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(2/2) Evading Enforcement: Akhmedova v Akhmedov & Others [2020] EWHC 2235 (Fam) and [2020] EWHC 2257 (Fam)

17th September 2020

This article follows last week’s summary, and will cover the remaining two applications that were before Gwynneth Knowles J in Akhmedova v Akhmedov & Others [2020] EWHC 2235 (Fam). It will also summarise an application made by W for a variation of freezing orders made against H, which came under a different judgment (Akhmedova v Akhmedov & Others [2020] EWHC 2257 (Fam)).

The variation application

Qubo 1 and Straight (“the applicants”) had applied to be released from their obligations to execute transfers to W of the Artwork and the Yacht, which they were ordered to do in December 2016 and March 2018 respectively. Both orders could be described as ‘hybrid’ final financial orders in that they were property transfers pursuant to s24 of the Matrimonial Causes Act 1973 (“MCA”), but were also made pursuant to the Insolvency Act 1986 (“IA”).

Haddon-Cave J transferred those assets to W after concluding that they had been transferred to the Liechtenstein entities pursuant to H’s dishonest scheme to put his assets beyond W’s reach. The sole basis for the variation application was that it was asserted that the orders would require the applicants to act in violation of the law of Liechtenstein.

The application was made in November 2019, only after W had issued her committal application and Mostyn J had commented to the applicants that their defence looked hollow unless they backed it up with an application to vary the order. Before then, the applicants had not participated in the English proceedings, but had opposed enforcement against them abroad (including in Liechtenstein, the Marshall Islands, and the UAE). The judge noted that the orders against them had never been appealed, and that at the time the application was made, the applicants did not seek to argue that the orders against them should be varied on the basis they were unjustified on the facts or wrong in law.

Counselor and Sobaldo separately sought to vary a freezing order granted by the judge in August 2019 (continued in October 2019) by removing their obligations to give disclosure ancillary to the freezing order.

Relevant legal principles on variation

Rule 9.9A of the FPR, supplemented by paragraph 13 of PD9A, makes provision for an application to set aside a financial remedy order of the type made in December 2016 and March 2018. The orders made clearly fell within the definition of financial orders in FPR r. 2.3(1).

The judge noted that the language of r. 9.9A and PD9A did not signal a relaxation of the rigour of the principles from Barder v Calouri [1988] AC 20, such that the four conditions set out in that case must still all be met before any application on the basis of new events can succeed. The conditions are:

  1. New events have occurred since the making of the order invalidating the basis, or fundamental assumption, upon which the order was made.
  2. The new events should have occurred within a relatively short time of the order having been made. It is extremely unlikely that could be as much as a year, and in most cases, it will be no more than a few months.
  3. The application to set aside should be made reasonably promptly in the circumstances of the case.
  4. The application, if granted, should not prejudice third parties who have, in good faith and for valuable consideration, acquired interests in property which is the subject matter of the relevant order.

The judge also noted that in US v SR [2018] EWHC 3207 (Fam), Roberts J considered the position where there had been a failure to implement the terms of a final order. Roberts J had specifically reviewed Bezliansky v Bezlianskaya [2016] EWCA Civ 76, where McFarlane LJ listed the five circumstances which could trigger a review of a final financial remedy order:

  1. If there had been fraud or mistake.
  2. If there had been material non-disclosure.
  3. If there had been a new event since the making of the order which invalidated the basis, or fundamental assumption, upon which the order had been made.
  4. If and insofar as the order contained undertakings.
  5. If the terms of the order remained executory (and whether it would be inequitable to hold to the terms of the original order in the light of a significant change in circumstances).

Roberts J noted in US v SR that the power in s31 of the MCA to vary and discharge orders had been tightly confined by Parliament, and that the only capital award that could be varied was a lump sum payable by instalments. Although an order for sale under s24A could be varied, the underlying capital award to which it was attached could not. She held that there should be a cautious and conservative approach to the reopening of an order where there had been both a failure to implement its terms, and some material change in the basis on which the original order had been made. The judge therefore thought that the jurisdiction to set aside should be exercised with great caution.

The judge also noted that paragraph 13.5 of PD9A makes clear that an application to set aside should only be made where no error of the court is alleged, since if an error of the court is alleged, the correct route of challenge is an application for permission to appeal. She pointed out that there was no equivalent to r. 9.9A in the CPR, which might apply to the setting aside of orders made under the IA, and that within the civil jurisdiction the power to set aside a final order could only be exercised pursuant to CPR 3.1(7) and was confined only to very rare or exceptional cases.

Since the August 2019 order was a freezing order, which is by its nature an interim remedy as defined in r. 20.2(1)(f), the court retained jurisdiction to set it aside or vary it and the orders ancillary to it. An application to set aside an interlocutory order in family proceedings must be made under FPR r. 4.1(6).

