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England and Wales Court of Appeal (Civil Division) Decisions |
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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Koza Ltd & Anor v Koza Altin Isletmeleri AS [2020] EWCA Civ 1018 (31 July 2020) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2020/1018.html Cite as: [2020] EWCA Civ 1018, [2020] WLR(D) 452, [2021] 1 WLR 170 |
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ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
BUSINESS LIST (ChD)
MR JEREMY COUSINS QC
Strand, London, WC2A 2LL |
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B e f o r e :
LADY JUSTICE ASPLIN
and
LORD JUSTICE POPPLEWELL
____________________
| (1) KOZA LIMITED |
Claimants/ |
|
| (2) HAMDI AKIN IPEK |
Appellants |
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| - and - |
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| KOZA ALTIN ISLETMELERI AS |
Defendant/Respondent |
____________________
Neil Kitchener QC and David Caplan (instructed by Mishcon de Reya LLP) for the Defendant/Respondent
Hearing dates : 30 June, 1 July 2020
____________________
Crown Copyright ©
Lord Justice Popplewell :
Introduction
Background
The ICSID funding application and appeal
"30. The key to the resolution of Koza Ltd's primary argument, in my judgment, is the authenticity issue. It is not necessary for me to rehearse all the arguments which led the judge to hold that the authenticity of the SPA was open to very serious doubt. On the basis of those arguments, which were repeated before us, the judge was plainly correct to reach that conclusion, and was in no position to accept the SPA as definitely authentic. Equally, in my judgment, he was correct not to go on and decide the very serious allegations against Koza Ltd and Mr Ipek which were engaged by the authenticity issue. What is clear is that, once there is accepted to be a seriously arguable case that the SPA was a forgery, as the respondent alleges, it was impossible for the deputy judge to declare, in advance of the expenditure being made, that the expenditure was in the ordinary and proper course of Koza Ltd's business. The court plainly should not lend its authority to a transaction by granting a positive declaration that it is in the ordinary and proper course of business when there is a real possibility that the transaction is a fraudulent one.
31. Lord Falconer and Mr Flynn sought to avoid this conclusion by submitting that a valid SPA was not essential given that the share swap had been carried out and the shares in Koza Holding were now owned by IIL. Koza Altin contends, however, that the shares have not yet been registered in the name of IIL and could not be validly so registered. Ownership of the shares is governed by Turkish law, as to which there is no evidence. I do not think this argument provides a route to a potentially viable arbitration claim in the absence of the SPA. It follows that the positive declaration falls out of the picture.
32. For similar reasons, it seems to me that the authenticity issue could not itself form the basis of a negative declaration that the expenditure would not be within the proper course of Koza Ltd's business, given that neither the judge nor this court is in a position to make findings of this seriousness on the basis of the written evidence."
"47. Overall, the question which the court must ask itself (on the assumption for these purposes that the SPA is shown to be genuine) is whether it is shown that the provision of funding to IIL for an arbitration (a) which is arguable, and (b) which could be of benefit to Koza Ltd's core business by unlocking access to funding, is within the ordinary and proper course of Koza Ltd's business in circumstances where it is not shown that IIL could fund the arbitration from other sources. I would, on balance, have concluded that the ICSID expenditure was within the ordinary and proper course of that business.
48. In the result, however, I would allow the appeal from Mr Spearman's order to the extent of discharging the negative declaration which he granted. I would not replace the negative declaration with a positive declaration, because the authenticity of the SPA remains in doubt. It follows that if Koza Ltd pursues the funding of the ICSID arbitration it will do so at their own risk that it may be shown to be in breach of its undertaking to the court."
The Injunction Application
The rival arguments
(1) The appropriate principles are those applicable to interim injunctions set out in American Cyanamid Co v Ethicon Ltd [1975] AC 396.
(2) There is plainly a serious issue to be tried, at the lowest, as to the authenticity of the SPA and accordingly as to whether the proposed expenditure would be in breach of the Undertaking and part of an allegedly fraudulent scheme.
(3) The balance of justice weighs heavily in favour of granting the injunction because if the injunction sought is not granted and it were later to be determined that Koza Ltd should not have funded the Arbitration, then Koza Altin will have suffered serious and likely irremediable prejudice, from the dissipation of its subsidiary's assets, whereby not only Koza Ltd's but also Koza Altin's value would be diminished; whereas if the injunction were to be granted and it should later be determined that Koza Ltd's funding of the Arbitration would have been proper, then Koza Ltd will not in fact suffer, or have suffered, any prejudice at all, because the evidence shows that the Arbitration can and will be otherwise funded.
(4) Before the Judge a further argument was advanced that it had recently become clear that the relief which was sought in the Arbitration was a claim for damages, not restitution (as had been the assumption on which the previous courts had been proceeding), which made it inconceivable that its pursuit would benefit Koza Ltd in any event. This further argument was rejected by the Judge and has not been pursued before us on the appeal.
(1) The application was an abuse of process because (i) it collaterally attacks this Court's decision on the Funding Application that Koza should be free to fund the Arbitration if it chose at its own risk as to whether that would be a breach of the Undertaking, relying on Hunter v Chief Constable of the West Midlands [1982] AC 529; and in any case (ii) if the injunction application was to be brought at all, it could and should have been brought in the context of that prior application, relying on Henderson v Henderson (1845) 3 Hare 100.
(2) The application is legally unsustainable because to grant an injunction to restrain breach of an injunction, or an undertaking, is contrary to principle and has the effect of subverting the Undertaking agreed between the parties to hold the ring for the duration of this litigation begun nearly four years ago. The correct course was either to pursue a remedy in contempt or to seek a variation of the Asplin Order. This was characterised as "the injunction upon an injunction point".
