JSC Commercial Bank Privatbank v Igor Valeryevich Kolomoisky
| Jurisdiction | England & Wales |
| Judge | Mr Justice Trower |
| Judgment Date | 14 June 2022 |
| Neutral Citation | [2022] EWHC 1445 (Ch) |
| Docket Number | Case No: BL-2017-000665 |
| Court | Chancery Division |
[2022] EWHC 1445 (Ch)
THE HONOURABLE Mr Justice Trower
Case No: BL-2017-000665
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (ChD)
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
Tim Akkouh QC and Christopher Lloyd (instructed by Hogan Lovells International LLP) for the Claimant
Michael Bools QC and Geoffrey Kuehne (instructed by Fieldfisher LLP) for the First Defendant
Hearing date: 8 th June 2022
Approved Judgment
THE HONOURABLE Mr Justice Trower
This judgment was handed down by the judge remotely by circulation to the representatives of the parties by email. The date and time for hand-down is deemed to be 10.30 am on 14 June 2022
Introduction
In this application the claimant seeks relief ancillary to a freezing order originally made by Nugee J on 19 December 2017, and subsequently varied by orders of Snowden J, Roth J, Fancourt J and the Court of Appeal. By that freezing order, Nugee J restrained the first defendant from in any way disposing of, dealing with or diminishing the value of any of his assets outside England and Wales unless the total unencumbered value of all of his assets in England and Wales exceeded US$2.6 billion. Similar relief was granted against the other defendants.
Nugee J also ordered the first defendant to the best of his ability to inform the claimant's solicitors in writing of all his assets worldwide exceeding £25,000 in value, giving the value location and details of all such assets. This figure was subsequently increased by Roth J to £1 million.
On the lengthy list of assets disclosed by the first defendant on 18 January 2018 was a right to consideration valued at US$463,427,000. It was listed as asset number 112 and was described as follows:
“Right to receive consideration in the amount of US$926,854,000 for the transfer to a third party of 100% interest in Kadis Holding Ltd, a Nevis company, which holds a 50% interest in Starmill Ltd, a Cypriot company, which in turn holds a 99.8% interest in PJSC Kryvyi Rih Iron Ore Combine (KZhRK), in the form of a right to receive dividends and other distributions. Mr Kolomoisky is under an obligation to transfer to Mr Bogolyubov 50% of such consideration pursuant to an agreement with Mr Bogolyubov dated 23 January 2013”.
In the materials in support of this application, asset number 112 was described as the KZhRK receivable, a description I shall adopt for the purposes of this judgment. The claimant's application is put on the basis that the relief it seeks is required to assist in the preservation of the KZhRK receivable as an asset the characteristics of which means that its value and realisability are particularly precarious.
The claims made in the proceedings
An outline of the case advanced by the claimant in support of which the freezing order was granted is given in the judgment of the Court of Appeal on a series of jurisdiction challenges made by the defendants ( PJSC Commercial Bank Privatbank v Kolomoisky and others [2020] Ch 783 at paragraphs [15] to [22]). For the purposes of this application, I can summarise the position very much more shortly.
The first and second defendants were amongst the founders of the claimant, a bank incorporated in Ukraine in 1992. Prior to the nationalisation of the claimant in December 2016, they were the ultimate beneficial owners of more than 80% of its shares.
The claimant alleges that the first and second defendants orchestrated the fraudulent misappropriation of over US$1.9 billion. The misappropriation is said to have been achieved through loans made by the claimant to 47 Ukrainian and three Cypriot borrowers between April 2013 and August 2014. These borrowers then entered into supply agreements with supplier companies including the third to eighth defendants. The supply agreements, said by the claimant to be shams, were for the supply of quantities of commodities and industrial equipment and provided for the pre-payment of the entire purchase price before the time for delivery of the commodities or equipment had arrived.
The claimant alleges that, in respect of pre-payments totalling US$1.9 billion, no goods or commodities were supplied, and the pre-payments were not repaid by the suppliers to the borrowers. It also claims that loans in that amount have not been repaid to it by the borrowers and claims US$1.9 billion as loss from the first and second defendants. The claimant relies on the fact that the first and second defendants have never explained the commercial rationale for these supply agreements.
