The Grand Chamber of the Supreme Court of Ukraine has delayed a hearing in the legal battle between state-owned PrivatBank and the families of businessmen Ihor and Hryhoriy Surkis, a case that could prove decisive in the struggle between the state-owned bank, which was nationalized in 2016, and its former owners.
The Grand Chamber postponed the hearing due to what it alleged was “pressure on the court from the media,” and also filed a complaint with the Prosecutor General’s Office and the Supreme Council of Justice, the Supreme Court announced on April 27.
The Grand Chamber of 21 judges was meant to hear PrivatBank’s cassation appeal that aims to overturn a lower court’s ruling that the bank must pay back roughly $40 million worth of deposits to the Surkis brothers’ families. The brothers are powerful businessmen and partners of the bank’s scandalous former co-owner, oligarch Ihor Kolomoisky.
This case is critical for PrivatBank for several reasons.
First, it can unlock all the rest of the court cases Kolomoisky has filed against PrivatBank, which are now waiting for the Supreme Court’s decision.
Second, it will determine whether the bail-in procedure the state applied during the nationalization of PrivatBank was legal.
Under that procedure, deposits in the bank owned by individuals close to Kolomoisky — including the Surkis brothers — were converted into the bank’s capital in order to save PrivatBank from bankruptcy. At the time of nationalization, PrivatBank had a $5.5. billion hole in its ledger due to the former owners allegedly laundering the money using an insider lending scheme, an audit by the Kroll corporate investigations firm found.
Kolomoisky has denied wrongdoing.
‘Under pressure’
The trial at the Supreme Court is now paused for an indefinite amount of time and will only be renewed after the Supreme Council of Justice makes a decision and determines whether the media exerted any pressure on the court.
“It concerns certain articles and comments on social media and in media outlets…by journalists and by commentators,” said Olga Prokopenko, the Supreme Court’s spokesperson. She did not elaborate on what articles and which publication she was referring to.
PrivatBank’s lawyers said that this news caught them by surprise.
“How can you pressure the court?” Andriy Pozhidaev, PrivatBank’s legal counsel, said. “If it concerns some interviews we gave on behalf of the bank, our personal estimation of the situation, the impact of this court case, then this is not a pressure on the court.”
“The bank was expressing its position about the events that took place during its nationalization. We did not tell the court what to do,” he added.
The Grand Chamber’s complaint to the Prosecutor General’s Office could potentially lay the groundwork for a criminal investigation into the individuals who allegedly pressured the Supreme Court’s judges.
Pressuring a court is legally considered interference in the court’s activities and is a criminal offense.
Surkis brothers v. PrivatBank
Ihor Surkis is a business partner of Kolomoisky and holds shares in his companies, including the 1+1 media group.
On April 15, the Surkis family won another legal battle against PrivatBank. The Kyiv Court of Appeals ruled that the bank must comply with its obligations before Surkis family members who hold deposits in PrivatBank’s Cyprus branch.
That means that the bank must pay back $259 million to six British companies owned by the Surkis brothers’ wives.
The Surkises’ claim that is supposed to be heard by Supreme Court is worth far less, dollar-wise: just around $40 million. But the brothers are trying to use the court to prove that Ukraine’s National Bank counted them as Kolomoisky insiders by mistake and to overturn the bail-in procedure.
That is dangerous for PrivatBank.
If the Surkis brothers succeed, it will set a precedent. Other insiders whose assets were confiscated during PrivatBank’s nationalization will have much better chances of getting their money back. They are suing PrivatBank for a total of Hr 29 billion ($1.16 billion) in 45 separate lawsuits in Ukraine.
Such claims have even been filed outside Ukraine.
If PrivatBank loses the Surkis case and the Supreme Court voids the bail-in, it will also create yet another problem for the state-owned bank: it can be forced to pay back Eurobonds that were also bailed-in during the nationalization in 2016.
Before 2016, PrivatBank issued Eurobonds through UK SPV Credit Finance PLC, a London-based company deliberately created for this purpose. Many Kolomoisky associates invested in these bonds.
In 2017, these Eurobonds’ holders teamed up in a Madison Pacific Trust Limited and launched a lawsuit against PrivatBank in London. The Kolomoisky associates want the court to recognize the bail-in nationalization as illegitimate and force PrivatBank to return their investments.
London Court of International Arbitration is currently waiting for a decision of the Supreme Court in Ukraine. When it decides whether the bail-in procedure was legitimate in the Surkis case, then the London court will go ahead with its own judgment.
