Joint Stock Company 'Aeroflot-Russian Airlines' & Ors v Gudavadze & Ors [2014] EWCA Civ 431

[2014] EWCA Civ 431Case No A3/2014/0349
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
HIGH COURT CHANCERY DIVISION
(MR JUSTICE MORGAN)
Venue Royal Courts of JusticeDate Tuesday, 4 March 2014
Between
(1) JOINT STOCK COMPANY 'AEROFLOT-RUSSIAN AIRLINES'Claimants/(2) THE GOVERNMENT OF THE SAMARA REGION OF THE RUSSIAN FEDERATIONRespondentsEKATERINA BEREZOVSKAYADefendantsHELENA GORBUNOVADefendant(1) INNA GUDAVADZERespondents/(2) IYA PATARKATSISHVILIAppellants(3) LIANA ZHMOTOVAAppellant(4) NATELA PATARKATSISHVILIAppellant
Strand
London, WC2A 2LL
B E F O R E:
THE CHANCELLOR OF THE HIGH COURT
LORD JUSTICE KITCHIN
SIR STANLEY BURNTON
(DAR Transcript ofWordWave International LimitedA Merrill Communications Company165 Fleet Street, London EC4A 2DYTel No: 020 7404 1400 Fax No: 020 7831 8838Official Shorthand Writers to the Court)MR THOMAS GRANT QC and MR ALEXANDER WINTER (instructed by Addleshaw Goddard LLP) appeared for Ekaterina BerezovskayaMR WILLIAM HENDERSON (instructed by Signature Litigation LLP) appeared for RespondentsJ U D G M E N TTHE CHANCELLOR OF THE HIGH COURT:
[1]This is an appeal from the decision of Morgan J made on 29 January 2014. No formal order has been drawn up.[2]The background to these proceedings, and to this appeal, is rather complex. It is sufficient for the purpose of this judgment to summarise it as follows.[3]Mr Boris Berezovsky died on 23 March 2013.[4]Before his death the deceased was the defendant in various proceedings, including proceedings brought against him by the Russian Airlines Aeroflot (“Aeroflot”) and the Government of the Samara Region of the Russian Federation (“Samara”).[5]Also prior to his death the deceased commenced proceedings against, among others, the four appellants on this appeal: Inna Gudavadze, Iya Patarkatsishvili, Liana Zhmotova and Natela Patarkatsishvili, (together the "AP Family"). Those proceedings were compromised by an agreement dated 9 September 2012 ("the AP Settlement"). The terms of the AP Settlement were highly confidential and included a term prohibiting their disclosure. The AP settlement provides that the prohibition does not apply in the event that a court orders disclosure.[6]The deceased left a will which named five persons as executors. Three of those persons have renounced probate. The other two are the first and second defendants in these proceedings. The first defendant is Ekaterina Berezovskaya, the deceased’s daughter. The second defendant is Ms Helena Gorbunova. She is the former wife of the deceased, by whom she had two children.[7]Ms Berezovskaya relies on what she alleges is due to the deceased’s estate (“the estate”) under the AP Settlement in support of her case that the estate is solvent.[8]On 29 April 2013 Morgan J appointed receivers of the estate. They are two partners in Grant Thornton LLP, namely Mr Nicholas Stewart Wood and Mr Kevin John Hellard.[9]On 17 June 2013 Morgan J made an order, which included a direction that Addleshaw Goddardm LLP, Ms Berezovskaya’s solicitors, provide a copy of the AP Settlement to the receivers against undertakings that it would only be inspected by those receivers, named members of their firm, named counsel and named solicitors.[10]On 15 August 2013 Ms Berezovskaya applied to the Family Division for a grant ad colligenda bona or, in the alternative, pursuant to section 116 of the Senior Courts Act 1981. That application was transferred to the Chancery Division. It came before Morgan J on 4 September 2013, when it was opposed by Aeroflot and Samara.[11]Shortly before that date, on 2 September 2013, Aeroflot, but not Samara, issued the present proceedings claiming that it is a creditor of the estate and seeking an order for the administration of the estate; alternatively, an order under section 116 of the Senior Courts Act 1981 passing over any claim of Ms Berezovskaya or Ms Gorbunova to a grant of probate or of administration, and appointing the receivers as administrators.[12]At the hearing refers Morgan J on 4 September 2013 Aeroflot and Samara made a wide range of submissions as to why it would be inappropriate for the court to appoint Ms Berezovskaya to represent the estate. Amongst those submissions it was said that the estate is hopelessly insolvent, that it ought to be administered in the best interests of the creditors and that the receivers are more appropriate than Ms Berezovskaya to act as administrators for that purpose. Aeroflot and Samara relied on the various reports which have been made to the court by the receivers in support of their contention that the estate is insolvent.