NRC Holding Ltd v Danilitskiy & Anor [2017] EWHC 1431 (Ch)

Case No HC-2014-001987[2017] EWHC 1431 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, Rolls Building, Fetter Lane, London, EC4A 1NLDate 20 June 2017
Before
Robin Dicker QC(sitting as a Deputy High Court Judge)
Between
NRC HOLDING LIMITEDApplicantsDefendants/Respondents
Between
OPAL STEM LIMITEDRespondent
Alexander Milner (instructed by Withers LLP) for ClaimantDavid Lord QC and Richard Bowles (instructed by Setfords Solicitors) for Fourth RespondentHearing Hearing dates: 26 th and 27 th April 2017
JudgmentRobin Dicker QC (sitting as a Deputy High Court Judge):
[1]On 4 January 2016, the Applicant (“NRC”) obtained judgment in default against the First Defendant (“Mr Danilitskiy”) in the sum of US$5,000,000 plus interest and costs. Mr Danilitskiy did not defend the claim and has not taken any steps to set aside the judgment, although it appears that he is aware of it.[2]NRC seeks to enforce the judgment by way of a charging order over a property at 3 Holly Lodge, London W8 (the “Property”) which it contends is beneficially owned by Mr Danilitskiy. On 3 June 2016 an interim charging order was made by Master Teverson. NRC now seeks to have that interim order made final.[3]The application is opposed by the Fourth Respondent (“Opal Stem”), a BVI company which is the legal owner of the Property. Opal Stem contends that the Property is beneficially owned not by Mr Danilitskiy but by Opal Stem itself, and that it is, in turn, beneficially owned and controlled by Ms Polina Maltseva (“Ms Maltseva”). Ms Maltseva is Mr Danilitskiy’s elder daughter.[4]The issue for the Court is whether the Property is beneficially owned by Mr Danilitskiy, as NRC contends, or by Opal Stem. Both NRC and Opal Stem submit that the answer to that issue depends on the facts. However, they disagree how that issue should be answered.

Procedural background

[5]NRC is incorporated in Cyprus and is the holding company for a number of business interests ultimately owned by Mr Alexander Lebedev.[6]On 29 May 2014, NRC issued proceedings against Mr Danilitskiy in respect of a series of frauds which NRC claimed had been committed by Mr Danilitskiy in 2008 whilst he was a shareholder and manager of NRC. NRC alleged, in short, that Mr Danilitskiy had procured payments totalling some US$ 5 million to be made by NRC to companies which he controlled, including the Second and Third Defendants. NRC alleged that the payments were made without any commercial justification, in breach of Mr Danilitskiy’s duties to NRC and dishonestly.[7]The claim form was issued on 29 May 2014 and served on Mr Danilitskiy on about 30 June 2015. Mr Danilitskiy having failed to acknowledge service, judgment in default was entered by Master Bowles on 4 January 2016.[8]On 23 December 2015, shortly before judgment in default was entered, NRC brought separate proceedings in Cyprus against Mr Danilitskiy and various companies in relation to a number of further payments, totalling around US$ 120 million, which it alleged had been made on the instructions of Mr Danilitskiy between 2004 and 2009 and which NRC contended were also made in breach of duty and dishonestly.[9]NRC applied for a worldwide freezing order against Mr Danilitskiy which was granted by the Cyprus court on 29 December 2015.[10]On 26 January 2016, Henderson J granted an injunction on an application by NRC in support of the proceedings in Cyprus, restraining Mr Danilitskiy and Opal Stem from disposing of or dealing with the Property, the existence of which had come to NRC’s knowledge. The injunction was continued by Henry Carr J on 10 February 2016.[11]On 26 April 2016 Opal Stem wrote to NRC’s solicitors, Withers, asserting that Mr Danilitskiy did not own and, to the best of its knowledge, had never owned the Property legally or beneficially. On 29 April 2016, Withers replied noting the assertion but saying that Opal Stem had not provided any evidence to support its contention and commenting that the Court had previously accepted that NRC had a good arguable case that Mr Danilitskiy had a beneficial interest. On 23 May 2016 Opal Stem replied enclosing a copy of its share register, which indicated that Mr Danilitskiy had never owned shares in it, and an affidavit by Ms Maltseva which stated that she was and is the full legal and beneficial owner of the shares in Opal Stem, having acquired such shares in late 2015 and early 2016. The letter omitted to mention, amongst other things, either that Mr Danilitskiy was originally the ultimate beneficial owner of Opal Stem or that Ms Maltseva was Mr Danilitskiy’s elder daughter.[12]On 3 May 2016, NRC applied for a charging order over Mr Danilitskiy’s beneficial interest in the Property.[13]An interim charging order was granted by Master Teverson on 3 June 2016. The hearing to determine whether that order should be made final was due to take place on 13 July 2016. However, shortly before, Opal Stem instructed solicitors and served evidence in opposition to the application. On 12 July 2016, Master Bowles directed a hearing to determine whether NRC had a realistic prospect of establishing that Mr Danilitskiy had a beneficial interest in the Property.[14]That hearing took place on 17 August 2016 before Deputy Master Lloyd. Opal Stem relied on a witness statement from Ms Maltseva and two witness statements from Victoria Usacheva (“Ms Usacheva”), who had been appointed a director of Opal Stem on 18 January 2016. In response, NRC relied on, amongst other things, a witness statement of Simon Chadwick (“Mr Chadwick”), a solicitor employed by Withers. Having set out the evidence, on the basis of which NRC contended that the Property was beneficially owned by Mr Danilitskiy, Mr Chadwick drew attention to the fact that Opal Stem had not adduced any evidence from Mr Danilitskiy, commenting that, in circumstances where, on Opal Stem’s case, his daughter faced the prospect of possible loss of a property which she claimed belonged to her, one might reasonably have expected Mr Danilitskiy to give evidence.[15]Deputy Master Lloyd held that NRC had a realistic prospect of establishing that it was entitled to a final charging order, and referred in his judgment, amongst other things, to the fact that Mr Danilitskiy had not provided any evidence. He gave directions for the trial of the application, including directions for disclosure and for service of further witness statements.

