JSC BTA Bank v Solodchenko [2010] EWHC 2843 (Ch)

[2010] EWHC 2843 (Ch)Claim No HC10C02462IN THE HIGH COURT OF JUSTICCHANCERY DIVISIONVenue The Royal Courts of JusticeThe StrandLondon WC2A 2LLDate 2 November 2010
Before
MRS JUSTICE PROUDMAN
Between
JSC BTA BANKClaimant/Applicant(1) ROMAN VLADIMIROVICH SOLODCHENKODefendant(2) PAUL KYTHREOTISDefendant/Respondent(3) JASON CHRISTIAN HERCULESDefendants(4) CELINA HOLDING INVESTMENTS LIMITED (formerly Bubris Investments Limited)Defendant(5) SHORELINE INVESTMENT HOLDING LIMITED (formerly Granta Investment Holdings Limited)Defendant(6) NAFAZKO INVESTMENTS LIMITEDDefendant(7) OLOFU INVESTMENT LIMITEDDefendant(8) MYMANA HOLDINGS INVESTMENT LIMITED (formerly Kyma Investment Holdings Limited)Defendant(9) MABCO INCDefendant(10) CALERNEN FINANCE INCDefendant(11) ASTROGOLD CORPDefendant(12) GRUNDBERG INCDefendant
(Transcript ofWordWave International LimitedA Merrill Communications Company190 Fleet Street, London EC4A 2AGTel No: 020 7404 1400, Fax No: 020 7831 8838Official Shorthand Writers to the Court)
Mr S Smith QC And Ms E Gillett (instructed by Hogan Lovells LLP) appeared for Claimant/Applicant.Mr P Stanley QC (instructed by Byrne & Partners LLP) appeared for second Defendant/Respondent.
Judgment
[2]The adjournment was ordered first on 21 September 2010 in order to see whether Mr Kythreotis would, as he said he was eager to do, comply with the order he had breached and, subsequently, on 29 September, (without serious opposition) to give the claimant time to consider the documents which had been disclosed the previous evening. I apologise for the fact that this is a judgment which has had to be give ex tempore despite the passage of time, owing to the fact, known to the parties, that I have been the applications judge in this Division for the past fortnight.[3]There are several sets of proceedings in this jurisdiction about frauds against the bank, all but this one having been brought in the Commercial Court. In this present action the claimant bank claims that it is a victim of fraud. In short it says that in January 2009 certain blue chip bonds with a nominal value of USD290 million were transferred without consideration from the bank to the fourth to the eighth defendant companies (which are all registered in the British Virgin Islands) on the instructions of the first defendant, a director and chief executive of the bank at the material times. It is alleged that the bank had done no business with the fourth to the eighth defendants, there was no commercial purpose to the transfer and there was no benefit to the bank or justification for the transfer. It is alleged that the transfer arose out of the fact that the bonds were used as security for obligations owed by the fourth to eighth defendants to a third party.[4]Norwich Pharmacal relief was granted in the British Virgin Islands to the bank, as a result of which the bank has been able to trace what happened to the money to a limited extent. The bank says that its money was transferred from the fourth to eighth defendant companies to the ninth to twelfth defendant companies, and thereafter the trail has gone cold.[5]The second defendant Mr Kythreotis, with whom I am concerned, was a director of the fourth and eleventh defendants (and had various connections with the fifth to eighth defendants also) and thus was "on the receiving side", to use Mr Smith's phrase, of the bank's money. The claim against him is that in bad faith and dishonestly he assisted the grant of the security and the transfers in January 2009. Mr Kythreotis is a British national living in Cyprus.[6]The contempt was constituted by the fact that as of the date of the first hearing of this application Mr Kythreotis had deliberately failed to comply with paragraphs 12 to 14 of Mr Justice Henderson's order dated 26 July 2010. Those paragraphs ordered Mr Kythreotis(1) to identify his assets worth more than £10,000 (in aid of the freezing injunction in respect of a personal claim against him) within seven working days, after making all reasonable enquiries;(2) to disclose copies of all documents in his control evidencing the value, location or detail of such assets, again within seven working days;(3) (in aid of the claimant's proprietary claim) to provide written answers to questions set out in schedule D to the order (as to dealings which he had had with assets of the claimant), again within seven working days and again after making all reasonable enquiries;(4) again within seven working days to disclose copies of all documents in his control evidencing his answers;(5) within ten working days to swear an affidavit giving that information. The freezing aspects of the order were confirmed by Mr Justice Newey on notice on 6 August 2010 and his order expressly preserves the disclosure provisions of the July order.