England and Wales High Court (Commercial Court) Decisions

An outline of the Claimants’ case

6.                  The Defendants are all former directors of the KK Group. Prior to this, the First Defendant, Mr Baglan Zhunus, and the Second Defendant, Mr Maksat Arip, had been close business associates. Between 1999 and 2000, they had worked together as directors of a telecommunications company in Kazakhstan called Spectrum LLP, before moving on to work as directors of KazTransCom, another telecommunications company, between 2000 and 2003. In 2003 Mr Zhunus and Mr Arip joined the KK Group, then owned by an organisation called Seimar Holdings which was looking to sell the business, Mr Zhunus becoming Chairman of KK JSC’s Board (a position which he held between 2003 and July 2009) and Mr Arip becoming a director and KK JSC’s Chief Executive Officer (between 2003 and April 2008). The following year, in 2004, Mr Zhunus and Mr Arip bought the KK Group, each acquiring a 50% shareholding in KK JSC through Kagazy Invest LLP, a holding company which Mr Zhunus and Mr Arip both owned. The year after that, in 2005, another of their companies, Holding Invest LLP, was introduced into the top of the structure. Subsequently, on 5 March 2007, Mr Zhunus became Chairman of the Board of KK Plc from the date when that company was incorporated, 5 March 2007, until April 2008. He was also indirectly the beneficial owner of 50% of the shares in KK Plc until its entry into the IPO to which I have referred in July 2007 and which involved KK Plc being introduced into the KK Group structure and Kagazy Invest and Holding Invest being removed from it.

8.                  In Dubai, Mr Zhunus, Mr Arip and Ms Dikhanbayeva worked on what was referred to internally, during their time in the KK Group, as “the oil business” and involved another Isle of Man company known as Exillon Energy Plc (‘Exillon’), owned in the main by Mr Zhunus and Mr Arip until October 2009, but which had previously operated through a Kazakh business called Caspian Minerals. This “oil business” was concerned with the exploitation of oil assets in Siberia. Mr Arip served as Exillon’s Chairman from 17 November 2009 until April 2011, with Ms Dikhanbayeva working for the company in a senior role under not only Mr Arip but also a Mr Alessandro Manghi, a previous Chairman of KK Plc and by this stage Exillon’s CEO, a position which he held until his resignation in April 2011 when Mr Arip also resigned as Chairman.

9.                  The circumstances in which Mr Zhunus and Mr Arip came to leave the KK Group were that in June 2009 Mr Arip contacted Mr Tomas Werner, suggesting that he might like to acquire an ownership interest in KK Plc. Mr Werner was a businessman based in London who had previously dealt with both Mr Zhunus and Mr Arip when he worked for HSBC as a private banker. Indeed, Mr Arip was one of his clients in that role both at HSBC and after he left HSBC to set up his own wealth management firm, Werner Capital, in April 2008. Specifically, at a meeting in London, Mr Arip provided Mr Werner with a copy of KK Plc’s IPO Prospectus together with audited accounts prepared by BDO for the period ending 31 December 2008, explaining that the KK Group needed to restructure its debt, having run into financial trouble as a result of the global financial crisis, and that he and Mr Zhunus wished to concentrate on their oil business rather than take responsibility for the restructuring required. Mr Werner was interested and so the following month visited Kazakhstan. The month after that, in August 2009, Mr Arip introduced Mr Werner to Mr Vladimir Gerasimov, somebody whom Mr Arip had in mind might work with Mr Werner as his ‘local partner’ dealing with operational matters whilst Mr Werner would focus on the KK Group’s financial needs. Mr Werner decided to go ahead later the same month, with Mr Werner ultimately purchasing not Mr Arip’s shareholding in KK Plc (as he had originally thought would happen) but the shareholding which Mr Zhunus held. So it was that on 2 September 2009 Mr Werner’s acquisition vehicle, Theta Investment Holdings Limited, agreed to pay a minimum of US$ 2.5 million in consideration for Mr Zhunus’s shareholding, and Mr Gerasimov acquired Mr Arip’s interest through another corporate vehicle.

10.              Having made the purchase, Mr Werner arrived in Kazakhstan very shortly afterwards. Mr Arip had by this time already left and Mr Manghi, then serving as KK Plc’s Chairman (as well as Head of Investor Relations) indicated that he, too, planned on leaving to work in Dubai on the venture involving Exillon along with other KK Group personnel (including KK Plc’s Legal Director and other senior employees). Mr Werner decided that he needed help and so appointed SP Angel to assist him in what needed to be done. SP Angel started the following month, in October 2009, by which time the KK Group was facing a number of pressing financial problems. These included falling cash levels which resulted in defaults on loans and threats by lenders to enforce against the KK Group’s assets. In late October 2009, Mr Werner and SP Angel decided to instruct PwC to produce a report “to understand the flow of funds expended on investments in land, machinery and company acquisitions…”. PwC reported back on 3 December 2009, identifying three categories of “questionable transactions”, noting in particular: that significant sums had been spent on developing the Aksenger Industrial Park and Akzhal Logistics Park, a significant portion of these costs lacked detailed supporting documents, creating a risk that some of the funds could have been misused or not spent effectively; that the general contractor, Arka-Stroy, had a common director (Mr Bek Esimbekov, sometimes referred to as Mr Bek Yesimbekov) with PEAK which was commissioning the work; that the Astana Contract Group had been acquired by the KK Group for substantially more than its book value; and that land had been bought for substantial sums from companies connected to the prior management. These are matters which I shall have to explore in some detail later when addressing the question of time-bar, specifically as to what Mr Werner should be taken as having found out when he received this report.

11.              Meanwhile, Mr Werner and SP Angel carried on trying to deal with the financial problems which were besetting the KK Group, whilst also trying to run the operational business. These efforts were made all the harder because Mr Gerasimov suddenly wished to dispose of his shareholding. He did so through SP Angel acquiring his shareholding as a stopgap in November 2009. In any event, work continued apace to steady the KK Group’s finances. This proved a lengthy and challenging process. Over three years of negotiations, from December 2009 until December 2012, the KK Group was able to finalise the restructuring of all of its issued bonds and most of its loans. In conjunction with this, after declaring losses of US$ 250 million in 2009 and US$ 50 million in 2010, the KK Group made a small profit of US$ 2 million in 2011.

12.              Subsequently, the Claimants maintain, in 2012, and not before, concerns about the past activities of the Defendants developed. Specifically, a shareholder in the KK Group, called Phoenicia Capital LLC (which had invested in 2011 and was owned by an American, Mr John Khabbaz) was considering commencing derivative proceedings against Mr Arip and others in New York in relation to what Mr Khabbaz considered to be their fraudulent conduct. Mr Werner took legal advice and was told, he says, that there was insufficient evidence of fraud to sustain a claim. In September 2012 Phoenicia issued derivative proceedings against Mr Zhunus and Mr Arip in New York, advancing a claim which is broadly based on what in these proceedings has been described as the ‘PEAK Claim’, although without the same focus as that claim in these proceedings has on the role played by Arka-Stroy. In response to certain motions to dismiss, Phoenicia’s claim was withdrawn in mid-2013.

13.              Throughout this period, again the Claimants maintain, their own investigations continued. Those investigations were made more challenging by what the Claimants say was a lack of relevant documentation and attempts at concealment by the Defendants in conjunction with certain KK Group employees who had remained behind in Kazakhstan after others had left for Dubai. In late 2012, Mr Werner and his relatively new colleague, Ms Viktoriya Gorobtsova, discussed discreetly engaging a construction firm to investigate the nature of the works done at the sites known as Akzhal-1, Akzhal-2 and Aksenger (related to what is now described as the ‘PEAK Claim’). Ms Gorobtsova knew Mr Gafurov, who with his father ran a construction company with suitable experience. Mr Gafurov and his father visited the three sites in December 2012, and Mr Gafurov returned in January 2013 to carry out a more detailed review and analyse relevant paperwork. At the end of January 2013 Mr Gafurov produced a report, which he discussed with Mr Werner, concluding that the amounts paid for the work at Akzhal-1 appeared inflated, with little or no work at all having been completed at Akzhal-2 and Aksenger. Contemporaneous documents purporting to certify certain works (the ‘Acts of Acceptance’) appeared to be seriously inaccurate, recording, for example, earthworks of a scale of which there was no evidence and which it was highly improbable had been carried out. Mr Gafurov’s report also noted the consistent involvement of Arka-Stroy as general contractor. His view was that it seemed likely that a fraud had taken place.

14.              At this point, the Claimants insist, Arka-Stroy’s role and relationship to the Defendants remained unknown. Their position is that this was only discovered when, after Mr Gafurov had delivered his findings, Ms Gorobtsova approached Mr Kuzmenko, the KK Group’s Head of IT, for his assistance in searching for any information related to Arka-Stroy. Mr Kuzmenko thought that Arka-Stroy’s accounting (or 1C) database might have been backed up on to the KK Group’s computer servers. He enlisted another IT department employee, Mr Rasul Khasanov, to assist in the search which resulted in the discovery of Arka-Stroy’s 1C database on the KK Group’s systems, effectively containing its accounting history. Other databases of entities owned or controlled by the Defendants, and implicated in the frauds as set out further below, were also discovered. Mr Khasanov then helped to extract relevant data from the Arka-Stroy database, preparing a list of significant transactions which Arka-Stroy had been involved in. This quickly revealed that it had engaged in numerous payments to entities which Mr Kuzmenko and Mr Khasanov knew had been managed by Ms Dikhanbayeva.

Procedural history

Mr Tomas Werner

“Speaking from my own experience, I have found it essential in cases of fraud, when considering the credibility of witnesses, always to test their veracity by reference to the objective facts proved independently of their testimony, in particular by reference to the documents in the case, and also to pay particular regard to their motives and to the overall probabilities. It is frequently very difficult to tell whether a witness is telling the truth or not; and where there is a conflict of evidence such as there was in the present case, reference to the objective facts and documents, to the witnesses’ motives, and to the overall probabilities, can be of very great assistance to a Judge in ascertaining the truth.”

Subsequently, Lord Goff (as he had by then become) endorsed this approach in Grace Shipping v. Sharp & Co [1987] 1 Lloyd’s Law Rep. 207 at pages 215-6:

“And it is not to be forgotten that, in the present case, the Judge was faced with the task of assessing the evidence of witnesses about telephone conversations which had taken place over five years before. In such a case, memories may very well be unreliable; and it is of crucial importance for the Judge to have regard to the contemporary documents and to the overall probabilities.”

Lord Goff went on to remark that:

“That observation is, in their Lordships’ opinion, equally apposite in a case where the evidence of the witnesses is likely to be unreliable; and it is to be remembered that in commercial cases, such as the present, there is usually a substantial body of contemporary documentary evidence.”

In evaluating Mr Werner’s evidence (and, indeed, the evidence given by all the other witnesses, including Mr Arip’s and Ms Dikhanbayeva’s witnesses), this is the approach which I have adopted.

Mr Hugh McGregor

Ms Viktoriya Gorobtsova

Mr Yevgeniy Kuzmenko

Mr Karim Khashimov and Mr Berik Nagashibaev

Mr Ilkham Gafurov

The absentees

“(1) In certain circumstances a court may be entitled to draw adverse inferences from the absence or silence of a witness who might be expected to have material evidence to give on an issue in an action.

(2)     If a court is willing to draw such inferences, they may go to strengthen the evidence adduced on that issue by the other party or to weaken the evidence, if any, adduced by the party who might reasonably have been expected to call the witness.

(3)     There must, however, have been some evidence, however weak, adduced by the former on the matter in question before the court is entitled to draw the desired inference: in other words, there must be a case to answer on that issue.

(4)     If the reason for the witness’s absence or silence satisfies the court then no such adverse inference may be drawn. If, on the other hand, there is some credible explanation given, even if it is not wholly satisfactory, the potentially detrimental effect of his/her absence or silence may be reduced or nullified.”

“In one category are the situations where a party says that his own witness is giving mistaken albeit honest evidence and where he seeks to establish this either by calling direct evidence to contradict what his witness has said or by arguing that, when the evidence is regarded as a whole, a mistake is to be inferred. We believe that this is a common occurrence in civil litigation and unobjectionable in principle, provided that care is taken to avoid surprise and hence injustice. We adopt the reasoning of the British Columbia Court of Appeal in Cariboo v Carson Truck Lines 32 D.L.R. (2d) 36 (1961), and in the English cases there cited.

From this must be distinguished the situations where a party wishes to assert that the evidence given in chief by a witness whom he has called is not only wrong, but is wrong on purpose. The most obvious instance is one where the witness has turned coat and has deliberately failed to come up to proof. Here the position seems clear. The party cannot cross-examine his own witness by reference to his proof of evidence or other previous statement unless and until the court has ruled that he is hostile. Nor may he call evidence to establish the general bad character of his witness. (See Ewer v Ambrose (1825) 3 B. & C. 246; The Criminal Procedure Act, 1865, s.3, applied by the Civil Evidence Act, 1968.)”

In the present case, therefore, for the Claimants to have called Mr Zhunus and Mr Tulegenov as witnesses would inevitably have entailed Mr Howe having to put to each of them that their denials of the frauds alleged by the Claimants (in the case of Mr Zhunus, a denial made in the Defence served on his behalf and accompanied by a statement of truth) were false. For this reason, I cannot accept that there is anything in Mr Twigger’s submission.

The Defendants’ factual witnesses

Mr Arip

Ms Dikhanbayeva

Dear Gulnara,

Please repay debts to Kazakhstan Kagazy LLP in the first half of 2009 as follows:

As for Kagazy recycling [sic], the following debts shall be covered:

Please ask the lawyers to draft assignment agreements and the accountants to pass entries into [1C]. … .”

Mr Howe suggested that this email demonstrated that Ms Dikhanbayeva was clearly managing these companies since otherwise she would not have been able to give instructions for their debts to be assigned. Ms Dikhanbayeva denied this. She stated that, at this time, although she was living in Dubai, the KK Group was in the middle of an audit and, because this was the first time that the KK Group “local accountants” had been through an audit without her, they sent her some calculations to check, and she had realised some transactions were not covered. She explained that she had sent the email late at night and had made some ‘cut and paste’ errors (for example, the reference to Holding Invest should have been to Kagazy Processing). She added that the transactions set out in this email had never happened, and that she had corrected her mistake the next day. Mr Howe, however, then referred to an email which Ms Dikhanbayeva sent the next day at 6.40 pm, giving the following instructions:

“Gulnara

As the auditors are raising questions, the following will need to be done:

1. Ada Trade LLP – 149,800.000 is to effect supply of [interpreter’s translation] sand, crushed stone and other materials for construction works at the industrial park.

2. Bolzhal LTD LLP – 1,648,762,000 it is necessary to increase the value of the land plots.

3. KAGAZY PROCESSING LLP – 177,261,935 to be written off as bad debts as of August

4. Lotos LLP – 226,877,094 to be written off as bad debts as of August

5. RENISTROY-DF LLP 100,000,000 and MEGA EXPOS LLP 188,541,668 PLUS Holding Invest’s 550,000,000 – will be construction works. If we don’t show them, we won’t be able to capitalize interest.

6. Let Holding Invest charge the rent for the entire space of the building (Holding Invest will remove the rent charged to CM LLP)”

Mr Howe put to Ms Dikhanbayeva that this email showed that Ms Dikhanbayeva was engaging in the creation of false documents in order to justify various transactions which had taken place and to deceive the auditors. Ms Dikhanbayeva denied this, saying that her reference to Ada Trade was to a genuine contract with Ada Trade for the delivery of sand and other things. I am clear, however, that the instruction in Ms Dikhanbayeva’s previous email, that the lawyers should be instructed to draw up contracts and the accountants to make entries in the 1C accounting database, involved Ms Dikhanbayeva giving instructions concerning the creation of false documents and accounting records rather than dealing with genuine transactions. This reinforced me in my assessment that Ms Dikhanbayeva was not a witness of truth.

Mr Alessandro Manghi

Mr Nikolay Kosarev

Mr Alexander Sannikov

“Yesterday, I was solving the issue on debts of PEAK, ArkaStroy and Trading House by issuing invoices; in the afternoon, I was preparing documents and data for Baurzhan to solve the issue on financing ArkaStroy via Nurbank, that is why I could not provide the need information to you”.

When shown this email, Mr Sannikov was keen to explain that the reference to “solving the issue on debts” was a VAT-related matter and had nothing to do with what Mr Saoul suggested to Mr Sannikov was “manipulating debts between these three companies, all of which you were responsible for”. Mr Sannikov disputed this, explaining that “I couldn’t channel funds around because I didn’t have the right of signature” and that he “was not authorised to make bank money transfers”. In my view, however, that was not really an answer to the point which was being made to Mr Sannikov by Mr Saoul. In his email Mr Sannikov was quite clearly describing work which he was doing not only on behalf of PEAK and Trading House (both members of the KK Group) but on behalf also of Arka-Stroy. This was work which he was describing to another employee of the KK Group. He quite clearly was treating all of the work described as being for companies within the KK Group. If there were any doubt about this and the role which Mr Sannikov was at this time playing, it is removed altogether by how Mr Sannikov chose to sign off the email. He did so describing himself as “…A Sannikov, financial director of PEAK LLP and Arka-Stroy LLP”. Mr Saoul put to him that this represents conclusive evidence that he was performing a joint role, yet Mr Sannikov would not accept that this was the case. His explanation was this:

“Again, at PEAK I was a logistics officer. I was responsible for logistics only. At Arka-Stroy I was mostly an adviser to structure accounting processes and report on information flows. My signature here, financial director of PEAK and Arka-Stroy, means that probably this email was addressed to that lady, whoever she is, I don’t remember now. So hence I showed - I meant to show that I was very busy and overloaded with her repeated requests for information. I was never hiding that I was employed by Arka-Stroy.”

This was not an answer to the point which was being put to him. It is perfectly obvious that Mr Sannikov was, as Mr Saoul suggested, carrying out work for PEAK and Arka-Stroy simultaneously in what was a joint role performed for companies which were each within the KK Group.

Mr Nurlan Sharipov

“Some of those budget committee meetings saw me explaining some of these facts regarding what pertained to my operations which was dependent on Arka-Stroy’s deliverables in the future. So if Arka-Stroy delayed with construction we would incur other extra costs and I would fail to deliver on my commitments to my management. That is why, when I could not explain the causes behind some delays or the reasons for increases in construction costs, I would invite representatives of Arka-Stroy so that they could deliver a first-hand explanation. As far as I remember a representative of Arka-Stroy would always come at the very end of these meetings, that was weekly, and he would explain what was going on on the construction site, explaining the causes behind delays and other related causes to effect the timeline of construction as well as the quality of it.”  

Whilst this explanation made a degree of sense, what Mr Sharipov struggled to explain was how it was that Arka-Stroy should find itself described in the minutes as one of the “subsidiaries” of Kagazy Invest.

“Dear colleagues!

