In JSC BTA Bank v Khrapunov the UK Supreme Court (“UKSC”) has provided a stir of excitement for civil fraud practitioners which will, no doubt, sustain many conference speeches over the coming months. Might it rival the industry sensation that was Prest v Petrodel Resources Ltd? Watch this space.
I am not going to address every part of the judgment. In particular I leave it to others to analyse the establishment of jurisdiction under Article 5(3) of the Lugano Convention in circumstances where the only act in England was the conspiratorial agreement. From a Jersey perspective the two most interesting aspects are that (i) contempt of court can constitute unlawful means for the purpose of the tort of conspiracy and (ii) the UKSC left open the possibility that damages could be available for contempt per se (i.e. without a claimant having to rely on an established cause of action).
Background (in brief)
Mr Mukhtar Ablyazov used to be the chairman and controlling shareholder of a Kazakh bank, JSC BTA Bank (“the Bank”). When the Bank was nationalised he fled to England. The Bank subsequently commenced proceedings in the English High Court claiming that Mr Ablyazov had embezzled approximately US$6bn. These included a worldwide freezing order (“WFO”) and an order requiring Mr Ablyazov to disclose the nature and location of his assets. Mr Ablyazov failed to comply with this order and, instead, sought to conceal undisclosed assets through various corporate structures. He was held in contempt of court and sentenced to 22 months in prison, however he fled the country just before this decision.
The Bank obtained default judgments for US$4.6 billion but recovered very little. The present proceedings are against Mr Ablyazov’s son in law, Mr Khrapunov, who allegedly conspired with him to conceal his assets.
Conspiracy and Contempt
English law recognises two forms of the tort of conspiracy; “lawful means” and “unlawful means” conspiracy. The claim against Mr Khrapunov was brought in the latter which the Court defined as a “conspiracy to do by unlawful means an act which may be lawful in itself, albeit that injury to the claimant is not the predominant purpose”. Mr Khrapunov submitted that contempt of court did not constitute unlawful means as the necessary conduct had to be independently actionable. The Court rejected this argument.
It held that the proper test to apply was whether there is a just cause or excuse for the defendants combining with each other to use unlawful means. This will depend on the nature of the unlawfulness and its relationship with the resultant damage to the claimant. The unlawfulness was criminal contempt of court, which was sufficient to make out the cause of action provided that damage to the Bank (which did not need to be the predominant purpose) was more than just incidental to the defendants’ conspiracy.
The Court went on to reject a further argument that as a matter of public policy parties in contempt of court should only face criminal penalties imposed at the discretion of the court. This raised the question whether contempt was actionable per se (a submission that had been made by the Bank in the Court of Appeal, rejected and was not maintained in the UKSC). The issue did not fall to be decided, beyond the point that any restriction upon remedies available for contempt was not grounded in a principle of public policy, and the matter was deliberately left open. Given the weight of previous authorities, it is highly likely that any lasting change will require a decision of the UKSC or Privy Council.
The potential liability of those who aid the wrongdoing of others is a subject of particular importance in offshore financial centres. This is because, in many cases, financial institutions are present and have assets in the jurisdiction in circumstances where their clients (or former clients) are not and do not. If such a client turns out to be a wrongdoer trying to evade their obligations, their relationship with financial institutions will come under scrutiny as potential claimants look to recover their losses from those who may have assisted them. Salutary examples of this type of liability can be found in Crédit Agricole Corporation and Investment Bank v Papadimitriou and Nolan and others v Minerva Trust Company and others.
Nothing is going to change overnight, but developments could see conspiracy and contempt enhanced as weapons available to fraud litigators – hence all the excitement.
  UKSC 19
  UKSC 34
 The Lugano Convention does not apply in Jersey so this aspect of the case is of limited application.
 See paragraph 8 of the judgment referencing Quinn v Leathem  AC 49
 See paragraphs 11of the judgment referencing Revenue and Customs Comrs v Total Network SL  AC 1174
 See paragraph 16 of the judgment
 See paragraphs 17-24 of the judgment
 See paragraph 22 of the judgment
 See paragraphs 20-22 of the judgment
  UKPC 13
  JRC078
Charles Sorensen, Senior Associate