[7]The purpose of paragraphs 1 to 2 was to police the freezing injunction against Mr Kythreotis. The purpose of 3 and 4 was to assist the bank in tracing the current whereabouts of assets to which it asserts a proprietary claim. As I said in my judgment finding contempt, the bank needs to know the whereabouts of Mr Kythreotis's assets if the freezing injunction is to be of any use at all. The bank cannot begin to trace the money it says belonged to it unless Mr Kythreotis answers the specified questions. The prospects of recovery are potentially reduced with every day that passes and the bank therefore suffers prejudice through non-compliance. That prejudice may be irremediable. Whether it can be remedied is not something within the bank's knowledge. Thus contempt proceedings are not a matter of vindictiveness but are vital to the bank to give teeth to the orders it obtained.[8]As I also said at the time, the circumstances giving rise to the bank's claim are very serious and a failure to comply with the order is also very serious. The bank's claim is for substantial sums of money which it alleges were paid away fraudulently through the medium of a web of companies. It has attempted to get information in a two-pronged attack; one, from insiders at the bank who are said to have paid the money away, such as the first defendant and two, from directors and persons associated with the recipient companies. Mr Kythreotis falls into the latter category. It is his case that his business is to provide nominee services to others and that at no time did he act other than innocently as a nominee in relation to the recipient companies. He says that he received monies and paid monies out only on instructions from others in the course of that business.[9]Mr Kythreotis failed (I understand in common with other defendants) to provide answers or supporting documents within the time ordered. Indeed, he did nothing about Mr Justice Henderson's order until the committal application was issued and served on him. The day before the first hearing he produced a short statement apologising to the court, giving an explanation for his conduct and expressing his eagerness belatedly to comply with the order.[10]At the hearing on 29 September 2010 I had to deal with two other matters. One was whether Mr Kythreotis should disclose certain email instructions, bearing in mind representations that had been made to him about the political position of persons named in the emails. I ordered that the emails be disclosed subject to certain restrictions on dissemination. Although the emails were then disclosed, they were only disclosed in redacted form and the bank applied to Mr Justice Morgan on 4 October to obtain unredacted versions. He so ordered but, I note, the unredacted versions were made subject to a further restriction as to use. I emphasise that I do not hold the provision of the emails in redacted form only against Mr Kythreotis on the question of sentence. The final position in oral amount of Mr Smith QC for the bank was that the bank did not ask me to do so.[11]The second issue I had to decide was with whether on the true construction of the order Mr Kythreotis was obliged to disclose assets which he held, or alleged he held, only as nominee. I decided that he did but gave permission to appeal on the issue and indicated that in those circumstances I would not be treating the non-disclosure of such assets to date as part of the contempt. The Court of Appeal has in any event stayed the effect of my declaration as to construction pending the hearing of an appeal. I therefore make it clear that non-disclosure of assets which Mr Kythreotis says he holds as nominee is excluded from all considerations as to sentence today.[12]There were broadly four reasons why I adjourned the consideration of sentence, as follows. One purpose of sanctions for civil contempt is for the court to secure compliance with the specific order breached. Thus it is important to consider whether the contemnor has substantially complied with the order. Secondly, to secure compliance with the court's orders generally. Thus the court will wish to consider whether the penny has dropped with the contemnor such that he has manifested an intention to treat the court's orders with proper seriousness. Thirdly, to see whether the apology given is genuine by considering whether proper efforts of compliance have been made. Fourthly, to see whether the breach of the order constituting the contempt has caused substantial prejudice to the other party, that is to say both whether the contempt was committed with the intention of causing harm to the claimant and, whatever the answer to that question, whether serious harm has in fact been suffered.[13]Mr Kythreotis has at all relevant times remained in Cyprus. I am aware of the fact that the court should avoid sentencing for contempt in the absence of the defendant: see Phonographic Performance Limited v Inch [2002] ALL ER CD 125. However the purpose is to give the defendant a chance to answer the charges against him. In this case Mr Kythreotis has instructed solicitors and leading counsel to represent him. I did not order him to attend court but on the last occasion I did say that he would be well-advised to attend on the basis that if he did not submit to cross-examination on relevant issues that could affect the weight to be given to his evidence in accordance with the principles enunciated by Lord Denning MR and Lord Justice Megaw in Comet Products UK v Hawkex Plastics Ltd [1971] 2 QB 67. <U>Sentencing principles</U>.