Jurisdiction declined and freezing orders set aside in $2.6 billion Ukraine banking dispute

04/12/18

The Chancery Division (Fancourt J) has today held that the English Court has no jurisdiction over claims brought by Ukrainian bank Privatbank against its former owners, Igor Kolomoisky and Gennadiy Bogolyubov, and discharged worldwide freezing orders obtained by the Bank in support of those claims which the Bank had valued at US$2.6 billion.

In December 2016, the Claimant bank was nationalised, and its previous majority owners, Messrs Kolomoisky and Bogolyubov, were stripped of their shares. Following the nationalisation, the Bank instructed Hogan Lovells and Kroll to pursue claims against the former owners.

Shortly before Christmas 2017, the Bank obtained ex parte Worldwide Freezing Orders against Mr Kolomoisky and Mr Bogolyubov, who were both domiciled in Switzerland when the proceedings were commenced, and a number of companies registered in England and the BVI. Although the prima facie rule is that persons domiciled in a State bound by the Convention should be sued in the courts of that State, the Bank asserted that the English Court had jurisdiction against them under Article 6(1) of the Lugano Convention because it had also sued the three English company defendants. The English defendants had been parties to Supply Agreements with Ukrainian borrowers of the Bank, which the Bank alleged had been instruments of the alleged fraud.

All of the Defendants applied for declarations that the Court did not have jurisdiction over the claims against them, and to discharge the WFOs on the basis of material non-disclosure. They argued that the claims had been artificially constructed in order to implicate the English defendants, who in fact had no relevant assets and had been no more significant in the alleged fraud than a large number of other non-English companies.  The Court held that:

1. The Bank’s had worked backwards from receipt of funds by the English defendants in order to construct its case, for the purpose of founding jurisdiction.

2. The quantum of the Bank’s claim on this basis was very significantly inflated; the Bank’s good arguable case was limited to about US$515m plus appropriately calculated interest.

3. The Bank had been guilty of serious and deliberate non-disclosures on its ex parte application, which justified the discharge of the WFOs. The Judge held that he would have refused to re-grant the WFOs in exercise of his discretion, even if he had reached a different conclusion on jurisdiction.

4. Article 6(1) of the Lugano Convention does not permit a claimant to rely on claims against English “anchor” defendants to found jurisdiction against defendants domiciled in other Convention states when the “sole object” of suing those English defendants is to oust the jurisdiction of the courts of those states over the non-English defendants. That is so even where there is (as was conceded here) an arguable claim against the English anchors.

5. The Bank’s sole object in suing the English Companies was to found jurisdiction against Mr Kolomoisky and Mr Bogolyubov. (The Bank would not otherwise have brought the claim against them.) Accordingly, the Bank had abused Article 6(1), and there was therefore no jurisdiction over Messrs Kolomoisky and Bogolyubov.

6. While the suit against the English defendants was not itself an abuse of process, it was appropriate to stay any proceedings in England in favour of pending defamation proceedings in Ukraine in which the same matters were in issue, which had been brought by Mr Kolomoisky and to which the English defendants were party. Allowing the English proceedings to continue would give rise to the risk of irreconcilable judgments and a stay was appropriate under article 34 of the Recast Judgments Regulation. The Court followed Ferrexpo v Gilson in holding that Article 28 of the Lugano Convention could be applied ‘reflexively’ to permit a stay on the basis of related claims pending in third States, and would for that reason also have stayed the claims against Mr Kolomoisky and Mr Bogolyubov.

The Court awarded the Defendants their costs on the indemnity basis.

The Court granted permission to appeal on the jurisdiction and stay issues, but refused permission in relation to material non-disclosure and the quantum of the claims.

The discharge of the WFO will be stayed pending the Bank’s expedited application for permission to appeal the ruling that it should be discharged on grounds of non-disclosure.

The judgment is here.