JSC Mezhdunarodniy Promyshlenniy Bank & Anor v Pugachev & Ors

A worldwide freezing order may be continued against trustees under the Chabra jurisdiction where there is a real risk that the principal defendant can exercise de facto influence over them and procure dissipation of trust assets. The formal existence of discretionary trusts, and the absence of an express power to direct distributions, do not exclude that risk. The court may assess objective circumstances, including an unexplained replacement of independent trustees, the powers of a protector, the speed and terms of transactions entered into by replacement trustees, and apparent breaches of existing orders.

On a without notice application, disclosure must include relevant adverse material and present it in a manner commensurate with its significance. A point is not inadequately disclosed merely because it appears in extensive evidence, where the court was likely to appreciate its significance and it would not materially affect the decision.

The claimants sought to maintain a worldwide freezing order made against four newly appointed trustees of discretionary trusts in which Sergei Pugachev was a beneficiary and protector. The order had been granted by the Court of Appeal after Rose J refused the claimants’ without notice application.

The replacement trustees applied to discharge the order for alleged material non-disclosure. Alternatively, they sought discharge on the merits, contending that the trusts were genuine, the trustees were independent and there was insufficient evidence of a risk of dissipation. The central issues were whether the without notice disclosure was adequate and whether the evidence established a real risk that Mr Pugachev could influence the trustees and place assets beyond the claimants’ reach.

1. The non-disclosure application failed. The court considered the material available when the freezing order was sought. The alleged failures concerning sham trusts, control, prior undertakings, explanations for leaving the jurisdiction, restrictions registered against properties, trust administration and the qualifications of a replacement trustee did not amount to culpable non-disclosure. Relevant material had been disclosed, and the duty did not require every point to be repeated in the skeleton argument where the evidence fairly presented it.
2. Disclosure must be both relevant and adequately presented. A reference buried in extensive material may be insufficient where its significance is material. In this case, however, the restrictions affecting certain properties were adequately identified. Their practical significance was reduced by the illiquid nature of the assets and by the fact that the order covered a wider asset base.
3. The freezing order was justified on the merits. The claimants bore the burden of establishing the case for continuation. The relevant question was whether there was a real risk of dissipation and, in the Chabra context, a sufficient connection between Mr Pugachev and the trust assets.
4. The trusts were discretionary and Mr Pugachev could not directly direct dispositions. Nevertheless, as protector he had significant powers, including veto powers and the power to appoint and remove trustees. Those powers could enable de facto control if trustees were chosen for their willingness to comply with his wishes.
5. Objective circumstances supplied a very good arguable case of such influence. The unexplained replacement of reputable trustees, the reappointment of a close associate, the rapid entry into a complex funding arrangement shortly after appointment, and the payment of $800,000 after service of the freezing order supported the inference that the new trustees might do Mr Pugachev’s bidding. Their later steps to secure repayment of the money did not remove the significance of the initial conduct.
6. The New Zealand judgment concerning the validity of the appointments did not materially assist the trustees. It had been reached on untested evidence in proceedings which did not appear to have fully canvassed the issues of independence and control.
7. There was therefore a real risk of dissipation based on the possibility that Mr Pugachev had installed trustees whom he could influence. The application to discharge the order was dismissed.

• High Court (Chancery Division): Rose J refused the claimants’ without notice application for a freezing order against the replacement trustees.
• Court of Appeal: The appeal was allowed and a worldwide freezing order was made against the replacement trustees, pending further consideration in the Chancery Division.
• High Court (Chancery Division): Mann J dismissed the trustees’ application to discharge the order and continued the injunction on the merits.