JSC BTA Bank v Usarel Investments Ltd

The applicant, Mr Rubin, seeks a ruling that his appointment as litigation receiver in relation to the 5^th defendant in the action (“Usarel”) gives him power to conduct an appeal (including an application to the Court of Appeal for permission to appeal) from the order of Teare J following the trial of the action.

I do not, in this judgment, propose to go into the background facts which appear from Teare J’s full judgment. Nor is it necessary to rehearse the terms of the order which it is sought to appeal. But three orders of Teare J, at various stages of the action, need to be mentioned.

The first is an order dated 6 August 2010 (subsequently amended on a number of occasions) (“the 2010 Order”). This was an order, in aid of a freezing order made by Blair J as continued and amended, appointing three partners of KPMG as receivers, and in some respects as receivers and mangers, of various assets. I shall call them the KPMG Receivers and Managers. It has not been suggested by anyone at any stage that Teare J did not have jurisdiction to make those appointments and I proceed on the basis that he did have jurisdiction, notwithstanding the cross-border element of the appointments.

Paragraph 1 of the 2010 Order appoints the KPMG Receivers and Managers to receive various categories of asset, including assets defined as the Disclosed Assets. Paragraph 1A, not part of the original order but added later by amendment, appoints them to be managers of, among other entities, the companies listed for the purposes of this paragraph in Schedule 3.

The definition of “the Disclosed Assets” refers to Schedule 3 which in turn is headed “The Disclosed Assets”. It goes on to list in numbered paragraphs various assets introduced, in each case, by the words “The First Defendant’s interest in”. Each paragraph then contains a reference to a paragraph in Mr Ablyazov’s third witness statement referred to as MKA3. The paragraph with which I am concerned in paragraph (13) which is “The First Defendant’s Interest in Vitino Port (see para.355 MKA3)”. The section of MKA3 beginning at paragraph 353 is headed “Vitino Port (Lux)”. It is explained that Vitino is a large port complex in the White Sea. Mr Ablyazov states in paragraph 355 that Mr Pukhlikov, his business partner in the Vitino Port project, had approached him on a number of occasions to “negotiate the sale of my interest to him”.

The opening words of Schedule 3 explain that reference is made in the Schedule to three categories of company namely (a) companies over which the KPMG Receivers and Managers are appointed as managers under paragraph 1A of the 2010 Order, (b) Intermediate holding companies (which in each case are stated to be companies to which paragraph 1A does not apply) and (c) local operating companies. He then goes on to explain what his interest in Vitino Port is. It is not an interest which he holds directly. Rather, he is referring to what he calls his indirect interest. As to that, he explains that his indirect ownership of the Vitino Port was at the time of his affidavit held as follows:

Nord Shipping lnc, ZAO Belomorskaya Neftebaza and 000 Morskoy Spetsializirovanny Port together own the port assets.

Nord Shipping lnc and ZAO Belomorskaya Neftebaza are owned by White Sea Complex BV, a Dutch company.

White Sea Complex and Morskoy Spetsializirovanny Port are owned by Usarel.

Usarel is owned by Lux Investing Limited (“Lux”).

Lux is owned as to 51% by Tedcom Finance Limited (the other 49% being owned by Mr Pukhlikov's company, Vetabet).

Tedcom is owned as to 75% by Direct Logistics Limited.

Direct Logistics Limited is owned by Rinat Batyrgareyev.

Mr Batyrgareyev in turn owns these shares on trust for Mr Ablyazov.

So when Mr Ablyazov speaks of his indirect interest in the Vitino Port, he is speaking of his commercial interest through his direct holding (or a holding held on trust) in Direct Logistic Ltd down the chain of companies. He does not, in terms of English law, have any legal or beneficial interest in the Vitino Port itself but has such powers in relation to it as he is able to exercise through the company and trust structure which he describes. It may, as a matter of fact, be that parts of the structure are really shams in which case he would have direct interests in entities or assets other than the shares in Direct Logistics Ltd.

What Mr Ablyazov’s affidavit thus discloses is the existence of the structure; it discloses, as the assets in which he has a direct legal or beneficial interest, shares in Direct Logistics Ltd and it discloses the structure of ownership by virtue of which he has a commercial interest in the Vitino Port.

