Harbour Fund III, LP v Kazakhstan Kagazy Plc & Ors [2021] EWHC 1128
In the long-running Kagazy litigation, that commenced in August 2013, the difficulties of enforcement had triggered a number of satellite proceedings, particularly concerning the rights of the funder, Harbour, and the position of the Kazakhstan subsidiary (KK JSC) that was in a form of insolvency in Kazakhstan. Regrettably, Harbour was now the claimant in its own litigation. The case is an uncomfortable read, giving the Court an opportunity to conduct a detailed analysis on a funder’s contractual agreement and also its internal workings and discussions. It also demonstrates how a case can sometimes get out of control and the budget can simply increase exponentially over time.
After the funding agreement had been concluded in 2015, it was purportedly amended on six occasions, namely 13 January 2016, 19 May 2016, 16 February 2017, 24 March 2017, 5 April 2017 and 21 April 2017. KK JSC accepted the first variation, but denied all the others, essentially on the basis that they did not follow the process that had been established in the Kazakhstan insolvency proceedings. The difficulty for Harbour was that, whilst they had received authority from the CEO and appropriate office-holder of KK JSC, the proper process had not been followed. The issues necessitated expert Kazakh evidence. The Court held that the CEO did not have actual or ostensible authority to enter into the variations. The Court also held that Harbour was on notice of a number of the deficiencies of the process. The challenge was that the need for additional funding was urgent and that there was a real risk of the case collapsing without further funds. It was for this reason that Harbour characterised these variations as being in the nature of payments that were incurred in connection with the preservation of its rights, something allowed under the funding agreement. However, KK JSC were still able to point to the fact that the proper process had not been followed as it pertained to them. A further difficulty was that the variations were in excess of the agreed budget.
The Court found against Harbour on all points but the case highlights the very real difficulty for a funder when decisions need to be made during the litigation and when the persons in authority change. Without the increases in funding, the claim would have collapsed and there would be no judgment to enforce. There would also have been huge adverse costs to pay. The decisions that funders have to make are therefore very significant ones, and it is not always easy to seek to cover all eventualities in the funding agreement at the outset.