Feb 2024
In a recent judgment, which was heavily critical of the claimant bank, the BVI Commercial Court has set aside an order obtained ex parte permitting service on non-BVI resident defendants of a fraud claim out of the jurisdiction. Wallbank J held that (i) the claimant failed to satisfy any of the prescribed service ‘gateways’, (ii) the BVI was not the appropriate forum for trial of the action, and (iii) the claimant failed in its duty of full and frank disclosure and fair presentation in a non-innocent way.
The decision in Stock Company “BTA Bank” v Timur Sabyrbaev and Ors was handed down on 29 January 2024, following a four-day hearing in June 2023. The case concerned a seemingly last-gasp claim arising out of the longstanding Ablyazov fraud, and was a claim by BTA Bank, a Kazakhstan company (‘‘BTA’’) against 54 defendants (the “Defendants”), one of which was Ablyazov himself. Another, Grove Services Inc. (the “47th Defendant”), was represented by Conyers.
Background to the Claim
BTA brought proceedings in the English courts, as well as in other jurisdictions, against Mr. Ablyazov in mid-2009, shortly after he had ceased being Chairman of BTA. After arduous litigation, various judgments were entered against Mr Ablyazov in 2013 in the aggregate sum of over US$4.4 billion. Numerous other defendants were also sued in the same and related proceedings. This litigation generated dozens of reported judgments.
In the present claim, it was alleged that BTA was the victim of a fraudulent scheme concerning the issue of approximately 100 high value letters of credit between approximately March 2005 and January 2009, which BTA alleged resulted in a total loss to it of approximately U$230 million.
The Defendants, alleged to have been involved in different ways, were divided into five broad categories:
- Various Kazakh former officers and employees of BTA;
- Certain BVI and foreign-incorporated SPV companies;
- Former directors of the SPV companies;
- Various foreign commodities companies and certain of their current or former employees; and
- Certain former senior officers of BTA.
In April 2009, BTA obtained judgment in default against four of the nine BVI incorporated defendants to the present claim (the ‘‘BVI SPVs’’). Between August 2010 and April 2011, BTA obtained orders for the appointment of joint receivers over the BVI SPVs in England (the ‘‘Receivership Orders’’). Upon BTA’s applications, the Receivership Orders were recognised in the BVI in 2011 and were subsequently discharged some seven to eight years later in 2018-2019. None of the BVI SPVs participated in or defended either the English or BVI proceedings at any stage.
Between 30 December 2010 and 30 April 2020, eight of the nine BVI SPVs were struck off the Register of Companies and thereafter dissolved. In each case, those eight BVI SPVs were stuck off on various dates as long ago as 2010-2013, and dissolved on various dates between 2017 and 2020.
On 14 September 2021, BTA issued an urgent application (the ‘‘Restoration Application’’) to restore eight of the nine BVI SPVs to the Register. No application was made in respect of D22 which had been struck off but not dissolved. The locus standi BTA claimed for the purposes of the Restoration Application was alleged to be as a creditor of the offshore SPVs and/or as a person who can establish an interest in having each of these companies restored to the Register, in that BTA has a cause of action against and intends to pursue a claim against each of the companies. The Restoration Application was granted and within three days of the BVI SPVs being restored, BTA filed its claim in the present proceedings.
None of the BVI SPV defendants filed acknowledgments of service or a defence. The time for them to do so expired. There was no evidence that they responded in any way to the claim. In relation to all nine BVI SPVs, after BTA’s successful Restoration Application, all nine went on to be struck off again and/or be dissolved, or were liable to be struck off or dissolved.
BTA took no further steps (e.g. applying for judgment in default against these BVI SPVs of which BTA claims to be a creditor in the present claim).
On 12 May 2022, BTA issued three ex parte applications for orders from the Court, inter alia, permitting service of the claim out of the jurisdiction on those defendants who were resident out of the jurisdiction (the ‘‘Service Out Application’’). The Service Out Application was heard ex parte and granted on 17 May 2022 (the ‘‘Service Out Order’’). The BVI SPVs were identified as the anchor defendants, key to the present claim. BTA, relying on the Necessary and Proper Party Gateway at CPR 7.3(2) (the ‘‘NPP Gateway’’), described the non-BVI resident defendants in the ex parte application as “necessary and proper parties to the proceedings”.
The Forum Challenge
In due course, several of the non-BVI resident defendants were served with the proceedings. Applications to set aside the Service Out Order or alternatively an order staying proceedings on the grounds of forum non conveniens (collectively, the ‘‘Set Aside Applications’’) were made by four sets of non-BVI resident defendants, including the 47th Defendant. The Set Aside Applications were heard together at the hearing in June 2023.
Judgment
In granting the Set Aside Applications, the learned judge held that they succeeded for the following principal reasons:
- It was not reasonable for the Court to try the purported issues between BTA and the BVI SPVs, thus BTA failed to satisfy the NPP Gateway.
- This claim did not engage the CPR 7.3(7) Company Gateway, in that the claim must contain an issue relating to the ownership or control of a company. It did not.
- The BVI is not clearly and distinctly the most appropriate forum for the trial of the claims raised. Rather, that forum is Kazakhstan, or Germany or Switzerland.
- BTA failed in its duty of full and frank disclosure and fair presentation at the ex parte hearing in significant and material ways and, moreover, such failure was not innocent.
Not only was permission to serve out of the jurisdiction set aside, but the Court expressly refused to re-grant it. Costs were ordered against the claimant.
The judgment is highly critical of BTA’s and its counsel team’s ‘‘extremely serious and…inexcusable’’ failure to give full and frank disclosure. Wallbank J found that the use of the BVI SPVs as anchor defendants was “no more than an artifice” and that the Court had been ‘‘misled’’ into thinking that the BVI SPVs were key to the present claim. Further, the judge was persuaded that the ‘‘omissions must have been deliberate” and that BTA restored and joined the BVI SPVs as defendants purely to serve as anchor defendants, in order for BTA to get through the NPP Gateway, so that it could bring perceived ‘deep-pocket’ defendants to be sued in the BVI.
Notably, the case is the first time Wallbank J has made a finding that the reasonable test under ECSC CPR r. 7.3(2)(a)(i) was not satisfied, i.e. that there was between the claimant and defendant a real issue which it was reasonable for the Court to try. Generally, this is regarded as a very easily satisfied test, however Wallbank J noted that the fact that this criterion does not usually present a problem makes it all the more important for Counsel to bring the relevant authorities to the Court’s attention.
The case offers a salutary lesson to any claimant who seeks to mislead the Court in order to obtain an order for service out. The duty of full and frank disclosure, and fair presentation of an ex parte application, has always been strictly applied in the BVI. This case serves as a reminder that breach of that duty will be met with severe consequences.
Three of the four sets of the successful defendants/applicants were represented by London King’s Counsel and their respective BVI legal team. The Conyers team was led by BVI Partner Richard Evans alongside Associate Marie Stewart, who acted without external counsel for the 47th Defendant.