Rolls Building, 7 Rolls Buildings
Fetter Lane, London EC4A 1NL
B e f o r e :
| (1) JSC MEZHDUNARODNIY PROMYSHLENNIY BANK
(2) STATE CORPORATION "DEPOSIT INSURANCE AGENCY"
|- and -
|SERGEI VIKTOROVICH PUGACHEV
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
Crown Copyright ©
Mr Justice Mann:
(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.
Short procedural history
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.
A short historical account
(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.
The supported Russian proceedings
"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."
"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."
"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.
Evidential inadequacies - failure to identify the source of hearsay statements
"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.
"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.
"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.]
"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.
"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."
"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."
"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."
"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."
"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)."
"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."
Other background relied on by Mr Pugachev
(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.
Non-disclosure - legal principles
"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."
"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 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."
"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  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)"
"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."
"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."
"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."
"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."
"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."
The Shipyard Interests - what was disclosed?
(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.
The real nature of the shipyards non-disclosure case and the issues arising
The context of the BDO valuation and the allegation of political motivation
"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."
"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".
Non-disclosure about the share sale process – a general point about the possibility of political interference
"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…".
Which valuations did the DIA have?
Were the valuations capable of being material and relevant, and ought they to have been disclosed, on the application?
(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.
(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.
"(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]."
"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."
The non-disclosure about the Shipyard Interests court proceedings - materiality and significance
"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."
"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"
"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."
The general point about non-disclosure of the fact that the CBR's conduct might be affected by political considerations
Non-disclosure of the Restructuring Agreement
Non-disclosure of the lack of merits of the supported Russian claim and its potential duration
(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)
Misrepresentations as to the fate of EPK
Other alleged non-disclosures
"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."
"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."
"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."
The materiality and effect of the non-disclosures
(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.
No arguable case - Mr Pugachev's alleged contribution to the insolvency
"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]."
"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…".
"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."
"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."
"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."
No arguable case - prematurity and limitation
Risk of dissipation
"67. The standard of proof of the risk of dissipation is thus relatively high."
"on appropriately clear and strong facts and risks."
(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.
(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  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.
"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."
"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]."
"[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."
Justice and convenience
"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."