[14]The power of the High Court to punish for contempt of court may be exercised by an order for committal: see e.g. CPR Schedule 1 RSC order 45 5(1) and order 52 1(1).[15]A sentence of imprisonment should only be imposed if a custodial sentence only is justified. The court may impose an immediate custodial sentence of up to a maximum of two years: see section 14(1) Contempt of Court Act 14. Alternatively, the court may impose a fine of unlimited amount or order sequestration: section 14(2).[16]A sentence of imprisonment may be suspended: see RSC o52 r7. Suspension is possible in a much wider range of circumstances than it is in criminal cases. It does no have to be the exceptional case. It is usually the first way of attempting to secure compliance with the court's[17]In contempt cases the object of the penalty is both to punish conduct in defiance of the court's order, as well as serving a coercive function by holding out the threat of future punishment as a means of securing the protection which the injunction is primarily there to do: see Lightfoot v Lightfoot [1989] FCR 305 at 308, Robinson v Robinson [2001] EWCA Civ 2098 at [11], Hale v Tanner [2000] 1 WLR 2377 at 2381.[18]I must take into account for sentencing purposes the factors considered by Mr Justice Lawrence Collins in Crystal Mews v Metterick [2006] EWHC 3087 (Ch) at [13]. In brief:• Whether the claimant is prejudiced by virtue of the contempt and whether the prejudice is capable of remedy.• The extent to which the contemnor has acted under pressure.• Whether the breach of the order was deliberate or unintentional.• The degree of culpability.• Whether the contemnor was placed in breach by reason of the conduct of others.• Whether the contemnor appreciated the seriousness of the breach.• Whether the contemnor has cooperated.• A genuine offer following judgment but before sentence to cooperate in the provision of information is capable of being a serious mitigating factor.[19]I would add to these factors the following:• Whether the contemnor has admitted his contempt and has entered the equivalent of a guilty plea.• By analogy with sentencing in criminal cases, the earlier the admission is made the more credit the contemnor is entitled to be given.• Whether the contemnor has made a sincere apology for his contempt.• The contemnor's previous good character and antecedents.• Any personal mitigation advanced on his behalf.[20]The court needs to be on its guard against treating a sentencing hearing as an occasion to sentence the contemnor for some further and different contempt which it is alleged he may have committed. In other words, the court is not looking at any contempt constituted by untrue answers given to questions specified in the order.[21]Further, the court must not pre-judge the merits of the underlying action on a committal hearing. The bank's case is that Mr Kythreotis was a dishonest participant in the scheme to defraud it. Mr Kythreotis' case is that he is merely a corporate nominee services provider who provides documents on instructions without participation in the transactions themselves. Thus there is an uplying factual dispute as to whether Mr Kythreotis went further than merely providing nominee services to his clients. That is an issue which the court must not attempt to resolve or pre-judge at this stage. In this context I bear in mind that it is an essential ingredient of Mr Kythreotis's defence that as a mere nominee he did not have access to certain documents that the bank said he was or must have been aware of.[22]I also bear in mind that it is not right to conflate or blend together proceedings for contempt with an application for cross-examination on assets or issues which are matters for trial.[23]In Phillips v Symes [2003] EWCA Civ 1768 at [53], Lord Justice Waller said, "But of greater significance, it does not appear to us to be right to blend the two. The court's concentration should be on considering whether the evidence given by Mr Symes has now provided the information required to be provided by the undertakings, with the possible consequence of an adverse finding being his imprisonment. If the wider-ranging examination is allowed, it will not be clear to Mr Symes whether he is dealing with that matter, or something different. There are dangers that, without an eye being kept firmly on the ball of whether the particular undertakings are being fulfilled, extraneous factors may influence where they should not."[24]I observe in passing that the wider ranging cross-examination there referred to was cross-examination post-judgment in aid of execution, a feature which does not appear in the present case. <U>Burden and standard of proof</U>.[25]In my previous judgment I made it clear that the burden of proof in establishing contempt is on those who allege it and that the standard of proof is the criminal one. That is to say, the court must be satisfied so that it is sure that the alleged contempt has been committed. In the time-honoured phrase, beyond a reasonable doubt.