JSC BTA Bank v Ablyazov & Ors

This is an appeal against a judgment of Teare J dated 21 August 2009 whereby the judge, in support of a freezing injunction made by Blair J on 13 August 2009, as varied on 14 August 2009, made orders for disclosure. The appeal, permission for which was given in this court following an oral application on 4 September, concerns orders for the provision to the claimants, JSC BTA Bank, a major bank in Kazakhstan, of information about the assets of the first to third defendants and answers to questions about the location of assets. Those defendants were, from 2005 until early 2009 when they were dismissed and left Kazakhstan for London, senior officers of the claimants. The fourth defendants, an English company, and the fifth defendant are alleged to be connected with them.

The court announced its decision dismissing the appeal (subject to an amendment to the order by way of concession) at the end of the hearing. These are the reasons for that decision.

At a hearing to be held on 4 November 2009, the first to third defendants will challenge the freezing injunction. Supported by the fourth and fifth defendants, they submit that the learned judge was wrong to require them to provide information at this stage and pending the hearing of the substantive challenge to the freezing injunction. Central to the appeal is the defendants’ submission that disclosure should not be ordered because the information revealed could be used by the prosecuting authorities in Kazakhstan in criminal proceedings brought there against the first to third defendants. It is alleged that the authorities might obtain the information even if the claimants did not willingly provide it.

It is submitted that, given the risk of such disclosure, and the prejudice which would result from it, the judge was wrong merely to balance that risk against the prejudice to the claimants if the information was not provided until later. It was an overriding factor because the defendants would be irreversibly prejudiced by disclosure. Further, the judge wrongly took into account the absence, when he made his decision, of any substantive defence by the first to third defendants to the claim advanced. It had been alleged that the first to third defendants had misappropriated very large sums of money from the claimants.

The claimants rely on the majority decision of this court in Motorola v Uzan & Ors [2002] EWCA Civ 989, where well-established principles were stated and reaffirmed. Waller LJ referred to the statement of Steyn LJ in Grupo Torras SA v Al-Sabah (unreported, 16.2.94) that without disclosure, a freezing order would be a “relatively toothless procedure in the fight against rampant transnational fraud”. Waller LJ stated, at paragraph 29, that “a freezing order in normal circumstances simply cannot be effective without that disclosure”. Once it is accepted that the freezing order should continue, “a disclosure provision would be the normal provision so that that the freezing order can be properly policed and be effective”. Lord Woolf CJ, concurring, stated, at paragraph 37, that “the disclosure order, where there is a freezing order, is intimately involved in the effectiveness of the freezing order”.

In Raja v van Hoogstraten [2004] EWCA Civ 968, Chadwick LJ stated, at paragraph 105:

“[Motorola] provides support for the proposition that, in a normal case, a stay of the disclosure obligations is likely to be refused.”

Chadwick LJ accepted, however, at paragraph 105, that Motorola “is no authority for the proposition that a defendant will always be refused a stay of the obligation to make disclosure pending the final determination of his application to set aside the freezing order”.

For the first to third defendants, Mr Doctor QC submitted that, on 21 August 2009, the defendants had had insufficient time and opportunity, since notification of the injunction on 14 August, in which to make enquiries on the important question whether to seek to avoid disclosure on the ground that it would incriminate them in Kazakhstan where they had been threatened with criminal proceedings. At the time of the hearing before Teare J, no claim to protection against self-incrimination had been made and no defence to the bank’s claim had been put forward.

The judge held:

“I am not persuaded that I should simply adjourn this question until the hearing of the inter partes application. It is true that the Defendants have not had a full opportunity to adduce before the court all the evidence which they wish to put before the court, but Mr Turner on behalf of the First to Third Defendants [their solicitor] has in the limited time available to him been able to provide a witness statement of some 32 pages and 118 paragraphs together with a very substantial exhibit going to something under 300 pages. The content of that witness statement goes primarily to the risks which the Defendants say exist that information provided to the Claimants about the Defendants' assets may reach the Kazakhstan prosecuting authorities to the disadvantage of the Defendants.

Moreover, Mr Doctor has been able to address me today, though not as fully as he would wish. The argument has gone on for the whole of today, and it is now past 6.30 pm.

The fact that the Defendants wish to put in more evidence is a factor which I must bear in mind in exercising my discretion, but I do not consider that by itself it is a conclusive factor in favour of effectively adjourning this matter until the hearing of the inter partes dispute.

The disclosure of assets is part and parcel of a freezing order. It enables the freezing order to be made more effective. Without it indeed a freezing order may prove to be ineffective. There is, therefore, a clear risk of prejudice to the Claimants if they do not obtain the information as to assets.

