Jenington International Inc. (a company incorporated in the British Virgin Islands) and Others v Kanat Shaikhanovish Assaubayev and Others
|England & Wales
|Mr Justice Vos
|15 September 2010
| EWHC 2351 (Ch)
|Claim No: HC10C02125
|15 September 2010
 EWHC 2351 (Ch)
IN THE HIGH COURT OF JUSTICE
Royal Courts of Justice
London WC2A 2LL
Mr Justice Vos
Claim No: HC10C02125
Clive Freedman QC, Tim Penny and David Davies (Instructed by PCB Litigation LLP) appeared on behalf of the Claimants
John Wardell QC and David Mumford (Instructed by Allen & Overy LLP) appeared on behalf of the First, Second and Fourth Defendants
In this action the claimants make claims for recovery of what is alleged to be fraudulently obtained property and for damages amounting in total to over US$400 million. Peter Smith J granted a worldwide freezing order made against the defendants on 23 June 2010 and at the same time ordered the defendants to disclose the whereabouts and details of their assets in support of that freezing order.
The claimants applied on 19 July 2010 for an order that they be at liberty to cross-examine three individual defendants on the disclosures that they have made of their assets. The three individual defendants concerned are (1) the first defendant, Mr Kanat Shaikhanovich Assaubayev, whom I shall call "Kanat", (2) the second defendant, Mrs Marusya Maralovna Assaubayev, whom I shall call"Marusya", Kanat's wife and, (3)the fourth defendant, Mr Sanzhar Kanatovich Assaubayev, whom I shall call" Sanzhar", who is the son of Kanat and Marusya. These defendants have been referred to together as the A&O defendants in the course of argument. Mr Freedman this morning told me, in his reply submissions, that he was content not to seek to pursue his application to cross-examine Marusya. I will therefore take it that the application is now only pursued against Kanat and Sanzhar.
As will shortly appear, on 27 August 2010 Peter Smith J laid down a timetable, whereby the argument on the cross-examination was to take place, as it did in most part, yesterday, and the cross-examination, if ordered, was to take place today and for the following two days.
It would not be an exaggeration to say that the claimants' applications have resulted thus far in a huge amount of litigation activity since 23 June 2010, including some 14 hearing days, including today. Indeed, Mr John Wardell QC, leading counsel for the A&O defendants, told me that his clients have already incurred more than GBP 1 million in legal costs in their efforts to comply with the court's orders. In addition to the time spent in court, huge volumes of documents have been produced by both sides in relation to the asset disclosure exercise. Some 25 tightly-packed lever arch files of documents have been placed before me.
Against this background, Mr Wardell has submitted that the demand for cross-examination on the A&O defendants' extensive disclosure is disproportionate and oppressive. Enough, says Mr Wardell, is enough. He submits that his clients have cooperated throughout, with limited exceptions, and that it would now be neither just nor convenient for the court to order the cross-examination envisaged by Peter Smith J's timetabling order. He complains that his clients' passports were delivered up to the claimants' solicitors as long ago as 29 June 2010, and despite the court having given the A&O defendants a legitimate expectation that their passports would be returned if they cooperated, they have been retained again and again as adjournments were sought and obtained to enable more and more information to be put forward.
Mr Clive Freedman QC for the claimants on the other hand submits that the complexity of the asset disclosure exercise is entirely of the defendants' own making. He says that the defendants have chosen to trade through a web of complex trusts and offshore entities and they only have themselves to blame if they have been unable easily to explain where their assets are now to be found. Moreover, Mr Freedman submits that the A&O defendants' asset disclosure has been woefully inadequate, that assets have been concealed and that false statements have been made. Although the defendants have disclosed assets allegedly totalling some US$853 million in value, Mr Freedman says that cross-examination is required so as to ensure that the worldwide freezing order can be properly enforced and that the undisclosed assets of the defendants do not escape the net of the order and are not dissipated before the claimants have an opportunity to obtain a judgment against the defendants. Peter Smith J has already directed that there be a 12-week trial to commence in January 2012.
