QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| JSC BTA BANK
|- and -
|(1) GRANTON TRADE LTD
(2) BRANDEN & ASSOCIATES LTD
(3) ALDRIDGE VENTURES LTD
(4) ZAFFERANT PARTNERS INC
(5) FOREST MANAGEMENT LTD
(6) INCOMPRO MANAGEMENT LTD
(7) PERSPECTIVE COMMUNICATIONS INC
(8) MADEN HOLDING INC
Simon Colton (instructed by i-Law) for the Respondents
Hearing dates: 5th October 2010
Crown Copyright ©
Mr Justice Christopher Clarke:
"1……The Bank is one of the largest in Kazakhstan. It was effectively nationalized on 2nd February 2009 in the wake of the worldwide financial crisis. Until that date the first defendant, Mr Ablyazov, was the beneficial owner of the majority of the Bank's shares and Chairman of its Board. The second defendant, Mr Zharimbetov, was a close associate of the first defendant and first Chairman of the management board. Both of them have now fled to this country. Various criminal prosecutions are pending against them and others in Kazakhstan. Several sets of civil proceedings are pending against them and those who are said to be their associates in this court.
2 The current proceedings concern what is said to be a scheme of misappropriation by which over a billion United States dollars was extracted from the Bank in late 2008. The scheme was effected through, so the Bank says, the use of the first to fourth respondents to this application who supposedly borrowed from the Bank, and the fifth to ninth respondents, who were the direct recipients of the Bank's advances - the monies being transferred to them at a bank in Latvia pursuant to letters of credit opened by the Bank on behalf of the borrowers in their favour on the basis that they were intermediaries for the purported supply of oil machinery and equipment.
3 The Bank's case is that the whole scheme was a sham carried out by and for the benefit of the first defendant, who used the second defendant as his assistant, and the respondent companies as his vehicles. A summary of the Bank's case is set out at para 20 of the Bank's skeleton argument and in the Points of Claim, to which I refer but which it is unnecessary to recount.
4. No defence has yet been filed. The first defendant claims that the loans were made to financial entities of substance, and that he had no connection with either the borrowers or the intermediaries. In the present proceedings the Bank makes proprietary claims in respect of the sums advanced and claims for compensation against the first and second defendants (the Bank's officers) for breach of duty, and for compensation against the borrowers and intermediaries for participation in that breach."
a. The Bank alleges that in breach of Article 8 of the Kazakh Civil Code ('the Civil Code') each of the Borrowers and Intermediaries "did not exercise their rights in good faith, reasonably and fairly and did not observe legal rules and ethical norms of society and did not observe rules of business ethics": PoC, para 82.
b. The Bank then alleges that the credit agreements, letter of credit agreement and letters of credit can be invalidated pursuant to article 74 of the Kazakh Joint Stock Company Law, further to which the corporate defendants can (the Bank pleads) be made liable to pay 'damages': PoC, para 83.
c. Finally, the Bank claims restitution or compensation under various provisions of the Civil Code: PoC, para 84.
"(1) I am instructed that the loans were arranged by the Bank as part of a scheme, in which the Bank asked the Applicants' beneficial owner and controller (Mr Timichev) to participate, to permit the Bank to make loans to clients who could not otherwise receive loans under the Bank's regulations. Mr Timichev was asked by the Bank, for its own business purposes, to forward the payments received by the Applicants as 'loans' to certain identified companies, "the Ultimate Borrowers", in circumstances where it was commonly understood that the 'loans' would not in fact be repayable. Mr Timichev was led to understand that these funds would be paid (directly or indirectly) by these Ultimate Borrowers back into the Bank's control. Mr Timichev was assured by the Bank that, in return for his (and his companies') participation in this scheme, the Bank would provide Mr Timichev's companies with the funds required for the purchase of the equipment on preferential terms and at lower interest rates at a later stage.
(2) In the circumstances, the Applicants acted at the request and with the full knowledge of the Bank of all relevant circumstances, for the benefit of the Bank. Assuming that the onward payments by the Ultimate Borrowers were made, which is outside the control of the Applicants, the Bank suffered no loss.
(3) In any event, the allegations of wrongdoing made against the Applicants would, under Kazakh law, not give rise to any civil claim against them. Rather, the Applicants would be subject to Kazakh criminal processes, ancillary to which there would be the possibility of a claim for reparation by any victim. Accordingly, this claim is an attempt to enforce Kazakh penal law.