[26]The same approach must be applied to contested issues of fact relevant to sentence. See Aspect Capital Limited v Christensen [2010] EWHC 744 [7]-[8]. To take one example, any allegation that an order is disobeyed with a view to causing deliberate harm to the claimant has to be proved to the criminal standard.[27]There has however been argument as to the burden and standard of proof on the facts of this case. Mr Smith put the bank's case on the basis that Mr Kythreotis has said he has purged his contempt and it is for him to demonstrate that he has, although only on the civil burden of proof, the balance of probabilities. The court is not sentencing on the basis of a contempt arising out of the disclosure which has been made and it is not for the bank to prove that the disclosure is false or incomplete. However, if it raises serious questions about the genuineness of the evidence adduced by Mr Kythreotis, I should attach little if any weight to the evidence he gives as he has not submitted to cross-examination on it.[28]Mr Stanley QC for Mr Kythreotis said that all matters relevant to sentence are in principle for the bank to prove. It is not for Mr Kythreotis to establish that he has not left anything out of his disclosure.[29]It seems to me that to an extent they are both right. In principle the burden is on the contemnor to demonstrate that he has purged his contempt, although only on the balance of probabilities. However it is a separate issue for sentencing purposes whether and if so to what degree he has cooperated with the bank in providing information sought. It is for the bank to show prejudice arising from the original failure to comply (the contempt and the only contempt for which I am sentencing) which prejudice may have been mitigated by the information provided. The burden of proof is on the bank in relation to the factors identified in Crystal Mews. In any respect in which the burden of proof is on the bank, the standard of proof is the criminal standard.[30]The two issues are to my mind separate ones. Mr Smith submitted that if the contempt was not purged I must sentence for the original contempt. So far I agree with him. However, he went on to submit that if the contempt is not purged, and as Mr Kythreotis did not attend to submit to cross-examination, I must therefore ignore everything that Mr Kythreotis has since produced as irrelevant or at any rate carrying no or insignificant weight on the issue of sentence.[31]There is at the heart of the question before me an issue of principle which is not directly addressed, as far as I have been able to ascertain from the submissions, in any of the many authorities that have been cited to me. It is this: If a defendant in contempt through not answering questions with supporting disclosure says he has purged his contempt, has he got to persuade the court that his answers and disclosure are true, full, adequate and frank? At first blush the answer to this first question seems simple: a contemnor cannot give answers which are obviously untrue or support them with extracts from the telephone directory and say that has purged his contempt.[32]How far, however, does he have to go? Put the other way, can his application to purge be blocked by a prima facie case that his answers do not present the whole picture in circumstances where he does not make himself available for cross-examination on his answers and the documents? I have a problem with answering this question also in the affirmative for this reason. If the contemnor had provided the same answers supported by the same documents in due time, cross-examination would not follow as a matter of course. The other party would have had to make out a prima facie case that the order had not been complied with and on that basis seek an order that the contemnor attend for cross-examination. In the context of a contemnor alleging that he had complied with a suspensory condition as to compliance with undertakings, Lord Justice Waller, (giving the judgment of the whole Court of Appeal) in Phillips v Symes said at [61], "It must be open to the claimants to put in evidence to demonstrate that the compliance affidavits do not comply with the undertakings. Once a prima facie case has been shown, it must be open to the court to allow Mr Symes an opportunity of making good the deficiency, but only on the basis that he is prepared to be cross-examined on all the evidence he has given. It is true that, at this stage, if Mr Symes still fails to comply with the undertakings he will be at risk of the suspension being lifted, but we do not see that there is anything unjust in that. Nor do we think that to allow Mr Symes the opportunity of complying now with the undertakings only on the basis that he be cross-examined on his evidence, offends the principles to which the skeleton put in on behalf of Mr Symes refers. We do not in particular accept that the order compels Mr Symes to give evidence on a contempt application. This is not a contempt application."[33]If the same answers had been given within the seven-day period allowed by Mr Justice Henderson in July, the burden would have been on the bank in committal proceedings to show that the answers were untrue, with the criminal standard of proof. However Mr Smith submitted that the position is now different. The contempt is in not giving any answers at all. That contempt has been admitted and proved and is what I am sentencing for. If Mr Kythreotis wants to say he has purged his contempt such that any sentence falls to be commuted, he has to prove it.