(3) The application is also legally unsustainable because Koza Altin has no underlying claim in support of which an interim injunction let alone a freezing injunction - could properly be granted. There is no claim for injunctive relief in the counterclaim, which merely seeks declarations. This was characterised as "the no underlying claim point".
(4) There is no serious issue to be tried because none had been identified: the authenticity issue would not be tried between these parties in this forum but only in the Arbitration. It could not be the subject matter of an order for a trial here because the ICSID tribunal had exclusive jurisdiction under article 26 of the ICSID Convention.
(5) If these objections failed, the Court should apply the American Cyanamid principles in the way explained by Lord Hoffmann in National Commercial Bank of Jamaica Ltd v Olint Corp Ltd [2009] 1 WLR 1405. The balance of irremediable prejudice was against the grant of an injunction because:
(a) The issue whether the funding was a breach of the Undertaking was not going to be tried, at least before the funding was needed; accordingly the "interim" injunction sought would in practice be finally determinative and the Court was required to have a high degree of assurance that the funding would be a breach. It could not reach such a conclusion in relation to the authenticity of the SPA on the material before the Court.
(b) The balance favoured Koza Ltd because if the injunction were refused, there was a high risk that IIL would not be able to pursue its claim in the Arbitration, said to be worth about $5-6 billion, with the result that Koza Ltd would lose the opportunity to secure a substantial commercial benefit from it; and Koza Altin's cross undertaking in damages provided no adequate protection; whereas if the injunction were granted, it concerned only a disbursement of £3m at most.
(1) As to the Hunter abuse point, the principle expressed in Hunter was limited to precluding a collateral attack on a final decision of a competent court by seeking to raise again the identical question already decided (Judgment [71]-[72]). That did not apply to the current circumstances. The Court of Appeal had not made a final decision that Koza Ltd was free to fund the ICSID arbitration: it expressly did not decide that question and did not do so finally (Judgment [73]).
(2) As to the Henderson v Henderson abuse point, the authorities made clear that the question was not whether the application could have been brought forward on the earlier occasion but whether it should have been, such that the failure to do so is abusive of the court process, a question which always depends upon the particular factual circumstances (Judgment [53]-[57]). Whilst there was a tension in the authorities as to whether the principle would be applied less rigorously in relation to interlocutory hearings (Judgment [58]), it was not necessary to resolve it (Judgment [66]). There was nothing abusive in Koza Altin failing to make the current application before Mr Spearman in response to Koza Ltd's Funding Application, because Koza Altin could reasonably have assumed from the fact of the application and the material in support that Koza Ltd would only proceed to provide the Funding if it succeeded in getting the declaration it was seeking that it was permitted to do so by the terms of the Undertaking or the variation sought (Judgment [62]-[65]).
(3) In relation to the injunction upon an injunction point, the Judge observed that if the ingredients for an injunction were otherwise made out the point would, if correct, leave an unfortunate gap in the courts' ability to do justice where, as the Court of Appeal had held, it was in no position to determine finally at this stage whether the Funding would or would not breach the Undertaking (Judgment [78], [83]) and where it was necessary to ensure the effectiveness of an earlier order. The width of s. 37 of the Senior Courts Act 1981 and the decision in Maclaine Watson & Co Ltd v International Tin Council (No 2) [1989] 1 Ch 286 and dictum of Briggs J, in Revenue and Customs Commissioners v Egleton & others [2007] Bus LR 44 at [20] supported the view that an injunction can properly be granted as an ancillary order to ensure the effectiveness of an earlier order (or undertaking) (Judgment [79]-[82]).
(4) The Judge rejected the no underlying claim point on the grounds that as in Egleton, the relief was invoked for the benefit of a stakeholder in the outcome of the litigation, namely a shareholder, and that unless the litigation is to be a sterile exercise, the preservation of the value of the company is a proper concern for the court pending resolution of the dispute notwithstanding that there is no claim for financial remedy in the prayer for relief in Koza Altin's counterclaim; the preservation of the value of Koza Ltd's assets was clearly a direct and express object of the Undertaking, which the injunction sought was designed to render effective (Judgment [84]).
(5) On the merits of the dispute as to the authenticity of the SPA, the Judge referred to the additional evidence filed on behalf of the appellants since the Funding Application, and said that making all due allowance for it, there remained reasons for very serious doubt as to the SPA's authenticity, which was what both Mr Spearman and the Court of Appeal had determined on the Funding Application (Judgment [85]). At paragraph [106] he returned to the issue and said that on the evidence before him Koza Altin had the better of the argument, as it did on the issue addressed at paragraph [31] of the Court of Appeal Judgment, namely whether the jurisdiction of the ICSID tribunal could be established even if the SPA were not authentic. In expressing his conclusion at [109] he said he had a high degree of assurance that at trial it would appear that the injunction was rightly granted.
