Koza Ltd & Anor v Koza Altin Isletmeleri AS

A court may use its ancillary jurisdiction under Senior Courts Act 1981, section 37 to make a specific injunction which renders an existing undertaking effective. That jurisdiction can be exercised where there is a sufficiently strong case that proposed conduct will breach the undertaking, even though the issue of breach will not be finally tried.

Where an interim injunction will in practice determine the matter, the court should assess the least irremediable prejudice and may require a high degree of assurance on the disputed merits. A parent company’s proprietary interest in the value of its shareholding can also support interim protection of its subsidiary’s assets, notwithstanding that the parent seeks declaratory relief.

Koza Ltd and its sole director, Mr Ipek, appealed against an injunction restraining Koza Ltd from using up to £3 million of its assets to fund an ICSID arbitration brought by another group company against Turkey.

The injunction enforced, pending trial or further order, Koza Ltd’s undertaking not to deal with its assets other than in the ordinary and proper course of business. An earlier appeal had left unresolved whether the proposed funding fell within that exception.

The High Court granted the injunction on the basis that there was a high degree of assurance that the funding would breach the undertaking and that the balance of least irremediable prejudice favoured restraint: [2020] EWHC 654 (Ch). The central issues were the court’s jurisdiction to grant such relief and whether its discretion had been properly exercised.

1. Permission to appeal was granted, but the appeal was dismissed by a majority. Popplewell LJ, with whom Asplin LJ agreed, held that the injunction was properly granted.

2. The application was not an abuse of process. The earlier appeal had decided only that the court could not make either a positive or negative declaration, on the written evidence, as to whether the funding would breach the undertaking. It had not decided whether injunctive relief should be granted where breach remained arguable but incapable of final resolution. Nor had Koza Altin acted abusively in not seeking the injunction earlier, because it could reasonably have understood that funding depended on the outcome of the earlier funding application.

3. Under section 37(1) of the Senior Courts Act 1981, the court had ancillary jurisdiction to make orders ensuring compliance with an undertaking given to it. The jurisdiction does not depend on the court having power to grant an equivalent injunction afresh. It extends to a threatened breach whose existence is disputed. Where that dispute will not be finally resolved, the court may still restrain conduct if the circumstances justify interim relief; it is not powerless unless breach can be conclusively proved.

4. There was also an original jurisdiction to protect Koza Altin’s legitimate proprietary interest in the value of its shareholding in Koza Ltd. A parent company may obtain interim relief preserving its subsidiary’s assets where the parent asserts an arguable right to control the company. The fact that the counterclaim sought declarations, rather than a money judgment or final injunction, was no bar.

5. The judge had correctly applied the least-irremediable-prejudice analysis. He was entitled to have a high degree of assurance that the share purchase agreement underpinning the arbitration was inauthentic, to reject the proposed alternative jurisdictional basis for the arbitration, and to infer that alternative funding was available. There was no basis to interfere with his discretionary conclusion.

Dissent

Moylan LJ would have allowed the appeal. In his view, an effectively permanent injunction could not be founded merely on an arguable breach of the undertaking’s ordinary-and-proper-course-of-business exception where breach would never be determined. He also considered that the respondent should have sought any such injunction during the earlier funding proceedings.

• Court of Appeal (Civil Division): Permission to appeal was granted, but the appeal against the injunction was dismissed by a majority: [2020] EWCA Civ 1018 .
• High Court, Chancery Division: Mr Jeremy Cousins QC granted an injunction restraining the proposed arbitration funding: [2020] EWHC 654 (Ch).