Global menu

Our global pages

Close

Court orders disclosure of a freezing order respondent’s source of legal funding as a condition to allowing the respondent to challenge jurisdiction in related proceedings.

  • United Kingdom
  • Financial services disputes and investigations
  • Litigation and dispute management - Freezing Orders

06-11-2017

JSC Mezhdunarodniy Promyshlenniy Bank & Anr v Pugachev & Ors [2017] EWHC 1847 (Ch)

Facts of the case

 

– Mr Sergei Pugachev (“SP”) was the former owner of the largest private bank in Russia. The bank went into liquidation and proceedings were brought against SP by the bank and a Russian state agency dealing with the liquidation for the alleged misappropriation of large sums of money. Following a judgment in Russia, SP was ordered to pay around £1 billion. – SP relocated from Russia to England, where enforcement proceedings were subsequently brought by the Claimants (“Cs“), who also obtained a worldwide freezing order against SP. The freezing order contained standard wording to the effect that SP was permitted to use a reasonable amount of the frozen funds to pay for legal expenses but, before spending the money, should inform the Cs’ lawyers of the source of funds (as reflected in the terms of the standard freezing order contained in CPR PD 25A).

– SP moved from the UK to France and was convicted of contempt of court for breaching a number of English court orders. He was sentenced to two years in prison, which he did not serve. In addition default judgment was obtained against SP in the enforcement proceedings. The Cs continued legal action against a number of trusts allegedly connected with SP. In the middle of trial, SP, who had made no appearance, applied to contest the jurisdiction of the English court, alleging that he had hitherto not been aware of the proceedings (which the English court considered was, prima facie, untrue).

– By reference to the court’s management powers in CPR 3.1(2) and (3), the Cs submitted that the court should impose conditions on SP’s application to challenge the jurisdiction, including a requirement to file and serve an affidavit setting out the source of monies used to fund legal expenses in accordance with the terms of the freezing order.

The decision

– Mr Justice Birss made an order requiring SP to file and serve an affidavit in the terms sought. He found that there was a “properly arguable case” that the money being used to fund his application came from frozen funds and confirmation should be provided of their source. Although counsel for SP stated that the funds came from a French law firm, the judge held that it was “fanciful” that the French lawyers would fund SP’s litigation costs “out of the goodness of their heart”.

– The judge also held that it was appropriate to make SP’s application to challenge the English jurisdiction conditional on compliance with the disclosure order, noting that no other case had been cited in which such a condition had been imposed. In doing so, the judge bore in mind the previous breaches of court orders, the unpurged contempt of court and considered that providing the information could not be said to prejudice or stifle SP’s application.

Analysis and practical advice 

– The decision is consistent with the comments of Mr Peter Smith in his unreported decision in JSC BTA Bank v Solodchenko on 17 January 2011 to the effect that disclosure of the source of funds was intended to prevent a respondent funding a third-party nominee to pay the legal fees and thereby side-step a freezing order.

– This appears to be the first case in which a respondent to a freezing has been ordered to disclose their source of legal funding as a condition to an application to challenge jurisdiction and illustrates the readiness of the court to use its case management powers in novel ways in appropriate cases (albeit the respondent’s egregious conduct was clearly a significant factor in the court’s decision)