Case No: HC14D02752
Neutral Citation Number: [2014] EWHC 4336 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Royal Courts of Justice
Rolls Building, 7 Rolls Buildings
Fetter Lane, London EC4A 1NL

Date: 19/12/2014

Before :

MR JUSTICE MANN
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Between :

	(1) JSC MEZHDUNARODNIY PROMYSHLENNIY BANK
(2) STATE CORPORATION “DEPOSIT INSURANCE AGENCY” 	Claimants/
Respondents	
	- and -		
	SERGEI VIKTOROVICH PUGACHEV	Defendant/
Applicant	
- - - - - - - - - - - - - - - - - - - - -

Mr Stephen Smith QC, Mr Ben Griffiths and Mr Patrick Harty (instructed by Hogan Lovells International LLP) for the Claimants
Mr Francis Tregear QC, Mr Zachary Douglas, Mr Alexander Milner and Ms Tetyana Nesterchuk (instructed by Fried Frank Harris Shriver & Jacobson LLP) for the Defendant

Hearing dates: 11th, 12th, 13th, 14th, 17th and 18th November 2014
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Judgment
Mr Justice Mann:
Introduction
1.	This is an application by the defendant, Mr Pugachev, to discharge a world-wide freezing order made against him on 29th July 2014.  The claimants are a Russian bank (“the bank” - the first claimant) in which Mr Pugachev once had an interest (whether he has parted with it or with control in it is in issue between the parties) and a Russian state organisation (the “DIA” – the second claimant) responsible (inter alia) for conducting liquidations of credit institutions, such as the bank.  The freezing order was originally sought in support of two sets of claims.  First, it was claimed under section 25 of the Civil Jurisdiction and Judgments Act 1982, in support of proceedings under insolvency legislation commenced in the Moscow courts (“the supported Russian proceedings”).  Second, it was claimed in support of English proceedings in which the claimants seek to sue here on the same cause of action as is pursued in Moscow and on other Russian and English statutory provisions.  The total claims exceed $2bn.  The freezing order ceiling is £1.2bn.  

2.	In the preceding paragraph, as in most of the rest of this judgment, the financial figures to which I have to refer will be expressed in round terms.  They are all very large figures anyway.  Even though the sums involved in this case will usually have been ruble sums (RR), I shall often express them in US dollar terms in order to give a better impression of their magnitude.  Much of the hearing before me was conducted on the basis of translation into dollars.  The rough exchange rate of RR30 to the dollar was used, and will be used by me hereafter.  Precise sums never matter for present purposes.

3.	As well as this application to set aside on the grounds specified, there was also an attack on the proceedings on the basis of want of jurisdiction.  A stay and/or striking out was sought by Mr Pugachev.  It transpired that it would be more convenient to take the present application first, and to deliver judgment on it, because certain concessions by the parties as to stays and submitting to the jurisdiction in Moscow might mean that, depending on the result on this application, it would not be necessary to rule on the other one, at least for the present.  This judgment therefore deals just with the discharge application.

4.	Discharge is sought on 4 main grounds:

(i)  Misrepresentation and non-disclosure in relation to the original without notice application.

(ii)  The absence of a good arguable case in the supported Russian proceedings.  This is based on the legal poverty of the Russian claim. 

(iii)  The absence of a sufficient risk of dissipation.

(iv)  It is not “just and convenient” to grant an injunction because of an absence of clean hands on the part of the claimants and the disproportionate effect of the freezing order.

5.	Mr Pugachev also takes a point on the failure of the claimants’ evidence to indicate clearly, or clearly enough, what the source of information of the evidence of one of the deponents was.

Short procedural history
6.	The short procedural history of the relevant aspects of this matter is as follows:

2nd December 2013 - proceedings commenced in Moscow (in the Moscow Arbitrazh Court) under Article 14 of the Federal Law on Insolvency (Bankruptcy) of Credit Institutions.  Thereafter there were various hearings in relation to it.  A trial is not yet fixed.

11th July 2014 - Henderson J ordered the recognition of the DIA as liquidator of the bank.

11th July 2014 - Henderson J granted a freezing order on a without notice application.

29th July 2014 - Henderson J continued the freezing order by consent, without prejudice to Mr Pugachev’s right to apply to have the order set aside.

4th September 2014 - in anticipation of the issue of the present application (and the striking-out/stay application), Peter Smith J made various procedural orders setting timings for the making of these applications and for an application to apply for fortification of the claimants’ cross-undertaking in damages.  He also made an order for cross-examination of deponents on the two applications before me.

19th September 2014 - Rose J required the Claimants to give an unlimited cross-undertaking in damages and fortification by bringing $25m into the jurisdiction.  That order has not been complied with and is the subject of an outstanding oral application for permission to the Court of Appeal.

29th September 2014 - Mr Pugachev issued his two applications challenging the freezing order and the proceedings.

7.	At the beginning of this application the question of cross-examination of deponents was raised, and I determined that it was not appropriate on this application.  I therefore discharged that part of the order of Peter Smith J.  I gave my reasons in a separate judgment at that time.

8.	The evidence in support of the freezing order was principally the evidence of Mr Roberts, a partner in Hogan Lovells who act for the claimants.  It was 170 pages long (including appendices) with very hefty exhibits.  There was also a much shorter affidavit from Ms Chudutova, a Moscow-based lawyer, which principally dealt with formal steps taken in Russia in the history of this matter.  It is Mr Roberts’ affidavit that sets out the factual background.

A short historical account
9.	It will be useful to set out a short account of the relevant history of the matters giving rise to this application.  This is not a full account of all matters relevant to those applications.  More detail will be given in the context of the various challenges to the injunction.  However, in order to make sense of what follows the following account will be useful.  There was a huge amount of factual detail in the evidence in this case, and it is unnecessary to describe most of it here.  In what follows I use some abbreviations to describe groups and entities, without setting out their full Russian names.  The following account (save where the contrary appears) is intended to provide a framework of largely undisputed facts in order to be able to identify the significance of the various strands of argument that arise.  

10.	The bank was founded in 1992 by Mr Pugachev and an associate.  In 1999 he claims to have acquired an indirect shareholding in two shipyards known in these proceedings as the Baltic and Northern Shipyards, or simply “Baltic” and “Northern”.  In this judgment those interests are called the “Shipyard Interests”, and the yards are called “the shipyards”.  The Russian state acquired a minority interest in those shipyards.  The yards built various kinds of vessels, including naval vessels, ice-breakers and what was described as floating atomic power plants.  At some stage he also acquired an interest in a marine design consultancy called Iceberg.  In due course Mr Pugachev’s shares were pledged to the bank to secure certain Pugachev-related loans.

11.	In December 2001 Mr Pugachev became a senator in the Russian Parliament.  As such he was barred from engaging in business activities or participating in the management of legal entities, and he put the shares of the bank in what he says are trusts in favour of his two sons and certain bank employees.  The shares were held via a series of holdings in companies known as the OPK group and a solicitor in New Zealand seems to have had formal trustee responsibilities, via a trust company.  This holding is the subject of something called the OPK trust (to be distinguished from the OPK Holdings trust, which holds other assets).  Mr Pugachev is (or was until it was wound up) the Protector of that trust, but what that status entailed is unknown.  There are suggestions in some documents that it enabled him to control the bank shares and thus the bank.   There is a very active dispute as to whether Mr Pugachev in fact retained control of the bank and took its important decisions at all material times.  The claimants say that he did, and rely on evidence from bank employees to that effect, as well as statements in documents such as prospectuses.  Mr Pugachev firmly denies this.

12.	The bank required support in 2008, at the time of the global financial crisis, and the Central Bank of Russia (“CBR”) provided this support in the form of large secured and unsecured loans.  By February 2010 the secured lending had been repaid, but an unsecured indebtedness of RR39bn (well over $1bn) was still outstanding.  By this time the bank’s activities were being supervised by the CBR.  A CBR Working Group was sent into the bank.  One of its conclusions, reached in December 2009, was that the bank had failed properly to account for relationships between the bank and various companies whose ownership ultimately led back to the OPK trusts (and therefore to Mr Pugachev or his family). 

13.	Meanwhile, on 29th June 2009, the bank entered into a transaction which lies at the heart of the proceedings that have been brought in Russia.  As security for a large number of new loans the bank was given a pledge of shares of a mining concern which, in these proceedings, has been called EPK.  Those mining shares were ultimately in the ownership and control of Mr Pugachev.  I shall call them “the EPK shares”, and the pledge transaction “the EPK share pledge”.

14.	On 18th May 2010 the CBR imposed restrictions on the bank’s entering into certain transactions, including inter-bank loans.  By the beginning of June at least 2 big creditors were pressing and its credit ratings had been sliding.  On 16th June 2010 the bank defaulted on a payment of RR9.6m due to the CBR, and then defaulted on a further payment of RR2bn.  A further payment due on 5th July 2010 was also not made.  

15.	On 6th July 2010 the bank defaulted on payment of EUR200m Eurobonds.  When they were not paid within 7 days a cross-default on other Eurobonds was triggered.  On 8th July 2010 the CBR and the bank entered into a Restructuring Agreement.  Under that Agreement the outstanding debt to the CBR was to be secured by a first pledge over OPK’s interests in the shipyard shares.  At that time those shares were already pledged to the bank to secure other borrowing (said to be borrowing by other Pugachev entities), so when in due course the shares were pledged to the CBR, the bank’s pledge was relegated to a second pledge, though (according to Mr Pugachev) the bank’s debts caught by that security increased significantly.  

16.	The status of that Restructuring Agreement was disputed in this application.  The claimants say that it was what it purported to be.  Mr Pugachev’s case was that it was a device or stepping-stone designed to lead to a state takeover of the shipyards.  I will elaborate on this below.  For the moment it is sufficient to record the postponing effect and the requirement of the CBR for security.  Pursuant to that latter requirement the bank released its security over the shipyard shares, the shipyard shares were pledged to the CBR (on 15th July 2010) and the bank took second-ranking pledges over the shares.

17.	The Restructuring Agreement contained provisions for the valuation of the Shipyard Interests by a valuer to be agreed between the parties.  In the immediately following period the bank tried to get agreement on a valuer for this process but none was achieved.  It put forward a list of valuers, including BDO and a valuer called VFC.  Apparently in order to try to accelerate the process, the bank itself instructed those two valuers to produce valuations, and they did.   Of the two valuations the BDO valuation has played a much greater part in these proceedings.   It valued Northern and Baltic, and placed values on them of $2.112bn and $1.156bn respectively.  These values were far greater than the ultimate sale price of the shipyards under a forced sale at the end of the story, and the failure to disclose the BDO figures is one of the main non-disclosure matters relied on.

18.	In the weeks that followed, various attempts and proposals were made to keep the bank afloat, but it is apparent that it was in difficulties.  It is unnecessary, at least at this point, to set out those difficulties.

19.	On or about 6th August 2010 the pledges over the EPK (mining interest) shares were released by the bank.  The releases (dozens of them - there were apparently as many pledges as individual loans secured) were signed by Ms Illarionova, who had become the Chairman of the bank’s Management Board in the same month.  The shares had been valued in the pledge documentation at $450m, so this was a significant reduction in the value of the bank’s security.  There is a major dispute in this case about who required that release.  Ms Illarionova has said that it was Mr Pugachev - he told her to do it, and she found the forms on her desk ready for her to sign, which she did.  She says that he explained to her that the shares had to be free to charge them to an alternative lender the next day.  Mr Pugachev denies any knowledge of the release (and indeed of the original pledges).  These pledges were replaced by other security which is said to be very much less valuable, if indeed it has any value at all.

20.	This release is important because it is the transaction on which the supported Russian proceedings are based.  As will appear, it is said that the transaction “caused” the insolvency of the bank and that that allows recovery of a large part of the bank’s insolvency deficit to be recovered from Mr Pugachev (who is said to have brought it about).

21.	On 2nd September 2010 the bank defaulted on some payments to the CBR under the Restructuring Agreement.  Just over a month later, on 4th October 2010, the bank’s licence was revoked by the CBR and a temporary administration was imposed.  On 30th November 2010 the Moscow Arbitrazh Court declared the bank bankrupt, opened liquidation proceedings and appointed the DIA as liquidator.

22.	Before and after that event there were certain dealings involving inter alia Mr Pugachev, Nomura (the Japanese financial concern), the CBR and (on Mr Pugachev’s case) representatives of the Russian state (including Mr Vladimir Putin, then Prime Minister of the Russian Federation) to try to achieve an agreed disposal of the pledged shipyard shares, with a state-owned company known as USC which was created to consolidate the state’s holding of shipbuilding interests as a, if not the, potential purchaser.  They did not succeed.  There then followed a series of court hearings over the next two years, which led up to a court-ordered sale of the Shipyard Interest shares to an entity called USC.  I shall call these the “Russian sale proceedings” and will have to return to some of the detail of this in due course, but for the moment it is sufficient to note the following steps:

(i)  In September and October 2011 the court ordered the shipyard shares to be transferred into “trust management”.  It conferred the management on the CBR, but CBR is said to have delegated the functions to USC (the potential purchaser of the shares).

(ii)  Valuers were appointed to value the shares - Ernst and Young were appointed to value the shares in Baltic, and Deloittes to value the shares in Northern.

(iii)  In December 2011 and February 2012 the court ordered that the Baltic and Northern proceedings respectively be “secret”.  This is said to have been because of the fact that certain aspects of Baltic and Northern’s businesses were militarily sensitive because they built Russian navy ships.  Mr Pugachev complains that this meant that the valuations were not able to be properly viewed, and therefore addressed, in the proceedings.

(iv)  The court ordered sales of the Baltic and Northern shares by auction and fixed starting prices by reference to the Ernst and Young and Deloitte valuations (orders made in December 2011 and February 2012 respectively).

(v)  On 4th July 2012 the auction of Baltic’s shares took place, followed by Northern’s on 6th September 2012.  On each occasion USC was the successful bidder (and on one occasion was the only bidder, leading to a re-run).  Mr Pugachev maintains that the prices obtained were only a fraction of what ought to have been obtained.

23.	Mr Pugachev left Russia in January 2011.  His arrest was ordered in Russia on 19th December 2013, but that decision was set aside.  A further arrest order was issued on 5th May 2014.

24.	On 2nd December 2013 the supported Russian proceedings were issued.  Several hearings have taken place, but there has not yet been a trial.

25.	Reverting shortly to the EPK shares (because part of the non-disclosure case involves them), there is a dispute as to whether they were sold.  There is evidence of a sale agreement under which the owners (assumed to be owned and/or controlled by Mr Pugachev) sold them, but it is said by Mr Pugachev that the DIA thwarted a sale by revealing to the intended purchaser in November 2011 that it intended to try to reinstate and enforce the pledges over the shares.  On 29th December 2012 the licence of the relevant EPK company was revoked, with the effect that it could no longer operate the mine.  A temporary, and then a permanent, licence was given to another company.  

The supported Russian proceedings
26.	These are the proceedings in support of which section 25 is invoked.  They are based on Article 14 of the Federal Law on Insolvency (Bankruptcy) of Credit Institutions.  It imposes a liability called “subsidiary liability” and its relevant terms read as follows (taking the translated text from the first report of Dr Gladyshev, Mr Pugachev’s expert):

“Article 14.   Liability of managers, board members (oversight board), founders (participants) of a credit organisation.

1.  If the bankruptcy of a credit organisation is caused by the culpable actions or omissions of its managers, board members (supervisory board), founders (participants) or other persons that have a right to give binding instructions to the credit organisation in question or have the possibility to determine its actions by other means (referred to thereafter as controlling persons), then in the event of insufficiency of the credit organisation's property for the satisfaction of its creditors' claims, those persons may be held subsidiarily  liable for the credit organisation's debts and (or) obligations to pay, by decisions of an Arbitrazh court.

Individuals referred to in the above paragraph are regarded as being at fault [culpable] if their actions or decisions (including in excess of their authority), which led to the appearance of the signs of bankruptcy, were contrary to the principles of good faith and reasonableness, the relevant laws of the Russian Federation, banking rules, the credit institution's charter or trade customs, or if, upon the presence of indications prescribed in Article 4 of this Federal law, they failed to take certain actions, prescribed by this Federal law, to pre-empt the bankruptcy of a credit institution.”

27.	Collapsing its terms slightly, it therefore imposes liability on a person who controls the institution where that person “causes” the bankruptcy, and the measure of liability seems to be the debts in the bankruptcy, or perhaps the shortfall.  Various questions arise as to the scope and interpretation of the Article, and I shall deal with them later on in the section entitled “No arguable case – Mr Pugachev’s contribution to the insolvency”.  For the moment I just set out the claim made against Mr Pugachev.

28.	The application in these proceedings shows that the defendants are Mr Didenko (chairman of the management board of the bank from 2008 to March 2010), Mr Zlobin (former chief accountant, member of the executive board, deputy director-general and acting chairman of the bank), Ms Illarionova and Mr Pugachev.  The claims against the various defendants are differently based.  So far as Mr Pugachev is concerned it avers his control and a claim is made against him (and Ms Illarionova) under Article 14.  It is said that:

“In the period immediately preceding the revocation of the Bank's license, the Acting Chairman of the Executive Directorate of the Bank Illarionova ME and the controlling person (beneficial owner) of the Bank Pugachev SV committed acts which caused a significant deterioration in its financial position.”  

The application then goes on to say that “In particular” Ms Illarionova and Mr Pugachev terminated the EPK pledges and:

“As a result of termination of contracts of pledge of shares, the bank was unable to obtain satisfaction of their claims on 130 loan agreements amounting to 68,481,255 rubles by sale of the mortgaged property (shares), the collateral value of which was much larger than the borrowers' debt

...

Accordingly, the actions of  Illarionova ME and Pugachev SV have caused to the Bank actual damages in the amount of 68.481,255 thousand rubles, corresponding to the total amount of loans of 65 borrowers, which as a result of termination of the pledge agreements was unsecured and impossible to recover.