As well as defining the Disclosed Assets in the numbered paragraphs, the opening part of the Schedule describes three categories of company which are referred to later in the Schedule. Each of the numbered paragraphs refers to companies within at least one of those categories. Companies in category (a) are ones where managers are appointed; companies in category (b) are ones where managers are not appointed and companies in category (c) are local companies which are listed for the purposes of paragraph 2 Schedule 4 (to which I will come a moment). These descriptions are of importance in establishing the extent of the appointment of the KPMG Receivers and Managers as managers (rather than receivers) and in establishing the scope of the powers conferred by Schedule 4. So far as paragraph (13) is concerned, the companies in category (a) (ie companies in respect of “this asset” (that is to say Mr Ablyazov’s interest in Vitino Port) over which they are appointed as managers) are Direct Logistic Solutions Ltd, Lux and Tedcom; the companies in category (b) (companies to which paragraph 1A of the Order does not apply) are Usarel and White Sea Complex BV; and the companies in category (c) (local operating companies relevant to paragraph 2 of Schedule 4 to which I will come in a moment and to which paragraph 1A of the Order does not apply) are also listed.

Paragraph 1A of the 2010 Order identifies the companies in relation to which managers are appointed. For present purposes, it is only sub-paragraph (a) which is of relevance and refers to “the companies listed for the purposes of this paragraph I Schedule 3 to this order”. Those companies are the ones in category (a); they do not include the companies listed in categories (b) and (c). It is not entirely clear why it was thought necessary to include categories (b) and (c) in Schedule 3 since, ex hypothesi, they are not within category (a) and so managers were not appointed in respect of them.

Schedule 4 of the 2010 Order deals with the powers conferred on the KPMG Receivers and Managers. Paragraph 1 confers power “to take possession of, collect, get in and preserve the Property”, “the Property” being defined in paragraph 3 of the Order as including the Disclosed Assets. Paragraph 2 confers power to carry on the business of or associated with any part of the Property “including for the avoidance of doubt the companies referred to in paragraph 1A of this order” or certain other assets. It must, I consider, be the case that the companies referred to in paragraph 1A include the companies referred to in paragraph 1A(a), that is to say the category (a) companies, but do not include the category (b) and (c) companies.

In case there were any doubt about that, paragraph 2 of Schedule 4 goes on to state, yet again for the avoidance of doubt, that the KPMG Receivers and Managers (see paragraph (i)) are not to carry on the any business of the category (c) companies and (see paragraph (iii)) that they have no powers and are to take no steps in relation to “any claims brought by the Bank” against various companies including the companies referred to in Schedule 3.

Schedule 4 confers a number of other powers to which I do not need to refer other than paragraph 5. That confers power “to exercise such voting rights or powers attaching to any shareholding or other security”. The KPMG Receivers and Managers thus have power to exercise the votes relating to shares which they directly control (the shares in Direct Logistic Solutions) and to procure the exercise of votes which they indirectly control in companies further down the chain.

What this (albeit incomplete) discussion of the terms of the 2010 Order shows is that the appointment of the KPMG Receivers and Managers as managers was limited and their powers were circumscribed. In particular, they were not appointed managers of Usarel and they had no powers, and were to take no steps, in relation to claims brought by the Bank against a number of companies, including Usarel.

The second order was made on 8 October 2012 (“the 2012 Order”). This order was made pursuant to section 37 Senior Courts Act 1981 and appointed Mr David Rubin as what the order called “the Litigation Receiver”. Although appointed by a judge of the Commercial Court in an action in that Court, Mr Rubin was given “liberty to apply to a Judge in the Chancery Division of the High Court for directions”. It is not entirely clear why applications for directions are be made in this Division rather than to Teare J or another judge of the Commercial Court. In any case, I rather doubt that the application which Mr Rubin now makes to me is an application for directions at all. It seeks, in the first place, a ruling that Mr Rubin already has power to pursue an appeal and to make an application for permission to appeal from the substantive decision of Teare J in the action. If he loses that aspect of his application, he seeks, in the second place, an extension of his appointment to cover an appeal. Neither of those seem to me to be applications for directions. I do not, however, doubt that I have jurisdiction to deal with the application and it would not be a sensible use of judicial resources, having read into the matter, to send the matter back to the Commercial Court, quite apart from the waste of costs which that would involve for the parties.

The powers which were given to Mr Rubin are found in Schedule 2 to the 2012 Order. He is given power, if he thinks fit, to “defend this action, claim number 2010 folio 93 in the name of Usarel” with particular aspects of that general authorisation being set out in four sub-paragraphs. Each of those paragraphs refers to defending “this action”.

