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US$2.6 billion freezing injunction discharged for material non-disclosure despite good arguable case of massive fraud

In the recent decision of the English Commercial Court in Privatbank v Kolomoiski and others, Mr Justice Fancourt has ruled that a US$2.6 billion worldwide freezing order obtained by a Ukrainian bank against two foreign-resident individuals and a number of English and BVI companies, in the context of a substantial alleged fraud, should be discharged.

This was despite the Court being satisfied that there was a good arguable claim against all of the defendants that they were liable to the bank in tort for over US$500 million as a result of the alleged fraud. The basis of the ruling was, in short, that the Court should not exercise jurisdiction in respect of the non-UK defendants, and that the claimant had failed to disclose certain key information and had misrepresented its case in order to establish jurisdiction against the foreign defendants in England.

The Judge’s core finding was that the Bank’s evidence and submissions provided “a very slanted picture” which glossed over certain key facts and represented that the role of the English companies was more central to the overall fraud than was in fact the case. The claimant’s failure to draw the Court’s attention to key details about the movement of monies (a substantial proportion of which were redirected to the bank) through the English companies’ accounts was a key consideration. Crucially, whilst the detailed information relating to the payments was in evidence in the form of highly complex i2 charts, the claimant had not drawn these to the specific attention of the Court at the without notice hearing. Nor had it flagged the relevance of the information revealed by the charts to its case on the merits and as to quantum as against the English defendants. Mr Justice Fancourt concluded that it was “at least very doubtful” whether the Court would have granted the freezing order if it had been appraised of that information. Moreover, he was not satisfied that the omissions by the bank were innocent or accidental. As a result, he ordered that the injunction should be discharged and ordered the claimant to pay the defendants’ costs (with a reported interim payment of £7.5 million).

This decision comes in the midst of extremely hard-fought litigation and it is subject to an appeal by the bank (it is understood that the freezing order remains in place pending the determination of that appeal).  However, it serves as a salutary reminder of the importance of the duty of full and frank disclosure on without notice applications. Whilst freezing injunctions are often sought urgently in fraud cases, claimants must investigate the matters at hand as fully as possible. Key facts must be drawn to the specific attention of the Court and fully explained, and not obscured in exhibits or footnotes. Moreover, in the event of a challenge on the basis of material non-disclosure, a claimant must adduce evidence that the non-disclosure was inadvertent and/or innocent in order to persuade the court not to discharge the order.

US$2.6 billion freezing injunction discharged for material non-disclosure despite good arguable case of massive fraud

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