The Ablyazov files: Battle of the Thames revisited

If Kazakhstan’s embattled bank BTA, now under liquidation for its new controlling shareholder Kazkommertsbank (KKB) to merge it into its own structure, has left two legacies to the world it must be that it got its former major shareholder and president Mukhtar Ablyazov behind bars and obtained the right from English courts of law to pursue the billions in funds embezzled by the culprit and his associates. Obtaining that right and exercising it, however, prove to be two different things. Lawyers on behalf of Ablyazov, in contradiction to the fact that both in the first ruling and in appeal they have been barred from taking the stand in court on behalf of their client, keep contesting their obligation to hand over all the necessary documentation, consisting of “millions” of sheets of paper, half a million e-mails and thousands of electronic archives, to BTA’s, and from now on KKB’s, legal representatives. Primary results of a ruling which should oblige them to do so, announced last week, look bad for Ablyazov’s lawyers and good for the bank. But the battle is far from over, and yet another winter of legal arm-twisting is in store.

BY CHARLES VAN DER LEEUW, WRITER, NEWS ANALYST

The Ablyazov files: Battle of the Thames revisited“The High Court has ordered the disclosure of documents held by Addleshaw Goddard, Clyde & Co and Stephenson Harwood in the ongoing battle between Kazakhstan’s JSC BTA Bank and its former chair Mukhtar Ablyazov,” the UK’s professional magazine The Lawyer [http://www.thelawyer.com/news/practice-areas/litigation-news/high-court-orders-disclosure-of-documents-covered-by-privilege-in-long-running-ablyazov-case/3024323.article] reported on August 8. “Handing down judgment this morning (8 August) Mr Justice Popplewell approved the application by the bank’s solicitors Hogan Lovells, instructing Erskine Chambers’ Stephen Smith QC, to disclose documents relating to the assets of Ablyazov and his brother-in-law Syrym Shalabayev. These documents were previously withheld on the grounds of legal professional privilege. Popplewell J said disclosure should be allowed because the three firms are “likely to hold documents casting light on Mr Ablyazov’s and Mr Shalabayev’s beneficially owned assets which may assist the Bank in executing its judgments and enforcing the Court’s orders against them”. The successful application is an attempt to enforce judgments entered by BTA before the High Court against Ablyazov (11 December 2012). The bank alleged that its former chair embezzled funds, but it is understood that it is yet to recover any of its lost assets.”

“The main application before the Court is that of the Claimant (the Bank) seeking disclosure from the First and Second Respondents (Mr Ablyazov and Mr Shalabayev) of documents relating to their assets which would attract legal professional privilege unless falling within the iniquity exception to such privilege, and which are currently held by the Third to Fifth Respondents (Clyde & Co, Stephenson Harwood and Addleshaw Goddard respectively) as their solicitors or former solicitors,” the introduction to the English court’s August 8 ruling [http://www.bailii.org/ew/cases/EWHC/Comm/2014/2788.html] reads..”The disclosure sought is of “all documents provided to or produced for or by Clyde & Co LLP, Stephenson Harwood LLP and/or Addleshaw Goddard LLP as remain within their sole or joint control which (in whole or in part) concern or contain information about (i) the current and/or former assets of Messrs Ablyazov and/or Shalabayev and/or (ii) any prospective or actual injunction [in respect of such assets] against Messrs Ablyazov and/or Shalabayev.”

The fresh hub also marks the fifth anniversary of what in the United Kingdom and far beyond is already being dubbed fraud of the century – not just knocking all preceding ones in terms of cash amounts and asset value but also in piles of paperwork. “On 13 August 2009 the Bank commenced these proceedings against Mr Ablyazov and others, claiming that he had misappropriated US$295 million pursuant to a fraudulent scheme,” the latest court document reads further down. “Other proceedings followed in this Court and the Chancery Division. It was alleged that Mr Ablyazov had treated the Bank as if it were his own private source of funds. In all 11 sets of proceedings have been commenced by the Bank against Mr Ablyazov and others for defrauding the Bank of in excess of US$6 billion. […] The Bank has obtained judgment against Mr Ablyazov for some US$4.6 billion in four of the actions and judgment for damages to be assessed (estimated at about US$120m) in another. The six further actions are in abeyance. […] On 13 August 2009, Blair J granted a worldwide freezing order against Mr Ablyazov limited to assets with a value of £175 million, with the usual provision for disclosure of assets on affidavit. It was subsequently amended from time to time, which amongst other things involved ultimately removing any limit on the value of assets frozen, and was on 23 November 2012 replaced by a post judgment freezing order made by Teare J which was also subsequently amended from time to time.”

