JSC Mezhdunarodniy Promyshlenniy Bank & Anor v Pugachev

A worldwide freezing order supporting foreign proceedings requires a good arguable case and clear, strong evidence of a real risk of dissipation. Civil Jurisdiction and Judgments Act 1982, section 25, extends the availability of interim relief but preserves the ordinary equitable requirements governing its grant.

An applicant seeking relief without notice must disclose all material facts and reasonably apparent defences. Material non-disclosure ordinarily engages the court’s disciplinary jurisdiction, but discharge is discretionary. The court may continue or reimpose the injunction where discharge would be unjust or disproportionate, having regard to the seriousness and effect of the omission and the strength of the case for relief.

The claimants were a Russian bank in liquidation and its liquidator, the Deposit Insurance Agency. They alleged that the defendant had controlled the bank and procured the release of valuable security shortly before its licence was revoked. Russian proceedings sought to impose subsidiary liability exceeding US$2bn under article 14 of the Federal Law on Insolvency (Bankruptcy) of Credit Institutions.

A worldwide freezing order with a £1.2bn ceiling was granted without notice in support of the Russian proceedings under section 25 of the Civil Jurisdiction and Judgments Act 1982. The defendant applied to discharge it for material non-disclosure, absence of a good arguable case, insufficient risk of dissipation, lack of clean hands and disproportionality. The central issue was whether those grounds required the freezing order to be discharged.

1. The application to discharge the worldwide freezing order was dismissed. The claimants had failed to disclose the BDO and VFC shipyard valuations, the novelty of Russian trust-management orders, the brevity of part of the auction process and the potentially prolonged duration of the injunction. Those matters were material because they could support the defendant’s contention that the shipyards had been acquired through politically influenced proceedings at an undervalue.

2. The duty of full and frank disclosure required the claimants to identify material facts and reasonably apparent defences. Disclosure of a general allegation did not necessarily excuse omission of significant supporting detail. Nevertheless, the omissions were neither deliberate nor fundamental. They supported a political-interference point which had already been disclosed in general terms, and the injunction would plainly have been granted had full disclosure occurred. Discharge would therefore have been disproportionate. If the order had been discharged, the court would have reimposed it.

3. Section 25 of the Civil Jurisdiction and Judgments Act 1982 did not confine the court to the statutory question of inexpediency. Ordinary principles governing equitable interim relief remained applicable. The inexpediency inquiry concerned matters such as the practical operation of relief supporting foreign proceedings; it did not displace requirements such as clean hands or the ordinary tests for a freezing order.

4. The Russian claim satisfied the good-arguable-case standard. The Russian-law experts disagreed over whether article 14 could impose liability where the defendant’s conduct increased an existing insolvency rather than first causing insolvency. Although the defendant’s expert had the stronger argument on the material then available, the evidence did not justify treating the claim as legally unarguable. The competing arguments concerning prematurity, accrual and limitation were also respectable.

5. There was sufficiently clear and strong evidence of a risk of dissipation. The evidence included the disputed release of valuable security, transactions arguably conferring personal benefits, elaborate offshore structures capable of shielding assets, and substantial evidence that the defendant had retained control of the bank despite public denials. Offshore ownership alone would not suffice, but the quality and nature of the structures could contribute to the inference.

6. Disputed allegations of misconduct by the claimants could not establish an absence of clean hands without findings of fact. The freezing order was not disproportionate merely because the disclosed assets were worth only a small fraction of the claim. Assets worth approximately US$70m remained significant.

• High Court, Chancery Division: Mann J dismissed the defendant’s application to discharge the worldwide freezing order.

• High Court, Chancery Division: On 29 July 2014 Henderson J continued the freezing order by consent, without prejudice to the defendant’s right to seek discharge. Henderson J had originally granted freezing relief without notice on 11 July 2014.

• High Court, Chancery Division: Rose J subsequently ordered an unlimited cross-undertaking in damages fortified by payment of US$25m into the jurisdiction. An oral application for permission to appeal that order remained outstanding.