JSC BTA Bank v Mukhtar Ablyazov

JurisdictionEngland & Wales
JudgeLord Clarke,Lord Neuberger,Lord Hodge,Lord Kerr,Lord Mance
Judgment Date21 October 2015
Neutral Citation[2015] UKSC 64
Date21 October 2015
CourtSupreme Court
JSC BTA Bank
(Appellant)
and
Ablyazov
(Respondent)

[2015] UKSC 64

before

Lord Neuberger, President

Lord Mance

Lord Kerr

Lord Clarke

Lord Hodge

THE SUPREME COURT

Michaelmas Term

On appeal from: [2013] EWCA Civ 928

Appellant

Stephen Smith QC

Tim Akkouh (Instructed by Hogan Lovells International LLP)

Advocate to the Court Jonathan Crow QC

Adam Holliman (Instructed by The Government Legal Department)

Heard on 28 July 2015

Lord Clarke

(with whom Lord Neuberger, Lord Mance, Lord Kerr and Lord Hodge agree)

Introduction
1

This appeal is concerned with the interpretation and application of the standard form freezing order. It arises in the course of long-running litigation between JSC BTA Bank ("the Bank") and Mr Mukhtar Ablyazov ("the respondent") in which the Bank has to date obtained a number of judgments against the respondent amounting in all to US$4.4 billion, none of which he has satisfied. Throughout much of this litigation the respondent was represented by solicitors and counsel. Indeed they filed a detailed notice of objection to the grant of permission to appeal to the Supreme Court and signed an agreed statement of facts and issues. However, they thereafter withdrew from the record and did not appear at the hearing of the appeal. The court is however grateful to Mr Jonathan Crow QC and Mr Adam Holliman who appeared as advocates to the court and made detailed submissions on the issues in this appeal.

2

The statement of facts and issues identifies three issues, which all depend upon the terms of a freezing order which was made by Teare J on 12 November 2009 and was subsequently amended (together "the Freezing Order"). The issues were: (1) whether the respondent's right to draw down under certain loan agreements is an "asset" within the meaning of the Freezing Order; (2) if so, whether the exercise of that right by directing the lender to pay the sum to a third party constitutes "disposing of" or "dealing with" or "diminishing the value" of an "asset"; and (3) whether the proceeds of the loan agreements were "assets" within the meaning of the extended definition in paragraph 5 of the Freezing Order on the basis that the respondent had power "directly or indirectly to dispose of, or deal with [the proceeds] as if they were his own". It can be seen that these are essentially questions of construction of the Freezing Order.

The background
3

The background can be taken shortly from the agreed statement of facts and issues. The Bank was one of Kazakhstan's four systemic banks. Between 2005 and early 2009, the respondent was its chairman and majority shareholder. When the Bank was nationalised in February 2009, the respondent fled to England and did not return to Kazakhstan. The Bank's case is that, while chairman, he presided over the misappropriation of over US$10 billion of the Bank's monies for his own personal benefit. The Bank commenced 11 sets of proceedings in this jurisdiction seeking compensation of about US$6 billion. In a judgment handed down on 19 March 2013, Teare J found that two of the Bank's former senior officers and one offshore company formerly controlled by the respondent had knowingly assisted in three frauds perpetrated by the respondent which led to the misappropriation of sums exceeding US$1.5 billion. Further, on 26 November 2013, Henderson J granted the Bank summary judgment in an amount of US$295m plus interest, in respect of the respondent's fraudulent misappropriation of assets shortly before nationalisation. He was debarred from defending the three cases which went to trial, because he had failed to comply with several orders of the court. He was not however debarred from defending the summary judgment application, which he continued to do until just before the hearing, when he chose not to defend. The Bank has to date entered judgment against the respondent in four cases in an aggregate sum (as stated above) of over US$4.4 billion. No part of these judgments has been paid by the respondent, although small sums (relative to the value of the judgment) have been realised by the receivers appointed by the court, who are also in the process of selling certain assets found to belong to him.

