QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| (GRANTON ACTION)
JSC BTA BANK
(1) MUKHTAR ABLYAZOV
(2) ZHAKSYLYK ZHARIMBETOV
JSC BTA BANK
(1) MUKHTAR ABLYAZOV
(2) ZHAKSYLYK ZHARIMBETOV
JSC BTA BANK
|- and -
|(1) MUKHTAR ABLYAZOV
(2) ILDAR GAYAREVICH KHAZHAEV
(5) USAREL INVESTMENTS LTD
Hugh Norbury QC (instructed by Peters & Peters Solicitors LLP) for Zhaksylyk Zharimbetov
Jeffrey Chapman QC and Mr. Simon Atrill (instructed by Olswang LLP) for Ildar Gayarevich Khazhaev
Cyril Kinsky QC and Mr. Peter Griffiths (instructed by Edwin Coe LLP) for Usarel Investments Ltd
Hearing dates: 7, 8, 13-15, 19-22, 26-29 November 2012, 3-6, 10-13, 17-20 December 2012,
14-18, 21, 22, 28-31 January 2013, 4-7, 11-14 February 2013
Crown Copyright ©
Mr. Justice Teare :
|The Bank and its officers||9-29|
|The investigations of the AFN||30-41|
|The nationalisation of the Bank||42-46|
|The alleged fraud in Granton||75-95|
|The alleged fraud in Drey||96-110|
|The alleged fraud in Chrysopa||111-172|
|The claim against Mr. Zharimbetov in Granton||172-244|
|Liability under Kazakh law||205-207|
|Need for a shareholders' resolution||208-218|
|The claim against Mr. Zharimbetov in Drey||245-266|
|Causation and Quantum||261-266|
|The claim against Mr. Khazhaev in Chrysopa||267-311|
|Knowing assistance and||267-300|
|Causation and Limitation||301-311|
|The claim against Usarel for the shares as "dokhody"||312-344|
|The claim against Usarel for damages||345-348|
Granton and Drey
a) Did Mr. Ablyazov commit a fraud on the Bank ?
b) If so, did Mr. Zharimbetov know of that fraud and assist Mr. Ablyazov to commit it ?
c) If so, is Mr. Zharimbetov liable to the Bank under Kazakh law ?
d) Did Mr. Ablyazov commit a fraud on the Bank ?
e) If so, did Mr. Khazhaev know of that fraud and assist Mr. Ablyazov to commit it ?
f) If so, is Mr. Khazhaev liable to the Bank under Russian law ?
g) What liability, if any, does Usarel have to deliver up the shares in the White Sea port of Vitino and/or to pay damages under Kazakh law ?
The Bank and its officers
"He is aged 47 or 48. He graduated in theoretical physics and worked in the department of physics at the Kazakhstan State University. After the break-up of the Soviet Union he started a career in business. He established a company called Astana-Holding Company which, he said, became one of the largest multi-sector private holding companies in Kazakhstan. It acquired banking and media interests. He entered public service and became Minister of Energy, Industry and Trade in Kazakhstan. However, he had differences of opinion with the President and became an opponent of him. In 2002 he was imprisoned on what he and others say were politically motivated charges. He claims to have been tortured and ill-treated whilst in prison and to have been the victim of an assassination plot. He claims that his assets were seized. He was released in May 2003 but was required to give up politics. He moved to Moscow and started to rebuild his business career but secretly continued with his political activities. In 2005 the President asked him to return to Kazakhstan to run the Bank on condition that he did not interfere in politics. In May 2005 he took over as Chairman of the Bank. In 2009 he was dismissed as Chairman and left Kazakhstan hurriedly. The claims of the Bank in this litigation stem from Mr. Ablyazov's time as Chairman of the Bank."
"Mr. Ablyazov does not hold his assets in his own name. Rather, a trusted associate appears to hold shares in a holding company on his behalf and by that means controls the shareholdings in a chain of other companies at the bottom of which chain is an operating business. The use of a nominee and of companies registered in offshore jurisdictions makes it difficult to trace his assets. He says that the elaborate scheme by which he owns his assets is necessary to protect him from unlawful depredations by the President of Kazakhstan."
