In cases where a bank has made void loans that were subsequently repaid, the repayment of the borrower's restitutionary liability automatically extinguishes the bank's tortious loss claim for that loan, regardless of whether the funds used for repayment came from another fraudulent transaction; the court must determine as a matter of fact whether the bank chose to credit the repayments to the borrower's restitutionary liability, and if so, the loss is extinguished to the extent of the repayment.
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(1) JSC Commercial Bank Privatbank (Respondent/Claimant) v Bogolyubov & ors (Applicants/Defendants)Added:
Yes, my lords. Before I move on to my next topic, I just want to do two things.
First, I think I admitted to show you a bit of the transcript and particularly the bit that the judge relies on. And secondly, then I'll show you what the the the judge said. So, if we could go back to the supplementary bundle at page 116 3 on page 42, I showed you um the foot of page 42.
Um uh line 13 uh I had asked him he he said if the bank claims any one item um from what you're saying thinks of what he's been deprived of not lost profits not expense then it is as I've said it is the way how the bank decides it should be remeded then it's hard to say that as a matter of fact the bank was not remeded in restitution.
Uh yes, sorry got confused purpose of the question of his lordships and he interrupted that it was limited in tort.
Yes. Yes. In tort. So then we need to just pick it up at the top of the next page. So now that we've seen actually what the true debate here to be appears to be where we have two void loans as I've discussed A and B and a payment has been made in respect of the liabilities relating to one of them. Your evidence is you say it's for the creditor to choose what liability is in fact he going to treat being discharged by the payment. Correct? Says yes that's correct. You know my evidence is not tied to your factual situation. You know the creditor made willful decision to accept. Yes. It refers to the situation when the creditor was taking money for two times beyond his will and he did not agree to any repayment willfully. I said I think you're straying into the facts.
Do you agree this our case as you know is concerned with what we've called the relevant drawdowns?
Asked him if he was familiar with that.
He said yes. Then we have repayments as you know by later loans some of them called intermediary loans some of them are relevant loans and we also have assets we'll come to assets in a moment now that where there has been a repayment what you've told us is it's for the creditor to make a choice um I think you were a moment ago uh that choice I think you were saying a moment ago isn't it it might not be a genuine choice being made if the people who make the choice are the people who themselves are responsible for the taking of the loans. Correct. It may be so. But I think you would agree, wouldn't you, that it's a question of fact as to whether the creditor or the bank has made a choice. That's right, isn't it?
And then he said, "It's definitely not a question for Ukrainian law expert."
No, it's a question of fact, but I think what you would agree it's a question about whether the bank, whether by its old management or via its new management, has made a choice. Such a choice. That's the question that of fact the court would have to determine. It's a question of fact. I agree.
Again, I said it's all a question of fact. He said yes. If the facts show the creditor has in fact made its choice.
So, it has chosen in fact that on my example the $1 million that came in should be treated as crediting against the liability of borrower A, for instance. If it does that, it can't then ignore that and say, well, actually, although I credited it borrower A's liability, I now want to sue the tort fees in respect of loan A because it's too late, isn't it? Once you've made that choice, any loss in respect of loan A has been extinguished.
And this was next his critical answer.
Mr. Howard, I believe it's a matter of fact to decide, but you know, as we discussed before, if the borrower A made it explicit that it was his intention to retreat repayment for the fraudulent loan A in such a way, I believe it would be difficult for him to sue for the same loan in the court if he accepts on some factual patterns that this is actually discharge of his claim in which he had the bank. You mean if the bank has done that? So if the bank has treated the payment as discharging the liability of a borrower in respect of loan A, he couldn't then come along and either sue that borrower in respect of loan A or sue the party who procured it claiming the loss because there is no loss.
Again, you know, if you please be more clear what you refer to the loss because you know I said we've three items of loss. Yes, the loss in category one and his answer was the loss in category one.
Yes. Now when one and I'm when one reads that exchange um uh on one view what Mr. Rebecca was saying was that if you have chosen to accept the repayment to discharge the restitutionary liability then you no longer have a could claim in tort against the person who procured it. Now another view of this is that he was saying no you had to but do two things.
You had to both accept the repayment as discharge of the restitutionary obligation and you had to uh uh accept it as discharging the claim in tort. And the ambiguity crept in on page 45 at line 11 to 12 where in answer to my question he referred to uh if he accepts on some factual patterns this is actually discharge of his claim in tor.
Although when you look at what he said in answer to my question at lines 13 uh to 23 uh he uh appeared to be accepting actually it was sufficient that you accepted it in discharge of the restitutionary liability. Now the way in which the judge interpreted his evidence just as what it was he was saying you'll see at page 400 of the core bundle at paragraph 1081 of the judgment where he says is in my judgment the essential substance of Mr. Beckadov's evidence on the effect of the repayments on the bank's claim under article 1166 in which the relevant loans were void was as follows. In each instance, I accept this evidence reflects the law of Ukraine.
whether the source of what was said to be a repayment was an intermediary draw down made under a relevant loan or an intermediary loan or the value of a transferred asset or one of the is new loans issued as part of the transformation.
It will not serve to reduce or extinguish the bank's claim in tort if it was improperly paid out of the bank's own resources.
the mere choice by the bank to treat what is said to be a repayment of a void loan as a discharge of the borrower's restitutionary liability in relation to that loan does not in and of itself extinguish the bank's claim in tort against the third party for the loss sustained in the amount of the loan. The position may be different if the bank chooses or consents to the use of what is said to be a repayment as a discharge of its claim in tort. And when you see that and you see how Mr. Beckovv's evidence actually evolved. Uh we would suggest that uh even if the judge is right to say that uh out of what was said in this tail end of his cross-examination does amount to what is on 1081.
It was somewhat equivocal, somewhat confused and in any event we say the judge was wrong to find it represented Ukrainian law on the basis of this evidence and the court can and should overturn uh that finding. Now uh that then takes me to my next topic which is I can deal with briefly at this stage. the principles on which >> can I just distinguish those two questions because I understand your submission about um the effect of the evidence um and your criticisms of the judges analysis of it but you seemed in what you've just said to be making a distinct point because you said in any event he's wrong to say it represents Ukrainian law.
Yeah, >> that's the bit I'm struggling to understand because we have someone who is an expert in Ukrainian law giving us his opinion as to what a Ukrainian law court will decide.
Why is that not Ukrainian law? I mean, it might be different, of course, if you had uh an Ukrainian authority to show us that was to the contrary effect, or you had more compelling evidence from an opposing expert. Um, but as I understand it, you don't have any Ukrainian authority to show us. Um, and you're not making the submission that Mr. Aloin's evidence was more co and should have been preferred. Well, I am going to make some submissions about Mr. Alioshin's evidence in a moment. At the moment, I was just looking at what Mr. Betov's evidence was, but my in in answer to to your ships what can I rephrase my question in this way, perhaps make myself a little more clearer.
>> Let it be assumed for present purposes.
>> Yeah. that 101 represents findings the judge was entitled to make as to the effect overall of Mr. Beckov's evidence.
>> Yes, >> I understood you to be making a submission that nevertheless that didn't represent Ukrainian law and it's that part of the submission that I'm trying to understand.
>> But I'm grateful uh 1081.
>> Yes. Yeah. Um the the submission that I make is that the two distinctions there's a there's a question of what did Mr. What is the correct interpretation of what Mr. Beckov actually said?
So So assuming Mr. Beckov actually read properly said what the judge says at 1081.
The question is what we say is when you look at the evidence as a whole from Mr. Beckov and the what it's based on that uh it it doesn't make any sense and it's that if one were analyzing and I'm going to come on to that as to what Ukrainian law was based upon Mr. Beckov and uh some unchallenged evidence of Mr. aliosin but and particularly the fact that they were relying on the eur of decision and that there are no decisions of the Ukrainian court so that what you're dealing with is matters of uh just really general principle in our submission the court was in as good a position as Mr. Beckov uh uh and this court is in as good a position to ascertain what the answer is as a matter of Ukrainian law that what you have here in other words simply having a somebody who says well I'm a Ukrainian lawyer and I say this is the position under Ukrainian law when it's not based upon uh anything more than either his assertion of that fact or in so far As far as it does refer to an underlying principle that is just a general principle of reasonleness um and uh justice and things like that then it doesn't take the matter any further and the court this court or the judge at first instance in this court is in a good good position to assess what the position is.
Is that right? Um I mean if the question is is this good good court in as good a position to decide what is just then the answer one would hope would be no but that isn't the question isn't it because the question is >> what would a Ukrainian court decide or to be more accurate the apex court in Ukraine decide >> yes >> applying principles of Ukrainian law. Yes.
