Vneshprombank LLC (a company registered and (in Liquidation) in the Russian Federation) v Georgy Ivanovich Bedzhamov
| Jurisdiction | England & Wales |
| Judge | Lord Justice Males,Lord Justice Newey,Sir Geoffrey Vos |
| Judgment Date | 19 November 2019 |
| Neutral Citation | [2019] EWCA Civ 1992 |
| Docket Number | Case No: A3/2019/1937 & A3/2019/2400 |
| Court | Court of Appeal (Civil Division) |
| Date | 19 November 2019 |
Sir Geoffrey Vos, CHANCELLOR OF THE HIGH COURT
Lord Justice Newey
and
Lord Justice Males
Case No: A3/2019/1937 & A3/2019/2400
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (ChD)
His Honour Judge Jarman QC (Sitting as a Judge of the High Court)
[2019] EWHC 1906 (Ch)
and
Mr Justice Arnold
(5th September 2019)
Royal Courts of Justice
Strand, London, WC2A 2LL
Justin Fenwick QC and Andrew Trotter (instructed by Mishcon de Reya LLP) for the Appellant
Romie Tager QC, Phillip Kremen and Simon McLoughlin (instructed by Keystone Law) for the Respondent
Hearing date: 30 th October 2019
Approved Judgment
Introduction
A freezing order against an individual defendant will invariably provide that it “does not prohibit the Respondent from spending £x a week towards his [or her] ordinary living expenses”. But some defendants have living expenses which by any normal standards are quite extraordinary.
Georgy Bedzhamov is one such. He is currently permitted to spend £80,000 per month on his living expenses, but contends on this appeal that this figure should be increased to £310,000 per month and that he should in addition be permitted to pay a substantial advance on the rent of a luxury flat in Mayfair. Mr Bedzhamov (who is the first defendant in this action and the appellant on this appeal) maintains that the money which he wishes to spend is his money as there is no proprietary claim against him and he should therefore be free to spend it as he wishes; that expenditure on this lavish scale is necessary to enable him to maintain the standard of living which he enjoyed before the imposition of the freezing order; and that to compel him to reduce that standard of living would be contrary to the principles which govern the making of such orders. He accepts that as his available liquid assets are reduced by such expenditure, and if he is unable to obtain new sources of income, a time may come when he will be forced to reduce his level of spending, but says that this should be his decision and is not something which should be forced upon him by the court now.
HHJ Jarman QC accepted that it is unjust for a defendant to have to reduce his lifestyle because of a freezing order, at any rate in the case of a non-proprietary claim, and that this principle applies equally when the defendant's lifestyle is lavish rather than modest. He held that the focus of enquiry needs to be upon what the defendant has been accustomed to spend by way of living expenses before the imposition of the freezing order. But he also held that it was necessary to assess whether the defendant would have continued to incur such expenses if the freezing order had not been made. He found that Mr Bedzhamov's current level of spending on living expenses was unsustainable having regard to his available liquid assets, the absence of an income and of any immediate prospect of an income, and his overall financial position. In the light of those matters, he arrived at a figure of £80,000 per month for living expenses, which figure includes rent.
The immediate consequence of the judge's figure was that Mr Bedzhamov and his family were unable to continue to live in either of the two properties, in London and Monaco, in which they had been living before the making of the freezing order.
Mr Justin Fenwick QC for Mr Bedzhamov contends that the judge was right to say that a defendant should not have to reduce his lifestyle because of a freezing order, but that he did not properly apply this principle. Instead of speculating about what a defendant would have done in the absence of a freezing order or would do in the future, a judge should simply determine as a question of fact what the defendant's living expenses were before the making of the freezing order. That is what the defendant should be permitted to spend. Whether he chooses to do so is a matter for him.
Mr Romie Tager QC for Vneshprombank LLC (“VPB”), the claimant in this action and the respondent to the appeal, contends that the relevant question is what the defendant's ordinary living expenses will be after the making of the freezing order. He submits that although in many cases past expenditure may be the best evidence of this, that is not so in the present case where Mr Bedzhamov's financial circumstances have deteriorated dramatically, he has no income and no prospect of obtaining one, and his only available source of liquid assets is being rapidly depleted, in particular by the legal costs which are being and will have to be spent to defend himself in this action. In circumstances where Mr Bedzhamov acknowledged in his evidence that he would have to reduce his living expenses but gave no evidence of how he proposed to do so, the judge was entitled to do the best he could in arriving at a figure for living expenses which took account of the way in which a rational person in Mr Bedzhamov's position would act.
