PrivatBank may have to pay millions to Ihor Kolomoisky
Ukrainian taxpayers may have to pay millions of dollars to two of the country’s wealthiest oligarchs, Ihor Kolomoisky and Gennadiy Boholyubov, who had been accused of defrauding Ukraine’s largest bank PrivatBank of billions of dollars.
The two men owned PrivatBank before the Ukrainian government nationalized it in 2016 and was forced to inject $5.5 billion of taxpayers’ money to replace missing cash. Its new, government-approved owners started proceedings in the London High Court to recover some of those funds because of concerns the two would be able to subvert Ukraine’s notoriously corrupt courts.
But a vital step in those attempts faced a potentially fatal setback last week, when a judge ruled that England was not the correct jurisdiction for the proceedings.
That could force PrivatBank to abandon its action in the English courts and land it with bills for Kolomoisky and Boholyubov’s legal fees of at least 7.5 million pounds (around $10 million) plus additional millions for its own exclusive British firm of lawyers.
PrivatBank has said it will appeal against the judge’s decision. But if it is not successful the bank must begin to compensate the two oligarchs for their massive legal fees this December.
The legal proceedings concerned only whether English courts were the correct jurisdiction for any eventual trial, and were not to decide on the guilt or innocence of the two Ukrainian oligarchs.
PrivatBank was hoping for such a trial in the English court. As a first step, in December 2017, its lawyers succeeded in obtaining an order in the London High Court to freeze $1.9 billion of Kolomoisky and Boholyubov’s assets worldwide — currently $2.6 billion, including interest.
The bank had argued that England was the right jurisdiction because three of the companies used to shuffle money around in deliberately confusing and complex bank transfers as part of the alleged fraud were registered in England.
In addition, Boholyubov had lived in London, although he moved to Switzerland, where Kolomoisky resides, before proceedings began. Neither man appeared in court.
Last July the two men’s lawyers challenged the freeze orders and argued before the judge, Justice Timothy Miles Fancourt, that the English court system was not the right place for legal action against their clients. They demanded that the freeze orders be rescinded.
Fancourt mulled the decision for months and last week agreed with the oligarch’s lawyers that England did not have the jurisdiction to deal
with the two businessmen. However, he allowed PrivatBank to appeal against his decision and until the appeal proceedings are exhausted, the freeze order against Kolomoisky and Boholyubov remains in place. His full ruling has not yet been made public.
Richard Lewis, a partner at Hogan Lovells, the British law firm representing Privatbank, said they had known that the legal issues about jurisdiction were so complex that they would probably appeal in court for a final decision. “We are confident that they will be resolved in the bank's favor,” he said.
He said that admissions by Kolomoisky and Boholyubov’s side during the summer hearings bolster the bank’s allegations that the two men used complex, sham transactions to funnel out large sums of money. That, said Lewis, would help Privatbank’s case “if, as we expect, the bank's claims ultimately proceed to trial in England.”
In his judgement, Fancourt said: “Whether or not a fraud was involved will be a matter for trial somewhere, someday.”
PrivatBank told the Kyiv Post it will indeed appeal and has 21 days from the date the judgment was handed down to file an appeal. Its public relations representative, Ukrainian firm CFC Consulting, said: “(PrivatBank) remains confident that London is the proper place to have its claims against the former shareholders determined.”
One of the key arguments used by Kolomoisky and Boholyubov's lawyers was that only a small portion of the allegedly stolen $1.9 billion went through the three UK-registered companies, out of around 130 companies supposedly involved in the fraud. PrivatBank refused to say how it would counter that argument.
CFC said: “We cannot comment on the bank's grounds of appeal before the appeal has been filed.”
The bank was also reluctant to discuss what it may have to pay Kolomoisky and Boholyubov, two of Ukraine’s richest men.
One of Kolomoisky’s lawyers, Andrew Lafferty from London legal firm Fieldfisher, told the Kyiv Post the judge “awarded the defendants interim payments on account of their costs (therefore not the total sums payable, but merely down payments) totaling 7.5 million pounds, with 4 million pounds of that payable to Mr. Kolomoisky within 28 days.”
However, CFC said: “No, that is not correct. PrivatBank has been ordered to make ‘ interim payments’ of 2.5 million pounds to Boholyubov and 4 million pounds to Kolomoisky… we would expect them to be returned if the bank's appeal is successful.”
PrivatBank did not want to say how much it was liable to pay its own lawyers. If the bank’s appeal succeeds, the spokesman added that “Kolomoisky and Boholyubov would likely to be required to reimburse (all of) the bank's costs.”
Lafferty said: “We are delighted for our client that the judge has found that the world freezing order should be set aside… The court found that the (worldwide freezing order) should never have been granted and that the claimant artificially constructed the case to wrongfully seek to join Mr. Kolomoisky and Mr. Boholyubov to the proceedings, and so the case should be struck out. Our client has always maintained that the bank's claims are politically motivated and misconceived, and will fail."
He said the judge also ruled holding any case in England contravened Kolomoisky and Boholyubov's rights to be sued in their own domicile — now Switzerland.
PrivatBank is defended by Hogan Lovells, a prestigious British law firm. Inquiries by the Kyiv Post show it was likely to have been selected because of its past successful experience in dealing with large-scale bank fraud.
Hogan Lovells represented Kazakh BTA Bank (which also had a subsidiary in Ukraine) against its former chairman Mukhtar Ablyazov and his entourage and former BTA top managers accused of defrauding the bank of at least $6 billion.
They also had knowledge of litigating against Kolomoisky and Bogolyubov because they represented another London-residing oligarch, Viktor Pinchuk, in a $2 billion dispute over the ownership of Krivyi Rih Iron Ore Plant.
A lesser known Hogan Lovells case in Ukraine involved agroholding Creative Group.
Passersby pass by a branch of PrivatBank, the largest bank in Ukraine nationalized from oligarchs Ihor Kolomoisly and Gennadiy Bogolyubov in 2016, in Chernivtsi on Nov. 27, 2018. (Oleg Petrasiuk)