The Court of Appeal has allowed co-defendants to serve a contribution notice on a third defendant who had settled the original claim against him. The court also considered its discretion to grant a freezing injunction between parties accused of fraudulent behaviour.
In Kazakhstan Kagazy plc & Ors v Zhunus & Anor, a group of companies commenced proceedings for fraudulent misappropriation against three of its former officers, D1, D2 and D3. The claimants and D1 settled their dispute. D2 and D3 then sought permission to serve a contribution notice on D1 seeking, in the alternative to their primary case that there had been no fraud, to establish that D1 was jointly liable with them. D2 also sought a worldwide freezing injunction against D1.
At first instance, the judge refused permission to serve a contribution notice because, given that the primary case of D2 and D3 was that there had been no fraud, they could not plead a positive case against D1. With no proceedings in existence against D1, the judge also refused to grant a freezing injunction. D2 and D3 appealed.
The Court of Appeal granted D2 and D3 permission to serve a contribution notice on D1. The Civil Liability (Contribution) Act specifically states that proceedings for contribution can be initiated “notwithstanding that [a co-defendant] has ceased to be liable in respect of the damages in question since the time when the damage occurred.” It was not necessary to determine whether or not D2 and D3 could put any positive case against D1 while defending the claims against themselves. The court could order the issues to be tried separately and could protect D1 from any unfairness which might arise. It was not an abuse of the court’s process for D2 and D3 to commence an alternative claim against D1.
As regards the freezing injunction, the Court of Appeal found that given that D2 and D3 were entitled to issue proceedings in the form of a contribution notice, they were also entitled to seek a freezing injunction. The court considered whether they should refuse the freezing injunction under the equitable maxim that “he who claims equitable relief must come with clean hands”, but found that given it was not clear what the just result would be before liability had been decided, a freezing injunction was appropriate to “hold the ring” in the meantime.