Alliance Bank JSC v Aquanta Corporation & Ors

This has been the hearing of a series of applications, arising out of the grant ex parte by Teare J on 5 April 2011, in favour of the Claimant, Alliance Bank JSC, a large Kazakhstan bank, against a number of Defendants, primarily three brothers, the Sixth, Seventh and Eighth Defendants (collectively referred to as “the Brothers”), of permission to serve proceedings out of the jurisdiction and of a worldwide freezing order. The ex parte order has been continued over this hearing, and a number of Defendants have appeared to set it aside. The Fifth Defendant originally so applied, but has not pursued its application, which must fall away, while the Tenth, Eleventh, Thirteenth and Fifteenth Defendants (“the Inactive Defendants”) have not entered an appearance and taken no part in this challenge, and the Twelve and Fourteenth Defendants have not been served. Accordingly, the parties in the hearing, which lasted ten days, have been:

The applications have been as follows:

The conspiracy which the Claimant alleges (with the concomitant or alternative causes of action referred to above) arises out of the alleged control by the Brothers of the Claimant until 2009, when it was effectively nationalised by the acquisition by a state-owned company, Samruk-Kazyna, of the entire issued share capital of the Claimant bank, including the majority, and controlling, shareholding previously held by the Ninth Defendant, the Brothers’ company, as referred to above. The Claimant alleges that it was deprived, by virtue of the conspiracy to which all the Defendants were party, of US$ 1.1bn, extracted from the Claimant in the following way.

Between November 2005 and April 2008 it is alleged that the Claimant was caused by the conspirators to acquire US Treasury Notes called STRIPS, in a total value over the period of US$ 1.1bn, and that, without the knowledge of the balance of the Claimant’s Board, they caused such STRIPS to be charged or pledged to two Cypriot banks as security for loans made by those banks to the Offshore Companies, thus enabling US$ 1.1bn loaned by such banks to the Offshore Companies against such security, to be used, as the Claimant alleges, by and for the benefit of the Brothers.

The first series of loans (the “Reachcom loans”) was made to the Third and Fourth Defendants by a Cypriot bank (Reachcom Public Ltd (“Reachcom”)), a subsidiary of a Russian bank (Renaissance Capital (“Renaissance”)). There were in each case Loan Agreements entered into by the Third or Fourth Defendants with Reachcom. The Loan Agreements each provided that they were governed by English law (Clause 25). There was then a provision for arbitration (Clause 26) by a QC in London, but, by Clause 26.4 and Clause 27, there is an option for the Lender to give notice for any dispute to be tried by a court of law: by Clause 27 there was a provision (27.1) for exclusive jurisdiction of the English courts, save that, by Clause 27.3, the Lender had the right to take proceedings in any other court with jurisdiction, and there was, in Clause 27.2, what I called in Deutsche Bank AG v Sebastian Holdings Inc [2010] 1 AER (Comm) 808 an ‘FNC Waiver Clause’, providing that “the parties agree that the courts of England are the most appropriate and convenient courts to settle Disputes between them and, accordingly, that they will not argue to the contrary”.

The Loans were thus made by Reachcom to the Third and/or Fourth Defendants. The Claimant guaranteed repayment by a Deed of Guarantee and Charge, which was also governed by English law (Clause 17.1) and had a similar provision for London arbitration, but with a ‘litigation option’ for the Lender, and also exclusive jurisdiction (but with the exemption for the Lender) and an FNC Waiver Clause, in respect of the courts of England. The STRIPS were charged to secure payment under the Guarantee by a Schedule to the Deed.

There were similar arrangements (to which I shall return) in respect of loans by another Cypriot bank (Metropol Cyprus Ltd (“Metropol”)), again a subsidiary of a Russian bank, called Metropol, made to the First and/or Second Defendants. The loans were guaranteed by the Claimant by Guarantees, again subject to English law, which were subject to LCIA Arbitration, with no litigation option, and again the Claimant’s liability under the Guarantees was secured by the STRIPS.

No reference was made in the Claimant’s accounts, audited by Deloittes, to the fact that the asset of US$ 1.1bn worth of STRIPS was 100% encumbered. The case for the Claimant is that this was simply a way of extracting US$ 1.1bn from the Claimant, and that there was never an intention – nor any capability – of the Offshore Companies to repay the loans to the banks. The monies received by the Offshore Companies from the banks were paid out through circuitous routes to or via other offshore companies, owned by one or more of the Brothers or a member of their family, and much of it found its way back to the Ninth Defendant in Kazakhstan: it appears that more than US$ 600m was used to acquire more shares for the Ninth Defendant in the Claimant bank, some of which were sold in an IPO in London in 2007.

The Claimant consequently submits that this was a dishonest scheme, relying upon the following:

The STRIPS worth US$ 1.1bn were lost to the Claimant when each of Reachcom and Metropol executed against them in respect of the monies due from the Offshore Companies, on the basis of their default. Metropol appears to have appropriated their security in February 2009 and Reachcom in April 2009, shortly after Samruk-Kazyna had taken control of the majority shareholding in and management of the Claimant, and had appointed Mr Kabashev as Chairman of the Management Board.

The Claimant, in April 2009, instigated a criminal investigation in Kazakhstan by writing to the General Prosecutor. The Sixth Defendant left Kazakhstan in July 2009; he says this was originally for a holiday, but he did not return for 16 months. The Seventh and Eighth Defendants were subsequently described by the General Prosecutor as having “absconded” from Kazakhstan in October 2009. The Sixth Defendant was charged in the Kazakh criminal investigation in October 2009 with (inter alia) embezzlement, a charge subsequently abandoned and reduced to the charge, contrary to Article 220 of the Criminal Code of the Republic of Kazakhstan, of the “illegal use of monies through the issue of ungrounded guarantees”. The Claimant was declared a ‘victim’ in the Kazakh criminal proceedings in December 2009, and petitioned subsequently to be declared a ‘civil claimant’ in the criminal proceedings. As is common in civil jurisdictions, this enabled the Claimant to annex a civil claim to the criminal proceedings brought by the prosecutor, and, in this case, was pursuant to Articles 77 and 162 of the Criminal Code, whereby an entity can be joined “in respect of whom there are sufficient grounds to consider that he/she has suffered property damage, crime and who claims for repayment of this damage”. The Sixth Defendant returned to Kazakhstan in October 2010 voluntarily by arrangement with the prosecuting authorities, and a trial began in January 2011.

These proceedings were issued and the application made to Teare J on 5 April 2011 while the criminal proceedings were continuing in Kazakhstan. The criminal trial in Kazakhstan concluded in July 2011 with the conviction of the Sixth Defendant and also of the Eleventh and Thirteenth Defendants. Relevant extracts from the judgment of the Medeusky District Court of Almaty are as follows:

“Thus in 2005 [the Sixth Defendant] as a major shareholder of the Bank having the authority to manage the Bank and sufficient practical skills and management experience in major business and banking activities wilfully violating the corporate management principles of the Bank and capable of effecting decisions made by the Bank, including regarding issues of guarantees, planned to unlawfully use the Bank’s cash funds by issuing unreasonable warranties to brokerage companies for obligations of offshore companies-non residents of the Republic of Kazakhstan … Acting upon [the Sixth Defendant’s] instructions, based on authorisations to perform transactions signed by [the Tenth Defendant] … [the Claimant] purchased US Treasury Securities … in the international stock market through [Renaissance] … [The Eleventh Defendant] … acting on behalf of the crime initiator [the Sixth Defendant] … signed a Guarantee Letter … Thus [the Eleventh Defendant] unlawfully without decisions of the Committee of Directors and the Credit Committee of the Bank granted unreasonable warranties of the Bank to Reachcom … for obligations of Offshore companies [the Third and Fourth Defendants] not related to the Bank.”

The same is alleged in respect of continuing transactions with Reachcom and Metropol, and the Court’s conclusion is:

“On April 30 and May 31 2009, as a result of unlawful actions of [the Sixth, Eleventh, Thirteenth Defendants etc] due to the issue of unreasonable bank guarantees for obligations of [the Offshore Companies] due to failure by the latter to repay their loans to non-resident banking companies, due to misleading reporting regarding the Bank’s economic and financial activities, US Treasury Securities for 1,101,442,928 US dollars … were written off from the Bank’s accounts to Reachcom … and Metropol … inflicting material damage to the Bank.”

The decision of the Court was to find the Sixth Defendant guilty of committing the crimes stipulated by Article 220 part I of the Criminal Code, to give him a 2-year suspended sentence, coupled with a fine and deprivation of the right to conduct banking activity for the term of two years, and, as to the civil claim of the Claimant, the Court ordered the Sixth Defendant to pay the full amount in a quantified sum of Tenge (the Kazakh currency).

