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England and Wales High Court (Commercial Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> JSC BTA Bank v Ablyazov  EWHC 1779 (Comm) (16 July 2010)
Cite as:  EWHC 1779 (Comm)
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QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| JSC BTA BANK
|- and -
Anthony Trace QC, Duncan Matthews QC, Lawrence Akka, Thomas Grant and Alexander Winter (instructed by Stephenson Harwood) for the Defendant
Hearing dates: 25-28 May and 8 June 2010 (with further evidence and written submissions being completed on 7 July 2010)
Crown Copyright ©
Mr. Justice Teare:
The Receivership Application
"the court will, on appropriate occasions, take drastic action and will not allow its orders to be evaded by manipulation of shadowy offshore trusts and companies formed in jurisdictions where secrecy is highly prized and official regulation is at a low level."
"where there is a Mareva injunction and a protective regime and where there is strong evidence to suggest at an interlocutory stage that the Mareva injunction and the protective regime are being breached."
"The nature of the remedy [receivership] is more intrusive, more expensive, and less reversible than the granting of an injunction. The receiver has to be paid. The defendant no longer has control of the assets. Irreparable damage may be done to the business of the defendant through the publicity. The claimant must show that the appointment is appropriate because other less invasive remedies would be inadequate. If the claimant has contractual or other rights as to how assets may or may not be used (eg a negative pledge), then before appointing a receiver the court will consider whether damages or an injunction is a sufficient remedy. The court, in exercising its discretion, will take into account the likely costs of the appointment. Ordinarily an unsecured creditor is left to obtain judgment and then to enforce his judgment with the assistance of a receiver."
"No positive unvarying rule can be laid down as to whether the Court will or will not interfere by this kind of interim protection of the property. ……….. But where the object of the Plaintiff is to assert a right to the property of which the Defendant is in the enjoyment, the case is necessarily involved in further questions. The Court by taking possession at the instance of the Plaintiff may be doing a wrong to the Defendant; in some cases an irreparable wrong. If the Plaintiff should eventually fail in establishing his right against the defendant, the Court may by its interim interference have caused mischief to the defendant for which the subsequent restoration of the property may afford no adequate compensation. In all cases, therefore, where the Court interferes by appointing a receiver of property in the possession of the Defendant before a title of the Defendant is established by decree, it exercises a discretion to be governed by all the circumstances of the case.
When the evidence on which the Court is to act …..is very clear in favour of the Plaintiff, then the risk of eventual injury to the Defendant is very small, and the Court does not hesitate to act. Where there is more of a doubt, there is of course more of difficulty; the question is one of degree, as to which, therefore, it is impossible to lay down any precise and unvarying rule.…….."
"…the appointment of a receiver in such a case authorises an irresistible invasion and that even if the army of occupation is withdrawn after only a short time things may never be the same again…..No court will make such an order unless convinced of its necessity. A case for some kind and degree of interlocutory relief may be made out which falls short of this extremely drastic remedy; for example, the court may not be satisfied – and it is of course for the applicant to persuade the court that nothing less than what he seeks will do – that in all the circumstances it should do more than grant an injunction. At times the court will be induced to refuse the remedy of a receiver by undertakings offered by the defendant."
The matters relied upon in the present case
i) The Bank has a good arguable case that Mr. Ablyazov has defrauded it of huge sums of money and there is a serious risk that Mr. Ablyazov will dissipate his assets.
ii) The structure by which Mr. Ablyazov holds his assets is "more than a paradigm example" of the sort of case which cries out for a Receivership Order. In particular, the nominees who act for Mr. Ablyazov do whatever Mr. Ablyazov requires and use is made of corporate structures in jurisdictions "renowned for their secrecy and light regulation."
iii) Mr. Ablyazov has breached the Freezing Order.
iv) Mr. Ablyazov's disclosure of his assets has been evasive which has been underscored by his failure to reveal dealings in his assets.
v) The Restricted Information regime (by which information disclosed by Mr. Ablyazov can only be seen by those advising the Bank, rather than the Bank itself) is a serious fetter on the ability of the Bank to police the Freezing Order and there is reason to believe that Mr. Ablyazov has an ulterior motive for insisting on the Restricted Information regime, namely, seeking to ensure that the Bank does not learn that other bad "loans" made by the Bank were in connection with assets now claimed by Mr. Ablyazov.
vi) Drey, the Fourth Defendant, sought to assert the privilege against self-incrimination in circumstances which suggested money laundering offences by Mr. Ablyazov.
vii) The proposed Receivership Order is proportionate and reasonable.
viii) There is no good reason for not making the Receivership Order.
Good arguable case and risk of dissipation
The structure by which Mr. Ablyazov holds his assets
Breach of the Freezing Order
"But the principle extends beyond the payment of debts, or the incurring of ordinary living expenses. It applies also to all ordinary transactions in the course of life."