(6) In relation to what he termed the balance of convenience, the Judge referred to the summary of the principles by Lord Hoffmann in National Commercial Bank v Olint and his statement at paragraph [19] that the underlying principle is that the court should take whichever course seems likely to cause the least irremediable prejudice to one party or the other (Judgment [89]). He determined that if Koza Altin were right but the injunction were refused, it would suffer the prejudice of a £3m depletion in Koza Ltd's assets and so in its shareholding (Judgment [89, 93]), for which damages would not be an adequate remedy. It was artificial to compare that £3m figure with the size of the claim in the ICSID Arbitration of US$5-6 billion, even if all went to plan for the success of that claim, because what Koza Ltd might receive from any success would depend on IIL's allocation of its recoveries and might not result in any financial benefit to Koza Ltd itself (Judgment [93]). But in any event, if the injunction were to be granted, it would be likely that IIL would be able to fund the Arbitration by the use of resources which the Judge inferred from the evidence were available to Mr Ipek, evidence which he set out in some detail (Judgment [89], [96]-[98] and [39]). This included the fact that Mr Ipek had refused to explain the evidence suggestive of the availability of substantial assets or to give any details of his assets, which the Judge regarded as significant on this issue applying the principles enunciated by Lord Sales in Sarpd oil International Ltd v Addax Energy SA & another [2016] 1 CLC 336 at [19]-[20] in the context of applications for security for costs and Yorke Motors v Edwards [1982] 1 WLR 444, 449B-E in the context of arguments that requiring payment into court as a condition of leave to defend a claim on a summary judgment application would stifle the ability to conduct the defence. Mr Ipek's explanation for this failure was a fear that there would be a leak to the Turkish authorities who would then seek to expropriate any such assets or use the information to further oppress him and his family. MdR had sought to meet this concern by offering a confidentiality club comprising only UK lawyers to which such disclosure would be confined. This was flatly rejected by Mr Ipek for what the Judge described as extremely unimpressive and unsatisfactory reasons (Judgment [101]-[103]). The Judge also concluded that Koza Altin's cross-undertaking in damages was sufficient to cater for the speculative loss which Koza Ltd might suffer in the unlikely event of the injunction having the effect of stifling pursuit of a valid claim in the Arbitration (unlikely both because of the availability of alternative sources of funding and the merits of the authenticity issue). His conclusion was that the balance of convenience came down clearly in favour of grant of an injunction and that there was a far greater risk of irremediable injustice if the injunction were refused than if it were granted (Judgment [109]).
The appellants' arguments
(1) The application was an abuse of process. It could and should have been brought as a contingent cross-application before Mr Spearman, and was therefore an abuse under the Henderson v Henderson principle. It was an additional factor making it abusive that it was a collateral attack on the Court of Appeal decision. The Judge had misunderstood his reliance on Hunter. It was not contended that the relief sought was inconsistent with the decision of the Court of Appeal; rather it was a collateral attack on the decision because it sought to prevent the Funding without a determination of whether it was permitted by the Undertaking whereas the effect of the Court of Appeal decision, as Floyd LJ said at paragraph [48], was that Koza Ltd was free to provide the Funding albeit at its own risk as to whether that would be a breach of the Undertaking. It would therefore frustrate the practical (not legal) outcome of the decision.
(2) The Judge was wrong to reject the no injunction upon an injunction point. The injunction could not be ancillary to the enforcement of the undertaking because that begs the question whether the Funding would be a breach. To amount to enforcement it must assume breach, yet that is what the Court of Appeal said could not be decided and what will never be decided in a forum binding the parties. Koza Altin's remedies are either to apply for a variation of the Asplin Order (which would require it to show special circumstances) or to proceed in due course with contempt proceedings. The relief sought is both novel and contrary to principle.
(3) The Judge was wrong to reject the no underlying claim point. It is necessary to identify an underlying claim because the grant of the injunction is not a legitimate exercise of any jurisdiction for ancillary enforcement of court orders. The counterclaim in the action cannot support the grant of the injunction because it is a claim for declarations and a freezing order cannot be granted in support of purely declaratory relief. Egleton and the cases there cited involved money claims or final injunctive relief. The authenticity of the SPA cannot be the "issue to be tried" because it does not fall for trial in this action. The result is that Koza Altin will have obtained by way of interim application a permanent injunction without the need for a trial.
(4) If these arguments are rejected, the Judge in any event erred at the discretionary stage because:
(a) he should have applied the principles applicable to freezing orders, not the American Cyanamid principles; alternatively
(b) he could not properly have had a high degree of assurance on the authenticity issue; he could not properly conclude that alternative sources of funding were available; and the balance of justice considerations came down firmly against grant of an injunction, which would put Koza at risk of losing access to assets worth US$5-6 billion, contrasted with the lesser prejudice to Koza Altin if the Funding took place of being at risk of being unable to recover £3m.
Ground 1: Abuse
The law
"In trying this question, I believe I state the rule of the court correctly, when I say, that where a given matter becomes the subject of litigation in, and of adjudication by, a court of competent jurisdiction, the court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time."
"It may very well be, as has been convincingly argued (Watt, "The Danger and Deceit of the Rule in Henderson v Henderson : A new approach to successive civil actions arising from the same factual matter" (2000) 19 CLJ 287 ), that what is now taken to be the rule in Henderson v Henderson has diverged from the ruling which Wigram V-C made, which was addressed to res judicata. But Henderson v Henderson abuse of process, as now understood, although separate and distinct from cause of action estoppel and issue estoppel, has much in common with them. The underlying public interest is the same: that there should be finality in litigation and that a party should not be twice vexed in the same matter. This public interest is reinforced by the current emphasis on efficiency and economy in the conduct of litigation, in the interests of the parties and the public as a whole. The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to abuse if the court is satisfied (the onus being on the party alleging abuse) that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all. I would not accept that it is necessary, before abuse may be found, to identify any additional element such as a collateral attack on a previous decision or some dishonesty, but where those elements are present the later proceedings will be much more obviously abusive, and there will rarely be a finding of abuse unless the later proceeding involves what the court regards as unjust harassment of a party. It is, however, wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive. That is to adopt too dogmatic an approach to what should in my opinion be a broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focusing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before. As one cannot comprehensively list all possible forms of abuse, so one cannot formulate any hard and fast rule to determine whether, on given facts, abuse is to be found or not ..While the result may often be the same, it is in my view preferable to ask whether in all the circumstances a party's conduct is an abuse than to ask whether the conduct is an abuse and then, if it is, to ask whether the abuse is excused or justified by special circumstances. Properly applied, and whatever the legitimacy of its descent, the rule has in my view a valuable part to play in protecting the interests of justice."
