Home Information Cases In Re Dalnyaya Step LLC (In Liquidation) v Nogotkov Kirill Olegovich, The Official Receiver Of Danyaya Step LLC (In Lidquidation) (2017)

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In Re Dalnyaya Step LLC (In Liquidation) v Nogotkov Kirill Olegovich, The Official Receiver Of Danyaya Step LLC (In Lidquidation) (2017)

Summary

It was in the public interest for the court to determine whether an official receiver who had obtained a without notice recognition order under the Cross-Border Insolvency Regulations 2006 had breached his duty of full and frank disclosure, even though the parties had agreed that the order should no longer continue. In the circumstances, the order was set aside ab initio as the official receiver had failed to inform the English court that granting the recognition order potentially engaged political issues involving the Russian state.


Facts

The applicants requested that the court determine whether the respondent Russian official receiver had breached his duty of full and frank disclosure even though that was no longer determinative of any live issues between the parties.

The official receiver had obtained a without notice order under the Cross-Border Insolvency Regulations 2006 requiring the English court to recognise the liquidation of a Russian company which the applicants used to manage. The applicants alleged that the company was a victim of a tax fraud carried out by criminal elements within the Russian authorities. They left Russia but claimed that the Russian authorities were subjecting them to ongoing persecution in retaliation for the fraud allegations. The official receiver obtained an order in the English proceedings that the applicants provide documentation and information in relation to the company's tax affairs. The applicants applied to set aside the recognition order on the grounds that the official receiver had failed to comply with his duty of full and frank disclosure when obtaining the order. The official receiver then applied to terminate the order on the ground that he had obtained a Russian judgment which made the English proceedings unnecessary. The parties agreed that the recognition order should no longer continue, but they were not completely agreed on the disposition of the three applications.

The applicants argued that the official receiver's applications were part of a retaliatory campaign by the Russian state against them and that it was in the public interest, and legitimate, for the full and frank disclosure issue to be determined. The official receiver argued that where a case had not been fully argued the court either had no jurisdiction to hear argument in the absence of any live dispute or, if there was jurisdiction, that the earlier the stage of the proceedings the higher the burden on the party seeking to persuade the court to give judgment.

Held

Should the court decide the issue of whether the official receiver had breached his duty of full and frank disclosure? Yes. The parties were almost, but not completely, agreed. Therefore, the principles in Barclays Bank Plc v Nylon Capital LLP [2011] EWCA Civ 826 about when the court should hear and give judgment on matters that were no longer determinative of any live issue between the parties was not precisely in point, Nylon considered. It was agreed that the recognition order should no longer continue, but it was not agreed whether it should be declared to terminate, or to have never been validly in existence. It would not be satisfactory to terminate the order on the basis of the official receiver's application if he had breached his duty of full and frank disclosure. There was a material, if not critical, difference between an order setting aside a recognition order ab anitio, and terminating such an order at the office holder's own request some seventeen months after it had taken effect. There were clear and compelling reasons why it was in the public interest to determine the full and frank disclosure issue, Gawler v Raettig [2007] EWCA Civ 1560 applied. Where there were serious allegations of wrongdoing, and where the UK Government had already made clear its views about connected aspects of the case, the court could not stand by without deciding whether there had indeed been inappropriate conduct. It was in the public interest for that issue to be determined, whatever effect it had on the private parties to the litigation. It was a wholly exceptional case. The applicants had good reason for wanting the issue determined, and the official receiver had no good reason for not wanting it determined. The court could not willingly accept a situation in which one party could prevent it determining, where it was in the public interest to do so, whether its procedures had been flouted or abused (see paras 71, 74-78, 81, 83 of judgment).

Did the official receiver breach his duty of full and frank disclosure? Yes. When seeking a recognition order, full and frank disclosure had to be made in relation to the consequences for third parties that were not before the court that might flow from the recognition of the foreign proceedings, including from intended future applications enabled by the order. The official receiver had intended, at the time he applied for the order, to issue his application for information about the company's tax affairs. The history of the Russian state's actions against the applicants were material facts of which the English court needed to be fully and fairly informed in order to allow it to decide whether the public policy exception in sch.1 art.6 of the Regulations was engaged. The official receiver knew that the actions he was taking were highly charged politically. That was enough to make it incumbent on him to tell the English court that political issues involving the Russian state might arise, and of the UK public policy issues that it was likely to raise and of which he was, or ought to have been, aware. The recognition order was set aside ab initio (paras 86-88, 92).

Judgment accordingly

Chancery Division
Sir Geoffrey Vos C
Judgment date
15 December 2017
References
LTL 5/12/2017 : [2018] Bus LR 789 : [2018] BPIR 378