But the what I'm saying is if you look at what Mr. I've shown you what Mr. Betov said and how this evolved and the principle that he had put forward in his reports was actually not the principle ultimately that he was putting forward.
And so that what so so you'll remember the principle in his reports is that if you have a one unlawful loan repaid or wrongful loan repaid out of a another uh the proceeds of another wrongful loan then for that doesn't reduce the loss for the purposes of a claim in tort. Now by the time he came to give evidence he uh departs from that principle. So we saw that in relation to a a valid but wrongful loan. He accepts there is no such principle and a repayment is effective. So you're then left with a the question of whether what he then said about a void loan whether any of it whether you can rely on it as encompassing any principle because all all that you've got is if one thinks about it is his assertion that a void loan is different and that discharge of the restitutionary obligation isn't sufficient to extinguish the claim in tor.
There's no there's no as it were underlying analysis as to why a restitutionary liability is any different to a contractual liability. It's just something that emerged in this uh unsatisfactory way towards the end of his cross-examination.
Um and in fact in a rather equal way. So it's not entirely clear even that uh what he was saying but even if you accept that he is saying what the judge says.
>> Yes. But but the point of my questions is to try and differentiate two things.
I mean you first of all make a submission to the effect that and this is a paraphrase.
>> Yeah.
>> Um what the judge says in paragraph 18081 >> Yeah.
doesn't accurately reflect the witness's evidence. Now, if you're right about that, one needs to acquire no further.
But what I'm interested in is the question of well, what if you're wrong about that?
>> Yeah.
>> Suppose that that was at any rate an available reading of the witness's evidence. So, the judge was entitled to make that finding as to what the witness's evidence was.
>> Yes.
Then >> do you then have an independent basis for saying nevertheless that's not Ukrainian law?
>> Well my lord that's what I'm going to come on to. We say we can challenge that as a a finding of fact as to what Ukrainian law is and >> all right. Well I will wait and see how you develop that. Thank you. Yeah. But but but we're going to come to various reasons why we say that the judge was wrong. What I was what I wanted to show you lordship is that the the basis on which 1081 even if one says this was an available a a possible interpretation of the evidence of Mr. Beckov that one sees it's uh it's arisen in this very confused way. So even just taking it as a statement his statement as to what he thinks it's uh what you find is it arose uh after he had substantially shifted his evidence already uh and uh just really emerged uh in the course of this cross-examination.
Now can I come back to that in a moment why we say the judge shouldn't have accepted that but um that because that your lordship's question also touches upon the court's approach to uh foreign law and I mean the principles are well known and set out in the lagg decision in the privy council um which is at where we quoted it in paragraph 16 of our skeleton and it's in the authorities bundle at tab 50 page 2485.
I I don't think unless your lawyers want to, you need to turn it up. But the the overarching principle is that with any appeal on foreign law, there is a spectrum of cases where the willingness of the court to intervene is dependent um mainly on the extent to which the judge has been able to bring to bear his knowledge and skill in analyzing English law. So the more a judgment involves uh applying principles that are similar to English law uh principles or means of legal analysis which are analogous to English law reasoning the more uh the court may be prepared to uh scrutinize the judgment and overturn it. So, but it equally means that if the judge's skill and experience in analyzing English law are essentially irrelevant and turns on an assessment of expert evidence that's alien and difficult to have any instinctive feel for, then the judge's findings are closer to factual findings and the uh court less likely to be willing to intervene. Now all of that is a general rule and uh as Lord Hodgej said in the Perry case there will be cases where an appellet court does consider itself able to review the findings of a trial judge on a civil system of law. It depends on the nature of the error and the circumstances in which it arose. Now we submit that this is one of the cases where the court can properly review the coency of the judge's findings as to the effect of repayments. It's not a case where a high degree of difference to the judge's findings is appropriate or necessary.
Firstly, it is true of course that Ukraine or the Ukrainian law is a civil law system and therefore different from the common law. Uh uh it's codified and doesn't have the same system of precedent. But the judge's decision on this issue didn't actually turn on an analysis of actual subject to one authority I'll have to come to which the judge referred to but it didn't turn on an analysis of any actual Ukrainian legal materials. There were no issues of statutory interpretation that bore on the question. no court decisions subject to this one that the judge referred to. Mr. Beckov's opinion was avowedly based on what he called first principles. And the only principles of Ukrainian law that he cited were first the principle that loss is subject to full compensation and secondly the principle of justice, fairness, and reasonleness to which I'll come back to.
But that they're not alien concepts.
uh and uh what is more the most relevant authorities in this area are the two English authorities Eurovv which was expressly referred to and which uh itself uh is based on the Kachchini case. Mr. Beckov willingly having been shown the Eurovv case uh adopted and agreed it represented Ukrainian law. So self-evidently the proper analysis of those authorities is something that this court is perfectly well placed to consider and all of that is before we take into account the uh extraordinary delay that occurred in this case in producing the judgment. uh that was a factor which was expressly noted by Lord Justice Lewis when he gave permission uh at uh tab 23 page 894 but Mr. Beckov's evidence was given between the 9th and 11th of October 2023 and the judgment was handed down at the end of July of last year uh between 21 and 22 months uh later.
Now a delay of itself does not mean that uh there is a basis for setting aside the judgment. However, as was said in the built case, a delay is an important factor in to be taken into account when considering the trial judge's findings and treatment of evidence and that the appellet court must exercise special care in reviewing the evidence, the judge's treatment of the evidence, his findings of fact, and his reasoning. We set that out at paragraph nine of our uh skeleton. Now in this case, two years after the nearly two years after the evidence was given, no one could have a detailed or reliable recollection of the evidence being given at the time. And uh necessarily uh uh uh any assessment is based on reviewing and re-reviewing the uh uh uh written submissions and the transcripts.
Um and the this court and the judge are in effectively the same uh position. And in our submission, the court is not just entitled but obliged to review his findings and his reasoning with great care.
Now turning to why we say the judge was wrong. Why we say that the findings at paragraph 1081 are wrong and cannot stand. There are uh five points five headings that we would make to to for this. The first is the inherent implausibility of the position. The second is absence of evidence in support. The third is ignoring unchallenged evidence to the contrary.
The fourth is ignoring the relevant authorities particularly Eurovv. And finally that the reasons for agreeing with Mr. Beckov are faulty.
So taking the first the and standing back the position which Mr. Beckov ended up adopting and which the judge accepted as correct is on its face a bizarre one.
It means that there is a critical difference between a situation where the first loan is valid and a situation where it is void.
If the first loan is valid, a repayment by the borrower extinguishes both the borrower's liability and the torchious loss.
But if the loan is void, a repayment by the borrower or intended borrower may extinguish the borrower's liability, but it doesn't extinguish the torsious loss unless the bank specifically elects to accept the payment as discharging the tort visa.
Now, it's fair to ask what possibly could be the justification for that distinction.
Mr. Beckov in his written evidence didn't suggest there was any justification for treating void and valid loans differently.
uh or in his oral evidence. To the contrary, for most of his evidence, he suggested there was no distinction between the two. Neither did the judge identify any rationale for this distinction. And in our submission, it would be an entirely arbitrary rule.
That being the case, we suggest the judge should have been much more cautious about it as accepting accepting it as representing Ukrainian law. Now, just pause for a moment and and think about this. The loans in this case were found to be void because they contravened various statutory provisions.
But often a loan which is procured by a fraud of some kind will not be void. It may be voidable.
Why should a repayment in that scenario have a different effect from a repayment of the relevant loans in this case? we would suggest it's difficult if not impossible to see any logical justification.
Equally, a loan may be void without any fraud taking place at all.
Again, in this case, the loans, another reason for the loans being void was they didn't have the necessary corporate approvals. Now on the judge's findings, a loss resulting from a loan which didn't have the necessary corporate approvals was therefore void by statute would not be affected by a repayment unless also there was a waiver of any tor. Whereas a loss resulting from a loan that was induced by uh negligence or even by fraud if the loan wasn't void would be extinguished. And again we say that doesn't make sense.
So what is the touchstone of whether repayments reduce torsious loss in a void loan scenario? Now according to the judge it is where the funds that are used to make the repayment were uh and uh uh 1081 uh sub paragraph one the last bit improperly paid out of the bank's own resources. But one has to think about that for a moment. How does that work in practice?