The circumstances which gave rise to the need for the appointment of Mr Rubin are set out in the judgment which Teare J gave when making the 2012 Order. I do not need to repeat them here. It is enough to note that the essential reason for the appointment was doubt about the validity of appointment of the directors, a doubt which could not be eliminated by the shareholders because of the practical impossibility of achieving consensus between them. Accordingly, some of the persons with interests (whether beneficial or simply commercial) in Usarel sought the appointment of a person who would be given power to conduct the defence of the action in the name of the company in the absence of a board of directors whose authority was not in doubt.

The focus of the Schedule to the 2012 Order is on the defence of the action. That is entirely consistent with the evidence in support of the application for Mr Rubin’s appointment which identified the application as being “solely for the purpose of ensuring that Usarel may defend these proceedings”.

It is perfectly clear that Teare J was not invited to consider, and did not consider, what the position might be if Usarel’s defence to the action was, in whole or in part, unsuccessful. In particular, no consideration at all was given to the possibility of an appeal or who might conduct it. Reading the 2012 Order in isolation, it is clear, in my judgment, that Mr Rubin’s powers would not extend to the conduct of an appeal; still less would they extend to the bringing of a contribution notice against a third party.

Mr Kinsky submits, however, that the context of the need for the appointment and of the carve-out from the 2012 Order which I have identified leads to the conclusion that the power to defend the action should extend to a power to appeal from a decision at first instance and to the bringing of a contribution notice, alternatively a term to the same effect is to be implied into Schedule 2. He relies particularly on the absence of any power for the KPMG Receivers and Managers in relation to any claims brought by the Bank against Usarel, submitting that they could not be involved in an appeal because of the prohibition on taking steps in relation to any such claim. He suggests that, had Teare J been asked, when making the 2012 Order, to include power to pursue an appeal and to bring a contribution notice he would have done so on the basis that the rationale for making an extended order was precisely the same as the rationale for making the order which he did.

I reject those submissions in relation to the true interpretation of the 2012 Order. First of all, it is far from obvious to me that Teare J would have included the suggested extended power if he had been asked. He may well have considered that such an extension should be considered only if and when the question of an appeal became live, that is to say, once Usarel has lost the action. Given the terms of paragraph (1)(iii) of Schedule 2 to the 2012 Order concerning the raising of the costs of the defence, it cannot be assumed that he would simply have gone along with granting Mr Rubin power to pursue any appeal. Secondly, it is not, I consider, an ordinary use of language to describe the bringing of an appeal as part of “the defence of the action, claim number 2010 folio 93”, as identified in paragraph (1) of Schedule 2 to the 2012 Order. The defence was made in the action in the Commercial Court: an appeal from Teare J’s decision is not part of the defence to that action but is, for the purposes of the 2012 Order, a new proceeding, having, it is to be noted, a new case number with a Court of Appeal reference. Thirdly, it is not possible, in my judgment, to imply a term that Mr Rubin should have the extended power. Such an implied term would not fall within any of the conventional ways in which the implication of a term can be justified - in particular, the officious bystander test, or the business efficacy test. Although it is true, as Lord Hoffmann has explained, that the implication of terms is really only a part of the exercise of construction – to see what the document in question actually means in the context in which it was made - I do not consider that, in the present case, the exercise of construction gets one anywhere near establishing the extended power for which Mr Kinsky contends.

The third order was made on 19 April 2013 (“the 2013 Order”). It was made after judgment had been given against Usarel but before the final order had been finalised and made.

Under the 2013 Order, three partners in Alvarez & Marsal (“the A&M Receivers and Managers”) were appointed as:

Joint receivers and managers of Usarel;

Joint receivers of the legal and beneficial interest in the shares in Direct Logistic Solutions Ltd and joint receivers and managers of that company, Tedcom and Lux;

Receivers (but not managers) of the direct and indirect assets of the companies mentioned in a. and b. above. By indirect assets was meant any asset either (i) held for or on behalf of any those companies and (ii) held by or for a subsidiary of any of those companies.

Although Mr Kinsky submits that the essential purpose of the 2013 Order was to replace the KPMG Receivers and Managers with persons having more familiarity with matters relating to Kazakhstan, it is perfectly clear that the 2013 Order has a materially different effect from that of the 2010 Order. In particular, the A&M Receivers and Managers are appointed receivers and managers of Usarel which the KPMG Receivers and Managers were not. I gain no assistance from the meaning and effect of the 2010 Order (and in particular, the definition of the Disclosed Assets and the extent of the powers conferred by Schedule 4 of that Order) when it comes to the proper interpretation of the 2013 Order. Nor do I consider that the carve-out from the 2010 Order of any claim brought by the Bank against Usarel (among other companies), even assuming that an appeal from the decision of Teare J falls with the scope of that carve-out, supports the conclusion that the same carve-out is to apply to the 2013 Order.

