Kazakhstan Kagazy Plc & Ors v Zhunus & Ors [2017] EWHC 3374 (Comm)

“Speaking from my own experience, I have found it essential in cases of fraud, when considering the credibility of witnesses, always to test their veracity by reference to the objective facts proved independently of their testimony, in particular by reference to the documents in the case, and also to pay particular regard to their motives and to the overall probabilities. It is frequently very difficult to tell whether a witness is telling the truth or not; and where there is a conflict of evidence such as there was in the present case, reference to the objective facts and documents, to the witnesses’ motives, and to the overall probabilities, can be of very great assistance to a Judge in ascertaining the truth.”

“And it is not to be forgotten that, in the present case, the Judge was faced with the task of assessing the evidence of witnesses about telephone conversations which had taken place over five years before. In such a case, memories may very well be unreliable; and it is of crucial importance for the Judge to have regard to the contemporary documents and to the overall probabilities.”

“That observation is, in their Lordships’ opinion, equally apposite in a case where the evidence of the witnesses is likely to be unreliable; and it is to be remembered that in commercial cases, such as the present, there is usually a substantial body of contemporary documentary evidence.”

“(1) In certain circumstances a court may be entitled to draw adverse inferences from the absence or silence of a witness who might be expected to have material evidence to give on an issue in an action. (2) If a court is willing to draw such inferences, they may go to strengthen the evidence adduced on that issue by the other party or to weaken the evidence, if any, adduced by the party who might reasonably have been expected to call the witness. (3) There must, however, have been some evidence, however weak, adduced by the former on the matter in question before the court is entitled to draw the desired inference: in other words, there must be a case to answer on that issue. (4) If the reason for the witness’s absence or silence satisfies the court then no such adverse inference may be drawn. If, on the other hand, there is some credible explanation given, even if it is not wholly satisfactory, the potentially detrimental effect of his/her absence or silence may be reduced or nullified.”

“In one category are the situations where a party says that his own witness is giving mistaken albeit honest evidence and where he seeks to establish this either by calling direct evidence to contradict what his witness has said or by arguing that, when the evidence is regarded as a whole, a mistake is to be inferred. We believe that this is a common occurrence in civil litigation and unobjectionable in principle, provided that care is taken to avoid surprise and hence injustice. We adopt the reasoning of the British Columbia Court of Appeal in Cariboo v Carson Truck Lines 32 D.L.R. (2d) 36 (1961), and in the English cases there cited. From this must be distinguished the situations where a party wishes to assert that the evidence given in chief by a witness whom he has called is not only wrong, but is wrong on purpose. The most obvious instance is one where the witness has turned coat and has deliberately failed to come up to proof. Here the position seems clear. The party cannot cross-examine his own witness by reference to his proof of evidence or other previous statement unless and until the court has ruled that he is hostile. Nor may he call evidence to establish the general bad character of his witness. (See Ewer v Ambrose (1825) 3 B. & C. 246; The Criminal Procedure Act, 1865, s.3, applied by the Civil Evidence Act, 1968.)”

“Gulnara As the auditors are raising questions, the following will need to be done: 1. Ada Trade LLP – 149,800.000 is to effect supply of [interpreter’s translation] sand, crushed stone and other materials for construction works at the industrial park. 2. Bolzhal LTD LLP – 1,648,762,000 it is necessary to increase the value of the land plots. 3. KAGAZY PROCESSING LLP – 177,261,935 to be written off as bad debts as of August 4. Lotos LLP – 226,877,094 to be written off as bad debts as of August 5. RENISTROY-DF LLP 100,000,000 and MEGA EXPOS LLP 188,541,668 PLUS Holding Invest’s 550,000,000 – will be construction works. If we don’t show them, we won’t be able to capitalize interest. 6. Let Holding Invest charge the rent for the entire space of the building (Holding Invest will remove the rent charged to CM LLP)”

“The payment to Arka-Stroy is a related party transaction, I thought we had stopped using this company years ago and had wound it up.”

“I was a partner of Kuat Kozhamberdiev, but unfortunately we didn’t formalise my involvement, my participation. So in fact I was his partner, but legally, de jure, I wasn’t a owner of the company”

“Yesterday, I was solving the issue on debts of PEAK, ArkaStroy and Trading House by issuing invoices; in the afternoon, I was preparing documents and data for Baurzhan to solve the issue on financing ArkaStroy via Nurbank, that is why I could not provide the need information to you”

“Again, at PEAK I was a logistics officer. I was responsible for logistics only. At Arka-Stroy I was mostly an adviser to structure accounting processes and report on information flows. My signature here, financial director of PEAK and Arka-Stroy, means that probably this email was addressed to that lady, whoever she is, I don’t remember now. So hence I showed - I meant to show that I was very busy and overloaded with her repeated requests for information. I was never hiding that I was employed by Arka-Stroy.”

“Some of those budget committee meetings saw me explaining some of these facts regarding what pertained to my operations which was dependent on Arka-Stroy’s deliverables in the future. So if Arka-Stroy delayed with construction we would incur other extra costs and I would fail to deliver on my commitments to my management. That is why, when I could not explain the causes behind some delays or the reasons for increases in construction costs, I would invite representatives of Arka-Stroy so that they could deliver a first-hand explanation. As far as I remember a representative of Arka-Stroy would always come at the very end of these meetings, that was weekly, and he would explain what was going on on the construction site, explaining the causes behind delays and other related causes to effect the timeline of construction as well as the quality of it.”

“Dear colleagues! As the servers of the two companies PEAK and Arkastroy have been merged, as of today the email addresses of all our employees in the new merged company have been changed. The name of every employee remains unchanged, but the domain name changes after @ from megalogistic.kz to peak.kz and arkastroy.kz to peak.kz …”

“Nikolay, what do you mean by PEAK (stage I)? The former Arkastroy? Or something else? For us PEAK (logistics) and PEAK (operation) have always been presented as one project… Please clarify”

“Q. I’m confused. You gave us a long answer trying to explain what you meant when you sent this email, but now you have just suggested that you don’t recognise this email address? A. No, I just didn’t pay attention to the very top line. My apologies. Q. And so the point you are making is if you have been fortunate enough to see the email address on this document you would have given a different answer to the one that you just gave to the court; is that what you are saying? A. No, the answer would be the same. Again, I cannot have any factual statement on a document which originated from an address that is not mine, so I cannot state the fact that it is my email. I may not recollect all the details. It may be my email and I could have asked this particular question. Q. Yes. You weren’t surprised by the text when I showed you the email in the first place, were you? You weren’t shocked at what you had said? A. I wasn’t. Q. The reason you weren’t shocked is because, as all the documents we have just looked at show, you knew perfectly well that Arka-Stroy was part of the KK Group? A. No, it is wrong.”

“Attention all employees! As two companies are merged as PEAK, from today the email addresses of all our employees have been changed. The name of every employee remains unchanged, but the domain name changes after @ from megalogistic.kz to peak.kz and arkastroy.kz to peak.kz. The old addresses megalogistic.kz and arkastroy.kz will work until 31 January 2008. Please advise your partners about the new email addresses.”

“Again, who said that? To confirm the authenticity of this document, certain technical conditions are required. If they were merging the servers, then the IT people of the company was doing the merger, the combination, most likely knew the account passwords of the system administrator, of myself, represented by Tatiana, by the name of Tatiana Zhangurova, so they do anything on my behalf, so to speak, because I did not delete my account when I left the company. And again, I doubt the authenticity of this document.”

“I used to have a small bakery and I did advertise that business. We used to make the best bread in the city. I had two or three professionals working for that. But I didn’t advertise my real estate business”

“Q. Your conclusion, as I understand it, is that although the PwC report would no doubt have been useful, BDO did not actually need it, essentially because it covered risks about which BDO was already aware and all the PwC report would have done was corroborate BDO’s earlier assessment of those risks; is that a fair summary of your conclusion? A. Yes there are a number of influences on that conclusion. They could have been made aware of the contents of the report through management informing them. As I said, they were aware, through their discussions with PwC, that PwC were undertaking this exercise and therefore there are a number of reasons why BDO may have assumed that this was not information that they needed.”

“Q. If you were auditing the accounts of a company like this, wouldn’t you consider that it was important to know that a reputable firm like PwC had written a detailed report describing a number of transactions as ‘questionable’? A. Well I would know as auditor, because I had met with them in these circumstances and given them information and because the PwC report refers to representations being given by the group’s auditors, so I would be aware of the information that I had given to PwC. So I was certainly aware of the exercise going on, and I was in a position to ask for a report and I accept, under the terms of the question that you have made very clear early on, but they wouldn’t know the conclusions of the report. But I’m not clear what this report would have told them that they would not have known otherwise. Q. Yes. Can we please assume for the rest of my questions that they don’t know that BDO do not know that PwC are doing a report like this. They don’t know the report exists at all? A. Right, sorry. I misunderstood your point. I thought you were saying not any conclusions. So apologies if I misunderstood. Q. Well, they may know about some of the transactions that are referred to on it. So it is impossible to say assume that they don’t know anything that is in the PwC report. But they don’t know that there is a report going on into cash flows and they don’t know that there are conclusions being reached about them. And they certainly don’t know that PwC is reaching conclusions that some of the transactions are questionable A. Okay. Q. If you were the audit partner at BDO and you learnt - suppose you completed your audit of the 2009 year and afterwards you discovered that there was a report like the one that PwC prepared that you hadn’t been told about; you would be furious, wouldn’t you? A. No, not necessarily. I might - well, if I became aware of it, the first thing I would do is ask for a copy of it, and my reaction would depend on my knowledge and whether this report would give me anything new by way of something I wasn’t aware of. Q. All right. So if the PwC report contained information which was material, which related to the 2009 year, and which BDO did not know, would that change your conclusion about whether the report was relevant audit information? A. When you say ‘material’, can you clarify; do you mean material to 2009 accounts? Q. Yes? A. So hypothetically I’m being asked whether, ignoring the facts of the case, that if a report which had got reference to material transactions of which I was not aware, had not been made - I have not been made aware of by management, would that be relevant audit information? It is difficult to see how, in that hypothetical situation, which has been built up as material and I didn’t know about it and hence it was therefore deemed to be relevant audit information, but I would be anything other than of the view that I should have seen it. Q. Yes. So you agree? A. In that hypothetical situation, yes.”

“… But as long as there is a certain safety valve for one person, one type of person, it possibly may be applied to another. One of the arguments I’m putting in one of my reports is application by analogy. If there is a legislative gap and I would say that there probably is a gap, then the court would be allowed to - I don’t know what were the motives and grounds on which some of the courts arrived to the possibility to extend the stated formulation to legal entities. But there are decisions, standing, valid, enforced, and that is - I agree that it is exceptional, it is very rare. I don’t know what is the rejection rate. Maybe it is just one of 10,000 of plaintiffs enjoys that exception, or more, maybe one of the million. But what I am talking about in my reports is that there were instances, and they were based on something. They were based on law.”

“Can I just ask, I mean, we are all mostly in this courtroom lawyers, and lawyers think up arguments, that is what they do. But ultimately lawyers - well, in my case, actually, I have to come to decisions. But lawyers give advice. Are you identifying a possible argument here, or is it your view, your actual opinion, considered opinion, that there is an ability for a company to overcome a limitation defence?”

“It is my opinion that a company may rely on this article and request the restoration of the statute of limitation period. Whether it will be successful or not, I would probably - I would refrain from giving the probability here. But in principle, it is possible, in my view. In certain circumstances, legal entity should be able to rely - in particular that example that I’m bringing, this legal coma, it would be - I think it would be against the basic fundamental principles of the Civil Code to deny justice in such a situation.”

“Qualified forensic expert in the following subjects: 8.1 Road Accident Forensic Examination; 8.2 Road Trace Forensic Examination; 8.3 Motor Vehicle Forensic Examination; 10.3 Forensic Examination of Car Damage, Repair Costs and Residual Value. State license to perform forensic examination activities on the subjects specified above. State license to perform activities related to evaluation of property, intellectual property and intangible assets. Candidate of Engineering Sciences. Doctor of Jurisprudence.”

“I completed qualification training in valuation activities at the Moscow Institute of Road traffic (MIRT), the American Society of Appraisers –‘Successfully completed the Appraisal Partnership Technical Assistance Program’, Herndon, VA and Washington, DC; at the Institute of Professional Appraisers of Kazakhstan in ‘International Appraisal Standards, Practical Application’, Almaty, ‘Appraisal of Hi-Tech Businesses’, Almaty, etc.”

“Upon completion of the post-graduate studies in 1989, I defended a thesis on the subject ‘Analysis of Motor Vehicle’s Collision with a Fixed Obstacle’, and by the decision of the Board at the Moscow Institute of Road Traffic, I was awarded the degree of the Candidate of Engineering Sciences. … In 2010, I defended a doctoral dissertation on the subject: ‘Theoretical and Legal Problems of Forensic Examination and Forensic Examination Activities in the Republic of Kazakhstan before the specialised board at the Al-Farabi Kazakh National University.”

“You know in Kazakhstan government agencies - almost all the employees of government agencies do that, that is site work, since they have the information. So public officials have a really low salary in Kazakhstan and we need to work additionally, and in the government agency we have the information on sellers and on buyers and we can use it when we need additional money, and it is still the case with the public sector, with government agencies in Kazakhstan; this is the system in our country.”

“The company officers shall: 1) perform the duties entrusted to them in good faith and use the methods which respond to the interests of the company and shareholders to the maximum possible extent; 2) not use the company’s property or allow it to be used in contradiction with the company’s charter and the decisions of the general shareholders’ meeting and board of directors, or for personal gain, and commit no abuses during the execution of transactions with their affiliate; 3) ensure the integrity of the accounting and financial reporting systems, as well as independent audit; 4) supervise the disclosure and presentation of information on the company’s activities in accordance with the requirements of the legislation of the Republic of Kazakhstan; 5) keep confidential the information on the company’s activities, including for three years after the termination of their employment with the company, and was the company’s internal documents provide otherwise.”

“1. The company officers shall be liable to the company and the shareholders for the damage caused through their actions (omissions), in accordance with the legislation of the Republic of Kazakhstan, including the damage incurred as a result of: 1) provision of misleading or knowingly false information; 2) violation of the procedure for provision of information prescribed by this Law. 2. The company may, under the decision of the general shareholders’ meeting, file an action with a court against the officer seeking compensation for the harm or damage is caused by the latter to the company. …”

“1. Harm (property and (or) non-property), caused by illegal actions (inaction) to the property or non-property rights and benefits of citizens and legal entities shall be compensated by the person, who caused the damage, in full.”

“The persons who jointly caused damage shall be liable to the injured party jointly and severally. Based on the application of the injured party and in his/her interests, the court may hold the persons who jointly caused harm, severally liable.”

“Article 953. Obligation to Return Unjust Enrichment 1. Person (buyer) who without the legislation or transaction basis received or saved property (unjustly enriched) for the account of another person (the victim), shall return to the latter unjustly acquired or saved property, except the cases provided by Article 960 of this Code. … Article 954. Correlation Of Requirements For The Return Of Unjust Enrichment With Other Requirements On The Protection Of Civil Rights Unless otherwise provided by this code and other legislative acts, and followed from the nature of appropriate relations, the rules of this chapter shall also apply to the requirements: 1) on the return of the executed, under an invalid transaction; 2) on the recovery of the property by the owner from the illegal possession of another person; 3) one party to another party in the obligation of return of the executed in connection with this obligation; 4) for compensation of damages, including the harm, caused by the inequitable conduct of the enriched person. Article 955. Return Of Unjust Enrichment In Kind 1. Property, comprising the unjust enrichment of the purchaser, must be returned to the victim in kind. 2. The purchaser is responsible for all to the injured, including a random shortage or deterioration of unjustly acquired or saved property, which occurred after he (she) knew or should have known of unjust enrichment. Up to this point, he (she) is responsible only for intent and gross negligence. Article 956. Compensation of value for unjust enrichment 1. In the case, if it is impossible to return in kind unjustly received or saved property, the purchaser must compensate the victim for the real value of the property at the time of purchase it, as well as to compensate for losses, caused by the subsequent change the value of the property, if the purchaser has not reimbursed the cost immediately after he (she) has known of the unjust enrichment. …”

“It is well established that fraud must be distinctly alleged and as distinctly proved …”

“When assessing the probabilities the court will have in mind as a factor, to whatever extent is appropriate in the particular case, that the more serious the allegation the less likely it is that the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability. Fraud is usually less likely than negligence …”

“I wish to lay some stress upon the words I have italicised. Lord Nicholls was not laying down any rule of law. There is only one rule of law, namely that the occurrence of the fact in issue must be proved to have been more probable than not. Common sense, not law, requires that in deciding this question, regard should be had, to whatever extent appropriate, to inherent probabilities. If a child alleges sexual abuse by a parent, it is common sense to start with the assumption that most parents do not abuse their children. But this assumption may be swiftly dispelled by other compelling evidence of the relationship between parent and child or parent and other children. It would be absurd to suggest that the tribunal must in all cases assume that serious conduct is unlikely to have occurred. In many cases, the other evidence will show that it was all too likely. If, for example, it is clear that a child was assaulted by one or other of two people, it would make no sense to start one’s reasoning by saying that assaulting children is a serious matter and therefore neither of them is likely to have done so. The fact is that one of them did and the question for the tribunal is simply whether it is more probable that one rather than the other was the perpetrator.”