Once the money has gone to borrower number two, it's no longer the bank's money. It's the borrower's money. And I'll show you lordship where the judge said that. So to apply this test, you potentially have to trace money that comes in backwards. It might be through a chain of transactions to determine whether the money ultimately was paid out of the bank's own resources and then decide whether the payment was improper.
That is doubly problematic.
in the first place. Although in this case the repayments did more or less directly come from the bank, in many cases they will not and it would be necessary to undertake a more complicated tracing exercise to decide whether they originated with the bank or not.
Uh what is more even where the immediate source of repayment was the bank the bank accepts that the analysis doesn't stop there and on its approach it's necessary to identify the ultimate source of repayment. That's why its experts did the exercise to identify not just uh uh how the relevant draw downs were repaid but also how the intermediary loans were repaid and the extent to which repayments had been made under the new loans. So there are potentially unlimited chains of transactions upstream and downstream of the draw draw downs in question that you need to investigate if you're going to decide whether a repayment is of the type which reduces the loss arising from the draw downs or not. And that is uh reminiscent of the exercise that Mr. Justice Torlson referred to in Kachchini bank of saying it would be like entering a jungle without a map. But secondly, what is actually meant on the judge's approach as improperly paid out of the bank's own resources? Uh I drew your attention at uh day 27 page 111 uh to uh the exchange where um so I'll just give you the reference to it. It's uh >> 112.
Yeah. One it's it's 112.2. two of the supplementary bundle uh where uh Mr. Becket said under Ukrainian law we do not have wrong or imprudent debts.
We only have valid or void contractual obligations.
In other words, there is no concept of improper payment in Ukrainian law. So the judge's summary doesn't actually accurately reflect Mr. Beckov's evidence and it's actually a position that we would suggest couldn't represent Ukrainian law. And even if it's could, it's uh very implausible that whether a claimant has suffered loss or not should depend on whether or not the funds coming uh repaying uh the restitutionary obligation have been obtained properly or improperly.
So we say that that the judge the principle the judge has arrived at is peculiar and implausible on its face.
The second point is the absence of evidence in support. And now, of course, sometimes an English court might be driven to accept that a foreign law contains a particular rule, even if it seems strange, arbitrary or or illogical to us. But I we would suggest that would require clear and cogent evidence before doing so. And the evidence before the judge was very far from meeting uh that uh description. First, as we've already discussed, the evidence from Mr. Beckov on this specific issue was unsatisfactory and equivocal.
We've already seen the various twists and turns that it underwent. Even his oral evidence was internally inconsistent and contradictory.
He first said the principle that he espoused applied to all loans, then immediately conceded it didn't apply to valid loans, but without ever articulating a reason for that. Then he conceded it for void loans as well before changing his position on that and then in re-examination tried to reverse his position on valid loans. So it was all very far from clear or consistent.
But secondly, even leaving aside all the inconsistencies and contradictions, there was never anything of substance underpinning Mr. Beckov's evidence, he accepted there was no Ukrainian case law, and his opinions were, we suggest, mere ipsy Dixie.
The only principle he did s c s c s c s c s c s c s c s c s c s c site in support was the principle that loss must be fully comp compensated and the bank places a lot of weight on that phrase full compensation but they place more weight on it than it can possibly bear.
Full compensation simply means restitution in integrum. That's the phrase the judge used at 952 uh no more and no less as a remedy for tort. It can be contrasted with a contractual claim where the amount of compensation may depend on the terms of the contract. It certainly doesn't mean that the court has to lean in favor of a claimant in assessing compensation.
still less overcompensate the claimant be beyond the loss actually arising from the unlawful act sued upon and there no Ukrainian authorities were s suggested uh cited which suggested anything of the sort now I'll come back to full compensation again in a moment but the moment I'm just addressing the fact that Mr. Beckov's opinion had no theoretic proper theoretical or empirical underpinning and it was either Ipsy Dixit or even if not quite that unsupported by anything of substance and therefore of little uh evidential value and that's so much for Mr. Beckov at this stage but uh there was evidence on this point from Mr. Aliosin Mr. Colossusky's expert and uh uh this is at SB supplemental bundle at page 46.
And the first if your lordships look at uh paragraph 30 uh this is where as you can see he's addressing repayments and he refers to what Mr. Beckov uh said and he quotes and then he says about six lines down I noted in my first report it was at that stage unclear whether the bank's position was that the purported repayments were invalid for all purposes or whether accepted the repayments were valid as between the bank and the borrower but nevertheless such payments failed to be ignored when determining the extent of the defendant's torchious liability. Uh Mr. Beckov's done reports done little to clarify the point. In any case, I remain of the view that neither argument is valid. And uh then uh at 31 uh he refers to what Mr. Beckov said about um no rule of Ukrainian law obliging the victim to sue respect of one misappropriation rather than the other. And Mr. Alioshin says while it's correct the victim of two unlawful acts may choose to sue in respect of one of them only. If he does so he can only recover the loss caused by that unlawful act. He cannot recover damages for loss caused by a different unlawful act for which he has not asserted a claim. And he then refers to an authority. I don't need to detain you on that, but the paragraph 35 is then important. And at paragraphs 35 to 38, Mr. Aliosin addresses the Eurovv case and in our submission this was important evidence about Eurovv.
So because what you'll find here is that that the experts both considered Eurovv uh was compelling and instructive as to uh Ukrainian law. So you'll see at 35 um here he's addressing uh first the repayment defense and he says in the second sentence having referred to Mr. Beckov citing Eurovv I agree the analysis in that case is compelling and supports Mr. Beckov's opinion that the use to which any relevant with which I agree the use to which any relevant loans were put is not relevant when determining the amount of the loss. However, Mr. Beckov omits to note that the reasoning in Eurovv is completely inconsistent with his approach to the present issue. That's to say whether the loss caused by the relevant loans is reduced or extinguished to the extent that the relevant loans or restitutionary liabilities arising out of such loans have themselves been reduced or extinguished. And at 36 he uh explains that as he understands Eurov the main defendants contended well you can see what he says uh what they were contending and Mr. Justice Bryant said that was wrong in principle. Then at 37 he notes that Mr. Bucket amidst to quote the immediate following part of the judgment and and you'll remember that this is the part where Mr. Justice Brian says that it's looking at net loss and uh that uh it's not it's a fallacy and slight of hand uh um because it's a different loss caused by a different event. And at paragraph 38 he says this reasoning is entirely consistent with Ukrainian law and entirely inconsistent with and destructive of Mr. Beattov's argument expressly confirms that the loss caused by an illegitimately obtained loan is a different loss caused by a different event from the pre-existing loss due to an earlier loan and that to assess the lender's loss by reference to its net financial position rather than by considering each loss loan separately is wrong as it involves a fallacy and slight of hand. I agree with all of this.
It follows inescapably that where a defendant wrongfully procures two loans, one and two, a torque claim brought in respect of loan one which has been repaid in full is bound to fail because the original loss resulting from loan one is extinguished and a new and ex uh and distinct loss resulting from loan two arises. Now in other words, what you have there is Mr. alosin addressing Eurovv and addressing uh the points that we submit uh uh come out of Eurovv and if you're saying Eurovv represents Ukrainian law um uh these are very relevant points now the judge didn't find Mr. alosin to be a satisfactory witness. But undoubtedly this was highly relevant evidence on the most critical issue in the case and it was not challenged.
That's despite Mr. Alosin being cross-examined for in excess I think of two days. Now in our submission, it's clear as a matter of law that a party has to challenge evidence if it wants to invite the judge to reject it. That principle was uh reaffirmed by the Supreme Court in Griffith and TUI uh in the authorities at tab 51 page 2526 at paragraph 42.
Now Mr. Aliosin had given this evidence and the bank had not challenged it and in our submission that provides further reason why the judge was not justified in accepting what Mr. Beckovv ended up saying as representing Ukrainian law.
Still less where the judge failed to deal with the point which both Mr. Aliin was making and we made by way of submissions by reference to what uh came out of the Eurovv case. The judge didn't and I'll come back to this point. The judge didn't address in his judgment Yurov in the context of the repayment defense. And when this was pointed out to him at the consequentials, you'll see he brushed the point aside.
But what one had was so there was Mr. Alioshin explaining what he drew from Eurovv and how that would apply in Ukraine. On the other hand, you had Mr. Beckov who'd performed U-turn after U-turn and finally arriving at uh an inherently implausible position for which he had uh no Ukrainian sources and where actually there was expert evidence supporting a different view which stood unchallenged.
