Kireeva v Bedzhamov

Factual and Procedural Background

This decision concerns cross-applications to vary paragraphs 6 and 8 of an earlier court order dated 9 November 2022. That order granted common law recognition to the Russian trustee in bankruptcy ("the Trustee") of the Appellant, following a remittal of certain issues by the Court of Appeal, and included costs orders related to both the remittal and the recognition application. The disputed paragraphs provided for interim payments by the Appellant totalling £325,000, to be paid within 14 days of the sale of a specific property ("the Property"), with a provision that if no sale occurred by 4 January 2023, the matter would be restored for further directions.

The Trustee applied to vary the order to require interim payments within seven days, while the Appellant applied to restore the matter for directions and extend the deadline for sale to 30 April 2023, maintaining the 14-day payment period after sale. The court did not revisit the detailed background of the case, which had been extensively described in prior judgments.

Evidence was presented regarding the Appellant's financial difficulties, risk of losing legal representation, and challenges in selling the Property, including complications from planning permission expiry, ownership complexities due to the Appellant's nationality, economic downturn, and a worldwide freezing order ("WFO"). The Trustee expressed concerns about the lack of progress in selling the Property and the Appellant's financial transparency.

Additional developments included the Trustee obtaining permission to appeal to the Supreme Court on related matters, reissuing claims against a related entity ("Company B"), and applying to join that entity to the recognition proceedings. The Appellant's legal representative reiterated the risk of losing legal representation if interim payments were enforced immediately.

Legal Issues Presented

1. Whether the court should vary the interim payment order to require payment within seven days rather than fourteen days after the sale of the Property.
2. Whether the court should restore the matter for directions and extend the deadline for the sale of the Property to 30 April 2023.
3. Whether it is appropriate to grant a stay or delay of the interim payments in light of the Appellant's financial position and the risk of losing legal representation.
4. How sanctions legislation and concerns about the status of a funding entity affect the enforcement of the costs order.
5. The relevance of the discharge of the underlying debt that founded the bankruptcy petition to the recognition order and related assistance applications.

Arguments of the Parties

Trustee's Arguments

• Significant progress toward sale of the Property has not been made; several potential funders have withdrawn.
• The Appellant's reliance on planning permission remaining valid is misplaced, and the legal team remains in place.
• The Appellant is effectively seeking a stay of the interim payment order.
• Concerns exist about the Appellant's financial position and the risk that costs orders might remain unpaid even if the Property is sold.
• The Trustee has complied with interim costs orders and relies on the Appellant's conduct in delaying payment based on doubtful information.
• The Trustee opposes further indulgence to the Appellant.
• Sanctions concerns exist over the funding entity ("Company A"), questioning the legitimacy of a buy-out transaction and the lawfulness of payments without a licence.
• The Trustee argues that the discharge of the underlying debt is irrelevant to the narrow issues remitted and does not justify varying the recognition order.

Appellant's Arguments

• Interim payments should be delayed or extended to avoid loss of legal representation, which is likely if payments are enforced immediately.
• There is ongoing, though challenging, progress toward selling the Property, with a proposed longstop date of 30 April 2023.
• Planning permission issues have been addressed, and new funding discussions are ongoing.
• Sanctions concerns only arose recently based on evidence served late in the proceedings, and the Appellant cannot lawfully make payments without resolving these issues.
• The underlying debt that founded the bankruptcy petition has been discharged following a settlement, which is relevant to the continuation of the Trustee's recognition and assistance.
• The Appellant seeks restoration of the matter for directions rather than immediate enforcement of the interim payment order.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by reaffirming that inability to pay is not a sufficient reason to avoid an order for interim payment, which is generally required unless good reason exists. The Appellant's request was effectively a stay of the interim payment order until April, an exceptional course requiring justification aligned with the overriding objective.

The court accepted that the hoped-for progress in selling the Property had not materialised as anticipated and acknowledged ongoing difficulties, including legal proceedings and the complexity of the Property's title and ownership. The risk of loss of legal representation remained real, supported by the Appellant's solicitor's evidence, and enforcement of interim payments could exacerbate difficulties in achieving a sale.

The court expressed concern that enforcement might undermine prior court orders, particularly the order approving the sale under the WFO, and highlighted the interconnected nature of the proceedings involving the Appellant, the Trustee, and Company B. The Trustee's actions, including claims against Company B, could impede the approved sale process.

Regarding sanctions, the court found it impossible to dismiss concerns that the buy-out of Company A might have been arranged to circumvent sanctions, raising questions about the legality of payments to the Trustee without a licence. The court emphasized the need to consider these issues carefully and awaited the outcome of an imminent hearing addressing sanctions.

The discharge of the underlying debt foundational to the bankruptcy petition was noted as relevant to the recognition and assistance applications, although not necessarily to the narrow remitted issues. The court was critical of the Trustee's lack of full knowledge of the settlement and the involvement of Company A in funding and decision-making, which went beyond conventional litigation funding.

Balancing these factors, the court concluded that maintaining the status quo for a short period would produce the least irremediable prejudice. The court emphasized the need for progress on the sale under court supervision, with proceeds subject to the WFO and the court's oversight, and highlighted the importance of maximizing the value of the Appellant's estate for rightful claimants.

Holding and Implications

The court's final decision was to require the matter to be restored for directions after 31 March 2023, assuming interim payments are not made before then. This date was chosen to allow time for the upcoming sanctions hearing and to avoid giving the impression of indefinite delay in the sale process.

The court emphasized that if no substantial progress is made by the end of March and sanctions issues are resolved, the court will revisit the position. The decision maintains the current interim payment order deadlines but delays enforcement to protect the prospects of a successful sale and continued legal representation for the Appellant.

No new legal precedent was established; the ruling focused on balancing competing interests in complex circumstances, prioritizing the effective administration of justice and the preservation of the estate's value.