"I do not propose myself to offer any definition of what is meant by "ordinary course of business". It can, perhaps, best be regarded as the obverse of the concept of dissipating a defendant's assets."
"…the point of the Mareva jurisdiction is to proceed by stealth, to pre-empt any action by the defendant to remove his assets from the jurisdiction. To achieve that result the injunction must be in a wide form because, for example, a transfer by the defendant to a collaborator in the jurisdiction could lead to the transfer of the assets abroad by that collaborator. But it does not follow that, having established the injunction, the court should not thereafter permit a qualification to it to allow a transfer of assets by the defendant if the defendant satisfies the court that he requires the money for a purpose which does not conflict with the policy underlying the Mareva jurisdiction…"
"16. My business interests are varied, but frequently involve the purchase, development and onward sale of commercial companies and other assets. I currently hold interests in various sectors. I have in the past held interests in, for example, media, energy and sugar production businesses.
181. My business frequently involves purchasing assets which are considered to be good investments, and managing and developing those assets so as to increase their value and realise a profit; such assets are then either sold to realise a profit, or retained if they continue to be a desirable investment. In all cases, those assets are acquired and managed via holding companies, not by me acting as a sole trader."
(a) The initial disclosure of assets
(b) The Schedule C disclosure
i) Mr. Ablyazov could not otherwise have known or ascertained this information.
ii) The speed and sequence of the payments would be incredible if the recipients were independent third parties.
iii) Mr. Ablyazov has not disclosed any consideration or assets received in return for the payments made.
i) Payments were made by allegedly independent companies from accounts with Trasta Komercbanka in Latvia or BTA Moscow ie the same banks which received the funds under the compensation agreements on behalf of Drey.
ii) There were many links of incorporation and addresses between those companies.
iii) There were numerous connections of addresses between those companies and offshore companies of Mr. Ablyazov.
(c) Failure to mention dealings in assets
(i) Eurasia Tower
"At the time of my second cross-examination in November, I thought that the possibility of this asset being transferred to Mr. Fuchs was small if not non-existent, and accordingly the prospect of such a transfer is not something that it would have occurred to me to mention."
(ii) BTA Kazan
(d) Trust deeds
The Restricted Information regime
Drey's claim that it was exposed to criminal proceedings
The reasons for a Receivership Order
i) His initial disclosure of his assets can now be seen to have been seriously inadequate in that he failed to mention the crucial role of a nominee and the nature of the operating assets (save for one). There are grounds for believing that he wished to make it difficult for the Bank to enforce the Freezing Order.
ii) There are grounds to believe that his failure to mention the sale of Eurasia Tower to Clyde and Co. was to avoid the Bank's solicitors learning of the sale and that $20m. had been received in part payment.
iii) There are grounds to believe that his failure to mention the sale of BTA Kazan to Clyde and Co. was to avoid the Bank's solicitors learning of the sale and that the proceeds of sale had been received, though this was unlikely to succeed in the light of a press release by BTA Kazan.
The proposed receivers and method of operation
"…[B]y securing the corporate structure we should be able to preserve the assets to a greater degree than currently exists and without directly intervening in the day to day management of the businesses in which [Mr. Ablyazov] has an interest."
"monitor the performance of the businesses on a regular basis in order to ensure that the value of [Mr. Ablyazov's] interest is not being improperly diminished or dissipated".
"to use his best endeavours as soon as reasonably practicable to (i) procure letters to be written by the Companies in Schedule 1 and the individual nominees in Schedule 2 in the forms annexed hereto……and (ii) provide to the Court and Hogan Lovells LLP the most recent financial statements of the companies listed at Schedule 5."
i) It is not in the interests of the receivers to damage either the operating businesses or Mr. Ablyazov. Their role and duty is to preserve his assets, not to damage them. I would therefore expect that they would strive to limit the damage which might be caused by assuming control of the operating assets through control of the companies at the top of the respective chains.
ii) Mr. Ablyazov will be obliged to co-operate with the receivers. The greater the degree of co-operation the less the risk of damage to the operating businesses and to himself.
iii) Particular powers or provisions requested in the draft order may be excluded with liberty to apply to include them at a later stage. Thus the draft provides that a further order of the court is required before the receivers may manage a company's business.
iv) The Bank must give an undertaking in damages. At present fortification of that undertaking by way of a £5m. bond is offered. If greater fortification is required Mr. Smith has invited the court to bear in mind that companies controlled by Mr. Ablyazov still owe very considerable sums to the Bank. Thus in respect of Project D, the Oceanarium, Business Centre 1812, Paveletskaya and Project E, large sums are owed to the Bank. He has suggested that Mr. Ablyazov in effect already has security in those amounts. A charge can be created by the Bank to ensure that he has the benefit of that security.