Now there's another aspect of the judge's consideration of this which I should draw attention to which we submit is unsatisfactory and that is if you go in the judgment to paragraph 9 53 The judge at this stage is uh dealing with full compensation in this section and he hasn't got into the detail of the repayment defense. But what you can see is the judge uh if you look at what he says at 9:53 he says the bank submitted and I accept in approaching that question a Ukrainian court will be guided not just by the clear meaning of the phrase full compensation but also the associated principles of general application justice good faith reasonleness and protecting uh a victim's rights he says Mr. Alsosin didn't really address this aspect of the test but looked at overall uh looked at overall uh looked at overall I think it's clear that when working out full compensation courts required to make a factual assessment taking what Mr. Hunter Court a real world view looking at the substance.
This means taken together with the burden of proof, the defendants must prove that what they did provided real benefit to the bank sufficient to amount to full or partial compensation for the extraction of money pursuant to the relevant drawdowns. In other words, the question is whether as a matter of substance and reality, the defendants are able to establish that compensation for the harm caused by the relevant draw downs has been provided to the bank. In answering that question, the court's required to consider whether the bank has received such money sum of money as required to make it whole and put it fully back in the position it would have been in but for the wrongdoing.
Now the the difficulty with this is the judge has already reached the conclusion that whether a repayment reduces the bank's loss by reference to uh here I'll call it the first draw down depends on whether the bank is left in a better position overall following the further draw down and the repayment as opposed to what is the loss.
arising from the particular relevant draw down and he bases that interim conclusion and what he says is the clear meaning of the phrase full compensation and the general principles of justice, reasonleness and so on. But it's on that basis and only on that basis that the bank is able to argue that Mr. Beckov's evidence amounted to more than just an Ipsy Dixit. That's in their skeleton at paragraph 90. But that's unsatisfactory for two reasons.
First, those extremely broad and general principles don't advance the analysis of the particular issue we are concerned with. Already touched on full compensation. It just means loss has to be compensated. it doesn't begin to answer the issue with which we're confronted in this case as to whether a loss has been extinguished by a repayment.
Similarly, uh appeals to general notions of justice, reasonleness, and so on don't take the analysis anywhere. To say that an argument should succeed because it's consistent with a principle of justice and reasonleness without more is simply begging uh the question.
There's no obvious reason why it's more just or more reasonable to allow a party to sue in on a loan that has been repaid as opposed to a loan that hasn't been repaid, particularly when the only reason for doing that is to be able to sue in an unnatural foreign forum.
uh and if one wants to make an argument that this is more just or reasonable in an approach, we would suggest one has to support it with actual reasons uh not just asserted.
Now secondly, the judge said that Mr. Alioshin did not really address this aspect of the test and so went on to address to adopt the bank's submissions.
That unfortunately is simply wrong. Mr. Alien did address these points squarely in response to Mr. Beckov's uh uh uh evidence and you see that in his supplemental report which is at in the supplementary bundle at page 43.01 01 and he addressed this at paragraphs at paragraph 18. Uh he said that they all agreed that harm is an element of a torches claim. There was no disagreement about how you determine the existence and amount of recoverable harm. And then at paragraphs 20 on page 4302 to paragraph 24 he addressed the principles which the judge uh said uh he hadn't addressed. So at 20 he's addressing the uh uh he he said um that the identification and quantification of harm are governed by express statutory rules disagreed with Mr. Beckov who was the view that courts can determine the amount of harm based on general principles of reasonleness, good faith or fairness. He said that's incorrect. is not aware of any cases where the courts have applied solely the general principles such as reasonleness, good faith or fairness to determine the amount of non-contractual damages, Mr. Beckov doesn't site any.
And there are specific rules regarding causation and assessment of damages.
While those rules are naturally informed by concepts of fairness and reasonleness, such concepts have no independent application can't be invoked directly to increase or decrease the amount of compensation. Then at 21, he refers to the principle of full compensation and uh having referred to what Mr. Beto says at 22 on the next page he says explains that full compensation is not an autonomous or overriding principle.
Um and then at 23 he explains that and 24 that the principle of full compensation only means that you're entitled to recover damages to the extent of the loss. So, uh this was contrary evidence which the judge uh appears to have uh uh overlooked uh judging on what he said he clearly did overlook it saying that Mr. Alosian didn't address this.
Um now so the next point we make uh which uh we've slightly already touched upon is the judge's approach to the authorities and particularly to Eurovv on which both Ukrainian experts had relied. Uh, as I've already said, Eurovv is an English authority, albeit it's dealing with analogous uh provisions in Russian law, but both experts cited it as reflecting Ukrainian law and it's in our submission highly relevant because it and the case to which it it uh referred Kamoini states in terms and Eurovv states in terms that the repayment of a loan, albeit by a subsequent uh uh fraudulent draw down of another loan, extinguishes the torches loss in respect of the first loan. Now, despite that, despite that and our submissions of its relevance, despite Mr. Alioshin's evidence, the judge didn't engage with Eurovv at all in this context.
Now I've already addressed the suggestions made by the bank that EUR of is distinguishable uh because it dealt with valid loans or because the claim was for unpaid balance of loans as opposed the amounts of drawdowns less repayments distinctions without a difference. But these were not points made by the judge and they're bad points uh in uh any event. Now, the judge did address Eurovv in his consequentials judgment, and you'll see that at page 705, Paragraph 132.
And this is with the greatest respect simply brushing the point aside.
So at 132 the second sentence I do also do not think it is arguable that Eurovv provides an answer to the bank's case because it was different on this point from the present case being concerned with an outstanding debt owed by a borrower not loss caused by a void transaction by which money was misappropriated.
So in his very lengthy judgment and then in the consequentials this sentence is the extent to which the Eurovv case and the submissions that we made and Mr. Alioshin made about it were dealt with and with respect it is not an adequate response. The distinction he's drawing is not a valid one.
uh there was an outstanding debt owed by the borrower in this case. The fact that it was owed in restitution rather than contract can't make any difference.
Neither can the fact that the bank chose to frame the claim in terms of money drawn down less recognized payments as opposed to the unpaid balance of the loans make any difference.
There's no conceptual or economic difference. But more importantly, he hasn't engaged with the principle that Mr. Justice Brian was dealing with in Euro Eurovv when he ex and Mr. Justice Torson was dealing with in Kachini and as I say you find that actually dealt with in the extract I showed you in Mr. Alien's report and indeed we dealt with it in our written submissions as well. So the emission to analyze what are the only author authorities either side found that bear on this issue we would respectfully suggest is a serious omission and one which does require in fairness and justice this court to step in and conduct its own analysis.
Now, what were the other reasons that the judge gave for uh agreeing with Mr. Beckov's ultimate position? Well, I'll look at them, but none of them was sound. The first point that the judge said, and you see this at 1065 and 1070.
uh it was that uh the repayment defense was unprincipled because it assumed the bank's loss was cotminous with the liability of the borrower under the loan.
Now the with respect that is that is misconceived.
The repayment defense makes no such assumption.
You may remember because I showed you in cross-examination of course there was the evidence of Mr. Alio uh Mr. Beckov that where there was a wrongful draw down you could potentially have three types of loss. the loss of the capital, the loss of expenses and loss of profits. Now, if you repaid the capital, that wouldn't extinguish the loss in respect of loss of expenses and loss of profit. And no one has ever suggested it would.
So if you did have such a claim, it would it's only the uh loss in respect of your loss of capital that one is saying has been extinguished. In other words, it operates pro tanto as you would expect. Now it's also the case that there may be circumstances where the liability of the borrower is extinguished, written off or settled without the torches loss necessarily being reduced. And it's not our case that every time the torches the borrower's liability is for instance written off or settled that that would necessarily reduce uh the torches loss.
But that simply never arose in our case.
That wasn't an issue.
Our case is simply concerned with a repayment. And in our submission that self-evidently if there has been a repayment must reduce the extent of the loss to the extent of the payment and the English authorities uh entirely uh support that. So the judge's point here is based upon a uh misunderstanding of the repayment defense. Our defense is and only has ever has been that the loss is reduced to the extent that there are repayments, not that termination of the borrower's liability in and of itself necessarily extinguishes the loss.
Now the the the other point is although the Ukrainian experts agreed there were no authorities in Ukraine on the point the judge for his part decided there was and the judge decided that uh he could derive support even though this isn't what the even Mr. Beckov said from a Ukrainian case called uh Yuku Yukup Spilka and uh that he referred to at 1071.
Now uh amongst other places he'd also referred to it uh earlier. Now the case is in the bundle at supplementary Bundle at page 54.