Before dealing with these competing submissions, I should set out a little of the background to these proceedings.
Background and chronology
In August 2009, Jenington International Inc, the first claimant ("Jenington"), acquired 50.1 per cent of the shares in Kazakhgold Group Ltd, the second claimant ("Kazakhgold"), which is a Jersey company listed on the London Stock Exchange. Kazakhgold owns the third defendant gold mining company, JCS MMC KazakhAltyn ("KazakhAltyn"), operating in Kazakhstan. Jenington is a wholly-owned subsidiary of Polyus Gold, a substantial mining company listed on the Moscow Stock Exchange.
Until August 2009, putting the matter broadly, the defendants controlled Kazakhgold and KazakhAltyn. Once Jenington took control of Kazakhgold and KazakhAltyn they discovered some alleged defalcations by the defendants and had brought these proceedings claiming, amongst other things:
(1) that the defendants diverted funds from Kazakhgold and KazakhAltyn pursuant to sham contracts in the period 2007 to 2009. What is alleged here is that Kazakhgold raised US$200 million on the euro bond market in November 2006, to be used to construct three CIP (carbon in pulp) plants in Kazakhstan but that sum was paid away to sham contractors through an intermediary Real Invest.
(2) that the defendants breached their fiduciary duties to Kazakhgold in respect of three contracts between Kazakhgold and MAED BVI (MAED), a company in which the defendants had a secret beneficial interest and to which they were entitled to 50 per cent of the profits.
(3) damages for fraudulent misrepresentations concerning Kazakhgold's production and sales figures and working capital expenditure, allegedly made by the defendants in relation to the acquisition of Jenington and its parent company, Polyus, of 50.1 per cent of Kazakhgold, from Gold Lion Holdings, the sixth defendant ("Gold Lion") for some US$254 million. The production and sales figures were allegedly inflated by fictitious sales to a company called Transgold in the UAE and the working capital expenditures under the sham contract were represented to be genuine.
On 23 June 2010 Peter Smith J made the worldwide freezing order to which I have already referred, together with a search order against the defendants. That order was served on 29 June 2010 at the London addresses of the first four defendants. It is alleged that Mr Aidar Kanatovich Assaubayev, whom I shall refer to as "Aidar", the third defendant — another son of Kanat and Marusya, left their property at 10 Lancelot Place, SW7, allegedly with the intention of avoiding being served with the order, and flew to Kazakhstan whence he has not returned, allegedly on the grounds of ill health.
I shall deal with the chronology of the asset disclosure process in due course. I should mention, however, that the defendants have already brought proceedings to give effect to the worldwide freezing order in Jersey and the British Virgin Islands and in another unidentified jurisdiction where proceedings are progressing without notice to the defendants. The claimants have not, however, brought any proceedings to give effect to the freezing order in Kazakhstan, a subject of complaint by Mr Wardell.
Application for cross-examination
Section 37 of the Senior Courts Act 1981 provides as follows:
"(1) The High Court may by order (whether interlocutory or final) grant an injunction to appoint a receiver in all cases in which it appears to the court to be just and convenient to do so.
"(2) Any such order may be made either unconditionally or on such terms and conditions as the court thinks just. …"
It has never in recent years been in doubt that the court has jurisdiction to order a defendant to make disclosure of assets in aid of a freezing order, either orally or in writing. The court can therefore make the order sought for cross-examination if it is, in the words of section 37(1) of the Senior Courts Act, "just and convenient to do so".
The authorities have made clear the proper approach to applications for orders of this sort. I can confine myself to referring to brief passages from four of the authorities and one textbook on the subject.
First, in , the Court of Appeal considered the jurisdiction to make an order for such cross-examination. At page 181, Slade LJ said the following:
"This argument was, I think, an echo of the judge's own approach to the problem. However, with respect, I do not think the argument is well-founded so far...
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