"Mr. Alexander Udovenko was one of Mr. Ablyazov's most trusted associates until sometime in late 2009 (when, it seems, he disappeared). He was a Russian lawyer who had practised with an American firm in Moscow and had then worked for an American bank in Moscow. From 2001-2003 he studied in London obtaining a diploma in law and an MBA. From 2003 he worked at Eastbridge Capital Limited in London. He appears to have provided his services to Mr. Ablyazov in London at the offices of Eastbridge. He was the nominee UBO [ultimate beneficial owner] of at least some of Mr. Ablyazov's companies and as such made use of corporate service providers in off-shore jurisdictions, in particular in Cyprus and the BVI. He was assisted by Syrym Shalabayev, Mr. Ablyazov's brother-in-law who, in the Autumn of 2008, replaced Mr. Udovenko as the nominee "beneficial owner" of at least some of Mr. Ablyazov's companies and was perceived by at least one person familiar with the workings of Eastbridge as Mr. Udovenko's "successor". The family connection was continued by the assistance given from time to time by Salim Shalabayev, a younger brother of Syrym, whose name was either used or suggested as a nominee UBO of at least two companies. In the Autumn of 2009, after the WFO [worldwide freezing order] had been granted and Mr. Udovenko had disappeared, Syrym Shalabayev appears to have transferred the work of Eastbridge Capital in London to Euroguard in Cyprus. "
The investigations of the AFN
"to borrowers registered in the British Virgin Islands, the Seychelles, Cyprus and Panama, with obscure founders' structure and where no information about participants is available to the Bank. In this regard, the question remains open as to the fact that these borrowers might be persons/entities having special relationship with the Bank. Also the lending schemes used by the Bank ………..show that those borrowers as a rule are used as "buffer" companies and act as nominal borrowers, whereas the Bank's funds are actually disposed by other companies which do not have any contractual relations with the Bank."
The nationalisation of the Bank
The frauds alleged against Mr. Ablyazov in the three actions
"Regarding the extent of the implementation of the plan of the [AFN] with regard to increasing provisions – the option of early repayment should be explored with borrowers, and the option of transferring debts to other clean companies to avoid the necessity of additionally creating reserves should also be considered in the first instance, this affects borrowers in respect of which the AFN has already calculated reserves of 50-100%. However, the obligation transfer scheme should be very correct."
The cases against Mr. Zharimbetov and Mr. Khazhaev
"It is, however, the essence of a successful case of circumstantial evidence that the whole is stronger than individual parts. It becomes a net from which there is no escape. That is why a jury is often directed to avoid piecemeal consideration of a circumstantial case: R v. Hillier (2007) 233 ALR 63 (HCA), cited in Archbold 2012 at para 10-3. Or, as Lord Simon of Glaisdale put it in R v. Kilbourne  AC 729 at 758, "Circumstantial evidence…works by cumulatively, in geometrical progression, eliminating other possibilities". The matter is well put in Shepherd v. The Queen (1990) 170 CLR 573 (HCA) at 579/580 (but also passim):
"…the prosecution bears the burden of proving all the elements of the crime beyond reasonable doubt. That means that the essential ingredients of each element must be so proved. It does not mean that every fact – every piece of evidence – relied upon to prove an element by inference must itself be proved beyond reasonable doubt. Intent, for example, is, save for statutory exceptions, an element of every crime. It is something which, apart from admissions, must be proved by inference. But the jury may quite properly draw the necessary inference having regard to the whole of the evidence, whether or not each individual piece of evidence relied upon is proved beyond reasonable doubt, provided they reach their conclusion upon the criminal standard of proof. Indeed, the probative force of a mass of evidence may be cumulative, making it pointless to consider the degree of probability of each item of evidence separately."
i) Mr. Ablyazov and Mr. Zharimbetov had worked together before. They had worked with each other in the 1990s in a grain company and in an electricity generating company and Mr. Zharimbetov, having sold his own business, moved to Siberia to operate a coal mining company at the behest of Mr. Ablyazov.
ii) Mr. Zharimbetov's position in the Bank as Deputy Chairman of the Management Board appears to have been the third most powerful in the Bank, after Mr. Ablyazov and Mr. Solodchenko.
iii) In addition he performed a high level and trusted role for Mr. Ablyazov personally. He had a close involvement with Mr. Ablyazov's "secret" companies being managed by Eastbridge.
iv) He had authority to decide whether UKB6 made loans to those companies.
v) For Mr. Zharimbetov to be appointed to his position in the Bank, to be permitted to have a role in the operation of Mr. Ablyazov's companies, and to be the person who was authorised to approve loans by UKB6 to such companies Mr. Ablyazov must have had complete trust in Mr. Zharimbetov. That is also shown by the circumstance that when, in 2008, the AFN demanded that Mr. Zharimbetov be dismissed, Mr. Ablyazov refused to do so.
vi) Mr. Zharimbetov authorized the Original Loans. They were so substantial (from US$35m. to US$140m.) that he must have paid attention to them. It cannot have escaped his notice that the loans were being made to offshore companies with no known assets. He must have known that the Credit Committee, of which he was the head and which was required by the Bank's own Guidelines to approve such loans after extensive due diligence, had not approved the loans.
vii) Mr. Zharimbetov has given evidence to the court which he must have known to be untrue. He must have known that his evidence that the Credit Committee had approved the Original Loans was untrue. He must also have known that his evidence that the Credit Committee merely checked that reports on proposed loans had been made rather than considered the contents of the reports was untrue. There is no innocent explanation for those lies. He must have lied because he realized that he had no honest explanation for the absence of Credit Committee meetings and because he realised that the sparse information about the proposed borrowers in the credit files was quite insufficient to justify the making of the loans by the Credit Committee.
