Securing evidence during the COVID-19 pandemic (Koldyreva v Motylev)

This is an amended version of an article which was first published on LexisPSL.

The English High Court has recently handed down two separate judgments in Koldyreva v Motylev & others [2020] EWHC 3084 (Ch) and [2020] EWHC 3083 (Ch), spanning a number of applications aimed at tracing funds in support of a Russian bankruptcy order: a worldwide freezing order, a passport surrender order, Norwich Pharmacal orders, and search orders. All of the orders were granted, but particular note should be paid to the search orders whose terms were heavily affected by the COVID-19 pandemic and the fact that the intended defendant (Mr Motylev) had a young child. That case provides particular guidance for the scope of (and limits on) property searches during this period as well as the circumstances when a search order can be made against a third party.

Background

Mr Motylev was the beneficial owner of a number of Russian banks. He left Russia for the UK in 2015, shortly after which the Russian Credit Bank (RCB) which was majority-owned and controlled by him, collapsed. He has been resident in London since.

A series of complex transactions between the banks and shell companies under the control of the intended defendant were alleged to have taken place, contrary to Russian banking regulatory law, which resulted in a substantial amount of money leaving the banks and “disappearing” - those funds have yet to be found.

Mr Motylev was subject to bankruptcy proceedings in Russia, at which he was represented but did not appear in person. He was declared bankrupt in Russia in February 2018. Bankruptcy claims against him exceeded GBP600m, including a GBP335m claim by RCB. The Russian bankruptcy judgment gave Ms Koldyreva rights to sue in her own name for the debts of the bankrupt and obtain an assignment of moveable property.

Despite the bankruptcy declaration, Mr Motylev continued to do business and was observed spending significant amounts of time at a property understood to be his office. He was believed to be using a company credit card to fund his lifestyle.

Decision

The orders were made on the basis that there was a good arguable case/strong prima facie case for recognition of the order of the Russian courts on bankruptcy proceedings to appoint Ms Koldyreva as a manager at common law. In doing so, the judge allowed Ms Koldyreva to rely on a memo on Russian law prepared by the affiliate office of her solicitors, as opposed to requiring formal expert evidence.

Applying the common law test for recognition of a foreign judgment, the judge concluded that:

• Mr Motylev was resident and domiciled in England as he had a rented home here, and carried on his life here; and
• had submitted to the jurisdiction of the Russian courts through attendance by his representatives and the mounting of an appeal.

The judge found that the passport surrender order was necessary to prevent Mr Motylev leaving the jurisdiction prior to service of the freezing, search and Norwich Pharmacal orders, on the basis that he had previously left Russia shortly prior to the collapse of RCB.

The judge emphasised the role of a search order in the preserving, rather than disclosure, of evidence. He considered whether, in relation to the two premises in respect of which an order was sought, there were likely to be relevant documents and concluded that it was logical documents must exist in relation to the movement of monies. While he was content to make an order in respect of the office premises, when considering the residential addresses, he was concerned to balance the harm to be caused against the likely benefit of the orders. He placed particular emphasis on the fact that “in the context of the current pandemic, stringent precautions have to be made and put in place before a search can be considered.”

The judge showed clear awareness of the practical implications of a large search party entering a residential property: the potential requirement for hazard suits, masks, and protective clothing potentially having an appreciable effect of fear and intrusion on a young child. In light of this, Ms Koldyreva’s solicitors proposed a considerably cut down search order against the residential property, including a smaller party of people, and entering only while Mr Motylev’s young child was at school. The judge then cut this down further, allowing only:

• a search for one hour of the ground and raised ground floors (which contain the reception rooms);
• the supervising solicitor to go to the bedroom floors to determine whether one was being used as a home office; and
• one further hour to search any home office.

He also made an explicit exclusion from the order for electronic devices of the child (but not Mr Motylev’s wife, who was linked to unexplained transactions).

Conclusion

Despite the severe effect of COVID-19 on the UK, these cases show that even a global pandemic will not prevent the court from awarding any legal remedy that would ordinarily be required. Measures to secure evidence such as search orders, which will be inherently affected by lockdowns and social distancing, remain available, albeit with modifications in scope and duration.