JSC BTA Bank v Solodchenko & Ors [2011] EWHC 2908 (Ch)

EWHC-Ch

JSC BTA Bank v Solodchenko & Ors

[2011] EWHC 2908 (Ch) · 2011-06-27

MR JUSTICE BRIGGS: I must now consider the sentence to be imposed on Mr Shalabayev in his absence for the contempts which I found that he had committed in my judgment on 17 May last. It will be recalled that Mr Shalabayev was served with a freezing order on I think 5 November last. It contained detailed provisions in paragraphs 9, 10 and 11 for the provision of information. Paragraph 9 was provision of information about his assets. In paragraph 6, his assets were described as including:

"...all his assets, whether or not they are in his own name or whether or not they are solely or jointly owned, and whether the respondent is interested in them legally or beneficially or otherwise. For the purpose of this order, the respondent's assets include any asset which he had power, directly or indirectly, to dispose of or to deal with as if it were his/its own. The respondent is to be regarded as having such power if the third party holds or controls the asset in accordance with his/its direct or indirect instructions."

Paragraph 10 was for the provision of answers to questions set out in schedule D to the freezing order, which required Mr Shalabayev to give a detailed explanation of the movement of moneys which the bank claimed represented the proceeds of assets misapplied by other defendants in the proceedings.

Paragraph 11 required the information to be verified by affidavit.

There were time limits of seven working days under paragraphs 9 and 10, and a 10 working days after service provision in relation to the affidavit.

In paragraph 15 of my judgment on 17 May, I found that the contempt was proved beyond reasonable doubt. I said:

"The evidence clearly demonstrates both personal service of the freezing order endorsed with the appropriate penal notice, together with a covering letter warning of the consequences of breach, and proves the complete failure by Mr Shalabayev, without explanation or excuse, to provide the disclosure ordered, either in time or at all. The contempt is both serious and continuing. It is particularly serious because, on the evidence before the court, Mr Shalabayev played a central role in the concealment of the proceeds of the realisation of the bank's assets and may be supposed to be likely to have disclosable information of the highest value to the bank in tracing its property."

That conclusion, namely as to the vital nature of the information which Mr Shalabayev should have provided pursuant to the freezing order, arises in particular from the fact that Mr Shalabayev was one of four holders of a power of attorney in relation to a number of offshore corporations, most of them in the BVI, one of them in the Seychelles, which the claimants claim have been used to launder its assets. The upper limit in the freezing order is some £200 million.

Some of the documents which have been obtained by the claimants, in part from searching emails coming to and from Mr Shalabayev, pursuant to an earlier order of the court, in part from the execution of an Anton Pillar order, and in part from the Land Registry, show Mr Shalabayev as being described as the ultimate beneficial owner of some of those offshore companies, whether or not that is true. They also show him giving instructions and taking a part in the administration of those companies' ostensible assets, which suggests that the plaintiffs need the valuable information to find out what has become of their property, not merely pursuant to compliance by Mr Shalabayev with paragraph 10 of the freezing order in answering the questions raised, but also by providing information as to the whereabouts of his assets, bearing in mind the great breadth of the definition of his assets in paragraph 6 of the order which I have summarised.

Since my finding of contempt has been communicated to Mr Shalabayev, he has on two subsequent occasions, including this morning, sought to seek an adjournment of the sentencing hearing, without success today but with the obtaining of a seven day adjournment when he made a similar application last week. He is quite plainly aware both of the freezing order, of which there is evidence of personal service, and indeed of the judgment that he is in contempt, although it appears from the instructions which his counsel Mr Ian Smith described as having been given to him this morning that he does not even now appear to accept that he is in contempt in relation to the order.

This is an extremely serious case in which Mr Shalabayev has not only made no attempt whatsoever to comply with the freezing order, he has not made any admission of being in breach; he has not attended court, despite having more than sufficient time in which to do so; and he has not put evidence in in mitigation of his contempt, relying upon what I have already described earlier this morning as the unpersuasive excuse that he fears that he may be personally mistreated if he comes to this jurisdiction to attend to give evidence and be cross-examined.

The law relating to continuing contempts is something to which I shall have to return in a moment. I should note that Mr Ian Smith for Mr Shalabayev suggested that because time for compliance was set in paragraphs 9, 10 and 11 of the freezing order, and those time limits have long since expired, that this is therefore not a case of continuing breach but of once and for all breach. In my judgment, the opposite is the case. This is as clear a case of a continuing breach of the freezing order as it would be possible to imagine.

I turn to the authorities in relation to continuing breach of this kind, and they begin in 1989 with Lightfoot v Lightfoot

(1989) 1 FLR 414

, a decision of the Court of Appeal, in which Lord Donaldson, giving the leading judgment and addressing an appeal against a sentence of one year for contempt by

the judge at first instance, said as follows:

