ON APPEAL FROM THE COMMERCIAL COURT (QBD)
Laurence Rabinowitz QC (sitting as a Deputy High Court Judge)
Strand, London, WC2A 2LL
B e f o r e :
(VICE-PRESIDENT OF THE COURT OF APPEAL CIVIL DIVISION)
LORD JUSTICE LEGGATT
LORD JUSTICE COULSON
| JSC BTA BANK
|- and -
|(1) MUKHTAR ABLYAZOV
(2) MADIYAR ABLYAZOV
Mr Peter Knox QC and Mr James Sheehan (instructed by Kingsley Napley LLP) for the 2nd Respondent
Hearing date: 12 April 2018
Crown Copyright ©
Lord Justice Leggatt:
Section 423 of the Insolvency Act
"(1) This section relates to transactions entered into at an undervalue; and a person enters into such a transaction with another person if
(a) he makes a gift to the other person or he otherwise enters into a transaction with the other on terms that provide for him to receive no consideration;
(2) Where a person has entered into such a transaction, the court may, if satisfied under the next subsection, make such order as it thinks fit for
(a) restoring the position to what it would have been if the transaction had not been entered into, and
(b) protecting the interests of persons who are victims of the transaction.
(3) In the case of a person entering into such a transaction, an order shall only be made if the court is satisfied that it was entered into by him for the purpose
(a) of putting assets beyond the reach of a person who is making, or may at some time make, a claim against him, or
(b) of otherwise prejudicing the interests of such a person in relation to the claim which he is making or may make.
(5) In relation to a transaction at an undervalue, references here and below to a victim of the transaction are to a person who is, or is capable of being, prejudiced by it; and in the following two sections the person entering into the transaction is referred to as 'the debtor'."
The test of purpose
"It is sufficient if the statutory purpose can properly be described as a purpose and not merely as a consequence, rather than something which was indeed positively intended."
Arden LJ went on to give some examples involving a person who goes on a walk with her dog during which she also posts a letter to illustrate the distinction between "a real substantial purpose" and "something which is a by-product of the transaction under consideration or an element which made no contribution of importance to the debtor's purpose of carrying out the transaction" (see para 25). She also expressed her agreement with a point made by Laws LJ in argument that "trivial purposes must be excluded".
"There may be cases in which, even absent the statutory purpose, the transaction would or might have been entered into anyway. That would not necessarily negate the section's application; but the fact-finding judge on an application made to him under section 423 must be alert to see that he is satisfied that the statutory purpose has in truth substantially motivated the donor if he is to find that the section bites."
"The test cannot be refined beyond saying that in each case the question to be asked is: can the court be satisfied that a substantial purpose of the debtor's transaction was (putting it in shorthand) to escape his liabilities?"
He nevertheless continued (at para 40):
"I would, however, add this. If in fact the judge were to find in any given case that the transaction is one which the debtor might well have entered into in any event, he should not then too readily infer that the debtor also had the substantial purpose of escaping his liabilities."
The judge's findings
"What I therefore have to determine is whether this was also a purpose of Mr Ablyazov in making the Transfer. That depends on whether Mr Ablyazov positively intended that outcome."
As discussed above, this was the correct question to ask.
(1) The fact that the transfer was effected after Mr Ablyazov had fled Kazakhstan and after the Kazakh regulator had uncovered his fraudulent misappropriation of billions of dollars of the bank's assets;
(2) The fact that, as the judge found, at the time of the transfer Mr Ablyazov knew that he would be facing claims against himself and his assets in this jurisdiction; and
(3) The fact that, as the judge also accepted, Mr Ablyazov is a person who "time and again has shown that he will do all he can to prevent [the bank] from being able to preserve and enforce against his assets".
(1) There were advantages of an investor visa compared to a student visa as it allowed Madiyar to remain in the UK without any of the restrictions imposed on those with only a student visa such as the need for a student sponsor and the need to find a job on graduation with an employer willing to sponsor a general visa (para 94).
(2) Mr Ablyazov had initiated the process which led to Madiyar applying for an investor visa when he instructed a firm of immigration solicitors in January 2008 (paras 36-37). This was long before any fraud was uncovered, albeit that "even at that early time Mr Ablyazov is very likely to have appreciated that he had been involved in serious wrongdoing against [the bank] for which he might get sued" (para 131).
(3) There was no lapse in the process, which continued from when it was initiated in January 2008 until the investor visa was obtained (paras 97, 132).
(4) It is likely that Mr Ablyazov would have made the transfer to enable Madiyar to pursue the investor visa application even if he was not at risk of a claim being made against him by the bank (para 132).
(1) Although the sum of £1.1 million is a great deal of money for most people, for Mr Ablyazov who on the bank's case had successfully embezzled more than US$6 billion, the judge considered that "the amount would have been almost de minimis". In these circumstances he thought it unlikely that Mr Ablyazov "would go to the lengths he did, including specifically setting up a London bank account in Madiyar's name, having to produce a quantity of personal documents, and applying for a visa with all the attendant legal fees, for such a small benefit" (para 139).
