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In SC Commercial Bank Privatbank v Kolomoisky & Ors [2025] EWHC 1987 (Ch), Trower J covers a lot of ground (2025 paras of ground).
At the time of the events with which these proceedings are concerned, claimant Privatbank (‘the Bank’) was Ukraine’s largest bank. It was declared insolvent by the National Bank of Ukraine on 18 December 2016 and was nationalised over the course of the following days. These proceedings have been brought by the Bank against two of its founding shareholders, first defendant Igor Kolomoisky and second defendant Gennadiy Bogolyubov (the ‘individual defendants’) and six companies (‘the corporate defendants) said to be owned or controlled by them seeking compensation for harm caused by what the Bank alleges to have been their participation in a fraudulent scheme carried out prior to nationalisation. The Bank also claims in unjust enrichment against a number of defendants.
Of relevance to the blog is the discussion of Article 10 (assimilated) Rome II on unjust enrichment, viz a number of restitution claims, and application of Article 26 Rome II on limitation periods and public policy.
Firstly, on Article 10 Rome II: the law applicable to the claim in unjust enrichment.
The Bank contends that its claims against the Corporate Defendants in unjust enrichment are governed by Ukrainian law per A10(2) and (4) Rome II. The Corporate Defendants contend that any claims against them in unjust enrichment are governed by Cypriot law and they rely on A10(2) Rome II.
For ease of digesting this post: Article 10 Rome II reads
1. If a non-contractual obligation arising out of unjust enrichment, including payment of amounts wrongly received, concerns a relationship existing between the parties, such as one arising out of a contract or a tort/delict, that is closely connected with that unjust enrichment, it shall be governed by the law that governs that relationship.
2. Where the law applicable cannot be determined on the basis of paragraph 1 and the parties have their habitual residence in the same country when the event giving rise to unjust enrichment occurs, the law of that country shall apply.
3. Where the law applicable cannot be determined on the basis of paragraphs 1 or 2, it shall be the law of the country in which the unjust enrichment took place.
4. Where it is clear from all the circumstances of the case that the non-contractual obligation arising out of unjust enrichment is manifestly more closely connected with a country other than that indicated in paragraphs 1, 2 and 3, the law of that other country shall apply.
[1581] The language of A10 requires the court first to consider whether the non-contractual obligation concerns a relationship existing between the Bank and the Corporate Defendants, which is closely connected with the unjust enrichment. If it does, the law that governs that relationship must be applied unless A10(4) is engaged. The Bank submitted that its restitutionary claim against the Corporate Defendants engaged A10(1) because it concerned the relationship arising out of its tortious claim under Ukrainian law against the Corporate Defendants.
[1583] Trower J follows Tear J in Banque Cantonale de Geneve v. Polevent: it is insufficient that, after the tort had been committed, there was a relationship between victim and tortfeasor “with legal consequences”, to engage A10(1).
Pro memoria: Article 10(1) reads
“If a non-contractual obligation arising out of unjust enrichment, including payment of amounts wrongly received, concerns a relationship existing between the parties, such as one arising out of a contract or a tort/delict, that is closely connected with that unjust enrichment, it shall be governed by the law that governs that relationship”
A relationship “existing” between the parties, it is held, must be one that existed prior to the events giving rise to the claim.
A10(2) was not argued by the parties, nor in fact was A4. This leaves the question, first, of the identification of the country in which enrichment took place, and second, whether by application of A10(4), the laws of that country might be displaced by the laws of another country that is manifestly more closely connected to the non-contractual obligation.
On the first issue [1585]: the locus of the enrichment:
… the country in which the unjust enrichment took place for the purpose of determining the effect of Article 10(3). There is no real dispute about this. The relevant country is Cyprus, because the Bank’s allegation is that the Corporate Defendants were enriched by acquiring property in the form of prepayments under the RSAs in circumstances in which they have never complied with their purported obligations under the RSAs or returned the Unreturned Prepayments. It is therefore the Bank’s case that the enrichment comes from the acquisition of property in the form of money which occurred with the crediting of the Corporate Defendants’ accounts at the Cyprus branch of the Bank.
Here Trower J [1593] sides with the bank, not readily it seems but firmly nevertheless.
[1586-1587] the Bank’s arguments are outlined (these have a strong Universal Music echo – of course that case was jurisdictional, not applicable law):
[the Bank argues] the only relevant factor which connects the claim in unjust enrichment to Cyprus is the location of the Corporate Defendants’ bank accounts, which adds nothing because that is no more than the justification for applying Article 10(3) in the first place. The Bank also submitted that Cyprus as a location was of no particular significance, because the Corporate Defendants could equally have had their accounts with another non-Ukrainian subsidiary of the Bank (e.g., in Latvia). The only point which mattered was that the destination of the funds should be outside Ukraine.
