Terra RAF Trans Traiding Ltd v Assaubayev & Ors

This is the hearing of two applications in an action brought by Terra Raf Trans Traiding Ltd against four defendants. The application affects one defendant only, the other three defendants having been served with the proceedings.

Before turning to the applications I set out the procedural history. Particulars of claim and a claim form were issued on 22nd June 2012 making claims against the first defendant, essentially of misrepresentation. On 22nd August there was an application to serve proceedings out of the jurisdiction on the first defendant in Almaty, and an order approving service was made by Gloster J (as she then was) on 22nd August. On 10th October 2012 there was an application for a default Judgment, which was given by the court on 8th November. On 26th April 2013 the claimant applied for a freezing order which I granted on 30th April.

The evidence of the first defendant is that he received notification of the Freezing Injunction on 2nd May when it arrived at an address in Eccleston Square, with which he has a business connection. In response to that the first defendant paid into court US$5,838,594.09. As a result, there have been applications to set aside the Judgment by the first defendant and an application by the claimant resisting that, and seeking payment out to it of the money paid into court in settlement of most of its claim.

There is evidence from both sides on both applications from Mr. Lungu, the senior executive of the claimant, from instructing solicitors and from the first defendant, Mr. Assaubayev. The court also has expert evidence on Kazakhstan law from Dr. Nesterova for the defendant, and Professor Maggs for the claimant.

It is convenient to deal first with the applications to set aside the default Judgments. When considering these applications under CPR 13, the approach the court should adopt is that summarised by the Court of Appeal in Varsani, when approving the approach of the Deputy Judge. The claimant has to satisfy the court that there is a good arguable case in support of its application, on the Stolzenburg basis:

The claimant served, or purported to serve the proceedings at an address in Lancelot (?) Place, London and also, having obtained permission from the court, at an address in Almaty, and each of those services, or attempts at service, ischallenged by the defendant. The first defendant says, about where he lives and how he was served, the following:

I will deal first with England and then with Kazakhstan. The claimant signed a certificate of service describing Lancelot Place as the "usual residence" of the first defendant. Some point is made objecting to that on the basis that the address given on the claim form was the address in Almaty, but it seems to me that that is not decisive and where you choose to serve someone can be informed by developing intelligence as time goes by. There is a letter from Savills, dated 26th July 2013, apparently from one letting agent to another, headed:

Mr. Russen QC, for the first defendant, submits that the evidence shows that the apartment was only held between 2009 and August 2010 and had not been used since May 2010, and since the tenancy ceased in August 2010 the apartment would not have been a proper address for service as a usual or last known residence. He points to evidence that after September 2012 the first defendant, when in London, was staying with his brother in Park Street, and therefore that the service failed, or was not valid. The claimant, represented by Mr. Sprange and a colleague, in their skeleton argument says it made extensive inquiries undertaken by investigators. They refer to the fact that, in other proceedings involving the Assaubayev family, Lancelot Place is an address at which some members of the family have been served with legal proceedings, and there is some support for that in a decision of Vos J. Therefore, they say that the pleading was served at that address and none of the documents were returned. They point out the inadequacy, as they see it, of the material produced by the first defendant and also support their submissions by reference to the first defendant apparently taking some steps not to reply to communications of various kinds relating to the underlying transactions which were the subject of the proceedings for a considerable period. They also suggest that his claim that he did not learn of the existence of the proceedings until after the without notice application came to his attention is incredible given the fact that the other defendants with whom he has close links of different kinds were all served. They submit that it is incredible that he did not learn from any of these three other parties of the existence of the proceedings. That is a submission with which I have considerable sympathy.

The position as regards the service in England is that I am not satisfied, despite my sympathy, that the claimant has established that it has a much better argument on the available material than the defendant. I am tempted not to decide the issue at all because, just as there is a concerning lack of information from the first defendant, I have no information at all about the investigator's reports and inquiries which led the claimant to form the view, not just that the first defendant had connectionswith, or was closely associated with or knew that documents had been sent to that address, but that it was, in truth, his usual residence at the relevant time. That is not a finding I can make in circumstances where there is some evidence to support the contentions about residence which are made by the first defendant, although I accept in something of a vacuum of supporting material.

