Claim No. HC14D02752 IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION
BETWEEN:
(1) JSC MEZHDUNARODNIY PROMYSHLENNIY BANK (2) STATE CORPORATION "DEPOSIT INSURANCE AGENCY" Claimants – and –
SERGEI VIKTOROVICH PUGACHEV Defendant
NOTES FOR CLOSING ON BEHALF OF THE DEFENDANT
TABLE OF CONTENTS
I. INTRODUCTION...... - 1 - II. BACKGROUND ...... - 3 - A. Expropriation ...... - 4 - B. Russian legal proceedings against the Defendant ...... - 8 - C. Life and safety concerns ...... - 9 - III. LEGAL PRINCIPLES ...... - 18 - A. Burden and standard of proof ...... - 18 - B. False statements ...... - 19 - C. Inference ...... - 21 - D. Ambiguity ...... - 23 - IV. ALLEGED BREACHES OF THE PASSPORT ORDERS ...... - 24 - A. Allegation A1: Failure to deliver up his French passport in breach of paragraph 1(2) of the Ex Parte Passport Order [C/17] ...... - 24 - B. Allegation A3: Failure to identify and/or deliver up to HL all travel documents belonging to or available to him in breach of paragraph 1(2) of the Ex Parte Passport Order [C/17], paragraph 1(2) of the Return Date Passport Order [C/18] and paragraph 3(d) of the Rose J Order [C/27] ...... - 31 - (1) The French passport ...... - 31 - (2) All other travel documents ...... - 31 - C. Allegation A2: Left the jurisdiction in breach of paragraph 4(a) of the Hildyard J Order [C/24] ...... - 35 - V. ALLEGED DEALING WITH ASSETS IN BREACH OF THE WFO ...... - 41 - A. Allegation B1: Disposal of Petrovka-Rent ...... - 41 - B. Allegation B2: Disposal of the MV Victoria in breach of paragraphs 2(1) and/or 2(2) of the WFO [C/14] (as continued by the WFO Continuation Order [C/23]) ...... - 46 - C. Allegation B3: Dealing with the Hediard Sale Proceeds in breach of the WFO [C/14] and/or in breach of the Living Expenses Order ...... - 53 - (1) Payments to Luxury Consulting ...... - 53 - (2) Payments by Luxury Consulting ...... - 55 - D. Allegation B4: Disposal of motor vehicles ...... - 61 - E. Allegation B5: Disposal of part of proceeds of the Defendant’s BIT claim ...... - 66 - VI. ALLEGED BREACHES OF SEARCH ORDERS ...... - 70 - A. Allegation C1: Failure to deliver up mobile phone and iPad ...... - 71 - B. Allegation C2: Failure to provide passwords ...... - 73 - VII. ALLEGED BREACHES OF THE ROSE J ORDER ...... - 74 - A. Allegation D1: Safelight (para 1(b) of the Rose J Order) ...... - 79 - B. Allegation D2: Creative (para 1(c) of the Rose J Order) ...... - 82 - C. Allegation D3: Devecom (para 1(d) of the Rose J Order) ...... - 84 -
i VIII. ALLEGED FALSE EVIDENCE UNDER OATH ...... - 84 - A. Permission ...... - 84 - B. The short answer to the allegations ...... - 85 - C. Allegation E1: False evidence in respect of EPK and Basterre ...... - 92 - D. Allegation E2: False evidence in respect of Safelight and Oreon ...... - 95 - E. Allegation E3: False evidence in relation to Creative ...... - 97 - F. Allegation E4: False evidence in relation to impecuniosity ...... - 99 - IX. SENTENCING ...... - 101 - APPENDIX LIFE AND SAFETY CONCERNS ...... - 103 -
ii I. INTRODUCTION
1. By application notices dated 21 September 2015 [A/1] and 8 October 2015 [A/3] the Claimants allege various contempts on the part of the Defendant that relate to five broad areas:
1.1 breaches of the passport orders [C/17] and [C/18];
1.2 dealing with assets in breach of the worldwide freezing order made by Henderson J dated 29 July 2014 (“the WFO”) [C/14];
1.3 breaches of the ex parte search order made by Rose J on 1 July 2015 (“the Ex Parte Search Order”) [C/25], the inter partes search and seizure order made by Henderson J on 9 July 2015 on the initial return date (“the Return Date Search Order”) [C/26] and the order in relation to the search and seizure made by Rose J on 27 July 2015 on the further return date (“the Search Protocol Order”) [C/28];
1.4 breaches of the order made by Rose J on 27 July 2015 relating to further asset information and enquiries (“the Rose J Order”) [C/27];
1.5 false evidence given under oath.
2. In relation to the allegation that the Defendant gave false evidence under oath, the Claimants additionally alleged that each instance of false evidence constituted a deliberate attempt to interference with the administration of justice (see para 41 of the Schedule of Contempts [A/2]). However, in their opening the Claimants said that this was not being pursued as a separate head of contempt.1 This specific allegation could only have been made with the permission of the court, which had not been sought. Even if it had been sought before being abandoned it should have been refused.
3. The Claimants have also abandoned the allegation set out at paragraph 35(1) of the Schedule of Contempts appended to their application dated 21 September 2015.2 The
1 08.12.15 25/25 – 26/1 [D3/67C/7] 2 Cs’ Closing Submissions para 135. That allegation was that the Defendant allegedly gave false evidence during his cross-examination before Hildyard J when he claimed not to recognise the names of Safelight Enterprises Limited and Oreon Limited.
- 1 - Defendant consequently makes no further comment on this abandoned allegation at this stage.
4. As elaborated below, it is the Defendant’s primary case that the Claimants’ application3 is overstated has been presented unfairly. These are quasi-criminal proceedings and the Claimant bears the burden of proving its allegations to the criminal standard of proof. It is submitted that the Claimant has fallen far short of meeting that standard on the evidence before the court.
5. In particular, the Claimants’ case is based in large part on conclusions that are sought to be drawn from alleged inference, but in fact are frequently based on no or inadequate evidence and in some cases are in truth based on mere supposition or suggestion which is insufficient to ground findings of contempt.
6. The weakness of the Claimants’ case is evident from the way their case was put during their closing submissions on 15 December 2015, during the course of which the Claimants’ counsel used the following language:
6.1 “We strongly suspect, although we haven’t got the linkage because we haven’t been told – ”;4
6.2 “He almost certainly, we believe …”;5
6.3 “Our suspicion is that he didn’t fly …”;6
6.4 “one would expect him to be required”;7
6.5 “it seemed to us to be entirely implausible”;8
6.6 “So our suspicion, which doesn’t really count for very much because it is just a suspicion”;9
3 Whilst there are two separate application notices containing the allegations of contempt dated 21.9.15 [A/1] and 8.10.15 [A/4] respectively, for ease of reference, they are referred to in these submissions as one application. 4 15.12.15 8/8-9 [D3/67G/2]. 5 15.12.15 20/18-19 [D3/67G/5]. 6 15.12.15 52/17 [D3/67G/13]. 7 15.12.15 53/3-4 [D3/67G/14]. 8 15.12.15 54/5-6 [D3/67G/14]. 9 15.12.15 54/7-8 [D3/67G/14].
- 2 - 6.7 “So we think the likelihood”;10
6.8 “we say it is inconceivable that he didn’t directly or indirectly give instructions”;11
6.9 “So it seems that it is just implausible”;12
6.10 “We don’t know, because we haven’t seen any corroborating evidence”.13
7. The various references reveal that the Claimants’ case in many instances, on their own words, falls far short of discharging the burden of proof to the criminal standard. It is also noteworthy too in this context that, apart from a claim against Luxury Consulting Limited and several New Zealand trusts, no Chabra claims have been pursued against Victor Pugachev or any other individuals or companies.
II. BACKGROUND
8. It is important that the court sees the instant application, and these proceedings, in the context of the wider war waged relentlessly against the Defendant by members of the Russian Government and individuals associated with them in which there are the highest of stakes in issue, not just economic, but political, and which directly affect the personal safety of the Defendant. The Defendant maintains that the Second Claimant is inevitably closely linked with the Government, in particular the Central Bank where they share common directors on their respective boards, and is not independent. For example, Mr Ignatiev, one of the members of the Second Claimant’s board of directors, was the chairman of the Central Bank during the events described below.
9. This war has been pursued on a number of fronts:
9.1 First, the Defendant’s assets, comprising highly valuable business interests in Russia worth many billions of USD, were unlawfully expropriated in a series of carefully orchestrated moves beginning in 2009.
10 15.12.15 54/17 [D3/67G/14]. 11 15.12.15 63/14-16 [D3/67G/16]. 12 15.12.15 113/9 [D3/67G/29]. 13 15.12.15 136/24-25 [D3/67G/34].
- 3 - 9.2 Second, both civil and criminal legal proceedings have been pursued against the Defendant in Russia, with the Russian criminal proceedings still pending.
9.3 Third, there is an ongoing campaign of intimidation and harassment, including actual threats to the Defendant’s life and safety. It was fears for his personal safety that provoked the Defendant to leave this country in June this year.
9.4 Fourth, his reputation continues to be besmirched in a Russian state-owned media campaign.
10. This bitter conflict explains the actions and singular motivations of the Defendant, and his unique mind-set. This is relevant when considering why the Defendant has acted the way he has, the nature and quality of his evidence before this court, and additionally goes to issues of mitigation in so far as they may arise. It also provides an explanation why there is such a disproportionately wide ranging and oppressive number of contempt allegations, and the disproportionate and oppressive lengths to which the Claimants have gone to pursue the Defendant in this application14.
A. Expropriation
11. As summarised in the BIT Claim Notice of Arbitration (“the NOA”) [I/141/1], the Defendant was at the heart of power in Russia for many years (paragraphs 9-10), and had a close relationship with President Putin and others within his inner circle.
12. However, beginning in early 2009 he fell foul of President Putin’s desire to expropriate the significant business assets and investments the Defendant indirectly owned by then, and in fact to destroy the Defendant economically, politically and, ultimately, personally.
13. Paragraph 8 of the BIT Claim [I/141/10] identifies the Defendant’s investments in Russia which have been expropriated. These assets, the combined value of which ran
14 By contrast, in the Ablyazov litigation, which the Claimants wrongly, try to paint the instant case as mirroring, the contempts actually pursued before the court were limited to 3 in number out of 35 original allegations, following a case management conference: see [2012] EWHC 237 (Comm) at [5] [Sentencing Auths/18]. There has been no attempt by the Claimants in this application to try to follow a similarly proportionate approach.
- 4 - into many billions of USD, have been taken away from the Defendant with nothing being paid in return to him. It is classic modern day case of Russian Government orchestrated expropriation, under Kremlin rules. The systematic campaign in relation to the assets expropriated is summarised below.
14. The Red Square real estate development (the “Red Square Project”). This involved an agreement to develop historic buildings adjoining Red Square in Moscow. The Defendant invested several hundreds of millions of USD in this project via his company called OOO Middle Trading Rows (“STR”) under an investment agreement dated 9 August 2004 entered into by STR and a state owned enterprise called Kremlivsky. The project had likely profits running in hundreds of millions of USD. The development at Red Square was valued by Ernst & Young as of 1 July 2008 at US$950 million. The mode of expropriation included the unlawful annulment of the investment agreement with STR by Presidential Decree on 23 October 2009 and a related Order dated 5 November 2009, signed by Mr Putin (then serving as Prime Minister). These events are explained in Section B of the NOA, paragraphs 19-34 [I/141/13-16]. It remains the case that the Defendant has not received anything in return for the total loss of his investment in the Red Square Project.
15. The Severnaya Verf shipyard (“Northern Shipyard”) and Baltiyskiy Zavod shipyard (“Baltic Shipyard”) in St. Petersburg, as well as an associated construction bureau known as the Central Design Bureau Iceberg (individually, “Iceberg” and collectively with Northern Shipyard and Baltic Shipyard, the “Shipyards”). In November 2009, President Putin told the Defendant that he had to dispose of his interests in the Shipyards (the “Shipyard Interests”) to the Russian state owned entity United Shipbuilding Corporation (“USC”). Whilst a plan was agreed and put in place to enable USC to acquire the Shipyards, for value, which involved the granting to the Russian Central Bank of security pledges on 15 July 2010 over the Defendant’s interests in the Shipyards, which would be security for a pre-existing unsecured loan by the Central Bank to the First Claimant of circa US$1 billion, the Russian Government decided to take advantage of the situation and revoked the First Claimant’s licence and caused the bank to be declared bankrupt on 30 November 2010.
- 5 - 16. The Central Bank next set about enforcing the pledges over the Shipyard Interests taking advantage of unlawful influence over the Russian courts in the process. However as USC had insufficient money to purchase the Shipyard Interests for full value a rigged auction was held as a result of which the Shipyard Interests were sold to USC in 2012 for total of only US $410 million, massively less than their true value. In 2010, the Defendant’s interests in the Shipyards were valued by two separate professional valuations at US$2.679 billion (paragraph 52) and US$3.218 billion (paragraph 54) respectively [I/141/20-21].
17. As a consequence of this unlawful sale at a huge undervalue there were insufficient funds available to repay the totality of the loan owed by the First Claimant of circa US$1 billion to the Central Bank, and it is the resulting shortfall that has formed the bedrock of the “subsidiary liability” personal claims against the Defendant in Russia, in both the civil proceedings which have led to these English proceedings and also the ongoing criminal proceedings in Russia against the Defendant. It remains the case that the Defendant has not received anything in return for the total loss of his Shipyard Interests. These events are explained in Section C of the NOA, at paragraphs 35-78 [I/141/16-26].
18. On 3 June 2011, in the midst of these events relating to the Shipyards, emissaries of Mr. Miroshnikov, the Deputy General Director of the Second Claimant, called Mr. Bashmakov and Mr. Dunayev, went to see the Defendant in France. At that meeting the Defendant was told he had to pay a bribe of US$350 million, US$150 million of which would go to Mr. Miroshnikov. It was explained to the Defendant that this payment was the “price of peace” and that it would ensure his “family’s protection” (see paragraphs 63-64 of the NOA [I/141/23]). Threats to the personal safety of the Defendant arising from this dispute continue to this day).
19. Enisey Production Company (“EPK”) and EPK’s licence to develop and mine the coking coal deposit in the Elegest Plateau at the Ulug Khemsky coal basin in Tuva. In 2003, the Defendant acquired a Russian company called EPK. EPK owned a licence to exploit the Elegest Plateau of the Ulug Khemsky coal basin in Tuva, a remote region in Southern Russia. The Elegest Plateau contains approximately one billion tonnes of coking coal, and is one of the largest coking coal deposits in the world.
- 6 - 20. By 2010, it was clear to the Defendant that President Putin was set on taking away all his assets, so the Defendant sought purchasers for EPK. A valuation by Ernst & Young dated 1 March 2010 valued EPK at US$2.43 billion, and a later valuation by KPMG in 2011 valued EPK at US$5 billion. However, Mr. Putin learned that the Defendant was attempting to sell to a foreign purchaser and told him not to sell to a foreign buyer. In an attempt to shield his investment in EPK from the risk of expropriation the Defendant transferred his investment in EPK to another company called Basterre which was owned by his son, Victor Pugachev. Following further pressure from Mr. Putin, Basterre entered into a sale contract with Devecom dated 9 June 2011 to sell EPK for US$800 million with future upside dependent on subsequent events that would take place, which was well below the true value. The first payment under that contract was paid to Victor Pugachev for his benefit, with balance due to be paid for the benefit of the Defendant. No further payments in fact were made under the contract owing to action of the Russian Federation. In November 2011, the Second Claimant made a fraudulent claim under pledges over EPK shares which had in fact been extinguished on 6 August 2010 as part of the arrangements put in place to ensure the Shipyard Interests would be acquired by the Central Bank. Based on the pretext of alleged contractual defaults by EPK, the Russian government revoked EPK’s licence on 29 December 2012, thereby denuding it of an asset worth billions of USD. EPK is in insolvency proceedings. Mr Miroshnikov, the deputy head of the Second Claimant, attended at least one meeting with the Government at which it was considering the question of revocation of EPK’s licence. However, he made no attempt to defend the revocation of the EPK licence which he would have been expected to do if he was acting properly and consistently with the claim he was making under the (previously released) share pledges over the EPK shares in favour of the Bank.
21. The Russian Government subsequently awarded a mining licence to Mr. Altushkin and his business partner, Mr. Baysarov (an associate of the President of Chechnya), and their company Tuva Energy Industrial Corporation. It remains the case that neither Basterre nor the Defendant has received anything in return for the expropriation of EPK’s licence. These events are explained in Section D of the NOA, at paragraphs 79-94 [I/141/27-30].
- 7 - 22. 167 plots of land in the Krasnogorsky District of the Moscow Region through his company ZAO Optik Trade (“Optik Trade”). The Defendant through a company owned by him called ZAO Optik Trade owned 167 individual plots of land in the Krasnogorsky district of Moscow Region. They were valued at US$250 million, at least. The Defendant had planned to develop the plots of land with the assistance of US$1 billion of financing from VTB Bank.
23. There had been a legal challenge back in 2009 by members of the collective that originally owned the plots. That claim failed because the limitation period had expired in 2007. On October 2012, another attempt was made to challenge the Optik Trade’s title. However, Optik Trade was never informed of the case, and it was decided in favour of the plaintiff in the absence of Optik Trade on 23 January 2013. The Russian media commented on the decision at the time that it was “unprecedented” that the court had ignored a limitation period that had expired 6 years earlier. This lack of due process has deprived Optik Trade of it ownership of the plots without any compensation. These events are explained in Section D of the NOA, at paragraphs 95-106.
24. As noted above, it was specifically as part of the expropriation plan in relation the Shipyard Interests that the Central Bank revoked the First Claimant’s banking licence and forced it into insolvency with the Second Claimant then being appointed over it (see paragraphs 57 to 59 of the NOA [I/141/21-22]), and which then led to the Russian civil and the instant claim.
B. Russian legal proceedings against the Defendant
25. In 2011 a criminal case was opened in Russia into the circumstances of the First Claimant’s apparent insolvency, and since February 2013 the First Claimant has been formally recognised as an injured party and entitled to participate in the investigation. The former Chairman of the Bank, Mr Didenko, was interrogated several times by the prosecuting authorities but did not give evidence against the Defendant. Mr Didenko was then arrested in Russia and held in custody for several months. During his time in custody he entered into a co-operation agreement with the Investigative Committee of the Russian Federation, and provided testimony against the Defendant. His testimony became a key part of the evidence against the
- 8 - Defendant in the civil proceedings brought against him in Russia. An Interpol Red Notice was subsequently issued against the Defendant at the behest of the Russian Federation.
26. The Russian criminal investigations are ongoing, and the Defendant has understandable continuing concerns over the risk of information from the instant proceedings wrongly finding its way into the criminal proceedings.
C. Life and safety concerns
27. In addition, the Defendant has faced and faces very serious threats to his personal safety. This is not perhaps unsurprising given the background to this fight, and the issues at stake. In additional to the direct threat mentioned in paragraph 18 above involving emissaries of Mr Miroshnikov, the Defendant has referred to his deep- seated concerns over life and safety previously in these proceedings, in Pugachev 12 at paras 15-25 [A/5/5-8], and also in XX on this application.
28. The discovery in May this year of the then unexplained black boxes secreted underneath the motor cars used by the Defendant and his family is of particular significance because of the inevitable impact it had on the pre-existing fears he already had as to what may well be going to happen to him, and was bound to provoke those fears still further. The timing was all the more poignant given the imminent expiry of the 6 months trigger notice in June 2015 and the next phase in the BIT arbitration process, as the Defendant explains in Pugachev 9 at paragraphs 13-20 [E/93/4-5]:
“The letter to President Putin I referred to above is an important procedural matter as it constitutes a letter of notification under the treaty, and an arbitration claim cannot be filed under the treaty until six months have passed after such document is provided to the relevant State. The 6 months elapsed very recently, in mid June 2015. That is an important milestone then in terms of the next significant procedural step in my pursuit of my treaty claim.
- 9 - I gave a relatively recent interview to a Russian television channel, which was broadcast in Russian on 25 June 2015 in which I outlined my unhappiness at the way I have been treated by Russia, and criticised Mr. Putin. At pages 101 - 109 of MGR22 a copy of a transcript (in English) of some of the first part of a two-part interview is exhibited by Mr. Roberts.
The claims that I have against the Russian Federation are worth many billions of US dollars, and would easily exceed the claims that are brought against me in the Russian Civil Courts by the Claimants, and which are relied upon in these proceedings. A natural consequence of these claims succeeding would be the evisceration of the judgments of the Russian Courts that the Claimants rely on in these proceedings as grounds for the freezing order. Given the amount of the damages I am claiming, it would be likely to be the second largest claim ever against the Russian Federation, second only to the successful expropriation claims made on behalf of the Yukos shareholders under the Energy Charter Treaty where they are reported to have obtained an award of some $50 billion against Russia. l do not intend to, and do not, waive any legal privilege in what I state in this affidavit in relation to my claims under the Russo- Franco bilateral investment treaty, or otherwise, or may be submitted in Court by my lawyers relying on this evidence.
As I said in my unsworn sixth affidavit, I do not wish for legal and strategic reasons to say too much about the claim I am bringing against Russia, but I respectfully believe that it is important that the seriousness and nature of the claim and its timing is recognised by this Court in the present context of the reason for my leaving the jurisdiction. Additionally, not only is it a personal claim I have to bring, I will necessarily have to give direct personal evidence against individuals in Russia regarding their unlawful and dishonest conduct, a number of
- 10 - which still occupy some of the highest positions in the Russian administration. This may include Mr. Putin. Necessarily, I am required personally to instruct my lawyers on this claim, also King & Spalding, as to the facts and matters underpinning these claims as they are within my own knowledge.
Given where I am currently in terms of the timing of my claim under the bilateral investment treaty and the increased media coverage, I consider the safety risks against me to have materially increased in recent weeks.
As to those risks, and the nature of those risks, I am well aware from my own conversations over many years with Russian businessmen and politicians, and the widespread reporting in the med ia of numerous incidents where Russians adverse to the state, or those assisting them have suffered threats of personal harm, or been killed, that fears as to the reach of the Russian Federation if you are adverse to it are genuinely and understandably felt by many Russians, just as they are by me. The unfortunate events that have occurred involving such adverse individuals are, in my informed view, too many to be dismissed as innocent incidents.”
29. It was not until after the search seizure was executed, in the Claimants’ evidence in reply to an application to discharge that order, that the Claimants’ solicitors admitted that the Claimants’ enquiry agents procured the placing of the devices on the Defendant’s motor cars.
30. The unchallenged expert evidence of Professor Galeotti [E/91] supports the fact that the Defendant’s fears are not fanciful as the Claimants wrongly claim. Amongst other things, in his independent expert report he refers to the “… bare-knuckled world of Russian business or politics …” (para 16), the roles of Chechyans in contract killings (para 14), and goes on to conclude of his evidence, at para 22 [E/91/12]:
- 11 - “My belief is that the Russian government and powerful Russian interests, with or without explicit state sanction, do sometimes conduct attacks on people abroad, especially Russian expatriates. Whilst the actual scale of attacks is, I am sure, far less than commonly believed, within the expat community there nonetheless appears to be a strong belief that Moscow is readily willing and able to intimidate, threaten and even kill outside its own borders. This is all the more true if there is any Chechen connection. Without knowing much more about the details of the situation, I cannot express an opinion as to whether I believe there is an objective danger to Mr Pugachev, but were I in his position, I am sure I would fear the worst; given the attacks which have happened and the widespread views within the expatriate community, and for the reasons explained above, in my view, such fears cannot be easily dismissed”
31. A French criminal complaint regarding the 2011 incident was filed with the French authorities, naming Mr Miroshnikov, and that investigation is ongoing. A further criminal complaint has been filed in France against Diligence as a result of the invasive surveillance carried on in relation to the Defendant.
32. Most recently, the Defendant was informed that a contract to kill him has been taken out (see the letter from the Defendant’s French counsel [B/10/17-20]) which has prompted a further complaint to the French authorities to be filed. See also the Defendant’s email to the Metropolitan Police on 16 October 2015 regarding the contract to kill the Defendant: [B/10/20B].
33. It is against that background that the Defendant finds himself a victim of these proceedings, and most importantly that he remains understandably deeply anxious over his personal safety.