"It is one thing to refuse to allow a party to relitigate a question which has already been decided; it is quite another to deny him the opportunity of litigating for the first time a question which has not previously been adjudicated upon. This latter (though not the former) is prima facie a denial of the citizen's right of access to the court conferred by the common law and guaranteed by article 6 of the Convention for the Protection of Human Rights and Fundamental Freedoms (1953) . While, therefore, the doctrine of res judicata in all its branches may properly be regarded as a rule of substantive law, applicable in all save exceptional circumstances, the doctrine now under consideration can be no more than a procedural rule based on the need to protect the process of the court from abuse and the defendant from oppression."
"48. The following themes emerge from these cases that are relevant to the present appeal.
(1) In cases where there is no res judicata or issue estoppel, the power to strike out a claim for abuse of process is founded on two interests: the private interest of a party not to be vexed twice for the same reason and the public interest of the state in not having issues repeatedly litigated; see Lord Diplock in Hunter's case [1982] AC 529 , Lord Hoffmann in the Arthur J S Hall case [2002] 1 AC 615 and Lord Bingham in Johnson v Gore Wood & Co [2002] 2 AC 1. These interests reflect unfairness to a party on the one hand, and the risk of the administration of public justice being brought into disrepute on the other, see again Lord Diplock in Hunter's case. Both or either interest may be engaged.
(2) An abuse may occur where it is sought to bring new proceedings in relation to issues that have been decided in prior proceedings. However, there is no prima facie assumption that such proceedings amount to an abuse: see Bragg v Oceanus [1982] 2 Lloyd's Rep 132; and the court's power is only used where justice and public policy demand it, see Lord Hoffmann in the Arthur J S Hall case.
(3) To determine whether proceedings are abusive the court must engage in a close 'merits based' analysis of the facts. This will take into account the private and public interests involved, and will focus on the crucial question: whether in all the circumstances a party is abusing or misusing the court's process, see Lord Bingham in Johnson v Gore Wood & Co and Buxton LJ in Laing v Taylor Walton [2008] PNLR 11.
(4) In carrying out this analysis, it will be necessary to have in mind that: (a) the fact that the parties may not have been the same in the two proceedings is not dispositive, since the circumstances may be such as to bring the case within 'the spirit of the rules', see Lord Hoffmann in the Arthur J S Hall case; thus (b) it may be an abuse of process, where the parties in the later civil proceedings were neither parties nor their privies in the earlier proceedings, if it would be manifestly unfair to a party in the later proceedings that the same issues should be relitigated, see Sir Andrew Morritt V-C in the Bairstow case [2004] Ch 1; or, as Lord Hobhouse put it in the Arthur J S Hall case, if there is an element of vexation in the use of litigation for an improper purpose.
(5) It will be a rare case where the litigation of an issue which has not previously been decided between the same parties or their privies will amount to an abuse of process, see Lord Hobhouse in In re Norris.
To which one further point may be added.
(6) An appeal against a decision to strike out on the grounds of abuse, described by Lord Sumption JSC in Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd (formerly Contour Aerospace Ltd) [2014] AC 160, para 17, as the application of a procedural rule against abusive proceedings, is a challenge to the judgment of the court below and not to the exercise of a discretion. Nevertheless, in reviewing the decision the Court of Appeal will give considerable weight to the views of the judge, see Buxton LJ in the Laing v Taylor Walton case, para 13."
" .an appellate court will be reluctant to interfere with the decision of the judge in the judgment he reaches on abuse of process by the balance of the factors; it will generally only interfere where the judge has taken into account immaterial factors, omitted to take account of material factors, erred in principle or come to a conclusion which was impermissible or not open to him."
"The abuse of process which the instant case exemplifies is the initiation of proceedings in a court of justice for the purposes of mounting a collateral attack upon a final decision against the intending plaintiff which has been made by another court of competent jurisdiction in previous proceedings in which the intending plaintiff had a full opportunity of contesting the decision in the court by which it was made."
" the House of Lords did not decide in the Hunter case that the initiation of later proceedings collaterally challenging an earlier judgment is necessarily an abuse of process but that it may be. In considering whether, in any given case, later proceedings do constitute an abusive collateral challenge to an earlier subsisting judgment it is always necessary to consider with care (1) the nature and effect of the earlier judgment, (2) the nature and basis of the claim made in the later proceedings, and (3) any grounds relied on to justify the collateral challenge (if it is found to be such)."
"13. In Chanel Ltd v FW Woolworth & Co Ltd [1981] 1 WLR 485 ("Chanel"), the plaintiffs, in an action for trade mark infringement and passing-off, obtained ex parte interlocutory injunctions; on the inter partes hearing the defendants felt constrained to give undertakings and by consent the motion was stood over to trial (without being opened or the evidence read) on the defendants giving undertakings "until judgment or further order". The defendants then carried out some research which led them to think they had an argument after all and applied to discharge the undertakings. Foster J refused the application, and the Court of Appeal refused leave to appeal. Buckley LJ held (at 492D) that an order (or undertaking) expressed to be until further order gave a right to the party bound to apply to have the order (or undertaking) discharged if good grounds for doing so are shown. He then said he would assume (without deciding) that the evidence the defendants had uncovered would have enabled them to resist the motion, and continued (at 492H):
"The defendants are seeking a rehearing on evidence which, or much of which, so far as one can tell, they could have adduced on the earlier occasion if they had sought an adjournment, which they would probably have obtained. Even in interlocutory matters a party cannot fight over again a battle which has already been fought unless there has been some significant change of circumstances, or the party has become aware of facts which he could not reasonably have known, or found out, in time for the first encounter. The fact that he capitulated at the first encounter cannot improve a party's position."
