Jersey Unreported Judgments

Companies - cross-summons of Second and Fourth Defendants seeking a stay of disclosure orders pending an application to the Court of Appeal for leave to appeal.

[2012]JRC027

Royal Court

(Samedi)

1 February 2012

Before     :

M. C. St. J. Birt, Bailiff, sitting alone.

 

Advocate S. M. Baker for the Plaintiff.

Advocate P. G. Nicholls for the Second and Fourth Defendants.

judgment

the bailiff:

1.        On 30th January, the Court sat to consider two representations brought by the plaintiff and a cross-summons brought by the second and fourth defendants.  The first representation was against the first defendant and alleged that he was in contempt by failing to comply with certain disclosure orders contained in a re-issued Order of Justice dated 25th November 2011 ("the Order of Justice").  The second representation was against the second and fourth defendants and alleged that they too were in contempt for failing to comply with the disclosure orders against them in the Order of Justice. 

2.        The summons issued by the second and fourth defendants sought a stay of the disclosure orders pending an application to the Court of Appeal for leave to appeal against a decision of the Deputy Bailiff dated 12th January 2012, when he refused to discharge or vary the disclosure orders against them.

3.        The Court was informed that Advocate Thompson - who had hitherto acted for the first defendant - was no longer acting for him as from the middle of last week.  In those circumstances, it would clearly have been inappropriate to proceed to consider the allegation of contempt without giving him an opportunity of instructing another advocate to represent him.  Accordingly the representation against the first defendant was adjourned. 

4.        There was a second reason for adjourning that representation, which applied equally to the representation against the second and fourth defendants.  The case was inadvertently listed before me alone.  However, on an allegation of contempt of this nature, Jurats would clearly be required in order to find the facts and determine any penalty.  This also required that the representations be adjourned.

5.        In any event, it rapidly became clear that the most urgent matter for decision was the summons by the second and fourth defendants for a stay of the disclosure orders pending their application for leave to appeal to the Court of Appeal against the decision of the Deputy Bailiff on 12th January. The Deputy Bailiff had refused leave to appeal. 

6.        At the conclusion of the hearing, I refused the application for a stay pending the application for leave to appeal but I granted a limited stay of eight days until 7^th February in order to give the second and fourth defendants an opportunity of going before a single judge of the Court of Appeal with a view to challenging my decision to reject a stay.  I now give the reasons for my decision.

Factual background

7.        I propose to set out the factual background only briefly for two reasons.  First, it is important that my reasons are available promptly so they can be considered by a single judge of the Court of Appeal within the timescale that I have set. Secondly, the factual background is set out fully in two judgments of the Deputy Bailiff and reference should be made to those judgments for the full picture.  The first judgment is at [2012] JRC 014 and contains the Deputy Bailiff's reasons for refusing on 12th January to vary the disclosure order in the Order of Justice against the first defendant.  The second judgment is headed "Draft judgment dated 19 January 2012", but I was advised that it contains the reasons subsequently released by the Deputy Bailiff for his decision - also on 12th January - refusing to discharge or vary the disclosure orders against the second and fourth defendants.  I shall refer to that judgment as the "second judgment". 

8.        The plaintiff is a Cyprus company. The first defendant is a Russian national residing in Russia. The second defendant is a Jersey foundation.  The third defendant is incorporated in the British Virgin Islands (BVI). The fourth defendant is incorporated in Cyprus and is wholly owned by the second defendant.

9.        In briefest detail, the plaintiff has obtained two judgments for substantial sums in Russia against the first defendant.  The plaintiff alleges that the first defendant divested himself of substantial assets immediately after the judgments and placed these assets in a structure at the head of which lies the second defendant.  In the Order of Justice, as well as seeking judgment for the sums found to be due by the Russian courts, the plaintiff seeks orders enabling it to pierce the corporate veil of the second defendant so that the Russian judgments can be enforced against the assets of the second defendant, which include the shares in the fourth defendant and a whole raft of underlying companies incorporated in the BVI and Cyprus, which are alleged to hold valuable real estate assets.  The alternative basis of claim is a Pauline action by which the plaintiff asserts that it can set aside the various transactions whereby the companies under the fourth defendant were transferred into the ultimate ownership of the second defendant. It is said that these transactions were made with the intention and purpose of defeating the plaintiff's ability to enforce the Russian judgments against the first defendant.  The result, if the plaintiff succeeds, is that the shares in the BVI companies would be returned to the ownership of the third defendant, which is asserted to hold those shares on trust absolutely for the first defendant.