34. The Defendant has referred in the past his unlawful treatment at the hands of the Russian Federation, and the serious practical consequences and inevitable pressures on the Defendant which have resulted are summarised in Pugachev 12, at para 10 [A/5/3]:
- 12 - “In considering my state of mind at the relevant times, I ask the Court to bear in mind the huge psychological pressure imposed on me by having to deal with multiple and stringent orders made by this Court, which is in a jurisdiction and legal court system with which I am unfamiliar and, at the same time, having to deal with at the same time the following particular matters:
10.1 concerns as to my personal safety and the impact this has on my family;
10.2 the unlawful expropriation by the Russian state of my Russian business assets;
10.3 a concerted and orchestrated campaign of unfair and oppressive treatment by the Russian state which has made very serious allegations against me;
10.4 French criminal proceedings related to extortion and threats to my life and safety;
10.5 civil and criminal proceedings in Russia (the latter of which carries very severe punishment);
10.6 Swiss proceedings related to the Russian criminal proceedings for the provision of information relating to the bank accounts of Safelight;
10.7 the preparation and submission of my investment treaty claim against the Russian Federation. I note in this regard that the Second Claimant is a Russian state organ and is expressly mentioned in the claim;
10.8 the New Zealand Trusts proceedings as a discretionary beneficiary and as a Protector”.
35. It is in the above context that the court is reminded of the judgment of Hildyard J in these proceedings (judgment 12 June 2015 para 35 [C/36]), which followed the
- 13 - lengthy and detailed cross examination of the Defendant over 5 days, by Mr Smith QC, about this assets and many of the same issues and matters now before the court on this application.
36. Most importantly, Hildyard J found, despite the Claimants’ submissions to the contrary, that the Defendant had not given dishonest evidence during his XX and that he had not been acting in bad faith in giving his evidence either (paras 86-88, and para 91).
37. This is especially significant given that Hildyard J was then considering from a civil standard of proof point of view (balance of probabilities) the question whether or not the evidence he heard was given honestly or not. Contrast the present application which requires the criminal standard of proof to be satisfied (beyond all reasonable doubt).
38. It is submitted a fortiori on the instant application, where the standard of proof is higher than the standard which the Claimants failed to satisfy before Hildyard J, that on issues where the evidence of the Defendant is disputed it should be held, at least, that the Claimant have failed to establish beyond all reasonable doubt that the Defendant has lied.
39. The judgment of Hildyard J contains further findings and observations about the quality of the Defendant’s evidence that remain of direct relevance and are instructive today. First, the Judge rightly observed that the court is operating “in the context of a business and political culture which it may well not understand” ([35]). In considering the Defendant’s evidence, it is looking “through the lens of English spectacles” (at [82]).
40. Second, the Judge made the following specific points that impact the approach in assessing the quality of the Defendant’s evidence and further drove him to the conclusion that the Defendant was not dishonest in his evidence:
“89. Further, I do not think I can simply reject the general themes advanced by the Defendant, including to the effect that
- 14 - (a) he had a huge empire and he was unaware of the individual components and details of it;
(b) he had relied on others to complete his asset disclosure, no doubt at huge expense;
(c) some things which may prima facie appear to suggest evasiveness in reality reflect other pressures, including a wish not to reveal more than is strictly required for fear of the Russian State itself and what it may do with any information provided;
(d) the realities of political power in the Russian Federation, where (for example) a Presidential call to prevent the sale of an asset may have to be complied with by exerting any means of influence, even in the absence of any actual ownership or control (as, according to the Defendant, was the case as regards EPK), thus confusing ownership and influence;
(e) it is necessary to take into account the very considerable pressures upon the Defendant, the inherent difficulties of assimilating the copious material provided, and his (he would say understandable) reluctance not to commit himself unless taken to any documentary evidence thought to be relevant, and what may be genuine practical difficulties in recalling and providing details of assets (many of which he is adamant are now in the ownership or control of the Russian State).” [There was no spacing as above between the numbered points (a) to (e) in the Judge’s judgment].
41. The court on this application has had the benefit of both seeing the Defendant and hearing his evidence on cross-examination by the Claimants, and for less time and less intensively than before Hildyard J. Having heard and seen him, it is submitted that it is not possible for the court to reach any less favourable conclusion about the Defendant’s evidence than did Hildyard J. Whilst it is true that there were occasions where the Defendant moved away from answering questions and started to make statements, that does not detract from the evidence that he did give which was of relevance.
- 15 - 42. Where the Defendant did make statements that did not answer the questions put, that was a reflection of the strength of the Defendant’s feeling that he is the victim in this dispute, and that he has a genuine well-founded concern, for example, for his personal safety, to which the threat emanates from the Claimants and powerful people in Russia who stand behind them. It is implausible to suggest, as the Claimants have sought to in their submissions, that the Defendant’s fear is not genuine simply because the Defendant did not mention it in his 11th witness statement.15
43. To say that the Defendant is a serial liar is wrong, and unfair. Moreover, he actually gave his evidence under XX in a way that was, to his credit, immediate and plainly unrehearsed or unscripted. He was engaged; he was not surly or sullen as the Claimants wrongly try to paint it. Where he may have made mistakes, or not recollected certain matters, or misstated certain things, that is unsurprising given the matters already referred to and relied on by Hildyard J, and the increased pressures, procedural and evidential complexities, since the time the Defendant appeared before that judge.
44. These committal proceedings are therefore the latest stage in a witch hunt improperly and mechanistically being pursued by the Claimants against the Defendant. The Claimants have been engaged in “a relentless crusade”16 against the Defendant in the pursuit of an ill-founded claim constructed against him, and despite their assurances to the court that the Defendant would not be “pilloried”: see letter from Stephenson Harwood, the Defendant’s former solicitors to Hogan Lovells [F/105/1].
45. This has involved, for example, harassment by enquiry agents in both England and France involving the placing of tracking devices on the Defendant’s motor vehicles in England, the invasion of the Defendant’s and his family’s privacy through intense surveillance and opportunistic applications to the Court made without proper notice. The true position has been revealed in the BIT Claim in which the Defendant’s position will be vindicated so long as those proceedings are not stymied by the
15 10.12.15 (open court) 11/14 – 13/3 [D3/67E/3-4]. The 11th witness statement is at [E/83]. 16 See Tinkler v Elliott [2014] EWCA Civ 564 at [73(iii)] [Auths3/12].
- 16 - tactics of the Claimants in these proceedings (of whom the 2nd Claimant is an organ of the Russian Federation).
46. This heavy handedness is demonstrated in particular by the manner in which both the Ex Parte Passport Order [C/17] came to be executed at the Defendant’s home in Glebe Place on 4 March 2015, and the manner in which the Claimants have pursued their application for a bench warrant for the Defendant’s arrest, pursuant to which the Defendant’s partner and young children have been recently subjected to numerous visits and searches by the police despite the Claimants knowing full well that the Defendant is in France. Since those matters were raised twice at last week’s hearing by Mr Isaacs QC,17 the repeated searches by the police have stopped, so it is clear that the Claimants have some influence over the actions of the police in that regard.
47. The tactics of the Claimants are also revealed by the fact that Mr Michael Roberts, the partner at Hogan Lovells who has been running this case for the Claimants from its outset, has avoided being cross-examined. He made all the main witness statements and affidavit evidence in the earlier stages of this case. However, on this application another partner who has had no previous involvement with the case, Mr Christopher Hardman, made the relevant affidavits to support the application. His evidence is entirely derived from the evidence of others, and is largely hearsay and often third hand hearsay at that. There would be little, or frankly no, utility in asking him questions about matters of which he has no direct knowledge.
48. During closing submissions Mr Smith QC noted that “Thankfully, one doesn’t do too many contested committal trials but I haven’t known one where the claimant’s evidence – when the opportunity was there for the claimant not to be cross-examined on its evidence. But there we are. The fact is that Mr Hardman’s evidence was not challenged by Mr Pugachev.”18 However, what is really extraordinary in this case is that the Claimants have chosen to serve, in support of their committal applications, affidavit evidence given by someone who has no first-hand knowledge of the relevant events on the ground.
17 08.12.15 16/17 – 17/18 [D3/67C/4-5]; 08.12.15 74/17 – 75/11 [D3/67C/19]. 18 15.12.15 141/5-10 [D3/67G/36].
- 17 - 49. Finally, it should be made clear that the Defendant lives in France and is based there (see paras 11 to 13 of Pugachev 12 [A/5/4]). Whilst it is true that his partner, Alexandra Tolstoy, and his three young children presently live part of the year in England, aside from these proceedings, he otherwise has no other substantive connections with this country.
III. LEGAL PRINCIPLES
A. Burden and standard of proof
50. It is trite law that the burden of proving the allegations of contempt rests on the Claimants and that they must satisfy the Court beyond reasonable doubt of the existence of a contempt, e.g. Abela v Baadarani [2015] EWHC 2393 (Ch) [Auths3/13] at [25] per Norris J:
“an application for committal is a very serious thing. I explicitly record that the burden lies on the [Claimants’] camp to make good its allegations of contempt against [the Defendant]. [The Defendant] does not have to prove anything. His task is to raise questions sufficiently substantial to prevent the burden of proof being discharged. The standard of proof that [the Claimants] must meet is that they must satisfy me beyond reasonable doubt.”
51. Also, to the same effect, JSC BTA Bank v Ereshchenko [2013] EWCA Civ 829 [Auths3/9] at [18] per Lloyd LJ:
“The judge [Vos J] set out the law relevant to criminal contempt at paragraph 132 of his judgment, with which neither party took issue. The most important aspect is the one as to which there is the least possibility of any controversy, namely that the allegations must be proved by the Bank, and to the criminal standard of proof.”
52. As the Claimants have accepted,19 these are quasi-criminal proceedings. The court’s attention is drawn to the standard jury direction in a criminal trial: “the Defendant
19 10.12.15 94/8-13 [D3/67E/24].
- 18 - does not have to prove his innocence. It is for the prosecution [i.e. the Claimants] to prove his guilt. If what the Defendant says is or may be true, then it is your duty to acquit him” (emphasis added). The Defendant’s position is that what says is the truth, but it is not necessary to go that far.
B. False statements
53. Where the allegation of contempt is that false statements were made by the defendant, it is necessary for the claimant to prove beyond reasonable doubt that each of the statements relied on was untrue at the time it was made and that the alleged contemnor did not have an honest belief in its truth at that time. The passage from Ereshchenko [Auths3/9] at [18] quoted above immediately continues as follows:
“It was therefore necessary for the Bank to prove beyond reasonable doubt that each of Mr Ereshchenko’s statements relied on was untrue at the time it was made, and that Mr Ereshchenko did not have an honest belief in its truth at that time. The judge attached importance to the need to focus on Mr Ereshchenko’s state of mind at each relevant date, and it seems to me that this was clearly right and necessary. Mr Ereshchenko has been able to give more information at a later stage of the process than he did previously, but it does not follow from this that he could have done so at the earlier stage and that he was therefore concealing information earlier of which he was aware and was thus dishonest in asserting that he had said all he could at that time.” (emphasis added)
54. Also of importance is the passage in Ereshchenko at [46] [Auths3/9]:
“46. Mr Smith's argument on this point proceeds from a starting position that in paragraph 143 of his judgment the judge rejected an important aspect of Mr Ereshchenko's defence to the committal application, which was that when he was served with the Disclosure Order and read about what he was required to disclose, he did not recall the names of any of the BVI Defendants:
- 19 - see his Points of Defence paragraph 11(2)(vi), and other passages identified in the Bank's skeleton argument, including in Mr Ereshchenko's fourth affidavit and in his oral evidence at the committal hearing. From this Mr Smith proceeded to argue that, if Mr Ereshchenko was lying in his evidence given before and at the committal hearing in the summer of 2012 about his state of mind in December 2010, then he must have been dishonest when he said what he did in December 2010. That is a conclusion which a judge could draw, but it seems to me plain that it does not follow as a matter of logic or necessity, so that it was not the only conclusion open to the judge. The questions are distinct. For a person to tell a lie about one thing does not show that he has previously lied about another thing or even about the same thing. His state of mind has to be assessed as regards each occasion and statement separately. On the reading of paragraph 143 for which Mr Smith contends, and which I accept for reasons given at paragraph [26] above, the judge knew that he was rejecting some of Mr Ereshchenko's evidence given at the committal hearing. That is what paragraph 143 is all about. In turn paragraph 144 is addressed to the question whether that rejection leads inevitably to the conclusion that Mr Ereshchenko had lied in making his statements in December. The proposition that the judge did not, properly or at all, take into account the fact that he had rejected relevant evidence given by Mr Ereshchenko at the committal hearing when he considered whether Mr Ereshchenko had been dishonest in making his earlier statement flies in the face of the judge's reasoning in paragraph 144. Moreover the direct attack on the judge's reasoning seems to me to be unjustified. A conclusion that Mr Ereshchenko lied in saying (later) that he did not recognise the names of the BVI Defendants or the Further Recipients in November and December 2010 simply does not show that he could then remember anything about the AAA Transactions or that he knew something which he was obliged to disclose in answer to the Disclosure Order and was deliberately concealing it by what he
- 20 - said in the December witness statement and affidavit.” (emphasis added)
55. The Defendant gives important evidence in the present case as to his state of mind at the material times.
56. Similarly, “[f]inely balanced judgments about a witnesses’ state of knowledge at particular times against the backdrop of years of complex documentation have no sensible place in [a committal] application”, Ereshchenko [2013] EWCA Civ 829 [Auths3/9] at [33], quoting with approval Vos J at first instance [2012] EWHC 1891 (Ch) at [159].
C. Inference
57. The Claimants’ case rests in large part on alleged inference. In such a case, the Claimants must establish beyond reasonable doubt that the inference on which they rely is the only possible inference that can reasonably be drawn, see Ereshchenko [Auths3/9] at [40]:
“It was and is common ground that, if and insofar as the Bank’s case depends on the judge drawing an inference as to Mr Ereshchenko’s state of mind, then the Bank’s case can only succeed if the inference of dishonesty is the only possible inference that can reasonably be drawn. If more than one reasonable inference could be drawn and if any of them was inconsistent with a finding of contempt, then the Bank’s application must fail.” (emphasis added)
58. The decision of Christopher Clarke J in Masri Consolidated Contractors International Company SAL [2011] EWHC 1024 (Comm) [Auths3/7] also makes clear that:
58.1 Whilst it is open to the court to draw inferences from primary facts which it finds established by evidence, “[a] court may not, however, infer the existence of some fact which constitutes an essential element of the case
- 21 - unless the inference is compelling i.e. such that no reasonable man would fail to draw it.” (at [145])
58.2 As to circumstantial evidence (at [146]):
Where the evidence relied on is entirely circumstantial the court must be satisfied that the facts are inconsistent with any conclusion other than that the contempt in question has been committed: Hodge's Case [1838] 2 Lewin 227; and that there are "no other co-existing circumstances which would weaken or destroy the inference" of guilt: Teper v The Queen [1952] AC 480, 489. See also R v Blom [1939] AD 188, 202 (Bloemfontein Court of Appeal); Martin v Osborne [1936] 55 CLR 367, 375. It is not, however, necessary for the court to be sure on every item of evidence which it takes into account in concluding that a contempt has been established. It must, however, be sure of any intermediate fact which is either an essential element of, or a necessary step on the way towards, such a conclusion: Shepherd v The Queen 170 CLR 573 (High Court of Australia).
59. These concerns about the use of secondary and circumstantial evidence in contempt applications were echoed by Teare J in Ablyazov [2012] EWHC 237 (Comm) [Sentencing Auths/18], where he said:
“8. It is notable that the Bank's case against Mr. Ablyazov, on the first two allegations of contempt, depends upon inference from such circumstantial facts and matters as the Bank is able to prove. As in any criminal trial circumstantial evidence can be relied on to establish guilt. It is however important to examine the evidence with care to see whether it reveals any other circumstances which are or may be of sufficient reliability and strength to weaken or destroy the Bank's case; see Teper v R [1952] AC 480 per Lord Norman. Further, I respectfully adopt the words of David Richards J. in Daltel v Makki [2005] EWHC 749 (Ch) at paragraph 30: "In particular if, after considering the evidence, the court concludes
- 22 - that there is more than one reasonable inference to be drawn and at least one of them is inconsistent with a finding of contempt, the claimants fail." I accept the submission of Mr. Matthews QC, counsel for Mr. Ablyazov, that where a contempt application is brought on the basis of almost entirely secondary evidence the court should be particularly careful to ensure that any conclusion that a respondent is guilty is based upon cogent and reliable evidence from which a single inference of guilt, and only that inference, can be drawn.” (emphasis added)
60. In the present case, the weak inferences which the Claimants seek to draw are neither obvious nor the only possible ones that can reasonably be drawn on the evidence.
D. Ambiguity
61. Generally, as stated in Arlidge, Eady & Smith on Contempt (4th ed, 2011) para 12- 51: “An order or undertaking will not be enforced by committal if its terms are ambiguous”. To like effect, in Iberian Trust Ltd v Founders Trust & Investment Co Ltd [1932] 2 KB 87 [Auths 3/1], Luxmoore J said (at 95) that: “If the Court is to punish any one for not carrying out its order the order must in unambiguous terms direct what is to be done.”
62. More recently, in JSC BTA Bank v Ablyazov [2015] UKSC 64 [Cs’ Auths/20], Lord Clarke (with whom the other judges agreed) confirmed (at [19]) that freezing orders ought to be restrictively construed in accordance with the “strict construction” principle set out by Beatson LJ at para 37 of his judgment in the Court of Appeal:
“The third principle follows from the ‘fundamental requirement of an injunction directed to an individual that it shall be certain’: Z Ltd v A-Z and AA-LL [1982] QB 558, 582 per Eveleigh LJ. It is that, because of the penal consequences of breaching a freezing order and the need of the defendant to know where he, she or it stands, such orders should be clear and unequivocal, and should be strictly construed: Haddonstone Ltd v Sharp [1996] FSR 767, 773 and 775 (per Rose and Stuart-Smith LJJ); Federal Bank of the
- 23 - Middle East Ltd v Hadkinson [2000] 1 WLR 1695, 1705C and 1713C-D (per Mummery and Nourse LJJ). In Anglo Eastern Trust Ltd v Kermanshahchi [2002] EWHC 1702 (Ch) Neuberger J stated: ‘A freezing order, which has been referred to as a nuclear weapon, should … be construed strictly’ because the court is ‘concerned with an order which has a potentially draconian effect on the commercial and economic freedom of an individual against whom no substantive judgment has yet been granted’.”
63. It follows that, to the extent that the orders in respect of which a breach on the part of the Defendant is alleged are ambiguous, that doubt must be resolved in the Defendant’s favour. Furthermore, in the face of such ambiguity the court ought not to order committal.
IV. ALLEGED BREACHES OF THE PASSPORT ORDERS
A. Allegation A1: Failure to deliver up his French passport in breach of paragraph 1(2) of the Ex Parte Passport Order [C/17]
64. It is not common ground that the Defendant failed to identify and deliver up his French passport in breach of the Ex Parte Passport Order.
65. Contrary to what Peter Smith J stated in his Return Date Passport Order judgment of 6.3.15 [C/32], it is not accepted that there was any breach of the Ex Parte Passport Order or the Return Date Passport Order. Peter Smith J was dealing with the Defendant in person and the relevant statements were made without the court having received any argument on the Defendant’s behalf.
66. The Defendant was served with the Ex Parte Passport Order on 4 March 2015: Hardman 1 para 9 [A/2]. That is the relevant date for assessing the Defendant’s state of mind. It is clear from the evidence that the events of that day were somewhat chaotic and somewhat confused.
67. The Defendant’s evidence is as set out at Pugachev 12, paras 26-27 and 37-38 [A/5/8-11]:
- 24 - 26. For the reasons which I have already explained, the failure immediately to deliver up my French passport in accordance with paragraph 1(2) of the order of Mr Justice Peter Smith dated 2 March 2015 (the “Ex Parte Passport Order”) was unavoidable due to the fact that it was not in my direct possession at the time of service of the Ex Parte Passport Order. I was accorded the necessary time to retrieve the passport and duly submitted it as required. There was certainly no intent on my part not to comply by the Ex Parte Passport Order.
27. At the time of service of the Ex Parte Passport Order at my home, I asked a number of questions. The fact I am a French citizen is something widely reported in the media and I consider it disingenuous for the Claimants’ counsel to suggest that I failed to identify the existence of a French passport. I handed up all documents that were in my possession at the time, including an expired passport that could not be used for travel in any event. I was never asked at the time of service as to the whereabouts of my French passport and had I done so I would have advised then, as I did later before the court, that it was in France and I had difficulty retrieving it from a safe in France. The fact is that I handed up more than required and notwithstanding the delay in submission of the French passport, it was submitted.
… 37. Apart from my French passport, which was delivered up on 18 March 2015, and the other documents previously delivered up, I did not and do not have or have available to me any travel documents. When I left England, I travelled without any such documents.
38. I accept that I did not immediately identify my French passport when served with the Ex Parte Passport Order. I was not allowed to even read the Ex Parte Passport Order. Confronted at my home as I was with several solicitors and others in a position of authority and without legal representation my state of mind was
- 25 - such that I did not recall to mind the French passport, which as I have previously explained was not in my possession. I did not know what the Ex Parte Passport Order even meant. I asked why they needed to take my expired passport since I could not travel with such a document and they took it anyway. Importantly, it was public knowledge that I was a French citizen. The use of enquiry agents would easily confirm this fact. I was never asked for my French passport when they came to house. It was not my intention in any way to conceal the existence of my French passport. In any event, I understood that the Ex Parte Passport Order only required me to hand up those travel documents that were in my physical possession in England.” (emphasis added)
68. The Defendant, who was unrepresented, delivered up all passports in his physical possession, including an expired passport not valid for travel anyway, but not his French passport. In Pugachev 8 paras 7-9 [E/79], he explains that the French passport was located in a safe to which only he had access in a property in France, Chateau de Gairaut, and which was therefore not physically in his possession when the Ex Parte Passport Order was served.
69. Further, the Defendant’s position is that he was not asked at the time of service as to the whereabouts of his French passport, and that if he had been asked he would have advised them, as he later did before Peter Smith J,20 that it was in France: Pugachev 12 para 27 [A/5/9].
70. The Claimants’ evidence is set out at Hardman 3 paras 22-25 [A/6-7], where they attempt to cast a different light on the events in question. Mr Hardman refers to Mr Roberts’ evidence at those paragraphs. Mr Roberts gives no direct evidence of the relevant events, noting “I have no direct knowledge of what happened upstairs in the Property” (para 21). Mr Roberts in turn exhibits (at para 28) an attendance note of Ms Rebecca Wales, who herself attended upon the translator, Ms Elena Edwards [G/132/7]. At the very least this is third-hand hearsay. Mr Roberts’ himself (at para 28) acknowledges that “I was not able to speak to Ms Edwards myself …” [G/132/7]. There is no evidence from Ms Edwards in these proceedings.
20 06.03.15 54/7-9 [D1/44/14].
- 26 - 71. Ms Wales’ attendance note is now exhibited to Hardman 3 [B/11/17-18]. That note does not state that the Defendant was specifically asked for his French passport. What it does say is that:
“EE said that the Tipstaff and the police constables had explained that the obligation in the injunction was very straightforward and that it was not necessary to have read all the documents in the box for SP to know that he was obliged to hand over his passports. EE noted that the Tipstaff and police officers had been courteous throughout and had explained the position to SP several times.”
72. Whilst Ms Edwards makes no mention of the Defendant’s French passport, it is mentioned in Roberts 13 para 25 [G/132/7]. He states that “I understand that Mr Pugachev was subsequently asked to confirm whether he had any further passports and he confirmed that he did not.” Whilst the source of this understanding is not set out, it appears from the next sentence of Roberts 13 that this is a reference to Mr Roberts’ conversation with PC Jones. There is no evidence from PC Jones on this application. Such evidence that exists is in any event disputed. On cross- examination, the Defendant not unreasonably explained that “How on earth would you imagine a police constable, who had just been summoned from the local police station, how on earth would you expect him to know whether I had other passports, such as French, Spanish, Turkmen, or any other?”21 There was no response to this point by the Claimants and the point was not pursued in XX.
73. Mr Roberts in Roberts 13 para 26 also states that “Ms Edwards then came back downstairs (followed by a housemaid in uniform), and she also confirmed that Mr Pugachev had said that he did not have any further passports” [G/132/7]. This is not mentioned in Ms Wales’ attendance note.
74. Similarly, in Roberts 13 para 27 Mr Roberts states that “the police officers also indicated that they would produce a statement recording the events” [G/132/7]. No such statement has been provided to the Defendant.
21 10.12.15 (open court) 21/25 – 22/4 [D3/67E/6].
- 27 - 75. As to Mr Roberts’ evidence generally, at Roberts 13 para 23 [G/132/6] Mr Roberts states that “I should note that … I made some notes during the course of the various conversations (as did Mr Wales).” These notes have not been exhibited. In the same paragraph, Mr Roberts also accepts that “it is possible that I have confused the details of one conversation with another”.