Against that I bear in mind that the Claimants knew about some of the circumstances which have given rise to this claim in February of this year and that it was not until August that they came to the court seeking ex-parte freezing order relief. That is a factor which suggests that a further delay of, say, two months may not cause substantial harm to the Claimants.

However, as submitted by Mr Smith, it is probably right to say that once proceedings have been issued, the risk to the Claimants is heightened, and therefore it seems to me that the Claimants are able to say that if the order they seek is not made, there is a risk of prejudice to them.

In essence the reason why the Defendants say that the court should refuse to make the order sought by the Claimants is that the Claimant bank may in some way allow the prosecuting authorities in Kazakhstan to have access to the information regarding assets, which might well enable the prosecution authorities in Kazakhstan to take action against assets of the Defendants.

As I have said, Mr Turner has placed a substantial witness statement before the court, the contents of which give grounds to suspect that such information as is given to the Claimants might reach the prosecuting authorities. The basis upon which those grounds can be said to exist is that there are reasons for thinking that the rule of law does not operate in Kazakhstan in the same way as it operates in this country.

But against those concerns must be considered these matters. The bank has come before this court seeking proprietary remedies and damages and seeking freezing order relief. In order to obtain that relief it has had to give certain undertakings.”

Conventional undertakings are then set out as is Mr Doctor’s submission that the court will be unable to police them. The judge also said that he did bear in mind that “this is not a case where the defendants have identified any grounds at all for suggesting that the claim brought against them is not a good claim”. The judge also made orders against the fourth to seventh defendants stating: “there is evidence before the court that those defendants have been acting as nominees for others in relation to the holding of assets”.

The judge concluded:

“I have therefore reached the conclusion that this is a case where the usual order should be made. In the circumstances of this case that means that the lists of assets which have been provided to the Defendants’ solicitors should be provided to the Claimants.”

The judge stated his conclusion: “on balance this is a case where there is a greater risk of prejudice to the claimants if the order is refused than to the defendants if the order is made”. He made a direction that the list of assets within Kazakhstan be shown only to the claimants’ solicitors and Mr Varenko, the First Deputy Chairman of the claimants’ Management Board.

The judge went on to consider specific questions posed in Schedule C attached to the application before him. Mr Doctor submitted to the judge that the questions were not directed to locating and preserving assets but to improving the substantive case against the defendants. The judge rejected that submission holding that the questions were designed to trace funds to which a proprietary claim is made.

In dealing with that issue, the judge stated that Blair J “was not of the view that the claimants lacked a proprietary claim of the required forensic strength”. Before this court, Mr Doctor accepted in terms that the claimants have an arguable case, on the evidence available, in the present proceedings.

The order challenged was made by Teare J in the exercise of a discretion. Mr Smith QC, for the claimants, submitted that the circumstances in which the Court of Appeal is able to overturn an exercise of discretion by a first instance judge are very limited. He relied on the judgment of Waller LJ in Motorola, at paragraph 26:

“I emphasise that we are dealing with the exercise of discretion of a judge in an area in which that judge (as all judges of the Commercial Court) has a great deal of experience. I remind myself of the well-known words of Lord Fraser of Tullybelton in G v G [1985] 2 All ER 225 at 229, [1985] 1 WLR 647 at 652:

‘Certainly it would not be useful to inquire whether different shades of meaning are intended to be conveyed by words such as 'blatant error' used by the President in the present case, and words such as 'clearly wrong', 'plainly wrong' or simply 'wrong' used by other judges in other cases. All these various expressions were used in order to emphasise the point that the appellate court should only interfere when they consider that the judge of first instance has not merely preferred an imperfect solution which is different from an alternative imperfect solution which the Court of Appeal might or would have adopted, but has exceeded the generous ambit within which a reasonable disagreement is possible’.”

It is not necessary, for present purposes, to consider the merits of the underlying claim in any detail. Very large sums of money are alleged to have been paid by the claimants, with the approval of the first to third defendants, to the fourth defendant under so-called Compensation Agreements. It is claimed that the ownership of assets of potentially very considerable value has been concealed behind nominees. There is evidence that the first defendant at least stands behind the fourth defendants. The claimants, their regulators and others have been deceived, it is claimed, about the true beneficial ownership of substantial shareholdings. The claimants allege that one or more of defendants one to three are the beneficial owners of the fourth defendant, to which large sums of money were paid by the claimants under the Compensation Agreements. The first to third defendants are now within the jurisdiction; the fourth defendant is a company registered in England and Wales.