[34]However to my mind Mr Smith's submission omits an important stage in the process. There has been no order for cross-examination on the compliance affidavit. If there had been there would be a risk that I would be sentencing for breaches in giving untrue answers rather than the breach consisting of a delay in giving any answers at all. It is trite law that inaccurate or incomplete compliance may fall simply to be treated as noncompliance, but on the issue of whether the compliance is inaccurate or incomplete (a matter relevant to sentence) I cannot accept that the burden of proof is on the defendant to prove his case in the context of a hearing dealing with sentencing for contempt.[35]I also cannot accept that the mere fact that Mr Kythreotis says he has purged his contempt allows the bank free range to cross-examine in circumstances where it would otherwise have to persuade the court that cross-examination was appropriate in the first place. That is all the more so in circumstances where the case is (unlike Phillips v Symes) pre rather than post judgment and it would be hard to draw the line between general cross-examination going to matters in issue on the one hand, and cross-examination designed to determine whether the defendant had fulfilled his obligations under the order. Even the latter would be likely to be aimed at establishing a breach of the order and thus further contempts of court, an illegitimate exercise. Put another way, the purge application is a peg on which the bank could hang cross-examination which might otherwise be disallowed. This is in effect cross-examination on an affidavit tendered in purported compliance, although it bears the label of cross-examination on an affidavit purging contempt by late compliance.[36]The short answer to Mr Smith's submissions is that there has been no order for cross-examination on Mr Kythreotis' compliance affidavit, nor, to the best of my recollection, was one asked for. There is thus a gap in the argument since it cannot be required of Mr Kythreotis that he voluntarily tender himself for cross-examination in committal proceedings, or held against him that he did not.[37]As a separate matter, I am wary of saying that if the bank raises suspicions Mr Kythreotis must submit to cross-examination on them, failing which inferences will be drawn against him with the effect that all he has done will simply be discounted. The degree of cooperation is a separate question from purge and must be a relevant matter to take into account on the question of sentence.[38]I am also concerned in such circumstances as to whether it is appropriate at all to make findings as to the adequacy of the compliance on an application of this kind. I feel considerable reluctance in embarking on a detailed critique of the answers to the schedule D questions and of the supporting disclosure, partly because it involves (or potentially involves) collateral resolution of those issues akin to satellite litigation and partly because any findings I make might entrench on the issues in the action. If I were to find the contempt had been purged I would not with wish that to estop the bank from demonstrating at a different hearing that some of the answers given were untrue. The most I could find would be <U>apparent</U> substantial compliance for the purposes of this contempt application alone. And I return to that subject later in this judgment. <U>Preliminary observations</U>.[39]With those caveats in mind, I make some preliminary observations before turning to the bank's criticisms of Mr Kythreotis's answers and disclosure.[40]The application before Mr Justice Henderson sought wider disclosure relief than that which he ultimately gave. In particular there were questions expressed in wide terms about the beneficial ownership and ultimate control of the defendant companies. Mr Justice Henderson declined to include these questions in his order on the basis that they were effectively interrogatories and oppressive. Even as to the questions he did order, it is evident from the transcript that Mr Justice Henderson believed that they would be straightforward and would cause little hardship to answer. I accept Mr Stanley's submission that the judge did not have in mind anything approaching the provision of standard disclosure in seven working days.[41]In the event, the evidence corroborated by Mr Kythreotis' solicitors is that it has cost him more than £100,000 to answer the questions and provide relevant documentation. It has been strongly pressed upon me that it is obviously far more than was contemplated by Mr Justice Henderson when he made his original order. I agree with the observations of Mr Kythreotis's solicitors in their letter of 14 October 2010 that this is relevant to sentence. Mr Kythreotis's own contempt had the practical effect of putting it out of his power to persuade the judge on the return date that to continue the injunction would be unduly oppressive.

