A pair of court rulings this week in two separate jurisdictions have allowed state-owned PrivatBank and its supporters to rally and strike back against controversial oligarch, alleged fraudster and former co-owner of the bank, Ihor Kolomoisky.
A landmark ruling on Oct. 15 in London means PrivatBank can move forward with a $3 billion lawsuit that alleges fraud on a massive scale carried out by its former owners, Ihor Kolomoisky and his business partner Gennadiy Boholyubov.
PrivatBank can now press ahead with its claim after lawyers representing the Ukrainian oligarch failed to persuade the Court of Appeal of England and Wales that fraud claims brought against the pair by PrivatBank should not be litigated in U.K. jurisdiction.
The bank says this fraud through the U.K. or its linked offshore jurisdictions cost it hundreds of millions of dollars and resulted in an International Monetary Fund-backed nationalization to prevent its collapse. Kolomoisky has said in a statement that he is now “seeking permission” from the U. K. Supreme Court to challenge the Oct. 15 ruling.
And on Oct. 17, Kolomoisky faced a further setback, this time in Kyiv.
A case against PrivatBank and seven other defendants that had been brought by the oligarch was intended to help him reclaim his former shares in the now state-owned bank. It was supposed to be his home straight in achieving this goal. Observers predicted a negative outcome for PrivatBank from an allegedly biased judge, but the proceedings were instead stopped without prior notice, surprising all the participants and giving the bank hope in any future litigation in Ukraine.
London calling
It is in London, however, where Kolomoisky’s chickens may yet come home to roost.
PrivatBank, which the oligarch co-founded in 1992 with Boholyubov, among others, was the country’s largest lender when it faced collapse in 2016, shortly after forensic auditors discovered a $5.5 billion hole in its ledger. The state saved the bank injecting the amount of money, which its co-owners allegedly embezzled in a fraudulent, Ponzi-like scheme. The accused have strongly denied all wrongdoing.
But the Oct. 15 appellate ruling, from the second-highest U.K. court overturns a December 2018 judgment by the lower High Court of Justice, which ruled that British jurisdiction did not apply to PrivatBank’s fraud claim. It means the pair will face English justice, unless they convince the U. K. Supreme Court otherwise.
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 appellate ruling means that the English courts have jurisdiction over claims brought by PrivatBank, and have jurisdiction to hear the bank’s suit against Kolomoisky and Boholyubov, despite their flawed claim to be domiciled in Switzerland.
It also rules that proceedings in England should not be stayed and the bank’s claim should be heard without further delay. In addition, PrivatBank can claim for the principal plus interest, meaning its total legitimate claim is now $3 billion.
Most frustratingly for the accused pair, a worldwide order freezing the assets of Kolomoisky and Boholyubov remains in place, according to the appeal court judgment.
“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.
Kolomoisky’s lawyers told the Kyiv Post their client would appeal to the U. K. Supreme Court. Legal experts said this is possible and the defendants have 28 days to do so, but that the Supreme Court rarely overturns such appellate rulings and this would not prevent PrivatBank from moving ahead with its complaint. Kolomoisky’s lawyers unsuccessfully requested for the case to be suspended during the appeal period.
Reprieve in Kyiv fiasco
Kolomoisky again faced disappointment at the Kyiv Economic Court on Oct. 16 when the presiding judge ruled to indefinitely pause his case brought against PrivatBank and its supporters.
It was an unexpected move, with the defendants having already prepared themselves for a negative outcome. Instead, the judge decided to pause it up until another court in Kyiv issues its verdict first. PrivatBank breathed a sigh of relief.
It is a long awaited decision for PrivatBank and the other seven state defendants in the case — they asked the judge many times for such a ruling. Presiding Judge Liudmila Shkurdova repeatedly rejected the majority of the claims from lawyers defending the state, prompting allegations that she is biased in favor of Kolomoisky.
