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The litigation is part of the large scale fraud involving Mukhtar Ablyazov, the first defendant and controller of JSC BTA Bank (Bank) until January 2009. Whilst in control of the Bank, Mr Ablyazov was said to have embezzled vast sums of money. The Bank commenced litigation against Mr Ablyazov and obtained judgments against him for a total sum in excess of US$5 billion. Only a small proportion of the judgment debt had been satisfied, and none of it voluntarily.
This particular claim related to a transfer by Mr Ablyazov in February 2009 of £1.1 million from a Swiss bank account in the joint names of him and his son, Madiyar, to a London bank account in the sole name of Madiyar. Mr Ablyazov maintained the transfer was so Madiyar, who was present in England on a student visa, could invest the money to obtain a Tier 1 investor visa. The Bank claimed the funds were held on trust or alternatively that the transfer should be set aside under section 423 IA as a transaction entered into to put assets beyond the reach of creditors or future creditors or otherwise prejudicing their interests (the “prohibited purpose”). The High Court dismissed both claims. The Bank appealed.
On appeal, the key issue for the court was whether Mr Ablyazov had transferred the funds for the prohibited purpose. The court concluded that he had not. In reaching its decision, the court explained that the prohibited purpose need not be the “substantial” purpose of the transaction; it need only be an intended outcome. Crucially, however, it must have been more than a consequence.
The court concluded that whilst Mr Ablyazov was aware a by-product of the transfer would be that funds were placed out of the hands of the Bank, the purpose was for Madiyar to obtain an investor visa. On the facts, Mr Ablyazov was likely to have made the transfer in any event: an investor visa had none of the restrictions of a student visa; the application process had been put in motion before Mr Ablyazov became aware he would face substantial claims by the Bank; £1.1 million was de minimis against the overall fraud claim; and, importantly, the funds were sourced from a BVI company, the BVI being a far safer jurisdiction for Mr Ablyazov to have kept the funds out of reach of the Bank if that was his intent.
The court also considered whether the claim against Madiyar was statute barred since the transfer occurred over six years before the claim was commenced. The Bank argued that limitation was postponed by virtue of section 32 of the Limitation Act 1980, which provides that where there is fraud or concealment of the potential claim on the part of the defendant, limitation shall not begin to run until the fraud is discovered. Here, however, there was no suggestion that Madiyar himself had been involved with or in concealing the fraud. The court nevertheless held that Madiyar was “claiming through” Mr Ablyazov; his right to the money being a right which he became entitled to by the act of Mr Ablyazov, and therefore Mr Ablyazov’s fraud and/or deliberate concealment postponed the limitation period as against Madiyar. Had the claim been well founded, it would not have been time barred, demonstrating an increasing reluctance by the court to allow limitation defences in cases of fraud.