<U>Has the contempt been purged</U>?

[42]I start with the observation that I am only concerned with strict failure to comply with schedule D to the order and the other provisions to which I have referred, and not for any deficiencies in any additional voluntary disclosure. There is little doubt that there is a substantial amount of such disclosure.[43]The bank relies on a number of matters in support of the submission that the contempt has not been purged.[44]First, the bank says that on the face of it, Mr Kythreotis's disclosure is incomplete, on the basis that he has disclosed only hard copy documents, including emails previously printed, and not documents held only in electronic form in support of the answers to the questions ordered to be answered. Mr Stanley accepted that documents in electronic form were subject to the order but prayed in aid the time constraints and the mass of documentation in fact disclosed.[45]Yesterday I received a copy of a letter that was sent from Mr Kythreotis's solicitors to the bank's solicitors. It sets out in some detail Mr Kythreotis' difficulties in making disclosure (electronic disclosure in particular) and explains that a solicitor from the firm undertook a search with Mr Kythreotis on 29 October 2010, broadly reflecting Mr Smith's submissions (which were quoted) on 19 October. The steps taken are again set out in detail as to the parameters of the search, including date ranges and how the search was conducted.[46]The result of the search is that there were no relevant emails within the parameters of the search, including searches within Mr Kythreotis' box of deleted items. The point was made that items are only held in that box for a period of two years and therefore within the date parameters of the search, items during the period of June 2008 will have been permanently deleted.[47]Mr Smith has only had a very short time in which to consider this letter. His case is that as instructions and communications about instructions were regularly received by email it defies belief that no such further electronic communications exist. Today he has said that there is no evidence that the laptop searched by Mr Kythreotis' solicitor was the only source of electronic information. It is said that only a limited search was undertaken and Mr Smith calls for information about any other computers on to which emails may have been downloaded.[48]However, it seems to me that if the order was not complied with on 19 October 2010, it has now been substantially complied with as to electronic disclosure, but subject, as I have said, to the matters that Mr Smith has raised.[49]Secondly, the bank says that on the face of the disclosure there is reason to believe that Mr Kythreotis' answers to the questions do not tell the whole story. The bank can, it was submitted, show good reason for suspicion that the files had been doctored by insertion of forged documents after the event and the omission or removal of other documents. The disclosure is therefore substantially misleading and deliberately falsified. Mr Smith again submitted that it is for Mr Kythreotis to prove (on the balance of probabilities) that inferences as to falsification of disclosure should not be drawn and that it was just the kind of situation where it was critical for Mr Kythreotis to make himself available for cross-examination.[50]Mr Smith took me through a whole range of matters which the bank asserts raise such suspicions.[51]First, a number of issues relating to the ultimate ownership of the BVI defendants. In his skeleton argument Mr Smith said, "The beneficial ownership of the corporate defendants with which Mr Kythreotis was involved is on his own account far from clear. It is very surprising and suspicious." The identity of the beneficial owner of the companies is plainly what the bank wants to know in order to trace missing assets. The identity of those persons from whom Mr Kythreotis took instructions is a question required to be answered by schedule D, para (b), as enlarged by (c).

(a) to (c) in their entirety:

"Are the whole of the payments and/or transfers referred to in schedule C above still in the same accounts as Alfa Equity and/or Trasta into which they were originally paid, as referred to in schedule C above? If not, (a) when did money/securities leave those agents and in what amounts; (b) who gave the instructions that the monies/securities should leave those accounts; (c) were those accounts influenced by a suggestion or instruction made by any other individual, and if so who is that other person and what was the suggestion or instruction?"
