When can the court grant a freezing injunction in aid of a contribution claim?

Anna Caddick

In Kazakhstan Kagazy plc & others v Zhunus and others, Mr Justice Leggatt considered the second defendant’s (“D2”) application for a freezing injunction against the first defendant (“D1”) in aid of a contribution claim.  On the facts, the judge refused permission to serve the contribution claim on D1, and consequently refused the injunction application in aid of that claim, hence the judge’s comments about the freezing injunction were obiter.  Nevertheless, the judge made interesting comments, in particular that a Part 20 claimant could apply for a freezing injunction once a contribution notice had been filed and served as of right or when permission to file and serve had been given.

D1 and D2 were the former Chairman and CEO of the first claimant (“C1”) and were being sued by the claimants for fraud, alleging losses of US$ 160 million. D1 settled all of the claimants’ claims against him.  When D2 and the third defendant (“D3”) became aware of a possible settlement, they applied for permission to serve a contribution notice on D1.  D2 also applied for a world-wide freezing order against D1 in aid of the contribution claim.

Mr Justice Leggatt refused to grant permission to serve the contribution notice because no case of fraud or wrong-doing was then being advanced against D1. Following settlement, the pleaded case against D1 fell away, and unless D2 and D3 were prepared to advance that case themselves, there were no relevant live allegations against D1.  It would not be objectionable for D2 and D3 to have claimed contribution on the basis of an alternative case if their own position was denied, however, following the settlement this course was no longer open to them, as the relevant claim against D1 was stayed pursuant to the settlement.  This was not a claim where, in order to determine the liability of D2 and D3, the position of D1 needed to be examined.  There was therefore no prospective judgment against D1 which could be thwarted in the absence of a freezing injunction.

There was thus no need to go on to consider whether the freezing injunction in support could be granted. However, the judge acknowledged that had D2 obtained permission for the contribution notice, a freezing injunction could properly have been granted.  Mr Justice Leggatt discussed the following points of principle:

  1. The fact that D2 would only be entitled to recover a contribution from D1 if they were both found to have acted fraudulently, would not justify refusing the freezing injunction relief to D2. The concept of “clean hands” related to conduct in relation to the relief sought, not in relation to the underlying dispute or the general conduct of the applicant.
  2. On the basis of the current law (see e.g. The Veracruz [1992] 1 Lloyd’s Rep 353), the court would not grant a freezing injunction unless the applicant had an accrued cause of action. Mr Justice Leggatt considered that (interpreting the requirement in the “least unjustifiable” way as the judge put it), once the right to make the contribution claim arose, the cause of action in the relevant sense had accrued.  So once the contribution notice had been filed and served as of right or permission given, the cause of action could be said to have accrued.  The judge commented, however, that he saw no good reason why a freezing injunction should not be given even if the right to bring proceedings for substantive relief had not yet arisen, provided there was “sufficiently strong reason to anticipate that the right is about to arise”.

Kazakhstan Kagazy plc & others v Zhunus and others [2016] EWHC 1048 (Comm)

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