As the servers of the two companies PEAK and Arkastroy have been merged, as of today the email addresses of all our employees in the new merged company have been changed. The name of every employee remains unchanged, but the domain name changes after @ from megalogistic.kz to peak.kz and arkastroy.kz to peak.kz …”

Mr Saoul put to Mr Sharipov that this email was referring to a merger between PEAK and Arka-Stroy. Mr Sharipov did not accept this, making a number of points. The first was that the email address was not his. He then went on to make various other points, including to suggest that at the time that the email was sent he had ceased to work at PEAK, only to accept when challenged on this by Mr Saoul that he did not, in fact, leave until later. Pressed on the reference in the email to “the new merged company” (or to “our company” depending on the translation), his response, again, was to say that he did not “see any Arka-Stroy address here and I see some doubtful addresses of people who were never employed with PEAK”. Mr Saoul then directed Mr Sharipov to another email from the same email address which was sent to Mr Sannikov and Mr Nikolay Guber, a KK employee, in December 2007, in response to an email from Mr Guber to Mr Sharipov and a number of other KK employees regarding a budget committee meeting. That email stated:

“Nikolay, what do you mean by PEAK (stage I)? The former Arkastroy? Or something else? For us PEAK (logistics) and PEAK (operation) have always been presented as one project… Please clarify”.

Mr Saoul put to Mr Sharipov that this (in particular, the reference to the “former Arka-Stroy”) was further clear evidence of the merger between PEAK and Arka-Stroy. Mr Sharipov first sought to explain this email, saying that PEAK was having problems with Arka-Stroy at this time and so he had probably been referring to construction work formerly under the responsibility of Arka-Stroy. Specifically, when the wording of the email was put to him, Mr Sharipov’s immediate response was to say “Yes, that is what I say”. However, when asked to confirm that he accepted that he sent this email, he then stated that he had not sent it because the email address was not his. The following exchange then ensued:

“Q. I’m confused. You gave us a long answer trying to explain what you meant when you sent this email, but now you have just suggested that you don’t recognise this email address?

A. No, I just didn’t pay attention to the very top line. My apologies.

Q. And so the point you are making is if you have been fortunate enough to see the email address on this document you would have given a different answer to the one that you just gave to the court; is that what you are saying?

A. No, the answer would be the same. Again, I cannot have any factual statement on a document which originated from an address that is not mine, so I cannot state the fact that it is my email. I may not recollect all the details. It may be my email and I could have asked this particular question.

Q. Yes. You weren’t surprised by the text when I showed you the email in the first place, were you? You weren’t shocked at what you had said?

A. I wasn’t.

Q. The reason you weren’t shocked is because, as all the documents we have just looked at show, you knew perfectly well that Arka-Stroy was part of the KK Group?

A. No, it is wrong.”

Mr Sharipov was here being both argumentative and evasive. It was clear that he changed his tack at this point because he did not initially notice the email address and so was not alive to the argument that he could deny having sent the message. The fact that he appeared to recognise the content of the email as being something for which he was responsible, when first dealing with Mr Saoul’s question, makes it perfectly clear that he sent the email, and so that his efforts to disclaim responsibility for weight and other messages sent from the relevant email address were as opportunistic as they were contrived.

Mr Igor Zhangurov

“I used to have a small bakery and I did advertise that business. We used to make the best bread in the city. I had two or three professionals working for that. But I didn’t advertise my real estate business”.

This seemed to me to suggest that Mr Jumadilov had no real land broking business at all. 

Mr Rasul Khasanov

Mr Vladislav Belochkin

The expert witnesses

Forensic accountancy

Audit

“Q. Your conclusion, as I understand it, is that although the PwC report would no doubt have been useful, BDO did not actually need it, essentially because it covered risks about which BDO was already aware and all the PwC report would have done was corroborate BDO’s earlier assessment of those risks; is that a fair summary of your conclusion?

A. Yes there are a number of influences on that conclusion. They could have been made aware of the contents of the report through management informing them. As I said, they were aware, through their discussions with PwC, that PwC were undertaking this exercise and therefore there are a number of reasons why BDO may have assumed that this was not information that they needed.”

Ultimately, however, after lengthy exploration by Mr Twigger with Mr Crooks, there was an acceptance by Mr Crooks that, if BDO had not already been made aware of the PwC Russia report and assuming that it contained material information, it ought to have been provided to BDO as part of the audit process. He did so in the following exchanges which are worth setting out because they show Mr Crooks’ difficulty in proceeding on the basis of the assumption which Mr Twigger had from the outset invited him to consider:

“Q. If you were auditing the accounts of a company like this, wouldn’t you consider that it was important to know that a reputable firm like PwC had written a detailed report describing a number of transactions as ‘questionable’?

A.  Well I would know as auditor, because I had met with them in these circumstances and given them information and because the PwC report refers to representations being given by the group’s auditors, so I would be aware of the information that I had given to PwC. So I was certainly aware of the exercise going on, and I was in a position to ask for a report and I accept, under the terms of the question that you have made very clear early on, but they wouldn’t know the conclusions of the report. But I’m not clear what this report would have told them that they would not have known otherwise.

Q. Yes. Can we please assume for the rest of my questions that they don’t know that BDO do not know that PwC are doing a report like this. They don’t know the report exists at all?

A. Right, sorry. I misunderstood your point. I thought you were saying not any conclusions. So apologies if I misunderstood.

Q. Well, they may know about some of the transactions that are referred to on it. So it is impossible to say assume that they don’t know anything that is in the PwC report. But they don’t know that there is a report going on into cash flows and they don’t know that there are conclusions being reached about them. And they certainly don’t know that PwC is reaching conclusions that some of the transactions are questionable

A. Okay.

Q. If you were the audit partner at BDO and you learnt - suppose you completed your audit of the 2009 year and afterwards you discovered that there was a report like the one that PwC prepared that you hadn’t been told about; you would be furious, wouldn’t you?

A. No, not necessarily. I might - well, if I became aware of it, the first thing I would do is ask for a copy of it, and my reaction would depend on my knowledge and whether this report would give me anything new by way of something I wasn’t aware of.

Q. All right. So if the PwC report contained information which was material, which related to the 2009 year, and which BDO did not know, would that change your conclusion about whether the report was relevant audit information?

A. When you say ‘material’, can you clarify; do you mean material to 2009 accounts?

Q. Yes?

A. So hypothetically I’m being asked whether, ignoring the facts of the case, that if a report which had got reference to material transactions of which I was not aware, had not been made - I have not been made aware of by management, would that be relevant audit information? It is difficult to see how, in that hypothetical situation, which has been built up as material and I didn’t know about it and hence it was therefore deemed to be relevant audit information, but I would be anything other than of the view that I should have seen it.

Q. Yes. So you agree?

A. In that hypothetical situation, yes.”

Although it is possible that Mr Crooks simply did not understand that he was being asked hypothetical questions, it is difficult to see that this really can have been the case since the exchange set out above was the culmination of a long series of questions which began with Mr Twigger very clearly explaining that he wanted Mr Crooks to assume that BDO had neither seen the PwC Russia report nor been made aware of its contents. In the circumstances, I was less than impressed by the approach adopted by Mr Crooks in this respect.

Kazakh law

“… But as long as there is a certain safety valve for one person, one type of person, it possibly may be applied to another. One of the arguments I’m putting in one of my reports is application by analogy. If there is a legislative gap and I would say that there probably is a gap, then the court would be allowed to - I don’t know what were the motives and grounds on which some of the courts arrived to the possibility to extend the stated formulation to legal entities. But there are decisions, standing, valid, enforced, and that is - I agree that it is exceptional, it is very rare. I don’t know what is the rejection rate. Maybe it is just one of 10,000 of plaintiffs enjoys that exception, or more, maybe one of the million. But what I am talking about in my reports is that there were instances, and they were based on something. They were based on law.”

I then asked Mr Vataev the following (admittedly not very elegant) question:

“Can I just ask, I mean, we are all mostly in this courtroom lawyers, and lawyers think up arguments, that is what they do. But ultimately lawyers - well, in my case, actually, I have to come to decisions. But lawyers give advice. Are you identifying a possible argument here, or is it your view, your actual opinion, considered opinion, that there is an ability for a company to overcome a limitation defence?”

The response was this:

“It is my opinion that a company may rely on this article and request the restoration of the statute of limitation period. Whether it will be successful or not, I would probably - I would refrain from giving the probability here. But in principle, it is possible, in my view. In certain circumstances, legal entity should be able to rely - in particular that example that I’m bringing, this legal coma, it would be - I think it would be against the basic fundamental principles of the Civil Code to deny justice in such a situation.”

Land valuation

“Qualified forensic expert in the following subjects: 8.1 Road Accident Forensic Examination; 8.2 Road Trace Forensic Examination; 8.3 Motor Vehicle Forensic Examination; 10.3 Forensic Examination of Car Damage, Repair Costs and Residual Value.

State license to perform forensic examination activities on the subjects specified above. State license to perform activities related to evaluation of property, intellectual property and intangible assets.

Candidate of Engineering Sciences.

Doctor of Jurisprudence.”

Next to “Patents and diplomas” various qualifications were set out, including the following:

“I completed qualification training in valuation activities at the Moscow Institute of Road traffic (MIRT), the American Society of Appraisers –‘Successfully completed the Appraisal Partnership Technical Assistance Program’, Herndon, VA and Washington, DC; at the Institute of Professional Appraisers of Kazakhstan in ‘International Appraisal Standards, Practical Application’, Almaty, ‘Appraisal of Hi-Tech Businesses’, Almaty, etc.”

Then, alongside “Additional information”, this was stated:

“Upon completion of the post-graduate studies in 1989, I defended a thesis on the subject ‘Analysis of Motor Vehicle’s Collision with a Fixed Obstacle’, and by the decision of the Board at the Moscow Institute of Road Traffic, I was awarded the degree of the Candidate of Engineering Sciences.

…

In 2010, I defended a doctoral dissertation on the subject: ‘Theoretical and Legal Problems of Forensic Examination and Forensic Examination Activities in the Republic of Kazakhstan before the specialised board at the Al-Farabi Kazakh National University.”

Mr Miller explored these matters with Mr Kuznetsov. He was insistent that his “CV has it pretty clear, that I have two state licenses and there are two specialisations, as a forensic expert and as a valuer” and that, despite the lack of specific reference to land valuation in his curriculum vitae, he had expertise in this type of valuation. He highlighted, in particular, the reference to “evaluation of property, intellectual property and intangible assets” although significantly, in doing so, he added in an additional reference to “property valuation, real estate” which does not, in fact, appear in his curriculum vitae. I was left with the overriding impression that Mr Kuznetsov was not, whatever he might say, an expert in land valuation.

Real estate practice

“You know in Kazakhstan government agencies - almost all the employees of government agencies do that, that is site work, since they have the information. So public officials have a really low salary in Kazakhstan and we need to work additionally, and in the government agency we have the information on sellers and on buyers and we can use it when we need additional money, and it is still the case with the public sector, with government agencies in Kazakhstan; this is the system in our country.”

Quantity surveying

Kazakh law applicable to the claims

The claims which are brought

The claims under the JSC Law

“The company officers shall:

1) perform the duties entrusted to them in good faith and use the methods which respond to the interests of the company and shareholders to the maximum possible extent;

2) not use the company’s property or allow it to be used in contradiction with the company’s charter and the decisions of the general shareholders’ meeting and board of directors, or for personal gain, and commit no abuses during the execution of transactions with their affiliate;

3) ensure the integrity of the accounting and financial reporting systems, as well as independent audit;

4) supervise the disclosure and presentation of information on the company’s activities in accordance with the requirements of the legislation of the Republic of Kazakhstan;

5) keep confidential the information on the company’s activities, including for three years after the termination of their employment with the company, and was the company’s internal documents provide otherwise.”

These are duties which are hardly unfamiliar.

“1. The company officers shall be liable to the company and the shareholders for the damage caused through their actions (omissions), in accordance with the legislation of the Republic of Kazakhstan, including the damage incurred as a result of:

1) provision of misleading or knowingly false information;

2) violation of the procedure for provision of information prescribed by this Law.

2. The company may, under the decision of the general shareholders’ meeting, file an action with a court against the officer seeking compensation for the harm or damage is caused by the latter to the company.

…”.

As demonstrated by the “as a result of” wording in Article 63.1, there is a causation requirement which means that, before an officer of a company can be held liable, there has to be a causative connection (Mr Vataev and Professor Suleimenov agreed that a “direct causal link” is required) between the officer’s wrongdoing and the damage alleged. Mr Vataev’s evidence (as reflected in the joint memorandum which he prepared with Professor Suleimenov) was that “Despite the claimant’s obligation to prove the causal link between the unlawful actions and the harm suffered, in practice, the defendant bears the burden of proving the fact that the losses stemming from the transaction have not actually been caused by his violation of duty”.

“1. Harm (property and (or) non-property), caused by illegal actions (inaction) to the property or non-property rights and benefits of citizens and legal entities shall be compensated by the person, who caused the damage, in full.”

Article 932 (“Liability For Jointly Caused Damage”) then provides:

“The persons who jointly caused damage shall be liable to the injured party jointly and severally.

Based on the application of the injured party and in his/her interests, the court may hold the persons who jointly caused harm, severally liable.”

The unjust enrichment claims under Articles 953 to 960 of the KCC

“Article 953. Obligation to Return Unjust Enrichment

1. Person (buyer) who without the legislation or transaction basis received or saved property (unjustly enriched) for the account of another person (the victim), shall return to the latter unjustly acquired or saved property, except the cases provided by Article 960 of this Code.

…

Article 954. Correlation Of Requirements For The Return Of Unjust Enrichment With Other Requirements On The Protection Of Civil Rights

Unless otherwise provided by this code and other legislative acts, and followed from the nature of appropriate relations, the rules of this chapter shall also apply to the requirements:

1)      on the return of the executed, under an invalid transaction;

2)      on the recovery of the property by the owner from the illegal possession of another person;

3)      one party to another party in the obligation of return of the executed in connection with this obligation;

4)      for compensation of damages, including the harm, caused by the inequitable conduct of the enriched person.

Article 955. Return Of Unjust Enrichment In Kind

1. Property, comprising the unjust enrichment of the purchaser, must be returned to the victim in kind.

2. The purchaser is responsible for all to the injured, including a random shortage or deterioration of unjustly acquired or saved property, which occurred after he (she) knew or should have known of unjust enrichment. Up to this point, he (she) is responsible only for intent and gross negligence.

Article 956. Compensation of value for unjust enrichment

1. In the case, if it is impossible to return in kind unjustly received or saved property, the purchaser must compensate the victim for the real value of the property at the time of purchase it, as well as to compensate for losses, caused by the subsequent change the value of the property, if the purchaser has not reimbursed the cost immediately after he (she) has known of the unjust enrichment.

…”.

Proving fraud

“No such sums were ever used for such purpose; instead the money intended for such development was misappropriated and/or dissipated by the First and Second Defendants (or at their direction) and/or funded, directly or indirectly, payments to Arka-Stroy made by the Second and/or Third and/or Fourth Claimants”.

I put to Mr Twigger that the reference to dissipation seems apt to cover the type of case which was put forward by the Claimants at trial, in other words a case which does not depend on it being established that Mr Arip and Ms Dikhanbayeva themselves received the monies. That is, indeed, in my view, the position.

“I accept that the fraud alleged by RBG was both massive and complex. Its proof, however, seems to me to depend on RBG being able to establish the truth of one central proposition, namely that the counterparties were not independent of RBG or of each other but were in fact controlled by VR and AJ. Unless VR and AJ can show a realistic prospect of demonstrating at trial that that was not the case, it seems to me that RBG is entitled to judgment against them, at least so far as liability is concerned. RBG seeks in its evidence to go further and to assert that not only were the counterparties so controlled but that all the transactions into which they entered with RBG were, as it is put in the evidence, ‘bogus’. This does not appear to me to be a necessary element of RBG’s claim to hold the defendants liable for breach of fiduciary duty. Whether or not the transactions were ‘bogus’ in the sense of being merely the product of the generation of a transactional paper trail, the mere fact that they were presented by the defendants to RBG’s auditors and its financiers as being transactions with apparently independent counterparties will be sufficient to establish breach by the defendants of their fiduciary duties as directors of RBG.”

Hart J went on to explain in the following paragraph that it followed that “the ability of the defendants to show a realistic prospect of success on the ‘control’ issue should be determinative of this application so far as liability is concerned”. His conclusion was that the defendants failed to show such a prospect, and accordingly he awarded summary judgment against them.

“This perhaps an obvious factual point: if the Connected Entities were not used by the Ds to perpetrate a massive fraud, why would they lie so insistently about their control of them, in the face of the thousands of documents before the Court? As previously mentioned, there is nothing inherently wrong in a business being integrated – there is no reason why the KK Group could not, entirely legitimately, have developed a construction arm, for example, or incorporate wholly-owned corporate vehicles for the purpose of buying land. But the Ds are determined to distance themselves from all of these entities, and indeed misrepresented the position to investors (in the IPO Prospectus) and auditors. The only reason for this is because, as the Ds know, these entities were vessels for fraud.”

There is, furthermore, another point to bear in mind: this is that certain of the claims brought against Mr Arip and Ms Dikhanbayeva are claims under the JSC Law which bear a marked similarity to the type of breach of fiduciary duty claims levelled by the claimant against its former directors in the RBG case. In relation to the claims under the JSC Law, therefore, Mr Twigger’s suggested point of distinction simply does not arise. 

The PEAK Claim

Introduction

Arka-Stroy

“Mr Werner’s assertion that the ‘KK Group got very little in return for the very large sums paid to Arka-Stroy’ is not true. As I have explained, Arka-Stroy performed significant work on both the Akzhal Logistics Centre and the Aksenger Industrial Park before the KK Group suspended these projects. The money that the KK Group paid to Arka-Stroy went towards labour, materials and other construction-related expenditures, as reflected in the numerous invoices that the Claimants have submitted in connection with these proceedings. Though Mr Werner alleges that Arka-Stroy was in reality under the full direction and control of the Defendants, he does not state what this allegation is based on. It is quite untrue. I had no direct or indirect interest in Arka-Stroy and exercised no control over it.”

Three years later in September 2016, at paragraph 145 of his fourteenth witness statement, Mr Arip had this to say:

“I want to make it clear that I had not heard of Arka-Stroy before I joined the Kagazy Group. I had no direct or indirect interest of any kind in Arka-Stroy and I did not have any control over it. I did not secretly operate it.”

In his sixteenth witness statement, however, made in March this year, shortly before the trial started, Mr Arip stated this in paragraphs 16 and 17:

“I have reviewed documents related to Arka-Stroy further. These documents include documents where Arka-Stroy is called an ‘affiliated’ entity of the Kagazy Group, or referred to as part of the Kagazy Group and approvals for items like Arka-Stroy’s budgets and salaries.

