VNESHPROMBANK LLC v GEORGY IVANOVICH BEDZHAMOV

Where a freezing order affects assets arguably subject to a proprietary claim, the defendant has no automatic entitlement to use them for legal or living expenses. The court must consider whether the claimant has an arguable proprietary claim, whether the defendant has arguable grounds for claiming the funds, whether alternative funds are available, and where the balance of justice lies.

The court may permit expenditure where refusing it would cause greater injustice, particularly where the claim was raised late, the defendant has no realistic alternative resources, and expenditure is needed to preserve the value of the estate or conduct a defence. Knowledge by solicitors of a disputed proprietary claim does not alone establish liability for knowing receipt.

VPB obtained a worldwide freezing order against Georgy Bedzhamov in proceedings alleging fraud. Mr Bedzhamov sought permission to sell or raise funds against London property to meet legal and living expenses. Lyubov Kireeva, his Russian bankruptcy trustee, opposed the application on the basis that the property and its proceeds were or might become assets subject to her claims.

The trustee had obtained recognition of the Russian bankruptcy order, but the Court of Appeal had allowed Mr Bedzhamov’s appeal against recognition and remitted the matter for determination of an alleged fraud in the bankruptcy petition. Her appeal concerning assistance in respect of the property and a separate application concerning sale proceeds remained unresolved. The central issues were whether the proceeds should be treated as arguably proprietary funds and whether expenditure should nevertheless be permitted.

1. The court was prepared in principle to entertain a transaction involving a third-party lender and developer because it appeared to be the best available means of preserving and maximising the value of the property, subject to approval of detailed terms and the participants’ identities.

2. Applying Kea Investments Ltd v Watson [2020] EWHC 472 (Ch), the court proceeded on the basis that the trustee had an arguable proprietary claim to the sale proceeds. The relevant questions were whether the claim was arguable, whether Mr Bedzhamov had arguable grounds for claiming the money, whether he had shown that no other funds were available, and whether the balance of justice favoured permitting expenditure.

3. The first two questions were satisfied. The evidence also established that Mr Bedzhamov had no other available funds sufficient for the relevant purposes. In assessing the final question, the court considered the trustee’s delayed intervention, the late Proceeds Application, the continuing costs of the remittal, the absence of effective interim relief, the risk of irreversible loss of value, and the fact that the trustee claimed all present and after-acquired assets.

4. The balance of justice favoured allowing reasonable sums for legal representation in the remittal and certain costs incurred before and after the trustee’s intervention. Living expenses incurred before the intervention were not to be affected. Later expenditure required a more granular assessment, including consideration of alternative resources, costs recoveries and the purposes for which costs were incurred.

5. The court declined to make the requested declaration. Following Carl Zeiss Stiftung v Herbert Smith & Co (No. 2) [1969] 2 Ch 276 and AA v BB [2021] EWHC 1833 (Ch), knowledge of the existence and nature of disputed proprietary claims, based on the claimant’s assertions alone, was merely knowledge of a claim. It did not by itself establish the knowledge required for liability; the position could differ if advisers possessed additional information showing that the claim was well-founded.

This was a first-instance decision. The judgment records related proceedings in which the High Court had recognised the Russian Bankruptcy Order but refused assistance concerning the property, and the Court of Appeal had allowed the appeal against recognition, remitting that issue, while dismissing the trustee’s appeal concerning assistance in respect of the property.