The Sixth Defendant appealed the finding in the civil claim to the Court of Appeal of the Almaty City Court. He did not at that stage appeal the criminal conviction, but there is, it seems, an alternative route by way of ‘supervisory appeal’, for which there is no time limit, and he does intend to appeal in due course. The Claimant appealed the sentence, which appeal the Court of Appeal dismissed. As to the Sixth Defendant’s appeal, the Court of Appeal decided that it would allow the appeal to the extent of directing that the Claimant must establish its loss in the civil courts: it seems to me that there is a close analogy with a decision by a Crown Court in which a compensation order is sought by a victim at the end of a criminal trial, and the matter is concluded to be too complex for decision by the criminal court and the complainant is left to sue in the civil courts. Two main reasons are given by the court: that they concluded that there may be others who may also be responsible under joint liability in respect of the loss, and that the Claimant has not established the quantum of its loss, and it recorded, in its judgment, some of the explanations put forward by the Sixth Defendant in that regard:

“By verdict of the [lower] court … [the Sixth Defendant] … unlawfully used the bank’s monetary funds to grant patently unrecoverable loans … in violation of legal requirements, without collateral guarantees, and in the face of known risks of non-recovery of the Bank’s monetary funds, initiated the granting of loans in the multi-billions … The court was correct in qualifying the actions by [the Sixth, Eleventh and Fourteenth Defendants] in this case as crimes under Article 220(1) Criminal Code that involved using the bank’s own and borrowed funds to grant patently unrecoverable loans and unjustifiably issued guarantees from the bank, causing large scale losses …

While the liability for damages of convicts [Sixth, Eleventh and Fourteenth Defendants …] is not in dispute, according to the verdict the injured party [the Claimant] is entitled to name as co-defendant in civil proceedings other persons implicated in the crime, in relation to whom the criminal case was severed …

Furthermore, in determining the amount of damage, it must be taken into account that the loan funds received from [the Offshore Companies] were used to increase the share capital of [the Claimant], the funds with which [the Ninth Defendant] and companies affiliated with the Holding Company [the Ninth Defendant] bought US$ 383,512,961 worth of [the Claimant’s] depositary receipts on the London Stock Exchange and US$ 100 million of worth of [the Claimant’s] bonds; the US$ 135 million in funds that [the Ninth Defendant] used to buy the bad debts of [the Claimant], and profits in the amount of US$ 1.385 billion were left by the shareholders for the bank’s development …

In light of the need to adjust both the amount of damage caused to the injured party and the amount of recoverable claims, given the joint liability of all persons, in addition to the convicts, who were responsible for causing the damage, [the Claimant’s] right to the granting of its claim in civil proceedings must be recognised.

RULED

… To set aside the verdict with respect to allowing the civil claim for … collection … from convict [the Sixth Defendant] …; to recognise the right of [the Claimant] to the granting of its claims; and to leave the matter of determining the amount to be collected from the guilty parties to the discretion of the court by way of civil proceedings. ”

The Claimant has sought permission to appeal this decision to the Supreme Court.

The Claimant wishes to continue these proceedings in the Commercial Court, and is willing to undertake not to issue the fresh civil proceedings in Kazakhstan, which it is permitted to do as a result of the Court of Appeal’s decision, for as long as these proceedings are in existence. The Claimant is also willing (if I require it) to undertake not to pursue its appeal to the Supreme Court in Kazakhstan against the setting aside of its civil judgment in the criminal proceedings. They do not rely on the conviction of the Sixth Defendant by way of any estoppel, but, at this stage, as rebutting any case that there is no serious issue to be tried as to the existence of the unlawful acts alleged in these proceedings.

The passage which most resonates now with a court considering the first of the three requirements laid down by Seaconsar Far East Ltd v Bank of Markazi Jomhouri Islami Iran [1994] 1 AC 438 is that in paragraph 71 of the judgment of Lord Collins in AK Investment CJFC v Kyrgyz Mobil Tel Ltd [2011] UKPC 7, namely that “the claimant must satisfy the court that in relation to the foreign defendant there is a serious issue to be tried on the merits, i.e. a substantial question of fact or law, or both. The current practice in England is that this is the same test as for summary judgment, namely that there is a real (as opposed to a fanciful) prospect of success”. This is thus the test which a defendant or respondent to a Part 24 application must satisfy. I turn to address the causes of action relied upon.

The Claimant has, by virtue of its STRIPS in a total value of US$ 1.1bn being taken from it to pay off the indebtedness to Reachcom and Metropol, paid off the Lender’s claims under the Loan Agreements. It accordingly claims entitlement, by virtue of the doctrine of subrogation, to enforce the Loan Agreements against the parties to those Agreements.

The Claimant asserts that, by virtue of the application of the alter ego principle, it is entitled to establish that the Offshore Companies were the ‘puppets’ of the ‘puppeteers’, the Sixth, Seventh and Eighth Defendants, and that the puppeteers are parties to the Loan Agreement into which they caused the Offshore Companies to enter. They rely on the following case as sufficient to justify such lifting of the corporate veil.

The Claimant relies upon my decision in Antonio Gramsci Shipping Corporation v Stepanovs [2011] 1 Lloyd’s Law Rep 647 and the jurisprudence there referred to and summarised. Gramsci was not doubted by Flaux J in his decision in Linsen International Ltd v Humpuss Sea Transport Pte Ltd [2011] EWHC 2339 (Comm), but, in a recent decision, delivered after the conclusion of the hearing before me, on 29 November, in VTB Capital plc v Nutritek International Corp [2011] EWHC 3107 (Ch), Arnold J declined to follow it. I have no doubt nevertheless that, for the reasons I gave in Gramsci, there is a serious issue of fact and law as to whether, in the circumstances described by me above, the Sixth, Seventh and Eighth Defendants are to be treated as being parties to the Loan Agreements, as I found arguable in the case of the defendant and the interposed chartering companies in Gramsci. I also am satisfied that, as I concluded in Gramsci, the question of whether the veil should be pierced in such a situation, so as to decide whether the puppeteers are parties to the contract, is to be resolved, just as would be issues of agency, undisclosed or otherwise, by reference to the proper law of the contract (see paragraph 46 of Gramsci). In this case, the proper law of the Loan Agreements is expressly English law, as set out in paragraph 5 above in relation to the Reachcom Loan Agreements, and as will be discussed further in relation to the Metropol Loan Agreements referred to in paragraph 7 above.

The basis upon which the Claimant asserts that it is entitled to enforce the Loan Agreements is by reference to the doctrine of subrogation. Until recently, subrogation has simply constituted a chapter, or even a section within a chapter, in the leading books on restitution, Goff & JonesonThe Law of Restitution and BirksIntroduction to the Law of Restitution. However, since 2007, there has been a textbook dedicated to it by Charles Mitchell and Stephen Watterson (who I now note to be the editors of the next edition of Goff & Jones, presently advertised) entitled Subrogation: Law and Practice, and both parties have taken me to various passages. I mean no disrespect to the authors if I say that the law, or at any rate the organisation of the various aspects of law and practice which have been remarkably gathered together into this book, cannot yet be regarded as wholly clear or settled. What I can be personally grateful for is the clear explanation by the authors that there are two specific types of subrogation: Extinguished Rights Subrogation which, in the only other case in which (though seemingly without accreditation to the authors), subrogation has been considered in this way, Syed Azman bin Syed Ibrahim v Barclays Bank plc [2011] EWHC 1897 (Ch), was described by Vos J as “type 1 subrogation” (at paragraph 7), and Subsisting Rights Subrogation, which Vos J called “type 2 subrogation”. As Vos J described, and as Mitchell and Watterson explain in paragraphs 1.04-1.08 of their book, in relation to the first type the creditor has been paid in full by the party seeking to be subrogated (described by the authors as a “subrogated claimant”) and the subrogated claimant then seeks to ‘stand in the original creditor’s shoes’. As Mitchell and Watterson describe in paragraph 1.05:

“1.05

The first situation arises when a defendant owes an obligation to a creditor, for example because he is contractually bound to pay him money, or has committed a tort against him, or has been unjustly enriched at his expense. A claimant then pays the creditor in respect of the defendant’s obligation; or else another party – perhaps the defendant himself – pays the creditor using the claimant’s money. As a result of this payment, the defendant’s obligation is discharged, and the creditor’s corresponding rights are extinguished. In these circumstances, the claimant may then have a direct claim against the defendant, either because the defendant has previously agreed to indemnify him for his expenditure, or else because the defendant is unjustly enriched at his expense. The claimant may also have a subrogation claim – i.e. he may be entitled to supplement his direct claim by asserting the right to be treated, by a legal fiction, as though the creditor’s rights were not extinguished by the payment, but were transferred to the claimant so that he could enforce them for his own benefit. By this means the claimant is given new rights which replicate the creditor’s extinguished rights.”

