Kazakhstan Kagazy plc v Zhunus

The Court found, at first instance, that the Claimant group had proved large-scale misappropriation of company funds by former management and directors. Key legal issues were liability under the JSC Law (Articles 62 and 63) for breaches of directors’ duties, tortious liability under Articles 917 and 932 of the Kazakh Civil Code and unjust enrichment under Articles 953–960. The judge concluded that the former directors caused and/or permitted payments to be made to entities controlled or used by them (notably Arka‑Stroy and a network of connected companies) and that substantial sums were thereby diverted from the KK Group. The court also considered valuation evidence of construction and land, awarded liability to the Claimants subject to quantification and allowed claims for interest/penalties subject to credit for legitimate work and repayments. Limitation defences under Kazakh law were rejected: the judge held the Claimants had not, by the relevant cut‑off dates, become or reasonably should have become aware of the matters that would have started the limitation clock; even if time had run, disapplication under the Foreign Limitation Periods Act 1984 would have been appropriate.

The Claimants are a Kazakhstan operating group (KK Group) and related entities; the Defendants are former directors and major former shareholders. The Claimants alleged complex, multi‑faceted frauds between c.2005–2009, centred on overpayment to a construction contractor (Arka‑Stroy) and onward transfers to a web of connected companies, and inflated purchases of land plots. The principal remedies sought were recovery of transferred funds, damages (including for interest, penalties and default interest) and proprietary remedies where available.

The court decided a large and contested factual matrix: (i) the PEAK claim — payments to Arka‑Stroy of c. US$109m (net) were not justified and a substantial proportion was diverted on to entities controlled by the Defendants; (ii) the Astana‑2 claim — DBK loan proceeds for an Astana logistics project were misapplied through a similar scheme; (iii) the Land Plots claim — KK JSC paid substantially inflated prices for agricultural plots acquired via nominees and intermediaries linked to the defendants. Key documentary evidence included the PwC (Russia) review (Dec 2009), contemporaneous accounting entries and ultimately extraction of the Arka‑Stroy 1C accounting database in 2013. Expert evidence covered forensic accounting, auditing, Kazakh substantive law on directors’ duties and limitation, quantity surveying and land valuation.

Issues decided:

• Liability: The judge found the defendants had abused connected entities as conduits to misappropriate funds and were liable to KK JSC, PEAK and other Claimants under the JSC Law (where applicable), Articles 917 and 932 KCC (tort) and in principle for unjust enrichment. The judge accepted the Claimants’ primary case of controlled companies and misapplied monies though reduced recoverable sums to account for legitimate work and repayments.
• Limitation: Applying Kazakh law, the court held the Claimants had not become aware, nor should they reasonably have become aware, of the matters that would start the three‑year limitation period by 1 Aug 2010 (PEAK/Astana‑2) or by 27 Aug 2012 (Land Plots). Even if time had run, the court considered disapplication under the Foreign Limitation Periods Act 1984 could have been justified.
• Remedy/quantum: Liability was declared in favour of the Claimants; the judge ordered quantification to reflect credits for bona fide construction works (Akzhal 1/2 and limited Aksenger work), repayments and appropriate adjustments. The judgment leaves detailed quantification and currency issues to follow.

The judgment addresses assessment of witness credibility in long‑running international fraud litigation, the treatment of documentary and accounting evidence (including extracted databases), the application of Kazakh limitation rules and the circumstances in which English courts may disapply foreign limitation periods.

The court (Picken J) found for the Claimants: the PEAK, Astana‑2 and Land Plots claims were made out against the remaining defendants. The judge held that the Defendants (the former directors) had caused and authorised payments through Arka‑Stroy and other connected entities, resulting in misappropriation and loss to the Claimants; claims in tort and under Articles 62–63 (JSC Law) were established where applicable. On limitation, the court held the Kazakh three‑year limitation period had not begun to run by the relevant dates and, even if it had, disapplication under the Foreign Limitation Periods Act 1984 would have been available. The judge declared liability and directed quantification and crediting (for legitimate work and repayments); detailed sums and currency issues to be determined subsequently.

Interlocutory history came before HHJ Mackie QC who initially granted and later varied a worldwide freezing injunction; that decision and related interlocutory applications were considered by the Court of Appeal (applications and cross‑appeals dismissed in part; various permission and disclosure applications followed). There were further interlocutory Part 24 and freezing injunction challenges, and an appeal concerning a contribution notice ([2016] EWCA Civ 1036). The present decision is a first‑instance Commercial Court judgment ([2017] EWHC 3374 (Comm)).