JSC BTA Bank v Mukhtar Ablyazov and Another
|England & Wales
|09 December 2016
| EWHC 3071 (Comm)
|Case No: CL-2015-000872 2010 FOLIO 706 2011 FOLIO 79
|Queen's Bench Division (Commercial Court)
|09 December 2016
 EWHC 3071 (Comm)
IN THE HIGH COURT OF JUSTICE
Royal Courts of Justice
Strand, London, WC2A 2LL
Laurence Rabinowitz QC
(SITTING AS A DEPUTY HIGH COURT JUDGE)
Case No: CL-2015-000872
2009 FOLIO 1099
2010 FOLIO 706
2011 FOLIO 79
Philip Jones QC and Tim Akkouh (instructed by Hogan Lovells International LLP) for the Claimant
Peter Knox QC and James Sheehan (instructed by Kingsley Napley LLP) for the Second Defendant
Hearing dates: 9–11 November 2016
Laurence Rabinowitz QC (sitting as a Deputy High Court Judge):
The matter before me is the latest of a number of claims to have come before the English courts in recent years arising out of the dispute between the First Defendant, Mr Mukhtar Ablyazov (Mr Ablyazov) and the Claimant, a Kazakhstan bank known as JSC BTA Bank (BTA), as a consequence of what BTA has alleged was a massive fraud perpetrated against it by Mr Ablyazov. The present case, however, is different from those that have come before in that, although Mr Ablyazov is again a defendant to BTA's claim, the real target of this action is not Mr Ablyazov but rather the Second Defendant, his son Madiyar.
More particularly, the dispute concerns a payment of £1.1 million made on 26 February 2009 (the Transfer) from an account held jointly by Mr Ablyazov and Madiyar (the Swiss Account) with EFG Private Bank SA in Geneva (EFG Geneva) to an account in Madiyar's name (the Account) at EFG Private Bank Limited in London (EFG London). Madiyar was 17 at the time of the Transfer, living and attending school in London. He held a Tier 4 student visa.
It is common ground that no consideration was given by Madiyar in return for the Transfer.
It is not in dispute that shortly after the Transfer, about £1 million of the £1.1 million received was invested in certain gilts in Madiyar's name. This was done to enable Madiyar to obtain a Tier 1 investor visa in place of his student visa. When, in March 2014 those investments matured, the proceeds were remitted back to the Account.
At the end of 2015, the Account held approximately £1,025,000. As explained further below, the Account's proceeds have since been paid into Court. For convenience, I have from time to time referred below to the amount paid into the Account as well as the amount subsequently held in the Account and paid into Court, as the 'Fund'.
The claim now before me, issued by BTA on 11 December 2015, is part of the on-going effort on BTA's part to identify and recover whatever it can of the enormous sums of which it says it has been defrauded. More particularly, BTA contends (1) that in circumstances where no consideration was given by Madiyar, the Fund should be treated as having been received and held on trust by Madiyar for Mr Ablyazov (the Trust Claim); alternatively (2) that the Transfer was a transaction defrauding creditors which should be set aside pursuant to section 423 of the Insolvency Act 1986 (the Section 423 Claim).
There is also before me a cross-application by Madiyar for a declaration that he owns the Fund outright. If BTA's Trust Claim and Section 423 Claim both fail, then Madiyar would be entitled to the declaration he seeks.
Background: the dispute between BTA and Mr Ablyazov
It is necessary at the outset to say something about the wider dispute between BTA and Mr Ablyazov in the context of which the present claims arise. I set out below only an outline of the complex litigation to which this has given rise. I would note that the (incomplete) list of English court decisions that follows provides both an indication of the number of decisions this dispute has spawned as well as identifying where further detail of the dispute and the decisions that have resulted might be found: ; ; ; ; ; ; ; ; ; ; and .
Mr Ablyazov was the Chairman of the Board of Directors of BTA between May 2005 and February 2009. Over the course of 2008 and early 2009, the Kazakh financial regulator (the AFN) conducted a number of detailed investigations into BTA's financial health. In a working report made in April 2008, the AFN observed that (1) BTA's credit files were deficient and not in accordance with its own lending manual, (2) there was evidence of Mr Ablyazov being in a position of conflict of interest, (3) there was evidence of loans being made for the purposes of buying Mr Ablyazov's own property, and (4) there was a need for BTA to improve its procedures to comply with internal policies and legal requirements, in particular in relation to the monitoring of affiliations.
