(1) Jsc Mezhdunarodniy Promyshlenniy Bank and Another v (1) Sergei Viktorovich Pugachev (2) Kea Trust Company Ltd and Others
| Jurisdiction | England & Wales |
| Judge | Lord Justice Bean,Lord Justice Ryder,Lord Justice Jackson |
| Judgment Date | 14 August 2015 |
| Neutral Citation | [2015] EWCA Civ 906 |
| Docket Number | Case No: A3/2015/2544 |
| Court | Court of Appeal (Civil Division) |
| Date | 14 August 2015 |
and
[2015] EWCA Civ 906
Lord Justice Jackson
Lord Justice Ryder
and
Lord Justice Bean
Case No: A3/2015/2544
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE (CHANCERY DIVISION)
MRS JUSTICE ROSE
HC/2014/000262 (formerly HC14D02752)
Royal Courts of Justice
Strand, London, WC2A 2LL
Ben Griffiths, Tim AkkouhandPatrick Harty (instructed by Hogan Lovells) for the Claimants (Appellants)
Hearing date : 11 August 2015
Text for publication with redactions (indicated by square brackets) to omit information derived from the Defendant's disclosure made pursuant to orders of the Chancery Division
This is an application for permission to appeal from an order of Rose J refusing to grant a worldwide freezing order against nine corporate respondents in aid of a claim against the First Respondent, Mr Sergei Viktorovich Pugachev ("Mr Pugachev"), and further injunctions against Mr Pugachev and his son, Victor, the Eleventh Respondent. The hearing before us was, like the hearing before Rose J, in private and without notice.
In 1992 Mr Pugachev, together with a partner, founded the First Claimant bank ("Mezhprom"). In November 2010 the Moscow Arbitrazh Court declared Mezhprom to be insolvent, opened liquidation proceedings and appointed the Second Claimant ("the DIA") as liquidator. On 25 th January 2011 the Russian authorities began a criminal investigation with regard to the insolvency of Mezhprom and three days later Mr Pugachev fled Russia.
On 2 nd December 2013 the Claimants began proceedings against Mr Pugachev in the Moscow Arbitrazh Court. On 11 th July 2014 Henderson J, the first of eight judges of the Chancery Division to have considered this case so far, granted a worldwide freezing order without notice in aid of the Moscow proceedings.
The worldwide freezing order contained the usual orders for disclosure. On 23 rd July 2014 Mr Pugachev provided a schedule of assets in purported compliance with that order. The stated value of the disclosed assets was $70 million. The assets listed in the schedule included interests as a discretionary beneficiary of a number of trusts.
On 25 th July 2014 Henderson J made an order ("the trusts disclosure order") requiring Mr Pugachev to swear an affidavit identifying the trustee(s), settlor(s), any protector(s) and the beneficiaries of each of the trusts and details of the assets which were subject to those trusts, together with copies of the trust deeds. The trusts disclosure order was stayed pending appeal. At a hearing on notice on 29 th July 2014 the worldwide freezing order was continued.
It is unnecessary to set out every interlocutory step in this litigation, but it is sufficient for the moment to note that an application by the original trustees of the trusts to set aside the trusts disclosure order was refused on 30 th October 2014 by David Richards J, and an application by Mr Pugachev to set aside the worldwide freezing order was dismissed on 15 th January 2015 by Mann J.
The first hearing in the Court of Appeal
On 27 th February 2015 this court (Arden, Lewison and Christopher Clarke LJJ) gave judgment dismissing appeals by Mr Pugachev and the original trustees of the trusts against the trusts disclosure order of Henderson J and the order of David Richards J refusing to set it aside.
The substantive judgment ( [2015] EWCA Civ 139) was given by Lewison LJ with whom Arden and Christopher Clarke LJJ agreed. Lewison LJ said:
"10. This is not an appeal against the original freezing order. Nor is it an application to vary its terms. The question for us is whether, under the terms of the freezing order as made, the judge was right to order him to provide information about the discretionary trusts. That in turn is a question of interpretation of the scope of the freezing order, which must be considered in the light of the nature of the interest of a member of a class of potential beneficiaries under a discretionary trust, and the purpose of making freezing orders.
…
13. A beneficiary under a discretionary trust has a right to be considered as a potential recipient of benefit by the trustees. That is an interest which equity will protect. The trustees must apply some objective criterion in deciding whether or not to exercise their discretion in favour of a particular beneficiary; so that each beneficiary has more than a mere hope. But that right is not a proprietary interest in the assets held by the trustees, although it can be described as an interest of sorts: Gartside v IRC [1968] AC 553, 617–8. In some areas of the law, such as matrimonial finance, legislation is drawn widely enough to enable the court to take into account the likelihood that trustees will exercise their discretion in favour of a particular beneficiary in deciding what provision to make for a former spouse on divorce: Whaley v Whaley [2011] EWCA Civ 611. But even then the trust assets are not owned by the beneficiary spouse.
…
15. On the face of it assets held by the trustees of a discretionary trust would not be amenable to execution if judgment is entered against one of the class of potential beneficiaries at the suit of a third party. The trustees might in such circumstances decide to confer a benefit on the beneficiary to save him from bankruptcy; but that would be a matter for them. If they did exercise their discretion in favour of a particular beneficiary the amount of the benefit would thereupon cease to be a trust asset and would become the asset of the beneficiary. It would then truly be his asset."
Lewison LJ went on to consider the judgment of Sir John Chadwick, sitting as President of the Court of Appeal of the Cayman Islands, in Algosaibi v Saad Investments Company Ltd (CICA 1 of 2010), which was considered in this court in JSC BTA Bank v Ablyazov (No. 10) [2014] 1 WLR 1414. He noted that in Ablyazov, Beatson LJ identified three guiding principles:
"i) The enforcement principle. The first and primary principle is that the purpose of a freezing order is to stop the injuncted defendant dissipating or disposing of property which could be the subject of enforcement if the claimant goes on to win the case it has brought, and not to give the claimant security for his claim.
ii) The flexibility principle. The jurisdiction to make a freezing order should be exercised in a flexible and adaptable manner so as to be able to deal with new situations and new ways used by sophisticated and wily operators to make themselves immune to the courts' orders or deliberately to thwart the effective enforcement of those orders.
iii) The strict interpretation principle. Because of the penal consequences of breaching a freezing order and the need of the defendant to know where he, she or it stands, such orders should be clear and unequivocal, and should be strictly construed."
At paragraph 56 of his judgment, Lewison LJ cited the well-known decision of this court in SCF Finance Co v Masri [1985] 1 WLR 876. The claimants had obtained a freezing order not only against the defendant's bank accounts in London but against his wife's as well, on the ground that he was carrying on business using that account. The wife applied to discharge the injunction against her on the ground that the account was hers. The question was whether the court should accept her assertion without further investigation. Hirst J said "no" and this court upheld his decision. Lloyd LJ gave the only reasoned judgment. He said:
"For convenience I would summarise the position as follows: (i) Where a plaintiff invites the court to include within the scope of a Mareva injunction assets which appear on their face to belong to a third party, e.g. a bank account in the name of a third party, the court should not accede to the invitation without good reason for supposing that the assets are in truth the assets of the defendant. (ii) Where the defendant asserts that the assets belong to a third party, the court is not obliged to accept that assertion without inquiry, but may do so depending on the circumstances. The same applies where it is the third party who makes the assertion, on an application to intervene. (iii) In deciding whether to accept the assertion of a defendant or a third party, without further inquiry, the court will be guided by what is just and convenient, not only between the plaintiff and the defendant, but also between the plaintiff, the defendant and the third party. (iv) Where the court decides not to accept the assertion without further inquiry, it may order an issue to be tried between the plaintiff and the third party in advance of the main action, or it may order that the issue await the outcome of the main action, again depending in each case on what is just and convenient. (v) On the facts of the present case the judge was in my view plainly right to hold that he could not decide the matter without further inquiry…"
Lewison LJ continued at [57]:—
"… the critical point is that in our case the assets of the trusts themselves are not within the scope of the freezing order. The "good reason to suppose" test in paragraph (i) [of the cited passage from SCF Finance Co v Masri] supports the making of the freezing order itself. It justifies a policy of "shoot first and ask questions later" but only where there is "good reason to suppose". What are already within the scope of the freezing order granted by...
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