As I explained in paragraph 25 of my first witness statement dated 2 September 2013 in response to Mr Werner’s allegations that Arka-Stroy was ‘in reality an entity under the full direction and control of the Defendants’, I did not have any direct or indirect interest in Arka-Stroy and I exercised no control over it. In the light of the documents now available to me, I wish to clarify my first statement. I was never a shareholder of Arka-Stroy, nor did I have any management position or any financial interest in it. Nevertheless, as I describe below, and as I explained in my Fourteenth Witness Statement, the Kagazy Group engaged closely with Arka-Stroy and monitored what it was doing.”

Mr Arip went on in that witness statement to describe there being “good business reasons for the Kagazy Group and Arka-Stroy to cooperate closely” (paragraph 22), explaining that the “banks wanted a high level of information about costs and the structure of the projects before they would allow the Kagazy Group to draw money from” loans which the KK Group had taken out to fund its development activities. Mr Arip described the banks as wanting “to control the flows of cash to the general contractor which was Arka-Stroy and Arka-Stroy’s sub-contractors”. He went on to explain as follows in the next two paragraphs:

“This meant that close corporation with Arka-Stroy was essential. Without it, it would not have been possible to comply with the banks’ processes and fund the work. It was necessary to provide a constant stream of information to the banks and the process was bureaucratic. To satisfy these requirements the Kagazy Group needed a high level of cooperation from Arka-Stroy and a high level of visibility of matters like its arrangements with sub- contractors.

This all resulted in a situation where the Kagazy Group worked closely with Arka-Stroy and helped it in many areas including legal and finance, since Arka-Stroy did not have the capacity itself and a lot of information was needed from it to provide to the banks. The Kagazy Group had all these resources and had to help a lot to get Arka-Stroy to a level that will allow the various requirements to be met so information could be provided to the banks and the funding for the projects could be accessed.”

The fact that Mr Arip should only seek to explain this so late in the day, whilst maintaining his denial that he owned or controlled Arka-Stroy, was explained by Mr Arip in cross-examination as being the result of his wishing to “address very specific allegations” which had been made by the Claimants at particular stages and not dealing with matters in any more general way. This was not, however, a satisfactory or open way to approach the giving of evidence, particularly as Mr Arip would obviously have known from the very outset of these proceedings that the Claimants were focusing on his involvement with Arka-Stroy.    

“Arka-Stroy, so Mr Zhanpeisov and his partners, I think his partners in those days was [sic] Kanat Zhekbatryov, Vladimir Khan, and later … on they had another partner, Mr Sartbayev, who basically took Arka-Stroy on quite a different level”.

This rather indicated that Mr Arip knew not only about Arka-Stroy (and in some detail), but specifically about Mr Zhanpeisov. It appears that he realised right away that he had, perhaps, said too much because he then hastily added:

“So all the guys, they are construction engineers. So I don’t know who is Zhanpeisov, but I know that Mr Khan, he had a degree, he was a businessman. He had a degree and MBA. Kanat Zhekebatyrov – so I know Kanat. I don’t know Zhanpeisov, but I do know Kanat, and Kanat was a construction engineer as well himself.”

Mr Howe pursued the matter with him further, including by reference to a further contract entered into with Arka-Stroy on 4 September 2003 dealing with waste paper, but was met with an insistence that he did not know Mr Zhanpeisov. I am clear that Mr Arip was simply not telling the truth about this. As demonstrated by the initial unguarded answer which he gave, Mr Arip clearly knew not only about Mr Khan (a director of Arka-Stroy at the time and, as Mr Arip agreed, an employee of the KK Group) but also about Mr Zhanpeisov.

“As a result of your announcement to leave the company JSC Kazakhstan Kazazy [sic], I consider it necessary to contact you regarding some personal matter. As you know, I have been working in this company since July 2003. During this time I had a chance to work in various sections and take part in various activities of the company. Quite often, as a company’s confidant, I was involved in execution of instructions of a very specific nature. During this time I never received any complaints from the management.

At present, when the company’s shareholders are completely different people and you made a decision to move to a new place, I can’t help but worry about some issues still unresolved, the issues which the former shareholders guarantee to resolve via you as well.

First, during all this time several companies were registered in my name, as a legal owner, and I was registered as a director in a few other companies. Certain financial transactions and operations were executed via these companies. The nature of these transactions may be deemed ‘dubious’ and not entirely legal. In addition, when I agree to register these companies in my name I was firmly promised that there would be no problems as the companies would be definitely closed. When in March 2009 the shareholders announced their decision to move their offices abroad, I asked to take these companies or to close them. In return I received assurances that within three months all companies would be closed and I would even receive documentation confirming their liquidation. However, as it became known to us now, nearly 2 years later, nothing has been done to that effect. …”.

Mr Esimbekov was clearly describing his role as a nominee for the former management of the KK Group, including accordingly Mr Arip. The position is really very clear indeed. In the circumstances, Mr Arip’s continued insistence that he did not know what role Mr Esimbekov was playing is simply untenable.

“Yes, but I come to this - and it was quite clear, not just some idea, it was very clear to me. Because what happened when Arka-Stroy, when we had the tender – when Arka-Stroy had been doing all kind of small jobs on Kagazy, I simply did not bother who owns it and what it is doing. But during the big tender for construction of the cardboard factory, it was a big factory, it was like 30,000 or 40,000 square metres, a lot of infrastructure, a lot of investment, it was probably the first significant construction of Kagazy Group.

So during that period, we have the tender. And Arka-Stroy was one of the bidders. We have some other bidders, but Arka-Stroy did not want to tender, because tender was won by the Dutch company called Bemaco. And I’m sure it is not new information for claimants, because there is this factory standing there and the name Bemaco is on the wall of the factory. So they won this tender.

Arka-Stroy gave a much lower price than Bemaco but we didn’t give this tender despite that because we thought - we had our reservations in terms of whether Arka-Stroy is actually capable of winning this tender.

So during that moment I had a meeting with Mr Sartbayev and he was owner of Arka-Stroy, so he probably had some other minor partners like Khan and Kanat Zhekebatryov. But for me the main person was Mr Sartbayev. Basically I explained to him that we are very happy with the price and job you did before is a good one. Also I understood from him that he owned some other construction businesses, Kastrovanov is basically his companies [sic], but I said we are going ahead with Bemaco and that is - so from that moment on what I actually knew, owners of Arka-Stroy.”

Mr Howe suggested to Mr Arip that this was “a tall story” and that he “had no discussion with the owners of Arka-Stroy, because you are the owner of Arka-Stroy”. Mr Arip denied this and went on to explain that the reason why he had not previously mentioned about Mr Sartbayev was that he thought that “it is really the first time you ask me about that”. He clarified later that he “didn’t explain because I thought the whole situation around Sartbayev was explained better by Mr Sannikov, who actually knew him better”. Just as I am clear that Mr Sannikov made up what he had to say concerning Mr Sartbayev, so I am equally clear that Mr Arip made up this evidence also. It is fanciful to suppose that Mr Arip would have chosen to say nothing about Mr Sartbayev at an earlier stage if what he ultimately came to say during his cross-examination was even remotely true.

“Q. It was well known, wasn’t it, Mr Sharipov, that Mr Tulegenov was working for Arka-Stroy at this time?

A. As far as I know, he was in charge of quality across the group.

Q. When you say, ‘Across the group’, you mean across the KK Group?

A. Right.

Q. Including Arka-Stroy?

A. No. He was in charge of quality, to make sure that the construction quality is where it was required to be. Hence I informed him to be prepared that I would be checking that facility.

Q. The reason why he was at Arka-Stroy was because he was in charge of quality on behalf of the KK Group?

A. He was in charge of quality on the construction side, right.

Q. On behalf of the KK Group?

A. Right.

Q. And included within that were his responsibilities for Arka-Stroy? I just want to be clear about this.

A. Yes. He was in charge of controlling quality with Arka-Stroy.”

“The initial registration of the company was carried out in 2002. In 2005, in connection with a change in the location, corresponding amendments were introduced to the registration documents. The date of re-registration at the Department of Justice of Almaty Region was 22/08/2005, number 325-1907-05-TOO.”

Again, although it is fair to say that not all the underlying material which might be relevant to this point appears to be available, this suggests to me that it was only in August 2005, and therefore just after the first of the PEAK contracts was entered into, that Arka-Stroy really became, at least in any significant sense, commercially active.

The US$ 49.1 million which Arka-Stroy did not pay out

“10.1   In my ‘onward-tracing’ work in Section 9, I identified some transactions that took place directly between the End-Recipients and KK Group entities which are not included [in] the cash flows described in the RAPOC … Consequently, I have carried out the further analysis described in this section.

10.2     I present below the findings of my analysis of direct transactions between the KK Group and 42 specific FS Entities and End-Recipients (the ‘Direct Transactions’). The detailed methodology I used for this work is explained in Appendix 10, paragraph 10.50. I collectively refer to the 42 entities as the ‘Relevant Counterparties’ for the purposes of this report.

10.3     The aim of this analysis was to identify and quantify all ‘new’, Direct Transactions between the KK Group and the 42 Relevant Counterparties in the available period, as these potentially could have some relevance to the quantum of the claim, depending on their circumstances. The Relevant Counterparties are listed in Table 129, Appendix 10. To be clear, I report here on ‘new’ transactions only, i.e. not those already accounted for in the RAPOC.

10.4     As there is a large amount of available Cash Data in this matter for a variety of different entities, for reasons of proportionality and efficiency, my Direct Transactions analysis used the available 1C Cash Ledger Reports of the ten KK Group companies. The scope of my Direct Transactions analysis is thereby limited as are any conclusions that can be drawn from it. I have not sought to ‘four way match’ the transactions identified or further investigate the context of these transactions. This analysis does, however, provide an insight into the transactional relationships which may assist in assessing whether further analysis may be beneficial to quantify any potential impact on the claim.

10.5     I note that this section generally assumes that the status of the relevant entities in terms of being part of the KK group, or not, is consistent throughout the period.”

Mr Crooks went on to say this:

“10.6   As shown in Table 87 below, we identified 3,394 direct transactions between KK Group entities and the Relevant Counterparties, totalling a net payment from the KK Group of KZT 13.004 billion (approximately US$ 100.70 million) to those Relevant Counterparties. Note that all transactions shown in this section are from the KK Group perspective: all net payments from the KK Group are denoted as positive values and all receipts into the KK Group are denoted as negative values.”

Then, after setting out Table 87 and, indeed, Table 88, Mr Crooks continued:

“10.7   All transactions shown in the two tables above (and discussed in the rest of this section) are ‘additional’ or ‘new’, i.e. we have eliminated transactions that are already included in the RAPOC. For clarity, the above two tables show separately any new transactions that we have already identified in other areas of this report, i.e. in the Completeness testing and the Onward Tracing/End-Recipient analysis.

10.8     In overview, the net ‘new’ direct cashflows between the KK Group and the Relevant Counterparties amount to a net outflow from the KK Group of approximately US$ 100.70 million or KZT 13.004 billion. For an assessment of any possible effect on the claim, a detailed examination transaction-by-transaction would be required, which is not within the scope of my work. The majority of my work in this report is necessarily focused on the frauds as pleaded.”

In the pages which follow, Mr Crooks set out in detail the results of his analysis. He concluded in paragraph 10.28 by saying this:

“I found 3,394 new Direct transactions between the KK Group and Relevant Counterparties. In the absence of a detailed examination of all 3,394 transactions, all I can say here is that the KK Group position as a whole shows a very considerable net payment out to the Relevant Counterparties of US$ 100.70 million (KZT 13.004 billion).”

The monies paid out by Arka-Stroy

Holding Invest

In about December 2006, as part of the preparation for the IPO which took place in July 2007, Ms Dikhanbayeva went on to explain, Holding Invest, Kagazy Invest, Kagazy Processing and Kagazy Gofrotara were all removed from the KK Group, with the result that the KK Group structure at that stage looked like this:

“31.     The transfers from Arka-Stroy to the other two former KK Group entities (Holding Invest LLP and Kagazy Invest LLP) were related to a project that Baglan and I invested in near Astana. We purchased approximately 300 hectares of land and intended to develop it into a business and logistics park among the lines of what the KK Group was planning for Almaty. Given its high quality work on the KK Group projects, we planned to use Arka-Stroy as the general contractor for our Astana project as well.

32.    In order to fund this project, we sought financing from Alliance Bank, which required Arka-Stroy to produce in advance detailed technical documentation to support the proposed budget. Based in large part upon the information produced by Arka-Stroy, Alliance Bank agreed to loan KZT  6 billion (approximately US$ 46.5 million) to fund this project, which Holding Invest LLP drew down and transferred to an account of Arka-Stroy about 29 June 2007. I note that it was necessary for Holding Invest LLP to immediately draw down the entire amount of the loan in order to ensure that these proceeds would be available for the project. Due to the immaturity of the Kazakh banking sector and the relative instability of the banks, a guarantee that the funds will be made available in future would not have been sufficient.

 33.   After drawing down the Alliance Bank loan, it became clear that the estimated budget of KZT  6 billion would not be sufficient to complete the project. Alliance Bank indicated that in order to obtain further financing we would have to return the current loan and reapply for a new loan, with revised technical documentation supporting any newly proposed budget. Accordingly, Arka-Stroy transferred the original loan amount of KZT  6 billion back to Holding Invest LLP (plus interest), and Holding Invest LLP then returned those funds to Alliance Bank. Alliance Bank also required that we pay a variety of fees, fines and costs related to the issuance of the loan and its early repayment. Because we believed that Arka-Stroy was responsible for failing to correctly estimate the cost of the project, we insisted that it ultimately bear all costs of the loan repayment and other losses we incurred as a result of the project being put on hold, and it did so by transferring funds to Holding Invest LLP and Kagazy Invest LLP during the following months.

34.    In September 2007, we submitted a revised loan proposal for the project based upon the technical documentation produced by Arka-Stroy, and we were able to secure from Alliance Bank a KZT  10 billion loan (approximately $77.4 million), which Holding Invest LLP drew down and transferred to an account of Arka-Stroy that it could only access as and when approved by Alliance Bank. However, the project was delayed as a result of Arka-Stroy’s failure to obtain certain government approvals for the initial phases of the project. In addition, due to the brewing financial crisis, Alliance Bank advised us that it intended to unilaterally increase the interest rate under the loan (as it was contractually entitled to do), which would cause a substantial increase in the overall or cost of the project. In light of these problems, as well as other factors, including growing concern over the increasingly difficult economic environment generally, we ultimately decided to cancel the project. We therefore retrieved the KZT  10 billion from Arka-Stroy (with interest), and transferred it back to the bank on about 10 October 2007. As before, Alliance Bank demanded that we pay substantial fees, fines and costs in connection with this transaction. We again took the position that it was Arka-Stroy’s responsibility to pay these amounts and other related losses that we sustained. Arka-Stroy initially objected to this but eventually agreed to make a series of payments to compensate us.

35.    As the foregoing demonstrates, Arka-Stroy’s transfers to Holding Invest LLP and Kagazy Invest LLP exceeded incoming payments from these entities due primarily to interest and fees related to the Alliance Bank loans. There is nothing at all improper about this and, obviously, none of this excess benefited me in any way. In fact, we suffered significant losses as a result of the failed Astana project.”

Kagazy Invest, Kagazy Processing and Kagazy Gofrotara

“175.   In 2005 the KK Group decided to proceed with two new projects: the production of sanitary tissue projects at Kagazy Processing and the production of corrugated board products at Kagazy Gofrotara. Kagazy Processing bought equipment for the new business and required new buildings to locate and operate the equipment. Kagazy Gofrotara considered building a new plant to produce corrugated packaging. It bought European equipment, which was more powerful than the machines it already owned, and needed a new building for this equipment.

176.     Arka-Stroy was selected as one of the contractors to build the new buildings for Kagazy Processing and Kagazy Gofrotara. Arka-Stroy was to commence the development of the project design documents and budget estimates. Each of Kagazy Processing and Kagazy Gofrotara entered into a contract with Arka-Stroy. …

177.     Kagazy Gofrotara paid KZT  647,900,000, and Kagazy Processing paid KZT  218,500,000, to Arka-Stroy in 2006. In addition to that Kagazy Gofrotara and Kagazy Processing paid some advance payments to Arka-Stroy under these contracts in 2005. [The] Claimants do not take into account these 2005 payments to Arka-Stroy from Kagazy Gofrotara and Kagazy Processing.

178.     I explained in paragraph 52 above that in the course of pre-IPO restructuring Kagazy Gofrotara and Kagazy Processing were removed from the KK Group, but their assets were transferred to Kagazy Recycling that continued the construction projects. As a result, Kagazy Gofrotara and Kagazy Processing cancelled their contracts with Arka-Stroy and it repaid the advance payments back to Kagazy Gofrotara (KZT  856,100,000) and Kagazy Processing (KZT  1,175,700,000).

179.     Arka-Stroy received money from 2 entities (Kagazy Processing and Kagazy Gofrotara), but returned money to 3 entities (Kagazy Processing, Kagazy Gofrotara and Kagazy Invest). Kagazy Invest was the parent company of Kagazy Processing and Kagazy Gofrotara and had provided financial aid to those companies. Kagazy Gofrotara and Kagazy Processing asked Arka-Stroy to pay certain amounts to Kagazy Invest as repayment of the financial aid instead of returning them to Kagazy Gofrotara and Kagazy Processing. Therefore, the payments of KZT  710.9 million from Arka-Stroy to Kagazy Invest is the financial aid returned to Kagazy Invest by its two subsidiaries – Kagazy Processing and Kagazy Gofrotara. All the relevant transactions were documented by contracts.

180.     Thus, the payments from Arka-Stroy to Kagazy Gofrotara, Kagazy Processing and to Kagazy Invest, that the Claimants complain about related to the refund of the advance payments that Arka-Stroy received in connection with the above projects, including the sums of advance payments made to Arka-Stroy in 2005 that the Claimants had not taken into account. Kagazy Processing and Kagazy Gofrotara used the funds refunded by Arka-Stroy to repay their bank loans.”

She expanded on her theme in her eighth witness statement at paragraphs 14 to 16:

“14.     I have already described the reasons for the payments from Arka-Stroy to Kagazy Processing LLP (‘Kagazy Processing’), Kagazy Invest LLP (‘Kagazy Invest’) and Kagazy Gofrotara LLP (‘Kagazy Gofrotara’). I have also now reviewed section 3 the Expert Report of Ian Aird Thompson dated 6 March 2017.

15.       It appears that Arka-Stroy paid back to Kagazy Processing more than it received from it. I do not know why. Anyway, Kagazy Processing and Kagazy Gofrotara used the advance payments that it received back from Arka-Stroy to pay to Kagazy Recycling LLP (‘Kagazy Recycling’) and to repay their loans to Alliance Bank and Kazkommertsbank. In particular, Kagazy Processing paid KZT 516,577,043 to Kagazy Recycling and Kagazy Gofrotara paid KZT 138,010,722 to Kagazy Recycling. Kagazy Processing repaid its loan from Alliance Bank by paying KZT 2,787,218,284.80 on 5 November 2007 (in addition to the payment of KZT 220,106,759.72 received from Arka-Stroy, this payment included other funds, particular those received from Kagazy Recycling for the fixed assets that Kagazy Processing transferred during the restructuring) and KZT 3,316,306.81 on 6 November 2007. Kagazy Gofrotara repaid its loans from Kazkommertsbank by paying KZT 83,935,066.17 on 8 February 2007.