14. In Woodhouse v Consignia plc [2002] EWCA Civ 275, a claimant who had unsuccessfully sought to lift a stay applied to do so a second time, and both the district judge and judge held that he could not have a second bite at the cherry. The Court of Appeal allowed an appeal. Brooke LJ, giving the judgment of the Court, said that there was a public interest in discouraging a party from making a subsequent application for the same relief based on material which was not, but could have been, deployed in the first application; that one of the reasons was the need to protect respondents to successive applications from oppression [55]; but that although the policy that underpins the rule in Henderson v Henderson had relevance as regards successive pre-trial applications for the same relief:
"it should be applied less strictly than in relation to a final decision of the court, at any rate where the earlier pre-trial application has been dismissed." [56]
He then gave an example where an application for summary judgment under CPR Pt24 had been dismissed, but a second application was made based on evidence that, although available at the time of the first application, was not then deployed through incompetence, but which was conclusive; the second application ought to be allowed to proceed [57]. The district judge and judge had therefore been wrong to regard the fact that the second application was a second bite at the cherry as decisive [58], and the Court of Appeal proceeded to consider the second application on its merits, regarding the fact that it was a second bite at the cherry as an important factor [61], but in the event decided that it would be a disproportionate penalty for the claimant to lose his right to damages due to a pardonable mistake by his solicitor, and lifted the stay [63].
15. In Orb a.r.l. v Ruhan [2016] EWHC 850 (Comm) Popplewell J had to deal with a number of applications arising out of a freezing order made by Cooke J which had been obtained by the defendant (Mr Ruhan) against the claimants (the Orb Parties) [1]-[2]. The order required Mr Ruhan to fortify his cross undertaking in damages by charging certain shares [48]. Mr Ruhan had done so but the Orb Parties sought further fortification on the ground that the shares were inadequate security. Popplewell J dismissed the application for a number of reasons, the first of which was that it was open to the Orb Parties to take the point before Cooke J but they had failed to do so. None of the material relied on had come to their attention subsequently; Cooke J had given them an opportunity to raise any objections to the shares as fortification, but they had not raised the points now sought to be raised, although they were well known to them; there had been no significant or material change of circumstances [81]. Popplewell J continued [82]:
"That is fatal to this ground for discharge: see Chanel Ltd v FW Woolworth & Co Ltd [1981] 1 WLR 485. Mr Drake emphasised that that case involved a consent order. But the principle is well established, and often applied, in relation to contested interlocutory hearings. It is that if a point is open to a party on an interlocutory application and is not pursued, then the applicant cannot take the point at a subsequent interlocutory hearing in relation to the same or similar relief, absent a significant and material change of circumstances or his becoming aware of facts which he did not know and could not reasonably have discovered at the time of the first hearing. It is based on the principle that a party must bring forward in argument all points reasonably available to him at the first opportunity; and that to allow him to take them serially in subsequent applications would permit abuse and obstruct the efficacy of the judicial process by undermining the necessary finality of unappealed interlocutory decisions."
16. Mr Stewart also referred to a judgment of Etherton C in this action, Holyoake v Candy [2016] EWHC 1718 (Ch) . The Claimants had initially applied for a notification injunction, making the decision not to apply for a freezing injunction. I granted that application in a modified form. The Claimants then applied for a freezing order after all. It was that application which came before the Chancellor. He dismissed it. The Claimants' counsel, Mr Trace QC, had submitted that all that he needed to show was the usual prerequisites for a freezing order, namely a good arguable case on the merits, a real risk of dissipation and that the balance of convenience favoured the grant of the order [18]. The Chancellor disagreed, saying [21]:
"I do not agree with Mr Trace's statement of principle. The starting point in such a case as the present is that the claimants must point to something that has happened since the grant of the original order. They must show something material has changed to make it appropriate to investigate the same issues over again at yet another extensive hearing with even more voluminous evidential material. Absent any such change, the application for a freezing order is not only a disproportionate call on the court's resources, but an abuse of the court's process, in effect making successive applications for the same objective but testing the court's willingness each time to see how far the court will go, each such application involving, to a greater or lesser extent, duplication of issues, evidence and arguments."
He then examined, and rejected, various matters which were said to amount to a sufficiently material change of circumstances.
17. These authorities are not entirely easy to reconcile with each other. The decisions in Orb v Ruhan and Holyoake v Candy proceed on the basis that a party who has sought and obtained relief on an interlocutory application cannot return to court and ask to extend (or "upgrade", in the words of the Chancellor) the relief without showing a material change of circumstances. It is easy to see the policy reasons behind such a principle which are well articulated by both judges. Chanel indicates that similar considerations apply where a party has submitted to an order, and that the question does not turn on whether the applicant did in fact have the evidence at the earlier hearing but on whether it was reasonably available to him. Yet in Woodhouse v Consignia the Court of Appeal held that the rule in Henderson v Henderson was not applied so strictly in interlocutory matters, that the judges below had been wrong to dismiss the second application as a second bite at the cherry, and that it did not matter that the evidence deployed had in fact been available to the applicant at the time of the first application, at any rate if the evidence was conclusive."
Abuse: application to the facts
Ground 2: no injunction upon an injunction
Jurisdiction to make an ancillary order to enforce an injunction or undertaking
"Secondly, there is the authority of this court in A. J. Bekhor & Co Ltd v Bilton [1981] QB 923 and other cases that there is an inherent power under what is now section 37(1) to make any ancillary order, including an order for discovery, to ensure the effectiveness of any other order made by the court."
