JSC BTA Bank v Solodchenko (Freezing Order) (No 3)

JurisdictionEngland & Wales
JudgeMr Justice Henderson
Judgment Date05 August 2011
Neutral Citation[2011] EWHC 2163 (Ch)
CourtChancery Division
Date05 August 2011
Docket NumberCase No: HC10C02462

[2011] EWHC 2163 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Mr Justice Henderson

Case No: HC10C02462

Between:
JSC BTA Bank
Claimant/Applicant
and
(1) Roman Solodchenko
Defendants
(14) Syrym Shalabayev & Others
Clyde & Co LLP
Respondent

Mr Philip Marshall QC and Mr Caley Wright (instructed by Hogan Lovells International LLP) for the Claimant/Applicant

Mr Tim Owen QC and Mr Ian Smith (instructed by Clyde & Co LLP) for the Respondent

Hearing date: 15 July 2011

Mr Justice Henderson

Introduction and background

1

On 15 July 2011 I heard argument for a full day on an application by the claimant, JSC BTA Bank ("the Bank"), for disclosure of information and documents against Clyde & Co LLP ("Clydes") in their capacity as the solicitors on the record acting for the fourteenth defendant, Mr Syrym Shalabayev. The application raised some novel issues of considerable practical importance to solicitors acting for a client who is in contempt of court and/or in breach of asset disclosure orders. I therefore decided to reserve my judgment, despite the Bank's understandable wish to have the application decided as soon as possible. I am grateful for the assistance which I have received from counsel on both sides, Mr Philip Marshall QC leading Mr Caley Wright for the Bank and Mr Tim Owen QC leading Mr Ian Smith for Clydes.

2

The application is made in the action proceeding in the Chancery Division ("the AAA action") in which the Bank seeks to trace and recover the proceeds of AAA-rated investment bonds with a nominal value of $290 million which it alleges were fraudulently misappropriated by the eighteenth defendant, Mr Ablyazov, the former chairman and owner of the Bank, and a number of other conspirators. Mr Shalabayev is Mr Ablyazov's brother-in-law, and according to the Bank he was both a party to the conspiracy to defraud and played a leading role in administering a large network of some 600 companies, mostly located in offshore jurisdictions, on Mr Ablyazov's behalf.

3

I will not say any more in this judgment about the wider background to the AAA action and the related claims against Mr Ablyazov and others which are proceeding in the Commercial Court. A brief description of the background to the AAA action and the appointment of receivers over Mr Ablyazov's assets may be found in a judgment which I handed down on 5 April 2011 on an application to cross-examine the seventeenth defendant, Mr Anatoly Ereshchenko: see JSC BTA Bank v Solodchenko and others [2011] EWHC 843 (Ch) at [3] to [11]. I will only add that it is still the case, as it was in April, that none of the defendants to the AAA action has yet advanced any positive case that the transactions involving the AAA investments were commercially justified or otherwise legitimate.

4

The relevant history, so far as Mr Shalabayev is concerned, is helpfully set out in the skeleton argument of counsel for the Bank and may be summarised as follows:

(1) On 3 November 2010 I granted a worldwide freezing order against Mr Shalabayev on the footing that the Bank had a good arguable case that he was party to the conspiracy to defraud. The order contained standard requirements for the disclosure of assets (very widely defined) and for the disclosure of information which would enable the allegedly misappropriated funds or their products to be traced. The application for the freezing order was made, in the usual way, without notice to Mr Shalabayev or the other respondents, but with a return date in the near future. No application to vary or set aside the freezing order has been made, and it remains in full force and effect against Mr Shalabayev.

(2) On 5 November 2010 the order was served personally on Mr Shalabayev at a hotel in Limassol, Cyprus, together with a letter from the Bank's solicitors which specifically drew his attention to the disclosure obligations in the freezing order, warned him of the consequences of non-compliance and encouraged him to obtain legal advice. Mr Shalabayev then disappeared, and all subsequent efforts by the Bank to locate him have been fruitless. Despite the personal service of the order, Mr Shalabayev has made no effort to comply with any of its provisions, and the only reasonable inference to draw is that he has been a fugitive from British justice since that date. It is most unlikely that he is anywhere within the jurisdiction.

(3) It became apparent from other disclosure obtained by the Bank that Mr Shalabayev was using proxy servers to obtain access to, and to operate, various email accounts for the purpose of giving instructions to corporate service providers in relation to companies that the Bank contends are owned and controlled by Mr Ablyazov.

