JSC BTA Bank v Mukhtar Ablyazov and Another

Hearing date: 11 November 2011

This is an application by the Second Defendant to set aside an order made by Christopher Clarke J. on 21 June 2011 which extended time for service of the Claim Form and the Particulars of Claim in this action and gave permission for alternative service of the Claim Form and the Particulars of Claim on Olswang. The application involves consideration and application of the principles governing extensions of time for service and alternative service set out by the Court of Appeal in Cecil v Bayat [2011] EWCA Civ 135.

Background

The Claimant is a Kazakhstan bank which has chosen to sue its former chairman, the First Defendant, alleging fraud on an immense scale. Several actions have been commenced against him in this court and the trial of three of them, Drey, Chrysopa and Granton, is due to commence in November 2012 and is scheduled to last for many weeks, indeed months.

The Second Defendant, a Russian national aged 30, has found himself in the unfortunate position of being a defendant to the Chrysopa action and to one of the other actions, Tekhinvest. The Claimant alleges that he assisted the First Defendant in connection with the frauds alleged against the First Defendant. Olswang accepted service of those proceedings on behalf of the Second Defendant and he has participated in those actions. He has also been sued by the Claimant in the BVI.

The Second Defendant has said that he is a man with limited means and that his father is funding his defence to the proceedings brought against him. He speaks only basic English and so cannot realistically give instructions without the assistance of an interpreter. An international arrest warrant has been issued against him as a result of which he cannot come to London. This has further hindered his ability to give instructions to Olswang.

In March 2011 there was a CMC in several of the actions brought by the Claimant. Miss Tamsin Blow, a solicitor at Olswang, submitted on behalf of the Second Defendant that the Chrysopa action should be heard first on its own on the grounds that the Second Defendant was not financially able to defend properly both the Chrysopa and the Tekhinvest actions. He was anxious that he should be able to clear his name and believed that if he did so in the Chrysopa action the Bank would not continue the Tekhinvest proceedings against him. The other parties to the several actions made different submissions as to what actions should be heard and when. In the event, as I have indicated, I ordered that Drey, Chrysopa and Granton be heard together.

The Paveletskaya action

The present action is known as the Paveletskaya action. The Claimant alleges that the First Defendant fraudulently misappropriated US$269m. from the Claimant in the form of loans to companies controlled by the First Defendant allegedly for the construction of a substantial underground shopping and entertainment mall in Paveletskaya Square, Moscow. No or no adequate security was put in place and substantial sums remain outstanding. Certain of the loans were diverted to entities with no connection to the Paveletskaya project but which are controlled by the First Defendant. The Claimant's right to recover the loans was purportedly assigned to two BVI companies also controlled by the First Defendant. The Bank alleges that the loans were related-party actions which are liable to be set aside as invalid. The Bank further alleges that the Second Defendant, who was employed by the Claimant in its Moscow office, assisted the First Defendant by voting in favour of resolutions approving the loans and security arrangements passed by the Claimant's Regional Credit Committee for Russia, implementing decisions concerning the loans and security arrangements and executing numerous documents on behalf of the Claimant under wide powers of attorney pursuant to which the fraudulent scheme was put in place.

Pursuant to an order of Christopher Clarke J. dated 14 December 2010 leave was given for service of the Claim Form out of the jurisdiction on the Second Defendant and others. On 17 December 2010 the Claim Form was issued. Its six month period of validity would therefore end on 17 June 2011. By letter dated 17 December 2010 Hogan Lovells, on behalf of the Claimant, asked Olswang whether it was instructed to accept service of the Claim Form on behalf of the Second Defendant. By letter dated 23 December 2010 Olswang requested Russian translations of certain documents and informed Hogan Lovells that the Second Defendant had broken his hand and on account of that and the Christmas period Olswang did not anticipate being able to take instructions until the week beginning 10 January 2011. By letter dated 29 December 2010 Hogan Lovells provided a Russian translation of the Particulars of Claim and asked Olswang to say whether it had instructions to accept service. Chasing letters were sent on 18 and 25 January 2011 and on 1, 10 and 28 February 2011. On 1 March 2011 Olswang stated that it was not instructed to accept service of the Paveletskaya proceedings.

By letter dated 23 March 2011 from Olswang to myself in connection with the CMC due to be heard on 29 March 2011 and copied to Hogan Lovells, Olswang said, with regard to the Paveletskaya proceedings, that the Second Defendant had not voluntarily accepted service in this jurisdiction because "he is no longer able, either financially or practically, to continue to conduct properly this heavy volume of litigation, which our client finds oppressive."

At the CMC the First Defendant submitted that the Paveletskaya proceedings and all actions other than Drey, Chrysopa and Granton should be stayed. The Second Defendant supported that submission. I did not order a stay but directed that the other actions should continue to the close of pleadings at which stage further directions for trial could be considered.

During this period certain without prejudice discussions took place between the Claimant and the Second Defendant. There was a preliminary meeting between lawyers on 4 February 2011 and a meeting on 11 April 2011 attended by the Second Defendant. In a letter dated 27 April 2011 concerning the Tekhinvest proceedings Olswang referred to the without prejudice discussions as "continuing".

At some time before 15 June 2011 (when Hogan Lovells applied for an extension of time for service and an order for alternative service) the Claimant took steps to prepare notarised Russian translations of all relevant documents for service on the Second Defendant in Russia under the Hague Convention. I have not been told when such steps commenced save that it was "as soon as the Bank realised that Mr. Khazhaev was not prepared to meaningfully engage with the without prejudice discussions". Hogan Lovells anticipated (on 15 June 2011) that they would be ready to submit the relevant documents to the Foreign Process Section of the RCJ by the end of June 2011 for service under the Hague Convention. The work of providing such documents has been described as "time consuming and costly". On 7 June 2011 the Foreign Process Section advised Hogan Lovells that service would normally be carried out within one to two years of the documents being sent to the Foreign Process Section.

The application for an extension of time and for an order for alternative service was supported by the First Witness Statement of Mr. Sciannaca which ran to some 22 pages and 90 paragraphs. There were 93 pages of exhibits.

The application was also supported by a Skeleton Argument prepared by counsel. In support of the application for alternative service it was submitted that difficulties might be encountered in effecting service and that there was a genuine risk that the Second Defendant may seek to evade service. In support of the application for an extension of time it was submitted that the six month period for service had been taken up with ascertaining whether or not the Second Defendant would instruct Olswang to accept service as well as with without prejudice discussions. It was said that as a result "the Bank has thus far refrained from commencing the process of service under the Hague Convention in Russia, albeit that the Bank has taken certain preparatory steps in that regard". An extension of time for service under the Hague Convention until June 2013 was sought because it had been indicated by the Foreign Process Section that service might take that long. If alternative service were permitted an extension of time was still required because the 6 month period would have run out by 17 June 2011. Detailed submissions on the law, including Cecil v Bayat, were made. On 20 June 2011 Christopher Clarke J. enquired why an extension of time until 2013 was required if alternative service were permitted. Counsel replied on 21 June 2011 saying that such an extension was sought so as to forestall certain risks that would arise if the Second Defendant subsequently applied to set aside the order for alternative service. In particular the Claimant wished to avoid having to apply, in the event that the order for alternative service were set aside, for an extension of...