Denton v White

The Court of Appeal allowed an appeal from Rose J and extended a previously granted worldwide freezing order to cover four original New Zealand trustee companies, four newly incorporated New Zealand trustee companies and Luxury Consulting Ltd. The court applied established freezing-injunction principles including the enforcement, flexibility and strict-interpretation principles derived from earlier authority (including SCF Finance Co v Masri and the Chabra line of cases) and held that a Chabra-style order against third parties holding assets for a defendant may be made on a without-notice basis where there is a good arguable case and a real risk of dissipation. The court rejected Rose J's conclusions on procedure, delay, risk of dissipation and expediency under section 25(2) of the Civil Jurisdiction and Judgments Act 1982, finding in each respect that the claimants had shown a good arguable case that the trusts were under the control of Mr Pugachev and that extension of the freezing order was necessary and appropriate.

Background and parties: The appellants are JSC Mezhdunarodniy Promyshlenniy Bank and the Deposit Insurance Agency acting as liquidator of the bank. The principal respondent is Mr Sergei V. Pugachev. The dispute arose after the bank was declared insolvent in Russia and the claimants obtained a worldwide freezing order in the English courts in aid of proceedings in the Moscow Arbitrazh Court.

Procedural history: Henderson J granted the original worldwide freezing order. A trusts disclosure order was made and upheld on appeal to the Court of Appeal ([2015] EWCA Civ 139). Rose J later refused, on an ex tempore basis, a without-notice application to extend the freezing order to a number of trustee companies and to Luxury Consulting Ltd; the claimants obtained permission to appeal that decision.

Nature of the application: The claimants sought to extend the freezing order to the named trustee companies and Luxury Consulting Ltd on three alternative bases: (i) that the trust assets were beneficially owned by Mr Pugachev; (ii) that there was a good arguable case under section 423 or section 339 of the Insolvency Act 1986 that the assets had been transferred to defeat creditors; and (iii) that the trustees held assets under Mr Pugachev's control such that a Chabra order was appropriate.

Issues for decision: The court framed the issues as (i) whether the claimants had adopted the correct procedural route to bring the trustees within the freezing order, (ii) whether the claimants had delayed unduly, (iii) whether there was a real risk of dissipation of the trust assets, (iv) whether it would be inexpedient under section 25(2) of the Civil Jurisdiction and Judgments Act 1982 to make orders that might overlap with New Zealand proceedings, and (v) whether relief was required against Luxury Consulting Ltd.

Reasoning and subsidiary findings: Lord Justice Bean (with whom the other members of the court agreed) concluded that (a) established authority permits Chabra-type orders against third parties holding assets for a defendant where there is a good arguable case and real risk of dissipation, (b) the terms of the trust deeds, the history of the litigation, Mr Pugachev's flight in breach of passport orders and the timing and unexplained replacement of trustees shortly after his departure provided good reason to suppose he exercised effective control of the trust assets, (c) delay was not decisive where a real risk of dissipation remained, (d) the expediency concern under section 25(2) was met by granting the relief with the usual liberty to apply so that any potential conflict with New Zealand proceedings could be addressed, and (e) Luxury Consulting Ltd should be included because it functioned as Mr Pugachev's personal vehicle for assets and only two disclosed accounts had been frozen by the bank.

Outcome: The Court of Appeal granted permission to appeal, allowed the appeal, and extended the worldwide freezing order to the trustee companies and Luxury Consulting Ltd.

Appeal allowed. The Court of Appeal held that a Chabra-type extension of a worldwide freezing order to third-party trustees and an associated company was justified on the material before the court: there was a good arguable case that Mr Pugachev exercised effective control over the trusts, a real risk of dissipation persisted notwithstanding delay, and any potential conflict with New Zealand proceedings could be managed by the usual liberty to apply. Accordingly the freezing order was extended to the trustee companies and Luxury Consulting Ltd.

The appeal to this Court followed an order of Rose J refusing to extend a worldwide freezing order. Earlier stages include a freezing order granted by Henderson J and related orders and refusals by David Richards J and Mann J; an earlier Court of Appeal decision on the trusts disclosure order is reported at [2015] EWCA Civ 139. Further interlocutory steps occurred in the Chancery Division under case HC/2014/000262.