In June 2008, the AFN produced a report which referred to BTA's lending to overseas entities and raised certain questions about the borrowers including whether the borrowers might be persons having " special relationships" with BTA and indeed whether " those borrowers … are used as 'buffer' companies and act as nominal borrowers, whereas the Bank's funds are actually disposed by other companies which do not have any contractual relations with the Bank."
Following the production by the AFN of a number of further reports in 2008 which expressed on-going concern about lending practices within BTA, in January 2009 the AFN produced a further report that, among other things, noted that almost 20% of BTA's loan portfolio was non-performing. The consequence of this was that an additional provision of US$3.58 billion would need to be put in place.
On 30 January 2009, BTA informed the AFN that it could not meet its liabilities. On 2 February 2009, the Kazakh sovereign wealth fund acquired a majority stake in BTA in return for a cash injection of 212 billion Kazakh Tenge, approximately US$1.4 billion at the then exchange rates. Shortly thereafter, Mr Ablyazov was removed as Chairman of BTA's Board.
In the last days of January 2009, Mr Ablyazov fled Kazakhstan for London. BTA formed the view that its former management, and in particular Mr Ablyazov, had perpetrated a huge and systematic fraud against it, primarily by purporting to lend or otherwise transfer billions of dollars to offshore companies with no assets and which appeared to be in the control of Mr Ablyazov or his associates.
This was the backdrop when, in around February 2009, Mr Ablyazov and certain of his associates sought advice from Clyde & Co, solicitors in London, including about potential claims in this jurisdiction and the possibility of freezing orders and search and seizure orders being made against them. By this time, BTA had already instituted proceedings in Kazakhstan. The detail surrounding the nature of the advice and circumstances in which it was sought by Mr Ablyazov from Clyde & Co is dealt with by Popplewell J in the decision reported at .
In August 2009, BTA commenced proceedings against Mr Ablyazov in the Commercial Court and at about the same time obtained a worldwide freezing injunction against him (the Freezing Order). Mr Ablyazov was also ordered to provide disclosure of his worldwide assets and to answer a schedule of specific questions designed to assist BTA in tracing certain assets. Mr Ablyazov appears from the outset to have been concerned to do whatever he could to delay or avoid complying with these Court orders.
On 27 October and 18 November 2009, Mr Ablyazov was cross-examined on his asset disclosure. It has subsequently been held by this Court that much of the evidence given by Mr Ablyazov in the course of that cross examination was false and given with an intention of interfering with the administration of justice: see Teare J's decision reported at .
Mr Ablyazov continued to purport to give further asset disclosure until 15 December 2009. However, a letter from Clyde & Co on that date made clear that it was Mr Ablyazov's intention not to answer any further questions about his assets. This prompted BTA to seek the appointment of receivers over Mr Ablyazov's assets. Receivers were duly appointed over Mr Ablyazov's assets in support of the Freezing Order: see the decision of Teare J reported at .
On 16 May 2011, BTA applied for Mr Ablyazov's committal for contempt of court alleging 35 separate heads of contempt, including failing to disclose assets, lying in cross-examination and dealing with assets in breach of the Freezing Order. In December 2011, a trial of three sample heads of contempt, so restricted for case management purposes, took place over 3 weeks. On 16 February 2012, Teare J found Mr Ablyazov guilty of contempt as alleged: . Mr Ablyazov was sentenced to three concurrent terms of 22 months' imprisonment.
In the event, Mr Ablyazov fled the jurisdiction on sight of the Court's draft judgment. He did so notwithstanding an injunction and the imposition on him of other requirements intended to prevent this, and despite also a specific assurance given to Teare J at the conclusion of closing submissions. Teare J was therefore left to sentence Mr Ablyazov in absentia. Mr Ablyazov was subsequently ordered to provide proper asset disclosure and surrender himself to the Tipstaff so that he could commence his sentence for contempt: . That order was made on 'unless' terms, providing for Mr Ablyazov's defences to BTA's Commercial Court claims to be struck out in default of compliance. In the event, Mr Ablyazov failed to comply and his defences were struck out. When the matter came before the Court of Appeal, the Vice President of the Court of Appeal...
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