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High Court confirms that an order for disclosure pursuant to a freezing injunction is an order for full disclosure

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

10-05-2018

 

PJSC Tatneft v Bogolyubov & Ors [2018] EWHC 1314 (Comm) (10 May 2018)

 

Facts of the case

– The Claimant obtained a worldwide freezing order (the “WFO”) prohibiting each of the four Defendants from disposing or otherwise dealing with their assets up to a limit of USD380 million (later reduced to USD200 million).

– The WFO was accompanied by a disclosure order requiring each of the Defendants to disclose all of their assets valued at GBP10,000 or more. The second defendant, K, provided a list of assets which was far in excess of the amount frozen under the WFO. K also issued an application to vary the WFO to provide that this list comprised the full disclosure of assets that he was required to make.

– Later, K served an updated asset list that was lower in amount than the original one, and an application for an order that this updated asset list should constitute the only disclosure of assets he was required to make. K’s argument was two-fold:

– the assets disclosed were adequate to cover the amount claimed. Also, they were unencumbered and located in jurisdictions within which any judgment obtained by the Claimant would be readily enforceable;and

– further disclosure would prejudice K since it would expose K to further “unlawful expropriation” by the Russian state as a result of K’s opposition to the annexation of Crimea.

The decision

– The High Court (Mrs Justice Cockerill) found that:

– the default position was for full disclosure, and that it was for the applicant to show the usual order was inappropriate;

– K had failed to satisfy its own “adequate protection” test, as there were “grounds for doubts about the accuracy and robustness” of the valuation of the disclosed assets. The Court observed that there had been some “startling” disparities between the valuations of the assets identified in both the original and the revised lists, “even allowing for the volatility of markets”; and

– the evidence of “unlawful expropriation” was not sufficient to justify derogating from the default position of full disclosure. Nevertheless, in view of the highly confidential nature of the disclosed information, and that K was a high-profile figure at odds with the Russian government, the Court was persuaded to order a confidentiality club.

Analysis and practical advice

– The decision is a reminder that an order for disclosure in the context of a freezing injunctionis an order for full disclosure, and that the cases where the Court derogates from this position are likely to be rare.

– As the Court noted, the “adequate protection” test was a “cherry-picker’s charter” since it would enable a defendant to deliberately disclose only his most difficult assets to enforce against and then sidestep the rest of the obligation. This would plainly subvert the purpose of the freezing order, both as to freezing and as to policing it by disclosure.

– Also, because a freezing order does not ring-fence assets, those disclosed could slip away perfectly legitimately, e.g. because of enforcement action by a creditor who has security over the frozen assets, or because of a disposal by the applicant in the ordinary course of business. Without disclosure above the freezing order limit, a claimant would in such circumstances have no visibility as to the rest of a respondent’s assets, and may as a result be unable to obtain full satisfaction of any future judgment.