National Bank of Kazakhstan v The Bank of New York Mellon SA/NV London Branch

JurisdictionEngland & Wales
JudgeMr Justice Teare,Mr. Justice Teare
Judgment Date22 April 2020
Neutral Citation[2020] EWHC 916 (Comm)
Docket NumberCase No: FL 2018 000007
CourtQueen's Bench Division (Commercial Court)
Date22 April 2020

[2020] EWHC 916 (Comm)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT Financial List

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Mr. Justice Teare

Case No: FL 2018 000007

Between:
(1) National Bank of Kazakhstan
(2) The Republic of Kazakhstan
Claimants
and
(1) The Bank of New York Mellon SA/NV London Branch
(2) Anatolie Stati
(3) Gabriel Stati
(4) Ascom Group SA
(5) Terra Raf Trans Traiding Limited
Defendants

Ali Malek QC, David Quest QC, William Edwards and Ravi Jackson (instructed by Stewarts Law LLP) for the Claimants

Richard Handyside QC and Rupert Allen (instructed by Linklaters) for the First Defendant

Tom Sprange QC, Kabir Bhalla and Gayatri Sarathy (instructed by King and Spalding) for the Second – Fifth Defendants

Hearing dates: 26, 27 and 30 March and 1 April 2020

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

Mr Justice Teare Mr. Justice Teare

Introduction

1

The National Fund, The National Bank of Kazakhstan and the Trust Management Agreement

7

The Global Custody Agreement

10

The Garnishment Order

12

BNYM's declaration

16

The challenge to the order and the “referral” by the Belgian Court

18

Preparation for trial

24

The declarations

28

The relevance of foreign law

29

The reliance in fact placed on foreign law at trial

32

The relevance of foreign law in the Closing Submissions

33

Resolution of the Belgian garnishment proceedings

39

The debt

47

Agency

48

Trust

94

Ownership

105

Whether the declarations should be granted

110

The claim in debt brought by the NBK against BNYM

130

Conclusion

131

Introduction

1

This judgment seeks to determine a question which has been “referred” to the English Court by the Belgian Court.

2

The immediate context in which that unusual, perhaps unprecedented, referral took place was a step taken in Belgium by “the Stati Parties”, the Second-Fifth Defendants who are individuals and companies from Moldova and Gibraltar, in the case of the Fifth Defendant, to enforce a Swedish arbitration award made in their favour against the Republic of Kazakhstan in the sum of about US$506 million. I have been told that the award was in respect of breaches by the Republic of its obligations under the Energy Charter Treaty which “led to the destruction of the Stati Parties' investments”. The step taken to enforce the award was an attachment or garnishment order issued by the Belgian Court in October 2017 in respect of securities or cash held by The Bank of New York Mellon SA/NV, the First Defendant, a Belgian bank (“BNYM”). Those assets formed part of the National Fund of the Republic of Kazakhstan. The assets were held by the London branch of BNYM subject to the terms of an agreement with the National Bank of Kazakhstan (the “NBK”) governed by English law. Pursuant to the attachment or garnishment order BNYM declared that it could not “fully exclude” that the Republic of Kazakhstan had claims on BNYM or that BNYM held assets for the Republic of Kazakhstan and accordingly BNYM “froze” certain cash and securities valued at about US$ 22.6 billion. In November 2017 the attachment or garnishment order was challenged in Belgium by the Republic of Kazakhstan but the order was upheld in May 2018, save that its amount was reduced to the value of the award (including interest), namely US$530 million. Since then the only assets “frozen” have been cash sums totalling US$530 million. The securities which had been frozen have been “released” with the consent of the Stati Parties. One of the grounds upon which the attachment or garnishment order was challenged by the Republic of Kazakhstan was that BNYM had no “attachable obligation” to the Republic of Kazakhstan. The Belgian Court stated that that challenge “must be referred to the trial court in the proceedings on the merits, under article 1456 [of the Belgian Judicial Code]. The competent trial court is, as stated by Kazakhstan itself, the English Court who must apply its own national substantive law”. As a result of that “referral” an action was commenced by the NBK and the Republic of Kazakhstan in this Court on 28 May 2018 seeking certain declarations which were intended to answer the question referred to this Court by the Belgian Court.

3

The jurisdiction of this Court was challenged by the Stati Parties but in December 2018 the challenge was dismissed; see [2018] EWHC 3282 (Comm), [2019] BLR 113.

