Kazakhstan Kagazy Plc & others v Baglan Abdullayevich Zhunus & others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Leggatt |
| Judgment Date | 29 September 2016 |
| Neutral Citation | [2016] EWHC 2363 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: 2013 FOLIO 1055 |
| Date | 29 September 2016 |
[2016] EWHC 2363 (Comm)
Mr Justice Leggatt
Case No: 2013 FOLIO 1055
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Robert Howe QC, Jonathan MillerandDaniel Saoul (instructed by Allen and Overy) for the Claimants
Andrew Twigger QC, Anna DilnotandAdam Woolnough (instructed by Cleary Gotlieb Steen & Hamilton LLP) for the Defendants
Hearing dates: 27 – 28 September 2016
On this application by the claimants to re-amend the particulars of claim the focus of dispute lies, unusually, not in amendments which the claimants wish to make but in amendments which the claimants do not wish to make to their statement of case. The defendants contend that the claimants' decision to leave certain claims in the particulars of claim and not to delete those claims comes too late, because the claims have already been discontinued. The claimants deny that they have discontinued the claims. If it is found that the claims have not been discontinued, the defendants renew an application issued much earlier in the proceedings, but which has never been decided, and seek a declaration that the court has no jurisdiction to determine the claims in question because those claims do not raise a serious issue to be tried.
The background
The relevant procedural history and background is quite complicated but I will try to summarise it shortly.
The first claimant (C1), a company registered in the Isle of Man, is the ultimate parent company of the second claimant (C2), a company incorporated in Kazakhstan. C2 in turn directly or indirectly owns the other claimants, which are also Kazakh corporations. The defendants are former officers of the claimants who are alleged in this action to have defrauded the claimants of substantial sums of money. Earlier this year, the claimants concluded a settlement with the first defendant, Mr Zhunus, and the proceedings against him have been stayed. When I refer in this judgment to "the defendants", I am referring only to the second and third defendants, Mr Arip and Ms Dikhanbayeva, against whom claims are still being pursued, with the trial listed to take place after Easter next year.
Some of the claims pleaded in the original particulars of claim were claims for losses allegedly caused by breaches of fiduciary duties said to have been owed by the second defendant (D2) to C1 under the laws of the Isle of Man. It was also pleaded that the third defendant (D3) is liable for dishonestly assisting in these alleged breaches of fiduciary duty. I will refer to this group of claims as the "Manx law claims".
From the start of the proceedings, the defendants have objected to the Manx law claims on the ground that C1 is precluded from pursuing them by the so called "rule against the recovery of reflective loss". The precise scope of that rule is a matter in dispute but, broadly speaking, where loss suffered by a shareholder of a company merely reflects loss suffered by the company which the company itself is entitled to recover from the defendant, then the shareholder is not permitted to pursue a claim to recover its loss from the defendant.
This action was begun in August 2013. When the proceedings were launched, the claimants applied without notice for and obtained a freezing injunction against D2. An application by D2 to set aside the freezing injunction was largely unsuccessful but did succeed in relation to the Manx law claims. HHJ Mackie QC decided that, because of the rule against the recovery of reflective loss, C1 had failed to show a good arguable case in relation to those claims. That decision was upheld by the Court of Appeal. In consequence, the freezing injunction against D2 was varied so as to remove the Manx law claims from its scope.
At the end of last year the claimants notified the defendants that they no longer intended to pursue the Manx law claims (and certain other claims which I leave aside for present purposes). The claimants took the view – which was not at that stage disputed by the defendants – that they needed the court's permission in order to discontinue the claims.
In January 2016 the claimants provided draft re-amended particulars of claim to the defendants in which the Manx law claims were deleted. The defendants gave their consent to the proposed amendments. There was disagreement, however, about the terms of an order which the court would be asked to make granting the claimants permission to discontinue the Manx law claims (and certain other claims) and to amend the particulars of claim. In particular, although it was common ground that the claimants should pay the defendants' costs of the discontinued claims, there was disagreement about aspects of the costs order including whether there should be an immediate detailed assessment and what should be ordered by way of a payment on account of the relevant costs.