Mr. Zharimbetov's liability under Kazakh law
"62. Principles of activities of officials of a company
A company's officials:
(1) shall discharge their entrusted obligations in good faith and by means that are to the utmost extent in the best interests of the company and its shareholders …………
(2) may not use or permit the use of the assets of the company in violation of the company's charter or decisions of a general shareholders' meeting or the board of directors or for personal gain nor abuse the company's assets in transactions with their own affiliates………..
63. Responsibilities of officials of a company
(1) Officials of a company shall be liable to the company and the shareholders for damage caused by their actions (omission), in accordance with Kazakhstan legislation, including for damage caused by:
(i) Presentation of misleading or false information;
(ii) Violation of the procedure for disclosure of information established by this law.
(2) Based upon a decision of a general shareholders' meeting, a company may file with a court a claim against an official for reimbursement of damage or losses caused by such official to the company.
The need for a shareholders' resolution
"A transaction concluded in the name of another person by a person not empowered to conclude a transaction or in excess of the power shall create, change, and terminate civil rights and duties for the person represented only in the event of the subsequent approval by him of this transaction.
The subsequent approval by the person represented shall make the transaction valid from the moment of its conclusion."
"the employer became aware or should have become aware of the violation of their rights."
"…under our legislation there is not allowed the "competition of claims" that is widely applied in Anglo-American law. By "competition of claims" is generally meant the possibility of presenting several different claims for protection of one and the same interest, with the satisfaction of one of these claims preventing (extinguishing) the possibility of presenting others.
"In Kazakhstan's legislation, competition is allowed only by way of an exception in cases directly provided by legislative acts (for example in protection of the rights of consumers in cases of harm being caused to them by defects in goods sold to them).
In remaining cases competition of claims is not allowed. This means that if a dispute arises from contractual relations, a suit may be presented only with respect to contractual liability. One cannot bring a claim for non-contractual harm. One cannot use the rules governing obligations for compensation for harm."
i) The value of the Original Loans $1,428,840,000
ii) The sums advanced under the Later Loans which were not used to repay the Original Loans $13,359,090
iii) Sum paid to Trasta Bank by way of commissions for transactions connected to the Later Loans $396,194.50
iv) Other repayments of the original Loans $260,864,207.33
i) The suggestion that Mr. Zharimbetov was merely "a senior manager" with no input into the Drey transactions is improbable and contrary to the contemporaneous documents. It is improbable because Mr. Zharimbetov was trusted by Mr. Ablyazov. His role in and knowledge of the administration of Mr. Ablyazov's secret companies shows that. He had a powerful position in the Bank. He was Deputy Chairman of the Management Board, second only to Mr. Solodchenko. He was chairman of the Credit Committee and very closely involved in the operation of UKB6. When the AFN required him to be dismissed, Mr. Ablyazov refused to do so. All this makes it highly probable that he had a deep involvement in the Drey Transactions. The email dated 26 May 2008 addressed to him and Mr. Ablyazov concerning the share dilution scheme shows that, as does his approval of the loans required for that scheme.
ii) There is no corroboration for Mr. Zharimbetov's evidence that the price to be paid by the Bank for the shares in the Target Banks was a commercially open and fair determination of the price. I have already summarised the Bank's unchallenged expert evidence on the question of the value of the shares in the Target Banks.
iii) Whereas there was evidence of a culture in Kazakhstan whereby subordinates signed that which had been approved by their superior it is, in my judgment, unrealistic to suggest that a man in Mr. Zharimbetov's position was merely following the instructions of Mr. Solodchenko when he signed the loans which would fund the share dilution scheme. The suggestion that the share dilution scheme was not his responsibility flies in the face of the email sending Mr. Zharimbetov and Mr. Ablyazov the PowerPoint presentation of the share dilution scheme and Mr. Zharimbetov's approval of the required loans.
