On 7 October 2022, the Court of Appeal handed down the latest judgment in the long-running Koza litigation.
The case, which started in 2016, had already taken three prior trips to the Court of Appeal and one to the Supreme Court, and has generated important judgments on jurisdiction ([2019] 1 WLR 4830), interim injunctions ([2021] 1 WLR 170), abuse of process (ibid), and the circumstances in which a company can be restrained from funding the costs of a dispute between different stakeholders ([2021] EWHC 786).
The latest judgment deals with the substance of the dispute, and in particular the question of whether the bulk of the claim being advanced by the Claimants gives rise to a serious issue to be tried.
In short, the Claimants, who are an English company, Koza Ltd, and its sole director, Mr Ipek, were seeking injunctive and related relief to preclude Koza Altin, a Turkish company and Koza Ltd’s 100% ordinary shareholder, from exercising any of its shareholder rights. The basis for the claim in issue was a contention that those currently in control of Koza Altin should not be “recognised” by the English court as having any authority to cause Koza Altin to do anything as a shareholder of Koza Ltd, because (it was said) their appointment, which took place pursuant to a judgment which had been given in Turkish criminal proceedings, was politically motivated, unfair, and constituted a violation of Mr Ipek’s human rights.
Trower J held at first instance that the Claimants’ contention was misconceived as a matter of law because (i) Koza Altin’s rights as a shareholder of Koza Ltd did not derive from and were unaffected by anything that had occurred in the Turkish proceedings, (ii) those in control of Koza Altin had been validly appointed as directors under the lex incorporationis, and (iii), in those circumstances, following the approach of the House of Lords in Williams & Humbert Ltd v W&H Trademarks Jersey Ltd [1986] AC 368, the Claimants’ allegations relating to how the Turkish criminal proceedings had been conducted were legally irrelevant. Accordingly, Trower J concluded that the Claimants’ “non-recognition” case did not give rise to a serious issue to be tried.
The Claimants appealed, and whilst the Court of Appeal disagreed with Trower J’s reasoning, it ultimately dismissed the appeal.
Disagreeing with Trower J, the Court of Appeal held as a matter of principle that (i) if the authority of directors of a company was arguably derived from a judgment, and (ii) if that judgment was arguably flawed in a way that meant it was not entitled to recognition, applying the general common law rules on the recognition of foreign judgments, then (iii) it was arguable that the authority of the directors should not be recognised either.
However, on the facts, the Court held that (i) it was not arguable that the authority of Koza Altin’s directors derived from the judgment which was the focus of the Claimants’ complaints, it being derived instead from legislative and executive action to which the foreign act of state doctrine applied, and (ii), even if the authority of the directors had derived from the judgment, there was no serious issue to be tried on the recognition of that judgment because appeals/petitions in relation to it to the Turkish Constitutional Court and the European Court of Human Rights had been rejected, and those appellate/reviewing decisions themselves fell to be recognised.
The Court of Appeal’s judgment is of general interest on a number of points. First, its decision in principle could have implications in a wide variety of cases in which the authority of directors of a company, and potentially other officeholders, could be said to be “derived” from a judgment in some sense. How far the Court’s decision in this respect goes in practice will need to be worked out on a case-by-case basis. Second, the Court’s judgment is an affirmation at appellate level of the proposition that flaws or arguable flaws in a foreign judgment that could in theory have led to its non-recognition can be “cured” through appellate or review processes. Third, the Court’s judgment contains a robust application of the foreign act of state doctrine in light of the Supreme Court’s decision on that topic in Central Bank of Venezuela v Governor and Company of the Bank of England [2022] 2 WLR 167.
David Caplan has acted for the Defendants throughout the litigation, instructed by Mishcon de Reya LLP.
A copy of the judgment is available here.