Accordingly we have to consider what the court's approach to the “ordinary living expenses” exception in a freezing order should be. We are concerned in this case with a pre-judgment freezing order. Different considerations may apply to a freezing order granted, or which remains in place, after judgment. I say nothing about that situation.
There is a further issue whether Mr Bedzhamov should be permitted to use the monies which are frozen to discharge what he contends are certain debts owed by him to third parties.
Background
VPB is a Russian bank now in liquidation. Its President and the head of its Management Board was Larisa Markus, Mr Bedzhamov's sister. VPB claims that although Mr Bedzhamov was not a director of VPB and held no formal position with it, together with his sister he exercised de facto control until December 2015.
On 18 th December 2015 the Bank of Russia appointed provisional administrators over VPB and on 14 th March 2016 VPB was declared bankrupt. The State Corporation “Deposit Insurance Agency” was appointed to act as its liquidator.
It is VPB's case in this action that it was the victim of a substantial fraud committed by Mr Bedzhamov and his sister which came to light after the appointment of the liquidator. In outline, VPB says that there were four categories of wrongdoing, in each of which Mr Bedzhamov was complicit. These were (1) causing VPB to enter into purported loan agreements with actual customers of the bank of which those customers were ignorant, enabling the funds thus advanced to be misappropriated, (2) diverting funds from accounts held by genuine customers of the bank, (3) causing VPB to enter into loan agreements with shell companies which never had any prospect of repaying the funds advanced, and (4) making fictitious credits to accounts of companies controlled by the conspirators which were then used to discharge genuine debts owed by them to VPB or third parties.
VPB estimates that as a result of this fraud it has suffered losses in excess of the rouble equivalent of £1.34 billion and that Mr Bedzhamov has benefited personally from the fraud in a sum of at least the rouble equivalent of about £35.4 million.
Ms Markus was the subject of criminal proceedings in Russia. She pleaded guilty and on 12 th May 2017 was sentenced to imprisonment for nine years for fraud and embezzlement although this was subsequently reduced.
In this action VPB claims damages in the sum of £1.34 billion or equivalent from Mr Bedzhamov under various provisions of Russian law. There is, however, no proprietary claim against him.
Mr Bedzhamov denies having had any involvement in the management or operation of VPB. He says that if VPB was the victim of a fraud, which he does not know, it was nothing to do with him and to his knowledge neither he nor any company owned or controlled by him received any benefits derived from the fraud. He acknowledges that his sister decided not to contest the charges against her, but maintains that she did so in order to obtain a reduced sentence in circumstances where she would be unlikely to obtain a fair trial. He says that the allegations against him, which include the commencement of criminal proceedings against him in Russia, are politically motivated and false.
Mr Bedzhamov's circumstances prior to the freezing order
Mr Bedzhamov describes himself as a businessman with (until December 2015) valuable investments in real estate, engineering, glass production, shipping and mining, and a net worth of approximately US $0.5 billion. He lived in Moscow with his partner of 20 years, Alina Zolotova, their three children (now aged 16, 11 and six) and his partner's daughter (aged 22) by her former husband. He owned the home in which they lived. The children were privately educated. The family had a luxurious lifestyle. Mr Bedzhamov collected cars, vintage wine and art, bought expensive clothes for himself and his partner, provided generous allowances to the children, took the family on frequent holidays, employed numerous staff including private security guards, and had the use of a luxury yacht and private jet. He estimates that his annual living expenses amounted to about US $2 million which was covered by the income from his various companies.
Mr Bedzhamov's evidence is that he left Russia in December 2015. He was in Monaco on the morning of 18 th December, where his family was to join him for the Christmas holiday, when he heard that armed police...
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Table of cases
...100 Vitre v St Peter’s Estonian Evangelical Lutheran Church, 2010 BCSC 296 ......... 53 Vneshprombank LLC v Bedzhamov, [2019] EWCA Civ 1992 ........... 190, 196, 198 Volker Stevin NWT (’92) Ltd v Northwest Territories (Commissioner), [1994] NWTR 97, 113 DLR (4th) 639, [1994] 4 WWR 236 (CA) ......