Other reasons for not making the Receivership Order
(a) The political backdrop
i) Freezing orders are granted where the claimant has a good arguable case. They are not denied because the defendant has an arguable defence. Since the Receivership Order is sought in support of the Freezing Order which has been granted in this case it also should not be denied merely because Mr. Ablyazov has an arguable defence.
ii) The court cannot, in determining the receivership application, determine the question whether the proceedings before this court are an abuse of its process. That will have to be determined when the court hears the stay application. Indeed, it is accepted by Mr. Trace that the court cannot on this application make findings in relation to the stay application.
iii) If the court were to refuse to make the Receivership Order on the grounds that there is a risk that such an order might advance the illegitimate ends of the President of Kazakhstan, as submitted by Mr. Trace, the court would, in effect, be saying that the outcome of the receivership application should await the determination of the stay application. Mr. Trace did not suggest that in terms. If he had done so I have no doubt that the suggestion would have been resisted by Mr. Smith on the grounds that directions for hearing the receivership application were given in order to ensure that the application was heard as promptly as was consistent with justice, without any suggestion being made that the hearing of the application should be adjourned pending the determination of the stay application. The court should therefore seek to determine the receivership application on its merits.
iv) However, the fact that a stay application has been issued and will therefore have to be determined is not something which I can regard as irrelevant. For if the stay application were hereafter to succeed it would follow that the Receivership Order, if granted, would have to be rescinded. This is therefore a further reason why the undertaking in damages must be of real value.
(b) Human Rights
(c) The proprietary claim
i) The mere making of a receivership order does not vest the property of the defendant in the receiver; see Vine v Raleigh (1883) 24 Ch.D. 238 at p.243, Claythorpe Properties v Evans  1 WLR 1223 at p.1228, Masri v Consolidated Contractors Int.  QB 450 at paras.53-54 and Picarda on Receivers, Managers and Adminstrators 4th ed. p.439.
ii) Nevertheless it is open to the court to order that property of the defendant vest in the receiver if that is necessary for the purposes of the receivership. This seems to me to be right in principle and I can see no reason why it is wrong in principle. Although the property may vest in the receiver he holds the asset as directed by the court.
iii) Mr. Smith did not refer me to any authority where this was specifically held to be the case. He did however refer me to the orders made in Derby v Weldon. In that case the Vice Chancellor ordered that assets be "delivered or transferred" to the receiver. In the Court of Appeal such an order was described as "usual"; see Derby v Weldon  1 WLR 1139 at p.1146 per Dillon LJ. At p.1150 Dillon LJ referred to "the traditional view that receivership assets ought to be held solely by the receiver appointed by the court." In some contexts delivery and transfer may refer just to possession. But the order of the Court of Appeal in that case specifically ordered that the defendants procure that certain assets "be vested in the sole name and under the sole control of the Receiver."
iv) In re Sacker (1888) 22 QBD 178 is not an authority to the contrary. It was there held that where an order had been made that a certain sum be paid to the receiver that receiver was not a "creditor" entitled to present a bankruptcy petition. The reasoning is at p.183. "There is no debt due to him from the appellant". I do not regard that decision as authority for the proposition that the court has no power to order that certain assets be vested in a receiver.
The Clarification Application
The past transactions
The Passport Application
Conclusions as to the three applications:
(ii) The clarification application succeeds; see paragraphs 48-74 and 171. Declarations may be made in respect of the sales of BTA Kazan, Omsk Bank and Eurasia Tower; see paragraphs 177-181.
(iii) The passport application fails; see paragraph 186.
Stephenson Harwood's letter to me dated 13 July 2010
Further evidence received on 15 July from Stephenson Harwood
i) The new evidence is very sparse. Mr. Ablyazov does not say precisely what he told Clyde and Co. Mr. Flannery says that Mr. Ablyazov told him that "he was sure that he had informed Clyde and Co. about both of these transactions." In this regard it is to be noted that Mr. Hardman had raised the inconsistency between Mr. Ablyazov's disclosures as to the sale of Eurasia Tower and Clyde's letter dated 15 December 2009 in his Fifteenth Witness Statement at paragraph 40. Mr. Ablyazov replied to that in his Fourth Witness Statement at paragraph 11. I referred to his response in paragraph 111 of my judgment. He did not at that stage suggest that he had disclosed to Clyde Co. that Eurasia Tower had been sold. He offers no further details or explanation in his Ninth Witness Statement.
ii) If, nevertheless, I were to hold, on the basis of the new evidence, that Mr. Ablyazov had told Clyde and Co. about the sale of Eurasia Tower and BTA Kazan, I would remain of the view that his seriously inadequate initial disclosure of his assets provides reason to believe that the Freezing Order may not provide the Bank with adequate protection against the risk that his assets may be dissipated prior to judgment. There would remain a risk that he may use the structure by which he holds his assets to deal with them in breach of the Freezing Order. I would still be left unable to trust him not to deal with his assets in breach of the Freezing Order.
iii) I would therefore not alter my conclusion that it is just and convenient to make the Receivership Order and that such an order is justified and proportionate.