76. Following the execution of the Ex Parte Search Order, the Claimants sent a letter dated 5 March to the Defendant [1/140/28] in both English and Russian, We understand from the Tipstaff that these documents were said by you to be the only passports or documents of like nature which permit you to enter or leave any country in your possession” (emphasis added). As already mentioned, the Defendant’s French passport was not in his immediate possession but was in France. In any event, the Defendant did not respond to that letter and deny that he had a French passport; there was simply no response.
77. It is submitted that there was no intent on the Defendant’s part not to comply with the order. He was simply not in physical possession of the French passport and so not in a position to immediately deliver it up. In fact, on 6 March 2015 when the Defendant was specifically asked by Peter Smith J if he had a French passport, the Defendant candidly accepted that he did.22 Coupled with the fact that it was well- known that the Defendant was and is a French citizen (and therefore likely to have a French passport), it is highly unlikely that the Defendant was seeking to hide the fact that he had a French passport. As the Defendant explained on cross-examination: “This was an open secret, everyone was fully aware of that. Ever since the late 1990s, that was in the public domain, it was in the newspapers and there was even a minor scandal because I was, at the same time, a senator in the Russian parliament and a resident of a foreign country. This was not a secret. Anyone who cared to know, did know.”23 The Claimants concede that the Defendant delivered up a number of documents in compliance with the order, including two Russian diplomatic passports, of which one had expired, and the likelihood is that, if the French passport had been in his possession, he would have delivered that up too.
22 06.03.15 54/5-13 [D1/44/14]. 23 10.12.15 (open court) 23/22 – 24/4 [D3/67E/6].
- 28 - 78. In any event, as a matter of the proper construction of the Ex Parte Passport Order, it could only have required the “immediate” identification and delivery up of passports that were immediately in the Defendant’s physical possession. That is because the word “immediately” should be read conjunctively so that it applies to both identification and delivery up. It is only possible to deliver up immediately a document which one has in their physical possession there and then. The construction of the obligation to “identify” should be informed by the obligation to deliver up, which as stated only applies to a limited range of documents. It is significant that the order does not require the identification and deliver up of all passports in the Defendant’s “power or control”, and is not expressed to apply to all passports “wherever they may be”. The French passport therefore fell outside the scope of the order.
79. This construction is consistent with the service letter that accompanied the Ex Parte Passport Order [B/8/1] and which was provided to the Defendant on 4 March 2015. That letter states in two places that the Defendant was required to “immediately surrender” his passports and that he was obliged to “immediately comply” with the terms of the order.
80. Alternatively, there is at the very least an ambiguity in the Ex Parte Passport Order as to whether “immediately” is to be read conjunctively with “identify” and “deliver up”, and consequently as to whether the French passport fell within the scope of the order. That ambiguity should be resolved in the Defendant’s favour, particularly given that the Defendant is not a native speaker of English and that he did not read all the documents given to him. In particular, Hogan Lovells’ letter of 4 March [B/8/1] necessarily influenced the Defendant’s understanding of what was meant by the order.
81. As a consequence of such ambiguity, an order for committal ought not to follow in the event there is a finding of breach on the part of the Defendant.
82. If and insofar as the Ex Parte Passport Order did require the Defendant to deliver up his French passport, Peter Smith J’s judgment of 6 March 2015 [C/32] permitted the Defendant to show that it was impossible to comply with the order (para 24). Contrary to paras 24 and 25 of the judgment of Peter Smith J, the position was not
- 29 - clear at all. Further, in making the Return Date Passport Order, Peter Smith J expressly noted that “I am giving Mr Pugachev an opportunity to comply.” (para 37).
83. Pursuant to an extension of time to comply with the Return Date Passport Order granted by Arnold J on 11 March 2015 [C/19], the Defendant was given until 18 March 2015 to deliver up his French passport, a deadline which the Defendant met: Hardman 1 para 16 [A/2] (and Pugachev 12 para 37 [A/5]). It is noteworthy that in his judgment [C/33], Arnold J said: “I have to recognise that there is no evidence before the court to contradict Mr Pugachev’s statement that the passport is presently located in a safe in his chateau in France” (para 28).
84. In the light of the Return Date Passport Order [C/18], there was no breach and no contempt because the Defendant successfully applied subsequently for an extension of time for the delivery up of his French passport. Under CPR r 3.1(2)(a) [White Book Part 1 p.60] the Court has the power, which it exercised in relation to the delivery up of the French passport, inter alia to “extend … the time for compliance with any … court order (even if an application for extension is made after the time for compliance has expired).” (emphasis added).
85. In short, the court cannot properly conclude from the matters relied on by the Claimants that the only possible inference which be reasonably drawn is that Mr Pugachev deliberately concealed his French passport and was in breach, and still less in contempt, of the Ex Parte Passport Order or the Return Date Passport Order. It is at the very least possible that the Defendant simply did not recall to mind the existence of his French passport. What is relevant is the Defendant’s state of mind: see Ereshchenko at [18] [Auths3/9] (quoted above).
86. If, contrary to the above, the court concludes that the Defendant is in contempt in this respect, it was short-lived (a matter of two days) in the light of the Return Date Passport Order [C/18] referred to under (2) below.
- 30 - B. Allegation A3: Failure to identify and/or deliver up to HL all travel documents belonging to or available to him in breach of paragraph 1(2) of the Ex Parte Passport Order [C/17], paragraph 1(2) of the Return Date Passport Order [C/18] and paragraph 3(d) of the Rose J Order [C/27]
(1) The French passport
87. The Defendant relies on the matters set out above in relation to any allegation under this heading relating to a failure to identify and deliver up his French passport.
(2) All other travel documents
88. This allegation rests entirely on an alleged inference that is sought to be drawn from the manner in which the Defendant left the jurisdiction.
89. In the first place, it is submitted that there can have been no breach of paragraph 3(d) of the Rose J Order [C/27] and therefore no contempt of that order in relation to all other travel documents. (The Defendant had already delivered up by this time the French passport and the other travel documents handed to the Claimants’ solicitors). This is because the documents which the Defendant was required to deliver up were those “which would enable the Defendant to leave England and Wales.” However, by the time of the Rose J Order (27 July 2015), the Defendant had already left the jurisdiction. There was, therefore, nothing on which paragraph 3(d) of the Rose J Order [C/27] could effectively bite.
90. This construction is consistent with the terms of the order, paragraph 3(d) of which required delivery up of travel documents “which would enable the Defendant to leave England and Wales.” The order does not provide that it applies to documents which would have enabled the Defendant to leave England and Wales. If the order was intended to be backward looking it would have said “…any documents which the Defendant used to leave the jurisdiction.” That it does not say that is unsurprising given that the order was designed to prohibit prospective movement from England and Wales if and when the Defendant was in the jurisdiction.
91. In their closing submissions the Claimants describe this position as “nonsense”, given that Rose J knew that the Defendant was out of the jurisdiction at the time the
- 31 - order was made.24 But that, it is submitted, is beside the point. The order has to be construed objectively, and it is insufficient to speculate as to what Rose J intended. Even if that is what was intended, that does not mean that the order is to be construed differently.
92. Alternatively, the Rose J Order is at the very least ambiguous and that ambiguity should be resolved in the Defendant’s favour.
93. In any event, regardless of whether that submission is correct or not, the Claimants have failed to establish beyond a reasonable doubt that the Defendant had documents to which the orders applied.
93.1 The Claimants’ case is that they “infer that Mr Pugachev must be in breach” (Hardman 1 para 37 [A/2/6]). This by no means an obvious inference, nor is it the only inference. No evidence has been proffered to show that the Defendant was in possession of a travel document to which the order applies.
93.2 The Defendant was cross-examined extensively about how he left the jurisdiction. His evidence was to the effect that he left by air from a London airport (not Heathrow), to which he travelled alone in a taxi which he picked up on the street in Chelsea. He confirmed that he had a colour photocopy of his passport.25
93.3 A colour photocopy of a passport is not a travel document, and so not a document which the Defendant was required to identify and deliver up. That position is not altered by the fact that the Defendant was in fact able to travel with a colour copy of the passport. In any event, there is no evidence that the Defendant had a colour photocopy of the passport at the relevant time for compliance with the Ex Parte Passport Order [C/17] or the Return Date Passport Order [C/18], or that the Defendant was still in possession of the colour photocopy of his passport up to 31 July (the time for compliance with the Rose J Order).
24 15.12.15 51/9-16 [D3/67G/13]. 25 09.12.15 112/20 – 114/9 [D3/67D/28-29].
- 32 - 93.4 Both the Ex Parte Passport Order [C/17] and the Return Date Passport Order [C/18] gave specific time frames for compliance. The Ex Parte Passport Order required the Defendant to act “immediately” (para 1(2)), and the Return Date Passport Order was time-limited required compliance by 4 pm on 13 March 2015 (para 1(2)). There can have been no breach of these orders given that, apart from the French passport (addressed above), there is no evidence that any other travel documents were in existence in that period that were not handed over, nor was this point put to the Defendant during XX.
93.5 The subsequent acquisition of a ticket was not a breach of the Ex Parte Passport Order [C/17] or Return Date Passport Order [C/18]. Both orders are time-limited and so cannot be sensibly construed as extending to subsequently acquired travel documents. The acquisition of a ticket after the date for compliance was not, on a proper construction of the orders, a breach. At the very least, the orders were ambiguous as to whether subsequently acquired travel documents would be caught by the orders.
93.6 The Claimants rely (Hardman 1 para 36 [A/2/6]) on the remarks of Mr Cherryman on behalf of the Defendant before Snowden J. Those remarks were made on the basis that there were other travel documents. On the Defendant’s evidence, the court now knows that not to be the case. In any event, what was said to Snowden J in a different context cannot bind the Defendant here. The matter is put beyond doubt in the Defendant’s written evidence. At para 37 of Pugachev 12 [A/5/11], the Defendant confirmed that apart from his French passport and other travel documents previously delivered up, he “did not and do not have available to me any travel documents. When I left England, I travelled without any such documents.”
93.7 No evidence has been proffered that as a matter of English law it is necessary as a matter of law to be in possession of a travel document, valid or invalid, to leave the jurisdiction. The Claimants have not suggested to the contrary. They were misguided to have enquired of the Defendant in cross- examination as to the issue of immigration as the Defendant passed through the airport on his way out of the jurisdiction. There is no immigration
- 33 - control. As the Defendant confirmed during XX, “I had a photocopy, a colour photocopy of my passport but nobody asked me for my documents.”26
93.8 The circumstances in which the Defendant entered France, as opposed to the manner of the Defendant’s departure from the jurisdiction, is not it is submitted a matter of concern to the English court, nor one with which the orders are concerned. The orders to which the Defendant was subject did not enjoin the Defendant from entering another country but from leaving the jurisdiction. The Defendant plainly did manage to enter France but it cannot properly inferred on the evidence that he only did so with a valid travel document that he concealed from the Claimants.
93.9 The weakness of the Claimants’ case is apparent in the manner it has been put by their counsel. In closing submissions, it was alleged that the Defendant had lied when he had said he took a flight from a commercial airport. In the first instance, the Defendant’s exact language was “the usual standard, regular airport”.27 In any event, counsel went on state that “He gave the answer which he did give about a commercial airport but when we explored that story, it seemed to us to be entirely implausible because anybody would be able to remember the details. So our suspicion, which doesn’t really count for much because it is just a suspicion, but our suspicion is that that story isn’t true, that he actually left by some other means.”28 Counsel continued that “We think the likelihood is that his second son Alexander drove him either to the train to a ferry and he went to France that way.”29 The only evidence in support of this assertion is the statement that the Defendant was allegedly seen in a white Mercedes with Alexander around that time in Knightsbridge. This is consistent with the general theme of the Claimants’ case, namely that it is based in many instances on little more than supposition.
26 09.12.15 114/8-9 [D3/67D/29]. 27 09.12.15 113/4 [D3/67D/29]. 28 15.12.15 54/3-10 [D3/67G/14]. 29 15.12.15 54/17-19 [D3/67G/14].
- 34 - C. Allegation A2: Left the jurisdiction in breach of paragraph 4(a) of the Hildyard J Order [C/24]
94. The Defendant accepts that he is in breach of court ordered travel restrictions, but the onus is on the Claimants to show that this breach amounts to a contempt. The Defendant’s belief is that he should not be treated as being in contempt in circumstances where he considers that it is the conduct of the Claimants and those behind them in Russia which is the cause of the fear and concerns for his life and safety that led him to leave the jurisdiction.
95. The Defendant has explained his reasons for leaving the jurisdiction, even if those explanations do not excuse the breach. They are set out in Pugachev 6 paras 5-8 [E/88] and expanded upon in Pugachev 9 paras 6-32 [E/93] and Pugachev 12 [A/5] paras 14.2, 15-16, 21-25 and 29-36. They relate to serious and heightened concerns for his personal safety largely created by the Claimants’ own conduct.
96. The Claimants’ have repeatedly alleged that they the Defendant’s concerns are not genuine.30 That ignores serious and uncontested evidence that is before the court, and reveals an ignorance of “the sinister reality of Russian political disputes” (Pugachev 9 para 9).
96.1 The expert witness statement of Mr Galeotti [E/91] sets out at great length the established trend of attacks and murders carried out abroad by Russian state agents and other powerful interests within Russia, including in the UK, and the perceptions of that threat on the part of Russian expatriates in the UK. That evidence has not been contested by the Claimants.
96.2 It is wrong to say, as the Claimants put to the Defendant in XX,31 that if the Defendant had not felt secure in London he would have mentioned it in his 11th witness statement dated 20 May 2015 [E/83]. That witness statement was confined to matters in support of the Defendant’s application for the release of his French passport so that he could attend a court hearing in Paris at which the Defendant had been summoned to give evidence. His safety concerns were not germane to that application.
30 See for example 10.12.15 (open court) 12/25 – 13/3; 13/16-20 [D3/67E/3-4]. 31 10.12.15 (open court) 11/14 – 13/3 [D3/67E/3-4].
- 35 - 96.3 At the time he left the jurisdiction, the Defendant did not know that it was the Claimants’ enquiry agents who were responsible for placing the devices on his vehicles, nor that they were (so it is alleged) tracking devices. The possibility of the devices having been planted by Diligence was raised for the first time in Pugachev 6 para 7 [E/88/2] (sworn in France), where the Defendant said “I am of course unable to verify whether those following me were the investigators instructed by Lovells for this case, or were actually agents for others who may ultimately have a different mission.” Further, it was only admitted by the Claimants in Mr Roberts’ 22nd witness statement dated 16 July 2015 [G/136/21], where at para 76 he said: “Prior to the service of Mr Pugachev’s Sixth Affidavit on 8 July 2015, he had not suggested that the “homemade car bomb” referred to in the Mirror article might in fact be a tracking device fitted by the Claimants’ enquiry agents (or that the Claimants were otherwise responsible for that item). … I have discussed this matter with Trefor Williams who heads up Diligence’s London operations and has responsibility for the conduct of this investigation on behalf of the Claimants. As I explain below, Mr Williams has confirmed that his team has used tracking devices on some of Mr Pugachev’s vehicles.”
96.4 Consequently, it is not far-fetched to accept that an individual in the Defendant’s position, and given the hostility towards him of the Russian Federation, would have genuine concerns for his life and safety once he discovered that devices were placed on his vehicles. This is especially so in the light of the expert evidence of Mr Galeotti [E/91/4-7] as to the attacks on, and threats against, Russians in the UK who are in conflict with the Kremlin. Mr Galeotti notes (at [11]) that “[t]here have been a number of murders and suspicious deaths in the UK which have been proven to be at the hands of the Russian state or powerful interests in Russia, or else which are at least widely believed to be their responsibility, especially within the Russian expatriate community.”
96.5 The witness statement of Mr Shepherd of Animus Associates at para 7 [E/92/3] also confirms that “it is also possible that they [the devices] could
- 36 - have been some other form of device altogether, for example containing a hazardous chemical or other potentially lethal substance.” That possibility in the eyes of the Defendant cannot be discounted and the evidence of Mr Shepherd has not been challenged by the Claimants (even though their own enquiry agents are presumably in a position to do so).
96.6 In any event, the discovery of the devices placed on his vehicles by the Claimants’ enquiry agents was not the immediate impetus for his leaving the jurisdiction. As the Defendant explained in Pugachev 6 at para 8 [E/88/2], the decision to leave “was a difficult decision … However, I have to put my personal safety first, and in leaving I certainly do not intend any disrespect to this court or its procedures.” At para 5, the Defendant explained that his decision to leave was based on “serious and more recently increased concerns for my personal safety” (emphasis added). There was clearly a crescendo in the Defendant’s safety concerns that objectively worsened following the discovery of the devices on his motor vehicles.
96.7 In particular, those concerns worsened in line with “steps [taken] recently with a view to registered those investment treaty claims [against the Russian Federation] as a French national” (Pugachev 6 para 5 [E/88/2]). Those steps were taken following the expiry of the six month period (from the filing of the Defendant’s notice letter in December 2014 [F2/122/1-7]) in which the Defendant and the Russian Federation were to attempt to settle their dispute amicably. No steps were taken by the Russian Federation to engage in negotiations with the Defendant, and as a consequence the Defendant began to take steps in furtherance of his investment treaty claims around this time.
96.8 It is not correct, as it is alleged in Hardman 3 at para 27 [A/6/7] that the Defendant’s fears as to the tracking devices were not genuine as the devices were left in place for several weeks after their discovery. Mr Shepherd’s witness statement at para 5 [E/92/2] confirms that Animus attended the premises on 2 May, 9 May and 15 May, as not all the vehicles were available on the first visit. It was then SO15 who arranged for the devices to
- 37 - be removed on 29 May. In considering any mistakes or inconsistencies that may appear in the Defendant’s XX evidence, as alleged by the Claimants with respect to this issue (Cs’ Closing Submissions paras 32-33), the court is asked to bear in mind that the Defendant was not taken to or tested on his prior evidence in Pugachev 6 [E/88] or Pugachev 9 [E/93] as they related to his safety concerns or to the tracking devices, nor was he taken to or tested on the evidence filed on his behalf my Mr Shepherd [E/92] (who addresses the devices in some detail). In any event, the Defendant explicitly confirmed during XX that “I am not sure about the timeframe and how the events unfolded …”.32
96.9 The Defendant has produced evidence from his French lawyers showing that these threats have continued in France, including an explicit death threat [B/10/17]. Those threats are the subject of ongoing criminal proceedings in Paris. That evidence was not put to the Defendant in XX, nor is it contested by the Claimants.
96.10 Although the court has previously expressed scepticism about the Defendant’s safety concerns, those concerns are very real in the Defendant’s mind and, objectively, have worsened. It is also noteworthy that in his judgment of 9.7.15 [C/36A], Henderson J, although sceptical, said (para 29) that “I do not feel able to completely discount what he says, particularly bearing in mind that, if he is right, his personal safety and indeed his life is potentially at stake. The court has to take seriously, for obvious reasons, any concerns expressed by a person for their life and personal safety. I would need clearer evidence than I have before me at the moment before I could totally discount his fears.” The Claimants have produced no further evidence. Henderson J’s comments remain valid today.
96.11 The Claimants have not proffered any alternative explanation for why the Defendant left the jurisdiction, nor was one put to the Defendant during XX, save to suggest that it was because “the investigation into the missing monies was going to continue” (Cs’ closing submissions para 30). In circumstances where leaving the jurisdiction would not stop that
32 09.12.15 117/15-16 [D3/67D/30].
- 38 - investigation (and indeed may well exacerbate that investigation as has proven the case here) and given that the Defendant has continued to engage with these proceedings and has filed further affidavits in support of that investigation despite being in France, the explanation proffered by the Claimants is unsustainable. The Claimants’ case is not improved by repeated statements to the effect that the Defendant has “fled” or “absconded” from the jurisdiction in order to avoid the present proceedings.
97. The Defendant’s concerns have since been compounded now that the Russian Federation has made a formal extradition request to the authorities in this jurisdiction. The Defendant’s understanding is that this request remains extant (see letter from Peters & Peters).
98. Hardman 3 paras 31-34 [A/6/8-9] makes a number of further comments as to the Defendant’s safety concerns:
98.1 At para 31, Mr Hardman relies on an interview given by the Defendant to The Guardian in an article dated 28 July 2015 [B/11/52-53], where it is said that the Defendant intended to return to London “as soon as his legal issues are cleared up” as evidence that his safety concerns are not genuine. It is a symptom of the weakness of the Claimants’ case that they feel constrained to cherry pick selective parts of newspaper reports, often written in sensationalist terms and not even purporting to be direct quotes. This is far from the quality of evidence needed to support such a serious application s this one. The Defendant could equally point to self-serving parts of the same article relied upon by the Claimant, i.e.:
“Pugachev says he fled the UK for good reason: someone is trying to kill him. “I’ve been receiving death threats since 2011. I could either obey the order and risks the lives of my wife and children or leave,” he says.”
98.2 In any event, what the Defendant meant by “legal issues” was not put to the Defendant during XX. The obvious inference is that it refers to his dispute with the Russian Federation and with the Claimants.
- 39 - 98.3 At para 32 of Hardman 3 [A/6/8], Mr Hardman relies on a selective excerpt from the note of a press conference at which the Defendant launched his BIT claim [B/11/54-56]. The same paragraph quoted from goes on to say “We’ve explained to the UK courts that the decision to leave the UK was a consequence of his fear for his life and safety.” The note continues:
“In open court, Hogan Lovells, the attorneys for the Russian State in those proceedings, have confirmed that Diligence was in fact putting devices on Mr Pugachev’s automobiles – that’s not even in dispute. They admitted that after the fact, after Mr Pugachev left, and yet they say we find it unreasonable Mr Pugachev would be afraid for his life and safety because we’re in fact the ones that put the devices. Somewhat disingenuous from our perspective.”
98.4 At Hardman 3 para 33 [A/6/8-9], Mr Hardman quotes selectively from an interview given by Ms Tolstoy to The Guardian in an article dated 13 November 2015 [B/11/59]. The full quote is “Afterwards, I realised he must he planned it all. I think he was really frightened by the tracking device [that was found on the family car]. Sergei’s a survivor and knows what he’s doing, but he doesn’t always tell me. It’s so I’m protected and don’t have to lie about now knowing…”. The reference to extradition as an additional reason for the Defendant to be concerned about returning to the jurisdiction is correct.
98.5 At Hardman 3 para 34 [A/6/9], Mr Hardman notes the Claimant’s refusal to accept service of the Claimants’ claim to enforce the Russian judgment. That is neither here nor there insofar as the Defendant’s participation in these proceedings is concerned. King & Spalding were engaged prior to the Defendant leaving the jurisdiction, and despite the Defendant leaving the jurisdiction he has provided evidence as directed by the court (contrary to the professed fears of the Claimants).
- 40 - V. ALLEGED DEALING WITH ASSETS IN BREACH OF THE WFO
A. Allegation B1: Disposal of Petrovka-Rent
99. The Claimants’ case is set out at para 51 of Hardman 1 [A/2/9], namely that:
“In circumstances where all of the shares in Limebury are indirectly owned by Mr Pugachev, the only possible inference is that the transfer of Limebury’s sole asset, i.e. its interest in Petrovka-Rent, must have been procured or permitted by Mr Pugachev.”
100. This allegation of contempt rests solely on inference. It is incumbent on the Claimants to show beyond reasonable doubt that the only possible inference that can reasonably be made is that the Defendant in some way procured the transfer by Limebury of its shareholding in Petrovka-Rent. No evidence, or at least no sufficient evidence, has been adduced to support the inference the Claimants contend should be drawn.
101. The Defendant set out his position at Pugachev 12 paras 42-44 [A/5/12-13]:
“42. It is my understanding that the WFO has never been served on Eastwork Business Ltd (“Eastwork”), Limebury or Petrovka-Rent. I did not instruct the directors of Eastwork or Limebury to do anything on this matter, and understand that due to corporate governance requirements in the jurisdictions in which those companies are incorporated I have no basis to instruct Limebury or Petrovka as I am only a shareholder in Eastwork. In that regard, I exhibit hereto a letter from a director of Limebury to my English counsel confirming that they did not act on my instructions (see page 16 of SVP24).
43. I would like to add that the business activities of Eastwork Business Ltd (“Eastwork”) are not within my control or area of responsibility in any capacity other than as a shareholder. Eastwork is managed by its own directors who are solely
- 41 - responsible for the management of the company. I am not in a position to give instructions to Eastwork to make payments or otherwise. As far as I am aware, Eastwork and Limebury are not subject to the WFO anyway and were not even served with it.