Um, it was a claim and you can you can take this from paragraph 951 of the judgment here where the judge uh summarized what the case was about in yeah it's at 951 and it was a claim by the liquidator of a bank against officials of the bank who'd entered into high-risk bond purchases that led to the bank's insolveny. And the defendants argued that the bank had failed to mitigate its loss by bringing claims against the counterparties to the transactions.
But the Supreme Court of Ukraine held that claiming against the counterparties would wouldn't make any material difference uh to the shortfall and so couldn't excuse the defendants from liability.
And going back to the supplementary bundle at um where it's it starts at paragraph uh uh page 54 at page 72.
uh the relevant parties under the heading regarding the defendant's arguments about the connection between the actions of the funds or its authorized persons to liquidate the bank and the amount of damage caused.
The court cites article 1193 which is uh the rule on contributory negligence and then the relevant parts of the judgment are at 770 on the next page to 7 7.70 to 7.72 and there is nothing in this case and in these paragraphs s which is cons inconsistent with the repayment defense.
The point that they were talking about here went to liability not quantum.
Um and if the liquidators had sued the counterparters and made a recovery that plainly would have reduced the amount recoverable from the defendants in tort.
But that wasn't what the argument was about. the uh what the court was saying it would not have reduced the liability so significantly as to afford a complete defense. So uh the the learned judge this case was cited before him for a different purpose and then he has misapplied it and misunderstood it in the context of the repayment uh defense.
Now the next point that the judge made at 1066 is the uh point that there were no repayments in fact.
Um, and the way the judge puts it uh in the last part of that paragraph is that the uh individual defendants have not established that what they characterize as repayments were anything other than steps to cover up what had gone before, nor that the bank has received any genuine value by way of compensation.
And he says something similar at 1072.
Now, I'm obviously going to have to address under my next heading whether there were repayments. Obviously, if there weren't repayments, then the repayment defense doesn't get off the ground. But if there were repayments, the motive for making them or the mechanism by which they were made is uh neither here uh nor there.
Ultimately, the judge's essential point and the bank's essential argument is that you have to stand back and look at the whole course of events and that a loss cannot be considered to have been extinguished if repayments are made using the proceeds of another fraud on the bank. And he says that in turns at 1072 in the uh last uh sentence and he you find similar references at 953 and in the uh consequentials judgment at 131. Now, what the judge was doing here, although he denied it, was being misled by precisely the fallacy and slight of hand identified by Mr. Justice Brian in Eurovv. It confuses the loss deriving from the relevant drawdowns only. I'm stopping there. That is all that the bank has sued in this jurisdiction on. It's confusing that with the ultimate overall or net loss that uh the combination of relevant drawdowns, intermediary and new loans has caused. Or putting it more simply, it confuses the loss deriving from the relevant draw downs with the different loss deriving from the intermediary and new loans. And as Mr. J Justice Brown correctly put it, those give rise to a different loss caused by a different event. The original loss deriving from the relevant draw downs was extinguished by the repayment if there was a repayment. And as Mr. Justice Tullson put it, whatever the derivation the derivation of the funds may have been, putting it on the judge's own terms or putting it in the judge's own terms, the repayments themselves did provide real benefit to the bank. They involved the borrowers paying their own money to the bank because the money that the borrowers drew down was in Ukrainian laws theirs. It only becomes possible to say there was no real benefit or that the bank was not fully compensated if you uh zoom out and take into account the fact that the funds which the borrowers used to make the repayments had been taken from the bank under a under another misappropriation and the fact that those separately misappropriated funds have not been repaid. That is what is meant when it is said the bank is still left with a loss.
as the judge put it uh at 1086 in perhaps a revealing part of the judgment on this point in the penultimate the one but penultimate sentence he says it still has a worthless fraudulent loan on its books.
So it does, but it's a different fraudulent loan and a different loss.
The bank was free to claim for that loss by bringing a claim for or including that loss caused by the subsequent misappropriation.
But it has chosen not to do that. it's chosen to limit its claim to the relevant loss and the loss caused by the relevant drawd downs alone and in our submission uh that loss has been extinguished to the extent of the repayments and since there is no longer any loss there is no entitlement to further or full compensation or indeed any compensation.
So my lords that takes me to the question of whether there was actually a repayment.
Now uh I'm I'm dealing here with what have been called cash repayments. I'll deal separately with the asset transfers a as my last topic.
Now, we would respectfully suggest that there is a degree of confusion in the judgment particularly between paragraphs 1083 and 1095 about what this issue amounts to and what our case is. Uh now, at times the judge appears to have thought that we had somehow uh for our case adopted Mr. Beckovv's evidence or the judge's interpretation of his evidence and that the bank needed to have made a deliberate election to abandon any torsion to have abandoned any torches claims in order for the torches loss to be extinguished and that we were saying that the bank had made such a choice. Now if he did understand us to be saying saying that then his view that a new case might have needed to be pleaded and explored in the evidence would have been understandable.
But that was never our case. Our case has always been simply that if there was a re there a repayment of the borrower's liabilities and we said there was that repayment necessarily and automatically extinguished the torsious loss. So the only question if we are right on the correct legal approach was whether in fact there had been repayment of the relevant borrowers liabilities.
Now I've shown you Mr. Beckov's evidence on this. You will recall that in his written evidence, he did not address repayment as such beyond his glib assertion that if the relevant loans were void, there could be no contractual repayment. In other words, he did not address the position of discharge of a restitutionary obligation.
He his evidence which didn't appear anywhere in his reports and was said for the first time in cross-examination was that whether the borrower's restitutionary liabilities were repaid depended on how the bank chose to treat the payments it received. If it chose to allocate the payments to the borrower's liabilities, then the borrower's liabilities were repaid. If it chosen chose to allocate them to some other debt, then the borrower's liabilities were not repaid.
And if we just break that down as to how that applies here, assume that there is a relevant loan which has a liability uh of created a liability in a borrower of $1 million in restitution. And assume a new borrower takes borrows 1 billion $1 million and that 1 million then gets paid to the relevant borrower who pays it back to the bank. Now, one can see that the bank could say, "I'm not going to treat that 1 million as going to the relevant borrower's liability. I'm going to treat it as going to the new borrower's liability." I can see that uh where they both have liabilities in restitution, that may be a position it can adopt. But in this case where it has chosen to treat the payment as going to the relevant uh borrower then our submission is and was that uh that it constitutes a uh repayment uh and is effective. But because this this question of choice as to which liability you were treating, which restitutionary liability you were treating the payment uh applying to. It was for that reason that we said in our closing submissions at paragraph 98 which is in the bundle supplementary bundle at 171 that we said that the vital question was whether the bank had made a choice to allocate the repayments to the liability of the relevant borrowers as opposed to any other liabilities. And we said the answer to that was self-evidently yes.
But the judge said at 108 1087 that this was a substantial shift in our case saying that choice entered into the equation for the first time.
And he then said, and this was a complete misunderstanding of the position at 1088, that that made it clear, he said it was no longer Mr. Colomo's case that where the loan was void, repayment automatically extinguished any liability in tort for harm caused by uh the uh uh uh original transfer.
And with respect that was wrong and a misunderstanding, we were still saying, as we've said throughout that repayment, that is repayment by the borrower of its debt or discharge of its obligation in restitution automatically extinguished any liability in tort for having procured the draw down. The reference puzzled by this. I think we need to see the passage that's quoted in 1087 in context. I appreciate your trying not to go to unnecessary documents and um that's very ludable but I think in this instance we need to see the quotation if you're going to make a point.
>> Yeah.
>> Um so I think you said it was 171. Is that right?
>> Uh it is.
Yeah, it is page 171.
Huh?
>> Doesn't seem to be 98.
>> I think the correct reference is page 148. It's paragraph 50, sub paragraph 2 of Malona Fran's written closing at trial. So 51 brackets two.
>> No, I don't think so.
>> The reference I wanted is page 171, paragraph 98.
>> Well, it may be so, but I was looking for the source of the quotation.
>> Oh, I see.
>> Mr. Howard is correct.
>> The source of the quotation is paragraph 51.
>> Sorry, I I apologize. I was um focusing on my own.
Yeah, the that's fine.
Paragraph 51 I was going to come on to explain the confusion that has has arisen and just just while we've got well I'm a bit puzzled at the moment.
Yeah, >> because you seem to have said in the written closing submissions below that it's not automatically extinguished.
