Igor Surkis v Petro Poroshenko
| Jurisdiction | England & Wales |
| Judge | Mr Justice Calver |
| Judgment Date | 22 September 2021 |
| Neutral Citation | [2021] EWHC 2512 (Comm) |
| Docket Number | Case No: CL-2019-000780 |
| Year | 2021 |
| Court | Queen's Bench Division (Commercial Court) |
[2021] EWHC 2512 (Comm)
THE HONOURABLE Mr Justice Calver
Case No: CL-2019-000780
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Alain Choo-Choy QC and Saul Lemer (instructed by Reed Smith LLP) for the Claimants/Resondents
Lord Goldsmith QC, Professor Philippa Webb and Monika Hlavkova (instructed by Debevoise & Plimpton LLP) for the First Defendant/Applicant
Andrew Scott (instructed by William Grace (a trading name of MBC Law Limited)) for the Second Defendant/Applicant
Hearing dates: 26–27 July 2021
INTRODUCTION
Second Defendant's Application
There are two applications before the Court. The first application is the Second Defendant's application, made by Application Notice dated 27 July 2020, by which she applies to have the Claimants' claims struck out or summarily dismissed against her on the following grounds:
a) The Claimants' claims are barred by ss. 1 and 14 of the State Immunity Act 1978 (the “SIA”).
b) In so far as the Claimants' claims are premised on allegations that certain acts of the Ukrainian State were unlawful, those claims have no real prospect of success by reason of the application of the foreign act of state doctrine.
c) In so far as the Claimants' claims rely on the judgment of the Ukrainian Administrative Court dated 25 July 2017 (the “Administrative Court Judgment”), the claims have no real prospect of success because the Administrative Court Judgment has been overturned by the Ukrainian Supreme Court.
d) The Claimants' claims are premised on allegations of conspiracy and/or intentional wrongdoing, which have not been properly pleaded and/or have no real prospect of success.
First Defendant's Application
The second application is the First Defendant's application made by Application Notice dated 23 December 2020. Pursuant to the Order of Bryan J dated 9 March 2021, this hearing is concerned only with the First Defendant's application for an order that the Court does not have jurisdiction to hear the claims against him on the basis that: (i) the claims against both the First and Second Defendants are barred by the application of the SIA; (ii) the Claimants' case requires the English Court to adjudicate on issues that the act of state doctrine precludes the Court from determining; and/or (iii) there is no real issue which is reasonable to be tried between the Claimants and the Second Defendant.
Whilst the hearing of these applications was just completed within the two day time estimate, it was completed at the expense of full argument and debate. Submissions had to be hurried because as I pointed out to the parties during the hearing, two days was simply not a realistic time estimate for the hearing of applications of this complexity. This was despite the fact the court had flagged up its concern as to the inadequate time estimate before the hearing took place and had received confirmation that the time estimate remained realistic. The inadequate time estimate also led to the Court having to carry out a significant amount of its own analysis of the documentary and witness evidence and case law outside of the hearing. This puts an unreasonable burden on the Court and leads to the hearing of other litigants' cases being unfairly delayed. It is essential that advocates keep hearing time estimates under review and alert the court in good time where they consider that the estimate may be wrong, failing which this Court will not hesitate to apply serious costs sanctions to one or both parties. All practitioners in the Commercial Court should take note of this fact.
BACKGROUND
The parties
The First Claimant, Igor Surkis, is a Ukrainian businessman. The Second to Seventh Claimants (the “Surkis Family Companies”) are limited liability partnerships incorporated in England in 2012 and beneficially owned by Mr Surkis' family.
The First Defendant (“PP”) is the fifth President of Ukraine, having been the sitting President between 7 June 2014 and 20 May 2019. The Second Defendant (“VG”) was the Governor of the National Bank of Ukraine (the “NBU”) from 19 June 2014 until her resignation on 10 May 2017. The NBU is Ukraine's central bank and is in charge of (among other things) the regulation and supervision of Ukrainian banks. VG's resignation came before the end of her contract at the NBU and two years before PP's term as President was due to expire.
The nationalisation of PrivatBank
The claims in these proceedings arise out of the Ukrainian state's nationalisation of Commercial Bank PrivatBank (“PrivatBank”), which was for many years the largest bank in Ukraine.
