The London Court’s latest decision to allow the arrest of the Kazakhstan National Fund’s assets in the UK jurisdiction may put an end to the worm relationships between the local legal professionals and the Kazakhstan authorities.

We have analyzed the Kazakhstan related cases presented in the London Commercial Court in the recent years and arrived at the following conclusion. In London, they usually did not try to gain insight into how the business is conducted in Kazakhstan ignoring the political element of most commercial conflicts. In practice, this led to the victories of the lawyers representing Akorda’s interests. Meanwhile, the attention paid to the geopolitical factors is seriously changing the picture: the arguments of the opponents of the Kazakhstan government have suddenly become weightier. The way the story of the National Fund’s resources has been unfolding, in particular, testifies to this.

The British Franchise

The Kazakhstan cases have taken the first spot on the list of the foreign participants of the trials held in the Commercial Court of England and Wales. In the absolute terms, according to the rating compiled by the Portland consulting agency, they lose to the British cases only.

The Commercial Court (England and Wales) is a division of the London High Court of Justice that deals with the business and property matters. Foreigners choose it for several related reasons — the distrust to their national courts and jurisdictions, the participation of the UK representatives as one of the parties, the high professionalism of the UK courts in regard to business related trials. The latter has to do with the fact that capitalism as a system first appeared in Britain and the biggest part of UK’s business norms and practices was based on the British traditions of conducting the business.

To borrow the term from the modern marketing, the contemporary market system can be called the British franchise. Therefore, there is nothing surprising in the fact that the UK courts are the best judges of how this system should function.

BTA, still the leader

According to the Portland agency, the «BTA case» occupies the first place on the list of the Kazakhstan participants of the London trials held in the past three years. It is a whole cluster of the cases that, one way or another, have to do with the results of the involuntary nationalization of BTA — the biggest bank on the territory of the former USSR. 

These cases have made rich an entire army of the UK legal professionals. The UK press has been writing about this since the beginning of the current decade. Now, BTA continues to dominate the list of the Kazakhstan related trials. «Although the situation, of course, has radically changed», says Portland analyst Katie Emms. Back in the day, Portland played an important role in strengthening the image of Kazakhstan that had been damaged as a result of the legal wars.

According to Portland, out of all the cases (34) heard in London from 2015 to 2018, 14 were connected to the BTA case. In other words, more than 40%. In 2016-2017, their share reached 55% then dropping to 30% in 2017-2019. In London, they are certain that, by and large, the situation has been resolved. 

«The perfect crime»

The case of the Kazakhstan Kagazy corporation occupies the second place on the Portland list. From 2015 to 2018, 11 cases were heard in London, all of them, one way or another, related to this company. Or, to be more precise, to its managers — Baglan Zhunusov, Maksat Aripov (Mr Zhunus and Mr Arip according to the case documentation) as well as Shynar Dikhanbayeva. Later, Zhunusov was able to settle, so there remained only two — Aripov and Dikhanbayeva.

The company owns Kazakhstan’s and Central Asia’s largest paper and corrugated packaging producer. In the summer of 2007, Kazakhstan Kagazy plc registered in the Isle of Man (it owns all the Kazakhstan companies) was listed at the London Stock Exchange. This became the foundation for filing the claims in the UK jurisdiction. In the claims, the former management was accused of financing the managers’ own development projects via most of the money received from the IPO. At first, the sum constituted 150 $ mln, but, in the final verdict reached in the spring of 2018, it was increased to 300 $ mln.

According to the judge conducting the trial, this case could have gone down in history as the «perfect crime». The thing is that the company’s management that was changed back in 2009 contacted to the police and the UK Serious Fraud Office only in 2013. This became the foundation for the main line of defense of the old managers who insisted that the statute of limitations for filing the claims had ended.

Why did it take four years for the new managers to understand that the company was missing 150 $ mln? The Kazakhstan Kagazy representatives blame the 2008 crisis that, allegedly, did not allow to immediately estimate the size of the losses. As a result, they managed to convince the UK judge to make the decision in favor of the corporation.

The survey at hand does not intend to analyze the situation. The publications in the Kazakhstan media were of the random and fragmented nature which, of course, raises certain flags. The case turns out to be much more mysterious and complex. It includes, for instance, the Exillon Energy oil company founded by Aripov. Now the company is under the control of Mikhail Gutseriyev, a Russian oligarch who keeps the strategic ties with the Kazakhstan top state officials.

However, the complete understanding of the situation was not a part of the UK court’s job. The judge made the decision to protect the UK jurisdiction shareholders, and the enforcement agents carried out this decision. Everything else happened outside the camera’s view.

Not a word on the son-in-law

Another case on the Portland list echoes the past political battles, too. We are talking about Ruby Roz Agricol, a Lebanese agricultural producer whose owner Hussein El-Badaoui was quite active in Kazakhstan at the end of the 1990s. At that time, in the Almaty region, they founded a poultry growing and processing company. The fact that Kaseem Omar, a relative and partner of Issam Hourani married to Rakhat Aliyev’s sister, was lobbying the interests of the company in Kazakhstan influenced the performance and the development rate of the business. 

The collapse of the Lebanese business was the unavoidable consequence of Rakhat Aliyev’s disfavor. His name became the constant attribute of all the hearings at the international arbitration court handling Хурани’s claims. However, in London that handled the claim on the arbitration decision annulment, his name disappeared from the documents. On March 8, 2017, the London High Court of Justice reached a verdict in favor of Kazakhstan and denied the poultry breeders’ motion.

The sum of stated claims against Kazakhstan constituted more than 214 $ mln but, eventually, Ruby Roz Agricol ended up paying to the country 500 thousand pounds as the reimbursements of the trial expenses.

Stati’s geopolitics

The story of the Stati family’s claims against Kazakhstan developed according a more complex scenario. It was also quite a long story that reached London only last year and thus turned up on the Portland list.

Stati’s claims did not promise to be successful at first. But, in December 2013, the situation changed drastically when the Swedish arbitration court made a decision obligating Kazakhstan to pay 500 $ mln to the injured party. The Kazakhstan Government did not intend to pay the money because it was counting on changing the verdict by proving that the Moldovan investors had deceived the court having deliberately inflated the amount of their losses. The hope for this development was given by the London Court that, in August 2917, made a decision to take into consideration the fraud argument and investigate the matter more thoroughly.

As it turned out, the hope was false. At any rate, Bank of New York Mellon (BNYM) where the Kazakhstan National Fund’s assets were kept did not consider the fraud argument and, in the fall of 2017, the London branch of this influential organization froze the KNF assets in the sum of 22.6 $ bln. Therefore, about 40% of all the KNF’s resources became the victim of the 500 $ mln claim. Whether coincidental or not, the decision was made immediately after the Kazakhstan President had demanded the state companies to return all the usable funds from abroad to the country.

The National Bank of Kazakhstan appealed the decision in the London Court, but the latter only granted the reimbursement of the trial expenses in the amount of several hundreds thousands pounds. The latest decision made several days ago puts a definitive end to the matter. Thus, London has now become an unfriendly territory for Kazakhstan.

The counter-move

It is possible that, for Akorda, the London loss was a predictable development.

Anyway, Kazakhstan’s recent initiative to create its own arbitration court with UK judges seems to correlate nicely to this idea. They promised to create such an organization a long time ago — it was supposed to operate under the authority of the International Financial Center in Almaty. Now, it looks like they have decided to finally realize this initiative — in Astana. The initiative is believed to be a reaction to the buildup of the claims in London. But, considering the new developments, the Kazakhstan authorities simply have no other place left for reaching the trial verdicts that would be recognized internationally.