JSC Bank of Moscow (A company incorporated in Russia) v Vladimir Abramovich Kekhman and Others

JurisdictionEngland & Wales
JudgeThe Honourable Mr Justice Flaux
Judgment Date29 October 2015
Neutral Citation[2015] EWHC 3073 (Comm)
Docket NumberCase No: 2014 FOLIO 243
CourtQueen's Bench Division (Commercial Court)
Date29 October 2015
Between:
JSC Bank of Moscow (A company incorporated in Russia)
Claimant
and
(1) Vladimir Abramovich Kekhman
(2) JFC Group Holding (BVI) Limited
(3) Whilm Management Limited
(4) Garold Projects Limited
Defendants

[2015] EWHC 3073 (Comm)

Before:

The Honourable Mr Justice Flaux

Case No: 2014 FOLIO 243

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Rolls Building

7 Rolls Building

Fetter Lane

London EC4A 1NL

Alan Gourgey QC and Iain Pester (instructed by PCB Litigation Solicitors) for the Claimant

Michael Swainston QC and Paul Wright (instructed by Simmons & Simmons LLP) for the Defendants

Hearing date: 8 September 2015

The Honourable Mr Justice Flaux

Introduction

1

There are two related applications before the court: (i) the claimant's application dated 27 March 2015 to amend the Particulars of Claim and (ii) the first defendant's application dated 13 July 2015 to strike out the Particulars of Claim, alternatively for summary judgment against the claimant.

2

The claim made in the original Particulars of Claim is of an unlawful means conspiracy on the part of the first defendant ("Mr Kekhman") with a number of companies in the group which the claimant alleges that he controlled to defraud the claimant bank ("the bank"). The pleading of his control and direction of the corporate affairs of the group is set out in paragraph 8 of the existing pleading, as is an allegation at paragraph 9 that he was the controlling mind of each of the British Virgin Island companies and other companies in the JFC Group.

3

Paragraph 30 of the original pleading sets out the alleged unlawful acts relied upon: (i) the second, third and fourth defendants (JFC BVI, Whilm and Garold) defaulted on their obligations under guarantees given to the bank in respect of the liabilities of companies in the JFC Group under the various loan agreements; (ii) JFC BVI, Whilm and Garold moved or permitted to be moved or diminished assets in breach of the guarantees; (iii) these breaches of contract were procured by Mr Kekhman exercising his ultimate control over those companies and JFC Russia; (iv) Mr Kekhman through his dominant control over the companies in the JFC Group and in breach of his fiduciary obligations to those companies procured the transfer of assets and diverted corporate opportunities away from the Group with the intention of interfering with the economic interests of the bank by unlawful means by rendering it impossible for the companies to fulfil their obligations to the bank or to repay the loans.

4

In support of the allegation of a conspiracy to injure the bank, paragraph 31 of the original pleading sets out that whereas the audit reports for the Group at June 2011 showed net assets of U.S. $218 million, the balance sheet put before creditors in September 2012 showed net liabilities of U.S. $193 million, a reduction over the period of U.S. $411 million for which no legitimate commercial explanation has been provided. It is not explicable on the basis of trading losses. The bank contends that it is to be inferred that the reason for the reduction is that assets have been disposed of or diminished for no or no adequate consideration and that since Mr Kekhman was controller of the Group it is to be inferred this was done at his direction and for his benefit.

5

Particulars of the unlawful means are then set out at paragraph 32 of the original pleading. Reference is made to a number of substantial dispositions of funds from Group companies, particularly JFC Russia and Garold to other companies which it is contended were ultimately controlled by Mr Kekhman including Kronos, Prometheus (Prometey), Maldus Consulting and Gepson. It is pleaded that these transfers were made for no or no adequate consideration and it is to be inferred that they were made at the behest or under the direction of Mr Kekhman, which constituted breaches of the fiduciary duties he owed the companies. It is alleged that a parallel structure of companies was set up by him or on his behalf and that business opportunities belonging to the JFC Group were diverted upon the instruction of Mr Kekhman, including Cetus and Prometey interposed in the supply chain of bananas to JFC Russia, Charterlink which was paid for freight services and Tradement which began acting as a seller of bananas in various other countries than Russia.

6

It is also alleged that Prometey was making payments of tens of millions of dollars to companies controlled by or managed on behalf of Mr Kekhman during the course of 2011, including to companies in the LQ Group, (which was the Group which owned a substantial property portfolio) and to Cetus which in turn paid Kronos, Maldus Consulting and other companies, all ultimately controlled by Mr Kekhman.