For some time, the method applied by the court seemed to work. Piece by piece, Ablyazov’s offshore network started to fall through – despite the culprit’s amd his lawyers’ obstruction. “Clyde & Co came on the record for Mr Ablyazov who swore his second affidavit dated 27 August 2009 purporting to give the asset disclosure required by the Freezing Order,” the court document relates further. “It listed indirect interests in 25 offshore companies having assets estimated as reaching several billion dollars and two bank accounts. It was not served immediately, but following unsuccessful challenges, it was served on 30 September 2009 under cover of a letter from Clyde & Co correcting what were euphemistically described as “minor inaccuracies”, which included reducing the value of three of the companies from “approximately US$250m to US$1.2 billion” each down to US$38,000 in total, deleting two of the companies from the list on the grounds that Mr Ablyazov had no beneficial interest, and identifying five additional companies in which he allegedly held an indirect interest, each of which was said to have an approximate value of US$250m to US$1.2 billion. On 16 October 2009 Teare J ordered Mr Ablyazov to attend for cross examination on his asset disclosure, describing it as “extraordinarily inadequate”: see [2009] EWHC 2833 (QB), at [5]. Mr Ablyazov was cross examined over two days on 27 October 2009 and 18 November 2009 in the course of which he told lies about his assets in an attempt to keep them from the Bank’s reach. […] On 15 December 2009 Clyde & Co wrote on Mr Ablyazov’s behalf making further disclosure of particulars relating to the previously disclosed assets. This was put forward as “voluntary” further disclosure, with the statement that no further questions would be answered.

On 19 February 2010 the Bank applied for the appointment of receivers over Mr Ablyazov’s assets. In February and April 2010 Mr Ablyazov committed breaches of the Freezing Order by granting security in favour of a Russian bank, AMT Bank LLC, over certain loan repayment rights and land in Moscow. Meanwhile in March 2010, Stephenson Harwood replaced Clyde & Co as his solicitors on the record.”

It was at this point that the fact-gathering campaign began to falter. With Ablyazov’s original law firm out of the picture, evidence started to disappear as well. This scenario, which allowed Ablyazov to wipe out as many traces as he could while still walking free, was to repeat itself once more. “In late 2010, the Bank obtained a number of search and disclosure orders which produced documentation demonstrating that Mr Ablyazov had a vast secret network of undisclosed companies and assets, principally administered by Mr Shalabayev,” the court document reads further down. “On 26 January 2011, a further 212 companies were added to the scope of the Receivership Order because there were good grounds for believing that they, and therefore any assets they held, were beneficially owned by Mr Ablyazov through his usual modus operandi of a nominee UBO. In February 2011, Mr Ablyazov committed further breaches of the Freezing Order by granting security to the Central Bank of Russia over Sodruzhesto Fund Units and by granting pledges/mortgages over land in Russia in favour of AMT Bank LLC. On 8 April 2011 a further 389 undisclosed companies were added to the Receivership Order because there were good grounds for believing that they and the assets they held were beneficially owned by Mr Ablyazov through his usual modus operandi of a nominee UBO. On 17 May 2011 Briggs J found Mr Shalabayev to be in contempt of court for failure to comply with the disclosure obligations in the freezing order granted by Henderson J. On 27 June 2011 Briggs J sentenced Mr Shalabayev to 18 months imprisonment for the contempt which he described as wholesale flouting of the court’s order’. On 6 September 2011 Stephenson Harwood ceased to act for Mr Ablyazov and Addleshaw Goddard came on the record. Between 30 November and 21 December 2012 the Bank’s application to commit Mr Ablyazov for contempt of court was heard by Teare J. During the hearing Mr Ablyazov and Mr Shalabayev lied about Mr Ablyazov’s assets. At the conclusion of the argument, Teare J reserved judgment relying on a clear and unequivocal undertaking given by Mr Ablyazov that he would attend the handing down of the judgment. On the handing down of the judgment on 16 February 2012 Mr Ablyazov did not attend. He had fled the jurisdiction and gone into hiding. That was itself a breach of the Freezing Order. He nevertheless continued to instruct Addleshaw Goddard, who have actively and vigorously represented him in the litigation, instructing counsel to represent his interests in numerous court applications including that before me.”