The law

[16]Mr Milner for NRC referred to Prest v PetrodelResources Limited [2013] UKSC 34 where Lord Sumption said at [52]:
“Whether assets legally vested in a company are beneficially owned by its controller is a highly fact-specific issue. It is not possible to give general guidance going beyond the ordinary principles and presumptions of equity, especially those relating to gifts and resulting trusts. But I venture to suggest, however tentatively, that in the case of the matrimonial home, the facts are quite likely to justify the inference that the property was held on trust for a spouse who owned and controlled the company. In many, perhaps most cases, the occupation of the company's property as the matrimonial home of its controller will not be easily justified in the company's interest, especially if it is gratuitous. The intention will normally be that the spouse in control of the company intends to retain a degree of control over the matrimonial home which is not consistent with the company's beneficial ownership. Of course, structures can be devised which give a different impression, and some of them will be entirely genuine. But where, say, the terms of acquisition and occupation of the matrimonial home are arranged between the husband in his personal capacity and the husband in his capacity as the sole effective agent of the company (or someone else acting at his direction), judges exercising family jurisdiction are entitled to be sceptical about whether the terms of occupation are really what they are said to be, or are simply a sham to conceal the reality of the husband's beneficial ownership.”
[17]The parties also referred to a number of other authorities, including the judgment of Hoffmann LJ in Arab Investment Syndicate v Hiseman (unreported, 15 February 1994) and, more recently, the decision of Phillips J in JSC BTA Bank v Solodchenko [2015] EWHC 3680 (Comm), in which the decision in Prest v Petrodel Resources Ltd was considered and applied. I will return to consider the law to the extent necessary when dealing with the facts.

The parties’ cases

[18]NRC contends that Mr Danilitskiy is the beneficial owner of the Property. Its principal case is that the circumstances in which the Property was initially acquired were such as to have given rise to a resulting trust in favour of Mr Danilitskiy and that at no stage did he divest himself of that beneficial interest.[19]Opal Stem denies that Mr Danilitskiy acquired a beneficial interest when the Property was initially acquired and contends that, even if he had done so, he no longer has such an interest, any such interest having ceased following the acquisition of the share in Opal Stem by Ms Maltseva in late 2015 and early 2016.

The evidence

[20]NRC relied on witness statements from Ashley Messick (“Ms Messick”), a corporate investigator, and Eleni Polycarpou (“Ms Polycarpou”), a Special Counsel employed by Withers, together with the witness statement of Mr Chadwick, to which I have already referred. Ms Messick was cross-examined on her statement by Mr Lord QC for Opal Stem.[21]Opal Stem relied on the witness statements by Ms Maltseva and Ms Usacheva, to which I have already referred, together with further witness statements from each of them dated 10 February 2017, along with a witness statement by Simon Conroy (“Mr Conroy”), a solicitor with Setfords Solicitors. Ms Maltseva and Ms Usacheva were both cross-examined by Mr Milner for NRC.[22]Notwithstanding the comments made by Mr Chadwick in his witness statement, Opal Stem did not adduce any evidence from Mr Danilitskiy.[23]Mr Milner submitted that the absence of any evidence from Mr Danilitskiy was striking. He submitted that it was plain that Mr Danilitskiy had relevant evidence to give and that he could have been expected to provide it. This was particularly so, he said, given that, during the course of her cross-examination, Ms Maltseva confirmed that she remained on good terms with her father and spoke to him from time to time, that he was able to travel and that there was no reason why he could not come to London if he wanted to. Furthermore, in her evidence Ms Maltseva referred to conversations with her father in relation to the Property and associated issues around the time of the transfer of the share in Opal Stem to her in late 2015 and, according to her second witness statement, also when she prepared that statement in February 2017. Despite this, no explanation was provided by Opal Stem as to why Mr Danilitskiy has not provided any evidence.

Burden of proof and adverse inferences

[24]There is an issue as to the legal burden of proof where an application is made to make a charging order final; see National Guild of Removers & Storers Ltd v Jones [2012] EWCA Civ 216 per Pitchford LJ at [11] to [16]. I have, however, reached the conclusion that the decision in this case does not depend on the application of the burden of proof, and I do not need to consider this issue further.[25]Of more importance, in the present case, is that in Prest v Petrodel Resources Ltd Lord Sumption, in the context of discussing whether and if so when an adverse inference may properly be drawn against a party, said at [44] that, for his part, he would adopt, with one modification that is not relevant in this case, the view expressed by Lord Lowry in R v Inland Revenue Comrs, Ex p TC Coombs & Co [1991] 2 AC 283, 300 that: “In our legal system generally, the silence of one party in face of the other party's evidence may convert that evidence into proof in relation to matters which are, or are likely to be, within the knowledge of the silent party and about which that party could be expected to give evidence. Thus, depending on the circumstances, a prima facie case may become a strong or even an overwhelming case. But, if the silent party's failure to give evidence (or to give the necessary evidence) can be credibly explained, even if not entirely justified, the effect of his silence in favour of the other party, may be either reduced or nullified.” and also referred, by way of comparison, to Wisniewski v Central Manchester Health Authority [1998] PIQR 324, 340. There is a line of Australian authority to similar effect, see, for example, The Bell Group Ltd (in liquidation) v Westpac Banking Corp (No.9) [2008] WASC 239 at [1003]-[1022].[26]Mr Milner submitted that, in this case, the Court should draw what he described as a strong adverse inference against Opal Stem. I will return to the question of whether and if so what inferences it is appropriate to draw from the absence of evidence from Mr Danilitskiy when considering the facts.