Finally, the judge noted that FPR r. 27.5 permits a party who did not attend a hearing at which the court gave judgment or made an order against him to apply for that order to be set aside, although it could not apply to an application to set aside a final financial remedy order because specific provision was made for that circumstance in r. 9.9A.

Qubo 1 and Straight

The application, although expressed as an application to vary the December 2016 and March 2018 orders, was really an application to set them aside and then to invite the court to exercise its discretion so as to redetermine W’s original application for a financial remedy by making orders in favour of Qubo 1 and Straight insofar as the Yacht and Artwork were concerned. The judge approached the application on the basis that it was made by H himself, since Qubo 1 and Straight had been found to be H’s nominees and/or alter egos.

The December 2016 order was in large part a financial order, but it also granted relief pursuant to the IA. The mandatory injunction which required the transfer of title and the delivery up of the Artwork was made on two separate grounds, one of which was a financial order and one of which was not. The position was much the same with respect to the March 2018 order.

The judge was troubled by the nature of these orders. Absent any error of law being alleged, the correct route for a final financial remedy order is an application to set aside pursuant to r. 9.9A. However, a key component of both orders was the application of the IA, but the final orders made pursuant to that jurisdiction did not fall within the meaning of r. 2.3(1) FPR.

The judge was entirely satisfied that the application to vary the two final orders made in December 2016 and March 2018 had not been made promptly, and that the delay was far outside that contemplated by Barder. Qubo 1 had only applied to set aside the judgment made against it nearly three years after it had been made. Similarly, Straight had waited for over 18 months before applying to set aside the order against it, even though it had, in the meantime, been resisting enforcement in the Marshall Islands. The delay in making the application sat alongside the applicants’ behaviour in choosing to ignore English proceedings, yet litigating in other jurisdictions to avoid the effects of the December 2016 and March 2018 final orders.

Furthermore, the applicants could not bring themselves within any of the criteria in paragraph 13.5 of FPR PD9A in respect of either order. There was no fraud or material non-disclosure by W, or mistake by the court. The fact that the order remained executory was insufficient to set it aside in circumstances where the applicants could not point to an unforeseen supervening event which invalidated the basis of those orders.

Therefore, the applicants could not bring themselves within the criteria applicable to FPR r. 9.9A with respect to either the December 2016 or March 2018 orders. The fact that the orders were executory did not afford the applicants a different route to setting them aside and varying them. It was not inequitable to hold the applicants to the terms of the original orders: it was wholly possible for the applicants (or rather, H) to transfer the Yacht and the Artwork to W. H had simply chosen not to do so, and equity would not furnish him with a remedy in those circumstances.

Regarding the relief granted pursuant to the IA, the applicants could not bring themselves within the ‘exceptional’ or ‘very rare’ circumstances which pertain to an application to set aside a final order within the ambit of CPR r. 3.1(7). Even if FPR r. 4.1(6) could theoretically be used to set aside an order made pursuant to the IA, the applicants could not bring themselves within it because they failed to meet the Tibbles criteria: there had been no prompt application, no material or significant change in circumstances, no misstatement of the facts on which the original decision was made, and no mistake in formulating the order.

The application to set aside and vary the final orders made in December 2016 and March 2018 was therefore refused.

Counselor and Sobaldo

Counselor and Sobaldo had also delayed their application for a variation, and had waited nearly two months after they fell into contempt of court. This did not justify another opportunity for them to argue about whether they should have been required to give disclosure pursuant to the freezing order. They therefore could not bring themselves either within FPR r. 27.5(3), for which they could not meet all the criteria, or FPR r. 4.1(6), and they could not satisfy the Tibbles criteria. Their application was therefore also refused.

W’s application for disclosure

W applied for disclosure from Counselor and Sobaldo in support of her claims under s423 IA and s37 MCA. Both entities were likely to hold documents relevant to the proceedings which related to the establishment, assets and administration of the Liechtenstein trusts which received the Monetary Assets. W sought directions for both standard and specific disclosure.

The judge asked herself two questions:

  1. Were orders for disclosure directed at Counselor and Sobaldo necessary in order to dispose of the proceedings justly and fairly?
  2. If they were necessary, should the judge exercise her discretion to order such disclosure in respect of Liechtenstein-based entities holding the assets in dispute in Liechtenstein?

The answer to the second question would require the judge to take account the real risk of prosecution in Liechtenstein and to balance that factor against the importance of the documents of which disclosure was ordered to the fair disposal of the proceedings.

Practically speaking, disclosure from Counselor and Sobaldo was necessary because they alone held a complete set of documents from which the court would be able to discern how and for what purpose the trusts were established, the control which, in practice, H still retained of the trust assets, and to whom payments were made from the trusts. The criminal files in Liechtenstein appeared to contain significant gaps, and the parties’ son, Temur, was unlikely to be able to disclose relevant information about what H has received from the trusts, on his pleaded case. The judge was therefore not persuaded that W could obtain the relevant material from other sources. Furthermore, the proceedings brought by W in Liechtenstein were not directed at Counselor and Sobaldo and so would have been unlikely to result in the disclosure of the categories of documents W was seeking.