“72. As to the seriousness of the allegation, there is no logical or necessary connection between seriousness and probability. Some seriously harmful behaviour, such as murder, is sufficiently rare to be inherently improbable in most circumstances. Even then there are circumstances, such as a body with its throat cut and no weapon to hand, where it is not at all improbable. Other seriously harmful behaviour, such as alcohol or drug abuse, is regrettably all too common and not at all improbable. Nor are serious allegations made in a vacuum. Consider the famous example of the animal seen in Regent’s Park. If it is seen outside the zoo on a stretch of greensward regularly used for walking dogs, then of course it is more likely to be a dog than a lion. If it is seen in the zoo next to the lions’ enclosure when the door is open, then it may well be more likely to be a lion than a dog. 73. In the context of care proceedings, this point applies with particular force to the identification of the perpetrator. It may be unlikely that any person looking after a baby would take him by the wrist and swing him against the wall, causing multiple fractures and other injuries. But once the evidence is clear that that is indeed what has happened to the child, it ceases to be improbable. Someone looking after the child at the relevant time must have done it. The inherent improbability of the event has no relevance to deciding who that was. The simple balance of probabilities test should be applied.”

“It is, however, the essence of a successful case of circumstantial evidence that the whole is stronger than individual parts. It becomes a net from which there is no escape. That is why a jury is often directed to avoid piecemeal consideration of a circumstantial case: R v. Hillie (2007) 233 ALR 63 (HCA), cited in Archbold 2012 at para 10-3. Or, as Lord Simon of Glaisdale put it in R v. Kilbourne [1973] AC 729 at 758, “Circumstantial evidence…works by cumulatively, in geometrical progression, eliminating other possibilities”

“No such sums were ever used for such purpose; instead the money intended for such development was misappropriated and/or dissipated by the First and Second Defendants (or at their direction) and/or funded, directly or indirectly, payments to Arka-Stroy made by the Second and/or Third and/or Fourth Claimants”

“I accept that the fraud alleged by RBG was both massive and complex. Its proof, however, seems to me to depend on RBG being able to establish the truth of one central proposition, namely that the counterparties were not independent of RBG or of each other but were in fact controlled by VR and AJ. Unless VR and AJ can show a realistic prospect of demonstrating at trial that that was not the case, it seems to me that RBG is entitled to judgment against them, at least so far as liability is concerned. RBG seeks in its evidence to go further and to assert that not only were the counterparties so controlled but that all the transactions into which they entered with RBG were, as it is put in the evidence, ‘bogus’. This does not appear to me to be a necessary element of RBG’s claim to hold the defendants liable for breach of fiduciary duty. Whether or not the transactions were ‘bogus’ in the sense of being merely the product of the generation of a transactional paper trail, the mere fact that they were presented by the defendants to RBG’s auditors and its financiers as being transactions with apparently independent counterparties will be sufficient to establish breach by the defendants of their fiduciary duties as directors of RBG.”

“This perhaps an obvious factual point: if the Connected Entities were not used by the Ds to perpetrate a massive fraud, why would they lie so insistently about their control of them, in the face of the thousands of documents before the Court? As previously mentioned, there is nothing inherently wrong in a business being integrated – there is no reason why the KK Group could not, entirely legitimately, have developed a construction arm, for example, or incorporate wholly-owned corporate vehicles for the purpose of buying land. But the Ds are determined to distance themselves from all of these entities, and indeed misrepresented the position to investors (in the IPO Prospectus) and auditors. The only reason for this is because, as the Ds know, these entities were vessels for fraud.”

“Mr Werner’s assertion that the ‘KK Group got very little in return for the very large sums paid to Arka-Stroy’ is not true. As I have explained, Arka-Stroy performed significant work on both the Akzhal Logistics Centre and the Aksenger Industrial Park before the KK Group suspended these projects. The money that the KK Group paid to Arka-Stroy went towards labour, materials and other construction-related expenditures, as reflected in the numerous invoices that the Claimants have submitted in connection with these proceedings. Though Mr Werner alleges that Arka-Stroy was in reality under the full direction and control of the Defendants, he does not state what this allegation is based on. It is quite untrue. I had no direct or indirect interest in Arka-Stroy and exercised no control over it.”

“I want to make it clear that I had not heard of Arka-Stroy before I joined the Kagazy Group. I had no direct or indirect interest of any kind in Arka-Stroy and I did not have any control over it. I did not secretly operate it.”

“I have reviewed documents related to Arka-Stroy further. These documents include documents where Arka-Stroy is called an ‘affiliated’ entity of the Kagazy Group, or referred to as part of the Kagazy Group and approvals for items like Arka-Stroy’s budgets and salaries. As I explained in paragraph 25 of my first witness statement dated 2 September 2013 in response to Mr Werner’s allegations that Arka-Stroy was ‘in reality an entity under the full direction and control of the Defendants’, I did not have any direct or indirect interest in Arka-Stroy and I exercised no control over it. In the light of the documents now available to me, I wish to clarify my first statement. I was never a shareholder of Arka-Stroy, nor did I have any management position or any financial interest in it. Nevertheless, as I describe below, and as I explained in my Fourteenth Witness Statement, the Kagazy Group engaged closely with Arka-Stroy and monitored what it was doing.”

“This meant that close corporation with Arka-Stroy was essential. Without it, it would not have been possible to comply with the banks’ processes and fund the work. It was necessary to provide a constant stream of information to the banks and the process was bureaucratic. To satisfy these requirements the Kagazy Group needed a high level of cooperation from Arka-Stroy and a high level of visibility of matters like its arrangements with sub- contractors. This all resulted in a situation where the Kagazy Group worked closely with Arka-Stroy and helped it in many areas including legal and finance, since Arka-Stroy did not have the capacity itself and a lot of information was needed from it to provide to the banks. The Kagazy Group had all these resources and had to help a lot to get Arka-Stroy to a level that will allow the various requirements to be met so information could be provided to the banks and the funding for the projects could be accessed.”

“Arka-Stroy, so Mr Zhanpeisov and his partners, I think his partners in those days was [sic] Kanat Zhekbatryov, Vladimir Khan, and later … on they had another partner, Mr Sartbayev, who basically took Arka-Stroy on quite a different level”

“So all the guys, they are construction engineers. So I don’t know who is Zhanpeisov, but I know that Mr Khan, he had a degree, he was a businessman. He had a degree and MBA. Kanat Zhekebatyrov – so I know Kanat. I don’t know Zhanpeisov, but I do know Kanat, and Kanat was a construction engineer as well himself.”

“As a result of your announcement to leave the company JSC Kazakhstan Kazazy [sic], I consider it necessary to contact you regarding some personal matter. As you know, I have been working in this company since July 2003. During this time I had a chance to work in various sections and take part in various activities of the company. Quite often, as a company’s confidant, I was involved in execution of instructions of a very specific nature. During this time I never received any complaints from the management. At present, when the company’s shareholders are completely different people and you made a decision to move to a new place, I can’t help but worry about some issues still unresolved, the issues which the former shareholders guarantee to resolve via you as well. First, during all this time several companies were registered in my name, as a legal owner, and I was registered as a director in a few other companies. Certain financial transactions and operations were executed via these companies. The nature of these transactions may be deemed ‘dubious’ and not entirely legal. In addition, when I agree to register these companies in my name I was firmly promised that there would be no problems as the companies would be definitely closed. When in March 2009 the shareholders announced their decision to move their offices abroad, I asked to take these companies or to close them. In return I received assurances that within three months all companies would be closed and I would even receive documentation confirming their liquidation. However, as it became known to us now, nearly 2 years later, nothing has been done to that effect. …”

“Yes, but I come to this - and it was quite clear, not just some idea, it was very clear to me. Because what happened when Arka-Stroy, when we had the tender – when Arka-Stroy had been doing all kind of small jobs on Kagazy, I simply did not bother who owns it and what it is doing. But during the big tender for construction of the cardboard factory, it was a big factory, it was like 30,000 or 40,000 square metres, a lot of infrastructure, a lot of investment, it was probably the first significant construction of Kagazy Group. So during that period, we have the tender. And Arka-Stroy was one of the bidders. We have some other bidders, but Arka-Stroy did not want to tender, because tender was won by the Dutch company called Bemaco. And I’m sure it is not new information for claimants, because there is this factory standing there and the name Bemaco is on the wall of the factory. So they won this tender. Arka-Stroy gave a much lower price than Bemaco but we didn’t give this tender despite that because we thought - we had our reservations in terms of whether Arka-Stroy is actually capable of winning this tender. So during that moment I had a meeting with Mr Sartbayev and he was owner of Arka-Stroy, so he probably had some other minor partners like Khan and Kanat Zhekebatryov. But for me the main person was Mr Sartbayev. Basically I explained to him that we are very happy with the price and job you did before is a good one. Also I understood from him that he owned some other construction businesses, Kastrovanov is basically his companies [sic], but I said we are going ahead with Bemaco and that is - so from that moment on what I actually knew, owners of Arka-Stroy.”

“Q. It was well known, wasn’t it, Mr Sharipov, that Mr Tulegenov was working for Arka-Stroy at this time? A. As far as I know, he was in charge of quality across the group. Q. When you say, ‘Across the group’, you mean across the KK Group? A. Right. Q. Including Arka-Stroy? A. No. He was in charge of quality, to make sure that the construction quality is where it was required to be. Hence I informed him to be prepared that I would be checking that facility. Q. The reason why he was at Arka-Stroy was because he was in charge of quality on behalf of the KK Group? A. He was in charge of quality on the construction side, right. Q. On behalf of the KK Group? A. Right. Q. And included within that were his responsibilities for Arka-Stroy? I just want to be clear about this. A. Yes. He was in charge of controlling quality with Arka-Stroy.”

“The initial registration of the company was carried out in 2002. In 2005, in connection with a change in the location, corresponding amendments were introduced to the registration documents. The date of re-registration at the Department of Justice of Almaty Region was 22/08/2005, number 325-1907-05-TOO.”

“10.1 In my ‘onward-tracing’ work in Section 9, I identified some transactions that took place directly between the End-Recipients and KK Group entities which are not included [in] the cash flows described in the RAPOC … Consequently, I have carried out the further analysis described in this section. 10.2 I present below the findings of my analysis of direct transactions between the KK Group and 42 specific FS Entities and End-Recipients (the ‘Direct Transactions’). The detailed methodology I used for this work is explained in Appendix 10, paragraph 10.50. I collectively refer to the 42 entities as the ‘Relevant Counterparties’ for the purposes of this report. 10.3 The aim of this analysis was to identify and quantify all ‘new’, Direct Transactions between the KK Group and the 42 Relevant Counterparties in the available period, as these potentially could have some relevance to the quantum of the claim, depending on their circumstances. The Relevant Counterparties are listed in Table 129, Appendix 10. To be clear, I report here on ‘new’ transactions only, i.e. not those already accounted for in the RAPOC. 10.4 As there is a large amount of available Cash Data in this matter for a variety of different entities, for reasons of proportionality and efficiency, my Direct Transactions analysis used the available 1C Cash Ledger Reports of the ten KK Group companies. The scope of my Direct Transactions analysis is thereby limited as are any conclusions that can be drawn from it. I have not sought to ‘four way match’ the transactions identified or further investigate the context of these transactions. This analysis does, however, provide an insight into the transactional relationships which may assist in assessing whether further analysis may be beneficial to quantify any potential impact on the claim. 10.5 I note that this section generally assumes that the status of the relevant entities in terms of being part of the KK group, or not, is consistent throughout the period.”

“10.6 As shown in Table 87 below, we identified 3,394 direct transactions between KK Group entities and the Relevant Counterparties, totalling a net payment from the KK Group of KZT 13.004 billion (approximately US$ 100.70 million) to those Relevant Counterparties. Note that all transactions shown in this section are from the KK Group perspective: all net payments from the KK Group are denoted as positive values and all receipts into the KK Group are denoted as negative values.”

“10.7 All transactions shown in the two tables above (and discussed in the rest of this section) are ‘additional’ or ‘new’, i.e. we have eliminated transactions that are already included in the RAPOC. For clarity, the above two tables show separately any new transactions that we have already identified in other areas of this report, i.e. in the Completeness testing and the Onward Tracing/End-Recipient analysis. 10.8 In overview, the net ‘new’ direct cashflows between the KK Group and the Relevant Counterparties amount to a net outflow from the KK Group of approximately US$ 100.70 million or KZT 13.004 billion. For an assessment of any possible effect on the claim, a detailed examination transaction-by-transaction would be required, which is not within the scope of my work. The majority of my work in this report is necessarily focused on the frauds as pleaded.”

“I found 3,394 new Direct transactions between the KK Group and Relevant Counterparties. In the absence of a detailed examination of all 3,394 transactions, all I can say here is that the KK Group position as a whole shows a very considerable net payment out to the Relevant Counterparties of US$ 100.70 million (KZT 13.004 billion).”

“31. The transfers from Arka-Stroy to the other two former KK Group entities (Holding Invest LLP and Kagazy Invest LLP) were related to a project that Baglan and I invested in near Astana. We purchased approximately 300 hectares of land and intended to develop it into a business and logistics park among the lines of what the KK Group was planning for Almaty. Given its high quality work on the KK Group projects, we planned to use Arka-Stroy as the general contractor for our Astana project as well. 32. In order to fund this project, we sought financing from Alliance Bank, which required Arka-Stroy to produce in advance detailed technical documentation to support the proposed budget. Based in large part upon the information produced by Arka-Stroy, Alliance Bank agreed to loan KZT 6 billion (approximately US$ 46.5 million) to fund this project, which Holding Invest LLP drew down and transferred to an account of Arka-Stroy about 29 June 2007. I note that it was necessary for Holding Invest LLP to immediately draw down the entire amount of the loan in order to ensure that these proceeds would be available for the project. Due to the immaturity of the Kazakh banking sector and the relative instability of the banks, a guarantee that the funds will be made available in future would not have been sufficient. 33. After drawing down the Alliance Bank loan, it became clear that the estimated budget of KZT 6 billion would not be sufficient to complete the project. Alliance Bank indicated that in order to obtain further financing we would have to return the current loan and reapply for a new loan, with revised technical documentation supporting any newly proposed budget. Accordingly, Arka-Stroy transferred the original loan amount of KZT 6 billion back to Holding Invest LLP (plus interest), and Holding Invest LLP then returned those funds to Alliance Bank. Alliance Bank also required that we pay a variety of fees, fines and costs related to the issuance of the loan and its early repayment. Because we believed that Arka-Stroy was responsible for failing to correctly estimate the cost of the project, we insisted that it ultimately bear all costs of the loan repayment and other losses we incurred as a result of the project being put on hold, and it did so by transferring funds to Holding Invest LLP and Kagazy Invest LLP during the following months. 34. In September 2007, we submitted a revised loan proposal for the project based upon the technical documentation produced by Arka-Stroy, and we were able to secure from Alliance Bank a KZT 10 billion loan (approximately $77.4 million), which Holding Invest LLP drew down and transferred to an account of Arka-Stroy that it could only access as and when approved by Alliance Bank. However, the project was delayed as a result of Arka-Stroy’s failure to obtain certain government approvals for the initial phases of the project. In addition, due to the brewing financial crisis, Alliance Bank advised us that it intended to unilaterally increase the interest rate under the loan (as it was contractually entitled to do), which would cause a substantial increase in the overall or cost of the project. In light of these problems, as well as other factors, including growing concern over the increasingly difficult economic environment generally, we ultimately decided to cancel the project. We therefore retrieved the KZT 10 billion from Arka-Stroy (with interest), and transferred it back to the bank on about 10 October 2007. As before, Alliance Bank demanded that we pay substantial fees, fines and costs in connection with this transaction. We again took the position that it was Arka-Stroy’s responsibility to pay these amounts and other related losses that we sustained. Arka-Stroy initially objected to this but eventually agreed to make a series of payments to compensate us. 35. As the foregoing demonstrates, Arka-Stroy’s transfers to Holding Invest LLP and Kagazy Invest LLP exceeded incoming payments from these entities due primarily to interest and fees related to the Alliance Bank loans. There is nothing at all improper about this and, obviously, none of this excess benefited me in any way. In fact, we suffered significant losses as a result of the failed Astana project.”