The purchase of the Property in 2006

[27]Whilst what matters for present purposes is, of course, whether Mr Danilitskiy has an interest in the Property today, it is necessary to start by looking at the circumstances surrounding the acquisition of the Property in 2006, to see who held the beneficial interest at that stage.[28]Opal Stem was incorporated in the British Virgin Islands on 22 March 2006 shortly before the acquisition of the Property. Its first director was Paul Kythreotis (“Mr Kythreotis”) whose address was given as Larnaca, Cyprus. Alastair Tulloch (“Mr Tulloch”), a solicitor in London, was appointed as secretary. The Register of Members records that the sole share was at that stage held by Clapham Investments Limited (“Clapham Investments”). A certificate in respect of Opal Stem signed by Mr Tulloch dated 3 April 2006 identified Mr Kythreotis and himself as director and secretary respectively and referred to Mr Danilitskiy as “beneficiary”.[29]On or about 25 April 2006, Mr Kythreotis authorised Forsters LLP (“Forsters”) to sign the contract for the purchase of the leasehold interest in the Property on behalf of Opal Stem at a price of £3,170,000 and Opal Stem was subsequently registered as the owner of that interest with title number BGL 59944.[30]NRC contends and Opal Stem accepts that Mr Danilitskiy provided the monies which were used to purchase the Property. At the time, Opal Stem, which had only recently been incorporated, had no other assets and indeed had no bank account. Ms Maltseva’s evidence was that, whilst she was not aware of the exact arrangements that her father made to finance the purchase, she remembers him saying at the time that he would arrange financing and that he had used his own personal resources to underwrite the transaction. There is no evidence as to how the financing was arranged or what resources Mr Danilitskiy used, save that it appears that the deposit was transferred to Forsters by Bank of Cyprus by order of a company called Ardsley Investments Ltd.[31]There is no evidence to suggest that the purchase price was advanced by Mr Danilitskiy to Opal Stem by way of loan or capital subscription.[32]The Property was purchased because Mr Danilitskiy and his wife and children frequently visited London and decided that they would purchase a flat there. Whilst there is a dispute about how often it was used and by which members, particularly in more recent years, it is clear that the Property was originally purchased as a home for the family for them to use when they were in London. Mr Danilitskiy suggested that they should look at a new development close to Holland Park, where the family had lived for part of Ms Maltseva’s childhood. Ms Maltseva and her mother visited the development and chose the flat that they liked best, telling Mr Danilitskiy of their choice on their return to Moscow. Ms Maltseva and her mother were involved in deciding how the flat was to be decorated. Ms Maltseva referred to it as her family’s flat and says that she understood that it was intended that one day it would be hers.[33]In the absence of any evidence from Mr Danilitskiy, or indeed from any other individual who was involved at the time, there is no evidence as to why Mr Danilitskiy purchased the Property in the name of Opal Stem, rather than in his own name. Ms Maltseva, for her part, says that she was not aware that the Property had been purchased in the name of Opal Stem until, at the earliest, around the time the shares were transferred to her. Ms Usacheva was not appointed a director of Opal Stem until January 2016.[34]NRC referred to certain correspondence with Mr Tulloch. Withers wrote to him shortly before the hearing in front of Deputy Master Lloyd to ask him various questions about the acquisition of the Property. Mr Tulloch said that he had introduced Opal Stem to Forsters and that, at the time, he took instructions from Mr Danilitskiy in respect of the purchase and relayed those instructions to Forsters. In a subsequent e-mail in February 2017, he said that Opal Stem had been acquired on the instructions of Mr Danilitskiy to hold the title to the Property, who held himself out as the beneficial owner of Clapham Investments.[35]Ms Maltseva referred in her evidence to the fact that she has now seen a tenancy agreement between Opal Stem and Mr Danilitskiy. That agreement, which is dated 31 July 2006 and was signed on behalf of Opal Stem by Mr Tulloch, was expressed to be for a term of not less than six months continuing until terminated on three months’ notice, at a rent of £500 per month payable in advance.[36]There is no evidence that the rent was ever paid and, given that Opal Stem had no bank account and indeed still does not, it is unlikely that it was ever paid. Nor is there any evidence that the tenancy agreement was on terms that were in Opal Stem’s interests, particularly given that, on any basis, the rent was not paid in advance as the agreement provided. Mr Milner also submitted that the rent was not at a market rate, given that the property has more recently been let for between £3,000 and £4,000 per month. However, in the absence of any evidence as to market rates at the relevant time, I am not in a position to reach any conclusion on this.

