Background

The Defendant, Pugachev, founded a Russian commercial bank, the Claimant, which in November 2010 was declared insolvent and placed into liquidation. Following this, the Defendant moved to England. Proceedings were brought in Russia and in England by the liquidator of the Claimant against the Defendant alleging that he had carried out a number of schemes designed to extract money from the bank for his benefit.

The Defendant was a beneficiary of five trusts. Court Orders were made against the Defendant in July 2014 which required him to disclose his assets. The Orders also required the Defendant to disclose the identities of the trustees and those associated with the trusts, including the settlors, protectors and other beneficiaries along with details of the trust assets.

In August 2014, a confidentiality club was agreed between the Defendant and the Claimant, being an agreement imposing restrictions on disclosure by stipulating one or more of the following: who should have access to the disclosed documents; how those documents may be copied; where the documents may be viewed; and the dissemination of information contained in the documents. Following this, the trustees applied to discharge or, in the alternative, vary the Order.

The Decision

The initial matter for the Court was whether they had jurisdiction to order disclosure in respect of the trusts for the purpose of ascertaining, amongst other things, the extent of the Defendant’s control of assets within the trusts. The trustees submitted that: (i) there was no jurisdiction to make the Order unless the discretionary trusts were shams. (ii) there was no proper reason to think that the trusts were shams (iii) there was no good reason to think that the trust assets might be dissipated; (iv) the risk of injustice to them if the July 2014 Order remained outweighed the risk of injustice to the Claimant if it was discharged; and (v) the Claimant ought to give an undertaking in damages in respect of the July 2014 Orders.

The Court found that where there was uncertainty in respect of the true position of the assets owned or controlled by a Defendant, the Court had jurisdiction to Order disclosure relating to the trusts in order to ascertain the true position, particularly as to the extent of the Defendant’s control of the trust assets. Further, in these circumstances, the Court has the power to order the cross-examination of the Defendant on his disclosure. The Court held that this jurisdiction was not a means of building a case for committal for contempt of Court in failing to comply with the Court’s Order for disclosure, but was essentially a form of oral discovery. Equally, the Court stated that it had jurisdiction to order written disclosure.

Accordingly, the Court found that it did have jurisdiction to order disclosure relating to the trusts for the purpose of ascertaining the true position, in particular as to the extent, if any, of the Defendant’s control of the trust assets.

In respect of the trustees’ argument that there was no reason to think that the trust assets may be dissipated, the Court dismissed this ground on three bases. Firstly, the risk of dissipation was more relevant in respect of the grant of a freezing injunction rather than an Order for disclosure. Secondly, the risk of dissipation is not, on the evidence, dissipation by the trustees but a dissipation of assets out of companies held within the trust structures. If the trust assets did fall within the extended definition of assets in the freezing Order, a distribution to any beneficiary would be a dissipation.

Regarding point (iv) of the trustees’ application the Court concluded that it was desirable that disclosure should be restricted to those who were subject to the jurisdiction of the English Court. Accordingly, membership of the confidentiality club would be restricted in relation to disclosure pursuant to the Order, at least regarding assets located in Russia.

Regarding point (v) of the trustees’ application the Court found that it was inappropriate to vary the Order so as to include an undertaking in damages in favour of the trustees.

Accordingly, subject to the identity of the members of the confidentiality club, the application would be dismissed

Commentary

This case provides affirmation of the Court’s position in respect of English Court’s jurisdiction to order disclosure of trust information where the trust is not based within the United Kingdom. It is useful to Claimants seeking cross-jurisdictional disclosure as it emphasises the Court’s wide powers in this respect.