Sergei Pugachev is being pursued in the English courts by the Russian liquidator of the bank to enforce an earlier Russian judgment against him for having misappropriated about £1billion of the bank's assets.

As will be well known to those familiar with civil fraud litigation, Sergei Pugachev (P) was an oligarch and Russian senator, one time friend to President Putin and owner of the largest private bank in Russia, which went into liquidation. He is being pursued in the English courts by the Russian liquidator of the bank to enforce an earlier Russian judgment against him for having misappropriated about £1billion of the bank's assets. P maintains that his personal assets had been expropriated by the Russian state and that the proceedings in Russia were politically motivated.

In breach of an order of the English court P fled to France, leaving his former partner, Alexandra Tolstoy, and young children in the UK. In view of this and other serious breaches of court orders, in February 2016 P was found to be in contempt of court and sentenced to 2 years' imprisonment. That sentence has not been served, so he remains in contempt of court.

Amongst the assets disclosed by P following a worldwide freezing order were five New Zealand trusts, which held assets worth c £100 million. The named beneficiaries included P's infant children, and P himself. The children were given permission to defend the trusts, with their mother acting as a litigation friend. The liquidator sought to defeat or "bust" the trusts by showing that they were shams and that all the trust property was held for P.

In July this year the trial of the trusts claim began in the Chancery Division in London. Having so far taken no part in the trusts claim, in which default judgment had been entered against him, P applied to adjourn the trial on the basis that the court had no jurisdiction against him, because no permission had been obtained to serve the claim on him in France.

The liquidator argued that P's very late jurisdiction challenge should only be heard on strict conditions, including that he make payments to cover their costs and those of his infant children and that he disclose who "ultimately is providing the money being used to fund his legal expenses…and where that person obtained the money from".

The liquidator argued that the conditions were necessary because they could show that P had misled his lawyers about when he had heard of and how much he knew about the trusts claim, including not telling them that someone in his household in France had collected a package, including the claim form, from French process servers more than a year earlier. This, the liquidator argued, exposed his application to adjourn the trial as a gross abuse of process.

Birss J held that there was powerful evidence that P had been provided with the relevant documents a year ago: P "knows full well about these trust claims and has done so for many, many months." There was a strong case that P's instructions to his lawyers were knowingly false, aiming to disrupt the trial.

Conditions

Birss J ordered that a total security payment of £60K be made by P to cover the claimant's costs, and those of his infant children in responding to his application to adjourn the trial. That condition, he said, took account of previous breaches of court orders and P's unpurged contempt.

The worldwide freezing order against P provided that he could spend a "reasonable sum on legal advice and representation …but before spending any money [he] must tell the [claimants'] legal representatives where the money is to come from".

Whilst P was apparently paying for his legal representation to fund the jurisdiction challenge, he had not made any application for permission to use frozen assets to do so.

There was no reported case in which the court had imposed a requirement to notify the source of funds as a condition for making an application. In Dadourian v Sims  [2008] EWHC 1784 (Ch), the claimant had asked the court for an order for disclosure of the sources of funds used by corporate defendants to pay legal expenses. The application was refused as there was no evidence in that case that they were using frozen assets to fund the defence: they were only affected by the freezing order under the Chabra jurisdiction (they appeared to hold assets on behalf of a defendant against whom a freezing order had been made). The Pugachev case was different: there was a freezing order against P himself; he had failed to disclose assets as required under that order; he had sought to use frozen funds in the past to fund legal expenses. Accordingly Birss J was satisfied that an order should be made that, as a condition of pursuing his jurisdiction challenge P should have to disclose the source of his funding.

By late July, at another hearing [2017] EWHC 1972 (Ch), after P's English lawyers had ceased to act for him, Birss J observed that P had purported to comply with the conditions imposed by him: the money had been paid as ordered; P had provided some evidence of the source of his funds, but his evidence was subject to a confidentiality club: Birss J agreed that it should only be disseminated to the party's  lawyers, in view of previous findings by another Judge that P had a real fear of risk of violence by the Russian state. Whilst Birss J was not satisfied that P had complied fully with the preconditions to his applications being heard, nor was he prepared to make a declaration of non-compliance. He adjourned both P's applications until after the trusts trial, giving P, and the other parties, liberty to apply. In doing so he said that "it is important…that even someone like [P], who is an unpurged contemnor, will be listened to if he makes appropriate applications and behaves in a proper way in these proceedings."

JSC Mezhdunarodniy Promyshlenniy Bank & Anor v Pugachev & Ors [2017] EWHC 1847 (Ch) (13 July 2017)