So far as the powers of the directors of Usarel are concerned, paragraph 2 of the Order provides that those powers are suspended (so that, assuming that there were validly appointed directors in office, they would cease to be able to exercise those powers). It was also provided that Mr Rubin’s powers were not affected (see below). Accordingly, if the A&M Receivers and Managers want to do something which would interfere with the exercise by Mr Rubin of the powers vested in him, an application would have to be made to this Division for directions as to how the different officers of the Court should act.

Provision was made in paragraphs 4 to 8 of the 2013 Order for the termination of the appointment of the KPMG Receivers and Managers and the cessation of their powers. However, by paragraph 9 of the 2013 Order, it was provided that nothing in the order should in any way affect the powers of Mr Rubin under the 2012 Order. That was obviously the right course since it would not have been sensible to replace Mr Rubin at the very end of the action for the purpose of finalising the order following the judgment of Teare J in the main action. On that footing, the presence of paragraph 9 lends no support at all to an argument that Mr Rubin’s powers went beyond simply defending the action.

But even if the order following the main action had been finalised and there was nothing left for Mr Rubin to do, the presence of paragraph 9 can have no impact on the true interpretation of the 2012 Order. It cannot be right, as a matter of principle, that the construction of the 2012 Order can be affected by the terms of the 2013 Order made several months later. As with so many aspects of the 2010 Order, perhaps this provision would have been properly included “for the avoidance of doubt”.

The powers of the A&M Receivers and Managers are to be found in Schedule 3 to the 2013 Order. They are given very wide powers including, under paragraph 5, power to exercise voting rights which is wide enough to permit them to change the membership of Usarel’s board of directors.

Under paragraph 2 of Schedule 3, the A&M Receivers and Managers are given power to carry on the business of or associated with any part of the Property: the Property clearly includes Usarel (see the closing words of paragraph 1 of the 2013 Order). However, they are not to have power and are to take no steps in relation to “the claim” brought by the Bank against Usarel in “the English High Court, Queen’s Bench Division, Commercial Court under claim number 2010 Folio 93”; and for the avoidance of doubt (yet again), the powers conferred on Mr Rubin by the 2012 Order are to continue.

The A&M Receivers and Managers have in fact exercised their powers so as to appoint new directors of Usarel. Those directors are either partners or staff of Alvarez & Marsal. There is accordingly, no doubt that there are now directors in place who have been validly appointed. The rationale for the appointment of Mr Rubin, namely that there was doubt about the validity of the appointment of the directors, no longer applies. Unless there is some reason why the new directors should not be allowed to determine whetherUsarel should pursue an appeal, there is no need to extend Mr Rubin's appointment.

Mr Kinsky makes two submissions about that. The first relates to the power to make that appointment of directors. The second relates to the appropriateness of that appointment.

The first point concerns the extent of Mr Rubin’s powers and the carve-out of claims brought by the Bank in the 2010 Order. Mr Kinsky submits that the A&M Receivers and Managers cannot exercise their powers so as to confer on the directors, powers, to conduct Usarel’s defence of the Bank’s claim or any appeal from Teare J’s decision.

As to that submission, it is to be noted that the directors’ powers are suspended as a result of paragraph 2 of the 2013 Order, save to the extent that the A&M Receivers and Managers authorise the exercise of those powers. So, although a director could not ordinarily be appointed (for instance by shareholders in general meeting) so as to be able to exercise some only of the powers conferred by the Articles on the directors, it is clear in the present case that the directors can only exercise the powers conferred on directors with the consent of the A&M Receivers and Managers. It is correct to say that the directors could not properly be authorised to exercise their powers in a manner inconsistent with Mr Rubin’s appointment. If the A&M Receivers and Managers needed to authorise the directors to act in a way inconsistent with Mr Rubin’s appointment, they would have to apply to the Court for directions, joining Mr Rubin in any application.

In contrast, the saving for Mr Rubin’s powers has no impact if what the A&M Receivers and Managers wish to authorise does not conflict with the terms of Mr Rubin’s appointment and the powers conferred on him. Since Mr Rubin has no power, for reasons which I have already given, in relation to an appeal from the order of Teare J, it follows that it is open to the A&M Receivers and Managers to authorise the directors to consider whether to appeal (applying for any necessary further permission to appeal) and to pursue an appeal if they, the directors, consider that to be an appropriate exercise of their powers.

