JSC BTA Bank v Ablyazov & Ors

A foreign state’s ownership or control of a claimant does not convert the claimant’s pre-existing private law claims into claims enforcing sovereign authority. The court examines the substance of the claim, including the claimant’s separate legal personality and the interests served by recovery. An indirect-enforcement objection requires more than a foreign state’s general desire to secure a political or governmental result; an unsatisfied penal, revenue or public-law claim is material. The act of state doctrine ordinarily prevents examination of the validity of a foreign sovereign act within that state’s territory, subject to limited exceptions, including questions of authority and certain incidental issues. Allegations that proceedings serve a collateral political purpose are justiciable because they concern motive and conduct rather than the validity of sovereign acts.

The Bank brought four English actions alleging fraud and breach of duty by its former chairman and others before the Bank’s nationalisation by Kazakhstan. The defendants sought stays, alleging that the actions formed part of a politically motivated scheme, indirectly enforced Kazakh public law, depended on an unlawful nationalisation, and would infringe public policy and human rights.

The court directed that two preliminary issues be decided: whether the applications raised non-justiciable issues and whether the actions arguably involved indirect enforcement of foreign penal, revenue or other public law. The judgment determined those issues without deciding the underlying allegations or the separate collateral-purpose and fair-trial arguments.

1. Indirect enforcement. The actions were private law claims belonging to the Bank, a legal person separate from its government shareholder. Nationalisation changed the shareholding but did not change the nature of the claims. The Bank’s interest was recovery for its own losses, also benefiting creditors, and was not governmental in nature.
2. The authorities established that claims asserting or exercising sovereign rights will not be enforced, but the test is one of substance. A foreign state’s general desire to secure a particular governmental or political result cannot replace an unsatisfied penal or revenue claim. The present case was materially different from Peter Buchanan Ltd. and Macharg v McVey and QRS 1 ApS v Frandsen, where unpaid tax claims remained outstanding. It was not arguable that the Bank’s actions indirectly enforced foreign penal, revenue, public, sovereign or governmental law.
3. Act of state. The doctrine prevented inquiry into the validity under Kazakh law of the nationalisation, which was a sovereign act within Kazakhstan. The doctrine did not prevent inquiry into whether an apparent agent had authority, the incidental effect of foreign law in a private contract or tort claim, or validity where the foreign state itself challenged its apparent act.
4. The public-policy exception was narrow. Even assuming serious breaches of international law and human rights, the exception was not engaged. The claims pre-dated and were independent of the nationalisation, belonged to the Bank, served creditor interests, formed part of an approved restructuring, and did not require enforcement of the nationalisation.
5. The allegation that the Bank pursued the claims for a collateral political purpose was justiciable. It concerned what the President had done and why, not whether his sovereign acts were legally valid. The issue of lack of authority had not properly been raised and was left undecided.
6. The applications were therefore non-justiciable insofar as they relied on the alleged illegal scheme, the alleged unlawful nationalisation, or alleged breaches of international law and human rights. The collateral-purpose and fair-trial arguments remained for later determination.