Since 2014, the NBU has been engaged in a systemic reform of the Ukrainian banking sector, coordinated with and overseen by the International Monetary Fund (the “IMF”). Between 2014–2016, the NBU (with the assistance of the IMF) conducted regular asset quality reviews and stress testing of Ukrainian banks, and withdrew the licences of non-compliant banks. During that process, the NBU discovered a massive capital shortage in PrivatBank's balance sheet, estimated at c. US$ 4.5–5.7 billion. PrivatBank has brought proceedings in fraud in the English courts against Mr Igor Kolomoisky and Mr Gennadiy Bogolyubov, PrivatBank's majority shareholders, for losses of some US1.9bn plus interest, and those proceedings remain on foot 1.
After Mr Kolomoisky and Mr Bogolyubov failed to comply with a recapitalisation plan agreed with the NBU, the NBU initiated discussions with the Ukrainian Government about the nationalisation of PrivatBank pursuant to Ukraine's Law on Banks and Banking. Accordingly, on 18 December 2016, the NBU declared PrivatBank insolvent in accordance with Article 76 of the Law on Banks and Banking, and submitted a proposal to the Cabinet of Ministers (i.e. the Ukrainian Government) that PrivatBank be nationalised.
On the same day, the National Security and Defence Council of Ukraine (the “NSDCU”), headed by PP in his capacity as President, approved a “ Decision on
Urgent Measures to Be Taken to Safeguard the National Economic Security of Ukraine and Ensure the Protection of Depositors' Interests” (the “NSDCU Decision”). The NSDCU Decision specifically mentioned the role in this process of VG as the Head of the NBU and it noted the risks that the PrivatBank insolvency posed to the national and economic security of Ukraine. It proposed (i) to the Cabinet of Ministers that it consider recapitalising PrivatBank from state funds and (ii) that the Cabinet of the Ministers of Ukraine with the participation of the National Bank of Ukraine, Deposit Guarantee Fund of Ukraine and the National Securities and Stock Market Commission should immediately take comprehensive action to prevent the destabilisation of the financial system of the state and to ensure the protection of PrivatBank's interestsThe NSDCU Decision was brought into force on 19 December 2016 by a Presidential Decree No. 560/2016, issued by PP pursuant to powers granted to him by the Constitution of Ukraine.
On the same day the Cabinet of Ministers approved the nationalisation of PrivatBank.
The nationalisation of PrivatBank was implemented by the Deposit Guarantee Fund (the “DGF”), a special public body in charge of the resolution of insolvent banks, in accordance with the Law of Ukraine on Households Deposit Guarantee System (the “DGF Law”). Once PrivatBank was declared insolvent with the DGF having announced its temporary administration in accordance with Article 34 of the DGF Law, the DGF was authorised to act on PrivatBank's behalf in place of its shareholders and management.
The process of nationalisation involved a significant injection of state funds as well as a bail-in of related party liabilities (the “Bail-In”). A bail-in is a financial tool that seeks to shift some of the financial burden of bank failure from taxpayers to the bank's shareholders and creditors. In Ukraine, Article 41–1 of the DGF Law authorises the DGF to exchange funds held in accounts of the bank's “related parties” for shares in the bank's capital, which are then sold to the state (in this case for a nominal sum).
Under the Ukrainian Law on Banks and Banking, the “related parties” of banks are self-reported by the banks and/or designated by the NBU. In advance of the PrivatBank nationalisation, on 13 December 2016, the RP Commission for Designation of Banks' Related Parties and the Verification of the Banks' Transactions with Such Parties (the “RP Commission”) issued Decision No. 105, in which it designated 1,092 individuals and legal entities as being “related parties” to PrivatBank (“Decision No. 105”). This included the Claimants.
Decision No. 105 was based on an assessment of PrivatBank's relationships conducted by the RP Monitoring Department for Related Parties (the “RP Monitoring Department”).
On 21 December 2016, after the DGF performed the Bail-In in respect of funds held in accounts of PrivatBank's related parties, the Ukrainian Ministry of Finance, on behalf of the Ukrainian state, purchased 100% of PrivatBank's shares from the DGF (acting on behalf of PrivatBank's shareholders) for the nominal sum of UAH 1 (c. US$ 0.04). The Ukrainian state subsequently invested a massive UAH 155 billion (c. US$ 5.8 billion) in recapitalising PrivatBank.
The...
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