Mr Doctor’s central submission before this court was that the order for disclosure ought not to have been made on 21 August because the defendants had had insufficient opportunity to consider their position, in particular as to whether to claim privilege against self-incrimination in view of the criminal proceedings in Kazakhstan. Upon receipt of the order of Blair J, in the depths of the vacation, they had only four working days in which to prepare for the hearing on 21 August. Two of the defendants spoke no English.

Mr Doctor accepted that there was a difference, for present purposes, between self-incrimination in the United Kingdom and self-incrimination with respect to proceedings elsewhere. Section 14 of the Civil Evidence Act 1968 creates a privilege against self-incrimination in respect of criminal proceedings in the United Kingdom. That is recognised in Teare J’s order which provides, in paragraphs 8(a) and 10(a), that if information ordered to be provided “is likely to incriminate any [defendant], then that [defendant] may be entitled to refuse to provide it”. An issue raised on that wording is considered at the end of this judgment.

In relation to self-incrimination with respect to proceedings abroad, there is no entitlement to the privilege. The judge had a discretion as to whether to grant protection against such self-incrimination. (Brannigan v Davison [1997] AC 238 at 251 per Lord Nicholls of Birkenhead (PC), Crédit Suisse Fides Trust S.A. v Cuoghi, [1998] QB 818, at 833, per Lord Bingham of Cornhill CJ). Self-incrimination had not been raised before Blair J. It may be claimed in the future and the possibility of a claim is a factor to be taken into account when deciding whether an order for disclosure should be made. The clearer the facts, the stronger will be the privilege (Sociedad Nacional etc v Lundqvist [1991] 2 QB 310, referring to the privilege strictly so-called).

Mr Doctor relied on the decision of Rimer J in Cobra Golf Inc & Anr v Rata & Ors [1998] Ch 109, and cases there cited. Rimer J stated, at page 127G, that “the privilege remains intact and the basic principle still is that an Anton Piller [disclosure] order should not be made which includes provisions foreseeably likely to require the defendant to incriminate himself”. Rimer J cited the judgment of Sir Nicholas Browne-Wilkinson V-C in Tate Access Floors Inc v Boswell [1991] Ch 512 at 530:

“Where an ex parte order is sought which might in practice preclude the defendant from raising the claim to privilege before the order is executed, the judge should not have made the ex parte order at all.”

In Den Norske Bank v Antonatos and Another [1999] QB 271, Waller LJ stated, at 290B that “there is no distinction in this regard between an Anton Piller and a Mareva [freezing] order”.

It was foreseeable, on 21 August, submitted Mr Doctor, that a claim for protection against self-incrimination would be made. Disclosure of assets may itself be incriminating in this case. In the limited time available before 21 August, there was no opportunity for the defendants properly to consider, in a complex situation, whether to claim protection against self-incrimination. Particulars of claim had not been served. A claim for protection against self-incrimination may itself be incriminating and careful consideration of all the circumstances is required before such a claim is made.

The judge did not, it was submitted, consider the defendants’ need for time. No order for disclosure should have been made and nothing should now be done until the return date on 4 November. Since the order should not have been made on 21 August, no adverse inference should be drawn from the absence of a claim to privilege, or from the absence of disclosure of a substantive defence, at an appeal against the August order in September. The defendants need not disclose their position before the return date in November, it was submitted. When permission to appeal was granted in this court on 4 September, a submission that the defendants should be required to disclose at that stage whether they were claiming privilege with respect to proceedings in Kazakhstan was rejected.

In the statement to which the judge referred, Mr Turner was seeking to demonstrate the absence of the rule of law in Kazakhstan and the dangers of disclosure if a claim to protection was, on fuller consideration, made. The claimants should not have been permitted to obtain an order for disclosure at such short notice when they had waited several months before seeking the freezing order now sought to be challenged, it was submitted. As early as March 2009, the claimants alleged that the first defendant and his associates had “performed a major embezzlement, through fraudulent loans given to an extremely extended network of local and offshore borrowers”. “Huge sums” had been stolen by the first defendant. Prosecutions, alleging money misappropriation, had been launched. The freezing order itself was sufficient deterrence, it was submitted.

Mr Doctor put his submission on the scope of the Schedule C questions succinctly. Several of the questions, he submitted, are not concerned with locating or preserving assets but are directed, wholly or mainly, to obtaining evidence the claimants intend to use in support of their case. The judge stated that he was satisfied that the questions were directed to locating and preserving assets.

For the fourth and fifth defendants, Mr Cohen supported the submissions of Mr Doctor. Further, it was submitted that the fourth and fifth defendants should not be in a position of having to make disclosures prejudicial to and potentially incriminating of the first to third defendants.

