JSC BTA Bank Appellant v [1] Fidelity Corporate Services Ltd [2] Commonwealth Trust Ltd [3] AMS Trustees Ltd [4] Trident Trust Company (BVI) Ltd [5] Coverdale Trust Services Ltd [6] Morgan & Morgan Trust Corporation Ltd [7] Mossack Fonseca & Company (BVI) Ltd Respondents [ECSC]

• Jurisdiction: British Virgin Islands
• Judge: MITCHELL, J.A. [AG.],Justice of Appeal [Ag.],Justice of Appeal,Ian Donaldson Mitchell, CBE, QC,Janice George-Creque,Davidson Kelvin Baptiste
• Judgment Date: 21 February 2011
• Court: Court of Appeal (British Virgin Islands)
• Docket Number: HCVAP 2010/035
• Date: 21 February 2011

IN THE COURT OF APPEAL

Before:

The Hon. Mde. Janice George-Creque Justice of Appeal

The Hon. Mr. Davidson Kelvin Baptiste Justice of Appeal

The Hon. Mr. Ian Donaldson Mitchell, CBE, QC Justice of Appeal [Ag.]

HCVAP 2010/035

Between

JSC BTA Bank

Appellant

and

[1] Fidelity Corporate Services Limited

[2] Commonwealth Trust Limited

[3] AMS Trustees Limited

[4] Trident Trust Co (BVI) Limited

[5] Coverdale Trust Services Limited

[6] Morgan & Morgan Trust Corporation Ltd

[7] Mossack Fonseca & Co (BVI) Limited

Respondents

Appearances:

Mr. Philip Marshall, QC, Mr. Mark J. Forte and Ms. Tameka Davis with him for the appellants

Mr. Paul Webster, QC, Ms. Nadine Whyte with him for the 5 ^th respondent

Mr. John Carrington, Mr. Patrick Thompson with him for the 6 ^th respondent

Civil Appeal — Commercial Law — disclosure of information — whether the disclosure sought is a necessary and proportionate response in all circumstances — inherent jurisdiction of the court — Norwich Pharmacal — equitable jurisdiction of the court to preserve a potential trust fund — whether an innocent party can be said to have facilitated the wrongdoing to the extent an order for discovery maybe made against him — elements of jurisdiction — necessity — the exercise of discretion — requirement of involvement or participation — whether it has to be satisfied that the party is more than a bystander or witness —rights of third parties — application to adduce further evidence — costs

In 2009 the Government of Kazakhstan took action against one of the largest banks in Kazakhstan for the Regulation and Supervision of Financial Organisations which concluded that the Bank had negative equity and therefore was insolvent. The Bank has been restructuring debt of over US$11 billion under the supervision of the Almaty Financial Court. Any recoveries made by the Bank and other proceedings will partly go to meet the claims of creditors.

Ablyazov through nominee companies owned the majority of the shares in and controlled the Bank and was also the Chairman of the Board of Directors. He and Khaksylyk (his close associate) has since been dismissed and have both fled to the United Kingdom. Various criminal prosecutions have been filed against the two and others in Kazakhstan. Civil proceedings have been ensued in the Commercial Court in the United Kingdom and the Bank has obtained freezing relief against them as well. The proceedings in the Territory of the Virgin Islands have been brought in support of one the United Kingdom proceedings which concerns misappropriation of which over US$1 billion was extracted from the Bank in late 2008 under bogus loans allegedly created for fictitious transactions.

The Bank claims that this was facilitated through the use of various companies incorporated in the Territory of the Virgin Islands and the Seychelles. The Bank further alleges that this scheme was perpetrated by and for the benefit of Mr. Ablyazov using the companies as his vehicles and by Mr. Zharinbetov as his assistant in order to implement the scheme. The Bank made proprietary claims in respect of the sums advanced and claims for compensation against the Bank officers for breach of duty either in relation to the perpetration of the fraud or for failing to disclose and/or for approving what are described as ‘related party’ transactions.

Mr. Ablyazov and Mr. Zharimbetov deny any involvement in the claims alleged against them and state that the companies and documents appeared to have been genuine.

The Bank subsequently filed an application for Norwich Pharmacal and ancillary relief in the form of information and documents in their custody, possession or control against the seven discovery defendants/respondents. They claim that the respondents are likely to be able to provide information to the Bank to assist the process of recovery of the Bank's assets. They incorporated the companies, maintained them in good standing and allowed them to use bank accounts. The trial judge dismissed the application and held that there was no evidence that the discovery defendants were involved in, or participated in or facilitated those acts, acts of which, for all the evidence showed, they were entirely ignorant. The Bank now appeals the order of the trial judge in which he dismissed the application for disclosure of information and in addition there is an application to adduce further evidence.