4.2  Causal link between the actions of the persons controlling the Bank and its bankruptcy.

In Decision of 07.12.2010 on the recognition of the Bank bankrupt it was established that the Bank's insolvency was caused by insufficient value of its assets to satisfy creditors' claims.
…
The above circumstances confirm that the termination by Illarionova ME and Pugachev SV of the contracts of pledge, which caused damage to the Bank in the amount of 68,481,255 rubles, is the main cause of its bankruptcy.”

29.	The application goes on at section 5 to allege:

“5.  The size of vicarious liability of controlling persons of the Bank.

The total size of vicarious liability of interested persons (Defendants) has been calculated in accordance with the requirements of clause 5 Article 14 of the Act and has made 75,642,466,311.39 rubles.
…
The size of vicarious liability of Pugachev SV and Illarionova ME is determined in the amount of damage caused to the bank by their wrongful acts, and that makes 68,481,255,000.00 rubles... The liability is imposed jointly and severally.”

Thus the application seems to claim an amount equal to the lost value of the security rather than the insolvency deficiency or the total insolvency debts. 

30.	It is the amount of this claim which is used to support the application under section 25.  The amount frozen in the freezing order of Henderson J is the approximate sterling equivalent of that sum.

31.	There has been a form of dispute as to whether or not, and the extent to which, Mr Pugachev has participated in those proceedings.  However, any doubt as to what his intentions are in that respect were removed at the hearing before me when Mr Pugachev effectively undertook to submit to the jurisdiction of the Russian court in those proceedings.  It is therefore to be anticipated that he will actively seek to defend them.  He has not sought to make any point to the effect that he will not receive a fair trial in those proceedings, or that those proceedings are politically motivated and will be politically conducted against his interests, an attitude which contrasts strongly with parts of his non-disclosure case, as will appear.

Evidential inadequacies - failure to identify the source of hearsay statements
32.	Mr Tregear makes a basic point about the general quality of Mr Roberts’ evidence used in support of the original application for the freezing order.  He complains that it contains an enormous amount of hearsay evidence but generally does not identify its source.  His point is that it is unacceptable to base an application for a worldwide freezing order as serious as this one (or indeed any freezing order) on evidence which does not conform to the requirements for identifying sources.  The point comes down to one of weight, and without an identified source much of Mr Roberts’ evidence should be given much less weight.  He submits that this is not a pointless (or point-scoring) quibble; the requirements to identify the source are an important part of the protection provided to the other side, and unless it is done it is all too easy to use unattributed statements to create a generalised impression intended to smear (which is my summary of his point, not his word) Mr Pugachev.  Mr Tregear does not deploy this as a standalone knockout blow, but says it has to go into the scales with the other points that he relies on.  

33.	The requirement to identify the source of hearsay statements comes from the Practice Direction to CPR 32 at paragraph 4.2:

“4.2.  An affidavit must indicate - 

(1)  which of the statements in it are made from the deponent's own knowledge and which are matters of information or belief, and

(2)  the source for any matters of information or belief."

The same thing is repeated in the Chancery Guide and, in relation to witness statements, CPR 32 PD.18.  

34.	Mr Tregear points to the Civil Evidence Act 1995 section 4 as demonstrating how to weigh hearsay evidence:

"4. Considerations relevant to weighing of hearsay evidence.

(1)  In estimating the weight (if any) to be given to hearsay evidence in civil proceedings the court shall have regard to any circumstances from which any inference can reasonably be drawn as to the reliability or otherwise of the evidence.

(2)  Regard may be had, in particular, to the following –

(a)  whether it would have been reasonable and practicable for the party by whom the evidence was adduced to have produced the maker of the original statement as a witness;

...

(c)  whether the evidence involves multiple hearsay;
(d) whether any person involved had any motive to conceal or misrepresent matters;
...
(f) whether the circumstances in which the evidence is adduced as hearsay are such as to suggest an attempt to prevent proper evaluation of its weight."

Mr Tregear sought to point out that one could only conduct that sort of assessment if the obligation to disclose sources was complied with. 

35.	I have already indicated the length of Mr Roberts’ original supporting affidavit.   Since Mr Roberts is an English solicitor at Hogan Lovells he has no first-hand knowledge of anything relevant.  Everything he says must come from a source provided to him by his clients.  It is certainly the case that much of it depends on documentary evidence, and the documents, or their nature, are obvious from the narrative.  However, that is not true of all his evidence.  As to his sources he says this:

“3.  The facts and matters stated in this affidavit are either within my own knowledge and are true or are based on information or documents supplied to me and are true to the best of my knowledge, information and belief."  [He then refers to two specific exhibits containing documents to which he goes on to refer.]

36.	The same formulation is used in the affidavit of the other deponent who provided evidence in support of the original application, Ms Chudutova, a Russian lawyer acting for the DIA.  It is plain from those formulations that neither deponent provides even a generalised statement as to the source of material (where that source is not otherwise obvious - not even in the more generalised form which one often sees such as "employees or managers concerned in the administration of the liquidation").

37.	This point was taken up in correspondence between Fried Frank, solicitors acting for Mr Pugachev, and Hogan Lovells.  They wrote on 10 September 2014 in terms asking for the names of the individuals involved in providing Mr Roberts with the information contained in his witness statement.  In their response of 12 September 2014 Hogan Lovells pointed out that at least one individual is identified (Ms Medvedeva) as the author of a report from which some information is drawn, and they also seek to point out that Mr Roberts identified and referred to the evidence of a number of individuals who were involved at the relevant time and who have since been interviewed by the Russian criminal authorities.  That is presumably a reference to documents recording such matters.  The letter then goes on:

“As you will appreciate, the preparation of Mr Roberts' First Affidavit, and indeed the Claimants' Particulars of Claim, was a significant undertaking which entailed discussions with a number of other representatives of the DIA.  While we do not consider it necessary (or at all relevant) to identify all such individuals, not least as privilege issues would necessarily arise, we are nevertheless willing to confirm that this includes the members of the "Confidentiality Club" which has since been put in place, i.e. Dmitry Bogorodsky at the DIA, and Maya Chudutova and Yulia Basilieva at Yakovlev & Partners [Moscow lawyers].  We have explained their roles in past correspondence relating to the “Confidentiality Club””.

The letter goes on to justify not identifying certain enquiry agents because of the risk of prejudice to ongoing investigations.

38.	I would observe at this point that the reference to privilege would seem to me to be misplaced, as Mr Smith was eventually constrained to accept.  If it were a good point then any lawyer giving hearsay evidence for his client in an interim application would be able to decline to identify the source of information.  The position is that giving hearsay evidence in those circumstances is an opportunity afforded to a litigant but it comes at the price of identifying individuals who are the source of the evidence (usually).  Once the information has been disclosed then no privilege can exist, and there can be nothing objectionable in terms of the law of privilege in requiring a solicitor to identify the source of what has become non-privileged information.  A litigant has a choice.  If he wishes to rely on this information then the price is that the source is no longer privileged.  If he does not want to identify the source then he cannot rely on the information and at the same time maintain the claim to privilege.

39.	That response did not satisfy Fried Frank and they took the point up again in a further letter of 15th September 2014.  In a letter of 17th September 2014 Hogan Lovells corrected their reference to the class of individuals which "included" the individuals referred to by adding one and re-ordering them.  It expressed the view that there was "no merit in your criticisms" but in order to rebut a suggestion that individuals within the DIA were "hiding behind Mr Roberts" it confirmed that:

"references to the DIA's understanding, or to specific confirmations given by the DIA, are based on information provided by Yulia Medvedeva and Dmitry Bogorodsky of the DIA.”

That was a reference to complaints made about Mr Roberts’ fourth affidavit and the letter went on to decline to provide a "source and attribution guide" sought by Fried Frank.  It denied that there was any defect in Mr Roberts's evidence but went on:

"Nevertheless, and again without prejudice to our clients' position that there is no defect in Mr Roberts' evidence, we are willing to consider any specific references in Mr Roberts' affidavit which, Mr Pugachev may contend, give rise to legitimate concerns.  As matters stand, no such examples have been provided."

40.	On 19th September 2014 there was a hearing in this matter before Rose J in relation to fortification for the claimants' cross-undertaking.  During the course of the hearing the same point as is now taken before me was taken before her.  In the course of a judgment Rose J referred to the correspondence and the requests from Fried Frank and said:

"The upshot was a rather grudging and partial response which, from what I have seen, still falls short of stating the source of the various allegations of misconduct.  The two people who are now named as being the source of the information in Mr Roberts' witness statement are people who work for the DIA and so have only been involved in this matter since the liquidation.  They could not have been the source of the information about the conduct of the bank.  Particularly, where serious allegations of misconduct are made in a witness statement, the deponent should give a more specific indication of the source, rather than simply referring generally to the source being the claimant entity."

41.	Mr Tregear made the point that the failure to provide the source of information could hardly have been accidental, an impression which he says is reinforced by the fact that Hogan Lovells declined to correct the matter in correspondence.  He complains that the point was not drawn to the attention of Henderson J, and no explanation was given to the judge.

42.	Fried Frank returned to the point in a letter of 22nd September 2014.  The claimants attempted to rectify the position in evidence from Ms Medvedeva of the DIA's Expert and Analytical Department.  She seeks to deal with the allegation that the DIA was bringing these proceedings on the "direction" of the CBR and describes the processes undertaken by the DIA and its relationship with a creditors committee.  She then goes on to indicate some of the procedures which operated after the liquidation of the bank and identifies members of a working group involved.  She describes the creation of a report by the DIA and eventually gets to a heading: "The DIA's claims in England".  At paragraph 39 of her witness statement she says that: "My team and I provided extensive information and documentation to Hogan Lovells in order to assist in the formulation of the DIA's claims" and she identifies three particular individuals as being closely involved.

43.	That evidence does not provide the source attribution of all the material relied on by Mr Roberts (insofar as his material is not obviously based on documents) but it does go some way towards identifying sources in that it makes it plain that information has come from other members of the DIA team who themselves cannot be expected to have had first-hand experience of the events in question.  That is a significant advance in that it does indeed make it plain that Mr Roberts' evidence is itself based on evidence which is likely to be largely hearsay as it came to him.

44.	The real force of Mr Tregear's point can only be judged by reference to those parts of Mr Roberts' evidence about which a real and legitimate complaint can be made as to the absence of a source.  While he was on his feet I asked Mr Tregear to identify three points at which Mr Roberts' failures (and I find that they were at least technical failures) had some sort of impact.  His immediately chosen three did not seem to me to be highly significant, but in due course Mr Tregear produced more instances.  The matters he complains of can be grouped into three categories (as Mr Tregear himself analysed them).

45.	The first category is various statements of relevant fact, usually preceded by the words “The DIA understands” or “the DIA suspects”, or similar words.  Thus paragraph 169 reads:  

“169.  … At the auction, the state owned [USC] (the same state-owned entity with which Mr Pugachev had previously been negotiating for the sale of the Shipbuilding Assets and which the DIA understands was the only bidder) paid RUR2.6 billion (approximately US$ 80 million) to acquire the majority of the shares in Northern Shipyard and Baltic Wharf…The DIA understands that the price ultimately paid by [USC] reflected the poor condition of Northern Shipyard's and Baltic Wharf's assets.”

Paragraph 182 contains:

“182.  Given what it has since uncovered at the Bank, the DIA suspects that the Bank's ABS was deliberately tampered with to delete historic data, and that the back-up copy maintained by OPK Management was then either deleted or simply withheld from the DIA in order to frustrate its investigations.”

46.	There are 9 or 10 similar examples.  They are all statements of purported fact preceded by statements of the understanding of the DIA about those statements, without any individual in the DIA being identified or without any original source (if another individual) being identified.  The facts are generally facts of real significance to the case.  Thus the statement about USC’s price goes to the heart of Mr Pugachev’s assertion in this case that the shortfall for which he is sued was contrived because the shipyards were sold at an undervalue.  I do not need to set out the other instances complained of.  They are of a similar nature.  Mr Tregear’s complaint was that, without a source, Mr Pugachev cannot properly investigate the points, nor can the court evaluate them, and that they often amounted to a smear.

47.	One has to approach this case by bearing in mind what the DIA is.  It is a liquidator whose officers have no first hand knowledge of the background to the claims of its subject company.  In carrying out its functions it will inevitably have to form views, via its agents and officers, as to what happened in order to be able to decide how to discharge its functions.  There is nothing wrong with such expressions of views being made, and it is likely to be of little consequence which particular officer or officers formed the view in question.  The failure to identify such an officer may well therefore be a technical failure, but not much more.  Of more significance may be the failure to identify the source of that officer’s belief, and that is a more significant failing in this case.  However, it is likely that in many cases the conclusion arrived at by the liquidator is the synthesis of his/its inquiries, and it may be unrealistic to expect, in every case, a detailed exposition of how the conclusion is arrived at.  Whether the identification is really needed will depend on the significance of each individual disclosure.  The more significant the fact, the greater the significance of any failure to identify the source.  

48.	Bearing that point in mind I find that there was at least a technical failure in at least some of the instances relied on.  The failure lay in not identifying Mr Roberts’ source of information within the DIA, and then not identifying any further sources (if any) relied on by the DIA source.  The significance of each instance varies, but not all of them have any real significance at all.  The two paragraphs cited above are examples.   In paragraph 169, the reference to the DIA's understanding as to the only bidder actually coincides with Mr Pugachev's positive case that it was.  The failure to identify sources in relation to this paragraph seems to me to be immaterial.  In paragraph 182 the reference to the suspicion of the DIA can only be a reference to the suspicion of one or more officials of the DIA.  The identity of the officials seems to me to be largely irrelevant.  It is plain that this paragraph is not seeking to give second-hand hearsay evidence of another source.  The second sentence of that paragraph is actually an express reference to non-evidence rather than evidence.

49.	I have taken those two examples to show that there were technical failings in some, but not all, cases, and that they were not all significant.  I have carefully reviewed all Mr Tregear's paragraphs falling within this category and find that the failings were either immaterial in the circumstances or, if more material, the shortcomings in the evidence would be obvious to any tribunal reading the evidence and the effect of it modified accordingly.  Furthermore, so far as the complaint is a failure to attribute a source in the DIA, that has been remedied by the correspondence and further evidential material referred to above.

50.	Mr Tregear's second category are expressions of purported "beliefs", "doubts" or "concerns".  These are the sort of references that Mr Tregear says are likely to give rise to a smear, or "are calculated to colour the court's perception of Mr Pugachev and/or the merits of the case."  He complains that without any attempt to attribute them, Mr Pugachev cannot investigate any such beliefs or test their validity, or even know whether they are in fact genuinely held by any individual within the DIA at all.

51.	I am afraid I regard this as a rather unreal criticism.  It may have technical merit, but on the facts of this particular case, and bearing in mind the huge amount of research and effort that has gone into Mr Pugachev's evidence in any event, it is, on the facts, unrealistic to suppose that Mr Pugachev's case would be advanced at all by knowing which individual in the DIA held the belief in question.  In any event, again, this partial void has been filled by the material referred to above.

52.	The third category of cases is statements that the DIA is not aware of certain matters, or that it cannot comment on them.  It is said that without knowing who it was at the DIA Mr Roberts spoke to, or what enquiries those individuals made, the evidence is at best worthless and at worst positively misleading.  Without knowing who Mr Roberts' sources are, they may have been other individuals who had no relevant knowledge.  Alternatively, enquiries may have been made of the appropriate people and those people might not have told Mr Roberts the truth.  Mr Tregear says that it is impossible to penetrate such matters without a proper attribution of sources.

53.	I will give a couple of examples of what it is that Mr Tregear complains of.  Paragraph 231 deals with certain payments out of an account at the bank in favour of three companies which are said to be Mr Pugachev's companies.  The payments purported to have been made pursuant to various agreements.  Mr Roberts goes on: 

"Although copies of these agreements appear to have been available to the Central Bank at the time the Inspection was undertaken, the DIA has as yet been unable to locate copies."

54.	This is not a statement of lack of awareness of a matter.  It is a statement that the DIA has not been able to find something.  It may be that technically Mr Roberts should have said who it was in the DIA who told him that, but anything else would be superfluous and excessive in the circumstances.

55.	Again, in paragraph 609 Mr Roberts refers to a possible need to ascertain when the DIA acquired knowledge of sufficient facts to support a cause of action against Mr Pugachev (for limitation purposes).  He goes on:

"Given the scale and complexity of the task facing the DIA once it was appointed, the DIA respectfully suggests that it was not in such a position by July 2011 (despite having acted with reasonable diligence)."

56.	This is not a clear statement that the DIA did not know something at a certain point in time.  It is a submission as to what is reasonable.  I do not consider that Mr Tregear's complaint in this respect has any foundation.

57.	Paragraph 592 was a particular focus of Mr Tregear's attack on this point.  The first sentence of that paragraph reads:

"The DIA is necessarily not in a position to address the conduct of the Central Bank, or Russian authorities more generally, including as regards the Shipbuilding Assets."

58.	There may be various reasons for questioning this statement, but they do not include the sort of source attribution point relied on by Mr Tregear.  It is a form of submission on the facts, whose strength or weakness can be judged (for interlocutory purposes) without ascertaining whether there was any DIA source for it.

59.	It is not true to say that there is nothing in Mr Tregear's overall complaint under this head.  There were, in my view, technical failings, but in the light of subsequent evidence, and putting them in their context, they plainly do not invalidate what Mr Roberts had to say, and any evidential deficiencies can be taken into account in weighing the pieces of evidence in question.  At the end of the day I do not think that this point advances anyone's case.