On the Schedule C issue, Mr Smith QC, for the claimants, submitted that both Blair J and Teare J considered the questions appropriate and no reason had been shown to question their exercise of discretion. In the context of a tracing claim, the questions were legitimate. Questions in similar terms were upheld by the Court of Appeal in Derby Co Ltd v Weldon [1990] Ch 48.

I have come to the conclusion that the judge was entitled to make the order for disclosure and to make it when he did. Before stating the conclusions set out at paragraph 8 of this judgment, the judge set out the submissions made on behalf of the defendants. He referred to the submission that they had not been able in the time available to put before the court all the evidence they wished to. He referred to the submission that, in the context of the delay by the claimants from February until August, the court should not be overly concerned with a further two months’ delay in the claimants obtaining the information they seek. He referred to the submission that the defendants needed further time to consider whether to claim privilege against self-incrimination in Kazakhstan. The judge had in mind evidence before him about the criminal proceedings in Kazakhstan, the close relationship alleged to exist between the claimants and the prosecuting authorities there and the alleged absence of the rule of law in Kazakhstan. The defendants’ concern that information would reach the prosecuting authorities in Kazakhstan was expressed to and considered by the judge. The judge did not mention in terms the Brannigan principle but was well aware of the submissions in relation to the situation in that State.

At the hearing before this court, the claimants offered a concession. Disclosure need only be to their solicitors and counsel. That concession, if acted upon, greatly diminishes the risk of information reaching the prosecuting authorities in Kazakhstan as a result of an order for disclosure. The court indicated that it was prepared to act on that concession though reservations were expressed, repeated by Sedley LJ in his judgment, about problems which may result. In post-hearing written submissions, the defendants argued that only named counsel and named representatives of the claimants’ solicitors should be entitled to see the documents. That submission was rejected but the documents may be seen only by those representatives directly concerned with the case.

There is no doubt that the judge did also bear in mind the failure of the Defendants, as of 21 August, to identify any defences to the claim against them. Bearing in mind the claimants’ delay in making an application for a freezing order and the absence on 21 August of particulars of claim, that factor was not in my view entitled to much weight. There is no reason to believe that it weighed heavily with the judge and I am not prepared to hold that he misdirected himself in referring to it as he did. On the evidence available to him, he was entitled to attach considerable weight to the need for a disclosure provision to make this freezing order effective. The judge cited Motorola and there is powerful and consistent authority to the same effect since the early days of the Mareva jurisdiction.

The judge considered the relevant factors and reached a conclusion which, in my judgment, he was entitled to reach. He acknowledged the risk of prejudice to the defendants. He was not obliged to defer the obligation to make disclosure until after the hearing on 4 November. He was entitled to approve the questions in Schedule C. I accept the submissions of Mr Smith on that issue.

In the course of argument, Mr Doctor raised a further issue on the wording of paragraphs 8(a) and 10(a) of the Order. He submitted that the wording covers a claim which may be made to privilege against self-incrimination with respect to proceedings outside the United Kingdom. The wording covers what the court may grant as well as what arises by virtue of Section 14 of the Civil Evidence Act 1968. If that submission succeeded, the claimants sought, by a respondent’s notice, to insert, after the words quoted in paragraph 16 of this judgment, the words “in respect of an offence under the law of any part of the United Kingdom”.

The court indicated at the end of the hearing that it did not accept Mr Doctor’s submission on that issue. From the use of the word “entitled”, it is clear that the reference is to the statutory privilege. The wording does not cover a claim which may, or may not, be made for an exercise of the court’s discretion to grant protection with respect to proceedings outside the United Kingdom. Amendment is not required to make clear the limits of the proviso in paragraphs 8(a) and 10(a).

It was for these reasons that I concluded that the appeal must be dismissed.

I agree with both judgments. There are aspects of this case, albeit it is only at an interlocutory stage, which are troubling and on which I wish to add a word.

One is that these appeals illustrate vividly the potentially stultifying effect of the privilege against self-incrimination on the administration of justice. It is something to which Sir Nicolas Browne-Wilkinson V-C drew attention when, for apparently the first time, the privilege was claimed in a civil action for fraud: Sociedad Nacional etc v Lundqvist [1991] 2 QB 310, 338:

“… the clearer the facts alleged, the stronger will be the privilege against self-incrimination.”

