1) Kazakhstan Kagazy Plc and Others (Respondents/Claimants) v Maksat Askaruly Arip
| Jurisdiction | England & Wales |
| Judge | Lord Justice Longmore,Lord Justice Jackson,Lord Justice Elias |
| Judgment Date | 02 April 2014 |
| Neutral Citation | [2014] EWCA Civ 381 |
| Docket Number | Case No: A3/2013/3583 |
| Court | Court of Appeal (Civil Division) |
| Date | 02 April 2014 |
[2014] EWCA Civ 381
The Right Honourable Lord Justice Longmore
The Right Honourable Lord Justice Jackson
and
The Right Honourable Lord Justice Elias
Case No: A3/2013/3583
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
HIS HONOUR JUDGE MACKIE QC
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Mark Howard QC, Mr Andrew Fletcher QC & Mr Alec Haydon (instructed by Cleary Gottlieb Steen & Hamilton LLP) for the Appellant/Defendant
Mr Michael Brindle QC & Mr Jonathan Miller, Miss Tetyana Nesterchuk&Mr Varun Zaiwalla (instructed by Zaiwalla & Co) for the Respondents/Claimants
Hearing dates: 18 th & 19 th February 2014
This is an appeal by Mr Arip (the Second Defendant) against the refusal of HHJ Mackie QC to discharge a freezing injunction which he had himself granted at a without notice hearing on 2 nd August 2013. He did, however, reduce the amount originally frozen by the injunction. There is also a cross appeal. The appeals raise points on the Kazakh law of limitation, the English (and Manx) law of reflective loss and the duty of disclosure on without notice applications. For the reasons that follow I would dismiss both the appeal and cross appeal, insofar as it relates to the issue of reflective loss and costs below.
The parties
The First Claimant ("KK Plc") is a company registered in the Isle of Man and the ultimate parent company of a substantial group of companies and limited liability partnerships in the business of logistics, recycling, and paper and packaging manufacture in Kazakhstan ("the KK Group"). KK Plc is the ultimate owner of the Second to Seventh Claimants, each of which is incorporated in Kazakhstan. KK Plc is quoted on the main board of the London Stock Exchange. I shall, except where it is necessary to distinguish between the Claimants, call them "KK". In 2009 Mr Tomas Werner acquired substantial shareholdings in KK, became Chairman of KK Plc and, later Chairman also of KK Jsc.
Mr Zhunus was director and chairman of the board of KK Plc from its incorporation in the Isle of Man on 5th March 2007 until April 2008. He was also indirectly the beneficial owner of 50% of the shares in KK Plc until its IPO in July 2007 and then of 23.9% of the shares until September 2009. He was director and chairman of the board of the Second Claimant ("KK Jsc") between 2003 and 14th July 2009. He is the First Defendant in the proceedings and the freezing injunction was originally granted against him as well as against Mr Arip but has now been replaced by an undertaking on terms offered by him. He has played no part in the appeal.
Mr Arip, the Second Defendant (and Appellant) was director and CEO of KK Plc from its incorporation until April 2008. He was indirectly the beneficial owner of 50% of the shares in KK Plc until its IPO and then likewise owner of 23.9% of the shares until September 2009. He was director and CEO of KK Jsc between October 2003 and July 2009. Mr Arip is from Kazakhstan but is no longer one of its citizens having acquired dual Cyprus and St Kitts and Nevis nationality.
A Third Defendant Ms Dikhanbayeva was the finance director of KK Jsc between 2001 and 29th April 2008; then both finance director and a board director of KK Jsc from 29th April 2008 to 14th July 2009. She was chairman of the board of KK Jsc from 5th September 2008 to 14th July 2009. No freezing injunction was sought against her.
What the action is about
KK (and Mr Werner on their behalf) say that there have been two large frauds, known in this action as the PEAK and the Astana frauds, by which the Defendants have stolen something over US$ 135 million from them. The Defendants deny the frauds altogether.
The PEAK fraud
KK describe this as follows. KK Jsc together with the Third Claimant ("PEAK") and the Fourth Claimant ("PEAK Akzhal") contracted with a purportedly independent construction company, Arka-Stroy LLP, for the development of a logistics centre and industrial park at three sites in the outskirts of Almaty, the former capital of Kazakhstan. KK Jsc, PEAK and PEAK Akzhal paid Arka-Stroy, more than 21 billion Kazakh Tenge ("KZT") — approximately US $167.5 million. KK say that only one site (that at Akzhal-1) saw any development. This consisted of the erection of 14 warehouse buildings (some of which are second-hand) and the construction of associated infrastructure, which was contemporaneously valued at most, by a certificate issued to the Kazakh Government by Arka-Stroy, at KZT 3.2 billion (US $25.32 million). KK say that even this sum appears to have been paid in part by at least US $6.8 million from the Fourth Claimant.
KK say that an analysis of the Arka-Stroy database carried out by Grant Thornton as part of the recent investigations which led to the applications to the Commercial Court in August 2013 shows that 99% of Arka-Stroy's income, throughout its existence, consisted either of payments from the KK Group or payments by entities controlled by Mr Zhunus and Mr Arip. The KK Group, after borrowing considerable sums from Alliance Bank, paid a total of US $167.5 million into Arka-Stroy. US $167.1 million then flowed out from Arka-Stroy into the hands of entities controlled by the Defendants or their associates. There is a net payment in to Arka-Stroy by KK Jsc, PEAK and PEAK Akzhal of at least US $100.2 million. Giving Arka-Stroy credit for the value of the development at Akzhal-1, KK say that they have been defrauded of some US $81.68 million.