Um, and you say the judge is wrong to have taken that at face value. I'm struggling to understand >> because let let me the you there two under if you what we were saying at 511 is so with a valid loan the way Ukrainian law works you have a contractual liability to repay and when you pay so if you if you send in the money that automatically extinguishes the payment >> to be sure but we're interested in the >> I'm just explaining the distinction. Now what we're referring to at 512 or at least it may the what we're intending to make clear is that by simply handing over the money that does not automatically at that point discharge the restitutionary liability because it's up to the recipient whether it treats it as a repayment of the restitutionary liability or some other liability.
And so it's not auto.
>> Okay, fine. But as you say here, it's a question of fact as to what choice has been made.
>> Yeah.
>> And that seems to be the point that's been reiterated at paragraph 98.
>> Yes.
>> Um so it's it's a factual question as to what choice the bank has made.
>> Yes. And that still seems to me to be rather different to automatic discharge >> well or automatic extinction.
>> So the point I'm making is is this lord in a contract if I can just contrast the two situations. In a contractual setting, the debtor can force the bank's hand because he says this is repayment of that loan pursuant to my contractual obligation. In a restitutionary sense, the the person handing over the money can't force the bank's hand because if there is more than one liability, the bank can choose which liability it's going to treat the payment in respect of. So in that sense it has a choice. So it's not automatic in the sense by tendering the money that you have automatically cause the restitutionary liability to terminate. But if the bank has chosen to take the money to in our case to discharge a liability in respect of a relevant loan. In other words, it has credited the account. then that automatically extinguishes both it extinguishes both the liability in restitution and the torchious liability the in other words there are two two automatics that one needs to separate out perhaps I haven't expressed it very clearly one is whether you have repaid the restitutionary debt debt and you don't have a right if you have more than one restitutionary debt to say which one it is that your the money is to go to. But once the bank has accepted the money for instance for a relevant loan, we say that then has the effect by reason of that of automatically or or it has the effect of discharging the liability on the restitutionary obligation as well as therefore the liability in tort.
In other words, the choice, this is the important case that the choice case that we are making is is only relevant to whether the borrower's liability in restitution is repaid, not to the question of liability o of the procurer, the wrongful party in tort. If the restitutionary liability is discharged, that then does discharge the liability in tort.
So our case throughout was that there was there were payments of money back to the bank.
Secondly, the bank had credited those sums towards the relevant borrowers's liabilities.
Three, the borrower's liabilities in respect of those loans had therefore been extinguished or reduced. Therefore, the torchious loss occasioned by the relevant loans had also uh been uh reduced. And that that was our case and that's how the judge understood it. You can see in the judgment at 1043.
And you can see at 1043 this is Mr. Colomoyski's second sentence argument started from the propositions that the relevant drawdowns involved actual transfers of money by the bank and that the liabilities under the relevant loans uh pursuant to which those relevant draw downs were made were extinguished by actual transfers of money back to the bank whatever the source. He said this was the case whether irrespective of whether the relevant loans were valid or void because in any event if in the event they were valid any contractual obligation was discharged by repayment and in the event they were void any restitutionary obligation was discharged when the bank chose to treat the borrowers as having repaid all they owed. And so that was in in our submission that was a at that paragraph the judge accurately summarized our case and uh the question of choice achieved um some prominence in the light of uh Mr. Beckov's cross-examination uh and the point that he was making uh which was was a fair point which was where the when the defendants were in charge of the bank when money came back in as payments in so far as we was saying, well, the bank has credited the accounts of of the relevant borrowers.
It would be a fair point for the bank to say, but that was your own conduct.
That's when you were in charge of the bank and you can't rely on it. And so the question of choice uh simply arose as our saying well this is what happened as a matter of fact all these payments came in and they were credited but uh anticipating the point that my learned friends would make well any choice that was made while the defendants were there doesn't count. We say well actually though once nationalization took place everybody treated these in exactly the same way and uh the so so the position we got to in and I showed you in Mr. Beckov's evidence was he agreed that if the bank chose to allocate a payment to the borrower's liability that would reduce the borrower's liability in restitution.
Uh he also agreed at some stages uh that the borrower's liability if a borrower's liability was reduced by a repayment so too was the torchious loss.
I showed you he agreed that for both valid and void loans but then ultimately changed his position for void loans only and I submitted why that doesn't make any sense. But the one point that we we didn't debate with Mr. Beckov because it was a question of fact was the extent to which the bank had in fact chosen to allocate uh uh the payments. Now, and he rightly said that was simply a question of fact and not for him. Now, the reason we described it as a key issue in that not because it was an issue of substance, it was just a step in the analysis of whether there had been repayment in fact in respect of these restitutionary obligations.
Now, it was never in dispute that the bank had chosen to apply the payments derived from the intermediary and new loans to pay down the balances of the relevant loans uh and thereby we say to discharge the liabilities of the relevant borrowers. Um now for the judge to find that there were no repayments by the borrowers uh uh or or or to refuse to find there had been repayments with uh respect would is difficult to follow. Now let's just see what actually happened. So if we if we take the position at uh uh the time of repayments. Now there is as you will have seen there's a debate about what the bank had actually accepted in its pleadings uh and whether the bank had accepted that there were repayments. Now the judge found at 1038 that it hadn't. Now the debate actually doesn't matter a great deal because the factual position is clear. But we say the judge was actually wrong in the way he construed the pleadings.
Um you see at 1038 um he uh says that he didn't accept my submission that uh what had never been in dispute is that the whether the borrower's obligations to repay have been discharged. He then says it's not an issue the bank recorded in its books that the loans had been repaid been repaid. And it's also clear the bank challenged the question of whether or not the relevant loans had been repaid.
And he said it was careful to use the concept of purported repayments uh throughout. And then he says the bank never accepted the impact of payment made from monies drawn down under further loans uh is properly to be characterized as uh uh uh payments. now.
And at 1039, he uh uh uh said uh uh quoted the bit of the pleading in which uh the bank called the payments purported and said they were made for the purpose of disguising the misappropriation.
Now in order to actually see fairly what the position was, uh, one needs to look at the defense at paragraph 55C, which is in the core bundle at page 820.
So that's uh, bundle four.
And so at 55 C on page 820, you have Mr. Kamoyski's primary defense to the claim is that all of the 1.9 billion claimed was repaid, say for$25 million odd dollars. Um uh it's denied the bank can ignore repayments funded by intermediary or new loans. Any loss caused by relevant draw downs has been extinguished to the extent it was repaid.
Now, the bank's response to that, sorry to jump around, is in the supplemental bundle at page 85 in their reply.
And the relevant part is at uh page 85 at paragraph 27.
And that's where they say that they deny that the drawdowns of 1.91 billion have been the subject of genuine repayment by way of cash repayments.
Um and carrying on, they were procured by D1 and D2 and caused by and or made using funds uh derived from the intermediary loans. As such, the purported repayments for to be disregarded and in any event did not in fact reduce the bank's loss. And the judge referred to this form of words uh saying at 1040 that that made it clear that the repayments couldn't weren't properly be characterized as such and did not in any event reduce the bank's loss. And he says the two points are separately ped and the bank's case is uh uh separately articulated. And then at 1041 to 1042 uh he amplifies that. Now what the judgement confuses with three distinct questions.
The first was were the loans genuine loans which could be the subject of genuine loan repayments.
Secondly, were monies in fact paid to the bank and credited to the borrowers? Whether or not that took place under valid loan agreements and thirdly, did those payments reduce the bank's loss?
Now, these are clearly distinct concepts.
The fact that the loans were void meant that there were no genuine loans and therefore no genuine repayments of loans. But that doesn't affect the question whether monies were actually paid to the bank or credited to the borrowers. In fact, similarly, whether a payment to the bank and a crediting of the borrower's account occurred is a separate question from whether that payment and credit reduce the torchious loss recoverable from third parties.
Now, in our submission, the bank's pleadings, none of the bank's pleadings uh amount to a contention that no payments were made to the bank at all.
The point that the bank was making was first that there were no genuine loans.
The loans were void and so no repayments of genuine loans.
And the second point they were making was that the repayments did not reduce the bank's loss or torches loss. None of that means that they didn't get payments. The payments didn't come into the bank or that the payments were not credited so as to discharge the borrower's debts.
The judge was clearly impressed by the fact that the bank's pleading used the phrase purported repayments. He drew attention to that in various paragraphs including 1038, 1039, and 1040.
But that doesn't mean that the borrower's liabilities that arose in restitution were not repaid.
But there are a number of reasons for that. First, it doesn't actually make any logical sense at all. If no payments occurred at all, you wouldn't need to ignore them, and there would be no question as to whether they reduced the bank's loss or not. they simply wouldn't have happened and there'd be nothing to ignore. So by purported the bank couldn't have been saying the payments uh didn't occur.
