BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
7 Rolls Buildings, Fetter Lane London, EC4A 1NL |
||
B e f o r e :
____________________
NATIONAL BANK TRUST (a company incorporated in Russia) |
Claimant |
|
- and - |
||
ILYA YUROV (1) SERGEY BELYAEV (2) NIKOLAY FETISOV (3) NATALIYA YUROVA (4) IRINA BELYAEVA (5) ELENA PISCHULINA (6) |
Defendants |
____________________
2nd Floor, Quality House, 6-9 Quality Court, Chancery Lane, London WC2A 1HP.
Telephone No: 020 7067 2900. DX 410 LDE
Email: info@martenwalshcherer.com
Web: www.martenwalshcherer.com
MR MAX DAVIDSON (instructed by Gresham Legal) for the Fifth Defendant
____________________
Crown Copyright ©
MRS JUSTICE COCKERILL :
Factual Background
i) In October 2014 (just two months before the Bank collapsed), Mr Belyaev transferred £5 million to his wife which was remitted to an account in the UK.ii) Prior to transferring that money, Mr and Mrs Belyaev were each (as a matter of Russian law) 50% owners of the £5 million.
iii) These funds were deposited with a company called Vestra Wealth (the "Vestra Account") and used to purchase UK Government Bonds. At trial, Mr Belyaev claimed that this £5 million was a gift to his wife intended to facilitate her acquiring a UK investor visa. Mrs Belyaeva's evidence was consistent with this case.
iv) However, the only contemporaneous document produced, a "memorandum of deed of gift" referred to a much smaller gift of £1.2 million. The Judge rejected the Belyaevs' evidence that a much larger gift had been intended but only partly documented.
v) The Judge therefore found that:
a) The documented sum of £1.2 million had been genuinely gifted by Mr Belyaev to his wife;b) Mr Belyaev had however retained the beneficial interest in 50% of the balance of £3.8 million, i.e. £1.9 million, and that sum had been held by Mrs Belyaeva on resulting trust for her husband.
9.1. First, an order dealing with various consequential matters (the "27 February 2020 Order") including an order for indemnity costs against the Shareholders, a payment on account of costs of £5 million (which has not been paid) and various declarations in relation to the asset transfers to the Shareholders' wives; and
9.2. Second, a post-judgment worldwide freezing order to which both of the Belyaevs are respondents (the "Post-Judgment WFO"). This replaced an earlier pre-judgment WFO granted in 2016 to which Mrs Belyaeva was party as a Chabra Defendant.
i) The Fifth Defendant has exhibited a portfolio valuation report from Vestra Wealth showing the movements of money in the Vestra Account between 1 January 2016 and 31 December 2019
ii) According to a letter issued by LGT Vestra LLP dated 14 February 2020:
a) Between 9 March 2016 and 12 November 2019, a total of £2,792,677.81 was paid to Fried, Frank, Harris, Shriver & Jacobson (London) LLP ("Fried Frank") in respect of the Second and Fifth Defendant's legal fees. On 26 February 2016, the Claimant was informed by Fried Frank that the government bonds held in the Vestra Account would be sold from time to time to fund the legal representation of both the Second and Fifth Defendants.
b) Between 13 April 2016 and 21 January 2020, US$ 1,929,398.03 and €8,000 was paid out of the account for living and other expenses.
c) On 13 February 2020, there was £1,373.233 remaining in the Vestra Account.
iii) Mrs Belyaeva has estimated in her evidence that much less than 10% of the expenditure on legal fees paid out of the Vestra Account related to her legal advice and representation by Fried Frank. She says that only three paragraphs of a 197-page pleading related to her, and about 10 paragraphs out of 1,945 in the judgment related to the claim against her. She was cross-examined for less than 20 minutes, whereas Mr Belyaev was cross-examined for five days. She says that the fact that the legal fees had been incurred by her husbandwas recognised by the Claimant in its submissions on this application for permission to appeal, in which it said that the Second Defendant spent around £3 million on his defence.
i) As the Judge had found, £1.9 million of the original £5 million belonged to Mr Belyaev (being 50% of the £3.8 million that was not required for the UK investor visa);ii) £1.9 million is 38% of £5 million; and
iii) It followed that the Bank's claim was limited to 38% of the £1.4 million Balance or about £532,000 (the balance being owned by Mrs Belyaeva).
"27. I consider that this gives rise to an issue of principle on which the parties are not in agreement, that has developed somewhat during the course of argument, and which has not been fully argued before me today, including arguments that are said to arise in relation to the alternative claim under Section 423 of the Insolvency Act 1986, with some matters only being ventilated in reply (and further submissions in relation to such reply).
28. I do not consider that it would be appropriate to make any binding ruling at this time in relation to the second aspect of relief that is sought. I consider the appropriate time to consider and determine any such matter is in the context of any enforcement action in relation to the monies that are in the Vestra Wealth Management account. If and when it becomes necessary to determine the issue of principle between the parties in the context of enforcement, I can see the sense (so far as that proves to be practicable) of any associated hearing being before me given my knowledge of the background to the matter, albeit that ultimately it is a discrete issue capable of being determined by any judge.
29. Accordingly, I will order that if, in due course, there is enforcement action taken in relation to the Vestra Wealth Management account, then so far as practicable, it will be listed before me. Otherwise, like enforcement against any other asset, it will be dealt with by whichever judge it comes before."