[52]The answer to question (c) is, to use Mr Smith's expression, "the thread which if pulled might lead to the beneficial owner". However, Mr Kythreotis is not in terms required to "give details of beneficial ownership" of the defendant companies. I observe that Mr Justice Henderson refused to order answers to the questions in part 1 of schedule D as originally proffered, namely who was the legal owner of the shares and who was known or understood to be the beneficial owner or the person who ultimately controls the respondent companies.[53]Mr Smith asserted that it was accepted on Mr Kythreotis' behalf at a previous hearing that he was obliged to give such details. However, in deciding whether Mr Kythreotis has purged his contempt, and in all questions relating to contempt and to sentence, I must take a strict view of his obligations under the order. Some of the criticisms levelled by the bank are observations about information that has been provided voluntarily but which the order did not require should be provided, or they are further questions arising out of the material which has been provided. By themselves, those criticisms are not sufficient to indicate noncompliance.[54]I also have to look at the disclosure against the background that it was ordered to be made within with seven days and the time I afforded Mr Kythreotis was also seven days. Mr Smith said several times in the course of submissions that the identity of the ultimate beneficial owner was vital to the bank and was the purpose of the schedule D questions. However, he is to some extent rearguing what the order ought to have said and not what it in fact did say in more restrictive terms. The order was not intended to provide comprehensive disclosure of all relevant matters.[55]I have been taken in some considerable detail through the criticisms made by the bank of the answers given Mr Kythreotis to the schedule D questions. I summarise the principal ones, although I stress that these are by no means all of them.[56]First, the alleged instructions from Eastbridge to set up the fourth to eighth defendants. Mr Kythreotis said that he was initially informed that a Mr Kovalenko and a Mr Mashin were the beneficial owners and it is suspicious, it is said, that the disclosure does not contain initial instructions including their alleged interest. That criticism to my mind goes nowhere. It is a question arising out of the disclosure rather than a proper criticism of the disclosure itself. There are various circumstances said to be suspicious about the emergence of various names in the disclosed papers. Again these are questions arising out of the disclosure rather than the criticism of the disclosure itself.[57]Secondly, various declarations of trusts and service agreements dated on various dates in 2008. Other documents are said in indicate that these documents are forgeries as the dates they bear must pre-date their actual creation by a considering period. However, it does not necessarily follow that Mr Kythreotis was a participant in any forgery.[58]It is said that a document tendered by Mr Kythreotis in which a Mr Sadykov announced that he was beneficially interested in the defendants is suspicious and casts doubts on the authenticity of other documents. Again, it seems to me that the suspicions are several steps away from the schedule D questions and there may be innocent explanations for the documents. It is not the place to try these issues which go beyond the answers to the questions asked. Many criticisms arise out of a consideration of material provided by Mr Kythreotis. In particular there is a document apparently identifying a Mr Batyrgarejev as a beneficial owner of the fourth defendant. All sorts of queries are raised in relation to Mr Batyrgarejev. However, I cannot see that the schedule D questions require Mr Kythreotis to disclose any information about this man. The document has been disclosed and Mr Kythreotis has given his explanation of it.[59]Thirdly, there is the fact that Mr Kythreotis gives no explanation for different versions of sale and purchase agreements between the bank and the fourth to eighth defendants. Fourthly, the lack of explanation for the basis for the receipt by the fourth to eighth defendants of certain consideration. Fifthly, inadequacies in account statements of the fourth defendant. Mr Kythreotis says he was not in control of the various accounts or the companies' affairs. Mr Smith pointed out that most of the powers of attorney granted over the company's affairs required the attorney to copy all statements of account to Mr Kythreotis as director. Mr Kythreotis's case is that this requirement was simply not complied with. Again, the criticisms come perilously close to an issue in the action itself as to the allegations that there are concerns about backdating of documents.[60]Then there is Mr Kythreotis' signature on documents describing him as the beneficial owner of shares in some of the defendant companies is relied upon by the bank. Mr Stanley says that this is easily explained when one examines the sequence of events as to the creation of the companies as shelf companies.[61]As a separate matter, it is said that Mr Kythreotis' disclosure of his personal assets is plainly inadequate for two reasons. First, it is inconsistent with his involvement with persons of great wealth. Secondly, the lifestyle that the nature of his assets reveals is inconsistent with what he insists are his relatively modest means. Questions have also been asked about his income which remain unanswered.