Analysis of the position on purchase

[37]Whether an asset legally vested in a company is beneficially owned by the company’s effective controller is a highly fact-specific issue.[38]Absent anything to the contrary, Opal Stem’s legal title carries with it the beneficial interest in the Property. NRC submits however that, taking such evidence as is available as a whole, when Mr Danilitskiy purchased the Property in the name of Opal Stem then, given in particular that he provided the purchase price, a resulting trust was presumed in his favour with the result that he acquired the beneficial interest.[39]There are, in my view, a number of facts which together support the presumption of a resulting trust in the present case. I emphasise, in particular, the following:(1) Opal Stem had only recently been incorporated and was incorporated for the purposes of holding title to the Property. It appears to have had no other assets, no operations and no bank account.(2) The acquisition of the Property was arranged by and occurred on the instructions of Mr Danilitskiy.(3) Mr Danilitskiy paid the purchase price of the Property out of his own resources. There is no evidence that the monies were advanced by Mr Danilitskiy to Opal Stem by way of loan or capital subscription.(4) Whilst the Property may not, it appears, ever have been the main matrimonial home, it was purchased as a home for the family for them to use whilst they were staying in London.(5) There is no evidence that any rent was in fact paid by Mr Danilitskiy for use of the Property and no evidence that the terms on which he was permitted to use it were otherwise than, in practice, gratuitous.[40]There is one further aspect that, in my view, needs to be addressed. If a person transfers property to trustees of a settlement previously made by him, it has been held that there is no presumption of a resulting trust for him; the presumption is that he wants to add the property to the trust fund. There is, for similar reasons, a potential issue as to the natural inference to be drawn where a property is purchased by a company which is owned and controlled by the person who provides the purchase price. In this case the evidence indicates that, at the relevant time, Mr Danilitskiy was the beneficial owner of Opal Stem’s shareholder, Clapham Investments.[41]In Stockholm Finance Limited v Garden Holdings Inc. (unreported, 26 October 1995) one of the issues was whether a Princess Madawi was the beneficial owner of a property or whether that property was owned by a company, Garden Holdings Inc. In the course of his judgment, Robert Walker J said this (transcript pages 10-11):
“The other point that I have to come back to is the significance of the transfer being made to a company whose whole share capital belonged to Princess Madawi. If (as in McGrath v Wallis [1995] 2 FLR 114, [1995] 3 FCR 661,) a father and son both contribute to the purchase of a house which is transferred to the son alone, the question whether beneficial ownership corresponds to, or differs from, legal ownership — however it is resolved — has serious financial consequences for the parties. If they fall out and the house has to be sold during the father's lifetime, it affects the destination of the proceeds of sale; if they retain the house until the father dies, it affects how much he has to leave by his will. The position is quite different if the house belongs to a private company. If a private company is sole legal owner of the house, and the occupier of the house is sole legal and beneficial owner of all the company's shares, then (so long as both parties remain solvent) there is no basic economic difference between the company being sole beneficial owner of the house, and being a nominee for the occupying shareholder. There will be incidental differences for instance, the tax implications — and these may be of some practical importance, as has been seen. But at a basic level a wholly-owned company cannot be seen by its shareholder either as a potential rival to him in claims to ownership of property, or as a potential recipient of bounty from him (see, in a different context, IRC v Levy [1982] STC 442 56 Tax Cas 68). What goes out of one economic pocket comes straight into the other. In these circumstances I can see very little room for the application of the traditional presumptions as between Princess Madawi and Garden. I do not discount them completely but I must look first for evidence of actual intention before having recourse to the judicial last resort.”
[42]In Nightingale Mayfair Limited v Prakash Mehta[2000] W.T.L.R. 901, Blackburne J referred to the decision of Robert Walker J in Stockholm Finance and commented that:
“… the proper and natural inference from the decision by an individual to purchase a property in the name of a company and to provide it with the funds to do so, especially where the company is controlled by the individual, is that the company should be the beneficial as well as the legal owner of the money and then the property.”
