Bulletins | May 3, 2024

Tonstate v Wojakovski

In a helpful case on the Bankers Trust jurisdiction Adam Johnson J made an order for disclosure against an Israeli resident, having decided that the court had personal jurisdiction over him as a director of an English company who had at the time of service, registered an English address for himself. There was, he found, sufficient connection to England and the making of the order against the bankrupt’s brother in Israel did not offend the “internationally recognised principles on the limits of the exercise of jurisdiction“.

Rechtschaffen Law made the application for the Claimant Company. Wedlake Bell, who were not involved in this application, represent the Trustee in Bankruptcy.

The Tonstate Group of companies was the victim of fraud in the form of unauthorised extractions of company funds by Mr Edward Wojakovski. Zacaroli J gave judgment against Mr Wojakovski in January 2020, recognising the claimants’ proprietary interest in the extractions which had amounted to some £13.5 million. Adam Johnson J’s judgment in Tonstate Group Ltd & Ors v Wojakovski & Ors [2024] EWHC 975 (Ch) deals with the claimants’ efforts to effect recovery by seeking information and documents relating to assets held in an Israeli trust, and bank accounts outside Israel held in the name of Edward’s father, Mr Gideon Wojakowski.

The Israeli trust had been established under the joint will of Gideon Wojakowski and his wife Miriam, both now deceased. The trustee, who was also the executor of the joint estate, was the respondent to the application, Mr Gil Wojakowski, Edward’s brother. The beneficiaries were Edward, Gil and two other brothers.

The application was brought against Gil on the basis that he had access to, and control of, the trust’s documents, and access to, and control of, documents relating to his late father’s bank accounts. The application itself invited the court to exercise its power to make disclosure orders in aid of proprietary claims with a view to ascertaining what had become of the claimant’s own property (see Bankers Trust v Shapira [1980] 1 WLR 1274).

The first point on which the court needed to be satisfied was that it had personal jurisdiction over Gil, i.e. the jurisdiction to adjudicate on the question whether, in principle, he should be made subject to an order directed to him personally requiring him to disclose documents and information. The judge determined the point in favour of the claimants. He did so largely because Gil was a director of an English company and had provided a registered address for service to Companies House under s 1140 Companies Act 2006. Although his registered address had later been changed to an address in Israel, in December 2023 when the present application had been served on him, Gil’s registered address for service had been in London. Good service there was sufficient to establish personal jurisdiction: it did not matter that the application was not related to his business as a director because s 1140(3) provided that the section applied “whatever the purpose of the document in question” (see Dicey, Morris & Collins on the Conflict of Laws (16th edn) para. 11-048).

The judge turned next to the Bankers Trust jurisdiction, essentially the jurisdiction to grant an injunction against a defendant in the absence of a cause of action against him or her as explained by the Supreme Court in Wolverhampton City Council v London Gypsies and Travellers. As Adam Johnson J observed,

“The Bankers Trust jurisdiction is exercised where there is strong evidence that the Claimant’s assets have been misappropriated. Where that is so, the Court will not hesitate to make strong Orders to ascertain the whereabouts of the Claimant’s property. The present is obviously such a case, because it has already been established by Zacaroli J’s Judgment that the Claimants’ assets have been misappropriated. As to exercise of the jurisdiction, Warby J (as he then was) set out a useful checklist of relevant factors in his Judgment in Kyriakou v Christie Manson & Woods Ltd.” It can be summarised as follows:

  1. There must be good grounds for supposing that the money or assets about which information is sought belong to the claimant.
  2. There must be a real prospect that the information or documents sought will lead to the location or preservation of assets.
  3.  The order should, so far as possible, be directed at uncovering the particular assets which are to be traced. It should not be wider than necessary in the circumstances.
  4. The interests of the claimant in obtaining the order must be balanced against the possible detriment to the respondent in complying with it, which may include an infringement or potential infringement of rights to privacy or confidentiality. The judge said: “There will be some burden associated with complying with the order, because it requires the collation of information and documents. In the circumstances though I do not see that as unduly burdensome. The issue of privacy and confidentiality is a more sensitive one, but such interests often have to give way to the need for disclosure in litigation, and here the need is a pressing one since there has been a fraud and the disclosure is needed to allow the Claimants to identify funds which have effectively been stolen from them. The Claimants will in any event give an undertaking not to make use of any information or documents obtained except for the purpose of recovering the Extractions.”
  5. The applicant must provide appropriate undertakings, including as to paying the costs of compliance and as regards the use of any information and documents disclosed.

Consideration of those factors in this case led the Adam Johnson J to the conclusion that the relief sought was justified.

Finally, the judge considered what he called “subject matter jurisdiction,” noting that “the principal interest in the case in my view, and the principal difficulty in dealing with it, arises from the fact that Gil is resident abroad and the Order seeks disclosure of information and documents held at least partly abroad, by regulating Gil’s conduct outside the jurisdiction.”

