The Republic of Kazakhstan and National Bank of Kazakhstan (NBK) have inflicted a further defeat on two Moldovan businessmen, Anatolie and Gabriel Stati, who have taken legal action to procure a freeze of over half a billion dollars of NBK’s cash held in the London branch of the Bank of New York Mellon (BNYM).
In October 2017, the Statis obtained from a Belgian court a garnishment addressed to BNYM, following which BNYM froze around $22billion of NBK’s assets. The Ministry of Justice and NBK fought back: $21.5billion were released eight months later, leaving $530million remaining. On 25 May 2018, the Belgian court referred the matter to the English High Court, resulting in a four day trial and judgment on April 22, 2020.
Lawyers for the Statis had told Mr Justice Teare, an English High Court judge, that the $530million cash represented a debt due from BNYM to the Republic of Kazakhstan and so was within the scope of the Belgian garnishment. Mr Justice Teare rejected their arguments and granted declarations that (i) the Republic is not a party to the contract between BNYM and NBK (a Global Custody Agreement); (ii) the obligations owed by BNYM under the contract are owed sole to NBK, and not the Republic; (iii) BNYM has no obligation to pay any debt due under the contract to the Republic; and (iv) the Republic does not have any claims against BNYM in relation to the cash held by BNYM pursuant to the contract.
The Minister of Justice of the Republic of Kazakhstan, Marat Beketayev, said: “Once again, the English High Court has found against the Statis. Three years ago, the Court found there is a prima facie case of fraud by the Statis. Now it has found they have frozen the assets of an uninvolved party. We remain determined to take all necessary steps to fight the Statis’ arbitration fraud in every jurisdiction they’ve chosen to take action.”
The judgment is the latest episode in the long-running efforts of the Statis to enforce a $530million arbitral award against the Republic of Kazakhstan. The Ministry of Justice of Kazakhstan opposes the enforcement on the basis that it was obtained through fraud. Three years ago, Mr Justice Robin Knowles, an English High Court judge, ruled that there was a ‘prima facie’ case that the arbitral award had been obtained by fraud and ordered the matter to proceed to trial. In order to avoid further examination of the fraud evidence, the Statis decided to withdraw from those proceedings and undertook never to initiate enforcement proceedings against the Republic in England and to pay substantial legal costs to the Republic. In their reasoning for withdrawing from the fraud examination, the Statis alleged that they did not have sufficient funds to continue with the trial. This reasoning was not accepted by the English High Court at that time, which found that the true reason for discontinuing the fraud proceedings in England was the unwillingness of the Statis to risk a negative decision on the issue of fraud. The funding of litigation does not appear to be problematic for the Statis (and/or their investors) anymore, as they again retained a large international law firm, King & Spalding, to represent their interests in England.
The legal battle continues in other jurisdictions. As previously reported, last December, the Court of Appeal of Brussels accepted the introduction of new evidence by the Ministry of Justice on the basis that it relates to the “quality of the title” – the validity of the arbitral award. The new evidence includes correspondence between the Statis and KPMG, the auditors of the Statis’ companies, which shows KPMG taking the extraordinary step of withdrawing all of their audit reports on the financials of the Statis’ companies and saying they should no longer be relied upon, after seeing Kazakhstan’s evidence that the Statis had inflated the amount claimed at arbitration through a company they secretly owned and controlled. The financial statements audited by KPMG did not reflect these facts. These are the same financial statements and audit reports that had been invoked by the Statis and relied upon by the tribunal during the arbitration.