16.       I have already said that Kagazy Gofrotara and Kagazy Processing paid some advance payments to Arka-Stroy under construction contracts in 2005, but the Claimants did not take them into account. Mr Thompson has identified additional payments that Kagazy Processing and Kagazy Gofrotara made to Arka-Stroy in 2005 (net KZT 142,539,384 and KZT 489,0640,63). These net amounts roughly correspond to the KZT 710,407,632 paid to Kagazy Invest as return of financial assistance that Kagazy Invest provided to Kagazy Processing and Kagazy Gofrotara at an earlier time.”

“Q. Thank you. Now just in general terms, based on that description, would you agree with me that what you might expect to see, when you come on to look at the payment flows, is something that conforms to approximately this sequence of events: the sequence of events described is that in about June 2005 Kagazy Gorfratara [sic], possibly also Kagazy Processing, enter into a contract with Arka-Stroy for things to be done?

A. Mm-hm.

Q. Then in the course of restructuring prior to the IPO, at the end of May those two companies are removed from the group?

A. Yes.

Q. As a result of which refunds then occur, it is said, to three companies rather than two, which is Kagazy Gofratara [sic], Kagazy Processing and Kagazy Invest. So you have the payments by the two companies before the IPO on respective contracts. The contracts are then unwound or cancelled and the payments go back?

A. Yes.

Q. So what you might expect to see in the payment records, therefore, is a payment or two, or perhaps a little batch of payment shortly after the entry into the contract, around 2005, by the two companies, KG and KP?

A. yes.

Q. I am shortening it to make things a bit easier.

A. I understand.

Q. And then a pause and then cancellation followed by refunds in the financial flows back to the three companies, assuming that it is appropriate to pay back to the three companies?

A. Yes.

Q. That is what you might expect to see?

A. That sounds reasonable.”

Mr Thompson was then taken to his tables, after which the following exchange took place:

“Q. … As you can see, the payments from Arka-Stroy start in about February 2007, if I have got this right, and then they continue over the following months right the way through, in fact ultimately the last payment from Arka-Stroy is in November 2008. And all of these payments seem to be described as a mixture. They are provisional financial aid under a contract dated 2006 and provisional financial aid. Now, just looking at that long list of payments, of the payments going to Kagazy Invest, it doesn’t appear, does it, to fit the description of what is said to have occurred in the witness statements we have just been looking at?

A.     Not obviously, no.”

Mr Thompson was then taken to other tables in which he had (again most helpfully) set out details of payments between, respectively, Arka-Stroy and Kagazy Processing and Arka-Stroy and Kagazy Gofrotara. Again, it was put to him that his analysis as set out in those tables did not accord with the explanation which Ms Dikhanbayeva had given. He agreed.

Bolzhal and CBC

“With respect to the remaining US$ 26.0 million, even though I do not have access to many of the documents that I would need to provide a full response to the Claimants' allegations, I can at least say the following. First, with respect to the US$ 14.2 million that the Claimants alleged was transferred to Bolzhal Ltd LLP, Commerce Business Centre LLP, Lotos LLP, Kontakt Service Plus LLP, T.E.W. & Ltd LLP, Trading Company LLP and HW & Ltd, I emphatically deny receiving any of that money. I have never had any interest in these companies, I have never received any payments from these companies, and I have never exercised any control, direct or indirect, over these companies.”

This witness statement was made by him on 2 September 2013. It was followed by a second witness statement made on 10 October 2013, in paragraph 16 of which Mr Arip stated that Bolzhal and CBC were “at all relevant times under Shynar’s control”, and by a ninth witness statement made on 3 December 2014 in which Mr Arip at paragraph 26 described the companies as being “Shynar’s companies”. Just under two years later, however, in the witness statement which he prepared for the purposes of trial in September 2016, his fourteenth witness statement, Mr Arip stated that he had made “a mistake” in his previous statements when he had described Bolzhal and CBC as being companies which he did not own or control since, in fact, he and Mr Zhunus “used” them “for the purpose of buying the assets which became Exillon”. As Mr Howe submitted, it is not at all easy to understand how Mr Arip really could have made a “mistake” in relation to a matter which he ought to have had no difficulty in recalling and in circumstances where he had apparently made the “mistake” on no fewer than three occasions and in circumstances also where he had made another witness statement in January 2015 in certain proceedings involving Alliance Bank in which he referred, in terms, when dealing with the acquisition of the Exillon assets, to having carried out that transaction using “a number of companies incorporated in Kazakhstan”, including Bolzhal and CBC. When asked about this in cross-examination, Mr Arip was unable to give a satisfactory explanation. To my mind, he knew very well that there was none which could be given, and so decided simply to maintain his claim that he had made a “mistake”, however implausible that claim appeared.

Lotos

“Q.    You have also given evidence today, indeed yesterday, that Lotos was in fact Yesimbekov’s company and carrying out various trades and trading activities with, amongst others, KK JSC?

A. Yes.

Q. So it is your evidence, is it, that Lotos can simultaneously be a trading company, owned and controlled by Mr Yesimbekov, and at the same time a nominee, acting through its nominee, Mr Yesimbekov, for KK JSC?

A. Yes, and I said for these transactions specifically Bek Yesimbekov was acting as a nominee. I don’t know if that was the right way to characterise him, because he was working in group of companies and he was responsible himself for the acquisition of the land plots. It was basically his job.

Q. It makes no sense, does it, Mr Arip, for Lotos to be acting both at the same time as Mr Yesimbekov’s trading company, buying and selling goods, and as we can see assigning debts, and acting as a nominee for the KK JSC group?

A. I think specifically during that transaction we realised that the only way - because it was early time when we started to buy the land, so we realised that there is a restriction on the direct acquisition. So Bek just came up with the idea that he could use Lotos and he did it, and that is it. So I don’t see why it is kind of contradicts to the idea that Bek Yesimbekov could use the same company for his own benefits.

Q. The reality is, Mr Arip, that Lotos was acting as your nominee on these transactions, in the way as CBC and Bolzhal were acting as your nominees in subsequent land plot transactions?

A. That is right, yes. For this transaction, yes.”

Again, Mr Arip was here giving very specific evidence concerning Lotos. This is evidence which he ought to have given much earlier. 

“I do not know why or who compiled the contract. I can just assume that maybe Yesimbekov contacted a lawyer from Kagazy to help him draft the contract. Because Lotos belongs to Yesimbekov and he ran the company, that is why. You could ask a lawyer to do it. But I cannot really explain.”

In my view, this was fanciful evidence. If Lotos really was an independent company, it would have made no sense at all for Mr Esimbekov not to instruct an independent lawyer but instead to approach a lawyer within the KK Group.

“1. As ensuring fulfilment of the obligations of Kagazy Processing LLP to Alliance Bank JSC under the Bank Loan Agreement No. 072 K/08 dated July 30, 2008, to pledge the money to Alliance Bank JSC on savings account No. 057948416 (KZT) in the Branch of Alliance Bank JSC in Almaty under Agreement No. 02-843 of the bank fixed-time deposit under the deposit ‘Invest-Contribution’ dated 31.07.2008 in the amount of KZT  2,800,000,000.00 …

2. In case if Kagazy Processing LLP fails to fulfil and/or improperly fulfils its obligations under the Bank Loan Agreement No. 072 K/08 dated July 30, 2008, to provide Alliance Bank JSC with the right to acceptance-free money debiting, deposited on the savings account No. 057948416 (KZT) in the Branch of Alliance Bank JSC in Almaty under Agreement No. 02-843 of the bank fixed-time deposit under the deposit ‘Invest-Contribution’ dated 31.07.2008 in the amount of KZT  2,800,000,000.00 …”.

Mr Howe put to Ms Dikhanbayeva that, if Lotos really had been an independent company, it is difficult to see why Lotos would be prepared to provide security for Kagazy Processing in this way. He also asked where Lotos would have been able to find so large a sum of money if it was nothing more than Mr Esimbekov’s company. She was unable to answer these questions in a very meaningful way, although interestingly she appeared to acknowledge that the “money must have been received by them [Lotos] from somewhere”. She added, “Most probably Lotos didn’t run any risk. Most probably Lotos had been asked to be involved in that transaction”, before denying that this document demonstrated that Lotos was “just another shell company being used by Mr Arip and/or Mr Zhunus and managed by [Ms Dikhanbayeva], on their instructions, to move money around”.

“Well, firstly, I would like to say that I didn’t say that my sister was involved with Lotos. I don’t own Lotos, so it is owned by Mr Yesimbekov. How did this email come to life? I can just assume. I don’t know why it says what it says, but I can tell you that in 2010 - at the end of 2010, she was asked to leave the company. And that’s around January 2011, about the date of this email, she was no longer visiting the office of Kazakhstan Kagazy. Maybe Bek Yesimbekov asked her, maybe someone else. During this litigation I never asked my sister - sorry, I asked my sister why she wrote this email and what she asked about. She said she didn’t remember. Maybe someone had asked her, was her assumption. So I don’t have an explanation here. My assumption is Bek had asked her, but again, she had left by January she was no longer involved with Kagazy, because she had been asked to leave.”

It can be seen from this answer that Ms Dikhanbayeva began with a denial that she or Mr Arip owned Lotos and then questioned the authenticity of the email, before only then answering Mr Howe’s question by not altogether unreasonably explaining that she could only assume what lay behind the request. Interestingly, however, she asserted that she had not asked her sister about the email, before immediately contradicting herself and saying that she had done so and had been told by her sister that she could not remember. The truth is, however, that Ms Dikhanbayeva had no answer other than a bare denial to Mr Howe’s point, which was that an email of this sort could not conceivably have been sent unless Lotos was a member of the KK Group.

Kontakt Service Plus

TEW

“Mr Aryp Maksat Yeskeruly spoke on the agenda item (On approval of the deals the Company is interested in) and proposed to the Board of Directors to approve the following deals as deals concluded with affiliated persons and making of which is of interest to the Company:

1.      The Deed of Assignment of Receivables as of 29 December 2006 for the amount of 951,953,326.30 … concluded between Kagazkhstan Kagazy JSC, Kagazy Trading LLP and TEW & LTD LLP.

…

The Chairman of the meeting, ‘I ask you to vote on the agenda item’.

‘Yea’ – two.

‘Nay’ – one.

‘Abstain’ – none.

Mr Arip Maksat Yeskeruly did not vote [?] on the agenda item.

Voting results.

The members of the Board of Directors voted in favour of approval of the following deals as deals concluded with affiliated persons and making of which is of interest to the Company:

1.      The Deed of Assignment of Receivables as of 29 December 2006 with the amount of 951,953,326.30 … concluded between Kagazkhstan Kagazy JSC, Kagazy Trading LLP and TEW & LTD LLP.

…”.

Mr Howe put it to Mr Arip that these minutes demonstrate that TEW was “a related company”, something which Mr Arip accepted. Mr Arip did not accept, however, that the reason why this was the case was that TEW was owned and controlled by Mr Zhunus and him. He justified this denial by saying this:

“… But it is clear it is related, not because of me, otherwise I would not be in a position to approve it. And I would not be present at the meeting. …”.

Mr Howe pointed out that Mr Arip is recorded in the minutes as not having voted “on the agenda item”. Mr Arip maintained his denial that he had anything to do with TEW. I consider nonetheless that Mr Howe was probably right in the point which he made. Indeed, it is interesting that, despite in her sixth witness statement, stating that she did not know who owned or managed TEW, by the time that she came to give her evidence Ms Dikhanbayeva was in a position to make a correction to what she had stated, explaining that she had “remembered that the CEO of TEW was Andrey Gorokhov”, somebody whom the next day she told Mr Howe was married to Ms Kogutyuk. Although Ms Dikhanbayeva did not herself make the point, at least not expressly, Mr Twigger submitted that this would explain why it was that TEW was treated as an affiliated entity in the 29 December 2006 board minutes. Indeed, it may be that Mr Howe understood Ms Dikhanbayeva to be making the same point because he suggested to her that she was “just making things up as you go along”. She denied this suggestion but it seems to me that this is exactly what Ms Dikhanbayeva was doing. Having seen Mr Arip struggle somewhat to explain away the board minutes, particularly the reference to him not voting, I am quite clear that Ms Dikhanbayeva decided to take it upon herself to think up another explanation. This required her to modify the evidence which she had set out in her witness statement, hence the correction which she made during examination-in-chief. This was both devious and cynical.

HW

Trading Company

“244.   Trading Company LLP is a not-for-profit organisation that runs a big clinic in central Almaty that provides antenatal and postnatal care to mothers. It charges a fee for people who can afford it, and subsidises care for people who cannot.

245.     It is run by my mother-in-law, Ms Asilbekova, and she is a director and shareholder of the company which operates the centre. …

246.     At the time of the payment from Arka-Stroy to Trading Company, we were trying to help Trading Company to raise money to set up the clinic. I telephoned all my friends and contacts to ask them to donate. For example, I asked Mr Gerassimov [sic] to donate some money, and he did so. In exactly the same way, I asked Arka-Stroy to consider donating money, which it did. I did not personally benefit from or receive any money from the donation to Trading Company by Arka-Stroy.

247.     I have no knowledge of the transactions between Trading Company and members of the Kagazy Group referred to by the Claimants and I do not know if it was administered by Tayissa Koguytuk and her administrative department as alleged by the Claimants.”

Mr Howe understandably asked Mr Arip about what he had to say in these passages during the course of cross-examination. He only did so, however, having first taken Mr Arip to a number of documents featuring Trading Company. By way of example, Mr Arip was shown a document on Trading Company notepaper dated 3 July 2006 and signed by Mr Zhekebatyrov in his capacity as “Director of Trading Company LLP”. This stated:

“I hereby ordered to employ Olga Evgeneva Gerasimova to the position of assistant accountant from 3 July 2006, on probation of 3 (three) months, with the salary as in the payroll plan. …”.

Mr Howe asked Mr Arip why Trading Company, described by him in his witness statement as a not-for-profit organisation which was managing or operating a perinatal clinic, would be employing an assistant accountant in this way. Mr Arip gave a somewhat rambling answer in which he insisted that he “didn’t know about the previous situation of Trading Company”. Mr Howe asked him whether he was able to explain why Mr Zhekebatyrov was named in the document as Trading Company’s director. Mr Arip said that he did not know, repeating that he had no knowledge of what Trading Company did before it became one of his companies “under control of my mother-in-law, when it was appropriated as a clinic” which, it appears from the documents, was on or around 22 September 2008. Mr Zhekebatyrov’s role as Mr Arip’s nominee in relation, for example, to Holding Invest, made that evidence somewhat implausible.

“Around the same time [Ms Kogutuyk] heard from Bek Yesimbekov that he had a company that he no longer planned to use and could sell. [Ms Kogutuyk] told me that she would offer [Mr Arip] to use [Mr Esimbekov’s] company. I now think that this company was Trading Company. Thus, Trading Company was not always involved in the medical services business. Before sometime in 2008, when owned by Bek Yesimbekov, Trading Company had other operations, which explains why it had the trading operations identified by Mr Crooks.”

This was evidence which, I am clear, was manufactured by Ms Dikhanbayeva in an attempt to explain away the type of documents which she would have appreciated Mr Howe would seek to deploy at trial.

The ‘Kazakh/Construction LLPs’

“I do not remember. I do not know why or who compiled the contract. I can just assume that maybe Yesimbekov contacted a lawyer from Kagazy to help him draft the contract. Because Lotos belongs to Yesimbekov and he ran the company, that is why. You could ask a lawyer to do it. But I cannot really explain.”

This explanation made no sense at all since, if Mr Esimbekov wanted legal assistance and was running a company which was independent of the KK Group, the obvious place to have gone in order to obtain such assistance was a law firm. It is perfectly obvious that the reason why this was not done was that legal assistance could be provided essentially internally within the KK Group because both companies were members of the KK Group. 

The construction work which was carried out

“Aksenger is a different situation. The problems at Aksenger are to do with not valuation of the work but primarily whether work was actually carried out or not.”

“Q.  So that is what you have done, is it, to try to estimate what the work should have cost?

A.  That’s correct. And I can expand on that answer by saying I did look at the possibility of establishing what the actual cost was. I believe that that was - because of the nature of the records it was beyond my expertise. I thought it was much more for a forensic accountant to be able to do that. So the production of a value of what the work should cost is, in my view, a good starting point for the court, to assist the court, as to what is the starting point should be in its investigations.

Q. Yes. If the court were to conclude, however, that what really matters is to try to find out, so far as it reasonably can, what the work actually cost, then your reports are not much use, are they?

A. I think there is a great deal of value in my report because, as I said before, this is a good starting point. I don’t believe the records are complete. If this is a starting point from which either additions or deductions can be made due to known actual costs, then it is of some value.”

He went on, after explaining that he had “carried out the instructions of my instructing solicitor”, to acknowledge the point that was being put to him by Mr Howe, namely that if there are “cost records … then they establish the value”, but explained that “you would have to be certain” and “For that approach to be reliable, you would have to be certain that you have got all of the cost records”. Indeed, when I explored the matter with Mr Howe during the course of his closing submissions, he acknowledged that it may be that all that Mr Jackson was seeking to do in the passage in his supplemental report highlighted by Mr Howe was to explain that, in his view, given the information which was available, a ‘prospective’ approach to valuation was appropriate. In my view, as I have explained, that is precisely what Mr Jackson was seeking to do. In those circumstances, I reject the suggestion that Mr Jackson’s evidence ought to be regarded as lacking in reliability on this particular basis.

Akzhal-1/Akzhal-2 

Warehouses: Akzhal-1

“126.   I accept the general submission on behalf of Ms Baturina that there is an extent to which it is permissible to pursue unpleaded general challenges to credibility. But where it is intended to advance specific matters of dishonesty based on a particular set of facts, such matters should, as a matter of fairness, be pleaded. A striking example relates to the January 2008 valuations from Mr Benmakhlouf referred to above. It was suggested for the first time in Ms Baturina's written opening that these were only ‘purported’ valuations and that they ‘wildly overstate[d]’ the true value of the Paradise Golf plots of land. Ms Baturina then gave evidence for the first time in cross-examination that at a meeting on 30th January 2008 Mr Chistyakov told her that a valuation had been received in Morocco commissioned by Mr Krupnov showing a market price of about €120 per square metre. This appeared nowhere in her pleaded case or her witness statements. It was then put to Mr Chistyakov in cross-examination that he had seen these valuations at the time and that they were false valuations commissioned by the consortium to justify the price allegedly being advanced to Ms Baturina. He denied seeing the valuations at the time, denied telling Ms Baturina of any such valuation and said that he did not believe the valuations to be false.

