Harbour Fund III, LP v Kazakhstan Kagazy PLC & Anor.

Where an application seeks release of funds held under an order made in separate proceedings, the court should consider carefully whether it has procedural power to grant the relief and whether the application is being brought in the proper proceedings. It should avoid finally determining the meaning or validity of an agreement governed by foreign law where no substantive claim for declaratory relief is before it and the agreement’s validity may be challenged in the chosen forum. Nevertheless, the court may entertain the application under its inherent jurisdiction where appropriate and may grant relief in principle if the applicant has the better of the argument and the balance of justice favours immediate relief. Any order may be made conditional on approval in the related proceedings and protective undertakings addressing risks of invalidation, double recovery and double jeopardy.

The second defendant, Kazakhstan Kagazy JSC, applied in separate Commercial Court proceedings for release of £2 million held in a designated account under an order made by Henshaw J in earlier substantive proceedings. The money was said to represent legal costs recoverable under an investment agreement and to have been assigned to JSC by the first defendant, Kazakhstan Kagazy PLC, under an assignment governed by Kazakh law.

The application raised procedural and jurisdictional concerns. No substantive claim for declaratory relief had been brought concerning the assignment, whose validity and interpretation were subject to Kazakh law and an apparently exclusive Kazakh jurisdiction clause. The central issues were whether the court should entertain the application, whether JSC had the better argument as between the defendants, and whether release was in the interests of justice.

1. Procedural jurisdiction. The court declined to make final or summary findings on the meaning or effect of the assignment. No substantive claim for declaratory relief was before the court, and the assignment was governed by Kazakh law with an ostensibly exclusive Kazakh jurisdiction clause. The court also noted that the grounds advanced for invalidation overlapped with the contractual analysis relied upon in the application.
2. The court was nevertheless persuaded that it was appropriate to entertain the application under the inherent jurisdiction of the High Court. The application was procedural in character, and the relevant contractual circumstances had existed when the earlier order was made. The court’s conclusions were intended to assist the formal process in the substantive proceedings and avoid duplicative costs and delay.
3. Merits and interests of justice. Assuming the assignment was valid for present purposes, JSC had the better argument as between itself and PLC that the assigned proceeds included the £2 million costs entitlement. The court rejected PLC’s proposed narrow construction of clause 10.1(b) of the Investment Agreement. The entitlement belonged to the relevant claimants irrespective of which claimant had originally paid the costs, or when or how payment had been made.
4. The balance of justice favoured release without further delay. The court therefore approved release in principle, but did not make an immediately effective final order. Release was conditional upon Henshaw J or another allocated judge in the substantive proceedings endorsing or sanctioning it.
5. Protective undertakings were also required. They were to address the risk of a successful future invalidation claim in Kazakhstan and the risks of double jeopardy for PLC or double recovery by JSC. The precise form and timetable of the order were reserved for further submissions.

First-instance procedural decision on an application arising from separate proceedings. The judgment describes earlier substantive proceedings in which Picken J entered judgment in February 2018 and a subsequent order by Henshaw J dated 20 August 2020, but no appellate history is stated.