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You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> JSC BTA Bank v Ablyazov & Ors [2011] EWHC 587 (Comm) (28 March 2011) URL: https://www.bailii.org/ew/cases/EWHC/Comm/2011/587.html Cite as: [2011] ArbLR 6, [2011] EWHC 587 (Comm) |
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QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Strand, London, WC2A 2LL |
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B e f o r e :
____________________
JSC BTA Bank |
Claimant |
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- and - |
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(1) Mukhtar Ablyazov (2) Ildar Gayarevich Khazhaev (3) CJSC Tekhinvest (4) Konvis LLC (5) PaladioExport LLC (6) CityBestPlus LLC (7) Colligate Investments Limited |
Defendants Defendant/Applicant Defendants Defendant/Applicant |
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Richard Handyside QC (instructed by Simmons & Simmons) for the 3rd and 7th Defendants
Hearing date: 25th February 2011
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Crown Copyright ©
Mr Justice Christopher Clarke :
The subject matter of Bank's claim
i) a loan facility of US$199 million made available by the Bank to Tekhinvest, a company incorporated in the Russian Federation, purportedly pursuant to a Master Facility Agreement dated 22 July 2004 (the "MFA"), various amending agreements ("the Additional Loan Agreements") and various individual drawdown agreements ("the Individual Loan Agreements") (together, "the Tekhinvest Loans");ii) the advance of a further US$108,276,500 by the Bank to the Fourth to Sixth Defendants (companies incorporated in the Russian Federation) in the following amounts:
a) US $ 29,925,500 to the Fourth Defendant ("Konvis");b) US $ 38,325,500 to the Fifth Defendant ("PaladioExport"); andc) US $ 40,025,500 to the Sixth Defendant ("CityBestPlus"), (together, the "KPC Companies").Purportedly pursuant to various master facilities, amending agreements and individual drawdown agreements (together, the "KPC Loans"); andiii) the release of the Bank's security taken in respect of the Tekhinvest Loans by the signing of a pledge order with no replacement security whatsoever being provided in its place.
The Bank's claim
a) that the Tekhinvest Loans are "liable to be invalidated" pursuant to Article 74 of the JSC Law (Particular of Claim ["POC "] para. 78);
b) that Tekhinvest:
"procured the preparation, approval, execution, variation and implementation of the [Tekhinvest Loans], in that it applied for the purported loans represented by those agreements, approved the acceptance of those agreements and the corresponding purported loans from the Bank, executed those agreements, and received the sums purportedly paid pursuant to those agreements" (POC para. 116);
c) that in acting as set out in (b) Tekhinvest acted with a want of good faith and/or dishonestly and/or unconscionably (POC para. 117) and breached Article 8 of the Civil Code (para 118). Tekhinvest was a front or nominee for Mr Ablyazov (either alone or with others), and Mr Ablyazov's knowledge and intentions are attributable to Tekhinvest; and
d) that Tekhinvest acted unconscionably and/or dishonestly in receiving the loan moneys and/or in assisting Mr Ablyazov in breaching fiduciary duties that he owed to the Bank (POC para. 119). This is an English law claim.
The relief sought
"In light of the contentions made in Section F below as to the invalidity of the purported loans, all references to loans and the like are references to purported loans and the like".
Section F is the section in which are pleaded the various provisions of Kazakh Law as a result of which the Tekhinvest Agreements are said to be liable to be invalidated.
The commercial background
"10. DISPUTE SETTLEMENT PROCEDURE AND APPLICABLE LAW
10.1 This Agreement shall be governed by the legislation of the Republic of Kazakhstan.
10.2 Any disputes, differences or claims arising from this contract (agreement) or in connection therewith, including the ones relating to its performance, breach, termination or invalidity, shall be resolved at the International Commercial Arbitration Court (ICAC) at the Russian Federation Chamber of Commerce and Industry (RF CCI) in accordance with its Procedure Rules.
10.3 The parties agree[d] to perform awards of the International Commercial Arbitration Court at the RF CCI voluntarily. In case where a Party declines to perform an award of the ICAC at the RF CCI voluntarily, the Party in which favour the award was made may seek enforcement of the court award."
a) On 18 April 2005, from US $ 15m to US $ 40m under Additional Agreement No. 1.
b) On 2 November 2006, from US $ 40m to US $ 164m under Additional Agreement No. 2.
c) On 28 December 2007, from US $ 164m to US $ 194m under Additional Agreement No. 3.
d) On 16 June 2008, from US $ 194m to approximately US $ 345m under Additional Agreement No. 4 (which specified a general credit limit of US $ 199 million and also that the Bank would provide a guarantee of Tekhinvest's obligations to another bank, Sberbank, for RUB 4.2bn).
Repayments of over US $69m and € 20m were made by Tekhinvest in July and August 2008.
