JSC BTA Bank v Ablyazov [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Christopher Clarke J. |
| Judgment Date | 24 August 2010 |
| Date | 24 August 2010 |
| Court | Queen's Bench Division (Commercial Court) |
[2010] EWCH 2352 (Comm)
Queen's Bench Division (Commercial Court).
Christopher Clarke J.
Phillip Marshall QC and C Jones (instructed by Hogan Lovells International LLP) for the claimant.
Simon Colton (instructed by I-Law) for the respondents (other than the sixth respondent).
The following cases were referred to in the judgment:
Arrow Nominees Inc v Blackledge [2000] EWCA 200.
CIBC Mellon Trust Co Ltd v StolzenbergUNK [2003] EWHC 13 (Ch); [2004] EWCA Civ 827.
Derby & Co Ltd v Weldon (Nos. 3 and 4)ELR [1990] Ch 65.
Grupo Torras SA v Sheikh Fahad (CAT 60 of February 2004).
JSC BTA Bank v AblyazovUNK [2009] EWCA Civ 1125.
Marcan Shipping (London) Ltd v KefalasWLR [2007] 1 WLR 1864.
Motorola Credit Corp v UzanUNK [2002] 2 All ER (Comm) 945.
Norwich Pharmacal Co v C & E CommrsELR [1974] AC 133.
Owusu v JacksonECAS (Case C-281/02) [2005] 1 CLC 246; [2005] ECR I-1383; [2005] QB 801.
Raja v Van HoogstratenUNK [2004] EWCA Civ 968.
RC Residuals Ltd v Linton Fuel OilsWLR [2002] 1 WLR 2782.
Tarn Insurance Services Ltd v KirbyUNK [2009] EWCA Civ 19.
Freezing order — Disclosure provisions — Challenge to jurisdiction — Unless order — Alleged misappropriation from Kazakh bank by former senior officers — Freezing order with disclosure provisions made against individual defendants who had fled to England and companies said to be involved in fraud — Permission granted for service out of jurisdiction — Challenge to jurisdiction on basis that Kazakhstan not England convenient forum and application to set aside freezing order — Bank sought unless order debarring respondents from defending and allowing bank to enter judgment unless information and documents provided in accordance with disclosure provisions — Order for production of information could be made during pendency of challenge to jurisdiction — Therefore unless order could be made in order to secure compliance — Unless order made but any judgment entered not to be executed pending determination of jurisdictional challenge.
This was an adjourned application for an “unless” order debarring the respondents from defending and entitling the claimant bank, JSC, to enter judgment unless certain information and documents were provided.
The proceedings concerned an alleged scheme of misappropriation by which over US$1 billion was extracted from the bank in late 2008. The scheme was effected through, so the bank said, the use of the first to fourth respondents to the application who supposedly borrowed from the bank, and the fifth to ninth respondents, who were the direct recipients of the bank's advances.
The bank's case was that the whole scheme was a sham carried out by and for the benefit of the first defendant, who was its former chairman and who used the second defendant as his assistant and the respondent companies as his vehicles.
The bank made proprietary claims in respect of the sums advanced and claims for compensation against the first and second defendants (the bank's officers) for breach of duty, and for compensation against the borrowers and intermediaries for participation in that breach.
The court had made “without notice” freezing orders against the respondents, on the basis that the bank had established at least a good arguable case of fraud against the respondents and that there was a real risk of dissipation. The orders included disclosure provisions. The first four respondents purported to provide the information ordered to be disclosed. The bank regarded the information provided by the first four respondents as seriously deficient.
The respondents, other than the sixth respondent, then issued an application to challenge the jurisdiction and to have the freezing order set aside on the ground that England was not the convenient forum but Kazakhstan was.
The bank applied for an unless order and the question arose as to whether the court could and should make such an order when there was an extant application to set aside the permission given for service out and to discharge the freezing order.
The respondents submitted that unless the breach of the order would put at risk a fair trial of the issues in the action or render further conduct of the proceedings unsatisfactory, no order such as the one sought should be made.
