Latest development in Ablyazov’s court hide-and-seek game: smokescreens to hide smokescreens

In its latest verdict published on September 29, two months after a series of hearings that took place in late July, two of BTA’s applications and another one filed by Kazakhstan’s fugitive ex-banker and master-swindler Mukhtar Ablyazov have been taken under consideration by Justice Teare, the English judge who made headlines earlier with his sharp condemnations of Ablyazov’s multi-billion thefts from the bank he used to be in charge of. The verdict, which concerns assets in and around Moscow which originally served as collateral for loans granted by Ablyazov on behalf of BTA but were redirected later on with the aim to get them out of BTA’s reach in case of loan payment default, upon which they were remortgaged more than once, has come while the Court of Appeal still drags its feet on the confirmation (or eventually the reversal) of Ablyazov’s verdict in February this year for “contempt of court” – read: perjury. With the culprit on the run, enforcing the law has become extremely complicated. But nonetheless and in spite of the fact that shortly after his prison verdict of 22 months behind bars he has also been barred from defence in further cases, arm-twisting and rope-pulling downtown London appears to continue.

BY CHARLES VAN DER LEEUW, KZW SENIOR CONTRIBUTOR

Latest development in Ablyazov’s court hide-and-seek game: smokescreens to hide smokescreens“The court has heard three more applications in this matter,” the verdict notes. “Two of them have been brought by the Claimant (“the Bank”) and one has been brought by the First Defendant (“Mr. Ablyazov”). […] In the first application the Bank seeks (i) a declaration that Mr. Ablyazov has acted in breach of the Freezing Order which this court made some three years ago in August 2009 and (ii) an order that Mr. Ablyazov exercise his best endeavours to reverse certain dealings with his disclosed assets. In the second application the Bank seeks (i) a declaration that Mr. Ablyazov owns certain assets which he has not disclosed and has acted in breach of the Freezing Order and (ii) an order that Mr. Ablyazov exercise his best endeavours to reverse certain dealings with those undisclosed assets. The dealings consist of pledges of certain property by companies which he owns to the AMT Bank (“AMT”) and, in one case, to the Central Bank of Russia (“CBR”).”

Ablyazov’s attempt through his lawyers to include the dealings, twelve in all, into a list he wants to be drafted of financial transactions and in particular loan pledges for assets which used to serve as collateral for initial loans granted by BTA (proper) but which he later on wanted to (and did) use once more as collateral for new loans, to be excluded from the freezing order (and thereby from obligation to declare in front of the court).  “In the third application Mr. Ablyazov requests the court to grant permission, retrospectively, for the pledges made by his companies on the grounds that they were made for purposes which did not conflict with the purposes of the Freezing Order. This is an even more striking application. Mr. Ablyazov has acted in contempt of this court and has not purged his contempt. His evidence on oath to this court about his assets has been found to have been untrue. He has been sentenced to 22 months imprisonment for his contempt of court but has gone into hiding. He refuses to tell the court where he is. His counsel has stressed that there is no evidence that he has fled abroad.” But the verdict also sends a severe-sounding warning to BTA by stating: “Notwithstanding all of this Mr. Ablyazov now applies for orders in his favour from an unknown and undisclosed location, which may well be abroad. Counsel for the Bank has submitted that the court should not hear Mr. Ablyazov’s application. However, as his counsel has observed, Mr. Ablyazov’s application raises very much the same issues as his defence to the Bank’s applications raises.”

The latest verdict concerns a list of assets located in and around Moscow which as BTA claims should have been declared in front of the English court of law and put at the receiver’s disposition following the 2010 freezing order, which obliges Ablyazov and his associates to declare them and to refrain from any attempt to dispose of them pending court cases still to come in the course of this winter to determine BTA’s claims. The freezing order in principle excludes transactions by Ablyazov, either directly or by proxy, which have nothng to do with those claims and belong to the category “routine course of business”. In practice, though, it is hard to determine the distinction given Ablyazov’s method of moving loan sums and collateral in different directions – until they meet at the end of the cycle under his personal control. As for Ablyazov’s petition in the latest trial, it denies any relation with BTA’s claims and demands, retrospectively that is, that they are declared outside the smokescreen connected with those claims.