44. Furthermore, although I was not obliged to disclose assets held by companies under my control and outside of the jurisdiction, I did provide additional detail and estimates of the value of the assets held by those companies in my Asset Schedule. However, I am the shareholder of a company that owns shares in other companies and the value of those shares is wholly dependent upon the financial performance of the underlying companies and the ability to distribute dividend income to me if and when available. I did not benefit from this transaction in any financial way.”
102. The Defendant’s interest in Petrovka-Rent was fully disclosed at para 18 of the Asset Schedule [F1/105/7]. Various office premises in Moscow are owned by LLC Petrovka-Rent, a Russian company. 99.97% of the shares in Petrovka-Rent are held by Limebury Investments Limited, a BVI company. 100% of the shares in Limebury are held by Eastwork Business Limited, a Panamanian company, which the Defendant owns or controls through bearer shares [E/68/3]. During XX, the Claimants failed to appreciate the interposition of Eastwork between the Defendant and Limebury when they asked if the Defendant was the ultimate owner of Limebury.33
103. It appears from the Claimants’ oral closing submissions that the case against the Defendant is being put in two ways: either, it is alleged, the shares in Petrovka-Rent were held by Limebury and the Defendant has sufficient control over Limebury; or alternatively the shares in Petrovka-Rent were held by Limebury on trust for the Defendant, and he therefore had a beneficial interest in those shares which was an
33 11.12.15 13/15-18 [D3/67F/4].
- 42 - asset caught by the WFO.34 In either case, the charge is that the Defendant procured and/or permitted the transfer by Limebury of its shareholding in Petrovka-Rent.
104. However it is put, it is flatly disputed by the Defendant that he procured and/or permitted the transfer by Limebury of its shareholding in Petrovka-Rent, or that he is in a position to give instructions to Limebury or Eastwork (Pugachev 12 paras 42-43 [A/5/12]. The contrary case put by the Claimants amount to little more than an assertion that “it is inconceivable … that he was not involved and at the very least, he was in a position to be able to procure or permit Limebury to deal with the assets and he either did procure or permit Limebury to deal with the assets.”35
105. The Defendant’s position is supported by the letter of Mr Moukhordyk, who states that Limebury did not act on the Defendant’s instructions, either directly or indirectly ([B/10/16]).
106. The Claimants’ contend that Mr Moukhordyk is no more than a nominee director. This is disputed. In the first instance, the letter does not state that Mr Moukhordyk is a director; it merely notes that he is “empowered to represent” Limebury. Second, whilst it is not for the Defendant to prove the Claimants’ case, it is noted that the Claimants have failed to show that Mr Moukhordyk was employed at the Bank prior to the Defendant divesting his ownership of the Bank to a trust controlled by Mr David Henderson-Stuart. It is suggested in Roberts 1 at para 75 [G/130/19] that the Defendant divested himself of his interest in the Bank following his appointment as a Senator (in 2001). Mr Moukhordyk did not begin to work, according to his CV ([B/11/69]), at Interbezopasnost (the private security company which provided services to the Bank) until 2003. It is noted that it is not alleged that Mr Moukhordyk was at any point directly employed by the Bank (Hardman 3 para 39 [A/6/10]). Nor is it suggested that Interbezopasnost provided services to the Bank exclusively. In the circumstances it is submitted that the criticism of Mr Moukhordyk’s letter is not made out, and that the letter supports the Defendant’s position.
34 15.12.15 62/11-24 [D3/67F/16]. 35 15.12.15 63/8-12 [D3/67G/16].
- 43 - 107. In response to the matters set out in the Claimants’ closing submissions at para 52:
107.1 It by no means follows from the fact that the Defendant may have had knowledge of Petrovka-Rent’s operations that he procured and/or permitted the transfer by Limebury of its shareholding in Petrovka-Rent.
107.2 Whilst there may have been inconsistencies in the Defendant’s evidence during XX that does not show that his evidence on the matter was untrue and was known by him to be untrue.
107.3 The email to Mr Frank Nelson relied upon [F2/118/77] does not support the Claimants’ case. The Defendant has confirmed that others had access to the “SP Legal” email account, including his legal team, and that he did not send the email.36 The language used in the email is consistent with it having been sent by someone with a legal background as opposed to the Defendant. In any event, it does not follow from the fact that a request for documents was sent that the Defendant was in a position to request those documents. Even assuming that he was, there is no basis on which to move from that assumption to the inference that the Claimants seek to draw, namely that the transfer of Limebury’s holding in Petrovka-Rent was procured and/or permitted by the Defendant.
108. In XX, the Defendant stated explicitly that he had not signed any documents in his capacity as shareholder so as to allow or procure or permit the disposition of any assets, and that that was the only thing he could do in his capacity as shareholder.37 That point was not pressed by the Claimants.
109. The Claimants’ reliance on the decision in WWF v THQ [2004] FSR 10 (CA) [Auths3/16] is misplaced.
109.1 In the first instance, the case relates to an injunction arising in an entirely different context (breach of a trade mark demarcation agreement), and does not involve a freezing order. Freezing orders are unique standard orders.
36 11.12.15 16/23 – 17/15 [D3/67F/4-5]. 37 11.12.15 23/13-17 [D3/67F/6].
- 44 - 109.2 WWF concerned the activities of a licensee of the defendant. There was a contractual relationship over which the defendant had some control (see H9 and para 19 of the judgment).
109.3 In any event, it relates to an injunction where there was ongoing conduct on the part of the defendant which was sought to be restrained. The injunction restrained the defendant “from doing the following acts” including “using the initials WWF orally or in visual form”. In effect, this was (at least in part) a mandatory injunction that necessitated or imposed a positive obligation on the defendant to stop doing certain things. By contrast, the injunction in this case is a prohibitory injunction.
109.4 The point relied upon by the Claimants, i.e. that there is an obligation to take all reasonable steps to ensure that those over whom a defendant has control or influence does not do acts which are consistent with the WFO, only arose in WWF because the injunction in that case restrained WWF “whether by its … licensees” at [2]. It is clear from the judgment at [19] that the question in that case was whether the Federation had breached the injunction “by its licensees” and that “accordingly” there was to be implied into the standard form of injunction a positive requirement on to take appropriate steps to stop its licensee (THQ) from performing acts which, if performed by the Federation, would be a breach of the injunction. There is no basis in the WFO in the present proceedings for the implication of a similar implied term.
109.5 Further, the implied term was stated to apply where there are “independent contractors” and where it was “within [the defendant’s] power” to prevent the acts (see H8(2) of the judgment). That situation does not arise in the instant case because we are concerned with shareholders, separate corporate legal personalities, and an indirect shareholding through Eastwork and Limebury. It is trite law that a company is not the agent of a shareholder, and that shareholders have no role in the management of a company. In that regard, if the Claimants thought that Eastwork, Limebury and/or Petrovka- Rent were the alter ego of the Defendant, then they could have joined them
- 45 - using the Chabra jurisdiction. Significantly, no attempts have been made to do so.
109.6 If any positive obligation is sought to be imposed on the Defendant in a freezing order case it must be clearly articulated in those terms: see the strict construction principle set out by the Supreme Court in JSC BTA Bank v Ablyazov [2015] UKSC 64 at [19] [Cs’ Auths/20]. The terms of the freezing order here contains the negative injunction regarding bodies corporate (para 2(4)), i.e. not to “procure or permit”, only. If the freezing order was intended to impose a positive obligation on the Defendant then it needed to say so expressly.
110. Consequently, the case as it is put in the Claimants’ closing submissions at para 55 is mistaken. The Defendant was not the subject of a positive obligation to prevent the transfer of Petrovka-Rent. His obligation was not to procure and/or permit such a transfer. In any event, it is insufficient for the Claimants to vaguely assert that “he could and should have directed the nominees not to transfer Petrovka-Rent” or that the Defendant “should have given instructions to the directors of those companies not to dispose of their assets” without particulars as to how and why that should have happened.
111. To the extent that the Claimants rely on BVI and Panamanian law (Hardman 3 at paras 36-38 [A/6/9-10]), the Defendant has had no opportunity to consider that point, nor has the advice referred to been provided. It is submitted that, even assuming that the position were as stated by the Claimants, it does not follow that the Claimants have thereby established beyond a reasonable doubt the conduct of which they complain and which the Defendant denies. This is a fact-sensitive enquiry, and even if what the Defendant says may be true, the allegation is not made out.
B. Allegation B2: Disposal of the MV Victoria in breach of paragraphs 2(1) and/or 2(2) of the WFO [C/14] (as continued by the WFO Continuation Order [C/23])
112. The MV Victoria is owned by a company called Walur Limited, a BVI company, and ultimately by the Defendant’s son, Victor. It is not legally or beneficially owned by the Defendant. The Claimants’ case is that the MV Victoria is an asset over
- 46 - which the Defendant has “control” within the meaning of paragraph 3 of the WFO [C/14] (as explained by the Supreme Court in JSC BTA Bank v Ablyazov (No 10) [2015] 1 WLR 4754 [Cs’ Auths/20] (see Cs’ skeleton at paras 56-57).
113. It is denied that the MV Victoria is an asset over which the Defendant has “control” and that there has been any breach of the WFO in relation to the use of this vessel.
114. It is wrong to submit (as the Cs’ do in their skeleton argument at para 106) that the Court of Appeal in its judgment of 14 August 2015 [C/38] concluded that the vessel was moved out of the jurisdiction in breach of a court order. It is plain from that paragraph of the judgment that all the court was doing, beginning at para 24, was recording what is said in Mr Roberts’ affidavit in support of the Claimants’ application, without passing any judgment or comment on the assertions contained in his evidence.
115. The Defendant’s written evidence regarding the boat is in Pugachev 4 [E/85], Pugachev 10 para 12 [E/94/4] and Pugachev 12 paras 45-46 [A/5/13-14].
116. The Defendant has made open use of the boat from time to time, with his family for recreational purposes. His recreational use was consistent with the purpose for which a pleasure craft is customarily acquired. As the Claimants admitted in June they have been aware (as they have been extensively keeping him under surveillance) since April38 he was using the boat. He did so without any objection from the Claimants, at least until 1 June when they obtained an order from Mr. Justice Henderson preventing the Defendant from using the boat further. That ex parte order was obtained as it was feared the Defendant was about to leave the jurisdiction on the boat. In fact he did not do so, and he returned to London, without knowledge of the fact that the ex parte order had been obtained.
117. It is important to note that it was not alleged on that application that the Defendant’s use of the boat was itself objectionable and a breach of the freezing order, whether because of the “control” argument or otherwise. Since the ex parte boat order was made the Defendant did not use the boat further.
38 See paras 12 and 14 of Mr Roberts’ 20th W/S at [G/134A/3-4] in support of the order of 1 June 2015.
- 47 - 118. So, for the Cs belatedly to say for the purposes of this application that the Defendant’s historical use of the boat for recreational purposes is somehow something that constitutes control is not credible. If they thought so, they would have said so on the application to Henderson J on 1 June 2015.
119. There is no evidence that the MV Victoria was removed from the jurisdiction by the Defendant. It is a flawed case of inference. None of the matters relied on in Hardman 1 para 55 [A/2/10], either individually or collectively, gives rise as the Claimants allege to the “only possible inference” that the Defendant must have been responsible, directly or indirectly, for her removal from the jurisdiction.
120. As to Cs’ closing submissions at para 59.3, the Defendant’s consistent evidence has been that the MV Victoria is beneficially owned by Victor Pugachev: Pugachev 4 para 8 [E/85]/; Pugachev 10 para 12 [E/94/4]; Pugachev 12 para 46.4 [A/5/14]. The fact that the vessel is legally owned by Walur Limited, a BVI company is clear from the Yacht Management Agreement [H/139/62] to which the Claimants referred in their submissions.39 During XX, the Defendant was not probed as to what he knew or understood regarding how the vessel was owned by Victor.
121. If the Defendant had in fact been the owner of the MV Victoria, it would have been an obvious asset to include in his original asset disclosure [F1/105], especially given the breadth of asset disclosure he gave including 3 other (larger) vessels, and the fact is that it is hardly an asset that was hidden. It was openly used, in full view of the Claimants’ enquiry agents.
121.1 It is not, and has not been, disputed that the Defendant uses the MV Victoria for occasional recreational purposes. That is neither here nor there and does not give rise to the only possible inference that the vessel belongs to him or that he was responsible for its removal. Such use is consistent with the purpose for which the vessel is intended. The Claimants only appear to have objected to the Defendant’s use of his vessel when they claimed that he was about to leave the jurisdiction using the vessel (and as a
39 15.12.15 70/19-22 [D3/67G/18].
- 48 - consequence obtained what turned out to be the unnecessary “Boat Order”40).
121.2 Nor is it to the point that the Claimants’ enquiry agents did not observe anyone apart from the Defendant, his family and staff using the vessel (Hardman 1 para 55(b) [A/2/10]). It is not, and has not, been alleged that the surveillance in question was continuous, nor has any documentary evidence been adduced other than certain photographs of the vessel, which prove nothing ([B/11/44]). The fact that no one else was observed using the vessel does not give rise to the only possible inference that the vessel belongs to the Defendant or that he was responsible for its removal.
121.3 It is said that the MV Victoria is ostensibly managed by Oakhill (Cs’ closing submissions para 59.2). The Defendant’s case is that the MV Victoria is managed by Oakhill (see the email at [B/8/48]). That is also consistent with the Yacht Management Agreement [H/139/62]. It is the evidence of Natalia Dozortseva in her 2nd affidavit at para 23 [E/81A/5] that Oakhill is not owned by the Defendant or any company in which he has an interest, and this point was not put to the Defendant in XX.
121.4 The Claimants’ refer to the temporal link between the Defendant leaving the jurisdiction and the vessel’s removal from the jurisdiction (Cs’ closing submissions para 59.4). Whilst the burden is not on the Defendant, it is at least another possibility that, after the vessel was searched, Victor – who had control of the vessel and her crew – took the decision as a matter of prudence to sail to France.
121.5 Similarly, reference is made to the location of the vessel near the Defendant’s home (Cs’ closing submissions para 59.4). Again, this does not give rise to the only possible inference that the vessel belongs to the Defendant or that he was responsible for its removal. Victor lives nearby in Monaco and the vessel is not moored permanently at the location identified by the Claimants but frequents many ports in the area: Pugachev 12 para 46.4 [A/5/14].
40 Order of Henderson J dated 01.06.2015.
- 49 - 121.6 In that context, it is noted that the Claimants rely on an attendance note prepared by Mr Roberts recording his meeting in a Starbucks coffee shop with the captain, Mr Goodey [B/11/78]. The attendance note is dated 11 September 2015 but for some unexplained reason it was not produced in evidence until Hardman 3 [A/6], in reply, a few days before the commencement of the contempt hearing. Nor has a witness statement been provided for Mr Goodey. As pointed out above, Mr Roberts could not be cross examined on his meeting with Mr Goodey (or at all). For all these reasons, the attendance note of the Starbucks meeting with Mr Goodey should not be given any weight, or at least should not be regarded as having any probative value on this application.
121.7 Without prejudice to the above, it is clear from the attendance note exhibited to Mr McCoy’s witness statement dated 10 December 2015 that Mr Goodey wishes to clarify that he had no “clear impression” as to ownership of the vessel, as Mr Roberts’ attendance note suggests. Rather, Mr Goodey’s position is that he did as instructed by Martin Liechti of Oakhill and did not take instructions from the Defendant, and that it was entirely possible that someone else was using the vessel on the four days of the week that Mr Goodey was not on the vessel. He also states that “it was not in his mind at the time that [the Defendant] owned the Boat, just that he had free use of it for the three days that GG worked on the boat” (para 11). Mr Roberts’ attendance note is another illustration of the unfair slant which the Claimants seek to place on the evidence before the court.
121.8 The contention in the Claimants’ closing submissions at para 58 that the MV Victoria was “plainly in SP’s control” for the purposes of the WFO [C/14] because the Defendant accepted in XX that he was in a position to tell the captain when he wanted the boat and where to sail to is a non sequitur. That is not “control” for the purposes of the WFO. As Lord Clarke noted in Ablyazov (No 10) at [49] [Cs’ Auths/20], the purpose of paragraph 3 of the WFO is to catch assets which a defendant has “power to dispose of or deal with as if he [owned the asset]”. The ability to direct the captain of a vessel which the Defendant has had placed at his disposal by
- 50 - his son for recreational use at his reasonable convenience does not satisfy that test.
121.9 The contention in Cs’ closing submissions para 59.6 reverses the burden of proof. It is not for the Defendant to show that someone other than the Defendant gave the instruction for the vessel to be removed from the jurisdiction. It is for the Claimants to show that he did give such an instruction or that it is the only possible inference to be drawn. As noted above, it is at the very least a possible inference that Victor gave the instruction for the boat to be removed from the jurisdiction.
121.10 The Defendant’s evidence in XX is not inconsistent with his previous evidence.
121.10.1 In XX, the Defendant said that Victor “allowed me to use his small boat in London”.41 This is consistent with Pugachev 4 para 8 [E/85], where the Defendant confirmed that Victor had “granted permission to my family … and myself to use the Vessel solely for recreational purposes on a regular basis.” The fact that permission was granted pursuant to an arrangement regarding Victor’s entitlement to use the Defendant’s vessel in France is not to the point.
121.10.2 It is unclear why the Claimants allege there is an inconsistency with the Defendant’s prior assertion that his yachts in France are “chartered out in the summer seasons to third parties in the ordinary course” [I/140/27]. It has not been suggested that Victor has exclusive use of any of the Defendant’s vessels in France.
122. In the light of the Defendant’s consistent evidence that he is not the owner of the MV Victoria, the court is reminded of the remarks of Hildyard J in his judgment dated 12.6.15 [C/36] at para 38:
“Put another way, the court may be in a position to reach a firm conclusion, on the basis of clear evidence of their conduct, that an
41 10.12.15 (open court) 81/21 [D3/67E/21].
- 51 - examinee or third party has actually been dissipating or assisting in the dissipation of assets (as in JSC BTA Bank v Ablyazov [2015] 1 WLR 1547); but it is likely to be far more reluctant to reach a conclusion contrary to the examinee’s evidence on oath that the examinee has no interest in a given asset, or as to lack of knowledge of the whereabouts of assets of which he or she disclaims any ownership or control.” (emphasis added)
123. It appears from the Claimants’ skeleton argument para 106 that the Claimants make a half-hearted attempt to allege that the Defendant is the beneficial owner of the MV Victoria, and suggest that it is the “clear inference”. There is no or no sufficient evidence to support a finding that it is the only possible inference that can reasonably be drawn. It is clear from the way the case is put in closing (see Cs’ closing submissions para 57) that the emphasis is on the “control” argument.
124. If there was any true belief on the part of the Claimants that the vessel was in truth the Defendant’s asset, they would have presumably by now joined Walur and Victor under the Chabra jurisdiction.
125. The court is also reminded that it the Claimants face two hurdles: first they must prove beyond a reasonable doubt that the MV Victoria is an asset belonging to the Defendant (or is otherwise caught by the WFO [C/14]); and second they must prove beyond a reasonable doubt that the Defendant procured and/or permitted the removal of the vessel from the jurisdiction.
126. It is submitted that the Claimants have surmounted neither hurdle. The vessel is not an asset caught by the WFO. If the court finds to the contrary, it cannot properly be concluded that the only possible inference to be drawn from the facts is that it was the Defendant who procured and/or permitted its removal from the jurisdiction.
- 52 - C. Allegation B3: Dealing with the Hediard Sale Proceeds in breach of the WFO [C/14] and/or in breach of the Living Expenses Order
(1) Payments to Luxury Consulting
127. In his original asset disclosure [F1/105/11 and 13], the Defendant disclosed the following:
127.1 The Defendant had an interest in the “[b]alance of proceeds of sale of interest in Financiere Hediard SA. It was explained that the Defendant owned or controlled Luxury Invesments SA, a company which owned shares and receivables in Financiere Hediard, which in turn owned Hediard SA. It was further explained that Financiere Hediard had been sold for €10 million and that under the share purchase agreement that sum, which was payable, was currently used to secure potential liabilities under historic third party claims brought against Hediard in a larger amount.
127.2 The Defendant was a creditor of Luxury Consulting Limited in respect of the loans set out at note 7 to the company’s accounts (page 2118 of MGR1)42.
127.3 Luxury Consulting had retainers with the following: Luxury Investments, OPK Biotech International SA, and Emeril Holdings.
127.4 Pursuant to its retainer with Luxury Investments, Luxury Consulting was paid every quarter a fee of £125,000 which covered payment for all work and nearly all expenses associated with work with Luxury Investments and its subsidiaries Hediard and BLU.
128. As to the payments of €3.75 million owed to Luxury Investments in respect of the sale of Hediard and paid to Luxury Consulting’s Euro account on 11 December 2014, and a further alleged payment of £994,416.33 owed to Luxury Investments in respect of the sale of Hediard and paid to Luxury Consulting’s Sterling account on 12 December 2014, the Defendant’s position (as set out in Kristof 1 para 11 [E/98] and Kristof 2 paras 7 and 11 [E/99]), namely that the monies transferred to Luxury
42 This is not in the hearing bundle.
- 53 - Consulting were held on Luxury Investments’ behalf, as a consequence of Luxury Investments no longer having an active bank account.
129. The Defendant’s position is that he did not instruct either Luxury Investments or Luxury Consulting on how to conduct its business affairs: Pugachev 12 para 49 [A/5/14].
130. In any event, whilst the Defendant denies any involvement in the transfer of monies from Luxury Investments to Luxury Consulting, it is material to note that this is not an allegation of dissipation, and does not anyway involve dissipation. Rather, the monies were transferred into the jurisdiction. The transfer of monies from Luxury Investments to Luxury Consulting did not reduce the assets to which the Claimants may potentially have recourse.
131. It is submitted that it is not the only possible inference to be drawn from the evidence that the Defendant procured and/or permitted the transfers of monies from Luxury Investments to Luxury Consulting:
131.1 Although it is not for the Defendant to show, it is at least a possible inference that the monies were transferred to Luxury Consulting given the pre-existing commercial relationship between Luxury Investments and Luxury Consulting.
131.2 As to the Defendant’s evidence in XX regarding the payments from Luxury Investments to Luxury Consulting (Cs’ closing submissions para 66), the Claimants rely on the Defendant’s lack of knowledge regarding the Hediard monies. As the Defendant confirmed, “I don’t know it. I am not involved in operational matters”.43 He went on to state that “Unfortunately, I don’t know anything about it. It is the directors who deal with the operational matters of the company.”44 After being asked the same question repeatedly by the Claimants, the Defendant said “It must be the 15th time I am confirming to you that I am not monitoring what Luxury Consulting are
43 10.12.15 (open court) 35/4-5 [D3/67E/9]. 44 10.12.15 (open court) 38/20-22 [D3/67E/10].
- 54 - doing. They are a stand-alone corporate entity, they carry on their business on their own.”45
131.3 If there is an inconsistency as to the source of Ms Kristof’s understanding (as alleged at (Cs’ closing submissions para 66.2), this does not take the Claimants any further in discharging their burden of proving that the payments were procured and/or permitted by the Defendant. As the Defendant remarked in XX, “This is [Ms Kristof’s] understanding. She is not making a statement of fact, she is relaying her understanding.”46
131.4 Despite having the opportunity to do so, the Defendant was not taken to nor tested on his prior evidence in Pugachev 8 at para 7 [E/90/2-3] or Pugachev 10 at para 8 [E/94/3] where these matters have been explained. It is submitted that the Claimants ought not to be able to rely on an inconsistency which was not specifically put to the Defendant.
131.5 The allegation at Cs’ closing submissions para 66.3 is not supported by a reference to XX. It is assumed that this is a reference to the question asked by the Claimants’ counsel as to how much of the 10 million euros (the amount outstanding to be paid to Luxury Investments in respect of the Hediard sale) had been released.47 The Defendant answered “I don’t know. The lawyers and the directors of the company are dealing with it.” This is not inconsistent with Pugachev 10 para 8 [E/94/3], where the Defendant noted that “further sums are likely to be payable.”
(2) Payments by Luxury Consulting
132. The Claimants’ evidence in support of its applications referred specifically only to eight payments made by Luxury Consulting: Hardman 1 paras 63 to 67 [A/2/11-12]. The Defendant’s position is and has been that those payments were made for the reasons set out at Pugachev 12 para 51 [A/5/15].
133. Some of those payments (i.e. payments to Silver Enterprises Limited, Belkin and Strelkin, Wladyslaw Teliki and Michael McNutt) were made to offset Luxury
45 10.12.15 (in private) 3/22-25 [D3/67E/1]. 46 10.12.15 (open court) 37/24-25 [D3/67E/10]. 47 10.12.15 (open court) 34/11 [D3/67E/9].
