Alliance Bank JSC v Baglan Abdullayevich Zhunus (1) Maksat Askaruly Arip (2) David Sturt (3) [2015] EWHC 174 (Comm)

Published 15 April 2015

This Judgment arises from an inter partes application by the Second Respondent, Mr Arip, to discharge a Freezing Order and reverse an order giving the Claimant  permission to serve out of the jurisdiction, which had been made at an earlier without notice hearing in November 2014 by Mr Justice Flaux in favour of a Kazakh Bank, Alliance Bank JSC, ("the Bank"). 

Mr Arip argued in support of his application that the Claimant did not have a good arguable case and that there were material non-dislcosures of key factual matters at the earlier without notice hearing.  Mr Justice Flaux found on the basis of the evidence presented at the without notice hearing that there had been a "blatant fraud".

At the without notice hearing the Bank had applied for permission to serve out of the jurisdiction on Mr Arip who was domiciled in Dubai on the basis that he was a necessary and proper party to the proceedings against Mr Zhunus, the first Defendant who was resident in England. The Bank also obtained a Freezing Order over Mr Arip's assets in the sum of £206 million. 

By way of background this dispute arose after the Bank had in 2006-2007 advanced significant sums by way of loan to the Defendants, which had been secured by pledges in the shares of inter alia two oil companies. These loans had then been restructured in 2008 at the behest of the Defendants when the original loans were replaced with new borrowers (referred to as the Replacement Borrowers), who the Defendants argued were more "reliable counter parties".

Under the new terms, the Defendants increased the sum borrowed to US$295 million and offered pledges of shares and assets in two of the oil companies (Dobycha and Dinyeneft) which were indirectly owned by the Replacement Borrowers. According to the Bank, all the monies were then drawn down without any security being provided in Dobycha or Dinyeneft. Instead the Defendants pledged shares in three different entities. Subsequently it transpired that in 2009 Dobycha and Dinyeneft had been transferred to Exillon Energy PLC, which was the subject of an IPO on the London Stock Exchange which reflected the significant value attributable to the two oil companies at approximately £186 million. At the same time the Defendants defaulted on their loan to the Bank and it became apparent that the pledges which had been offered were in fact worthless. The Bank argued that it had been deprived of the security which had been originally agreed and that there had been a breach of Article 917 of the Kazakh Civil Code. Mr Arip argued in support of his application that such claims were subject to a 3 year limitation period and that this period had now expired because the board of directors at the Bank had the relevant knowledge.

As a result, when the matter came back before Mr Justice Cooke in March 2015 he was presented with further evidence that had not been before Mr Justice Flaux, which showed that the Bank had known about the potential claim at a far earlier stage than had been admitted before Mr Justice Flaux. Mr Arip was able to track through the documentation provided to the Bank which showed that the board of directors at the Bank had known the full facts in February 2010. The Bank tried to argue (unsuccessfully) that it was not aware of all the facts until Exillon Energy PLC had issued its prospectus before the IPO in April 2011.

After hearing the evidence at the inter partes hearing, Mr Justice Cooke discharged the permission to serve out of the jurisdiction and the Freezing Order. He found that the claim was time-barred, and that matters which were directly relevant to the merits of the claim and affected the limitation period had not been disclosed.

The Judge noted that "it is not enough to say, as Alliance does, that it needed to put all of the pieces of the jigsaw together in order to ascertain that the security which was originally offered for the Replacement Loans...served as the basis for the London IPO...The case made by Alliance would be exactly the same if no IPO had taken place..."

Comments 

CPR 25.3.5 provides that an applicant must not merely identify potential defences that may be run to counter the intended claim, but also that the evidence is presented with the utmost good faith. An applicant is obliged to carry out a thorough investigation of the claim. In this case it appears there were numerous audit reports and memoranda.

This Judgment underlines that "the interests of justice are paramount". It highlights the difficulties that can arise when an applicant does not provide full and frank evidence, and does not provide a complete picture of the wider legal and factual background. 

In this matter the Bank had assumed that the pledges were of less importance because they were unenforceable, however it is clear that this assumption led them to omit reference to many of the underlying minutes and audit reports which existed. An applicant wanting without notice relief must investigate the wider picture and not only disclose any documents of relevance, but ensure all the facts are brought to the Judge's attention in submissions at the without notice hearing. There is nothing particularly new in the approach adopted by the Judge in this case, however, it is a useful reminder that in complex matters a party must provide full and frank evidence in support of injunctive relief and that longer hearing times may be necessary, so that an applicant can give a fuller oral account of the counter-arguments, and bring the wider issues to the Judge's attention at a without notice hearing.