Uh secondly, we can see from another paragraph of the pleading what the bank actually means by purported and that's in the supplementary bundle at page 87.
at paragraph 27 B at the foot of the page.
4.3 and it says the bank accepts that its loss is reduced if a relevant draw down was ultimately purportedly repaid from a source which the bank does not allege to be invalid. In other words, it whatever the money, wherever it comes from, it is a purported repayment, even if it were a million dollars that came from a separate account of Mr. Colosski, it would still be purported because it is a payment in respect of a void loan.
So all purported can mean is that the payment is not actually a repayment under a valid agreement because the agreements are void but it's not disputing that it's still a real pay payment and a real payment credited to the borrower and discharging the liability.
And uh similarly uh one sees interestingly at in the same pleading on page 86 in fact I think it's in the same sub paragraph that at 27 B do A1 one um where they plead that the intermediary drawdowns were to a very large extent ultimately repaid by the asset transfer andor funds derived from the new loans issued pursuant to the transformation. In other words, they accept that the monies that came from the new loans did repay the intermediary drawdowns. So it's very difficult to see on what basis the new loans are real transactions which do give rise to real movements of money which repay the intermediary draw downs.
but that when you're dealing with the relevant drawdowns, you say uh something uh different. So, uh uh we say the judge was wrong in his analysis of the pleadings. But in any event, uh it is we respectfully suggest incoherent, nonenable to contend that no repayments occurred. The use of the word purported can't be relied upon by the judge or with respect the judge as a sort of magic uh wand that avoids the need to have regard to the facts. Uh you can't pretend something didn't happen because you label it purported.
So uh let's just see what the position was. First, it's common ground or was common ground that the bank's transactional data recorded payments coming into the bank. But it was also common ground that or at any rate found by the judge that the same data sources, the same ledger entries reflected real movements of money from the intermediary and new borrowers uh to the bank.
Now these concepts can't be separated in an electronic banking system. The making of a ledger entry recording a credit to one account within a bank and a debit to another account is the making of a payment by one party to another.
The ledger entry is not simply how the payment is recorded. It reflects and represents an actual payment that has been made. And that was actually that's what the judge found and that was consistent with the evidence of the Ukrainian experts. So if I could ask you to go back to the judgment and we could go to 1157.
This is uh where the the judge is dealing with a submission that was made by Mr. Bodler uh dealing with and you see it starts at page 412. It's part of the use of funds defense and the bigger what he calls the bigger fraud argument.
And at 11:57 um uh the bank submitted that one of the problems with the the argument with the analysis put forward on behalf of Mr. Bogler Bob was it proceeded on the erroneous basis that relevant draw downs were just ledger entries involving nothing more than a simple change in name of the borrower and for that reason there was no theft from the bank and nothing has been appropriated the way the point was put by Miss Montgomery was the relevant drawdowns did not amount to a deprivation of the bank's property giving rise to harm they were just said to be ledger entries which created new money in the hands of the borrowers without depriving the bank of any of its money. This was essentially the same point in his answer to the thief in a bank Walton argue.
>> What's such a reference to where do we find the thief in a bank?
>> Uh I I'll have to give you the reference. I can't recall, but I agree that this argument cannot be sustained in the light of the agreed expert evidence.
While what occurred was undoubtedly the making of a series of ledger entries, the experts agreed the movement of money recorded by ledger entries from the bank account of a customer is from the bank to the bank account of a customer is a deprivation of the bank's funds. This was the agreed position because as the experts said in their joint statement, money whether in the form of cash or in a bank account is a form of property and in appropriate circumstances and providing all other elements are present loss of money is actionable under the Ukrainian law of confirmed it makes no difference to the bank's claim that at all times the monies involved in the misappropriation remained in accounts held held at the bank.
Mr. Beckov's crisp explanation of the position with which I agree was that an electronic transfer of funds from one person to another is thus capable of constituting harm to the transfer. He went on to explain by reference to article 1066 that the funds so transferred become the funds of the customer with the consequence the bank has no right to determine or control use of funds of the client and to establish other than prescribed by the agreement or law limitation of the client's right to use funds in its own discretion. This is also the case where a bank's money has been transferred to a customer's account pursuant to avoid transaction such as a fraudulent loan agreement. He says unless the customer agrees it may do so, the bank cannot at its discretion transfer those funds out of the customer's account without first obtaining a court judgment entitling it to do so. So you see the position that is explained here is that um this really raises the point that my lord was asking me about this morning. It's not gold coins as such, but there isn't actually any distinction certainly from a Ukrainian law point of view because the even where you have a void transaction uh the funds that are credited to the account uh become the customers and he's free to deal with them as he pleases.
Yeah, the bank vault point my lord is at paragraph 1139.
>> Thank you.
So the relevant drawdowns undoubtedly involved real transfers of real money from the bank to the borrowers and indeed the money transferred became the borrowers notwithstanding that they had a liability in restitution in the same amount. So therefore too did the drawdowns under the intermediary loans and the new loans. The monies drawn down became the monies of the intermediary borrowers and the new borrowers. There's no material difference between any of the various loans. Whether you're talking about the relevant loans, the intermediary loans or the new loans. The only distinction is the relevant loans happen to be the ones that the bank has selected with it their link indirectly to England and Wales.
So similarly the repayments that we rely on they are just the reverse of the payments or they start with transfer of funds electronic transfer of funds to uh the intermediary and new borrowers and then the transfer of funds from them uh to the relevant borrowers and then to the bank. They involve real transfers just as the outward uh transactions on which the uh bank sues.
Now, now the same point applies to the crediting of the funds uh the bank received uh to the borrowers. The crediting of the borrower's accounts amounted to a choice by the bank to accept the funds in reduction of the borrower's liabilities and uh that is what occurred.
Now uh now the judge referred to our case at 1043 which I referred you to uh but he then uh uh the judgment meandered off and he never actually uh addressed uh the point. Now the the second point is that neither the bank nor the judge explain what happened to the payments if uh they weren't credited to the borrower's accounts.
Uh where were they sitting? What happened to them? Once one recognizes there were real transfers of money back to the bank. Uh the bank could, as we know from Mr. Beckov's evidence choose whether to apply them to the borrower's debts or to other liabilities.
If it didn't choose to apply them to the borrower's liabilities as we say it obviously did, what else did it do with them? No one has suggested any alternative analysis. It wasn't suggested for instance that the bank uh chose not to credit the monies to the relevant borrowers but chose to credit the new borrowers.
Uh now the only sensible and coherent analysis is uh the one that we advanced which was that the borrower's liabilities were repaid and that is entirely consistent with Mr. Beckov's evidence and the passages I showed you uh on uh uh uh from that. Now uh Mr. Beckov uh didn't suggest that payment was not a real payment or that the credit to the borrower was not a real credit or anything of the sort.
Now, we could have stopped there looking at just uh the position on the bank's books, but as I said earlier this afternoon, we anticipated that we would have been met by a response that we could not rely on the choice that had been made when the defendants were in charge of the bank to allocate the payments to to re as repayments to the relevant uh drawdowns.
when that choice was made by the defendants themselves as it's put in my learned friend's skeleton a choice a fraudster's choice is no choice at all so to preempt that argument we went further and what we said was that even on the assumption that the bank now that it was no longer controlled by the defendants could reverse the choice to credit the relevant borrowers it had not done that. To the contrary, the bank uh the the bank post nationalization had decided to stick with the choice that had been made at the time of transformation when the relevant loans were repaid. So the bank's books continued to record the relevant borrowers debts as repaid.
that remained the position up to the trial and no doubt up to today and there was no issue about that.
Now uh a point is made that our we hadn't put matters that way in the pleading. Well, firstly, our case had always been that the relevant loans had been repaid, and I showed your lordship uh uh uh pleading on that. But we in fact had said um that the bank had always treated these uh uh uh uh relevant uh draw downs as having been repaid. And that you'll see in the sub in the core bundle at page 843 in our defense.
Now admittedly this is part of a pleading dealing dealing with um uh veneer contrafactor which is a principle relevant to uh whether or not uh the uh loans were void.
But what you see pleaded as a fact is at 88. Accordingly, in so far as the bank's claim for loss caused by relevant draw downs depends on a determination by the court that any of the relevant loans, intermediary loans or new loans were void or voidable and are to be avoided, then the bank's claim cannot succeed.
One, the bank has treated all of these loans as being valid as between itself and the counterparties uh as to the respective transactions and has treated them as having been wholly or partially repaid in maintaining its accounts with those parties and for the purpose of compiling its financial statements. So it was clearly a pleaded fact and that's what uh uh is important here that the bank had at all times treated the uh relevant loans as repaid.