(4) Finally, even if the alleged wrongdoing were proven, they would not give rise to any claim under Kazakh civil law. The Articles of the Kazakh Civil Code cited in the Particulars of Claim would not apply to this situation."
a. There is no evidence that any of the Borrowers were or had been involved in the business of acquiring or supplying oil drilling and other equipment or had any experience of it. Such financial information as was available on the Borrowers showed them to operate on a significantly different scale to that being proposed, and wholly unable to meet repayments out of their own resources.
b. The purpose of the facilities was said to be for the acquisition of oil drilling and other equipment from the Intermediaries. But there is no evidence that the supply of such equipment was a business in which any of the Intermediaries had been involved or had any experience. Nor is there any evidence as to why it was necessary for four Borrowers to acquire the machinery and equipment from the Intermediaries, rather than from manufacturers or established suppliers.
c. There were a total of 16 contracts of supply. Notwithstanding that they were between four different Borrowers and six different Intermediaries, and were in respect of different machinery and equipment (albeit related generally to the oil industry), both the form and content of every agreement are almost identical.
d. The contracts were, at least in the case of the vessels and oil rigs, both unusual and lacking the normal terms expected in market practice.
e. The contracts have several peculiar features. Most notable are the payment provisions. In particular, there is no or no obviously rational reason why (a) payments should be by letter of credit; or (b) the majority of the payments (70% in all but one case) should be paid up front and on the presentation of manifestly inadequate documentation, without any evidence that the Intermediary had acquired the equipment or that the equipment even existed.
f. The circumstances in which, following the up front payments, all of the contracts were almost immediately amended so as to reduce the purchase price to exactly the amount of the up front payment, bear no obviously honest explanation.
g. Simple mistakes on the documentation, including certain letters carrying the incorrect letterhead and others being addressed to the wrong addressee, point to a central hub of activity and a lack of care inconsistent with legitimate commercial transactions of this magnitude.
h. The facts that (a) no guarantees have been provided; (b) no pledges of existing equipment have been provided; (c) no repayments have been made; and (d) the Bank's efforts even to locate equipment with the specifications in the contracts have drawn a blank, support the conclusion that the contracts were shams, the equipment did not exist and this was a crudely executed scheme to extract money from the Bank for no legitimate purpose.
(a) the paucity of information provided to the Bank and the prima facie fraudulent circumstances of the transaction, as identified above;
(b) the circumstances in which the approval was apparently pushed through the Credit Committee, without a meeting;
(c) the speed with which the documents were put together and the advances made;
(d) the fact that the facilities were approved and the advances were made without security;
(e) the Bank's apparent failure even to question the uniform reductions in the purchase price but instead simply to amend the documentation to reflect them;
(f) the Bank's apparent reliance on obviously inadequate valuations; and
(g) the Bank's apparent failure to address, or even consider, its inability to determine the related party issues which could arise on the transactions.
"Because the cause of action may have no connection with England, especial care is required before permission to serve out of the jurisdiction will be allowed. In particular, the court should not grant permission under this clause as a matter of course merely because not to do so would mean that more than one set of proceedings would be required."
a. If, even without the dictates of the Judgments Regulation (Council Regulation (EC) No44/2001), England would in any event be the forum conveniens, then the court can conclude that England is the forum conveniens in respect of proceedings against all defendants.
b. But if England would not be the forum conveniens for the entirety of the proceedings were it not for the Judgments Regulation, then the fact that the English court is unable to stay the claim against the domiciled defendants on forum non conveniens grounds does not justify permitting the claim to be expanded to bring in all of the non-domiciled defendants.
c. As Blackburne J put it, in Pacific International Sports Clubs Ltd v Surkis  EWHC 1839 (Ch) at ; upheld on appeal  EWCA Civ 753, the interests of justice will not be served by allowing the tail to wag the dog. He also referred me to my judgment in OJSC Oil Company Yugraneft v Abramovich  EWHC 2613 (Comm) at  to ; and Briggs and Rees: Civil Jurisdiction & Judgments (5th Ed) at ¶4.57.
Note 1 Mr Colton submitted that I could make no finding that either of them face political persecution in Kazakhstan (or have a well founded fear thereof), or that the quality of justice there is, in any way, deficient so that it is an unavailable forum, in the absence of any contention by the parties to the present application, or cogent evidence, to that effect. That seems to me somewhat to miss the essential point, which is that neither of them will voluntarily litigate in Kazakhstan but will do so here. [Back] Note 2 At first instance in Owusu the judge had decided that, but for the fact that he was precluded by the Brussels Convention from staying the action against D1, he would have regarded Jamaica as the more appropriate forum. What order (if any) was made about the joinder of D3, 4 and 6 after the decision of the European Court of Justice is unknown. The Court of Appeal had deferred consideration of that issue until after the decision of the ECJ. [Back]
Note 1 Mr Colton submitted that I could make no finding that either of them face political persecution in Kazakhstan (or have a well founded fear thereof), or that the quality of justice there is, in any way, deficient so that it is an unavailable forum, in the absence of any contention by the parties to the present application, or cogent evidence, to that effect. That seems to me somewhat to miss the essential point, which is that neither of them will voluntarily litigate in Kazakhstan but will do so here. [Back]
Note 2 At first instance in Owusu the judge had decided that, but for the fact that he was precluded by the Brussels Convention from staying the action against D1, he would have regarded Jamaica as the more appropriate forum. What order (if any) was made about the joinder of D3, 4 and 6 after the decision of the European Court of Justice is unknown. The Court of Appeal had deferred consideration of that issue until after the decision of the ECJ. [Back]