Justice Popplewell recalls the blunt qualifications given by his peer Justice Teare in several rulings in the last couple of years: “Mr Ablyazov is a persistent and serial contemnor. There is every reason to think that he does not regard himself as bound by the orders of the court and that he will do all he can to avoid the Bank being able to execute its judgments against his assets, not only by direct disobedience to the court’s orders, but also by taking any steps that may occur to him to thwart any future orders, or any steps that the Bank may take to enforce the judgment.” And: “Mr Ablyazov’s] desire to make representations on this application is not that of a litigant who seeks to persuade the court to make an order only to the extent that it is fair to him, in order that he may comply with it to that extent. His opposition to the form of order is, I would conclude, advanced despite his intention of ignoring, and indeed seeking to thwart the purpose of, any order which may be made.” In Justice Popplewell’s own observation, “…the scale and complexity of this web of offshore companies is a hallmark of Mr Ablyazov’s modus operandi and a testament to his determination to put and keep his assets beyond the reach of the Bank. His strategy has enjoyed substantial success so far.”

Remains the huge size of the imminent disclosure’s job and the costs of the operation which none of those involved appear to bear. “Popplewell J agreed with the three respondent firms that the scale and cost of disclosing millions of documents – over 500,000 emails and 40GB of electronic data – would be both complex, expensive and lengthy. However, he found there was a ‘real prospect of material being disclosed in response to the order which makes the complex and expensive exercise involved proportionate’, the report in The Lawyer quoted earlier reads further down. “He also suggested that disclosure could reveal the details of the ownership of Green Life International, which is currently funding Addleshaws’ representation in the ongoing litigation. Mr Justice Christopher Clarke has already found that the company could be beneficially owned by Ablyazov, and Popplewell J said disclosure of any investigation’carried out by Addleshaws into the source of the funding “may well be of assistance to the Bank’. The firms suggested that the overall cost of disclosure would amount to about £2.5m. While BTA said it was unwilling to fund the disclosure exercise, and recognised that the trio of law firms should not bear the cost themselves, Popplewell J said this did not mean a disclosure order should not be made.”

There appears to be a trick behind Ablyazov’s unwillingness to pay up in this context. “It has been made clear on his behalf that he has no intention of funding it, and he continues to maintain that he has no undisclosed assets with which he has the ability to do so,” the judge pointed out at the reading. “This led to a submission that no order should be made because the Court will not act in vain. I reject this as a ground for declining to make an order required by the interests of justice. The Court makes orders on the basis that they are to be obeyed, and it would require exceptional circumstances for a respondent to be able to resist an order by saying that because he will not obey the order, it should not be made in the first place.” Such circumstances are not in place in the case of Mukhtar Ablyazov. Today’s ruling comes ahead of a Supreme Court hearing which will look at standard form freezing orders and examine how Ablyazov conducted his defence of the High Court litigation. It is not yet clear whether the firms will appeal today’s decision, The Lawyer notes. They probably will if it were only for the fact that if they do the cashbox keeps ringing…

 

CHRONOLOGY OF MUKHTAR ABLYAZOV’S “ENCYCLOPEDIA OF LIES” AT THE ROYAL COURT 2009-2013

Taken from: Ruling by the Royal Court of England and Wales, 8/8 2014.

[[http://www.bailii.org/ew/cases/EWHC/Comm/2014/2788.html]]

30 September 2009

Mr Ablyazov purported to give asset disclosure pursuant to the Freezing Order. That disclosure was contained in an affidavit made by Mr Ablyazov which was filed and (it is to be inferred) drafted by or with the assistance of Clyde & Co. Mr Ablyazov deposed that he had spent “many days sitting down” with Clyde & Co in order to provide information and documents as to the location, nature and value of all of his worldwide assets. When Clyde & Co served the affidavit on 30 September 2009, they said that it had been prepared to the best of Mr Ablyazov’s ability after making all reasonable enquiries.