“175. In 2005 the KK Group decided to proceed with two new projects: the production of sanitary tissue projects at Kagazy Processing and the production of corrugated board products at Kagazy Gofrotara. Kagazy Processing bought equipment for the new business and required new buildings to locate and operate the equipment. Kagazy Gofrotara considered building a new plant to produce corrugated packaging. It bought European equipment, which was more powerful than the machines it already owned, and needed a new building for this equipment. 176. Arka-Stroy was selected as one of the contractors to build the new buildings for Kagazy Processing and Kagazy Gofrotara. Arka-Stroy was to commence the development of the project design documents and budget estimates. Each of Kagazy Processing and Kagazy Gofrotara entered into a contract with Arka-Stroy. … 177. Kagazy Gofrotara paid KZT 647,900,000, and Kagazy Processing paid KZT 218,500,000, to Arka-Stroy in 2006. In addition to that Kagazy Gofrotara and Kagazy Processing paid some advance payments to Arka-Stroy under these contracts in 2005. [The] Claimants do not take into account these 2005 payments to Arka-Stroy from Kagazy Gofrotara and Kagazy Processing. 178. I explained in paragraph 52 above that in the course of pre-IPO restructuring Kagazy Gofrotara and Kagazy Processing were removed from the KK Group, but their assets were transferred to Kagazy Recycling that continued the construction projects. As a result, Kagazy Gofrotara and Kagazy Processing cancelled their contracts with Arka-Stroy and it repaid the advance payments back to Kagazy Gofrotara (KZT 856,100,000) and Kagazy Processing (KZT 1,175,700,000). 179. Arka-Stroy received money from 2 entities (Kagazy Processing and Kagazy Gofrotara), but returned money to 3 entities (Kagazy Processing, Kagazy Gofrotara and Kagazy Invest). Kagazy Invest was the parent company of Kagazy Processing and Kagazy Gofrotara and had provided financial aid to those companies. Kagazy Gofrotara and Kagazy Processing asked Arka-Stroy to pay certain amounts to Kagazy Invest as repayment of the financial aid instead of returning them to Kagazy Gofrotara and Kagazy Processing. Therefore, the payments of KZT 710.9 million from Arka-Stroy to Kagazy Invest is the financial aid returned to Kagazy Invest by its two subsidiaries – Kagazy Processing and Kagazy Gofrotara. All the relevant transactions were documented by contracts. 180. Thus, the payments from Arka-Stroy to Kagazy Gofrotara, Kagazy Processing and to Kagazy Invest, that the Claimants complain about related to the refund of the advance payments that Arka-Stroy received in connection with the above projects, including the sums of advance payments made to Arka-Stroy in 2005 that the Claimants had not taken into account. Kagazy Processing and Kagazy Gofrotara used the funds refunded by Arka-Stroy to repay their bank loans.”

“14. I have already described the reasons for the payments from Arka-Stroy to Kagazy Processing LLP (‘Kagazy Processing’), Kagazy Invest LLP (‘Kagazy Invest’) and Kagazy Gofrotara LLP (‘Kagazy Gofrotara’). I have also now reviewed section 3 the Expert Report of Ian Aird Thompson dated 6 March 2017. 15. It appears that Arka-Stroy paid back to Kagazy Processing more than it received from it. I do not know why. Anyway, Kagazy Processing and Kagazy Gofrotara used the advance payments that it received back from Arka-Stroy to pay to Kagazy Recycling LLP (‘Kagazy Recycling’) and to repay their loans to Alliance Bank and Kazkommertsbank. In particular, Kagazy Processing paid KZT 516,577,043 to Kagazy Recycling and Kagazy Gofrotara paid KZT 138,010,722 to Kagazy Recycling. Kagazy Processing repaid its loan from Alliance Bank by paying KZT 2,787,218,284.80 on 5 November 2007 (in addition to the payment of KZT 220,106,759.72 received from Arka-Stroy, this payment included other funds, particular those received from Kagazy Recycling for the fixed assets that Kagazy Processing transferred during the restructuring) and KZT 3,316,306.81 on 6 November 2007. Kagazy Gofrotara repaid its loans from Kazkommertsbank by paying KZT 83,935,066.17 on 8 February 2007. 16. I have already said that Kagazy Gofrotara and Kagazy Processing paid some advance payments to Arka-Stroy under construction contracts in 2005, but the Claimants did not take them into account. Mr Thompson has identified additional payments that Kagazy Processing and Kagazy Gofrotara made to Arka-Stroy in 2005 (net KZT 142,539,384 and KZT 489,0640,63). These net amounts roughly correspond to the KZT 710,407,632 paid to Kagazy Invest as return of financial assistance that Kagazy Invest provided to Kagazy Processing and Kagazy Gofrotara at an earlier time.”

“Q. Thank you. Now just in general terms, based on that description, would you agree with me that what you might expect to see, when you come on to look at the payment flows, is something that conforms to approximately this sequence of events: the sequence of events described is that in about June 2005 Kagazy Gorfratara [sic], possibly also Kagazy Processing, enter into a contract with Arka-Stroy for things to be done? A. Mm-hm. Q. Then in the course of restructuring prior to the IPO, at the end of May those two companies are removed from the group? A. Yes. Q. As a result of which refunds then occur, it is said, to three companies rather than two, which is Kagazy Gofratara [sic], Kagazy Processing and Kagazy Invest. So you have the payments by the two companies before the IPO on respective contracts. The contracts are then unwound or cancelled and the payments go back? A. Yes. Q. So what you might expect to see in the payment records, therefore, is a payment or two, or perhaps a little batch of payment shortly after the entry into the contract, around 2005, by the two companies, KG and KP? A. yes. Q. I am shortening it to make things a bit easier. A. I understand. Q. And then a pause and then cancellation followed by refunds in the financial flows back to the three companies, assuming that it is appropriate to pay back to the three companies? A. Yes. Q. That is what you might expect to see? A. That sounds reasonable.”

“Q. … As you can see, the payments from Arka-Stroy start in about February 2007, if I have got this right, and then they continue over the following months right the way through, in fact ultimately the last payment from Arka-Stroy is in November 2008. And all of these payments seem to be described as a mixture. They are provisional financial aid under a contract dated 2006 and provisional financial aid. Now, just looking at that long list of payments, of the payments going to Kagazy Invest, it doesn’t appear, does it, to fit the description of what is said to have occurred in the witness statements we have just been looking at? A. Not obviously, no.”

“With respect to the remaining US$ 26.0 million, even though I do not have access to many of the documents that I would need to provide a full response to the Claimants' allegations, I can at least say the following. First, with respect to the US$ 14.2 million that the Claimants alleged was transferred to Bolzhal Ltd LLP, Commerce Business Centre LLP, Lotos LLP, Kontakt Service Plus LLP, T.E.W. & Ltd LLP, Trading Company LLP and HW & Ltd, I emphatically deny receiving any of that money. I have never had any interest in these companies, I have never received any payments from these companies, and I have never exercised any control, direct or indirect, over these companies.”

“Q. You have also given evidence today, indeed yesterday, that Lotos was in fact Yesimbekov’s company and carrying out various trades and trading activities with, amongst others, KK JSC? A. Yes. Q. So it is your evidence, is it, that Lotos can simultaneously be a trading company, owned and controlled by Mr Yesimbekov, and at the same time a nominee, acting through its nominee, Mr Yesimbekov, for KK JSC? A. Yes, and I said for these transactions specifically Bek Yesimbekov was acting as a nominee. I don’t know if that was the right way to characterise him, because he was working in group of companies and he was responsible himself for the acquisition of the land plots. It was basically his job. Q. It makes no sense, does it, Mr Arip, for Lotos to be acting both at the same time as Mr Yesimbekov’s trading company, buying and selling goods, and as we can see assigning debts, and acting as a nominee for the KK JSC group? A. I think specifically during that transaction we realised that the only way - because it was early time when we started to buy the land, so we realised that there is a restriction on the direct acquisition. So Bek just came up with the idea that he could use Lotos and he did it, and that is it. So I don’t see why it is kind of contradicts to the idea that Bek Yesimbekov could use the same company for his own benefits. Q. The reality is, Mr Arip, that Lotos was acting as your nominee on these transactions, in the way as CBC and Bolzhal were acting as your nominees in subsequent land plot transactions? A. That is right, yes. For this transaction, yes.”

“I do not know why or who compiled the contract. I can just assume that maybe Yesimbekov contacted a lawyer from Kagazy to help him draft the contract. Because Lotos belongs to Yesimbekov and he ran the company, that is why. You could ask a lawyer to do it. But I cannot really explain.”

“1. As ensuring fulfilment of the obligations of Kagazy Processing LLP to Alliance Bank JSC under the Bank Loan Agreement No. 072 K/08 dated July 30, 2008, to pledge the money to Alliance Bank JSC on savings account No. 057948416 (KZT) in the Branch of Alliance Bank JSC in Almaty under Agreement No. 02-843 of the bank fixed-time deposit under the deposit ‘Invest-Contribution’ dated 31.07.2008 in the amount of KZT 2,800,000,000.00 … 2. In case if Kagazy Processing LLP fails to fulfil and/or improperly fulfils its obligations under the Bank Loan Agreement No. 072 K/08 dated July 30, 2008, to provide Alliance Bank JSC with the right to acceptance-free money debiting, deposited on the savings account No. 057948416 (KZT) in the Branch of Alliance Bank JSC in Almaty under Agreement No. 02-843 of the bank fixed-time deposit under the deposit ‘Invest-Contribution’ dated 31.07.2008 in the amount of KZT 2,800,000,000.00 …”

“Well, firstly, I would like to say that I didn’t say that my sister was involved with Lotos. I don’t own Lotos, so it is owned by Mr Yesimbekov. How did this email come to life? I can just assume. I don’t know why it says what it says, but I can tell you that in 2010 - at the end of 2010, she was asked to leave the company. And that’s around January 2011, about the date of this email, she was no longer visiting the office of Kazakhstan Kagazy. Maybe Bek Yesimbekov asked her, maybe someone else. During this litigation I never asked my sister - sorry, I asked my sister why she wrote this email and what she asked about. She said she didn’t remember. Maybe someone had asked her, was her assumption. So I don’t have an explanation here. My assumption is Bek had asked her, but again, she had left by January she was no longer involved with Kagazy, because she had been asked to leave.”

“226,877,094 to be written off as bad debts as of August”

“Mr Aryp Maksat Yeskeruly spoke on the agenda item (On approval of the deals the Company is interested in) and proposed to the Board of Directors to approve the following deals as deals concluded with affiliated persons and making of which is of interest to the Company: 1. The Deed of Assignment of Receivables as of 29 December 2006 for the amount of 951,953,326.30 … concluded between Kagazkhstan Kagazy JSC, Kagazy Trading LLP and TEW & LTD LLP. … The Chairman of the meeting, ‘I ask you to vote on the agenda item’. ‘Yea’ – two. ‘Nay’ – one. ‘Abstain’ – none. Mr Arip Maksat Yeskeruly did not vote [?] on the agenda item. Voting results. The members of the Board of Directors voted in favour of approval of the following deals as deals concluded with affiliated persons and making of which is of interest to the Company: 1. The Deed of Assignment of Receivables as of 29 December 2006 with the amount of 951,953,326.30 … concluded between Kagazkhstan Kagazy JSC, Kagazy Trading LLP and TEW & LTD LLP. …”

“… But it is clear it is related, not because of me, otherwise I would not be in a position to approve it. And I would not be present at the meeting. …”

“244. Trading Company LLP is a not-for-profit organisation that runs a big clinic in central Almaty that provides antenatal and postnatal care to mothers. It charges a fee for people who can afford it, and subsidises care for people who cannot. 245. It is run by my mother-in-law, Ms Asilbekova, and she is a director and shareholder of the company which operates the centre. … 246. At the time of the payment from Arka-Stroy to Trading Company, we were trying to help Trading Company to raise money to set up the clinic. I telephoned all my friends and contacts to ask them to donate. For example, I asked Mr Gerassimov [sic] to donate some money, and he did so. In exactly the same way, I asked Arka-Stroy to consider donating money, which it did. I did not personally benefit from or receive any money from the donation to Trading Company by Arka-Stroy. 247. I have no knowledge of the transactions between Trading Company and members of the Kagazy Group referred to by the Claimants and I do not know if it was administered by Tayissa Koguytuk and her administrative department as alleged by the Claimants.”

“I hereby ordered to employ Olga Evgeneva Gerasimova to the position of assistant accountant from 3 July 2006, on probation of 3 (three) months, with the salary as in the payroll plan. …”

“Around the same time [Ms Kogutuyk] heard from Bek Yesimbekov that he had a company that he no longer planned to use and could sell. [Ms Kogutuyk] told me that she would offer [Mr Arip] to use [Mr Esimbekov’s] company. I now think that this company was Trading Company. Thus, Trading Company was not always involved in the medical services business. Before sometime in 2008, when owned by Bek Yesimbekov, Trading Company had other operations, which explains why it had the trading operations identified by Mr Crooks.”

“I do not remember. I do not know why or who compiled the contract. I can just assume that maybe Yesimbekov contacted a lawyer from Kagazy to help him draft the contract. Because Lotos belongs to Yesimbekov and he ran the company, that is why. You could ask a lawyer to do it. But I cannot really explain.”

“Aksenger is a different situation. The problems at Aksenger are to do with not valuation of the work but primarily whether work was actually carried out or not.”

“Q. So that is what you have done, is it, to try to estimate what the work should have cost? A. That’s correct. And I can expand on that answer by saying I did look at the possibility of establishing what the actual cost was. I believe that that was - because of the nature of the records it was beyond my expertise. I thought it was much more for a forensic accountant to be able to do that. So the production of a value of what the work should cost is, in my view, a good starting point for the court, to assist the court, as to what is the starting point should be in its investigations. Q. Yes. If the court were to conclude, however, that what really matters is to try to find out, so far as it reasonably can, what the work actually cost, then your reports are not much use, are they? A. I think there is a great deal of value in my report because, as I said before, this is a good starting point. I don’t believe the records are complete. If this is a starting point from which either additions or deductions can be made due to known actual costs, then it is of some value.”

“126. I accept the general submission on behalf of Ms Baturina that there is an extent to which it is permissible to pursue unpleaded general challenges to credibility. But where it is intended to advance specific matters of dishonesty based on a particular set of facts, such matters should, as a matter of fairness, be pleaded. A striking example relates to the January 2008 valuations from Mr Benmakhlouf referred to above. It was suggested for the first time in Ms Baturina's written opening that these were only ‘purported’ valuations and that they ‘wildly overstate[d]’ the true value of the Paradise Golf plots of land. Ms Baturina then gave evidence for the first time in cross-examination that at a meeting on 30th January 2008 Mr Chistyakov told her that a valuation had been received in Morocco commissioned by Mr Krupnov showing a market price of about €120 per square metre. This appeared nowhere in her pleaded case or her witness statements. It was then put to Mr Chistyakov in cross-examination that he had seen these valuations at the time and that they were false valuations commissioned by the consortium to justify the price allegedly being advanced to Ms Baturina. He denied seeing the valuations at the time, denied telling Ms Baturina of any such valuation and said that he did not believe the valuations to be false. 127. These are matters which should have been pleaded if they were to be advanced. Mr Chistyakov had no proper opportunity to consider in advance the allegations and to explore how he might wish to defend himself against them … .”

“internal finishes”, KZT 125,683,412; “services”, KZT 4,198,307; “ventilation”, KZT 291,241,542; “electrical installations”, KZT 203,869,003; “fire-fighting system”, KZT 38,307,881; “communications systems”, KZT 6,814,806; “builders work in connect”, KZT 8,166,473; and “testing and commission”, KZT 16,332,946. Mr Twigger nonetheless rightly accepted that the Loging contract and specifications included some internal finishes, installations and services (electricity, heating and cooling). That plainly was the case. So, for example, picking up on the reference to “services”, Mr Howe was able to show Mr Jackson how “Appendix_Specification No. 1k” to the Loging contract dated 8 May 2006 contained the following wording: “1 unit g) Sanitary insulated container in size of 6,055m x 2,435m, the internal height of 2,500m, the necessary elimination and sockets, a wall radiator, a 50-liter boiler, 5 toilet cabins with closet basins and drainage systems, 2 urinals and drainage systems, 2 lavabos, separate men and women entrances, windows are in the container walls. The wall isolation of stone fibre is 60mm, the floor and ceiling isolation is 100mm. The walls are tin-faced, the ceiling is of white wood chipboard (WCB).”