The second type of subrogation is Subsisting Rights Subrogation, mainly illustrated by the law of indemnity insurance. In such a case, the subrogated claimant may pay off the creditor in respect of the defendant’s obligation, but the defendant’s obligation is not discharged, and the creditor’s rights subsist, such as when an indemnity insurer pays its insured in respect of an insured loss which has been caused by a defendant’s tort. The grant of such a subrogation right is necessary, as Mitchell and Watterson describe in paragraph 1.07, “in order to prevent the double enrichment of the creditor that would follow, were the creditor to sue the defendant after having received the claimant’s payment, and also to prevent the enrichment of the defendant that would alternatively follow, were the creditors to forbear from suing him and thereby exonerate him from liability.”

In the case of Subsisting Rights Subrogation, it is necessary for the subrogated claimant to sue in the name of the original debtor (as would ordinarily be the case in indemnity insurance, where there would be a clause to that effect in the insurance) or to join the original debtor as a party to the proceedings. Examples of such a case are Smith v Mainwaring [1986] 2 Lloyd’s Law Rep 244 and Esso Petroleum Co Ltd v Hall Russell & Co Ltd [1989] 1 AC 643, where, in each case, the claim failed for lack of such joinder. In an Extinguished Rights claim, the subrogated claimant is pursuing its own rights (the original creditor’s rights being extinguished because the debtor’s obligation to it has been discharged in full) and is therefore permitted to sue in its own name and without joinder of the original debtor: examples of such cases are Banque Financière de la Cité SA v Parc (Battersea) Ltd [1999] 1 AC 221, Niru Battery Manufacturing Co v Milestone Trading Ltd (No 2) [2003] 2 AER (Comm) 365 and Filby v Mortgage Express (No 2) Ltd [2004] EWCA Civ 759.

Mr Slade QC bore the burden of the argument on behalf of the Defendants with regard to this issue, and I was greatly assisted both by his analysis and that of Mr MacLean. It is clear that Extinguished Rights Subrogation does not arise in every case where there has been unjust enrichment by virtue of a third party paying off a debtor’s obligation to a creditor, but it seems apparent that there are two situations in which a subrogated claimant may make such a claim:

In this case there is challenge by Mr Slade to the entitlement of the Claimant under both or either of these:

Mr MacLean submits that, at least at the serious issue stage, his case can be accepted on the basis that he has not, in fact, elected i.e. neither approbated nor reprobated, but it is simply that the victim of the fraud is keeping its options open in order to achieve recovery either against the Defendants or against the Lenders. As at this stage, the Lenders have exercised their remedy and rights under the Guarantees, which have been satisfied: it would only be if the Guarantees were set aside, and the monies were repaid, that the rights of the Lenders against the Offshore Companies, which have presently been extinguished, would be revived, which has not yet occurred. In any event, the actual decision in Pitman v Crum Ewing does not of itself apply because the Claimant is not both accepting and rejecting the same instrument, but it is making a claim under the Loan Agreements, and has made no challenge to their validity.

I am satisfied that the Claimant has a good arguable case, certainly that there is a serious issue to be tried, that it is entitled to pursue its subrogated claim under the Reachcom Loan Agreement: that it has not made an election against relying on the Loan Agreements by its conduct, described in paragraph 25 above, and that it is entitled to pursue its claim on the alternative bases of compulsion or authorisation/ratification: and that, as of now, the Lender’s rights have been extinguished, and that it is entitled to stand in its shoes in enforcing the Loan Agreements.

This is sufficient to establish a serious issue to be tried, as between the Claimant and the Third and Fourth Defendants, and hence the Sixth, Seventh and Eighth Defendants, as set out in paragraph 20 above, by reference to the Reachcom Loan Agreements that I have described in paragraph 5 above. The Claimant is entitled to exercise in its own name the Lender’s rights, including the rights to the exclusive jurisdiction of the English courts, and the application by the Third and Fourth Defendants for a stay pending arbitration must, for that reason, fail. However, the issue is different in relation to the First and Second Defendants. In paragraph 7 above, I referred to the fact that the arrangements with the First and Second Defendants with regard to the Metropol Loan appeared to be similar, and the Guarantees, although not in exactly the same terms as the Reachcom Guarantees, have been enforced against the Claimant, as above described. However, when the Claimant began these proceedings in April 2011, whereas it had copies of the Reachcom documentation, and had been supplied in May 2009 by Metropol with copies of the Metropol Guarantees, it did not have copies of the Metropol Loan Agreements.

There is disputed evidence as to whether Metropol refused to supply copies of the Loan Agreements to the Claimant in 2009. The correspondence only supports the proposition that Metropol was asking for payment, but Mr Kabashev has deposed to a refusal, and it is certainly the case that Mr Gil, the present sole director of the First and Second Defendant companies, records in his affidavit that “Metropol have been obstructive and reluctant to provide information”. The solicitors for the First and Second Defendants have, however, managed to obtain from Metropol copies of what purport to be loan agreements, as supported by the previously supplied Guarantees, although it is understandable that, when Mr Foggo of the First and Second Defendants’ solicitors produced them, he expressly confirmed (in paragraph 16 of his witness statement) that “it has not been possible … to verify that the Loan Agreements are all genuine, valid and enforceable.”

The loan agreements that have been produced purport not to evidence loans of money by Metropol to the First and Second Defendants, but loans of the STRIPS. As Mr MacLean forcibly points out, this does not make of itself any commercial sense. The STRIPS were acquired by the Claimant, and were held by Metropol in its custody account until removed, upon execution of the Guarantees, on 2 February 2009, as appears from Metropol’s letter to the Claimant dated 29 May 2009. In his open letter to the newspapers of 11 August 2009, sent from holiday, and setting out a case in answer to the criminal investigation which by then had begun, the Sixth Defendant describes the fact that there were loans received from the Russian banks, and how he said that he became aware of the Guarantees, issued by the Claimant in favour of the Russian banks, in 2008, and realised that, in the circumstances, it would be impossible to repay the loan.

In evidence before the first instance court in Kazakhstan, which is recorded in its judgment, a Ms M S Koval of Metropol described how, in early 2007, the First and Second Defendants made a request to Metropol “to provide them with loan against guarantees of [the Claimant]”, and her evidence continues “as far as she knows [the First and Second Defendants] did not repay the principal debt and did not pay interest on loan agreements”.

Nevertheless the loan agreements that have been produced purport to record that Metropol is to grant to the Borrower (the First or Second Defendants) a loan of identified US Treasury Bonds “andthe Borrower shall return the securities … within the term and under other conditions stated by the present Agreement” – securities which belonged to the Claimant and which were retained in the custody account of Metropol. Whereas the provision for interest in the Reachcom Loan Agreements varies, it is in the area of 8% per annum; the interest provision in the Metropol loan agreements supplied is for 0.1% of the total face value of the STRIPS. Notwithstanding, therefore, the production of these Loan Agreements, Mr MacLean submits that there are and must be Loan Agreements regulating the actual loan of the monies for which the STRIPS stood as security. The significance for the Claimant is that the Loan Agreements which have been produced, although said to be governed by English law (Clause 8.2), have a provision for arbitration (in Clause 8.3) in accordance with the ICC Rules or UNCITRAL/LCIA Rules before an arbitrator in London, and there is no provision for the jurisdiction, exclusive or otherwise, of the English courts.

At the time when the application was made before Teare J, when the Claimant did not have any loan agreements from Metropol, the case it made was that it was to be inferred that the Metropol loan agreements were in the same form as the Reachcom Loan Agreements, thus containing the same clauses. If that is right, then there is the same case to be made for a subrogated claim pursuant to the Metropol loan agreements against the First and Second Defendants, and, on the same basis as above, against the Sixth, Seventh and Eighth Defendants, not caught by any arbitration clause, and subject to the exclusive jurisdiction of this Court. There are however now before the Court the Metropol loan agreements, to which I have referred, and, not surprisingly, the First and Second Defendants pursue their application for a stay pending arbitration against any subrogated claim made pursuant to them. Mr MacLean submits, effectively as he did before Teare J, that there are, and must be, missing Agreements governing the actual loans of the moneys (as referred to in paragraphs 30 and 31 above), and that he is entitled to infer, at least for the purpose of establishing a serious issue to be tried, that those missing agreements are on the same terms as the Reachcom Agreements. This is not a case that the loan agreements that we have are forged, but that they do not give a complete picture, and in particular are not the loan agreements that govern the loan of the monies which led to the execution under the Guarantees against the STRIPS, which stood as security under the Metropol Guarantees, in the same way as the Reachcom Guarantees.

