JSC Bank of Moscow v Kekhman & Ors

Factual and Procedural Background

This opinion addresses two related applications before the court: the claimant's application to amend the Particulars of Claim and the first defendant's application to strike out the Particulars of Claim or alternatively for summary judgment against the claimant. The claim alleges an unlawful means conspiracy by the first defendant ("Mr Kekhman") controlling a group of companies (the "JFC Group") to defraud the claimant bank ("the bank"). The original pleading alleges breaches of guarantees, improper asset transfers, breaches of fiduciary duties by Mr Kekhman, and fraudulent misrepresentations inducing the bank to make loans totaling U.S. $150 million.

The claimant seeks to amend the pleading to include fraudulent misrepresentations related to inflated revenue and misrepresented security interests. The first defendant challenges both the original and amended pleadings, contending that fraud is not properly pleaded and that the claimant's evidence is insufficient to justify the allegations.

The court has considered the applications in the context of the Civil Procedure Rules and relevant case law on pleading fraud, including the standards for striking out claims and granting summary judgment.

Legal Issues Presented

1. Whether the original Particulars of Claim disclose a reasonable cause of action for unlawful means conspiracy and fraudulent conspiracy against the first defendant.
2. Whether the claimant's proposed amendments to plead fraudulent misrepresentations meet the required legal standards for pleading fraud.
3. Whether the first defendant's application to strike out the claim or for summary judgment should be granted based on the sufficiency and particularity of the pleaded fraud.

Arguments of the Parties

Appellant's Arguments (First Defendant)

• The original pleading fails to plead primary facts that justify an inference of dishonesty, relying instead on legitimate instances of control over the companies.
• Transfers of funds within the group or to related companies were either legitimate or not pleaded as breaches relevant to the claimant bank, and no evidence supports that they were dishonest or fraudulent.
• The claimant’s evidence, particularly from witnesses Mr Afanasiev and Mrs Zakharova, does not implicate the first defendant in fraud; Mrs Zakharova’s interviews contain no admission of fraudulent instructions from the first defendant.
• The proposed amendments to plead fraudulent misrepresentation lack evidential support, particularly lacking admissions or credible evidence linking the first defendant to the fraudulent acts.
• The claimant’s case improperly relies on speculation or hopes that evidence might emerge at trial, which does not meet the legal threshold for pleading fraud at this stage.

Respondent's Arguments (Claimant Bank)

• There are genuine disputes of fact that cannot be resolved at this interlocutory stage, including conflicts between the first defendant’s evidence and that of Mr Afanasiev.
• The claimant has pleaded sufficient primary facts to justify an inference of dishonesty, including detailed allegations of control, diversion of assets, and fraudulent misrepresentations.
• Evidence shows the first defendant maintained close control over the group companies even after moving to a different role, contradicting his denials.
• The reduction of net assets by over U.S. $400 million without legitimate explanation supports the inference of asset diversion for the first defendant’s benefit.
• The claimant disputes the legitimacy of transfers to parallel companies and contends these were part of a fraudulent conspiracy directed or approved by the first defendant.
• The proposed amendments provide particulars of control and involvement by the first defendant and a co-conspirator, justifying the pleading of fraudulent misrepresentation.
• Conflicts in evidence and credibility assessments are matters for trial, not for strike out or summary judgment at this stage.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Colin Richards & Co v Hughes [2004] EWCA Civ 226	Test for striking out claims: court should not strike out unless claim is bound to fail.	Applied to refuse strike out as there were disputed facts and the claim had a real prospect of success.
Three Rivers District Council v Bank of England [2001] UKHL 16; [2003] 2 AC 1	Principles for pleading fraud: fraud must be distinctly alleged and sufficiently particularised.	Used to assess whether fraud was properly pleaded and whether particulars justified inference of dishonesty.
Bullivant v Attorney General for Victoria [1901] AC 196	Requirement that fraud must be alleged and proved; allegations must be specific and particularised.	Reinforced the need for particularity in fraud pleadings in this case.
Armitage v Nurse [1998] Ch 241	Clarified that explicit use of words "fraud" or "dishonesty" is not necessary if facts pleaded support inference.	Considered in relation to whether pleadings were equivocal or supported inference of dishonesty.
Belmont Finance Corporation Ltd v Williams Furniture Ltd [1979] Ch 250	Allegations of dishonesty must be clear; equivocal pleadings may be struck out.	Applied to evaluate clarity and sufficiency of fraud allegations.
Abbar v Saudi Economic & Development Company Real Estate [2010] EWHC 2132 (Ch)	Confirmed that alternative claims for fraud and negligence can be pleaded; fraud can be alleged if facts tilt balance towards dishonesty.	Supported the court’s view that the claimant’s pleading was proper despite alternative allegations.
Foley v Lord Ashcroft [2012] EWHC 1710 (QB)	Discussed pleading of malice/dishonesty and that particulars of justification need not be only consistent with dishonesty.	Supported the conclusion that the claimant’s pleadings met the required standard.

Court's Reasoning and Analysis

The court carefully examined the pleadings, evidence, and legal principles governing the pleading of fraud and conspiracy. It acknowledged the stringent requirements for pleading fraud, including the necessity for particularity and the need for primary facts that justify an inference of dishonesty rather than mere negligence or innocence.

Applying these principles, the court found that the claimant’s pleadings, both original and proposed amendments, contained sufficient primary facts to justify an inference of dishonesty by the first defendant. The court rejected the first defendant’s argument that all instances of control were legitimate and that the claimant’s case relied on speculation.

The court noted significant conflicts in the evidence, particularly between the first defendant’s denials and the claimant’s witnesses, which could not be resolved at the interlocutory stage. The claimant’s evidence suggested that the first defendant maintained close control over the group companies, was aware of the true financial position, and was involved in obtaining loans based on fraudulent misrepresentations.

The court emphasized that detailed factual disputes and credibility assessments are matters for trial, not for strike out or summary judgment. It also held that the absence of admissions from key witnesses did not preclude the claimant’s case where other evidence justified the inference of fraud.

Regarding the proposed amendments, the court found that the claimant had provided the necessary particulars of control and involvement to support the pleading of fraudulent misrepresentation, meeting the correct legal test.

Holding and Implications

The court DISMISSED the first defendant’s application to strike out the claim and for summary judgment.

The court GRANTED the claimant’s application for permission to amend the Particulars of Claim to include fraudulent misrepresentation allegations, subject to further submissions on a minor pleading point.

The decision means that the claimant’s case, both as originally pleaded and as amended, will proceed to trial where the disputed factual issues and credibility of evidence will be fully examined. No new legal precedent was established; the ruling applies established principles of pleading fraud and the appropriate approach to interlocutory applications.