Kazakhstan Kagazy Plc & Ors v Zhunus & Ors

On an application to discharge or continue a freezing injunction, a claimant need only show that it has a much better argument than the defendant at the interlocutory stage. The court should avoid resolving disputed facts or conducting a preliminary trial. Potential defences, including limitation, must be considered.

Applicants for ex parte relief owe a high duty of utmost good faith and must disclose material facts, legal issues and weaknesses fairly. Breach normally requires discharge, but the court retains a sparingly exercised and proportionate discretion to continue or re-grant relief.

The reflective loss principle applies where a shareholder’s loss merely reflects loss suffered by the company, including where the company’s claim is time-barred. An exception may arise where the defendant’s wrongdoing made it impossible for the company to pursue its remedy.

The claimants alleged that the defendants had perpetrated substantial PEAK and Astana frauds in Kazakhstan. A freezing injunction for up to £100 million had been granted without notice on 2 August 2013.

The second defendant applied to discharge it for material non-disclosure and failure to establish a good arguable case. The court considered limitation under Kazakh law, reflective loss in relation to the first claimant’s Manx-law claims, the separate Astana 1 allegations, the risk of dissipation and the claimants’ cross-undertaking in damages.

The central questions were whether the claimants had a good arguable case and whether any non-disclosure required discharge or permitted continuation of the injunction.

1. Good arguable case. The relevant test was whether the claimants had a much better argument than the defendant on the material available. The court was not required to decide disputed facts or finally determine the merits. Potential defences, including limitation, had to be taken into account.
2. The claimants had the better argument on the evidence concerning limitation under Kazakh law. Article 180 of the Kazakh Civil Code made awareness, or what the claimants should reasonably have discovered, central. Those issues depended on conflicting evidence and were matters for trial. The Second to Seventh Claimants therefore had a good arguable case on the PEAK and Astana 2 frauds.
3. The First Claimant’s claims were barred by the reflective loss principle on the case as advanced. The pleaded losses were not separate from losses claimed by the subsidiary claimants. The Giles v Rhind exception remained available only if the defendants’ wrongdoing had made it impossible for the subsidiaries to sue in time. That factual and legal case was not the basis primarily relied on.
4. There was no good arguable case on Astana 1. The evidence did not presently establish that the valuations resulted from dishonest information supplied by the defendants. The injunction was therefore discharged to that extent.
5. The claimants had failed to disclose matters concerning reflective loss and Astana 1, and there had been minor non-disclosure concerning limitation awareness. The general rule was discharge and refusal to renew. However, the court retained a narrow discretion to continue relief, considering culpability, materiality, the merits, proportionality and the interests of justice. The disputed and complex evidence did not justify setting aside the remaining relief.
6. The risk of dissipation was established. The injunction therefore remained in force for the PEAK and Astana 2 claims against the relevant claimants, but was set aside as regards the First Claimant and Astana 1.