The next issue is the service in Almaty. The defendant/applicant contends that the evidence shows that he has not lived at the Almaty address for 10 years, the apartment is owned by his mother and has been vacant since 2003. He says that his address since 2008 has been at a house in a golf course complex some distance away. Insofar as there are connections made between the Kazakhstan address, where service was sought to be made, and documents produced by the first defendant he attributes that to the lack of care by those advising him. However, the documents dated as recently as 2010 are of importance. It is therefore surprising that an error as basic as putting on the wrong address should have been committed.

The matter is also complicated, as far as Almaty is concerned, by competing submissions about the validity of the service. The first defendant says that the claimant should have adopted the correct procedure by issuing a letter of request under Article 423 of the Code of Civil Procedure. That would have required translation of the claim form into the local language and its delivery by a court official. There is no dispute that that was the requirement under Article 423 and the report of Dr. Nesterova confirms that. What the claimant says, supported by the report of Professor Peter Maggs, is that the proceedings were served in accordance with local procedure for domestic service and therefore it follows what they did was to effect service "by any other method permitted by the law of the country in which it is to be served." In the ordinary way when parties apply for service abroad and find that the methods in Part 6.40 are going to create difficulties, generally very protracted delay, that is the foundation for an application under Part 6.15 to effect service by alternative means.

I am not in a position today, on the spot, to decide between the competing submissions of the parties on that issue and, for reasons I will come to, it is unnecessary for me to do so. That arises from the nature of the applications which are made under Part 13. Under Part 13(2) the Court must set aside a Judgment if it was wrongly entered and because, in effect, the requirements, to which I have been referring as to service, are not satisfied.

There is, however, an alternative application in this case under Part 13.3 which provides that, in any other case, the court may set aside a Judgment entered, in effect, in default, if the defendant has a real prospect of successfully defending the claim or it appears to the court that there is some other good reason why the Judgment should be set aside or varied, or the defendant should be allowed to defend the claim. The cases show that at this point one conducts a similar exerciseto that which would be adopted on an application for summary Judgment, except in this case it is for the defendant to show that it has a real prospect of success, not for the claimant to establish the reverse. It follows that I bear in mind in what follows the usual considerations that arise on an application for summary Judgment, which are those familiar ones summarised in the decision of the then Lewison J in Federal Republic of Nigeria as approved by the Court of Appeal. The question that arises on that limb of the application is: can the defendant show that it has a real prospect of success?

The claim against the first defendant by the claimant is one of fraudulent or, alternatively, negligent misrepresentation, with a further potential claim for unjust enrichment which may emerge, the claimant says, in the course of disclosure. The allegations are based on a loss arising from the advance of some $5 million from the claimant, with possibly $2 million coming from the claimant, and $3 million coming from Montvale under the terms of a loan agreement and separate guarantee. There has been an arbitration award against the guarantor and it turns out that the named guarantor did not exist. There are, as I mentioned, detailed particulars of claim, and also a draft defence prepared on the first defendant's part.

Mr. Russen submits that this is a claim that cries out to go for trial. He says there are many things that require investigation. He says that the alleged representations are attributed to the first defendant as a result of things said at meetings on 29th April 2010, and/or in May 2010. He submits it is not clear what statements were attributed to the first defendant and what are not. There is also an issue about an earlier private meeting which at one point the first defendant understood that it was said involved only one director of the claimant. It is now clear that it is contended that someone else was there as well. He submits that the representations relied upon derive from what was allegedly said by his client at those meetings. He complains that the allegations against his client are wholly unparticularised, and unsupported by any evidence from Mr. Stati who was there, albeit that has now sought to be corrected by a sort of posthumous application to amend the particulars of claim which led to the Judgment. He also contends that a number of the representations relied upon became contractual terms as the particulars of claim themselves allege and, given that those terms are agreed by parties other than his client, he says there is a strong case that any representations were superseded when the parties entered into the loan letter and the guarantee.