More positively, Ukraine was said to be manifestly more closely connected to the restitutionary obligation than Cyprus, because the Corporate Defendants received the Unreturned Prepayments as part of a fraudulent scheme controlled by two Ukrainian oligarchs with the purpose and effect of misappropriating funds from a Ukrainian Bank. The Bank also relied on the fact that the scheme was actually implemented by and with the involvement of a number of individuals, including people said to be the UBOs of the Corporate Defendants, who were based in Ukraine (…). It also relied on the fact that the Corporate Defendants knew that the Unreturned Prepayments were funded by fraudulent loans from the Bank in Ukraine and the whole structure was designed to conceal breaches of Ukrainian currency control regulations.
[1588] are the defendants’ arguments:
it could not possibly be said that the connections to Cyprus were not real and substantial. The Corporate Defendants were not themselves Ukrainian (they were incorporated in England and the BVI) and they were managed by Cypriot professional directors; indeed it was the Bank’s own case that the Individual Defendants’ control of and influence over the Corporate Defendants was through Primecap, a Cypriot corporate services provider established by Cypriot lawyers. [It was also argued] that Cyprus was the country in which the money which was the subject of the Bank’s claim continued to be located when it was transferred on by the Corporate Defendants. Another factor which counted against a manifestly closer connection to Ukraine was that the prepayments were received by the Corporate Defendants in US$ rather than UAH.
Of note in the judge’s analysis (which of course kicks off [1589] with the observation that ‘all circumstances’ and ‘manifestly’ mandate a high bar for A10(4)) are
- [1589] the comparison is between countries, not laws: “the court’s task is to ascertain whether there is a country, which has a manifestly closer connection to the restitutionary obligation – i.e., the focus is on the country not the law. In the present case, the exercise required by Article 10(4) is a comparison of the connection between the restitutionary obligation and Cyprus on the one hand and between the restitutionary obligation and Ukraine on the other.”
- [1590] “The comparison is between connections to Cyprus and connections to Ukraine. Connections to third countries may go to show that not every factor apart from the place of receipt points inexorably to Ukraine, but if they do not point to Cyprus, their usefulness is limited”. (Unless of course, one assumes, if they were to point to a third country hence also its applicable law altogether, but that does not seem to be the case here).
I do not think this is correct. Those wishing to show that A10(3) is to be dislodged by application of A10(4), need to show that that the obligation in unjust enrichment, is manifestly more closely connected to another country, following from all circumstances of the case. Arguably the connections to third countries undermine the A10(4) analysis and therefore are most useful: even if they do not point to the A10(3) country. Of note in this context is that A10(3) is not the result of a most closely connected analysis: it is simply a vector introduced for predictability and certainty. I imagine this may have featured in permission to appeal.
- [1591]: control over Primecap’s activities was exercised by individuals in Ukraine, both generally and for the specific transactions concerned. “The connection to Cyprus is in fact and substance more limited than the place of its establishment and operations might otherwise indicate. The enrichment occurred in Cyprus (a factor which will always of course be present where it said that Article 10(4) should displace the prima facie rule in Article 10(3)), but the expense was sustained by the Bank in the Ukraine. I also think that, because steps which gave rise to an unjust enrichment were component parts of a fraud practised on a Ukrainian bank, structured in the way that it was to avoid Ukrainian currency control obligations, and closely interrelated to torts governed by Ukrainian law in which the loss was sustained in Ukraine, points to a very close connection to Ukraine.”
The finding in favour of engaging A10(4) comes despite what the judge [1592] called an argument “with real substance”: the DNA of the whole scheme:
“a transfer out of Ukraine, and (more importantly for the claim in unjust enrichment) a receipt by a recipient outside Ukraine, was an essential element of what all parties accept (for different reasons) was a loan recycling scheme intended to avoid Ukraine’s currency control regulations. I agree that the fact that it was necessary for any enrichment to occur outside Ukraine, detracts from any connection between the restitutionary obligation and Ukraine, and makes it more difficult for the Bank to say that the connection to Ukraine is manifestly closer than Cyprus.”
All in all it is the ‘control’ element it seems which swayed the judge. If that finding stands, it would be useful eg in the Dyson claims.
Next, on the application of Article 26 Rome II on limitation periods and public policy.
The findings on A26 were made obiter [1995] ff, and with reference ia to the Court of Appeal in Begum v Maran: in essence, Trower J notes the very high bar for Article 26 and would have held that that bar has not been reached in casu.
If and when I hear of an appeal, I shall update.
Geert.
EU Private International Law, 4th ed, 2024, Chapter 4.