The first and second defendant deny that they caused the loans to be made by the claimant or that they caused the supply agreements to be entered into by the borrowers or the suppliers. They also deny that they were aware of the loans or the supply agreements at the time they were made.
The first and second defendants also contend that the loans have been repaid by cash and asset transfers. A large number of other companies were involved in these transfers and the claimant says that the cash repayments were themselves funded by further intermediary loans to companies it says were owned or controlled by the first and second defendants and that, while it received ownership and control of certain assets, the transfer of those assets to it did not result in a valid reduction of the relevant loans.
The claimant also alleges that new loans for amounts in excess of US$5 billion were made shortly before nationalisation in a process called the Transformation. Those amounts were then used to repay the original loans (together with a large number of other loans made by the claimant to other borrowers).
The Court of Appeal's conclusion on the arguability of the claimant's case was explained as follows ( [2020] Ch 783 at paragraphs [21] and [22]):
“21. The defendants, including Mr Kolomoisky and Mr Bogolyubov, accept, for the purposes of this appeal, that there is a good arguable case that the bank lost approximately US$515m through these transactions and that they were orchestrated by Mr Kolomoisky and Mr Bogolyubov, using the borrowers and suppliers in the manner generally alleged by the bank. Mr Kolomoisky and Mr Bogolyubov have not themselves to date proffered any explanation for the transactions in question or sought to explain their commercial rationale, if any.
22. The judge observed in his judgment at para 25 that there was no difficulty with the bank proving a good arguable case of a fraudulent scheme. The evidence was strongly indicative of an elaborate fraud perpetrated by someone, allied to an attempt to conceal from any auditor or regulator the existence of bad debts on the bank's books, and money-laundering on a vast scale. The borrowers had no commercial track record or any substantial assets. The documentary evidence clearly demonstrated that the supply agreements were shams, and “were used as a deceptive basis on which to justify very large sums of money owing out of the bank”. The artificial complexity of the recycling of funds was itself indicative of a fraudulent scheme. At para 104, the judge noted that Mr Kolomoisky and Mr Bogolyubov had admitted “a good arguable case of fraud on an epic scale”.”
While the defendants strongly contest the allegations that are made against them, and the first defendant's solicitor has pointed out that what the Court of Appeal had to say was only for the purposes of the applications to set aside the freezing orders, it remains the case that they have never sought to contend that the Court of Appeal was wrong to proceed on the basis that the claimant has a good arguable case for fraud on an epic scale as a result of which the claimant suffered losses of many hundreds of millions of dollars.
The KZhRK receivable
Turning to the subject matter of the current application, the claimant's solicitors, Hogan Lovells International LLP (“HL”), first raised questions in relation to the KZhRK receivable in October 2020. This was more than 2 1/2 years after it had first been disclosed as asset 112, a delay on which the first defendant relies and to which I will return. HL asked the first defendant's solicitors, Fieldfisher LLP (“FF”), to confirm whether their client had now received the consideration referred to in the description of the KZhRK receivable (i.e. US$926,854,000) and if so where it was being held.
When FF responded to the effect that the position was unchanged, HL made a more detailed request for information introduced by an expression of concern that, even though almost three years had passed since the KZhRK receivable had been identified as “right to receive” c.US$936 million, the consideration had still not been received. HL asked eight questions the answers to which they said were required as part of the process of policing the freezing order. These questions included a request for information as to the nature and details of the first defendant's interest in Kadis Holding Limited (“Kadis”), his right to consideration for the transfer, and the agreement under which the right to consideration arose. They also asked whether the right was secured, the identity of the party with the obligation to pay the consideration, whether the first defendant retained an interest in Kadis after the transfer and whether any dividends or other distributions have been paid by Kadis, Starmill and/or KZhRK since the time that the KZhRK receivable had been disclosed on the first defendant's list of assets.
These questions were not answered...
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Table of cases
...Bank v Khrapunov, [2018] UKSC 19 ....................................................201 JSC Commercial Bank Privatbank v Kolomoisky, [2022] EWHC 1445 (Ch) .... 205 JSC Mezhdunarodniy Promyshlenniy Bank v Pugachev, [2015] EWHC 1586 (Ch) ............................................................