PrivatBank can press ahead with a $3 billion lawsuit against its former owners in U.K. court.
Lawyers representing the Ukrainian oligarch Ihor Kolomoisky and his business partner Gennadiy Boholyubov have failed to persuade the English Court of Appeal (COA) that fraud claims brought against the pair by PrivatBank should not be litigated in U.K. jurisdiction.
The Oct. 15 decision in London enables PrivatBank to move forward with the lawsuit that alleges fraud on a massive scale by its former owners. The bank says this fraud cost it hundreds of millions of dollars and resulted in an International Monetary Fund-backed nationalization to prevent its collapse.
The appellate decision also maintains the worldwide asset freeze on the former owners’ fortunes while the case is open in the U.K.
Kolomoisky has said in a statement that he is now “seeking permission” from the U.K. Supreme Court to challenge the Oct. 15 ruling.
Read the 74-page Court of Appeal ruling here.
Boholyubov and Kolomoisky were the co-owners of PrivatBank before it was nationalized by Ukraine in 2016. The country’s largest lender faced collapse when forensic auditors discovered a $5.5 billion hole in its ledger. Its co-owners were accused of a fraudulent, Ponzi-like insider-lending scheme. The accused have strongly denied all wrongdoing and sought the return of the bank or their shares.
The new ruling overturned a December 2018 judgment by the lower High Court, which ruled that British jurisdiction did not apply to PrivatBank’s claim. The bank’s lawyers successfully argued that three English companies and three firms registered in the British Virgin Islands were instrumental in the alleged fraud. Kyiv Post covered this appeal hearing from the courtroom in July.
PrivatBank is now seeking to recoup $3 billion from its former owners. The claim’s principal amount was $1.9 billion initially, growing to $2.6 billion with interest as proceedings in England got underway. Interest continues to accrue at $500,000 per day.
The COA has also denied the defendant’s permission to appeal against its decision in that court, but they could still appeal directly to the U.K. Supreme Court and have 28 days to do so. However, the Supreme Court rarely overturns such COA rulings and this would not prevent PrivatBank from moving ahead with its complaint. Kolomoisky’s lawyers unsuccessfully requested for the case to be suspended while they appeal.
The COA has also ordered lawyers acting for Kolomoisky and Boholyubov to file a “line of defense” by the end of November. This has to be in response to the accusations of fraud that PrivatBank filed against the former owners back in December 2018.
The appellate judgment rules on the following key issues:
- The English Court has jurisdiction over the claims brought by PrivatBank, and has jurisdiction to hear the bank’s claims against Kolomoisky and Boholyubov, despite their claim to be domiciled in Switzerland. The bank is entitled to sue English companies in England.
- Proceedings in England should not be stayed. The Court of Appeal found that the bank’s fraud claim in England should be heard without further delay.
- PrivatBank can claim for $1.9 billion plus interest. The Court of Appeal confirmed that the bank could pursue the full loss amount that it claims was caused by the alleged fraud, which is $3 billion (including interest).
- A worldwide order freezing the assets of Kolomoisky and Boholyubov should remain in place.
FieldFisher, a London-based law firm representing Ihor Kolomoisky, told the Kyiv Post that their client is planning to challenge the Court of Appeal’s decision: “Mr Kolomoisky is seeking permission from the UK Supreme Court to appeal these decisions,” his lawyers stated.
Furthermore, Kolomoisky insists that “that there was no fraud and no loss was caused to the Bank… The Bank’s claims are misconceived and will ultimately fail,” reads the oligarch’s statement, issued after the COA judgment.
The Kyiv Post also reached out to the representatives of Gennadiy Boholyubov and the six England-linked companies in question to the claim but did not receive a response before publication.
“We are delighted with the ruling of the Court of Appeal, that this morning confirmed the strength of PrivatBank’s legal position on all issues,” Said Artem Shevalev, Deputy Chairman of the Supervisory Board at PrivatBank.
“Not only do we have the confirmation that the English court has jurisdiction over this case, but also the global freeze order over the assets of Kolomoisky and Boholyubov remains in place until the final judgment.”
Richard Lewis, a Partner at Hogan Lovells International LLP representing PrivatBank, said: “We were confident that the Court of Appeal would come to the right and fair conclusion, and we are delighted that it has happened. Respectful judges noted that the defendants accepted the existence of a sufficient fraud case against them, and none of them offered any explanation for what the court refers to as “a set of transactions that do not have obvious commercial logic”. It is very difficult to imagine how defendants will defend themselves against the Bank’s claims in court. ”
Proceedings in the case are likely to be reconvened at the High Court in London at a future date, but that date will be at the discretion of the court, PrivatBank has said.
PrivatBank is engaged in multiple lawsuits against Kolomoisky in Ukraine, U.S. and Cyprus over the alleged fraud. Kolomoisky has also turned to Ukrainian courts, trying to get the 2016 nationalization ruled illegal.
What happens next?
In December, after Kolomoisky’s legal team provide the High Court with their defense argument, a lengthy exchange of legal arguments begins which is then followed by procedural hearings.
An actual trial is unlikely to happen before mid-2021 and could last a few weeks. The procedure requires the defendants to testify before the court in person, however, Kolomoisky and Bogolyubov can avoid it if they prove they have a very important reason – like a serious threat to their safety – not to come to London.
If the court approves it, they could theoretically testify via video link.
