Jane Colston of Brown Rudnick and Mo Bhaskaran of Stewarts Law discuss the use of committal proceedings in England and Wales as a powerful tool in civil litigation.
England remains a go-to forum for claimants seeking to take aggressive civil action to recover their stolen assets. In recent times the English civil court has shown how it will use its powers to devastating effect, including imprisoning a party for failing to obey its orders.
Committal proceedings in England and Wales have long been in a civil fraud litigator’s toolbox to compel compliance with orders. More recently, the intrusion into many commercial disputes of what are, to all intents and purposes, criminal procedures and sanctions has started to emerge as a deliberate shortcut tactic by civil litigants. The conduct in question can be either criminal contempt (such as lying to the court or interfering with the course of justice) or civil contempt (generally, for breach of a civil court order). A notable feature of contempt proceedings is the ability to act quickly using a summary procedure to bring the relevant individual before the civil court because as the court has said: “Once it becomes known that the court is unable or unwilling to maintain the effectiveness of its orders it would lose all control over litigation of this kind... and fraudsters would rejoice.”
In the JSC BTA Bank litigation in the English High Court, the claimant bank showed how contempt proceedings can be unleashed. The bank had a successful strategy of immediately pursuing respondents for breaches of orders (in particular disclosure orders) and obtaining findings of contempt of court. The bank then used such findings to shortcut a complex civil fraud claim.
For those unfamiliar with the BTA Bank litigation, a quick bird’s eye view follows.
BTA, the largest bank in Kazakhstan, started 11 sets of proceedings in the English High Court against its former chairman, Mukhtar Ablyazov, and at least 17 others. The bank now has judgment against Ablyazov for over US$4 billion. It has been litigation on an “epic” scale, “akin to trench warfare”. The bank swept numerous parties into the litigation. It demanded substantial court time, such that it gave rise to judicial comment. Its legal spend was colossal. A judge commented that the bank conducted hearings somewhat like a “state trial”. Ultimately, the bank got summary judgment against Ablyazov for fraudulent breach of fiduciary duty.
The bank kicked off English civil court proceedings with a wave of draconian orders including worldwide freezing, search, disclosure and computer imaging orders. From disclosure, search and Norwich Pharmacal orders the bank obtained a cornucopia of material from, for example, Yahoo!, storage companies and from foreign offices of corporate service providers.
The bank pushed at the boundaries, especially in its use of contempt proceedings.
It secured five successful findings of contempt and a number of helpful findings of fact despite the civil court only having limited documents before it given the summary nature of contempt proceedings.
The bank secured findings of contempt for a range of behaviour.
Against Ablyazov, committal was for disposal and non-disclosure of his assets, and lying.
The committal hearing lasted 14 days and the civil court found all of the allegations against Ablyazov to be proved and sentenced him to 22 months’ imprisonment.
Next came Paul Kythreotis, a Cyprus-based corporate agent, who failed to comply with disclosure orders. The bank immediately launched committal proceedings. Kythreotis produced disclosure which persuaded the judge not to sentence him to imprisonment.
The bank appealed this finding and demonstrated that the evidence that Kythreotis had put forward (that he had purged his contempt) was false.
In light of this evidence, the Court of Appeal found Kythreotis in contempt and, in his absence, sentenced him to 21 months’ imprisonment.
In Kythreotis, the Court of Appeal delivered a tough message: “A deliberate and substantial breach of a freezing order normally would attract an immediate custodial sentence measured in months if not in excess of a year” (two years is the maximum sentence for a contempt).
In October 2013, Ablyazov’s brother-in-law, Salim Shalabayev was committed to prison for 22 months for contempt for failing to respond adequately to a Norwich Pharmacal Order and fleeing the jurisdiction in breach of a court order. His brother, Syrym Shalabayev, was sentenced to 18 months’ imprisonment for failing to comply with a Norwich Pharmacal Order.
Finally, Sergei Tyschenko was sentenced to two weeks’ imprisonment for failing to hand over his passport.
To win its contempt applications, the bank ensured the technical requirements of contempt proceedings were complied with: that the order was clear, that it had on the front a penal notice warning of the consequences of breach of the order, and that it was personally served. It also required proof of the contempt to the criminal standard, ie, proof beyond reasonable doubt. In one of the numerous judgments in the BTA Bank litigation the court said:
Circumstantial evidence can be relied on to establish guilt. It is however important to examine the evidence with care to see whether it reveals any other circumstances which are or may be of sufficient reliability and strength to weaken or destroy the Bank’s case… Where a contempt application is brought on the basis of almost entirely secondary evidence the court should be particularly careful to ensure that any conclusion that a respondent is guilty is based upon cogent and reliable evidence from which a single inference of guilt, and only that inference, can be drawn.
