Kazakhstan Kagazy Plc & Ors v Arip

A claimant seeking or maintaining a freezing injunction must show a good arguable case. That test does not require the claimant to have much the better of the argument. The court must consider a proposed limitation defence, but should not conduct a mini-trial on disputed facts at an interlocutory stage.

The reflective-loss principle prevents a parent company recovering loss which merely reflects loss suffered by subsidiaries. A subsidiary’s possible time bar does not itself remove that bar. The narrow exception where a wrongdoer has made it impossible for the company to sue does not apply merely because fraud was concealed or a limitation defence is asserted.

Kazakhstan Kagazy Plc and associated group companies alleged that former directors had procured two major frauds involving construction projects in Kazakhstan. They obtained a without-notice freezing injunction against Mr Arip.

On an application to discharge it, the Commercial Court held that the subsidiary claimants had a good arguable answer to a Kazakh limitation defence, but reduced the frozen amount because one limb of the claim was insufficiently arguable. It also held that the parent’s claim was barred by reflective loss, and maintained the injunction despite limited non-disclosure. Mr Arip appealed and the claimants cross-appealed on reflective loss and costs: [2013] EWHC 3618 (Comm).

The central issues were the good-arguable-case threshold, reflective loss, and disclosure on a without-notice freezing-injunction application.

1. Appeal and cross-appeal dismissed. The subsidiary claimants retained their freezing injunction. The Court would not disturb the Commercial Court judge’s evaluative conclusion that they had a good arguable answer to the limitation defence.

2. A freezing injunction requires a good arguable case. The judge had put the threshold too high by requiring the claimants to have much the better of the argument. The court must consider both the claim and any proposed defence, including limitation. However, disputed issues as to when a claimant ought to have become aware of fraud should ordinarily be resolved at trial, not by a mini-trial on an interlocutory application.

3. The parent company had no good arguable independent claim. Its alleged loss merely reflected the losses of subsidiaries which had brought the same claims. A possible limitation bar affecting those subsidiaries did not displace the reflective-loss principle. The limited exception in Giles v Rhind, [2003] Ch 618, requires the wrongdoer’s conduct to have disabled the company from pursuing its remedy. Concealment of fraud did not satisfy that condition, particularly as the subsidiaries had in fact sued.

4. The judge was entitled to maintain the injunction despite limited failures of disclosure. In a complex case, an application to set aside an order for non-disclosure should not become a preliminary trial of disputed facts. Materiality is a matter of degree and proportionality. Elias LJ added that matters raising suspicion may sometimes require disclosure, but the duty did not require a detailed analysis of every possible inference relevant to the limitation defence.

5. The judge’s costs order, reserving the costs below, was a discretionary decision within the proper range and was not varied.

• Court of Appeal (Civil Division): Dismissed Mr Arip’s appeal against the continuation of the freezing injunction and dismissed the claimants’ cross-appeal concerning reflective loss and costs: [2014] EWCA Civ 381.
• High Court, Commercial Court: Refused to discharge the without-notice freezing injunction, while reducing its amount; held that the parent company had no independent claim because of reflective loss; and reserved costs: [2013] EWHC 3618 (Comm).