127.     These are matters which should have been pleaded if they were to be advanced. Mr Chistyakov had no proper opportunity to consider in advance the allegations and to explore how he might wish to defend himself against them … .”

The position is no different in the present case. The bribery allegation having not been properly pleaded, Mr Arip had no proper opportunity to prepare his response. Nor has any disclosure been given in relation to the issue. In the circumstances, I am satisfied that the right figure to take on Mr Tapper’s approach to valuation is, therefore, the full US$ 6.8 million which was paid to Loging and so KZT 877.86 million.

“1 unit

g) Sanitary insulated container in size of 6,055m x 2,435m, the internal height of 2,500m, the necessary elimination and sockets, a wall radiator, a 50-liter boiler, 5 toilet cabins with closet basins and drainage systems, 2 urinals and drainage systems, 2 lavabos, separate men and women entrances, windows are in the container walls. The wall isolation of stone fibre is 60mm, the floor and ceiling isolation is 100mm. The walls are tin-faced, the ceiling is of white wood chipboard (WCB).”

Mr Jackson accepted, at least by implication, that this description matched the internal structure shown in one of the photographs which he had included in his report (albeit described as an “office unit”). I see no reason, in the circumstances, to approach the matter on the basis that the ‘add-ons’ were not included in the Loging contract. The best that Mr Twigger could say in the course of his closing submissions was that “it is not clear precisely what was supplied”. No attempt was made, however, to trawl through the contractual documentation and demonstrate why Mr Tapper was wrong to have assumed (as he did) that the Loging contract covered the ‘add-ons’. I consider that that was a fair assumption and that, in the circumstances, it is really incumbent upon Mr Arip and Ms Dikhanbayeva to explain with some precision why it was wrong to have made it. That, however, has not been done. It follows that I do not consider it appropriate to include additional sums for valuation purposes to cover the items identified by Mr Jackson in his report.

Other Buildings: Akzhal-1

Earthworks: Akzhal-1 and Akzhal-2

“This is primarily based upon oil and gas work. On this basis, it would therefore seem reasonable that the labour productivity should be adjusted by 2 (100% uplift) for these works (i.e. if it takes one hour to do work in UK then it would take two hours for similar work in Kazakhstan).” 

Mr Tapper then explained as follows in paragraph 984:

“However, the work in Almaty is not a technically complex high-quality oil and gas project; it is a warehouse construction on a reasonably level side, with a single track railway siding. Therefore in my opinion a productivity uplift of 2 is not appropriate. Having viewed the photographs provided by the Defendants, the quality of the machinery used appears to be older and therefore less reliable than that generally used for such work in the UK. In my opinion, I therefore consider that an uplift of 20% of the labour and plant hours these works is appropriate.”

That reduction, I agree with Mr Twigger, was not appropriate given that Mr Tapper has no personal experience of productivity levels in Kazakhstan, unlike Mr Jackson who (with direct personal experience of Kazakh productivity levels) was clear that the difference between the UK and Kazakhstan is very often between 100% and 200%. This applies, therefore, both to labour and plant rates since Mr Tapper ultimately accepted that, if it took a digger operator in Kazakhstan two hours to do the same thing as an operator in the UK would do in 1 hour, the digger would be required for twice as long. I consider, in the circumstances, that a 20% uplift was quite obviously too low, as indeed would have been a 100% uplift as originally canvassed by Mr Tapper in paragraph 983, and that a more appropriate uplift would have been 150%.

“Q. … Well, that is not comparable, is it? It is completely different constructing an engineering factory for the manufacture of high-precision engineering gas components to simply constructing warehouses for storage?

A. The concrete is the same, the excavation is the same, the steel portal frames are the same, the cladding is the same. There may be some differences internally, but for the most part it is a comparable project.

Q. Presumably an engineering factory needs to have extremely high levels of anti-vibration measures and also, for example, cleanliness and climate control?

A. Those are not areas that were influential in the prices that are used. As I say, concrete, excavation, steel, steel reinforcement; they are all the same components.”

Mr Howe then asked about the hotel and the Oriflame building, making the point in the case of the latter that there would inevitably be different rates applicable to a construction project which was taking place in Moscow and “nearly 2,000 miles from Almaty”. Mr Jackson maintained, however, that the comparables were appropriate since:

“They are not completely different types of construction. The standard is definitely different internally. I don’t know how I can say anything else other than keep repeating that particular point.”

The difficulty nonetheless remains that the information which Mr Jackson provided in relation to the comparables was, leading into trial, very sketchy indeed. In his first report, he referred to his having used “cost data from a variety of different sources” and then identified just two such sources, namely the hotel in Astana and Oriflame. He did not mention Gas Device at that stage. The first time that he referred to this was when Mr Howe asked him what other sources he had had regard to. This is despite the fact that in his discussions with Mr Tapper in the lead-up to trial, Mr Jackson “undertook to provide rates” or, as he immediately clarified, “to try and provide some of these details from the other projects”. Mr Jackson explained in cross-examination, however, that he then “checked with my firm and the answer from them was because this was a court hearing, this was commercially sensitive information that belonged to clients and it would be difficult to disclose to Mr Tapper”. I agree with Mr Howe that this was wholly unsatisfactory. I do not, in the circumstances, consider that I can place any great reliance on Mr Jackson’s comparables since they are largely incapable of being tested, certainly in any particularly meaningful way. I consider, instead, that it is preferable to adopt Mr Tapper’s approach, albeit with the modifications which I have described as being, in my view, necessary.

“So there were some works done for dewatering purposes and that is territory of 60 hectares, as a total, 50 plus 10. That territory had massive construction works performed, but the lake was dewatering through two pipes. It was dewatered and then, as I said, there was an error in project design and I remember that I saw huge amounts of soil, they clawed a huge pile, a huge heap of soil  and the tractor was moving back, and that was hard soil to replace the local softer soil with that harder  soil  containing rocks and stones.”

“The works are done. As the most of works are hidden the Acts were taken as a basis of calculation. It was checked that the rates and quantities in the Acts are reasonable. Total figure from the Acts was taken as basis of the estimate.”

Mr Jackson was, in making these comments, referring to the Act of Acceptance relating to works apparently carried out in January 2007 involving “a drainage system”. He clarified in cross-examination that:

“I have relied on the acts as they have been stated. I take the acts as a starting point for establishing whether some work has been done. I believe some drainage works would have had to have been done. But I do not know the exact nature of that work.”

Mr Howe put to Mr Jackson that, in fact, the Act of Acceptance on which he had relied had nothing to do with any drainage work carried out at Akzhal-2. He did so by taking Mr Jackson to an Arka-Stroy invoice relating to drainage work done at Aksenger. That invoice was in strikingly similar terms to the Act of Acceptance, save in respect of one of the items in the invoice which did not appear in the Act of Acceptance. It is quite clear, looking at this material, that the Act of Acceptance is not a document on which reliance could legitimately be placed. Indeed, when this point was put to Mr Jackson by Mr Howe it is interesting that Mr Jackson’s answer was as follows:

“I can explain how I have dealt with the lack of reliability of the acts. I recognised at the time when I put these values into my report that they may not be totally safe. That was certainly a consideration of mine. So here is how I have treated them: I have put them in, but within my overall valuation at Akzhal I have moderated the total value associated with all of the earthworks to the value of a roundabout 600 million tenge, i.e. a deduction.

And the mechanism I have used for that is the - as we have discussed the item earlier, that despite what the theoretical measurement of earthworks would be, in other words you would excavate, remove everything, I took the view to mitigate the total cost, because I thought that there is a danger that I have imported either some high values or some unreliable values, particularly in regard to the acts.

So, by way of mitigation, I have removed about 600 million tenge from my overall valuation. So that is why I have got them in, but I do recognise that these acts are a little unsafe.”

Mr Jackson later, when discussing with Mr Howe the works relating to the Aksai River, explained in more detail what he meant by moderation. It was clear that he had in mind the type of thing which is done at a pre-construction stage in order to avoid either overvaluation or undervaluation. As Mr Howe pointed out, however, nowhere in his reports did Mr Jackson mention having engaged in a moderation process resulting in an overall reduction in the case of Akzhal amounting to KZT 600 million and, as he earlier explained, in the case of Aksenger amounting to “nearly KZT 400 million”. Mr Jackson insisted that he had explained what he had done by way of moderation to Mr Tapper in the experts’ meeting. However, I was left with the impression that Mr Jackson was engaged in what might be described as damage limitation in the face of the difficulties which Mr Howe had explored with him concerning his reliance on the Act of Acceptance.

“Well to the extent that I could by the view of the satellite imagery, that is what has led me to it. So that was my verification work and I certainly accept, as I have said before, it is not the most reliable piece of information. But I have used it.”

Since Mr Jackson was clear that some work had been done, he explained that he relied upon the Act of Acceptance and then moderated the value downwards to mitigate the risk of the document being unreliable. The difficulty, however, is that, as Mr Howe pointed out to Mr Jackson, the reduction had not been specifically identified in his report. Indeed, there was no specific reduction in respect of this item of work since his evidence was that the moderation led to his overall KZT 600 million reduction. Again, therefore, the Court is left in the position where it either attributes no value to this work or does its best to arrive at an appropriate value without any real evidence before it to enable such a value to be achieved. Doing the best that I can, and so again adopting a very broadbrush approach, it seems to me that an appropriate value would be KZT 30 million, an amount which will again not be affected by any recalculation.

Aksenger

Earthworks

“In summary, whilst there is earth scarring in the areas identified by Mr Jackson, the purpose for this work cannot be ascertained from an analysis of satellite images. Given the points discussed above, it appears unlikely that any of this work was for the benefit of the Aksenger industrial park. Even if this work had related to the planned industrial park, it is impossible to establish (from the information currently available) exactly what work was carried out.”

Mr Twigger submitted that this made it essential that Mr Tapper should carry out ground penetrating radar investigations. In this context, Mr Twigger relied on this exchange with Mr Tapper:

“Q. I think you just accepted that it is possible that work was done –

A. It is possible, yes, and perhaps I should have gone out there again to have a look. But I haven’t.

Q. There is quite a large amount of value attached to these areas and it would have been worth doing, wouldn’t it, Mr Tapper?

A. Maybe, yes.”

“Q. … The reality is if you go to the site, as you have done, what you see is fields, stretching away into the middle distance, isn’t it?

A. What you see is definitely fields, and one of the things I discussed with Mr Tapper - in order to actually settle this matter, we did discuss the possibility of Warners doing a GPR survey on all the pink and red areas and I did say to Mr Tapper I would accept those results, if those surveys were done.”

Mr Howe then, in my view quite understandably, put it to Mr Jackson that he could have arranged for such survey work to be carried out:

“Q. Well, with respect, Mr Jackson, you are the one who is suggesting that the work was carried out; don’t you think it was up to you to produce some evidence that it was?

A. Well, what we discussed was Mr Tapper could possibly have produced evidence that it wasn’t done.

Q. Well, I see. So the position is that you propose that work is done somewhere on this 7 kilometre-long site in the middle of the field and your situation is, you having proposed it, it is up to Mr Tapper to disprove it; is that right?

A. No, we said a practical solution to settle the matter was for Warners to do a survey. It was just a practical solution. I wasn’t suggesting that he has to prove anything.”

I agree with Mr Howe that, in the circumstances, it is not really good enough for Mr Twigger to take the position which he did. I repeat that the Court’s task in this regard is to consider the evidence which is before it and arrive at a conclusion on the balance of probabilities.

Roads

“… I think my position - I mean, just to save a little bit of time here, was that road was established for the purpose of those infill works. So if we agree that those infill works weren’t carried out, then it is unlikely that the road would have been built for the purpose of Aksenger.”

This clarification came after Mr Howe had explored with Mr Jackson his understanding of where the eastern boundary lay, specifically in the context of certain satellite images which Mr Jackson had considered indicated a certain amount of landfill (see under “Drainage” below). Mr Jackson ultimately acknowledged during the course of those exchanges that he had been mistaken since he had not appreciated that the boundary as shown on the satellite images had moved. He accepted that, since it appeared that that was the case, then his “interpretation would be incorrect”. It follows that Mr Jackson’s evidence in relation to that road did not ultimately support Mr Arip’s and Ms Dikhanbayeva’s case in this respect. In these circumstances, the fact that Mr Tapper had in his evidence the previous day acknowledged that, whilst there was always a track along the eastern boundary, the road in the satellite image was “different” meaning that “something has happened”, does not greatly assist that case either. It is not appropriate, in my view, to arrive at a conclusion that the road was constructed as part of the Aksenger works on so slight a basis. I need not, therefore, take up further time addressing a further quantum-related issue.

Drainage

Centralised locking system

“… Then the participants of the investigative action returned, at B. Yesimbekov’s suggestion, to the abandoned railway branch running from the main railway to the plot. Here, he explained that the railway branch leading to the plot was built as part of the project, complete with the communication systems, and that it was an integral part of the project to build the railway branch, as no design, nor construction of a railway branch without communication means supporting the switching of signalisation devices, would have been impossible in principle, because any railway branch, naturally, becomes part over overall railway system. During the seven years that the branch was in an abandoned state some of the communication devices were stolen, but some of them are still in place.

B. Yesimbekov pointed to locked metal boxes standing along the southern part of the railway branch and explained that they belong to the railway communication system and prove that there is an underground cable running along the railway line.

The said metal boxes, their dimesions [sic] being 40x40x10, were located close to the existing track switch, in direct proximity to the rails. There is a cable going into each box from under the ground covered on the outside by a metal 6 cm protective tube. The examined section of the railway featured two such boxes. Similar boxes were installed along the main railway line, 50 m to the south of the said branch, as well as at the locations of track switches facilitating the switching of tracks in different directions.”

Mr Twigger suggested that this provides significant support for Mr Arip’s and Ms Dikhanbayeva’s case. I do not, however, myself agree. It is quite clear that what was written in the minutes was heavily influenced by what Mr Esimbekov told Major Kaisarov. The fact that Major Kaisarov distinguished between the metal boxes along the railway branch and those (and the track switches) installed along the main railway line is, in such circumstances, not particularly persuasive. Nor do the photographs accompanying the document really assist. Indeed, when Mr Tapper was asked about the Minutes, he stated as follows:

“Well, the difficulty I have got here is the branch of the railway with the weighbridge was there before the work started. My own view is that these boxes relate to that part of the railway, not the new part. So when I was there I didn’t see any evidence of any system, and all I’ve seen at the moment is photographs of boxes. So I don’t know how to - what to believe. I mean they are clearly boxes and they are next to a railway line, but other than that there is not an awful lot to go on.”

I agree. It is impossible to conclude, on the evidence, that the communication system was put in place.

Other railway work

Relevance of Aksenger work

Work paid for by the Claimants direct

“No, I don’t know - I don’t know enough about these contracts or these works. I have had a look at the contract and I have had a look at the payment applications and I have listed out the information I have seen, there is not a lot to go on. It is the same with the Arka-Stroy contracts. There is not a lot of scope included in the contracts. It is very hard to know exactly what they were doing.”

This makes it impossible to place any reliance on the exercise which was undertaken by Mr Tapper. It follows that it would not be appropriate to make further reductions on this basis.

Overall conclusions in relation to the PEAK Claim

The Astana 2 Claim

These KZT 280 million transfers can all be detected in the tables produced by Mr Crooks and so in the transfers which I have set out above, specifically the references to the transfers which were made on 7 October 2009. It simply cannot be the case, in the circumstances, that these transfers were made without somebody co-ordinating them. That somebody must have been able to direct what each of the companies in the chain should do. It is fanciful to suppose otherwise.

“only 4.5mln have been used … we have done our best to ‘convince’ the auditor to use 18 mln for construction … we feel that the Bank is aware of project violations and that they are loyal to us to a certain degree ... If we fail to provide a clear answer to their requests as to the application of the funds soon, and if no construction work is performed at the facility, we may end up with an additional audit, not only a repeated technical audit and financial inspection. In this case, our data concerning 18 mln will be absent from the reports. Besides, the absence of the down payment for construction work and inappropriate expenditures will be revealed … Summing up, I would like to repeat that the ISSUES have to be DEALT with as soon as possible without letting ‘other’ inspections happen.”

Mr Howe pointed out that this email was sent three days after the date of a report prepared by T&M Consulting LLP (‘T&M’) on the use of funds provided by DBK for the Astana development, what had stated that:

“As of the date of conducting the Evaluation of the Facility, the actually absorbed amount of funds, according to the Acts of delivery and acceptance was KZT 2,404,689,220.”

In other words, Mr Howe submitted, although as much as KZT 2,404,689,220/US$ 18.6 million had been paid by DBK and Astana-Contract, according to Ms Musaglieva, only US$4.5 million “had been used”.

“Based on the results review of the technical audit, we were provided with 18 million. Today the Development Bank of Kazakhstan called and demanded that we return the remaining amount of 4 million in cash.

They are indignant that we have not been able to complete the used of the funds for their designated purpose in one and a half years. For our part we reported that the money is being paid for the construction site. We urgently need money to close the remaining amount of 4 million.”

Mr Howe submitted that these exchanges demonstrate that the sums drawn down from DBK were misappropriated and that at most only about US$ 4.5 million had been used, he suggested, to give the impression that some construction activity had been undertaken at Astana 2.

“So what Sergey Tulegenov is saying, that money from this project, instead of being spent on the construction was sent back to Kazakhstan Kagazy.  And that is what we have seen from the account.  Nevertheless, they are saying that I have to pay, or suggesting -- they are not saying, like, I have to do it, but they are just saying we urgently need 4 million and obviously my reaction was they have to come from the company, because money was sent to the company so the company have to give you this from me and -- nothing to do with me. But what I also heard, roughly the same time, from Mr Gerasimov, because that was quite an issue in that period of time, he said that actually also position of the DBK was inadequate, because what had been happening is that bank experienced some liquidity problems, they didn’t want to continue projects, they didn’t want to disclose, they were simply reluctant to admit that money was spent. So it was kind of back and forward with the bank, everyone understood nothing was stolen, but I had been under pressure just to find money and give cash to the company, and these people were under pressure, they were threatened, they was panicking with all kinds of investigations which might come from the company or from the bank, and which later on actually has happened, there was a lot of litigation about this money and criminal investigation about this money. But all these investigations and litigations actually found that all the money was spent on the proper purposes and the rest was returned to the Kagazy Group.”

Mr Arip was plainly being approached because it was thought that he needed to know about the concerns which had been raised. I do not accept that there was a more innocent explanation. The immediate question, however, is whether these exchanges provide support for any suggestion (not, as I understand it, in fact, made by Mr Howe) that Mr Jackson has over-valued the works which were carried out. I do not consider that they do. Ms Musagalieva’s reference to US$ 4.5 million has the appearance of an estimation. It would be wrong, in my view, therefore, to treat it as being too exact. Mr Jackson’s valuation is, in my view, obviously more reliable.

“In summary:

·         Basic site preparation took place, probably in April/May 2008.

·         Little or no work was carried out in the first half of 2009.

