The Court of Appeal in JSC Mezhdunarodniy Promyshlenniy Bank V Sergei Viktorovich Pugachev [2015] has required the former director of a failed Russian bank to disclose further information about certain trusts of which he is a beneficiary, pursuant to a freezing injunction over his assets.

Mr Pugachev (the Defendant) used to run the Mezhdunarodniy Promyshlenniy Bank, one of Russia’s largest private banks; he is also a former senator of Tyva Republic, in southern Siberia. In October 2010 the Russian Central Bank revoked the MPB’s licence and appointed an administrator, the State Corporation Deposit Insurance Holder. The following month, the Bank went into liquidation, with an asset deficit of US$2.2bn.

The Bank and the liquidator commenced proceedings in Russia and England, alleging that Mr Pugachev had defrauded the bank by extracting over US$2bn. Mr Pugachev had left Russia for England in early 2011; an Interpol warrant for his arrest was issued in 2014.

Information to support the freezing injunction

The claimants obtained a freezing injunction over Mr Pugachev’s assets. In meeting the terms of the injunction, Mr Pugachev also disclosed that he was one of a class of beneficiaries in five trusts.

It is well established that trust assets can only be considered for inclusion within the scope of a freezing injunction if there was good reason to suppose that the assets held on trust in fact belonged to the subject of the injunction. This is a high standard to be met.

The claimants therefore sought further information regarding these trusts and the underlying assets, to be made by affidavit. This information should include everything that Mr Pugachev knew about the identities of the trustees, settlors, protectors, beneficiaries, the value and location of the assets, and copies of the trust documents themselves.

Mr Pugachev resisted provision of this further information. He contended that a discretionary beneficiary has no rights or claims in respect of the trust assets, and that the claimant had not provided any good reason to suppose that the assets in fact belonged to him.

However, the court held that the claimants had done enough to raise issues “which call for fuller explanation”. The claimants proved that Mr Pugachev had previously been protector of the trusts (the renunciation of which, in response to the freezing injunction, may in itself amount to an attempt to put the assets beyond the reach of the creditors and an indirect admittance of the executive position in the trust). Furthermore, Mr Pugachev lived in the property which belonged to one of the trusts, and maintained his “lavish lifestyle” through the trusts’ assets.

Lord Justice Lewison emphasised that the claimants are only asking for further information from Mr Pugachev. The court’s powers ancilliary to a freezing injunction are very broad, and it is not necessary for an applicant seeking information to meet the same “good reason to suppose” test as applied when seeking to freeze the underlying assets. As to any confidentiality concerns (i.e. Mr Pugachev has confidential documents which a third party supplied to him) the court has wide powers to provide evidence by way of a witness summons under CPR 34.2.

Cross-undertaking and fortification of the freezing injunction

When the original freezing injunction was made, Rose J had required the claimants to give an unlimited cross-undertaking in damages, which the claimants appealed. Lewison LJ has dismissed the appeal, emphasising that Rose J had acted within his discretion, and noting that the cross-undertaking is regarded as the price for the interference with Mr Pugachev’s freedom.

Mr Pugachev had sought fortification of the cross-undertaking, in the amount of £25m. The Court of Appeal refused to grant the fortification, but gave permission to appeal against that decision, having regard to the lack of UK presence of the parties; the challenges in enforcing a UK judgment in Russia; and the risks inherent in the fact that the claimant bank is insolvent.

Our Perspective

This decision provides a good illustration of the courts’ considerable powers not only to issue freezing injunctions, but also to seek extensive information in support. These are potent weapons when pursuing a fraud claim against international parties, and help the claimant to “tighten the noose” around the defendant.

It is clear that overseas litigants continue to regard London as a “safe and neutral forum” overseen by an independent judiciary. This case confirms that a further significant reason for choosing to litigate in London is because the courts provide litigants with a significant arsenal of powerful interlocutory weapons.