7

In paragraph 33 of the original pleading, it is alleged that the conspiracy caused the bank loss and damage consisting of the unpaid judgment debt of some U.S. $144 million and 328 million Roubles pursuant to summary judgment which the bank obtained against the second to fourth defendants in November 2012 which remains unsatisfied.

8

The bank wishes to amend its pleading to allege that fraudulent misrepresentations were made to it to induce it to make the loans of U.S. $150 million to JFC Russia which were made in September and October 2011. The alleged misrepresentations fall into two categories: (i) the alleged "Garold Representations" in which the revenue and accounts of Garold were artificially and fraudulently inflated by some U.S. $200 million and (ii) the alleged Security Representation in which it was represented to the bank that the security provided in relation to the various outstanding loans of the JFC Group was as set out in a document headed "Breakdown of loan debts" including that the security provided to Sberbank was limited to guarantees from Group companies, whereas in fact there was a pledge of shares in JFC BVI to Sberbank which meant there was a serious likelihood that the percentage of shares pledged would give Sberbank control of JFC BVI in the event of default.

9

In terms of the involvement of Mr Kekhman in the alleged fraudulent representations, it was already pleaded that the companies were controlled by him and that the role of Mr Afanasiev (who was in charge of international operations for the JFC Group) and Mrs Zakharova (who was head of the finance department), who had a 15% shareholding each in the JFC Group and a 5% shareholding each in the LQ Group, was to implement his instructions and be accountable to him. The proposed amendments pleaded that to the extent that the relevant misrepresentations to the bank were made by or on the instructions of Mrs Zakharova, it was to be inferred that this was done on the direction of and/or with the approval and knowledge of Mr Kekhman. The contested application for permission to amend came before me on 24 April 2015. In my judgment given at that hearing I refused permission for the amendments in their then form, principally on the grounds that the bank was declining to give particulars of the instances of control by Mr Kekhman of the relevant companies from which his participation in fraud was said to be inferred, contending in correspondence that this was a matter for evidence. I held in [23] of my judgment that the instances of control relied upon needed to be specifically pleaded and that the bank needed to clarify whether it was being alleged that Mrs Zakharova and Mr Afanasiev were implicated in the fraud.

10

Following that hearing, on 22 May 2015 the bank produced a further draft of the amended pleading which set out at a new paragraph 8A particulars of the allegation that the role of Mrs Zakharova and Mr Afanasiev was to implement Mr Kekhman's instructions, in other words further particulars of his control of the various companies and their affairs. Those particulars of control are relevant to both the existing pleading of conspiracy to defraud and the proposed amendment. The terms of that paragraph are set out in the appendix to this judgment. Following production of that further draft pleading, Mr Kekhman has sought further particulars of the bank's case, in particular whether it was being alleged that Mrs Zakharova was party to the conspiracy with Mr Kekhman, one of the matters which I had said should be clarified, but which had not been. The bank has confirmed, in Further Information dated 22 June 2015, that it is part of its case that Mrs Zakharova was a party to the fraudulent conspiracy and to the fraudulent misrepresentations allegedly made to the bank. The bank is not contending that Mr Afanasiev was a party to any conspiracy or fraud.

11

The application to amend came before me again on 26 June 2015, but since Mr Swainston QC was indicating that Mr Kekhman proposed to apply to strike out the existing pleading and/or seek summary judgment, it seemed to me more sensible to deal with those applications and the bank's application to amend at the same time, so that the whole matter was adjourned to 8 September 2015. There was, however, some debate between the court and Mr Gourgey QC for the bank at the 26 June hearing concerning the current form of the amendment which is of relevance to the applications before the court and to which I will refer below.

The law

12

CPR 3.4 (2) gives the court power to strike out a statement of case which discloses no reasonable grounds for bringing or defending a claim or a statement of case which is an abuse of process. Where, on the material before the court, there are disputed issues of fact, the court should not strike out a claim unless certain it is bound to fail: see per Peter Gibson LJ at [22] in Colin...

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    ...Ltd v Barclays Bank plc [2018] EWHC 2341 (QB),Three Rivers DC v Bank of England [2001] UKHL 16 and JSC Bank of Moscow v Kekhman [2015] EWHC 3073 (Comm) for the standard of proof it should apply to the allegations of a fraudulent and corrupt scheme, summarising the position as The standard o......
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    ...passages in Three Rivers District Council v Bank of England [2003] 2 AC 1 at [185]-[186] (Lord Millett); JSC Bank of Moscow v Kekhman [2015] EWHC 3073 at [20] (Flaux J); and see also CPR r.16.4(1)(e) and CPR PD16 para Readers are also well-advised to note the recent observations of Master D......

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