Kazakhstan Kagazy Plc & Ors v Dencora Ltd & Ors

Where property may be beneficially owned by a judgment debtor and therefore caught by a freezing order, the court may permit commercial lettings if appropriate safeguards protect the judgment creditor’s enforcement position. Permission may be limited by a maximum term, break clauses, controlled payment of rent and requirements for agreed or court-approved tenancy terms. The court should not micro-manage detailed terms at an interim hearing. An applicant seeking access to rental income to fund litigation must provide clear evidence that, without it, the applicant cannot defend its interests. Ownership of the relevant property, or the fact that it is the applicant’s principal asset, does not by itself discharge that burden.

Dencora Limited and Standcorp Limited applied to vary interim charging orders and worldwide freezing orders so that they could grant two-year commercial tenancies over properties registered in their names. The claimants contended that the properties were beneficially owned by Mr Arip, or possibly by Mr and/or Mrs Arip, and were therefore subject to freezing orders supporting enforcement of a judgment debt of approximately $300 million and a prospective third-party costs order.

The beneficial ownership issues remained for determination in the charging order proceedings. The immediate questions were whether lettings should be permitted, on what safeguards, and whether the applicants could use rental income to fund their litigation costs.

The applications were granted in part and dismissed in part.

1. The court varied the relevant charging orders and freezing orders to permit Dencora and Standcorp to grant tenancies over the respective properties for terms not exceeding 24 months. The tenancies, and the permission for them, were to be on terms agreed by the claimants or, failing agreement, approved by the court.
2. The court considered that commercial lettings were in principle in the interests of all parties, provided the claimants’ prospective enforcement interests were protected. It was inappropriate at the interim hearing to micro-manage the precise tenancy terms.
3. Provisional views were given that the Burlington Apartment should ordinarily have a break clause exercisable after an initial six-month period, and that the Wycombe Property should not be unconditionally let for more than 12 months. Rental income should be paid into specified accounts and used only for property expenses, including mortgage payments where applicable, unless the claimants consented or the court ordered otherwise.
4. The applicants’ separate applications to use rental income for legal costs were dismissed. In the context of freezing orders, an applicant seeking such access had to establish by clear evidence that, without the rental income, it would be unable to fund a defence of its interests. The evidence showed only that the relevant property was the applicant’s only or principal asset. The asserted need to use rent for legal representation therefore did not follow.
5. Additional proposed requirements concerning oversight of rental accounts and provision of financial information were unnecessary for protection of the claimants’ interests in these proceedings, although such information might become material in any later application concerning compliance with the freezing orders.

The judgment records that the claimants had obtained a money judgment at trial before Mr Justice Picken. No appellate history is stated in the judgment.