In (1) JSC Mezhdunarodniy Promyshlenniy Bank (2) State Corporation “Deposit Insurance Agency” v Sergei Pugachev1, in relation to an application to discharge a worldwide freezing order (the Order), the High Court has recently considered, among other things, (1) the legal requirements for reliance on hearsay evidence and the weight to be given to such evidence and (2) whether the existence of elaborate offshore corporate structures can be relied upon as evidence that there is a risk of dissipation of assets.
This case concerned an application brought by Mr Pugachev, the subject of the Order, to discharge the Order on the grounds that much of the evidence relied upon in obtaining the Order was hearsay, the source(s) of which had not been identified, and that there was insufficient evidence of a risk of dissipation of assets.
The Order had been granted on 29 July 2014 following a without notice application for a worldwide freezing injunction by a Russian bank (the Bank) and Russian state organisation (DIA).
The underlying facts giving rise to the without notice application related to court proceedings brought in Russia against Mr Pugachev following the insolvency of the Bank which he had founded and in which he was alleged to have had an on-going involvement (the Russian Proceedings). The claim made in the Russian Proceedings was that Mr Pugachev was liable under Russian law for “causing” the Bank’s insolvency, and consequently for the Bank’s outstanding debts in the insolvency, or alternatively, the shortfall.
The Practice Direction to CPR 32, at paragraph 4.2, provides that an affidavit must indicate which statements contained in it are made from the “deponent’s own knowledge and which are matters of information or belief; and (2) the source of such information or belief”. These requirements are also contained in the Chancery Guide and CPR 32 PD. 18 (in relation to witness statements).
Section 4 of the Civil Evidence Act 1995 provides guidance as to the weight which is to be given to hearsay evidence, and provides a number of factors to be considered by the court. In particular, it notes inter alia the following factors:
- whether it would have been reasonable and practicable for the original maker of the statement to have been produced as a witness,
- whether the evidence involves multiple hearsay,
- whether any person involved had any motive to conceal or misrepresent matters, and
- whether the circumstances in which the evidence is adduced as hearsay are such as to suggest an attempt to prevent proper evaluation of its weight.
Mr Pugachev’s case
Mr Pugachev alleged that the evidence supporting the application for a freezing injunction, in the form of witness statements provided by the Bank’s English solicitors and a Russian lawyer acting for the DIA, contained a large amount of hearsay evidence, the sources of which were not identified, and therefore any such evidence ought not to be given much weight.
The judge agreed that there were certain technical failings in identifying the sources of information contained in the witness statements. However, he found that these technical failings were either immaterial, or if they were more material, then the “shortcomings in the evidence would be obvious to any tribunal reading the evidence and the effect of it modified accordingly”. Further he concluded that “in the light of subsequent evidence, and putting [the technical failings] in their context, they plainly do not invalidate what [the witness] had to say, and any evidential deficiencies can be taken into account in weighing the pieces of evidence in question”.
Dissipation of assets
An application for a freezing order must be supported by evidence that there is a risk of dissipation of assets.
However, it was Mr Pugachev’s case that there was insufficient evidence in this case to establish the risk “to the relevant standard”. He submitted that it was necessary to demonstrate that the risk of dissipation was high, rather than merely demonstrating that there was a risk. In support of this he cited a passage from Laemthong International v ARTIS2: “The standard of proof of the risk of dissipation is thus relatively high”. However, the judge did not agree that this comment was intended to elevate the standard of proof in all freezing injunction cases.
The evidence of dissipation of assets centred on Mr Pugachev’s historic behaviour in relation to his control or ownership of the Bank, and on his use of offshore corporate structures to conceal the true ownership of assets.
Mr Pugachev sought to rely on the case of Wade v Wade3 to support his proposition that the use of corporate structures does not, in itself, demonstrate that there is evidence of an “unjustified dealing with assets”4. The judge found that whilst in Wade v Wade the court concluded that in the particular circumstances of that case the use of corporate structures was insufficient evidence of a risk of dissipation of assets, the case did not establish the general proposition being advanced by Mr Pugachev. Whilst it was correct that the existence of offshore corporate structures alone was likely to be insufficient evidence to establish a risk of dissipation, in some cases the “quality and nature of the arrangements may be a pointer towards a risk of dissipation”. In particular, elaborate structures of the type which Mr Pugachev seems to have set up would, in the judge’s view, be evidence of a desire to shield assets from view.
The judge rejected Mr Pugachev’s application to discharge the Order.
This case is a useful reminder of the need to take care with the use of hearsay evidence. Whilst in this case the deficiencies in the witness evidence were not fatal, this was because that evidence was either immaterial or, if material, the failings were obvious and so the evidence could be weighed accordingly.
The case also clarifies the position in relation to evidence of dissipation of assets. The mere existence of offshore corporate structures are not necessarily sufficient evidence in themselves, but they may be indicative of the existence of such a risk.