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Pass the $182 million Parcel!

In a decision highlighting the serious consequences of funding another’s litigation (even family) in Kazakhstan Kagazy Plc & Ors –v- Shyna Arip & Ors [2019] EWHC 2630 (Comm), the Commercial Court has granted a third party costs order (TPCO) against the wife (A) and mother-in-law (B) of a defendant (C) who partially funded the defence of C and another defendant. The trial judge upheld the Claimants’ substantial fraud claim and held that both defendants gave extensive dishonest evidence which resulted in the award of indemnity costs.

A received over US$182 million from a trust in which C was interested. Shortly after this distribution, A commenced funding the defence of the defendants. A transferred some money to B, her mother who, in turn, paid some of the smaller legal bills of C and the other defendant. The Claimants likened this to the children’s game, “Pass the Parcel” in which “money had simply been transferred as “pass the parcel around the Arip family”. Money in the “family pot” was used to fund the defence of the family pot, and it did not matter who had ended up with that family pot.

The Claimants (Kazakhstan Kagazy Plc & ors) applied for a TPCO of the costs incurred in the proceedings on the basis that A and B had a personal interest in the outcome of the proceedings because:

  1. A significant proportion of the funds that C misappropriated from the Claimants was ultimately transferred to A and B;
  2. In light of the close family relationships and in view of A’s extravagant lifestyle, A had a vested interest in C avoiding judgment being entered against him; and
  3. A and B were complicit in C’s fraud, and in the concealment of his assets, by acting as nominal holders of his assets.

A said that she paid C’s legal costs because C told her that that he had run out of money and that it was ‘inconceivable that any wife would fail to support their husband in those circumstances’. She agreed to fund his defence ‘purely out of love and affection, to help [her] husband [who] had run out of money’.

A and B argued that they fell within the description of a ‘pure funder’, as they were close family members providing funds to enable C to meet a serious claim against him in circumstances where he could not afford to defend himself. Such cases do not warrant a TPCO and there were no different or exceptional circumstances in the present case which would warrant such an order.

Mr Justice Jacobs commented that although some older authorities suggested that a spouse who provides funding to a husband or wife is ordinarily to be regarded as, or at least as akin to, a “pure funder”, his view was that these older authorities could not be regarded as laying down any firm rule as to how funding provided by a family member is to be regarded in the content of TPCO application.

The Judge ultimately considered that A and B were not “pure funders”. The most important fact for the Judge was that the funding of C’s legal costs by A and B began very soon after A received over $182 million from trust assets. Accordingly this was a case where funds were potentially available to A to discharge his legal expenses, but that as a result of arrangements made by A and C, these funds were no longer available to C, other than via A. C’s supposed inability to find funds to meet those bills was the entirely foreseeable and predictable consequence of the decision to allow A to receive US$182 million from trust assets. Furthermore there was evidence that A and C enjoyed an extravagant lifestyle and it was said that A’s living expenses were an average of US$280,000 per month (approximately £3m per year).

The Judge considered that there were a number of features in this case which were ‘remarkable’ and were ‘far from a typical case where a close relative provides funding out of a sense of affection or familial responsibility’. The Judge considered that the TPCO was just and appropriate on the facts and he was satisfied on the evidence that steps had been taken by A with a view to dissipate or conceal assets.

This decision is a rare example of family members being made subject to a TPCO and the judgment provides a helpful review of the case law on TPCOs as well as factors which the Court may take into account when exercising its power to grant such orders.

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