Introduction
Facts
Ancillary powers
Decision
Comment
The proceedings between JSC BTA Bank and its former chairman Mukhtar Ablyazov, together with various of his associates and associated companies, have been one of the most dramatic court battles in the past couple of years, and certainly the most prolific in terms of rapid generation of judgments.
In its most recent judgments, the court has had to consider the range of tools available to it in the face of what it found to be wilful contempt of its authority by Ablyazov, the defendant. In doing so, it has expanded the armoury of those seeking to enforce the terms of interlocutory orders, such as worldwide freezing orders.
The proceedings concern allegations that Ablyazov defrauded the bank of several billion dollars. Ablyazov denies the allegations and claims to be the victim of a conspiracy, headed by the president of Kazakhstan, which is seeking to confiscate his assets and neuter him as a political rival to the president. Ablyazov has been resident in the United Kingdom for some time, having claimed political asylum.
When it started the proceedings, the bank immediately sought worldwide asset-freezing orders against Ablyazov and various associates who were said to be holding assets on his behalf. It was common ground that Ablyazov holds his assets through placemen. Ablyazov maintains that he is forced to do this in order to shield his assets from the conspiracy to confiscate them, whereas the bank maintains that he does so to try to conceal the whereabouts of assets obtained through the alleged fraud. Many of the reported decisions have concerned attempts to enforce the freezing orders, and particularly the asset disclosure provisions incorporated within such orders to enable the capture of assets within the terms of the freezing provisions (for further details please see "Freezing orders and disclosure obligations").
In a series of judgments, the courts have found Ablyazov and his associates to be flouting the terms of the asset disclosure orders. Committal orders for contempt of court have previously been made against some of the associates. In December 2011 a hearing took place of a committal application against Ablyazov, which lasted over two weeks and which he attended. At the end of the trial, the judge asked Ablyazov to confirm that he would attend the handing-down of the judgment, which he said he would do. However, when the judge delivered judgment on February 16 2012, Ablyazov did not attend. His legal team were still receiving instructions from him, but he was concealing his whereabouts from them. It was not clear whether he had fled the country. In his absence, Ablyazov was sentenced to 22 months' imprisonment for contempt of court.
As Ablyazov had become fugitive, the bank applied for three further orders against him.
The first order sought was seemingly novel. The bank asked the court to grant a mandatory injunction that Ablyazov surrender himself to the tipstaff - an officer of the High Court with a power of arrest - to enforce Ablyazov's committal to prison to serve his sentence for contempt.
The second order was that Ablyazov be required to disclose his asset position again by swearing another affidavit. Ablyazov had previously been ordered to make such disclosure - it was for failure to comply with that prior order that he was being committed.
The third order was the real motivation for the application, and would provide its real force in circumstances where the bank and the court were dealing with someone who had already flouted the court's authority. The application was for an 'unless' order - that is, an order which provides that in the event of non-compliance, the party which fails to comply will have its case struck out and judgment entered against it on a summary basis. This order would apply if Ablyazov failed to comply with either of the first two orders.
The judge had no hesitation in granting the injunction that Ablyazov surrender himself to the tipstaff. Given that Ablyazov had sought to evade imprisonment for contempt by disappearing, it was perhaps no surprise that the judge found it just and convenient under Section 37 of the Senior Courts Act 1981 to make such an injunction. Alternatively, he found that it was simply an ancillary order which he could make pursuant to the court's inherent jurisdiction, in order to make its previous orders effective.
In reality, it is difficult to see how the injunction would be any more likely to persuade Ablyazov to surrender to imprisonment. He was already flouting the court's orders and evading the sentence of imprisonment which had been the result. As such, it appears that the only real purpose of the order was as a tag on which to pin the consequences of the unless order.
The same was largely true of the order that Ablyazov make a renewed and proper disclosure of his asset position. It was argued, among other things, that this was unnecessary, as Ablyazov was already under a duty to disclose his assets under the previous order to that effect. However, the judge was unimpressed by the arguments advanced by Ablyazov's counsel. Again, the true purpose of the order lay elsewhere. If Ablyazov was already in breach of one order to make proper disclosure, to the extent that he had been sentenced to imprisonment (which he had then sought to evade by fleeing), the mere making of another disclosure order was likely to have little effect on him, either as a matter of conscience or out of respect for the authority of the court. Thus, the order was more likely intended as a platform for the third order.
The third order which was sought in the application was for an order that, unless Ablyazov complied with the first two orders by surrendering to the tipstaff and making a fresh and proper disclosure of his assets, his defence to the substantive action should be struck out. This would enable the bank to enter summary judgment against him and move straight to enforcement (although this would no doubt be a prolonged process in itself).
The proposed measure would be draconian and not without controversy. Ablyazov had been found to be in wilful, deliberate and continuing contempt of court; he could hardly expect to receive the court's sympathy. Nevertheless, the application would result in the removal of his right to defend the substantive fraud claims being brought against him. His contempt flowed from the court's making of an interlocutory order against him. That order was aimed at freezing assets to ensure that if the bank succeeded, it would - as far as possible - be able to enforce its judgment. When the bank had applied for the freezing order, it had had to satisfy a much lower burden than it would have to do in order to secure a judgment at trial. However, the course that the bank sought to persuade the court to take would result in Ablyazov's contempt of the preliminary protective measure obtained on that lower threshold leading to a final judgment of the underlying matter in the bank's favour.
Ablyazov argued that there was no reason to deny him the ability to defend the action simply because he was in contempt of the freezing order - the breach of that order did not, he argued, affect the ability to hold a fair trial of the issues. On the contrary, to deny him the right to a fair trial was a breach of his human rights under Article 6 of the European Convention on Human Rights.
As his client was a fugitive from the authority of the court, Ablyazov's counsel did not have most attractive starting position from which to advance his arguments and the judge gave them short shrift. Ablyazov was not being denied the right to a fair trial; all he had to do was surrender and serve the sentence for contempt and make a proper disclosure of his assets. He was free to do those things. If he chose not to do so and instead continued to defy the court's authority, it was that decision which would deny him the right to defend the claims against him at trial. The purpose of the freezing orders - which had been made and flouted - was to serve the interests of fairness and justice in the proceedings and to protect the bank, if it eventually established a right to recover losses, against the risk of dissipation of assets.
The judge held that the balance of fairness was in favour of attaching the unless order to both the disclosure order and the order to surrender to the tipstaff.
In most circumstances the English civil courts can rely on respect for the rule of law to maintain their authority over civil disputes. The Ablyazov litigation, like the Masri litigation before it, exemplifies the new tests faced by the courts, in part because of the increasingly internationalised nature of the disputes over which they are required to adjudicate. Where so much of the substance underlying the dispute is held (and indeed hidden) in structures outside of the jurisdiction, the normal tools and sanctions that the courts use to maintain their authority are diluted. In responding to those tests, the English courts, prompted by English civil litigators, have again shown that they are prepared to take muscular and innovative positions in order to give best effect to their authority.
However, in view of the path of the litigation to date, it seems clear that the decision will be appealed. The validity of the approach taken at first instance to these issues will no doubt come under closest scrutiny; the appeal process itself may turn into another extended detour in the course of these extraordinary proceedings.
For further information on this topic please contact Jake Hardy at RPC by telephone (+44 20 3060 6000), fax (+44 20 3060 7000) or email ([email protected]).