Stage 1: On 1 June 2005, the KPC Companies agreed to amend pledges of certain shares which they had previously granted to the Bank in order also to cover the Bank's loans to Tekhinvest. The shares pledged under these pledge agreements were shares in six companies: CJSC Technostroy, CJSC Technoinvest, CJSC Rover, CJSC WestcomLine, CJSC Discovery and CJSC Ingeocom.
Stage 2: In August 2006, the above pledges were extended in order to cover the increase in Tekhinvest's credit facility from US$40m to US$164m.
Stage 3: In October 2006 and March 2007, the Bank's Regional Credit Committee (RCC) resolved to require a pledge of 100% of the shares in Tekhinvest and a pledge of the lease of the Site (subject to a delay of a few months in each case). However, no such pledges were put in place.
Stage 4: Later in March 2007, the RCC resolved to remove the previous requirement for a pledge of 100% of the shares in Tekhinvest, and also that there should be a limit of US $23,417,000 on the requirement for a pledge of Tekhinvest's lease of the Site.
Stage 5: On 22 May 2007, the RCC resolved that no pledge of the lease of the Site would be required at all.
Stage 6: On 28 December 2007, the RCC resolved to impose a requirement for a pledge of Tekhinvest's lease of the Site (delayed until 15 March 2008) and for a pledge of 100% of the shares in Tekhinvest (delayed until 15 February 2008). In February 2008, seven pledge agreements were entered into by the seven shareholders in Tekhinvest,[2] but no pledge of the lease of the Site was entered into.
Stage 7: Between February and June 2008, the Bank removed the requirement for a pledge of the lease of the Site, cancelled the seven pledge agreements and did not create any new security over the shares in Tekhinvest. In June, July and November 2008, the RCC approved the replacement of the seven pledge agreements with a pledge of 100% of the shares of Colligate, but no such pledge was ever executed.
The application under the Arbitration Act 1996
" Stay of legal proceedings
(1) A party to an arbitration agreement against whom legal proceedings are brought (whether by way of claim or counterclaim) in respect of a matter which under the agreement is to be referred to arbitration may (upon notice to the other parties to the proceedings) apply to the court in which the proceedings have been brought to stay the proceedings so far as they concern that matter.
… … …
(4) On an application under this section the court shall grant a stay unless satisfied that the arbitration agreement is null and void, inoperative, or incapable of being performed."
i) Is there any arbitration agreement within section 9 (1)?ii) If so, can the Bank satisfy the court that it is "null and void, inoperative, or incapable of being performed"?
iii) If not, does it cover all of the matters in the present proceedings and, if not, which ones does it not cover?
i) To determine that an arbitration agreement was made on the affidavit evidence;ii) To stay the proceedings on the basis that the arbitrator will decide that issue;
iii) To order an issue to be tried under what is now CPR 62 (8) which provides:
"(3) Where a question arises as to whether –(a) an arbitration agreement has been concluded; or(b) the dispute which is the subject-matter of the proceedings falls within the terms of such an agreement,the court may decide that question or give directions to enable it to be decided and may order the proceedings to be stayed pending its decision."iv) To decide that there was no arbitration agreement and dismiss the application for a stay.
The structure of the Act
"In this context "null and void" means "devoid of legal effect". This is made clear by the decision in 1983 of the US 3rd Circuit Court of Appeals in Rhone Mediterranee v Achille Lauro 712 F.2d50. The court in that case had to determine the construction of identical wording in Article 11.3 of the 1959 New York Convention. On this issue the court said:
"We conclude that the meaning of Art 11 section 3 which is most consistent with the overall purpose of the Convention is that an agreement to arbitrate is 'null and void' only (a) where it is subject to an internationally recognised defence such as duress, mistake, fraud or waiver or (b) when it contravenes fundamental policies of the forum State. The 'null and void' language must be read narrowly for the signatory nations have jointly declared a general policy of enforceability of agreements to arbitrate." (Pages 3 – 4)
Likewise in this context for an arbitration agreement to be "inoperative" it must have been concluded but for some legal reason have ceased to have legal effect; e.g. by reason of acceptance of a repudiation as in Downing v. Al Tameer Establishment [2002] EWCA Civ 721 ("Downing") at paragraphs 26-35."
"5 Agreements to be in writing
(1) The provisions of this Part apply only where the arbitration agreement is in writing, and any other agreement between the parties as to any matter is effective for the purposes of this Part only if in writing.
The expressions "agreement", "agree" and "agreed" shall be construed accordingly.
(2) There is an agreement in writing–
(a) if the agreement is made in writing (whether or not it is signed by the parties),
(b) if the agreement is made by exchange of communications in writing, or
(c) if the agreement is evidenced in writing.
(3) Where parties agree otherwise than in writing by reference to terms which are in writing, they make an agreement in writing.
