Ablyazov & Ors v JSC BTA Bank

This is my judgment on the applicant defendants’ renewed application for permission to appeal against the orders made by Teare J on 10 February 2011 and 17 May 2011.

The Claimant is a bank incorporated in Kazakhstan. The essential facts were conveniently set out by the judge in his earlier judgment [2010] EWHC 1779 (Comm) on the bank’s application to appoint a receiver over the assets of the first defendant, Mr Ablyazov:

“2.

The Claimant (“the Bank”) is a bank in Kazakhstan, 75.1% of whose share capital has, since 2 February 2009, been owned by the State of Kazakhstan through a sovereign wealth fund, Samruk-Kazyna. On that date the State effectively took control of the Bank when, according to the evidence of the Bank, there was significant concern as to the ability of the Bank to continue as a going concern. The Bank’s accounts for the year ending 31 December 2008 recorded a negative equity of about US$6.1 billion. Its debts, which are said to amount to US$12 billion, are being restructured pursuant to the law of Kazakhstan.

3.

The Defendant (“Mr. Ablyazov”) is the former chairman of the Bank and is accused by the Bank of “widespread misappropriation of the Bank’s funds.” It is said that he has treated the Bank “as if it were his own private source of funds”. Four claims have now been issued in this jurisdiction against Mr. Ablyazov. The total sum claimed is in excess of US$1.8 billion. Further claims are anticipated which I was told will bring the total sum claimed to US$4 billion.

4.

Mr. Ablyazov denies these claims. He states that the claims are an attempt by the President of Kazakhstan, Nursultan Nazarbayev, to take control of his assets in support of a politically motivated claim against Mr. Ablyazov, who is a leading figure in Kazakhstan’s democratic opposition. His evidence paints a chilling picture of life in Kazakhstan where power resides with the President and the members of his family and close associates, where the rule of law is not respected and where dissent is ruthlessly eliminated. In 2003 Mr. Ablyazov was arrested and imprisoned and his assets seized after what he and others have said was a politically motivated trial. Whilst imprisoned on what he says were “trumped-up” charges he says that he was subjected to mistreatment, torture and an unsuccessful plot to assassinate him and that his assets were “distributed to the President’s coterie”. He says that political assassination is used in Kazakhstan as a means of silencing opposition and that there was a further attempt to assassinate him in 2004 in Moscow….”

The position of the Bank was summarised by the judge, quoting from the Bank’s skeleton argument, as follows: (with references and footnotes omitted):

“18.

The Bank’s case is a case of fraud and embezzlement on an almost unprecedented scale. Essentially what is alleged is that Mr Ablyazov, on occasion with the assistance of the other Respondents, helped himself to huge amounts of the Bank’s cash resources by causing the Bank to make substantial transfers of funds to (or for the benefit of) a considerable number of overseas companies which he secretly owned.

19.

Soon after the Respondents left the Bank, the Bank was obliged to undergo an insolvency process because its deficit of assets versus liabilities was in the region of US$16 billion. This was the largest insolvency procedure which the Kazakh Republic has experienced.

20.

The insolvency restructuring has now been completed. As part of it, the Bank’s creditors have had to write off US$ billions of debt. Those creditors include a number of well-known Western financial institutions, not least the Royal Bank of Scotland (which was itself subject to a similar nationalisation process in the UK at about the same time).

21.

The restructuring has been approved in courts across the world, including the Chancery Division of the High Court in London. Under the agreements entered into as part of the restructuring, the Bank is obliged to pursue all possible avenues to recover its losses from those who are believed to have been responsible for those losses. The creditors are entitled to receive 50% of any recoveries.

22.

The Bank is obliged to retain professional assistance to help it pursue those responsible for the losses. The Bank’s asset recovery process is required to be monitored by a Recovery Sub-Committee, which is a sub-committee of the main Board of the Bank and must include at least one director appointed independently by the Bank’s creditors (and in fact includes two such creditor directors). The Bank has an obligation to report regularly to an independent recovery assets auditor and an obligation to justify certain key decisions to that auditor.

23.

The 7 actions which the Bank has commenced against one or more of the Respondents in the High Court in England (6 in the Commercial Court and one in the Chancery Division) are part of this recovery exercise. They are pursued on the authority of the new management and pursuant to the Bank’s obligations undertaken towards its creditors upon the restructuring. Major beneficiaries of any success in the actions will be the former creditors of the Bank. The suggestion that the actions are part of a pet project of the President to crush the Respondents could hardly be further from reality. The governance protections granted to the Bank’s creditors under the restructuring (including the asset recovery programme) are enshrined in the Bank’s charter which was amended for this purpose as part of the restructuring ….; the Bank’s super-majority shareholder, Samruk-Kazyna, has undertaken to ensure that the governance and other rights of the creditors are maintained.”

In summary:

Mr Ablyazov and the other defendants, all of whom are in materially the same position for present purposes, applied to have the Bank’s claim against them stayed including on the grounds that they “involve the indirect enforcement of a foreign penal, revenue or public law or of a sovereign or government interest”, and that they are an abuse of process because they are brought for the collateral purpose of eliminating Mr Ablyazov as a political opponent in Kazakhstan. The Bank applied, in effect, to strike out the defendants’ applications insofar as they relied on the first of the above contentions and on the basis that they raised issues which were non-justiciable. On 10 February 2011, Teare J gave judgment in effect dismissing the defendants’ applications.