“This is primarily based upon oil and gas work. On this basis, it would therefore seem reasonable that the labour productivity should be adjusted by 2 (100% uplift) for these works (i.e. if it takes one hour to do work in UK then it would take two hours for similar work in Kazakhstan).”

“However, the work in Almaty is not a technically complex high-quality oil and gas project; it is a warehouse construction on a reasonably level side, with a single track railway siding. Therefore in my opinion a productivity uplift of 2 is not appropriate. Having viewed the photographs provided by the Defendants, the quality of the machinery used appears to be older and therefore less reliable than that generally used for such work in the UK. In my opinion, I therefore consider that an uplift of 20% of the labour and plant hours these works is appropriate.”

“Q. … Well, that is not comparable, is it? It is completely different constructing an engineering factory for the manufacture of high-precision engineering gas components to simply constructing warehouses for storage? A. The concrete is the same, the excavation is the same, the steel portal frames are the same, the cladding is the same. There may be some differences internally, but for the most part it is a comparable project. Q. Presumably an engineering factory needs to have extremely high levels of anti-vibration measures and also, for example, cleanliness and climate control? A. Those are not areas that were influential in the prices that are used. As I say, concrete, excavation, steel, steel reinforcement; they are all the same components.”

“They are not completely different types of construction. The standard is definitely different internally. I don’t know how I can say anything else other than keep repeating that particular point.”

“So there were some works done for dewatering purposes and that is territory of 60 hectares, as a total, 50 plus 10. That territory had massive construction works performed, but the lake was dewatering through two pipes. It was dewatered and then, as I said, there was an error in project design and I remember that I saw huge amounts of soil, they clawed a huge pile, a huge heap of soil and the tractor was moving back, and that was hard soil to replace the local softer soil with that harder soil containing rocks and stones.”

“The works are done. As the most of works are hidden the Acts were taken as a basis of calculation. It was checked that the rates and quantities in the Acts are reasonable. Total figure from the Acts was taken as basis of the estimate.”

“I have relied on the acts as they have been stated. I take the acts as a starting point for establishing whether some work has been done. I believe some drainage works would have had to have been done. But I do not know the exact nature of that work.”

“I can explain how I have dealt with the lack of reliability of the acts. I recognised at the time when I put these values into my report that they may not be totally safe. That was certainly a consideration of mine. So here is how I have treated them: I have put them in, but within my overall valuation at Akzhal I have moderated the total value associated with all of the earthworks to the value of a roundabout 600 million tenge, i.e. a deduction. And the mechanism I have used for that is the - as we have discussed the item earlier, that despite what the theoretical measurement of earthworks would be, in other words you would excavate, remove everything, I took the view to mitigate the total cost, because I thought that there is a danger that I have imported either some high values or some unreliable values, particularly in regard to the acts. So, by way of mitigation, I have removed about 600 million tenge from my overall valuation. So that is why I have got them in, but I do recognise that these acts are a little unsafe.”

“Well to the extent that I could by the view of the satellite imagery, that is what has led me to it. So that was my verification work and I certainly accept, as I have said before, it is not the most reliable piece of information. But I have used it.”

“In summary, whilst there is earth scarring in the areas identified by Mr Jackson, the purpose for this work cannot be ascertained from an analysis of satellite images. Given the points discussed above, it appears unlikely that any of this work was for the benefit of the Aksenger industrial park. Even if this work had related to the planned industrial park, it is impossible to establish (from the information currently available) exactly what work was carried out.”

“Q. I think you just accepted that it is possible that work was done – A. It is possible, yes, and perhaps I should have gone out there again to have a look. But I haven’t. Q. There is quite a large amount of value attached to these areas and it would have been worth doing, wouldn’t it, Mr Tapper? A. Maybe, yes.”

“Q. Well, with respect, Mr Jackson, you are the one who is suggesting that the work was carried out; don’t you think it was up to you to produce some evidence that it was? A. Well, what we discussed was Mr Tapper could possibly have produced evidence that it wasn’t done. Q. Well, I see. So the position is that you propose that work is done somewhere on this 7 kilometre-long site in the middle of the field and your situation is, you having proposed it, it is up to Mr Tapper to disprove it; is that right? A. No, we said a practical solution to settle the matter was for Warners to do a survey. It was just a practical solution. I wasn’t suggesting that he has to prove anything.”

“… I think my position - I mean, just to save a little bit of time here, was that road was established for the purpose of those infill works. So if we agree that those infill works weren’t carried out, then it is unlikely that the road would have been built for the purpose of Aksenger.”

“… Then the participants of the investigative action returned, at B. Yesimbekov’s suggestion, to the abandoned railway branch running from the main railway to the plot. Here, he explained that the railway branch leading to the plot was built as part of the project, complete with the communication systems, and that it was an integral part of the project to build the railway branch, as no design, nor construction of a railway branch without communication means supporting the switching of signalisation devices, would have been impossible in principle, because any railway branch, naturally, becomes part over overall railway system. During the seven years that the branch was in an abandoned state some of the communication devices were stolen, but some of them are still in place. B. Yesimbekov pointed to locked metal boxes standing along the southern part of the railway branch and explained that they belong to the railway communication system and prove that there is an underground cable running along the railway line. The said metal boxes, their dimesions [sic] being 40x40x10, were located close to the existing track switch, in direct proximity to the rails. There is a cable going into each box from under the ground covered on the outside by a metal 6 cm protective tube. The examined section of the railway featured two such boxes. Similar boxes were installed along the main railway line, 50 m to the south of the said branch, as well as at the locations of track switches facilitating the switching of tracks in different directions.”

“Well, the difficulty I have got here is the branch of the railway with the weighbridge was there before the work started. My own view is that these boxes relate to that part of the railway, not the new part. So when I was there I didn’t see any evidence of any system, and all I’ve seen at the moment is photographs of boxes. So I don’t know how to - what to believe. I mean they are clearly boxes and they are next to a railway line, but other than that there is not an awful lot to go on.”

“No, I don’t know - I don’t know enough about these contracts or these works. I have had a look at the contract and I have had a look at the payment applications and I have listed out the information I have seen, there is not a lot to go on. It is the same with the Arka-Stroy contracts. There is not a lot of scope included in the contracts. It is very hard to know exactly what they were doing.”

“only 4.5mln have been used … we have done our best to ‘convince’ the auditor to use 18 mln for construction … we feel that the Bank is aware of project violations and that they are loyal to us to a certain degree ... If we fail to provide a clear answer to their requests as to the application of the funds soon, and if no construction work is performed at the facility, we may end up with an additional audit, not only a repeated technical audit and financial inspection. In this case, our data concerning 18 mln will be absent from the reports. Besides, the absence of the down payment for construction work and inappropriate expenditures will be revealed … Summing up, I would like to repeat that the ISSUES have to be DEALT with as soon as possible without letting ‘other’ inspections happen.”

“As of the date of conducting the Evaluation of the Facility, the actually absorbed amount of funds, according to the Acts of delivery and acceptance was KZT 2,404,689,220.”

“Based on the results review of the technical audit, we were provided with 18 million. Today the Development Bank of Kazakhstan called and demanded that we return the remaining amount of 4 million in cash. They are indignant that we have not been able to complete the used of the funds for their designated purpose in one and a half years. For our part we reported that the money is being paid for the construction site. We urgently need money to close the remaining amount of 4 million.”

“So what Sergey Tulegenov is saying, that money from this project, instead of being spent on the construction was sent back to Kazakhstan Kagazy. And that is what we have seen from the account. Nevertheless, they are saying that I have to pay, or suggesting -- they are not saying, like, I have to do it, but they are just saying we urgently need 4 million and obviously my reaction was they have to come from the company, because money was sent to the company so the company have to give you this from me and -- nothing to do with me. But what I also heard, roughly the same time, from Mr Gerasimov, because that was quite an issue in that period of time, he said that actually also position of the DBK was inadequate, because what had been happening is that bank experienced some liquidity problems, they didn’t want to continue projects, they didn’t want to disclose, they were simply reluctant to admit that money was spent. So it was kind of back and forward with the bank, everyone understood nothing was stolen, but I had been under pressure just to find money and give cash to the company, and these people were under pressure, they were threatened, they was panicking with all kinds of investigations which might come from the company or from the bank, and which later on actually has happened, there was a lot of litigation about this money and criminal investigation about this money. But all these investigations and litigations actually found that all the money was spent on the proper purposes and the rest was returned to the Kagazy Group.”

“In summary: • Basic site preparation took place, probably in April/May 2008. • Little or no work was carried out in the first half of 2009. • Most work was carried out later in 2009 and into 2010. • By 2011 no further progress appears to have been made. • The work that I have seen on site in 2016 is the same as that which was carried out up to 2010. • There are now no materials on site.”

“Q. So given that there was $30 million of steel on the Astana site in April 2012, which you knew about, why are the claimants alleging that the acts of acceptance submitted by GS are false? A. It is a little bit strange that about an hour ago I was told of knowing about a fraud that now you are saying doesn’t exist because this is worth more than 30 million. It is a little bit strange that I have to answer just the opposite of what you were trying to prove about an hour ago. Q. I’m afraid you do have to answer, Mr Werner, because that is how this process works. So why were you making allegations that work had not been done and acts of acceptance were false, in respect of $30 million worth of steel that Hermann saw? A. I have not made any allegations. I have not made the calculations. This is not my estimation of the amount of the fraud. This has been an estimation that initially the Business Audit reported and then further investigations have established.”

“145. Under Kazakh law, where a legal entity suffers damage as a result of wrongful conduct, such legal entity is entitled to claim compensation for the damage caused to it, including the real damage. The real damage includes all adverse consequences caused by the defendants’ wrongful conduct and suffered by the victim. 146. Therefore, if because of the defendants actions, the claimants were unable to repay the loans, under Kazakh law the defendants could in principle be held liable for the interest/default interest and/or penalties imposed by the bank on the claimants as part of the damage suffered by the claimants. 147. However, there needs to be a direct causal link between the defendants’ actions and the damage before the defendants can be made liable for that damage. A direct causal link means that the damage results objectively and directly from the wrongful conduct of the defendants. That means that, based on the factual circumstances of the case (the totality of factors) there must be an objective link between the defendants’ conduct as a cause and the damage resulting from this cause - the negative and unfavourable property consequences for the victim. 148. When a loan is taken, there is always a risk of failure to pay on time or failure to repay the loan due to the borrower’s inability to reach the anticipated results of operations, due to changes in economic situation and market conditions, due to business risks, etc. In order to prove that the damage was caused by the defendants’ actions specifically, it is necessary to establish a link between these actions as a cause and damage as a consequence of this cause. Proving such causal link under Kazakh law requires demonstrating with evidence (e.g., technical and economic calculations) that, if not for the unlawful conduct, the business would have generated income that could have been used to repay the loan and pay interest, and the default interest and penalties would not have been imposed by the bank. 149 The defendants may not be liable if the causal link between their conduct and the damage suffered by the claimants is not established (e.g., because the technical and economic calculations were wrong (e.g., they were unrealistic or the assumptions therein were wrong), or because the business would not have achieved the level of profitability to repay the principal and interest under the loans (e.g., due to economic crisis)). 150. Whether the defendants’ wrongful conduct was (a) one of the causes of the damage, (b) the main cause or (c) the only cause, may be relevant to determine the size of the damage caused by the defendants and accordingly the limit of the defendants’ liability. For instance, if it were established that the defendants’ conduct was one of the causes and, apart from it, the damage had other causes, for example, the crisis on the real estate and financial markets of Kazakhstan, the defendants would be entitled to a proportionate reduction of the compensation to be paid by them. If it is established that the defendants' conduct was the only or the main cause, the defendants would be liable to compensate for the damage in full.”

“94. To this end, if your Lordships agree, the House should now hold that, in principle, it is always open to a claimant to plead and prove his actual interest losses caused by late payment of a debt. These losses will be recoverable, subject to the principles governing all claims for damages for breach of contract, such as remoteness, failure to mitigate and so forth. 95. In the nature of things the proof required to establish a claimed interest loss will depend upon the nature of the loss and the circumstances of the case. The loss may be the cost of borrowing money. That cost may include an element of compound interest. Or the loss may be loss of an opportunity to invest the promised money. Here again, where the circumstances require, the investment loss may need to include a compound element if it is to be a fair measure of what the plaintiff lost by the late payment. Or the loss flowing from the late payment may take some other form. Whatever form the loss takes the court will, here as elsewhere, draw from the proved or admitted facts such inferences as are appropriate. That is a matter for the trial judge. There are no special rules for the proof of facts in this area of the law.”

“Q Yes, I see. So you are interpreting your instructions as actual payments? A. Absolutely, yes. Q. And evidence of payments on the basis of that instruction, you don’t think is enough for suggestions that a payment may have been made? A. Just to be clear, again, I’m not saying whether I think it is enough, not enough, right or wrong. Q. Yes. A. I am merely setting out what I have seen, and I have not seen a payment of cash. Q. Yes, I see. That is helpful, thank you.”

“PEAK LLP had initially defaulted on its obligations to Alliance Bank JSC in the third quarter of 2009. As a result of negotiations, in fourth quarter of 2010, Kazakhstan Kagazy Group of companies concluded with Alliance Bank JSC a Cooperation Agreement, addendums to Loan Agreements and refinanced the debt to Eurasian Bank JSC. … At the time of the restructuring Alliance Bank loan and refinancing Eurasian Bank loan, all penalties that were charged to the Group during the default period were cancelled. Also payments of the principal amount (except for 7.5 million tenge per month) were deferred until March 2014, current accrued interest and accumulated overdue interests were deferred until March 2013 and March 2012, respectively. One of terms of the restructuring of Eurasian Bank loan was repayment of 50% of the refinanced debt which was problematic for the business mainly for Class B warehouses, as it was servicing the debt. Under such circumstances, in February 2011, an addendum to the existing loan agreements was signed with Alliance Bank under which repayment schedule were changed, maturity date for repayment of 50% abovementioned debt - 396,900,000 tenge during 2011-2012 were extended. This resulted in successful completion of the first stage of the restructuring. In order to fulfill the payment terms, the Group repaid Alliance Bank JSC 369.9 million tenge which were proceeds from the sales of Kazupack production site. Allaince [sic] Bank loan is serviced by cash flows generated from Class B warehouses, however funds are insufficient for serve the debt under the current repayment schedule. In March 2012 the Group requested Alliance Bank to reconsider the repayment schedule. As a result, Bank agreed to delay repayment the previously agreed interest payable in March and April 2012 to 15 May 2012 and in the meantime to consider alternatives to change debt servicing terms. In May 2012 the Group proposed the Bank debt restructuring with the following major terms: • Write-off the part of the principal debt • cancellation of the requirement on payment of the accrued interest until 1 January 2012. • deferral of the current interest payment until 2013. • investments in the development of the Class B warehouses of 1.4 billion tenge during the period from 2012 to 2016. However the Bank declined such proposal of the Group. The bank announced main terms of the restructuring such as increase of monthly payments and extension of the period provision of guarantee by Kazakhstan Kagazy JSC. On 15 May 2012 PEAK LLP defaulted on payments under the repayment schedule and at present the Company is in default as no agreement on new terms of the debt servicing has been achieved yet.”

“In relation to the past due interest to the Bank on loan obligations and interest of the bank on Debtors; obligations which shall arise as а result of additional financing, from the date of the additional financing and restructuring of the loan obligations. There shall bе а grace period estabished for the Debtor in payment of this interest, for the period until 1st of March 2012.”

“If the Debtor, Company and the Partnership fulfills its obligations stipulated in the clause 1.4. and 1.6 of the present Agreement, the Bank shall agree: 1.7.1 cancel (forgive) the penalty fee charged on past due principal debt and past due interest as of the date of conducting of restructuring of the loan obligations of the Debtor. 1.7.2 Not to collect from the Debtor the commission for submission of the restructuring of acting loan obligations of the Debtor.”

