JSC BM Bank (a company incorporated in Moscow) v Vladimir Abramovich Kekhman
| Jurisdiction | England & Wales |
| Judge | THE HONOURABLE,Mr Justice Bryan |
| Judgment Date | 12 April 2018 |
| Neutral Citation | [2018] EWHC 791 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | CL-2014-000135 |
| Date | 12 April 2018 |
[2018] EWHC 791 (Comm)
THE HONOURABLE Mr Justice Bryan
CL-2014-000135
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF
ENGLAND AND WALES
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Rolls Building, Fetter Lane
London, EC4A 1NL
Alan Gourgey QC and Adam Kramer (instructed by PCB Litigation LLP) for the Claimant
James Stuart and William Skjott (instructed by Fishman Brand Stone) for the First Defendant
Hearing dates: 23, 24, 25, 26, 30, 31 October, 1, 3, 6, 7, 8, 9, 13, 14, 15, 20, 21 November 2017, 21 February 2018
Judgment Approved
A. INTRODUCTION
A1. The parties and the claims
In autumn 2011 the Claimant (“Claimant”/“C”), then known as “Bank of Moscow” and part of the VTB Bank Group, lent US$140 million plus ₽305,732,000 (equivalent in total to around US$150 million) (the “Loans”) to JFC Group ZAO (“JFC Russia”) under credit facility agreements dated 2 September 2011 and 14 October 2011 (the “Facility Agreements”). JFC Russia was a Russian company in the JFC (“Joint Fruit Company”) group of companies (“JFC Group”), which group, though principally based in Russia, carried on a global business in the production, distribution and sale of fruit (especially bananas).
The First Defendant, Vladimir Abramovich Kekhman (“Mr Kekhman”/“D”), is a Russian citizen and the founder of the JFC Group. The Second Defendant, JFC Group Holding (BVI) Limited (“JFC BVI”), a BVI company, is the ultimate holding company of the JFC Group. Its wholly owned subsidiaries include the Third Defendant, Whilm Management Limited (“Whilm”) and the Fourth Defendant, Garold Projects Limited (“Garold”). JFC BVI, Garold and Whilm (“the BVI Companies”) each guaranteed JFC Russia's liabilities under the Facility Agreements (the “Guarantees”).
The JFC Group of companies was founded by Mr Kekhman in around 1994 or 1996. By September 2011, it consisted of a large number of companies incorporated in Russia, Cyprus, BVI and South America. At all material times, Mr Kekhman owned, through his foundation, 70% of the shares in JFC BVI. Mrs Yuliya Zakharova (“Mrs Zakharova”/“YZ”) and Mr Andrey Afanasiev (“Mr Afanasiev”/“AA”), held the remaining 30% of the shares. C alleges (but Mr Kekhman very much denies) that Mrs Zakharova and Mr Afanasiev were at all material times Mr Kekhman's lieutenants who acted in accordance with his directions and instructions, and that they would not do anything of substance in relation to the business of JFC Group without Mr Kekhman's knowledge and approval.
The BVI Companies are insolvent and in administration or liquidation. JFC Russia defaulted on the Facility Agreements and the BVI Companies breached their Guarantees. The BVI Companies were never served in these proceedings, there having been summary judgment against them on 16 November 2012 in earlier proceedings in the Commercial Court for over US$144.5 million plus ₽328 million, which judgment remains unsatisfied (other than recoveries in the amount of US$5,895,278.81). Mr Kekhman himself was adjudged bankrupt in October 2012 and discharged from his bankruptcy in October 2013.
In this action C makes claims in tort, under Russian law, against Mr Kekhman, the primary claim being essentially in deceit in respect of fraudulent misrepresentations made to C in the context of C's agreement to provide the Loans to JFC Russia. C also has an alternative claim in respect of an alleged wrongful dissipation of assets conspiracy said to have been perpetrated by Mr Kekhman and others whereby it is said that Mr Kekhman caused dissipation of assets of the JFC Group and diversion of business away from the JFC Group by Garold and JFC Russia from early September 2011, in each case (it is alleged) in favour of companies, which it is alleged are beneficially owned by Mr Kekhman, so as to defraud C as a creditor of both JFC Russia and of the various companies within the JFC Group (including the BVI Companies). The quantum of the deceit claim against Mr Kekhman is the amount advanced (US$140 million plus ₽305,732,000) less recoveries (of US$5,895,278.81) plus interest (to be quantified). The amount of the dissipation claim is US$18,531,000.
