JSC BTA Bank v Mukhtar Ablyazov and another  EWHC 1368 (Comm) (8 June 2018)
The above matter related to an application in a long-running litigation. The Claimant applied for, and obtained, an order that the Second Defendant, Mr Khrapunov, provide full and proper disclosure regarding the way in which his legal fees in these proceedings were being funded.
Due to decisions reached in previous litigation between the parties, both Defendants are subject to a worldwide freezing order (WFO). Mr Ablyazov has fled the jurisdiction and took no part in this application. Mr Khrapunov’s WFO restrains dealings both with Mr Khrapunov's personal assets and with Mr Ablyazov's assets (the latter also being subject to Mr Ablyazov’s WFO).
The Judge found that it was impossible to ignore that the Court of Appeal had reached findings that there was a good arguable case that Mr Khrapunov had lied in disclosure he had given in relation to his personal assets. It was not unfair to Mr Khrapunov to take account of those findings, which are binding upon him, and indeed that it would be wrong in principle to ignore them.
It was therefore found that there was jurisdiction to make the order sought by the Claimant.
Mr Khrapunov contended that his mother was funding his legal expenses. The Claimant's application was made on the basis that Mr Khrapunov's mother did not appear to have sufficient means of her own to do so and that there was reason to believe she was funding her son's legal expenses from funds belonging to Mr Ablyazov, which are subject to both of the WFOs. Further to this, in the course of the application hearing, the Claimant developed an alternative argument that Mr Khrapunov may be using concealed assets of his own, in breach of his WFO.
The Judge highlighted that:
"Either way, the issue is whether there are sufficient grounds for concluding that disclosure should be ordered in order to ensure that the WFO can be effectively policed.”
The Applicable Principles
Mr Khrapunov’s WFO contains the standard requirement that before spending money on legal expenses he must tell the Claimant's solicitors where the money is to come from. The information supplied was that Mr Khrapunov's mother was meeting his legal expenses. On the basis that his legal expenses were not being met from frozen funds, Mr Khrapunov's position was that there was no obligation under the WFO to provide any further disclosure.
The Order sought was for Mr Khrapunov to supply further detail and supporting documentation as to the source of the funding of his legal expenses, to the best of his ability and having made reasonable enquiries (including making enquiries of his mother).
In reaching her decision, Deputy High Court Judge Robertson, applied the same principles established in JSC BTA Bank v Ablyazov  EWHC 2664 (Comm) and JSC Mezhprom Bank v Pugachev  EWHC 184i7 (Ch) that the court may make such an order where the Claimant could show that there were:
“grounds to believe that there is a real risk that the injunction may be being broken. Whether the order is in fact made is likely to depend on the strength of those grounds” (Ablyazov)
Or establish a finding of:
"a properly arguable case that the funding is or may be from frozen funds". (Pugachev)
Relevant findings in previous judgments
The Judge did not take findings in previous judgments between the parties as being in themselves a basis for her own analysis, those judgments providing a convenient summary of underlying evidence, some of which were relevant to the issues of this application.
The Claimant highlighted the extent of their own legal costs (in excess of £2 million) and questioned how Mr Khrapunov was funding the costs on his own side, given the lack of his own assets which had been disclosed in response to the WFO. They also took issue with the claim that his mother was funding the costs as her website did not identify any ongoing businesses. She was also funding substantial legal costs (to date some £0.5 million) for Mr Ablyazov's son. Further to this, disclosure obtained showed that Mr Khrapunov planned to place certain assets under his control in the name of the ‘Classic Design Trust’, with his mother as beneficiary, purportedly owned by individuals known to have previously acted as nominees for Mr Ablyazov.
The evidence filed on behalf of Mr Khrapunov in opposition to the application comprised a witness statement from his mother and from his solicitor, Mr Jenkins.
Further to the above, the Second Defendant’s Counsel submitted that Mr Khrapunov had not had proper notice of the Claimant's intention to rely on evidence other than that which had been specifically prepared for this application. However, the Judge found that the s submissions on the application made their contention clear that the relevant evidential materials were in the bundles for this application, even if prepared for the purpose of other applications:
“I have taken the view (contrary to the Bank's submission) that I should look at the evidence itself, rather than simply adopting the findings of Christopher Clarke J (Ablyazov) on this particular issue. That has made it necessary for me to travel beyond that judgment and the Fifth Witness Statement of Mr Lewis to other witness statements which were also in the bundles before me. I do not accept that it is in any way unfair to Mr Khrapunov for me to take into account the evidence before me as a whole.”
The Judge did not accept that the evidence from Ms Khrapunova's website proved that she herself lacked substantial wealth. However, the fact she may have had the means did not establish that she was in fact the true source of the funds used to pay her son's legal expenses.
Furthermore, she found that absent a substantive response from Mr Khrapunov to the allegation that he had placed his mother as a beneficiary of a trust where assets were purportedly owned by individuals known to have previously acted as nominees for Mr Ablyazov, it appeared possible that the trust was intended as, and may have been used as, a channel for transferring monies originating from Mr Ablyazov to Ms Khrapunova for the purpose of meeting Mr Khrapunov's legal fees.
“As the evidence stands, the Bank has shown there to be a real risk that the WFOs may be being breached by channelling to Ms Khrapunova funds which may belong to Mr Ablyazov. That risk makes it reasonable for the Bank to seek to probe beyond the assertion in Ms Khrapunova's witness statement that she is meeting the legal costs from her own wealth, by seeking from Mr Khrapunov disclosure of the ways and means by which that is being achieved, against which the truth of the assertion can then be tested.”