Jsc Bta Bank v Granton Trade Ltd and Others
| Jurisdiction | England & Wales |
| Judge | Lord Justice Tomlinson,Lord Justice Moore-Bick,Lord Justice Mummery |
| Judgment Date | 01 May 2012 |
| Neutral Citation | [2012] EWCA Civ 564 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2011/2735 |
| Date | 01 May 2012 |
[2012] EWCA Civ 564
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION, COMMERCIAL COURT
Mr Justice Christopher Clarke
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Mummery
Lord Justice Moore-Bick
and
Lord Justice Tomlinson
Case No: A3/2011/2735
Philip Marshall QC and Matthew Morrison (Instructed by Hogan Lovells International Llp) for the Respondent
Zoë O'sullivan (Instructed by Ilaw Legal Services Limited) for the Appellants
Hearing date : 3 April 2012
The Appellants are defendants in an action brought by the Respondent bank, which is registered and operates in Kazakhstan. I shall refer to it hereafter as "the Bank". The Appellants are all said to have participated in sham transactions pursuant to which the Bank's former Chairman and majority shareholder, Mukhtar Ablyazov, defrauded the bank of US$1,031,263,000. The Bank is pursuing litigation over a wide front in an attempt to recover a still greater sum, US$1,428,840,000, which is said to be the total amount of which it has been defrauded by Mr Ablyazov. Various of the interlocutory skirmishes in the litigation have attracted wide publicity. This is another interlocutory skirmish. It has resulted in judgment being entered against the Appellants in favour of the Bank for US$1,031,263,000 without there having been a trial of the claim.
That outcome has come about because the Appellants failed to comply with an Order made on 24 August 2010 by Christopher Clarke J in the Commercial Court, requiring them to set out certain information and to produce documentation evidencing the same. The Order provided that unless the Appellants complied therewith by 3 September 2010, they should be debarred from defending the proceedings and the Bank should be at liberty to enter judgment or, as appropriate, apply for judgment against them.
The Appellants filed an affidavit within the time required in purported compliance with the Order. On 10 December 2010 Christopher Clarke J found that the Appellants had failed to comply with the Order. Nonetheless, he granted relief from the sanction prescribed for non-compliance, conditionally in the case of Appellants 1–5 and 8 and unconditionally in the case of Appellants 6 and 7, Incompro and Perspective. The information not provided by 3 September 2010 and which alone, as the judge then thought, placed Incompro and Perspective in breach had in fact been provided by 10 December 2010.
After the making of the December Order the Bank discovered further documents which, they contend, demonstrated that the Appellants had misled the court in their application for relief from sanctions. The Bank applied for revocation of the Order granting relief from sanctions.
Christopher Clarke J heard the Bank's application over two days on 30 and 31 August 2011. At the hearing the Appellants also applied for a fresh exercise of discretion in their favour to relieve from sanctions in the event that the judge considered that his first order should be set aside. This application had been in no way foreshadowed to the Bank but the judge nevertheless entertained it.
On 4 October 2011 the judge handed down a long and careful judgment, [2011] EWHC 2506 (Comm). The judge considered that the court had been very seriously misled on the occasion when it granted relief against sanctions. The consequence was that that order should be set aside. He declined to exercise his discretion to grant further relief against sanctions. He entered judgment against the Appellants in the terms which I have already set out.
Rix LJ granted the Appellants permission to appeal on limited grounds. Broadly they relate to the manner in which the judge should have approached the exercise of deciding whether the court had been misled. Before us the grounds narrowed to essentially one point. It was said that the judge should not have decided whether the court had been misled on the basis of the affidavit and documentary evidence alone without directing a trial of the issue, or directing that resolution thereof should itself await trial of the action. Rix LJ refused permission to appeal in respect of the judge's fresh exercise of discretion and that application was not pursued.
In view of the limited ambit of the ultimate challenge to the decision I can deal very briefly with the facts. A full account can be found in the judge's judgment. Miss O'Sullivan, for the Appellants, accepted that if it was appropriate to resolve the issue on an interlocutory application, and if the appropriate standard of proof was the balance of probabilities, then the judge was entitled to conclude that the court had been seriously misled. She did not suggest that in such circumstances the judge was wrong to revoke his earlier order and to enter judgment for the Bank.
