Jscmezhdunarodniy Promyshlenniy Bank and Another v Sergei Victorovich Pugachev and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Birss |
| Judgment Date | 13 July 2017 |
| Neutral Citation | [2017] EWHC 1847 (Ch) |
| Docket Number | Case No. HC-2014-000262 |
| Court | Chancery Division |
| Date | 13 July 2017 |
[2017] EWHC 1847 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Rolls Building, Fetter Lane,
London EC4A 1NL
Mr Justice Birss
Case No. HC-2014-000262
Stephen Smith QC, Tim Akkouh AND Christopher Lloyd (instructed by HOGAN LOVELLS INTERNATIONAL LLP) appeared on behalf of the Claimants.
Hodge Malek QC AND Paul Burton (instructed by DEVONSHIRES SOLICITORS LLP) appeared on behalf of the Twelfth to Fourteenth Defendants.
Charles Samek QC AND Nico Leslie (instructed by HUGHMANS SOLICITORS LLP) appeared on behalf of the First Defendant.
Mr Sergei Pugachev was an oligarch. He was also a senator in Russia. He used to own the largest private bank in Russia. The bank went into liquidation. The claimants are the Russian state agency dealing with that kind of insolvency, called the DIA, and the bank itself, which is now controlled by the DIA.
The claimants contend that Mr Pugachev misappropriated very large sums of money from the bank. There was a judgment in Russia against Mr Pugachev for a very large sum in roubles which comes to about £1 billion.
Mr Pugachev says this is all political and that there has been expropriation by the Russian state of his assets, which were worth very large sums of money. Having fled Russia, Mr Pugachev was living in England with his partner, Ms Tolstoy, in London. They have three young children. The children are all under ten years old. The children are the 12 th to 14 th Defendants.
The claimant began enforcement proceedings in England and obtained a worldwide freezing order against Mr Pugachev and various other orders.
These were fought by Mr Pugachev, both via lawyers and counsel on his instructions. Also at times Mr Pugachev appeared as a litigant in person.
In breach of at least one of the court's orders, Mr Pugachev fled to France where he is now living, as far as I can tell. He lives in a large chateau which he controls in the south of France. He lives there with an entourage of bodyguards and others. His entourage includes or included a lady called Natalia Dozortseva, and a gentleman called Mr Mike McNutt, at least at one time. There is clear evidence that both of them have been involved with Mr Pugachev for many years.
He was required to disclose the whereabouts of his assets, and although he did make some disclosure, in clear breach of the orders he failed to disclose them all. One thing that was revealed was the existence of five New Zealand trusts. They ultimately hold various assets. In particular (through other companies) they hold real property in London, in the Caribbean (on the island of St Barts) and in Russia. The Russian property is known as Gorki 10. There are also other assets. The total value of these assets may be something of the order of £100 million or possibly a bit less.
The trusts are discretionary trusts, with New Zealand companies as the trustees. The beneficiaries named in the trusts include the infant children of Ms Tolstoy. There are also other beneficiaries including at least for some of the trusts, Mr Pugachev himself. I cannot now remember, but it does not matter at this stage, whether Mr Pugachev is a named beneficiary in all five trusts.
Following hearings which took place over a year ago, Rose J gave a judgment in February 2016 ( [2016] EWHC 192 (Ch)) finding that Mr Pugachev was in serious breach of numerous court orders and was in contempt of court. Mr Pugachev was sentenced to two years' imprisonment for this contempt, which is the maximum sentence possible ( [2016] EWHC 258 (Ch)). This prison sentence has not yet been served and Mr Pugachev's contempt of court is not purged.
The claimants obtained a default judgment against Mr Pugachev by the order of Henry Carr J on 22 nd February 2016.
As part of the enforcement proceedings the claimants also brought this claim, which I will call "the trusts claim". As Mr Samek QC, who represents Mr Pugachev before me, put it, the purpose of this trusts claim is to bust the trusts.
