PJSC Bank “Finance and Credit” v Kostyantin Valentynovich Zhevago
| Jurisdiction | England & Wales |
| Judge | Sir Julian Flaux C |
| Judgment Date | 21 September 2021 |
| Neutral Citation | [2021] EWHC 2522 (Ch) |
| Docket Number | Case No: FL-2021-000002 |
| Year | 2021 |
| Court | Chancery Division |
THE CHANCELLOR OF THE HIGH COURT
Case No: FL-2021-000002
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
CHANCERY DIVISION (FINANCIAL LIST)
Rolls Building
7 Rolls Building
Fetter Lane
London EC4A 1NL
Charles Samek QC, Tetyana Nesterchuk, Nathalie Koh and Gillian Hughes (instructed by Gateley Legal) for the Claimants
Paul McGrath QC, Tom Ford and James Sheehan (instructed by Reynolds Porter Chamberlain LLP) for the 1 st to 4 th Defendants
Sa'ad Hossain QC and David Simpson (instructed by Farrer & Co LLP) for the 5 th Defendant
Hearing dates: Monday 19, Tuesday 20 and Wednesday 21 July 2021
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
The first claimant (“the Bank”) was the tenth largest bank in the Ukraine prior to its liquidation in 2015. It is now managed by the second claimant, the Deposit Guarantee Fund of Ukraine (“DGF”) a state owned body responsible, amongst other things, for the administration of failed banks. The first defendant, a Ukrainian citizen, is a highly successful businessman and billionaire. Amongst the businesses in which he had an interest was the Bank, of which he owned and controlled between 1995 and its liquidation some 95 to 99% of the shares, held through a number of corporate vehicles, including English registered entities such as the second defendant (“Frold”) and AP Capital Limited (“AP Capital”) a company owned by the fifth defendant, a British citizen resident in England, who provided corporate, accounting and company secretarial services to a number of clients, including the first defendant, for whom he has acted since 2003.
Amongst the first defendant's many diverse business interests across many sectors in Ukraine and elsewhere is Ferrexpo, a major iron ore trader and mining company, headquartered in Switzerland, but with its operating base in central Ukraine where it operates three iron ore mines and an iron ore pellet production facility. In 2007, the first defendant was the first Ukrainian national to list one of his companies, now Ferrexpo plc, on a major international stock exchange, the London Stock Exchange. Based on its current share price it has a market capitalisation of about £2.8 billion.
The claimants' case in these proceedings is that, using a number of highly sophisticated fraudulent schemes (summarised in more detail hereafter), the first defendant, with the assistance of the fifth defendant and others using a large number of corporate vehicles located in a number of jurisdictions (many such corporate vehicles now being dissolved), extracted enormous sums of money equivalent to in excess of US$500 million from the Bank, which at the time was being propped up by stabilising loans from the National Bank of Ukraine (“NBU”). The corporate vehicles used included Frold, the third defendant (“Eastroad”) an English registered LLP and the fourth defendant (“Portman”) an English registered company of which the fifth defendant was the sole director.
The Claim Form in these proceedings was issued, together with the Particulars of Claim, on 11 February 2021. On the same day the claimants issued an Application Notice seeking a Worldwide Freezing Injunction (“WFO”) against the defendants. That application was supported by the first affidavit of Mr Richard Healey, a partner in Gateley Legal, the claimants' solicitors. It is to be noted that, although the causes of action pleaded against the defendants were all torts or delicts under Ukrainian law, the claimants did not serve any expert evidence of Ukrainian law as part of their evidence in support of their application.
The defendants having indicated an intention to challenge the jurisdiction of this Court on the grounds of forum non conveniens, an Order was made by Marcus Smith J on 11 March 2021 setting out a timetable for service by the defendants of any evidence in opposition to the WFO application (the claimants having decided to proceed with that application at an inter partes hearing) and for making any applications under CPR Part 11 to challenge the jurisdiction. This timetable was extended by agreement in a Consent Order dated 18 May 2021. On 14 May 2021, the first to fourth defendants issued an Application Notice seeking: (i) a declaration that the Court has no jurisdiction over the first defendant and that the Claim Form and Particulars of Claim have not been validly served on him; and (ii) a stay of the claims against the first to fourth defendants.