Original freezing order jurisdiction
"In my judgment, [counsel's] reliance on Premier Electronics is misplaced. In that case Pumfrey J declined to continue freezing orders against the respondents, who were executive directors, in the absence of any substantive cause of action against them in the s. 459 proceedings. Those freezing orders were in respect of their personal assets. In the present case, the interim relief which is sought is designed to protect the assets of the Company from dissipation or further dissipation. No order is sought freezing the personal assets of Mr or Mrs Gershinson [a director and shareholder respectively]. Bearing in mind the other conclusions I have reached, it seems to me to be manifestly proper and sensible to grant such interim relief, protecting the assets of the Company pending the determination of the Petition. Indeed, Pumfrey J expressly acknowledged, at p.638e, that such an order might be made in s.459 proceedings, albeit he described it as "Mareva" relief. In so describing the relief, I believe that Pumfrey J was there referring to an order preventing further dissipation of the assets of the company."
"10. I turn to the legal principles regulating the extent of the court's jurisdiction to grant freezing orders. They are a sub-set of the principles governing the court's jurisdiction to grant interim relief generally, conferred by section 37(1) of the Supreme Court Act 1981, "in all cases in which it appears to the court to be just and convenient to do so".
11. The purpose of a freezing order which, by contrast with some injunctions, is essentially interim in its nature, is, in the words of Lord Diplock in Siskina (Owners of cargo lately laden on board) v Distos Cia Naviera SA [1979] AC 210, 253:
"to ensure that there will be a fund available within the jurisdiction to meet any judgment obtained by a plaintiff in the High Court against a defendant who does not reside within the jurisdiction and has no place of business there."
Subsequent cases have made it clear that the purpose extends also in relation to defendants resident or carrying on business within the jurisdiction. In the words of Aikens J in C Inc plc v L [2001] 2 All ER (Comm) 446, para 31, the purpose "remains the protection of assets so as to provide a fund to meet a judgment obtained by the claimant in the English courts". More generally, its purpose is so that the court can "ensure the effective enforcement of its orders": per Sir Thomas Bingham MR in Mercantile Group (Europe) AG v Aiyela [1994] QB 366, 377e .
14. Miss Smith therefore advances two distinct submissions in support of her case that the court has no jurisdiction to make or continue freezing orders against her clients. The first is that Customs is pursuing no cause of action for a money judgment for the effective enforcement of which a freezing order would preserve a fund .
15. Miss Smith is of course correct to submit that although the purpose of a creditors' winding up petition is for the creditor ultimately to obtain payment in whole or in part of the debt owed by the company, and although it is not infrequently misdescribed as a form of debt enforcement, it does not seek a money judgment. If successful, it merely brings into existence a statutory scheme for the getting in and distribution of the company's assets among its stakeholders, of whom the petitioner is no more than a member of a particular class, namely an unsecured creditor. But in my judgment the particular nature of the relief sought by means of the presentation of a creditors' winding up petition does not disable the petitioner from asserting that it is pursuing a cause of action for the purpose of conferring jurisdiction upon the court to grant appropriate interim relief, whether by way of freezing order or otherwise.
16. In In re Premier Electronics (GB) Ltd [2002] 2 BCLC 634, the petitioners in a petition under section 459 of the Companies Act 1985 obtained freezing orders both in relation to the property of the subject company and in relation to the assets of its two executive directors up to the value of £500,000 each. On the adjourned return day Pumfrey J discharged the orders in relation to the executive directors on the grounds that the petition disclosed no cause of action against them sufficient to confer jurisdiction to grant or continue such orders. The question whether the petition disclosed a cause of action against the company itself does not appear to have been argued in any detail, because by the adjourned return date it appeared that sufficient protection against the dissipation of the company's assets was in place to make the continuation of a freezing order in relation to the company's assets unnecessary: see p 636 d . But Pumfrey J said, at p 638:
"In the context of a section 459 petition I can well understand that it may be appropriate to grant Mareva relief against the company itself, in order to preserve the value of the interests of the members in the company. The petition, if it has a respondent, is primarily the company itself."
17. I consider it implicit in that passage that Pumfrey J must have thought that a section 459 petition, which is no more in essence a monetary claim than a creditors' winding up petition, was none the less based on a sufficient cause of action to give the court jurisdiction to grant interim relief, including a freezing order. It is a curiosity of that case that although it was alleged that the executive directors had misappropriated some £250,000 worth of the company's money, the court was not referred to any of the Chabra line of authorities, most but not all of which had by then already been reported. But that curiosity relates to the second rather than the first of Miss Smith's objections.
18. More recently, in In re Ravenhart Service (Holdings) Ltd [2004] 2 BCLC 376, petitioners in a combined section 459 and contributories' winding up petition sought interim relief of a type similar to but not quite identical with an ordinary freezing order but which was designed specifically to prevent the assets of the company from dissipation, and similar relief against certain of the company's subsidiaries. Relying on In re Premier Electronics (GB) Ltd [2002] 2 BCLC 634 , counsel for the respondents submitted that the application for that interim relief was fatally flawed because the petition did not assert any cause of action for restitution or other monetary payment, but rather an order for the purchase of the petitioner's shares by one or more of the respondents, or alternatively an order for compulsory winding up.
19. The continuation of relief against the subsidiaries appears to have been abandoned by consent, but Etherton J rejected counsel's submissions based upon In re Premier Electronics (GB) Ltd . It is clear from para 102 of his judgment, in which he expressly adopted Pumfrey J's conclusion that a section 459 petition asserted a sufficient cause of action against the company to justify Mareva relief, that an interim order preventing the dissipation of the company's assets pending the hearing of the petition was well within the court's jurisdiction as a means of preserving the effectiveness of any order which might be made upon the hearing of the petition.