- 55 - Consulting’s liability to the Defendant pursuant to the loans made by the Defendant to Luxury Consulting (as disclosed in the Defendant’s original asset disclosure): Pugachev 12 para 50 [A/5/15]. The Defendant confirmed during XX that “Luxury Consulting owed me about £4 million”48 and that “it is quite possible that the payments that Luxury Consulting were making were counting toward that debt”49.
134. These payments were made for purposes falling within the exceptions to the WFO, i.e. for living and legal expenses. The Defendant has explained that “[a]s these payments were made directly by Luxury Consulting and not by myself, I did not believe I was obliged to make notifications of those payments”: Pugachev 12 para 52 [A/5/15-16]. The genuineness of that belief was not challenged by the Claimants during XX.
135. Furthermore, and in light of the above, it is incorrect for the Claimants to assert (Cs’ skeleton argument para 117) that the Defendant has suggested that the discharge of a debt owed to him by means of payments to third parties is not caught by the restriction in the WFO. The Defendant does not say that the discharge of a debt owed to him by means of payments to third parties are not caught by the WFO. The Defendant’s position is that the relevant payments were in respect of his living and legal expenses, and the fact that they were made by Luxury Consulting and not by him personally is relevant for the purposes of notification.
136. The fact that payments were to be made by Luxury Consulting was disclosed to the Claimants. The Defendant has stated in previous evidence that he anticipated funding his projected expenditure from inter alia payments from Luxury Consulting: Pugachev 5 para 30 [E/87/14]; Pugachev 15th W/S para 10 [E/97/3]. At Pugachev 5 para 27 [E/87/13], the Defendant explained that in seeking to comply with the order of Hildyard J dated 12 June 2015 [C/24], he had found that “certain living expenses of a relatively limited value have been paid by Luxury Consulting Limited. I apologise to the Court for this oversight.”
137. This is not a case where assets have been dissipated or spent for reasons other than those permitted by the WFO. Nor is there any complaint by Luxury Investments as
48 10.12.15 (open court) 52/9 [D3/67E/13]. 49 10.12.15 (open court) 52/16-18 [D3/67E/13].
- 56 - to the manner in which Luxury Consulting may have used monies that it held on its behalf. That is neither here nor there in relation to the allegation of contempt against the Defendant.
138. As to the Defendant’s evidence in XX:
138.1 The Claimants put a number of payments to the Defendant that were not identified in either their supporting evidence or reply evidence, and which ought not to now form the basis of an allegation of contempt. These included:
138.1.1 payments to Mr Ivanov,50 to which the Defendant said “I don’t recall exactly”51 and “I don’t remember”52;
138.1.2 payments to Latham & Watkins,53 to which the Defendant said “I don’t want to mislead the judge as I don’t understand anything about it”54 and “I don’t recall anything about it at all”55;
138.1.3 payments to Dainius Zidonis, who the Claimants allege was the Defendant’s bodyguard.56 The Defendant said “I don’t know, I don’t remember”57 and “As I said, for the reasons of my personal security, I don’t name the names of my bodyguards and this is due to my concern for my personal security and also for their personal security as well”58;
138.1.4 payments to King & Spalding,59 to which the Defendant said “They were made because they counted toward the debt that they owed to me”60 and “I am not sure I recall all the details of who paid whom
50 10.12.15 (open court) 42/4-9 [D3/67E/11]. 51 10.12.15 (open court) 42/9 [D3/67E/11]. 52 10.12.15 (open court) 42/13 [D3/67E/11]. 53 10.12.15 (open court) 46/9-11 [D3/67E/12]. 54 10.12.15 (open court) 46/12-13 [D3/67E/12]. 55 10.12.15 (open court) 46/16 [D3/67E/12]. 56 10.12.15 (open court) 48/18 – 49/9 [D3/67E/12-13]. 57 10.12.15 (open court) 49/10 [D3/67E/13]. 58 10.12.15 (open court) 49/12-15 [D3/67E/13]. 59 10.12.15 (open court) 52/24-25 [D3/67E/13]. 60 10.12.15 (open court) 53/5-6 [D3/67E/14].
- 57 - and on what basis …”61. The reason for this payment was explained in Pugachev 8 paras 6 to 7, and these payments were notified to the Claimants’ solicitors [F2/121/1-2].
138.2 Of the following payments which formed the subject of specific complaint by the Claimants in Hardman 1 para 65:
138.2.1 Only the payment to Silver Enterprise Limited was the subject of reply evidence by the Claimants (Hardman 3 para 52) [A/6/13]. The Defendant’s position is that this payment was in respect of funds that were to be used by Silver Enterprise for legal fees and other litigation related expenses of the Defendant: Pugachev 12 para 51.1 [A/5/15]. This paragraph of Pugachev 12 was not put to the Defendant in XX. The Defendant confirmed his position consistently with the evidence set out in Pugachev 12 when he said “It is a company that makes payments to my lawyers outside of the United Kingdom.”62
138.2.2 The payment to Belkin and Strelkin was made in respect of litigation advice provided to the Defendant in respect of certain claims: Pugachev 12 para 51.4 [A/5/15]. The Defendant was asked during XX if Belkin and Strelkin were acting for him in respect of litigation, to which he answered “Not at this point in time. Not now. They used to act for me.”63 The point was not pursued.
138.2.3 The payment to Michael McNutt was made in respect of litigation advice provided to the Defendant in respect of certain claims: Pugachev 12 para 51.4 [A/5/15]. The Defendant explained that Mr McNutt was his “legal adviser”64 and that it would be “very difficult for me to answer” whether the payment to Mr McNutt was
61 10.12.15 (open court) 53/9-10 [D3/67E/14]. 62 10.12.15 (open court) 59/20-21 [D3/67E/15]. 63 10.12.15 (open court) 63/16-17 [D3/67E/16]. 64 10.12.15 (open court) 51/20 [D3/67E/13].
- 58 - made in respect of professional fees rendered to the Defendant as “I did not take part in this.”65 The point was not pursued.
138.2.4 The payment to Wladyslaw Teliki was made in respect of litigation advice provided to the Defendant in respect of certain claims: Pugachev 12 para 51.4 [A/5/15]. During XX, the Defendant explained that “I really don’t know what or who that is. The thing is that there are quite a few entities and people who act for me and I really don’t – I really don’t get involved in the details. You have to realise that I have lawyers and advisers and consultants acting for me in different jurisdictions: Russia, Switzerland, the UK, the US. …”66 The point was not pursued.
138.3 In so far as there are inconsistencies as set out in Cs’ closing submissions para 68.4, the Defendant was not taken during XX to the relevant paragraphs of Pugachev 12 [A/5] or Pugachev 8 [E/90], and so any inconsistency ought not to be held against him and certainly not as a basis for any finding of contempt.
139. To the extent that the Defendant was unable to recall during XX the specific details of payments made by Luxury Consulting between July 2014 and August 2015, this does not assist the Claimants in discharging their burden to prove beyond a reasonable doubt that the Defendant is in contempt.
140. In respect of the other payments referred to in Hardman 1 para 65, the Defendant’s position is as set out at Pugachev 12 para 51 [A/5/15], namely:
140.1 The payment to Eight Advisory Limited was made on Luxury Investments’ behalf as this firm was an advisor to Luxury Investments for the Hediard sale.
140.2 The payment to Financiere Kervellan was made on Luxury Investments’ behalf as this firm was an advisor to Luxury Investments for the Hediard sale.
65 10.12.15 (open court) 51/21-24 [D3/67E/13]. 66 10.12.15 (open court) 63/20 – 64/1 [D3/67E/16].
- 59 - 140.3 The payment to Bookman Limited was made in the ordinary course of Luxury Consulting’s business. Bookman Limited is Luxury Consulting’s accountant.
140.4 The payment to Lex Thielen was made on Luxury Investments’ behalf. Lex Thielen is a director of Luxury Investments.
141. These payments were not the subject of the Claimants’ reply evidence, nor were they put to the Defendant during XX. They are, therefore, not in dispute.
142. As noted above, the Claimants’ reliance (Cs’ closing submissions paras 74-75) on the decision in WWF v THQ [2004] FSR 10 (CA) [Auths3/16] is misplaced.
143. The Claimants’ further and alternative case (Cs’ closing submissions paras 76-81) is also unsustainable.
143.1 The decision in Tidewater Marine International Inc v Phoenixtide Offshore Nigeria Ltd [2015] EWHC 2748 [Auths3/21] can be distinguished, as the facts in that case are far more extreme. As is clear from the judgment at [37], it is the ultimate interests of justice which were “decisive”. Males J noted (at [17]) that all three respondents in that case had already been found to be in contempt of court, and that “the failure to comply with the order was deliberate and that even when the contempt application had been served, everything which the Respondents had done had been directed to avoiding the consequences of their non-compliance with the order rather than complying with it”. That cannot be said to be the case here in circumstances where the Defendant’s guilt or otherwise is the subject of the instant proceedings. Nor is there any hard evidence to the effect that the Defendant has hidden assets.
143.2 There is no basis for suggesting that the Claimants’ permission would have been required for the Defendant to spend monies on reasonable legal expenses. The WFO permits such expenditure without the Claimants’ permission being necessary: Tidewater at [34] [Auths3/21]. It follows that it is irrelevant that the Claimants would first have insisted that the costs orders made in their favour be paid first (Cs’ closing submissions para 77).
- 60 - 143.3 The Defendant’s position is that he has made adequate asset disclosure following reasonable enquiries on his part (and that is a matter for the court to decide on the present application). As to the reference to Nugee J’s judgment of 6 November 2015 [C/41] at Cs’ closing submissions para 79, the Judge’s remarks were made in circumstances where the Defendant was not before the court and had not put forward evidence.
D. Allegation B4: Disposal of motor vehicles
144. It is disputed that the sale of the motor vehicles constituted a breach of the WFO. The Defendant relies on the judgment of Hildyard J in Bank St Petersburg & Anor v Arkhangelsky [2014] EWHC 574 (Ch) [Auths3/11], where it was said that the surrender of a life insurance policy was not a breach of a freezing order.
145. In that case the defendant had realised the surrender value of the policy and caused or permitted the monies to be paid out of an account to a trust. The claimants contended that the policy and the funds were assets within the meaning of the freezing order and that in surrendering the policy and arranging for payments out of the account, there had been dealing in breach of the freezing order.
42 Furthermore, in my view, the surrender of the Policy, in accordance with its terms and for a value not said of itself to constitute dissipation, is not a dealing or disposition of an asset (if such is the Policy) contrary to the objectives of the Freezing Order . The basic reason for this is simple: even if I am wrong to think that the English Court would not order Mrs A to exercise the right of surrender in question, the result of the exercise would be the realisation of the surrender value in just the manner that has in fact occurred. Put another way, the exercise of the right of surrender, far from alienating or dissipating an asset which would otherwise be available to creditors, results in assets being made available to creditors which otherwise would not have been available. Although the analogy is imperfect, some support for this seems to me to come from Camdex International v Bank of Zambia (No 2) [1997] 1 WLR 632, where it was accepted by the Court of
- 61 - Appeal (at least by the majority) that unissued Zambian bank notes ordered by the Bank of Zambia but not yet paid for were ‘assets’ and their transfer to Zambia was not in breach of the freezing order since only in Zambia could they have any value. Further support may be found (once again) in the judgment of Christopher Clarke J in JSC BTA Bank at [77].
43 For all these reasons, and it having always been accepted by the Defendants that the proceeds of surrender do fall within the scope of the Freezing Order, I am not persuaded that the surrender of the Policy did constitute a breach; and in circumstances where it is not necessary for me conclusively to determine this, I certainly decline to hold and declare that it was. (emphasis added)
146. In reaching that conclusion, Hildyard J considered the situation even if it did constitute a breach, and balanced this against the Defendant’s use of the proceeds for reasonable living or legal expenses:
“31 I have reached the firm conclusion that the risk of doing irremediable injustice by preventing the Defendants using the proceeds of the surrender of the Policy for reasonable living or legal expenses as presently permitted by the Freezing Order is such as to outweigh other arguments to the contrary. For the avoidance of doubt, that includes any argument that the surrender of the Policy and/or the discharge of fees charged by the Acorn Trust trustees out of funds to the credit of Petrograd's bank account in Bulgaria constituted breaches of the Freezing Order .”
147. It is noted that the Claimants have sought to distinguish this case.67 Contrary to that attempt, it is submitted that the Defendant’s reliance on Bank St Petersburg is well- founded and that it supports the Defendant’s case.
67 09.12.15 32/22 – 36/20 [D3/67D/8-9].
- 62 - 148. Whilst it is accepted that it was not necessary for Hildyard J to conclusively determine the point, it is clear from the terms of his judgment that he was not persuaded that there was a breach of the freezing order. The reason the issue did not need to be conclusively determined is because Hildyard J held that there was no utility in the “half-way house” of making a declaration of breach when it was open to the claimants to make an application for committal (at [13]). Nor is it accepted that Hildyard J was wrong in his reliance on the decision in Camdex [Auths3/3]. To the contrary, it is submitted that Hildyard J’s interpretation of that case is consistent with the Defendant’s position that assets of no value are not caught by the WFO (as set out below).
149. Following the reasoning in Hildyard J, it is submitted that there was no breach in the sale of the motor vehicles.
150. In any event, the Claimants’ real objection is, in essence, that the proceeds of the sale of the vehicles were remitted to Luxury Consulting’s Sterling account and not, as they were aware the sale proceeds would be, to the Defendant’s bank account at HSBC in Cannes.
151. The Claimants had been asked to consent to the sale of the Bentley Continental [B/9/1-2]. They did in fact consent, albeit subject to conditions [B/9/3]. Save for the destination of the sale proceeds, the other elements of the sale of the Bentley Continental remained the same as to those to which the Claimants had consented: the purchaser was the same, the purchase price was the same, and the purpose for which the proceeds were to be spent (the Defendant’s living expenses) remained the same. It is not in dispute that the sale was of the Bentley was at arm’s length and for fair value.
152. It is submitted that the above applies by parity of reasoning to the sale of the Rolls Royce Ghost. It has not been said that there would have been any objection to the sale of the Rolls Royce Ghost in principle given their earlier consent to the sale of the Bentley Continental (and in fact the Claimants did consent in principle [B/9/12]).
153. The proceeds of the sale of the motor vehicles were used by the Defendant to pay for his ordinary living expenses. The proceeds were paid into the HSBC account in France because the Defendant’s accounts in England and Wales had been frozen:
- 63 - Pugachev 12 para 92 [A/5/31]. As the Defendant explained during XX: “This is my only existing working account. Had I had a working operational account in England, I would have transferred money there.”68 He went on to say “Yes, the money was deposited in the only account I have in the world.”69
154. The Defendant also explained why it did not make sense for the proceeds to be paid into Luxury Consulting’s Sterling account with Barclays Bank:
“The proceeds from the sale of the vehicle were transmitted into my HSBC account which is the only one I have. As I mentioned before, Luxury Consulting owes me in the region of £4 million sterling, so why should I remit the funds which were the proceeds from the sale of my personal assets to the account of Luxury Consulting, which owe me money? The first thing, I owe nothing to Luxury Consulting. Secondly, I can’t dispose of the living expenses of – at the expense of Luxury Consulting, so I could buy the minimum groceries in the store.”70
155. The impracticality of having his living expenses paid by Luxury Consulting was also explained: “How do you imagine some company paying for my groceries, when I go to a store?”71
156. It is therefore entirely unsurprising and should be unobjectionable that the sale proceeds were to be paid to his account in France. The Defendant was and is permitted by the terms of the WFO to spend frozen funds on ordinary living expenses, and those expenses were being incurred by the Defendant in France.
157. This should come as no surprise to the Claimants: the fact that the Defendant has previously been incurring expenses associated with assets located in France (for example, properties and boats) was disclosed by the Defendant at the outset of the proceedings (see, for example, paras 8.3 and 8.4 of Pugachev 1st W/S [E/70]).
68 10.12.15 (open court) 75/20-22 [D3/67E/19]. 69 10.12.15 (open court) 79/17-18 [D3/67E/20]. 70 10.12.15 (open court) 74/6-16 [D3/67E/19]. 71 10.12.15 (open court) 80/15-16 [D3/67E/20].
- 64 - 158. As regards the points made by the Claimants with respect to the Defendant’s XX evidence:
158.1 As to Cs’ closing submissions para 85.1, it was not put to the Defendant whether either he or someone on his behalf had applied for replacement vehicle registration certificates.
158.2 As to Cs’ closing submissions para 85.4, the Defendant’s knowledge or lack thereof as to specific correspondence in relation to the sale of the motor vehicles does not assist the Claimants in discharging their burden of proof. It is for the Claimants to prove beyond a reasonable doubt that the Defendant is in contempt as a consequence of selling his vehicles and sending the proceeds to France. In any case, the Defendant has explained his position: “I do not go into such minute details with my lawyers because it is very expensive.”72
158.3 As to Cs’ closing submissions para 85.6, it is not correct for the Claimants to state that the Defendant suggested that King & Spalding may have handled the sale of the Bentley. The Defendant was asked if he had told HR Owen about the freezing injunction prior to the sale, to which he replied “I don’[t have to say anything to them, because it was my lawyers, King & Spalding, who dealt with it.”73 When asked if King & Spalding dealt with HR Owen, the Defendant said “I don’t know. They didn’t say anything to me to that effect but judging by the letters, they could have been. It is the first time that I see these letters.”74 In any event, this is of no relevance to the allegation of contempt and does not assist the Claimants.
158.4 As to Cs’ closing submissions para 87, the Defendant has explained his understanding of the order in XX: “This is my money. I used my personal money to buy these vehicles and then I sold them and then I recouped some of the funds at a loss to me.”75 In any case, this is irrelevant to the issue of whether, as a matter of law, the Defendant is in contempt by selling the cars
72 10.12.15 (open court) 76/7-8 [D3/67E/19]. 73 10.12.15 (open court) 73/20-23 [D3/67E/19]. 74 10.12.15 (open court) 73/24 – 74/2 [D3/67E/19]. 75 10.12.15 (open court) 79/25 – 80/2 [D3/67E/20].
- 65 - and sending the proceeds of sale to France so that he could pay his ordinary living expenses.
E. Allegation B5: Disposal of part of proceeds of the Defendant’s BIT claim
159. This allegation of contempt is disputed for the following reasons.
160. As an initial matter it is clear that the Claimants’ position is that the BIT claim is of no value: C’s skeleton argument para 12, where the Claimants say “In any event, the Claimants do not accept that the BIT claim has any merit.” This is because they regard the Defendant’s contentions and allegations regarding the unlawful and abusive conduct against him (which include the prosecution of this action), which is at the essence of his BIT claim, as groundless.
161. Given that is their position, the Claimants have to concede that there is no asset against which a potential judgment can be enforced or be turned into value for the Claimants. In that regard, the following cases are relied upon:
161.1 Bank St Petersburg & Anor v Arkhangelsky [Auths3/11] at [39]:
“As to that, as it seems to me, the question is whether the effect of the French law by which in this case the Policy is expressly stated to be governed is that it (a) cannot be assigned and (b) would not be capable of being surrendered by or have any value for a potential judgment creditor concerned in any circumstances. If that is the effect of the French law it seems to me that even if the Policy or surrender value would otherwise qualify as an asset, it is not one that can be turned to account or value for the benefit of creditors, and on that basis must fall outside the scope of the Freezing Order (and see per Patten LJ in BTA v Solodchenko [2011] 1 WLR 888 at [32], where he held “the purpose of a freezing order is to prevent the dissipation of asset which would otherwise be available to satisfy a judgment in favour of the claimant.”
- 66 - 161.2 JSC BTA Bank v Ablyazov [2015] UKSC 64 [Cs’ Auths/20] at [29]:
“The approach of the courts has thus been to approach the language of the forms of order cautiously but to recognise that the forms have gradually been extended. That seems to me to have been a sensible approach. So, for example, in Cantor Index Ltd v Lister [2002] CP Rep 25 the court held that a defendant who borrows money increases his indebtedness but does not dispose of, deal with or diminish the value of his “assets” within the meaning of the then standard form of freezing order. By borrowing money and spending the borrowed money the defendant may reduce his net asset position but that is not what he is restrained from doing by the standard form of wording. The text books are to much the same effect. So, for example, in Hoyle on Freezing and Search Orders, 4th ed (2006), para 4.28, it is said:
“The test must be whether the assets will be available on execution of a judgment and if they are they can be the subject of the order, as its purpose is to aid the court's process. It would otherwise be illogical to include them in the order.”
See also Gee on Commercial Injunctions, 5th ed (2004), para 3.015 and to similar effect Biscoe on Freezing and Search Orders: Mareva and Anton Piller Orders , 2nd ed (2008), para 1.12: “A freezing order … provides a fund from which the applicant's claim may ultimately be paid in competition with other unsecured creditors of the respondent.” However it adds, at para 1.12(e), that the usual terms do not prevent the defendant borrowing money thereby increasing the total indebtedness.”
162. The decision in Camdex International Ltd v Bank of Zambia (No 2) [1997] 1 WLR 632 [Auths3/3] is not authority for the proposition that assets of no value are caught by the WFO. In Camdex it was accepted by the Court of Appeal (at least by the majority) that unissued Zambian bank notes ordered by the Bank of Zambia but not yet paid for were “assets” and their transfer to Zambia was not in breach of the
- 67 - freezing order since only in Zambia could they have any value. The Master of the Rolls held (at 636H) that:
“It seems to me that in a situation such as this, it is important to go back to first principles. A Mareva injunction is granted to prevent the dissipation of assets by a prospective judgment debtor, or a judgment debtor, with the object or effect of denying a claimant or judgment creditor satisfaction of his claim or judgment debt. Here, it is plain that the defendant wants to transfer these bank notes to Zambia. In doing so it would not, as it seems to me, dissipate any asset available to satisfy the judgment debt because the asset has, in the open market, no value. It is not an asset of value to the plaintiff or other creditors of the defendant if it were put up on the market and sold.” (emphasis added)
163. The above cases are clear articulation of the principle that if the asset has no value in the hands of the claimant it is not a breach of the freezing order if there is a dealing with it.
164. Given the Claimants’ unequivocal position that the Defendant’s BIT claim (Cs’ skeleton para 12) is without merit, and their deeply negative criticisms of him in this litigation and generally, it is not possible to see how they can at the same time hold a diametrically opposed position that the BIT claim does have value.
165. The Claimants seek to say, notwithstanding their own position of no value in the BIT claim, that because the Defendant says the BIT claim does have value that is good enough for them to be able to discharge the burden on them to prove beyond all reasonable doubt it has value. However, the Claimants cannot adopt that position without formally conceding that the BIT Claim has real merit and stating what its value is. This would lead to the Claimants having to accept that the Defendant has a meritorious argument to defeat the claim to enforce the Moscow Civil judgment.
166. It may in fact now be the case that the Claimants in fact are prepared to concede the BIT claim has significant value, having had a further opportunity to re-consider the merits of the Defendant’s various allegations against the Russian Federation and the Second Claimant.
- 68 - 167. Without prejudice to the above points, the Defendant’s case is that he was entitled, pursuant to the exceptions in the WFO [C/14], to seek to raise funds to pay for legal expenses in order to pursue “any claim” (WFO para 4), and that a prospective payment out of any proceeds from the BIT claim related to his legal expenses would be permitted under the legal expenses exception to the freezing order regime subject to prior notification.
168. In any event, assuming the BIT claim is successful (contrary to the Claimants’ unequivocal contention that it is of no merit) and damages are awarded to the Claimant they could run into billions of USD, in relation to which the disposition alleged in monetary terms (a potential payment out of any damages awarded of up to $20 million plus repayment of any disbursement) would not materially reduce the amount of cash against which the Claimants could possibly seek to recover (even if the freezing order were still in place at the time).
169. With regard to the Claimants’ points as regards the Defendant’s XX evidence, which are not actually relevant to the allegation of contempt:
169.1 As to Cs’ closing submissions para 90, it is not correct to say that the Defendant had no recollection of the Funding Agreement. When asked if he remembered signing the Agreement, he said “No, I do not remember that”76 and “As I have already mentioned, no, I have no recollection of that. This is not to say that I suffer from amnesia, it is simply because every day, on an ongoing basis, I sign lots of documents which are being sent to me by various lawyers from various jurisdictions, using various media of communication.”77 Instead, it is clear that he did recall the substance behind the Agreement. He said “…I do not recall signing this document but I am reasonably in the loop …”78 and “I do not recall signing this document. Therefore, I do not remember what the agreement was. Just to confirm, and to refresh your recollection, to give you a general understanding of what
76 11.12.15 9/17-20 [D3/67F/3]. 77 11.12.15 10/9-14 [D3/67F/3]. 78 11.12.15 10/23-24 [D3/67F/3].