[13]At that hearing Ms Berezovskaya made a wide range of submissions as to why it is appropriate to appoint her as the administrator of the estate. She disputed the contention that the estate is insolvent. She subjected the receivers' reports to critical analysis and submitted that it would emerge that the estate is comfortably solvent.[14]Morgan J expressed the view that the outcome of the proceedings might well turn on the court’s assessment of the solvency of the estate. He directed that Ms Berezovskaya's application should be heard at the same time as Aeroflot's proceedings. In the meantime he appointed Ms Berezovskaya to be an administrator in relation to certain matters concerning the estate, and in particular certain litigation to which the estate was a party.[15]After 4 September 2013 the parties took steps to prepare for the hearing of Ms Berezovskaya's application and of Aeroflot's proceedings. On 10 October 2013 Ms Berezovskaya issued an application notice seeking a court order permitting her to include what has come to be referred to as the "AP Confidential Information" (“the APCI") as part of her evidence in Aeroflot’s proceedings. The APCI concerns details relating to the AP settlement and payments made and to be made pursuant to it.[16]On 30 October 2013 Morgan J ordered that Ms Berezovskaya be permitted to disclose and rely upon the APCI, but, so far as Aeroflot and Samara were concerned, for it only to be received and considered by their solicitors and counsel and not by them or their employees or officers.[17]On 8 November 2013 Aeroflot and Samara issued an application for an order varying the 30 October 2013 order either by permitting disclosure of the APCI to them or by barring Ms Berezovskaya from being permitted to adduce it against them. That application was heard on 20 December 2013 by Morgan J. He handed down his reserved judgment on 23 January 2014. There was then a further hearing on 29 January 2014 on consequential matters.[18]This appeal arises essentially out of the matters addressed by Morgan J in his judgment of 23 January 2014.[19]In paragraph [7] the Judge said that "there has been no determination by the court as to whether Aeroflot has locus standi to bring its proceedings or to oppose Ms Berezovskaya's application. He added that there has also been no final determination as to the matters which will be influential when dealing with those applications. He said that the application which was the subject of his judgment was, however, argued on all sides on the basis that the further hearing would involve some investigation of the solvency of the estate and that Aeroflot would make submissions on that and other subjects.[20]The Judge said that the parties had accordingly put in evidence on the subject of the solvency of the estate. He referred to the fact that there had been various reports from the receivers recording their understanding of the position, and that they had given their reasons for concluding that the estate is insolvent, or at the lowest that it might well be insolvent. That was the position adopted by Aeroflot, but it was very much disputed by Ms Berezovskaya. He said that she wished to rely upon the third witness statement of her solicitor Mr Mark Hastings dated 9 October 2013 ("Hastings 3"), which, among other things, sought to deal with the assets and the liabilities of the estate and concluded that the estate is comfortably solvent. Hastings 3 deals with, among other things, the AP Settlement, but in a redacted form.[21]In the course of his judgment the judge referred to the decision in Science Research Council v Nasse [1980] AC 1028, which permitted the court to inspect confidential information to enable it to form a view as to whether it ought to be disclosed to another party to litigation. The case addressed the test to be applied in determining the disclosure of confidential information.[22]The Judge set out the rival positions taken by the various parties appearing before him. He said that Aeroflot's position was that it is unsatisfactory for it to have to deal with the substantive applications if it does not have access to the unredacted Hastings 3, even though its lawyers could have access to it. Aeroflot said that it cannot be advised by its lawyers as to the unredacted witness statement and it cannot give instructions as to what is to be done in response to it. Aeroflot accordingly submitted that the substantive applications must be dealt with either on the basis that the unredacted statement is freely available to Aeroflot or that it cannot be used at the hearing of those applications.