Kazakhstan Kagazy v Zhunus. Again on qualification and a rather untidy application of Rome II in the context of an assets tracing claim.

Kazakhstan Kagazy Plc & Ors v Zhunus & Ors [2021] EWHC 3462 (Comm), sees Henshaw J unpicking the follow-up to a trial of applications and claims made by the Claimants for the purpose of enforcing an unsatisfied judgment for approximately US$300 million, handed down in December 2017.

The relevant part of the complex judgment, for the purposes of the blog, is a ‘tracing claim’: claimant argue that monies stolen from them by one of the defendants can be traced or followed into a variety of assets said to be held by companies within Cypriot trusts structures for the benefit of said defendant and his family. What is being traced are shares in Exillon, an oil company which Mr Arip developed after he fled Kazakhstan for Dubai. The proceeds of the shares went partially into the purchase of real estate, with another (substantial) part remaining liquid in a Swiss bank account.

Defendants submit that the tracing claim is governed by Kazakh law, and that that law does not recognise the concept of tracing. The judge, with respect, and perhaps he was echoing submissions, takes a rather unstructured approach to the conflict of laws analysis from which the judgment subsequently never recovers. Many first instance judgments in the UK intuitively start by quoting a relevant section from Dicey (whose 16th ed I am told might be out end of 2022), and then somehow engineer the analysis around it. In the case at issue, the Dicey rule that is zoomed in on [85], is disputes over real property, which are subject to lex situs (lex rei sitae). At [88] the judge then refers to Akers v Samba in which the Supreme Court, albeit at the jurisdictional level, held “the situs or location of shares and of any equitable interest in them is the jurisdiction where the company is incorporated or the shares are registered”. [89]:

It would follow that, insofar as relevant, questions of title to the Exillon shares, whose proceeds (a) were used to purchase the Properties and (b) remain in the form of the £72 million in the BJB account in Switzerland, would be likely to be governed by Manx law, Exillon having been incorporated in the Isle of Man.  A possible alternative would be English law on the basis that the shares were traded on the London Stock Exchange.  The parties have in any event agreed that, so far as relevant to these claims, Manx law is the same as English law.

[91] some role for Kazakh law is suggested to still exist when considering whether the English law preconditions for a tracing claim are met.  ‘It is generally a pre-condition of tracing in equity that there be a fiduciary relationship which calls the equitable jurisdiction into being’. [92] The law applicable to a cause of action or issue determines whether a person is required to hold property on constructive or resulting trust, hence it is necessary to consider whether duties imposed by the relevant foreign law are to be regarded as fiduciary.

Only in an afterthought [94] does the judge consider the lex causae governing unjust enrichment, equitable claims and negotiorum gestio, per Rome II as retained in UK law (and in Dicey). [The judgment is not in fact clear on when the claim was introduced and therefore might be subject to acquired as opposed to retained EU law].

The lex causae for the qualification of the current claims (proprietary restitution) as one of these entries in Rome II [96] is matter of factly presented as English law. [99] the judge dismisses the relevance of the succinct Rome II analysis for, harking back to his first reference to Dicey, the fundamental nature of the Claimants’ claim in the present case is held to be a proprietary one hence Dicey’s lex situs rule is said to apply without a need to consider Rome II.

Surely the right order is to qualify the claim, using autonomous EU interpretation, under (retained) Rome I cq Rome II and with reference to CJEU authority- with of course some of the recent qualification issues following CJEU Hrvatske Sume thrown in. Subsequently to only consider the English common law to the extent statutorily retained EU law does not govern the issue. The approach in the judgment is unsatisfactory and in that respect joins Fetch.AI Lrd & Anor v Persons Unknown Category A & Ors [2021] EWHC 2254 (Comm) , which Amy Held and Matthias Lehmann discuss critically this morning.


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