Kazakhstan Kagazy Plc & Ors v Zhunus & Ors, Court of Appeal - Commercial Court, May 06, 2016, [2016] EWHC 1048 (Comm),[2016] WLR(D) 238

Issuing Organization:Commercial Court
Actores:Kazakhstan Kagazy Plc & Ors v Zhunus & Ors
Resolution Date:May 06, 2016
 
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Case No: CL-2013-000683

Neutral Citation Number: [2016] EWHC 1048 (Comm)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 06/05/2016

Before :

MR JUSTICE LEGGATT

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Between :

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Paul Lowenstein QC and David Head QC (instructed by Peters & Peters Solicitors LLP) for the First Defendant

Paul McGrath QC and Anna Dilnot (instructed by Cleary Gottlieb Steen & Hamilton LLP) for the Second and Third Defendants

Hearing date: 7 April 2016

Further written submissions filed: 8 and 15 April 2016

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JudgmentMr Justice Leggatt :

A. Introduction

  1. Mr Arip and Ms Dikhanbayeva, the second and third defendants in this action (``D2'' and ``D3''), have applied for permission to bring a claim for contribution against the first defendant (``Mr Zhunus'') who has reached a settlement with the claimants. D2 has also applied for a worldwide freezing injunction against Mr Zhunus. This is my judgment on these applications after an oral hearing followed by further written submissions. The second application raises a question of wider significance as to when a freezing injunction may be granted in aid of a contribution claim.

    The parties

  2. The first claimant, a company registered in the Isle of Man, (``C1'') is the ultimate parent company of the second to seventh claimants (``C2'' to ``C7''), each of which is incorporated and carries on business in Kazakhstan. C2 directly or indirectly owns C3 to C7. The principal businesses of the group (the ``KK group'') are the manufacture of paper and packaging, recycling of waste paper and logistics.

  3. Between 2003 and 2009 Mr Zhunus and D2 were, respectively, the chairman of the board and chief executive officer of C2. Until C1 was incorporated in 2007, they each indirectly owned 50% of the shares of C2. When C1 was incorporated, they each indirectly owned 50% of its shares. They were also, respectively, the chairman of the board and chief executive officer of C1 until April 2008. Following a public offering and flotation of shares in C1 on the London Stock Exchange in July 2007, Mr Zhunus and D2 each retained an interest in 23.9% of the shares of C1 until September 2009, when those shareholdings were sold.

  4. D3 was the finance director of C2 at all material times.

    The claims against the defendants

  5. These proceedings were commenced on 2 August 2013. The three main claims pleaded in the particulars of claim are, in summary, as follows:

    i) The claimants allege that, between 2005 and 2009, the defendants dishonestly caused C2, C3 and C4 to make payments to a purportedly independent construction company, Arka-Stroy LLP, for the development of a logistics centre and industrial park in Kazakhstan. It is alleged that only a minimal amount of construction work was actually done, that Arka-Stroy LLP was secretly controlled by the defendants and that much of the money was paid out to entities controlled by them. The claimants allege that the group has thereby suffered losses equivalent to around US$102 million.

    ii) The claimants allege that in 2008 and 2009 the defendants committed a similar fraud involving payments purportedly made for construction work by C6, which resulted in a further loss of some US$14 million.

    iii) A third claim, added by amendment in 2015, involves allegations that the defendants used nominee companies to acquire land plots cheaply from farmers in Kazakhstan which were then re-sold to C2, ostensibly for development, at highly inflated prices, resulting in a loss of some US$44 million.

  6. Mr Zhunus served a defence on 27 January 2014. In summary, he asserted that his role in the KK group was essentially a non-executive and not a managerial one, that he was not responsible for the relevant transactions, that he at all times acted honestly and in what he believed to be the best interests of the group, and that he did not receive any illicit payments.

  7. D2 and D3 served their defence on 6 February 2015. In summary, they largely admit that they were involved in the decisions to enter into the relevant transactions but assert that these were commercial decisions taken in what were perceived to be the best interests of the KK group at the time and not in furtherance of any fraudulent scheme. D2 and D3 deny that there was any fraud or that they personally benefitted from the transactions.

  8. All the claims are governed by the law of Kazakhstan, which has a three year limitation period. Each of the defendants has alleged that the claims are time-barred on the basis that the claimants knew or ought to have known of the material facts more than three years before this action was commenced.