On 10 May 2011 Teare J gave a further judgment on the Bank’s application to dismiss the defendants’ applications to stay the proceedings on the ground that the Bank is pursuing an improper collateral purpose. He upheld the Bank’s application, in effect holding that the defendants’ application had no real prospect of success.

Jackson LJ refused permission to appeal against the orders made by Teare J on paper.

In essence, the defendants’ case is that the matters which they allege entitle them to a stay of these proceedings, or at least a trial of their application for a stay or the dismissal of the claim.

I have to say that it would be startling indeed if a person who had defrauded a foreign bank (which is one of the hypotheses that must be accepted for the purposes of this application) could not be pursued in legal proceedings in this country on the ground that to seek to enforce, or to enforce, his liability, requiring him to disgorge his ill-gotten assets, because the claim against him was actuated in part or principally by personal or political hostility on the part of the government of the foreign country in question. Yet if the defendants’ contentions are well-founded, this startling proposition represents our law. It is implicit in it that if the Bank’s claims are well-founded, the defendants may retain the assets of which the Bank was defrauded. Moreover, it is accepted by the defendants that the Court cannot discriminate between foreign governments that are (apart from their conduct in relation to the claim) democratic and benign and those that are neither. It follows that the defendants’ applications would be available to them if the foreign government in question was unquestionably democratic, but arguably was motivated by vindictiveness in pursuing them. In my judgment, the defendants’ contentions do not even arguably represent the law. The claim is, as the judge held, a claim to enforce a civil liability, and that is the beginning and end of the present issues.

The defendants rely on the judgment of the Court of Appeal in Mbasogo v Logo Ltd [2006] EWCA Civ 1370 [2007] QB 846 as authority for the proposition that the Court will not enforce a claim that involves the exercise of sovereign authority by a foreign state. Mbasogo was a very different case from the present. The claim was for damages for an alleged conspiracy to overthrow a foreign government, and was brought by the head of state and the state itself. Indeed, the case is inconsistent with the defendants’ submissions. The Court reaffirmed “the fundamental distinction between an action which amounts to the exercise of sovereign authority in the territory of another and an action brought to protect property rights, such as might be brought by an individual”: see at paragraph 27. The present case is akin to a claim to enforce property rights: indeed, the claim against Mr Ablyazov could be framed as a claim to recover trust property. The claim is one that might be brought by an individual, and is in fact brought by a non-governmental corporation. The fact, if it be the case, that the foreign claimant acts at the behest of a foreign government does not mean that the claim is to enforce a sovereign right. If it were otherwise, a nationalised bank could not bring proceedings in this country to recover debts due to it.

Further, it is obvious that the claim is not a direct or indirect claim to enforce a foreign revenue or penal law or other liability incurred or imposed by the exercise of sovereign authority. The defendants rely on the decision of the Court of Appeal in QRS 1 ApS v Frandsen [1999] EWCA Civ 1463 [1999] 1 WLR 2169, but in that case the liquidator of the claimant company was seeking to recover indirectly tax due from the company to the foreign government. The liabilities in the present case are not tax liabilities, but ordinary civil law liabilities. I add that I consider that the decision in that case depended on the fact that the only creditors of the claimant company were the Danish tax authorities.

In relation to the contention that the claim is brought for an improper purpose, in my judgment it is clear that mixed or even predominant purposes such as personal malice or the like are irrelevant in a claim that has a real prospect of success to recover substantial property or to recover substantial compensation in tort. The law was clearly set out by Simon Brown LJ in Broxton v McClelland [1995] EMLR 485 at 497-8, adopted in Wallis v Valentine [2002] EWCA Civ 1034 [2003] EMLR 8, and cited by the judge in his judgment of 10 May 2011:

“(1)

Motive and intention as such are irrelevant (save only where ‘malice’ is a relevant plea): the fact that a party who asserts a legal right is activated by feelings of personal animosity, vindictiveness or general antagonism towards his opponent is nothing to the point. As was said by Glass JA in Champtaloup v Thomas (1976) 2 NSWLR 264, 271 (see Rajski v Baynton (1990) 22 NSWLR 125 at p.134):

‘To impose the further requirement that the donee [of a legal right] must be actuated by a legitimate purpose, thus forcing a judicial trek through the quagmire of mixed motives would be, in my opinion, a dangerous and needless innovation.’

(2)

Accordingly the institution of proceedings with an ulterior motive is not of itself enough to constitute an abuse: an action is only that if the Court’s processes are being misused to achieve something not properly available to the plaintiff in the course of properly conducted proceedings.”

The facts of Wallis v Valentine illustrate the proper basis of the jurisdiction. The claim was for defamation. At first instance, the judge had held that the costs of the proceedings would be substantial, and, crucially, that the defamatory publication complained of was most unlikely to have resulted in harm to the claimant’s reputation. The judge found that the claim had been brought for the dominant purpose of causing harassment and expense to the defendants. It was the combination of these facts that entitled the defendants to relief. By contrast, in the present case if the Bank’s claims are well-founded, and it is conceded that they may be, it will obtain a very substantial judgment.

The defendants also contend that they are prevented from having a fair trial by reason of action taken by the Government of Kazakhstan. That contention has not been struck out, but will be heard at the trial of the claim. But their applications for a stay of the proceedings on the other grounds to which I have referred were rightly dismissed by the judge, in comprehensive and clear judgments. I see no real prospect of an appeal succeeding.

Permission to appeal will be refused.