Tugushev v Orlov & Ors (No. 2)

Factual and Procedural Background

This judgment is the second reserved judgment in ongoing litigation involving claims against the Defendant based on his domicile in England. The court previously held that it has jurisdiction to entertain claims against the Defendant and refused permission to appeal that decision, although the Defendant is pursuing renewal of permission to appeal before the Court of Appeal.

The current issues arise following a resumed hearing and concern:

• The Defendant's challenge to a Without Notice Freezing Order ("WFO") and to the order permitting service out of the jurisdiction on grounds of alleged non-disclosure by the Plaintiff in the without notice application;
• The Plaintiff's application to continue the WFO and the Defendant's challenge to that continuation;
• If the WFO survives, the Plaintiff's application for permission to apply in a foreign jurisdiction to freeze assets ("the domestication application").

Legal Issues Presented

1. Whether the Plaintiff breached his duty of full and frank disclosure in the without notice application for the WFO and service out order;
2. Whether the WFO should be continued or discharged;
3. Whether permission should be granted for the Plaintiff to apply in Russia to freeze assets (domestication application).

Arguments of the Parties

Defendant's Arguments

• The Plaintiff deliberately failed to fairly present his prior conviction for fraud.
• The Plaintiff deliberately failed to fairly present the credibility of the Defendant's claim that the Plaintiff divested his shares in a company ("Company A") before taking public office in 2003.
• The Plaintiff deliberately failed to draw the court's attention to his previous statements acknowledging transfer of shares to the Defendant and a third party in 2003.
• The Plaintiff deliberately failed to inform the court of parallel criminal proceedings in Russia.
• The Plaintiff provided misleading evidence regarding the Defendant's domicile.
• The Plaintiff failed (by oversight) to inform the court of evidence allegedly illegally obtained.
• The Plaintiff failed (deliberate or by oversight) to inform the court of findings in Norwegian proceedings that the Defendant was not resident in England.
• The Plaintiff failed (by oversight) to address the court on the application for permission to serve out of jurisdiction under relevant gateways.
• The Plaintiff failed (by oversight) to address the question of governing law of his claims.
• The Plaintiff relied on illicitly recorded conversations without drawing attention to the Defendant's prior comments on those recordings.

Plaintiff's Arguments

• The Plaintiff contends that the conviction was fairly presented and that the court was not materially misled.
• The Plaintiff denies having divested shares in Company A before taking public office and explains his understanding of the relevant Russian law and declarations.
• The Plaintiff asserts that he did not recall or have copies of certain declarations and documents relating to shareholding but accepts their genuineness.
• The Plaintiff explains that previous statements regarding share transfers were either inaccurate or misunderstood but does not amount to non-disclosure.
• The Plaintiff states he did not know of the commencement of criminal proceedings against the Defendant at the relevant time and thus did not withhold this information.
• The Plaintiff acknowledges some lawyers' oversights but denies deliberate non-disclosure in other respects.
• The Plaintiff argues there is a real risk of dissipation of assets by the Defendant based on the merits of the substantive claims and the Defendant's conduct.

Table of Precedents Cited

Court's Reasoning and Analysis

The court undertook a detailed analysis of the Plaintiff's alleged failures of full and frank disclosure in the without notice application for the WFO and service out order. The court identified four main categories of alleged non-disclosure and additional specific matters.

Regarding the Plaintiff's prior conviction for fraud, the court found that while the Plaintiff could have provided fuller detail, the conviction and relevant facts were sufficiently before the court and did not materially mislead.

On the issue of the Plaintiff's shareholding in Company A and related declarations, the court found that recently discovered documents contradicted the Plaintiff's case and should have been disclosed. The Plaintiff's failure to make reasonable enquiries and disclose this material was a serious failure, amounting to reckless disregard of the duty of full and frank disclosure. However, the court did not find on an interlocutory basis that the failure was deliberate, given the Plaintiff's assertion of lack of recollection.

Regarding the Plaintiff's prior statements about transferring shares, the court found no material non-disclosure, as relevant statements were before the court or did not amount to admissions of share sale.

On the failure to inform the court of parallel criminal proceedings, the court accepted the Plaintiff's evidence that he was unaware of the commencement of proceedings against the Defendant at the relevant time and found no material non-disclosure.

The court considered additional alleged non-disclosures and found some to be lawyers' oversights rather than deliberate misconduct. The court accepted that the service out order relating to the contractual claim should be set aside due to such oversights but re-granted in the interests of justice.

In relation to the risk of dissipation, the court analysed the Defendant's assets, primarily his shareholding in a large vertically integrated fishing group ("the Group"), valued at approximately USD 718 million, along with other assets including shares in another company, real estate, and a vehicle. The court found that the Defendant's shareholding forms the vast bulk of his wealth and that it would be difficult or impossible for the Defendant to dissipate the value of this holding quickly or discreetly due to legal, regulatory, and financial restrictions, including significant lender security interests.

The court noted the Defendant's credible evidence that he would not seek to sell or dismantle the business to avoid judgment and that the Defendant's assets are largely held in his own name, not offshore structures. The court found no evidence of improper or unlawful dissipation since 2016, despite the ongoing litigation and criminal complaints.

The Plaintiff's submissions on the risk of dissipation, including alleged dishonest conduct by the Defendant and potential methods of devaluing shares through increased borrowings, were acknowledged but found insufficient to establish a real risk of dissipation justifying continuation of the WFO.

Considering delay, the court accepted that the Defendant had known of the claims for several years without dissipating assets, which militates against a finding of real risk of dissipation.

On balance, the court concluded that there is no real risk of dissipation sufficient to justify continuation or regrant of the WFO. The court emphasized that this does not preclude the Plaintiff from reapplying should material new evidence arise.

Holding and Implications

The court's final decision is as follows:

• The Without Notice Freezing Order (WFO) is SET ASIDE AND DISCHARGED due to the Plaintiff's serious failure to make due enquiry and disclose material documents relating to shareholding in Company A.
• The service out order is SET ASIDE insofar as it relates to the contractual claim but RE-GRANTED on terms as to costs, reflecting a balancing exercise in the interests of justice.

The direct effect is that the Plaintiff loses the WFO but retains the ability to pursue the claims in the jurisdiction, subject to costs consequences for non-disclosure. The court did not find a real risk of dissipation to justify continuation of the freezing order and did not set a new precedent beyond applying established principles. The Plaintiff remains entitled to reapply for freezing relief if new evidence emerges.