20. It is of course correct, as Miss Smith submitted, that neither of those cases concerned a creditors' petition. Both concerned section 459 petitions and the Ravenhart case [2004] 2 BCLC 376 was also concerned with a contributories' winding up petition. But that is in my judgment a distinction without a difference. It is a common feature of winding up petitions both by creditors and contributories and of section 459 petitions that none of them is concerned in essence with the obtaining of a monetary judgment by the petitioner (albeit that there may be circumstances in which such an order might be made on the hearing of a section 459 petition). All three types of proceedings consist of an invocation of the power of the court to intervene in the affairs of a company for the benefit of its different classes of stakeholder. For my part, using the analysis of Sir Thomas Bingham MR in Mercantile Group (Europe) AG v Aiyela [1994] QB 366, 377e to which I have already referred, I can see no reason why the grant of appropriate interim relief, including if necessary orders freezing the assets of the company itself, should not in a proper case be made so as to ensure the effective enforcement of the court's orders.
21. Furthermore, if Miss Smith's first objection were correct, it would apparently follow, as she indeed conceded, that although in the case of a disputed debt, the creditor would be asserting a cause of action sufficient to found an application for interim relief, both before and after judgment, a case in which the absence of any dispute as to the debt meant that the only necessary proceedings consisted of a creditors' winding up petition would fall into a curious lacuna in which, because of the absence of a cause of action, interim relief was wholly unavailable. That seems to me an irrational and unjust result and one which the court should avoid unless compelled to do otherwise. The authorities on interim relief in relation to company petitions have, happily, led me to the opposite conclusion, and therefore Miss Smith's "no cause of action" objection fails. The reason why freezing orders are not in practice sought or obtained in relation to the assets of companies the subject of creditors' winding up petitions is probably that statutory provisions such as those invalidating transactions after the presentation and/or advertisement of the petition generally afford appropriate protection to the company's creditors."
Ground 3: no underlying claim
Ground 4: exercise of discretion
Conclusion
Lady Justice Asplin :
Lord Justice Moylan :
"A litigant who wishes to cease to be bound by her (or his) undertaking should apply for "release" from it (or "discharge" of it); and often she will accompany her application for release with an offer of a further undertaking in different terms. The court may decide to accept the further undertaking and, in the light of it, to grant the application for release. Equally the court may indicate that it will grant the application for release only on condition that she is willing to give a further undertaking or one in terms different from those of a further undertaking currently on offer. In either event the court's power is only to grant or refuse the application for release; and, although exercise of its power may result in something which looks like a variation of an undertaking, it is the product of a different process of reasoning. In Cutler v Wandsworth Stadium Ltd [1945] 1 All ER 103 at 105 Morton LJ said:
' the court does not vary an undertaking given by a litigant. If the litigant has given an undertaking and desires to be released from that undertaking, the application should be an application for release Litigants are not ordered to give these undertakings; they choose to give them, and an application to have an undertaking already given varied is wholly wrong in form.'"
Lord Wilson then considered when the court might exercise its power to release a party from an undertaking. After discussing a number of authorities, including, at [8]-[9], Kensington Housing Trust v Oliver (1998) 30 HLR 608, which appeared to suggest, at [9], that "the sole criterion was whether it would be just to grant release" and, at [10], Mid Suffolk DC v Clarke [2007] 1 WLR 980, which decided that "it was no doubt necessary for a grant of release to be just but that it had also to be predicated on a significant change of circumstances", Lord Wilson said:
"[11] It is, I suppose, inconsistent with the admitted existence of a discretionary jurisdiction to say that it can never be exercised unless a particular fact, such as a significant change of circumstances, is established. If a discretionary jurisdiction is shackled in that way, the result is, instead, that the jurisdiction does not even exist unless the fact is established. For all practical purposes, however, the Court of Appeal in the Mid Suffolk case gave valuable guidance. I summarise it as being that, unless there has been a significant change of circumstances since the undertaking was given, grounds for release from it seem hard to conceive."
This judgment (given before the hearing in the Funding Application) makes clear that an application to "vary" an undertaking engages the court's discretionary jurisdiction and that what is just will depend significantly on whether there has been a significant change of circumstances.
"(6) I am not persuaded that the circumstances which are said to justify this proposed expenditure are so different from those which appear to me to have been contemplated or intended to be governed by the Undertaking at the time that it was given that it would be appropriate to release Koza Limited from the burden of the Undertaking which it chose to give as an uncontested part of the Order."
In addition, picking up the test of the "interests of justice" (see paragraph 12 above) he concluded:
"(7) In the light of those factors, I do not consider that the proposed expenditure falls within the scope of the Undertaking, or that it would accord with the interests of justice overall to approve the expenditure, or the balance of justice between the parties would make it appropriate to vary the Undertaking to permit it."
As can be seen, this latter conclusion included consideration of the interests/balance of justice between the parties.
