Kazakhstan Kagazy Plc and Others v Baglan Abdullayevich Zhunus (formerly Baglan Abdullayevich Zhunussov) and Others
| Jurisdiction | England & Wales |
| Judge | His Honour Judge Mackie,Judge Mackie QC |
| Judgment Date | 20 November 2013 |
| Neutral Citation | [2013] EWHC 3618 (Comm) |
| Date | 20 November 2013 |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: 2013 FOLIO 1055 |
[2013] EWHC 3618 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
His Honour Judge Mackie QC
Case No: 2013 FOLIO 1055
Michael Brindle QC, Stephen NathanQC, Jonathan Miller and Harry Adamson (instructed by Zaiwalla and Co) for the Claimant
Andrew Fletcher QC and Alec Haydon (instructed by Cleary Gottlieb Steen & Hamilton LLP) for the Second Defendant
Hearing dates: 29 to 31 October 2013
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
His Honour Judge Mackie QC
This is the hearing of the Second Defendant's application dated 2 September 2013 to discharge a Freezing Injunction of an amount up to £100 million which I granted on 2 August 2013. The grounds are non-disclosure and failure to establish a good arguable case. The Claimants seek continuation of the injunction until final judgment or further order, or the grant of a new injunction in its place on the same terms. The injunction against the First Defendant has been replaced by an undertaking on terms. No injunction was sought against the Third Defendant.
The hearing finished almost two weeks ago. I have deferred giving judgment as the parties wished to make written submissions on one point.
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"
The First Defendant 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.
The Second Defendant Mr Arip 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 of 23.9% of the shares in 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.
The 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.
Evidence
The evidence before the court consists of twenty-six lever arch files of documents (including, mercifully, a core bundle) and numerous affidavits. There are four from Mr Tomas Werner, director, shareholder and former Chairman of the First Claimant and CEO of the Second Claimant, two from Mr McGregor, General Counsel of the First Claimant, one from Ms Reddy, one from Ms Burbeza and six from Mr Crestohl, all of the Claimants' solicitors and one from Mr Kuzmenko, Head of IT at the Second Claimant. There are two from Mr Maksat Arip, the Second Defendant, five from Mr Gadhia and two from Mr Sarkar of his solicitors, two each from Mr Manghi, former Chairman of the First Claimant and Mr Holland a director of CBRE, surveyors and valuers in Kazakhstan, two from the Third Defendant and one each from Mr Zhangurov, an IT administrator and Mr Khasanov, currently head of the programming and engineering side of IT at the Claimants. In addition there is expert evidence of Kazakh law in various forms from Mr Sariev, Mr Telemtayev and Professors Didenko and Suleimenov. There is undisputed evidence from Isle of Man lawyers, Simcocks, that Manx law is the same as that of England in relevant respects. Mr Arip also relies on expert accounting evidence from Mazars.
What the action is about
KK 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 for the development of a logistics centre and industrial park at three sites in the outskirts of Almaty, in 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 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 analysis of the Arka-Stroy database carried out by Grant Thornton as part of the investigations this year that led to the applications to this court 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 paid a total of US $167.5 million into Arka-Stroy. US $167.1 million 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.
Mr Werner says that the Astana fraud had two "Limbs". Limb 1 is preparatory in nature and consists of the Defendants causing the Fifth Claimant to purchase the Sixth Claimant and its subsidiaries for some US$39.3 million more than it was 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 acquisition of the Group brought with it a pre-existing credit facility with DBK. 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 was effectively insolvent at the time). Limb 2 of the Astana fraud is, on the Claimants' case, a re-run or attempted re-run of the PEAK fraud which has led to losses on both limbs of US $53.5 million in all.
Mr Arip disputes the claims in their entirety. He has not explained why in any detail. Although the alleged fraud is huge its structure is relatively straightforward so one might have expected Mr Arip to indicate how this is all a misunderstanding. That is something which in itself I do not have regard to at this stage for the reasons given by Woolf LJ in Behbehani v Salem [1989] 1 WLR 723,735A-D. Mr Arip points out that no other Defendant has yet had an obligation to put in a Defence. Mr Fletcher QC and Mr Haydon for Mr Arip also submit that their client is at a distinct evidential disadvantage. The entire case is concerned with property located in Kazakhstan and events which took place there between 2005 and 2009. Mr Arip is no longer resident there. A detailed response to the allegations, which concern not only payments made by the Claimants, but the value of work carried out by third parties on land in Kazakhstan, will require full access to the documentation and to the relevant sites (neither of which Mr Arip has), and a chance to undertake a proper detailed response with appropriate expert evidence, with an opportunity to obtain factual evidence from witnesses in Kazakhstan, many of whom apparently remain in the Claimants' employment.
Mr Arip concedes for the purpose of this application that there is a good arguable case against him on the PEAK and Astana Limb 2 frauds, subject to two defences. He submits that there is no good arguable case in respect of three matters in all, first the impact of the reflective loss principle on the claims of KK PLC, secondly the effect of limitation on the claims of the Second to Seventh Claimants and thirdly the first limb of Astana, known as Astana 1.
The Second Defendant's grounds for seeking to set aside the Injunction
Mr Arip says that there have been serious non-disclosures...
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