JSC BTA Bank v Mukhtar Ablyazov
| Jurisdiction | England & Wales |
| Judge | Lord Justice Leggatt,Lady Justice Gloster,Lord Justice Coulson |
| Judgment Date | 22 May 2018 |
| Neutral Citation | [2018] EWCA Civ 1176 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2017/0151 |
| Date | 22 May 2018 |
[2018] EWCA Civ 1176
Lady Justice Gloster
(VICE-PRESIDENT OF THE COURT OF APPEAL CIVIL DIVISION)
Lord Justice Leggatt
and
Lord Justice Coulson
Case No: A3/2017/0151
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE COMMERCIAL COURT (QBD)
Laurence Rabinowitz QC (sitting as a Deputy High Court Judge)
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Philip Jones QC, Mr Tim AkkouhandMr Caley Wright (instructed by Hogan Lovells International LLP) for the Appellant
Mr Peter Knox QC and Mr James Sheehan (instructed by Kingsley Napley LLP) for the 2 nd Respondent
Hearing date: 12 April 2018
Judgment Approved
Introduction
The main question on this appeal is whether the trial judge made an error of law in rejecting a claim that a payment of money made by the first defendant as a gift to his son (the second defendant) was made for the purpose of putting assets beyond the reach of the claimant and was therefore liable to be set aside under section 423 of the Insolvency Act 1986. A second question raised by a respondent's notice is whether the judge should have rejected the claim in any event on the ground that it is time-barred.
Background
The claimant (and appellant) in this case is a bank in Kazakhstan which was, until early 2009, controlled by the first defendant, Mr Mukhtar Ablyazov. While he controlled the bank, Mr Ablyazov is said to have embezzled from it vast sums of money. In 2008 the bank got into financial difficulties and was investigated by the Kazakh regulator. On 30 January 2009 the bank informed the regulator that it could not meet its liabilities. On 2 February 2009 the Kazakh sovereign wealth fund acquired a majority stake in the bank and Mr Ablyazov was removed as chairman of its board of directors. He fled to London. In August 2009 the bank commenced proceedings against him in this country and obtained a worldwide freezing order.
Like Mr Ablyazov's fraud, the subsequent litigation has been on an industrial scale. There are reported on Bailii no fewer than 34 judgments in the proceedings given by judges in the Commercial Court, one in the Chancery Division, one in the Queen's Bench Division, ten judgments (not including this one) given by the Court of Appeal and two by the Supreme Court. During the early stages of the litigation, in connection with the worldwide freezing order the bank pressed Mr Ablyazov for disclosure of his assets. He was cross-examined about his assets on oath. Teare J later found that in the course of that cross-examination Mr Ablyazov lied in order to hide his interest in various assets which he beneficially owned. That finding together with findings of deliberate breaches of the worldwide freezing order ultimately led Teare J on 16 February 2012 to sentence Mr Ablyazov to prison for 22 months for contempt of court. However, Mr Ablyazov avoided prison by fleeing the jurisdiction when he saw the court's judgment in draft. On 29 February 2012 the court made an order that, unless Mr Ablyazov gave full disclosure of his assets and surrendered to the tipstaff, his defence would be struck out. Mr Ablyazov appealed against that order but his appeal was unsuccessful. He did not comply with the order and his defence was therefore struck out. The bank has since obtained judgments against Mr Ablyazov for a total sum in excess of US$5 billion (including interest) but only a small proportion of the judgment debt has been satisfied, and none of it voluntarily.
The present claim represents an attempt by the bank to recover the proceeds of a sum of £1.1m which was transferred on 26 February 2009 from a Swiss bank account in the joint names of Mr Ablyazov and his son, Madiyar, to a bank account in London in the sole name of Madiyar. At the time of the transfer, Madiyar was 17 years old and at school in England, present in the UK on a student visa. The money paid to Madiyar was invested in UK gilts. Having funds of more than £1 million invested in the UK enabled Madiyar to obtain a Tier 1 investor visa, which was granted in May 2009. In September 2013 he was given indefinite leave to remain in the UK and in December 2014 he became a British citizen. When the present action was commenced in December 2015, the remaining balance of the funds which had been paid into Madiyar's account was about £1.025 million and this was paid into court.