On 15 April 2016 the claimants' solicitors sent to the defendants' solicitors a draft order accompanied by a notice of discontinuance and a copy of the re-amended particulars of claim in the agreed form which showed the Manx law claims as deleted. The notice of discontinuance was also filed with the court. However, the draft order was not agreed by the defendants.
The draft order had still not been agreed when on 24 June 2016 the claimants' solicitors wrote to say that they were reconsidering their position with regard to the Manx law claims. Shortly afterwards they informed the defendants that they no longer wished to discontinue those claims because of recent developments in Kazakhstan. Those developments, in outline, are as follows.
In January 2016 a holding of bonds issued by C2 was acquired by an entity called Trust Mediation Warranty LLP. I will refer to this entity, for short, as "TMW". Those are also the initials of Mr Thomas Mateos Werner, the CEO of C1, which the claimants suggest is not a coincidence. The bonds acquired by TMW amounted to only 1.3% of the total bonds issued by C2. But on the basis of its standing as a creditor, TMW applied to the Kazakh court to place C2 into "rehabilitation". Rehabilitation is a procedure under Kazakh law which bears some similarities to administration in English law and is aimed at restoring a company's capacity to pay its creditors and avoid liquidation.
TMW's application was opposed by a substantial majority of the bondholders who between them owned 87% of the company's bonds. Despite that, the application was granted by the Kazakh court in March 2016. There was an appeal, but that was dismissed by the appeal court on 8 June 2016. As a result, a Temporary Administrator of C2 was appointed on 28 June 2016.
No sooner was he appointed than the Temporary Administrator wrote a series of letters to the solicitors acting for the claimants in these proceedings and to an entity which is funding the litigation on a commercial basis. This correspondence included a letter dated 7 July 2016 to the litigation funder purporting to invalidate its agreement with C2 and a letter of the same date sent to C2's solicitors telling them that they were prohibited from representing the interests of C2 and that they were acting without authority and thereby committing a "serious offence". Copies of these letters also found their way to the defendants' solicitors and were relied on by the defendants at a hearing in this court on 15 July 2016.
On 18 July 2016 the Temporary Administrator applied to the Kazakh court for various interim measures, which included orders which would prohibit C2 from taking any actions, including actions in relation to these proceedings, without his approval. That application, however, was dismissed by the Kazakh court in a judgment dated 29 July 2016. A further application by the Temporary Administrator made on 25 July 2016, seeking to establish that C2's conduct of these proceedings required his approval, was also unsuccessful.
At meetings of C2's creditors which took place at the end of August a plan for rehabilitation of the company was discussed and approved by its creditors. That plan contemplates that C2 will continue to pursue the present proceedings and indeed counts on C2 making a recovery in these proceedings in order to achieve a projected partial recovery for its creditors. The Temporary Administrator submitted an opinion to the court criticising this plan. Nevertheless, following a hearing on 16 September 2016 the Kazakh court approved the rehabilitation plan and removed the Temporary Administrator from office. Subject to any appeal against that decision, it therefore appears that the attempts made by the Temporary Administrator to interfere with C2's pursuit of its claims in this litigation have failed.
The claimants say that it is to be inferred – or that there is at least a real prospect of showing – that TMW and the Temporary Administrator have been procured or instructed by the defendants to try to make it impossible for C2 to be able to pursue its claims in these proceedings. The matters on which they rely to support this inference include the following:
i) This is not a situation where an existing creditor has become dissatisfied with the way the company is being run and sought to get an administrator appointed. Rather, the claimants say, it is plain from the history that TMW was set up and acquired bonds in C2 specifically with the aim of controlling or influencing the conduct of C2's affairs by getting a Temporary Administrator appointed.
ii) The bonds were acquired from a Kazakh company in which D2 formerly held a senior position.
iii) The role of a Temporary Administrator under the relevant Kazakh law is to identify creditors, form a creditors' committee to prepare...
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