iv) Finally, the suggestion that the Board knew of Mr. Ablyazov's beneficial ownership of the Bank and of the Target Banks is difficult to reconcile with Mr. Zharimbetov's involvement in keeping Mr. Ablyazov's beneficial ownership of the Bank secret from the Bank's auditors and from the Bank's counterparties. It seems likely that Mr. Solodchenko knew of Mr. Ablyazov's interest in the Bank and in the Target Banks and it is possible that those other members of the Board who could be relied upon to support Mr. Ablyazov may also have known of Mr. Ablyazov's interests. It is also likely that Mr. Talvitie suspected that Mr. Ablyazov owned the Bank but I accept that he was not told that and that no document recorded that. Mr. Zharimbetov was instrumental in ensuring that there was no such document. It is also likely that Mr. Talvitie suspected that Mr. Ablyazov might control the Target Banks and that he might be connected with Drey. That is what he told Mr. Varenko in 2009. He raised his concerns with Mr. Solodchenko but was advised that the overall price was suitable and so voted in favour of the BTA Moscow transaction. (He voted in favour of the BTA Belarus SPA but abstained from the vote in relation to the BTA Belarus Compensation Agreement. He does not appear to have voted with regard to the BTA Ukraine Compensation Agreement.) However, I accept his evidence that he did not know that Mr. Ablyazov owned or controlled both the Drey and the Target Banks. No such affiliations had been disclosed in any of the voting papers. If they had been it is more likely than not that Mr. Talvitie would have required a valuation by a major accountancy firm. He certainly cannot have known of the share dilution scheme. There was no reason why Mr. Zharimbetov who had sought to keep Mr. Ablyazov's ownership of Drey secret should have assumed that a member of the Board representing an independent investor would know of Mr. Ablyazov's interest in Drey and the Target Banks. It is therefore most improbable that Mr. Zharimbetov regarded the Board's approval of the Drey transactions as having been given by the Board in circumstances where all of the members knew of the extent of Mr. Ablyazov's ownership of the Bank, Drey and the Target Banks.
|BTA Moscow Compensation Agreement||$133,876,080|
|BTA Moscow SPAs||$88,277,663|
|BTA Belarus Compensation Agreement||$11,349,840|
|BTA Belarus SPAs||$17,855,709|
|BTA Ukraine Compensation Agreement||$150,149,477|
Mr. Khazhaev; the Chrysopa action
"21. …………The employee shall: perform his/her work duties vested by the labour contract in good faith……….
233(1) Unless otherwise provided by this Code or other federal laws, financial liability of a party to the employment contract arises where damage was caused by that party as a result of the first party's culpable misconduct (action or inaction)……
241. A worker shall bear material liability for damage caused, within the limits of his average monthly wage, unless otherwise stipulated in this Code or other federal laws.
243. An employee shall be subject to material liability for damage in full in instances:
(3) where damage was caused deliberately;
(5) where damage was caused as a result of the employee's criminal actions, established by a court decision………
277(1) The head of an organisation shall bear full financial liability for any direct actual damage caused to the organisation."
"Oil trader Rusneftekhim is the Initiator of the project. The Project under financing is a joint project of IG BTA-Capital LLC and Rusneftekhim Group of Companies ………….The ownership structure provided in the Expert Opinion (page 2) shows a direct interest of the Eurasia Group of Companies in the transaction (51%). Given that the Eurasia Group of Companies has a large number of liabilities to BTA, the loan under this transaction should be viewed as joint liabilities of the Eurasia Group of Companies. It is necessary to Compliance Control to provide Major Borrowers Risk management Office with an opinion on Borrowers' affiliation."
The Claim against Usarel for the Vitino port as "dokhody."
"953(1) A person (acquirer) who without grounds established by legislation or transaction acquired or saved property (unjustly enriched) at the expense of another person (victim) shall be obliged to return to the last property unjustly acquired or saved…..
954 ….the rules of the present Chapter shall be applied also to demands
(i) concerning the return of that performed under an invalid transaction ….
(iv) concerning compensation of harm, including that caused by the behaviour not in good faith of the enriched person.
955. Property comprising unjust enrichment of the acquirer must be returned to the victim in kind.
956(1) In the event it is impossible to return in kind property unjustly received or saved, the acquirer must compensate the victim for the real value of this property at the moment of its acquisition…………..
958(1) The person who unjustly received or saved property shall be obliged to return or to compensate the victim for all proceeds ["dokhody"] which he derived or should have arrived from this property from the time when he knew or should have known about the unjust enrichment."
"1. Harm…caused by the unlawful actions …to property ….shall be subject to compensation in full by the person who caused the harm. ………………….
2. A person who has caused harm shall be relieved from compensation thereof if it is proved that the harm was caused not though his fault……"
Routes to invalidation
Consequences of invalidation
Usarel's liability in damages