Mr Nogotkov had breached his duty of full and frank disclosure, because the decision affected whether the Recognition Order was to be set aside from its inception, rather than 17 months later. Secondly, it was in the public interest to consider the question because there had been an unprecedented number of steps taken against the Hermitage Parties and Mr Magnitsky in the last fifteen years. Whether or not these steps were properly called a ``retaliatory campaign by the Russian state'' did not matter. They had been ongoing for a long time and there was little or no doubt that the obtaining of the Recognition Order was a further link in the chain of events. There was no reason to suppose that those responsible for these steps, whether or not Mr Nogotkov himself was merely a pawn, were likely to give up or even to stop trying to involve or gain assistance from the UK Government or the courts of England and Wales in this process. The numerous requests for assistance in the criminal proceedings, all of which have been met with the same response from the UK Government, were clear evidence of this. The UK Government's repeated response to these requests was crucial to the identification of where the public interest lay. Whenever the UK Government had been specifically asked to assist elements of the Russian state in relation to Mr Browder and Mr Magnitsky and the criminal proceedings against them, it had responded by saying that the Secretary of State holds the opinion that ``to do so [would be] likely to prejudice the sovereignty, security, ordre public, or other essential interests of the United Kingdom''. The court had to take the views of the UK Government very seriously. The court could not stand by without deciding whether or not there had indeed been inappropriate conduct. The exceptional nature of the case was emphasised.

On the question of whether or not Mr Nogotkov had broken his duty of full and frank disclosure, the court held that Mr Nogotkov intended, at the time he applied for the Recognition Order, to issue an application against the Hermitage Parties. He knew that they would say that his actions were political. That much was clear from his own press release of 1st August 2016, in which he said that ``[a]ny connection of this case with the political processes is being denied''. The agreed facts were enough to demonstrate that the public policy exception in article 6 of schedule 1 to the CBIR might be engaged. Mr Nogotkov knew or ought to have known that UK public policy issues would be raised by his request for the Recognition Order. He ought to have given the court the opportunity to consider whether article 6 was engaged, and whether the Recognition Order ought to be refused on the grounds that ``it would be manifestly contrary to the public policy of Great Britain'', or at least whether it wanted to hear submissions on the point from the parties intended to be the subject of the future applications. The history of the Russian state's actions against the Hermitage Parties were material facts of which the English court needed to be fully and fairly informed, in order to allow it to decide whether or not article 6 was engaged. Mr Nogotkov had been coy in his various affidavits and statements as to precisely what he personally knew. The duty of disclosure applied not only to material facts known to Mr Nogotkov, but also to any additional facts which he would have known if he had made proper inquiries prior to making his application. Mr Nogotkov anyway knew that the actions he was taking were highly charged politically. That was enough to make it incumbent upon him to tell the English court that political issues involving the Russian state might arise. He failed to do so.

In any event, Mr Nogotkov's inquiries about the Russian criminal proceedings meant that he ought to have been aware of the UK Government's responses to previous requests for assistance in relation to the same tax liabilities of DSL, the same Hermitage Parties and Mr Magnitsky. His failure to alert the court to the public policy issues and the political background was inexcusable. The fact that Mr Nogotkov had agreed to pay the Hermitage Parties' indemnity costs out of the estate of DSL in order, at least in large measure, to protect his own professional reputation, suggested that he was not acting as an independent insolvency practitioner in accordance with his duties to the Russian court and the creditor of DSL, the Russian Revenue authorities.

The court could not determine without cross-examination whether or not Mr Nogotkov's breach of duty was deliberate or innocent, but it had serious doubts about the mistake being a genuine one.

The court concluded that Mr Nogotkov was in clear breach of his duty of full and frank disclosure when he applied for and was granted the Recognition Order, and it would so declare in setting aside the order on the application of the Hermitage Parties.

Sir Geoffrey Vos, Chancellor of the High Court :

1. The disposition of the three applications before the court was almost, but not completely, agreed before the hearing began. What remained has, nonetheless, been unusually contentious. That is probably a function of the fact that, to put the matter neutrally, this is another step in a long-running, high-profile and extremely public dispute between various representatives of the Russian state...

To continue reading

REQUEST YOUR FREE TRIAL