"17. Given that the deputy judge concludes in sub-paragraph (7) that the expenditure does not fall within the scope of the undertaking, and is therefore not within the ordinary and proper course of business, his conclusion in sub-paragraph (1) that the expenditure "would be of benefit to Koza Ltd, and thus in the ordinary and proper course of business" must be understood to be subject to at least some of what follows in sub-paragraphs (2) to (6). That would appear to indicate that he considered that it was the ICSID jurisdiction issue which took the expenditure outside the ordinary and proper course of business, particularly when read with [101] where he said, "in the event that [the ICSID expenditure] falls outside that ambit (as I consider that it does in light of my findings on jurisdiction below )". Moreover, in [101], the deputy judge clearly indicates that the possible availability of alternative funding was not something on which he relied to take the expenditure outside the scope of the ordinary and proper course of business. It is less clear whether the grounds for doubting the authenticity of the SPA formed part of his decision that the ICSID expenditure was not in the ordinary and proper course of business, as opposed to a reason for not exercising his discretion to grant a variation. He says in (4) that the grounds for doubting the authenticity were relevant to whether the expenditure was in the ordinary and proper course of business, but given the view he expresses in [88], which I understand to mean that he is not able to reach a concluded view on the issue, it is difficult to see how this could provide a basis for saying, definitively, that the expenditure was not in the ordinary and proper course of business."
" that, first, there is a serious issue to be tried as to whether the proposed funding would be both a breach of undertakings previously give to the court by Koza, as well as being part of an allegedly fraudulent scheme, an important part of which was a false instrument and, secondly, that the balance of convenience firmly favours the grant of such relief"."
Although the judge referred to "both" the undertakings and the allegedly fraudulent scheme, in my view, it is clear that the injunction application was based on the allegation that the funding would arguably amount to a breach of the Undertaking because it would arguably not be in the ordinary and proper course of business. This can be seen also from his judgment, at [36(i)], in which the Judge, again, referred to the "serious issue" (my emphasis) as being the authenticity of the SPA and whether "the funding would constitute a breach of the 2016 Undertakings".
Injunction upon an injunction
"This order does not prohibit the first to third and fifth to seventh respondents from dealing with or disposing of any of their assets in the ordinary and proper course of any business conducted by them personally."
Maurice Kay LJ set out the approach which the court should take when determining whether proposed dispositions fell within the exception:
"79. The judge took the view that if there were unresolved issues on the evidence as to whether the disposals of the underlying assets were carried out by the companies themselves or by him as part of his own business, the burden rested on the bank to show that the transactions were outside the para 9(b) exception and that they had not done this. This was, in our view, the wrong approach. Most of the evidence in support of the application was provided by Mr A in his second witness statement of 16 March 2010 and his fourth witness statement of 17 May 2010. On an application for committal the burden is undoubtedly upon the applicant to prove the breaches relied upon to the criminal standard of proof. This includes the burden of showing that a disputed transaction is not within an exception to the order such as that contained in para 9(b): see Nokia France SA v Interstone Trading Ltd [2004] EWHC 272 (Comm). But where the defendant chooses to seek guidance or clarification from the court as to whether certain transactions have contravened or will contravene the terms of the injunction, it seems to us that it is incumbent on him to provide the court with the evidence upon which it can properly answer the question posed by the application. Declaratory relief is discretionary and if the applicant is unwilling to do this the judge should simply decline to make the order and leave it to the claimant to decide in due course whether it wishes to pursue committal proceedings of its own. In any such proceedings the court would have to decide whether the disposals were disposals by Mr A of his assets at all and, if so, whether they were made in the course of his own business. But the court is not obliged to adjudicate upon the defendant's compliance or otherwise with its orders on the basis only of whatever material the defendant chooses to put before it.
80. We therefore take the view that, even if otherwise unobjectionable, the transactions involving the shares in BTA Kazan and Omsk Bank and the re-investment of the proceeds of sale were not within the exception contained in para 9(b) and that the judge should have dismissed the application for declaratory relief in that respect. If Mr A is right about the nature and purpose of the transactions then the breach of the freezing order is likely to be a technical one in the sense that permission for the transactions would have been granted and, in those circumstances, is unlikely to have much influence on the court on the central question whether Mr A would be likely to breach the freezing order in the future. We have not therefore taken these breaches into account in deciding whether the judge was right to make the receivership order. But that is not a matter for us and would have to be dealt with in a further application by Mr A if so advised."
"48. In the result, however, I would allow the appeal from Mr Spearman's order to the extent of discharging the negative declaration which he granted. I would not replace the negative declaration with a positive declaration, because the authenticity of the SPA remains in doubt. It follows that if Koza Ltd pursues the funding of the ICSID arbitration it will do so at their own risk that it may be shown to be in breach of its undertaking to the court."
There is, again, no reference to the simple expedient of an application for an injunction to restrain proposed expenditure on the basis that it is an arguable breach of the business exception.
Abuse
"[21] I do not agree with Mr Trace's statement of principle. The starting point in such a case as the present is that the claimants must point to something that has happened since the grant of the original order. They must show something material has changed to make it appropriate to investigate the same issues over again at yet another extensive hearing with even more voluminous evidential material. Absent any such change, the application for a freezing order is not only a disproportionate call on the court's resources, but an abuse of the court's process, in effect making successive applications for the same objective but testing the court's willingness each time to see how far the court will go, each such application involving, to a greater or lesser extent, duplication of issues, evidence and arguments."
I accept that the application of the principle would need to reflect whether it was the same or a different party making what could properly be described as a "successive" or a repetitive application. But that is a factor which would influence how, not if, the principle was engaged.
Conclusion
(a) It would not be consistent with the overriding objective, in that permitting Koza Altin to pursue their application for and to grant an injunction would not be dealing with the case justly and/or at proportionate cost.
(b) It would not be an appropriate use of the court's powers under section 37 to grant the injunction sought by Koza Altin because the serious issue to be tried, on which it is based, is the allegation that the proposed expenditure would arguably be in breach of the Undertaking because it is allegedly not expenditure permitted by the business exception. For the reasons set out above, this is not a proper basis for the grant of the injunction.
(c) Koza Altin could and should have made their application for an injunction to prohibit the funding at the same time as the applications which were determined in the Funding Application and no good grounds have been established for permitting them to do so by a subsequent application.
