High Court discharges freezing orders for breach of the duty of full and frank disclosure and considers jurisdictional issues

In PJSC Commercial Bank Privatbank v Kolomoisky & others [2018] EWHC 3308 (Ch), a decision handed down on 4 December 2018, Fancourt J discharged worldwide freezing orders up to US$2.6 billion obtained against the Defendants, declined jurisdiction over foreign Defendants, and stayed the proceedings against English Defendants. The judgment is as an important reminder of the duty of full and frank disclosure in without notice hearings. It also highlights the principles that apply in establishing jurisdiction against foreign defendants under the Lugano Convention, and provides helpful guidance on how courts are likely to approach applications for a stay on the ground of lis pendens.

The Claimant, a Ukrainian Bank, alleged that the eight Defendants had operated a fraudulent scheme in Ukraine which had caused it loss in the amount of US$1.9 billion. The First and Second Defendants, Kolomoisky and Bogolyubov, are domiciled in Switzerland, the Third to Fifth Defendants are English companies (the English Defendants), and the Sixth to Eighth Defendants are BVI companies (the BVI Defendants). On 19 December 2017, Nugee J made various orders upon without notice applications of the Bank including a worldwide freezing order up to US$2.6 billion against each of the Defendants. The Defendants applied to the Court, seeking to discharge or vary the worldwide freezing orders for material non-disclosure, challenging the jurisdiction of the English Courts, and seeking a stay of the proceedings.

In relation to the freezing orders, the Court held that, even though the Bank had a good arguable case of a fraudulent scheme against the Defendants, the quantum of its loss was only US$515 million ([17]-[61]). The Court set aside the injunctive relief granted at the without notice hearing because there had been serious breaches of the duty of full and frank disclosure by the Bank. In particular, the Court expressed concern that the Bank had omitted highly relevant facts in presenting its case to make the English Defendants appear “central to the fraudulent scheme” so as to establish jurisdiction against the First and Second Defendants ([62]-[84]).

The Court went on to consider whether it had jurisdiction over the First and Second Defendants to re-impose any injunctive relief. Fancourt J held that the Court did not because the sole reason the Bank had brought a claim against the English Defendants was to establish jurisdiction against the First and Second Defendants under Article 6.1 of the Lugano Convention, and the Bank was not permitted to use the Convention in this way to establish jurisdiction in the English courts ([85]-[105]).

Further, the First, Second and English Defendants had sought a stay of the proceedings on the ground of lis pendens as there were related Ukrainian proceedings which were pending. The Court held that, in relation to the First and Second Defendants, the principles in Article 28 of the Lugano Convention should be applied “reflexively” to determine whether the Court should grant a stay ([106]-[125]). As for the English Defendants, the Court applied Article 34 of the Brussels Recast Regulation ([126]-[128]). Fancourt J considered that the stay was necessary for the proper administration of justice in light of the substantial degree of relatedness between the proceedings in England and the ongoing litigation in Ukraine ([149]-[163]). The Court also held that, in light of its conclusion on jurisdiction and the stay, England would not be appropriate forum for a claim against the BVI Defendants, and declined jurisdiction against them on the ground of forum non conveniens ([164]-[178]).

The Court held that, even if it had reached different conclusions on jurisdiction and the stay, it would not have re-granted the worldwide freezing injunctions in light of the serious non-disclosure and misrepresentation by the Bank in the without notice hearing ([176]-[177]).

Sonia Tolaney QC (with Thomas Plewman QC and Marc Delehanty) acted for the Third to Eighth Defendants. The full text of the judgment is available here.