Relying on the decision in Mackinnon v Donaldson, Lufkin & Jenrette, in which Hoffmann J had refused to make an order, holding that the court should not, save in exceptional circumstances, impose a requirement on a non-party outside the jurisdiction to produce documents outside the jurisdiction concerning business outside the jurisdiction, counsel for Gil argued that it would be an excess of jurisdiction for the English court to make an order against Gil, even if he was subject to the court’s personal jurisdiction, since it would be wrong for the English Court to seek to regulate his conduct abroad in relation to business and activities conducted abroad. Counsel for the claimant argued that the approach in Mackinnon was now outmoded, and a more expansive approach was justified in the modern environment of international business which was usually conducted electronically. He pointed to the approach taken in LMN v Bitflyer Holdings Inc & Ors, a case involving cryptocurrency fraud, in which Butcher J had taken the view that the approach in Mackinnon was inapplicable since it was not known where the documents sought to be obtained were located. He doubted the continued relevance of subject matter jurisdiction.

Adam Johnson J disagreed. He said:

“I consider the concept of subject matter jurisdiction is still entirely apposite and indeed important. The question of making Orders against third parties abroad is not a matter of general discretion only. In an article in the Law Quarterly Review in 2010 (‘Jurisdiction in conflict of laws – disclosure, third-party debt and freezing orders’), Professor Trevor Hartley explains the point in some detail (although he uses the US term ‘jurisdiction to prescribe’ to describe the same concept). Professor Hartley puts it as follows (at p. 195): ‘The idea behind all these phrases is that one state should avoid trespassing on the sovereignty of another.’ To my mind, this expresses clearly why it is inadequate to say that the matter is one of general discretion only. I do not think it is. It is rather a matter of the Court showing appropriate restraint in cases where the exercise of its powers may clash with the sovereignty of another state. That is, properly speaking, a matter of jurisdiction, and in my opinion applying a label to the concept which encourages engagement with that point is entirely appropriate.”

He went on to consider Lawrence Collins LJ’s analysis of subject matter jurisdiction in Masri v Consolidated Contractors (No. 2), noting his view that the existence of a sufficient connection with England would usually justify the exercise by the English court of its powers. “That case,” he said,” shows that what may be a sufficient connection with England to justify an order will vary with the circumstances. It does not decide that the court will never have jurisdiction to make orders under the Bankers’ Books Evidence Act 1879 against the London branch of a foreign bank in relation to papers held by head office, nor that it will never be possible to issue a witness summons against the bank’s London branch officer in respect of head office transactions. The result might have been different if head office held papers relating to London transactions. What it says is that any power or discretion must be exercised in accordance with internationally recognised principles on the limits of the exercise of jurisdiction.”

Adam Johnson J held that the Mackinnon decision did not establish a blanket prohibition against the making of the order sought in this case: Hoffmann J’s finding was only that, on the facts of the case before him, there was insufficient connection with England to justify the court acting. Adam Johnson J went on to say that in the case before him there were a number of factors justifying the English court using its power to order disclosure in accordance with internationally recognised principles on the limits of the exercise of jurisdiction:

  1. There was a sufficient connection with England.
  2. One of the bank accounts identified was in London, so at least some of the documents and information sought by the order related to assets in the jurisdiction, and there might be others.
  3. It was significant in jurisdictional terms that the case involved a fraud: it was important to avoid delay in identifying the whereabouts of the claimants’ assets.
  4. The context of the application differed from that in Gorbachev v Guriev, which concerned a pre-trial application for third party disclosure. This case concerned giving effect to an existing judgment which had already determined that Edward had defrauded the claimants of their property. The issue as about the exercise of the court’s power to compel production of documents and information designed to reveal the location of that property so it could be recovered. The court had never hesitated to make strong orders for disclosure in such circumstances.
  5. There was no real danger of Gil being subject to any risk of complaint by the beneficiaries of the trust (cf the position of third party banks described by Hoffmann J in Mackinnon). Similarly, there was no evidence that they would have any valid complaint against Gil under Israeli law, or that Gil would be at risk of any sanction or penalty for complying with any order made by the English court.

The application succeeded, and an order was made against Gil Wojakovski.

Bankers Trust orders, so named after Bankers Trust v Shapira, which established a defrauded party’s equitable right to trace assets into the proceeds of sale of those assets or substituted new assets, involved making a disclosure order against a bank whose customer, on the face of it, had been guilty of fraud. The jurisdiction has developed since then. This case shows that making an order is not limited to cases involving a bank; it also shows the court willing to adapt to a modern world in which business is conducted very differently to the way it was in the 1980s when Bankers Trust and Mackinnon were decided.