"6. The Fifth Defendant held £1.9 million of the £5 million of UK Government Bonds deposited in her account with Vestra Wealth Management (the "Vestra Account") on resulting trust for the Second Defendant and the Fifth Defendant was the beneficial owner of the remaining £3.1 million of bonds in the Vestra account.
7. The Claimant having accepted that its claim to enforce against the bonds and/or funds in the Vestra account is limited to 38% of the bonds and/or funds currently held in that account ("the 38%"), the Fifth Defendant is the legal and beneficial owner of 62% of the bonds and/or funds currently held in the Vestra account ("the 62%") and, for the avoidance of doubt, nothing contained in this Order or the Post-Judgment WFO shall interfere with or otherwise affect the Fifth Defendant's ownership of or ability to deal with the 62%.
8. The issues of (i) whether the 38% (or any part thereof) is held on trust for the Second Defendant and (ii) what if any relief should be granted under sections 423-425 of the Insolvency Act 1986 in respect of the 38% (or any part thereof), are to be determined in any future enforcement proceedings with respect to the Vestra Account, with the matter to be listed before Mr Justice Bryan (if available)."
The Applications
"Fried Frank's engagement letter will no doubt explain the basis of their fees and who is responsible for them. It appears to be your position that you are only responsible for 10% or so of their fees, but there are no documents to support this. Thus, the Bank will be asking the Court to infer – absent disclosure - that you and your husband were jointly and severally liable for the costs that were incurred."
i) Her involvement in the litigation and her potential financial exposure was very limited. She was only ever liable to Fried Frank for work done in respect of the worldwide freezing order and her defence of the limited claim against her.ii) Fried Frank only ever issued one letter of engagement in relation to the Fifth Defendant, and that concerned her representation for the worldwide freezing order. There was no separate letter of instruction relating to the substantive claim, although the Fifth Defendant instructed Fried Frank to represent her.
iii) All invoices issued by Fried Frank were marked for the attention of the Second Defendant. The case file name on all the invoices was "RE: Representation of respondents to a worldwide freezing order". Although the Fifth Defendant was named at the top of the invoices along with the Second Defendant, the invoices were only ever sent to the Second Defendant, and were never sent to the Fifth Defendant.
iv) The Fifth Defendant considers she was named on the invoices not because she was liable for them, but because Fried Frank never updated its case file name. The invoices related overwhelmingly to the legal defence of the Second Defendant, and not to work done on behalf of the Fifth Defendant.
v) The Fifth Defendant authorised payment of Fried Frank's legal fees from the Vestra Account at the request of the Second Defendant.
vi) The Fifth Defendant considers that she was not liable to Fried Frank for the fees invoiced insofar as they related to the legal expenses of the Second Defendant. It would not have made sense for the Fifth Defendant to agree to be liable for USD 2.8 million in fees when the case against her was extremely limited in scope, complexity and value.
vii) The Second Defendant requested that the Fifth Defendant pay Fried Frank's fees from the money held in the Vestra Account as no other money was readily available to him or the Fifth Defendant.
viii) The Fifth Defendant considers that the £1.9 million which she held on trust for the Second Defendant was exhausted by payment of the Second Defendant's legal fees and living expenses, paid at his request.
ix) There was a clear understanding that any money in the Vestra Account found to belong to the Second Defendant would be spent first, before any of the Fifth Defendant's money was spent, and that the Second Defendant would repay any of the legal expenses and living costs paid by the Fifth Defendant. That was because the litigation was the Second Defendant's litigation, and his matter to resolve.
i) First, whether the 38% belongs beneficially to Mr Belyaev or Mrs Belyaeva;ii) Second, whether relief should be granted under the Insolvency Act in respect of the 38%;
iii) Third, whether the interim charging order granted on 17 March 2020 should be made final; and
iv) Fourth, whether the Post-Judgment WFO should be varied and discharged as against Mrs Belyaeva.
Issue 1: Beneficial Ownership of The 38%
i) There was one initial lump sum contribution of £5 million into the Vestra Account (as opposed to a series of contributions from different sources over time);ii) It has already been determined that 38% of that lump sum contribution belonged in equity to Mr Belyaev and that the remaining 62% belonged to his wife;
iii) That £5 million was used to purchase an unsegregated pool of bonds;
iv) A large number of the bonds have been sold from time to time to raise cash and the cash has then been paid out of the account but there are none-the-less a substantial number of bonds remaining. Those remaining bonds represent the traceable proceeds of the initial £5 million cash contribution.
i) There is no logic or legal principle behind these arguments. She submits that a resulting trust creates a bare trust, and the beneficiary is absolutely entitled to the trust property: Snell's Equity 34th Ed., paragraph 21-022.ii) The trustee of a trust for a beneficiary absolutely entitled has a duty to transfer the property to or at the direction of the beneficiary, assuming that the beneficiary is of full age and capacity and so able to give a valid direction and receipt, that the property is capable of transfer by the trustee in the manner directed, and that the trustee has no unsatisfied right of indemnity against the trust property: Lewin on Trusts, 20th Ed., paragraph 1-037.
iii) That is unaffected by the fact that a fund may be a mixed fund.
Discussion
Issue 2: The Insolvency Act relief
Issue 3 – The Charging Order
Issue 4 – The WFO
The judgment has been approved by the Justice.