10.      The Order of Justice contained freezing orders granted ex parte against the first and second defendants. The injunctions also included a requirement, inter alia, for disclosure by the first, second and fourth defendants of their world wide assets, giving the value, location and details of all such assets.

11.      The first defendant applied for a variation of the disclosure order so as to limit his disclosure to assets in Jersey and to discharge him from any obligation to provide information relating to companies ultimately owned by the fourth defendant.  The Deputy Bailiff rejected that application in the first judgment.  He granted leave to appeal and ordered a stay of the disclosure order pending appeal, conditional upon the first defendant providing full worldwide disclosure in an affidavit to be filed with the Court (but not supplied to the plaintiff) by close of business on Monday 16th January, failing which the stay would be lifted automatically. 

12.      The first defendant did not file such an affidavit with the Court until the morning of Tuesday 17th January with the result that the stay has been lifted in accordance with the order of the Deputy Bailiff.  In the absence of legal representation, no application to reinstate the stay pending appeal has been pursued.  The first defendant is therefore in breach of the disclosure order against him.

13.      So far as the second defendant is concerned, an affidavit in purported compliance with the disclosure order was filed on 16th December but it has been accepted that this did not comply with the order because it provided no details of the underlying assets of the fourth defendant (which is wholly owned by the second defendant) outside Jersey.

14.      As to the fourth defendant, on 21st December it applied for an extension of time until 12th January to give the requisite disclosure.  There was an unsworn affidavit on behalf of the fourth defendant saying that a valuation report on the Russian real estate assets would be ready by mid January.  The Deputy Bailiff granted an extension to 12th January on condition that the fourth defendant provided a list of the real estate it held directly or indirectly or through a subsidiary company in which it had a more than 50% interest, by 23rd December.  That condition was not met and the fourth defendant has therefore been in contempt since then.  In an affidavit filed on 6th January, it said that it did not wish to comply pending a challenge to the disclosure order. 

15.      That challenge was made at the hearing before the Deputy Bailiff which began on 5th January.  Both the second and fourth defendants sought removal of the disclosure order or, in the case of the fourth defendant, a variation to limit the disclosure obligation to Jersey situated assets.

16.      In the second judgment, the Deputy Bailiff rejected the applications and refused leave to appeal.  The fourth defendant remains in contempt in that it has not filed and provided to the plaintiff a list of real estate as directed by the Deputy Bailiff on 21st December. 

17.      However, on the afternoon of 29th January (i.e. the working day before the hearing of this summons) the second and fourth defendants filed affidavits with the Court but which were not supplied to the plaintiff.  In doing this, the two defendants sought to replicate the arrangements which had been ordered by the Deputy Bailiff in respect of the first defendant; but there was of course no order to this effect in their cases.  I have not seen these affidavits. During the course of the hearing I asked Advocate Nicholls, as an officer of the Court, to describe their nature. It is clear that they do provide much information about the underlying companies but they do not provide information about the underlying real estate which is owned by the various Cyprus subsidiaries.  From what the Court was told, there would appear to be scope for argument between the parties as to whether, once released to the plaintiff, the affidavits do or do not comply with the disclosure orders.

Grounds for the application

18.      By notice dated 24th January, the second and fourth defendants have applied for leave to appeal against the decision of the Deputy Bailiff contained in the second judgment.  It is against that background that they now apply for a stay of the disclosure orders pending consideration of their application by the Court of Appeal.