I would add, at this stage of my judgment that the same considerations apply to the proposed contribution proceedings which Mr Rubin wishes to consider bringing.

The A&M Receivers and Managers do, nonetheless, have duties to Usarel in relation to an appeal. They cannot simply ignore the possibility of an appeal. If Usarel’s interests are to be properly protected, the A&M Receivers and Managers must at least either (i) authorise the directors to consider the merits of an appeal and whether it would be in the interests of Usarel to pursue an appeal or (ii) give such consideration themselves and authorise (or not as the case may be) the directors accordingly.

Mr Kinsky’s second point is that it is unfair and entirely inappropriate that the A&M Receivers and Managers or directors appointed by them should be the persons to consider whether an appeal should be pursued. The basis of that submission can, I consider, only be that there is actual or perceived bias on the part of the individuals concerned. There is no suggestion made at present that there is any actual bias. Nor, in my judgment, can a case of perceived bias be made out. The present case is of an appointment or receivers and managers by the Court. The A&M Receivers and Managers are officers of the Court. I do not consider that it can be said that, whenever the Court appoints a receiver and manager nominated by an applicant for such an appointment, there is inevitably a justified perception of bias if the appointed nominee needs to consider whether to pursue litigation against the person who applied for his appointment. His position, as an officer of the Court, is different from that of a receiver or manager appointed for instance by the holder of a charge over the company’s assets. A perhaps justified perception of bias in relation to a receiver or manager appointed out of Court should not be allowed to infect the perception of an officer of the court.

In relation to both points made by Mr Kinsky, the protection for persons with an interest in the company, in particular its shareholders, lies in the ability of that person to apply to the Court to challenge the actions, or failures to act, of the office-holder.

In the present case, the A&M Receivers and Managers must ensure that they, or the directors, consider objectively and on the basis of proper legal advice, whether or not it is in the interests of Usarel to pursue an appeal. At the moment, I do not see why they should not use the same legal team as acted at the trial. Both the A&M Receivers and Managers and Mr Rubin are officers of the court who have to act in the best interests of the company. It would be odd to my mind if there were some sort of conflict between these different officers, or restriction on the sharing of information between them relevant to an appeal.

If the A&M Receivers and Managers do not wish themselves to be involved in considering an appeal and do not wish the board of Usarel to be involved either in considering an appeal, then there would be a very strong case for allowing some other person (and for the moment I do not see why it should not be Mr Rubin) to do so. This is not, as Mr Kinsky correctly points out, to give the green light for an appeal. The present application is not an application on the merits for Mr Rubin to be authorised to appeal (or even to apply for permission to appeal to the Court of Appeal in relation to those matters where Teare J refused permission). Rather, it is for him to be given power to act on behalf of Usarel in relation to an appeal with the first step being for him to take advice on the merits and to appeal, or not, accordingly.

Depending on the attitude of the A&M Receivers and Managers, it may be that an application will need to be made for the appointment of some person (as I have said, I do not see why it should not be Mr Rubin) to carry out all necessary steps in relation to an appeal. Given my conclusion that Mr Rubin does not already have power to act in relation to an appeal, it is not apparent to me that he has any standing to apply for such an order himself. I would have thought that the application would more properly be made by the persons (or some of them) who made the application for the 2010 Order. That Mr Rubin’s standing to make the application is doubtful is illustrated if one considers the position were all those original applicants to be against an appeal. Why, one might ask, should Mr Rubin be able to make an application when no-one with a commercial interest in the outcome wants an appeal to proceed?

These are all matters for another day in relation to which all those involved must give serious thought about the correct procedural way forward. So far as the application before me is concerned, I decline to extend Mr Rubin’s powers. An extension is not necessary unless the A&M Receivers and Managers fail to consider, or to authorise the directors to consider, whether an appeal or an application for further permission to appeal should be made.

As a matter of construction of the 2012 Order, Mr Rubin has no power to pursue an appeal from the orders made by Teare J in the main action or to bring contribution proceedings.

I refuse Mr Rubin’s application for an extension of his powers to enable him to pursue such an appeal and similarly I refuse the application so far as it relates to bringing contribution proceedings.

I will consider a further extension of the time for appealing and bringing an application for permission to appeal if requested.