JSC Mezhdunarodniy Promyshlenniy Bank & Anor v Pugachev & Ors

A freezing order may extend to assets held by a trust or other third party where there is good reason to suppose that the defendant retains beneficial ownership or effective control. Where the true position is uncertain, the court may order written disclosure to ascertain whether assets fall within the order. A non-party trustee is entitled to challenge such an order where the order affects trust assets or confidential trust information. Privity of interest is fact-sensitive and cannot generally be assumed between trustees and a single discretionary beneficiary. Disclosure orders do not ordinarily require an undertaking in damages, although such an undertaking may be appropriate where credible evidence shows a real risk of loss. Confidentiality arrangements may properly restrict disclosure to persons subject to the court’s jurisdiction.

The claimants had obtained a worldwide freezing order and asset-disclosure order against Sergei Pugachev in aid of Russian proceedings. The disclosure order required information about five New Zealand discretionary trusts of which Mr Pugachev was a discretionary beneficiary. The trustees applied under the order’s liberty to apply to discharge or vary it, relying on confidentiality, lack of jurisdiction, absence of dissipation risk, injustice, and the lack of an undertaking in damages.

The application followed an order made by Henderson J on 25 July 2014. The central issues were whether the court could require disclosure concerning trust structures to determine whether Mr Pugachev controlled assets within them, and what safeguards were appropriate.

1. Jurisdiction and privity. The trustees were entitled to apply under the express liberty to apply. They were directly affected because the order required disclosure concerning assets owned by them and the identity of beneficiaries. The order was not binding on them merely because of alleged privity of interest with Mr Pugachev. Although sufficient privity may exist where a beneficiary controls a trust and is its sole or principal beneficiary, the evidence did not establish that position. The issue was premature, particularly because the trustees had not been notified of the earlier application.
2. Scope of the freezing order. The purpose of a freezing order is to preserve assets available for enforcement, but its standard wording extends to assets held by third parties where the defendant retains beneficial ownership or effective control. The evidence concerning Mr Pugachev’s residence, lifestyle and connections with the trusts gave good reason to investigate whether assets within the trust structures were under his control. It was unnecessary for the claimants to allege that the trusts were shams.
3. Disclosure. The court had jurisdiction to order written disclosure to ascertain the true position. Such disclosure was a form of oral or written discovery and was not confined to assets already proved to fall within the freezing order. The absence of a demonstrated risk that the trustees themselves would dissipate assets did not defeat the order. A gratuitous distribution from assets within the order could itself amount to dissipation.
4. Safeguards and undertaking. Disclosure concerning assets in Russia was restricted, initially, to persons subject to the jurisdiction of the English court, with liberty to the claimants to seek wider disclosure. An undertaking in damages was not required. Such undertakings are not ordinarily required for disclosure orders, although exceptional circumstances supported by evidence of a real risk of loss might justify one.
5. The application was dismissed, subject to directions concerning the membership of the confidentiality club.

The application arose from a freezing and disclosure order made by Henderson J on 25 July 2014. Permission to appeal that order was later granted by the Court of Appeal, but this judgment determined the trustees’ separate application to discharge or vary the disclosure order.