(4) An agreement is evidenced in writing if an agreement made otherwise than in writing is recorded by one of the parties, or by a third party, with the authority of the parties to the agreement.
(5) An exchange of written submissions in arbitral or legal proceedings in which the existence of an agreement otherwise than in writing is alleged by one party against another party and not denied by the other party in his response constitutes as between those parties an agreement in writing to the effect alleged.
(6) References in this Part to anything being written or in writing include its being recorded by any means."
"provides[3] a ground for the invalidation of such transactions on the claim of an interested party" (para 66 (c))
and that by
"Articles 157 to 159 of the Kazakh Civil Code … a Court can inter alia declare [the] transaction invalid" (para 67)
and that such a declaration should be granted.
"that not only the [MFA] is voidable but the arbitration clause therein is voidable, and would have been voidable even if it had been entered into as a separate agreement to the [MFA]. Without disclosure and approval by the board of directors, the Claimant and anyone acting on its behalf had no authority to enter into any agreement with Tekhinvest including an agreement to arbitrate".
Separability
"17 The principle of separability enacted in section 7 means that the invalidity or rescission of the main contract does not necessarily entail the invalidity or rescission of the arbitration agreement. The arbitration agreement must be treated as a "distinct agreement" and can be void or voidable only on grounds which relate directly to the arbitration agreement. Of course there may be cases in which the ground upon which the arbitration agreement is invalid is identical with the ground upon which the arbitration agreement is invalid. For example, if the main agreement and the arbitration agreement are contained in the same document and one of the parties claims that he never agreed to anything in the document and that his signature was forged, that will be an attack on the validity of the arbitration agreement. But the ground of attack is not that the main agreement was invalid. It is that the signature to the arbitration agreement, as a "distinct agreement", was forged. Similarly, if a party alleges that someone who purported to sign as agent on his behalf had no authority whatever to conclude any agreement on his behalf, that is an attack on both the main agreement and the arbitration agreement.
18 On the other hand, if (as in this case) the allegation is that the agent exceeded his authority by entering into a main agreement in terms which were not authorised or for improper reasons, that is not necessarily an attack on the arbitration agreement. It would have to be shown that whatever the terms of the main agreement or the reasons for which the agent concluded it, he would have no authority to enter into an arbitration agreement. Even if the allegation is that there was no concluded agreement (for example, that terms of the main agreement remained to be agreed) that is not necessarily an attack on the arbitration agreement. If the arbitration clause has been agreed, the parties will be presumed to have intended the question of whether there was a concluded main agreement to be decided by arbitration."
.
"35 ……The owners' argument was not that there was no contract at all, but that they were entitled to rescind the contract including the arbitration agreement because the contract was induced by bribery. Allegations of that kind, if sound, may affect the validity of the main agreement. But they do not undermine the validity of the arbitration agreement as a distinct agreement. The doctrine of separability requires direct impeachment of the arbitration agreement before it can be set aside. This is an exacting test. The argument must be based on facts which are specific to the arbitration agreement. Allegations that are parasitical to a challenge to the validity to the main agreement will not do. That being the situation in this case, the agreement to go to arbitration must be given effect."
"The Bank claims that Mr Ablyazov failed to disclose his connection to Tekhinvest to the Bank as required by the laws of the Republic of Kazakhstan, and failed to seek the approval of the majority of the Bank's board of directors not interested in the transaction, prior to the execution of the General Loan Agreement (or at all) or the Additional Agreements or the Credit Contracts, save for one resolution on 1 December 2006 (which, the Bank contends to be inadequate as a matter of Kazakh law). As a result, it is the Bank's case that the General Loan Agreement, the Additional Agreements and the Credit Contracts are invalid, and likewise the Arbitration Clause contained therein, so that there is also no binding agreement in place between Tekhinvest and the Bank.".
Prevalence
"(1) When several interrelated claims, some of which are subject to the jurisdiction of the court and others to jurisdiction of non-judicial bodies, are joined, all these claims shall be subject to the jurisdiction of the court.
(2) In case of doubts or conflict between the legislative acts in effect in relation to the jurisdiction over a specific dispute, such dispute shall be decided by the court."
Scope of the Arbitration Agreement
"Any disputes, differences or claims arising from this contract (agreement) or in connection therewith, including the ones relating to its performance, breach, termination or invalidity."
"(iv) Existing Kazakhstan Laws do not provide guidelines as to the interpretation of the expressions "arising from" or "in connection therewith" in the context of the application of arbitration clauses (I note that Article 6 of the International Arbitration Law refers to "disputes arising out of civil-legal agreement").
(v) In my view, the practice of using such references is adopted to provide the arbitration panel with the maximum possible authority in relation to the consideration of disputes relating to an agreement (i.e. to acknowledge its jurisdiction over such an agreement) and in the absence of any legislative guidelines, each such reference will have to be evaluated on a case by case basis.
