Kazakh businessman ordered to provide more information on source of litigation funding

Out-Law News | 18 Jun 2018 | 9:00 am | 2 min. read

Ilyas Khrapunov, a Kazakh businessman, has been ordered by the High Court to provide "full and proper disclosure" about how he is funding his defence of a claim by BTA Bank.

Parties to litigation are not usually required to disclose their source of legal funding, but respondents to a standard form freezing order must disclose "where the money is to come from" before spending any money on legal expenses. According to fraud litigation expert Andrew Barns-Graham of Pinsent Masons, the law firm behind Out-Law.com, the High Court's decision is "a helpful example of the balancing exercise which the Court performs when considering applications for wider disclosure of a respondent's source of funding".

Khrapunov is the son-in-law of Mukhtar Ablyazov, the former chair of BTA Bank. Ablyazov is alleged to have embezzled some $6 billion worth of the bank's funds and Khrapunov is alleged to have assisted him in dissipating and concealing his assets. Both Khrapunov and Ablyazov are currently subject to worldwide freezing orders (WFOs) and the bank also has outstanding judgments against Ablyazov.

Earlier this year, the Supreme Court confirmed that the bank was entitled to sue Khrapunov in the English Courts, upholding the decisions of two lower courts. The bank successfully argued that multiple breaches of WFOs in contempt of court are capable of constituting the 'unlawful means' part of an action of 'conspiracy to injure by unlawful means'.

Khrapunov told the bank that his mother was funding his legal costs, but the bank believed that she was doing so using funds deriving from Ablyazov's assets, in breach of the WFOs. It therefore applied for an order for further disclosure.

The bank's evidence included evidence that Khrapunov was planning to set up a trust in Dubai, with his mother as beneficiary, which would give her access to certain assets under his control but purportedly owned by individuals known to have previously acted as nominees for Ablyazov, and that he may in fact have already done so. It also referred to prior findings of the Court of Appeal to the effect that there was a good arguable case that Khrapunov had lied in his asset disclosure.

Patricia Robertson QC, sitting as a High Court Judge, ordered the disclosure, finding: "As the evidence stands, the bank has shown there to be a real risk that the WFOs may be being breached by channelling to Ms Khrapunova and/or to [a connected company] funds which may belong to Mr Ablyazov. That risk makes it reasonable for the bank to seek to probe beyond the assertion in Ms Khrapunova's witness statement that she is meeting the legal costs from her own wealth, by seeking from Mr Khrapunov disclosure of the ways and means by which that is being achieved, against which the truth of the assertion can then be tested."

In making this finding, the judge emphasised that a "potent factor" in her decision was "the importance of maintaining, and being seen to maintain, the effectiveness of the court's orders".

"The court held that the balance tipped in favour of ordering the disclosure sought, chiefly because the bank had demonstrated a real risk that Mr Khrapunov's real source of funding was not his mother but rather Mr Ablyazov," said Barns-Graham. "However, the court also sought to mitigate the adverse impact of the order on Mr Khrapunov and his mother by ordering Mr Khrapunov 'only' to disclose what he 'knows or may be reasonable enquiry find out', and by ordering that the information be disclosed subject to a 'confidentiality club', in response to Ms Khrapunova's concern that the Kazakh state would use it against her in separate litigation. Importantly, the court also emphasised that the evidential burden is on claimants and not on respondents in applications for additional disclosure."

"There is no hard-and-fast rule which makes clear what specific information a respondent must provide about its source of legal funding. This varies from case to case, making it essential for both sides to seek carefully considered legal advice. On the one hand, the courts are mindful of the need to police freezing injunctions and ensure they are being complied with; on the other hand they are equally on guard against claimants who use freezing injunctions oppressively or for ulterior purposes," he said.