More specifically, C's primary claim in these proceedings is for damages under Articles 1064 and 1080 of the Civil Code of the Russian Federation (the “Russian Civil Code”) as a result of the fraudulent misrepresentations made to C by JFC Russia staff on what are alleged to have been the instructions of, and with the knowledge and agreement of, Mr Kekhman. It is alleged that Mr Kekhman instructed Mrs Zakharova as to the making of the false representations with the intention of inducing C to lend to JFC Russia. Mrs Zakharova in turn instructed the JFC staff, who made the false representations on which C relied. It is said that C was thereby induced to enter into the loan agreements and provide the Loans to JFC Russia.
The fraudulent representations comprise:
(1) The “Garold Representations” that the financial figures provided to C in relation to Garold (and the JFC Group of which it formed part) were true, when in fact the revenue and accounts receivable were fraudulently inflated by amounts in excess of over US$200 million (as pleaded at paragraphs 12A-K of the Particulars of Claim).
(2) The “Security Representation” that the shares in JFC BVI were free of any pledge, when in fact they had been pledged to another bank, namely Sberbank (as pleaded at paragraphs 13A to K of the Particulars of Claim).
C's case is that both sets of representations were made at the direction, and with the knowledge, of Mr Kekhman, and Mr Kekhman knew them to be false. If C proves such matters, and C's reliance on one or other (or both) of the representations, it is common ground between the parties, based on the Russian law expert evidence of both C's expert Mr Kulkov and Mr Kekhman's expert Mr Holiner, that Mr Kekhman would be liable to C under Articles 1064 and 1080 of the Russian Civil Code.
Each set of representations is independent in the sense that it is unnecessary for C to succeed in its claim for misrepresentation that it proves its case in respect of both sets of misrepresentations. If, for example, C succeeds on its case on the Garold Representations, it will be entitled to recover the same loss as it would if it succeeded on the Security Representation, or on both sets of representations. Of course, in order to be successful in relation to either misrepresentation claim, C would have to prove all the necessary elements of that claim.
Mr Kekhman says that he was not involved in the negotiations for the Facility Agreements. He admits that Garold's revenue and assets were artificially inflated and that the (fraudulent) Garold Representations were made. He maintains that he had no involvement in, or knowledge of, such matters. He does not admit that C relied upon the Garold Representations when deciding whether to lend monies to JFC Russia. As to the Security Representation, Mr Kekhman reiterates his case that he was not party to the negotiations for the Facility Agreements. He denies that the Security Representation was false and does not admit that it was made. In any event he denies that he knew of any such representation or directed or agreed that it be made. Furthermore, he denies, in any event, that the Claimant relied upon the Security Representation when deciding whether to lend monies to JFC Russia. Accordingly, he denies any liability in respect of the Garold or Security Representations.
C's alternative claim against Mr Kekhman under Articles 1064 and 1080 of the Russian Civil Code is in relation to dissipations by Garold and JFC Russia of assets, which were carried out from early September 2011 onwards. It is C's case that Mr Kekhman caused dissipation of assets of the JFC Group and diversion of business away from the JFC Group, in each case, it is said, in favour of companies which it is said are beneficially owned by D, so as to defraud C as a creditor both of JFC Russia and of the various guarantor companies within the JFC Group (including JFC BVI, Garold and Whilm) (as advanced at paragraphs 30 to 33 and 49 to 50 of the Particulars of Claim). It is said that the result of such conduct was to reduce substantially the recoveries that C would otherwise have made by enforcing the Loan Agreements and the Guarantees. Such loss is quantified by C as some US$18,531,000.
The alleged dissipation involved many complex series of transfers between numerous companies (within the various groups of companies in which it is said Mr Kekhman was beneficially interested and controlled). The fact of the various transfers (which are identified in the first and second expert reports of C's forensic accountancy expert, Mr Egor Misiura of JSC KPMG (“Mr Misiura”)) is not in dispute. It is C's case that there is no evidence that the transfers were for value and that these transfers were dissipations carried out on the instructions of Mr Kekhman with the intention of defrauding creditors including C, in favour of companies said to be beneficially owned and controlled by Mr Kekhman.
The dissipation claim is pleaded in terms of an unlawful means conspiracy (by reference to the elements of such a claim under English law) because at one stage such a claim was pleaded under English law. Thus it is advanced in terms of “ ondates unknown in or about 2011 and/or early 2012” Mr Kekhman (with the BVI Companies and/or with...
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