[23]Ms Berezovskaya's position was that she very much wishes to rely on the unredacted Hastings 3. She does not wish to place Aeroflot at a disadvantage as a result of its inability to have access to the unredacted statement (in circumstances where the unredacted statement is restricted to Aeroflot's lawyers). So far as she was concerned, she accepted that Aeroflot should be shown the unredacted statement if she is free to do so. If, however, she is not free to show the unredacted statement to Aeroflot, then she would wish to be given permission to rely upon the unredacted statement in circumstances where it is available to Aeroflot's lawyers but not to Aeroflot itself.[24]The position of the AP Family was that the terms of the AP settlement and the other evidence upon which Ms Berezovskaya wishes to rely are highly confidential. Their position was that the AP settlement is expressly subject to a confidentiality agreement. The AP Family wish Ms Berezovskaya to honour that confidentiality agreement. If she does not observe it, then the AP family's position is that their interests would be significantly harmed. The AP Family did not wish to apply for an injunction against Ms Berezovskaya to restrain her from acting contrary to the confidentiality agreement, but they submitted that their rights in relation to the APCI are to be protected by the court applying the test laid down by the rules and by the case law to the effect that the confidential information should only be made available to others if it is "necessary" to make it available for the fair disposal of the substantive applications. Applying that test, the AP Family submitted that disclosure of the APCI is not necessary, and therefore it should not be shown to Aeroflot with the consequence that Ms Berezovskaya should not be allowed to rely upon it for the purpose of the outstanding applications.[25]The AP Family submitted that the test which should be applied, for the purpose of deciding whether Ms Berezovskaya should be permitted to rely on the APCI and to disclose it to Aeroflot, is that identified in the Nasse case. No other party submitted to the Judge that he should apply any different test.[26]The Judge said that he understood the position to be that the confidential material which Ms Berezovskaya wishes to deploy in the substantive applications related to the sums already paid by the AP Family pursuant to the AP Settlement, the sums remaining to be paid, the times when those further sums will fall due to be paid, what will trigger the liability to the AP Family to make the further payments, and the sources of the further payments. The AP Family said that all those matters are confidential, and that disclosure to Aeroflot of, in particular, the facts as to the triggers for the liability to pay and, even more so, the sources of the payments would be significantly damaging to the AP Family. He said that putting aside for one moment the AP family's evidence as to its concerns about the disclosure, he considered that the information on which Ms Berezovskaya wishes to rely would be material, and probably highly material, in the substantive applications.[27]The Judge set out in paragraphs [24] to [31] of his judgment matters bearing on the alleged serious consequences which were said by the AP Family would follow if there is disclosure of the matters that they wish to remain confidential. His conclusions were set out, so far as material to this appeal, in paragraphs [53] and following of his judgment. Paragraphs [53] and [54] are as follows"53. Having directed myself as to the relevant legal principles, I will now consider the result of applying those principles. I will begin by considering the application of the principles identified in Science Research Council v Nasse. I find that the AP Confidential Information is likely to be highly material to the outcome of the substantive applications. I consider that the availability of that information at the substantive hearing is necessary for the purpose of disposing fairly of those applications. I find that there is no alternative way of producing the result that such information