Mr. Russen also identifies what he says are novel and startling propositions of law, which he identifies at para. 26.4 of his skeleton argument. He raises the point that it is unclear whether the claimant's loss can be $5 million or only $2 million given, what appears to be almost common ground in the arbitration, that Montvale(a co-claimant in that arbitration) funded $3 million of the loan. He makes those points based on the claims made against his clients, but also says that his client's version of events is diametrically opposed to that given by Mr. Stati and hiscolleague. He says that Mr. Stati requested the meeting not he, and he was asked if the first defendant, or someone within his family company could help in the transfer of $5 million into Kazakhstan, and that the idea was to make money available to the claimant via a foreign exchange trade within Kazakhstan. He gives a version of events very different from that of the claimant. At para. 27.2 of Mr. Russen's skeleton argument there are also other potential differences between the parties which, he submits, cannot possibly be determined without a trial.

The claimant takes a different view. Mr. Sprange says that the first defendant's prospects of success are fanciful at best. There is a remarkable degree of consensus in the party's written witness statements, with respect to the events in 2010 and the differences relate only to characterisation. He identifies numerous documents which, he says, are common ground between the parties. These numerous documents confirm facts which are common ground between the parties. He says that this is one of those unique cases where they depend not only on fraudulent misrepresentation, but also on negligent misrepresentation. There is no alleged fraud here of the public kind that demands a trial; that is a reason why the matter can be determined now. He says that the account given by the first defendant is incredible and inconsistent with the documents. He points to the fact that when disclosure was being made in the Jenington litigation, dealt with by Vos J, there was no suggestion that the loan letter and guarantee were anything other than what they were said to be, unsurprisingly so given the high level of lawyering which they received. He suggests that the defendants' position is one of posturing, and that the court is going to have no material before it at a trial that it does not have now.

In my judgment it is clear that the first defendant does have a real prospect of success in this limited sense. I am not suggesting that the material available indicates that he is likely to win, but this is, it seems to me, a case where there must be a trial of the issues between the parties. Counsel for the claimant submitted repeatedly that the documents show that the account given so very recently by the first defendant cannot be right. The submissions were repeatedly along the lines that but for this story the first defendant would, in some way, be liable, for the loan and/or guarantee. But it is common ground that neither the loan nor the guarantee were entered into by the first defendant at all. The claims that are being made are much less straightforward depending as they do upon misrepresentation and potentially unjust enrichment. Moreover, where claims include dishonesty that is a factor that points to a trial whatever the documents may say, although, of course, in some cases where things are very clear, notwithstanding the fact that there is fraud or alleged fraud involved, a trial is unnecessary. Another difficulty facing the claimant is this: it is said that the court will not at trial have anything other than what it has before it but that is incorrect. The court will have the live witnesses to give evidence, and to be evaluated. Moreover, there must be more disclosure in a case of this kind than has been produced voluntarily by the parties at this earlystage. Indeed, the unjust enrichment claim is said to depend upon matters being produced on disclosure in future.

There is another factor. The first defendant has paid more than $5.8 million into court. It is said on his behalf that he would not do that if the proceedings had come to his notice earlier than they did because then he could have contested them without having to put anything into court at all; he could have simply acknowledged service. Of course, another view which might be taken by the claimant is that it was only when the consequences of the post-Judgment freezing order became clear that the claimant put the money into court. Nonetheless, the money is in court and that seems to me a very significant factor when appraising the bona fides of these applications.

So I am going to grant the application of the first defendant and refuse that of the claimant.

To avoid unnecessary argument I should make it clear now that I am not going to grant costs at this stage on the basis that the first defendant has been successful. There are many unanswered questions in the issues raised by these applications. The only issue, it seems to me, is whether the costs of these applications should be reserved or whether they should simply be costs in the case. To that extent I will hear from the parties about costs.