(4) On 13 December 2010 the Bank issued committal proceedings against Mr Shalabayev. In view of its continuing inability to locate Mr Shalabayev, and the information obtained about his use of email addresses, the Bank sought permission to serve the committal proceedings on him by an alternative method, namely by email. On 14 April 2011 Peter Smith J granted permission to serve by this method, and service was duly effected on the following day.

(5) Mr Shalabayev did not respond to the Bank's committal application, and on 17 May 2011 Briggs J held that he was in contempt of court. In paragraph [15] of the judgment which he delivered on that occasion, Briggs J said this:

"In my judgment, applying for this purpose the criminal standard of proof, the alleged contempt is proved beyond reasonable doubt. The evidence clearly demonstrates both personal service of the freezing order, endorsed with the appropriate penal notice, together with a covering letter warning of the consequences of breach, and proves the complete failure by Mr Shalabayev, without explanation or excuse, to provide the disclosure ordered, either in time or at all. The contempt is both serious and continuing. It is particularly serious because, on the evidence before the court, Mr Shalabayev played a central role in the concealment of the proceeds of the realisation of the Bank's assets and may be supposed to be likely to have disclosable information of the highest value to the Bank in tracing its property. Self-incrimination privilege has not, of course, been invoked by Mr Shalabayev."

Briggs J decided to adjourn the question of sentence, and issued a bench warrant to secure Mr Shalabayev's attendance at the adjourned hearing.

(6) Shortly before the adjourned hearing on 20 June 2011, Clydes, on instructions from Mr Shalabayev, contacted the Bank to seek a further adjournment.

(7) On 17 June the Bank issued the present application for disclosure against Clydes, seeking disclosure of his contact details and assets in the terms of a draft order attached to the application notice.

(8) On 20 June 2011 Briggs J granted an adjournment of the sentencing hearing for one week, and gave directions for the filing of evidence in the present application which he directed to be heard on the first available date after 4 July with a time estimate of half to one day.

(9) Despite securing the further adjournment, Mr Shalabayev still persisted in his refusal to comply with the disclosure obligations in the freezing order. He also failed to appear in person at the adjourned hearing on 27 June, although he was represented by Clydes and junior counsel (Mr Ian Smith). Briggs J then proceeded to sentence him, in his absence, to two concurrent terms of 18 months' imprisonment, and one concurrent term of six months, for his failure to comply with (respectively) paragraphs 9, 10 and 11 of the freezing order. Briggs J also ordered Mr Shalabayev to pay the Bank's costs of the committal proceedings on the indemnity basis, with a payment on account of £70,000 to be made by 4 pm on 11 July 2011.

(10) Mr Shalabayev failed to pay any part of the £70,000 before the stipulated deadline, and remained in default at the date of the hearing before me on 15 July.

5

In the ruling which he gave on 27 June, Briggs J quoted from paragraph 15 of his judgment of 17 May and continued as follows:

"That conclusion, namely as to the vital nature of the information which Mr Shalabayev should have provided pursuant to the freezing order, arises in particular from the fact that Mr Shalabayev was one of four holders of a power of attorney in relation to a number of offshore corporations, most of them in the BVI, one of them in the Seychelles, which the claimants claim have been used to launder its assets. The upper limit in the freezing order is some £200 million.

Some of the documents which have been obtained by the claimants, in part from searching emails coming to and from Mr Shalabayev, pursuant to an earlier order of the court, in part from the execution of [a search] order, and in part from the Land Registry, show Mr Shalabayev as being described as the ultimate beneficial owner of some of those offshore companies, whether or not that is true. They also show him giving instructions and taking a part in the administration of those companies' ostensible assets, which suggests that the [claimants] need the valuable information to find out what has become of their property, not merely pursuant to compliance by Mr Shalabayev with paragraph 10 of the freezing order in answering the questions raised, but also by providing information as to the whereabouts of his assets, bearing in mind the great breadth of the definition of his assets in paragraph 6 of the order…

Since my finding of contempt has been communicated to Mr Shalabayev, he has on two subsequent occasions, including this morning, sought to seek an adjournment of the sentencing hearing, without success today but with the obtaining of a seven day adjournment when he made a similar application last week. He is quite plainly aware both of the freezing order, of which there is evidence of personal...

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