On 12 May 2023, in AO Alfa-Bank (the Bank) v Kipford Ventures Limited (Kipford), the BVI Court of Appeal handed down its decision dismissing the Russian registered Bank’s appeal against a decision by the High Court to discharge an interim freezing injunction against Kipford, a BVI registered company.
The Bank had obtained the injunction on the basis of its assertion that Kipford had dishonestly assisted in a scheme to defraud the Bank of $140 million and/or that it had knowingly received $48 million of the traceable proceeds of the $140 million.
The alleged fraud concerned the grant of a loan in 2017 for the acquisition of a coal mine owned and operated by a Russian company, KBY, which was connected to Dmitri and Alexey Ananyev (the Ananyev Brothers). The Bank contended that the borrower, Mr Usanov, was a front man for the Ananyev Brothers and that Mr Usanov induced it to make the loan on the basis of two false representations. First, the Bank argued that the loan was only granted on the basis that Mr Usanov would himself contribute 20 per cent of purchase price (the Own Funds Representation) whereas, in fact, the sum did not come from him personally but was allegedly advanced via a circular movement of funds by other companies connected to the Ananyev Brothers. The Bank also contended that it was also misled in that Mr Usanov assured it that the mine contained “high quality coal” and that the business was “an active business with potential for returns” (the Quality Coal Representation). In fact, however, soon after the loan was made and Mr Usanov made the purchase, the mine began to experience serious financial difficulties.
Although the injunction was granted on an ex parte basis it was discharged at the return date. This was because Justice Jack found that the claim did not have good prospects of success because, even if there was a circular transfer of funds, at the relevant time Mr Usanov did, in fact, have and was able to pay 20 per cent of the purchase price. Justice Jack also considered that the phrases “high quality coal” and “active business with potential for returns” were too vague to found a cause of action. Finally, Justice Jack also found that there had been serious non-disclosures at the ex parte stage.
The Bank appealed on the basis that the Judge had erred in exercising his discretion to discharge the injunction, when he found that the Bank had no good arguable case of fraud.
In dismissing the appeal, the Court of Appeal held inter alia that:
- The appellate court is concerned only with a review of the judge’s discretion. Certain points raised by the Bank on appeal (such as the fact that it required a borrower to have 20 per cent of the funds available at the time of the initial discussions (not just when it was paid)) were not pleaded in the court below and so did not form part of the judge’s reasons. Further, no evidence was advanced as to whether or not Mr Usanov did or did not have the money at what the Bank contended was the relevant time. As such the Court of Appeal was not in a position to interfere with the Judge’s exercise of his discretion when considering the Own Funds Representation. As far as the Coal Quality Representation was concerned, the Court of Appeal held that the Bank had not made any specific claims that contradicted the statements that the business had “high quality coal” and “potential for returns.” Justice Jack’s conclusion that there was no good arguable case on this basis was also therefore plausible.
- In relation to the failure to give full and frank disclosure, the Court of Appeal also refused to overturn Justice Jack’s finding that there had been a serious non-disclosure as the information was clearly relevant and it could not be said that Justice Jack’s decision in this regard was blatantly wrong. Although there had been no finding that the omission was deliberate the Bank must have known about the information and even though the deponent himself might not have known there is a duty to make proper inquiries.
The case is useful as a further reminder of what needs to be shown when allegations of misrepresentation are made. It also highlights the importance of the duty of full and frank disclosure. In addition to this, the Court of Appeal has again made it clear that it will not overturn the decision of a lower court when it makes findings in relation to these issues unless the decision is blatantly wrong and outside the realm of reasonableness.
Partner Claire Goldstein, Counsel Victoria Lissack, Senior Associate Zac Van Horn, and Associate Jhneil Stewart acted for Kipford alongside Alain Choo Choi KC.