This briefing note is only intended as a general statement of the law and no action should be taken in reliance on it without specific legal advice.

The Kremlin's Banker: immune from disclosure?
Peter Steen
06 March 2015

The Kremlin's Banker: immune from disclosure?

In a decision handed down on 27 February 2015 in JSC Mezhdunarodniy Promyshlenniy Bank v Pugachev [2015] EWCA Civ 819, the Court of Appeal (Lewison LJ) considered whether it has jurisdiction to order a member of a class of discretionary beneficiaries to disclose details of a trust and, if so, when that jurisdiction should be exercised.

The beneficiary in question was Mr Sergei Pugachev, known to some as "the Kremlin's Banker", who founded one of Russia's largest private commercial banks.  In 2010, the bank was put into liquidation and the liquidator brought proceedings in Russia alleging that Mr Pugachev had extracted over US$2million from the bank for his own benefit.

The liquidator was granted a freezing injunction in July 2014 in support of the Russian proceedings, the effect of which was to freeze Mr Pugachev's assets up to the value of £1.1 billion, including "any interest under any trust … including any interest which may arise by virtue of the exercise of any power of appointment, discretion or otherwise howsoever".  The order also required him to provide information about his assets worldwide "whether solely or jointly owned, giving the value, location and details of all such assets".

Mr Pugachev subsequently informed the liquidator that he was a discretionary beneficiary of various New Zealand-based trusts.  The liquidator then obtained an ancillary order requiring him to give further details, including the identity of the trustees, the settlor, the protector, and the beneficiaries, and details of the assets in the trusts as at July 2014.  This order was appealed.

The question for the Court of Appeal was whether the judge was right to order Mr Pugachev to provide further information about the discretionary trusts.  It noted that the assets of a discretionary trust are not owned by the beneficiaries, and the purpose of a freezing injunction is to prevent a defendant from putting assets amenable to execution in aid of a judgment beyond the reach of judgment creditors.  The assets held by trustees of a discretionary trust would not be amenable to execution if judgment is given against one member of a class of discretionary beneficiaries.

However, the Court found that it does have jurisdiction to make whatever ancillary orders are necessary to make a freezing order effective.  It stated that an order for the provision of information is far less intrusive than an order which prevents someone from dealing with assets, and noted that the claimants were asking only for information from Mr Pugachev (not from the trustees).  It referred to its "concern that sophisticated and wily operators should not be able to make themselves immune to the courts' orders". It therefore dismissed the appeal.

Discretionary beneficiaries beware: this is a further inroad into the protection afforded to beneficiaries by discretionary trusts.