The Freezing Order
4

The Freezing Order includes the following provisions in so far as it relates to the Bank and the respondent:

"4. Until judgment or further order … the respondent must not, except with the prior written consent of the Bank's solicitors –

a. Remove from England and Wales any of his assets which are in England and Wales … up to the value of £451,130,000 …

b. In any way dispose of, deal with or diminish the value of any of his assets in England and Wales up to the value of …£451,130,000 …

c. In any way dispose of, deal with or diminish the value of any of his assets outside England and Wales unless the total unencumbered value … of all his assets in England and Wales … exceeds £451,130,000 …

5. Paragraph 4 applies to all the respondents' assets whether or not they are in their own name and whether they are solely or jointly owned and whether or not the respondent asserts a beneficial interest in them. For the purpose of this Order the respondents' assets include any asset which they have power, directly or indirectly, to dispose of, or deal with as if it were their own. The respondents are to be regarded as having such power if a third party holds or controls the assets in accordance with their direct or indirect instructions.

EXCEPTIONS TO THIS ORDER

9. a. Paragraph 4 of this Order does not prohibit the respondent from spending up to £10,000 a week … towards his individual ordinary living expenses … nor does it prohibit the respondent from spending a reasonable amount on legal advice and representation. But before spending any money on legal advice and representation the respondent must notify the Bank's legal representatives in writing where the money to be spent is to be taken from.

b. This Order does not prohibit the respondent from dealing with or disposing of any of his assets in the ordinary and proper course of any business conducted by him personally.

19. The respondent may apply to vary or discharge this Order …"

5

In due course, the Court of Appeal confirmed that, (at least) in respect of certain transactions, the respondent had no business which would enable him to take advantage of the ordinary business proviso. So his permitted spending was limited, for relevant purposes, to (1) £10,000 per week plus (2) a reasonable amount on his own legal expenses. The Bank maintains that this exception does not allow a defendant to fund a co-defendant's legal expenses.

The Loan Agreements
6

The issues in this appeal have proceeded on the basis that the respondent entered into two binding and effective loan facility agreements, dated 1 September 2009 and 1 April 2010, with a BVI company called Wintop Services Limited ("Wintop") and a further two agreements, dated 17 August 2010 and 1 December 2010, with another BVI company called Fitcherly Holdings Limited ("Fitcherly"), (collectively "the Loan Agreements"). In each case the respondent was described as the borrower and Wintop and Fitcherly were respectively described as the lenders. I note in passing that the Bank does not accept that Wintop and Fitcherly were third party lenders as the respondent maintains. Rather, the Bank contends (and Christopher Clarke J ("the judge") held (at [2011] EWHC 2664 (Comm), para 71) that there was "strong ground for believing" that they were the respondent's "creatures or conduits". However this appeal and the decisions of the lower courts have proceeded on the basis that the Loan Agreements are binding and effective.

7

Clause 1 of each agreement provided for a loan facility of £10m and contained the following material terms under the heading "AMOUNT AND TERMS OF THE LOAN:

"1.1 Facility. The Lender hereby agrees, subject to the terms and conditions set forth herein, to extend a loan facility to the Borrower in the principal amount of 10,000,000 GBP (ten million Great Britain pounds) ("the Loan Facility"). The loan facility shall be made available to the Borrower for two years as of the Date of the Agreement ("Availability Period").

1.2 Disbursement. The Loan Facility shall be disbursed in a form agreed by the Parties in one or several disbursements … upon the Borrower's written request …

1.3 Interest. The Loan Facility shall bear interest at the rate of 5% (five per cent) per annum. Interest for each Tranche shall accrue daily from the Date of Disbursement of such Tranche until repayment in full of the principal of the Tranche and all accrued interest thereon …

1.4 Repayment. All Tranches, together with all accrued and unpaid interest thereon, shall be payable by the Borrower upon the Lender's request, but not earlier than four years after the Date of the Agreement …

1.6 Cancelation of the Loan Facility. Notwithstanding section 1.1 hereof, any undrawn portion of the Loan Facility may be cancelled upon delivery to the Borrower of a written cancellation notice by the Lender.

1.8 Binding Effect for the Borrower. … this Agreement constitutes the legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with its terms …

1.11 Binding Effect for the Lender. …this Agreement constitutes the legal, valid and binding obligations of the Lender, enforceable against the Lender in accordance with its terms …

1.12 Use of Proceeds. The proceeds of the Loan Facility shall be used at the Borrower's sole discretion. The Borrower may direct the Lender to transfer the proceeds of the Loan Facility to any third party.

1.16 Assignment. … The Borrower may not assign or transfer any of its rights under this Agreement without the prior written consent of the Lender."

8

The Loan Agreements have been fully drawn down and pursuant to them the respondent has directed...

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