[43]Neither Stockholm Finance nor Nightingale appear to have been cited to the Supreme Court in Prest v Petrodel Resources Ltd.[44]I do not find it easy to reconcile the inference which Blackburne J described as natural, with the analysis of the facts in Lord Sumption’s judgment at [43] to [51]. There is, in my view, a question as to whether and in what circumstances the inference that Blackburne J referred to is indeed the proper and natural one. In Nightingale there was, however, unchallenged evidence that the underlying intention was that the company should be the beneficial owner of the property for tax reasons. These tax objectives could only have been achieved, under the structures adopted, if the company owned the property beneficially. One can see why, in these circumstances, there was no scope for the operation of the presumption of a resulting trust. In Stockholm Finance, Robert Walker J did not go further than to say that one needs to look first for evidence of actual intention before having recourse to the judicial last resort.[45]In the present case, there are various possible reasons why Mr Danilitskiy may have chosen to purchase the Property in the name of Opal Stem. Some of those reasons might have indicated that Opal Stem was intended to be the beneficial owner of the Property and some that it was not. However, although he plainly has relevant evidence to give on this critical question and could have been expected to provide it on behalf of Opal Stem, there is no evidence from Mr Danilitskiy, or indeed anyone else, one way or the other. Nor have I been provided with copies of any board minutes of Opal Stem which assist on this issue, even assuming that such ever existed. In the absence of such evidence, I am not prepared to assume that Mr Danilitskiy intended to transfer the purchase monies to Opal Stem for its benefit nor that he intended Opal Stem to hold the beneficial interest. To the contrary, in my view the appropriate inference which is to be drawn from the decision that he should not give evidence, is that his evidence would not support Opal Stem’s case.[46]Each case ultimately depends on the facts. In the present case, I conclude that, taking the facts as a whole, the presumption of a resulting trust applies such that, when Mr Danilitskiy purchased the Property in the name of Opal Stem, he and not Opal Stem acquired the beneficial interest. I add that I would have reached the same conclusion on the basis of the available evidence, even if I had not also drawn an adverse inference from Mr Danilitskiy’s failure to give evidence.[47]The parties referred me to a number of additional authorities in this context. They are, in my view, all decisions on the facts of the particular case and accordingly I do not need to say much about them.[48]Mr Lord relied on the judgment of Hoffmann LJ in Arab Investment Syndicate v Hiseman (Unreported, 15 February 1994). In that case the plaintiff company was the owner of a property known as Rother Hill. The company, acting by its receiver, gave Mrs Hiseman notice to quit and to deliver up possession of the property. She claimed to be entitled to occupy the property as beneficial owner by virtue of an interest arising under a trust. Mr Hiseman was asked at the trial why he had used the plaintiff to purchase their previous house. He explained that he was being prosecuted at the time for obtaining a substantial sum of money by deception, a prosecution which was later dismissed. But he took it sufficiently seriously at the time to want to make sure the house was out of the reach of any creditor who might otherwise bring a civil action. The submission on behalf of Mrs Hiseman was that a trust existed in respect of that house in her favour and that the proceeds were subsequently used to purchase Rother Hill giving rise to a similar trust in respect of that property. Hoffmann LJ dealt with this submission as follows:
“ … any inference as to the common intention of the parties must take into account what actually happened in this case which is that the purchase was made in the name of the Cayman Islands company whose shares were held on a discretionary trust. Mr Hiseman knew that the purchase was being made in the name of the company and that the purpose of so making it was to put the company's assets beyond the reach of the creditors. The way in which the discretionary trust was to have this effect was by preventing any of the family beneficiaries from having a vested or identifiable interest in the assets which the company held. Nevertheless, through his ability to give directions to the trustees Mr Hiseman retained control over the company and so, indirectly, over its assets. This, no doubt, enabled him, by virtue of the instructions which he left with the trustees as to what to do in the event of his death or bankruptcy, to protect the interests of his wife and family. It is clearly of the essence of such an arrangement that the company should own its assets beneficially … … In these circumstances, I think it would be a contradiction to find a common intention of the parties that Mrs Hiseman was to have a beneficial interest. Everything Mr Hiseman was doing was inconsistent with such an intention.”
In that case, therefore, there was evidence as to why the property was purchased in the name of the company and that evidence was inconsistent with any trust being inferred in favour of Mrs Hiseman. There is no similar evidence in this case. The decision does not assist Opal Stem.[49]Mr Milner referred to JSC BTA Bank v Solodchenko [2015] EWHC 3680 (Comm). The issue in that case was, like in this case, whether a property was beneficially owned by the shareholder of the company in whose name the property had been purchased. Phillips J held, on the facts, that it was, referring to paragraph 52 of Lord Sumption’s judgment in Prest v Petrodel Resources Ltd. It appears that the property in that case was not the matrimonial home and, although there was no evidence of exactly how the properties had been funded, he inferred that the necessary monies had been provided by the shareholder or sourced by him, such as to give rise to a presumption of a resulting trust.[50]That the answer in any particular case depends on the facts, is also illustrated by the decision of Robert Englehart QC, sitting as a Deputy Judge of the High Court, in United Overseas Bank Ltd v Iwuanyanwu [2001] All ER (D) 40, see in particular at [29]-[30].