“1.4 The Parties agreed that the restructuring of the loan obligations of the Debtor and Additional financing of the Debtor to bе made bу the Bank shall bе realized only if all below mentioned conditions are performed: 1.4.1. Lack of arrests and other encumbrance from the third parties in respect of the Security and Additional Security, except the right of the pledge of Eurasian Bank JSC for Encumbered Assets; 1.4.2. Availability of the state registration of the rights of pledge/surcharge of the Bank in respect of all objects of the additional Security; 1.4.3. Signing of the correspondent agreements, contracts, additional agreements, including those for Loan Obligations to bе made bу the Debtor, Company and/or the Partnership in relation to granting of Additional financing, restructuring of the Loan Obligations of the Debtor and submission of the Property of the Partnership as pledge and surcharge of Encumbered Assets. … 1.6. The Parties agreed with the following terms of submission as а pledge to the Bank the following additional security: 1.6.1. The Partnership within 3 (three) working days from the date of signing of the present Agreement shall submit to the Bank the title and other documents, related to the property of the Partnership. ln relation to the encumbered assets, the Company and/or the Partnership, within the term stipulated in the present sub clause, shall submit to the bank the consent of Eurasian Bank JSC on recharge of the corresponded Encumbered assets and transfer to the bank notary certified copies of the title and other documents related to these assets. 1.6.2. The Company and the Partnership shall submit the Additional Security as а pledge to the Bank, in order to provide the fulfillment of the Debtor’s obligations, which shall arise as а result of the additional financing. 1.6.3. The bank, in its turn, shall prepare the pledge agreements/recharge for the additional security. 1.6.4. The Company and the Partnership shall submit to the authorized representative of the bank power of attorney and other documents necessary for registration of the pledge agreements/recharge in the authorized body and also direct its authorized representative signed the pledge agreements to the correspondent state body in order to participate on its registration. Ву the requirement of the Bank, the Company and/or the Partnership shall independently take all measures necessary for registration of the pledge/recharge agreements in the authorized state body. All expenses on the state registration of the pledge/recharge agreements shall bе paid bу the Company and/or the Partnership correspondingly. 1.6.5. Within 5 (five) calendar days from the date the debtor makes transfer of the funds to Eurasian Bank JSC for repayment of the refinanced loan obligations of the Company, the Company and/or the Partnership shall provide remittal of the encumbrance of Eurasian Bank JSC from the Encumbered Assets transferred as recharge to the bank, and submit to the bank the corresponding references on availabllity (lack) of encumbrance on immovable property and transactions related to it, issued bу authorized state body, and also with lack of any encumbrance on these assets from Eurasian Bank JSC and any other third person and also the originals of the title and other documents related to the Encumbered Assets.”

“The Karasay District is an important district in Almaty Region. Although it covers only 1.0% of the region’s territory, the district accounted for 22.0% of its industrial output, 9.7% of its agricultural output and 42.6% of fixed capital investments in 2007; 22.4% of its industrial output, 9.3% of its agricultural output and 30.8% of fixed capital investments in 2008; and 23.9% of its industrial output, 8.7% of its agricultural output and 21.5% of fixed capital investments in 2009.”

“Notable commercial developments within a radius of approximately 15km include buildings for both international companies such as Coca-Cola, Efes, Pepsi and Hamle Company Ltd. and local firms such as Maxi, Vostock- Cement and Kazakhstan Kagazy.”

“Complex shape of the land plot that might drive higher costs of infrastructure and requires well thought out planning of the territory to avoid problems in the future”

“I would now like to talk about developments after the first half year. In August, there was an international credit crisis which hit Kazakhstan. It hit the banking sector in Kazakhstan particularly hard. As a result of this, there’s a severe liquidity crisis in Kazakhstan and borrowing costs have risen sharply. We, therefore, have an unexpected competitive advantage now over other local companies simply because our IPO raised $255 million in cash and therefore we are very liquid. Our competitors are generally highly leveraged, and they are now suffering from high financing costs.”

“ As a result of our acquisition of Kazupack, which occurred in August we now have an estimated 25% market share of the corrugated market in Central Asia. Because of the liquidity crisis we believe that there will be more acquisition opportunities over the coming six months.”

“According to Alessandro, Kazakhstan actually had a liquidity crisis, and we need to change our strategy a little bit in order to deal with the situation. First of all, we plan to obtain an advantage from the situation. Therefore, in our plans we have outlined acquisitions, because now we have a very high liquidity, and in this situation we have a very good chance for raising loans and we plan to refinance our expensive Kazakh loans through borrowings with lower interest rates and to leave part of funds raised from IPO for potential acquisitions on paper business. … In addition, as it was already noted by Alessandro, we have the possibility to attract international borrowings with much more favourable interest rates. I think that when we deal with all issues of funding, we will be able to increase our profitability as our borrowing costs will be reduced significantly. In general, the idea is to benefit from this situation and to move more aggressively to the said acquisition of paper facilities; we will also find potentially good options for acquisition of real estate, where we also want to strengthen our position.”

“The sales still may happen because even despite the fact that prices are going down there’s a big need for the infrastructure and our main business is not to sell up but to develop infrastructure and to sell infrastructure land, and we are talking to several clients so this deal may happen. The problem is that it may happen not on the level that we expected and in this case maybe it’s better for us to wait for a year or more, maybe one and a half years until the whole situation on the real estate market could be clarified. Anyway, most of the payoff of the land we planned to do has to be in the years 2009, 2010 and 2011 and we believe that generally the economy is very strong. It’s mostly commodity driven with all the historical peaks and as a result, I think those years liquidity crisis will be history. So we don’t think that we have to strongly review our real estate strategy, maybe just to take advantage of the situation and acquire some more real estate assets during this liquidity situation because it certainly won’t be long and it will continue for a couple of months more. Currently the market is stagnating, you don’t see the strong fall of the prices but if this situation continues it will certainly continue for a couple of months, I think we have to expect some connection on the market, and also I believe we will have special opportunities for some companies who have leverage and are under pressure to sell their assets.”

“A deceleration in the growth of the banking system would have an adverse effect on overall economic growth, which in its turn can take a toll on asset quality. The clearest example of this is the domestic real estate market, which was fed by banking loans and has demonstrated rapid growth over last year and a half. The high share of mortgage loans in total retail loans (23%) and the exposure of loan books to the real estate market of around 25% make banks highly susceptible to borrowers’ creditworthiness and/or the devaluation of collateralized assets. At a recent meeting with Kazakh authorities, a speaker opined that the system could sustain a fall of up to 30% in the real estate market. Were this to occur, the crisis would have a substantial impact on the banking system but in the long run would likely improve risk management policies and push loan portfolios toward a more diversified structure.”

“Global credit tightening, coupled with increasing regulatory measures, make Kazakh banking a tough space for investors at the moment. On a recent trip to Almaty, we focused on some of the key issues facing the banking system: Funding. International funding is, by and large, closed to Kazakh banks, and most have put off issuance in the hope of better credit conditions in 2008E. With this trend, a slowdown in sector growth is inevitable, while potential for a local deposit war is clear as banks fight for the one sizeable funding pool available. Asset quality. We do not foresee major risks in the securities portfolios of Kazakh banks beyond some inevitable (non-substantial) mark-to-market losses booked in 2H07. Within the loan book, the real estate and construction segment is a concern, with a local consensus view that real estate prices are under pressure, while certain real estate companies have encountered liquidity problems. Sector liquidity. August saw an outflow of hot money from the banking sector, coupled with a minor deposit run as both corporate and retail depositors shifted deposits away from most players towards the perceived safety of Halyk. The National Bank of Kazakhstan (NBK) had to step in and provide liquidity in its role as lender of last resort.”

“It is certainly an opportunity but of course what this brings with it is the decision one has to make as to where the market is actually going. Because if you buy too early in a downturn you could be buying into assets which, in due course, either are not developable or can't be sold because the market has completely imploded. So I don't think it is that straightforward, to be honest.”

“Q. It is not straightforward, I agree, Mr Mayhew. It was a judgement, and it was quite a difficult judgement to make. But what one can't say is that was a completely unreasonable, irrational judgement; do you agree? A. All options were open at the time. Q. Yes, and do you agree that at the end of 2007 and beginning of 2008 no one could really have foreseen how serious or sustained the financial crisis was going to be? A. I think at that time it was very apparent that there had been an extremely significant event and it would have been a brave person to call exactly which direction the market was going. I think it was an environment that people hadn't seen before, particularly in this region.”

“Land purchase via Bolzhal – the economic and commercial nature of the transaction: at the time of the purchase, there was already a recession at the real estate market, but the land was purchased at an ‘inflated’ price.”

“We used funds received from KK JSC to make the purchase because I was owed fees for the land plots transactions and whilst the amount due to me was less than the amount paid to Holding Invest for the property, the difference was made up by me and my co-purchasers through the cash payments we made to sellers of land plots.”

“This money was used to pay a commitment fee to Central Asian Investment Consulting Company. This was related to the purchase of Astana Contract, which was a transaction for the benefit of the Kagazy Group and Holding Invest put the money forward to assist the Kagazy Group in the takeover of Astana Contract. …”

“26. To assist me in responding to what Mr. Crooks says about this payment to Holding Invest, I have reviewed extracts of KK JSC’s 1C database that have been provided to me. From the 1C database, I can see that KK JSC had made advance payments to Holding Invest which related to the office building rented by KK JSC from Holding Invest, including the KZT 230,880,000 payment made on 8 May 2008. I can see that by 31 July 2009, after I had left the KK Group, the overall amount due from Holding Invest to KK JSC was KZT 596 million. 27. Monthly rent for the building was around KZT 11.9 million, including VAT. The KK JSC 1C database shows advance payments being applied against rent payments to Holding Invest at the end of August 2009, September 2009 and October 2009. It also shows that in October 2009, Holding Invest returned KZT 527.9 million to KK JSC. 28. After this payment of KZT 527.9 million, the balance owed by Holding Invest to KK JSC was around KZT 65 million. The 1C database shows that this was applied to various costs such as lease of cars, water, electricity, sewage and other services, the purchase of furniture and office equipment and rent payments for November and December 2009. 29. On 18 August 2010, when the 1C database extract provided to me ends, it appears that there was still an outstanding balance of approximately KZT 30 million owned to KK JSC by Holding Invest. I do not know how this was eventually resolved. 30. Thus, Holding Invest’s liabilities to KK JSC were almost entirely repaid including by the KZT 527.9 million payment which happened after I had left the KK Group.”

“1. The claim for protection of a violated right shall be accepted by the court for consideration irrespective of expiry of the limitation period. 2. The limitation period shall be applied by the court only upon the application by party in the dispute, which is made prior to the adoption of a decision by the court. 3. The expiry of the limitation period prior to the presentation of the claim shall be the basis for the court’s passing the decision to dismiss the claim. …”

“The limitation period begins to run from the day when a person became aware or should have become aware of a violation of his rights. Exceptions from this rule shall be established by this Code and the other legislative acts.”

“2) Pursuant to Article 180.1 of the Civil Code, the limitation period starts running from the date on which the person whose rights have been violated became, or should have become, aware of the violation of his rights. The moment of commencement of the limitation period is a matter of fact, which is to be established by the court based on the actual circumstances of a particular case. … 3) In the case of a corporate violation, the limitation period starts to run when the claimant company became, or should have become, aware of the harm caused to the company as a result of an officer’s failure to perform or their improper performance of, one more of his/her corporate duties, i.e. as a result of a corporate offence. … 4) Since Articles 62-63 of the JSC Law provide for a broad range of violations, it is practically impossible to formulate a universal rule for determining when the potential claimant ‘should have become aware’ of the violation. It is necessary to ascertain for every specific offence and considering the specific factual circumstances, when the company should have become aware of the damage and the fact that it was caused by the officer’s violation of his/her duties under Articles 62-63 of the JSC Law.”

“Q. What you are saying is, in very broad terms, you need to know enough, and what ‘enough’ is may depend on circumstances, do you agree? A. Yes. MR JUSTICE PICKEN: It is really prima facie, isn’t it? MR TWIGGER: That may be another way of putting it, except now we are in Latin, my lord MR JUSTICE PICKEN: Are you saying that you need to know ‘enough’, as you say - but on the face of it there is a violation, prima facie? A. Yes, sir.”

“Q. Would you agree that it is actually impossible to give a definitive version, a definitive description of the level of confidence that is required before the limitation period starts to run? We can agree it is more than suspicion … A. It would be fact-specific. Q. Fact-specific, exactly. More than suspicion, … A. More than suspicion, less than absolute certainty. Somewhere in between.”

“A. If I may, I would like to explain. The thing is knowledge could have different degrees. Absolute knowledge is non-existent. Specific knowledge that Mr Vataev is referring to cannot exist when the claim is filed. It can only come in the judge’s decision and then again it is not always specific because that could be appealed against. We are talking about relative knowledge only and hence that mean specific knowledge referred to by Mr Vataev cannot be the subject of our discussion here. Instead we must be discussing reasons to believe which is also a category of knowledge, but a degree of knowledge that cannot be very specific. Specific knowledge is non-existent, especially at the time when the claim is only filed, in my view.”

“Q. It follows from the way that you have put that there, doesn’t it, Mr Vataev, that you accept that once the claimant has grounds for suspicion, it is incumbent on him to make, as you say, all reasonable efforts, to find out whether he has a claim, whether his rights have been violated or not? A. Yes, and still there might be a kind of multi-level inquiry here. I have suspicion and let’s say arise those suspicions I am given some plausible explanation that yes, that is a legitimate business transaction that may lull the victim into a sense of calm and quiet. But then, you know - Q. Yes, I see that. So if you were given - A. - there was, again, how reasonable is reasonable and how sufficient is sufficient, so we are again in the factual – Q. We are back into the factual scenario. I see that. So if you are given some sort of explanation to throw you off the scent, then obviously it may not be reasonable, depending on the facts, for you to do anything. But if that doesn’t happen, you just find out about something, you get suspicious about transactions that have happened, you are under - it is difficult to describe it as being under a duty, but the court would look at whether you had made reasonable efforts to investigate, is that right? A. Yes, I agree.”

“Only when the legal entity or its shareholder obtained sufficient grounds and ability to realise that the transaction was a fraud, and not a good faith, reasonable and fair deal, only then it may be concluded that they ‘should have known’ of the violation in the full sense, and that time should be considered the time when the clock of the limitation period would start running”

“Imagine a situation in which a new owner discovers that his acquired company appears to be in poor financial condition. So far, no violation is discovered as the company’s distress could be caused by valid business reasons. The new owner start examining the records and discovers a series of suspicious transactions that his acquired company performed in the past. Again, at this point, no violation is truly known by the new owner-there is a mere suspicion, which needs further investigation. Only after the new owner discovers sufficient details about suspicious transactions, which would allow him to conclude that the transactions were indeed against the company’s interests and/or fraudulent, can the new owner be attributed with knowledge of the violation, in the full legal sense of this word, having occurred which would mean the period of limitation would then start to run.”

“… I did not have any evidence of the connection. I had suspicions. I had belief. But I didn’t have the evidence, yes.”

“Q. You knew who you thought had done the fraud for a long, long time, Mr Werner. A. Yes. I thought that it had been the former shareholders who had misappropriated, but I was not able to establish a link between the money that had left the company and them.”

“Q. … Same question, Mr Werner: that was not correct, was it? A. We had no ability to implicate the defendants until the discovery of the Arka-Stroy database, with evidence. Q. That is not what was being said. It was said that each claim -- no: ‘... the frauds, delicts and unjust enrichment were concealed ... and were not discovered until March 2013 - ...’ That means you didn’t know about them? A. Yes, we didn’t know -- we did not have any knowledge of the unjust enrichment until March 2013. That is exactly the way I understand this. Q. You did know, you did have a firm belief in your own mind that there was a fraud well before March 2013? A. Yes. But you cannot go to court and just speculate, saying that I think there has been a fraud.”

“Already on Friday, October 16, the new shareholder, T. Mathias [Werner] asked several questions regarding the transactions made in 2008 regarding the acquisition of additional assets and logistics business.” ... “T. Mathias received an explanation from the financiers, that 4.9 million, spent on the preparations for the construction of warehouses in Astana, and 13.5 million - a pre-payment for equipment ordered. From which income you are going to serve this new loan? And the payments - they are already due. … Who should be responsible?”

“During our discussion today you mentioned that there is a need to carry out financial modelling of the subject business. It was also mentioned that this might the Company to negotiate restructuring of its borrowings. From our experience depending on a particular bank there could be different requirements to that model and also to the final deliverable. In case of the model being used to assess viability of the restructuring proposal being made to the bank additional work would be required (not just financial modelling) including something which is called Independent Business Review (we have just recently completed one in Kazakhstan for an international bank). Given complexity of this stream may I suggest to have a discussion with you to make sure I am very clear at the moment what exactly is needed and what is the purpose and intended use of the Stream 2 deliverable. Thanks for your understanding and patience – will try to resolve it tomorrow.”

“An investor in the group has requested specific procedure to confirm the assets and other acquisition transactions funded from the IPO and loans. The time period in scope will be from the IPO in July 2007 until August 2009… Specific procedures to be performed are as follows ...”

“For each selected investment, trace and agree amount transferred to the agreement, bank account, G/L, etc.” “Physical confirmation of the assets - for those located in and around Almaty.” “Trace proceeds from the IPO and other loans into the accounting records and bank accounts.”

