On August 24 2010 Justice Clarke handed down his judgment in JSC BTA Bank v Ablyazov.(1) The case considered the circumstances in which it was appropriate for an ‘unless’ order to be made, debarring the respondents from defending and entitling the claimant to default judgment unless certain information and documents were provided.
The claimant, JSC BTA Bank, is one of the largest banks in Kazakhstan. Before it was effectively nationalised in February 2009, the fi rst defendant, Mr Ablyazov, was the benefi cial owner of the majority of its shares and chairman of its board. Various criminal prosecutions are pending against Ablyazov and his associates in Kazakhstan and he has fl ed to England; however, several sets of civil proceedings against him and his colleagues are pending in the High Court.
In the current proceedings, JSC claims that Ablyazov, with the assistance of eight further defendants, misappropriated over $1bn from it. JSC asserts that sham letters of credit were opened, purportedly in relation to the supply of oil machinery and equipment.
On June 9 2010 Mr Kealey, sitting as a deputy judge, held that JSC had established at least a good arguable case of fraud and that there was a real risk of dissipation. Accordingly, he granted freezing orders against the defendants, including disclosure provisions.
The defendants failed to comply with the disclosure obligations and JSC applied for an order debarring the defendants from defending and giving the claimant liberty to enter or apply for judgment unless the defendants complied. The defendants applied to challenge the jurisdiction and to set aside the freezing order. They argued that in such circumstances a court may make an ‘unless’ order only if a breach of the disclosure provisions would jeopardise a fair trial of the issues or render further conduct of the proceedings unsatisfactory.
Compliance with disclosure provisions in freezing orders
The importance of disclosure provisions in freezing orders has long been recognised by the courts. For example, in CIBC Mellon Trust Co Ltd v Stolzenberg(2) the court emphasised how essential such orders are in combating fraud:
“Freezing orders are critical weapons in the court’s armoury against fraud, securing the preservation of assets which might otherwise be wrongly dissipated pending judgment and, in appropriate cases, the preservation of evidence, including documentation, and the provision of information to trace the proceeds of fraud.”
The courts have also recognised that a purpose of the disclosure provisions is to police the freezing order during lengthy jurisdictional challenges. In Grupo Torras v Sheikh Fahad(3) Lord Justice Steyn held that:
“In many such cases [of transnational fraud] despite a cogent case of fraud the connections of transactions with different countries will enable a defendant to raise jurisdictional challenges which may take months to resolve in the fi rst instance, many months to determine in the Court of Appeal and even longer to decide in the House of Lords - and there may be a reference to the European Court. During such lengthy delay it would be impossible to ‘police’ the Mareva injunction and that is the purpose of the disclosure order.”
In Grupo Torras the court also held that: (i) a disclosure order in support of a freezing order can be made on an assumption that there is jurisdiction; and (ii) the prejudice to a defendant caused by the invasion of privacy, in the event that the defendant ultimately wins the jurisdictional battle, is outweighed by the prejudice to the claimant if it is unable to police the freezing order for some time.
In the present case, the defendants submitted that unless a breach of the order would jeopardise a fair trial of the issues or render further conduct of the proceedings unsatisfactory, no ‘unless’ order should be made. The court was referred to the observations in Logicrose Ltd v Southend United Football Club Ltd, in which Justice Millet stated:
“I do not think that it would be right to drive a litigant from the judgment seat without a determination of the issues as a punishment for his conduct, however deplorable, unless there was a real risk that that conduct would render further conduct of the proceedings unsatisfactory. The court must always guard itself against the temptation of allowing its indignation to lead to a miscarriage of justice.”(4)
Clarke did not accept that the question is solely whether noncompliance with the disclosure provisions will render conduct of the proceedings unsatisfactory; rather, he held that:
“the court is entitled to take into account the effect of making, or not making, the order sought on the overall fairness of the proceedings and the wider interests of justice as refl ected in the overriding objective.”
Clarke considered that an order for disclosure would have no effect unless the court were entitled to order that if such non-compliance persisted, the claimant should be permitted to enter judgment. He recognised that in many cases, only an ‘unless’ order will ensure compliance, and that if the defendants were right, “fraudsters will fl ourish, since a challenge by the jurisdiction will automatically preclude the court from enforcing, by any realistic sanction, a disclosure order”.
The court recognised that the defendants might be prejudiced by being compelled to produce evidence if they were subsequently to be successful in their jurisdiction challenge. However, such prejudice was considered minimal compared to the potential prejudice to JSC of assets being put out of its reach, or further out of reach. The court also considered the likelihood of the jurisdictional challenge succeeding and the seriousness of the allegations against the defendants as relevant factors.
Therefore, Clarke granted the order.
Ablyazov confi rms that defendants that are subject to freezing orders cannot delay the provision of information as to their assets by applying to challenge the jurisdiction or to have the freezing order set aside. The disclosure provisions are fundamental to policing freezing orders and this case confi rms that the courts will uphold their effectiveness.