Kazakhstan Kagazy Plc & Ors v Zhunus & Anor

A defendant may seek permission to serve a contribution notice alleging, conditionally, that a co-defendant is liable, even after that co-defendant has settled the claimant’s claims. Section 1(3) of the Civil Liability (Contribution) Act 1978 permits contribution proceedings despite cessation of co-defendant liability. For freezing relief, the relevant requirement is a right to commence proceedings capable of being protected, not necessarily an accrued cause of action in its strictest sense. A contribution notice can therefore support a freezing injunction before liability has been determined. Equity imposes no blanket bar where both parties may have participated in fraud. Contribution and protective relief may remain available pending assessment of responsibility and benefit.

The claimant companies brought fraud claims against their former chairman, Mr Zhunus, and other former officers, including Mr Arip and Ms Dikhanbayeva. Mr Zhunus later settled with the claimants, and the claims against him were stayed. Mr Arip and Ms Dikhanbayeva denied liability but sought permission under rule 20.6(2) of the Civil Procedure Rules to serve a contribution notice alleging, in the alternative, that Mr Zhunus was liable if they were found liable to the claimants.

They also sought continuation of freezing protection over Mr Zhunus’s assets. Leggatt J refused permission because the proposed notice relied on the stayed allegations without advancing a separate positive case against Mr Zhunus, and consequently declined to grant freezing relief. The appeal concerned whether the conditional contribution case was maintainable after settlement, whether a freezing injunction could support it before contribution liability had accrued, and whether alleged fraud by the applicants engaged the clean-hands principle.

Longmore LJ delivered the judgment, with which David Richards LJ agreed. The appeal was allowed.

1. Contribution notice. The proposed notice was adequately particularised. A defendant may deny liability while advancing an alternative case that, if liable, a co-defendant is also liable for the same damage. The co-defendant’s settlement did not prevent that course. Section 1(3) of the Civil Liability (Contribution) Act 1978 expressly contemplates contribution proceedings despite a person having ceased to be liable after the damage occurred. The court followed the same approach as Logan v Uttlesford District Council 1984 WL 988961.
2. Conditional pleading and abuse. Permission did not require a present determination that liability of the applicants would necessarily establish liability of Mr Zhunus. Those issues could be resolved at trial, including by reference to evidence of joint activity. The conditional nature of the case did not show an intention never to pursue it and was not equivalent to the abuse described in Arbuthnot Latham Bank Ltd v Trafalgar Holdings Ltd [1998] 1 WLR 1426.
3. Freezing relief. Section 10 of the Limitation Act 1980 concerns the limitation period for a contribution action and does not determine when a person is entitled to seek contribution. The authorities, including Fourie v Le Roux [2007] 1 WLR 320, establish that a freezing injunction is supplementary relief protecting the efficacy of substantive proceedings. An accrued cause of action in its strictest sense is unnecessary where the applicant has a right to issue proceedings, as with a contribution notice. Steamship Mutual Underwriting Association v Thakur Shipping Co Ltd [1986] 2 Lloyds Rep 439 was distinguishable because the relevant contingencies there would not have occurred even by the time of the proposed declaration.
4. Fraud and clean hands. There was no blanket rule preventing contribution or freezing relief between alleged fraudsters. Contribution may be ordered between wrongdoers on a just and equitable basis, having regard to responsibility, gravity of fault, causal contribution and benefit. The ultimate result was too uncertain to justify releasing the assets before trial. The existing undertakings were therefore continued.
5. Orders. Permission was granted to file and serve the contribution notice. The undertakings and cross-undertaking continued until judgment in the underlying trial or further order. Ancillary matters were remitted to the Commercial Court, and the respondent was ordered to pay the specified appeal and application costs.

• Court of Appeal (Civil Division). On 26 October 2016, the court allowed the appeal, granted permission to serve the contribution notice, continued the undertakings and remitted ancillary matters to the Commercial Court.
• High Court of Justice, Queen’s Bench Division, Commercial Court. Leggatt J refused permission to serve the proposed contribution notice and consequently declined to grant a freezing injunction.