is before the court, other than by relaxing the confidentiality restrictions in the AP Settlement Agreement. I consider that I do have power to impose suitable restrictions on the use of the information so as to preserve to the AP Family some of the remaining confidentiality of that information and/or to ensure compliance with [CPR] rr. 31.22 and 32.12 and/or to prevent an abuse of the process of the court. The imposition of suitable restrictions will not prevent all parties relying upon the information for the purpose of disposing fairly of the substantive applications. The imposition of such restrictions will not conflict with the fundamental requirement of natural justice. Even with such restrictions, Aeroflot will be able to put its case through its lawyers and fully instruct and take advice from those lawyers. Aeroflot will be able to do everything which it needs to do in order to present its case in the substantive proceedings. The court should not be unduly reluctant to impose restrictions which do no harm to anybody but preserve as far as possible the confidentiality of a third party caught up in litigation in which it has no direct involvement. The imposition of such restrictions will help to prevent the possibility of use, i.e. the misuse, of the information for collateral purposes.54. The above reasoning supports the imposition of suitable restrictions. In addition, although the evidence is not as detailed as I would have liked, I consider that the evidence in Marson 2 does support a finding that there is some risk of some damage to the AP Family if that information were freely available to all parties, without the restrictions to which I will refer. Even if the substantive applications were dealt with at a hearing in private, there is some risk of leakage from Aeroflot to the Russian Federation which might lead to the kind of consequences feared by the AP Family, as described in Marson 2. I add that I am not in a position to consider whether the apprehended action by the Russian Federation against the AP Family would be legitimate or illegitimate."[28]In paragraph [56] of his judgment the Judge said that he would therefore permit Ms Berezovskaya to rely on the APCI subject to the restrictions which he set out in five sub-paragraphs as follows:
"(1) Restricting the disclosure of the AP Confidential Information to certain named persons within Aeroflot (probably a small number of persons) – being the persons who are reasonably needed to give instructions in relation to these proceedings. (2) In addition to disclosure to Aeroflot's lawyers in accordance with the order of 30 October 2013, such disclosure to be by way of provision of a single hard copy of the AP Confidential Information to each named person so that each hard copy is not to leave a specified office for each named person; may be inspected only by the named persons and may not itself be copied, scanned or otherwise converted into electronic form. (3) On terms that each named person shall give an express written undertaking (i) to maintain the confidentiality of the information and (ii) that use shall not be made of it otherwise than for the purpose of these proceedings. (4) The parties, and the AP Family, are to have permission to apply as to how the AP Confidential Information shall be dealt with at the hearing of the substantive applications and as to whether such hearing, or any part of it, should be in private. (5) The parties, and the AP Family, are to have permission to apply as to the terms which should be imposed as to the destruction or return of the AP Confidential Information at the conclusion of the substantive applications."
[29]The Judge said in paragraph [59] of his judgment that he considered that he should impose the same restrictions on Samara as those which he imposed on Aeroflot.[30]Consequential orders of the Judge were then given on 29 January 2014.[31]The AP Family have appealed against that decision. No formal order has been drawn up. What the AP Family seek on the appeal is to be found as follows in section 8 of their notice of appeal. "1. The 30 October 2013 order be varied so as to provide that [Ms Berezovskaya] be not permitted to adduce the AP Confidential Information in [Aeroflot's proceedings] or in her application for a grant of administration in respect of the estate of [Mr Berezovsky] or in Aeroflot's claim that she should be passed over under section 116 Senior Courts Act 1981. Alternatively. 