In this action the bank claimed (1) that the money was held on trust for Mr Ablyazov, or alternatively (2) that the transfer should be set aside under section 423 of the Insolvency Act 1986 as a transaction defrauding creditors. Following a trial in which Madiyar took part though Mr Ablyazov did not, Mr Laurence Rabinowitz QC, sitting as a deputy High Court Judge, dismissed both claims. For reasons given in a judgment dated 9 December 2016, the judge found that the money paid by Mr Ablyazov to Madiyar was a gift (rather than remaining beneficially owned by Mr Ablyazov, as the bank had contended). That finding is not now disputed. The judge further concluded that the transfer was not made for the purpose of putting the funds beyond the reach of the bank and was therefore not caught by section 423. On this appeal the bank challenges that conclusion. In addition, by a respondent's notice, Madiyar contends that the judge ought to have dismissed the claim for a different reason – that it was brought after the limitation period had expired.
Section 423 of the Insolvency Act
Section 423, headed “Transactions defrauding creditors”, provides in relevant part as follows:
“(1) This section relates to transactions entered into at an undervalue; and a person enters into such a transaction with another person if –
(a) he makes a gift to the other person or he otherwise enters into a transaction with the other on terms that provide for him to receive no consideration;
…
(2) Where a person has entered into such a transaction, the court may, if satisfied under the next subsection, make such order as it thinks fit for –
(a) restoring the position to what it would have been if the transaction had not been entered into, and
(b) protecting the interests of persons who are victims of the transaction.
(3) In the case of a person entering into such a transaction, an order shall only be made if the court is satisfied that it was entered into by him for the purpose –
(a) of putting assets beyond the reach of a person who is making, or may at some time make, a claim against him, or
(b) of otherwise prejudicing the interests of such a person in relation to the claim which he is making or may make.
(4) …
(5) In relation to a transaction at an undervalue, references here and below to a victim of the transaction are to a person who is, or is capable of being, prejudiced by it; and in the following two sections the person entering into the transaction is referred to as ‘the debtor’.”
It was not disputed at the trial that the payment made by Mr Ablyazov to Madiyar was a transaction entered into at an undervalue (being made for no consideration). It was also not disputed that the bank was a “victim” of the transaction. The issue was whether the transaction was entered into for the purpose specified in section 423(3) (the “prohibited purpose”).
The test of purpose
As counsel for the bank pointed out, whenever a person makes a gift, it can always be said that the gift was made for the purpose of conferring a benefit on the donee. But as section 423 expressly applies to gifts, it would defeat the object of the legislation if the fact that the transaction was entered into for that purpose precluded a finding that the transaction was entered into for the prohibited purpose specified in subsection (3). When the 1986 Act came into force, the test applicable in ‘dual purpose’ cases was initially the subject of some uncertainty and inconsistent authority. But greater clarity was achieved by the decision of the Court of Appeal in Inland Revenue Commissioners v Hashmi [2002] EWCA Civ 981; [2002] 2 BCLC 489.
At least at first sight, the facts of the Hashmi case bear a striking similarity to the facts of the present case. The transaction in the Hashmi case was a transfer from the defendant by way of gift to his 16-year old son of the premises at which he carried on a restaurant business. The defendant had for a number of years been persistently under-declaring the profits of the business to the Inland Revenue. The trial judge (Hart J) found that this conduct was deliberate and dishonest and that at the time of transferring the property the defendant must have known that, should his dishonesty ever be uncovered, he would become liable to pay very substantial sums in tax, interest and penalties. The judge accepted evidence that the defendant was a caring father who wanted to secure his son's future and that this was a purpose of transferring the ownership of the property to him. But the judge also found that the defendant transferred the property when he did “because he could not be sure, given the inherently risky way in which his taxation affairs were conducted, that he would be able to make the provision at a later date”, and that in these circumstances the transaction was also entered into for the prohibited purpose: see [2002] 2 BCLC 489, 495. These findings raised the question of law whether, to fall within section 423, the prohibited purpose had to be the dominant purpose of the transaction. The judge was of the view that it did not and that view was endorsed by the Court of Appeal.
Each member of the Court of Appeal gave a judgment (it appears, ex tempore) explaining the relevant legal test in slightly different terms. Arden LJ, who gave the lead judgment, said (at para 23):
“It is sufficient if the statutory...
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