Other background relied on by Mr Pugachev
60.	Mr Tregear relied on a further "background" point before turning to the detailed substance of his application.  He referred briefly to the failure of the DIA to provide fortification for its cross-undertaking.  An application to that effect was made to Rose J and she ordered that $25m be brought into the jurisdiction.  The DIA sought to appeal that but were refused permission to appeal on paper by the Court of Appeal.  At the date of the hearing before me the DIA had applied for, but had not yet obtained, a date for a renewed oral application for permission to appeal.  In the meantime no fortification has been provided.  Mr Tregear said that this was a matter of concern – it savoured of the DIA trying to get the freezing order without being prepared to take the consequences.  I do not give this matter any particular weight.  The DIA is simply in the position of a litigant who seeks to challenge an order made against it and is taking proper and legitimate steps to that end.

61.	Next Mr Tregear presented some material which, he said, cast serious doubt on the DIA's presentation of itself as being a reputable, independent and non-corrupt organisation carrying out an important function in Russian civil society.  This reputation was said to have been relied on at the hearing before Henderson J so as to justify not fortifying the cross-undertaking.  Mr Tregear pointed out some bad press that the DIA has received which contained allegations of corruption and bad practice against the DIA and certain individuals involved in it, including some individuals mentioned in the narrative relevant to the present case.  He contrasted the press attention received by the DIA with the absence of any similar sort of attention attracted by any UK liquidator.  He also pointed out the extent to which the DIA was, or is capable of being, dominated by state organisations such as the CBR and the Russian Ministry of Finance by virtue of its board representation, at least in relation to this case.  He said that the frequency with which anti-corruption measures were apparently introduced and revised demonstrated that corruption was a problem, not an impossibility.

62.	I consider that some of Mr Tregear's points were overstated, and unsubstantiated press comment must be treated with great caution, but even allowing for that it still seems to me that there may be difficulty in treating the DIA as a completely dispassionate, completely independent taint-free organisation.  Furthermore, insofar as it is, or is connected with, state organs, it is vulnerable to the sort of questions about its independence which affect other aspects of state conduct, which I refer to below.  To that extent it is capable of being relevant to that part of the application which turns on expropriatory conduct by the state – see below.  It does not go to anything else.

Non-disclosure
63.	I therefore arrive at the first of Mr Tregear’s main points, namely his application for discharge of the without notice injunction on the basis of non-disclosure and misrepresentation of material facts.  

64.	Mr Smith submitted that any application to discharge should make the grounds of discharge, and particularly the matters complained of, clear in the application notice, and he observed that the application notice in this case did not do that.  He is technically right in what he says about the notice, and he is obviously right in saying that the applicant should make clear what the grounds are, but in the present case Mr Pugachev has achieved that by that section of his application notice which indicates the evidence on which he relies and pointing to the second witness statement of Mr Michaelson (his solicitor).  That witness statement does indicate what non-disclosures and misrepresentations are relied on, and so fulfils the requirement.  

65.	Mr Smith points out at the same time that that material is limiting, in that Mr Pugachev should not be allowed to rely on any misrepresentation or non-disclosure not thus identified, because otherwise there is an unfairness to his client who will not have had the opportunity to meet the case in evidence (so far as an evidential response would be appropriate) or (to a lesser degree) in submissions.  I accept that, though at the end of the day rigidity must be tempered by realism.  If a non-disclosure or misrepresentation point can be fairly dealt with notwithstanding any defects in its identification in the pre-hearing documents, then the court may well be able to deal with it substantively one way or the other. 

66.	The non-disclosure and misrepresentation points as indicated in Mr Michaelson’s witness statement are as follows (in the order in which they appear there):

(a)  A failure to disclose the lack of merits in the supported Russian proceedings. As a result the English court was given a more positive impression of the merits of the DIA’s claim in Russia than the facts warranted.

(b)  Misrepresentations and non-disclosures in relation to the sale of the shares in the Shipyard Interests.  These are a failure to draw attention to the 2010 BDO valuation (and the VFC valuation), a failure to point out irregularities in the court process and to draw attention to the fact that the sale was, or could have been, interfered with by political considerations.  These points are amplified in the evidence. It is said that there was a “wholesale failure” of the DIA to inform the court of the facts surrounding the sale of the Shipyard Interests which was a non-disclosure of the most serious kind.

(c)  A failure to make proper disclosure of the Restructuring Agreement as a preference.

(d)  Misrepresentations as to the fate of EPK.  

67.	I shall deal with those points, but not in that order.  In terms of time and emphasis at the hearing, point (b) was the most significant, so I will take that first, after dealing with the principles applicable to non-disclosure on without notice applications.  

Non-disclosure - legal principles
68.	There was little dispute between the parties in relation to the duty to make full and frank disclosure.  The duty to make full and frank disclosure in relation to a without notice application is an established principle, requiring the applicant 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. This was summarised by Ralph Gibson LJ in Brinks Mat v Elcombe [1988] 1 WLR 1350 at 1356-1357:

“1.  The duty of the applicant is to make “a full and fair disclosure of all the material facts…” 
2.  The material facts are those which it is material for the judge to know in dealing with the application as made: materiality is to be decided by the court and not by the assessment of the applicant or his legal advisers… 
3.  The applicant must make proper inquiries before making the application… The duty of disclosure therefore applies not only to material facts known to the applicant but also to any additional facts which he would have known if he had made such inquiries. 
4.  The extent of the inquiries which will be held to be proper, and therefore necessary, must depend on all the circumstances of the case including (a) the nature of the case which the applicant is making when he makes the application; and (b) the order for which application is made and the probable effect of the order on the defendant… and (c) the degree of legitimate urgency and the time available for the making of inquiries… 
5.  If material non-disclosure is established the court will be “astute to ensure that a plaintiff who obtains [an ex parte injunction] without full disclosure … is deprived of any advantage he may have derived by that breach of duty”… 
6.  Whether the fact not disclosed is of sufficient materiality to justify or require immediate discharge of the order without examination of the merits depends on the importance of the fact to the issues which were to be decided by the judge on the application. The answer to the question whether the non-disclosure was innocent, in the sense that the fact was not known to the applicant or that its relevance was not perceived, is an important consideration but not decisive by reason of the duty on the applicant to make all proper inquiries and to give careful consideration to the case being presented. 
7.  Finally, it “is not for every omission that the injunction will be automatically discharged. A locus poenitentiae may sometimes be afforded”… The court has a discretion, notwithstanding proof of material non-disclosure which justifies or requires the immediate discharge of the ex parte order, nevertheless to continue the order, or to make a new order on terms."

69.	Balcombe LJ elaborated a little, making clear the need to keep the requirement within bounds and reinforcing the discretion to re-impose or not discharge the injunction if the case required it at p1358C-G:  

“The rule that an ex parte injunction will be discharged if it was obtained without full disclosure has a two-fold purpose. It will deprive the wrongdoer of an advantage improperly obtained.  But it also serves as a deterrent to ensure that persons who make ex parte applications realise that they have this duty of disclosure and of the consequences (which may include a liability in costs) if they fail in that duty. Nevertheless, this judge-made rule cannot be allowed itself to become an instrument of injustice. It is for this reason that there must be a discretion in the court to continue the injunction, or to grant a fresh injunction in its place, notwithstanding that there may have been non-disclosure when the original ex parte injunction was obtained: see in general Bank Mellat v. Nikpour[1985]  F.S.R.  87, 90 and Lloyds Bowmaker Ltd. v. Britannia Arrow Holdings Plc., ante, p. 1337, a recent decision of this court in which the authorities are fully reviewed. I make two comments on the exercise of this discretion. (1) Whilst, having regard to the purpose of the rule, the discretion is one to be exercised sparingly, I would not wish to define or limit the circumstances in which it may be exercised. (2) I agree with the views of Dillon L.J. in the Lloyds Bowmaker case, at p. 1349C–D, that, if there is jurisdiction to grant a fresh injunction, then there must also be a discretion to refuse, in an appropriate case, to discharge the original injunction.”

70.	Slade LJ emphasised the need to have regard to the practicalities:  

“Nevertheless, the nature of the principle, as I see it, is essentially penal and in its application the practical realities of any case before the court cannot be overlooked. By their very nature, ex parte applications usually necessitate the giving and taking of instructions and the preparation of the requisite drafts in some haste. Particularly, in heavy commercial cases, the borderline between material facts and non-material facts may be a somewhat uncertain one. While in no way discounting the heavy duty of candour and care which falls on persons making ex parte applications, I do not think the application of the principle should be carried to extreme lengths. In one or two other recent cases coming before this court, I have suspected signs of a growing tendency on the part of some litigants against whom ex parte injunctions have been granted, or of their legal advisers, to rush to the Rex v. Kensington Income Tax Commissioners   [1917]  1   K.B.  486 principle as a tabula in naufragio, alleging material non-disclosure on sometimes rather slender grounds, as representing substantially the only hope of obtaining the discharge of injunctions in cases where there is little hope of doing so on the substantial merits of the case or on the balance of convenience. (Page 1359C-E)”

71.	Mr Tregear, in his submissions, also referred me to Millhouse Capital v Sibir Energy [2010] BCC 475. At paragraph 68, Christopher Clarke J (as he then was) quoted Bingham LJ in Siporex Trade SA v Comdel Commodities Ltd [1986] 2 Lloyd’s Rep 428:

"an applicant for ex parte relief must: “identify the crucial points for and against the application, and not rely on general statements, and the mere exhibiting of numerous documents … He must disclose all facts which reasonably could or would be taken into account by the judge in deciding whether to grant the application. It is no excuse for an applicant to say that he was not aware of the importance of matters he has omitted to state. If the duty of full and fair disclosure is not observed the court may discharge the injunction even if after full inquiry the view is taken that the order made was just and convenient and would probably have been made even if there had been full disclosure."

72.	Mr Tregear also referred me to Memory Corp v. Sidhu [2000] 1 WLR 1443, per Mummery LJ [at 1460]: 
“It cannot be emphasised too strongly that at an urgent without notice hearing for a freezing order…there is a high duty to make full, fair and accurate disclosure of material information to the court and to draw the court’s attention to significant factual, legal and procedural aspects of the case.”

73.	In Congentra AG v Sixteen Thirteen Marine SA [2008] EWHC 1615 (Comm), Flaux J at paragraph 63 stated: 
"In exercising that discretion, the overriding question for the Court is what is in the interests of justice. This is very clear from all three judgments in the Court of Appeal in Brink's Mat. Ralph Gibson LJ was prepared to continue the order on the basis that he had no doubt that even if the additional information had been disclosed, the judge at the ex parte hearing would have made the same order on the same terms."

74.	Teare J held in the recent decision of U&M Mining Zambia v Konkola Copper Mines [2014] EWHC 3250 (Comm) at paragraph 90:

"Such is the importance of the duty to give full and frank disclosure of all matters material to the court's decision that a failure to comply with that duty can lead to a freezing order not being granted even if the circumstances are otherwise such that it is just and convenient to grant a freezing order. I have therefore considered whether the failures in the present case require the court to refuse to continue the WFO."

75.	He considered, at paragraph 94, that the breaches of the duty were "serious and numerous and therefore suggest that the appropriate course is to refuse to continue the WFO in order to reflect the importance of the duty to give full and frank disclosure. The fact that the WFO would otherwise be continued is not by itself a reason why the court should refuse to discontinue the WFO. But it is a factor which requires the court to consider carefully whether discontinuance of the WFO is in the interests of justice. "

76.	Mr Smith also emphasised that Teare J, at paragraphs 95 to 96, ibid, held that: 

"The court's order must mark the importance of complying with the duty of full and frank disclosure and serve as a deterrent to ensure that persons who make ex parte applications realise that they must discharge that duty. That purpose can be satisfactorily achieved, in an appropriate case, by an appropriate order as to costs.

Having considered these matters I have concluded that, notwithstanding the seriousness and number of the respects in which U&M failed in its duty of full and frank disclosure, it is in the interests of justice to continue the WFO but on terms that U&M bears its own costs of the ex parte and inter partes application and pays one-third of KCM's costs of resisting continuance of the WFO on the indemnity basis. Such an order, whilst giving legitimate protective relief to U&M, will also reflect U&M's failure to comply with its duty of full and frank disclosure."

77.	The principle is clear that, 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.  

The Shipyard Interests - what was disclosed?
78.	In considering what was not disclosed or what was represented, the starting point (at least in this case) is to consider what was said on the topic.  

79.	What was said was described by Mr Tregear as not a lot.  Whether or not that is a correct characterisation, the evidence on the point can be adequately summarised and set out as follows:

(i)  Paragraph 62 of Mr Roberts’ affidavit contains a short description of the assets.

(ii) Paragraph 148  in support of the application for the freezing order refers to the bank’s failure to make a payment to the CBR, the restructuring of the bank/CBR debt and the grant of first ranking security over the Shipyard Interests shares in support of the lending, which required a release of security held by the bank in respect of debts owed to it and the grant of second-ranking security in respect of those debts.  It is said that “The effect of this was further to diminish the Bank’s asset position.”

(iii)  Paragraph 150 refers to Mr Pugachev trying to negotiate a sale of the Shipyard Interests to USC (the state-owned company), but that sale did not go ahead.

(iv)  Paragraph 168 refers to steps being taken to enforce the pledges.  The following paragraphs refer to the bank’s participation in the realisation proceedings in court and the fact that Mr Pugachev is likely to contend that the Shipyard Interests were worth substantially more than was paid by USC and that that amounted to an expropriation of his assets by the Russian authorities.  He says he will deal with those allegations below.  

(v)  In his full and frank disclosure section of his affidavit Mr Roberts has a section entitled “Proceedings politically motivated”.  Under that heading he acknowledges:

“587.  Mr Pugachev may contend that the proceedings brought by the DIA are aimed not at recovering money for the benefit of the Bank’s creditors, but instead to deprive Mr Pugachev of his assets because he has fallen out of political favour in Russia.”  

He goes on to quote Mr Pugachev as drawing a parallel with the case of Mikhail Khodorkovsky who is said to have suffered a similar fate, and in saying that in recent years state agencies have become “the main tool for solving commercial disputes in Russia” and that every one of his domestic assets has been facing “raiding attempts or expropriation”.   Mr Roberts then recounts an interview given by Ms Tolstoy, Mr Pugachev’s partner, in which she alleged, inter alia, that the shipyards were taken by the state for far less than they were worth.   In paragraph 592 he comments that the DIA is “necessarily” not in a position to address the conduct of the CBR, or the Russian authorities more generally, including as regards the Shipyard Interests, but he then goes on to point out that on any footing the CBR’s concerns about the state of the bank were justified and the shipyards were sold pursuant to a court approved processes.  He expresses the view that the CBR had no motivation to sell for less than full value, and neither did the bank.

80.	There was limited reference to the shipyards at the oral hearing before Henderson J.  Mr Smith merely said that Mr Pugachev would say that “this was President Putin expropriating their assets.  That is not how the DIA and Mr Roberts see it.”  He went on to submit that it was irrelevant. 

The real nature of the shipyards non-disclosure case and the issues arising
81.	It is important to focus clearly on what the issues in this application were.  A great deal of evidence was deployed which was said to support, or undermine, the suggestion of Mr Pugachev that there was a state-orchestrated raid on the shipyard shares.  Submissions sought to justify, or undermine, valuations.  Much evidence was devoted to the proper, or improper, conduct of the Russian proceedings leading up to the auction.  
82.	Mr Michaelson’s witness statement, at paragraph 229 acknowledges that Mr Roberts had said that Mr Pugachev might say that his Shipyard Interests had been expropriated, but goes on to complain that the DIA withheld “highly material evidence” that was relevant to that question.  He then goes on to complain about a failure to mention the 2010 valuations, irregularities in the court processes and a failure to point out that the CBR might have  been subjected to political influence.  However, it is important to bear in mind what the various issues go to on this application.   The point is a non-disclosure point.  Mr Pugachev’s case is that while the DIA disclosed that Mr Pugachev might say that the shipyard assets were wrongly expropriated (which it did), and that it went on to say briefly that that claim would be misguided, it ought to have gone further and disclosed the matters complained of because they were badges of, or important matters giving real credence to, the allegation of expropriation.  That is the first non-disclosure point that needs to be addressed.  

83.	In addition, Mr Tregear advanced the point that the possible undervalue point ought to have been disclosed because, if true, it undermined the claim made in the supported Russian proceedings.  It was his case that if the shipyards were worth the amounts identified in the BDO (and other) valuations then there would have been enough money coming from a properly conducted sale to satisfy the deficit on which he is now sued.

84.	This point and the valuation point are said to be disclosable points because they went to the question of discretion, or perhaps expediency within the meaning of section 25, and would therefore be capable of affecting the question of whether an injunction should be granted under section 25.  It would be material for an English court to know that there was a real case for claiming that Mr Pugachev was the victim of a politically inspired raid, because it would be open to the English court to find that it should not lend its support to such an activity.  Furthermore, it would be relevant to discretion or expediency to know that the deficit for which Mr Pugachev was now sued in the supported Russian proceedings was one which was engineered, or the effect of engineering as a result of an expropriation, and would not have occurred, or would have been less, if the sale had been at what Mr Pugachev says was the proper value.

85.	The claimants dispute all that.  They maintain that there was adequate disclosure.  It was not necessary to disclose the BDO (or other historic) valuations because they were historic and very arguably flawed.  At the heart of their case is that the sale of the shares was achieved as a result of court proceedings which produced valuations and then an auction, so the proper price was achieved.  The allegations of political interference and a raid were not accepted, but in any event the Russian sale proceedings provided a firebreak between any such interference and a sale, removing any taint from the sale.   In addition, even if there were an undervalue it would not provide a defence to the supported Russian proceedings.  Those are standalone proceedings based on a deficit, and that deficit existed whether or not there was a sale at an undervalue.  No-one had suggested that it would be a defence in Russia.

86.	Those being the issues, I now turn to set out some more of the factual allegations to put some flesh on the bones of the outline appearing above.  