The claimants seek to establish that either the trust deeds do not achieve anything of substance and/or that the trusts themselves or the documents setting them up are shams, so that in any event, at best, all the property held by the trustees is on a resulting trust for Mr Pugachev himself. That would be because Mr Pugachev was the settlor. In some cases a given transfer of assets into the trusts was from his older son, Mr Victor Pugachev. The claimants' case is that Victor Pugachev was at all relevant times acting as a nominee for his father, Sergei Pugachev. So in any event, the claimants say all the assets are truly held by Mr Pugachev beneficially, and are therefore amenable to this enforcement action. There is also a claim under section 423 of the Insolvency Act 1986.
It is important to note there is no proprietary claim in these proceedings against these assets.
On 18 th May last year I gave permission to the infant children of Ms Alexandra Tolstoy and Mr Sergei Pugachev to defend the trusts in these proceedings. They were joined as 12 th to 14 th Defendants and appear by their mother Ms Tolstoy acting as their litigation friend. Directions were given for a trial, and this is the trial.
It started on Tuesday, 4 th July 2017, and oral evidence and cross-examination began on Monday, 10 th July.
Various judges last year gave directions on various occasions for Mr Pugachev to be served with documents relating to this dispute. In the 18 th May order that I have referred to, when I gave permission for the infant children to defend the claim, I directed service of the Amended Particulars of Claim on Mr Pugachev at an email address which he had been using before, but was by then probably defunct, but also by service at his chateau in France.
Until Monday morning, Mr Pugachev had played no part in this trial.
On about half an hour's notice on Monday morning, Mr Samek QC, for Mr Pugachev, instructed by Hughmans, came to court to apply to adjourn the trial and for directions. This was on the basis that Mr Pugachev contends that the court has no jurisdiction over him. Although there is more to it than this, the submission is essentially that the Judgments Regulation (Recast) (1215/2012) does not apply to these proceedings, whereas, says Mr Samek, the claimants have hitherto assumed that it did. Therefore the default the judgment of Henry Carr J and my order on 18 th May 2016 for service are wrongly made because, it is argued, the claimants needed permission to serve the proceedings out of the jurisdiction under the relevant rule in CPR Part 6 but they did not seek and did not obtain any such permission. Therefore the court has no jurisdiction over Mr Pugachev. For present purposes this summary is sufficient
Mr Jenkins, the solicitor for Mr Pugachev, also explains in his witness statement that Mr Pugachev only became aware of these proceedings in May of 2017, and he had trouble making arrangements with lawyers, and that explains why this application is made, although very, very late indeed.
The point of Mr Jenkins' evidence is that its lateness is justified by those circumstances.
In a judgment given on Monday morning ( [2017] EWHC 1761 Ch) I decided not to adjourn the trial then and there, but to consider the matter further on Wednesday morning at 9.30 to give time before the witnesses were heard at 10:30. That happened. By then it was common ground that Mr Pugachev's application should be heard, subject to what follows, on 26 July 2017. That will be after all the cross-examination of the evidence at the trial is finished (which will finish today) but before the final speeches. So if Mr Pugachev's application succeeds, any change that needs to be made to these proceedings or any impact on them can be taken into account. That may or may not necessitate a recall of witnesses and further cross-examination and submissions, but all those matters are for another day.
By yesterday morning Mr Pugachev had issued a further application to set aside the default judgment entered by Henry Carr J on essentially the same grounds. I decided that, to the extent that it overlaps with the first application, that set aside application can be dealt with at the same time as this jurisdiction application, but to the extent that there are substantial extra issues, they will have to go off to be dealt with on another occasion if necessary.
I should also mention that first thing this morning, I received yet another application. This is one brought by the ex-wife of Mr Pugachev's adult son Alexander to join her children, who are also said to be beneficiaries of one of the trusts, possibly others, as co-defendants. Their mother's name is, forgive me, Julia Pugacheva and she seeks to act as their litigation friend.
Anyway, back to yesterday. On the jurisdiction application, the claimants submitted that I should impose conditions which must be complied with before Mr Pugachev's application should be heard. I heard the parties and reserved judgment yesterday over to today to be done first thing before the witnesses. This is my decision.
In taking the approach I have been taking on Monday, Wednesday and today, I have been...
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