London’s Court of Appeal upholds £72 million worldwide freezing order on former directors of Kazakhstan Kagazy

At Kazakhstan Kagazy factory On April 2 the UK Court of Appeal unanimously rejected an appeal seeking to drop a £72 million worldwide freezing injunction against two former directors of London-listed, Kazakhstan Kagazy Plc (KK), sterlingmedia circulated in their reports.

The injunction had been initially granted by the Commercial Court in August 2013 against Maksat Arip and Baglan Zhunus, the two previous directors and shareholders of KK, after they were accused of stealing more than US $100 million from the company, which is being represented by leading international law firm Zaiwalla & Co Solicitors, 

The injunction will now remain in place until the end of the forthcoming trial involving KK’s US $100 million fraud claim against Mr Arip. His former co-director and shareholder, Mr Zhunus, has previously given the Court an undertaking in lieu of the injunction against him.

In rejecting the appeal, Lord Justice Jackson said he was uneasy about discharging a freezing injunction in circumstances allegedly involving the “perfect fraud”. He added that if the defendants are ultimately successful in defending themselves against the claim, then the money which has been allegedly stolen will become “irrecoverable”.

Following today’s ruling, the lawyers representing Kazakhstan Kagazy, Zaiwalla & Co Solicitors, said that the judgment showed that the English Commercial Court and the Court of Appeal were global “beacons of justice”. Sarosh Zaiwalla, Senior Partner at the firm said that the case was a public endorsement of the strength and reputation of the UK legal system and courts around the world. The fact that this case, which originated in Kazakhstan, a part of the Commonwealth of Independent States (CIS) region, has been settled in UK courts is a “further demonstration” of how the legal system here has adopted the role of an international court. Innocent parties around the world should “rest assured” that they will always have recourse to English Commercial Law, Mr Zaiwalla said.

Mr Zaiwalla added: “The English courts have, at every stage, consistently rejected Mr Arip’s attempts to overturn the freezing order. Once again, the Commercial Court and the Court of Appeal have proved themselves as beacons of justice. That is why people from all over the world treat the Commercial Court as a truly International Court to resolve their disputes.”

The freezing injunction was first granted in August 2013, after Kazakhstan Kagazy claims it discovered that sums had been channelled into businesses with connections to the defendants. It was subsequently maintained by His Honour Judge Mackie QC in the Commercial Court in November 2013, after which Mr Arip decided to appeal both judgments in the Court of Appeal. An application by Mr Arip seeking permission to appeal today’s judgment to the UK Supreme Court was also turned down.

In dismissing Mr Arip’s appeal, the judges made a number of important observations.

In their ruling, they noted that Mr Arip “accepts before us that there is a good arguable case that he defrauded Kazakhstan Kagazy in the manner alleged by them”, the only defence being that of “limitation”.

Lord Justice Jackson also unusually in his judgment observed that the principle losers by the appellant’s alleged fraud are the creditors of and investors in KK and it would be appropriate for them to take a close interest in this case. The principle creditors of KK are the two previous Kazakhstan Government owned banks.

Lord Justice Elias added that “it is inherently unattractive for the appellant to submit that the fraud should have been manifestly obvious and yet at the same time to assert that he has a complete defence to the allegation”.

Following today’s judgment, a spokesperson from Kazakhstan Kagazy said: “We are pleased that the Court of Appeal judges were unanimous in maintaining the freezing order against Mr Arip in the face of his challenge to its grant by the Commercial Court.

“The Kazakhstan Kagazy board believes that this legal action is vital in defending the reputation of Kazakh businesses and the efforts of their hard-working employees. 

“We will continue to pursue this claim with vigour to prove the Group’s allegations and expect to take all available steps to recoup the millions which the board believes have been wrongly stolen from the Kazakhstan Kagazy Group.”

Mr Zaiwalla, who is also representing KK in the forthcoming trial, added: “We are now focused on moving forward to the fraud trial.”

The Court of Appeal also today awarded costs to KK and awarded an on-account payment of 75 per cent of the costs sought.

Sarosh Zaiwalla established Zaiwalla & Co LLP Solicitors over 30 years ago and the firm is today recognised as one of the leading international solicitors firm in the City of London. Founded in 1982, Zaiwalla & Co is the first solicitors firm started by a Solicitor born in Asia. There are over 90 reported cases where this firm’s name appears in the Law Reports having acted for one of the parties. The firm specialise in representing overseas clients who have legal services. The present Judgment in the KK case is significant, in that it sends a message to the innocent victims of massive fraud by oligarchs of Russia and CIS countries that the victim can seek justice from the English Courts. The English Courts are now treated by the former Soviet Union countries as an International Court for commercial cases.