- 69 - my negotiations with King & Spalding were all about, it was to the effect that they would receive part of the proceeds of the net proceeds …”79.
169.2 As to Cs’ closing submissions para 91, the Defendant was not taken to Pugachev 12 para 93 [A/5/31-32] during the course of his XX. The Claimants ought not now to be able to rely on any alleged inconsistency.
170. It is therefore submitted that there has been no breach of the WFO. However, even if there were a breach of the WFO, the Claimants have not discharged their burden of proving beyond a reasonable doubt that the Defendant is in contempt.
VI. ALLEGED BREACHES OF SEARCH ORDERS
171. As a preliminary matter, the Claimants seek retrospective dispensation from the requirement for the endorsement of the Search Protocol Order [C/28] (which was not served personally on the Defendant): Cs’ skeleton argument para 139. It is submitted that this requirement should not be waived, for the following reasons:
171.1 The Rules are clear that orders may not generally be enforced by way of committal for contempt of court unless endorsed by a penal notice: CPR r 81.9(1).
171.2 In Bank St Petersburg v Arkhangelsky at [7] [Auths3/11], Hildyard J emphasised that, on an application for committal, which potentially concerns a person’s liberty, it is of fundamental importance that the procedural requirements in CPR Part 81 must be scrupulously fulfilled.
171.3 It has been doubted whether the failure to endorse an order with a penal notice can be considered a purely “procedural defect in the commencement or conduct of a committal application” that can be waived pursuant to CPR PD 81 para 16.2: Leicester City Council v Saracen Dyers Limited [2003] EWHC 2068 (QB) at 388. It is submitted that this is correct.
171.4 The Rules have not been fulfilled in the present case and it would not be appropriate in the circumstances for the requirement of a penal notice to be waived.
79 11.12.15 11/19-25 [D3/67F/3].
- 70 - 172. It follows in the Defendant’s submission that the Search Protocol Order may not be enforced by an order for committal. Without prejudice to whether the court is minded to dispense with the requirement for endorsement of the Search Protocol Order, the Defendant’s position is as set out below.
A. Allegation C1: Failure to deliver up mobile phone and iPad
173. It is for the Claimants to prove beyond a reasonable doubt that the Defendant had the devices in his possession at the time for compliance with the search orders.
174. The Ex Parte Search Order [C/25] and Search Protocol Order [C/28] were only made after he disposed of the mobile devices, and it was therefore not possible for the Defendant to have delivered them up. There could not therefore have been any breach of the Ex Parte Search Order or the Search Protocol Order.
175. The Defendant candidly accepts that his present position is inconsistent with his prior evidence, and he has rectified that error: Pugachev 12 para 59 [A/5/11]. The Defendant’s evidence is that upon leaving the jurisdiction, he disposed of the devices “due to concerns for life and safety and being tracked through the GPS function on those devices … When I left the jurisdiction I simply wanted to ensure no one could follow me.”
176. This was explained by the Defendant during XX:
176.1 “Upon my arrival to France, I have destroyed them”.80
176.2 “As I stated before, the primary issue for me was that of my personal security. I did not leave England on a whim. It was a matter of my personal security, which was the key issue. I understood that my life was in danger and that is why I naturally destroyed those devices …”.81
176.3 “As I said before, I am not a digital native (?), therefore I do not know how those devices operate, whether one can be tracked using GPS. So that is why I destroyed them. Especially after the story with the company called
80 09.12.15 96/12 [D3/67D/24]. 81 09.12.15 105/7-12 [D3/67D/27].
- 71 - Diligence, who tracked me in England, followed me in England for a year or even more. So it did teach me a lot, to be scared of everything.”82
177. When asked if it was possible that at the time he provided Pugachev 7 [E/89] or the time of King & Spalding’s letter of 8 July 2015 [F2/120/1-2], the Defendant answered frankly stating “I don’t want to lie and I said I don’t remember. I don’t want to mislead you”.83 He further explained:
177.1 “The question put to me was whether I had any devices and I said yes, indeed, I have an iPhone and an iPad but I don’t remember the date, whether it was before that date or after. And I don’t remember when exactly it was that I destroyed them, prior or after that.”84
177.2 The Defendant highlighted the time difference between the time he was asked the question and when the affidavit was prepared: “… the problem could be with the timeframe, because there is a time difference between the question being asked of me by my lawyers and then the affidavit being prepared. Moreover, I did not set too much store by it because I was asked quite a large number of questions, so I did not concern myself too much with the dates.”85 He added: “… I don’t recall the date the question was put to me.”86
178. Any inconsistency should be considered in light of the fact that the Defendant is a non-native English speaker and by nature is not an individual who concerned himself with minutiae. It is at least possible that an explanation for the inconsistency is a failure to realise the significance of the difference between “do have” and “did have” in Pugachev 7 paras 7-8 [E/89/2]. As is evident from the Defendant’s explanations in XX quoted above, this was perhaps understandable given his other worries.
179. The court, faced with conflicting evidence on the part of the Defendant, cannot say one is correct and one is wrong. Hildyard J in his judgment of 12.6.15 [C/36] was
82 09.12.15 105/16-23 [D3/67D/27]. 83 09.12.15 104/24-25 [D3/67D/26]. 84 09.12.15 104/10-14 [D3/67D/26]. 85 09.12.15 107/7-13 [D3/67D/27]. 86 09.12.15 108/6-7 [D3/67D/27].
- 72 - faced with similar inconsistencies and did not consider that they meant the Defendant was being dishonest. At [87], he observed:
“Although my recitation of the inconsistencies and the impression given by the Defendant might earlier have suggested otherwise, and although I must accept that I have had misgivings, I do not consider the hurdle [of showing dishonesty] has been cleared in this case so as to justify an order for indemnity costs.”
180. In Pugachev 12 para 59 [A/5/17], the Defendant explained that in any event the devices “did not have documents stored on them as they were principally used for access to the email account that I provided, personal photos and videos.” This is consistent with the Defendant’s evidence during XX: “To me, you see, it is not an issue of such a great importance, because, as I said, apart from our photographs taken at home and my personal correspondence with my wife, there was nothing of importance there. Therefore, I didn’t set so much store by it.”87 This was not challenged by the Claimants, nor was it put to the Defendant that there had been any or were possibly material documents on the mobile devices.
B. Allegation C2: Failure to provide passwords
181. It has been accepted by the Defendant that he failed to provide the relevant passwords timeously and he has apologised for that delay: Pugachev 12 para 61 [A/5/17-18]. The Defendant’s position is that he was concerned by the dual role of Diligence as both adviser to the Claimants’ solicitors and as the supposedly “independent” IT specialist for the execution of the Ex Parte Search Order [C/25] made against him.
182. The Defendant has explicitly noted in his evidence that “In particular, in delaying my delivery up of the passwords it was not my intention to circumvent the order of the court. I was merely seeking reassurance that my rights of privacy would be properly respected”: Pugachev 12 para 62 [A/5/18]. He also noted that “I provided the password as required provided my concerns were addressed and after the court determined that Diligence would continue to act”: Pugachev 12 para 63 [A/5/18].
87 09.12.15 105/1-5 [D3/67D/27].
- 73 - 183. The Defendant has also confirmed that he “did not tamper with that email account during the relevant period and it is noticeable that no damage is alleged by [the] Claimants”: Pugachev 12 para 63 [A/5/18]. It was not suggested otherwise by the Claimants during XX.
184. At the end of the Defendant’s XX, counsel for the Claimants produced two emails dated 25.6.15 and 29.6.15 that had not been included in the hearing bundles.88 Contrary to what was suggested by Mr Smith QC,89 there was no good reason for them not to have been included in the hearing bundles, especially given that they had previously been exhibited to Mr Roberts’ second affidavit dated 1 July 2015 in support of the Claimants’ application for the Ex Parte Search Order.90 In any event:
184.1 All the documents show is that the email was sent from France and from an iPhone. The Defendant’s evidence is that “I did not have that account installed on my iPhone. Which only confirms that it must have been sent from an iPhone – from an iPhone belonging to some employees”91. The Defendant had previously confirmed that “a number of people from my legal team had access”92 to the “SP Legal” account.
184.2 The email metadata (which appeared on the documents handed up) was not put to the Defendant during XX.
184.3 The court is not in a position safely to conclude that the Defendant was not telling the truth in regard to who used that email account or in regard to who sent the emails in question.
VII. ALLEGED BREACHES OF THE ROSE J ORDER
185. The Defendant’s obligation under the terms of the Rose J Order was limited to “setting out to the best of his ability and having made all reasonable enquiries” the relevant information he has been able to obtain. The Defendant’s position is that he has made all reasonable enquiries to the best of his ability (particularly given his
88 11.12.15 76/8-18 [D3/67F/19]. 89 11.12.15 76/8-13 [D3/67F/19] 90 At MGR-22 pages 123 to 134. These exhibits are not in the hearing bundle but are referred to in Roberts 2 [G/135/32-34] paras 118 to 126. 91 11.12.15 78/8-10 [D3/67F/20]. 92 11.12.15 78/4-5 [D3/67F/20].
- 74 - financial constraints and his lack of access to certain individuals, and the 21 days provided to him), and that the Claimants’ relentless pursuit of him nonetheless indicates that no level of disclosure will ever be sufficient for the Claimants’ purposes. In any event, the Defendant should. be given the benefit of the doubt as to whether such enquiries as have been made are reasonable in the circumstances.
186. As explained in Pugachev 12 para 64 [A/5/18-19]:
64. I have sought to comply with the terms of the Rose Order to the best of my ability and in good faith. However, as I have previously stated in evidence, I have had difficulty recalling the very specific and detailed information requested because of the following:
64.1 The majority of the events which are the subject of the Rose Order relate to matters which took place over five or six years ago;
64.2 During the relevant time I had a substantial business empire with numerous companies and individuals working for those companies (at one time, it was approximately 350,000 people). Therefore, it is difficult for me to recall some details with regard to alleged ownership and/or transfer of purported monies.
64.3 During the relevant time period I was a Senator in the Russian Parliament so, in addition to being very busy with my public duties, I could not be actively involved with such companies.
64.4 Due to the Russian State’s expropriation of a number of assets and subsequently having to flee Russia due to fears for my safety, I no longer have access to a number of documents and/or individuals (which were based in Russia) that would have assisted me to collate the requested information.
64.5 A number of the legal entities in question have been dissolved, or have been managed by persons during the relevant period
- 75 - against which I have claims or who have provided evidence against me in Russian civil or criminal proceedings, including David Henderson-Stuart and the former Chairman of the First Claimant, Gerald Kowalski.
64.6 The use of funds of Safelight is specifically the subject of Swiss Multilateral Legal Assistance Request by the Russian prosecutor in connection with the criminal allegations against me referenced above.
187. The Claimants point to the fact that Pugachev 12 [A/5] contains more information that previously provided as a basis for their allegation that the Defendant has on earlier occasions failed to make reasonable enquiries.93 This is a non sequitur. As is clear from Ereshchenko [2013] EWCA Civ 829 at [18] [Auths3/9], it is essential to keep in mind the relevant time at which the Defendant was required to set matters out to the best of his ability and having made all reasonable enquiries.
188. The observation of Hildyard J in his judgment of 12.06.15 [C/24] as to reasonable enquiries is also of crucial importance:
42. It seems to me to be obvious that a defendant required to comply with such an order must take reasonable steps to investigate the truth or otherwise of any answer he gives as regards assets in which he has or had an interest and has or can obtain information in right of that interest. However, in my view, that does not (at least at the point of initial compliance with a disclosure order) extend to making enquiries of persons in relation to assets in which the defendant unequivocally asserts he no longer has any interest of any kind or any right to information, although the court may make available the means of testing that assertion if there is credible evidence that it may be false (and see the Court of
93 In this regard it is noted that during opening submissions the Claimants handed up a “Note on Mr Pugachev’s failure to comply with the order of Rose J dated 27.7.15” (09.12.15 63/8-15 [D3/67D/16]), which sets out alleged deficiencies in Pugachev 11 [E/96]. That note has not been formally exhibited in these proceedings to date, and in any event has been superseded by Pugachev 12 [A/5]. Consequently it is not specifically addressed by the Defendant.
- 76 - Appeal’s decision in these proceedings at [2015] EWCA Civ 139, paragraphs 43 to 60, and the cases there cited). (emphasis added)
189. That observation is all the more striking in circumstances where the Claimants have failed to identify with any semblance of specificity those reasonable enquiries they allege that the Defendant could and should have undertaken. In the light of that omission, it does not lie in their mouths to allege that such disclosure as has been provided is “manifestly and seriously deficient” (Cs’ closing submissions para 107).
190. In particular, the real continuing mystery in this case is what enquiries the Claimants have made (or have not made), especially of Mr David Henderson-Stewart. Mr Henderson-Stewart is understood to be a New Zealand national and at the material time was a lawyer at Jones Day in Moscow. He appears to have been closely involved with the Defendant, in particular in setting up the various onshore and offshore legal structures through which various assets and interests were held. See, for example, Roberts 1 Appendix 4 [G/130], in which there is a detailed exposition of structures which Mr Henderson-Stewart appears to have been crucial and where in many cases he features as a key element. By way of further example, Mr Henderson-Stewart was the trustee for the holding company of JSC Sanara and the holding company of CJSC Plescheevo (the entities said to have transferred approximately $700 million to Safelight): Pugachev 11 paras 15 and 19 [E/96/7-8]. The Defendant understands that Mr Henderson-Stewart remains in Moscow at the disposal of the Claimants.
191. This Claimants’ failure in this regard is especially notable given that it is the Defendant’s evidence that approximately $250 million of the Safelight monies were in fact lent or paid to the Claimants: Pugachev 12 para 68 [A/5/20].
192. There is no evidence from the Claimants as to any enquiries having been made by them of any of the entities they profess to be interested in. This is surprising to say the least given the position of the Claimants (i.e. the Bank and a powerful statutory body) and the resources presumably available to them.
- 77 - 193. As to the criticisms set out at Cs’ closing submissions paras 110-115:
193.1 Given the complexity of the issues in these proceedings, and the fact that the Defendant was for some time removed from business activities whilst he was a Russian senator, it is entirely expected and reasonable that the Defendant relied on a team of advisers to assist him in making enquiries in order to comply with his obligations under the Rose J Order. This is especially so given that he was required to make enquiries in foreign jurisdictions and in relation to legal structures with which he was both unfamiliar and which had not been established by him (but rather by Mr Henderson-Stewart).
193.2 The Defendant was entitled to rely on his advisers to provide him with accurate information, and it would be unreasonable to expect him to look behind the answers being provided by his advisers in order to check their accuracy. The purpose of having advisers was that they were able to make enquiries that he was not in a position to do so himself, and it is more than likely that Pugachev 11 [E/96] would not have been as complete had the Defendant sought to undertake all reasonable enquiries by himself. The Defendant explained who made those enquiries during XX:
“I mentioned my lawyers, counsel in the US, in England, in France, in Switzerland, people who work in the largest audit firms, plus the financial advisers, including Mr Michael McNutt, who is present here, and others.”94
193.3 The Defendant did not delegate his responsibility for complying with the court’s orders, and in relying on appropriate advisers to assist he was not abdicating his responsibilities. To the contrary, he was acting responsibly. In providing such evidence as is set out in Pugachev 11 [E/96] and Pugachev 12 [A/5], the Defendant accepted responsibility for the answers provided by his team of advisers. In any event, and as the court has noted,95
94 11.12.15 67/2-6 [D3/67F/17]. King & Spalding were not responsible for making any enquiries or collating any information in order to enable the Defendant to respond to the Rose J Order or the Committal Applications. 95 15.12.15 121/10-12 [D3/67G/31].
- 78 - there has been no authority cited in support of the proposition that it is not possible to delegate compliance.
193.4 Similarly, the statement at the start of both Pugachev 11 [E/96] and Pugachev 12 [A/5] to the effect that the facts and matters set out, unless stated otherwise, were within the Defendant’s own knowledge and were true to the best of his knowledge and belief clearly included such knowledge and belief as was attributable to his agents (i.e. his team of advisers).
193.5 As to whether there are inconsistencies as to whether the Defendant has undertaken reasonable enquiries himself, the Defendant was not reminded of his evidence in Pugachev 12 paras 69.11 and 69.12 [A/5/25] that he had made enquiries of Victor and that his requests for information had been respectfully declined.96 Consequently, it cannot safely be concluded that the Defendant’s evidence on this point was given knowing that it was untrue.
A. Allegation D1: Safelight (para 1(b) of the Rose J Order)
194. As to Cs’ closing submissions para 116.1, it is not the case that the Defendant was unable to give any meaningful information as to the sum of $100 million transferred by Safelight to OPK Mining (BVI). The position is as set out at Pugachev 11 para 32, namely that the payment was made in June 2009. When put to him during XX, the Defendant answered that “[t]his is the factual information that was provided by my advisers. And I place sufficient trust and confidence in those advisers.”97 The inference, or at least a possible inference, is that this is all that reasonable enquiries on the part of the Defendant and/or his advisers have been able to discover.
195. As to Cs’ closing submissions para 116.2:
195.1 When asked about the reason for the transfer of $100 million by OPK Mining (BVI) to Strathconon Holding Ltd, the Defendant was not taken to his evidence in Pugachev 12. At para 69.1, the Defendant explains that this transfer “was made pursuant to a purchase of shares of a company held by
96 11.12.15 63/14-19 [D3/67F/16]. 97 11.12.15 54/4-6 [D3/67F/14].
- 79 - Strathconon which itself owned shares in Baltic Shipyards (which is part of my investment treaty claim). As I explained in my 11th affidavit, I believe most of these monies were spent on investment projects.”
195.2 This is consistent with the Defendant’s explanation during XX: “Well, presumably, if it says that the money was used on investment projects, the money went back to Russia and was used to be – as an investment for shipbuilding and other projects and other assets that were expropriated. But, unfortunately, because I was not involved in making those transfers, I cannot provide you with any details.”98
195.3 The Defendant has explained why he cannot make further enquiries. The Defendant does not have access to the bank statements for Strathconon: Pugachev 12 para 69.1. This explanation was not challenged during XX.
195.4 The Defendant has repeatedly confirmed during XX that he is not involved in operational matters with respect to Luxury Consulting.99
195.5 There is no evidence that the Defendant’s reference to Luxury Consulting in Pugachev 11 para 35 [E/96/13] meant that the money was in fact paid to Luxury Consulting as its asset and should have been recorded in its accounts.
196. As to Cs’ closing submissions para 116.3:
196.1 When asked about the transfer of $291 million by Financial Investment Solutions Ltd to Enderton Company Ltd, the Defendant was not taken to either paragraph 36 of Pugachev 11 [E/96/13] or to paragraph 69.3 of Pugachev 12 [A/5/23]. Those paragraphs confirm that Financial Investment Solutions has been dissolved, and that the Defendant is in a dispute with the former director of that company. They also confirm that Enderton has since been liquidated and its accounts frozen.
196.2 The Defendant confirmed in XX that he does not have “the slightest idea” as to why the transfer in November 2010 was made.100
98 11.12.15 57/14-19 [D3/67F/15]. 99 See, for example, 10.12.15 (in private) 2/25 – 3/8 [D3/67E/1].
- 80 - 196.3 It is at least a possible inference that despite reasonable enquiries on the part of the Defendant and/or his advisers it has not been possible to discover the reason for this payment.
197. As to Cs’ closing submissions para 116.4:
197.1 When asked about the transfer of $161 million by Enderton to Domreis Investments SA, the Defendant explained that “despite all the efforts, my advisers have not been able to obtain that information from DIA, who are the ones who actually own and have possession of that information. … The only thing I can say is that I did own those funds lawfully and legitimately because I had received those funds by way of a loan from VTB Bank and it had been repaid.”101
197.2 That evidence is consistent with Pugachev 11 para 38.1 [E/96/13], where the Defendant confirmed that he had beneficially owned Domreis.
197.3 When asked about where the monies had gone after payment to Domreis, the Defendant said “I believe, I presume that this is as much information that, at the end of the day, my advisers have been able to obtain.”102 The Defendant was not taken to Pugachev 12 paras 69.4 to 69.6 [A/5/23], where the Defendant confirmed that Domreis had paid the sum of $160 million to OPK Mining Ltd (Cyprus), who had transferred the same amount to Solaris Property Investment (and who had subsequently made loans to various entities).
198. As to Cs’ closing submissions para 116.5:
198.1 As to the transfer of $39 million by Enderton to Twentieth Emerald SARL, the Defendant was taken to Pugachev 12 para 69.11 [A/5/25], and the Defendant clarified his earlier comment that he knew nothing about the payment by adding “Yes. Well, when I say “yes”, I mean that this is what I see from this document which is sitting on the desk right in front of me now. But if you want me to answer your question, I am going to be in great
100 11.12.15 59/4 [D3/67F/15]. 101 11.12.15 59/13-23 [D3/67F/15]. 102 11.12.15 60/4-6 [D3/67F/15].
- 81 - difficulty unless I have sight of the various documents that might be available. One other important point is that it says here, in 69.11 – it says here that I was not able to obtain any additional information as to how those funds were used.”103
198.2 This explanation was not questioned by the Claimants.
199. As to Cs’ closing submissions para 116.6:
199.1 As to the transfer of $12 million by Enderton to Victor Pugachev, when this was put to the Defendant during XX the Defendant was not reminded of his evidence in Pugachev 12 para 69.12 [A/5/25] that he had made enquiries of Victor and that his requests for information had been respectfully declined.104 Consequently, it cannot safely be concluded that the Defendant’s evidence on this point was given knowing that it was untrue.
200. It is not accepted that the Defendant has failed to make reasonable enquiries, including enquiries of his son. He has made such enquiries and those enquiries have been declined. Having realised that such enquiries are fruitless, he has not pursued that avenue of enquiry. Nor is it accepted that the Defendant has not sought to explain why certain transfers were made. Where this has been possible to discover upon reasonable enquiry, it has been set out in Pugachev 11 [E/96] and Pugachev 12 [A/5]. In fact, the further reasonable enquiries in Pugachev 12 were made voluntarily and in good faith. In circumstances where reasonable enquiries have not yielded further explanation it is submitted that there has been no material failure to comply with the requirements of the Rose J Order.
B. Allegation D2: Creative (para 1(c) of the Rose J Order)
201. The Defendant has explained in Pugachev 11 para 42 [E/96/15] (confirmed in Pugachev 12 para 71 [A/5/26]) that he is unable to recall what happened to the approximately RUR 3,392,184,000 which was transferred from Creative into an account in the Defendant’s name at M-Plus on or about 29 December 2008. The
103 11.12.15 60/11 – 61/17 [D3/67F/15-16]. 104 11.12.15 63/14-19 [D3/67F/16].
- 82 - Defendant disposed of his interest in Creative in November 2009 and cannot recall what happened to the monies after they were paid to M-Plus.
202. The Claimants have access to the accounts of M-Plus whereas the Defendant does not. King & Spalding on behalf of the Defendant made enquiries of the Claimants, requesting all information in the Claiamnts’ possession, custody or control with regard to the sum of RUR 3,392,184,000 which was transferred from Creative into an account in the Defendant’s name at M-Plus on or about 29 December 2008 [F2/125/37].
203. The Claimants’ response was entirely unreasonable. The Claimants’ solicitors responded [F2/125/39] and refused to provide the information requested, saying that “whilst Mr Pugachev is subject to an (important) obligation to make “all reasonable enquiries” prior to providing his further affidavit, we do not consider that this extends to making enquiries of the Claimants themselves.” This is so notwithstanding that in Roberts 1 para 266 [G/130/66], filed on 9 July 2014, it was said that the Claimants’ investigation into the ultimate destination of the monies “is ongoing”.
204. In enquiring of the Claimants, the Defendant has made the most the reasonable enquiry possible. No other reasonable enquiries remain open to the Defendant, nor have the Claimants articulated any. General disclosure in the underlying proceedings in this case have not yet taken place and the court cannot properly judge the Defendant’s conduct on the basis of the information currently available. In the case of doubt, the Defendant must be given the benefit of it: Ereshchenko at [21] [Auths3/9].
205. Despite the Claimants’ refusal to provide information, the Defendant has also made enquiries of Victor and Alexander Pugachev. Both have advised him that they do not recall such transfers or accounts from over five years ago: Pugachev 12 para 74 [A/5/26].
206. Further, as to the allegation in Cs’ closing submissions para 121, it is reiterated that it is not stated in Michaelson 2 para 193 [E/71/37] that the source of Mr Michaelson’s understanding regarding the payment of a dividend out of Creative is
- 83 - the Defendant. It is at the very least a possible inference that Mr Michaelson’s source of this knowledge was not the Defendant.