19.      Advocate Nicholls argued strongly that, in the light of the application for leave to appeal, it would be wrong not to stay the disclosure orders. I would summarise his arguments as follows:-

(i)        There were strong grounds for arguing that the decision of the Deputy Bailiff to maintain the disclosure orders was wrong both in law and as a matter of discretion.  The notice of appeal listed 21 points of criticism of the decision.

(ii)       If no stay was granted, any successful appeal against the disclosure orders would be rendered nugatory. Information, once disclosed, cannot be retrieved.  Furthermore, the plaintiff was outside the control of the Court and it would be impossible to police disclosure to third parties of any information provided pursuant to the court order.

(iii)      As described at paragraphs 7 - 9 of the first judgment, the plaintiff had obtained freezing injunctions from the courts in the BVI and Cyprus, supplemented in the former case by the appointment of an Interim Receiver.  The underlying assets of the fourth defendant were therefore 'locked down' and this meant that there was no real need for disclosure in Jersey in order to police the Jersey injunctions. 

(iv)      In any event, the plaintiff was already aware of much detail concerning the assets owned directly or indirectly by the fourth defendant as appeared from the affidavit in support of the Order of Justice.  Again therefore, this reduced the importance of the disclosure order for the purposes of policing the Jersey injunction. 

(v)       There was no freezing injunction against the fourth defendant, yet it had been ordered to give disclosure of its worldwide assets. This was unprecedented and there were good grounds for arguing before the Court of Appeal that such an order had been wrongly granted.  Furthermore, the fourth defendant proposed to dispute the jurisdiction of the Jersey courts in any event.

(vi)      For these reasons, the prejudice which would be suffered by the second and fourth defendants in wrongly being ordered to disclose confidential information (on the hypothesis that the appeal would succeed) greatly exceeded the prejudice that the plaintiff would suffer, namely deferral of the production of the information until the application for leave to appeal to the Court of Appeal had been determined.

20.      The only authority to which I was referred was the case of Motorola Credit Corporation v Uzan and others [2002] EWCA Civ 989, which was relied upon by Advocate Redgrave.  In that case, worldwide freezing orders had been obtained against the defendants and they applied to set those orders aside. The freezing orders were accompanied by disclosure orders relating to the worldwide assets of the defendants. The defendants applied for a stay of the disclosure orders pending consideration of their application to discharge the freezing orders. The judge at first instance refused a stay on the grounds that, prima facie, or in principle, disclosure orders were part and parcel of the freezing order jurisdiction and that the circumstances relied on by the defendant did not take the case out of the norm. His reasoning is summarised in the following passage of his judgment:-

"I cannot accede to those submissions. It is notable that it is accepted in principle that the freezing order itself should stand pending the outcome of the inter partes hearing and the requirement for disclosure is a standard and, in my judgment, important part of the order. It is prima facie inappropriate to carve the order up in a way which the defendants seek to invite the court to do, so as to allow what might be described as the restraints to stand but the mandatory requirements for disclosure to be put on hold. ..."

21.      The defendants appealed to the Court of Appeal. Their grounds were summarised at paragraph 20 of the judgment of Waller LJ as being:-

"(i) Unless a stay is granted, the claimants will obtain the benefit of this part of the order (arguably the most important part) before the merits of their application have been adjudicated upon, information once given cannot be retrieved.

(ii) This would only be justifiable in circumstance in which the stay would cause the claimants extreme prejudice, exceeding the prejudice which would be caused to D1 by the refusal of the stay, but in fact no prejudice at all would be caused by a stay.

(iii)The grounds on which continuation of the order is opposed are substantial, and D1's application to discharge it has a reasonable prospect of success." 

The Court of Appeal, by a majority, dismissed the appeal and endorsed the approach of the judge at first instance. 