[62]However, the order does not appear to require Mr Kythreotis to disclose details of his income unless converted to capital savings. It requires him to disclose assets. The bank has identified no assets, house, bank account or investment, which Mr Kythreotis has in fact failed to disclose. It is again part of Mr Kythreotis's case in the action that he runs a business providing nominee services only. It is only if the bank proves otherwise that he might be expected to have greater assets.[63]It seems to me that there are many possible innocent explanations of the suspicious circumstances raised by the bank. While the mere fact that a huge number of documents has been produced at great expense is obviously insufficient to prove compliance in itself, and indeed it is a technique sometimes employed to flood a claimant with a mass of documents to hide the absence of crucial ones, I must not lose sight of the fact that I am passing sentence in a contempt application, in which the ultimate burden of proof in establishing matters relating to sentence is on the applicant.[64]As I have said, I do not intend to create any kind of issue estoppel by making findings about compliance on the state of the evidence before me. I also believe that there are difficult and novel points of law in this application relating to the issue of who has to prove what, although it seems to me that absent an order that Mr Kythreotis attend for cross-examination on his compliance, an order that in itself might raise all sorts of issues of propriety on a committal hearing, these issues may be largely academic.[65]What I am prepared to do today is to say that for present purposes, having scrutinised the answers to the schedule D questions with some care and also considered the suspicions raised by Mr Smith about the disclosure with some care, I propose to <U>sentence on the footing that</U> the contempt has been purged, without making any findings as to whether there has been full and proper compliance. <U>Mitigation</U>.[66]Addressing the matters set out in Crystal Mews, I would answer them as follows. First, prejudice. No specific or particular prejudice has been shown or even alleged by virtue of the delay in this case. However it is to be inferred that delay allows the guilty to evade enforcement and enables the trail in tracing assets to go cold: See the observations of Mr Justice Mann in Heidelberg Graphic Equipment Limited v Hogan [2004] EWHC 1090 applied by Mr Justice Lewison in the Aspect Capital case. The claimant has been set back by some two months in its ongoing enquiries about the facts and matters which underpin its claim.[67]Secondly, it is impossible to tell, on the state of the evidence before me, whether the prejudice is capable of remedy.[68]Thirdly, the contempt was a deliberate one. Fourthly, there is no evidence that Mr Kythreotis acted through any kind of pressure from a third party. The contempt was a culpable one. His evidence was that he did not realise the seriousness of his conduct at the time but that he does so now. I can and do take into account the fact that he did not tender himself for cross-examination on that factor and therefore I place little weight on what he says his motivation was for not complying with the order.[69]However, a very important factor indeed is his subsequent cooperation in providing answers to the questions asked and a huge amount of disclosure at very substantial personal expense. Even if Mr Smith is right and Mr Kythreotis has not fully purged his contempt, answers have been provided to all the questions asked, in line with Mr Kythreotis' case in the action, and there has been very substantial disclosure in support. I cannot simply ignore those matters, as Mr Smith invites me to do, when it comes to considering the question of cooperation. Mr Kythreotis has admitted contempt, and that too is a relevant factor.[70]Ultimately the questions I have to ask myself are:
"What is the contempt for which Mr Kythreotis is being sentenced?" and "
Is that contempt one for which only a custodial sentence is justified?" In my view, it is not.[71]Mr Kythreotis has spent more than £100,000 on giving disclosure. I have found that there is, for the reasons I have given, <U>apparent</U> substantial compliance with Mr Justice Henderson's order. In my judgment the cost to Mr Kythreotis is punishment enough, coupled with the fact that he must, as was accepted through Mr Stanley in argument, pay the costs of this committal application. There is, as far as I can see, no answer to that, as the bank had to bring the application to secure compliance with the order. A serious contempt was admitted and therefore, certainly, subject to any submission by Mr Stanley, those costs ought to be ordered and paid on the indemnity basis.[72]Mr Stanley has asked me to take into account, and I have done so, the following other matters, although I would add that, as Mr Kythreotis has not attended to be cross-examined, I attach little weight to them. The first one is illness. Secondly, his apology, although an apology depends on deeds, not words. Thirdly, the other matters raised in Mr Kythreotis' affidavit of 20 September 2010.[73]I would add only this: Mr Kythreotis has been spared imprisonment. He has said, to use Mr Justice Laddie's expression in Taylor Made Golf v Rata [1996] FSR 528 that the penny has now dropped. If he deliberately fails again to comply with an order of this court without adequate excuse, an immediate custodial sentence is likely to be inevitable.

order

see Hale v Tanner [2000] 1 WLR 2377. At a previous hearing I was taken through the authorities as to suspension in some detail.

Cited in 9 later judgments