·         Most work was carried out later in 2009 and into 2010.

·         By 2011 no further progress appears to have been made.

·         The work that I have seen on site in 2016 is the same as that which was carried out up to 2010.

·         There are now no materials on site.”

Quite clearly, as Mr Twigger submitted, site preparation work started in spring 2008 and the bulk of the works took place between mid-2009 and late 2010. It is, therefore, not right to suggest that meaningful works only started after June 2010. I agree also with Mr Twigger that this timeline is consistent with all of the payments made under the contracts, in that those made to TESS on 14 August 2008 included payments for design work, those made to GS ran throughout the period of the preparatory and main work, and those made to NSA also ran throughout the period of the bulk of the work. In these circumstances, it seems to me that it would be a mistake to conclude that the majority of the works was carried out after June 2010.

“Q.  So given that there was $30 million of steel on the Astana site in April 2012, which you knew about, why are the claimants alleging that the acts of acceptance submitted by GS are false?

A.  It is a little bit strange that about an hour ago I was told of knowing about a fraud that now you are saying doesn’t exist because this is worth more than 30 million.  It is a little bit strange that I have to answer just the opposite of what you were trying to prove about an hour ago.

Q.  I’m afraid you do have to answer, Mr Werner, because that is how this process works. So why were you making allegations that work had not been done and acts of acceptance were false, in respect of $30 million worth of steel that Hermann saw?

A.  I have not made any allegations.  I have not made the calculations.  This is not my estimation of the amount of the fraud.  This has been an estimation that initially the Business Audit reported and then further investigations have established.”

Mr Werner went on to describe how the steel had been sold since these proceedings were started, but he was insistent that he did not know how much was received for it. Mr Twigger submitted that, in the circumstances, since credit ought to be given in respect of the steel and since the best evidence as to its value is US$ 30 million, that is sufficient to dispose of the Astana 2 Claim which is, after all, valued at somewhat less, namely US$ 13.45 million. I agree with Mr Howe, however, that it is unclear how the emails which Mr Werner was asked about can really be thought to be reliable evidence of anything, in particular whether as to the quantity of steel on the Astana 2 site or its value or who supplied it. I am, accordingly, not disposed to place any reliance on those emails. The more so, in circumstances where, as Mr Howe went on to point out, on any view, their contents are not readily reconciled with the fact that GS received in net terms US$ 6.7 million, and not US$ 30 million or more.

Interest and penalties

“145. Under Kazakh law, where a legal entity suffers damage as a result of wrongful conduct, such legal entity is entitled to claim compensation for the damage caused to it, including the real damage. The real damage includes all adverse consequences caused by the defendants’ wrongful conduct and suffered by the victim.

146. Therefore, if because of the defendants actions, the claimants were unable to repay the loans, under Kazakh law the defendants could in principle be held liable for the interest/default interest and/or penalties imposed by the bank on the claimants as part of the damage suffered by the claimants.

147. However, there needs to be a direct causal link between the defendants’ actions and the damage before the defendants can be made liable for that damage. A direct causal link means that the damage results objectively and directly from the wrongful conduct of the defendants. That means that, based on the factual circumstances of the case (the totality of factors) there must be an objective link between the defendants’ conduct as a cause and the damage resulting from this cause - the negative and unfavourable property consequences for the victim.

148. When a loan is taken, there is always a risk of failure to pay on time or failure to repay the loan due to the borrower’s inability to reach the anticipated results of operations, due to changes in economic situation and market conditions, due to business risks, etc. In order to prove that the damage was caused by the defendants’ actions specifically, it is necessary to establish a link between these actions as a cause and damage as a consequence of this cause. Proving such causal link under Kazakh law requires demonstrating with evidence (e.g., technical and economic calculations) that, if not for the unlawful conduct, the business would have generated income that could have been used to repay the loan and pay interest, and the default interest and penalties would not have been imposed by the bank.

149   The defendants may not be liable if the causal link between their conduct and the damage suffered by the claimants is not established (e.g., because the technical and economic calculations were wrong (e.g., they were unrealistic or the assumptions therein were wrong), or because the business would not have achieved the level of profitability to repay the principal and interest under the loans (e.g., due to economic crisis)).

150. Whether the defendants’ wrongful conduct was (a) one of the causes of the damage, (b) the main cause or (c) the only cause, may be relevant to determine the size of the damage caused by the defendants and accordingly the limit of the defendants’ liability. For instance, if it were established that the defendants’ conduct was one of the causes and, apart from it, the damage had other causes, for example, the crisis on the real estate and financial markets of Kazakhstan, the defendants would be entitled to a proportionate reduction of the compensation to be paid by them. If it is established that the defendants' conduct was the only or the main cause, the defendants would be liable to compensate for the damage in full.”

“Q Yes, I see. So you are interpreting your instructions as actual payments?

A. Absolutely, yes.

Q. And evidence of payments on the basis of that instruction, you don’t think is enough for suggestions that a payment may have been made?

A. Just to be clear, again, I’m not saying whether I think it is enough, not enough, right or wrong.

Q. Yes.

A. I am merely setting out what I have seen, and I have not seen a payment of cash.

Q. Yes, I see. That is helpful, thank you.”

It was, indeed, helpful to understand what approach Mr Thompson had been asked to adopt since it demonstrated very clearly that it was too restrictive. I am quite satisfied that Mr Crooks was right to take it that entries in the 1C databases were sufficient to enable payments to be verified. I suspect also that, but for the way in which he had been instructed, Mr Thompson would have agreed with Mr Crooks about this. Nor was I impressed by other points which Mr Thompson raised, again no doubt on instructions, concerning, for example, KK JSC’s 2016 Rehabilitation Plan. As Mr Thompson acknowledged, this was not a point for him since this was a legal point. Another example concerns Mr Thompson’s reference to the fact that KZT 1,932,243,207 was repaid in relation to a loan entered into on 5 November 2010 when the Defendants were no longer at the KK Group. Mr Thompson replied to Mr Howe’s question on the topic by saying “Again, I draw that fact out. Again, I give no view as to whether it is right or wrong. I simply make the observation”.

“PEAK LLP had initially defaulted on its obligations to Alliance Bank JSC in the third quarter of 2009. As a result of negotiations, in fourth quarter of 2010, Kazakhstan Kagazy Group of companies concluded with Alliance Bank JSC a Cooperation Agreement, addendums to Loan Agreements and refinanced the debt to Eurasian Bank JSC. …

At the time of the restructuring Alliance Bank loan and refinancing Eurasian Bank loan, all penalties that were charged to the Group during the default period were cancelled. Also payments of the principal amount (except for 7.5 million tenge per month) were deferred until March 2014, current accrued interest and accumulated overdue interests were deferred until March 2013 and March 2012, respectively.

One of terms of the restructuring of Eurasian Bank loan was repayment of 50% of the refinanced debt which was problematic for the business mainly for Class B warehouses, as it was servicing the debt. Under such circumstances, in February 2011, an addendum to the existing loan agreements was signed with Alliance Bank under which repayment schedule were changed, maturity date for repayment of 50% abovementioned debt - 396,900,000 tenge during 2011-2012 were extended. This resulted in successful completion of the first stage of the restructuring.

In order to fulfill the payment terms, the Group repaid Alliance Bank JSC 369.9 million tenge which were proceeds from the sales of Kazupack production site.

Allaince [sic] Bank loan is serviced by cash flows generated from Class B warehouses, however funds are insufficient for serve the debt under the current repayment schedule.

In March 2012 the Group requested Alliance Bank to reconsider the repayment schedule. As a result, Bank agreed to delay repayment the previously agreed interest payable in March and April 2012 to 15 May 2012 and in the meantime to consider alternatives to change debt servicing terms.

In May 2012 the Group proposed the Bank debt restructuring with the following major terms:

• Write-off the part of the principal debt

• cancellation of the requirement on payment of the accrued interest until 1 January 2012.

• deferral of the current interest payment until 2013.

• investments in the development of the Class B warehouses of 1.4 billion tenge during the period from 2012 to 2016.

However the Bank declined such proposal of the Group. The bank announced main terms of the restructuring such as increase of monthly payments and extension of the period provision of guarantee by Kazakhstan Kagazy JSC.

On 15 May 2012 PEAK LLP defaulted on payments under the repayment schedule and at present the Company is in default as no agreement on new terms of the debt servicing has been achieved yet.”

“In relation to the past due interest to the Bank on loan obligations and interest of the bank on Debtors; obligations which shall arise as а result of additional financing, from the date of the additional financing and restructuring of the loan obligations. There shall bе а grace period estabished for the Debtor in payment of this interest, for the period until 1st of March 2012.”

In other words, the agreement was that there would be a grace period. In addition, and particularly relied on by Mr Twigger, the 2010 Co-Operation Agreement went on in clause 1.7 to provide as follows:

“If the Debtor, Company and the Partnership fulfills its obligations stipulated in the clause 1.4. and 1.6 of the present Agreement, the Bank shall agree:

1.7.1        cancel (forgive) the penalty fee charged on past due principal debt and past due interest as of the date of conducting of restructuring of the loan obligations of the Debtor.

1.7.2        Not to collect from the Debtor the commission for submission of the restructuring of acting loan obligations of the Debtor.”

Clauses 1.4 and 1.6 were in these terms:

“1.4 The Parties agreed that the restructuring of the loan obligations of the Debtor and Additional financing of the Debtor to bе made bу the Bank shall bе realized only if all below mentioned conditions are performed:

1.4.1.     Lack of arrests and other encumbrance from the third parties in respect of the Security and Additional Security, except the right of the pledge of Eurasian Bank JSC for Encumbered Assets;

1.4.2.     Availability of the state registration of the rights of pledge/surcharge of the Bank in respect of all objects of the additional Security;

1.4.3.     Signing of the correspondent agreements, contracts, additional agreements, including those for Loan Obligations to bе made bу the Debtor, Company and/or the Partnership in relation to granting of Additional financing, restructuring of the Loan Obligations of the Debtor and submission of the Property of the Partnership as pledge and surcharge of Encumbered Assets.

…

1.6. The Parties agreed with the following terms of submission as а pledge to the Bank the following additional security:

1.6.1.     The Partnership within 3 (three) working days from the date of signing of the present Agreement shall submit to the Bank the title and other documents, related to the property of the Partnership. ln relation to the encumbered assets, the Company and/or the Partnership, within the term stipulated in the present sub clause, shall submit to the bank the consent of Eurasian Bank JSC on recharge of the corresponded Encumbered assets and transfer to the bank notary certified copies of the title and other documents related to these assets.

1.6.2.     The Company and the Partnership shall submit the Additional Security as а pledge to the Bank, in order to provide the fulfillment of the Debtor’s obligations, which shall arise as а result of the additional financing.

1.6.3.     The bank, in its turn, shall prepare the pledge agreements/recharge for the additional security.

1.6.4.     The Company and the Partnership shall submit to the authorized representative of the bank power of attorney and other documents necessary for registration of the pledge agreements/recharge in the authorized body and also direct its authorized representative signed the pledge agreements to the correspondent state body in order to participate on its registration. Ву the requirement of the Bank, the Company and/or the Partnership shall independently take all measures necessary for registration of the pledge/recharge agreements in the authorized state body. All expenses on the state registration of the pledge/recharge agreements shall bе paid bу the Company and/or the Partnership correspondingly.

1.6.5.     Within 5 (five) calendar days from the date the debtor makes transfer of the funds to Eurasian Bank JSC for repayment of the refinanced loan obligations of the Company, the Company and/or the Partnership shall provide remittal of the encumbrance of Eurasian Bank JSC from the Encumbered Assets transferred as recharge to the bank, and submit to the bank the corresponding references on availabllity (lack) of encumbrance on immovable property and transactions related to it, issued bу authorized state body, and also with lack of any encumbrance on these assets from Eurasian Bank JSC and any other third person and also the originals of the title and other documents related to the Encumbered Assets.”

The Land Plots Claim

CBC and Bolzhal

As this table demonstrates, and as Mr Howe submitted, the total sum recorded as paid by KK JSC to CBC for the five land plots is over two and a half times greater than the value CBC itself applied to the land plots when they were transferred to CBC as equity contributions. Moreover, again Mr Howe submitted, the value put on the land plots in the transfers to CBC does not necessarily correspond with the price recorded as being paid to the farmers since, although records only exist in relation to six land plots, those records show that the amount paid by KK JSC was approximately ten times the price which was paid to the farmers - a matter to which I shall return in a moment.

“The Karasay District is an important district in Almaty Region. Although it  covers only 1.0% of the region’s territory, the district accounted for 22.0% of its industrial output, 9.7% of its agricultural output and 42.6% of fixed capital investments in 2007; 22.4% of its industrial output, 9.3% of its agricultural output and 30.8% of fixed capital investments in 2008; and 23.9% of its industrial output, 8.7% of its agricultural output and 21.5% of fixed capital investments in 2009.”

They also agreed this:

“Notable commercial developments within a radius of approximately 15km include buildings for both international companies such as Coca-Cola, Efes, Pepsi and Hamle Company Ltd. and local firms such as Maxi, Vostock- Cement and Kazakhstan Kagazy.”

“I would now like to talk about developments after the first half year. In August, there was an international credit crisis which hit Kazakhstan. It hit the banking sector in Kazakhstan particularly hard. As a result of this, there’s a severe liquidity crisis in Kazakhstan and borrowing costs have risen sharply. We, therefore, have an unexpected competitive advantage now over other local companies simply because our IPO raised $255 million in cash and therefore we are very liquid. Our competitors are generally highly leveraged, and they are now suffering from high financing costs.”

The difficulty with Mr Howe’s reliance on this, however, is that a reference by Mr Manghi to a liquidity crisis does not seem to me, necessarily at least, to equate to an appreciation, as Mr Twigger put it in closing, to “everybody” thinking “that land prices were going to fall off a cliff and the values were gong to plummet and therefore it wasn’t a good investment”. Indeed, it is important to note that Mr Manghi went on to state as follows:

“ As a result of our acquisition of Kazupack, which occurred in August we now have an estimated 25% market share of the corrugated market in Central Asia. Because of the liquidity crisis we believe that there will be more acquisition opportunities over the coming six months.” 

Furthermore, Mr Arip later had this to say:

“According to Alessandro, Kazakhstan actually had a liquidity crisis, and we need to change our strategy a little bit in order to deal with the situation. First of all, we plan to obtain an advantage from the situation. Therefore, in our plans we have outlined acquisitions, because now we have a very high liquidity, and in this situation we have a very good chance for raising loans and we plan to refinance our expensive Kazakh loans through borrowings with lower interest rates and to leave part of funds raised from IPO for potential acquisitions on paper business.

…

In addition, as it was already noted by Alessandro, we have the possibility to attract international borrowings with much more favourable interest rates. I think that when we deal with all issues of funding, we will be able to increase our profitability as our borrowing costs will be reduced significantly. In general, the idea is to benefit from this situation and to move more aggressively to the said acquisition of paper facilities; we will also find potentially good options for acquisition of real estate, where we also want to strengthen our position.”

Mr Twigger submitted that this, similarly, is not consistent with the contemporaneous view being that the liquidity crisis would have the effect on the Kazakh real estate market which Mr Howe suggested would have been clear by this point. I agree with Mr Twigger about this. Indeed, given that the investors on the conference call were themselves, no doubt, to a greater or lesser degree, knowledgeable about such matters, it is notable that nobody appears to have disputed what Mr Manghi and Mr Arip had to say. The position is further confirmed by this further statement by Mr Arip at the end of the conference call:

“The sales still may happen because even despite the fact that prices are going down there’s a big need for the infrastructure and our main business is not to sell up but to develop infrastructure and to sell infrastructure land, and we are talking to several clients so this deal may happen. The problem is that it may happen not on the level that we expected and in this case maybe it’s better for us to wait for a year or more, maybe one and a half years until the whole situation on the real estate market could be clarified. Anyway, most of the payoff of the land we planned to do has to be in the years 2009, 2010 and 2011 and we believe that generally the economy is very strong. It’s mostly commodity driven with all the historical peaks and as a result, I think those years liquidity crisis will be history. So we don’t think that we have to strongly review our real estate strategy,  maybe just to take advantage of the situation and acquire some more real estate assets during this liquidity situation because it certainly won’t be long and it will continue for a couple of months more. Currently the market is stagnating, you don’t see the strong fall of the prices but if this situation continues it will certainly continue for a couple of months, I think we have to expect some connection on the market, and also I believe we will have special opportunities for some companies who have leverage and are under pressure to sell their assets.”

“A deceleration in the growth of the banking system would have an adverse effect on overall economic growth, which in its turn can take a toll on asset quality. The clearest example of this is the domestic real estate market, which was fed by banking loans and has demonstrated rapid growth over last year and a half. The high share of mortgage loans in total retail loans (23%) and the exposure of loan books to the real estate market of around 25% make banks highly susceptible to borrowers’ creditworthiness and/or the devaluation of collateralized assets.

At a recent meeting with Kazakh authorities, a speaker opined that the system could sustain a fall of up to 30% in the real estate market. Were this to occur, the crisis would have a substantial impact on the banking system but in the long run would likely improve risk management policies and push loan portfolios toward a more diversified structure.”

This is expressed in somewhat provisional terms which hardly indicate a fall in property prices which is already underway, let alone any precipitous decline. Similarly, the selection of short business news updates on Business New Europe Digest cited by Mr Mayhew provide only limited support for what he had to say. For instance, a report dated 14 September 2007 entitled “Kazakh banks: Dealing with the issues”, contains this:

“Global credit tightening, coupled with increasing regulatory measures, make Kazakh banking a tough space for investors at the moment. On a recent trip to Almaty, we focused on some of the key issues facing the banking system:

Funding. International funding is, by and large, closed to Kazakh banks, and most have put off issuance in the hope of better credit conditions in 2008E. With this trend, a slowdown in sector growth is inevitable, while potential for a local deposit war is clear as banks fight for the one sizeable funding pool available.

Asset quality. We do not foresee major risks in the securities portfolios of Kazakh banks beyond some inevitable (non-substantial) mark-to-market losses booked in 2H07. Within the loan book, the real estate and construction segment is a concern, with a local consensus view that real estate prices are under pressure, while certain real estate companies have encountered liquidity problems.

Sector liquidity. August saw an outflow of hot money from the banking sector, coupled with a minor deposit run as both corporate and retail depositors shifted deposits away from most players towards the perceived safety of Halyk. The National Bank of Kazakhstan (NBK) had to step in and provide liquidity in its role as lender of last resort.”

Again, there is no suggestion here that the real estate market had already suffered any major decline.

“It is certainly an opportunity but of course what this brings with it is the decision one has to make as to where the market is actually going.  Because if you buy too early in a downturn you could be buying into assets which, in due course, either are not developable or can't be sold because the market has completely imploded. So I don't think it is that straightforward, to be honest.”

There was then this exchange:

“Q. It is not straightforward, I agree, Mr Mayhew. It was a judgement, and it was quite a difficult judgement to make. But what one can't say is that was a completely unreasonable, irrational judgement; do you agree?