22.      At paragraph 27 of his judgment, Waller LJ said this:-

"Mr Strauss attacks the basis on which David Steel J directed himself. He suggests that David Steel J was in essence saying that in all cases where a Mareva injunction has been granted and in which a disclosure order has been made, then if pending the hearing of an application to set the whole order aside, the whole order is not suspended, there is no basis on which there should be a suspension simply of the disclosure order. In my view that is not a proposer reading of David Steel J's decision.  He used the words "prima facie" deliberately because he did appreciate that there might be circumstances in which a disclosure order should be suspended while the setting aside of the full freezing order was being considered. But the fact that the making of a disclosure order is a very important part of the Mareva jurisdiction is made clear in a number of authorities..."

23.      Waller LJ went on to quote from the case of Grupo Torras SA v Sheik Fahad Mohammed Al-Sabah (CA, 16.2.94) where Steyn LJ said this at page 3 of his judgment:-

"Mr Andrew Smith QC who appeared for Sheik Fahad, submits that Waller J misdirected himself in two respects.  First, he submits that the judge misdirected himself as to the nature of his discretion. He says in fact that the discretion is a narrow one. He put it this way: Where the court, as in this case, can see that there is, or is likely to be, a serious challenge to its jurisdiction it should, in normal circumstances, refuse any sort of relief which cannot be undone if the court has no jurisdiction. It should only grant such relief if there are exceptional circumstances justifying it. He says the basic error made by Waller J was to require disclosure in the absence of such circumstances. I am not sure what the phrase 'exceptional circumstances' in this submission means. After all, it is already the law that a worldwide Mareva to which a disclosure Order is ancillary should only rarely be made and only if there are exceptional circumstances. Presumably, the submission means that something more is required to obtain a disclosure order if there is a challenge to jurisdiction.

...

The consequences of accepting Mr Smith's submission must be considered. If the direction to make a disclosure order is as narrow as Mr Smith says, the worldwide Mareva injunction will be [a] relatively toothless procedure in the fight against rampant transnational fraud. In many such cases, despite a cogent case of fraud, the connections of transactions with different countries will enable a defendant to raise jurisdictional challenges which may take months to resolve at first instance, many months to determine in the Court of Appeal and even longer to decide in the House of Lords. And there may be a reference to the European Court. During such a lengthy delay it would be impossible to 'police' the Mareva injunction, and that is the purpose of the disclosure order.

...

Despite Mr Smith's attractive and careful arguments, I consider that the power to order a disclosure order is not limited in the way he submits. When rarely and in exceptional cases a worldwide Mareva is granted, a disclosure order will usually follow. On the other hand, I would emphasise that a disclosure [order] should only be made for a purpose for which the power exists, namely to 'police' the Mareva injunction. But when one bears in mind the exceptional nature of the remedy of a worldwide Mareva injunction, I do not find it at all surprising that Waller J said that such disclosure orders are commonly annexed to worldwide Mareva injunctions. In my view the judge did not misdirect himself in respect of the nature of his discretion."

24.      Waller LJ went on to point out at paragraph 28 of his judgment:-

"Steyn LJ also recognised that undoubtedly there would be prejudice to the Sheik in that case if he was forced to disclose his assets and ultimately managed to set aside the proceedings for want of jurisdiction, but Steyn LJ emphasised that that was not anywhere near as much prejudice as would be suffered if the claimant was unable to police the Mareva injunction for some time."

25.      In my judgment, the approach adopted by the Court of Appeal in Motorola is equally applicable in Jersey.  The starting point therefore is that, for so long as a freezing injunction is in force, it is normally appropriate for the accompanying disclosure order also to remain in force so as to enable the freezing order to be policed. But that does not mean that a disclosure order will invariably be maintained pending challenge to a freezing order or to the disclosure order itself. The Court is still required to consider the circumstances of the particular case and decide whether the balance comes down in favour of maintaining the disclosure order or staying it pending the challenge to either the freezing order or the disclosure order.