Until February 2009 the Bank, a Kazakh joint stock company, was majority owned by Mr Ablyazov. It has since in effect been part-nationalised, although a minority stake, about 25%, is held by western interests.
The Bank contends that Mr Ablyazov defrauded it in two ways. First, it says that between November 2007 and August 2008 Mr Ablyazov channelled US$1,428,840,000 from the Bank to companies ultimately owned and/or controlled by him. This was done by a series of loans, described in the pleadings as "the Unlawful Loans Scheme", purportedly for the purpose of replenishing capital. The loans were unlawful under Kazakh law being made to connected counterparties without the necessary declaration of interest.
In April 2008 the Kazakh monetary authority, the FMSA, discovered this high volume of loans, which exposed the Bank to considerable credit risk. Following a report from it Mr Ablyazov and Mr Zharimbetov, then First Deputy Chairman of the Bank's Management Board and Chairman of the Credit Committee of the Bank which had approved the loans, agreed with the FMSA to reduce the Bank's exposure to such lending. The Bank contends that Mr Ablyazov proceeded to do so by defrauding the Bank again, this time by means of "the Misappropriation Scheme". The judge described it thus:—
"7. Between the end of October and the end of November 2008 the Bank lent to Granton, Aldridge, Branden and Zafferant ("the Borrowers") over $1 billion pursuant to a number of loan facilities. The credit applications stated that the facilities were for the purchase of oil and gas equipment. The Borrowers purportedly entered into 16 contracts pursuant to which the Seventh to Twelfth defendants ("the Intermediaries") undertook to find and deliver such equipment. In October and November 2008 the Credit Committee approved financing limits for the Borrowers and the Bank entered into general credit agreements with them. The Borrowers then applied for letters of credit and the Bank entered into letter of credit agreements with them. The Bank then issued letters of credit and made Payments totalling $ 1,031,263,000 to accounts of the Intermediaries held at Trasta.
8. The contracts for the supply of equipment were shams. The Intermediaries never had any equipment to sell and it was never intended that they should deliver any. Of the $1,031,263,000 paid to the Intermediaries $972,195,871.84 was transferred by the Intermediaries to the Recipients and applied to repay the Unlawful Loans.
9. All the companies involved in both Schemes, save for Loginex, were off shore companies, registered in either the British Virgin Islands or the Seychelles. Loginex is an English company. The Loans were only made because Mr Ablyazov controlled the Bank and was able to implement the Unlawful Loans and Misappropriation Schemes with the assistance of Mr Zharimbetov. The Loans were shams, not being intended, in the case of the Unlawful Loans Scheme, for working capital for the Borrowers but to provide liquidity to Ablyazov companies, nor, in the case of the Misappropriation Scheme, to finance the purchase of equipment, but to pay back the monies advanced under the Unlawful Loans Scheme. Mr Ablyazov's link to the Recipients and the Borrowers was never disclosed to the Bank as it ought to have been.
10. The net effect of the Schemes was that the Loans which had concerned the FMSA were, for the most part, repaid. But the money for repayment was provided by the Bank and the Real Borrowers kept what they had received."
Granton, Branden, Aldridge and Zafferant, the first four Appellants are "the Borrowers". Appellants 5–8, Forest, Incompro, Perspective and Maden, are all "Intermediaries".
The Appellants are sued on the basis that they have misappropriated just over US$1billion from the Bank. The sham loans with which they were involved are all likewise said to have been unlawful under Kazakh law, upon which the Bank relies. In the alternative the Bank relies upon English law, and seeks damages and/or equitable compensation in respect of the wrongful actions or omissions of the Appellants.
The Appellants filed a Defence. It is said that the beneficial owner and ultimate controller of each of the Appellants is, and was at all material times, i.e. between September 2008 and December 2008, Georgy Timichev. It is said that he, acting through his representative Mukhtar Kuatbekov, entered into an agreement with the Bank acting by a managing director, Kairat Sadykov. This was "the Bank Assistance Agreement". Pursuant thereto the Intermediaries received sums which they passed on to companies identified by the Bank to whom the Bank could not, pursuant to its regulations and policies, make direct advances. This Agreement...
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