“As a way of introduction I am a PwC Advisory partner based in Almaty and looking after PwC Advisory practice ... I understand from Richard that following change of shareholders in Kagazy there is a need to carry out certain business review/forensic investigation in relation to the company. We had an internal discussion on this subject this afternoon and realised that more information is need [sic] in order to scope the assignment properly. Perhaps we can have a conference call/meeting with you to get a full understanding what is required.”

“While we have been progressing with our work in order for us to be able to provide you with a broader picture we believe that our scope should be revised slightly to capture cashflows at the PLC level as well. So, we have updated the engagement letter and attached it to this note.”

“Finally, we really need to get the engagement letter signed so this does not postpone our delivery of the draft report or any progress updates to you. Perhaps to speed the process up we could sent it to Taissiya for execution if you are comfortable with this or given sensitivities of this stream you would like to sign it personally or get someone else to sign it. Please advise on your preference.”

“Events last week have been very encouraging: it is crucial that we have a strategically aligned shareholder base; with Vladimir on board I was not able to drive the company in a coherent fashion. I have told you (and make it extensive to your partners) that I value immensely you stepping in as shareholders; I am also willing to up my commitment and take an active role in the management of the company, ie the Chairmanship of the JSC. The future of the company looks a lot brighter since last Friday.”

“We have had a steep learning curve and done a lot in this past month and a half. Crucially in my opinion we have changed the approach of dealing with the financial crisis of the company, which is the only way the it has a chance of surviving.”

“5. Raise equity: nobody will invest equity in the company now, but the former shareholders should reinstate part of the funds they withdrew. They will obviously not do this if not forced to, so the forensic report becomes crucial to identify a ‘smoking gun’. In the meantime it is also important that their covert financial support stops - Bruce I need your help here.”

“Continue with a disciplined focus on cash. We have to make sure that the company generates enough cash in the next month a half to finance its operations and advisors. I think that Bruce is doing a fantastic job here, and I encourage him to continue to keep a strict discipline. One thing that worries me is level of theft at operational level - the only short term solution I see is to involve operational management into the cash management process. Bruce what do you think?”

“… I mean the company – at that point money had been taken away from the project, sent back to the company. And we were facing the question by the bank: what is happening with the project? And the company didn’t have any money at that point in time. So one of the only ways to deal with this situation is if there was anything untowards in this situation, that it would have to be – it would have to be solved by the shareholders.”

“72. As to what this [the underlined] part of the email meant, the Defendants say that the only sensible reading is the suggestion that the former shareholders had indeed misappropriated monies and they should pay it back and the PWC Report might be relied upon to implicate them. They say that the different explanation given by Mr Werner does not hold water which, here, means that he was lying in his evidence. They are not suggesting that he was confused. This is consistent with the submission that he deliberately misled the Court both initially and indeed on the previous applications as to his true state of mind or knowledge as to the existence of any fraud. 73. I agree that Mr Werner’s explanation is not very clear and if the object of the remarks was the misallocation of monies back within KK (i.e. to pay off other loans) the use of the word ‘withdrew’ is not very apt. On the other hand if Mr Werner meant as the Defendants suggested, then the notion that they should reinstate only ‘part’ of what they dishonestly took in the fraud makes little or no sense. One also needs to bear in mind that Mr Werner’s starting point was that he did not recall this specific email and no others around the time assisted on what it was about. I do not accept that this explanation goes nowhere because he did not expressly state that he could not recall the “issue” over the recirculation of the DBK Loan as distinct from the email itself. But if this was what he meant at the time and in fact the matter went no further, then I can see how it would not loom large at that stage and so be something easily remembered. It is true that action point 6 also refers to a review of cashflow but it is not clear if this happened (PWC were of course reviewing cashflow and certainly SPA has produced no document about it). 74. One also has Mr Werner’s evidence in paragraph 73 that in general he thought it right that the former shareholders should put something back, and transparently; there is nothing implausible in that. Finally there is the wider context. At that time (November 2009) there are no other documents clearly implicating the former shareholders emanating from or sent to Mr Werner. And he says he never raised the frauds then because he did not know of them. There is a suggestion – and it is no more than speculation – that perhaps, while he knew, he did not want to make a big issue of it lest it scared off potential new shareholders but there is no evidence of this and I disregard it. Finally the explanation of the smoking gun reference I can see as plausible – if PWC did identify clear breaches on the DBK loans which could be laid at the former shareholders’ door then that might well be the pressure point needed to encourage them to put some monies back into KK. … .”

“At the time we acquired control of the Shares, we all agreed that KK had little or no tangible value due to the level of its indebtedness. Further, there was a strong possibility that KK would fail to restructure its financial obligations (the ‘Restructuring’) and would go into bankruptcy. There were, additionally, serious questions about the existence of fraud within the Company and as you will recall, threatening articles in the press and a real concern that the Financial Police might close the Company down. You will also recall that while Mr Gerassimov may have been concerned that his presence was jeopardizing the Company’s future, he was as, concerned, if not more, that his presence within the Company might lead to his being criminally prosecuted and jailed. At this time, we were also told by Mr Gerassimov and by senior members of the KK JSC management team that unless KK had a strong Kazakh shareholder: a) the Kazakh Banks would not agree to the Restructuring and b) the Financial Police would launch an investigation into the Company which would likely result in significant damage to the Company’s prospects and possibly even in its bankruptcy.”

“• In the period from 2007-2009, Kazakhstan Kagazy Plc (the ‘Group’, the ‘Client’ or ‘you’) received financing in a total amount of 509.7 m, including USD 273.5 m raised in an IPO on the London Stock Exchange (LSE), USD 171.8 m received as bank loans and USD 39.5 m raised from a bond issue on the Kazakhstan Stock Exchange. • In the same period, the Group spent USD 405.1 m. The objective of our work was to identify major cash outflows and their business reasons.”

“Purchase of property, plant and equipment (PPE) and investments in construction in progress (CIP) • Investments in PPE and CIP peaked in 2007 and 2008 when the Group companies received the proceeds from the IPO. • The most significant component of PPE additions is land. In the period under review, USD 67 m was spent to acquire plots of land. In the consolidated financial statements, this amount is partially recognised in fixed assets and partially in the inventory balance (under trade property). • Our background checks on the key suppliers revealed that most of the land was purchased from companies related to the prior management of the Group (please see the paragraph below). … • According to the management accounts, the majority of CIP expenditures relate to the Aksenger industrial park project (USD 72 m, or 61 % of the USD 119m spent in the period under our review). The second largest project is the Akzhal logistics park in the Almaty region (USD 33 m, or 28% of the total CIP expenditure). • Based on our review, a significant portion of the CIP costs incurred lacks detailed supporting documents (such as budgets, detailed acceptance statements, detailed breakdowns of the stages of work performed). This creates a risk that some of the construction funds could have been misused or not spent effectively.”

“• We have identified that all the land plots for which we obtained and reviewed contracts were purchased from related parties (at least USD 64 m of the USD 67 m paid for all land plots obtained by the Group in 2007-2009), namely: - Bolzhal LLP - Commerce Business Centre LLP - Alpen Building LLP - Lotos LLP - Kazvtorsyrye LLP • The details are disclosed on page 32 of this report and in Appendix 5 - List of identified related parties. • We have identified that the major CIP and PPE suppliers were also related parties of Kazakhstan Kagazy employees. Specifically, these related parties include: - Arka-Stroy LLP, which is the general subcontractor for the construction works on the Aksenger industrial park project; - Papcel A.S. (Czech Republic), which supplied a paper manufacturing machine. • The details are disclosed in Appendices 2 and 5 to this report. • The price of the services and assets purchased from related parties as well asthe future return on investment is to be determined by the management.”

“• As we understand from the management, the CIP contractors were chosen based on a tender process. We requested but have not been provided with tender documentation. Therefore, we cannot confirm that the contractors were chosen based on the best quality/cost and in the best interests of the Group.”

“• Following our review of cash flows for FY2007 to 9M2009, we bring to your attention the following questionable transactions (see the table below). Item USD’000 ______________________________________________________________ Land plots purchased from related parties* 63,691 Construction in progress from related parties** 57,400 Purchase of Astana Contract Group 48,440 Purchase of houses and apartments for employees*** 1,177 Production equipment 180 ______________________________________________________________ Total 170,888 * The amount was calculated based on the major land purchase contracts provided to us. For details, please refer to the section “Acquisition of land plots”, page 32, and to Appendix 3 for a summary of the contracts we reviewed. The total amount of transactions with related parties may be higher. ** These transactions do not include all the investments in CIP projects. Nevertheless, we have identified a significant lack of detailed qualitative supporting information for the actual work done. We recommend that management engage a professional engineering company to assess the value of the investments made. The amount was calculated based on a review of the major CIP contracts provided to us. The total amount of transactions with related parties may be higher. The total amount of CIP projects from related parties was calculated as the sum of payments to Arka-Stroy LLP: USD 39 m of investment in Aksenger industrial park and USD 18m investment in the Akzhal project.”

“Based on our findings, we recommend that you consider the following steps in order to confirm the Group’s financial position and eliminate potential further transactions not in the Group’s best interests: Undisclosed related parties as suppliers of CIP and PPE We recommend performing an analysis of the current subcontractors in order to identify if related parties are still being used. Where related parties are revealed, assess the reasonableness of pricing through benchmarking or a tender process. Construction in progress We recommend performing a technical expertise to verify and confirm that the level of construction work claimed to have been performed was actually carried out and that the costs of the work performed correspond with the outcome. We also recommend reviewing the current contracting procedure, including the tender process. Introduce a through system of internal controls to avoid overpaying for goods and services in the future. Acquisition of Astana Contract Group We recommend performing a retrospective due diligence of the Astana Contract Group in order to identify the fair value of the group’s assets and liabilities. Assets of the Group We recommend performing a review of all current assets of the Group, including fixed assets, accounts receivable, financial instruments, etc. The review should include a physical inspection of all material assets (if they are actually in place) and estimation of their net realisable value.”

“Company name Type of product/service provided Description of relations Comments Alpen Building LLP Vendor of land Shynar Nurbekovna Dikhanbayeva, Kazakhstan Kazagy JSC's financial director since 2001 and the chairman of the board of directors in 2008. At present, Mrs. Dikhanbayeva is not listed as the Group’s employee. She is listed as the director of Alpen Building LLP. Commerce Business Centre Ltd LLP Vendor of land Shynar Nurbekovna Dikhanbayeva, Kazakhstan Kazagy JSC’s financial director since 2001 and the chairman of the board of directors in 2008. At present, Mrs. Dikhanbayeva is not listed as the Group’s employee. She is listed as the director of Commerce Business Centre LLP. Both Commerce Business Centre Ltd LLP and Bolzhal Ltd LLP are registered at the same address in Almaty. Bolzhal Ltd LLP Vendor of land Shynar Nurbekovna Dikhanbayeva, Kazakhstan Kazagy JSC’s financial director since 2001 and the chairman of the board of directors in 2008. At present, Mrs. Dikhanbayeva is not listed as the Group’s employee. She is listed as the director of Bolzhal Ltd LLP. Both Commerce Business Centre Ltd LLP and Bolzhal Ltd LLP are registered at the same address in Almaty. Lotos Ltd LLP Vendor of land The company is registered in s. Abay, Karasayskiy rayon, Almatinskaya oblast, which is the same legal address with Kazakhstan Kagazy JSC. Kazvtorsyrye LLP Vendor of land Sergey Tulegenov, current general director of KK, is listed as the (former) director of Kazvtorsyrye LLP was referred to a subsidiary or an affiliated companyof KK and its supplier of compressed waste paper, providing over 10% of all of KK’s supplies. Kazvtorsyrye LLP is also one of the main debtors of KK. Arka-Stroy LLP CIP supplier The company is managed by Esimbekov Bek Kanatovich, current top manager of PEAK LLP Papcel S.A. Vendor of equipment The affiliate of the company - Papcel Kazhstan PPL which is managed by Esimbekov Bek Kanatovich, current top manager of PEAK LLP.”

“A. It was an important document and it was an important document at that time because again what we were expecting is to have a better understanding of how the former shareholders had spent the money, and indeed that is what this report explains. Q. Exactly. A. But this report doesn’t have the central importance that it has got on hindsight. This report was just a report, not something that at that time, again, was looked into in more detail because again, it didn’t raise any further questions. Q. You say it was just another report, but this was the report that you said you needed to understand what had happened to the $520 million? A. Yes, and it is explained what happened to the $520 million in this report, exactly.”

“I remember that there was a suggestion by Mr Khaparov that he would be able to put pressure on the former shareholders because he was a very, very politically connected person and that pressure could have – I mean that he could put pressure, because they had left the company in a parlous state.”

“But the fact is a fact. The first sells its shares Theta Investment Holdings Limited and the second – Frajon Holding Limited.”

“Businessmen who sold offshorkam business, earn a good idea, get rid of problem assets, and both de jure and de facto responsibility for the further development of the situation does not bear. All the ‘arrow’ and converge on Meteos Makeye. And with bribes smooth.”

“…Further to our call this morning, I attach a copy, of the D&O [directors and officers] policy (and the policy for the previous year) for our client. Just to reiterate, SP Angel Corp Fin LLP is advising Kazakhstan Kagazy PLC on debt restructuring. As part of this assignment one of our employees is going on the Board, one Partner will become an alternate director, and they, together with one further Partner have been acting performing functions within the Company which clearly amount to their acting as shadow directors. The Company is in a parlous state, and if our negotiations fail, there is a real risk that it goes bust. We believe that previous shareholders, and senior managers, may have caused assets to be purchased at over-value, and may have knowingly authorized payments for contracts which were not properly fulfilled. The questions I have are: Are we, as I read, all covered for D&O liability? And what does this cover? Is there any better, fuller, or extra cover which we would be advised to take? Do we need to inform the insurer about Board changes, our role as shadow directors, or the Company’s financial state (noting that it has publically announced that it is in the process of debt restructuring)? Mr Twigger submitted that telling the brokers that “we believe that previous shareholders, and senior managers, may have caused assets to be purchased at over-value, and may have knowingly authorized payments for contracts which were not properly fulfilled” amounts to clear evidence that SP Angel believed that there had been wrongdoing in the past and that their concern quite obviously related to different and wider concerns than the possible misuse of the DBK loan. I acknowledge that there is force in this submission. I acknowledge also that it is unlikely that Mr Werner would not himself have been aware that SP Angel held the belief described given that he was working so closely with SP Angel at the time. He may not have known that Mr Mackay was wanting to check SP Angel’s own position as regards coverage but that is not really the critical point since it is the description of the belief which was apparently held which matters for present purposes. In any event, as I have explained, it seems to me that knowledge held by SP Angel ought to be regarded as the Claimants’ knowledge irrespective of whether Mr Werner himself had the same knowledge as SP Angel did. The fact remains, however, that SP Angel can (at most) only have had a suspicion at this stage, indeed only a general suspicion at that, and this does not equate to actual awareness as a matter of Kazakh law. There is simply nothing in the documents to support a conclusion that there was any greater level of knowledge. As HHJ Waksman QC put it at an earlier stage in these proceedings at [81], albeit when expressing some doubt that SP Angel must have shared their belief with Mr Werner, “the fact is that there is no other document from SPA dealing with such a belief” and “If that belief was really ‘out there’ and it was a real talking point, one would expect to find some reference to it in documentary form”

“In general they agree that Astana Contract JSC has sufficient documented proves for KZT 950 mio. Not proved portion of the expenses as of today is KZT 650 mio or USD 4.3 which as we informed them is prepaid and will be used to finalize construction of container terminal, which will also need to be confirmed by auditor’s opinion. Audit of land works will be possible only when construction site is uncovered from snow.”

“A review of the Group’s historic use of funds has been commissioned. This review is not yet complete and its conclusions have not yet been finalised. In the event that there is evidence that Group funds have been used inappropriately, we will seek appropriate explanation and, subject to any explanation, seek redress to recover any such funds by any legal means available to the Group.”

“I will hold any employee and/or previous shareholder accountable for the potential misappropriation [of] funds in the Company. Therefore when the Company has achieved the final restructuring of its debts I will immediately commission a detailed forensic analysis of major financial transactions which took place before I assumed ownership and control of the Company. We will instruct a leading forensic analysis firm, probably one of the Big Four auditing companies, to undertake this exercise on our behalf. If there is any evidence of fraud, or of misappropriation of funds or assets of the Company, we will pursue the people responsible, in order that the Company should recover any money it has lost, and that the people responsible be made to account for their actions. In particular we will examine the role of the previous shareholders, Baglan Zhunus and Maksat Arip, in all major investments and transfers of cash out of the Company, or from one subsidiary of the Company to another.”

