JSC Mezhdunarodniy Promyshlennly Bank v Pugachev Bank
JSC Mezhdunarodniy Promyshlennly Bank v Pugachev concerns the liquidation of a Russian Bank which is pursuing its founder, originally an associate of Mr Putin, who came to London in 2011. It is alleged he diverted £2 billion of the Bank’s assets to his own use.
The liquidator brought proceedings in the High Court under section 25 of the Civil Jurisdiction & Judgements Act 1982 in aid of proceedings taken in Russia. The liquidator obtained a freezing order and pursuant to his disclosure obligations, Mr P disclosed the existence of several discretionary trusts based in New Zealand. The trustees said he was not the settlor of the trusts, but he was included within the pool of discretionary beneficiaries and was the Protector of the trusts – though the making of the freezing order brought that appointment to an end. A company owned by one of the trusts in turn owns the residence of Mr P in London.
The wording of the freezing order extended to the trusts because it covered “any assets which (Mr P) has the power, directly or indirectly, to dispose of or deal with as if it were his own”. The order clarified that Mr P “is to be regarded as having such power if a third party holds or controls the asset in accordance with his direct or indirect instructions”. The liquidator has not alleged that the trusts are a sham.
The real battle here is not about the effect of the freezing order per se, but about the associated orders requiring disclosure of information about the trusts, in particular details of trust assets. It would appear that some of the assets are in Russia and a particular concern is that disclosure will result in action being taken directly in Russian against those assets.
The Trustees made an application to the High Court to discharge the orders for disclosure, but on 30 October 2014 David Richards J refused the application on the basis that there was sufficient “privity of interest” between Mr P and the trusts such as to justify disclosure. The phrase “privity of interest” was defined by Megarry VC in Gleeson v Whippell  to mean “a sufficient degree of identification between the two to make it just to hold that the decision to which one was party should be binding in proceedings to which the other is a party”. Factors pointing to privity of interest included the fact that Mr P was the Protector and the trust’s ownership of Mr P’s London residence in respect of which Mr P was not paying any rent etc.
The Court of Appeal has now given Mr P permission to appeal against the freezing order, but it would appear that appeal is primarily focussed on the disclosure obligations in relation to the trusts. The essence of Mr P’s argument is that disclosure should be limited to discovering assets which a defendant presently has available to meet the liability to the liquidator, and that the liquidator should not be entitled to full disclosure of all the assets owned by the trusts on the basis that the defendant might at some future point derive benefit from some of them.
What this decision means is that, for example, a Trustee in Bankruptcy could make an application under section 366 Insolvency Act 1986 against trustees of a discretionary trust (of which the bankrupt is a discretionary beneficiary) for disclosure, if there is sufficient evidence of “privity of interest “ between the trust and the bankrupt. Likewise the bankrupt might be compelled to disclose what he knows about the trust and to disclose any documents he has relating to the trust. However, since most such trusts are established offshore for tax and other purposes, it is debatable whether the bankruptcy court would grant an order against offshore trustees if the more appropriate way of proceeding would be to seek recognition of the UK bankruptcy in the country in which the trust is based. Each case would depend on its own facts.