As the verdict reminds, “After the maximum sum limit was removed from the Freezing Order on 11 December 2009 the following pledges or mortgages were made in breach of the Freezing Order: (i) Oceanarium: A pledge of repayment rights and a mortgage over real property were made in favour of AMT on 24 February and 6 April 2010. These were security for repayment of loans required, according to Mr. Ablyazov, to enable the construction of the Oceanarium to continue. (ii) 1812 Business Centre: A pledge of shares and a mortgage over real property were made in favour of AMT on 28 October 2010 and 7 December 2010. These were security for repayment of loans required, according to Mr. Ablyazov, to enable the claims of Codest, a contractor, to be satisfied. The pledge and mortgage were made after the Court of Appeal’s ruling on Mr. Ablyazov’s clarification application. (iii) Paveletskaya: A mortgage over real property and a pledge over repayment rights were made on 10 November 2010 and in May 2011 in favour of AMT. These were required, according to Mr. Ablyazov, by CBR in May/June 2010 as a condition of not calling in its loan to AMT. That was before I gave judgment on the clarification application but the mortgage and pledge were in fact made after the Court of Appeal’s ruling on Mr. Ablyazov’s clarification application. The security was also required for the short term loan required in September 2010 to demonstrate liquidity. Three further pledges of repayment rights were made in May 2011 to demonstrate liquidity. (iv) Kaluga Highway: One of the land plots was transferred into the Fleming fund and then the units pledged to CBR on 3 February 2011. This was required by CBR as part of the restructuring of CBR’s loan to AMT in the agreement of September 2010. However, as a result of the arrest of land, the pledge was not made until after the Court of Appeal’s ruling on Mr. Ablyazov’s clarification application.”

“Having reviewed the evidence it is necessary to consider the Bank’s application (i) for a declaration that Mr. Ablyazov, by authorising the pledges and mortgages without seeking permission to do so from the court, has breached the Freezing Order and (ii) for an order that he exercise his best endeavours to reverse those pledges and mortgages,” the verdict’s text continues. There is no doubt, following the decision of the Court of Appeal on the clarification application, that the pledges in favour of AMT and CBR were made in breach of the Freezing Order. First, Mr. Ablyazov does not himself appear to accept that he has acted in breach of the Freezing Order. It is therefore appropriate to make the declarations in order to make it clear to him that his conduct has been in breach of the Freezing Order. Second, the Bank is entitled to have a clear statement of the position so that it may, if it wishes, inform AMT, CBR and the Russian Court which is called upon to enforce the pledges that Mr. Ablyazov created the pledges in breach of an order of the English Court. I shall therefore make the requested declarations of breach.”

“I have reached the clear conclusion, after considering all the circumstances of this case, that it is not in the interests of justice to grant the requested retrospective permission,” Justce Teare notes in his verdict. Further down, the judge explains: “Mr. Ablyazov has not acknowledged that he has acted in breach of the court’s order or apologised for doing so. He made the clarification application but when the Court of Appeal gave the requested clarification he appears to have ignored it. He made some of the pledges after he had been told by the Court of Appeal that he could not rely upon the ordinary course of business liberty. So far as I can see Mr. Ablyazov simply went ahead with those pledges, notwithstanding the Court of Appeal’s decision.” The judge further explains that Ablyazov “… has not purged his contempt of this court. I have decided to hear his application because it is the obverse of his defence to the Bank’s application but his contempt is nevertheless one of the circumstances which the court must take into account when deciding whether or not to grant retrospective permission for dealing with his assets.”

The consequences of the latest court ruling should nevertheless make it easier for the Supreme Court to decide on Ablyazov’s appeal soon – after months of delay with no reasons openly declared. In his verdict’s final paragraph,. The judge demands that “…the declaration of breach of the Freezing Order should be made”, and that subsequent the appropriate orders against Ablyazov including sanctions in case of shortfalls  “Mr. Ablyazov’s application must be dismissed, Justice Teare concludes his verdict. “I shall ask counsel to prepare an order giving effect to my conclusions.”

Concerning the collateral and its property rights at stake, parallel procedures have taken place in the Russian Federation in regard to the assets for some time now. As reported earlier, in early September 2010, a Moscow court ordered the sale of a 20 per cent stake in the Russian company OOO Marina Gardens, which was the project developer of a new oceanarium on Poklonnaya Hill, next to the war memorial centre. Marina Gardens in turn was 95.1 per cent owned by a Cyprus-based firm called Legendcatch Services Ltd., and the remaining shares held by the city of Moscow. Legendcatch would turn out to be among the hundreds of mailbox enterprises within Ablyazov’s offshore fund and asset diversion network. According to a report by Kommersant dated September 3 2010, total construction costs of the structure, consisting of the oceanarium proper and a shopping and leisure gallery would amount to 480 million US dollar, with a total surface of 180,000 square metre, with a calculated face value of $500 per square metre.

The case of Paveletskaya has already been included in Ablyazov’s conviction for perjury in the UK. It involves an underground shopping centre downtown Moscow, next to the Paveletskaya railway station. As reported lat year with the verdicts concerning Ablyazov’s conviction to 22 months in a British jail for perjury, requests for freezing orders were granted in December 2010 by a British court of law concerning assets belonging to Mukhtar Ablyazov and his associate Ildar Khazhayev, along with those belonging to the companies Paveletskaya OJSC, Samuel Finance Sarl, Simplecity Holdings Limited, Ringbell Investments Limited,, Malabar Investments Group Limited and Mishia Investments Limited.

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