Subsequent events between 2006 and 2015

[51]I turn next to consider the various events which occurred between the acquisition of the Property in 2006 and the commencement of proceedings by NRC against Mr Danilitskiy in 2015.[52]Before dealing with such events I should, however, start by saying that there is nothing during this period which alters the conclusion that I have reached as to the position as at the date of purchase, even assuming such events to be admissible in that context and giving them the significance that they would naturally bear; see Antoni v Antoni [2007] UKPC 10 at [21] and cf. Lavelle v Lavelle [2004] EWCA Civ 223 at [17] and [19].[53]Nor, in my view, is there anything to indicate that Mr Danilitskiy transferred or in some way divested himself of the beneficial interest during this period. Indeed, I did not understand Mr Lord to submit to the contrary.[54]In November 2006, the lease was varied so as to include the use of a basement storage unit, after Mr Tulloch wrote to the lessor on behalf of “Anatoli Danilitskiy (Opal Stem Ltd)”. The management company appears, in the early years, to have sent invoices addressed to Opal Stem in respect of service charges for the Property to Mr Tulloch. There is no evidence as to how these were paid, but presumably they were paid by Mr Danilitskiy. Later in 2010, Opal Stem was party to a Participation Agreement relating to the proposed purchased of the freehold of the development by the owners of the various flats. The agreement was signed, on behalf of Opal Stem, by Mr Kythreotis and Mr Tulloch. In the same year, Mr Danilitskiy signed a form agreeing to pay the management company to arrange to install a water softener system at the Property.[55]There is little direct evidence as to the extent to which the Property was used during this period. Ms Maltseva says that she knew that her father occasionally used the Property when he was in London, but says that this did not happen more than a few days in a quarter, as he had, by then, separated from Ms Maltseva’s mother and had a new family in Moscow. Evidence as to the more recent period, which I refer to below, suggests that he may have used it more often than she says or was aware of. Ms Maltseva says that she spent a few summers there between 2007 and 2010 with her children and then husband. She says that, when she was planning to visit, she would call her family and let them know that her intention was to visit the Property for a few days. She also says that her mother used the Property, including for a period of one month in 2013 when she was learning English at a language school in Notting Hill. On any basis, the property continued to be used by the various members of the family during this period when any of them were in London.[56]During the same period there were various changes in relation to the management and ownership of Opal Stem. It is not necessary to mention all of them. However, Mr Kythreotis and Mr Tulloch resigned as director and secretary respectively of Opal Stem on 21 January 2011. On or about 29 May 2012 the share in Opal Stem that was held by Clapham Investments was transferred to Atlantique Nominees Ltd (“Atlantique”). On the same day, Atlantique acknowledged that it held that share as nominee and trustee for the Duckhouse Trust (“the Trust”).[57]The Trust was set up by Mr Danilitskiy on 10 May 1999. The beneficiaries were originally specified as the World Wide Fund for Nature, UNICEF, the International Committee of the Red Cross and any person or persons that the Trustees added to the class of beneficiaries. The amount of the funds originally settled was identified as US$10. Leaving aside the share in Opal Stem which the Trust subsequently acquired in 2012, neither party suggested that it has ever had any other assets.[58]It is worth pausing at this point to note that, as I have already mentioned, NRC’s claim in Cyprus alleged that Mr Danilitskiy made a series of fraudulent payments between January 2004 and May 2009 and that the payments which were the subject matter of NRC’s claim in this jurisdiction were alleged to have been made in 2008.[59]The Trust was amended by a Deed of Amendment dated 26 February 2009 to provide, amongst other things, for the appointment of a Protector. It is unclear whether a Protector was appointed. On 31 March 2010 Mr Danilitskiy wrote a letter of wishes to the trustees, saying that he would wish Ms Maltseva and her younger sister, Anna Danilitskiy, to be named as beneficiaries to benefit from the trust assets after his death. On 4 August 2010, the trustees resolved, by a Deed of Addition, to appoint Mr Danilitskiy to be an additional member of the class of beneficiaries.[60]Mr Lord submitted that Mr Danilitskiy did not have an interest in the property during this period merely by virtue of being the beneficiary under a discretionary trust. However, that does not answer the question of whether he had acquired such an interest by virtue of a resulting trust which arose on acquisition nor whether, if he did, he had divested himself of such an interest.[61]Ms Maltseva says that sometime in 2011 she was asked by her father to contact and meet the then trustees of the Trust, who were located in Zurich. Her recollection of such a meeting was, however, less than clear. In her first witness statement she referred to having been contacted by the trustees and having had a meeting with them in Zurich. In her second statement, she corrected this, saying that in fact her sister went to the meeting and she merely spoke to the trustees on the phone, and that she did not in fact meet them in person until 3 February 2016. Ms Maltseva’s evidence was that the Trustees wanted to meet her and her sister at this stage as they were the ultimate beneficiaries of the trust, and as such were meant to receive the trust assets, one of which was the Property. She says that, although she did not know the precise details at the time, she understood that the Property was held by an offshore trust. She says that she now knows that the company was called Opal Stem and that it was and always had been held in the Trust. However, there is, in fact, nothing to indicate that the Trust held the share in Opal Stem and thus had even an indirect interest in the Property, until Atlantique’s subsequent acknowledgement in May 2012.[62]There is no evidence as to why the share in Opal Stem was transferred by Clapham Investments to Atlantique in May 2012 nor why Atlantique acknowledged that it held that share as nominee and trustee for the Trust.[63]Neither the mere transfer of the share in Opal Stem to Atlantique nor Atlantique’s acknowledgement that it held that share as nominee and trustee for the Trust necessarily resulted in the transfer or divestment of Mr Danilitskiy’s beneficial interest in the Property. Nor is there any evidence from Mr Danilitskiy or indeed from anyone else who was involved at the time, that this was what was intended. Ms Maltseva’s evidence is consistent with the trustees merely wanting to meet her because her father had identified her and her sister in his letter of wishes as intended to benefit in the event of his death. During her cross-examination, she accepted that, at this stage, any discussions she had with the trustees were so that she could get to know them and were not about the Property. It is worth noting in this context that, after Mr Danilitskiy had provided his letter of wishes, but before the share was transferred to Atlantique, the trustees added him as a beneficiary of the Trust.[64]There is, in my view, nothing in the relevant events during this period that indicates that Mr Danilitskiy intended to transfer or in some way divest himself of such beneficial interest as he had in the Property, let alone that he had in fact done so. Nor, as I have said, did I understand Mr Lord to have submitted to the contrary. Mr Lord’s submissions, it is fair to say, were directed primarily to the position following the transfer of the share in Opal Stem to Ms Maltseva in late 2015, and it is to that period that I now turn. The transfer of the share in Opal Stem to Ms Maltseva in late 2015 and early 2016[65]NRC issued the Claim Form on 29 May 2014. The Claim Form was eventually served on Mr Danilitskiy on or around 30 June 2015.