2. The 29 January 2014 order be varied so as to provide that disclosure of the AP confidential Information to the officers or employees of the Claimants specified in the Schedules to the order may only be made orally or by inspection of them in Pinsent Mason LLP’s London office of a single hardcopy of the specified documents which shall be retained in that Office AND that those documents and any other documents (including the evidence [Ms Berezovskaya]) containing the AP Confidential Information served on [Aeroflot/Samara] shall be retained in Pinsent Mason LLP's London office and should not be sent to Russia."[32]There are five grounds of appeal and they are as follows: 1. The Judge correctly formulated the relevant test for overriding the the AP Family's contractual and equitable entitlement to retain confidentiality of the APCI as being whether that is 'necessary' for the fair determination of the substantive issue of who should administer the estate; but he wrongly held that that issue cannot fairly be determined without the APCI. 2. The Judge wrongly held that the outcome of the substantive issue “might well turn on the solvency of the estate”. The APCI is relevant to the issue of the solvency of the estate, but the solvency of the estate is or should be at most a marginal issue in the determination of the substantive issue. 3. The estate should be administered properly with priority being given to creditors whether the estate is solvent or insolvent. Accordingly it is not “necessary” to determine the issue of solvency in order to determine the substantive issue, and the Judge wrongly held that the AP Family's rights of confidentiality should be overriden for that purpose. 4. If, contrary to the above, the Judge was correct in holding that the outcome of the substantive issue “might well turn on the solvency of the estate”, he was wrong in holding that that made it so “necessary” to determine the issue of solvency as to justify overriding the AP Family's rights of confidentiality in the APCI and their associated rights under Article 8 of the European Convention on Human Rights (“the ECHR”). 5. If, contrary to the above, the Judge was correct in overriding the AP Family's rights of confidentiality in the APCI and their associated rights under Article 8 of the ECHR subject to restrictions on how the APCI could be dealt with, he was wrong in permitting hard copies of documents containing the confidential information to be sent to Russia, by reason of the real risks to which that gives rise so far as the AP Family are concerned, in comparison with the alternative of requiring the hard copies to remain in Aeroflot’s/ Samara’s solicitors' office in London, and the lack of prejudice to Aeroflot and Samara which would result from that alternative.[33]For present purposes it is important to note that one of the grounds of appeal is that the solvency, or otherwise, of the estate is irrelevant to the determination of the substantive issue, namely who should administer the estate.[34]There have been a number of important developments since the Judge delivered his judgments of 23 January 2014 and 29 January 2014.[35]Firstly, Aeroflot and Samara have agreed to the order sought by the AP Family in section 8.2 of the notice of appeal, that is to say if the APCI can be adduced in evidence at the trial of the substantive issue, due to take place next month before Morgan J.[36]In a letter from their solicitors to the AP Family’s solicitors Aeroflot agreed that it would continue to take a neutral stance on the order sought in section 8.1 of the notice of appeal.[37]Secondly, the receivers, who have seen an unredacted version of Hastings 3 and the AP Settlement, have now agreed with Ms Berezovskaya's points on the AP Settlement. Ms Berezovskaya is content to accept the revised value which they have placed on the AP Settlement as an asset to the estate.[38]In a response to a proposal, among a number of others, that all parties should agree that the receivers’ revised value should be taken as correct for the trial of the substantive issue, Aeroflot's solicitors said as follows: "Our clients will take a neutral stance on [section] 8.1 ... Our clients will not change this stance going forward”.[39]Aeroflot’s solicitors also said in another letter to Addleshaw Goddard dated 24 February 2014 as follows:
"Our clients have never sought to challenge the Receivers' valuation of the [AP Settlement] nor sought disclosure of the same from them."