The context of the BDO valuation and the allegation of political motivation
87.	Mr Tregear was keen to put the BDO valuation point in its factual context, which he said shows the political motivation of the attack on the asset.  In doing so he was not seeking to say that all the factual parts of his account would necessarily have been known to the DIA or the bank, or that they all ought to have been disclosed, though he did complain about the undisclosed “context” (to use his word).

88.	On 23rd November 2009 Mr Gnusarev, the chairman of the board of OPK, wrote to Mr Putin extolling the virtues of the shipyards and its products, and suggesting an increased state involvement in them (USC already had a significant but minority shareholding).  The letter looks like an unsolicited offer of participation but Mr Pugachev, through Mr Michaelson, says that it was preceded by a conversation between Mr Putin and Mr Pugachev in which the former said that Mr Sechin, chairman of USC (and deputy Prime Minister) was interested in acquiring the shipyards and to avoid any “unpleasantness” he was prepared to purchase.  The “offer” of the Shipyard Interests took place against that strong hint.  Mr Putin ascertained from Mr Kudrin (Minister of Finance) that up to $5bn could be made available for purchase.  Mr Pugachev felt constrained to accept the proposal even though he claims to have had expressions of interest from other purchasers.   That led to the letter to which I have referred.  Mr Putin endorsed the letter with an instruction to Mr Sechin to “review” it.

89.	Mr Sechin required a review of the “effectiveness” of the shipyards and received it on 3rd February 2010, concluding that the signatory’s (Mr Manturov) ministry (the Ministry of Industry and Trade) thought it appropriate to consider increasing the state’s participation in the shipyards.  Following on from that Mr Gnusarev wrote to Mr Putin on 24th March 2010 stating that after discussions it was thought that the most appropriate vehicle for a state acquisition was a bank described in these proceedings by its acronym VEB.  According to Mr Pugachev, the CBR would provide the underlying funding for VEB.

90.	Discussions then took place which resulted in the Restructuring Agreement.  Mr Pugachev and Mr Tregear pointed up certain clauses in it.  Clause 3 provided that the Bank would:

"direct money from the sale of shares of OAO Iceberg Central Design Office, OAO Northern Shipyard, and OAO Baltic Shipyard to pay the Bank's obligations to the Bank of Russia on the restructured credit..."

Clause 4 provided:

"The Bank of Russia shall accept the collateral in the form of the shares of these organisations free and clear at a collateral value corresponding to the par value of the shares with the ability to change the collateral value of the collateral on the basis of a valuation that must be performed by a valuator agreed to by the Bank of Russia at the expense of the collateral issuer or the Bank within 45 days after the collateral agreement is concluded."

91.	The provision for valuation is significant because it provided the background for the BDO valuation.  Mr Pugachev claims not to have known about the Restructuring Agreement but his case is that it was in fact the vehicle for the state’s acquisition of the Shipyard Interests, via the pledge provision.  It was, Mr Tregear said, anticipated that there would be a realisation through the pledge.  Whether that is a late supposition, or whether there was an accidental omission to refer to this theory in Mr Michaelson’s witness statement, it does not appear there.  

92.	Clause 4 required a valuation by agreed valuers.  On 4th August 2010 the CBR requested the bank’s consent to the appointment of Grant Thornton as valuers.  The bank declined, pointing out that Grant Thornton were conflicted in that they had already agreed to value the shipyards for USC, the intended purchaser.  The bank countered by proposing 6 firms who might be appointed, one of which was BDO.  In late August Mr Ignatiev of the CBR told Mr Pugachev that he was content with any of the 6 firms proposed.

93.	There was never any formal appointment of BDO under the Restructuring Agreement, but nonetheless the Northern and Baltic shareholders appointed them to produce valuations of each of the Shipyard Interests, and those were the valuations which are a large part of the non-disclosure aspects of this application.  The bank apparently instructed another firm known as VFC to produce a valuation, which it did on 25th August.  That valuation valued what is described in the witness statement as “Mr Pugachev’s” stakes in Northern and Baltic at $1.3bn and $1.4bn respectively, and his stake in Iceberg (the consultancy) at $29m.  The shareholders in the shipyards supported this valuation and wrote to the CBR asking that this value be ascribed to their shareholding.   It was sent to the CBR on 27th August 2010.   No response was received.

94.	BDO produced their valuations on 30th September 2010.  They valued the shareholding in Baltic at $1.156bn and in Northern at $2.112bn.  The Iceberg shares were valued at $13.8m.  The total was therefore said to be some $3.282bn.  This was more than enough to satisfy the outstanding CBR debt of some $1bn.  

95.	At this stage Mr Pugachev was anticipating that the purchase of the shipyard shares would be effected through the arrangement with VEB, but he became concerned that that bank was seeking to carry out a raid so as to get the shares at an undervalue, using the mechanism of imposing such onerous terms that default and enforcement would be all but inevitable.  That is how it is described in Mr Michaelson’s witness statement.  Quite how that fitted in with the point made in argument, to the effect that the Restructuring Agreement was to be used as a vehicle for the CBR acquiring the shares, was not made clear.

96.	The bank’s licence was then withdrawn and its insolvency commenced.  During late 2010 and early 2011 Nomura Bank, through its representative Ms Reinhardt, sought to put together a deal under which the shipyard shares could be sold via an out of court transaction.  Mr Pugachev complains (through Mr Michaelson’s evidence) that during the course of negotiations Mr Miroshnikov, the DIA’s First Deputy General Director,  told Ms Reinhardt that he had experience in using techniques to put pressure on oligarchs living abroad to comply with the DIA’s demands and tried to persuade her to apply that pressure.  She declined.  

97.	As part of that activity Nomura came up with a valuation of the shipyards, apparently for the consideration and benefit of bondholders. Its valuation was cash-flow based, and it depended on projections derived from the 2007-2010 financial statements and historical cashflows for the previous 3 years.  It came up with a value range of $2.2bn to $4.2bn (not including the Iceberg consultancy), depending on the discount rate to be applied, while pointing out that this required a reasonable sale of the assets.  Mr Tregear relied on this valuation, too, as supporting his case of undervalue, and while non-disclosure of this valuation did not feature so highly in his submissions as non-disclosure of the BDO valuation, its non-disclosure nonetheless appeared to be part of his case.  It is to be observed that this valuation is a short assessment and there is no indication that its preparation was achieved by carrying out the thorough activities apparently carried out by BDO.  

98.	Nomura continued its activities through 2011.  Some evidence is given by Mr Michaelson of meetings that Ms Reinhardt had with representatives of USC, at which the latter was suggesting prices way below the valuations identified above, and at one of which one representative is said to have said that USC needed full participation in and control over the valuation process to make sure that it fell within an “acceptable range”, which should not exceed $646m.  Mr Michaelson’s account of the content of these meetings is not accepted by the claimants, and it is not alleged by Mr Pugachev that their content ought to have been disclosed on the without notice application.  It presumably appears in the evidence to bolster Mr Pugachev’s claim of political intervention in the sale process and to counter the impression given in the claimants’ evidence that Mr Pugachev’s activities had been designed to strip value out of the bank to his own benefit.  

99.	There were nonetheless negotiations towards a joint valuation to be carried out by Ernst & Young and Deloittes.  These were the two valuers who ultimately produced valuations for the Russian insolvency court sale proceedings.  Interestingly, Mr Michaelson says that Mr Shvetsov of the CBR expressed concern to Ms Reinhardt that Ernst & Young might be susceptible to influence by USC and he agreed that Nomura could exclude that firm if gross infringements were discovered.  By mid-September drafts of a “mandate” for a double valuation were approved by the CBR and by the shipyard shareholders (OPK), but on 26th September 2011 Mr Kudrin, Minister of Finance, resigned and this brought the process to an end.  He had been pushing for an extra-judicial sale, but the focus now switched to a sale in the court proceedings. 

100.	On 7th September 2011, and according to a press article in a newspaper called Kommersant,  Mr Putin made a public statement concerning the shipyards, complaining that OPK was “cunningly using legal tricks to delay a resolution of the situation”.  The article went on to report him as hoping “that [the shipyard shareholders] would retain enough common sense in their actions to comply with their obligations to the Central Bank, and to their companies, in order to ensure their continued operation and that of their employees.  We will be monitoring the situation and intervene if it proves to be necessary.”

101.	The article concluded:

“In the opinion of other market players, the upcoming court hearings on the enforcement of the collateral in favour of [the CBR] will show the level [of] influence of the Prime Minister's statement.  They recall that Putin has already shown that he can influence the outcome of an ownership dispute in Pikalevo, even when we are dealing [with] oligarchs close to power, like Sergei Pugachev".

102.	To those who allege the application of political influence to the whole transaction, such as Mr Pugachev, those words will look like the application of such influence.  To those who deny political influence those words will portray the legitimate concerns of a statesman.  I refer to them because they are part of the material relied on by Mr Pugachev in his assertion of a background of political interference in the valuation process.  I do not need to make a finding about the actual existence of political pressure, though I will have to say something about its plausibility.
103.	It was at this time that proceedings were started which ended up with a sale of the shares of Northern and Baltic, by auction under a court order, to USC (the state-owned body referred to above).  I develop the timetable of this below (so far as relevant) in the context of non-disclosure of matters relating to those proceedings.

104.	There was a lot more detail in the evidence about the events of this period.  It is unnecessary to go into all of it.  The only additional piece of evidence to which I will refer is evidence supplied by Mr Pugachev about a statement made by Mr Kozak, a deputy Prime Minister.  He spoke to Mr Pugachev during a meeting of the Baltic board on 5th October 2011 which (according to Mr Michaelson) resolved to dissolve the board even though the meeting was not quorate, (so as to enhance the control of USC) and said to him that “you realise, that if you don’t do what needs to be done, these people will go to jail”.  Mr Pugachev understood this to be a reference to the directors and employees of the shipyard shareholding group and their lawyers representing their interests in court.   Six days later Mr Kozak visited Baltic’s shipyard and reassured the workforce that the situation would be “normalised” and that there was a plan, approved by the Ministry of Industry and Trade and USC.  Mr Pugachev impliedly invites a view to be taken of that announcement that is sinister.  
Non-disclosure
105.	The next step in the narrative is the Russian court sale proceedings.  Particular non-disclosure points are taken in relation to those proceedings and it will be more useful to set out the relevant detail when considering that specific non-disclosure area.  Accordingly, before saying more about steps in those proceedings, I shall consider first some of the complaints summarised in (b) in paragraph 66 above, relating to the overall sale process.  That is a failure to disclose the BDO valuations (and possibly the VFC valuations).  I shall then turn to the complaints about a failure to disclose irregularities in the Russian court proceedings culminating in the  sale of the shipyard shares and then deal with a more generalised point, before picking up some less related non-disclosure matters.  

Non-disclosure about the share sale process – a general point about the possibility of political interference
106.	Mr Pugachev’s complaints about the sale process identified in (b) in paragraph 66 above have a common thread running through them.  That thread is the expropriation  thread – Mr Pugachev’s case is that the acquisition of the Shipyard Interests by USC was brought about by an orchestrated sequence of events designed to acquire the Shipyard Interests, and to do so at a very significant undervalue.  It was one of the “raids” of which he is reported by Mr Roberts as having complained.  On analysing this area it becomes apparent that what he is really saying is that the claimants did not make disclosures of significant evidential material relating to matters which could be seen as badges of such an activity.  The two principal badges are the undervalue said to be arguably demonstrated by the 2010 valuations, and irregularities in the court proceedings.  There is a more generalised allegation that the claimants failed to draw sufficient attention to the fact that as a state entity the CBR would or could have been (my emphasis) affected by political considerations but that point played a lesser part in the proceedings.  It must be borne in mind that Mr Roberts did disclose that Mr Pugachev might wish to argue political interference in the process, and amplified that to a degree before seeking to play it down, so the complaint must be that he did not do enough.  

107.	The degree of disclosure required is to a degree affected by the underlying plausibility of the allegation of politically inspired interference.  This is particularly so in relation to the court processes by which the claimants put so much store as a firebreak between any possible interference and the orders for sale.  It is therefore appropriate to consider some of the evidence on this point.  
108.	The raid is, of course, denied by the claimants, and they actively propound their own independence from political interference, and that of the Russian courts which arrived at the relevant decisions in the Russian sale proceedings.   
109.	Mr Pugachev’s case on disclosure does not, however, rest just on his particular evidence about threats of intervention and the like.  He makes a case about what he says is the known position in relation to the way some business is done in Russia.  Mr Michaelson exhibits a number of publications which refer to the process of reiderstvo, or raiding, pursuant to which a rival will use illegitimate means, and/or proceedings which are capable of being legitimate but which are used corruptly, to get control and ownership of another’s business.  One is a work by Ms Ledeneva (“Can Russia Modernise”, Cambridge University Press, 2013).  This process is said sometimes to involve influencing (improperly) public officials such as the police and even the judiciary.  Where raiders bribe officials Ms Ledeneva proposes the term “sistema”.  Much of the discussion in this and the other works cited before me involves the oppression of one private owner by another.  It tends not to focus on state-driven raids.  However, there is no doubt that the writers consider that the state can and will indulge in similar activities if it suits it.   Thus Richard Sakwa, writing the Russian Analytical Digest No 105, 5th December 2011,  says that the Yukos affair, in which an oil company was forcibly broken up and its owner (Mikhail Khodorkovsky) was arrested for alleged unpaid taxes,  "demonstrated the ability of the regime … to influence judicial outcomes [as] desired."  Again, in an article published by Chatham House, Philip Hanson of the University of Birmingham writes of the complicity of judicial authorities in reiderstvo.  A US Department of Trade publication “Doing Business in Russia 2013” refers to numerous reports of corruption in the judicial system and says:  “Courts are sometimes subject to political pressure”.  There is also the decision of Christopher Clarke J in Cherney v Deripaska [2008] EWHC 1530 in which it was acknowledged by the judge that there was a risk that a fair trial would not be possible in Russia in that case because of the interest of the state and state pressure on the courts (see in particular paragraphs 218 and 248).

110.	It is not necessary to set out further details appearing in those works.  It is sufficient for present purposes to note, and to find (as I do), that there is an apparently respectable body of opinion which considers that the state and individuals are capable of manipulating the system in a corrupt fashion.  That gives a plausibility to a large part of Mr Pugachev’s case that it might otherwise lack.  However, more than that, it has a significance for the scope of disclosure.  It means that Mr Pugachev’s case that there has been state interference in the process, and even in the judicial process, cannot be dismissed as the sort of thing he would say and which is totally unsupported by anything other than his own carefully chosen evidence.  If influence is far-reaching, then it might extend into the DIA and the CBR (which are essentially state bodies for these purposes).  It is also plausible that it extends into the judiciary and judicial processes.  The duty of disclosure must be fulfilled with that in mind, because it must be assumed that, like it or not, the claimants must be aware of the points of view encapsulated in the works to which I have referred.  The existence of a respectable view which would support what might otherwise be wild allegations means that a more careful eye must be kept on material which might be said to support that view.
111.	It cannot be said that there was no disclosure in relation to this allegation.  As I have pointed out, Mr Roberts did point out that Mr Pugachev might say that he was the victim of raids, and actually quoted him (and Ms Tolstoy) on the point.  This court will not give much, if any, credence to wild and unsubstantiated allegations of political interference of the nature alleged, and in particular to allegations that a foreign court is subject to corruption or political interference which affects its independence.  It is established that an English court will consider making findings even about corruption in a foreign court, but proper and cogent evidence of it must be placed before the court in order to justify such a finding.  In Altimo Holdings and Investment Ltd v Kyrgyz Mobil Tel Ltd [2012] 1 WLR 1804 Lord Collins of Mapesbury JSC said:

"101.  The true position is that there is no rule that the English court ... will not examine the question where the foreign court or the foreign court system is corrupt or lacking in independence.  The rule is that considerations of international comity will militate against any such finding in the absence of cogent evidence...

102.   ...  Evidence of corruption in the foreign court system is admissible… But it must go beyond generalised, anecdotal material…".

112.	Of course, the claimants reject any case based on political interference.  However, they, as a state organ and the company for which it is the liquidator, cannot be ignorant of those sort of allegations.  They are not hidden away.   They may not accept that transactions and proceedings could be tainted (I am sure they do not), and they may be right in any given case, but they have to accept that there is a reputation which could infect those transactions and proceedings.  They must approach their disclosure obligation with that in mind.  They embarked on the exercise (rightly) by making the disclosures that Mr Roberts did in his passage about political interference.  The question is whether they went far enough.
113.	As I have foreshadowed above, in considering the non-disclosure point under this head, I shall first consider the two more specific areas where non-disclosure is complained of, namely the valuations and the court processes. Then I shall turn to the more general allegation that is made.

Which valuations did the DIA have?
114.	I deal here with “valuations” in the plural because Mr Tregear in submissions seemed to rely on non-disclosure of all three (BDO, VFC and Nomura) as being a material omission.  However, since there is a dispute about which ones were known to the claimants I first have to deal shortly with that  question.  A party cannot be expected to disclose a document or knowledge that he doesn’t have and cannot reasonably be expected to obtain.

115.	There is no doubt that the claimants had, and had knowledge of, the BDO  valuation.  There is more doubt about the other two.  Mr Michaelson’s evidence was that the VFC valuation was sent by the bank to the CBR.  VFC was another of the proposed valuers on the bank’s list of 6.  In his 7th witness statement (paragraph 166) Mr Roberts seemed to say that the DIA did not have a copy of that report.  I say “seemed to say” because Mr Tregear suggested that he was referring to something else, but I do not consider that he was.  (If he was referring to something else then his paragraph becomes seriously misleading.)  However, in his oral submissions Mr Smith was very careful to say that the DIA made “no admissions” as to whether it had that report.  That is different from a denial, and since it was obviously carefully stated, and equally carefully repeated when queried by me, I take it that that is a change of position.  It opens up the possibility that it did have it.  