I can sympathise with Mr MacLean’s case that the loan agreements that are before us appear odd and not to fit the actual commercial transaction which took place. However, I do not conclude that he has, at this stage, a serious issue to be tried that there are in existence Metropol Loan Agreements which have not been produced and which contain, in addition to an English law clause, the same English jurisdiction clauses as are contained in the Reachcom Loan Agreements. I can understand his case that the fraudulent scheme is likely to have been operated in the same way throughout, but Metropol is a different party from Reachcom, and it may be that its documentation would not have been identical. In any event, given that the Claimant’s case is that the whole scheme is suspect, it is not necessarily apt to conclude that the paperwork would have accorded with what would be expected from a normal commercial transaction. It may be that the monies were loaned without separate written documentation: alternatively there may have been some other written documentation which was in different terms from the Reachcom Loan Agreements.

I accordingly conclude that the Claimant does not have a sufficiently arguable case by way of a subrogated claim in respect of Loan Agreements in the same form as the Reachcom Loan Agreements but in which Metropol were the Lenders. Mr MacLean does not seek to make a subrogated claim under the Loan Agreements that are before the Court. Accordingly I am satisfied on the one hand that he has no subrogated claim, and that, on the other hand, there is no call for a stay in favour of the First and Second Defendants, as there is no claim being made by the Claimant under the Loan Agreements in which the arbitration clause appears.

Each of the Defendants’ Counsel, but particularly Mr Morgan and Mr Matovu, submitted that there was not a sufficient case pleaded against their clients for the purposes of the English tort of conspiracy, whether it be conspiracy by unlawful acts or conspiracy to injure: alternatively that the evidence upon which the Claimant relies is hearsay or insufficiently sourced. I am satisfied, not least by reference to what I have set out above, that there is a good arguable case, and at the very least a serious issue to be tried, as to the existence at English law of such a conspiracy between 2005 and 2008, and that all the Defendants were parties to it, albeit that the First and Second Defendants would have joined it later.

In order to decide what the proper law of the tort is, the first question is, as always in recent times, whether the issue is governed by the Private International Law (Miscellaneous Provisions) Act 1995 (“the 1995 Act”) or by Regulation (EC) No 864/2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations (“Rome II”). The recent decision of the European Court in Deo Antoine Homawoo v GMF Assurances SA [Case C-412/10] is very concise. It concludes that a national court is required to “apply the Regulation only to events giving rise to damage occurring after 11 January 2009”. But this of course does not help as to whether the date is the date when the damage is caused or whether it is the date of the event which subsequently, possibly years later, caused the damage, and if so how the court is to assess which event is the relevant one. In this case it could be said that the damage was caused when the Claimant was caused to enter into the “ungrounded” Guarantees, or when the STRIPS were lost, in February and April 2009: This will be the crucial question, on the assumption that the European Court decision should be read as relating to “damage occurring after 11 January 2009”. Alternatively, if the issue is to be construed as relating to “events (giving rise to damage) occurring after 11 January 2009”, then the question would concentrate on when those events occurred, and which event or events were primarily causative.

My judgment would be that the former question may be the more appropriate, given that Articles 4(1) and (2) of Rome II direct the question normally to the “law of the country in which the damage occurs”, or, where the claimant and defendant both have habitual residence in the same country, “at the time when the damage occurs”, then that law. However:

This not only leaves open the questions which are, in any event, permitted by Article 4 – i.e. consideration of Article 4(3) – but also the question that the 1995 Act might still apply if it were concluded that what is significant is the date of the event which caused the damage, and, in this case, that would appear to have antedated 11 January 2009. This is an issue which will, subject only to the issues raised in paragraph 38(ii) above, slowly evaporate with time, but, for the moment, there is no guidance, and parties in cases such as these will have to look, as we have done, both at the 1995 Act and at Rome II. In any event, the Defendants assert that the significant events occurred in Kazakhstan, by way of the establishment of the scheme and/or by way of the alleged loss to the Bank. The Claimant submits that the significant law is the proper law of the mechanics of the scheme, which, in each case, was English law, by virtue of the fact that the mechanism by which the totality of the US$ 1.1bn was extracted from the Claimant was, in every case, by reference to the English law Guarantees and Loan Agreements.

Thus the rival contentions would be:

It seems clear to me that I cannot decide this question without a full understanding of the facts. At the moment, I would regard it as likely that Cyprus law is the same as English law, and, in any event, am safe in adopting the presumption (which I could not adopt in relation to Kazakh law because I am told, as was Teare J, that there is no law of conspiracy in Kazakh law) that Cyprus law is the same as English law so far as the common law of conspiracy is concerned (see Dicey, Morris& Collins The Conflict of Laws (14^th Ed) 9-025 and supplement), but even without the alternative candidacy of Cyprus law, I would regard it as a serious issue to be tried as to whether English law is the proper law of the tortious acts alleged. However, in the course of the hearing, and by reference to the expert evidence already filed by the Claimant by Mrs Violetta Kim, a former judge of the Supreme Court of Kazakhstan (in this regard not, in my judgment, affected at all by the expert evidence of Professor Butler filed on behalf of the Sixth Defendant), Mr MacLean made an application to amend his Particulars of Claim so as to advance an alternative case on the basis that the facts alleged against the Defendants would found a case under Article 917 of the Civil Code, together with Article 932, which establishes, or clarifies, the existence of joint liability. An issue is raised by Ms Foskett on behalf of the Ninth Defendant as to whether, at Kazakh law, the knowledge of the Sixth, Seventh, Eighth, Tenth, Eleventh, Twelve and Fourteenth Defendants, who were all at various times controlling shareholders and/or managers of the company, can be imputed to it, but I am satisfied, not least by the fact that the Ninth Defendant received a substantial quantity of the proceeds of the alleged fraudulent scheme, that the case is at least arguable as against the Ninth Defendant also.

There have been two recent helpful authorities in respect of the proper law to apply in this regard, the decision of Christopher Clarke J in OJSC Oil Company Yugraneft v Abramovich [2008] EWHC 2613 (Comm) and that of Andrew Smith J in Fiona Trust and Holding Corporation v Privalov [2010] EWHC 3199 (Comm). So far as dishonest assistance is concerned, Christopher Clarke J concluded that, by reference to the 1995 Act (and consequently, in my judgment, to Rome II), a claim in dishonest assistance was a tort. As for knowing receipt and unjust enrichment, he followed the guidance of Rule 230 of Dicey & Morris (though not inflexibly) (see paragraphs 239 and 246-7 of his judgment), as did Andrew Smith J at paragraph 162 of Fiona Trust. Applying this guidance, I would reach the same conclusion in relation to the tortious test of dishonest assistance as I have in relation to conspiracy, namely that there is a serious issue to be tried as to whether the proper law of such tort is English law for the reasons I have set out above: alternatively there is again, by an amended pleading, reliance placed, by reference to the same facts, on Kazakh law, and Articles 953, 955 and 956 of the Civil Code, again persuasively explained by Mrs Kim as establishing an equivalent claim (and remedies) for unjust enrichment.

So far as concerns knowing receipt and unjust enrichment itself, I conclude that, at English law, there is a sufficiently arguable case that the proper law is to be decided by reference (see Dicey & Morris Rule 230(2)(a)) to the obligation to restore the benefit of the enrichment arising “in connection with a contract”: although Mr Morgan would rely, as referred to above, upon the contract or relationship between (at any rate) the Sixth Defendant and the Claimant, I would conclude that there is a serious issue as to whether the connection is not rather with the contracts, all governed by English law, by reference to which the enrichment arose. A similar choice and provisional conclusion would arise by reference to Article 10 of Rome II Unjust Enrichment. Alternatively, if Kazakh law arises, then I am satisfied that the Claimant’s case can be put just as well in Kazakh law by reference to the Articles of the Civil Code referred to above.

