Koza Limited v Koza Altin

The Court of Appeal (majority) dismissed the appeal against an injunction restraining Koza Ltd and Mr Ipek from using up to £3m of Koza Ltd’s assets to fund an ICSID arbitration. The panel held that the court had power under section 37 of the Senior Courts Act 1981 to grant an injunction ancillary to an undertaking and also that an original freezing-order-type jurisdiction could be invoked to protect a parent company’s proprietary interest in the value of its subsidiary pending resolution of company law disputes. Applying the Olint/American Cyanamid concept of least irremediable prejudice, the majority concluded there was a serious and arguable case that the SPA relied on to found the arbitration was inauthentic, that alternative sources of funding were likely to exist and that the balance of least irremediable prejudice favoured restraining the funding. The court also rejected abuse of process and "no underlying claim" objections. One judge (Moylan LJ) dissented, considering the application an improper way to re-litigate issues already open to determination earlier in the proceedings.

Background and procedural history:

Koza Ltd (an English company) and Mr Ipek appealed from an injunction of Mr Cousins QC (Chancery Division) restraining them from using Koza Ltd’s assets to fund an ICSID arbitration brought by Ipek Investments Ltd (IIL) against the Republic of Turkey. The dispute arises in the context of a wider battle for control of Koza Ltd between its director/shareholder (Mr Ipek) and its parent Koza Altin. An earlier interlocutory regime (the Asplin Order) included an undertaking by Koza Ltd not to dispose of funds other than in the ordinary and proper course of business. Koza Ltd had previously sought a declaration (and alternatively a variation) that funding the ICSID arbitration fell within that business exception; that application was decided by a Deputy Judge (Mr Spearman) and then considered by the Court of Appeal ([2019] EWCA Civ 891). The Court of Appeal concluded it could not safely grant a positive declaration because the authenticity of the SPA was seriously in doubt, and discharged a negative declaration; it observed that Koza Ltd remained free to fund at its own risk. The present injunction application was brought after the Court of Appeal decision and after the Supreme Court refused permission to appeal.

Nature of the application and relief sought:

• The application before Mr Cousins sought an interim injunction restraining Koza Ltd from incurring or committing expenditure to fund the ICSID Arbitration (and restraining Mr Ipek from causing Koza Ltd to do so), on the basis that such expenditure would breach the undertaking (not being in the ordinary and proper course of business) and would form part of an allegedly fraudulent scheme.

Issues framed by the Court:

• Whether the injunction was an abusive collateral attack on the earlier proceedings (Henderson/Hunter principles).
• Whether the court has jurisdiction to grant an injunction to enforce or render effective an undertaking (ancillary jurisdiction) or, alternatively, to grant an original freezing-type order to protect a parent’s interest in a subsidiary’s assets.
• Whether there was an underlying cause of action sufficient to support interim relief.
• Whether there was a serious issue to be tried on the authenticity of the SPA and whether the balance of least irremediable prejudice favoured granting relief.

Reasoning and principal holdings:

• The majority (Popplewell LJ and Asplin LJ) held the injunction was not an abuse of process. It was reasonable for Koza Altin to assume Koza Ltd would not fund unless authorised by the court in the earlier proceedings; the Court of Appeal had only refused to make declaratory relief because it could not determine the authenticity point, not decided that no injunction could ever be granted. The Henderson/Hunter principles do not bar the later application in these circumstances.
• The majority held there were two available jurisdictional bases for the injunction: (a) an ancillary jurisdiction to grant orders to enforce or render effective undertakings and (b) an original jurisdiction to grant interim relief (including freezing-order-style relief) to protect a proprietary interest in the value of a company pending trial. Both bases were treated as principled and available.
• The court applied the least irremediable prejudice approach (Olint/American Cyanamid): on the merits the judge could form a provisional view. He had a high degree of assurance that the SPA was inauthentic and that the ICSID jurisdiction was unlikely to stand without it, and he was entitled to infer alternative means of funding were likely available. The cross-undertaking in damages was adequate. The balance of least irremediable prejudice therefore favoured granting the injunction.
• The majority rejected the submission that no underlying claim existed: the counterclaim (declaratory company law relief) and the undertaking regime gave a sufficient basis for interim protection of Koza Ltd’s assets.
• Moylan LJ dissented, concluding the application was an improper and disproportionate re-running of issues previously litigated and that it undermined the agreed undertaking regime; he would have allowed the appeal and set aside the injunction.

Wider context: The majority’s decision recognises a flexible ancillary jurisdiction to police undertakings and confirms that the court may, in an appropriate case, protect the value of a company pending trial even where the substantive relief sought is declaratory. The decision also illustrates the high discretionary threshold when interlocutory relief will effectively determine disputed issues that cannot be tried between the parties in this forum.

The appeal was dismissed by majority. The court held (i) the injunction was not an abuse of process, (ii) the court had jurisdiction both (a) to grant ancillary orders to enforce or render effective undertakings and (b) by original jurisdiction to grant freezing-style relief to protect a proprietary interest in a subsidiary, and (iii) applying the least irremediable prejudice test the judge was entitled to conclude there was a high degree of assurance that the SPA’s authenticity was doubtful, alternative funding was likely, and the balance favoured an injunction. Moylan LJ dissented, considering the injunction an improper re-litigation and disproportionate; he would have set it aside.

First instance interlocutory applications were considered by Mr Richard Spearman QC (Deputy Judge) in the Funding Application (he handed judgment 16 November 2017 and made an order dated 20 December 2017). The Court of Appeal considered the Funding Application and gave judgment on 23 May 2019 ([2019] EWCA Civ 891). An application for permission to appeal to the Supreme Court was refused on 9 January 2020. Mr Cousins QC (ChD) granted the injunction (reported at [2020] EWHC 654 (Ch)) from which this appeal to the Court of Appeal was determined in [2020] EWCA Civ 1018.