JSC Mezhdunarodniy Promyshlenniy Bank & Anor v Pugachev & Ors

A freezing order is not security for a claim and ordinarily permits reasonable living and legal expenses. An applicant seeking access to frozen assets must show that no other assets are available, but the court may refuse relief where the evidence is inadequate or disclosure has been materially deficient. The same approach applies where trustees seek a variation for a beneficiary’s benefit. The court considers the beneficiary’s need, the amount and purpose of the expenditure, and the absence of alternative funding. Trustees subject to a Chabra order may be required to preserve trust assets and need not be given a general liberty to make unidentified future payments.

The claimants sought to enforce in England a Russian judgment for approximately 75.6 billion roubles against the first defendant. Earlier proceedings had produced a worldwide freezing order against him and, subsequently, a Court of Appeal freezing order against trustees of New Zealand discretionary trusts on a Chabra basis.

The sixth to ninth defendants, the current trustees, applied to vary the order. They sought authority to make payments from trust assets for the first defendant’s living and legal expenses, for other beneficiaries’ expenses, and to reduce the sterling amount specified in the freezing orders. The central issues were whether the proposed payments were justified and whether the trustees, rather than the beneficiary or the person primarily restrained, could obtain the variations.

1. Applications dismissed. The current trustees could not obtain variations permitting payments for the first defendant where the court would have refused an application by him personally.
2. A freezing order is not intended to provide security for a claim. It ordinarily permits reasonable living and legal expenses. However, the applicant must establish that no other assets are available. The burden lies on the applicant, and the court may maintain a healthy scepticism towards assertions where the evidence or disclosure has been deficient. The ultimate test is what is just and convenient under section 37(1) of the Senior Courts Act 1981.
3. The evidence did not establish the financial position of Luxury Consulting or that the first defendant had no other assets. The history of inadequate disclosure and apparent breaches further undermined confidence in the evidence.
4. The Chabra order was intended to preserve the trust assets. The trustees suffered no relevant hardship by administering the trusts without distributions. Since the proposed applications were for the benefit of the first defendant, the trustees could not circumvent the requirements applicable to an application by him.
5. Payments for other beneficiaries required evidence of actual need, the amount and purpose of the expenditure, and the absence of alternative funds. No general liberty was appropriate for unidentified future expenses. A proposed payment of legal expenses was also refused because the alleged contractual obligation arose under an arrangement apparently entered into in breach of the existing freezing order.
6. The trustees could not reduce the amount in the original freezing order because they were not parties to it and it was primarily directed against the first defendant. Although the later order could be varied if an excessive figure caused practical difficulty, no such consequence was shown and the proposed variation would provide no practical benefit.

First-instance decision. The judgment records earlier orders in the same proceedings, including the Court of Appeal freezing order made on 11 August 2015 and continued by Snowden J on 27 August 2015, but the present applications were determined by the High Court.