116.	However, this part of the debate is perhaps academic.  The DIA is the liquidator of the bank, and would be expected to have whatever the bank would have.  Mr Smith accepted that for the purposes of this application the DIA should be treated as having anything that the bank has got.  Since it was the bank that sent the VFC valuation to the CBR then it is to be inferred that the bank had and retained a copy.  That means that for present purposes the DIA has it.  I note that in his initial affidavit Mr Roberts says that the Russian criminal authorities (the Investigative Committee) has seized bank documents, and it is not always easy or quick to get copies from them, but Mr Smith did not seek to rely on that point in this connection.

117.	No DIA witness says anything about the DIA’s having or not having the Nomura valuation.  This may be because, as a valuation, it did not feature heavily in the first round of documentation supporting the discharge case.  It was created in 2011, not 2010, and is therefore not included in Mr Michaelson’s summary of the non-disclosure complained of, which refers to 2010 valuations.  Furthermore, it was a short assessment addressed to the bondholders.  It may well be that it did not get to the bank or the DIA.  As a valuation, its non-disclosure probably adds little to the other two valuations were its non-disclosure a point in the case.  If they ought to have been disclosed then this further one, as a valuation, is likely to add little to the effect.  If non-disclosure of the other two is justified (or not culpable), then non-disclosure of the Nomura valuation adds nothing. 

118.	There is, however, one way in which its existence in the background might reinforce the effect of the other two.  Ms Reinhardt of Nomura was trying to broker an out-of-court sale of the shipyards.  The valuation will have represented the sort of sums she will have suggested might be achieved.  Mr Michaelson’s evidence is that she had at least two meetings with Mr Miroshnikov in 2011.  The evidence deals only with certain aspects of the content of those meetings, and matters relied on which reflect badly on Mr Miroshnikov are disputed by him.  However, bearing in mind what Ms Reinhardt was seeking to achieve, it is inconceivable that there was no discussion of a sale, and a sale at the sort of valuations contained in Nomura’s assessment.  That is particularly so of a meeting on 5th July 2011 at which a Mr Dunayev, a “consultant” of the DIA introduced at that meeting, is recorded as saying that “further valuations were not necessary” because “everything has been fixed”.  That evidence is not dealt with by Mr Miroshnikov in his witness statement (though he does make remarks about Mr Dunayev, so must have noticed the reference to him).  On the evidence, this reinforces what in my view must have been the case, which is that the DIA was aware of the sort of values put on the Shipyard Interests by Nomura, and that those sort of values must have been looked to by all parties involved, including the owners of the Shipyard Interests.  

Were the valuations capable of being material and relevant, and ought they to  have been disclosed, on the application?
119.	Mr Tregear’s case on materiality and significance contains the following elements:

(i)  He accepted that even if there was a sale at an undervalue it would not of itself provide a defence to the supported Russian proceedings.

(ii)  However, the point was capable of going to discretion in relation to the grant of an injunction because of the following factors.

(iii)  If the auction sale gave rise to a shortfall in values of the order of those suggested by the BDO valuations, then a sale at a proper price would have discharged the CBR debt, and then discharged the debts for which the shares stood as a second pledge to the bank.  Money would have been left over to discharge the other debts of the same debtors to the bank.  That would have removed any shortfall and would have put Mr Pugachev in the position of being a major creditor.  The state of the bank would have looked very different and these proceedings would not have been brought.

(iv)  The undervalue is a badge of the state-inspired raid and could be seen as such.  If there was such a raid then the court should not lend its assistance to the present claim.  It was not right to dismiss the allegation in a generalised way which suggested there was no support for it in the circumstances.  

(v)  The valuations ought therefore to have been disclosed.

120.	Mr Smith disputed the relevance of, the alleged centrality of, and therefore the need to disclose, the valuations.  He relied on the following points in this respect:

(i)  The valuations, and any shortfall, were irrelevant to the main claim in the supported Russian proceedings because any undervalue arising out of the sale did not provide a defence to the claim.  It therefore has nothing to do with this injunction application.

(ii)  The BDO reports can be seen to be hopelessly and unrealistically ambitious.  The CBR (on the evidence) gave them little credence.

(iii)  In any event, the shares were sold pursuant to properly brought and properly conducted Russian proceedings.  Accordingly, if there had been any previous state-inspired interference, the proceedings acted as a metaphorical fire-break.  The lawfulness of the procedures is what is important, not whether there is an arguable defence to the supported Russian proceedings.  

(iv)  There is a fundamental flaw in the case that a sale at what Mr Pugachev says is full value would have removed the shortfall for which the claimants now sue.  A sale at the BDO valuations would have generated a surplus for the shareholders and the bank would still have been hopelessly insolvent.

(v)  The underlying political raid allegations are denied, so there was nothing relevant for the undervalue to be a badge of. 

(vi)  The points arising out of the valuations, if there is one, would not go to expediency for the purposes of section 25, and therefore is irrelevant.

121.	I shall deal first with the question of whether Mr Tregear’s factors are capable of operating in a section 25 application, bearing in mind that none of them afford a technical defence to the supported Russian proceedings and can operate only at the level of discretion.  
122.	Section 25, as now extended by statutory instrument, provides that the High Court may grant interim relief where proceedings have been commenced in another jurisdiction.  Subsection (2) reads:

“(2)  On an application for any interim relief under subsection (1) the court may refuse to grant that relief if, in the opinion of the court, the fact that the court has no jurisdiction apart from this section in relation to the subject matter of the proceedings in question makes it inexpedient for the court to grant it ...

(7)  In this section "interim relief", in relation to the High Court in England and Wales and Northern Ireland, means interim relief of any kind which that court has power to grant in proceedings relating to matters within its jurisdiction, other than [irrelevant matters]."

123.	Mr Tregear relied on his points as going to the discretion of the court in granting an injunction, because it is an equitable remedy.  He said that as a matter of discretion the court could take the relevant matters into account.  He pointed to section 37 of the Senior Courts Act 1981 as containing the essential jurisdiction, and that still governs the situation because it was the relief granted under that section which was extended by section 25 of the 1982 Act.   The section 25 inexpediency test did not come into the question for these purposes.  

124.	Mr Smith focused on the inexpediency test as elaborated in Credit Suisse Fides Trust SA v Cuoghi [1998] QB 818.  He submitted that there was a presumption that relief would be granted in support of foreign proceedings and relied on various statements by Millett LJ and Lord Bingham as to inexpediency, which he said applied so as to rule out any possibility of the sort of matters relied on by Mr Tregear under this head having a relevance to the matter.

125.	I consider that Mr Tregear is correct on the underlying principle of this point.   Mr Smith seemed to be submitting that expediency, in Cuoghi terms, was the only material point, and did not leave room for what might otherwise be thought of as normal discretionary matters going to the grant of equitable relief.  I do not consider that to be correct.  Mr Tregear is entitled to rely on matters that go to discretion, which is how he runs some of his points, and he is not prevented by section 25 from doing so.  Section 25 does not displace the normal sort of considerations that apply to interim relief.  They extend the possibility of getting interim relief to proceedings in other jurisdictions.  Among the relief that can be granted is relief provided by section 37.  If there are matters which the English court, applying its normal tests for interim relief, considers to be so objectionable as to make it inappropriate to grant interim relief (for example, absence of clean hands), then those matters would be capable of barring interim relief as a matter of principle in English law without reference to any separate inexpediency test.  The expediency test relates to something else, as is apparent from Cuoghi.  It relates to what might be called the practicalities of granting relief in a given form (in that case a world-wide freezing injunction rather than one confined to English assets) and the practicalities of whether relief in this jurisdiction would hamper the main claim.  It does not deal with the requirements for the grant of an injunction, or legal bars to it.  Those are dealt with by the general law (and indeed I am not sure Mr Tregear actually needs section 37 for these purposes).   One has to find relief available under the general law first, and establish that there are no bars to it,  before turning to section 25

126.	Thus far, therefore, Mr Tregear, would be entitled to raise matters which an English court, applying familiar English principles of equity and discretion, would treat as making the grant of interim relief (and in particular a freezing order) inappropriate.

127.	Having determined that the court can take into account matters going to the fairness of granting an injunction and is not confined to questions of expediency, I now turn to whether, on the facts of this case, the valuations ought to have been disclosed.  

128.	Mr Smith’s case on this turns heavily on three points.  First, the undervalue is not a defence to the claim brought in the supported Russian proceedings.  Second, any relevance that the valuations might have had to the grant of an injunction in these proceedings was spent once there had been Russian sale proceedings which procured a lawful sale based on valuations and an auction.  Third, he says that the BDO valuations (which were the only ones in evidence before me) can be seen to be hopeless and unrealistically ambitious.

129.	Mr Tregear’s case appears in his points (iii) and (iv) above.   He also relies on what was said in some parallel proceedings in Russia.  In some Russian proceedings a creditor of the bank brought proceedings alleging that the DIA ought to have challenged the subordination of the bank to CBR debt pursuant to the Restructuring Agreement.  The DIA’s answer, given on 18th July 2014 (one week after the without notice application) was that:

“The [DIA] had every reason to assume that the Bank's claims under the credit agreements would be met in full through the value of the shares of [Baltic and Northern] which were in the subsequent pledge of the Bank."

130.	In saying that, in its response document, the DIA made express reference to the BDO valuation as a justification for its views.  Mr Tregear submitted that the juxtaposition of this reliance on the BDO valuation in Russian and what happened before Henderson J was striking.

131.	I think that Mr Tregear is correct in saying that the possible existence of an undervalue is relevant to the grant of an injunction.  Although it does not go to the validity of the claim which the injunction is intended to support, if there were an undervalue then it could be relevant at least to the court's discretion.  I do not have to decide on this application whether its actual existence would actually entitle Mr Pugachev to succeed in resisting an injunction, but it certainly cannot be dismissed as irrelevant.  If the undervalue were brought about by some contrivance, and Mr Pugachev had been the victim of that, then that might go to the discretion of the court.  Furthermore, the case of Mr Pugachev as to its context (unfair expropriation by state contrivance) would also be a potentially relevant factor in the exercise of the discretion of the court.  As a matter of discretion, the court might not wish to assist such a thing.  The undervalue could be both the result of the unfairness, and a badge of (or part of the evidence of) the demerits of the whole process.  In that context the availability of a prior valuation or valuations, particularly ones which at one time struck the DIA as being reasonably accurate (contrary to its present position) would itself be relevant.  Mr Roberts himself quoted Ms Tolstoy as asserting that there was a state expropriation at an undervalue, so it can be inferred that Mr Roberts appreciated the point as one that Mr Pugachev would consider to be potentially relevant even if he himself did not agree.  I find that on this footing the possibility of an undervalue, and therefore the presence of valuations demonstrating it, would have been both relevant and material.  

132.	I am somewhat less convinced that an undervalue would be relevant to an injunction on the footing that it would somehow go to the amount of the deficit for which Mr Pugachev is sued in Russia.  Mr Tregear's point is that if the shipyards had been sold for the amount of the BDO valuation then the money would have gone into the bank and there would have been no, or no large, deficit.  That does not really work on the figures.  If the Shipyard Interests had been sold at that high figure then the CBR would have recouped its debt of some 21bn rubles and the bank would have recouped the debts secured by the secondary pledges over the Shipyard shares.  There would have been a balance, and there would still have been a large overall unsatisfied debt to others.   Mr Tregear's thesis then depends on the balance of the proceeds of sale being available to discharge certain promissory notes given by the Shipyard Interest shareholders to the bank, providing more funds for the bank.  His analysis overlooks the fact that those promissory notes were themselves provided by way of security, and the debt which they secured was the very debt which, on this hypothesis, would already have been repaid out of the secondary pledges.  There would therefore have been nothing to pay on the promissory notes in respect of that amount.  That is what the current state of the evidence shows (it is clear enough on this point, contrary to the submissions of Mr Tregear which said it was not).
133.	Mr Tregear sought to overcome this problem by saying that the bank would de facto have retained the money, and also by relying on some informal indications by Mr Pugachev, before the insolvency proceedings in respect of the bank, to the effect that a sale would achieve enough to satisfy the bank's liabilities.  This is not a very convincing analysis in law or on the facts.  Technically speaking, if Mr Pugachev had achieved that the balance be paid to satisfy liabilities, there would still be the same deficit – it is just that the creditor would have been different.  Mr Tregear would seek to overcome that point by saying that Mr Pugachev would then have  been the major creditor, which would have been a very material consideration in deciding whether to sue for the deficiency.  At this point the speculative nature of this case comes to the fore.  It is highly speculative as to whether Mr Pugachev would have repaid, or procured the repayment of, non-secured debts, and the consequences are then even more speculative.  I do not think that this speculative line of reasoning is something which the claimants can reasonably have been expected to foresee, let alone disclose, on the application before Henderson J.

134.	Turning to Mr Smith’s points against relevance (or disclosability - the points run together), his first is that the BDO valuations are hopelessly optimistic.  He spent some time going through them, seeking to demonstrate that they are based on very questionable assumptions and pointing out that the conclusions as to profitability are at odds with such things as the presence of government subsidy.  The valuations are hundreds of pages long, and obviously complex documents.  He may be right about whether they would stand up in litigation devoted to the point, but it cannot be said that they are so obviously erroneous as to be irrelevant at this stage of the case.  Mr Tregear was able to point to some material that would have supported them and this sort of dispute is impossible to resolve on an application such as this.  It is sufficient to say that Mr Smith is far from obviously right and the valuations cannot be dismissed as being manifestly hopeless.  That there may be something to be said for them is reinforced by the VFC valuation (which was of the same order) and the fact that the DIA’s reaction, at one stage, was that they looked alright to them (see above).  

135.	Mr Smith’s clients’ denial of a political raid does not, of itself, render the valuation irrelevant.  Nor does his point about the court proceedings being a firebreak of itself make an undervalue point, and therefore the BDO (and VFC) valuations, irrelevant.  Mr Pugachev’s case is that the court proceedings were part of the raid.  If that is right then the proceedings are part of the problem, not the answer to it.  The real allegation is sustainable (see above) so the valuations, as supporting material on an injunction application, have a potential relevance as a badge of the overall alleged raid.  They cannot be ruled out for these purposes and at this stage in the reasoning.

136.	The valuation non-disclosure is therefore not ruled out as being a simple irrelevance.  It may not, however, necessarily follow that it is culpable in a without notice context.  A point which can be seen to be relevant after extensive argument does not necessarily fall to be treated as one which ought to have been disclosed.  It may be that the point is one of many with the same sort of relevance, and that the others have been disclosed.  It may be that its relevance could in all fairness only be seen to have become apparent after forensic debate.  One has to consider the significance of the point and whether the non-disclosing parties ought to have appreciated its relevance.  

137.	In my view they should.  The BDO valuations  have a real and significant relevance to the undervalue and raid point.  As I have indicated, the raid point in general terms was disclosed by Mr Roberts, so it is obviously (and rightly) accepted as a relevant factor for the purposes of the disclosure obligation.  The valuation point is a significant supporting factor for these purposes.  The potential allegation of an undervalue is anticipated by Mr Roberts.  He did not need to argue that point fully, but he ought to have mentioned an obvious supporting factor.  That view is reinforced by the obvious significance put on the BDO valuation in the court sale order proceedings.   At a hearing on 10th January 2012 a shareholder produced the BDO Baltic valuation and invited the court to act on it.  It was therefore apparent that Mr Pugachev would treat them as being of significance.  In the circumstances the BDO valuation (and the VFC valuation) ought to have been disclosed.

The non-disclosure about the Shipyard Interests court proceedings - materiality and significance
138.	The above narrative shows two points of the court sale proceedings which are said by Mr Pugachev to be particularly important in relation to non-disclosure.  Those points are the trust management orders (which then led to USC, the potential purchaser, being given management of the thing that it was planning to purchase, though that was not part of the order) and the classification of the proceedings, or aspects of them, as secret.  It is said these are abnormal, if not irregular, steps and their existence gainsays what Mr Pugachev alleges is an implied representation by the claimants that the court process and their outcome were fair and not unusual.  It is said that the DIA must have been aware of these irregularities.  In this context Mr Michaelson also referred to the “flawed and secretive nature of the purported ‘auctions’” as being contrary to fairness.  In considering these points it has to be borne in mind that what is important is not whether these particular complaints about process are right, but whether they ought to have been disclosed, either under the duty of disclosure or because a failure to disclose them falsified something else said in the evidence in support of the without notice application.

139.	The affidavit of Mr Roberts said virtually nothing about the court proceedings.  In one short section it says:

“The Russian court ordered that the pledged shares be sold at an auction.  At the auction, the state-owned [USC] (the same state-owned entity with which Mr Pugachev had previously been negotiating for the sale of the Shipbuilding Assets and which the DIA understands was the only bidder) paid RUR 2.6bn ... to acquire the majority of the shares in Northern Shipyard and Baltic Wharf… The Bank participated in the enforcement proceedings as it still retained the benefit of second-ranking pledges over the shares in the Shipbuilding Assets…

In the meantime, I note simply that the auction starting price was determined by an independent expert appointed by the court."

140.	So there is no doubt that the evidence did not disclose the matters which Mr Pugachev says should have been disclosed.

141.	Before turning to the expert evidence on the point, it is necessary to give a little detail as to what happened in this limb of the Russian sale proceedings.

142.	On 28 September 2011 the CBR applied for a “trust management order” in respect of Northern's shares and the application was granted on 17th October on what was apparently a paper application.  The application documents are not available (or were not available to me) but the purpose was to remove the management of the shares, and the shipyards, from the shareholders.  The determination document sets out the CBR's claim that there was a decline in value of the pledged shares because of the company's inefficient management, losses being incurred and other matters.  The order took the form of an injunction requiring the shares to be transferred to CBR.  This decision was upheld on appeal on 30 November 2011 and in further appeals on 3rd January 2012 and 27th April 2012.  In each of the appeals there was representation for one of the shareholder companies.  The decisions plainly treated the relief as being provisional pending a sale.  The decisions do not record any argument to the effect that there was no power to make the order.