There is additionally, in the pleading, a trust claim. This does not lead to a claim for breach of fiduciary duty, but to a tracing claim in support of the claim for restitution. Insofar as there is an assertion of breach of fiduciary duty owed to the Claimant by the individual, whereas Mr Morgan is plainly right that that must be a matter of Kazakh law, I am again satisfied, by reference to Mrs Kim, that Article 62 of the Civil Code imposes very similar, if not identical, obligations upon those in the individual Defendants’ position and, as is pointed out in Dicey & Morris (paragraph 34-049), it is not significant as to whether the foreign law recognises the principles of constructive trusteeship: “The appropriate analysis is to ask whether, under the lex causae, the defendant owes obligations which would impose on him under that law a liability to disgorge a benefit. If so, an English court may hold him liable as a constructive trustee when giving remedial effect to the substantive right arising under the lex causae”. Article 953 and, in particular, Articles 955 and 956 are just such provisions.

I am therefore satisfied that, save in respect of the subrogated claim under the Loan Agreements with the First and Second Defendants, there is a serious issue to be tried in respect of all the causes of action relied upon by the Claimant, including the alternative causes of action under the Kazakh Civil Code pleaded by way of proposed amendment.

As I have set out above, the Third Defendant was served in accordance with the contractual provisions in the Reachcom Loan Agreements, and is consequently duly served in respect of the subrogated claim under those Loan Agreements by the Claimant. As Mr MacLean accepted during the course of argument at the hearing, that does not however permit him to pursue proceedings against the Third Defendant in respect of any other causes of action. The reason why the Claimant can exercise the contractual right under Clause 27.4 in respect of service of process is that the Claimant is exercising the rights of the Lender, save that they have, by the legal fiction referred to in paragraph 21 above, become the Claimant’s rights under the contract as if by assignment. But whereas the Lender might have been able to bring within that clause other claims which the Lender itself might have had in connection with the Loan Agreements, such as for example for a tortious claim said to have caused it loss, the claims which the Claimant is making against the Third Defendant, conspiracy to cause it loss, dishonest assistance etc, are not claims which the Lender could have made and are not in respect of losses suffered by the Lender or subrogated to the Claimant. Consequently the Claimant, at the conclusion of the hearing, made the application to which I have referred in paragraph 2(iii) above, to be dealt with inter partes. The inactive Defendants do not have live challenges to the jurisdiction, so that the issue as to the existence of a gateway under CPR Part 6 must be considered in respect of the subrogated claim (Fourth, Sixth, Seventh and Eighth Defendants) and, with regard to all active Defendants, the conspiracy, dishonest assistance, unjust enrichment and knowing receipt claims with the tracing consequences.

The test for the gateway is, as again recited by Lord Collins in the passage in AK Investment, referred to in paragraph 17 above, that the “claimant must satisfy the court that there is a good arguable case, that the claim falls within one or more classes of case in which permission to serve out may be given: in this context “good arguable case” connotes that one side has a much better argument than the other”. As has been repeatedly emphasised, this does not of course mean that the Claimant must succeed on the balance of probabilities – that would be a matter for trial. Although it can still not be seen who is going to succeed, the Claimant must show that, in respect of the foundation of the claim, being its survival through the gateway, it has a much better argument than the Defendant.

Hamblen J has pointed out in Cecil v Bayat [2010] EWHC 641 (Comm) that there will be occasions when “an ingredient for a cause of action is also part of what has to be established for jurisdictional purposes” (paragraph 19 of his judgment). What I take this to mean is that there may be occasions in which the court has to revisit for the purpose of a good arguable case what it has already considered amounts to a serious issue to be tried. That may in principle be right, but I find it very difficult to foresee a situation in which a judge would conclude, in relation to a particular argument, that it is good enough to be a serious issue to be tried but not good enough to be a good arguable case.

I am satisfied, for the same reasons that I have concluded in paragraphs 27 and 38 above, that the Claimant has a good arguable case that it is entitled to bring a subrogated claim against the Third, Fourth, Sixth, Seventh and Eighth Defendants pursuant to the Reachcom Agreements, which were governed by English law and subject to the exclusive jurisdiction of the English courts. In those circumstances I am satisfied that, with regard to those claims, the requirement for the gateway under 6B PD 3.1(6)(c) and (d) is satisfied.

With regard to the remainder of the claims, it has been now on a number of occasions made clear, since Albon v Naza Motor Trading [2007] EWHC 327 (Ch) (per Lightman J) that the claim, in respect of which service out is sought, does not have to be a claim to enforce a contract, or even a claim by a party to the contract. The words “a claim is made in respect of a contract” are very wide. Thus, in Cecil v Bayat, Hamblen J concluded that a conspiracy claim before him was such a claim. Teare J stated, in Greene Wood & McLean v Templeton Insurance Ltd [2008] EWHC 1593 (Comm) that “some connections will be more remote than others. But the fact that a connection is remote will not … prevent the claim from being “in respect of a contract”, though the remoteness of the connection will no doubt be a factor to bear in mind when the court considers whether England and Wales is the “proper place” in which to bring the claim”. I conclude that the gateway requirement under 6B PD 3.1(6)(c) and (d) is satisfied in this regard also. There is a good arguable case that the claims made by the Claimant both have merit (insofar as that is required by reference to the words of Hamblen J) and are within the gateway.

If necessary, the Claimant relies upon the gateway in 6B PD 3.1(3), namely:

“A claim is made against a person (“the defendant”) on whom the claim form has been or will be served (otherwise than in reliance on this paragraph) and –

(a)

there is between the claimant and the defendant a real issue which it is reasonable for the courts to try; and

(b)

the claimant wishes to serve the claim form on another person who is a necessary or proper party to that claim.”

These constitute alternatives, and all that is necessary in this case is for the new proposed Defendants to be proper parties to the claim against what is commonly called an anchor defendant. In this case, there is, on any basis, an anchor defendant, being the Third Defendant, who has been served within the jurisdiction without permission pursuant to the contractual provision in the Loan Agreement.

The inactive Defendants have been served (but with permission). Mr MacLean submits if necessary that the Claimant is entitled to rely upon them and all the other Defendants and each of them as anchor defendants, even those who have not yet been served unconditionally, and permission is and was required for them to be so served.

The history of this provision is set out by Staughton LJ in Kuwait Oil Tanker Co S.A.K. v Al Bader [1997] 1 WLR 1411 CA at 1414. Originally one defendant had to be served within the jurisdiction before there could be an application by reference to the rule for leave to serve another out of the jurisdiction, but this was extended to include the possibility that the anchor defendant had been served outside the jurisdiction, although in Kuwait itself the Court of Appeal was not prepared to construe the provision as extending to a situation where such defendant had not yet been served. This remained the position under the RSC, but the CPR now makes it clear that it is sufficient if the anchor defendant “has been or will be served” and there is no distinction now between such a defendant being within or without the jurisdiction.

The Defendants submit that there is however a restriction on the use of this gateway by reference to the words “(otherwise than in reliance on this paragraph)”. They submit that provisions for service out of the jurisdiction should be read restrictively where there is doubt or ambiguity. They refer to the words of caution in relation to extraterritoriality as long ago as The Hagen [1908] P189, and it is to be noted that Lord Collins, at paragraph 73 of his judgment in AK Investment, states that “the necessary or proper party head of jurisdiction is anomalous, in that, by contrast with the other heads, it is not founded upon any territorial connection between the claim, the subject matter of the relevant action and the jurisdiction of the English courts”. They submit, primarily through Mr Slade, that the words in parenthesis do not mean “otherwise than in reliance upon this [sub]paragraph” – i.e. that a claimant cannot seek leave to serve out against another defendant by reference to an anchor defendant which has itself only been brought in on the back of another anchor defendant – but means that a claimant cannot obtain leave to join a defendant anchored upon a defendant who has been brought within the jurisdiction on the basis of any of the other grounds in the paragraph, i.e. the whole of paragraph 3.1. The Defendants submit that I should construe paragraph as referring to the whole paragraph and not just the necessary and proper party subparagraph.

Mr MacLean is robust in his opposition to this. He drew attention to the provision in 6B PD 3.1(8), where there is reference to “paragraph (6)”, and not “subparagraph (6)”, and similarly so in 6B PD 6.5. On the other hand I have, subsequent to the hearing, noticed that, in 6B PD 3.1(20), there is a reference to “any of the other grounds referred to in this paragraph” which could only mean the whole of paragraph 3.1 and not simply subparagraph 3.1(20) itself.

Mr MacLean relies upon both of the leading textbooks, Briggs at 4.57 and Dicey & Morris at 11-168, each of which passages entirely supports his proposition, although without addressing the paragraph/subparagraph dichotomy, if such it be. Dicey & Morris states in terms: “Service may be in England as of right, or abroad with permission under CPR 6.20 or abroad as of right under CPR 6.19(2)”.

I conclude that the inconsistent and possibly erroneous use of the words paragraph/subparagraph is simply sloppy drafting. There is no longer any justification for a difference in approach to extraterritoriality in relation to a case where service is to be made out of the jurisdiction without permission (e.g. within the EU) or with permission.

