Kazakhstan & Anor v The Bank of New York Mellon SA/NV, London Branch & Ors, Court of Appeal - Commercial Court, December 04, 2018, [2018] EWHC 3282 (Comm)

Resolution Date:December 04, 2018
Issuing Organization:Commercial Court
Actores:Kazakhstan & Anor v The Bank of New York Mellon SA/NV, London Branch & Ors
 
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Case No: FL-2018-000007

Neutral Citation Number: [2018] EWHC 3282 (Comm)

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

QUEEN'S BENCH DIVISION

FINANCIAL LIST

COMMERCIAL COURT

Royal Courts of Justice

Rolls Building, 7 Rolls Buildings

Fetter Lane, London EC4A 1NL

Date: 04/12/2018

Before :

MR. JUSTICE TEARE

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Between :

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Ali Malek QC and William Edwards (instructed by Stewarts Law LLP) for the Claimants

Tom Sprange QC, Ben Williams and Kabir Bhalla (instructed by King & Spalding LLP) for the Second to Fifth Defendants

Hearing date: 15 November 2018

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JudgmentMr. Justice Teare:

INTRODUCTION

  1. This jurisdictional challenge is part of a long-running saga relating to the enforcement of a Swedish arbitration award dated 19 December 2013 in favour of the ``Stati parties'', the Second to Fifth Defendants, and against the Second Claimant, the Republic of Kazakhstan (``RoK'').

  2. Enforcement proceedings are afoot in several jurisdictions but have been discontinued in this jurisdiction. By an Order of the Court of First Instance in Brussels dated 25 May 2018, upholding in a reduced amount a ``conservatory'' attachment order granted by the Belgian court on 11 October 2017 (the ``attachment order''), the Stati parties obtained ``a conservatory garnishment on `debts and matters related to the ``savings fund''' held by the First Defendant (``BNYM(L)''), the First Defendant, for RoK, in the sum of US$ 530 million.

  3. In these English proceedings RoK seeks a declaration that the debts or assets held by BNYM(L) and said to be subject to the attachment order are in fact held by BNYM(L) solely for the National Bank of Kazakhstan (``NBK''), the First Claimant. They therefore submit that the attachment order has no subject-matter, because there are no assets to attach. The Claimants contend that this question was referred to this court by the Belgian court.

  4. The Stati parties now seek to set aside the order of this court dated 19 July 2018 which granted the Claimants permission to serve the Stati parties out of the jurisdiction.

    BACKGROUND

    The underlying arbitral proceedings

  5. In arbitration proceedings pursuant to the Energy Charter Treaty, the Stati parties obtained an arbitral award against RoK, dated 19 December 2013, in a sum in excess of US$ 500 million (``the Award''). The arbitration was seated in Sweden. In very broad terms, the arbitration concerned the Stati parties' interest in the exploration and extraction of hydrocarbons in Kazakhstan. The Award included damages in the sum of US$ 199 million, being the value of a liquefied petroleum gas plant (the ``LPG plant''). That valuation was based on an `indicative bid' for the LPG plant submitted by KazMunaiGas (``KMG''), a state-owned oil and gas company, in September 2008.

  6. RoK sought to challenge the Award in the Swedish courts. Its application to set aside the Award was rejected by the Svea Court of Appeal on 9 December 2016, which rejection was subsequently upheld by the Swedish Supreme Court.

    Enforcement proceedings in England

  7. The Stati parties have sought recognition and enforcement of the Award, under the New York Convention, in several jurisdictions. I am told that enforcement proceedings are currently afoot in Sweden, the United States of America, the Netherlands, Luxembourg, Italy, and Belgium.

  8. On 28 February 2014, Burton J granted the Stati parties' application for recognition and enforcement of the Award in this jurisdiction. RoK applied on 7 April 2015 to set aside that Order, and on 27 August 2015 sought permission to amend its application to include an allegation that the Award was procured by fraud. Those applications were heard by Knowles J in February 2017. In very broad terms, RoK contended that the valuation of the LPG plant was procured by fraud in that the `indicative bid' was based in part upon the Stati parties' stated construction and development costs on the LPG plant being US$ 245 million. RoK contended that that sum had been fraudulently inflated.

  9. In a judgment given on 6 June 2017 ([2017] EWHC 1348 (Comm), [2017] 2 Lloyd's Rep 201), Knowles J held (at [47]) that ``[i]f the KMG indicative bid was in fact the result of the claimant's dishonest misrepresentation then it seems to me, at this stage of scrutiny on the English Application, there is the necessary strength of prima facie case that the tribunal would no longer (to use its words) consider it as taking a place of ``particular relevance'' within ``the relatively best source of information for the valuation of the LPG plant''; still less being the one offer from which they took the damages figure.'' Knowles J concluded (at [92]) that there was ``a sufficient prima facie case that the Award was obtained by fraud'', and directed a trial of that issue.

