JSC BTA Bank v Mukhtar Ablyazov and Others
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE CHRISTOPHER CLARKE |
| Judgment Date | 04 October 2011 |
| Neutral Citation | [2011] EWHC 2506 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: 2010 FOLIO 706 |
| Date | 04 October 2011 |
[2011] EWHC 2506 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Christopher Clarke
Case No: 2010 FOLIO 706
Philip Marshall QC and Matthew Morrison (instructed by Hogan Lovells) for the Claimant
Saul Lemer (instructed by iLaw) for the Defendants
Hearing dates: 30 th and 31 st August 2011
Judgment Approved by the court for handing down
This is an application on behalf of the Claimant, JSC BTA Bank ("the Bank"), that I should set aside the relief from sanction which on 10 th December 2010 I granted to each of the Third to Seventh, Ninth to Tenth and Twelfth Defendants (together the " Respondents" 1, individually " Granton", " Branden", " Aldridge", " Zafferant", " Forest", " Incompro", " Perspective" and " Maden"); and that I should enter judgment against all the Respondents. The Bank contends that in making that order I was misled by the Respondents into believing that they had made a genuine, if belated, effort to comply with the terms of a freezing order made on 9 th June 2010 as continued and reinforced by subsequent orders.
The Bank's case
The Bank is a Kazakhstan joint stock company. It was until February 2009 majority owned by Mukhtar Ablyazov ("Mr Ablyazov"), the first defendant. Since that date it has been majority owned by the Kazakh sovereign wealth fund, Samruk-Kazyna. In effect it has been part nationalised although there is a substantial (c 25%) minority stake held by Western interests. Mr Ablyazov is a Kazakh national who was from 20 th May 2005 to February 2009 the Chairman of the Bank. Mr Zharimbetov, the Second Defendant, is also a Kazakh national. He was between 3 rd May 2005 and February 2009 First Deputy Chairman of the Bank's Management Board and Chairman of the Credit Committee of the Bank which approved what are said to be unlawful loans.
The Bank complains of two schemes:
(i) the Unlawful Loans Scheme; and
(ii) the Misappropriation Scheme.
The Unlawful Loans Scheme
The Bank contends that under the Unlawful Loans Scheme Mr Ablyazov channelled monies from the Bank to companies ultimately owned and/or controlled by him ("Ablyazov companies") and did so with the assistance of Mr Zharimbetov. The Credit Committee, acting under the direction or control of Mr Ablyazov, authorised loans which totalled $ 1,428,840,000. The monies were paid into the accounts of a number of companies ("the Recipients") held with Trasta Komercbanka ("Trasta") in Riga, Latvia. On their face the loans were for the purpose of providing or replenishing working capital. They were then advanced by the Recipients to the Real Borrowers, being Ablyazov companies. The identity of the latter is unknown.
The Recipients were: (i) Astrogold Corporation (" Astrogold"); (ii) Balgaven Invest Inc (" Balgaven"); (iii) Bergtrans Contracts Corporation (" Bergtrans"); (iv) Berit Ltd (" Berit"); (v) Brotex Group Ltd (" Brotex"); (vi) Business Code Ltd (" Business Code"); (vii) Calernen Finance Inc (" Calernen"); (viii) Carsonway Ltd
(" Carsonway"); (ix) Ditron Solutions Ltd (" Ditron"); (x) Global Team Company (" Global Team"); (xi) Grundberg Inc (" Grundberg"); (xii) Kinmate Trading Ltd (" Kinmate"); (xiii) Lingard Industry Ltd (" Lingard"); (xiv) Mabco Inc (" Mabco"); (xv) Topgeo Holdings Ltd (" Topgeo"); (xvi) Trionfale Ltd (" Trionfale") and (xvii) Westrade Ltd (" Westrade"). The monies were advanced between November 2007 and August 2008. The Loans were unlawful under Kazakh law being made to connected counterparties without the necessary declarations of interest.
In April 2008 the FMSA, the Kazakh monetary authority, discovered this high volume of loans, which exposed the Bank to considerable credit risk. Following a report from it Mr Ablyazov and Mr Zharimbetov agreed with the FMSA to reduce the Bank's exposure to such lending. This was done by the Misappropriation Scheme
The Misappropriation Scheme
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.
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.
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.
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.
Mr Ablyazov's defence
Mr Ablyazov has fled to this country fearing persecution in Kazakhstan. He says that he was not responsible for the implementation of either Scheme, the relevant decisions having been made by the Credit Committee, of which he was not a member. He was not an affiliate of the Borrowers, the Intermediaries or the Recipients, nor did he have any power to direct what they did. The FMSA was used by the President of Kazakhstan as a tool to assist him unlawfully to expropriate the Bank. The April 2008 FMSA report was politically motivated. The Borrowers were pre-existing trusted clients of the Bank, which had stakes in substantial oil and gas exploration contracts.
The Respondents' defence
The Respondents' case is that they were beneficially owned and ultimately controlled by Mr Georgy Timichev ("Mr Timichev"). He, acting through his representative Mr Mukhtar Kuatbekov, made an agreement – the Bank Assistance Agreement – on behalf of himself and the Respondents with the Bank (acting through Mr Kairat Sadykov, a managing director) pursuant to which the Intermediaries would receive the payments and forward the sums received to certain identified companies—the Recipients. This enabled the Bank to advance loans to the Recipients which under the Bank's regulations and policies they would not have received. Mr Timichev and the Respondents understood that the Bank Assistance Agreement was for the Bank's benefit and that the sums would be repaid (directly or indirectly) to the Bank by the Recipients.
Although the payments by the Bank to the Intermediaries and by the Intermediaries to the Recipients were in the form of loans it was understood that these "loans" would not be repayable by the Recipients to the Respondents.
As a result of this assistance there was an understanding ("the Future Loan Understanding") that the Bank might in future secure funds for the Respondents for the acquisition of equipment similar to that identified in the contractual documentation for the Bank Assistance Agreement. In that event, if the Bank was the lender, the Respondents would be obliged to repay the Bank broadly in accordance with the contractual documents drawn up for the scheme involving the Borrowers and the Intermediaries.
It is apparent from this summary of the Respondents' case that there was a sham – in the sense described by Diplock, LJ in Snook v London & West Riding Investments Ltd2 [1967] 1 AER 518,524—but of a different kind. That is my characterisation, not the Respondents.
The history of the proceedings
The Freezing Order
On 9 th June 2010 Mr Gavin Kealey QC (sitting as Deputy Judge of this Court) granted a freezing order against, among others, the Respondents (the "Freezing Order"). Under paragraph 9 (i) of the Freezing Order each of the Respondents (being the Borrowers and Intermediaries (with the exception of Austin and Loginex) was ordered:
"(b) to the best of its ability after making reasonable inquiries, [to] provide the answers in writing to the questions set out in Schedule D; and
(c) [to] supply to the [Bank's] solicitors copies of all documents in its control (which for these purposes shall mean documents which are or were in its physical possession and/or to which it has a right to possession and/or to which it has a right to...
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