Summary

A court declared that if Russian enforcement proceedings against a former bank chairman were to conclude that a pledge of shares by him as security in a business transaction had been perfected, then he was in breach of receivership and freezing orders and should use his best endeavours to intervene in the Russian proceedings. That declaration could serve a useful purpose and was not purely academic.

Facts

The applicant bank (J) applied for an order declaring that if Russian enforcement proceedings found that the respondent (M) had pledged shares as security for a business transaction then he was in breach of the receivership and freezing orders against him, and that M was to use his best endeavours to intervene in those proceedings.

M, who was J's former chairman, had been made subject to a worldwide freezing order in 2009 and a receivership order in 2010 following applications by J. The Russian proceedings were concerned with the assets of another bank which had remained under M's control until it had gone into liquidation. In part, the Russian court had to decide whether M had perfected a pledge of shares as security for a business transaction of that bank. As M was the beneficial owner of the shares, they were assets which were caught by the receivership and freezing orders.

M submitted that (1) the pledge was never perfected because the bank had sufficient security elsewhere; (2) he was not entitled to intervene in the Russian proceedings. J contended that M's evidence in respect of the shares had to be treated with scepticism as he had been found to be a serial contemnor and an untrustworthy witness.

Held

(1) It was quite clear that if M had dealt with the shares, including by way of a pledge, he was in breach of the receivership and freezing orders. However, J was not inviting the instant court to decide whether the pledge had been perfected, but instead to declare that if it had been, M was in breach of the orders. J was only required to show that the order sought by way of a declaration might serve some useful purpose in Russia in order to demonstrate that it was not purely academic. The precise grounds on which the claim against M was being advanced in Russia remained unclear, but the receivers had indicated that the Russian court might order specific performance of the pledge agreement in order to perfect it, irrespective of whether the shares were registered on the share register. It was at least arguable that the Russian court would recognise the receivership order and the declaration sought could therefore serve some useful purpose. (2) The court did not need to determine whether M was entitled to intervene in the Russian proceedings. All that M was asked to do in the proposed order, in respect of intervening, was to use his best endeavours. Even if he was not permitted to intervene, he would have used his best endeavours in trying, and if he was permitted then a useful purpose would have been served. Given the history of M's defaults, the balance fell firmly in favour of J; the court would exercise its discretion to make the order.

Application granted