The judge was therefore of the opinion that orders for disclosure directed at Counselor and Sobaldo were necessary to justly and fairly determine W’s claim.

She was satisfied that she could make orders against Counselor and Sobaldo which might be contrary to civil and criminal law in Liechtenstein. She had to conduct a balancing exercise, weighing on the one hand the risk of prosecution, and on the other, the importance of the documents of which disclosure was ordered to the fair disposal of the proceedings before her. She noted that the existence of an actual risk of prosecution in Liechtenstein was not determinative of the balancing exercise.

The judge regarded it to be doubtful whether there was an individual who had the standing to initiate a prosecution, and it also appeared that nobody had ever been prosecuted or convicted in Liechtenstein for disclosing documents pursuant to a foreign court order.

Ultimately, the judge concluded that the risk of prosecution in Liechtenstein was little more, and probably no more, than purely hypothetical. The balancing exercise therefore fell squarely in favour of making orders for disclosure against Counselor and Sobaldo. The absence of the material in question would very substantially interfere with W’s ability to pursue her claim and would hamper with the court’s ability to determine the proceedings fairly.

W’s application to vary freezing orders made against H ([2020] EWHC 2257 (Fam))

W applied to vary freezing orders granted against H by Haddon-Cave J in December 2016 and March 2018, which were granted because of a real risk that otherwise Haddon-Cave J’s order for H to pay W £453,576,152 would go unsatisfied. Despite the freezing orders, H had not voluntarily paid a penny to W and enforcement had only raised c. £5m.

W’s application was prompted by recent developments in the proceedings which suggested that H and third parties had been exploiting perceived ambiguities in the freezing orders to continue to fund H’s own lavish lifestyle, and that of Temur. W therefore sought a variation of the freezing orders to make clear that they extended to the totality of H’s assets.

The freezing orders were intended to cover the totality of H’s known assets at the time they were made, with the particularisations of assets running to more than two pages of the orders and a paragraph stating that the order applied to assets in H’s name, whether or not they were specifically listed, and whether or not they were solely or jointly owned.

It appeared that, from W’s perusal of files to which she had been granted access as a result of the criminal investigation in Liechtenstein, H in fact had further assets which were not known at the time the freezing orders were made and so had not been particularised. These included bank accounts in Azerbaijan and Russia. It seemed that H and third parties had taken advantage of perceived ambiguities about the scope of the freezing orders, and had suggested they only extended to specific assets. The result was that H, and ‘those concerned in his campaign of evasion’, continued to enjoy vast sums of money with apparent impunity [9]. Information from Temur also suggested that he continued to receive substantial payments from H, and since the date of the freezing orders, Temur appeared to have received at least US$40m from H, whilst W had received nothing.

W argued that the scope of the freezing orders should be extended to make it clear beyond doubt that they applied to all H’s assets. This was necessary to further the purpose of Haddon-Cave J’s judgments and orders in W’s favour, and to mitigate the real risk that, without the freezing orders, the judgments and orders would go unsatisfied.

In July 2020 ,W obtained a without notice worldwide freezing order against Temur which was continued at an on notice hearing. One factor prompting that application was Temur’s recent actions in relation to a valuable property in Moscow which was at the heart of W’s claims against him and which lay, at the time of this hearing, in H’s hands. W contended that the recent developments regarding that property evidenced the real risk that, if the freezing orders were not extended to capture all H’s assets, H and other third parties would continue to undermine the court’s judgments and orders. It was also plain that Temur’s legal representation in the proceedings was being wholly funded by H.

The judge had ‘no hesitation’ in concluding that the judgments and orders in W’s favour would go unsatisfied if the relief was not granted [18]. There had plainly been a change of circumstances, and the judge was satisfied that she should exercise her jurisdiction to vary the freezing orders, not least because the specified assets no longer accurately reflected the totality of H’s assets.

The judge thought there was good reason to adopt a modification to the standard form of freezing order first adopted in JSC BTA Bank v Ablyazov [2009] 2 CLC 967, which operates to remove the usual permission to dispose of or deal with assets outside England and Wales provided that H’s assets remained above the value of the freezing order. This was because otherwise, provided that the total value of H’s assets remained above the limit, he could have transferred all his assets from European jurisdictions (where enforcement was possible) to a nominee in Liechtenstein, where enforcement was much more difficult.

The judge was also satisfied that the order could be served on H by alternative means, given his ‘concerted efforts to place himself physically beyond this court’s reach in jurisdictions where it is difficult to effect service and to enforce this court’s orders’ [21].

H was also ordered to pay W’s costs of the application in full.

Henrietta Boyle, Pupil at 1 Hare Court