Chancery Division rejects application to cross-examine on Bitcoin asset in $1.9bn claim

24/02/21

JSC Commercial Bank PrivatBank v Kolomoisky & Others

Mr Justice Trower today handed down judgment in JSC Commercial Bank PrivatBank v Kolomoisky & Others, rejecting an application by the claimant (the “Bank”) to be allowed to cross-examine the First Defendant, Igor Kolomoisky, on his assets.

The Bank has brought a claim for fraud against Mr Kolomoisky and others (due for trial in 2022), alleging that they misappropriated $1.9bn through a series of sham loans and supply contracts.  Pending trial, in December 2017 the Bank obtained a freezing order over Mr Kolomoisky’s worldwide assets. In the usual way, Mr Kolomoisky therefore provided a list of his assets and verified it on affidavit.

One asset listed by Mr Kolomoisky was a right under an oral contract described as having the “potential value” of 50,000 Bitcoin or $1bn, whichever was the lesser, in January 2021.  The Bank made no enquiries about this asset until January 2021, when it asked for more details.  In answer Mr Kolomoisky explained that the right was contingent upon the production by a Bitcoin “mining” operation of enough Bitcoin to leave 50,000 net of expenses.  In fact the operation had not been successful, so his rights were much less valuable.

The Bank brought an urgent application challenging this explanation, accusing Mr Kolomoisky of changing his story about the nature of the asset and misleading the Bank, the Court and his own legal team.  It sought permission to cross-examine Mr Kolomoisky on his entire asset disclosure.  In a reserved judgment Mr Justice Trower rejected the application.

On the law, the Judge held that cross-examination on assets was an exceptional order. It would only be made when (a) the claimant could show serious deficiency in the asset disclosure; (b) other means of enquiry had been exhausted; and (c) the order would further the purpose of the freezing order by enabling the claimant better to police the frozen assets. It was not there to resolve disputes about the ownership of assets via a mini-trial.

On the facts, these tests were not satisfied.

• Although there were differences between the original asset description and the subsequent more detailed information provided on enquiry, the original description was not “actively misleading”, simply compressed (which was to be expected in a list of this nature). 
• The new information did not provide a complete and consistent picture of the mining operation, but rather than evidencing dishonesty that was an inevitable consequence of the Bank’s attempt to force the enquiries into an “unfeasibly tight timescale”. 
• Expert evidence adduced by the Bank at the last minute about the number of Bitcoin to be expected from the mining operation was based on “misconceived” factual assumptions.
• The Bank was entitled only to sufficient information about the asset (in this case, rights pursuant to an oral contract) as would enable it to police it. It already had such information and cross-examination was not a proportionate response.

The Judgment is here.