Whether deficiencies in evidence and material non-disclosure will lead to discharge of freezing order

Anna Caddick

In JSC Mezhdunarodniy Promyshlenniy Bank v Pugachev, Mr Justice Mann continued a worldwide freezing order in a case which illustrates the challenge of both establishing material non-disclosure by the claimant and persuading the court that it should discharge the freezing order as a result.

The claimants (a Russian bank and Russian state organisation responsible for conducting liquidations of credit institutions) obtained a freezing order against Mr Pugachev, who once held an interest in the bank. The freezing order was sought in support of two sets of proceedings: proceedings in Moscow brought under insolvency legislation and proceedings brought in the English court based on the same cause of action. The total claims exceed $2 billion.

Mr Pugachev sought discharge of the freezing order on various grounds, in particular that:

  • the claimants’ had obtained the freezing order on the basis of a witness statement from their solicitor containing an enormous amount of hearsay evidence without identifying the source of that evidence (as required by paragraph 4.2 of Practice Direction 32 to the CPR); and
  • there had been non-disclosure and misrepresentation of material facts at the without notice stage.

Failure to identify sources of hearsay statements

Mr Pugachev argued that was unacceptable to base an application for a worldwide freezing order on evidence from undisclosed sources, and such evidence should be given very little weight.

Mann J disagreed with the claimants’ argument that they could rely on privilege to withhold sources. That was the choice open to a litigant if it wished to seek to rely on hearsay evidence: once the information had been disclosed, no privilege could exist. However, Mann J found that the evidential failings were “technical”, did not invalidate the totality of the evidence and that the failings would instead be taken into account in weighing up the evidence.

Non-disclosure and misrepresentation of material facts 

The parties agreed that the duty on the applicant was to disclose everything that would be material to the case in order for the court to determine whether or not to grant the order sought. Materiality was to be decided by the court and not by the applicant. The applicant also had to make proper inquiries before making the application, so the duty of disclosure applied also to additional facts which an applicant would have known if he had made such inquiries.

As Mann J stated:

“…where an applicant fails to comply with this duty, an ex parte injunction can be discharged if it was obtained without full disclosure and often will be. The court has a discretion not to discharge, or to discharge and re-impose, but it is not to be lightly exercised“.

Mann J criticised the claimants for failing to disclose valuations which suggested that shares might have been sold at an undervalue. These formed part of the defendant’s case that he had been subjected to a political raid. The claimants’ denial of a political raid did not render the valuations irrelevant. Mann J pointed out that there was an obligation on an applicant to actively look at matters from the perspective of the defendant and to anticipate possible defences. However, that did does not require every single point to be flushed out. On the other hand, Mann J rejected the contention that the claimants should have done more to dissect the conduct of the various state organs involved and to suggest that each may have been effected by political pressure: the disclosure obligation did not require that kind of fine-tooth comb approach.

Mann J found that there had been three categories of material non-disclosure by the claimants, which did not prove the defendant’s points but were significant supporting matters. He observed: “[a]ny non-disclosure is, by definition, serious, but some non-disclosures are more serious than others and all have to be placed in their context“. He did not find any of those non-disclosures to have been deliberate, and held that the injunction would have been granted in any event because their omission did not leave the court with a false impression. He therefore found that the disciplinary function of the rule requiring disclosure did not on this case require the freezing order to be discharged. However, he warned: “The more complex a case, the more important it is to look to detail to see whether it ought to be disclosed. It is no excuse for not disclosing supporting details that a general point to which it goes has been disclosed. This is especially so where there has been no obvious holding back on detail in seeking to portray Mr Pugachev in an unfavourable light…“.

Other arguments raised

Mann J disagreed with the defendant’s submission that there was no foundation for the application in a good arguable case for relief in the main proceedings (i.e. more than barely capable of serious argument but does not need to be a better than 50% chance of success).

The defendant argued that a risk of dissipation had not been established. Mann J considered that a risk needed to be established to “an appropriately high standard” and that such a risk had been established on the evidence.

Mann J confirmed that section 25 Civil Jurisdiction and Judgments Act 1982 (which permits the court to grant an interim injunction in support of proceedings commenced in another jurisdiction – here the Russian insolvency proceedings) did not displace the normal sort of considerations which applied to interim relief and the court was perfectly entitled to consider ordinary discretionary matters going to the grant of equitable relief, for example the absence of clean hands. On the facts, it was impossible to determine the truth of the highly disputed allegation of lack of clean hands at that stage and therefore the allegation could not be given any weight.

Finally, Mann J disagreed that there was any force in the contention that the order was disproportionate because the defendant’s assets were worth no more than $70 million against a claim of over $2 billion. Mann J considered that even if there was some sort of general proportionality principle for freezing orders, $70 million was still a significant sum and the fact that it is only a small proportion of the claim did not reduce that significance.

JSC Mezhdunarodniy Promyshlenniy Bank and another v Pugachev [2014] EWHC 4336 (Ch)

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