143.	The proceedings leading to the trust management order in respect of Baltic took a slightly different course but ended up in the same place. A trust management order was made on 29 September 2011, again "without summoning the parties".  The court entrusted the shares in Baltic "to the fiduciary management of the Central Bank of the Russian Federation until the shares are sold on the basis of a judicial act…". There was an appeal which was determined on 29th November 2011, the appeal being brought by one of the shareholder companies.  That shareholder seems to have argued that the form of order sought was not included among possible interim measures.  The appeal court found that the imposition of the trust management order was not "proportionate to the asserted claim".  I think that is a reference to the fact that it was not consistent with the relief sought on the main claim.  However, the court seemed to go on to conclude that the relevant laws did not allow for a "non-contractual establishment of trust management for reasons other than those listed above", which would seem to be a form of decision that such an order was wrong in law.  However, that situation did not last for long because on 1st December 2011 the next level of appellate court stayed the preceding ruling and on 27th February 2012 it reversed the previous appeal decision and reimposed the trust management order.  This decision was upheld by the Supreme Arbitrazh Court on 25th June 2012.

144.	As mentioned above, the CBR then entrusted management of the shipyards to USC, the likely purchaser, though that particular point is not germane to this point of the debate which concerns the disclosability of the orders themselves.

145.	I received expert evidence from both sides on the lawfulness or unusualness of the trust management regime.  

146.	Dr Gladyshev, who provided evidence for Mr Pugachev, said that the trust management orders were "extraordinary, contrary to several provisions of Russian law and without precedent in Russia".  He considered that the regime was contrary to certain provisions of the relevant procedural code and contrary to provisions of the Civil Code which identified a contractual relationship as perhaps justifying a trust management order but not in the sort of relationships that existed in the present case.  He cites some leading lawyers who expressed the view that the first appeal court ruling in the Baltic case was better and who went on to suggest that the fact that the applicant was the CBR was probably taken into account by the court in adopting "such peculiar interim measures,… favouring the pledgee".

147.	Mr Holiner for the claimants expressed a contrary view as to jurisdiction.  He himself did not know of any other case in which the court had made an interim order for the transfer of property into "trust management" in this sort of situation, and accepted that such an order was "unusual" (from all of which I infer that he too considered that the order was unprecedented), but he was of the view that it was within the power of the court as an interim measure, because the procedural code which set out the sort of measures which could be adopted was not an exclusive list.  He relied on other powers by analogy.

148.	There was also a dispute as to whether or not the CBR was a "state body".  If it were, then there would have been certain disabilities on its acting under a trust management order.  Dr Gladyshev thought it was; Mr Holiner sympathised with that view but noted that the CBR itself did not share it.  I note that he declines to express his own view, and contents himself with observing that, according to the orders made, the point was not taken in the proceedings themselves.   

149.	I do not need to deal with any further, more refined, areas of dispute between the experts.

150.	The experts were, of course, not cross-examined before me, so I am not properly placed to form a view as to which is correct on the basis of a testing of their views in the witness box.  However, what it seems can be said is that there was resistance to the imposition of a trust management order and the Russian courts (with one exception) seem to have considered that the courts had power to impose such an order, and to order the transfer of the shares to the CBR for that purpose.  In the light of that it is not easy for Dr Gladyshev, and therefore Mr Pugachev, to maintain a case that the orders were contrary to the provisions of the Russian Codes in such a way as to have made it improper to have granted them (if that is indeed their case).  The Russian courts, which are the courts  best placed to judge such matters, have ruled on them and the ultimate appellate courts (and one intermediate appellate court) have obviously found that there is jurisdiction to make the order.  All that I think that Dr Gladyshev can say is that this is the first time that it has happened.  Such a state of affairs is not uncommon in the law.  To take an example close to home in this case, there was a point of time at which a freezing order was granted for the first time.  Until then it was unprecedented, but it has now become relatively commonplace.  The same is true of search and seizure (Anton Piller) orders.  This removes much of the impact of the point about it which Mr Pugachev seeks to make on this application.  
151.	What this boils down to, therefore, is that an order which was made for the first time was combined with a grant in favour of something which might be thought to be a state body. These are both factors which might be said to make the sale order proceedings out of the ordinary.  Out of the ordinary factors could well be relied on as badges of a state raid or at least falsify an implied statement that their proceedings were non-extraordinary.  I find that there was such an implied representation.  In my view, on the evidence the trust management order was of sufficient significance to require disclosure as something which it could be foreseen that Mr Pugachev would be likely to rely on as unusual and as a badge of what he said was really going on, and that not to refer to it would be to present the proceedings as being ostensibly quite normal.  That, in my view, leads to a duty of disclosure in respect of it.  There was not the same obligation to disclose the questionable entitlement of the CBR as a state body, however.  That is not so striking in this context and did not require disclosure.

152.	The next point relates to what Mr Michaelson calls the “sealing” of the court files.  In his evidence in support of the discharge application Mr Michaelson refers to that sealing and to the designation of the Northern shares sale proceedings as “secret”.  This, he said, was a serious violation of Russian law and severely limited the owners of the Shipyard Interests in their participation in the proceedings.  

153.	What actually happened is made clearer from the court records, which Mr Smith took me through.  

154.	In the Baltic case the court made an order on 2nd December 2011, apparently of its own motion, classifying the case as “secret” and requiring that the parties’ representatives have a “certificate of clearance” if they wished to appear.  It seems this was the subject of an appeal by a shareholder on 21st December 2011, but the court record is not complete.  It was then the subject of a further appeal by a shareholder or shareholders, but they did not appear and this further appeal was refused on 24th February 2012.  

155.	In Northern a secrecy point arose at a hearing on 13th October 2011 at which the CBR asked for the start of an expert valuation process.  During the hearing Northern itself (not by then under trust management) referred to the fact that documents to be produced would contain secret information and is recorded as submitting:

“if the documents are going to be provided then we will need to motion to seal the court hearing and attract the Federal Security Service”

156.	This would seem to be a reference to documents to be produced for the purposes of the valuation exercise, but the significant point is that it was Northern that raised secrecy in the first place.  Mr Tregear points out that this recorded submission deals with the hearing being in camera, and not the sealing of the court file, but nonetheless the secrecy point was not first taken by any state organ, or even the court, in the Northern sale proceedings.  Following from that, the only court record dealing with secrecy was an order of the court on 8th February 2012, in which the court, apparently of its own motion, noted that:

“A secret expert opinion containing information and documents stamped "secret" was entered into the case files from Deloitte and Touche CIS.
In view of the above, on the basis of the RF Law "On State Secrets", guided by art.  11 of the RF Arbitrazh Procedure Code, the court RULES:

[The case] is classified as "secret".
[The case] is to be examined in a closed court session…
Parties in the case are to review the expert's opinion and present written explanations in the case on the basis of the expert's conclusions."

157.	There was no appeal from that ruling.

158.	There was a difference of expert opinion as to the effect of those rulings.  Dr Gladyshev criticises the imposition of the need for a clearance certificate, saying that that was a restriction on the normal activities of Russian lawyers.  He also said that the general principle was that court proceedings should be open, and a combination of that and the restrictions on Russian lawyers was contrary to provisions of Russian law, and reasons ought to have been given (which they were not).  Mr Holiner thinks that the most likely intention behind marking a case file “secret” would be to alert court officials to the fact that it contained confidential or secret information.  Cases like Baltic and Northern (especially Northern), involving military ships, would be capable of involving secret information.  There is nothing unusual about protecting that information by restricting access to it, and hearings in camera are equally provided for and understandable in those circumstances.  As to clearance certificates, they were not required of Russian (as opposed to foreign) lawyers.  

159.	The detail about clearance certificates can be ignored these purposes.  It is not specifically relied on as a non-disclosure and it is a subsidiary point at best.  It is not even clear on the evidence whether it had any practical effect.  The real point is about the relevance of the “sealing” point for the purposes of disclosure.  Mr Tregear says that the point, and its consequences, ought to have been drawn to the court’s attention as being sufficiently unusual features which were inconsistent with the (implicit) portrayal of the proceedings by Mr Roberts as being properly conducted proceedings which led to a fair result.  His main point is that the imposition of secrecy meant that the parties did not have proper access to the valuation reports obtained in the course of that process for the purpose of considering them and, so far as appropriate, challenging them in the proceedings, because the secrecy regime prevented them from being made available.  It seems to be common ground that the parties did not have copies of them, and at best were able to study them only under supervised circumstances.  Even the DIA says it has still not got copies of them.

160.	It is understandable that a secrecy regime would be imposed, at least to some degree, if there were matters of national security involved, and it is understandable that the sale of naval shipyards would involve state security.  The imposition of some degree of secrecy is therefore understandable.  In these circumstances it is not, of itself, something which would need flagging up pursuant to the disclosure obligation.  One of the difficulties in the present case is ascertaining what the practical consequences were.  The experts opine on theory, but what is of significance in the present case is more than theory.  The evidence is that one of the practical effects, if not the main effect,  was that copies of the two valuations obtained in those proceedings were not available for out-of-court study by the parties.  That may have been a disadvantage, and if it was an obvious disadvantage it ought probably to have been disclosed in the context of evidence which presented the proceedings as having no out of the ordinary features.  But no evidence is given of any particular disadvantage, and there is evidence in some of the court documents that access was given to the parties.  If the shareholders had perceived that they were disadvantaged from this procedure in a real way then I would have expected Mr Pugachev to have known about it, or to have found out about it, and that that real disadvantage would have been identified in evidence on the discharge application.  That would probably have been of real significance in terms of the disclosure obligation.  In the absence of such evidence the “sealing” point is of no real significance or weight in terms of non-disclosure.  All that can be said is it might be thought to be consistent with proceedings which were being politically controlled (if they were), but that is not significant for present purposes.  It does not stand out as being something which ought to have been disclosed in that context.

161.	The last criticism made of the disclosure about the court proceedings is what is described by Mr Michaelson as “the flawed and secretive nature of the purported “auctions””.  In his witness statement he described briefly that the court ordered auctions of the shares and set a starting price, having received valuation evidence.  Those starting prices were a fraction of the BDO valuations (0.6% in the case of Baltic and 22% in the case of Northern).  Paragraph 166 of his witness statement says that the auction of the Baltic shares was held “in secret” on 4th July 2012 and it was later announced that USC had won it with a bid of RR224m.  The auction of Northern took place on 7th August 2012 and “Again, the time and place of the auction were withheld from Mr Pugachev”.  The press reported that USC was the sole bidder, making the auction invalid.   He says that USC arranged for one of its subsidiaries to participate in a second auction, and USC purchased the shares for RR12.45bn.  

162.	It turns out that Mr Michaelson was overstating the position in some respects.  The auctions were not held in secret.  They were advertised in what I am told is the  Moscow equivalent of the London Gazette.  So the secrecy point as such goes.  What might be said is that the notice of the auction was not great - about 2 weeks for Baltic and 4 weeks for Northern.  Assuming that an auction is a proper way of selling such an interest in a significant business, that would not appear to be a period which is best designed to achieve a healthy interest from buyers in a fully open market.  Mr Tregear did not take the secrecy point in his submissions, but he did draw attention to the short time, the rather dense advertisement that appeared in the press and to what he said was a requirement for the purchaser to get the consent of the anti-monopoly authority (though the advertisement I was shown provided only for the submission of documents required by that authority, not its consent).  Mr Smith said that this was happening some months after the actual orders for sale, and there was plenty of time to whip up some interest in the purchase.  There is, however, no suggestion that that was done.  He did, however, accept that buying these businesses was not like buying a car and a purchaser would want to do some proper due diligence, which would be extensive.  In my view, in the context of a perceived potential defence based on state expropriation, and a perceived undervalue point, and against the background of a perception as to how aspects of the Russian state are capable of operating so as to promote a raid, this  becomes a  significant factor which ought to have been disclosed.  It may be that to Russian eyes a short auction period such as that in, at least, Baltic, is not unusual, but the application for an injunction is being made in an English court and it is that court’s perception that has to be borne in mind on a disclosure point. Against the background of the already disclosed potential allegation of a state raid, and the disclosure of the potential undervalue point, it is a piece of detail which is sufficiently important that it, too, ought to have been disclosed.
163.	Mr Tregear therefore has a case for disclosability in relation to the trust management orders and the arguable shortcomings in the auction process. 
164.	Before leaving this point I should deal with one point about inconsistency raised by Mr Smith.  The non-disclosure of the various aspects of the sale process that Mr Pugachev complains about are said to be potential badges of the state-inspired expropriation (raid).  Part of Mr Pugachev’s case is that the influence of the raid was behind some of the court processes, detracting from the independence of the Moscow courts.  Mr Smith contrasts this with the attitude of Mr Pugachev in the parallel striking out application. In that application Mr Pugachev’s case involves an assertion that the Russian courts are the better forum for trying the supported Russian action, and he has not raised a point about bias or inappropriate intervention by other state entities as a risk in that action.  He has undertaken to submit to the jurisdiction in those proceedings.  
165.	I agree that this is an inconsistency.  Mr Tregear sought to explain it away on the footing that the legal dice were not always loaded against Mr Pugachev all of the time, and pointed out the success that Mr Pugachev had had on one appeal.  He said that Mr Pugachev does not say that the courts will necessarily be influenced against him in the supported Russian action, but that does not mean that there was no influence in the sale proceedings.  I did not find this a totally convincing explaining away of what is an obvious inconsistency of approach, but I do not think that it completely undermines the points made by Mr Pugachev about non-disclosure in relation to the sale proceedings.  Those points still stand.  
The general point about non-disclosure of the fact that the CBR’s conduct might be affected by political considerations
166.	I do not think that there is anything in this point.  Mr Roberts disclosed the fact that Mr Pugachev would or might allege a political pursuit of him, and a raid on his assets.  It was not incumbent on him, or the claimants, to dissect the conduct of all state organs involved and suggest that each was, in its own way, the subject of (or the generator of) political pressure.  Mr Tregear pointed to one of two of the steps on the way to the end result and involving the CBR which he said were possible indications that there was state pressure.  I do not think that the disclosure obligation requires the sort of fine-tooth comb application that would be involved if Mr Tregear were right about this.  I think that in relation to this point Mr Roberts did enough.
Non-disclosure of the Restructuring Agreement
167.	In his witness statement Mr Michaelson complained of a failure by Mr Roberts to give this agreement any more than a passing reference in his affidavit in support of the without notice application.   He is said to have failed to disclose that this agreement was an unlawful preference of the CBR when (it seems) the bank successfully obtained the invalidation of payments made by the bank to the CBR. At the said time the DIA is said to have “unaccountably” failed to challenge the release of the shipyard pledges.    There is said to have been a “partial and half-hearted challenge” to the Restructuring Agreement, which is further evidence that the DIA and the CBR have not been acting consistently in good faith and have colluded with each other and  USC to ensure the transfer of the Shipyard Interests to USC for too low a price.

168.	I found this argument hard to follow.  I think that it is said that it ought to have been disclosed because it was a badge of the expropriatory conduct which was sufficiently obvious to have been disclosed.  If that is the argument I disagree with it.  If there was the sort of collusive behaviour advanced by Mr Pugachev then what Mr Tregear referred to might be part of it, but it is not obvious, and certainly not obvious enough to have formed part of required disclosure on the without notice application. Mr Tregear conceded that his point (whatever it was) did not add much to his other disclosure points anyway, so I do not need to consider it further.

Non-disclosure of the lack of merits of the supported Russian claim and its potential duration
169.	Mr Pugachev complains of various defects in the merits of the supported Russian claim, together with one point about their potential duration, which he says ought to have been pointed out to Henderson J:

(a)  There was a failure to point out a lack of legal coherence, or arguable legal coherence, in the claim made.  Under the relevant Article of the Russian code the EPK pledge releases (which are the foundation of the claim) have to be “a material cause of the Bank’s insolvency”, which was relied on by counsel before Henderson J as being “fairly obvious”.  However, other parts of the evidence clearly pointed to the fact, and the CBR’s view,  that the bank’s insolvency (in balance sheet terms) had already occurred some two years previously, in 2008.  

(b)  The DIA failed to point out arguments to the effect that the supported Russian proceedings were started prematurely  (there was no cause of action at the date of issue) or had been started too late (limitation).

(c)  The English court should have been told that the injunction might have to last a considerable time because the final liability might not be known for a very long time.  This was not a case in which one could anticipate a result one way or another within the likely timeframe of more conventional claims.

Points (a) and (b)
170.	Points (a) and (b) depend on the same arguments as arise in relation to the “no arguable case” point dealt with below.  Under that heading Mr Pugachev says that the underlying Russian law defences to the claim are so clearly good that there is no arguable case in the Russian proceedings.  As will appear, I do not accept that argument, and reference should be made to that later section for the details of it.  This part of the claim is a different version of it. The essence of what Mr Pugachev says is that his defence points are sufficiently obvious that they ought to have been anticipated and at least referred to at the hearing before Henderson J.  

171.	The obligation to anticipate defences in pursuit of the obligation to make full and frank disclosure is very important.  Mr Smith submitted that his clients were not to know that these points were to be taken by Mr Pugachev because he had not then (and has not even now) put in a Defence in the supported Russian proceedings.  However, the fact that they have not been articulated in the supported Russian proceedings is not the point.  An applicant for without notice relief has actively to consider what points of defence might be taken by the defendant and put them before the court.  That is a fundamental requirement, and safeguard.

172.	In making an assessment as to whether a point of defence is sufficiently obvious, one must guard against assuming that any point that has occurred to the defence lawyers ought to have occurred to the claimants’ lawyers.  The obligation to disclose does not require that every potential point be flushed out.  Nevertheless there is an obligation to look at things from a defendant’s point of view and anticipate defences which are obvious and those which require some thought but are nonetheless plain enough (as arguable defences) when thought about.  Each case will depend on its own facts, and it is impossible to define a neatly applicable test which is capable of answering the point in every case.  It is going to be easier to see what ought to have been disclosed in the light of the alleged non-disclosure, but that is no excuse for not giving the matter enough thought beforehand.

