Thu, 01 Aug 2019
On 27 June 2019 in the English High Court in Kazakhstan Kagazy Plc & 5 Others v Baglan Abdullayevich Zhunus & Others [2019] EWHC 1693 (Comm) 2019 WL 02746548; the High Court re-examined the principles on which a Defendant can be cross-examined on their assets where there had been a disclosure order pursuant to a worldwide freezing order (‘WFO’).
Principles under consideration
- When would it be just and convenient for a court to order cross-examination of a Defendant on their asset disclosure?
- What level of discretion the Court must consider making such an order given the exceptional nature of the remedy?
- The test that should be applied to making such an order?
Background to case
- The Claimant argued that the Defendant had failed to give adequate disclosure in compliance with a disclosure order which had been made ancillary to a freezing order.
- The freezing order was made in support of a s.51 (Senior Courts Act) application against Mrs. Arip.
- Arip was not a Defendant in the main proceedings the Claimant’s having failed in their application to join her.
- Arip's English solicitors provided disclosure of those assets. This amounted to approximately US$ 25 million, the Claimants claimed this was an overestimation.
- Arip filed a confirmatory Affidavit in relation to her worldwide assets.
- Claimants considered that the disclosure which she had provided was inadequate, in failing to explain what had become of very substantial distributions (around US$ 300 million).
- A further order was made for Mrs. Arip to provide further information prior to this application for cross-examination.
Court confirms approach in Jenington International Inc v Assaubayev [2010] EWHC 2351 (Ch)
- The statutory discretion to order cross-examination is broad and unfettered. It may be ordered whenever the court considers it just and convenient to do so.
- Generally, an order for cross-examination in aid of an asset disclosure order will be very much the exception rather than the rule.
- It will normally only be ordered where it is likely to further the proper purpose of the order revealing further assets that might otherwise be dissipated to prevent an eventual judgment against the defendants going unsatisfied.
- It must be proportionate and just, in the sense that it must not be undertaken oppressively or for an ulterior purpose; thus, it will not normally be ordered unless there are significant or serious deficiencies in the existing disclosure.
- Cross-examination can, in an appropriate case, be ordered where assets have already been disclosed in excess of the value of the claim against the defendants.
High Court’s Considerations
- Whether or not cross-examination would further the proper purpose of the WFO?
- If there were to be cross-examination, assets might be revealed that might otherwise be dissipated to prevent an eventual judgment against Mrs. Arip going unsatisfied.
- Cross-examination would not normally be ordered unless there are significant or serious deficiencies in the existing disclosure.
- The Court determined there was a very strong case for saying that the disclosure hitherto has been inadequate with significant/serious deficiencies, and that cross-examination may reveal relevant further assets in relation to which the Claimants could then take steps to ensure that they are not dissipated.
- That the issue of whether the disclosure so far has been inadequate – must be resolved on the balance of probabilities based on the existing materials.
- That the Claimants were justified in asserting that there was an obvious inference that monies were being ‘parked’ by Mrs Arip with her mother and brother.
- Arip’s failure to explain payments made to family members and her relationship and dealings with various trusts.
- Arip’s failure to reference significant assets in her schedule of assets mentioned in earlier affidavit evidence in the proceedings.
- That there was no adequate offer of security.
High Court’s Conclusion
- The application for cross-examination was not oppressive or made for an ulterior purpose because it had a legitimate interest in policing and enforcing the freezing injunction.
- That if cross-examination was confined to the purpose of identifying assets belonging to Mrs. Arip against which the WFO should bite, it cannot be said to be oppressive or for an ulterior purpose.
- The Court also considered that the cross-examination would not be oppressive if it implemented the following safeguards:
i. The cross-examination should be limited to a single day.
ii. The Claimants should provide, in advance of the cross-examination, a list of the topics to be addressed. (as per Jenington v Assaubayev).
iii. If the Claimants intend to refer to specific documents, they should provide a bundle of such documents in advance of the hearing.
iv. The Claimants should in any event provide relevant disclosure of documents obtained from other parties.
v. Cross-examination is for the purpose of identifying assets which belong to Mrs. Arip against which the WFO should bite.
- The Court ruled that Mrs. Arip’s inadequate disclosure with the above-stated safeguards satisfied the just and proportionate test to order cross-examination.
- The fact that substantive rights have yet to be decided (the s.51 application) cannot provide a reason for non-compliance with the terms of an existing order.
- Cross-examination was a "strong step" for the Court to order, and that such an order is very much the exception not the rule
- The claimants’ legitimate desire to protect their rights under an existing order did satisfy the just and convenient test.