4

In addition to enforcement proceedings in Belgium there are also enforcement proceedings in Sweden, the Netherlands, Luxembourg, Italy and the USA. There were enforcement proceedings in this jurisdiction which were challenged by the Republic of Kazakhstan but, following proceedings in this Court and in the Court of Appeal, they have been discontinued and the Stati Parties have undertaken not to enforce the award in this jurisdiction; see Stati and others v Republic of Kazakhstan [2018] EWCA Civ 1896, [2019] 1 WLR 897. Thus this Court's involvement in this matter now arises solely because of the enforcement proceedings in Belgium and the “referral” of a particular matter by the Belgian Court to this Court.

5

In February 2019 directions for trial were given, including in particular the exchange of expert evidence on Kazakh and Belgian law.

6

The trial of the issue referred by the Belgian Court took place in late March 2020 in exceptional circumstances, namely, the outbreak of coronavirus. As a result of that outbreak and the restrictions advised or imposed on daily life by governments throughout the world the trial was conducted on a virtual or remote basis. The judge, counsel and solicitors participated from their homes by video link and the witnesses did so from their homes or offices abroad in Kazakhstan, Belgium and the USA. The proceedings could be watched on screen in Court 26 in the Rolls Building and they could also be viewed online (pursuant to the power granted in the Coronavirus Act 2020 to broadcast proceedings). The hearing was conducted without any technical hitch and all parties co-operated to ensure that the hearing took place efficiently and fairly. I am very grateful to the parties, their solicitors and counsel, the witnesses, transcribers, the suppliers of the necessary software and my clerk for enabling a case in the Commercial Court involving international parties and witnesses from several countries to take place notwithstanding the impediments caused by the outbreak of coronavirus.

The National Fund, The National Bank of Kazakhstan and the Trust Management Agreement (the “ TMA”)

7

The National Fund is a sovereign wealth fund whose purpose is “the stable socio-economic development of Kazakhstan, accumulating financial resources for future generations and reducing the effects of unfavourable external factors on the economy”. It was created by Presidential Decree in August 2000. Its source of funding is tax revenue from the Kazakhstan oil industry and certain other revenues arising from, for example, the privatisation of state entities. There was evidence that it was modelled to some extent on the Norwegian sovereign wealth fund and the Alaska Permanent Fund both of which are funded by oil revenues for the benefit of future generations.

8

The National Bank of Kazakhstan (the “NBK”) is the central bank of Kazakhstan. It exists and operates under the Law on the National Bank of the Republic of Kazakhstan of March 1995. The experts on Kazakh law agree that the NBK is a legal person separate and distinct from the Republic of Kazakhstan. When performing public law functions (for example the development and implementation of monetary policy) it acts in the name of and as part of the Republic of Kazakhstan, but it acts in its own name when entering into commercial relations with other parties.

9

Pursuant to a Trust Management Agreement (the “ TMA”) between the Republic of Kazakhstan and the NBK dated 11 June 2001 the National Fund is under “the trust management” of the NBK. “Trust management” is a Kazakh law concept. The NBK was entitled to possess, use and dispose of the National Fund for the benefit of the Republic of Kazakhstan. It is common ground that the assets in the National Fund “beneficially belong” to the Republic of Kazakhstan; see paragraph 16 of the Opening Submissions of counsel for the Republic of Kazakhstan. Consistently with this concession the Republic's expert on Kazakh law, Professor Suleimenov, has stated that the Republic retains an economic and beneficial interest in the assets (see paragraph 131 of his first report). However, he also stated that all of the assets of the National Fund are owned by the NBK and not by the Republic (see paragraph 132 of his first report). That is not common ground. The case of the Statis Parties, supported by their expert on Kazakh law, Professor Maggs, is that the assets are owned by the Republic. It may be necessary to return to this topic later in this judgment.

The Global Custody Agreement (the “GCA”)

10

BNYM holds the cash sums in question pursuant to a Global Custody Agreement (the “GCA”) dated 24 December 2001, the governing law of which is English. It is common ground that “the named contracting parties” to the GCA are the NBK and BNYM; see paragraph 82 of the Opening Submissions of counsel for the Stati Parties. (BNYM was not an original party to the GCA but became party to it by way of a novation on 23 January 2003.)

11

There is no dispute, I think, that the...

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