  10. On 26 February 2018, the Stati parties served a Notice of Discontinuance in respect of the English enforcement proceedings. RoK successfully applied to have that discontinuance set aside before Knowles J ([2017] EWHC 1348 (Comm), [2018] 1 WLR 3225). That decision was reversed by the Court of Appeal ([2018] EWCA Civ 1896, [2018] 2 Lloyd's Rep 263), which permitted the discontinuance on condition that Burton J's Order be set aside and no further enforcement proceedings take place in this jurisdiction.

    Enforcement proceedings in Belgium

  11. On 29 September 2017 the Stati parties applied to the Belgian courts for a `conservatory' attachment order against assets held by BNYM(L) for RoK under a Global Custody Agreement (the ``GCA''). That application was granted on 11 October 2017.

  12. Following that application (and in accordance with Belgian procedure), BNYM was required to make a `garnishee declaration' (the ``BNYM declaration'') concerning attachable assets held by it. That declaration was in the following terms:

    ``Although (legal predecessors of) BNYM entered into a Global Custody Agreement dated 24 December 2001 (``Global Custody Agreement'') with the National Bank of Kazakhstan (the ``NBK'') which is a `state entity' of the Republic of Kazakhstan [...], as counterparty, the Bank cannot fully exclude that the Republic of Kazakhstan (including the National Fund) has or will have claims on BNYM or that BNYM holds assets of or for the Republic of Kazakhstan (including the National Fund) which are the subject of the garnishment in view of its contractual relationship with the NBK and uncertainties of the legal relationship existing between the latter and the Republic of Kazakhstan.

    Pursuant to the Global Custody Agreement BNYM holds ``certain securities of the National Fund and Cash on behalf of the [NBK] as Custodian and banker respectively''.

    In addition, it is BNYM's current understanding that, under Kazakh law, the NBK is not capable of owning any assets which are not owned by the Republic of Kazakhstan, although NBK has the power to possess, use and dispose of assets of the National Fund pursuant to an agreement between the NBK and the Republic of Kazakhstan with the government as beneficiary. BNYM has been informed that this is the case even though the NBK, pursuant to Kazakh law, has separate legal personality towards third parties, has legal standing in courts and can hold and possess assets and liabilities that are separate from the Republic of Kazakhstan. [...] .''

  13. BNYM(L) accordingly froze the GCA accounts. At that time, BNYM(L) held cash and securities under the GCA in the sum of around US$ 22 billion.

    Part 8 proceedings in England

  14. Following the Belgian conservatory attachment proceedings, the Claimants initiated Part 8 proceedings in this jurisdiction against BNYM(L). The Claimants sought declarations that, under the terms of the GCA, BNYM(L) had not been entitled to freeze the GCA accounts. The Stati parties were not a party to those proceedings.

  15. As is clear from the judgments of Popplewell J dated 21 December 2017 ([2017] EWHC 3512 (Comm)) and the Court of Appeal dated 19 June 2018 ([2018] EWCA Civ 1390), the Part 8 proceedings were limited in scope. They were concerned, essentially, with the effect of clause 16(i) in the GCA, which provides that BNYM(L) shall not be liable for ``any delay or failure on the part of [BNYM(L)] to perform any obligation which, in whole or in part, arises out of or is caused by circumstances beyond its direct and reasonable control [...].''

  16. Popplewell J and the Court of Appeal favoured BNYM(L)'s interpretation of clause 16(i). Hamblen LJ concluded (at [74]) that ``the language of clause 16(i) is clear and that, subject to causation, it applies to the Dutch and Belgian orders''. The Claimants have sought permission to appeal the Court of Appeal's judgment to the Supreme Court. On the issue of causation, Popplewell J had noted (at [92]) that ``[i]t will be a factual question in each case whether the causation test has been fulfilled and that is not a matter which in the present case can be resolved in this Part 8 claim.'' In several paragraphs of his judgment (for example, at [98] - [99]), Popplewell J noted that it would be inappropriate to grant declarations affecting the rights of the Stati parties without the Stati parties being party to the proceedings.

    Further proceedings in Belgium

  17. The Claimants then sought to challenge the Belgian conservatory attachment before an ``Attachment Judge'' of the Belgian court. The Attachment Judge upheld the attachment order in a judgment dated 25 May 2018. It is necessary to set out a number of passages from the judgment, which is central to the present application, in full:

    ``3.1.4. Lack of legal relationship with the garnishee

    Kazakhstan asserts that there exists no legal relationship between itself and the garnishee and that the garnishee also does not have a restitution obligation towards itself. [...]

    The argument that is raised by Kazakhstan is...

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