C. Allegation D3: Devecom (para 1(d) of the Rose J Order)
207. As to the Cs’ closing submission paras 125-127:
207.1 The disposal of EPK was subject to an oral agreement with Victor that Victor would act as director and owner of Basterre and he would be entitled to receive the first instalment of $150 million as compensation for assisting the Defendant with concluding the share purchase agreement: Pugachev 11 paras 46-52 [E/96/17-18].
207.2 The Defendant has explained what happened to $80 million of the $150 million. $3.3 million were spent on legal expenses and the balance of $76.7 million was spent by Victor for various investment activities related to his own business projects: Pugachev 12 para 75 [A/5/26].
207.3 The Defendant’s evidence is that Victor has declined to provide him with any further details as to the remaining balance of $70 million.
207.4 The Claimants’ case amounts to little more than an assertion that it “simply implausible” (Cs closing submissions para 126) that the Defendant would have given away this sum.
207.5 In circumstances where there is no hard evidence to gainsay the Defendant’s evidence, the court cannot safely conclude that the only possible inference that can reasonably be drawn is that contended for by the Claimants.
VIII. ALLEGED FALSE EVIDENCE UNDER OATH
A. Permission
208. The Claimants allege at paragraph 41 of their First Schedule of Contempts [A/1] that each of the “examples” of false evidence alleged – that is, the allegations set out below – was by inference a deliberate attempt by the Defendant to interfere with the due administration of justice.
- 84 - 209. It is understood that it this is not being pursued as a separate point. If the point arises, it is the Defendant’s position that permission was required and ought not now to be granted. The court is referred to the Defendant’s outline submissions paras 133-141.
B. The short answer to the allegations
210. The allegations of false evidence made by the Claimants relate in large part to evidence that was given by the Defendant during XX over five days before Hildyard J. As is clear from the decision in JSC BTA Bank v Ereshchenko [2013] EWCA Civ 829 [Auths3/9], the burden is on the Claimants to establish beyond a reasonable doubt on the present application that ():
210.1 the evidence in question was false; and
210.2 the Defendant knew (or was reckless as to whether) the evidence was false at the time he gave it.
211. The Judge best placed to reach that conclusion was of course Hildyard J. It is striking that in refusing to make an indemnity costs order (on the Claimants’ application) against the Defendant, Hildyard J (in his judgment of 12.6.15 [C/36]) said in terms that he was not satisfied that the Defendant’s evidence was demonstrably false or that the Defendant had not approached the XX exercise in good faith:
33. In the particular circumstances, the Claimants accept that to justify an order for costs on an indemnity basis they must satisfy me that the Defendant did not engage in good faith with the process of cross-examination and was not merely evasive but actually intending to obstruct justice, the paradigm in a sense being by giving answers demonstrated to be plainly and obviously false.
34. The hurdle is a high one. The court is likely to be reluctant to reach a conclusion of bad faith and dishonesty in the course of what is meant to be an exploratory rather than adjudicatory
- 85 - process, and at an interlocutory stage, except on the clearest evidence.
212. Hildyard J went on to note:
“84. As elaborated later, I accept that this is sufficient to justify an order for the majority of the costs of the process of cross- examination to be paid by the Defendant.
85. The Claimants, however, accept that they need to go further than this to establish their claim for indemnity costs. They must persuade me that the evidence given by the Defendant in cross- examination is, and I quote from Mr Roberts' 17th witness statement, paragraph 3, "demonstrably false", and that he "has not approached the exercise in good faith".
86. They submit that in those circumstances the proper course is for the Defendant to be required to pay the costs of the cross- examination, including the costs thrown away as a result of the adjournment of the hearing on Day 2 on the basis of his purported illness. In view of the approach adopted by the Defendant, they contend that he had not engaged with the process in good faith and his evidence was at times not merely evasive but actually intentionally misleading and dishonest. On that basis they contend that the costs should be paid on an indemnity basis. They mention that that approach was previously adopted at an earlier hearing in another context relating to his failure to disclose a passport, when Mr Justice Peter Smith noted that the Defendant had "led us all on a merry dance".
87. Although my recitation of the inconsistencies and the impression given by the Defendant might earlier have suggested otherwise, and although I must accept that I have had misgivings, I do not consider the hurdle has been cleared in this case so as to justify an order for indemnity costs.
- 86 - 88. Put shortly, I have been left sufficiently unsure where the truth really lies to dissuade me from an indemnity order. In that context I have felt it important to distinguish between appearances exacerbated by the Defendant's habit of testing the boundaries of the court's patience, and his resistance to any form of active co- operation on the basis that he contends that his assets have been been unlawfully expropriated and he is now being mercilessly hounded by the Claimants, and the Russian State itself, and on the other hand, whether he has actually sought to mislead and been dishonest.” (emphasis added)
213. The Defendant’s position is that the matter is now closed as far as the present application is concerned. The Claimants’ case on these allegations amounts to, in effect, an attempt to invite reconsideration of Hildyard J’s findings through the back door. The observations of Lloyd LJ in Ereshchenko [2013] EWCA Civ 829 [Auths3/9] as to the inappropriateness of an appellate court looking behind a trial judge’s findings of fact are apposite here:
“51. The exercise on which Mr Smith embarked in this respect seems to me altogether inappropriate, and to defy the many observations of both this and the ultimate appellate court as to the respect which an appellate court must give to findings of fact – especially findings of fact as to honesty or otherwise – made by a trial judge who has seen the relevant witnesses give oral evidence. I have quoted one such comment, from Twinsectra v Yardley (see paragraph [39] above), because it was about a finding of dishonesty by the Court of Appeal which the trial judge had declined to make, and which the House of Lords held the Court of Appeal should not have made. We were referred to such very familiar cases, relevant on this subject, as Biogen v Medeva [1997] RPC 1 (Lord Hoffmann at page 45), Assicurazioni Generali v Arab Insurance Group [2002] EWCA Civ 1642, [2003] 1 W.L.R. 577, and Datec Electronic Holdings v United Parcels Services [2007] UKHL 23, [2007] 1 W.L.R. 1325. In Biogen Lord
- 87 - Hoffmann's familiar words of caution were addressed to cases where no issue of credibility of a witness arose. His warning ought not to need to be reiterated in a case where credibility is directly at stake. But since, as it seems to me, much of the Bank's appeal involves an approach which fails to have proper regard for Lord Hoffmann's words, I will repeat here the most relevant passage:
"The need for appellate caution in reversing the judge's evaluation of the facts is based upon much more solid grounds than professional courtesy. It is because specific findings of fact, even by the most meticulous judge, are inherently an incomplete statement of the impression which was made upon him by the primary evidence. His expressed findings are always surrounded by a penumbra of imprecision as to emphasis, relative weight, minor qualification and nuance … of which time and language do not permit exact expression, but which may play an important part in the judge's overall evaluation."
52. It is not a proper appellate process to comb through pages of documentary evidence and pages of transcripts of oral evidence to find points of detail not mentioned by the judge which can be said to be inconsistent with things that the judge did say. That is not proper even if, as here, the judge did have access to the transcript, and it is all the less so in other litigation where the judge had to proceed only on the basis of his own note of the evidence. Occasionally there is a case where what a judge has said in the judgment makes it plain that he has proceeded on a false basis as to what the evidence was on a really material point. Sometimes what the judge says about an important issue of fact shows that his reasoning is not correct, for example because it defies plausibility. There are cases, fortunately rare, in which the judge's explanation as to his resolution of conflicts of factual evidence fails the test of adequate reasoning, as in English v Emery Reimbold & Strick [2002] EWCA Civ 605, [2002] 1 W.L.R. 2409. But it is not right
- 88 - for an appellate court to be invited to trawl through the documents and other evidence in detail in the way Mr Smith sought to do, in order to revisit the judge's assessment of the evidence. This should not be done even in seeking to persuade a court that a judge ought not to have made a finding of fact that he did make, and where the ordinary civil standard of proof applies. It is the more inappropriate to embark on such an exercise in an attempt to persuade an appellate court that the trial judge ought to have made a finding of fact that he refused to make. It is that much more inappropriate when the finding in question is one as to the honesty or dishonesty of a person who has given oral evidence before the judge, and all the more so in turn when the criminal standard of proof has to be satisfied for the finding to be made. In a case where the challenge is to a judge's finding of fact made on the ordinary civil standard, the criterion has been said to be less than perversity (see Ward LJ at paragraph 197 in Assicurazioni Generali). In a case such as this where the challenge is to the judge's failure to make a finding of fact, as to dishonesty, on the criminal standard, it seems to me that perversity would be the correct test. The finding must be based on an inference so compelling that no judge could fail to draw it.” (emphasis added)
214. In the face of Hildyard J’s conclusions, the allegations of false evidence on the part of the Defendant during XX are improper and should never have been brought. Even if there is no issue estoppel per se, they certainly constitute an abuse of the court’s process.
215. Without prejudice to the above, in considering each of the allegations of false evidence there are two separate questions which the Claimants have failed fully to appreciate:
215.1 Was the relevant statement made to Hildyard J untrue? If it was or may have been true, the next question does not arise.
- 89 - 215.2 If the relevant statement to Hildyard J was untrue, was it made by the Defendant in the knowledge that it was untrue (or recklessly not caring whether it was true or false).
216. In relation to the second question, the crucial issue is that of the Defendant’s state of mind at the time of his XX. This was accepted by the Claimants in their opening submissions.105
217. The Claimants’ case as to alleged false evidence relies in large part on inconsistencies that may exist between the Defendant’s evidence during XX before Hildyard J and his prior evidence or between the Defendant’s evidence during XX and other evidence filed on his behalf, particularly Michaelson 2 [E/71] and Fordham 5 [E/69A].
218. These assertions are premised on a non sequitur. It is clear from the Defendant’s XX in these proceedings that the Defendant is in many cases unable to recollect what the details of what he has said previously. Therefore, the fact that a particular matter is stated in the Defendant’s earlier affidavits does not support the allegation, to the extent the Defendant said something that was inconsistent with his earlier evidence, that he knew when he gave that evidence that he was not telling the truth. That conclusion does not follow.
219. Similarly, the court is not in a position safely to conclude, where it was put to the Defendant that there was an inconsistency between his evidence during XX before Hildyard J and what had been said on his behalf in evidence, that the Defendant knew when he was gave that evidence before Hildyard J that he was not telling the truth.
219.1 For example, it is for the Claimants to establish that the factual basis for those parts of Michaelson 2 [E/71] that are alleged to be inconsistent with the Defendant’s evidence in XX before Hildyard J are based on what the Defendant told Mr Michaelson.
219.2 All that the Claimants have been able to point to is paragraph 2 of Michaelson 2 [E/71/1], i.e. that Mr Michaelson confirms that “[t]he facts to
105 08.12.15 26/23 – 27/2 [D3/67C/7].
- 90 - which reference is made in this witness statement are either within my own knowledge and are true or have been obtained from information provided to me by Mr Pugachev and are true to the best of my knowledge, information and belief.”
219.3 Those parts of the evidence relied upon in Michaelson 2 [E/71] do not in many respects indicate the source of Mr Michaelson’s understanding, i.e. whether the factual basis for that understanding was what the Defendant told him or whether he had formed that understanding from another source. This is more particularly set out below.
219.4 In the circumstances, the court cannot safely assume that what Michaelson 2 [E/71] states is in fact derived from what the Defendant told him.
220. Even assuming that such an assumption could be made, the fact that something is said in Michaelson 2 [E/71] which is inconsistent with something the Defendant said in XX before Hildyard J does not establish beyond a reasonable doubt that the Defendant was not telling the truth (and knew or was reckless as to whether he was telling the truth) before Hildyard J.
221. The Defendant’s evidence during XX must also be considered in the light of the “Schedule of Transcript References” [B/10/21-82] that was prepared by the Claimants setting out alleged inconsistencies in his XX evidence and to which the Defendant responded and, where appropriate, made necessary clarifications. The Defendant has explained “Mr Justice Hildyard understood that there were inconsistencies in the oral cross-examination and that is why I responded to the schedule of those inconsistencies provided by the Claimants. I clearly could not confirm in a further affidavit anything more than to acknowledge that there were inconsistencies that I believe I rectified prior to the order with the schedule”: Pugachev 12 para 80 [A/5/28].
222. In particular, it is relevant to bear in mind (also mentioned above), given the complexity of the matters in issue, the observations of Vos J in Ereshchenko [2012] EWHC 1891 (Ch) at [159] (quoted with approval by the Court of Appeal at [2013] EWCA Civ 829 at [33] [Auths3/9]): “[f]inely balanced judgments about a
- 91 - witnesses’ state of knowledge at particular times against the backdrop of years of complex documentation have no sensible place in [a committal] application.”
C. Allegation E1: False evidence in respect of EPK and Basterre
223. As to the basis upon which the Claimants allege that the Defendant’s statement during XX before Hildyard J that he had had no involvement with the sale of EPK to Mr Altushkin was false and was known by the Defendant to be false at the time he made it (Cs’ closing submissions paras 128.1):
223.1 Reference is made to evidence in Michaelson 2 “which evidence must necessarily come from information which was provided to him by SP”. No evidence is proffered in support of this assertion, nor is it the only possible inference.
223.2 The statement that the Defendant had had no involvement with the sale of EPK to Mr Altushkin has been clarified. In his response to the “Schedule of Transcript References” [B/10/18-19]: “Claimant counsel failed to show me Michaelson 2 at the time of the cross examination. I correctly answered based on my recollection that I did not conclude that transaction. What I meant by that statement was that I did not execute that contract and that I was personally involved in entering into that transaction – meaning although I helped with negotiations, I did not myself enter into the contract. … What I said, and maybe it was incorrectly translated, that I have no connection to Basterre Business Corp., which I understand was the counter-party in that deal.”
223.3 During XX, the Defendant explained why he had said that he had no involvement: “Because – I said so because at the time of signing it with Mr Altushkin, the company belonged to my son, Victor. 100 per cent of the shares belonged to him. He was the proprietor, the owner of the company. I have never known Mr Altushkin in my life.”106 The Defendant went on to clarify his relationship with Mr Altushkin, accepting that he had spoken to him and explained why: “Victor informed me that Altushkin declined to pay
106 11.12.15 27/3-7 [D3/67F/7].
- 92 - the balance owing under the contract. I tried to get in touch with him to meet in London. Altushkin confirmed that he refused to pay the balance under the contract to Victor. He informed me that his partner in this deal is the President of the Chechen Republic, Ramzan Kadyrov, who informed me, through Mr Altushkin, that he sentenced me to death. Altushkin tried to explain to me that he was doing his utmost, apart from paying Victor, to make sure that I don’t get murdered in London.”107 This was not pursued further in XX by the Claimants.
223.4 In any event, the Defendant was not taken in the XX before Hildyard J to all the relevant documents to refresh his memory. Whilst the Defendant was taken to Michaelson 2 during the XX on other occasions and for other reasons, he was not referred to it on this point.
224. As to the basis upon which the Claimants allege that the Defendant’s statement in Pugachev 5 that he disposed of his interest in EPK to Basterre before the sale of EPK to Devecom in June 2011 was false and was known by the Defendant to be false at the time he made it (Cs’ closing submissions paras 128.2):
224.1 There is no inconsistency between Pugachev 5 para 8 and Pugachev 11 para 48. In Pugachev 5, the Defendant explained that he had disposed of his interest in EPK (held through six Panamanian companies) to Basterre prior to the sale purchase agreement [H/139/23] between Basterre and Devecom. Devecom was the SPV nominated by Mr Altushkin for the sale: Pugachev 11 para 51 [E/96/18]. In Pugachev 11 para 48 [E/96/17], the Defendant explains that in around 2011, “I asked my son Victor to effectively hold in trust my interest in EPK through Basterre.” This is consistent with the Defendant’s earlier evidence that he disposed of his interest in EPK to Basterre.
224.2 That disposal was subject to an oral agreement with Victor that Victor would act as director and owner of Basterre and he would be entitled to receive the first instalment of $150 million as compensation for assisting
107 11.12.15 36/24 – 37/16 [D3/67F/9-10].
- 93 - the Defendant with concluding the agreement: Pugachev 11 paras 46-52 [E/96/17-18].
224.3 If there any inconsistencies in the Defendant’s evidence, it is submitted that it is not the only possible inference that what the Defendant said was untrue and that he knew it be untrue when he made the statement.
225. As to the basis upon which the Claimants allege that the Defendant’s statement in XX before Hildyard J that neither he nor any of his companies received any money in connection with the sale of EPK, and his statement in Pugachev 11 paras 47 and 49 [E/96/17] that he never personally received any portion of the sum of $150 million paid by Devecom to Basterre for EPK, was false and was known by the Defendant to be false at the time he made it (Cs’ closing submissions paras 128.3)
225.1 This allegation is founded on the Claimants’ proving beyond a reasonable doubt that the only possible inference is that Victor was in reality a nominee for the Defendant (as recognised in Hardman 1 para 125, which refers to para 112). For the reasons set out above, it is submitted that this is not the only possible inference.
225.2 The Defendant’s position is set out in Pugachev 11 paras 47 to 49 [E/96/17], namely that the Defendant does not have and has not been provided with the details of Basterre’s bank account in Switzerland into which the proceeds of the EPK sale were paid.
225.3 Given that the Claimants admit that Victor had an official role with Basterre,108 it is at least a possible inference that the $150 million is with Victor, consistently with the Defendant’s case.
225.4 The Defendant confirmed during XX that “I did not receive 150 million”.109 He also explained why, in the face of the Claimants’ questions, why it made sense for him to give away his interest in EPK to Victor: “In 2008, the Russian state embarked on the active campaign of expropriation of my assets. My son Victor left the Russian Federation when he was still of
108 15.12.15 137/5-11 [D3/67G/35]. 109 11.12.15 35/23 [D3/67F/9].
- 94 - school age and he is currently resident in Monaco. And I tried, I tried to manage to hand over, to pass over whatever was left unexpropriated, and by the way, I left Russia in 2010.”110 This explanation was not challenged by the Claimants in XX.
225.5 If there any inconsistencies in the Defendant’s evidence, it is submitted that it is not the only possible inference that what the Defendant said was untrue and that he knew it be untrue when he made the statement.
226. The existence of the inference contended for by the Claimants as being the only possible inference is accordingly disputed. The allegation of contempt is not proved.
D. Allegation E2: False evidence in respect of Safelight and Oreon
227. As to the basis upon which the Claimants allege that the Defendant’s statement during XX before Hildyard J that he did not know whether he had ever had an interest in Safelight or Oreon, and that he did not know anything about the transfers of the sums totalling approximately $712 million to Safelight in 2008 and 2009, was false and was known by the Defendant to be false at the time he made it (Cs’ closing submissions paras 134.1, 134.2):
227.1 As regards the Claimants’ reliance on the fact that Safelight is addressed in Michaelson 2 para 190 [E/71/36], the Defendant was not taken to Michaelson 2 when XX’d on 23.03.15 and was not taken to paragraph 190 of Michaelson 2 when XX’d on 31.03.15.
227.2 It is far from clear from the terms of Michaelson 2 para 190 [E/71/36] whether Mr Michaelson’s understanding regarding Safelight is based on what he was told by the Defendant.
227.3 In the “Schedule of Transcript References”, the Defendant said that “I respectfully asked for a page reference. Claimant counsel should have pointed me to Michaelson’s statements and the pages referenced and provided by Claimant. … I apologize for not being able to prepare faster and better with the volumes of documents and for having been late on more
110 11.12.15 36/17-23 [D3/67F/9].
- 95 - than one occasion. This does not mean that I am not telling truth or that I have intentionally misled anything. I am doing the best I can with the limited resources I have.” [B/10/28]
227.4 During XX before Hildyard J, the Defendant confirmed that “I do remember that I heard the name of this company. I don’t remember when and where. Maybe it was during the course of some hearing.”111
227.5 When asked if in 2008 he owned Oreon and therefore indirectly Safelight, the Defendant answered “I don’t have information to this end and I don’t remember. Maybe I possessed it, maybe I owned it, maybe I didn’t, but from these documents I can’t see it. It doesn’t say anything here about me at all.”112 The Defendant attempted to answer to the best of his recollection on the basis of the materials that were put to him during XX.
227.6 The Defendant’s state of mind at the time of the XX is also clear from the “Schedule of Transcript References”, where he said in relation to this line of questioning “They ‘suggested to me’ that I owned one company and therefore ‘indirectly’ owned Safelight. This matter is the heart of the politically motivated criminal proceedings against me in Russia and not related to this WFO asset disclosure.” [B/10/29]
227.7 The Defendant has also explained the reasons for inconsistencies between his XX evidence and Pugachev 11 [E/96]: this was because he was not prepared during XX to divulge certain matters because they related to matters proceedings being brought against the Defendant in Russia. However, once Rose J determined that the Defendant was not entitled to withhold information on the basis of a privilege against self-incrimination, the Defendant provided fuller information in Pugachev 11. This is explained in Pugachev 12 para 83 [A/5/28]. It is also clear from the transcript of the XX that Hildyard J was aware of there being a potential issue as to self-incrimination.113
111 23.03.15 12/9-11. 112 23.03.15 14/20 – 15/1. 113 31.03.15 14/3-7.
- 96 - 227.8 That is consistent with the Defendant’s contemporaneous clarification in the “Schedule of Transcript References”, where he explained “I in no way sought to evade the question as to what Safelight did with the money that it received. Michaelson 2 paragraph 191 confirms that these were normal transactions for funds to Safelight. Claimant is asking me what Safelight did with the money. I answered that in Russia there were pending proceedings on this matter. I also indicated that the digital data archive of the Bank that might help answer these questions is missing. I also then state that I think that Claimant counsel is abusively using these UK proceedings to aid them in politically motivated Russian criminal proceedings. The data they are asking is not relevant to my asset disclosure or at least Claimant has not explained how it is relevant. I state at the end of this section they cite as you see that they are asking me about what Safelight did with the money and I answered them directly. I did not evade anything and only wanted for the record my view that the question of how safelight used money was outside the scope of this cross examination.” [B/10/33-34] (emphasis added)
227.9 After hearing all the XX evidence, it was Hildyard J’s considered view in his judgment of 12.6.15 at [93]-[94] [C/36]] that in relation to Safelight and the monies that were transferred to it, that “[t]hese are matters which of course encourage curiosity and no doubt may give rise to further enquiry, but I do not consider it right to determine such facts at this stage on this evidence.” The Judge having heard the XX evidence was not able to conclude that the Defendant’s evidence was demonstrably false.
E. Allegation E3: False evidence in relation to Creative
228. As to the basis upon which the Claimants allege that the Defendant’s statement during XX before Hildyard J that he did not recognise the name of Creative and that he did not recall anything about the transfer of $106 million from Creative to himself was false and was known by the Defendant to be false at the time he made it (Cs’ closing submissions para 137):
- 97 - 228.1 The Defendant received these funds in his account in 2008, and disposed of his interest in Creative in November 2009: Pugachev 11 para 42 [E/96/15]. The Defendant should be given allowances for a failure to recollect a matter from almost seven years ago during XX.
228.2 At the point he was first asked whether he remembered the payment of $106 million to his account at M-Plus,114 the Defendant was not taken to Michaelson 2 para 193 [E/71/37] where the matter was explained. In fact, it appears he was not taken to that paragraph until after the short adjournment.
228.3 The Defendant’s position in respect of his answer to that question was that, as set out in the “Schedule of Transcript References”, “it is unreasonable to expect me to recall all affidavits and all evidence since Claimant counsel has tried to overwhelm me with binders. These are questions related to the merits arguments that Claimant wishes to make in Russia and should do so in those proceedings. Michaelson 2 paragraph 193 shows that the transaction was well before these proceedings and is not relevant.” [B/10/37-38]
228.4 The Defendant was not taken to the relevant bank statements that are exhibited to Roberts 1,115 and was only taken two payment orders (one of which Hildyard J noted was “not a good copy” and that “the witness is fairly entitled to see a distinct copy”).116 In Pugachev 12 paras 84-85 [A/5/29], the Defendant explains that it was only after the XX that he had the opportunity to consult those statements, and that if he had been taken to them during XX he would have realised that he had received this payment, and that the Claimants had not exhibited statements for currencies other than in roubles. The correct position is set out in Pugachev 11 para 42 [E/96/15].
228.5 When taken to Michaelson 2 paragraph 193 [E/71/37] during XX, the Defendant, although still unable to remember the transaction, answered
114 31.03.15 24/10 – 25/4. 115 These are mentioned at Roberts 1 para 265 [G/130/66]. The statements are at MGR-1 page 1016 onwards (not in the bundle). 116 31.03.15 21/25 – 23/9.
