JSC Mezhdunarodniy Promyshlenniy Bank & Anor v Pugachev & Ors, Court of Appeal - Chancery Division, October 30, 2014, [2014] WLR(D) 458,[2014] EWHC 3547 (Ch)

Resolution Date:October 30, 2014
Issuing Organization:Chancery Division
Actores:JSC Mezhdunarodniy Promyshlenniy Bank & Anor v Pugachev & Ors
 
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Case No: HC14DO2752

Neutral Citation Number: [2014] EWHC 3547 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Royal Courts of Justice

Rolls Building,

London, EC4A 1NL

Date: 30 October 2014

Before :

MR JUSTICE DAVID RICHARDS

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Between :

(1) JSC MEZHDUNARODNIY PROMYSHLENNIY BANK

(2) STATE CORPORATION ``DEPOSIT INSURANCE AGENCY''

Claimants/Respondents

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SERGEI VIKTOROVICH PUGACHEV

Defendant

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KEA TRUST COMPANY LIMITED & OTHERS

Applicants

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Jonathan Adkin QC (instructed by Farrer & Co LLP) for the Applicants

Stephen Smith QC and Ben Griffiths (instructed by Hogan Lovells International LLP)

for the Claimants

Hearing dates: 8 and 9 October 2014

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JudgmentMr Justice David Richards:

  1. This is an application by the trustees of five discretionary trusts to discharge or vary an order for disclosure of information relating to the trusts made against one of the discretionary beneficiaries of the trusts as part of a worldwide freezing order against him.

  2. On 11 July 2014, Henderson J made the freezing order against Sergei Pugachev together with an order for disclosure of assets. Pursuant to that order, as varied by a further order dated 18 July 2014, Mr Pugachev served a schedule of assets on 23 July 2014. The schedule included information that Mr Pugachev is one of a class of discretionary beneficiaries of five named New Zealand-based trusts.

  3. On 25 July 2014, the return date of the order made without notice on 11 July 2014, the claimants applied for and obtained from Henderson J an order that Mr Pugachev disclose to the best of his ability:

    i) the identity of the trustee(s), settlor(s), any protector(s) and the beneficiaries of the trusts; and

    ii) details of the trust assets on 14 July 2014, including their value and location.

    He is also required to produce copies of the trust deeds in his control. This order (the trust disclosure order) contains the following liberty to apply:

    ``7. Anyone who is served with or notified of this order may apply to the court to vary or discharge this order (or so much of it as affects that person), but they must first inform the Applicants' solicitors. If any evidence is to be relied upon in support of the application, the substance of it must be communicated in writing to the Applicants' solicitors in advance.''

  4. Only very short notice of the intention to apply for the trust disclosure order was given to Mr Pugachev. The claimants, of course, only learned of the existence of the discretionary trusts when they received Mr Pugachev's schedule of assets on 23 July 2014. Their solicitors raised questions about the trusts in a letter to Mr Pugachev's solicitors on 24 July 2014 to which his solicitors replied on the same day. Later in the day counsel for the claimants supplied to Mr Pugachev's counsel their skeleton argument for the return date hearing on the following day. The intention to seek disclosure in relation to the trusts was referred to in the skeleton, without in any sense being fully argued. Counsel for Mr Pugachev did not have the opportunity of dealing with this in their skeleton argument, but the matter was argued before Henderson J on 25 July 2014.

  5. The present application is made by the trustees of the five discretionary trusts. The application notice names the applicants as Kea Trust Co (as trustee of the London Residence Trust and the Kea Three Trust) and ``the trustees'' of the remaining trusts. This generic description did not comply with the requirements of CPR PD 23A para.2.1 and no good reason was advanced for permitting non-compliance with it, even assuming power to do so exists. Accordingly, I directed disclosure of the names of the applicants, which were provided in the course of the hearing by counsel. While Kea Trust Co is the trustee of two of the trusts, each of the other trusts has a separate corporate trustee. All the trustees are incorporated in New Zealand.

  6. The question was raised at the start of the hearing as to whether and, if so, to what extent the hearing should be in private. The hearing before Henderson J on 25, 28 and 29 July 2014 had for the most part been held in private and some information provided by Mr Pugachev, as to his living expenses and some assets, was and remains subject to a confidentiality regime. I directed, pursuant to CPR 39.2(3)(c) that the hearing should be in private but only while it was necessary to refer to the detail of the information protected by the confidentiality regime.

  7. It appeared to me that, in accordance with the general rule that hearings should be in public, this hearing should to the maximum extent possible be in public. Not only is an order freezing assets on a worldwide basis and requiring disclosure of worldwide assets among the most far reaching and intrusive powers available to the civil courts, but in this case the power is invoked in aid of proceedings not in England but in aid of civil proceedings brought by a Russian state body in the Russian courts. This is clearly a matter of legitimate public interest. In the event, most of the hearing was in public.

  8. For present purposes, only a very brief summary of the proceedings and the parties is required.

  9. The claimants are JSC Mezhdunarodniy Promyshlenniy Bank (the Bank) and its liquidator, appointed by the Russian court, State Corporation ``Deposit Insurance Agency'' (the DIA). The Russian liquidation of the Bank was recognised by an order made by Henderson J on 11 July 2014 pursuant to the Cross Border Insolvency Regulations 2006. In the affidavit made on behalf of the claimants in support of the application for the freezing order, the DIA was described as:

    ``A Russian ``state corporation'', a non-profit organisation established by the Russian state for the benefit of the public welfare and accountable, amongst other things, to the Russian Central Bank (the Central Bank). The DIA's primary purpose is to maintain and operate a deposit insurance scheme to protect individual depositors of failed Russian banks. In addition, it also acts as the liquidator, in certain circumstances, of such banks.''

  10. The Bank was founded by Mr Pugachev in the early 1990s and it grew to become one of Russia's largest privately owned commercial banking groups. On 4 October 2010, the Russian Central Bank revoked the Bank's banking licence and appointed a ``temporary administration''. On 30 November 2010, the Bank was declared to be insolvent by the Russian court and placed into insolvent liquidation. The claimant's evidence is that the deficiency in the Bank's assets at that date was approximately RUR 70.1 billion (US$2.2 billion). Mr Pugachev left Russia in early 2011 and presently resides principally in London.

  11. The DIA, as liquidator of the Bank, has brought proceedings against Mr Pugachev in Russia, alleging that, following receipt by the Bank of substantial loans from the Russian Central Bank in order to recapitalise it in about December 2008, Mr Pugachev carried out a number of schemes designed to extract money from the Bank for the benefit of himself and companies under his control. The amounts claimed exceed US$2 billion. Similar proceedings have also been commenced in England. Mr Pugachev denies these allegations.

  12. The freezing order against Mr Pugachev was made under section 25 of the Civil Jurisdiction and Judgments Act 1982 in aid of the Russian proceedings. It was not made in aid of the English proceedings, although the claimants issued an application for an order in aid of those proceedings which has been adjourned generally.

  13. Paragraph 5 of the freezing order dated 11 July 2014 froze assets up to a value of £1,171,490,852. It applied to the assets of Mr Pugachev and to the assets of certain bodies corporate which are directly or indirectly owned or controlled by Mr Pugachev and which have no or no substantial trading activities. Paragraph 6 provides:

    ``Paragraph 5 applies to all the Respondent's assets whether or not they are in his own name and whether they are solely or jointly owned and whether the Respondent is interested in them legally, beneficially or otherwise. For the purpose of this order the Respondent's assets include any assets which he has the power, directly or indirectly, to dispose of or deal with as if it were his own. The Respondent is to be regarded as having such power if a third party holds or...

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