173.	In the present case the question is whether the causation point and the matching non-accrual/limitation points ought to have been identified and articulated as possible defences.  Limitation was dealt with in Mr Holiner’s first report (which was before Henderson J), and he said the answer was that time did not begin to run until the full realisation of the debtor’s assets.  So as a point it was disclosed.  What was not disclosed was the question of whether the same facts meant that the cause of action had not yet accrued.  So far as causation is concerned, Mr Holiner said that there was a requirement that the actions of the defendant be “a material cause” of the company’s insolvency (my emphasis).  In his section on “Context” he says that there was a strong prima facie case for saying that Mr Pugachev’s actions caused the bank’s insolvency.  He gives as an example the fact that Mr Pugachev is said to have allowed or procured loans to borrowers who did not have an obvious means to repay (or an obvious legitimate purpose for the loans).  His view on causation therefore apparently extended to acts going beyond the release of the EPK pledges.  He does not refer to the evidence indicating that there was an insolvency by 2008, but the thrust of his first report is that he would not accept that the release must be the sole cause in order for it be used, by itself, as the basis of the supported Russian proceedings. 

174.	Now that the causation and accrual of cause of action points have been teased out of the exchange of experts’ reports it is sufficiently plain that there are points there for Mr Pugachev to take.  The question is whether they were sufficiently plain as at the date of the hearing before Henderson J.   With some hesitation I have come to the conclusion that they were not.  The Russian legal position is a matter of some complexity.  Mr Holiner’s reports on their face demonstrate a conscientious approach to the discharge of his function as an expert, and would tend to indicate an awareness to lay matters before the court properly.  I would assume that he did not spot the points, so the question becomes whether he ought to have.  On balance, and probably only just in relation to the causation point, I find that that cannot be said against him, and therefore against the claimants.  There was no obligation to disclose it.

175.	Point (c) arises from the fact that final liability in the supported Russian proceedings might not be determined until the final insolvency shortfall is known.  That might not be for some considerable time, and in fact no attempt was made to predict it (either before Henderson J or before me). That event might also be thought to be within the control of the DIA itself, which could be in a position to prolong the freezing injunction by not closing the liquidation.  Mr Tregear submitted that that ought to have been pointed out to Henderson J, because it would be relevant to the grant of the interim injunction.  

176.	At first blush it might be thought to be irrelevant because Henderson J was not being asked to grant an injunction to the end of the supported Russian proceedings, and indeed Mr Smith submitted as much.    It might be thought to be a point of relevance to the return date, when the court would be likely to be asked to consider the length of the interim injunction.  However, that is too simple a view.  If there would be a case for saying that an interim inter partes injunction should not be granted because it would go on for too long, then that would be something which would be relevant to the grant of a without notice injunction too, because it would be wrong to grant a short term without notice injunction if a longer term on notice injunction would not be granted.  So the point is potentially relevant.  It was not made to Henderson J.

177.	It seems to me that it is a point of relevance and some materiality.  As Mr Tregear pointed out, it is not just the case that the final event in the Russian proceedings might take some time to come to fruition.  The DIA is in charge of the liquidation and can to some extent control the end of it by not finalising the shortfall.  There may be ways round that in terms of a freezing order (by undertakings, or time limits), but without that the final determination and therefore an end of the freezing order might be some years away.  I think that this point fell within the disclosure obligation, but not by much.

Misrepresentations as to the fate of EPK
178.	The next category of non-disclosure or misrepresentation concerns the fate of the EPK shares.  Mr Roberts gave evidence of the sale of the EPK shares.  He refers to reports in the press that the EPK shares had been acquired by two identified  Russian businessmen and gives some evidence as to whom it was believed the new shareholding companies were.  Mr Michaelson claims that the account is misleading in that the intended sale of EPK did not take place, having been thwarted by the DIA giving notice of claims, and EPK's license was later "expropriated", apparently with the involvement of the DIA.

179.	There are considerable disputes surrounding what happened to EPK and its shares after the release of the share pledges.  There is evidence that Mr Pugachev (or the shareholding entities) entered into an agreement to sell shares for a price which included future payments of very large amounts depending on future events.  Mr Pugachev says that the sale was called off.  There is a question-mark as to whether he received any, and if so how much, money under it.  The facts are complex and the disputes on the facts obscure.  I find it impossible to detect any culpable misrepresentation or non-disclosure in this area.  This point therefore fails.

Other alleged non-disclosures
180.	There was also a degree of reliance on two further points. 
181.	First, there was a point about a date when an alternative lender was proposing to make a loan which might be thought to have had a relevance to the release of the EPK share pledges. This refined point arose out of the apparent presentation of the facts surrounding the release of the EPK shares. VTB was an alternative lender who was on the scene as such before the release of the EPK shares. Mr Pugachev suggests that the possibility of a security requirement of VTB might explain the release of the pledge. However, through Mr Michaelson he complains that “the Court was incorrectly told that the first time that there was any mention of a proposed loan from VTB secured by [EPK] shares was on 20 September 2010, i.e. over a month after the share pledges were released”, and he claims that Henderson J was impressed by this fact because he said:

“It is significant that here we are, what, at least one month after the releases and this alternative source of finance is only at this stage of a proposal. Any suggestion that the earlier releases had to be done in order to facilitate this does not stack up.”

182.	It is clear to me that this is a misreading of the thrust of the evidence and a misinterpretation of what was happening at that part of the without notice hearing. At this point of the hearing counsel (Mr Smith) was dealing with paragraph 161 of Mr Roberts' first affidavit. By then, in paragraph 151, Mr Roberts had already referred to VTB coming on the scene in July. 

183.	The exchanges went on:

"MR SMITH: Exactly. If one were to take a simplistic example, when you are moving house you do not release a mortgage until you are completing."

MR JUSTICE HENDERSON: That is the whole point of a completion meeting and all the undertakings by solicitors to make sure it all happens simultaneously."

184.	This makes it clear that Henderson J thought he was dealing with questions of timing in terms of conveyancing (you do not release a charge without knowing that you are going to get the price of that release).  Nobody was making a point to the effect that this was the first time that VTB came on the scene.   

185.	Accordingly this non-disclosure point, which is a sort of misrepresentation point, fails. There was no mis-statement about Mr Pugachev’s suggestion as to a possible reason for the release.  I would add that taking this point at all amounts to an over-enthusiastic approach to non-disclosure. It is not a realistic point to take, especially in a case with as much detail as the present case has, and in my view should not have been taken. A complaint about non-disclosure does not provide an excuse to crawl over everything with a fine-tooth comb to find something, anything, that might have gone wrong. A proper and realistic approach must be adopted. 

186.	There was also a further point about non-disclosure of the fact that the Restructuring Agreement was not disclosed.  In Mr Michaelson's witness statement this claims to be the same point as the point about the Restructuring Agreement made above, but in fact it is not. It is a complaint that the Restructuring Agreement ought to have been disclosed properly because it contemplated that the EPK shares might have been released in the contemplation of that Agreement.

187.	This point fails on the facts. It turns on paragraph 3 of the Restructuring Agreement:

"3. The Bank assumes the obligation to:

... Direct any money from the sale of [EPK] shares in excess of the funds used to support the Bank's day-to-day activities to pay the Bank's obligation to the Bank of Russia on the restructured credit."

188.	That does not contemplate security over the shares. The Restructuring Agreement is quite clear when it comes to specifying security – clause 4 refers to that and that is the clause which refers to a pledge of the Shipyard Interests.

189.	Accordingly this additional non-disclosure point fails. I am afraid it also falls into the category of points which ought not to have been made, as referred to above.

The materiality and effect of the non-disclosures

190.	For the reasons given above I find that there was non-disclosure of relevant matters as follows:

(a)  A failure to disclose the BDO valuations and the VFC valuations.

(b)  A failure to disclose the novelty of the trust management order, and the brevity of the auction process of Baltic.

(c)  A failure to disclose the possible length of the interim injunction.  

191.	Before moving on I should deal with one further point.  At times during his oral submissions Mr Tregear gave the impression that he was asserting non-disclosure in relation to the broader allegations of expropriatory conduct (a raid), and that that was culpable.  However, a case of that breadth was not plainly flagged in the application documents and I have not dealt with non-disclosure of matters going beyond those specific matters identified in this judgment as plainly relied on by Mr Tregear.  Mr Michaelson’s witness statement and Mr Tregear’s skeleton argument did not clearly seek to make the wider case, and I do not deal with it.  The detailed allegations and the material deployed to evidence the intended raid were usually said to be “context”, and Mr Michaelson’s witness statement makes clear the specific matters relied on.  In any event a politically motivated attack and a “raid” were specifically referred to in Mr Roberts’ “full and frank disclosure” section, in general terms (paragraphs 587-592). 

192.	I turn therefore to the culpable non-disclosure that I have found.  Those matters are material for the reasons given above.  I therefore have to consider what consequences flow from the failure to disclose them.  

193.	Any non-disclosure is, by definition, serious, but some non-disclosures are more serious than others and all have to be placed in their context.  This is not a case where the anticipated assertion by Mr Pugachev of politically motivated interference was ignored.  It was referred to in Mr Roberts’ affidavit and briefly (but a little dismissively) at the hearing before Henderson J.  The overall point to which (a) and (b) went (as badges) was therefore disclosed.  What I have found to have been wrongfully not disclosed within (a) and (b) above are matters which would be capable of supporting the defence case on the point, and would undoubtedly have been relied upon to bolster it had the application been on notice.  They do not prove the point made by Mr Pugachev, but they are significant points capable of supporting it and should not have been ignored.  

194.	The third point just scrapes over the bar of disclosability, but its nature is such as to add little weight to what has gone before.

195.	I must put those matters in the context of the rest of the material, and consider what is a proportionate response.  I do not find any of the non-disclosure to be deliberate in the sense that a conscious decision was taken to exclude it.  The non-disclosure under (a) and (b) was more than technical but less than fundamental because the material went to a point which was already disclosed in general terms and was more in the nature of disclosable bolstering material.  Point (c) is, as I have just observed, of little additional weight.  Although it is by no means determinative of this application, it is in my view plain that the injunction would have been granted even if they had all been disclosed.  I do not think that I can ignore that, or the great weight of the material that was relied on.  At the end of the day the significance of the points was appreciable but limited.  Their omission does not leave the court with a false impression.  If it did anything, it would have left it with an impression about the defence which was appreciably but marginally less favourable than it ought to have been.  The disciplinary function of the rule requiring disclosure does not, in this case, require a discharge of the order.  In my view, and bearing in mind the factors identified in the authorities which I have set out above it would be wrong and disproportionate to visit the non-disclosure with a discharge of the injunction.  

196.	This is not to water down the disclosure obligation.   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 detail 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 (which is the case in the claimants’ evidence in support of their without notice injunction).  Nor is it an excuse that some of the disclosure might be based on a premise (here, the alleged raid) which is found to be unpalatable by the claimant.  In some cases a failure to disclose material in those circumstances will lead to the order going.  However, putting the non-disclosure in this case against the material actually deployed, and the disclosure made, I consider that it would be wrong to discharge the injunction and in my discretion I will not do so.  Had I concluded that I should discharge it I would nonetheless have re-imposed it because of the present strength of the case for imposing it.  

No arguable case - Mr Pugachev’s alleged contribution to the insolvency
197.	Mr Pugachev submits that an application made under section 25 for a freezing order must have a foundation in a good arguable case for the relief in the main foreign proceedings.  That is accepted by the claimants, who say they have one.  Mr Pugachev submits that they do not.  The test for a good arguable case is one “which is more than barely capable of serious argument, yet not necessarily one which the judge believes has a better than fifty per cent chance of success" (Nimenia Maritime Corp v Trave [1983] 2 Lloyds Rep 600).

198.	The reasons behind Mr Pugachev’s case on this point are said to lie in the requirements of Article 14 on which the supported Russian proceedings are  based and the text of which is set out above.   The Russian law experts agree that the elements of a claim under Article 14 are (1) an insolvent credit institution, (2) a controlling person in respect of the company, (3) a causal link between the controlling person's conduct and the insolvency, and (4) fault of the controlling person.

199.	There was never any dispute, for the purposes of this application, as to element (1).  Mr Tregear's skeleton argument initially took issue with arguability in relation to elements (2) and (4), but those points were not pursued at the hearing before me, and it was accepted that there is a good arguable case on those elements, so the only element as to which there is a dispute for present purposes is element (3) – the causal link.

200.	Although there are refinements in the argument, the essential point is this.  Mr Pugachev maintains that liability under Article 14 arises only where the act in question causes the insolvency of the institution.  The acts in question in the current supported Russian proceedings are the releases of the EPK share pledges, which took place in 2010.  However, the evidence of the DIA is that the bank was insolvent on a balance sheet basis from, at the latest, October 2008, according to the affidavit of Mr Roberts.  This was repeated by counsel at the hearing of the without notice application.  Accordingly, the release of the pledges in 2010 cannot have caused the insolvency – it had already happened.  In those circumstances the very burdensome liabilities imposed by Article 14 cannot be imposed on Mr Pugachev.  For that reason there is said to be no good arguable case in favour of liability.

201.	The essence of the riposte of the DIA is that Article 14 is capable of operating not merely where a solvent institution is turned into an insolvent one by the acts complained of, but is also capable of applying where the acts increase an insolvency which already exists.  This case is supported by the claimants' expert, Mr Holiner, though as will appear he has shifted his position in doing so.  Mr Pugachev's case is supported by his own expert, Dr Gladyshev.  

202.	Mr Holiner provided a report which was placed before Henderson J.  At paragraph 31 he said:

"Causation.  The claimant must show that the action or inaction of the controlling person was a material cause of the company's insolvency through the exercise of that control.  If the company's insolvency resulted from some other cause, including actions or inaction of the controlling person unrelated to the exercise of his control, no subsidiary liability will arise (although there might be grounds for a claim in tort for harm caused to the company).  The Supreme Arbitrazh Court has held that the controlling person's instructions may be a direct or indirect cause of the bankruptcy [case cited]."

203.	At paragraph 108 he returns to the question of causation and says:

"On the basis of the facts and matters set out by Mr Roberts, I consider there to be strong prime facie case that the Defendant's action caused the [bank's] insolvency.  By way of example, I understand that the DIA conducted a detailed analysis of the causes of [the bank’s] insolvency, and concluded that a key cause of that insolvency was the granting of very substantial loans to so-called "Technical Borrowers" with little in the way of business activity or assets, such that they were unable to service their loans [Roberts 199].  I also understand the DIA believes that these loans (which were in excess of USD 4bn) were used to conceal [the bank's] true financial position and to channel funds to the Defendant… Finally, I understand that shortly before [the bank] had its licence revoked and insolvency proceedings were instituted, the security in respect of numerous "Technical Loans" was released, with the effect that [the bank] was left with no realistic prospect of making any recovery under those loans…".

204.	The expression "Technical Loans" has been used to describe a series of apparent loans made by the bank in favour of various companies, usually said to have been controlled by Mr Pugachev, where those companies had no apparent economic activity capable of justifying or applying those loans, or indeed even repaying them.  It is said in the evidence that this activity had been going on for some time before the insolvency proceedings.  Indeed, the existence of those loans is one of the main reasons why the DIA, according to Mr Roberts, considered that the bank had been insolvent from 2008.

205.	Thus it can be seen that Mr Holiner is addressing a situation in which insolvency had occurred in 2008 (he does not mention the year, but that is how his cross-reference to Mr Roberts’ evidence works), and at that time was caused by the activities of Mr Pugachev.  He gives no consideration to the point which has now been raised.  

206.	The point was taken by Dr Gladyshev in his first report.  In paragraph 49 he expresses his disagreement with Mr Holiner's apparent thesis that it suffices if the act complained of is "a" cause.  He expresses the view that the relevant conduct must be "a direct and necessary cause" of the bankruptcy, and goes on:

 "The question is whether the bankruptcy would have occurred in the absence of the alleged culpable conduct by the controlling person.  If the answer to this question is 'yes', the requirement of causation is not satisfied and no liability under Article 14 would arise.  In other words, if the bank's bankruptcy resulted from some cause, other than the culpable action or inaction of the 'controlling person', no claim for 'subsidiary liability' will arise."

207.	In paragraph 50 he explains the concept of causing "bankruptcy".  He points out that the second paragraph of Article 14 states that the culpable conduct of the controlling person must lead to the "appearance of the signs of bankruptcy", which is the same formulation used under Russian bankruptcy law to define the circumstances in which the court can open bankruptcy proceedings.

"In other words, the formulation "appearance of the signs of bankruptcy" stands for "significant legal grounds for initiation of bankruptcy proceedings".  Thus the culpable conduct of the controlling person must be the cause of, or lead to, such financial state of the credit institution which would have been sufficient to allow the bankruptcy proceedings to be initiated."

208.	In paragraph 53 he applies this to the facts of the present case:

"I understand that it is the DIA's case that the relevant share pledges were released on 6 August 2010.  The DIA also states that the Bank was insolvent at all times since 1 October 2008.  If that is correct, then logically it would be impossible to conclude that the release of the pledges in 2010 caused the Bank's bankruptcy."

209.	That point having been taken, Mr Holiner met it in his second report.  He seeks to point out that the view of Dr Gladyshev is at odds with an academic commentary to which Dr Gladyshev himself has referred.  He goes on to say that while the general rule of factual causation requires that a cause must be a "necessary" cause (as opposed to a merely incidental cause), that is only a starting point.  It is an over-simplification to say that the cause will never be a necessary cause if the harm would have occurred anyway.  In paragraph 25 he points out that in many cases the insolvency of a credit institution will have multiple causes, and the sort of simplistic application of the "necessary cause" test advocated by Dr Gladyshev could produce the perverse result that no cause could be held to be the cause of the insolvency because another combination of causes was equally capable of causing the insolvency.