In part at least because of the decision of the European Court of Human Rights in Saunders v United Kingdom (1993) 23 EHRR 313, the legislative intervention which the Vice-Chancellor hoped would come has been little and partial. Yet the majority decision in Saunders has been called in question not only by the parallel jurisprudence of the European Court of Justice (see Limburgse Vinyl Maatschappij and Others v Commission [2002] ECR I-8375, §427-449) but by the recent decision of the ECtHR itself in O’Halloran v United Kingdom (2008) 46 EHRR 397. The latter decision substantially vindicates the dissenting opinion of Judge Martens in Saunders. It also contains a valuable concurring opinion of Judge Borrego.

None of this jurisprudence, even so, goes to the root question: how has an exclusionary rule designed to promote justice by preventing the use of torture or pressure to extract confessions become transmuted into a personal right which is able to defeat the ends of justice? It is of great importance to civil liberties and human rights that no state authority should be allowed arbitrarily to extract from individuals information which may incriminate them. But it is also important to any well-governed society, as O’Halloran now recognises, that in prescribed situations the state should be able to insist on an answer to a necessary question: for example, who was in charge of a dangerously driven car.

It is in my view still an open question whether in civil proceedings, where a good prima facie case of fraud is pleaded (and counsel are professionally forbidden to put their name to anything less), and when on the basis of it both sides are called upon to place their cards face up on the table, the law should accord to defendants a right to withhold from the court the very material which may establish their liability, and to do so on the precise ground that it will have that effect.

The reason for allowing this was denounced two centuries ago by Jeremy Bentham as a “foxhunter’s reason” – giving the quarry a chance to get away. (He also denounced the “cruel trilemma” justification of the privilege as an “old woman’s reason”.) Even without Bentham’s acerbic prose, it has to be said that allowing an adverse inference to be drawn from the making of the claim to privilege is a weak and unsatisfactory substitute for disclosure, and that allowing the party himself to make the claim is a remarkable instance of allowing someone to become judge in his own cause. We have briefly explored what the professional obligation of counsel is if they are asked to advise on a claim to privilege in a document so plainly incriminating that it would make the defence unarguable. Mr Cohen’s inclination, which I would think correct, was that (unless the advice was that no privilege was available) counsel should return his or her instructions. But this would do nothing to undo the real mischief, which is the suppression of crucial evidence.

When in 1898 legislation for the first time permitted accused persons to give sworn evidence in their own defence, it expressly withdrew the accused’s privilege against self-incrimination. The reason was obvious: if the accused, albeit in the dock against his will, was to seek to exculpate himself by testimony, he must be prepared to come clean. A defendant to a civil fraud claim is likewise before the court against his will. If he does not concede the claim he is in a very similar position to a person accused of crime. If so, it is not at all easy to see why he should enjoy an immunity, together with the power to be his own judge of its availability, which no criminal defendant enjoys. A claimant faced with such a claim to privilege would be justified in thinking that there is a serious inequality of arms.

What can the courts do to redress the balance? One step is close scrutiny of a claim to this privilege. Although it is not – or not yet – an issue in this case, one would expect that more will be required for a sustainable claim than a bare statement that documents and facts capable of incriminating the deponent are being withheld. One would expect any such claim, like any claim for legal professional privilege, to be specific in identifying the material document or class of fact and to explain, insofar as the description itself does not do so, why it is potentially incriminating. I am not convinced that the court would be obliged (as Mr Cohen has submitted it would be) to accept a statement that to identify the material document or class of fact would be tantamount to disclosing it.

My second and related concern is with the submissions of Mr Doctor QC about the state of affairs in Kazakhstan. He has suggested repeatedly that the rule of law does not operate in that country and that his clients, if returned, face arbitrary arrest, a prearranged trial, severe punishment and confiscation of their assets. If this is a fair account of what would await them if returned (and we are told there is no extradition treaty), then their possible disclosure of incriminating material is beside the point: the Kazakh state does not need further evidence. If it is not a fair account – and the material we have seen, including a detailed draft indictment, does not very obviously support it – then Mr Doctor’s case may actually be stronger. But he cannot have it both ways.

Since it has been conceded that the product of disclosure will be confined to the claimants’ solicitors and counsel until the determination on the return date, I do not dissent from this element of the order; but I record my unease at a practice which is capable of creating serious professional and juridical difficulties. This is not only because lawyers are not in the ordinary way permitted to keep relevant things secret from their clients, but also because counsel may find it necessary to make use at trial of knowledge which has been acquired subject to such an undertaking. If in such a situation application is made to the trial judge for permission to make use of it, the judge in turn will be placed in an impossible quandary.

The fact that the claimants have been driven to offer this unsatisfactory form of confidentiality as a foil to the privilege against self-incrimination is another reason for concern at its expansion from a protection against state oppression into a fraudster’s refuge.

I agree with both judgments.