I am satisfied therefore that the requirements of 6B PD 3.1 are satisfied, so far as concerns the availability of all the Defendants as potential anchors. I need only consider whether the proposed other Defendants are properparties. Once again, the guidance of Lord Collins in AK Investment is useful. At paragraph 87 he states that “The question whether D2 is a proper party is answered by asking: Supposing both parties had been within the jurisdiction, would they both have been proper parties to the action?” I am satisfied, looking, as I can, at the Particulars of Claim, that all the proposed Defendants are proper parties together in one set of proceedings. Contrary to some thinking in earlier editions of the White Book, Lord Collins also makes clear in AK Investment that the motive for joining defendants does not go to jurisdiction but to discretion:

“76.

… (T)he mere fact that D1 is sued only for the purpose of bringing in D2 is not fatal to the application for permission to serve D2 out of the jurisdiction …

79.

The better view … is that the fact that D1 is sued only for the purpose of bringing in the foreign defendants is a factor in the exercise of the discretion and not an element in the question whether the action is “properly brought” against D1, provided that there is a viable claim against D1”.

If I had not concluded that the gateway provision was satisfied in respect of the Fourth, Sixth, Seventh and Eighth Defendants in respect of the subrogated claims, I would have concluded that the Third Defendant was an appropriate anchor defendant for the purposes of the proper or necessary party gateway, and if I had not concluded that the gateway provision was satisfied in respect of all the active Defendants in respect of the balance of the causes of action, as set out in paragraph 50 above, then I would have concluded that the Third Defendant and the Fourth, Sixth, Seventh and Eighth Defendants would have been appropriate anchor defendants.

There is, accordingly, a good arguable case in respect of all Defendants (including the Third Defendant in respect of the claims other than the subrogated claim), and including the proposed service of the Amended Statement of Claim.

I turn to the central question of discretion. The matter which Mr Morgan put in the forefront of his submissions was what can, in general terms, be called “multiplicity of proceedings”, which he rested on three interlocking principles, s34 of the Civil Jurisdiction and Judgments Act 1982, lis alibi pendens and abuse of process.

S34 provides:

“Certain judgments a bar to further proceedings on the same cause of action.

No proceedings may be brought by a person in England and Wales or Northern Ireland on a cause of action in respect of which a judgment has been given in his favour in proceedings between the same parties, or their privies, in a court in another part of the United Kingdom or in a court of an overseas country, unless that judgment is not enforceable or entitled to recognition in England and Wales or, as the case may be, in Northern Ireland.”

It seems clear that the principle which underlies s34 is the avoidance of relitigation. If a claimant has a foreign judgment in his favour, which is enforceable here, for the same cause of action against the same party, it is neither necessary nor appropriate to litigate again here. Mr Morgan submits:

With regard to the second of Mr Morgan’s submissions, he has to submit that the effect of s34 is, as he puts it, “set in stone”. There has been a judgment, and even if it has been subsequently set aside, it prevents a further action in this country. I do not accept this, and agree with Mr MacLean, for the following reasons:

I do not need to consider the question of whether the judgment was in respect of the same cause of action – it has been set aside. If it were to be restored on appeal, then that issue might arise.

Lis alibi pendens.Insofar as Mr Morgan relies upon lis alibi pendens, that would obviously be of great significance if two proceedings were continuing in tandem. There is no need for authority to the effect that litigation in parallel proceedings in different countries between the same parties is discouraged, but there is plenty of it: see for example per Bingham LJ in EI Du Pont de Nemour & Co v Agnew [1987] 2 Lloyd's Rep 585 at 589, and per Brandon LJ in The El Amria [1981] 2 Lloyd’s Law Rep 119 at 128-129. This derives from the risk of inconsistent decisions in different jurisdictions and the duplicated expenditure by the parties. However, the Claimant will not be bringing its civil claim in Kazakhstan, at least during the pendency of these proceedings, by virtue of the undertaking which it would be willing to give to this Court if otherwise successful before me. The Claimant’s outstanding civil appeal would be continuing in Kazakhstan, if permission is granted for it, and that would be a review-style appeal without further evidence. Although the Claimant is willing to give an undertaking not to pursue it, I do not consider that that would be necessary to avoid multiplicity of proceedings.

Abuse. Mr Morgan submits that this is however a case of abuse by the Claimant. It brought a civil claim in Kazakhstan, attached to the criminal proceedings. It was obviously sensible for the Claimant to do so, although it did not need to: by doing so, the Claimant had the advantage of leaving the prosecutor to adduce the evidence of the unlawful acts, which were to lead to a conviction and which would also justify the civil claim, and would avoid issuing separate proceedings, in which the Claimant would have been required, as a result of the procedural system in Kazakhstan, to pay a fee of 3% of the sum claimed. The Defendant returned to Kazakhstan for those criminal proceedings, at which he was represented and which he attended, and which lasted from January to July 2010. A large number of witnesses were heard and many thousands of documents adduced. The Claimant was successful at first instance, but now has to start again. It should, submits Mr Morgan, start again in Kazakhstan, and not here.

The rival submissions are as follows:

Forum non conveniens. The Defendants rely on a number of what might be called more ordinary issues of forum non conveniens:

The Claimant relies on the following factors:

The central plank of the Claimant’s case on forum is the exclusive jurisdiction clause in the Loan Agreements relied upon in the subrogated claims against the Third and Fourth, Sixth, Seventh and Eighth Defendants (and by reference in the conspiracy and other claims against all Defendants). The case is put in two ways. First, and primarily, heavy reliance is placed by Mr MacLean on the authorities crystallised by Lord Collins in UBS AG v HSH Nordbank AG [2010] 1 AER (Comm) 727 at para 101. In Sebastian Holdings (referred to in paragraph 5 above), I was referred to some 38 authorities in the course of considering the impact of an exclusive jurisdiction clause and an FNC waiver clause (paragraphs 14 to 29), which I have not been invited to reconsider, but, in essence, the position is that the effect of an exclusive jurisdiction clause (particularly with an FNC waiver clause) should only not be complied with, or rejected, for a forum which is not the subject of the clause, in exceptional circumstances, or where there are very strong reasons. Secondly, Mr MacLean submits that the Defendants (or at any rate the Sixth, Seventh, Eighth and Ninth Defendants), are ‘hoist on their own petard’. They chose (or their co-conspirator(s) did) to use English law and exclusive jurisdiction as the method for their contractual scheme, whereby they put the conspiracy into effect and extracted US$ 1.1bn, and they should not now be entitled to challenge the forum which they chose to adopt.

Against this, there must be set the following:

The Defendants rely on the following as relevant to the issue of exceptional circumstances or very strong reasons:

I have stepped back and considered the position in the round. Although in this case, as in so many now in the Commercial Court, this jurisdictional dispute has involved large numbers of files (more than thirty) and ten days of hearing, it is still worth bearing in mind Lord Goff’s original exhortation that the question of forum non conveniens should be capable of being considered by a judge in the quiet of his room. I conclude that the Claimant has not established that the Commercial Court in England is clearly and distinctly the most appropriate forum, and that there are strong reasons or exceptional circumstances why the subrogated claims under the Loan Agreements should not be confined to the exclusive jurisdiction provided in those contracts. There is an overriding Kazakh feel to all the claims now made. The statements referred to in paragraph 71(ii) do not amount to a waiver by the Sixth Defendant. Almost all the events took place in Kazakhstan; Kazakh law may have an important role to play; all, or almost all, the substantial quantity of documents will be in Kazakhstan, and the statements referred to in paragraph 71(i) above do amount to a waiver by the Sixth Defendant, but, above all, there have been detailed proceedings in Kazakhstan; which have resulted (subject to a possible appeal) in the conviction of the Sixth Defendant and important findings of fact by the Kazakhstan courts, which I have set out in paragraphs 12 to15 above. The evidence to establish conspiracy (or breach of Article 917) and the facts sufficient to establish ‘alter ego’ will be overwhelmingly in Kazakhstan. This is not a straightforward case by reference to a subrogated claim in contract brought by the Claimant against the Third and Fourth Defendants. Although the civil proceedings have, for the time being, come to an end, the Almaty City Court of Appeal has plainly encouraged the bringing of further civil proceedings, and I do not consider that the 3% fee, if indeed it has to be levied, payable by a nationalised bank in order to pursue alleged fraudulent conspirators in the national courts, is a sufficient juridical disadvantage to outweigh the otherwise appropriateness of the Kazakh forum.

