New Media Distribution Company Sezc Ltd v Kagalovsky

An amendment should be refused where the proposed case has no real prospect of success. The same test applies as on an application for summary judgment. Findings in earlier proceedings may create an issue estoppel, or make a later challenge an abuse of process, even where the later claim has a different legal basis, if the factual issue is the same and the earlier determination was necessary or fundamental. A party may be prevented from pleading a belief inconsistent with findings already binding on him. Exceptional circumstances may justify relief from issue estoppel, but none existed here. A purpose of protecting a business does not necessarily fall within Arbuthnot Leasing International Ltd v Havelet Leasing Ltd (No 2) as a prohibited purpose under Insolvency Act 1986, although that point was unnecessary to the decision.

New Media Distribution Company SEZC Ltd brought proceedings under section 423 of the Insolvency Act 1986 concerning transactions which had diluted an entity’s interest in a Ukrainian television business. The defendant relied on proposed amendments asserting that his purpose was to protect the business from conduct which he honestly believed to be wrongful.

The claimant contended that the proposed case was barred by issue estoppel or abuse of process, because related New York proceedings had already determined the relevant factual matters. It also contended that the proposed case had no real prospect of success. The court determined the preliminary issue and the contested part of the amendment application.

1. Amendment principles. The application was not a very late amendment application of the kind requiring a heavy burden where a fixed trial date would be lost. The ordinary principles nevertheless applied. An amendment should be refused if it had no real prospect of success, applying the same test as under CPR Part 24. The proposed case had to be better than merely arguable and could be rejected if inherently implausible, self-contradictory or unsupported by contemporaneous documents.
2. Issue estoppel. The requirements identified in The Sennar (No 2) were applicable: a final and conclusive judgment on the merits by a competent court, identity or privity of parties, and determination of the same issue. The determination had to be necessary or fundamental to the earlier decision. The wider principle concerning abuse of process also applied. Exceptional circumstances could prevent an issue estoppel from operating, but none was established.
3. Proposed purpose case. The New York findings bound the defendant, alternatively it would have been abusive for him to challenge them. They established, among other matters, that he had knowledge of and consented to relevant pricing, programming, related-party transactions and funding arrangements, and that the relevant transactions and services were not shown to be excessive or improper. Those findings left no real prospect of establishing that he genuinely believed the matters pleaded in the proposed amended paragraph 16, or that such beliefs caused him to carry out the dilution to protect the television business. The contested amendments in paragraphs 16 and 17, and consequential parts of paragraphs 14, 15 and 19, were therefore refused.
4. Proposed paragraph 18 might survive subject to further particularisation, although the judge was not persuaded that it could support the proposed purpose case.
5. The submission based on Arbuthnot Leasing International Ltd v Havelet Leasing Ltd (No 2) was rejected. A purpose of protecting a business would not necessarily amount to a purpose within section 423. This observation was not necessary to the decision.