[40]The parties to the appeal are not agreed on whether insolvency is or is not relevant to the trial of the substantive issue. The AP Family and Ms Berezovskaya say it is not. Aeroflot and Samara say that it is.[41]The AP Family is content to leave that issue outstanding provided that the “bottom line” value of the receivers can be referred to if the Judge thinks relevant at the trial of the substantive issue and that there are appropriate safeguards to prevent any APCI being disclosed, deployed or mentioned.[42]Aeroflot, however, appears to have changed its initial view that it would not challenge the receivers' valuation. In a letter from Aeroflot’s solicitors to Addleshaw Goddard dated 28 February 2014 its solicitors said as follows: "... as to the value of the AP Settlement, in the event that the Receivers and the Court accept that the AP Settlement is an asset of the Estate, the value should be determined not solely 'by reference to the views of the Receivers' but by taking into account the views of the Receivers. For the avoidance of doubt all interested parties will be able to comment on the Receivers' valuation (and we reserve our clients' rights in this regard)".[43]As for Ms Gorbunova, her solicitors (Mischon de Reya) have said in a letter to Addleshaw Goddard dated 3 March 2014 that she is unable to agree that the AP Settlement is an asset of the estate because she has a proprietary claim to the proceeds of the AP Settlement.[44]Neither Aeroflot nor Samara have appeared before us to make oral submissions. They have, however, sent a note to the court dated 28 February 2014 signed by leading and junior counsel and explaining their position. It states that, if the court is against the AP Family as to section8.1 of the notice of appeal, then it has been agreed between the parties that an order can be made in the terms of section8.2 of the notice of appeal. It states that it has been agreed by Aeroflot and Samara that they are neutral as to whether an order should be made on the AP Family's primary grounds as set out in section 8.1 of the notice of appeal. The note also says that, although Aeroflot and Samara are neutral as to the variation of the Judge's order sought at section 8.1 of the notice of appeal, they are not neutral as to any suggestion which may be made that the Judge cannot, or should not, consider the issue of insolvency at the trial of the substantive issue.[45]The note contains the submission that it is not appropriate for the Court of Appeal to rule on questions of solvency or otherwise of the estate and thereby direct the Judge on what he should or should not be considering at the hearing of the substantive issue. The note states that it is not for the AP Family, on an issue solely concerning the disclosure of confidential information, to seek to control, direct or affect the issues at the trial of the substantive issue between parties other than themselves.[46]Ms Gorbunova has also not been represented or appeared before us today.[47]On this appeal the appellants have been represented by Mr William Henderson. Ms Berezovskaya has been represented by Mr Thomas Grant QC, leading Mr Alexander Winter.[48]In the light of what has taken place since the decision of the Judge, I consider that it would be both proportionate and appropriate to dispose of the appeal without deciding whether or not solvency is a relevant consideration at the trial of the substantive issue. The Judge himself has not decided that point. He was careful to make that clear in paragraph [13] of his judgment of 23 January 2014.[49]Evidence of the value of the AP Settlement should be limited to the figure attributable to that settlement by the receivers. That is appropriate for the following reasons. Firstly, the receivers are independent officers appointed by the court. Secondly, even if solvency is relevant, the Judge, as he has made clear in his judgment of 23 January 2014, will not be able to make a detailed finding on the amount of the solvency or insolvency. He must necessarily adopt a rather broad-bush approach. Thirdly, the locus standi of Aeroflot and Samara remains in issue and has not yet been determined by the court. Fourthly, limiting the evidence as to the value of the AP Settlement for the purposes of determining the solvency of the estate will be a practical and effective way to balance the Article 8 rights of the AP Family and the Article 6 rights of those involved in the resolution of the substantive issue. Fifthly, neither Aeroflot nor Samara have made an appearance before us, even though the course, which I am now proposing, was flagged up by Ms Berezovskaya in her skeleton argument of 24 February 2014 and which predates the note to the court from Aeroflot and Samara. Sixthly, Aeroflot's position appears somewhat equivocal in view of the different expressions of view in the letters from its solicitors of 24 February 2014 and 28 February 2014 respectively in relation to their desire, or otherwise, to challenge valuation evidence of the receivers. Seventhly and finally, the proprietary claim asserted in correspondence by Ms Gorbunova's solicitors does not bear on the issue as to the APCI or its deployment.[50]This approach is, in effect, a case management decision that the Judge himself could have made in all the circumstances that now exist, and which I consider should now be made in disposing of the application due to come before the Judge next month for final determination. It has not been suggested that the Court of Appeal does not have power to make such an order as I consider should now be made and as I have described. LORD JUSTICE KITCHIN:[51]I agree. SIR STANLEY BURNTON:[52]I also agree.