Shkurdova made the decision a day before the court hearing was due to take place in secrecy. In complete unawareness of dozens of people, including protesters, journalists and lawyers gathered in front of the court for the hearing scheduled to begin at 10:30 a. m., but the doors were closed and the building was cordoned off by police and firefighters searching for a bomb. An anonymous caller said there was an explosive device inside the court.
The bomb threat was false and the court returned to normal in a few hours after the PrivatBank case hearing should have started. Only then, all ten parties involved learned that this hearing would not even take place.
“The case you all are asking about is not going to be heard today as the judge made a decision to stop the proceeding because of another case being heard in another court,” Petro Palamar, deputy chief of the Kyiv Economic Court, announced to the crowds.
The judge’s decision says that Shkurdova stopped the proceedings to await another ruling on a similar dispute.
On April 18, the Kyiv District Administrative Court, which has a tarnished reputation and has made a number of controversial decisions leading to investigations from the National Anti-Corruption Bureau of Ukraine, ruled in favor of the oligarch and reversed the so-called nationalization of the bank. PrivatBank appealed this in the District Administrative Court and this claim is currently pending to be processed. After this court issues its verdict Shkurdova will be able to make her step.
Both PrivatBank and the National Bank representatives said they were satisfied with this ruling: “The state institutions brought the court’s attention earlier to the fact that there is another dispute over the nationalization, however, while we were filing this claim the judge rejected them not wanting to stop the case. For some reason she did it yesterday by herself,” said Viktor Hryhorchuk, representing the National Bank of Ukraine.
English justice
The decision in Ukraine could have something to do with London’s landmark ruling echoing to Kyiv. Little stands between PrivatBank pressing ahead with its $3 billion lawsuit in the U.K. courts, but the outlook didn’t always look this hopeful.
An earlier ruling in December 2018, by High Court Justice Fancourt, was overturned this week on Oct. 15 by a three-person panel of appellate judges. That panel concluded that three English companies and three more firms registered in the British Virgin Islands could have been instrumental in the alleged fraud — sufficient grounds to have the claim litigated in England.
The Kyiv Post obtained the unredacted 74-page judgment, authored by some of the most experienced judges from the appellate court, Lord Justice Richards, Lord Justice Flaux and Lord Justice Newey. The entire ruling is available in full on the Kyiv Post website.
Much of the judgment relates to technical deliberations over jurisdiction for the claim. But it also contains a number of critical findings on the strength of PrivatBank’s overall case, factors that are likely to pose a significant challenge to Boholyubov and Kolomoisky as they prepare for the next part of their defense.
The Court of Appeal notes in multiple paragraphs of its ruling that the defendants do not dispute the existence of a good and arguable fraudulent case against them.
It also states that Kolomoisky and Boholyubov have not offered explanations to questionable offshore transactions that are under scrutiny: “The defendants, including Mr. Kolomoisky and Mr. Bogolyubov, accept, for the purposes of this appeal, that there is a good arguable case that the Bank lost approximately US$515 million through these transactions and that they were orchestrated by Mr. Kolomoisky and Mr. Bogolyubov…” reads an extract.
“The evidence was “strongly indicative of an elaborate fraud perpetrated by someone, allied to an attempt to conceal from any auditor or regulator the existence of bad debts on the Bank’s books, and money laundering on a vast scale,” reads another passage from the ruling.
What comes next?
The proceedings in the District Administrative Court have not been started so far. As soon as the court makes its decision, the Economic Court takes the stage and finalizes its own ruling. It is unclear how much time it may take.
The court in England has 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.
In December, after Kolomoisky’s legal team provide the High Court with their defense argument, lawyers say that a lengthy exchange of legal arguments will begin, 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 unless there are serious extenuating circumstances.
If the alleged fraud claim brought by PrivatBank is proven in the High Court, it is possible that the U. K. Serious Fraud Office could begin a separate criminal investigation into the defendants which could result in a criminal trial at the Crown Court.