"Sentences for contempt really fall into two different categories. There is the purely punitive sentence where the contemnor is being punished for a breach of an order which has occurred but which was a once and for all breach. A common example of course is a non-molestation order where the respondent does not molest the petitioner and that is an offence for which he has to be punished. In fixing the sentence, there can well be an element of deterrence to deter him from doing it again and to deter others from doing it. That is one category. There is a second category which I might describe as a coercive sentence where the contemnor has been ordered to do something and is refusing to do it. Of course a sentence in that case also has a punitive element, since he has to be punished for having failed to do so up to the moment of the court hearing, but, nevertheless, it also has a coercive element. Now it is at that point that it is necessary to realise that in earlier times the court would, in such circumstances, have imposed a indefinite sentence; that is to say a man would be committed to prison until such time as he purged his contempt by complying with the order. Under the Contempt of Court Act 1981, a limit has been placed on such sentences, that limit being two years. It would be consistent with the previous practice of the courts and give full effect to the modification required by statute if courts considered imposing a two year sentence when the contemnor was in continuing and wilful breach of court orders. Whilst there might be cases in which such a sentence would be disproportionately severe, any wilful defiance of the court and its orders is necessarily a very serious offence and if the contemnor is aggrieved he has a remedy in his own hands: he can seek his immediate release by ceasing his defiance, complying with the order and thereby purging his contempt."

That analysis was referred to in Shalson v Russo by Mr Justice Neuberger, as he then was, in 2001, a decision given on 9 July 2001, a case of continuous breach of a freezing order which had continued until the date of the sentencing hearing, in a case about some £20 million. Mr Justice Neuberger applied Lord Donaldson's analysis in Lightfoot v Lightfoot and concluded in that case that a two year sentence was appropriate, but noted that Lord Donaldson's analysis did not mean that a two year sentence should be imposed as of course but merely that the court should give serious consideration to doing so in cases of this type.

In IFC v DNSL Offshore, a decision for which I have a transcript given on 23 March 2005, Mr Jonathan Hirst, Queen's Counsel, sitting as a Deputy Judge of the Queen's Bench Division, faced a comparable situation, namely where the information which was ordered to be provided by the respondent but had not been provided was vital to the claimants for the policing of a freezing order already made. After reviewing Lightfoot v Lightfoot, he made an order for 12-months imprisonment.

A similar period of imprisonment was imposed in Daltel Europe Limited v Makki and others,

[2005] EWHC 749 (Ch)

, for which I have a transcript, by Mr Justice David Richards, and upheld on appeal, in a case where there had been non-disclosure, disposal of assets in breach of the freezing order and dishonest statements made by the respondent. It is not clear whether Lightfoot v Lightfoot was cited in that case.

More recently, in JSC BTA Bank v Stepanov,

[2010] EWHC 794 (Ch)

, Mr Justice Roth, again applying the Lightfoot v Lightfoot analysis, imposed a full two year sentence in a case where there had been wholesale failure to comply, a failure to appear to answer the contempt charge, and in a case where compliance had been promised but had not been forthcoming. The only material point of distinction between the circumstances of Mr Stepanov in relation to Mr Shalabayev, which arise in related litigation, appears to be that by the time of the contempt hearing before Mr Justice Roth there had also been a judgment against Mr Stepanov for some hundreds of millions of pounds so that Mr Stepanov's continued refusal to comply with his disclosure obligations under the freezing order had become not merely an impediment to the claimant seeking to identify and recover property but also an impediment to the claimant in executing a judgment against the respondent.

There are numerous other cases of continuing non-compliance with disclosure provisions of freezing orders, some of which were helpfully cited to me by Mr Stephen Smith, Queen's Counsel, for the applicants, in which it is fair to say that one year seems to have been quite frequently imposed as an appropriate period of imprisonment for non-disclosure and sometimes for continuing non-disclosure, although it is not clear that the Lightfoot v Lightfoot line of authorities was cited in any of those cases.

In my judgment, the task which I have to conduct is as follows. I must first consider whether a custodial sentence is appropriate. I must, it being a case of very serious continuing total non-compliance with a freezing order, also consider whether a two year period is appropriate, bearing in mind Lord Donaldson's analysis in Lightfoot v Lightfoot. Beyond that I must impose such a sentence as I consider to be appropriate to the nature and severity of the contempt.

In my judgment, it is quite clear that a custodial sentence is appropriate. This is a case of wholesale flouting of the court's order by someone, nonetheless prepared to instruct English solicitors and counsel to appear for him. It is a case where there has, as I have said, been no recognition even by Mr Shalabayev that he is in contempt, let alone of the seriousness of his contempt, and it is a case where the claimants continue to have a pressing need for the information which the court has already ordered that Mr Shalabayev provide.

For the same reasons, it seems to me that serious consideration must be given to the imposition of a two year sentence of imprisonment, and that an attempt by the court to achieve some sense of proportionality with others who in this same litigation have been punished for wholesale non-compliance with the disclosure provisions of the freezing order might lead to the conclusion that a two year sentence was indeed appropriate.

In the event, I have come to the conclusion that the appropriate sentence in the present case is 18 months; that is 18 months for each of the breaches of paragraphs 9 and 10 of the freezing order and an additional six months for the failure to provide an affidavit thereafter, those being the three contempts proved against Mr Shalabayev, all those three arising really out of the same attitude to the freezing order, to run concurrently.

I have not imposed the full two year sentence available only because of the distinction which I have described between this case and that of Mr Stepanov, namely that there has yet to be a judgment against Mr Shalabayev in relation to which his continued flagrant non-compliance with the contempt order would provide the added prejudice to the claimants, namely an inability to find assets against which to enforce a judgment against him.

Cited in 12 later judgments

and 3 more of the most senior