- 98 - “But I can’t add anything to what I have already said”.117 He also explained why he could not remember: “I did mention it before, that I didn’t deal with transactions per se. I was a senator in the Upper House in the Russian Federation, so all I did at the time – all I did at the time was make comments to the media concerning various business activities in businesses belonging to me at the time or – a second – and that was the first.”118
F. Allegation E4: False evidence in relation to impecuniosity
229. As to the basis upon which the Claimants allege that the Defendant’s submissions to Hildyard J on 02.04.15 (as subsequently confirmed in Pugachev 5 para 31 [E/87/14- 15]) were false and were known by the Defendant to be false at the time he made it (Cs’ closing submissions para 142):
229.1 The statements complained of and set out at paragraph 38 of the Schedule of Contempts [A/1] relate to the Defendant’s own financial situation. This is evident from the following:
229.1.1 “This is a practical matter of great importance. It would enable me to carry on existing…”;
229.1.2 “My livelihood and the livelihood of my family, my wife and my children, is at stake here. We are living at the expense of my wife because she has sold her flat, her apartment…”;
229.1.3 “all my assets have been frozen, all my accounts have been frozen … So the only account I could possibly use would be the account in France, the HSBC account in France…”;
229.1.4 “So really my financial existence – my livelihood totally depends on this possibility of going to France. I can show you the email which I received at midnight…from my Russian lawyers, demanding the outstanding 6,000 euros otherwise they will stop representing me.”
117 31.03.15 30/8- 118 31.03.15 30/17-23.
- 99 - 229.1.5 “…So I have only got one current account, French current account. Of course it make it much easier for Hogan Lovells to control all the movements of money or any movements of money that I have.”
229.2 It is submitted that is at the very least possible that the Defendant is referring to his own financial situation, notwithstanding any monies standing to the account of Luxury Consulting. Consequently, the Claimant cannot and has not proved beyond reasonable doubt that the Defendant was untruthful, or, in any event, that when he made those submissions that he knew they were untrue.
229.3 The Defendant has also explained that this particular application for the release of his passport was made because the XX before Hildyard J had lasted for longer than expected, and that whilst he was relying on Luxury Consulting to pay his living expenses there was a limit to the sums that Luxury Consulting was willing to advance to him, and that in any event he had living expenses in France that required payment there: Pugachev 12 para 89 [A/5/30].
229.4 In any event, the Defendant has also confirmed during XX that he did not know what the balances of Luxury Consulting’s bank accounts were, as he was not involved in their operational activities.119 His submissions to Hildyard J on 02.04.15 should be considered in that light.
229.5 Further, it is said (Cs’ closing submissions para 146) that the Defendant’s evidence in XX, where he denied living partly at the expense of the monies standing in Luxury Consulting’s account,120 is inconsistent with Pugachev 12 paras 86 and 89 [A/5/29-30]. The Defendant was not taken to the relevant paragraphs of Pugachev 12 [A/5] at this point during XX.
229.6 The point made at Cs’ closing submissions para 147, that given the Defendant’s envisaged outgoings far exceeded his available funds such that the Defendant cannot genuinely have believed that those were the only
119 10.12.15 (in private) 2/25 – 3/8 [D3/67E/1]. 120 10.12.15 (in private) 2/13-15 [D3/67E/1].
- 100 - funds available to him, is not understood. It is at least possible that it was because of that predicament that the Defendant made the submissions that he did to Hildyard J.
IX. SENTENCING
230. In the first instance, it is the Defendant’s position that, if the court finds that the Defendant is guilty of contempt, it would be premature for the Defendant to make submissions on sentencing until he knows what, if any, contempt(s) have been proved.
231. The Defendant will also not be in a position to make effective submissions on mitigation until the court has made clear its finding on which, if any, contempt(s) have been proved.
232. In the circumstances, the court is asked to follow the approach taken by Briggs J in JSC BTA Bank v Solodchenko [2011] EWHC 1613 (Ch), where the court granted an adjournment before sentence was passed (albeit in circumstances where serious contempt had been proved against the defendant in his absence). A short adjournment for sentencing will mean that the court is better equipped to decide on an appropriate sentence in light of the Defendant’s considered submissions as to purging or mitigation (see Solodchenko at [19(e)]).
233. Without prejudice to the above, the Defendant’s brief submissions as to sentencing are as follows.
234. First, given the unique circumstances of this case, it is submitted that it would not be appropriate for a custodial sentence to be imposed. Moreover, it is questionable whether immediate committal would result in “any further leverage”121 over the Defendant, nor will it be effective to secure further compliance with the orders of the court (given that the Defendant remains outside the jurisdiction).
235. Second, and in any event, immediate committal would be inappropriate and disproportionate in particular where it would only serve a punitive function and the
121 15.12.15 25/15 [D3/67G/7].
- 101 - court is aware that, if the Defendant returns to the jurisdiction, he risks extradition to Russia.
236. Third, to the extent that a punitive sanction is found necessary the court is able to impose a (if necessary, substantial) fine.
237. Fourth, the necessary coercive function of any sanction the court chooses to impose can be better achieved by a locus penitentiae to give the Defendant an opportunity to remedy any deficiencies the court finds to have amounted to a contempt, if appropriate as a condition in which any committal is suspended.
STUART ISAACS QC
NICHOLAS CHERRYMAN
MOEIZ FARHAN
King & Spalding International LLP
22 December 2015
- 102 - APPENDIX LIFE AND SAFETY CONCERNS
6th Affidavit of Sergei Pugachev dated 13 July 2015 [E/88]
5. I left the jurisdiction because of my serious and more recently increased concerns for my personal safety. Even if I had 24 hour police protection were I still here I would not feel that I would be totally secure. My concerns for my safety are directly linked to the events that have occurred in relation to my assets in Russia. I have stated previously in these proceedings that my business assets in Russia were unlawfully misappropriated by the Russian State and I have been unfairly treated by it. I am not able to say for legal and strategic reasons precisely what my intentions are with regards to my claims against Russia as regards that misappropriation and unfair treatment, which includes the current Russian civil proceedings against me, but I have taken steps recently with a view to registering those investment treaty claims as a French national.
6. The claims against Russia involve the unlawful actions of individuals who are at the highest levels in the Russian administration. There are many publicly and widely reported stories of Russian businessmen who have ended up dead in suspicious circumstances in London. I am aware of the power that very senior individuals in the Russian State have to protect their interests. My concerns over my personal safety are directly linked to my claims against Russia and the necessary allegations I am making and evidence I will personally give in those proceedings against those very senior individuals.
7. I have previously received threats from the Russian State, including the DIA, which has lead me pursing criminal proceedings in France, and I have been followed constantly when in England. I am of course unable to verify whether those following me were the investigators instructed by Lovells for this case, or were actually agents for others who may ultimately have a different mission. Unlawfully planted tracking devices were found in May this year under cars my young family and I use, and I still do not know for certain if they are tracking devices or actually a form of explosive device. I fear they were bomb devices. These devices were passed to the police in England.
8. I wish to make it clear that it was a very difficult decision for me to leave England, not only is there the Passport Order, but my partner and young children are based in London. However, I have to put my personal safety first, and in leaving I certainly do not intend any disrespect to this court or its procedures.
9th Affidavit of Sergei Pugachev dated 13 July 2015 [E/93]
6. As I explained in my sixth affidavit now dated 13 July 2105, which I signed and confirmed was true on 8 July 2015 and have now formally sworn, I left England not because I wished to, in some way, subvert the process of this Court and the asset disclosure I was required to give on 3 July 2015 (and did give, pursuant to that Order of Mr. Justice Hildyard of 12 June 2015), but because of my increased fears over my personal safety. I did not destroy documents relating to my assets as the Claimants seem to try to maintain, or remove documents to avoid Orders of this Court.
- 103 - 7. In fact, rather than seeking to disengage from the litigation process here, I engaged lawyers, namely King & Spalding, before the Search and Seizure Order was applied for, to participate in and defend me in this case, and I filed my signed (but then unsworn) fifth affidavit on the day which had been directed by the Court; 3 July 2015 (albeit it was served a few hours after the 5pm deadline that day).
8. Therefore, to link my leaving the country with the potential destruction of documents in order to not file the affidavit required on 3 July was speculative on the part of the Claimants and simply wrong. I would point out that had I wanted to destroy potentially damaging documents in this litigation or delete data, which I have not done, I would obviously have done it at the outset of the proceedings or at least many months ago, not nearly a year after their commencement. I would also point out that I have participated in the cross-examination as required on every occasion.
9. Therefore, to link my leaving the country with the potential destruction of documents in order to not file the affidavit required on 3 July was speculative on the part of the Claimants and simply wrong. I would point out that had I wanted to destroy potentially damaging documents in this litigation or delete data, which I have not done, I would obviously have done it at the outset of the proceedings or at least many months ago, not nearly a year after their commencement. I would also point out that I have participated in the cross-examination as required on every occasion.
10. I do not understand it to be seriously disputed that I was involved at the highest levels of Russian politics for many years, and also that I had major and important strategic business in Russia worth many billions of dollars. That I was very close to Vladimir Putin for many years, and other very senior and powerful politicians, is equally wellknown.
11. I have stated publicly and in these proceedings, that when I was living in Russia I suffered from what was an orchestrated campaign of unfair and oppressive treatment. That treatment continued after I felt obliged to leave Russia in 2011, and it continues to this day, and assets that I either owned, or which I had transferred as a result of the campaign of oppression against me, were misappropriated by the Russian state.
12. I also refer to pages I-7 of "SVP 17" which is the letter dated 10 December 2014 which I wrote to Vladimir Putin and handed to him personally, and which outlines the background to the claims I have against Russia as a result of the unlawful conduct and unfair treatment I have suffered. I should explain that I have been advised by my lawyers that these claims would be brought by way of an arbitration under the Bilateral Investment Treaty that exists between Russia and France, dated 4 July 1989 (and entered into force on 18 July 1991 ). I am a French citizen which means that I am able to rely as a French national on the provisions of the Bilateral Investment Treaty between Russia and France. A copy of that treaty is at pages 8-15 of "SVP-1 7" together with an English translation (pages 16-19 of "SVP I 7").
13. The letter to President Putin I referred to above is an important procedural matter as it constitutes a letter of notification under the treaty, and an arbitration claim cannot be filed under the treaty until six months have passed after such document is provided to the relevant State. The 6 months elapsed very recently, in mid June 2015. That is an important milestone then in terms of the next significant procedural step in my pursuit of my treaty claim.
- 104 - 14. I gave a relatively recent interview to a Russian television channel, which was broadcast in Russian on 25 June 2015 in which I outlined my unhappiness at the way I have been treated by Russia, and criticised Mr. Putin. At pages 101-109 of MGR22 a copy of a transcript (in English) of some of the first part of a two-part interview is exhibited by Mr. Roberts.
15. The claims that I have against the Russian Federation are worth many billions of US dollars, and would easily exceed the claims that are brought against me in the Russian Civil Courts by the Claimants, and which are relied upon in these proceedings. A natural consequence of these claims succeeding would be the evisceration of the judgments of the Russian Courts that the Claimants rely on in these proceedings as grounds for the freezing order. Given the amount of the damages I am claiming, it would be likely to be the second largest claim ever against the Russian Federation, second only to the successful expropriation claims made on behalf of the Yukos shareholders under the Energy Charter Treaty where they are reported to have obtained an award of some $50 billion against Russia.
16. l do not intend to, and do not, waive any legal privilege in what I state in this affidavit in relation to my claims under the Russo-Franco bilateral investment treaty, or otherwise, or may be submitted in Court by my lawyers relying on this evidence.
17. As I said in my unsworn sixth affidavit, I do not wish for legal and strategic reasons to say too much about the claim I am bringing against Russia, but I respectfully believe that it is important that the seriousness and nature of the claim and its timing is recognised by this Court in the present context of the reason for my leaving the jurisdiction. Additionally, not only is it a personal claim I have to bring, I will necessarily have to give direct personal evidence against individuals in Russia regarding their unlawful and dishonest conduct, a number of which still occupy some of the highest positions in the Russian administration. This may include Mr. Putin. Necessarily, I am required personally to instruct my lawyers on this claim, also King & Spalding, as to the facts and matters underpinning these claims as they are within my own knowledge.
18. Given where I am currently in terms of the timing of my claim under the bilateral investment treaty and the increased media coverage, I consider the safety risks against me to have materially increased in recent weeks.
19. As to those risks, and the nature of those risks, I am well aware from my own conversations over many years with Russian businessmen and politicians, and the widespread reporting in the media of numerous incidents where Russians adverse to the state, or those assisting them have suffered threats of personal harm, or been killed, that fears as to the reach of the Russian Federation if you are adverse to it are genuinely and understandably felt by many Russians, just as they are by me. The unfortunate events that have occurred involving such adverse individuals are, in my informed view, too many to be dismissed as innocent incidents.
20. Rather than myself giving evidence on such events and matters in open Court, and in fact thereby potentially increasing the personal risks to myself still further, and as such evidence from me would no doubt be dismissed by the Claimants as "selfserving", my lawyers have sought the independent opinion from an eminent academic, Professor Mark Galeotti on this issue of the fears of Russians as to the
- 105 - reach of the Russian State outside its borders, and I refer to and rely on a report he has prepared in a witness statement dated 13 July 2015.
21. I also refer to a witness statement dated 13 July 2015 by Mr. Steven Shepherd from Animus Associates Ltd who advised me regarding the devices found under the vehicles I and members of family were in the habit of using in London. The fact that any suspicious device is found secretly planted under anyone's car is obviously deeply worrying to any normal person, and all the more so to me given my situation. In this case, there were four such devices, including under a vehicle which is used only by a nanny and my young children. It is still possible that they may have been tracking devices only, but I have yet to be told what for certain they were; following the fact of the devices being reported to the police, they removed them for forensic analysis and I await a report from the police in London following that analysis. I understand their investigation is continuing.
22. I understand Mr. Shepherd himself cannot rule out the devices being more than just tracking devices, and being something far more dangerous. I understand from Peter & Peters that when the police were notified of the devices they sent SO15 to remove them. I understand that SO15 is the anti-terrorist division within the English police force and it deals with suspicious packages that may be bombs. The fact that SO15 were involved indicated to me that they obviously considered there was some basis for thinking that the devices could be more than just tracking devices.
23. I retained the law firm Peters & Peters to deal with the consequences of the discovery of the devices under the cars. They have advised that the planting of any device whether a tracking device only or something more sinister is unlawful, both in a civil and criminal way. I refer to a copy of a letter at pages 20-22 of "SVP17" dated 13 July 2015 from Peters & Peters to King & Spalding confirming certain facts and matters regarding their dealing with the incident of the devices under the car and the involvement of the police and SO15. I do not waive legal privilege over any communications with Peters & Peters and my position in this regard is reserved.
24. I am aware from the evidence of Mr. Roberts of Hogan Lovells filed since the discovery of the devices on the cars, that he on behalf of his client retained Diligence to follow me and my family, and this seems to have been going on extensively and for many weeks, if not months. Mr. Roberts admits in his second affidavit at paragraph 128 that I have been followed and been under surveillance "closely" since the Passport Order was granted. I do consider this has been a form of harassment. It is important to be aware that at the time of the discovery of the devices I did not know who was following me, although I was aware that some people had been following me and my immediate family.
25. I presume, though I may be wrong, that Hogan Lovells and Diligence would not be involved in the unlawful planting of tracking devices or worse on vehicles used by me and my family. Hogan Lovells have not said if Diligence or someone else instructed by Diligence, Hogan Lovells or Hogan Lovells' clients, planted the devices which have been found on the various cars, or if they have used any form of tracking devices in this case. I am told by my lawyers that if they had used tracking devices, Hogan Lovells would have had to have informed the Court, at least as part of their duties on ex parte applications. Absent some form of appropriate approval, I understand the planting of these devices would amount to a criminal offence under English law. [
- 106 - 26. I note that Mr. Roberts asserts that Diligence, who have been monitoring me closely since the Passport Order was made on 2 March 2015, were unaware of anyone else following or monitoring me. If, however, Hogan Lovells and Diligence have been making use of tracking devices, then I request that they be obliged to say so, and further to disclose the particulars in relation to the devices and such use, and who the operatives were who installed them in order to assist the police.
27. On the assumption that Hogan Lovells and Diligence have not been tracking me with hidden devices on the cars, and they have not come forward to date to say they have, I have to conclude that another party is responsible for the planting of the devices. This could well have been Russian Government operatives, who may well not be interested in simply tracking me.
28. I should also explain that what appeared in a newspaper report in the Daily Mirror on 29 June 2015 (exhibited at pages 137-139 of MGR22) regarding the discovery of tracking devices contains assertions that are not quotes from me, and I note are not actually attributed to me, and which are inaccurate. For example, I did not say to the Daily Mirror I was under 24 hour armed police protection, or that my family and I were in a safe house, though my understandable fear and suspicion was that the devices under the cars were indeed bombs.
29. In any event, the issue of the discovery of the devices on the cars was an event that has caused me further anxiety and fears for my safety.
30. The discovery of the devices under the cars was not of itself sufficient to cause me to want to leave England. As I have said already in my unsworn sixth affidavit I was in a very difficult position. On the one hand there were the restrictions of the Passport Order, and also my children and partner, Alexandra Tolstoy, being in London, on the other hand there are the constant fears over my personal safety and my fears over the risks that I potentially exposed my immediate family to (our 3 young children are aged 6, 5 and 3) by close association.
31. In the end, my fears of a further escalation of intimidation and potential threats to my safety were such that I felt I needed to leave England, without warning. That is not a decision I reached lightly at all, and it took me a while to reach it. At least in France I feel safer. For a start, I am less well-known here, although I have historically enjoyed substantial connections with this country, and I am not a subject of media interest in the same way I am in London (where Alexandra also has a public profile too). Without wanting to go into details for security reasons, it is less difficult for me to avoid detection, not least because I do not have set patterns of movement here, and I understand from my security advisor that I am presently Jess of a security risk here in France as opposed to London.
32. In the end, my fears of a further escalation of intimidation and potential threats to my safety were such that I felt I needed to leave England, without warning. That is not a decision I reached lightly at all, and it took me a while to reach it. At least in France I feel safer. For a start, I am less well-known here, although I have historically enjoyed substantial connections with this country, and I am not a subject of media interest in the same way I am in London (where Alexandra also has a public profile too). Without wanting to go into details for security reasons, it is less difficult for me to avoid detection, not least because I do not have set patterns of movement here, and I
- 107 - understand from my security advisor that I am presently Jess of a security risk here in France as opposed to London.
12th Affidavit of Sergei Pugachev dated 20 November 2015 [A/5]
14.2 In addition in May 2012 my dispute with Mr Igor Altoushkin intensified. In May 2012 Mr. Igor Altoushkin, representing the purchaser of EPK, had failed to pay the required sums under the sale and purchase agreement between Devecom and Basterre dated 9 June 2011, by which EPK was sold to Mr Altoushkin. I had informed him of my intention to support an arbitration against him personally and the company vehicle he used (Devecom) to purchase the interests in EPK unless he respected the terms of the sale agreement. Mr Altoushkin met me in London in May 2012 and personally threatened me if I continued to demand performance of the contract. He informed me that he was in close coordination with the Second Claimant and the Russian Investigating Prosecutor. If I did not cease my demands then he would ensure that first a criminal complaint would commence and then a civil complaint by the Second Claimant relating to the bankruptcy of the First Claimant where they would produce witnesses to allege I controlled the First Claimant. In addition, he suggested that an Interpol Red Notice would be issued and I would have problems in Switzerland. Due to the fact that this matter is an element of ongoing French criminal proceedings as well my investment treaty claim, I cannot provide further detail at this time.
15. This fear due to these threats also explains, in part, why I reacted as I did to the attempted service by of the order against me by Mr Roberts. Mr Roberts in particular knew how sensitive I was about security which is what makes later events even more remarkable.
16. I share this history with the court to explain to you that I was already acutely aware that my personal safety was at risk at the time WFO commenced in July 2014. As a consequence, at time of service of the WFO I was already afraid for my life and the safety of my family, and had already bodyguards.
21. Aside from my immediate family, my most valuable asset is my life. I am outraged by the conduct of the Claimants, its legal counsel and it enquiry agents during these proceedings. Representatives of the Claimants threatened me first in France and then continued to harass me in the UK. With the full knowledge of my fear for my life and safety, they threatened me through their enquiry agents and caused me to fear for my life and leave the jurisdiction. It is reasonable that as a French citizen that I would return to my home in France where I am more secure. There can be no other interpretation as to my state of mind in the circumstances where my life had been threatened by Mr Altoushkin and others and where I first complained to the court during cross-examination of the harassment by the Claimant’s enquiry agents, had found devices planted over a period of time on vehicles and was aware of intense surveillance. It would be entirely unreasonable in those circumstances for me to assume that such conduct was solely at the behest of the Claimants, but must also have involved the participation of Mr Altoushkin or other Russian agencies. It is entirely reasonable that my fear was increasing over time as more threats were issued and actions like those described herein occurred.
22. After returning to France, I have increased security and due to the recent threat against my life after announcing the launch of my investment treaty claim and
- 108 - presentation of evidence before the French investigating judges in July 2015, I have even more protection. The Claimants’ solicitors are aware of my security issues in France.
23. I have issued a claim against Diligence in England for their actions in invading the privacy of my family and I. My French counsel is working with the authorities for my protection due to a credible threat on my life and a complaint has also recently been filed in France. My retention of counsel and additional security, together with the submission of criminal complaints in both England and France, does not require the court to infer that my life is at risk as a matter of fact, but clearly confirms that I honestly believe my life is at risk. I exhibit hereto a letter from French counsel to my English counsel to more recent issues concerning my personal safety (see pages 17-20 of SVP24).
24. I find it remarkable that the Claimants say that I am in contempt of court for leaving the jurisdiction, but that they accept no responsibility for themselves stimulating or provoking that breach. Without the oppressive surveillance and identification of devices on my vehicles that have caused me severe distress and alarm, I would not have left my family without announcement or planning for France.
25. I believe that my conduct clearly demonstrates the reality that I did my best to respect the court orders made against me in England in circumstances where I was already afraid for my life and safety, and am a French citizen unfamiliar with English court procedures.
29. I accept that I am in breach for having left England in breach of paragraph 4(a) of the Order of Mr Justice Hildyard dated 12 June 2015 (the “Hildyard Order”), but believe that as a consequence of the mitigating factors explained above that I was justified in doing so.
30. I did so for reasons of personal safety which I have already explained. I recognise that a conscious failure to comply with a Court order is a serious matter but as a matter of judgment at the time I felt that I had no alternative.
31. I understand that the court believes that I could have applied for permission to leave the jurisdiction. I was in fear for my life from the same person who threatened me in France and who is a witness in England and directs the Claimants’ legal counsel.
32. I could not imagine having to attend court to apply for permission to leave because of being afraid of the same persons, who could have been at court The May 2015 request to attend a meeting with the French judges was for submission of evidence against the Claimants. I was not permitted to attend that hearing. I did not believe that I would now be allowed to leave. It is reasonable to say that my fear for my life would be greater if I was required to discuss those matters before the court (and therefore informing those persons that I feared and who could be present at court), in addition to my fear of other persons and the Russian Federation itself.
33. I consider that my principal obligation was to ensure that I provided the required affidavit pursuant to the Hildyard Order. I retained counsel to assist with that endeavour and I complied with that obligation notwithstanding my physical location in or out of the jurisdiction. I did everything reasonable in the circumstances to
- 109 - protect my life, secure the safety of my family by distancing myself from them and still comply with the purpose of the WFO and Hildyard Order by providing the affidavit on the same day the Search Order was executed. I consider my conduct to be reasonable given the circumstances.
34. In fact, as Rose J later confirmed I complied with substantial elements of Hildyard Order and she rejected many points requested by the Claimants’ solicitors. In respect of those issues regarding which Rose J required me to provide additional disclosure, I continued to provide such disclosure even though I was out of the jurisdiction. I also continued to provide monthly living expense statements and to participate in these proceedings. I emphasise that I am not disrespecting the court and have not intended to do so. Rather, the totality of my actions demonstrate my respect for the court.
35. I consider it to be completely inappropriate for the Claimants to disregard their role in stimulating my fear, with their knowledge of that concern, and now to suggest that I irresponsibly left the jurisdiction. I hope the court will understand that the prior threats on my life combined with the conduct of the Claimants themselves resulted in my departure.
36. My fears for my personal safety remain real and acute. I did not leave the jurisdiction in order to avoid engaging in the present claim brought against me and intended no disrespect to the Court in having done so. In particular, I did not leave this jurisdiction to avoid the obligations imposed on me in these proceedings in relation to asset disclosure. My intention was and remains to comply with the freezing order, and I intend to participate fully in these proceedings through my lawyers King & Spalding International LLP.
- 110 -