In light of the above, it can be assumed that when electing to arbitrate (rather than litigate in the courts), the parties make a choice based upon the advantages provided to them by arbitration (which advantages may not always be provided by a court of law) and their intention is to have all disputes which are related to, connected with or arising from or out of the underlying agreement settled by the arbitration tribunal, rather than to seek a settlement in a court of law. A recourse to a court of law may be viewed as cutting the foundation for the use of arbitration clauses in commercial agreements."
"21 In the Shaikenov Supplemental Report, Mr Shaikenov concludes at paragraph 4(ii) that there is, in his opinion, no basis for asserting that the arbitration clause should be considered invalid or ineffective. For the reasons set out in my Expert Report and this Supplemental Report, I disagree with his conclusion. In this regard, it may also be helpful to the Court for me to set out my views on the scope of the arbitration clause in relation to the claims that the bank is making against Tekhinvest, which is not a matter that I had an opportunity to comment on in my Expert Report.
22 In addition to its claims regarding invalidity and (in the alternative) breach of contract, I note from the Particulars of Claim that the Bank asserts claims of bad faith against each of the seven defendants in relation to certain actions that are alleged directly to have caused harm to the Bank. These claims are brought under Article 8 of the Kazakhstan Civil Code, which, broadly speaking, requires that individuals and companies act in good faith, reasonably and without causing harm to any other person. Claims for breach of Article 8 are regarded as "tortious" in nature in Kazakhstan law, although I understand "tortious" to be used in a broader sense in Kazakhstan that in common law jurisdictions such as England.
23 The Law of the Republic of Kazakhstan "On International; Commercial Arbitration" provides in Article 1 that it "…shall apply in relation to disputes arising out of civil law contracts to which individuals and legal entities are parties…" Article 6(2) of this Law provides that "An arbitration agreement may be entered into between the parties in relation to disputes which have arisen or may arise between the parties in relation to any specific civil law contract".
24 Based on these provisions, it may be stated that the default rule of Kazakhstan law is that an agreement to arbitrate may be concluded in relation to contractual claims only. Therefore it can be concluded that the legislator did not intend to include claims in tort (in the broad sense understood in Kazakhstan) within the scope of arbitrable matters generally. In my opinion, in order for such claims to be included within the scope of an arbitration, they should be expressly covered by an arbitration clause.
25 In my view, the arbitration clause in the Tekhinvest general Loan Agreement, although broad, cannot be construed to encompass intentional torts of the parties. There is no evidence in the wording of the arbitration clause that parties to the agreement clearly intended to extend the application of the arbitration dispute resolution mechanism to consequences of bad faith actions and/or fraud.
26 The arbitration clauses in each of the KPC General Loan Agreements are drafted in a similar format to the arbitration clause in the Tekhinvest General Loan Agreement. Accordingly, in my opinion in relation to the scope of these arbitration clauses is the same and I do not, therefore, consider that they include the Bank's claims for breach of Article 8 based on bad faith actions and/or fraud."
Colligate
"56 As to the second of these requirements:
(a) In order to allow Sberbank to take a first ranking security over the shares in Tekhinvest, on a date unknown to the Bank but which appears to have been between 15th February 2008 and 16th April 2008, Khazhaev, on behalf of the Bank signed a Pledge Order (the "Pledge Order") purporting to release the Bank's security over the shares in Tekhinvest which had been granted to the Bank by the Seven Pledge Agreements (paragraph 50 above).
(b) Although the Pledge Order expressly referred to the Seven Pledge Agreements, it was not signed by any of those shareholders as pledgor. Instead, it was signed by Colligate, which purported at that stage to be the pledgor of the shares in Tekhinvest.
(c) It is to be inferred that, at some stage presently unknown to the Bank, the Seven Shareholders had (in breach of clause 3.1 of each of the Seven Pledge Agreements) sold or purported to sell their shares in Tekhinvest to Colligate.
…………………………………
120 Colligate provided assistance to Tekhinvest, Ablyazov and Khazhaev in enabling the pledges referred to paragraph 56 above to be released with no alternative security being provided in their place.
PARTICULARS
(1) Paragraphs 52 to 59 above are repeated.
121 In doing so, Colligate acted with a want of good faith and/or dishonestly and/or unconscionably.
Extensive particulars are then given.
Note 1 Para 67 of the POC pleads that by these Articles a Court can, inter alia, declare a transaction invalid where certain conditions are met such as that the transaction was entered into fraudulently, or as a result of bad faith or collusion, or contrary to the provisions of Kazakh law including a duty of good faith, a duty not to inflict harm, and a duty to make disclosure of affiliations. [Back] Note 2 CJSC TechstroyAlyans, JSC Vektor; JSC InveStroyHolding; JSC Technostroy; JSC Rover; JSC Technoinvest; JSC Sufleks. [Back]