[66]The trial bundles contain a number of communications between Withers and Clyde & Co in June and July 2014 headed NRC v Abro, the contents of which have, however, been redacted as containing without prejudice communications. On 13 October 2014 Withers wrote to Clyde & Co, enclosing a copy of the Claim Form and Particulars of Claim and asking whether they had instructions to accept service on Mr Danilitskiy’s behalf. On 17 October 2014, Clyde & Co wrote saying that they did not. Given, however, the earlier communications between Withers & Clyde & Co in June and July 2014, Mr Danilitskiy was presumably aware of the existence of such proceedings from around June 2014.[67]In considering the facts relating to the beneficial ownership of the Property in the period since May 2014, it is necessary to bear in mind that they occurred against the background of NRC’s claim and Mr Danilitskiy’s awareness of it.[68]In June 2014 Knight Frank were contacted to market the Property. Opal Stem’s case is that this occurred because various changes in UK and Russian tax legislation had led the trustees of the Trust to decide to sell the Property.[69]Again, Ms Maltseva’s evidence of such matters was neither clear nor consistent. In her first witness statement she said that, at some stage in 2014, the trustees advised her about the new rules on properties held by non-resident companies, which would mean that the Property would incur further tax liabilities, and suggested that the Property be sold or transferred into her legal ownership. She said that she believed that she met the trustees in Zurich and that it was decided that arrangements would be made to try and sell the Property and that in the meantime the shares would be transferred to her, as it had always been intended that the Property would be hers. She says that the trustees then made attempts to sell the Property. In her second statement she says that she was told by her father that the trustees had advised him about the changes in UK laws and regulations and that she was never informed of any of the details of the trustees’ decisions. She says that she believes that the trustees’ decision to market the Property was also influenced by changes in Russian legislation on the taxation of overseas companies and related companies and the hardening attitude of Western banks to Russian companies. She said that she believed that the trustees spoke to her father who confirmed that the assets were earmarked for distribution to his children.[70]I am not satisfied that any meeting took place between Ms Maltseva and the trustees in 2014. Ms Maltseva’s evidence on this point is inconsistent with the fact that, in her second statement, she says that she did not meet the trustees until 3 February 2016. I also conclude that, to the extent that Ms Maltseva was aware of the efforts to sell the Property at this stage, her information came primarily from her father and not from the trustees, and that any understanding she may have had as to why this was being done also came primarily from him.[71]Knight Frank’s instructions came from Mr Danilitskiy. Ms Polycarpou contacted Knight Frank during the course of these proceedings and, according to her evidence, was told by a member of the sales team that he had located a small file of correspondence, which he had reviewed, and that all instructions to do with the sale and any viewings of the Property had come from Mr Danilitskiy, although the due diligence documents were provided by the trustees. Knight Frank declined to provide Withers with copies of such correspondence given the duties that they owed to their client, and neither Opal Stem nor Mr Danilitskiy have chosen to permit them to do so.[72]I conclude that the decision to market and sell the Property was made by Mr Danilitskiy. He appears to have continued to regard himself as entitled to decide what should happen to the Property and there is nothing to indicate that he did not, at this stage, continue to hold the beneficial interest in the Property. It is, however, difficult to avoid the suspicion that his decision to try and sell the Property may have been motivated, at least in part, by a desire to try and put the Property beyond the reach of NRC.[73]On 13 October 2014 Withers wrote to Clyde & Co, enclosing a copy of the Claim Form and Particulars of Claim and asking whether they had instructions to accept service on Mr Danilitskiy’s behalf.[74]Further efforts appear to have made to sell the Property in October 2015 through John D Wood, although again it did not sell. Ms Maltseva’s evidence was that she knew nothing about the process of marketing the Property as this was conducted by the Trustees.[75]There is, however, evidence as to the use of the Property at this stage from Ms Messick who viewed it on 11 December 2015. Her evidence, which I accept, was that it appeared that at this stage the Property was being used by Mr Danilitskiy. There was a brochure or flyer in the door addressed to Mr Danilitskiy, there was a pile of mail by the door on top of which was a bill addressed to Mr Danilitskiy and, by a small desk with a computer in the kitchen, there was a pile of mail with a bill on top addressed to Mr Danilitskiy. She says that it was clear that someone was living in the Property as there was food in the fridge and evidence that someone was working at the desk. The Property came with two parking spaces, one of which had a BMW SUV registration number 5DAA parked in it. Both the agent from John D Wood and one of the porters also referred to the flat as belonging to Mr Danilitskiy.[76]The share in Opal Stem was transferred from the Trust to Ms Maltseva in late 2015 and early 2016.[77]Ms Maltseva’s evidence was that the Trustees contacted her in November 2015 to discuss her tax status. In her second witness statement she said that:
“During one of our calls I requested that the share in Opal Stem was transferred into my name. It was a natural decision for me to request that the Property was transferred into my name, as I have a real affection for London, and children who would benefit from the Property, and as a result wanted to be in full control of the property.”
[78]On 2 December 2015, the trustees resolved, by a Deed of Addition, to appoint Ms Maltseva to be an additional member of the class of beneficiaries. Ms Maltseva says that on the same day she was told that the share in Opal Stem was to be transferred to her.[79]I have been shown a copy of what is described as the minutes of a meeting of the board of directors of the Trust dated 11 December 2015. They recite that the Trust and its underlying companies have been the subject of reviews and discussions following changes in various legislation affecting Russian nationals as well as the holding of real estate in England in the past year and the difficulties found in selling the real estate assets held by Opal Stem. They also recite that the trustees had received a request from Ms Maltseva to consider distributing all the issued shares of the company to her and that she was a beneficiary of the Trust. They record that the Trustees resolved to distribute all the issued shares in Opal Stem to Ms Maltseva and to terminate the Trust.[80]On 11 December 2015 Atlantique signed a nominee agreement, acknowledging that it held the share in Opal Stem on behalf of Ms Maltseva.[81]On 23 December 2015, NRC brought proceedings in Cyprus against Mr Danilitskiy and on 29 December 2015 obtained a worldwide freezing injunction.[82]On 11 January 2016 Atlantique transferred the share in Opal Stem to Ms Maltseva and the Trust was dissolved.[83]On 18 January 2016, Ms Maltseva appointed Ms Usacheva as the new director of Opal Stem. Ms Usacheva worked with Mr Danilitskiy when he was Chairman of the National Reserve Bank in Moscow and was his assistant at NRC until he resigned in 2009. She says that she met Ms Maltseva whilst working for Mr Danilitskiy.

