No thawing of the regime on disclosure of frozen assets

In PJSC Tatneft v Gennady Bogolyubov & Others^[1], the claimant ("Tatneft") – a producer of crude oil located in Tatarstan, Russia - was pursuing a claim against four Ukrainian businessmen alleging the defendants were involved in a fraud to divert payments for oil supplied by Tatneft by a series of intermediaries. Tatneft's total claim was $380m including interest and costs. Fearing the defendants might dispose of or dissipate their assets with the intention of Tatneft being unable to enforce any judgment against them, Tatneft applied for – and was granted – a worldwide freezing order under which each defendant was required to disclose all of their worldwide assets exceeding £10,000, confirmed by way of affidavit.

Following service of the worldwide freezing order, one of the defendants, Mr Kolomoisky, provided his first asset list which stated that he had assets worth far in excess of the maximum sum frozen. At the same time as serving his list, he applied to the court for an order varying the worldwide freezing order to provide that the asset list comprised the full disclosure of his assets, and he would not be required to provide any further details of assets in excess of the $380m value of Tatneft's claim. A second asset list provided by Mr Kolomoisky showed that the value of the assets disclosed had decreased.

The thrust of Mr Kolomoisky's application was that the court use its discretion to vary the terms of the disclosure order on the basis that requiring him to provide details of his assets above the total value of the claim was unnecessary, and would cause him prejudice (Mr Kolomoisky considered Tatneft's claim against him politically motivated and could result in unlawful expropriation by the Russian government, to which he claimed had already been subjected).

Mr Kolomoisky's application was unsuccessful. The jurisdiction to make a disclosure order arises under rule 25.1(1)(g) of the Civil Procedure Rules and/or section 37.1 Senior Courts Act 1981;  a claimant may seek an order from the directing a party to provide information about the location of relevant property or assets or to provide information about relevant property or assets which are or may be the subject of an application for a freezing injunction. The Court's overriding concern was that allowing the application by Mr Kolomoisky would place the order  in the hands of the defendant and allow them to "cherry pick" which assets they were prepared to disclose. Giving a defendant such power might cause them to only provide details of assets that would be the hardest to enforce against (for example if those assets were held in complex corporate structures), which conflicted with the purpose of the asset-disclosure regime.

The Court expressed further concern that, if Mr Kolomoisky's application were granted, fluctuations in the value of the assets disclosed (particular assets that are susceptible to market volatility such as shares as had been shown in Mr Lolomoisky's second asset list) could result in those assets not adequately safeguarding Tatneft's interests as a possible judgment creditor.

Although a disclosure order under CPR 25.1(1)(g) does not create any tangible security for a claimant (i.e. a claimant has no legal rights over the assets disclosed),  the regime is intended to guard against a defendant "acting artificially to create a situation in which the claimant cannot obtain satisfaction of any judgment he may obtain". The fact that no formal security is created by such an order was considered by the Court as the "quid pro quo" for the defendant having to provide a full list of its assets. The disclosure gave the claimant some level of comfort that if there were fluctuations in the value of the assets, the total value of the assets would remain sufficient to satisfy a judgment debt.

The Court was mindful of the fact that there had been no previous case in which a defendant had sought to limit its disclosure of assets to that of the level of the freezing injunction. The fact that no such case had been argued came as little surprise to the judge. Assisted by previous judgments which commented that the purpose of such disclosure is to make the freezing order effective and a defendant should be required to disclose all of his assets above a certain value^[2], the Court was disinclined to exercise its discretion as requested.

As set out above, obtaining an order for disclosure of assets does not confer any propriety right by a claimant over such assets. Such an order does not create any security, however it enables a claiming party to monitor (the judgment refers to "policing") the counterparty's assets to make sure that, if successful, that counterparty will be able to satisfy any judgment debt.

This judgment confirmed that the default position remains that a party subject to a freezing injunction remains obliged to provide full disclosure of all of its assets, regardless of the amount of the claim pursued against it. Although it is likely that the judgment will not prevent parties from making applications seeking to vary disclosure orders based on the facts of their own individual cases, the decision ought to give some comfort to claimants in international litigation who harbour concerns over their ability to enforce money judgments against the assets of counterparties. 

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