A. All options were open at the time.

Q. Yes, and do you agree that at the end of 2007 and beginning of 2008 no one could really have foreseen how serious or sustained the financial crisis was going to be?

A. I think at that time it was very apparent that there had been an extremely significant event and it would have been a brave person to call exactly which direction the market was going.  I think it was an environment that people hadn't seen before, particularly in this region.”

I agree with Mr Twigger that, in the circumstances, it would not be right to conclude that a decision to buy additional land plots at the time can, in and of itself, amount to evidence of fraud. As he put it, “Optimistic, or even speculative, investment decisions in the early months of the 2008 global financial crisis are a far cry from the allegations of fraud made against” Mr Arip and Ms Dikhanbayeva. It does not follow, however, for reasons which I have explained, that there was no fraud involved in the implementation of the decision to buy. On the contrary, I am clear that there was.

“Land purchase via Bolzhal – the economic and commercial nature of the transaction: at the time of the purchase, there was already a recession at the real estate market, but the land was purchased at an ‘inflated’ price.”

Mr Howe suggested that it is telling that this email was not also sent to Mr Werner or any other member of the KK Group’s new management. Mr Howe’s suspicion might be understandable, but I do not myself consider that the email justifies, without more, any particular conclusion concerning the Kazakhstan real estate market. This is because it is not known on what basis the auditors, BDO, apparently arrived at such a view. Furthermore, as Mr Twigger pointed out, only a few months before the PwC Russia report had referred to the land plot prices paid in 2009 as being higher than those paid in 2008 “before the economic downturn had begun”. Although, again, I would be reluctant to place too much weight on this observation, made not by a valuer but by another accountancy firm, what this does demonstrate is that there were differing views.

Holding Invest

“We used funds received from KK JSC to make the purchase because I was owed fees for the land plots transactions and whilst the amount due to me was less than the amount paid to Holding Invest for the property, the difference was made up by me and my co-purchasers through the cash payments we made to sellers of land plots.”

Accordingly, it would seem that, on Mr Jumadilov’s account, he and his co-investors did not, as such, repay Bolzhal but that they provided funds which were used, apparently as direct payments from them (as opposed to from Bolzhal), to pay the sellers of land plots. This explanation seems to me likely to have been designed to make it all the more readily explicable that there are no documents showing that he and his co-investors ever repaid (whether directly or indirectly) the monies which Bolzhal transferred to Holding Invest effectively on their behalf. There is also the point made by Mr Howe in closing that neither Mr Jumadilov in his first witness statement nor Mr Arip in his fourteenth witness statement (both of which were served in September 2016) suggested that the purchase of the office block did not ultimately go ahead. This was something which was only mentioned in Mr Jumadilov’s second witness statement and Mr Arip’s sixteenth witness statement (both served shortly before trial). I agree with Mr Howe, however, that if this really was what happened, it would obviously have needed to be mentioned but, instead, the opposite impression was given.

“This money was used to pay a commitment fee to Central Asian Investment Consulting Company. This was related to the purchase of Astana Contract, which was a transaction for the benefit of the Kagazy Group and Holding Invest put the money forward to assist the Kagazy Group in the takeover of Astana Contract. …”.

In her witness statement, Ms Dikhanbayeva supplemented what Mr Arip had to say by reference to bank statements showing that KZT 603,400,000 was paid in two instalments on 1 April 2008. She added that Holding Invest subsequently assigned this debt to PEAK Aksenger, as authorised by KK JSC’s board on 16 March 2009, and that PEAK Aksenger repaid this amount of money to Holding Invest on 17 April 2009. She explained in cross-examination that the thinking was that, if Holding Invest made the payment, it would be easier to reclaim this money from Central Asian Investment Consulting Company (‘Central Asian’) if something went wrong with the deal.

“26. To assist me in responding to what Mr. Crooks says about this payment to Holding Invest, I have reviewed extracts of KK JSC’s 1C database that have been provided to me. From the 1C database, I can see that KK JSC had made advance payments to Holding Invest which related to the office building rented by KK JSC from Holding Invest, including the KZT 230,880,000 payment made on 8 May 2008. I can see that by 31 July 2009, after I had left the KK Group, the overall amount due from Holding Invest to KK JSC was KZT 596 million.

27.    Monthly rent for the building was around KZT 11.9 million, including VAT. The KK JSC 1C database shows advance payments being applied against rent payments to Holding Invest at the end of August 2009, September 2009 and October 2009. It also shows that in October 2009, Holding Invest returned KZT 527.9 million to KK JSC.

28.    After this payment of KZT 527.9 million, the balance owed by Holding Invest to KK JSC was around KZT 65 million. The 1C database shows that this was applied to various costs such as lease of cars, water, electricity, sewage and other services, the purchase of furniture and office equipment and rent payments for November and December 2009.

29.    On 18 August 2010, when the 1C database extract provided to me ends, it appears that there was still an outstanding balance of approximately KZT 30 million owned to KK JSC by Holding Invest. I do not know how this was eventually resolved.

30.    Thus, Holding Invest’s liabilities to KK JSC were almost entirely repaid including by the KZT 527.9 million payment which happened after I had left the KK Group.”

It seems to me, in the circumstances, that it would not be appropriate to conclude that the payments made by KK JSC directly to Holding Invest were illegitimate since there is evidence in the form of these database entries that consideration was provided for what was paid. It follows that there was nothing to stop Holding Invest deciding to pay the monies on to Trading Company or to prevent Trading Company making payments to Sun Club LLP.

Limitation

Applicable Kazakh law

“1. The claim for  protection of a violated right shall be accepted by the court for consideration irrespective of expiry of the limitation period.

2. The limitation period shall be applied by the court only upon the application by party in the dispute, which is made prior to the adoption of a decision by the court.

3. The expiry of the limitation period prior to the presentation of the claim shall be the basis for the court’s passing the decision to dismiss the claim.

…”.

In other words, a claimant is able to commence proceedings even if the three-year limitation period has expired, and it is for the defendant (at least typically) to raise a limitation objection in which case the court will deal with the question of limitation. If the limitation period has, indeed, expired, then, the court will dismiss the claim. I observe, in passing, that this reflects the position in this jurisdiction also.

“The limitation period begins to run from the day when a person became aware or should have become aware of a violation of his rights. Exceptions from this rule shall be established by this Code and the other legislative acts.”

It is in relation to this provision that it will be necessary for me to consider the awareness issue (in both its respects) on the facts of this case in some depth. As to this, Mr Vataev and Professor Suleimenov agreed as follows in their joint memorandum:

“2) Pursuant to Article 180.1 of the Civil Code, the limitation period starts running from the date on which the person whose rights have been violated became, or should have become, aware of the violation of his rights. The moment of commencement of the limitation period is a matter of fact, which is to be established by the court based on the actual circumstances of a particular case. …

3) In the case of a corporate violation, the limitation period starts to run when the claimant company became, or should have become, aware of the harm caused to the company as a result of an officer’s failure to perform or their improper performance of, one more of his/her corporate duties, i.e.  as a result of a corporate offence. …

4) Since Articles 62-63 of the JSC Law provide for a broad range of violations, it is practically impossible to formulate a universal rule for determining when the potential claimant ‘should have become aware’ of the violation. It is necessary to ascertain for every specific offence and considering the specific factual circumstances, when the company should have become aware of the damage and the fact that it was caused by the officer’s violation of his/her duties under Articles 62-63 of the JSC Law.”

Although the matter was not expressly addressed by the experts in the joint memorandum, I did not understand there to be any issue on Mr Vataev’s part with Professor Sulemeinov’s view that, in the context of tortious liability under Art. 917 of the KCC, the limitation period will run from the time when the potential claimant was, or should have become aware, that its property has suffered damage as a result of unlawful conduct, and that, as regards an unjust enrichment claim, the relevant starting point is when the potential claimant is aware, or should have become aware, that a third party was unjustly enriched at the claimant’s expense.

“Q. What you are saying is, in very broad terms, you need to know enough, and what ‘enough’ is may depend on circumstances, do you agree?

A. Yes.

MR JUSTICE PICKEN: It is really prima facie, isn’t it?

MR TWIGGER: That may be another way of putting it, except now we are in Latin, my lord

MR JUSTICE PICKEN: Are you saying that you need to know ‘enough’, as you say - but on the face of it there is a violation, prima facie?

A. Yes, sir.”

There then followed this exchange between Mr Twigger and Mr Vataev:

“Q. Would you agree that it is actually impossible to give a definitive version, a definitive description of the level of confidence that is required before the limitation period starts to run? We can agree it is more than suspicion …

A. It would be fact-specific.

Q. Fact-specific, exactly. More than suspicion, …

A. More than suspicion, less than absolute certainty. Somewhere in between.”

Professor Sulemeinov expressed a similar view during his cross-examination by Mr Howe:

“A. If I may, I would like to explain. The thing is knowledge could have different degrees. Absolute knowledge is non-existent. Specific knowledge that Mr Vataev is referring to cannot exist when the claim is filed. It can only come in the judge’s decision and then again it is not always specific because that could be appealed against. We are talking about relative knowledge only and hence that mean specific knowledge referred to by Mr Vataev cannot be the subject of our discussion here. Instead we must be discussing reasons to believe which is also a category of knowledge, but a degree of knowledge that cannot be very specific. Specific knowledge is non-existent, especially at the time when the claim is only filed, in my view.”

“Q. It follows from the way that you have put that there, doesn’t it, Mr Vataev, that you accept that once the claimant has grounds for suspicion, it is incumbent on him to make, as you say, all reasonable efforts, to find out whether he has a claim, whether his rights have been violated or not?

A. Yes, and still there might be a kind of multi-level inquiry here. I have suspicion and let’s say arise those suspicions I am given some plausible explanation that yes, that is a legitimate business transaction that may lull the victim into a sense of calm and quiet. But then, you know -

Q. Yes, I see that. So if you were given -

A. - there was, again, how reasonable is reasonable and how sufficient is sufficient, so we are again in the factual –

Q. We are back into the factual scenario. I see that. So if you are given some sort of explanation to throw you off the scent, then obviously it may not be reasonable, depending on the facts, for you to do anything. But if that doesn’t happen, you just find out about something, you get suspicious about transactions that have happened, you are under - it is difficult to describe it as being under a duty, but the court would look at whether you had made reasonable efforts to investigate, is that right?

A. Yes, I agree.”

“Only when the legal entity or its shareholder obtained sufficient grounds and ability to realise that the transaction was a fraud, and not a good faith, reasonable and fair deal, only then it may be concluded that they ‘should have known’ of the violation in the full sense, and that time should be considered the time when the clock of the limitation period would start running”.

He was also shown the previous paragraph in the report in which Mr Vataev stated:

“Imagine a situation in which a new owner discovers that his acquired company appears to be in poor financial condition. So far, no violation is discovered as the company’s distress could be caused by valid business reasons. The new owner start examining the records and discovers a series of suspicious transactions that his acquired company performed in the past. Again, at this point, no violation is truly known by the new owner-there is a mere suspicion, which needs further investigation. Only after the new owner discovers sufficient details about suspicious transactions, which would allow him to conclude that the transactions were indeed against the company’s interests and/or fraudulent, can the new owner be attributed with knowledge of the violation, in the full legal sense of this word, having occurred which would mean the period of limitation would then start to run.”

Mr Twigger summarised what he understood Mr Vataev to be saying as being that “the claimant needs details which would be sufficient to cause a reasonable person to consider there has been a fraud”. Mr Vataev agreed with this. It should be noted, therefore, that Mr Twigger put to Mr Vataev that a claimant would need to know that there had been a fraud, not merely an innocent violation of rights. I consider that Mr Twigger was right to put things in this way since, in my view, it is necessary to consider the nature of the claims which the claimant comes to assert since it is those claims (and not others) which are being considered for time-bar purposes. If the claimant alleges fraud, in those circumstances, the focus should be on what the claimant knew, or should have known, relating to the allegations of fraud under consideration for time-bar purposes. It seems to me that it is artificial to adopt an approach which is divorced from a consideration of the actual allegations which the claimant has made. It may be, for example, that a claimant is aware of violations of its rights which, because they appear to be innocent, the claimant chooses not to pursue. If the claimant later becomes aware that the violations are not at all innocent but involve fraud, and so wishes to pursue a case, and the reason why the claimant has only come to the realisation that there has been fraud is because the wrongdoer has managed to date to succeed in concealing its fraud from the claimant, then, it is difficult to see why the wrongdoer should be permitted to rely on a time-bar in relation to the fraud case which the claimant seeks to put forward. In summary, it seems to me that a claimant needs to know enough to plead the actual fraud case which has been advanced and which it is said is time-barred in order for the limitation clock to start running. Accordingly, if a claimant does not have enough knowledge to do this, then, there cannot have been the requisite awareness.

“… I did not have any evidence of the connection. I had suspicions. I had belief. But I didn’t have the evidence, yes.”

This was followed a little later by this exchange:

“Q. You knew who you thought had done the fraud for a long, long time, Mr Werner.

A. Yes. I thought that it had been the former shareholders who had misappropriated, but I was not able to establish a link between the money that had left the company and them.”

There was then shortly afterwards this exchange:

“Q. … Same question, Mr Werner: that was not correct, was it?

A.  We had no ability to implicate the defendants until the discovery of the Arka-Stroy database, with evidence.

Q.  That is not what was being said.  It was said that each claim -- no: ‘... the frauds, delicts and unjust enrichment were concealed ... and were not discovered until March 2013 - ...’ That means you didn’t know about them?

A.  Yes, we didn’t know -- we did not have any knowledge of the unjust enrichment until March 2013.  That is exactly the way I understand this.

Q.  You did know, you did have a firm belief in your own mind that there was a fraud well before March 2013?

A.  Yes.  But you cannot go to court and just speculate, saying that I think there has been a fraud.”

Mr Twigger submitted that Mr Werner’s acknowledgment that he had suspicions was impossible to square with what the Court had been told when the injunction was sought, and that this casts considerable doubt on the evidence which Mr Werner gave concerning his state of knowledge at any given time. Mr Twigger, in fact, went further because his submission was that Mr Werner had not been candid in what he had to say. On the contrary, Mr Twigger suggested, the evidence demonstrates that Mr Werner had clear and firm beliefs about the essential elements of the alleged violations of the Claimants’ rights long before the discovery of the 1C database which was relied upon so heavily when seeking injunctive relief. Mr Twigger in this regard was able to point to the fact that, whereas in a draft of Mr Werner’s first affidavit, it had been written that Mr Werner had “for many months been trying to get to the bottom of the KK Group’s dealings”, no reference was made to any such investigations in the final version of his first affidavit which went before the Court.

The PEAK and Astana 2 Claims: whether the Claimants “became aware” by 1 August 2010

“Already on Friday, October 16, the new shareholder, T. Mathias [Werner] asked several questions regarding the transactions made in 2008 regarding the acquisition of additional assets and logistics business.”

...

 “T. Mathias received an explanation from the financiers, that 4.9 million, spent on the preparations for the construction of warehouses in Astana, and 13.5 million - a pre-payment for equipment ordered. From which income you are going to serve this new loan? And the payments - they are already due. … Who should be responsible?”

It was suggested to Mr Werner by Mr Twigger that this email demonstrates that his concerns at the time went beyond the DBK/Astana 2 funds issue. Mr Werner denied this, although he stated that he remembered visiting the warehouses, noting that they were empty and asking why. He explained also that he did not investigate the allegations in this email further because Mr Arip had characterised Mr Valitov as “crazy” and “feeling aggrieved at that time because he had been bypassed and he had not [been] given the opportunity” that Mr Werner had been given. Accordingly, Mr Werner added, based on what Mr Arip had told him, he thought that Mr Valitov was an “extremely erratic person” and “a loose cannon”. I can see, in the circumstances, especially as Mr Werner had only recently arrived at the KK Group, why Mr Werner would have listened to what Mr Arip had to say in this regard. Indeed, as Mr Werner explained, at this stage he “simply could not believe that Mr Arip, who I thought to be an amazing businessman, was in the business of defrauding, of stealing money … it simply did not come to my mind”. That is evidence which I accept and which makes it all the more improbable that Mr Werner would have had the conversations which Mr Gerasimov claimed to have had with him at about this time. 

“Stream 1 - Historical Cash Flow Analysis

Background

The two new shareholders wish to understand the flow of funds expended on investments in land, machinery and company acquisitions relative to the USD 520m plus of financing received (USD 270m IPO; USD101m of Tenge bonds; USD 157m of local bank financing). The shareholders need to be in a position to discuss future business and financial plans with the group’s bankers. We should assume that our reporting is likely to be used for this purpose.

Objective

Our objective would be to undertake a high level review of sources and uses of funds covering the period mid-2007 to date within the Kagazy group of companies.

Proposed approach

Using the audited cashflow statement as at 31 December 2008 (which includes 31 December 2007 comparatives) as a basis - drill down into the balances presented for both financing, investing and (significant) changes in working capital. Our review will be principally based on matching cashflows to those cashflows expected based on a review of significant contractual agreements. In respect of significant movements in working capital we will need to understand significant movements based on discussions with management. At the same time we would propose to include a review for potentially undisclosed liabilities, within the review of the significant contractual arrangements. At this stage we do not plan to carry out backdated valuation of assets acquired and compare it with the consideration given. However, should any transaction appear to be not an arm-length basis we will report accordingly.”

Having quoted a fee of US$ 90,000 for this workstream and estimated that “the shareholders” would get their desired “high level feedback within the next 14-20 day”, Mr Khrapoun then went on to deal with the second workstream in this way:

“During our discussion today you mentioned that there is a need to carry out financial modelling of the subject business. It was also mentioned that this might the Company to negotiate restructuring of its borrowings. From our experience depending on a particular bank there could be different requirements to that model and also to the final deliverable. In case of the model being used to assess viability of the restructuring proposal being made to the bank additional work would be required (not just financial modelling) including something which is called Independent Business Review (we have just recently completed one in Kazakhstan for an international bank). Given complexity of this stream may I suggest to have a discussion with you to make sure I am very clear at the moment what exactly is needed and what is the purpose and intended use of the Stream 2 deliverable. Thanks for your understanding and patience – will try to resolve it tomorrow.”

Accordingly, Mr Khrapoun in his email sought to divide into two the work described in the documents to which I have so far referred. What is important, however, is that his description of the first workstream did not entail PwC Russia performing the type of exercise which, had fraud been suspected, would have been necessary. On the contrary, Mr Khrapoun expressly stated PwC would not “carry out back dated valuation of assets acquired and compare it with the consideration given”. The fact that he went on to say “However, should any transaction appear to be not an arm-length basis we will report accordingly” does not warrant a different conclusion being arrived at because I agree with Mr Howe that this reflects no more than commonsense and does not hint at an exercise directed at unearthing fraud. If PwC Russia had been asked to investigate suspected fraud, Mr Khrapoun would surely have included some wording which made this clear and not simply have made a passing reference like this. Furthermore, if that really were what PwC Russia had been asked to do, it would be difficult to see how that could be consistent with the stated objective of undertaking “a high level review of sources and use of funds covering the period mid 2007 to date”.