Those applications were supported by the first witness statement of Mr Andrew McGregor, a partner in RPC, the first to fourth defendants' solicitors. That witness statement also responded to the application for a WFO and exhibited a report from a Ukrainian law expert, Mr Alyoshin, which set out, inter alia, his opinion that the claimants had no cause of action against the first to fourth defendants as a matter of Ukrainian law and that their claims were time barred as a matter of Ukrainian law.
Also on 14 May 2021, the fifth defendant issued an Application Notice seeking an order that (i) the claim against him be stayed pursuant to Part 11(6)(d) on the grounds that it can more appropriately be heard with the other claims before the courts of the Ukraine; alternatively (ii) that certain paragraphs of the Particulars of Claim setting out the claim against the fifth defendant be struck out under CPR Part 3.4(2)(a) as not disclosing a reasonable cause of action against the fifth defendant. That application was supported by witness statements from Mr John Wilkinson a partner in Farrer & Co, the fifth defendant's solicitors, and from the fifth defendant himself.
The claimants responded to the two sets of defendants' applications with a second affidavit from Mr Healey. They also produced a report from their own Ukrainian law expert, Professor Kuznetsova, which took issue with Mr Alyoshin's opinion that the claimants had no arguable cause of action as a matter of Ukrainian law and that the claims were time barred. They also produced witness statements from Ms Olena Chernyavska and Mr Oleg Plotnichenko, both employed by DGF, taking issue with various aspects of the defendants' contentions.
This all led to second witness statements from Mr McGregor and the fifth defendant and a further report from Mr Alyoshin. He produced yet another report during the hearing to which Mr Plotnichenko responded on factual matters only.
Summary of the claimants' claims
The principal claims involve four schemes by which it is alleged the defendants extracted money from the Bank. The first is the so-called Correspondent Bank Scheme. It is alleged that the first defendant directed and procured that a company called Nasterno Commercial Limited (“Nasterno”) applied for loans from two foreign banks, Bank Meinl based in Austria and Bank Frick based in Liechtenstein. Nasterno was incorporated in Cyprus, but the claimants claim the first defendant was its ultimate beneficial owner (“UBO”). It had been incorporated in May 2007 at his direction and, again at his direction, in June 2007 its entire shareholding was acquired by Maxtel Assets limited (“Maxtel”) a Belize registered company. At the first defendant's direction the sole shareholder and director of Maxtel was Mr Borysov, a Deputy Chairman of the Management Board of the Bank who acted as the first defendant's nominee. In July 2007, at the first defendant's direction, the shareholding and directorship were transferred to Mr Demchenko who was the first defendant's assistant. During an interview with an investigator from the Ukrainian State Bureau of Investigations, Mr Demchenko said that he had been invited to become owner of Maxtel and Nasterno by Mr Shapkin, then deputy chairman of the Board of the Bank, acting on behalf of the first defendant. Mr Demchenko said that all instructions in respect of Nasterno came from the first defendant.
The Bank then opened correspondent accounts with Bank Meinl and Bank Frick and made deposits into them equalling the amount of the Nasterno loans. The Bank pledged the credit balances in those accounts to Bank Meinl and Bank Frick as security for the Nasterno loans. Following those pledges, Nasterno was able to and did draw down under the Nasterno loans a total of about US$113 million. When Nasterno failed to repay the Nasterno loans, Bank Meinl and Bank Frick debited the total of some US$113 million from the respective correspondent accounts of the Bank.
The claimants' case is that the funds borrowed by Nasterno were transferred to other corporate entities owned or controlled by the first defendant: Frold, Collaton Ltd, Integrated Rail Casting Ltd (“Integrated”) and Bloomshine Ltd. Collaton is an Isle of Man registered company of which the fifth defendant is the sole shareholder. Integrated is an English registered company now in administration and Bloomshine was an English registered company now dissolved. The first defendant admits that he is the owner or controller of Frold and Collaton but is silent as to Bloomshine. No amounts were ever recovered by the Bank from Nasterno.
Mr Demchenko also told the investigatory authorities that the first defendant ordered him to destroy all documents he had in respect of Nasterno and Maxtel, which Mr Demchenko did. The claimants submit that these instructions were obviously given to conceal the fraud.
It is to be noted that the claim in respect of the...
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