Analysis of the effect of the transfer of the share to Ms Maltseva

[84]There is, in my view, nothing in these events which leads to the conclusion that Mr Danilitskiy had in some way successfully divested himself of his beneficial interest in the Property in late 2015 and 2016.[85]It is plain that the court does not have a full explanation of the circumstances leading up to the transfer of the share in Opal Stem to Ms Maltseva. In particular, it is implausible that the trustees decided to transfer the share and dissolve the Trust without at least first having consulted Mr Danilitskiy. There is, however, no evidence as to such discussions.[86]The reasoning underlying the minutes of the meeting of the trustees is also difficult to follow. If there was a concern about the effect of changes in tax law in England relating to the holding of real property through offshore companies, it is difficult to see how such concerns would be addressed by transferring the share in Opal Stem from Atlantique to Ms Maltseva. Although the minutes also refer to Russian legislation, the relevant legislation is neither identified nor explained, and Ms Maltseva was not able to throw any light on this part of the trustees’ reasons during her cross-examination.[87]Whatever may, however, be the full story, for present purposes the short point is that there is nothing in the mere fact of the transfer of the share in Opal Stem to Ms Maltseva and the dissolution of the Trust, that is inconsistent with Mr Danilitskiy having continued to retain the beneficial interest in the Property.[88]Mr Lord submitted that when the beneficial interest in the share in Opal Stem was transferred to Ms Maltseva, the ownership of the Property thereby passed to her as well. I do not accept this.[89]Even a wholly-owned one man company has separate legal personality from its shareholder, and can therefore hold property in trust for him.[90]There is no evidence that the transfer of the share to Ms Maltseva was intended to carry with it the transfer or divestment of her father’s beneficial interest in the Property. Ms Maltseva does not say that this is what was intended. Her evidence was rather that it was intended that she would be the beneficial owner of Opal Stem. It is right to record that, on occasions, her evidence went beyond this and referred, without further explanation, to Opal Stem as having always been the beneficial owner of the Property. I do not accept such evidence. Furthermore, in the absence of any evidence from Mr Danilitskiy, I am not prepared to infer that the transfer of the share in Opal Stem to Ms Maltseva was intended to be accompanied by the divestment of any beneficial interest that he had in the Property or that this had occurred. If this was what happened, in my view it was incumbent on Opal Stem to have adduced evidence from Mr Danilitskiy to this effect.[91]Mr Lord did not identify the precise mechanism by which, on Opal Stem’s case, Mr Danilitskiy ceased to hold the beneficial interest in the Property, following the transfer of the share in Opal Stem to Ms Maltseva. I would add, in this context, that neither party made any submissions as to what formalities, if any, would have needed to have been satisfied for such a disposition to have occurred.[92]It is, of course, possible that Mr Danilitskiy intended the share to be transferred to Ms Maltseva as part of an attempt to protect the Property from NRC. It is, for example, possible that he was concerned that the Trust, of which he was by then a named beneficiary, would have been susceptible to challenge on the basis that he controlled the actions of the trustees who would act in accordance with his instructions. Not surprisingly, however, Mr Lord did not suggest that this was the reason for the transfer of the share in Opal Stem. Such a submission would have risked giving support to a claim by NRC to avoid the disposition on the basis, for example, that it constituted a transaction defrauding creditors. Indeed, shortly before the hearing Withers wrote to Setfords Solicitors notifying them of such a potential claim.[93]NRC also contended that around the same time Mr Danilitskiy acted in breach of the worldwide freezing order granted by the Cyprus court, including by dissolving a series of offshore companies, incuding the Third Defendant and Ardsley Investments Ltd. The facts in relation to such matters are, however, not entirely clear and, given the conclusion that I have in any event reached, I do not consider it necessary to address such matters in this judgment.

The position since December 2015

[94]Much of Opal Stem’s case was focussed on the position in relation to the management and use of the Property since the share in Opal Stem was acquired by Ms Maltseva in December 2015.[95]Both Ms Maltseva and Ms Usacheva gave evidence that, since that date, they have taken all decisions in relation to the Property and met all outgoing in respect of it. In particular:(1) Ms Maltseva has paid all service charges, utility bills and management fees in respect of the Property.(2) They have liaised with the estates management team about the day to day management of the property.(3) They have arranged for the property to be let on an assured shorthold tenancy dated 31 March 2016 to a Mr Ilia Davidenko and subsequently from 1 August 2016 to a Mr Johnson.(4) Ms Maltseva received the rental payments from the tenants into her bank account in Russia.[96]I accept that, to outward appearances, Ms Maltseva and Ms Usacheva have dealt with all matters in relation to the management of the Property since the early part of 2016.[97]Given, however, the existence of NRC’s claim and the subsequent issue of the application for a charging order, such dealings are, in my view, of very little assistance. They are equally consistent with a desire on Mr Danilitskiy’s part to try and keep the Property out of the hands of NRC, by giving the impression that he does not have any interest in it.[98]I am also not satisfied Ms Maltseva was entirely forthcoming about Mr Danilitskiy’s involvement with the Property even after the share in Opal Stem was transferred to her.[99]Ms Messick’s evidence was that, when she visited the Property again on 20 January 2016, the position remained much as she had previously found it, with evidence that someone was living in the Property. She said that, to the best of her recollection, on both occasions there was nothing visible in the Property which indicated that the person using the Property was female, and Ms Maltseva, who is living in Vienna with her children, did not, in any event, suggest that the person using it was her. Ms Messick also said that the estate agent informed her that she was only allowed to show people the Property when Mr Danilitskiy was staying there and that the BMW car was again in the parking space in the garage.[100]Having carefully listened to the evidence of Ms Maltseva and Ms Usacheva, I formed the strong impression that they are managing the property because Mr Danilitskiy is content for this state of affairs to exist. I am not satisfied that their management is anything more than a matter of appearance which has been adopted in the hope that it may assist Opal Stem resist NRC’s application.

Conclusions

[101]Mr Danilitskiy acquired the beneficial interest by way of a resulting trust when he purchased the Property in the name of Opal Stem and still retains that beneficial interest. Accordingly, NRC is entitled to an order that the interim charging order made by Master Teverson in respect of the Property be made final.[102]I shall invite the parties to agree a minute of order reflecting this judgment and dealing with any consequential matters. If any aspect cannot be agreed I will hear further submisisons.

Cited in 9 later judgments