LONDON – The Court of Appeal of England and Wales finished hearing PrivatBank’s claim on July 25, in which the bank argued that the High Court was wrong in dismissing the fraud case it brought to London in December 2018.
The Court of Appeal’s verdict will be due in October.
The High Court dropped the December case, citing a lack of jurisdiction over it. One of the major grounds was that the former owners of PrivatBank, oligarchs Ihor Kolomoisky and Gennadiy Boholyubov, are not permanent residents of England. The bank appealed this decision.
“These two individuals should either be tried in Ukraine or in Switzerland,” argued Kolomoisky’s lawyer, Mark Howard QC, on July 25.
Both oligarchs used to live in Geneva before Kolomoisky returned to Ukraine following Volodymyr Zelensky’s victory in the April presidential election.
“Article 6 of the Lugano Convention (which regulates jurisdictions) states that the person domiciled in a foreign country can be sued in another one,” countered PrivatBank’s lawyer, Lord David Pannick QC.
Kolomoisky’s legal team is apparently concerned about having their case brought before the UK legal system: “If PrivatBank succeeds on (the) jurisdiction claim, it will be a knockout blow,” said Howard.
Why London?
PrivatBank’s appeal started on Monday and was supposed to be five days long. However, the hearing finished one day earlier than scheduled as all of the sides had addressed their arguments.
In London, PrivatBank seeks to retrieve only part of the money that Kolomoisky and Boholyubov allegedly embezzled from the bank. The bank’s claim amounts $1.9 billion plus interest of $500,000 every day, while the entire alleged fraud scheme totals $5.5 billion.
According to the bank, the $1.9 billion in question was misappropriated by its former owners between May and September 2014 through six limited companies, three British and three incorporated in the Virgin Islands. However, the entire alleged money laundering scheme is understood to have been run for eight years before the bank’s nationalization in December 2016.
The case over British jurisdiction was heard by three judges this week, Lords Justices Julian Flaux, David Richards, and Guy Newey.
Pannick, who represents PrivatBank, is a member of the British parliament and a solicitor. He represented the Crown Prosecution Service in one of trial related to the prominent 2009 parliamentary expenses scandal in the U.K.
Kolomoisky is being represented in the court by Howard, a commercial barrister. Previously, he defended the Russian oligarch and Chelsea football club owner Roman Abramovich in a dispute against the Yugraneft oil company, which also claimed to be the victim of massive fraud.
In that case, the judge ruled he did not have jurisdiction, granting Abramovich a de facto win.
British jurisdiction
PrivatBank claims that the case has to remain under British jurisdiction.
According to the bank, even though Kolomoisky and Boholyubov are not permanent residents of England, the companies that allegedly aided them in embezzling money from the bank are.
That satisfies the conditions of the Lugano Convention, according to which the oligarchs can be sued in England if they are closely connected to the companies in question. And they are, the bank’s lawyers have argued.
“The English defendants’ [the limited companies] are a part of a series of sham arrangements. The absence of documents and assets would, or at least may, assist us in proving the fraud we are trying to prove,” Pannick said.
Kolomoisky’s lawyer, on the other hand, said that the judge of the High Court was correct to dismiss the bank’s claim. Howard insisted that PrivatBank is trying to sue three British companies for the sole reason of being able to bring the claim against Kolomoisky and Boholyubov to London.
“This court is not an international court — this court cannot extend its jurisdiction even if there is a good, arguable case. You should pursue the case in the right jurisdiction. If you want to sue under the Lugano Convention you should sue in Switzerland,” said Howard.
He believes PrivatBank picked three British companies out of 192 involved, knowing that they did not play any crucial role in the whole alleged fraud scheme.
“They say these three companies are central. Why are you using these words? What you are trying to do is say that these companies had some particular importance. We say there is no particular importance,” Howard said.
PrivatBank’s lawyer said in turn that the bank does not have any other intention than proving the fraud scheme, and that there is no dispute that British courts have jurisdiction over British companies.
Asset freeze
Kolomoisky’s lawyer said that PrivatBank brought the claim to London to enjoy the so-called benefits of British legislation, one of which is the Worldwide Freezing Order (WFO). It enabled PrivatBank to freeze $2.6 billion owned by each of the oligarchs in December 2017.
“It [PrivatBank] deployed a nuclear weapon in a way of a freezing order on a New Year eve,” Howard said.
“The bank perceived that the advantage was its ability to tap into this nuclear weapon. The question is whether it was entitled to do so,” he added.
The High Court lifted the freeze in December 2018 and ruled it should not be re-granted. However, the WFO has remained in place pending the decision of the Court of Appeal.
“They say we use benefits of the British court — of course, it is an important part to use the UK jurisdiction, but that does not mean that it is the ‘sole purpose’,” Pannick said.
‘Elaborate fraud’
The High Court has admitted that PrivatBank was the victim of “money laundering on a vast scale” involving a “highly complex network of multiple loans and prepayments”.
The only dispute was about the amount of the loss the bank suffered as a result of the fraud scheme. Kolomoisky admitted $248 million while PrivatBank claimed $1.9 billion. The High Court judge estimated it at $515 million.
As the Ukrainian Central Bank (NBU) alleges, PrivatBank issued loans to companies owned by Kolomoisky and Boholyubov, which the oligarchs rarely returned.
The money flow went through subsidiaries, often in Cyprus and Latvia. To mask the alleged fraud PrivatBank used a “loan recycling scheme” that issued new credit to the owners to pay off the interest on old loans.