210.	He goes on to refer to a short piece of academic support and 3 authorities which he says supports his principled analysis.   For his part, Dr Gladyshev counters by saying that the authorities do not support Mr Holiner and, in one instance, taking issue with the proffered translation of the authority.  He adduces his own authority which he says positively supports his stance.  

211.	I do not propose to set out all the detailed argument on the authorities and other material.  Suffice it to say that none of the authorities deals directly with the point, and the reference to them by the experts is no more than a passing one without reasoning or analysis.    So far as the authorities go, two of Mr Holiner’s three authorities do not seem to provide him with as much assistance as he would say they do, though a third (Sodbiznesbank A41/3668-08) is at least consistent with a late wrongdoer being found liable (late in the sense that his participation in the company seems to post-date the insolvency-causing event, yet he was found liable, perhaps for not addressing the insolvency).  Dr Gladyshev has a slightly more useful authority in the form of Muller & K N BAC-12854/12.  Looking at that body of authority it can in my view certainly be said that at this stage Dr Gladyshev has much the better of the argument.  However, the experts have not been cross-examined and the material is not such that I can safely say that there is no arguable case in favour of the claimants.  A decision to that effect would be tantamount to saying that the claim ought to be struck out in the Russian courts, and the material is not quite strong enough to justify a finding with that sort of impact.  

212.	I therefore conclude that on that point the claimants have a good arguable case. 

No arguable case - prematurity and limitation
213.	This point can be taken more shortly.  It will be apparent from the wording of Article 14 that the claim is the amount of the insolvency deficiency.  This raises a question of the interaction between the date when the liquidator is entitled to sue, and the date when time begins to run for limitation purposes.  This point was more significant when there was a case for saying that the limitation period was one year, because that added spice to the debate since if it was one year, and the claimants have been entitled to sue ever since the bankruptcy, then that period would have expired.  On the other hand, it was said that if it had not expired (because it had not yet started) then the supported Russian proceedings were premature. 

214.	In fact the case for a one year, as opposed to a 3 year, limitation period seemed to evaporate, but it still left a debate about the possible prematurity of the action.   Mr Holiner considers that the limitation period applicable to this claim (3 years) does not start to run until the bank’s assets have been fully realised for the purposes of an Article 14 assessment.  Dr Gladyshev considers that that may be correct, but does not view it as being as clear cut as Mr Holiner says.  

215.	The prematurity point arises if that argument is correct.  That date has not yet come because the assets have not been realised (and the amount of the deficit not determined).  That gives rise to a point about the accrual of the cause of action (to use an English phrase to encapsulate the debate).  Dr Gladyshev’s view is that if the limitation period has not yet begun to run then it follows that the “rights of creditors” (as he puts it) have not yet been violated, and if that is right then there is no present right to sue.  The point of time at which the limitation period starts to run depends on a violation of rights and a knowledge of that violation (among other things) and those points of time are, logically and legally, the same points for both limitation and the accrual of the cause of action.  If the limitation clock has not started running then the cause of action has not accrued either, and the supported Russian proceedings are premature and unsustainable.  

216.	Mr Holiner counters this by referring to principles involving a determination of when rights of creditors have indeed been violated for these purposes and which have the effect that violation of creditors’ rights is not necessarily the same as the point of time at which an action can be brought.   He invokes authority to support his thesis.  Dr Gladyshev replied, re-asserting his views as to what logic, principle and authority require.

217.	Again I do not propose to set out the details of this debate.  There seem to be arguments on each side of the debate, and this time neither side can be said to have the better of the argument.  The point is a point of Russian law and this court cannot approach the matter on the footing that the Russian legal view on rights to sue, accrual of causes of action and limitation are the same as in England and Wales.  The expert evidence does not speak with anything like one voice in this, and each side’s view is ostensibly respectable.  The claimants have an arguable case that their cause of action (or a right to sue if that is a better way of putting it) has accrued notwithstanding the fact that the final deficit has not been determined, and that achieves the necessary standard for present purposes.  

Risk of dissipation
218.	It is now trite law that a freezing order has to be supported by evidence demonstrating a risk of dissipation.  Mr Pugachev’s last point was that there was insufficient evidence to establish this risk to the relevant standard.

219.	Mr Tregear submitted that a high standard was required, relying on one short paragraph in the judgment of Colman J in Laemthong International v ARTIS and others [2005] 1 Lloyds Rep 110 at para 67.  Having referred to the need for “solid evidence”, by reference to Thane Investments Ltd v Tomlinson [2003] EWCA Civ 1272, and having set out part of the judgment there, Colman J said:

“67.  The standard of proof of the risk of dissipation is thus relatively high.”

220.	I do not consider that this short sentence is intending to set some sort of really elevated barrier which has to be surmounted.  The extract from Thane Investments that he cites refers to the need to act only:

“on appropriately clear and strong facts and risks.” 

221.	The passage deals more with procedural objections than with details of standards of proof.  What one has to do is to acknowledge the seriousness of the consequences of a freezing order, and the invasion of liberty that it involves (especially bearing in mind it is usually sought in a without notice application) and to reflect that in requiring proof to an appropriately high standard.  Orders are not to be lightly sought and will not be granted on flimsy evidence.  The requirement to demonstrate a risk of dissipation is a lot more than formal.

222.	In their skeleton argument in support of the without notice application the claimants relied on 4 matters as demonstrating a risk of dissipation:

(i)  It was said that the evidence showed that Mr Pugachev took steps actively to conceal the bank’s true financial condition, extracted money for his own benefit (or for the benefit of companies controlled by him), and took steps to release assets from security (a reference to the release of the EPK pledges).  A considerable body of evidence was relied on in support of this averment.

(ii)  It was said there was good evidence that Mr Pugachev regularly used corporate structures and offshore holdings (and trusts) to conceal the true ownership of assets.

(iii)  It was said that Mr Pugachev was prepared to make false and misleading statements about his control or ownership, including what was said to be a pretence that he had given up control of the bank (subsequent to various pronouncements of the bank in prospectuses and other documents), and that he had no interest in a French chateau which is used by him as a holiday home.

(iv)  He has substantial means and can move assets around jurisdictions with ease.  When pursued in Russia he removed himself, and some of his assets from there.

223.	In this application Mr Pugachev challenges those matters.  He seeks to say:

(i)  The evidence behind point (i) is not compelling.  The evidence that he was behind the release of the EPK share pledge comes from Ms Illarionova who is susceptible to pressure, and the provision of the shipyard shares as security shows that he was not looking to deprive the bank of funds or security in anticipation of its bankruptcy.  The other transactions which are relied on by the claimants (which were identified by Mr Tregear as being the “Deposit Scheme” and “Dividend Scheme”) are even weaker as evidence of a risk of dissipation, since Mr Pugachev’s evidence demonstrates that they had perfectly proper commercial justifications and pre-dated the bankruptcy by nearly 2 years.  To seek to taint them with impropriety is said to be “fanciful”.  

(ii) The use of corporate structures and offshore companies is commonplace amongst wealthy individuals.  It was submitted that the use of such structures in itself does not demonstrate a risk of unjustified disposals of assets - see Wade v Wade [2003] EWHC 733 (QB) at paras 27-29.  

(iii)  As to (iii), Mr Pugachev denies retaining control over the bank and certain other assets. The truth of that is in dispute, and  I think the submission is that that means that this evidence is of no or little value.  

(iv)  It is nonsense to suggest that Mr Pugachev might remove himself and assets to another jurisdiction when he has substantial connections to, and assets in, just two - England and France - where all his close relatives live.  It is speculative to suggest that he will remove himself again to a farther flung jurisdiction.

224.	While Mr Tregear’s points, or most of them, have some weight, in that they are not hopeless or irrelevant, they do not go so far as to remove the weight of the other evidence which would tend to demonstrate a risk of dissipation, as I hold they do.  The evidence relating to these matters covers hundreds of pages of witness statements and other documents, and I do not propose to trawl through all of it here.  Dealing with the points that have arisen at proportionate length, the resolution of the dispute as to their significance is as follows:

225.	As to point (i) the dispute as to why the EPK shares came to be released cannot be resolved.  The claimants say that Ms Illarionova did it on the instructions of Mr Pugachev.  The fact that he denies this does not remove it as part of the picture of evidence supporting a case of a propensity to dissipate.  The dispute cannot be resolved on this application,  and may be dealt with elsewhere (in Moscow), but it can be observed at this stage that Ms Illarionova’s account is a weighty piece of evidence if only because of the lack of plausibility of any other explanation.  Mr Pugachev has suggestions to make as why the release might have taken place, but claims to have no actual knowledge.  He also denies knowledge of the pledges in the first place.  Bearing in mind the interest that he took in the bank’s affairs even on his own evidence, despite his assertion that he had no interest in it, and bearing in mind the interest that he seems to have retained in the EPK shares, his averments of ignorance lack a degree of plausibility.  So far as the other transactions are concerned, there is strong evidence which gainsays Mr Pugachev’s interpretation of events.  While the claimants’ case cannot be found to be indisputably right, it is certainly evidence which, as it stands, supports what the claimants say about Mr Pugachev’s propensity to take personal benefits from bank assets.  

226.	As to point (ii) Wade v Wade does not have the effect that Mr Tregear ascribes to it.  On the facts of that case the defendant had placed one holding of shares in an offshore location.  His evidence was that that was done to mitigate tax liabilities.  There was just the one offshore transaction.  On the facts of that case Stanley Burnton J held that that was no evidence of a propensity to dissipate.  The two sentences of the judgment devoted to the point (actually there is only one which refers to its significance) do not justify the generalised proposition for which Mr Tregear would say the case justifies.  Mr Tregear pointed out that in L v K [2014] Fam 35 Mostyn J said:

“23.  I have mentioned that there must, at least, be evidence of an unjustified dealing with assets by the respondent.  Holding assets in offshore structures will not of itself amount to such unjustified conduct."

227.	He goes on to cite Wade v Wade.  In my view care must be taken in considering that generalised statement.  I would agree that merely pointing to offshore holdings in some generalised way would not be enough.  However, in some cases the quality and nature of the arrangements may be a pointer towards a risk of dissipation. The sort of elaborate structures which Mr Pugachev seems to have set up would, in my view, be evidence of a desire to shield assets from view.  They do not conclusively prove it, but they are evidence which the claimants are entitled to rely on in the way that they do.

228.	As to point (iii) (the question of whether Mr Pugachev retained control over the bank), contrary to his protestations there is evidence that he has done so, and while the proposition is challenged by him the evidence against him is strong enough to stand as evidence on this point notwithstanding his challenge.  A prospectus published by the bank on 12th February 2010 clearly states:

“The principal controlling person, but not a beneficial owner, of [the OPK companies with shareholder control], through an offshore trust arrangement, is Mr Sergei V Pugachev.”

This is repeated later in the prospectus, and indeed emphasised.  Again, a return submitted by the bank to the CBR on 1 August 2008, described as being "For the assessment of the indicators of the ownership structure transparency" says:

“7.  The person exerting an indirect substantial impact on decisions taken by the management bodies of [the bank] is [Mr Pugachev].”

229.	There are other documents to the same effect.  While they do not amount to statements made by Mr Pugachev there is no apparent reason for the bank to make those statements unless they were believed to be true by those giving instructions for the documents to be drawn.  If they believed it to be true, and if (as is likely) they were officers of the bank, then it is likely that Mr Pugachev was exerting control.  It is also interesting to note that Ms Illarionova, in her recorded statements as to how the EPK share pledges came about, records Mr Pugachev as having an office at the bank.  One is forced to wonder why he has an office there if he has nothing to do with its business.

230.	All this contrasts with public pronouncements by Mr Pugachev, such as that recorded in a newswire release dated 4th April 2014, in which he is quoted as saying:

"[The bank] was founded by me more than 20 years ago but after I disposed of my shares over ten years ago, I no longer had any involvement, let alone control over its activities.”

231.	There are other statements made by Mr Michaelson in his witness statement, apparently made on the instructions of Mr Pugachev, that he had no involvement with the bank once he had parted with his shares in 2002.  The thrust of the several statements is plainly to disclaim any degree of control.  

232.	The evidence to the effect that he had some control is of real weight.  His denials of control do not negate that evidence and prevent its being taken into account in considering whether there is or is not a risk of dissipation.  Indeed, to a degree they lack plausibility.

233.	So far as point (iv) is concerned, the fact that Mr Pugachev has, on his account of the present situation, based himself in England and France does not mean that there is no propensity to dissipate.  That really has little to do with the point and has no real weight in considering the balance of the evidence.

234.	As well as seeking to knock down the DIA's points, Mr Tregear advances some points of his own.

235.	First, he says that there is clear evidence that there is no risk of dissipation to be found in the fact that Mr Pugachev did not in fact take any steps to dissipate his assets in the long period between the start of the supported Russian proceedings in early December 2013 and the application for the freezing order more than 7 months later.  In my view the answer to this is that it is not known what steps he has taken in that period.  That depends on the accuracy of his disclosure of assets.  That accuracy is not accepted by the claimants.  They may or may not be right about that, and I have not embarked on an enquiry as to the extent to which they are.  All that needs to be said at the moment is that an averment in argument that he has not dissipated is, in circumstances such as those in the present case, of no more weight than a statement by the defendant himself.

236.	There is, of course, another point that can be taken in relation to this sort of delay, and that is that it might be said to gainsay any averment by the claimants of a fear of dissipation if advance notice is given of an application for an injunction.  In the present case, and bearing in mind the material ranged against Mr Pugachev, I do not regard that point as having very much weight, and indeed Mr Tregear did not advance it.

237.	Mr Tregear's second point was that Mr Pugachev's asset disclosures showed that he had assets which were not readily capable of being dissipated anyway, because they were for the most part real estate (mostly in Russia and France).  The real estate was held by companies, and (again), with some trusts imposed as well.  Mr Smith's answer to this point, which I accept, is that the shares in the underlying companies could be dealt with.  It can further fairly be observed that this point again presupposes full and accurate disclosure by Mr Pugachev.

238.	Accordingly, in relation to the risk of dissipation point, I find that looking at the material overall, and adding Mr Tregear's points into the mix (which were not available to Henderson J), I find that there is a sufficient case in favour of a risk of dissipation to justify the grant of a freezing order.

Justice and convenience
239.	Last, under this heading of "Justice and Convenience", Mr Tregear gathered various points together as indicating that the requirement that an injunction be "just and convenient" within section 37(1) of the Senior Courts Act 1981 has not been complied with.

240.	Mr Tregear's main point was an absence of clean hands.  He said there were various facts which made it right to refuse the equitable remedy to the DIA.  The DIA is said to have acted inequitably.  He points to various allegations made in Mr Michaelson's evidence in which there are averments that Mr Miroshnikov sought to extort money from Mr Pugachev in June 2011 and that there were further attempts at extortion by the DIA and its lawyers.  He also relies on evidence that Mr Miroshnikov attempted to persuade Ms Reinhardt to put pressure on Mr Pugachev.  Mr Tregear acknowledged that Mr Miroshnikov had denied all allegations of wrongdoing, but he submitted that the denials were implausible, particularly in the light of extensive allegations of corrupt practices in the DIA and some circumstantial evidence.

241.	I accept that if there is clear evidence of facts and matters which would mean that a claimant does not have clean hands then those matters can be invoked against the grant of an injunction.  However, it is hard to see how highly disputed allegations of fact, even if plausible, can have any weight in deciding whether or not to grant an interim injunction on that basis.  It was not suggested that I could decide the relevant facts for or against any party, and in the absence of such a finding they remain disputed facts.  The most that could be said is that the claimants might not have clean hands, but it can equally be said that their hands might be clean.  Where such a dispute exists it is impossible to give the allegations any weight in considering whether or not to grant or maintain interim injunctive relief.

242.	Last, Mr Tregear relied on what he described as the disproportionate effect of the freezing order.  He pointed out that the claim of the DIA is for the enormous sum of $2.1bn, whereas it is said to have now become clear that Mr Pugachev's worldwide assets are worth no more than about $70m.  There is thus no prospect that Mr Pugachev will be able to pay even a significant fraction of any judgment that the DIA obtains.  The effect of that is that the freezing order is out of all proportion to any benefits that the DIA can realistically obtain from it.  Mr Tregear relied on Rasu Maritima SA v Perusahaan [1978] QB 644 as an example of a case where proportionality (or a lack of it) told against the grant or continuation of a freezing order.

243.	Although he did not take me to the case, I assume that Mr Tregear is relying on what Lord Denning MR said at page 663C-D:

"Lastly there is the value of the goods.  If seized and sold as scrap they would total only $350,000.  That is only a "drop in the ocean" compared to the immense claim which Rappaport is making.  And security would only be for that sum.  This amount is so trifling in the circumstances that it does not seem proper to interfere with the construction work on this fertiliser plant to secure it."

244.	Whether or not there is some sort of principle of proportionality involved in the grant of a freezing order in terms of comparing the amount claimed with the assets frozen, I do not think that the present case is one in which any such proportionality has a particularly significant role to play.  It may be that if Mr Pugachev has disclosed all his assets correctly (a fact which the claimants do not accept) then his assets would discharge only a small part of the enormous claim if the claim is good.  However, $70m is still a significant sum.  The fact that it is only a small proportion of the claim does not reduce that significance.  Accordingly, I do not think that disproportionality is a factor which has any weight in this application.

Conclusion
245.	In the circumstances I decline to discharge the injunction that was granted by Henderson J.  

246.	That decision means that consideration will now have to be given to a parallel application to strike out the claim referred to at the beginning of this judgment.  I shall hear the parties on that in due course, so far as may be necessary.