October – November 2009

In early October 2009, the Bank applied for Mr Ablyazov to be cross-examined as to his asset disclosure. Clyde & Co acted for Mr Ablyazov on that application and instructed counsel who submitted that Mr Ablyazov had complied with the disclosure obligations contained in the Freezing Order and that there was no requirement for him to take any further steps:

February 2010

Mr Ablyazov secretly committed a breach of the Freezing Order by granting security in favour of AMT Bank LLC over certain loan repayment rights: see the Reversal Judgment and Orders. The Bank (a) did not discover this transaction until much later and (b) made an application in February 2012 to have it reversed.

April 2010

Mr Ablyazov secretly breached the Freezing Order by granting security in favour of AMT Bank LLC over land plots at Bratyev Fonchenko, Moscow: see the Reversal Judgment and Orders. The Bank (a) did not discover this transaction until much later and (b) made an application in February 2012 to have it reversed.

16 April 2010

Mr Ablyazov signed his third witness statement. That evidence was untrue and/or deliberately misleading as set out below. It was served by Stephenson Harwood (who, it is to be inferred, drafted or assisted in its production). It was later heavily relied upon by counsel instructed by Stephenson Harwood in resistance to the Bank’s application, and in support of the submission that Mr Ablyazov had “bared his soul” in relation to his assets:

August 2010

Mr Ablyazov secretly breached the Freezing Order by dealing with a land plot in Russia with an approximate area of 764,000 square metres (defined in the Reversal Order as the Large Pakhra Fields Land Plot): see the Reversal Judgment and Orders. The Bank (a) did not discover this transaction until much later and (b) made an application in February 2012 to have it reversed.

October 2010

Mr Ablyazov secretly breached the Freezing Order by granting security in favour of AMT Bank LLC over shares in ZAO FT-MVB. The Bank (a) did not discover this transaction until much later and (b) made an application in February 2012 to have it reversed.

5 November 2010

Syrym Shalabayev was served with a worldwide freezing order made against him in the AAA Proceedings. He immediately went into hiding and failed to comply with his disclosure obligations thereunder. Clyde & Co subsequently acted for Mr Shalabayev in relation to the Bank’s application to have him committed to prison for that failure to comply.

9 November 2010

The Receivers, partners in KPMG, took office. Thereafter, Mr Ablyazov did his best to frustrate the receivership. For the purposes of this application, the Bank relies on the following matters:

a. The breaches of the Freezing Order committed after the appointment of receivers described herein (which also constituted breaches of the Receivership Order).

b. Paragraph 233 of the Committal Judgment and paragraphs 108 and 176 of the Committal Appeal Judgment.

c. Moore-Bick LJ’s finding that Mr Ablyazov had “… failed to co-operate with the Receivers”:

December 2010

Mr Ablyazov (a) secretly breached the Freezing Order by dealing with rights under loan agreements with a face value exceeding US$80 million and (b) procured the backdating of relevant documents in order to make it appear that the dealings took place before the appointment of the Receivers. The Bank did not discover this transaction until much later and subsequently brought an application to have Mr Ablyazov committed to prison in respect of it.

Late 2010 / early 2011

The Bank obtained a number of search and disclosure orders which produced documentation demonstrating that Mr Ablyazov had a vast secret network of undisclosed companies and assets, principally administered by Syrym Shalabayev. Mr Ablyazov (using Messrs Syrym and Salim Shalabayev) had sought, in particular, to conceal the documentation held by Eastbridge Capital Limited from the Court and the Bank.

January 2011

The Court added 212 companies to the Receivership Order on the basis that there was good reason to believe that they are owned by Mr Ablyazov.

February 2011

Mr Ablyazov secretly breached the Freezing Order by granting security in favour of AMT Bank LLC over other valuable land plots: see the Reversal Judgment and Orders. The Bank (a) did not discover this transaction until much later and (b) made an application in February 2012 to have it reversed.

Mr Ablyazov secretly breached the Freezing Order by granting security in favour of the Central Bank of Russia over units in a Closed Annuity Unit Investment Fund: see the Reversal Judgment and Orders. The Bank (a) did not discover this transaction until much later and (b) made an application in February 2012 to have it reversed.