  9. At the same time as serving his defence, Mr Zhunus served a contribution notice on D2 and D3. Those defendants did not, however, serve a contribution notice on Mr Zhunus when their defence was served.

    The freezing injunctions

  10. When they commenced these proceedings on 2 August 2013, the claimants applied without notice for a freezing order against Mr Zhunus and D2. Such an order was made freezing their assets worldwide up to an amount of £100 million - which was later reduced to £72 million.

  11. On the return date, the freezing injunction against Mr Zhunus was replaced by equivalent undertakings given by him to the court. D2, on the other hand, applied to discharge the injunction against him, arguing that the claimants had no good arguable case because of his limitation defence. That argument was rejected by Judge Mackie QC sitting as a judge of this court and also, on an appeal, by the Court of Appeal. See [2013] EWHC 3618 (Comm) and on appeal [2014] EWCA Civ 381.

  12. There has since been another challenge to the freezing orders, in which this time Mr Zhunus took part. In August 2015 all three defendants applied for summary judgment based on new evidence which was said to demonstrate that the claimants had knowledge of the material facts by 1 August 2010 (i.e. more than three years before this action was begun), with the consequence that the claimants had no real prospect of succeeding on their claims against the defendants. In the alternative, D2 applied for the freezing injunction against him to be discharged and Mr Zhunus applied to be released from his equivalent undertakings on the ground that there was no good arguable case that the claims were brought before the limitation period had expired.

  13. In a judgment given on 27 October 2015 those applications were dismissed by Judge Waksman QC, See [2015] EWHC 3059 (Comm). who also gave directions to trial. The trial has been listed to commence in April 2017, with a time estimate of 12 weeks.

    Settlement between the claimants and Mr Zhunus

  14. The claimants have now settled their claims against Mr Zhunus on the terms of a deed dated 10 February 2016. A copy of the settlement deed was disclosed after I had heard oral argument on these applications (leading to further written submissions). The basic structure of the settlement is that Mr Zhunus has paid a sum of money in full and final settlement of all claims against him and has also agreed to co-operate with the claimants in specified ways which include giving standard disclosure of relevant documents and, if so requested, giving evidence in these proceedings.

  15. Pursuant to a consent order dated 15 March 2016, all further proceedings between the claimants and Mr Zhunus in this action have been stayed on the terms of the settlement deed except for the purpose of carrying those terms into effect, and the undertakings freezing the assets of Mr Zhunus have been discharged.

    The present applications

  16. In late January or early February 2016 D2 and D3 became aware that Mr Zhunus was in settlement discussions with the claimants. That prompted them to apply for permission to serve a contribution notice on Mr Zhunus.

  17. D2 then applied for a worldwide freezing order against Mr Zhunus in an amount of £72 million. To hold the position until the applications are determined, Mr Zhunus has given temporary undertakings to the court in similar terms to the undertakings discharged by the consent order, with cross-undertakings from D2 replacing those previously given by the claimants.

    The Contribution Act

  18. Section 1 of the Civil Liability (Contribution) Act 1978 provides as follows:

    ``Entitlement to contribution.

    (1) Subject to the following provisions of this section, any person liable in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage (whether jointly with him or otherwise).

    (2) A person shall be entitled to recover contribution by virtue of subsection (1) above notwithstanding that he has ceased to be liable in respect of the damage in question since the time when the damage occurred, provided that he was so liable immediately before he made or was ordered or agreed to make the payment in respect of which the contribution is sought.

    (3) A person shall be liable to make contribution by virtue of subsection (1) above notwithstanding that he has ceased to be liable in respect of the damage in question since the time when the damage occurred, unless he ceased to be liable by virtue of the expiry of a period of limitation or prescription which extinguished the right on which the claim against him in respect of the damage was based.

    (4) A person who has made or agreed to make any payment in bona fide settlement or compromise of any claim made against him in respect of any damage (including a payment into court which has been accepted) shall be entitled to recover contribution in accordance with this section without regard to whether or not he himself is or ever was liable in respect of the damage, provided, however, that he would have been liable assuming that the factual basis of the claim against him could be established.

    ...

    (6) References in this section to a person's liability in respect of any damage are references to any such...

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