English Court Of Appeal Considers Settlement In Multiparty Disputes

On 26 October 2016, the Court of Appeal delivered its judgment in Kazakhstan Kagazy Plc & 6 others v (1) Baglan Abdullayevich Zhunus (2) Maksat Askaruly Arip (3) Shynar Dikhanbayeva [2016] EWCA Civ 1036. The decision highlights the potential risks a co-defendant may face when deciding to settle without including all parties to the dispute in the settlement.

THE ISSUE

The claimants, a group of companies, brought claims in fraud and breach of fiduciary duties against the three defendants, all of whom were former directors of the second claimant. After all three defendants served defences denying the allegations, the first defendant entered into a settlement with the claimants. The claimants stayed their claim against the first defendant and continued only against the second and third defendants. The second and third defendants subsequently applied (a) for permission to bring a contribution claim against the first defendant pursuant to CPR r.20.6(2)(b) and section 1 Civil Liability (Contribution) Act 1978 and (b) a worldwide freezing order in the amount of £72 million against the first defendant.

The second and third defendants' primary case was to deny the fraud allegations. Their contribution claim arose only in the alternative, if they were found to have been fraudulent. In such circumstances, the second and third defendants argued that, on the facts, the first defendant would also be liable in fraud and they would be entitled to make a contribution claim against him.

THE DECISION AT FIRST INSTANCE

At first instance, Leggatt J refused permission for the second and third defendants to serve the contribution notice, as drafted, because they did not make their own allegation of fraud against the first defendant.

The judge commented that the second and third defendants needed to advance their own case against the first defendant. They could not rely on the claimants' case because the claimants were no longer pursuing a case against the first defendant as a result of the settlement. The judge held that "it cannot be right to require [the first defendant] to take part in a trial in order to respond to a case which no one is actually making against him". The judge went on to observe that he did not "think it right to permit [the second and third defendants] to commence a claim for contribution against [the first defendant] when neither they nor the claimants are currently making a factual case against [the first defendant] which, if proved, would...