No undertakings need be given by the Claimant, and if its appeal against the dismissal of the civil proceedings is successful, then it will not need to issue fresh proceedings in Kazakhstan, and it will have an enforceable judgment, including in this country. The Seventh and Eighth Defendants will give an undertaking not to challenge the jurisdiction of the Kazakh courts as referred to in paragraph 70(i) above.

Accordingly, subject to one possible eventuality, namely that, if the Claimant were to limit its claim to a subrogated claim against the Third and Fourth Defendants alone, I would consider that position discretely, I set aside service of the proceedings against the active Defendants and refuse the application both for permission to amend the Particulars of Claim and for inter partes service out.

As for the freezing order, I shall consider not discharging this until I have heard an application, if it is to be made by the Claimant, for the same relief by reference to s25 of the Civil Jurisdictions and Judgments Act.

In the circumstances it is not necessary, in order to decide these applications, for me to resolve the issues raised by the various Defendants with regard to alleged material non-disclosure by the Claimant and other alleged failures to comply with the rules in relation to their bringing of these proceedings and obtaining of the orders. But, as they have been fully argued, I shall deal with them as concisely as I can. Mr Morgan assisted the presentation of his argument by putting the various matters of which he complained, to which the other Defendants added, so as to amount to some forty items, in a schedule. I do not necessarily encourage this as the normal way of proceeding, because it tends to detract from concentration on the more serious allegations by having a series of less persuasive ones, but it does emphasise the point which Mr Morgan was seeking to make, namely, that the matters of which he complains, should be taken cumulatively so as to illustrate that, either by reference to the seriousness of individual items, or to their totality, there was an inaccurate and/or incomplete picture given by the Claimant on the ex parte application as to (i) the nature of the case (ii) delay by the Claimant (iii) the risk of dissipation. I shall endeavour to gather the various matters together in topics in the ways in which I address them.

Mr Morgan complains that there was a breach of Practice Direction 25A paragraphs 3.4 and 4.3(3) in relation to why the application was made urgently and in secret and why no notice was given. It is true that there was no specific sentence or paragraph addressing these questions in the affidavit in support of the application which would in practice have been desirable – “the evidence must … set out why notice was not given”: however, in my judgment, it was sufficiently clear from the evidence put before Teare J as to why the Claimant considered it appropriate to take that course.

There is also a case made that the affidavits produced by the Claimant from Miss Angela Taylor, from Mr Kabashev and from a Mr Pshenichnyi, Head of Economic Security at the Claimant, together with the Particulars of Claim supported by a statement of truth by Mr Kabashev, insufficiently disclosed their sources, were too conclusory and depended too much upon the pleaded case in the Particulars of Claim and on undisclosed instructions to Miss Taylor from her clients. Save that this may have led to some of the particular matters referred to below, I am not persuaded that the application was flawed. As set out above, there is, I am satisfied, a sufficient case shown, by reference to the various causes of action against each Defendant, and, although the Claimant’s case became much clearer and more particularised, as set out in the Voluntary Particulars and in Mr MacLean’s skeleton served for and in the hearing, and was much informed by the asset disclosure, I consider that there was a sufficient case put before Teare J. As for the Claimant's case as to proper law, the inadequacy of which before Teare J is complained of, the Claimant before Teare J relied, as it was in my judgment entitled to do, on English law – and did not, until the proposed amendment before me, rely on Kazakh law to support its causes of action – particularly by reference to the subrogated claim, with its English law and jurisdiction clauses. This deals with Items 1-7, 14, 21, 24-26, 35-36 and (so far as concerns the Seventh and Eighth Defendants) 41.

As to the way in which the Claimant dealt before Teare J with the prosecution of the Sixth Defendant in Kazakhstan (which was still ongoing at that stage) and his alleged admissions and the nature of his defence, I consider that some of Miss Angela Taylor’s evidence was unnecessarily tendentious – an exaggeration of the strength of the evidence against the Sixth Defendant as described in the indictment, and a mischaracterisation of his defence, as subsequently referred to by the appeal court (in paragraph 15 above), for which Mr MacLean apologised. Nevertheless I do not consider that Items 8-10 or 19 give rise to material complaint.

I reach the same conclusion with regard to the alleged inadequate description of the issues of forum non conveniens, with regard to the alleged difficulties of litigating in Kazakhstan [Items 15-18], and I do not consider that there was inappropriate reference by the Claimant to the change of registered agent (and, as it now turns out, nominee director) of the BVI companies [Item 22].

There was inadequate disclosure of the true state of the Claimant’s accounts (Item 33), and in particular there was no disclosure of the most recent set of accounts, signed off by Mr Kabashev on the day before the application to Teare J, which, by dint of showing a deficit in 2010 of 105m Tenge, coupled with an auditor’s qualification, appear to have falsified Mr Kabashev’s statement in his affidavit before Teare J that the Claimant was “well capitalised”. Nevertheless, the Claimant bank is, as I have said above, effectively nationalised, and, more significantly, the Claimant offered, and Teare J required, an undertaking to fortify the cross-undertaking in damages in the sum of US$ 1m, and no evidence has been put before me that such is insufficient, nor has any application been made to me seeking further fortification.

There is an important area of alleged non-disclosure, which interrelates both with the merits of the claims and the question of delay on the part of the Claimant. So far as the latter is concerned, delay only becomes significant if – as here – time has passed since the events occurred (and, if such be the case, were sufficiently known and understood by the victims), so that it can be said that, during the time that has elapsed, the proposed Defendants have had time so to order their assets that there is no longer a risk of dissipation: alternatively any dissipation will already have occurred. Three points arise:

The issue here relates to the presentation by the Claimant to Teare J as to the conduct of the Defendants, and, particularly, the Sixth Defendant, at the time of, before, and after, the alleged discovery by the Claimant of the fraud in late February/early March 2009. The Claimant disclosed to Teare J the letter (referred to in paragraph 30 above) in which the Sixth Defendant set out his answer to the criminal investigation then proceeding; he said there that he had personally informed various people, being regulators and connected with Samruk-Kazyna, before the Samruk-Kazyna takeover (presumably therefore in late 2008), and had informed “the new management” (presumably Mr Kabashev) about the existence of the guarantee of the “loans received from the Russian bank”. However it would seem that no investigation – certainly none that was disclosed – was made by the Claimant with regard to the identified regulators etc; and Mr Kabashev stated in terms that he knew nothing of the guarantees until late February when he learnt of them from Renaissance.

Further, although there was disclosure to Teare J of a letter from Renaissance to Mr Kabashev, dated 30 March 2009, which stated that “Renaissance Group has been working over the last two months with the Bank’s current management from Samruk-Kazyna to develop and agree an appropriate means to terminate the [Reachcom] transaction”, there was no disclosure of an email of 4 March 2009 and a draft Memorandum of Understanding both referred to in that letter. On 18 July 2011 I ordered those documents to be produced, and they appear to show that the Sixth and Ninth Defendants (and through them the Seventh and Eighth Defendants) had been involved in discussions with the Claimant as to how the STRIPS should be repaid prior to 4 March 2009. Although, of course, that still manifestly leaves open the possibility that those very Defendants had been conspirators as alleged, nevertheless those documents, coupled with the fact that Mr Kabashev has now recalled that he did have such discussions with the Sixth Defendant prior to 4 March, would seem to cast doubt on the case put forward in the evidence before Teare J that

The Defendants also rely on the admitted error of the Claimant in putting in evidence before Teare J that there had only been one, short, familiarisation period (see paragraph 70(iii) above) in November 2010, when, in fact, there had been an earlier and much longer such period between July and September 2010. It could therefore be suggested that the Claimant might have brought these proceedings earlier, having thus acquired sufficient knowledge to do so, though the Claimant contends that in any event it would not have been entitled to rely on documents so obtained without permission of the Court (according to Mrs Kim an unusual order for the criminal court to make) until the initiation of the criminal proceedings in January 2009) [Item 27]. Also relied on is the fact that the Claimant did not put before Teare J [Item 20] the fact that, by a public circular of June 2010, the Claimant had published its intention in Kazakhstan of bringing proceedings, inter alia in respect of the conduct here complained of, in an attempt to raise money for such proceedings (the so-called ‘collateralisation proposal’).

For a combination of the reasons set out in paragraphs 85(ii) and (iii), namely that, in this case, I am not satisfied that delay is central to the issue of dissipation, but in particular that there remain too many disputed issues which I cannot resolve, I would not have set aside the orders by reference to these matters.

