Bank St Petersburg & Anor v Arkhangelsky & Ors

A court may grant declaratory relief for breach of a freezing order against an existing party without a committal application, but the remedy is discretionary. It should be refused where it serves no useful purpose or risks being treated as a contempt finding.

Where a freezing order may deprive defendants of their means of living and funding legal representation, the court must avoid irremediable injustice. If worldwide assets are frozen and substantial evidence of means has been provided, the burden lies on the claimant to show that the evidence is incredible and that undisclosed assets probably exist.

An asset is ordinarily construed in light of the order’s purpose. A company’s assets are not automatically its shareholder’s assets. At an interlocutory stage, allegations of foreign-state involvement should be struck out for act-of-state reasons only where the doctrine plainly and obviously applies.

The claimants sought declarations that the second defendant had breached a worldwide freezing order by surrendering a French-law life insurance policy and by permitting payments from a Bulgarian company’s bank account. They also sought to tighten the order by preventing use of the policy proceeds for living and legal expenses.

The court also considered amendments to the claim and reply, challenges to counterclaims alleging intimidation and politically motivated persecution, the scope of expert evidence on Russian banking practice, and directions for exchanging evidence.

The central issues were whether the alleged dealings breached the order, whether further relief was just and proportionate, whether the counterclaims were adequately pleaded and justiciable, and what expert evidence would assist the trial.

1. Freezing-order applications. The court had jurisdiction to grant a declaration against an existing party without a committal application: CPR 40.20. However, declaratory relief was discretionary. Applying the considerations identified in Nokia Corp v InterDigital Technology Corp [2006] EWCA Civ 1618, the court found no utility in a declaration and a real risk that it would be treated as a contempt finding. The declarations were therefore refused.
2. The proposed tightening of the order was also refused. The court treated the risk of irremediable prejudice to the defendants and their young family as decisive. Because the defendants’ worldwide assets were substantially frozen and evidence of their means had been filed, the burden shifted to the claimants to establish that the defendants’ evidence was incredible and that undisclosed assets probably existed. That burden was not discharged. The court would not impose a total freeze in effect as a substitute for proving contempt.
3. Provisionally, the court considered that the French-law policy, or at least the personal right of surrender, could fall outside the order if it was unassignable, immune from enforcement in France, and incapable of being turned to account for creditors. In any event, surrender for value did not necessarily dissipate an asset: it could make value available to creditors which otherwise would not have been available. The court declined to declare that surrender was a breach.
4. The assets of Petrograd were legally distinct from Mrs Arkhangelsky’s shares in that company. The order did not automatically capture company assets merely because she owned all the shares. On the evidence, the position was at least ambiguous, and the ambiguity favoured the defendant. No unequivocal breach was demonstrated.
5. The proposed amendments were generally permitted, subject to clarification of the pleaded witnesses and to the availability of Russian-law evidence within the existing timetable. The intimidation counterclaim was struck out or prevented from proceeding in its existing form because its legal basis, alleged actors, victims, causal case and supporting facts were insufficiently particularised.
6. The act-of-state doctrine did not plainly and obviously bar the persecution and conspiracy allegations at the interlocutory stage. The allegations were capable of concerning commercial conduct, judicial acts, or conduct not shown to be sovereign acts. They could proceed subject to substantial further particularisation and review at the pre-trial review. Expert evidence was confined principally to matters on which recognised expertise could assist the court, applying section 3 of the Civil Evidence Act 1972 and the approach in Barings Plc v Coopers & Lybrand (No 2) [2001] Ll Rep Bank 85 and Mann v Messrs Chetty and Patel [2000] EWCA Civ 267.
7. The applications for declarations and variation of the freezing order were dismissed. The parties were invited to agree the consequential order, and the time for exchange of witness statements was extended to 25 February 2014.

First-instance decision. The judgment records earlier directions and judgments in the same proceedings, including judgments dated 14 and 22 November 2013, but no appellate decision.