Alliance Bank JSC v Zhunus & Ors

A claim governed by foreign law may be time-barred at the interlocutory stage where the disclosed evidence establishes that the claimant knew, or should have known, of the relevant unlawful acts and resulting harm outside the limitation period. The court must focus on the individual acts said to have caused the loss and the claimant’s pleaded cause of action.

On a without-notice application for service out or a freezing injunction, the applicant must give full and fair disclosure of matters which could influence the court’s discretion, including adverse facts, legal issues, limitation material and weaknesses in causation. Material non-disclosure is assessed objectively by the court.

Alliance Bank alleged that the defendants had procured replacement loans to associated companies, caused valuable oilfield assets to be released from existing security, and left the bank without enforceable security. The claims were principally advanced under articles 8 and 917 of the Kazakh Civil Code.

On 14 November 2014, Flaux J permitted service of the claim form outside the jurisdiction on Mr Arip and granted a worldwide freezing order. Mr Arip applied to discharge the order and set aside service, contending that Alliance had no good arguable case, that there was no serious issue to be tried, that the claims were time-barred, and that Alliance had failed to disclose material matters at the without-notice hearing.

The central issues were whether limitation could be determined on the evidence available and whether the alleged non-disclosures were material.

1. The court accepted for the purposes of the applications that Alliance had realistic prospects of success on its Kazakh-law claims and that serious issues to be tried existed, subject to limitation.

2. Under Kazakh law, the three-year limitation period ran from the time when Alliance learned, or should have learned, that it had suffered harm through an unlawful violation of its rights. The relevant knowledge was that of the management board or board of directors, subject to the statutory constructive-knowledge criterion.

3. The claim was based on the obtaining of replacement loans without an intention to repay or provide effective security, rather than on a contractual claim against the borrowers or a deceit claim concerning the GeoTEK security. Alliance’s own documents showed that by February 2010 its board knew of the unsecured or inadequately secured loans, the preferential lending arrangements, the alleged procedural and legal violations, the use of the loans to repay earlier debt, and the absence of enforceable security. The claim issued on 22 July 2014 was therefore time-barred.

4. The acceptance of the GeoTEK shares as security, and Alliance’s own valuation of them as sufficient to cover the indebtedness, were materially relevant to intention, causation and loss. The alleged loss could have resulted from the failure to enforce accepted security rather than from the original lending.

5. On a without-notice application, materiality is assessed by whether the undisclosed matter would have influenced the judge’s decision or the terms of the order. The applicant’s duty extends to adverse facts, law, procedure, likely defences, causation issues and matters affecting limitation. Alliance should have disclosed, among other matters, the Credit Committee minutes, valuation material, internal audit and investigation reports, and its complaint to and the response of the Financial Police.

6. Both the limitation defence and the material non-disclosure required discharge of the orders. The order permitting service out of the jurisdiction and the Freezing Order were discharged. Costs were to follow the event, subject to further submissions on the form of the order.