8 April 2011

The Court added 389 companies to the Receivership Order on the basis that there was good reason to believe that they are owned by Mr Ablyazov. Mr Ablyazov did not challenge that order.

May-June 2011

Briggs J found Syrym Shalabayev guilty of three counts of contempt of court and sentenced him to 18 months’ imprisonment. He found there to have been a “wholesale flouting of the court’s order” which continued notwithstanding the “pressing need for the information which the court has already ordered that Mr Shalabayev provide”. Mr Shalabayev was represented by Clyde & Co.

6 September 2011

Mr Ablyazov dis-instructed Stephenson Harwood, instructed Addleshaw Goddard, and sought (unsuccessfully) to rely upon (inter alia) his change of solicitors to adjourn the forthcoming committal trial. In refusing the adjournment, Teare J referred to a “disturbing and worrying” breach of the Freezing Order.

26 October 2011

Christopher Clarke J heard a disclosure application made on behalf of the Bank, and concluded as follows (in relation to two companies of which Mr Ablyazov untruthfully denied ownership, Wintop and Fitcherly Holdings Limited. “… The evidence to which I have referred affords, in my judgment, strong ground for believing that Wintop and Fitcherly are in fact Mr Ablyazov’s creatures or conduits.” Mr Ablyazov was represented by and gave evidence through Addleshaw Goddard. Up to £40m was channeled through these companies for Mr Ablyazov’s benefit, much of it in payment of his and other parties’ legal fees.

Nov-Dec 2011

The Bank’s committal application was tried. Addleshaw Goddard acted for Mr Ablyazov in relation to the application generally (instructing two leading and two junior counsel), and in particular prepared and filed a number of affidavits on his behalf and on behalf of his witnesses. Each allegation made by the Bank was strenuously contested. As set out below, the evidence relied upon by Mr Ablyazov was untruthful and/or deliberately misleading and supported by forged and/or false documentation.

16 February 2012

Teare J handed down his committal judgment, finding Mr Ablyazov guilty of the three counts of contempt alleged by the Bank.

16 February 2012

Mr Ablyazov failed to attend the handing down of the Committal Judgment and went into hiding abroad.

February 2012

Mr Ablyazov committed multiple breaches of the Freezing Order by orchestrating the transfer of interests in a number of assets (in particular AMT Bank, BTA Armenia, land on the outskirts of Moscow and a mineral mine in Kyrgyzstan) from companies within the receivership to newly incorporated Belizean companies outside the receivership.

29 February 2012

Teare J made unless order against Mr Ablyazov, which required him to (a) serve an affidavit giving full and proper disclosure of his assets (to include any dealings with those assets) and (b) surrender himself to the Tipstaff, failing which his defences to eight claims will be struck out. In March 2012, Mr Ablyazov failed to comply.

4 July 2012

Mr Ablyazov’s appeal against Teare J’s committal and unless order was heard. Addleshaw Goddard acted for Mr Ablyazov on the appeal and instructed leading and junior counsel. Judgment was handed down in November 2012, dismissing the appeals.

Teare J gave judgment on two ‘reversal’ applications made by the Bank. Teare J found that Mr Ablyazov had committed eight breaches of the Freezing Order by dealing with assets. […] Teare J observed: “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.”

18 January 2013

Flaux J ordered Mr Ablyazov to (i) use his best endeavours to intervene in pledge enforcement proceedings in Russia relating to the project at Paveletskaya Square and (ii) serve an affidavit on the Bank setting out the steps he has taken. Mr Ablyazov failed to comply, thereby committing further contempts of court. Mr Ablyazov was represented at the hearing by counsel instructed by Addleshaw Goddard.

5 July 2013

Popplewell J delivered judgment on the Bank’s application to vary the Receivership Order:

26 November 2013

Henderson J granted summary judgment against Mr Ablyazov in proceedings instituted by the Bank in the Chancery Division: see the AAA Judgment. Henderson J found that Mr Ablyazov was the owner of five BVI companies (one of which was Bubris). Mr Ablyazov failed to disclose his interest in these companies (since added to the Receivership) and denied in his defence to the AAA Proceedings that he had any interest in them.

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