02 June 2014

No disclosure, no liberty!

Dawn Goodman
Senior counsel | UK

The English courts are getting tough on individuals who claim to have no control over trust assets when the reality is very different. In several recent cases concerning Russian and CIS nationals, people have been held in contempt of court for failing to disclose information about their assets. In this article we look at two recent cases where the English Court’s remit stretched far and wide.

The headline case of JSC BTA Bank v Mukhtar Ablyazov [2012] EWHC 237 Comm concerned allegations of fraud by Mr Ablyazov, the chairman of JSC BTA Bank in Kazakhstan. It was suspected that Mr Ablyazov stole bank funds and proceedings were started in the High Court in London. The Court ordered his assets to be frozen and receivers appointed to safeguard assets that were said to belong to Mr Ablyazov, until the claim could be resolved. The receivers used their powers to obtain considerable amount of information about trusts in Jersey which Mr Ablyazov had set up.

The Court also required Mr Ablyazov to make full disclosure of his assets but he failed to do so, stating that many of the assets were not under his control. Unfortunately for him, having disobeyed the court order, he was sentenced to prison for 22 months for contempt of court. He then fled the country so the High Court barred him from defending the claim (on the ground of contempt) and so judgment was entered against him. The Bank then applied to the High Court for disclosure of the documents and information gathered by the receivers for enforcement purposes. The Court ordered disclosure and so the receivers delivered up all the documents they had obtained from the Jersey trust to the Bank. Mr Ablyazov is currently in France fighting extradition to Russia in order to face fraud charges.

Another example of this hard-line approach is the case of M v M [2013] EWHC 2534 (Fam) in the Family Division. The husband and wife were both Russian nationals, residing in the UK. The marital assets (totalling approximately £107m and including a number of residential properties) were held in a series of complex offshore corporate structures, set up by the husband. The court had to decide whether the husband no longer had any interest in certain assets or whether they were in fact held by companies on trust for him. The husband repeatedly failed to disclose information about these assets, claiming that they were not available to him. However the court found that though legal title was held by the companies, the reality was that the husband had “absolute control of his empire”. His lack of disclosure and failure to engage with proceedings resulted in him being held in contempt of court.

These two recent cases are a clear illustration of the court’s growing tough attitude towards those who claim that assets are outside their control when the reality is completely different. Of course, a person can still retain influence over assets, but it is very important that those with legal title to the assets are not simply puppets. It is increasingly clear that failure to disclose information when asked to do so can result in serious consequences. Never has it been more important to obtain professional advice to ensure that the governance of a wealth structure is well-considered and properly managed.

Dawn Goodman Senior counsel | London

Category: Article