26.      I have carefully considered the submissions put forward by Advocate Nicholls, but in my judgment there should not be a stay of the disclosure order in this case pending the application for leave to appeal against that disclosure order by the second and fourth defendants. I would summarise my reasons for so concluding as follows:-

(i)        Advocate Nicholls submitted that the Deputy Bailiff had treated the disclosure orders against the second and fourth defendants as a form of post judgment relief rather than as being necessary to police the injunctions against the first and second defendants. In my judgment, this is clearly not so. The Deputy Bailiff specifically considers this aspect at paragraph 16 - 18 of the second judgment and rejects the submission that the worldwide disclosure orders were not granted to police the injunctions against the first and second defendants.

(ii)       We are therefore in much the same terrain as is covered by the Motorola decision. The second and fourth defendants wish to set aside or vary the disclosure orders. They have failed in this respect at first instance before the Deputy Bailiff but now seek to appeal.  The question is whether those disclosure orders should be maintained in the meantime so as to police the freezing orders against the first and second defendants, which remain in force.

(iii)      I do not consider it significant that there is no freezing order against the fourth defendant. It is extremely  common in Jersey for 'parties cited' (such as banks and trust companies) against whom there is no claim as such, to be made the subject of freezing and disclosure orders in relation to the assets of the defendant(s) against whom substantive relief is sought. There is nothing unusual about the fact that the fourth defendant has been ordered to disclose information so as to police injunctions against the first and second defendants.

(iv)      I note that there are proceedings in the BVI and Cyprus where interim relief has been obtained and that the plaintiff is aware of a fair amount of detail already concerning the assets of the fourth defendant. But the background to this case is an allegation, supported by the affidavit sworn at the time of the Order of Justice, that the first defendant has sought to render the Russian judgments nugatory by divesting himself of his assets.  There are reasonable grounds for supposing that the ability to police the freezing injunctions is particularly significant in this case.

(v)       The fourth defendant accepts that it remains in contempt by having failed to comply with the order requiring it to provide a list of real estate owned by its various subsidiary companies. Advocate Nicholls accepted that even the detailed affidavit filed only with the Court immediately prior to the hearing did not contain such a list despite the fact that it had been said earlier on behalf of the fourth defendant that it hoped to obtain a valuation of all the real estate by mid January. 

(vi)      At paragraph 25 of the second judgment, the Deputy Bailiff stated that he was led to think that the fourth defendant was indulging in procedural tactics with its co-defendants which might have the effect of making it harder for the plaintiff taking proper steps to enforce the Russian judgments. As he emphasised, time is of the essence in cases of this nature.

(vii)     I accept that prejudice will be caused to the second and fourth defendants if they have disclosed information pursuant to the disclosure orders in circumstances where those orders are subsequently discharged by the Court of Appeal. However, I consider that that prejudice is very much less than the prejudice which would be suffered by the plaintiff in not being able to police the freezing injunctions against the first and second defendants until the outcome of the case before the Court of Appeal. Given the background to this case, it seems to me that there is a real risk that assets could be hidden or dissipated in the interim period.  As was stated in the passage from the judgment of Steyn LJ above, a Mareva injunction without a disclosure order is a relatively toothless instrument.

27.      For all of these reasons, I conclude that the balance comes down clearly in favour of maintaining the disclosure orders pending the application to the Court of Appeal. I decline therefore to stay the disclosure orders pending appeal and I direct that the affidavits lodged by the second and fourth defendants with the Court should be released to the plaintiff so as to comply with the disclosure orders.

28.      Notwithstanding that decision, I have however decided to grant short term relief in order to allow the second and fourth defendants a chance to challenge my decision before the Court of Appeal. I therefore grant a limited stay until the close of business on 7th February so as to give the second and fourth defendants an opportunity of going before a single judge of the Court of Appeal with a view to seeking to persuade such judge that my decision is wrong and that the disclosure orders should be stayed pending application to the Court of Appeal.

Authorities

Dalemont v Senatorov and Others [2012] JRC 014.

Motorola Credit Corporation v Uzan and others [2002] EWCA Civ 989.

Grupo Torras SA v Sheik Fahad Mohammed Al-Sabah (CA, 16.2.94).