The bank used its contempt wins not only to secure steep prison sentences but also to: have Receivers appointed over Ablyazov’s assets; obtain passport surrender orders and electronic tagging orders to stop defendants fleeing the country; debar participation in the underlying trial; restrict challenges; and obtain more extensive and ground breaking disclosure orders including from Ablyazov’s law firm which was ordered to give disclosure to help locate its client’s whereabouts after he had fled.
The civil courts’ clear message was that: “Justice was not an à la carte menu from which defendants could pick and choose” and if it was disobeyed it would severely punish the contemnor with loss of liberty and deny him the right to be heard in the underlying fraud claim until he had purged his contempt.
The bank’s usual stepping stones to contempt proceedings were the use of disclosure orders (including Norwich Pharmacal orders) coupled with applications for cross-examination of the defendant’s disclosure. The test for pre-trial cross examination:
is simply whether, in all the circumstances, it is both just and convenient to make the order. In applying this test the court will have regard to the fact that it is a very considerable imposition to subject a defendant to cross-examination and will consider carefully whether or not alternative means of achieving the same end are less burdensome.
The bank started committal proceedings before the trial of the main action. This was regarded as legitimate by the Court of Appeal given the bank’s arguments as to the urgency in tracing missing assets and the need to compel compliance with the freezing order’s disclosure requirements. The court rejected Ablyazov’s complaint re timing of the committal and overlap of issues with the main trial. The court said where allegations relate to a breach of a freezing order these were case management issues for the judge hearing the contempt application to resolve with appropriate safeguards.
However, the court’s approach is different when the contempt is criminal in nature, eg, lying to the court. Then, “while committal before trial might be appropriate in a very clear case, it might be better, in many cases, for the application to take place after the trial when the evidential position would be clearer”.
This is what the Court of Appeal stated in another JSC BTA Bank case. In this case, the bank brought contempt proceedings following six days of cross-examination on disclosure served pursuant to a Norwich Pharmacal order. The issues relevant to the contempt application overlapped with issues in the substantive dispute. The contempt proceedings were criminal in nature because the bank alleged that dishonest statements had been made in affidavits and witness statements in response to a Norwich Pharmacal order.
These proceedings strayed quite some distance from any notion of being summary in nature. JSC BTA’s committal application involved pleadings, disclosure, lengthy written evidence, lengthy oral hearings and a significant appeal. In total the application occupied a total of 10 days before the courts as the bank sought to prove that each of the respondent’s statements was untrue at the time it was made, and that the respondent knowingly gave false evidence with an intention to impede or prejudice the administration of justice.
Ultimately, the judge hearing the application rejected the bank’s case saying: “A committal of this kind needs to be clear – beyond reasonable doubt. Finely balanced judgments about a witnesses’ state of knowledge at particular times against the backdrop of years of complex documentation have no sensible place in such an application.”
The bank appealed even though an appeal against a judge’s refusal to commit for contempt of court, while legally possible, is very rare. The Court of Appeal dismissed the appeal and said that where an applicant had also brought substantive proceedings against the same defendant, the court should only allow a contempt application that was criminal in nature to be heard ahead of the trial in exceptional cases.
The Court of Appeal recognised that “a litigant whose dispute is against a person who may be judgment-proof may have a legitimate interest in seeking to protect its interest by means other than proceeding to trial” but it went on to warn:
Where proceedings for criminal contempt are instituted by the person who has also brought substantive proceedings against the defendant, it is important for the applicant and for the court to keep in mind that the allegation is of a public wrong, and its primary purpose should not be to vindicate a private right. The circumstances of this case show how, despite this, the private interests of the applicant can assume or at least appear to assume, primary importance.
The Court of Appeal said the minute analysis of the fine detail of the material before the judge was inappropriate in an appellate court, particularly where the issue was the judge’s assessment of a person’s honesty, and all the more so when the criminal standard of proof had to be satisfied for the finding to be made. The trial judge it said had been entitled to be cautious in his fact-finding on the committal application.
Overall, BTA succeeded in its strategy of using contempt. A wider review of contempt cases heard during the last three years show that over 75 per cent resulted in a finding of contempt. The court frequently imposed immediate or suspended custodial sentences (of up to 18 months in prison).
In recent times then, contempt proceedings have been frequently used to devastating effect by claimants. The prospect of committal often has the effect of encouraging improved compliance with relevant orders. As shown above, a finding of contempt has been used as an effective stepping stone to more draconian orders and ultimately, a short cut to judgment (albeit a high-risk and expensive one). For a robust claimant with deep pockets, the risks may be judged worthwhile. Contempt proceedings, however, must be used responsibly. As the Court of Appeal warned: “It is important for the applicant and for the court to keep in mind that the allegation is of a public wrong, and its primary purpose should not be to vindicate a private right.”