I turn then to the following groups of complaints:

As to the first category above, these issues go to the subrogated claims. It is suggested that there was inadequate dealing with the obtaining of the Metropol Loan Agreements by the Claimant, discussed in paragraphs 29 to 34 above. Particularly since as it has turned out that the Claimant was relying upon the Metropol Loan Agreements being the same as the Reachcom Loan Agreements, and the subsequent documents obtained by the solicitors by the First and Second Defendants do not appear to support that proposition, it is the more unfortunate that a better picture was not given of what attempts the Claimant made to obtain them. However, there is an unparticularised statement of Mr Kabashev that Metropol refused to deliver them, and I cannot at present resolve that issue. With regard to the Reachcom proceedings, this is of significance. I refer, in paragraph 25(i)(a) above, to the fact that there were proceedings brought by Samruk-Kazyna in March 2010 seeking to set aside the Guarantees. This was known to the Claimant (which was of course served as a defendant in those proceedings) and to its solicitors, but was not considered material to disclose, a view which now falls to be tested, but, if wrong, does not excuse the non-disclosure, if it be concluded by the court to be material. Although I am satisfied that, notwithstanding the challenge to the validity of the Guarantee, the subrogated claim is still arguable (see paragraph 27 above), for the reasons there appearing the existence of the challenge is of relevance. It is perhaps of less relevance here when there was before Teare J the express reservation of rights in respect of claims against Reachcom, made in paragraph 26 of the Particulars of Claim.

With regard to the second category, the Claimant knew, but its solicitors did not (although it is well established that this would be no excuse) of the fact that, since October 2009, the assets of the Sixth Defendant in Kazakhstan were subject to a freezing order in the Kazakh criminal proceedings. Non-disclosure in English proceedings of the existence of a Spanish saisi conservatoire was considered material non-disclosure in Behbehani v Salem [1989] 1 WLR 723. Mr MacLean conceded in argument that this was material. Given that it was limited to assets within Kazakhstan, it would appear that Teare J, had he been told, would be likely still to have granted the worldwide freezing order sought.

The situation with regard to the missing undertakings and the proceedings in the BVI needs to be addressed at a little greater length. Only one of the two standard undertakings omitted from the draft order, and hence, because not pointed out, from the Order itself made by Teare J on 5 April 2011, is of materiality, namely the undertaking in accordance with the guidance in Dadourian International v Simms [2006] 1 WLR 2499, not to commence proceedings in any other jurisdiction without obtaining the permission of this Court. Although Teare J was told that the order was in standard form, and Mr MacLean himself, who brought the application, thought it was, because he had not appreciated the omission of the relevant undertaking(s), in fact the Order did not contain that undertaking. Although Mr MacLean has proffered, and I accept, his own apology, there is no explanation of how the omission came about, and whether it was deliberate or accidental.

The significance is that, in the subsequent absence of Mr MacLean on holiday, an application was made, without such permission, on 19 April 2011 against the First, Second and Fourth Defendants in BVI, and the order that was sought included an application for a receiver, such receiver to be put in control of the continuation of the proceedings. The basis for it was said in the BVI proceedings to be that there had been failure by the BVI Defendants to comply with Teare J’s Order, although, since the Order was served on 12^th to 13^th April, and the application was issued on 19^th, it is questionable whether there had been a breach, and certainly, contrary to what Ms Angela Taylor says in her second witness statement, there was not (and could not have been) any “specific reference” in those proceedings to there being a contempt.

In any event, Bannister J refused the order sought, so, as it is put, no harm was done. On his return from holiday, Mr MacLean discovered the absence of the undertaking, and disclosed to Teare J, via his clerk, the fact that the undertakings had been omitted and that an application had been made to, and refused by, Bannister J. The Order was retrospectively amended, although no permission for the proceedings was sought from, or given by, Teare J.

It is common ground that the draft order (Schedule B) in the Commercial Court Guide contained in the White Book (at Vol II, p374) is misleading in suggesting that the undertaking is optional, by virtue of its being bracketed. What should be made clear in the text is that such undertaking would only arise in respect of a worldwide freezing order, but is then obligatory. But that is not put forward as the reason why this occurred. In the absence of any explanation, Mr Morgan submits that I should conclude that the undertaking was deliberately left out by those instructing Mr MacLean, in order to facilitate the proceedings which were then taken, and which must have been prepared at a time before it was known whether or not the Offshore Defendants were going to comply with the order (given that the time for such compliance had either not, or hardly, expired when the application was made). Mr MacLean submits that this is wholly unlikely because the absence of the undertaking would have been, as it was, so soon revealed. If the undertakings had been included, Teare J might have given permission for such proceedings to be brought in the BVI, although it would seem unlikely that, had he considered the matter, he would, at that stage, have permitted the inclusion of the remedy of appointment of a receiver.

The errors in the BVI were compounded by the fact that, although the Claimant had pointed up the change of registered agent (paragraph 83 above), service of the proceedings was provided to be made on the old agent, and yet they were in fact served, without amendment to the Order, on the new agent. This was simply a mistake.

Finally, there is the question of the description of the position of the Seventh and Eighth Defendants. Miss Taylor, in her affidavit before Teare J, described the position as follows in paragraph 37(a):

“… Although we were aware that [the Seventh and Eighth Defendants] had fled Kazakhstan in 2009 so as to avoid justice, neither [the Claimant] nor the Prosecutor (despite an Interpol warrant being issued) knew where they were residing. It is plain that they have been deliberately keeping a very low profile. However, very recently (in the last few days) [the Claimant’s] private investigators have located [the Eighth Defendant’s] family in Dubai and at least a significant number of [the Seventh Defendant’s] family in Dubai.”

She returns to the topic in three further paragraphs, 41(c), 51(f) and 63.

Mr Matovu complains of this by reference to formal documents emanating from the prosecution during 2010, and, in particular, documents severally dated 17 May 2010 relating to each of the Seventh and Eighth Defendants, described as “Decree on variation of preventive measure”, being the document by which an arrest warrant against each of them was revoked, and substituted by a provision for bail. This was because the Prosecutor had presented to the court a request for such variation, on the basis that each Defendant was “ready to co-operate with investigation bodies [and] ready to return to the Republic of Kazakhstan voluntarily”. These very documents refer to each of the Defendants as having “absconded from the preliminary investigation bodies” during 2009, so that, to that extent, part of Miss Taylor’s categorisation is well justified, but an issue remains as to the balance of it. Even if this document was not served on the Claimant, by virtue of its official position in the investigation it could have made enquiry of the prosecution, and would undoubtedly be likely to have been informed as to the content of the document. Further, Miss Taylor herself, in the passage cited above, states that the Prosecutor did not know where they were residing. Mr Matovu therefore submits that either the picture that was given was misleading due to non-disclosure or, at any rate, the obligations referred to by Ralph Gibson LJ in Brinks Mat,referred to in paragraph 85(i) above, have not been complied with. The Claimant must have known, submits Mr Matovu, that the Seventh and Eighth Defendants, if not in Kazakhstan, were likely to be in Dubai, since, according to another public document emanating from the prosecution dated 7 May 2010, relating to the charges being made against the Eighth Defendant (which was said to be copied to “the interested persons”), the Eighth Defendant was said to have been “staying in Dubai” between June 2004 and May 2008 and thus might well have been found there.

Mr MacLean points out that in company documents still today the address of the Seventh and Eighth Defendants is being shown to be in Almaty, when they plainly are not, and Mr Pshenichnyi has put in during the hearing a second witness statement, confirming that he had not seen the “Variation of preventive measure” documents, although he does not deal with whether he could have asked the prosecution for sight of them, particularly if the Claimant were seeking to find out where the Seventh and Eighth Defendants were.

Mr Matovu submits that the picture given of the Seventh and Eighth Defendants must have been of significance to the decision of Teare J as to whether he could conclude that there was likely to be a risk of their dissipating their assets.

On the other hand, it is clear that there is no evidence at present to show that the prosecution did in fact know where the Seventh and Eighth Defendants could be found – it may be that the communications which are to be inferred from the Decrees of variation of preventive measure were via lawyers in Kazakhstan.

In relation to the last four matters set out above, it cannot be said, in my judgment, that they do not go to material matters, but in the circumstances I do not need to decide whether I would have set aside the orders, and if I had set them aside, whether I would have regranted them. None of them in my judgment go to the root of whether there is or was a good arguable case in respect of substantial worldwide fraud against these Defendants, nor, particularly by reference to the substantial use of offshore companies, to the risk of dissipation.

For the reasons set out above, I grant the relief sought by the First, Second, Third, Fourth, Sixth, Seventh, Eighth and Ninth Defendants, and dismiss the applications by the Claimant, subject only to the opportunity referred to in paragraphs 77 and 78 above.