JSC BTA Bank v Ablyazov

The Court of Appeal dismissed the bank's appeal against the Commercial Court judge's dismissal of a claim under section 423 of the Insolvency Act 1986 for a transfer said to be a transaction defrauding creditors. The court reiterated that the correct question under section 423(3) is whether the debtor entered into the transaction for the prohibited purpose (to put assets beyond the reach of a person who is making or may make a claim), and rejected importing any additional adjectival gloss such as a requirement that the prohibited purpose be the dominant purpose. The judge had properly applied the dual-purpose test explained in Inland Revenue Commissioners v Hashmi and lawfully reached the factual conclusion that, on the evidence, the transfer to the appellant's son was a gift made to secure an investor visa and would have been made in any event; it was not made for the prohibited purpose. The Court of Appeal also rejected arguments that adverse inferences had to be drawn from lies in evidence or that there was any legal evidential burden on the respondents to rebut a presumption of the prohibited purpose.

This was an appeal from a Commercial Court judgment dismissing claims by JSC BTA Bank to recover £1.1m transferred in February 2009 from an account associated with Mukhtar Ablyazov to an account in the name of his then 17-year-old son, Madiyar. The bank alleged that the funds remained the father's property or, alternatively, that the transfer was a transaction at an undervalue liable to be set aside under section 423 of the Insolvency Act 1986 as intended to put assets beyond the reach of creditors. The bank also sought to rely on the son's account as traceable proceeds.

The trial judge found the transfer to be a gift, accepted that it was a transaction at an undervalue and that the bank was a victim, but rejected the claim under section 423 because he found the transfer was not entered into for the prohibited purpose in section 423(3). Key factual findings were that the migration/ investor visa process for the son had been initiated in January 2008 (before the regulator’s discovery of fraud), that the visa process continued without lapse and that the father likely would have made the transfer to enable the investor visa even if there had been no prospect of claims. The judge also discounted the additional £100,000 as being for dealing costs rather than living expenses.

On appeal the court considered three principal issues framed by the appellant and a respondent's notice: (i) whether the judge erred in law in his approach to transactions entered into for more than one purpose; (ii) whether the judge should have drawn adverse inferences from findings of untruthful evidence; and (iii) whether the judge under-weighted findings favourable to the bank. The court reaffirmed the legal test derived from Inland Revenue Commissioners v Hashmi that it is sufficient that the statutory purpose can properly be described as a purpose of the transaction rather than merely a consequence; the court warned against reading extra qualifiers into section 423. The Court of Appeal held there was no legal presumption or evidential burden on the respondents to disprove the prohibited purpose, that drawing adverse inferences from lies in evidence was a matter for the trial judge and not obligatory as a matter of law, and that the trial judge’s overall evaluation lay within reasonable bounds of judgment. The court therefore dismissed the appeal. The son’s respondent’s notice contending limitation was also addressed: the court agreed with the trial judge that the bank’s claim was within section 9(1) Limitation Act 1980 but that section 32 applied because the son was "claiming through" his father and the fraud/concealment of the father postponed limitation; however the court did not need to decide the limitation point to dispose of the appeal on the primary issue.

Appeal dismissed. The Court of Appeal held there was no error of law in the trial judge's application of the section 423 purpose test (as explained in Inland Revenue Commissioners v Hashmi) and no basis to disturb his factual findings that the transfer was a gift made in circumstances that did not show the prohibited purpose. The court further held there was no legal presumption or evidential burden on the respondents to disprove the prohibited purpose and that adverse inferences from false evidence were matters for the trial judge's assessment. The limitation issue need not be determinative but the judge was correct to treat the son as "claiming through" the father under section 32 of the Limitation Act 1980.

Appeal from the Commercial Court (QBD), Deputy High Court Judge Laurence Rabinowitz QC: [2016] EWHC 3071 (Comm) to the Court of Appeal: [2018] EWCA Civ 1176.