Held: granting the application to admit further evidence, allowing the appeal and granting the reliefs sought. Awarding the 5 ^th and 6 ^th respondents their costs in the court below and awarding the 6 ^th respondent costs in this court to be assessed if not agreed.

1. That the relief sought in this case is necessary and proportionate in all circumstances to permit the bank its undoubted right to proceed both in law and in equity against those who set up the companies and those that are presently in possession of the defrauded funds.

Campaign Against Arms Trade v BAE Systems PLC [2007] EWHC 330 (QB) applied.

2. That the respondents, by virtue of their role in providing registered agent services to the companies, a role which is voluntary, cannot on any view be considered as mere onlookers. The companies that they formed and maintained facilitated, although innocently, the commission of the fraud and as such were involved in the fraud perpetuated against the bank. This renders the respondent under a duty to disclose information through Norwich Pharmacal type proceedings which may assist the bank as the injured party in discovering the true wrongdoers.

Norwich Pharmacal Co v Commissioners of Customs & Excise [1974] AC 133 , Ashworth Hospital Authority v MGN Ltd [2002] 4 All ER 193, Banker's Trust Co v Shapira [1980] 1 WLR 1274 applied.

3. That the further evidence sought to be introduced by the appellant which comprises the defence of the 2 ^nd defendant in the English Proceedings becomes relevant. It is clear that both individual defendants in the English proceedings have taken the position of lack of any knowledge or control over or having any relationship with these entities and thus it may reasonably be expected that no information will be forthcoming from them as to who are the instructing or controlling minds behind these entities. The respondents by virtue of the services they render coupled with the due diligence duties they are obliged to perform in their capacity as registered agents would be expected to have such information and in all probability information pertaining to banking mandates and resolutions passed by these entities for operating bank accounts in their possession.

4. That all of the respondents are entitled to be paid by the bank their reasonable costs of providing discovery as the court recognises the fact that innocent third parties become embroiled in proceedings through no fault on their part.

MITCHELL, J.A. [AG.]

1 This is an appeal by JSC BTA Bank against an order of Bannister J dated 8 ^th November 2010, in which he dismissed the application of the Bank for disclosure of information (a) pursuant to the inherent jurisdiction of the court applying the principles established in Norwich Pharmacal Co v Commissioners of Customs & Excise1; and (b) pursuant to the equitable jurisdiction of the court to preserve a potential trust fund applying the principles established in Bankers Trust Co v Shapira2. In addition to the appeal there is an application to adduce further evidence.

The Background

2 The Bank is one of the largest banks in Kazakhstan. In 2009 the Government of Kazakhstan took action in the wake of the worldwide financial crisis and the findings of a random inspection report 3 by the Agency of the Republic of Kazakhstan for the Regulation and Supervision of Financial Markets and Financial Organisations which concluded, among other things, that the Bank had negative equity, and thus was insolvent. The Bank has been restructuring debt of over US$11 billion under the supervision of the Almaty Financial Court. Any recoveries made by the Bank in these and other proceedings will partly go to meet the claims of creditors.

3 Until 2 ^nd February 2009, Mukhtar Ablyazov through nominee companies owned the majority of the shares in and controlled the Bank. He was also the Chairman of the Board of Directors. He has since been dismissed and fled to the United Kingdom (UK). Zhaksylyk Zharimbetov is a close associate of Mr Ablyazov. He was the First Deputy Chairman of the Management Board and also the Chairman of the Credit Committee. He also fled to the UK.

4 Various criminal prosecutions have been opened against Mr. Ablyazov, Mr. Zharimbetov and others in Kazakhstan. The Bank has also commenced several sets of civil proceedings in the Commercial Court of the Queen's Bench Division of the High Court in the UK and has obtained freezing relief against Mr. Ablyazov and Mr. Zharimbetov in support of its claims.

5 The present proceedings in the Territory of the Virgin Islands have been brought in aid of one of these sets of UK proceedings. These UK proceedings 4 concern, as alleged by the Bank, a scheme of misappropriation by which over US$1 billion was extracted from the Bank in late 2008 under bogus loans purportedly created for fictitious transactions.

6 The scheme was effected allegedly through the use of various companies incorporated in the Territory of the Virgin Islands as well as the Seychelles which acted as (a) supposed borrowers and who sought financing from the Bank and (b) as supposed intermediaries for the purported supply of oil drilling and other equipment who were the direct recipients of the Bank's advances. The Bank's case is that the scheme was in fact perpetrated by and for the benefit of Mr. Ablyazov using the companies as his vehicles and by Mr. Zharimbetov as his assistant in order to implement the scheme.

7 The Bank has made proprietary claims in...