AML: HMRC flexes enforcement muscle to the tune of £7.8 million
This article was first published on Lexis®PSL Dispute Resolution on 27 July 2018.
Dispute Resolution analysis: Following the judgment in PJSC Tatneft, Fiona Simpson, partner at Kingsley Napley LLP, and Karen Scott, professional support lawyer for the firm, consider that it will be an uphill battle for a respondent to a freezing order to persuade the English court that their asset disclosure should be limited to assets to the value of the freezing order only.
Tatneft v Bogolyubov and others  EWHC 1314 (Comm)
In this case one of the defendants, Mr Kolomoisky (K), applied under para 13 of the worldwide freezing order previously made against him and under CPR 3.17, or under the court’s inherent jurisdiction, to vary the worldwide freezing order to limit the extent of the disclosure of his assets. K provided one list of assets in which he stated that he held assets far in excess of the maximum sum frozen. After various applications, an updated list of assets was served. The variation application sought an order that the updated list should constitute the only asset disclosure required of K.
This case demonstrates that although the court has the discretion to limit the extent of an ancillary disclosure order made in support of a worldwide freezing order, it is unlikely to depart from the default position of full disclosure. It will, therefore, be an uphill battle for a respondent to a freezing order to persuade the English court that their asset disclosure should be limited to assets to the value of the freezing order only.
This case also considered whether, to preserve the respondent’s confidential information, the court should impose a confidentiality club on a claimant with the benefit of a freezing order, as to do so
could impose limits on the claimant’s ability to give proper instructions, create professional difficulties and, in this case, was said to create a ‘fraudster’s refuge’.
PJSC Tatneft, the claimant and respondent to the application, was a producer of crude oil located in Tatarstan, Russia. Tatneft issued proceedings in March 2016 claiming damages in the sum of $334m from four defendants including K, alleging that the defendants were involved in a fraudulent scheme to divert payments for oil supplied by Tatneft to a Ukrainian company.
In March 2016 Tatneft obtained a worldwide freezing order prohibiting each of the defendants from disposing or dealing with their assets up to the limit of $380m. In the usual form, the court ordered each of the defendants to disclose their worldwide assets exceeding £10,000 in value, however held.
K gave initial disclosure of his assets, stating that he had assets worth far in excess of the maximum amount frozen. Following various interim applications, K served an updated asset list and applied, under para 13 of the worldwide freezing order and CPR 3.17 or the court’s inherent jurisdiction, to vary the worldwide freezing order to limit the extent of the disclosure of his assets so that no further disclosure was necessary.
Tatneft argued that the disclosure obligations required under a standard worldwide freezing order have been in place since 1994, and there was no good reason for any change in principle. Further, the judicial development of freezing order cases has been to increase the powers and protections afforded to claimants, not to relax them. Examples cited were the extension of the definition of respondent’s assets to include assets in which a respondent only has a legal interest, and the recent case of JSC Mezhdunarodniy Promyshlenniy Bank v Pugachev  EWCA Civ 139,  2 All ER (Comm) 816, in which the Court of Appeal confirmed that the power ancillary to the freezing
order jurisdiction included disclosure of assets in which the respondent had not been shown to have a legal or beneficial interest.
Mrs Justice Cockerill dismissed K’s application. The judge agreed that the standard ancillary order, which has been used for over 25 years, is for full disclosure and that is the default position. She concluded that there was no reason of principle why K could legitimately say he should not have to disclose all his assets.
The judge noted that the disclosure obligations imposed on K were the standard form ancillary disclosure obligations required under a typical worldwide freezing order, used since 1994. The jurisdiction to make an order for disclosure ancillary to a worldwide freezing order arises under section 37.1 of the Senior Courts Act 1981 and/or CPR 25.1(1)(g), if the court is satisfied that it is necessary to ensure the effectiveness of the freezing order. In the recent decision of Pugachev, the
Court of Appeal confirmed that the jurisdiction to make a freezing order carries with it the power to make ‘whatever ancillary power orders are necessary to make the freezing order effective’.
She decided that limited disclosure would amount to a ‘cherry-picker’s charter’, enabling a defendant to deliberately disclose only assets which would be most difficult to enforce against and then sidestep the rest of the obligation—this:
Considering K’s argument that his disclosure was already adequate to police the freezing order, the judge accepted Tatneft’s arguments that the valuations of K’s assets were questionable, there had been a substantial reduction in value of the assets since disclosure, competing claims had been issued against the defendants and the assets which K had disclosed did not appear to be enforcement-friendly.
K also argued that full disclosure would prejudice him because the proceedings against him were politically motivated and his assets might be seized by the Russian government. The judge held that,
on the evidence, it was not appropriate to exercise her discretion not to order full disclosure of K’s assets in Ukraine or Russia. However, because K is a high-profile person at odds with the Russian government, and information relating to K’s assets in Ukraine and Russia is highly confidential, she ordered that the asset disclosure be protected by a confidentiality club.
Interviewed by Kate Beaumont.
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