“An investor in the group has requested specific procedure to confirm the assets and other acquisition transactions funded from the IPO and loans. The time period in scope will be from the IPO in July 2007 until August 2009… Specific procedures to be performed are as follows ...”.

The document then went on to list various procedures which would be performed, as follows:

“For each selected investment, trace and agree amount transferred to the agreement, bank account, G/L, etc.”

“Physical confirmation of the assets  - for those located in and around Almaty.”

“Trace proceeds from the IPO and other loans into the accounting records and bank accounts.”

I do not consider that this work description really changes anything, especially since it contained an express exclusion in respect of “Bank transfers to off-shore or foreign bank accounts shall be noted and agreed with supporting documents though not investigated further at this stage”. If Deloitte had been asked to investigate suspected fraud, to have included such an exclusion would have made no sense at all. Nor do I consider it matters that in the email which Mr Khrapoun sent to SP Angel and Norton Rose on 19 October 2009, the day before his email in which he identified two workstreams, this was stated:

“As a way of introduction I am a PwC Advisory partner based in Almaty and looking after PwC Advisory practice ... I understand from Richard that following change of shareholders in Kagazy there is a need to carry out certain business review/forensic investigation in relation to the company. We had an internal discussion on this subject this afternoon and realised that more information is need [sic] in order to scope the assignment properly. Perhaps we can have a conference call/meeting with you to get a full understanding what is required.”

Although Mr Twigger did not in closing specifically rely on Mr Khrapoun’s description of the investigation which he understood PwC Russia to have been asked to undertake as entailing a “forensic” exercise, as will appear, he did place considerable reliance on Mr Werner’s own use of the word “forensic” in an email which he sent to Mr Mckay on 15 November 2009. I shall deal with that next but, focusing for the present on Mr Khrapoun’s email, it seems to me that it would be a mistake to place too much store on the description which he used in circumstances where, not only did he refer to “forensic” alongside a reference to “business review”, but his email the following day, which followed a conversation where matters were clearly better described, spelt out what was to be done in the two workstreams and this did not entail any fraud-specific investigation.

• review transactions on the acquisition of property, plant and equipment. Understand the deal terms (if internal policies were followed, the vendor selection process, tendering process). Review the quality of the supporting documents available. Match the supporting documents (such as contracts) to the cash outflows incurred;

• review construction investment costs and agree them to the supporting documents (such as contracts, budgets, etc). Understand the deal terms (if internal policies were followed, the vendor selection process, tendering process). Review the contracts and budgets available. Match the supporting documents (such as contracts) to the cash outflows incurred;

• review significant movements in working capital (such as, for instance, a significant increase in the inventory balance) and understand the reasons behind them by talking to management;

• match, on a high level, the actual cash inflows with the expected cash flows from the transactions;

• identify potential related parties. Our corporate intelligence group has performed a search of all related parties. The search was conducted based on publicly available information and databases.”

Although Mr Twigger suggested in closing that there had been some other work carried out by PwC Russia which was separate from this work, the fact is that the PwC Russia report relied on so heavily by Mr Twigger is a report which describes work in this way. Mr Twigger referred, in particular, to an email which Mr Khrapoun sent to Mr Werner on 4 November 2009, in which Mr Khrapoun explained that “We are making reasonable progress with the forensic stream” and went on:

“While we have been progressing with our work in order for us to be able to provide you with a broader picture we believe that our scope should be revised slightly to capture cashflows at the PLC level as well. So, we have updated the engagement letter and attached it to this note.”

Mr Khrapoun continued:

“Finally, we really need to get the engagement letter signed so this does not postpone our delivery of the draft report or any progress updates to you. Perhaps to speed the process up we could sent it to Taissiya for execution if you are comfortable with this or given sensitivities of this stream you would like to sign it personally or get someone else to sign it. Please advise on your preference.”

Mr Twigger suggested that this shows that PwC had, indeed, been instructed to investigate fraud allegations. The difficulty with this, however, is not only that a single report came to be produced and the scope of that report was as defined, but that any “sensitivities” did not stop Mr Werner immediately forwarding the email to Mr Gerasimov, somebody Mr Werner knew was close to Mr Arip as I have previously explained. This makes it somewhat unlikely that the “sensitivities” involved suspicion that Mr Arip had committed fraud.

“Events last week have been very encouraging: it is crucial that we have a strategically aligned shareholder base; with Vladimir on board I was not able to drive the company in a coherent fashion. I have told you (and make it extensive to your partners) that I value immensely you stepping in as shareholders; I am also willing to up my commitment and take an active role in the management of the company, ie the Chairmanship of the JSC. The future of the company looks a lot brighter since last Friday.”

Mr Werner then went on:

“We have had a steep learning curve and done a lot in this past month and a half. Crucially in my opinion we have changed the approach of dealing with the financial crisis of the company, which is the only way the it has a chance of surviving.”

He then explained that “Over the next three weeks and before we sit in front of banks we have to” do a number of things and these included:

“5.  Raise equity: nobody will invest equity in the company now, but the former shareholders should reinstate part of the funds they withdrew. They will obviously not do this if not forced to, so the forensic report becomes crucial to identify a ‘smoking gun’. In the meantime it is also important that their covert financial support stops - Bruce I need your help here.”

Mr Werner ended by saying that in the following week, amongst other things, he would “meet with PWCs forensic team in Moscow on Tuesday”.

“Continue with a disciplined focus on cash. We have to make sure that the company generates enough cash in the next month a half to finance its operations and advisors. I think that Bruce is doing a fantastic job here, and I encourage him to continue to keep a strict discipline. One thing that worries me is level of theft at operational level - the only short term solution I see is to involve operational management into the cash management process. Bruce what do you think?”

I agree with Mr Werner that for him to have mentioned this type of theft and yet to have made no mention at all of the frauds which Mr Twigger would have it that Mr Werner suspected at this time had been committed by Mr Zhunus and Mr Arip simply makes no sense.

“… I mean the company – at that point money had been taken away from the project, sent back to the company. And we were facing the question by the bank: what is happening with the project? And the company didn’t have any money at that point in time. So one of the only ways to deal with this situation is if there was anything untowards in this situation, that it would have to be – it would have to be solved by the shareholders.”

I understood Mr Werner to be saying here that there had been some withdrawal of funds by the former shareholders from the Astana 2 project and introduction of those monies into other parts of the KK Group and that, in those circumstances, Mr Zhunus and Mr Arip needed to assist, not that at that stage he thought that they had been fraudulent. As Mr Howe submitted, it needs in this respect to be borne in mind that Mr Werner had only recently arrived in an extremely complex situation, where there was considerable uncertainty and lack of clarity as to what had been going on and was going on in the business. In those circumstances, he was hardly in any position, so early in the day, to understand what had happened to the DBK monies and still less to form the view that Mr Arip, somebody whom he had respected, had committed fraud.

“At the time we acquired control of the Shares, we all agreed that KK had little or no tangible value due to the level of its indebtedness. Further, there was a strong possibility that KK would fail to restructure its financial obligations (the ‘Restructuring’) and would go into bankruptcy. There were, additionally, serious questions about the existence of fraud within the Company and as you will recall, threatening articles in the press and a real concern that the Financial Police might close the Company down. You will also recall that while Mr Gerassimov may have been concerned that his presence was jeopardizing the Company’s future, he was as, concerned, if not more, that his presence within the Company might lead to his being criminally prosecuted and jailed.

At this time, we were also told by Mr Gerassimov and by senior members of the KK JSC management team that unless KK had a strong Kazakh shareholder: a) the Kazakh Banks would not agree to the Restructuring and b) the Financial Police would launch an investigation into the Company which would likely result in significant damage to the Company’s prospects and possibly even in its bankruptcy.”

Mr Twigger submitted that the reference to “serious questions about the existence of fraud” supports the proposition that Mr Werner and SP Angel had relevant knowledge the previous year when PwC Russia were instructed. Again, I cannot accept this. It seems to me that Mr Mackay was, in all probability, referring here to the Financial Police investigations into the former shareholders of Alliance Bank and concerns in relation to the ramifications of those investigations for the KK Group, rather than suspicions that Mr Zhunus and Mr Arip had defrauded the KK Group.

“• In the period from 2007-2009, Kazakhstan Kagazy Plc (the ‘Group’, the ‘Client’ or ‘you’) received financing in a total amount of 509.7 m, including USD 273.5 m raised in an IPO on the London Stock Exchange (LSE), USD 171.8 m received as bank loans and USD 39.5 m raised from a bond issue on the Kazakhstan Stock Exchange.

• In the same period, the Group spent USD 405.1 m. The objective of our work was to identify major cash outflows and their business reasons.”

This was followed by “Key findings” as follows:

“Purchase of property, plant and equipment (PPE) and investments in construction in progress (CIP)

• Investments in PPE and CIP peaked in 2007 and 2008 when the Group companies received the proceeds from the IPO.

• The most significant component of PPE additions is land. In the period under review, USD 67 m was spent to acquire plots of land. In the consolidated financial statements, this amount is partially recognised in fixed assets and partially in the inventory balance (under trade property).

• Our background checks on the key suppliers revealed that most of the land was purchased from companies related to the prior management of the Group (please see the paragraph below).

…

• According to the management accounts, the majority of CIP expenditures relate to the Aksenger industrial park project (USD 72 m, or 61 % of the USD 119m spent in the period under our review). The second largest project is the Akzhal logistics park in the Almaty region (USD 33 m, or 28% of the total CIP expenditure).

• Based on our review, a significant portion of the CIP costs incurred lacks detailed supporting documents (such as budgets, detailed acceptance statements, detailed breakdowns of the stages of work performed). This creates a risk that some of the construction funds could have been misused or not spent effectively.”

This was followed by a section headed “Related parties” where this was stated:

“• We have identified that all the land plots for which we obtained and reviewed contracts were purchased from related parties (at least USD 64 m of the USD 67 m paid for all land plots obtained by the Group in 2007-2009), namely:

- Bolzhal LLP

- Commerce Business Centre LLP

- Alpen Building LLP

- Lotos LLP

- Kazvtorsyrye LLP

• The details are disclosed on page 32 of this report and in Appendix 5 - List of identified related parties.

• We have identified that the major CIP and PPE suppliers were also related parties of Kazakhstan Kagazy employees. Specifically, these related parties include:

- Arka-Stroy LLP, which is the general subcontractor for the construction works on the Aksenger industrial park project;

- Papcel A.S. (Czech Republic), which supplied a paper manufacturing machine.

• The details are disclosed in Appendices 2 and 5 to this report.

• The price of the services and assets purchased from related parties as well asthe future return on investment is to be determined by the management.”

The “Executive summary” went on under “Choice of subcontractors for construction works” to state this:

“• As we understand from the management, the CIP contractors were chosen based on a tender process. We requested but have not been provided with tender documentation. Therefore, we cannot confirm that the contractors were chosen based on the best quality/cost and in the best interests of the Group.”

Then, under “Conclusion”, there was a passage which was relied on very heavily by Mr Twigger:

“• Following our review of cash flows for FY2007 to 9M2009, we bring to your attention the following questionable transactions (see the table below).

Item                                                                                                     USD’000

______________________________________________________________

Land plots purchased from related parties*                                            63,691

Construction in progress from related parties**                                     57,400

Purchase of Astana Contract Group                                                        48,440

Purchase of houses and apartments for employees***                             1,177

Production equipment                                                                                  180

______________________________________________________________

Total                                                                                                      170,888

* The amount was calculated based on the major land purchase contracts provided to us. For details, please refer to the section “Acquisition of land plots”, page 32, and to Appendix 3 for a summary of the contracts we reviewed. The total amount of transactions with related parties may be higher.

** These transactions do not include all the investments in CIP projects. Nevertheless, we have identified a significant lack of detailed qualitative supporting information for the actual work done. We recommend that management engage a professional engineering company to assess the value of the investments made.

The amount was calculated based on a review of the major CIP contracts provided to us. The total amount of transactions with related parties may be higher.

The total amount of CIP projects from related parties was calculated as the sum of payments to Arka-Stroy LLP: USD 39 m of investment in Aksenger industrial park and USD 18m investment in the Akzhal project.”

The “Executive summary” ended with “Our recommendations”, as follows:

“Based on our findings, we recommend that you consider the following steps in order to confirm the Group’s financial position and eliminate potential further transactions not in the Group’s best interests:

“A. It was an important document and it was an important document at that time because again what we were expecting is to have a better understanding of how the former shareholders had spent the money, and indeed that is what this report explains.

Q. Exactly.

A. But this report doesn’t have the central importance that it has got on hindsight. This report was just a report, not something that at that time, again, was looked into in more detail because again, it didn’t raise any further questions.

Q. You say it was just another report, but this was the report that you said you needed to understand what had happened to the $520 million?

A. Yes, and it is explained what happened to the $520 million in this report, exactly.”

Mr Werner was here describing the exercise which PwC Russia, in fact, performed. That was not, however, an exercise which involved looking at suspected fraud. Indeed, aside from PwC Russia’s own description of the work which they undertook (both before the report was prepared in Mr Khaproun’s email on 20 October 2009 and in the report which was ultimately produced), it is important to note that nowhere in the PwC Russia report is there any reference to fraud, let alone fraud on the part of Mr Zhunus and Mr Arip whose names are not even mentioned in the report’s sixty pages. The context should be borne in mind, my having rejected Mr Twigger’s submissions that the report was commissioned to look into whether there had been fraud on the part of the “former shareholders”. The “backdrop”, therefore, is not the one which Mr Twigger has described where fraud is suspected and PwC Russia have been asked to investigate the matter. If PwC Russia really had been instructed to investigate allegations or suspicions of fraudulent conduct, then, it is remarkable that the report should make no reference to such conduct anywhere. True it is that the report refers prominently to “questionable transactions” but it needs to be appreciated that it did so in the context of PwC Russia doing what they were asked to do which was to report on cashflows. Nor, as Mr Howe pointed out, is there any mention in the report of missing funds or unaccountable expenditure. In short, as Mr Howe went on to submit, in my view rightly, none of the information contained in the PwC Russia report could, without more, have been deployed to plead a claim in fraud against anybody. It follows that I do not accept Mr Twigger’s submission that Mr Werner should be regarded as having appreciated that what PwC Russia were describing in their report was fraudulent conduct on the part of Mr Zhunus, Mr Arip and Ms Dikhanbayeva.

“I remember that there was a suggestion by Mr Khaparov that he would be able to put pressure on the former shareholders because he was a very, very politically connected person and that pressure could have – I mean that he could put pressure, because they had left the company in a parlous state.”

Mr Werner was, therefore, referring not to misappropriation on the part of Mr Zhunus and Mr Arip but to something else, namely the fact that they had left the KK Group in a bad financial state. That is not the same thing as saying that Mr Zhunus and Mr Arip had misappropriated money from the KK Group. It should also be noted that Mr Mackay attached to his email a press article. It is clear, indeed, that when he referred to “a generally held belief that we are a front for the old (and corrupt) shareholders” he was referring to the allegation which was made in the article since, although the translation before the Court was not at all good, it is clear enough what the article was saying. Specifically, it refers to “the new owners of Astana Contract”, a reference to Mr Zhunus and Mr Arip, moving “for permanent residence at the Foggy Albion” and selling “their shares to offshore companies”. The article went on to state that:

“But the fact is a fact. The first sells its shares Theta Investment Holdings Limited and the second – Frajon Holding Limited.”

The article then continued by referring to those companies as offshore companies which “do not even own websites”, before explaining that Theta Investments Holdings Ltd was owned by Mr Werner and that Frajon Holding Ltd was owned by Mr Mackay, a reference to the fact that SP Angel used this company when purchasing Mr Gerasimov’s shares on his departure. This passage then followed:

“Businessmen who sold offshorkam business, earn a good idea, get rid of problem assets, and both de jure and de facto responsibility for the further development of the situation does not bear. All the ‘arrow’ and converge on Meteos Makeye. And with bribes smooth.”

This is very garbled but the gist is clear enough, particularly once it is appreciated that the reference to “Meteos Makeye” is probably intended to mean Mr Werner (whose full name is Tomas Mateos Werner) and Mr Mackay rather than some other person with a very peculiar name. I am clear that what Mr Mackay was, therefore, seeking to do in contacting Ivo Gabara was seeking assistance to help protect SP Angel’s and Mr Werner’s images rather than raising his own thoughts concerning Mr Zhunus’ and Mr Arip’s fraudulent conduct.

“…Further to our call this morning, I attach a copy, of the D&O [directors and officers] policy (and the policy for the previous year) for our client.

Just to reiterate, SP Angel Corp Fin LLP is advising Kazakhstan Kagazy PLC on debt restructuring. As part of this assignment one of our employees is going on the Board, one Partner will become an alternate director, and they, together with one further Partner have been acting performing functions within the Company which clearly amount to their acting as shadow directors.

The Company is in a parlous state, and if our negotiations fail, there is a real risk that it goes bust.

We believe that previous shareholders, and senior managers, may have caused assets to be purchased at over-value, and may have knowingly authorized payments for contracts which were not properly fulfilled.

The questions I have are:

Are we, as I read, all covered for D&O liability? And what does this cover?

Is there any better, fuller, or extra cover which we would be advised to take?

Do we need to inform the insurer about Board changes, our role as shadow directors, or the Company’s financial state (noting that it has publically announced that it is in the process of debt restructuring)?

Mr Twigger submitted that telling the brokers that “we believe that previous shareholders, and senior managers, may have caused assets to be purchased at over-value, and may have knowingly authorized payments for contracts which were not properly fulfilled” amounts to clear evidence that SP Angel believed that there had been wrongdoing in the past and that their concern quite obviously related to different and wider concerns than the possible misuse of the DBK loan. I acknowledge that there is force in this submission. I acknowledge also that it is unlikely that Mr Werner would not himself have been aware that SP Angel held the belief described given that he was working so closely with SP Angel at the time. He may not have known that Mr Mackay was wanting to check SP Angel’s own position as regards coverage but that is not really the critical point since it is the description of the belief which was apparently held which matters for present purposes. In any event, as I have explained, it seems to me that knowledge held by SP Angel ought to be regarded as the Claimants’ knowledge irrespective of whether Mr Werner himself had the same knowledge as SP Angel did. The fact remains, however, that SP Angel can (at most) only have had a suspicion at this stage, indeed only a general suspicion at that, and this does not equate to actual awareness as a matter of Kazakh law. There is simply nothing in the documents to support a conclusion that there was any greater level of knowledge. As HHJ Waksman QC put it at an earlier stage in these proceedings at [81], albeit when expressing some doubt that SP Angel must have shared their belief with Mr Werner, “the fact is that there is no other document from SPA dealing with such a belief” and “If that belief was really ‘out there’ and it was a real talking point, one would expect to find some reference to it in documentary form”.