“From the start of negotiations, frame the conversation as to the Assessment of the Restructuring (success/failure). Why are we here if it succeeded?”

“-Their plan was maybe well intentioned but flawed. Their 21OCT2009 restructuring plan expected a Eurasian Bank debt ‘haircut’; banks at the time would be slapped with heaving tax penalties if they took a haircut on their debt … Their plan expected equity participation by DBK; which is expressly prohibited by banking laws in Kazakhstan … According to their plan, KK would be all restructured and profitable by 2011 … Basically, their debts restructure options failed because they were flawed. - Discuss what other –successful- restructurings they’ve done in Kazakhstan (try to show their inexperience?) - The relationship between the parties is no more what it used to be. So let’s face it and move on. - If they tried to sell their shares today, they would probably fetch no more than 2-3 cents in average, and that is if they were able to move such a huge volume. If it would become known that they’re selling (for example, if we filed a release), it may just go to 1cent and stay there at which point we take it private and force them out at 1.5cents. -Our motivation to get back all the shares is to either negotiate in freedom potential restructuring with creditors or retire them in case of bankruptcy. -If needed, remind them that they expressly stated they would return half the shares for $1 (+$25,000 in fees) so we are only negotiating for the price of the second half - Restructuring failed: not $1 of debt or even accrued interest has been written off. ALB was completely rescheduled on ALB terms; not a comma was changed and as a result needs rescheduling again in 2012. DBK failed; we are now talking with our lawyers about returning them the assets (warehouse A and Container terminal) because they are worth much less than their debt on the books. Bondholders & EBRD; very prohibitive conditions.”

“-SPA failed to identify previous owners’ actions (buying land worth nothing and presenting it as worth hundreds of millions of dollars) as main reason for the company’s troubles. They should have immediately gone after the previous owners and tried to collect some monies back. Instead, they blamed solely on the ‘economic crisis’ (?); they failed to (or didn’t want to?) identify the primary issue being that the company’s Assets are in fact worth much less than their inflated costs on the books.”

“- Because restructuring has failed, we are left with 3 painful ways to make money: 1- Sue them to recover fees (if negotiations fail); 2- We also intend to sue previous owners and recover some monies there too; 3- We are going to walk away from the majority of the assets (orderly handover to banks) against writing-off debt and taking the company through bankruptcy and forcing banks to settle with us on debt … That’s the new strategy because the previous one cost millions, took years and ultimately failed. Banks have no more faith in SPA nor KK. We may also need to hire new restructuring team that is experienced with bankruptcy courts.”

“I had not given any thought for more than two years because again at that time it became clear to me that the former shareholders had probably defrauded the company.”

“Q. So it is at this point that you formed a firm belief that Mr Arip and Mr Zhunus had misappropriated KK’s money? A. Yes, again, I just have to insist, this is not a specific -- it is not a specific day. It is a progress and it is at this moment where I had a belief that they had done something, that it was not a problem of mismanagement or mistakes that they had done, but that they really had -- that money had been stolen. Q. I quite accept that you wouldn’t be able to remember a specific day, Mr Werner, but it is important that we get this clear. So as I understand it, you are saying it is about this time when you send this PwC report? A. Yes, correct.”

“I had an understanding that the loans were—that there were serious issues with the loans, that there were fraudulent loans that they were giving. I also understood that the value of the assets was probably not corresponding to the amount of loans that had been raised. Again I knew that there were certain parties and certain construction companies like Arka-Stroy, that were involved. But at this point I didn’t have the full understanding of the fraud. … At this point I didn’t know that these impairments had been caused not by the financial crisis or not by the fact that the industrial park had to be stopped, but basically by the fact that the works were not done. Again, that is what I discovered later in the year … .”

“As you are aware, in order to sustain the causes of action for fraud the allegations must be plead in detail with particularity. Therefore, what we need in order to draft a complaint is a complete detailed narrative of all of the pertinent events with names, dates, circumstances, amounts, conduct, the specific property involved, the results of the improper conduct, etc.”

“I have not forgotten our timeline, it is holiday here today and tomorrow, working full time on it: I have taken over now, going through each single document and fact and squeezing information and thoughts out of Taissiya and Aida. … btw it is starting to make sense, I am working towards sending you a timeline and some supporting documents today. Good news is that I have started to be more confident not about the legal merits of our case but about the supporting evidence we are able to provide you… .”

“The case against the former shareholders is basically laid out in the PwC ... review dated 3 December 2009, which identified USD $170.188 million of ‘questionable transactions’ on page 4 of the report and which also identified the related parties with whom these transactions occurred on page 57 of its report. The former shareholders were firmly in control of the company during the review period. They then fled the country in December 2009 and handed the keys to Tomas Mateos, current chairman ...”

“I know you were taken back by the current draft of the complaint but believe me when I say that we wrote it in a very accommodating and honest way. It was to be expected to include you as a defendant especially when your past was so entangled with that of the former shareholders. You simply can’t make an omelette [sic] without breaking eggs. But as I already told you for example, that if I wanted to be tough, I would have also gone after invalidating your shares. My point is, I am not after you, but I am after everyone else named in the lawsuit and that has harmed this company and I will not let go until I clear them out of the Company’s way. To accommodate your request in our conversation and to make you feel comfortable, I will ask my attorneys to amend the lawsuit and take you out completely as a defendant in the lawsuit, in effect protecting shares for the future and not getting your name sullied in public legal filings. It’s important for me that you feel comfortable with my course of action even if as a result, the lawsuit will be something that is not ideal from a legal basis.”

“The initial draft of the complaint included me and some false allegations against me to strengthen the complaint by proving continuity of crime. I obviously asked you to revise these and to name in your complaint only those whom you thought had acted fraudulently as although you said that allegations against me would be dropped once I had been ‘cleared’ there is no way of controlling the outcome of any litigation, especially if based on spurious allegations that could take a life on its own. From the revised complaint I can say that I [sic] although I do not appear as a defendant, this is only all in but name, as the John Doe Defendant and some of the allegations are phrased so as to have the ability to reintroduce me as a Defendant. It defies any logic that I am supporting a complaint that potentially accuses me of fraud. If sued my problems would be compounded by knowingly letting myself be accused with allegations that I knew were false and we could both be accused of conspiracy by the Defendants by making allegations that are not true. Take me out completely, or otherwise sue me if you think that I acted fraudulently - which I think you don’t, otherwise why would you offer me a partnership and so much of your professional knowledge and personal affection. Any other logic is convoluted, weak and can turn against both of us if challenged. Let us pursue a clean and defendable strategy, sue those we know have acted fraudulently and defend ourselves with the facts on our side. … .”

“the company has commissioned a review from one of the major accounting firms, and the review is less thorough than an audit, but it’s still a good indication for the accounting of what went on in the company. And for the purpose of prior to 2009 there was over $170 million that was stolen from the company by the two shareholders. And that’s really in a nutshell what the case is.”

“My view and I think the view that the board should sustain for the benefit of the company is that given that we are … have this ability to sue them is coming up three years after these gentlemen have left the company, and from a board that has been managing the company now, not in its entirety but most of the members have been for the last three years, and pursuing…and this board not having in this case jurisdiction in the US like John [Khabbaz] has through his Phoenicia capital vehicle, means that I don’t see any possibility of successfully suing the bank and the former shareholders and that the board has a lack of … a lack of credibility because it actually … we have been living the situation for three years. And that is why I think the right position is that we are not willing to pursue Alliance bank and the former shareholders and that is why the board …We want to reject this. And it would be distraction for the company whereas John, being a new shareholder, that has just … that has just made aware of the situation with, based in…with the ability to claim US jurisdiction can have … can have a chance of success.”

“The owners of the construction company that received payments from KK JSC for supposed work in progress that was never performed on Plot 1 were the very same individuals who owned MTS [PEAK] (ie Mr Zhekebatirov) before it was sold to the KK Group. Furthermore, Mr Zhekebatirov was a relative of Zhunus, and MTS [PEAK] was nothing but a front for Zhunus, Arip and Alliance’s former management.” (paragraph 39) “In short, this whole series of transactions was illegitimate and designed to bilk the KK group out of their assets: MTS [PEAK] was taking loans from Nur Bank and from Alliance, loans that KK JSC pledged lands against. MTS [PEAK] was then using this money to make payments to a construction company owned by the very same shareholders for work that was never performed, so that the money ended up with MTS’s and the construction company’s shareholders…” (paragraph 42) Mr Howe pointed out that, although Phoenicia’s claim was broadly based on the (alleged) PEAK fraud, it lacked an understanding of the central role of Arka-Stroy. I agree about that. The fact is that the complaint was pretty vague and was not framed in the same way as the PEAK Claim has been in these proceedings. This is because, as Mr Werner explained, although it was clearly understood that Arka-Stroy was related to the “former shareholders”, what was not known was that, rather than being an independent construction company, it was “a complete KK company, like we discovered in the end”

“Then narrative/detail about the loans, what you found (in terms of money out via looting/fraud) Then your feeling about what the company would/could be worth if the debt were rescinded & instead criminal charges brought against the looters What you have found out about the looters & where the money went…”

“I will send you the requested information over the weekend. You will appreciate that there are gaps in the information that you have requested. I know now what has happened because for the last year I have been involved in the day to day of the company and have been able to form a detailed picture of how the previous shareholders managed the company. But not everything I’m sure of can be proven documentary, otherwise I would have proceeded much earlier ...”

“It has taken me some time to confirm some of the information provided in the document attached but I now have good evidence on all the points included in it. I hope it proves useful. I will be obviously happy to provide more detailed explanations. I am working on obtaining even more precise and conclusive intelligence and especially on how the funds misappropriated in KK were channelled into new, lucrative projects in Russia “. The document itself contains these passages: “The impressive performance of the company has not been sufficient though to reach an agreement to restructure the debt of KK with two of its banks, USD 90 million with DBK and USD 40 million ALB. The root of the problem lies in the fact that the KK does not own all the assets for which it received loans from DBK and ALB. More specifically, approximately USD 200 million of loans that the company received were fraudulently misappropriated by the former shareholders. … A deeper analysis of the accounts has revealed that the former shareholders did not run into difficulties because of the financial crisis but had been planning to defraud and rig the accounts of the company systematically from the beginning of their investment. Forensic analysis conducted internally by the company and by PwC has revealed that out of total investments of approximately USD 700 million, at least 200 million were fraudulently extracted from the company by the former shareholders using various methods. (Detail is available separately). … The money defrauded to KK has been channelled by the former shareholders into new projects in Russia … .”

“1. They bought a company with record Net Profits … believing it only had financial difficulties; please note that in 2009 KK was a company listed on the Main Board of the London Stock Exchange, audited by a reputable UK auditing firm, BDO … having undergone the very stringent disclosure requirements of an IPO process … 2. The depth, complexity and sophistication of the fraud committed by the former shareholders only became evident once taking control of the company and progressively having access to detailed and granular financial information. The new shareholder was only able to appoint a trusted CEO in November 2010. 3. The company was in an extremely weak situation from the change in ownership to May 2011, until it had generated sufficient cash to make its restructuring plan credible and effectively restructured its bond portfolio and closed numerous bankruptcy cases that would have led to the complete bankruptcy of the company in case of initiating a legal battle against the former shareholders ... 4. ... especially as the new shareholders, being foreigners, did obviously not have the administrative resources of former shareholders who would have happily bankrupted their old company to destroy any evidence of their fraud.”

“1. They have or are about to initiate legal actions against the former shareholders in New York and Isle of Man courts separately; 2. They have started to gather further intelligence on the past actions, destination of the money defrauded and current assets of the former shareholders. In particular they are trying to establish a conclusive link between the money that fraudulently left KK and was channelled into various projects in Russia. 3. Once further intelligence is gained, they are seeking to request a worldwide injunction of the assets of the former shareholders with the aim of reinstating any money or assets obtained ... .”

“Akra-Stroy LLP (AS) ... was chosen as a head developer to organize the efforts of various architect groups, suppliers and contractors to carry out the work. All of the funds were to be distributed through AS. … Three years into the project, when more than KZT22bn (150m USD) was already transferred to AS accounts and all paperwork portrayed the projects to be well under way, the only developed site was Akzhal-1, while the other two remained untouched. To cover the funds transferred, AS produced a number of false Acts of Acceptance, that portrayed the alleged work at the site. In response, KK Group accepted the papers and confirmed the work progress, thus continuing to finance the stagnant construction. It is suggested, therefore, that both sides committed to an intended fraud scheme which was aimed at extracting funds from KK Group into companies affiliated with the then management of KK Group.”

“Affiliation of companies brought to develop the projects is another proof of fraud and its main tool. Starting from the companies that the land was bought from to ones that allegedly carried out the work, all are indirectly controlled by the management of KK Group. A paper obtained from the State Tax Office shows that AS was founded and run by KK Group’s lawyer, while KK’s accountant was also employed in the same position at AS. Such a close circle of people in charge meant that no one even had to know about what was going on, because all papers were prepared, presented, checked and approved by the same group of people.”

“Q. So was he telling you, as he went along, the kinds of things that he was finding and what his thoughts were? A. Yes. Q. So by the time it got to the end and you had your last meeting with him, you weren’t shocked by anything that he said, because he had been filling you in as he went along. A. No, I was shocked when he told me that the acts of acceptance were forged. And again, I remember very precisely when he said, ‘Look, there is an act of acceptance that was signed on 31 December of earthworks when the ground is frozen’. I also remember him – I don’t remember the number, but I think he said the earthworks would cover 14 football stadiums. He also mentioned that there were some round figures for objects and there were two and a half elements of something which obviously could not be. It had to be two or three. That is what I recall. Q. So your shock, the shock you describe there, was about the acts of acceptance; is that right? A. Yes. That was the main thing I recall, the fact that the acts of acceptance were forged. That is my main recollection of the work that he did. Q. You weren’t surprised to hear him talk about Arka-Stroy, because you had always thought that Arka-Stroy was involved in the fraud? A. Yes, and again, we were circling in around Arka-Stroy.”

“Q. You believed at the time, i.e. when the lawsuit narrative was written, that the acceptance acts were false, didn’t you? A. I had not looked at the acts of acceptance. I had received an Excel spreadsheet. So I didn’t know what these acts of acceptance contained. And again, this was only possible when I was told by Mr Gafurov that these acts of acceptance were forged. I had never analysed the acts of acceptance. I had an Excel spreadsheet that is telling me a number of acts of acceptance, but it could have been an Excel spreadsheet about anything. And the clue was not the detailed analysis of the acts of acceptance. The clue was understanding that some of these acts of acceptance were forged. Q. … It refers to the acts of acceptance being signed by Mr Tulegenov and so on and it refers expressly to the impairments, and then it says that the claim is the whole amount. The claim being the whole amount is only consistent, isn’t it, with the acceptance acts being invalid? A. Does it say that the acts of acceptance are false or invented? Does it say that these acts of acceptance are for earthworks and things that it is impossible on hindsight to establish what has happened? No, it does not. Q. It says: ‘The claim is the whole amount sent to Arka-Stroy’. Just listen to the question. A. Yes. Q. That could not be right if the acceptance acts were valid, could it? A. No. This is not what John [Khabbaz] is saying here. John – and again, I have to interpret for John. This is not what John is saying. John has the state of knowledge that – exactly the state of knowledge that I had at the time, which was that we thought that money had been misappropriated through this company [Arka-Stroy] because this company has some links to the former shareholders. And it was the inference. But we didn’t know what we are pleading now.”

“Construction in Progress: We recommend performing a technical expertise to verify and confirm that the level of construction work claimed to have been performed was actually carried out and that the costs of the work performed correspond with the outcome … .”

“Q. … Did you understand that it was your duty to take reasonable steps to detect fraud? A. Absolutely, it was my absolute responsibility to detect fraud and to present transparent and truthful accounts. Q. So why didn’t you follow the recommendation in the PwC report and obtain a technical expertise to verify the construction work had been carried out? A. Because I didn’t know that that was something that was relevant at that time, and as a result of this audit - of this audit process, we conducted independent valuations of precisely the assets that you are saying that these construction valuers were going to value. So again, I had a clear understanding that these assets had been valued a month or a month and a half before this valuation had been done by companies that were accredited according to international standards, with all the -- with all the necessary requirements, and as a result of these valuations, there were $250 million of impairments. Q. Are you saying that you thought about following the recommendation in the PwC report but for the reasons you have just given you didn’t think you needed to follow that recommendation, or are you saying that you just didn’t think about it at all? A. Again, I just want to be very clear. I didn’t think, at the time at which I was given the recommendation by PwC, that this was a necessary exercise. And on top I just received a confirmation later, through the audit process, that these assets had been valued. So it is not that I thought that it was not necessary because the audit was done. I didn’t think it necessary at the time and I just had a confirmation that this process had been done in the course of the audit report.”