(2) The £1.1 million paid to Madiyar was sourced from a company incorporated in the British Virgin Islands called Sunstone Ventures Limited, in relation to which Mr Ablyazov's ownership and control was, at least in February 2009, far from transparent. The judge thought that, if Mr Ablyazov's motivation was to keep money away from his creditors, he could very easily just have left it with Sunstone and that "it is not easy to see why Mr Ablyazov would have regarded that objective as being well-served by moving the money out of Sunstone in the BVI and into the account held in London in his son's name by way of a transfer from an account in his own name" (para 140).
Alleged error of law in approach to dual purpose
Alleged failure to draw appropriate adverse inferences from lies
Alleged failure to give appropriate weight to the judge's own findings
"The trial judge has sat through the entire case and his ultimate judgment reflects this total familiarity with the evidence. The insight gained by the trial judge who has lived with the case for several days, weeks or even months may be far deeper than that of the Court of Appeal whose view of the case is much more limited and narrow, often being shaped and distorted by the various orders or rulings being challenged."
See Housen v Nikolaisen 2002 SCC 33;  2 SCR 235, para 14 (quoted in McGraddie v McGraddie  UKSC 58;  1 WLR 2477 at para 4). Furthermore, not every detail of the relevant evidence need or can be captured in the reasons given by the judge. As Lord Hoffmann said in Piglowska v Piglowski  1 WLR 1360, 1372:
"[The judge's] expressed findings are always surrounded by a penumbra of imprecision as to emphasis, relative weight, minor qualifications and nuance of which time and language do not permit exact expression, but which may play an important part in the judge's overall evaluation."
" the parties to a case on appeal have already been forced to concentrate their energies and resources on persuading the trial judge that their account of the facts is the correct one; requiring them to persuade three more judges at the appellate level is requiring too much. As the court has stated in a different context, the trial on the merits should be "the 'main event' rather than a 'tryout on the road'" "
The same point has been made using a different metaphor by Lewison LJ in Fage UK Ltd v Chobani UK Ltd  EWCA Civ 5, para 114(ii), when he said:
"The trial is not a dress rehearsal. It is the first and last night of the show."
"It does not matter, with whatever degree of certainty, that the appellate court considers that it would have reached a different conclusion. What matters is whether the decision under appeal is one that no reasonable judge would have reached."
Another formulation of the test, which has also been approved at the highest level, is that the appellate court ought not to interfere "unless it is satisfied that the judge's conclusion lay outside the bounds within which reasonable disagreement is possible": Todd v Adams & Chope (trading as Trelawney Fishing Co)  2 Lloyd's Rep 293, para 129 (Mance LJ) approved in Assicurazioni Generali SvA v Arab Insurance Group  EWCA Civ 1642;  1 WLR 577, para 17 (Clarke LJ) and by the House of Lords in Datec Electronics Holdings Ltd v UPS Ltd  UKHL 23;  1 WLR 1325, para 46.
The limitation issue
" a person shall be treated as claiming through another person if he became entitled by, through, under or by the act of that other person to the right claimed "
The judge took the view that this provision covers the present case because the right claimed by Madiyar to the money paid into his bank account is a right to which he became entitled by the act of Mr Ablyazov in causing the funds to be paid into the account.
"There has been no fraud in this case by the defendant company. They are in a way the innocent victims of Titley, in the same way as the plaintiffs have been defrauded by him of the moneys in question. Do they claim, however, in regard to the subject-matter of the action, through Titley? In my view, the answer is plainly that they do. How did they come to have the moneys? By means of cheques which were handed to them by Titley in respect of which they were not holders for value in due course, and they received the moneys by cashing those cheques. It seems to me that their claim to the moneys must be through Titley and through nobody else, and therefore it seems to me that they are plainly within the provisions of section 26(a), that is to say, 'the action is based upon the fraud of the defendant or of any person through whom he claims.'"
The argument for symmetry with the proviso
" nothing in this section shall enable any action
(a) to recover, or to recover the value of, any property; or
(b) to enforce any charge against, or set aside any transaction affecting, any property;
to be brought against the purchaser of the property or any person claiming through him in any case where the property has been purchased for valuable consideration by an innocent third party since the fraud or concealment took place "
(1) The proviso applies only where there has been a transfer of property and not where there has been a payment of money which does not involve a transfer of property from the payor to the payee.
(2) It would be irrational if the benefit of the proviso were available to an innocent purchaser of property but not (for example) to an innocent recipient of money who has given valuable consideration.
(3) To avoid that consequence, the definition in section 38(5) of when one person is to be treated as claiming through another person, should be construed as applying only in cases where there has been a transfer of property.
Lord Justice Coulson:
Lady Justice Gloster: