JSC Mezhdunarodniy Promyshlenniy Bank and Another v Sergei Viktorovich Pugachev
| Jurisdiction | England & Wales |
| Judge | Lord Justice Lewison,Lord Justice Christopher Clarke,Lady Justice Arden |
| Judgment Date | 27 February 2015 |
| Neutral Citation | [2015] EWCA Civ 139 |
| Docket Number | Case No: A3/2014/2535/3196/3781 |
| Court | Court of Appeal (Civil Division) |
| Date | 27 February 2015 |
[2015] EWCA Civ 139
Lady Justice Arden
Lord Justice Lewison
and
Lord Justice Christopher Clarke
Case No: A3/2014/2535/3196/3781
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE, CHANCERY DIVISION
The Honourable Mrs Justice Rose & Mr Justice Henderson & Mr Justice David Richards
HC-2014-000262
Royal Courts of Justice
Strand, London, WC2A 2LL
Stephen Smith QC & Ben Griffiths (instructed by Hogan Lovells International LLP) for JSC Mezhdunarodniy Promyshlenniy Bank & Anr
Francis Tregear QC & Alexander Milner (instructed by Fried, Frank, Harris, Shriver & Jacobson (London) LLP) for Mr Pugachev
Jonathan Adkin QC (instructed by Farrer & Co LLP) for Kea Trust Company Ltd & Ors
Hearing dates: 17 – 19 February 2015
There are three appeals before the court, all of which relate to powers exercisable in connection with the grant of a freezing order. The questions that they raise are:
i) Does the court have jurisdiction to order a member of a class of beneficiaries under a discretionary trust to make disclosure of the details of the trust and the trust assets?
ii) If so, in what circumstances should that jurisdiction be exercised?
iii) In what circumstances can the court require a cross-undertaking in damages unlimited in amount from a claimant who acts as liquidator of an insolvent corporation?
iv) Was it permissible on the facts of this case to require the cross-undertaking to be fortified?
It is not necessary to do more than to give a very short account of the underlying dispute in order to put these questions into context. In the early 1990s Mr Pugachev founded the JSC Mezhdunarodniy Promyshlenniy Bank ("the Bank") in Russia. 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 temporary administration. The court appointed liquidator is State Corporation "Deposit Insurance Agency" ("the DIA"). The Bank and the DIA are the two claimants in the action. The DIA is 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."
Mr Pugachev left Russia in early 2011 and presently resides principally in London. 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. The deficiency in the Bank's assets at the date of its entry into liquidation was approximately RUR 70.1 billion (US$2.2 billion).
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 scheme 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.
The freezing order with which we are concerned was made in aid of the Russian proceedings under section 25 of the Civil Jurisdiction and Judgments Act 1982. It was granted by Henderson J on 11 July 2014, and its material parts are as follows:
"5. Until the return date or further order of the court the Respondent must not –
(1) remove from England and Wales any of his assets which are in England and Wales up to the value of [£1.1 billion]
(2) in any way dispose of, deal with or diminish the value of any of his assets whether they are in or outside England and Wales up to the same value
(3) if the Respondent has assets outside England and Wales, dispose or deal with those assets outside England and Wales unless the value of his assets in England and Wales remains above [£1.1 billion]
(4) in respect of bodies corporate which are directly or indirectly owned and/or controlled by the Respondent and have no substantial trading activities … procure or permit those bodies corporate to deal with any of their respective assets unless the value of his assets in England and Wales … remains above [£1.1 billion]…
6. 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 purposes of this order the Respondent's assets include any asset 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 controls the asset in accordance with his direct or indirect instructions.
7. This prohibition includes the following assets in particular:
…
(c) any interest under any trust or similar entity including any interest which may arise by virtue of the exercise of any power of appointment, discretion or otherwise howsoever.
…
9. (1) … the Respondent must … inform the Applicants' solicitors of his assets worldwide exceeding £10,000 in value as at the time this order is served whether in his own name or not and whether solely or jointly owned, giving the value, location and details of all such assets. "
Disclosure was provided in a schedule attached to a letter from Mr Pugachev's solicitors dated 23 July 2014. Section L of the Schedule stated:
"SP is one of a class of discretionary beneficiaries under the following New Zealand based trusts:
43.1 London Residence Trust
43.2 Kea Three Trust
43.3 Green Residence Trust
43.4 Riviera Residence Trust
43.5 Wiltshire Residence Trust"
No further details of these trusts were given. The claimants applied to Henderson J for an order that Mr Pugachev be required to provide further information about these trusts and on 25 July Henderson J made such an order. It required Mr Pugachev to:
"… swear… an affidavit setting out to the best of his ability (i) the identity of the trustee(s), settlor(s), any protector(s), and the beneficiaries of, and any other person carrying on some or all of the functions of a protector or trustee under another title in relation to the trusts referred to in paragraphs 43.1 to 43.5 of the schedule of assets … and (ii) details of the assets which were subject to those trusts at as … 14 July 2014 (including their value and location)."
He was also required to supply copies of the trust deeds relating to those trusts which were in his control or which he had a right to inspect or copy. The trustees of the trusts then applied to David Richards J to discharge those paragraphs of Henderson J's order. On 30 October 2014 he refused to do so. Mr Pugachev's appeal against Henderson J's order and the trustees' appeal against David Richards J's order are the first two of the three appeals.
When Henderson J granted the original freezing order on 11 July 2014 the claimants gave a cross-undertaking in damages, limited to USD $75 million. Mr Pugachev applied for an order discharging the freezing order unless the claimants gave a cross-undertaking unlimited in amount; and also fortified it by making an appropriate payment into a bank account in England to be held to the order of the court. On 19 September 2014 Rose J ordered that the continuation of the freezing order should be conditional on the provision of a cross-undertaking unlimited in amount; and ordered that the cross-undertaking be fortified by the payment of USD $25 million. The claimants appeal against the first of these rulings; and ask for permission to appeal against the second.
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.
In granting the order for disclosure Henderson J held that the words in paragraph 7 (c) of the freezing order "any interest under a trust" were wide enough to encompass the interest of a member of a class of potential beneficiaries under a discretionary trust. He said that although that interest was not a proprietary interest of a conventional type, it was in realistic terms an interest which can have considerable value. Accordingly he held that the order compelled Mr Pugachev to disclose his status as beneficiary under the trusts, which he has of course done. Henderson J then said that the court had power to make ancillary orders which will "enable the trust interest to be ascertained and policed by the claimants". He thus concluded that he should make the disclosure order sought:
"… with a view to enabling the claimants … to take a view on the true nature of the trusts, the nature of Mr Pugachev's interests in them and to...
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