Koza Ltd v Koza Altin Isletmeteri AS

The court considered applications by the defendant (Koza Altin) for injunctions restraining the second claimant (Mr Ipek) from causing the first claimant (Koza) to expend company funds on: (i) continuing to fund the existing English proceedings, (ii) funding a proposed "New Authority Claim", and (iii) committing funds to a mining project (the SAM project) (the last issue being heard in private and redacted from the public judgment). The judge analysed and applied the established company law principle that a company�s funds should not be spent to finance disputes between shareholders (the legal costs principle) and considered whether the Asplin order and its notification carve outs authorised the contested expenditure.

The court held there was a serious issue to be tried that causing Koza to pay the claimants' legal costs of these proceedings and of the New Authority Claim would breach the legal costs principle and Mr Ipek�s duties as a director. Damages would not be an adequate remedy and the balance of prejudice favoured injunctive relief. The court therefore granted an injunction restraining Mr Ipek from procuring Koza to expend its funds on the legal costs of the English proceedings and the New Authority Claim, while permitting Koza to meet legal costs properly incurred for its independent interests (for example disclosure obligations), and ordered periodic financial information disclosure. The SAM project material is confidential and redacted.

Background and parties: Koza Ltd (an English company, controlled in practice by Mr Hamdi Akin Ipek, sole director) and Koza Altin Işletmeleri AS (a Turkish company and 100% ordinary shareholder of Koza) were embroiled in long-running litigation concerning who may validly represent Koza Altin and thus control Koza. The dispute produced a protective regime under an order of Asplin J (the Asplin order) containing undertakings and notification requirements concerning Koza's expenditure.

Nature of the application: Koza Altin applied for injunctions to restrain Mr Ipek from causing Koza to (i) expend company funds to continue funding the present English proceedings, (ii) expend company funds to fund a proposed New Authority Claim, and (iii) expend $9 million on the SAM mining project (the SAM element was argued in private).

Issues framed:

• Whether payment by Koza of the claimants' legal costs would breach the legal costs principle that a company should not fund disputes between shareholders and/or breach Mr Ipek's duties as director;
• Whether the Asplin order (and in particular the carveout in paragraph 2(3) permitting legal fees "in connection with this litigation") authorised the payments claimed;
• Whether damages would be an adequate remedy and the balance of convenience favoured an injunction;
• Ancillary relief including periodic financial disclosure.

Reasoning and conclusions: The judge reviewed authority on the legal costs principle (including Gott v Hauge and related authorities), emphasised characterisation of the true contest (the dispute is fundamentally a shareholders' contest over control of the company), and concluded that Koza is the object of the litigation rather than a neutral protagonist. The carveout in the Asplin order for legal fees "in connection with this litigation" was construed as addressing privilege and limited to legal costs properly payable by Koza in respect of its own independent interests; it did not and could not authorise otherwise improper payments that would breach the legal costs principle. The judge found insufficient evidence that Mr Ipek could not procure or provide alternative funding, and that damages would not provide an adequate remedy (recovery from Koza would be self-defeating given Koza Altin's 100% economic interest, and enforcement against Mr Ipek's assets was speculative). The balance of prejudice and discretionary factors favoured injunctive relief to prevent further dissipation of Koza's assets in breach of duty. The judge therefore granted the injunctive relief sought restraining Mr Ipek from procuring Koza to pay the legal costs of these proceedings and the New Authority Claim, permitted Koza to meet necessary independent obligations (eg disclosure), ordered periodic provision of financial information, and noted that the SAM project material is confidential and redacted.

The court granted injunctive relief restraining Mr Ipek from causing or procuring Koza to expend company funds on the legal costs of these English proceedings and the New Authority Claim, on the basis that such payments raised a serious issue to be tried under the legal costs principle and risked breach of director duties; the Asplin order did not authorise improper expenditure of company funds for the benefit of a controlling shareholder. The court also ordered periodic financial disclosure. Confidential material relating to the SAM project was considered in private and is redacted in the public judgment.

Not an appeal: first instance applications in the High Court. The judgment summarises prior interlocutory and appellate history in the litigation: Snowden J granted interim relief (later reflected in the Snowden order dated 26 August 2016); Asplin J made the Asplin order (reported as Koza Ltd v Akçil [2016] EWHC 3358 (Ch)); the defendants unsuccessfully appealed to the Court of Appeal (Koza Ltd v Akçil [2017] EWCA Civ 1609) but ultimately succeeded in the Supreme Court (Koza Ltd v Akçil [2019] UKSC 40) which declared no jurisdiction over the Trustees in relation to parts of the proceedings and dismissed the Old Authority Claim; there were further High Court and appellate decisions on funding and costs (including Koza Ltd v Akçil [2017] EWHC 2889 (Ch); Koza Ltd v Akçil [2018] EWHC 1612 (Ch); Koza Ltd v Akçil [2019] EWCA Civ 891; Koza Ltd v Koza Altin Işletmeleri AS [2020] EWHC 654 (Ch); and appellate consideration of costs at [2020] EWCA Civ 2018 and [2020] EWCA Civ 1263).