“Q. Why didn’t you think it was necessary? A. Because I didn’t think that there was anything to be specifically concerned at, at that time. Q. Well, you have paid or your company has paid a lot of money for a report from a top auditing firm and they carry out their report, their exercise, and they tell you that you ought to perform a technical expertise, as they put it; get an expert involved to verify that the level of the construction work was actually carried out. Why did you think there was nothing to be troubled by? Surely you would want to follow their recommendation? A. I was not troubled. I think I have - no, I have explained my state of mind at that time and my belief. The first thing is that it is something which I have learned as a result of my work in the company and of this fraud, what a technical expertise means. I supposed at that time that everything was in order. Not in order in the sense that everything was in order. Definitely I knew that these projects had interrupted, that these projects had fallen in value tremendously, that the company was in huge financial difficulties. But it didn’t dawn on me that I had to go, and go and do a technical expertise at that point in time. I didn’t have the knowledge of construction and what had to be done and what would be the result of this exercise. Q. But I think your evidence was earlier that the purpose of asking PwC to do this report, or at least one of the main purposes, was so that you would be able to explain things to creditors when they asked what had happened to all this money? A. Correct. Q. So you wouldn’t be able to explain that, would you, unless you followed through with the recommendations that PwC gave you? A. No, I don’t think so. I think we had -- at that time, we had what we thought was a coherent picture in order to explain things to the creditors and to the market, like we did following this report. I didn’t think there was any need to conduct a technical expertise of construction work in order to give an explanation to creditors.”

“Again, I don’t think that I have to insist, but the context of this company is that the company was close to bankruptcy. It had an enormous amount of legal proceedings, it was enormous difficulties in financing with creditors. I think that one has to be reasonable and a director and personnel have to make reasonable enquiries and reasonable -- they have to make reasonable use of their time. Because otherwise if they misspend the time on things that we didn’t consider relevant at that time, the company would have gone bankrupt and then I would have had to assume the responsibility of not pointing to the things that mattered at that time to the company, which were not necessarily just a comment about one contract.”

“It has been established by our internal investigations that KK JSC entered into a number of land transactions with parties who were connected with the defendants. In total, during the period in which we have investigated from [2007] to [2009], KK JSC spent 63.9 million in acquiring plots of land from these parties.”

“I consider it very likely that KK JSC has suffered significant losses as a result of these transactions. I am equally convinced that the Defendants have personally benefited through their network of connected parties.”

“Addendums on changes in transaction amounts were concluded on 07.04.2009. According to the letter from the General Director of Bolzhal LTD the reason of increase in the land value is provision of services on changing the intended use of the land plots. Those terms were not contractually agreed.”

“4. Which company from the Kagazy group and during what period bought up the lands in the Southern land plot and the Northern land plot (in what manner). Northern land plot – 622.77 ha was acquired during the period from 2006 till 2009. Southern land plot – 64,7 ha was acquired during the period from 2005 till 2009. The lands were purchased and registered under the name of the company”

“In exceptional cases where the court recognises the reason for missing the limitation period as valid because of the circumstances which are associated with the personality of the claimant (serious illness, helpless condition, illiteracy, etc.), the violated right of the citizen shall be subject to protection. The reasons for missing the limitation period may be recognised as valid where they took place during the last six months of the limitation period, and where the limitation period is equal to or less than six months, during the limitation period.”

“The limitation period shall be applied by the Court only at the request of one of the parties to the dispute. A statement on the expiration of the limitation period may be made by a party before the court withdraws to the conference room. If it is established by the court that the limitation period has been missed by the claimant for a legitimate excuse, it shall be stated in the resolutory part of the decision and the dispute shall be resolved on the merits. If during the examination of the case the court has found that the plaintiff’s employment rights have been breached, but the limitation period has been missed without a legitimate excuse, as provided for in the Labour Law, then the violation of the rights is specified by the court in the reasoning section of the decision and the court denies the claim on the basis of missing the limitation period.”

“In case, contrary to my view, the Bank was aware or ought to have been aware that its rights had been violated more than a year before the Granton action was commenced, I should consider the final point raised by the Bank. It is common ground that in Kazakh law the court has a discretion to extend the limitation where there is a ‘valid reason’ for doing so. This is not stated in any code but has been stated by the Supreme Court. Mr. Norbury submitted that this did not apply to employers who were companies rather than natural persons. He based this submission on Article 185 of the Civil Code which gives a similar discretion but which Professor Maggs said did not apply to companies. I preferred Mr. Vataev’s opinion that Article 185 also applied to companies. A purposive construction leads to the conclusion that a company can rely upon the discretion just as a natural person can. In any event there was no evidence that the Supreme Court restricted its ruling to employers who were natural persons.”

“Notwithstanding the absence of direct evidence from the Bank I cannot turn a blind eye to the realities of the situation of the Bank between February and June 2009 and to the inherent probabilities. Upon nationalisation the new management of the Bank had a considerable task. The AFN had requested the nationalisation because the old management had not made the substantial provisions of US$3.58 billion demanded by the AFN against its loan portfolio. The Bank's auditors reported in May 2009 that the Bank’s liabilities exceeded its assets by US$6.2 billion. In these circumstances it is, it seems to me, more likely than not the Bank’s new management concentrated on the survival of the Bank in the early months of 2009 rather than upon possible claims against Mr. Ablyazov and Mr. Zharimbetov (who had fled to England) arising out of the operation of the loan portfolio. Although KPMG had investigated the loan portfolio prior to the arrival of PWC it seems likely, as stated by Mr. Kenyon, that such efforts were directed towards the restructuring of the Bank. The number of loan projects was about 300 which had generated some 3,700 loans. Any attempt to discover what claims there were against the former management would have been, and no doubt was, a very considerable and detailed exercise. I consider it more likely than not that by mid-June 2009 the Bank was not aware of the violation its rights in respect of the Later Loans and could not reasonably have been expected to be. The fact that the AFN had found many loans to be potential problem accounts including the Later Loans is evidence that losses may be sustained on them, not that losses had been sustained or that the Bank’s rights had been violated. It was hardly unreasonable for the new management to concentrate on the survival of the Bank rather than on investigating potential claims between February and June 2009. Nor does knowledge that the police were bringing charges against Mr. Zharimbetov in March 2009 establish an awareness on the part of the Bank that its rights had been violated in respect of the Later Loans. That would require a very detailed knowledge of the police investigations. Whilst it is probable that there was some contact between the new management and the police it is also probable that the new management concentrated on the Bank's survival and left the police to carry out their own investigations.”

“I consider that there is a valid reason to extend the limitation period (which would otherwise expire on an unidentified date between February and 17 June 2010) until 17 June 2010 when the Granton action was commenced. That valid reason was that it was reasonable to delay the commencement of proceedings against Mr. Zharimbetov until (a) PWC had had an opportunity to carry out a systematic investigation of the loan portfolio with a view to identifying claims against the former management (b) the management had had an opportunity to consider the results of PWC’s investigations and (c) legal advice had been obtained with regard to such claims. Such delay was reasonable having regard to the magnitude of the sums involved and the complexity of the investigation required to establish the frauds alleged by the Bank.”

“Subject to the following provisions of this Act, where in any action or proceedings in a court in England and Wales the law of any other country falls (in accordance with rules of private international law applicable by any such court) to be taken into account in the determination of any matter – (a) the law of that other country relating to limitation shall apply in respect of that matter for the purposes of the action or proceedings …; and (b) except where that matter falls within subsection (2) below, the law of England and Wales relating to limitation shall not so apply.”

“(1) In any case in which the application of section 1 above would to any extent conflict (whether under subsection (2) below or otherwise) with public policy, that section shall not apply to the extent that its application would so conflict. (2) The application of section 1 above in relation to any action or proceedings shall conflict with public policy to the extent that its application would cause undue hardship to a person who is, or might be made, a party to the action or proceedings.”

“i) It would be wrong to treat a foreign limitation period as contrary to English public policy simply because it is less generous than the comparable English provision in force at the time (Durham v T&N plc 1996 Court of Appeal unreported). ii) Public policy should be invoked for the purposes of disapplying the foreign limitation period only in exceptional circumstances. Too ready a resort to public policy would frustrate our system of private international law which exists to fulfil foreign rights not destroy them. iii) Foreign law should only be disapplied where it is contrary to a fundamental principle of justice. iv) The fundamental principle of justice with which it is said foreign law conflicts must be clearly identifiable. The process of identification must not depend upon a Judge’s individual notion of expediency or fairness but upon the possibility of recognising, with clarity, a principle derived from our own law of limitation or some other clearly recognised principle of public policy. English courts should not invoke public policy save in cases where foreign law is manifestly incompatible with public policy. (City of Gotha v Sothebys, Transcript October 8 1998 p89).”

“The question can be framed in the following manner. Does the application of the foreign limitation period deprive the claimant of his claim in circumstances where he did not have a reasonable opportunity to pursue it timeously if acting with reasonable diligence and with knowledge of its potential application, where the claimant is deemed to have knowledge of the application of the relevant foreign limitation period (Naraji v Shelbourne 2011 EWHC 3298(QB) at paragraph 177, and, Bank of St. Petersburg v Arkhangelsky 2013 EWHC 3674 CH at paras 15 and 17).”

“It does seem to me possible to identify, from that legislation, a public policy in England that time is not to run either in favour of the thief nor in favour of any transferee who is not a purchaser in good faith. The law favours the true owner of property which has been stolen, however long the period which has elapsed since the original theft. If German limitation law is not disapplied the result will be to favour a purchaser with no title to the painting who does not even contend that it or its predecessors purchased the painting in good faith. To permit a party which admits it has not acted in good faith to retain the advantage of lapse of time during which the plaintiffs had no knowledge of the whereabouts of the painting and no possibility of recovering it is, in my judgement, contrary to the public policy which finds statutory expression in Section 4. To allow Cobert to succeed, when, on its own admission it knew or suspected that the painting might be stolen or that there was something wrong with the transaction or acted in a manner in which an honest man would not, does touch the conscience of the court. Moreover, to recognise such a public policy does not in any way undermine the purposes of a law of limitation; there is no reason why a defendant in the position of Cobert should be protected from this claim nor does the recognition of such a public policy discourage claimants from instituting proceedings without unreasonable delay. … It does not seem to me that the question whether a foreign law should be disapplied on grounds of English public policy can depend upon the nature of the plaintiff seeking to disapply that law. I should, however, make it clear that if the victim of the theft had itself delayed once it had discovered the facts relevant to its cause of action that might well be a ground for not disapplying the foreign law.”

“The plaintiffs rely also upon Section 2(2) of the 1984 Act contending that they would be caused undue hardship if German limitation law was applied. In Jones v Trollope Colls Cementation Overseas Ltd (Times Law Reports 26 January 1990), Farquharson LJ said that: ‘the word undue added something more than just hardship. It meant excessive or greater hardship than the circumstances warranted.’ In AMF v Hashim … Evans J emphasised that the provision was intended to have a narrow application (page 952). Moreover he said: ‘It cannot be said that the three-year period for claims of this sort (under Gulf law) is so short that the plaintiffs suffer undue hardship merely by reason of the fact that it is imposed. There must be some additional factors which make the hardship excessive in this case.’ That additional factor might have arisen if the plaintiffs had been defeated because of transitional provisions which were not easy to apply (see page 593 and Saville LJ in the Court of Appeal at page 600). In the instant case the additional circumstance upon which reliance is placed over and above the mere impact of a limitation period of thirty years, is that the plaintiffs were the victims of theft and between that theft and 1991, they had no means of discovering the facts which would have enabled them to identify the possessor of the painting and its whereabouts. But it is difficult to see how that additional fact would justify invoking Section 2(2) in circumstances where Section 2(1) did not apply. Either the public policy which I have already identified exists or it does not. If it does not, then all the plaintiffs are, in essence, complaining about is the length of the German limitation period. That by itself is not enough, and in those circumstances had I not been prepared to display German law under Section 2(1), I would not have done so under Section 2(2).”

“(i) the Arkhangelskys’ impecuniosity and disorientation resulting in their being out-gunned and out-lawyered; (ii) their reasonable expectation that Baker & McKenzie would be instructed to accept service of the Commercial Court proceedings; (iii) the ‘hardball’ attitude of the Bank and Mr Savelyev in refusing so to instruct them; (iv) the inherent likelihood of difficulty, delay and expense in attempting to serve in Russia proceedings which called into question the integrity of the Russian courts; (v) the limited time available between the agreement for English jurisdiction in December 2011 and the expiry of the limitation period in March 2012; and (vi) the disproportionality and unfairness which would occur if the Arkhangelskys were denied the opportunity of bringing claims of which the Bank had long been aware after agreeing that their claims could be substantially litigated in England.”

“Mr Marshall’s main submission was that the judge had not appreciated that, for the purposes of section 2(1) of the 1984 Act, it had to be the application of the Russian limitation provision that had given rise to the undue hardship. He submitted that the real cause of any hardship in this case was that it had taken two years for the Arkhangelskys to begin any proceedings and that the proceedings in the BVI were misconceived; the short time between the agreement for English jurisdiction and the expiry of the Russian time limit only occurred because of the Arkhangelskys' delays at a time when they did have sufficient money to institute and pursue proceedings as they had in Cyprus; in any event they did institute English proceedings within time so the application of the Russian time limit could not be said to have caused any hardship at all.”

“For this purpose he cited the two authorities which had not been cited to the judge before his first judgment, Harley v Smith [2010] EWCA Civ 78 reported at [2009] 1 Lloyd's Rep 359 at first instance but curiously not reported in those reports in the Court of Appeal and Naraji v Shelbourne [2010] EWHC 3298 (Comm) in which Popplewell J at paragraph 176 considered the question to be whether the time period prescribed by the limitation provision is such that its application would deprive the claimant of his claim in circumstances where he did not have a reasonable opportunity to pursue it if acting with reasonable diligence and with knowledge of its potential application. I agree with this description of the question.”

“The only other authority which needs citation is the decision of this court in Jones v Trollope Colls Cementation Overseas Ltd The Times 26th January 1990, [1990] WL 754869 which applied the well-known (at least to those with arbitration practices) decision of Liberian Shipping Corporation v A. King and Sons Ltd [1967] 2 QB 86 in which Lord Denning MR addressed the question of undue hardship (at page 98G): ‘undue’ … simply means excessive. It means greater hardship than the circumstances warrant. Even though a claimant has been at fault himself, it is an undue hardship on him if the consequences are out of proportion to his fault.”

“Guided by these authorities, I find I am in agreement with the judge. Applying the Russian time limit in this case to prevent any counterclaim by OMG Ports causes both the Arkhangelskys and OMG Ports undue hardship because, even though they may have been to some extent at fault e.g. in not applying sooner than they did for an order dispensing with the service of their Commercial Court claim or in not finding enough money to translate the proceedings into Russian and serving them pursuant to the Hague Convention on Service of Proceedings on the Bank in Russia, the consequences of being unable to pursue their counterclaim (which the Bank and Mr Savelyev had already agreed could be pursued in England) are out of proportion to that fault.”

“It can also be said that the Arkhangelskys should have begun proceedings before 2011, granted that they knew their rights had been violated in March 2009 but that is something of a counsel of perfection if one’s business world is disintegrating and it is necessary to emigrate and find a roof over one's head. To begin proceedings towards the end of the limitation period may be risky and to that extent blameworthy but the judge was entitled to think that the consequence of losing one's claim was out of proportion to that fault. Mr Marshall also launched an attack on the idea that impecuniosity had any relevance to the question of undue hardship, unless the lack of funds was actually caused by the Bank. That cannot be right; the court has to look at all the circumstances in order to decide whether the application of the foreign limitation period will cause undue hardship and impecuniosity must be highly relevant to that question. In any event the judge held (para 19(b) of his second judgment) that the Arkhangelskys’ impecuniosity did indeed arise from the bringing of the Russian proceedings and their exile from Russia. I have already dealt with the question whether the judge was entitled to find impecuniosity at all. I conclude therefore that the judge directed himself properly as to the law on the question of undue hardship under section 2(2) of the 1984 Act and applied the law correctly to the facts. He had to adopt a multi-factorial approach with which this court should not interfere unless satisfied that he was wrong. I am not so satisfied and would dismiss the second appeal.”

“Subject to the following provisions of this section, if on the date when any right of action accrued for which a period of limitation is prescribed by this act, the person to whom it accrued was under a disability, the action may be brought at any time before the expiration of six years from the date when he ceased to be under a disability or died (whichever first occurred) notwithstanding that the period of limitation has expired.”