The Astana Fraud
KK say that the Fifth, Sixth and Seventh Claimants paid substantial sums to a construction business which then paid large sums to entities controlled by Mr Zhunus, Mr Arip or their associates. KK say that funds were circulated for no apparent commercial purpose. KK say that they did not get the development they paid for, but a useless expanse of Kazakh grassland littered with unfinished piling works and unused construction materials.
KK say that the Astana fraud had two "Limbs". Limb 1 was preparatory in nature and consisted of the Defendants causing the Fifth Claimant to purchase the Sixth Claimant and its subsidiaries for some US$39.3 million more than they were worth. This is said to be a preparatory step in the Astana fraud, because the Astana-Contract Group owned the land outside Astana which was to be the site of the alleged development and because acquisition of the Group brought with it a pre-existing credit facility with the DBK Bank. The losses caused to the Fifth Claimant as a consequence of this purchase are alleged to arise from the excessive sums paid for the Astana-Contract group (which is said to have been effectively insolvent at the time). Limb 2 of the Astana fraud is, on the Claimants' case, a re-run of the PEAK fraud. The judge considered that KK had not made out a good arguable case on Limb 1 of this fraud and it was for this reason that the amount of the sum frozen was reduced.
The Defences/Attacks on the Injunction
Mr Arip disputes the claims in their entirety. The judge observed that, although the alleged fraud was huge, its structure was relatively straightforward so one might have expected Mr Arip to indicate how this is all a misunderstanding. Since Mr Arip makes a jurisdictional challenge to the proceedings, he is not yet under any obligation to file a defence but, for the purposes of the discharge application, he accepted before the judge and accepts before us that there is a good arguable case that he defrauded KK in the manner alleged by them.
Mr Arip's case on this application is, however, that by virtue of the Foreign Limitation Periods Act 1984, the claims of the Second to Seventh Claimants are subject to a limitation period under Article 18 of the Kazakh Civil Code of 3 years from the date when they became (or should have become) aware that their rights had been violated. Accordingly, he says he has a defence against those Claimants. He says further that KK Plc itself has no claim at all because any claim is only a reflection of the loss suffered by the second to seventh claimants.
KK say in response that, as made clear in their original application to the judge, that the events in issue mainly took place between 2006 and 2009, but it was only in March 2013 that evidence implicating the Defendants in the fraud was discovered by the present management of the KK Group, with the discovery of Arka-Stroy's data base (held in a separate and independent part of the KK Jsc server which is not visible nor accessible except with special access and which is not synchronized with the rest of the KK server). This database was analysed by Grant Thornton, who produced a forensic report of their findings. That report shows Arka-Stroy to have been a "Trojan Horse in the KK Group camp". Arka-Stroy's only significant economic activity consisted of extracting money from the Claimants and paying it out for the benefit of the Defendants and their relatives/associates. KK say that Arka-Stroy was managed by the Second Defendant although it purported to be (and was held out by the First and Second Defendants as being) an arm's length company in its dealings with the KK Group.
Mr Arip says further that Mr Werner on behalf of KK misled the Court in his affidavit sworn on 31st July 2013, for...
To continue reading
Request your trial
-
Alexandre Yakovlevich Tseitline v Leonid Victorovich Mikhelson and Others
...should differ depending on the domicile of the defendant. I am fortified in that conclusion by the observation of Longmore LJ in Kazakhstan Kagazy Plc v Arip [2014] EWCA Civ 381 at para 25 appearing to confine the Canada Trust gloss to applications for service out of the 38 In any event, t......
-
National Bank Trust v Mr Ilya Yurov and Others
...was described by Toulson J in Crown Resources AG v Vinogradsky (15 June 2001) and was adopted by the Court of Appeal in Kazakhstan Kagazy Plc v Arip [2014] EWCA Civ 381, [2014] 1 CLC 451 at [36]: "… issues of non-disclosure or abuse of process in relation to the operation of a freezing ord......
-
Andrews v Stanway
...different meaning than it does in the context of jurisdiction applications. As Elias LJ explained in Kazakhstan Kagazy Plc v Zhunus [2014] EWCA Civ 381, [2014] 1 CLC 451 at paragraph 63 and following in the freezing injunction context, the test has traditionally been that described in Must......
-
Primeo Fund (in Official Liquidation) v Bank of Bermuda (Cayman) Ltd and HSBC Securities Services (Luxembourg) Sa
...(51)Johnson v. Gore Wood & Co. (No. 2), [2003] EWCA Civ 1728, dicta of Arden, L.J. considered. (52)Kazakhstan Kagazy plc v. Arip, [2014] EWCA Civ 381; [2014] 1 CLC 451, referred to. (53)Kelly v. Fraser, [2012] UKPC 25; [2013] 1 A.C. 450; [2012] 3 W.L.R. 1008; [2012] I.C.R. 1408, dictum of L......
-
International Fraud & Asset Tracing (3rd Edition), England & Wales
...the court will consider any suggested defence to the claim, including any limitation defence (Kazakhstan Kagazy plc and others v Arip [2014] EWCA Civ 381). The defendant has assets within the jurisdiction. There must be evidence from which it may be inferred that the defendant has assets wi......
-
Frozen: Dont Let It Go
...The Court of Appeal recently had occasion to review the approach that should be taken in this regard, in Kazakhstan Kagazy Plc v Arip [2014] EWCA Civ 381. The claimants alleged a large-scale fraud and claimed damages of around $135 million. They obtained a freezing injunction against Mr Ari......