Held, granting the application:
If the court made an order for disclosure of information or documents it was entitled, in the event of non-compliance, to order that if such non-compliance was persisted in the claimant would be at liberty to enter judgment. Were it otherwise, in many cases the order would be without effect. The making of such an order was of course a discretionary exercise. It was necessary in a case such as this, where there was a challenge to the jurisdiction and to the making of a freezing order, carefully to consider whether or not it was right to require the immediate production of information given the prospect that the court might later hold that jurisdiction should not have been exercised or that the freezing order should not have been made. It was open to the court to make an order for the production of information even during the pendency of a challenge to the jurisdiction. If that was so, it followed that it was open to the court to impose a sanction for non-compliance as a means of securing compliance. The factors relied on by the bank were compelling. The prejudice that the respondents would suffer if they produced information and then succeeded on the jurisdiction application was minimal by comparison. It was also relevant to take into account the unlikelihood of the jurisdiction challenge succeeding. (Grupo Torras SA v Sheikh Fahad(CAT 60 of February 2004) applied.)
Christopher Clarke J:
1. This is an adjourned application for an “unless” order debarring the respondents from defending and entitling the claimant, JSC BTA Bank (“the Bank”), to enter judgment unless certain information and documents are provided. The Bank is one of the largest in Kazakhstan. It was effectively nationalized on 2 February 2009 in the wake of the worldwide financial crisis. Until that date the first defendant, Mr Ablyazov, was the beneficial owner of the majority of the Bank's shares and Chairman of its Board. The second defendant, Mr Zharimbetov, was a close associate of the first defendant and first Chairman of the management board. Both of them have now fled to this country. Various criminal prosecutions are pending against them and others in Kazakhstan. Several sets of civil proceedings are pending against them and those who are said to be their associates in this court.
2. The current proceedings concern what is said to be a scheme of misappropriation by which over a billion United States dollars was extracted from the Bank in late 2008. The scheme was effected through, so the Bank says, the use of the first to fourth respondents to this application who supposedly borrowed from the Bank, and the fifth to ninth respondents, who were the direct recipients of the Bank's advances — the monies being transferred to them at a bank in Latvia pursuant to letters of credit opened by the Bank on behalf of the borrowers in their favour on the basis that they were intermediaries for the purported supply of oil machinery and equipment.
3. The Bank's case is that the whole scheme was a sham carried out by and for the benefit of the first defendant, who used the second defendant as his assistant, and the respondent companies as his vehicles. A summary of the Bank's case is set out at para. 20 of the Bank's skeleton argument and in the points of claim, to which I refer but which it is unnecessary to recount.
4. No defence has yet been filed. The first defendant claims that the loans were made to financial entities of substance, and that he had no connection with either the borrowers or the intermediaries. In the present proceedings the Bank makes proprietary claims in respect of the sums advanced and claims for compensation against the first and second defendants (the Bank's officers) for breach of duty, and for compensation against the borrowers and intermediaries for participation in that breach.
5. On 9 June this year Mr Gavin Kealey QC, sitting in this court as a Deputy Judge, made “without notice” freezing orders against the respondents. He held that the Bank had established at least a good arguable case of fraud against the respondents and that there was a real risk of dissipation. As to the latter he said:
“3. I am also satisfied on the basis of the material that I have read that there are assets outside this jurisdiction and, insofar as the potential sixth respondent is concerned (which is an English company called Loginex Projects LLP), inside this jurisdiction, that are subject to a real risk of dissipation or secretion such as to render any judgment rendered against the Respondents nugatory unless the freezing order applied for by the applicant is granted. I am influenced in coming to that conclusion perhaps most cogently by the fact that it is clear to me that the claimant has, as I have already indicated, a good arguable case at the least that the respondents participated in a scheme which was an overarching scheme designed to extract from the claimant very substantial sums of money in circumstances which, if true, were fraudulent and arranged so as to prevent the claimant from recovering any of those sums.
4. The approach that I adopt is not dissimilar to that of Teare J at paras. 11 to 12 of his judgment dated 12 November 2009 in another action by the claimant against, among others, I think, the proposed first and second defendants. The risk of dissipation or secretion is fortified, to my mind, by the almost complete lack of transparency in relation to the respondents, their assets, their dealings, their owner, their controllers, and their accounts, if any. There is always the possibility that the monies have long gone and therefore the respondents...
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...v. Dowling, [2014] EWHC 2451 (Ch), referred to. (7) JSC BTA Bank v. Ablyazov, [2010] EWHC 2219 (QB); [2011] 1 All E.R. (Comm) 1093; [2010] 2 C.L.C. 329; further proceedings, [2011] EWHC 2506 (Comm); further proceedings, [2013] EWCACiv 928; [2014] 1 W.L.R. 1414; [2014] 1 All E.R. (Comm) 700;......