The Isle of Man’s Staff of Government Division has allowed an appeal and made a disclosure order against a non-cause of action defendant to a freezing order and interveners who were contending that a freezing order should be discharged. In doing so, the Court affirmed the flexibility of the jurisdiction to make ancillary orders to support freezing relief. This is an important case for showing that common law courts are able and willing to order disclosure of documents prior to a discharge hearing of freezing injunctions in appropriate cases.

Andrew McLeod and James Mitchell, instructed by Mark Holligon and Claire Corkish of Appleby (Isle of Man), acted for the successful appellant.

Facts

The proceedings concern the enforcement of a Russian judgment and an LCIA arbitration award in favour of two VTB entities (“the Bank”) against a Russian businessman, Dmitry Mazurov (“Mr Mazurov”). The Bank had obtained worldwide freezing orders against Mr Mazurov, and two Manx companies who the Bank contends were owned by Mr Mazurov (or otherwise amenable to execution). One of those companies was Campino Limited (“Campino”). The freezing order against the Manx companies was made under the Court’s jurisdiction to freeze assets of non-cause of action defendants (“NCADs”), the Chabra jurisdiction after the leading case of TSB Private Bank International S.A v Chabra [1992] 1 WLR 231.

Campino applied to discharge the freezing order on the basis that it was not an asset beneficially owned by Mr Mazurov, and the assets of Campino would not be amenable to execution to satisfy the judgments or awards against Mr Mazurov. Campino contends that it was sold by Mr Mazurov to Global Marine Fuel (GMF) LLP (“GMF”). GMF and its ultimate beneficial owners (together “the GMF Parties”) were joined to proceedings to support Campino’s discharge application.

The Bank applied for limited disclosure from Campino and the GMF Parties in respect of communications between them and Mr Mazurov along with certain transactional and valuation documents. Importantly this was before the Bank had (or were required to) put in their responsive evidence to the application for discharge.

At first instance, the First Deemster, His Honour Deemster Corlett, dismissed the disclosure application. The Deemster found that the appropriate test for the disclosure application was whether it was “just and convenient” to make the order. However, the Deemster made findings which largely focused on the beneficial ownership of Campino and decided that the evidence of the Bank did not satisfy the ‘good reason to suppose’ standard to allege that the assets of Campino were amenable to enforcement. The Bank appealed to the Staff of Government Division.

Held

On appeal, the Court (Judge of Appeal Storey QC and Deemster Bailhache) affirmed that the question on the discharge application is not strictly limited to the beneficial ownership of the shares in Campino ([19]-[21]). In doing so, it recognised the wider jurisdiction the Court has to grant freezing relief and to enforce judgments. The Court recognised that it might be argued the transaction was a tainted gift, a transaction at an undervalue, or a sham – all of which would arguably lead to a way for the Bank to use the assets of Campino to satisfy Mr Mazurov’s judgment debts. The Court, therefore, found that the Deemster had erred by focusing his analysis on simply the beneficial ownership of the company.

The Court (at [25]) also endorsed the comments of Patten LJ in JSC BTA Bank v Solodchenko [2011] 1 WLR 888 at [39], that if there were schemes to put assets beyond the reach of creditors, it would be unsurprising if the documentary trail appeared convincing.

The Court found that the Deemster had applied the wrong test at first instance. It endorsed the test for disclosure being what is just and convenient; however, it found that the Deemster had erred by nonetheless applying the standard of ‘a good reason to suppose’ to the evidence required of the Bank to support its application. The Court endorsed JSC MP Bank v Pugachev [2016] 1 WLR 160 which concerned disclosure orders under CPR r.25.1(1)(g), noting that the threshold test for making a disclosure order (some credible material) was not the same for a freezing order, as an order for disclosure was less intrusive. The Court found that at [35]:

“There was credible evidence that the [Campino] might be an asset of Mr Mazurov and thus available in enforcement proceedings. That is not making a factual finding, and certainly not a finding that it is a company beneficially owned by him. It signifies merely that on the discharge application the question whether the share in the [Campino] might be an asset available for the purposes of enforcement is a central issue in respect of which all relevant material ought to be before the court.”

The Bank also succeeded on two other grounds of appeal, which related to the treatment of the evidence before the Deemster at first instance, and the breadth of any disclosure order. The Court of Appeal decided to exercise its discretion, rather than remitting the matter, and made an order for disclosure.

This case is of real significance to practitioners across common law jurisdictions in seeking to preserve assets held through opaque structures. It is of particular importance to strengthening the Chabra jurisdiction, by ensuring that claimants (who can be at a distinct disadvantage to the documentary evidence they have access to) can fairly defend applications to discharge freezing orders when it is alleged an asset is not (or no longer) owned by the cause of action defendant when there is some credible material that the asset is or was owned or controlled by the cause of action defendant in such a way that it is amenable to enforcement.