And in so far as there was an issue about that, you'll see that in the supplementary bundle or you'll see the extent of the issue in the supplementary bundle at page 84 two.
at in the bank's reply to this pleading at 24 B.3 brackets 2.
Uh and what they pleaded was it's denied they've acted in bad faith and abused its rights andor the vener contrafactum propri doctrine applies if which is not admitted the bank has treated the relevant loans or intermediate loans as having been repaid in maintaining its account with those parties and for the purpose of compiling its financial statements. So the extent of the issue on this was a non admission by the bank as to what it had done. But in fact it's clear beyond argument that the bank has consistently and unequivocally treated the relevant draw downs as repaid. Now uh uh in our closing which is in the supplementary bundle at page 172 at paragraphs 101 through to uh 114.
We set out the evidence over uh five pages of uh uh what showed the bank consistently and deliberately treating the borrowers as discharged.
And it's worth showing your lordship what Mr. Ole Sienko who was a member of the supervisory board, very senior man who came in uh following nationalization.
what he said about this. And uh his evidence was that the bank consciously and deliberately chose to treat the relevant loans as repaid. And you can see that in the supplementary bundle if you would go to page 300 is where the transcript of day 11 starts. And at pages 301 and following, you have my crossexamination of Mr. um Alexienko and you'll see on page 20 six um uh that line four I mean he'd been cross-examined on something before but I said as we discussed Yesterday from the information in the media, the our money articles, the briefing and the audit documents, you knew about a large part of the loans to borrowers, the ones who are identified in this case, namely about 1.82 billion and the associated sham supply contracts had been used as you saw it and were being told as a means of procuring at an earlier stage misappropriation of the bank's money by the former shareholders. Correct. Yes, that's correct. Um and then I put to him that what you also knew as part of your becoming involved in the course of October November 2016 there's what's been called a transformation of the bank's loan book by which 193 loans which included the so-called in these proceedings relevant loans and other loans that have been used to repay them the intermediary loans had been repaid by the proceeds of loans provided to the 36 new borrowers. Correct. Yes, that's correct. Uh, sorry I said loans. I should have said 193 borrowers. So, as you understood, I think you told us this yesterday, what you were being told was the effect of transformation that has occurred was the proceeds of new loans which had been advanced to the 36 new borrowers had been used to extinguish the liabilities of the 193 borrowers.
and new and separate liabilities had been created and were owed by the 36 new borrowers. Correct? He said that's correct. And uh if you go to the foot of the page at line 22, the result of all of this at that stage was that the 193 loans uh just at the foot of the page, the loans that were outstanding to the 90 193 borrowers uh prior to transformation, the position was that those had been repaid and the liabilities of the 193 had been extinguished. Yes. And this is right, isn't it? At all times since transformation, that is how the bank has regarded the position, namely the liabilities of the 193 borrowers have indeed been extinguished generally. Yes.
But I think we really need to look into it case by case situations.
Right. Sometimes collateral was discharged with mistakes and that creates reasons for review of the termination. But generally you're right.
Or generally I'm right. Generally is this right. save in so far as there's been some mistake about collateral or something like that uh having been misapplied. The position is I think this must be right. The bank has not sought repayment from the 193 borrowers and has accepted that their liabilities were entirely extinguished by the repayments that were made out of the proceeds of the loans to the new 36 borrowers.
Correct. That's correct. Furthermore, the new borrowers before nationalization and immediately after started to service the new loan agreement. Yes. And in so far as they service the new loan agreement, the bank as it were has accepted any money they paid and credited it to the account of that borrower. Correct. That is to the that is correct. It's not to the account of the borrower but as a service visibly the obligation of the borrower. I said that amounts to the same uh thing.
So the as far as the bank wasn't bound by the original decision to credit the relevant borrowers and was entitled to remake that decision upon nationalization.
It had plainly and unarguably we would suggest chosen not uh to do that. And although the judge quoted a part of Mr. Alex Yenko's evidence on this point at paragraph 1,12 and correctly noted our reliance on that evidence. He never explained why he didn't regarded as sufficient to establish a choice to treat the relevant loans as repaid.
Uh it can only rationally be explained in our submission on the basis that this judge understood the choice that we were talking about to entail a decision to release torches claims as opposed to a straightforward decision to treat the relevant loans as repaid.
>> Yeah.
Excuse me for a minute.
If I could just take you back to the passage that we were looking at a moment ago in Mr. Um, Polish's evidence at supplementary bundle page 302.
Yes, there was a further passage that on page 32 at line 13 where I asked him uh uh I understand the argument that's going to have to be addressed in due course. What I'm focusing on at the moment, don't argue worry about arguing the case. just trying to find out what in fact has happened and what the bank has in fact done. So I think this is right isn't it?
We've already agreed that a transformation as far as the bank is concerned the effect of it was that the liabilities of the 193 borrowers were extinguished by the payments that were made out of the proceeds of the loan to the 36 borrowers and then you had liabilities owed by the 36. Correct?
Yes, that's correct. Equally, in so far as relevant loans had been paid off or sums in due from the borrowers in respect of relevant loans had been paid out of the proceeds of intermediary loans, the bankers at all times both before nationalization and after nationalization treated the relevant loans as having the liabilities of the borrowers under the relevant loans as having been extinguished and he said yes. So in our submission, the the evidence really was uh uh very clear and unequivocal from the bank's witness itself.
And as I say, the judge seems to have been proceeding on the basis that uh the choice that needed to be made was a choice to release the tort claims as opposed to a choice to treat the payments as discharging the restitutionary obligations.
And Mr. Beckertop had confirmed that if the bank chose to credit the relevant borrowers that gave rise to a repayment.
He said whether the bank had done that was a question of fact not law. And it was clearly the case that the bank had in its books credited the uh relevant borrowers. And even if the bank could have on the assumption it could have remade that choice after nationalization, the fact is that the bank has uh at no stage sought uh to do that. Now none of that is controversial. So, one has to ask, well, why was it that the judge said we weren't even entitled to make the argument, which is uh what he he did? And it's set out at 1091 to 1095.
And in our submission, the judge here goes wrong.
uh uh uh he says we needed to amend our pleadings and he wouldn't give us leave to amend. Now there was no need for an amended pleading. Our case was still as it has always been. Repayments extinguished the borrower's liability and therefore also extinguished the loss in tort. The fact that there had been repayments was squarely pleaded throughout.
Mr. Beckov gave evidence that whether there had been repayments in fact depended on the bank's choice in a void loan situation whether the bank had made the choice to credit the borrowers. And all we were doing was pointing out that it wouldn't avail the bank to say the choice had been made in the defendant's era because as we pointed out it the bank had chosen to leave the position as it was and never for whatever reason sought to reopen any of the transactions.
That was a perfectly legitimate point uh to make. uh and what's more it was in fact a pleaded point albeit in a uh different uh context.
Now at 1093 and 1094 the judge explained what he saw as the significance of the point not being pleaded and he said that uh accepted the bank's argument it should have been pleaded because it gave rise to issues of Ukrainian law as to the legal basis for the case the conduct relied on as amounting to a choice by reference to the knowledge required for choice to be free, how unequivocal the choice needed to be, and who would have been authorized to choose, and factual issues about the intentions of people involved.
Now, in our submission, this was all wrong.
None of these issues did or could arise.
The Ukrainian uh lawyer, Mr. Beckov, had given evidence on the point. He was very clear that whether or not the bank made a choice to accept the payments as discharging the debt was simply a question of fact or as he put it definitely not a point for the Ukrainian law expert.
And what you see is the judge uh at 1095 gets uh the matter confused because at 1095 he says the bank also submitted that such evidence as there was as to what in fact happened was that nobody exercised a free choice to give up the claims it had started to investigate arising out of the misappropriation.
This would have required a fully informed decision to accept wholly impaired loans to shell companies as compensation in place of compensation to which it would otherwise have been entitled as a result of the claims it was made then investigating. This is a wholly improbable scenario. So that even if permission to amend had been sought, it wouldn't have been granted. And with respect, this is where the judge is going wrong. The only choice we suggest that was necessary was a choice to credit the payments the bank had received to the relevant borrowers. We weren't advancing a case or argument that the bank had made a choice to give up claims or a choice to accept wholly impaired loans as compensation in place of the compensation to which it otherwise would have been tit been entitled. Our case was a far simple.
>> I think we we've got that point sufficient. I'm afraid we do need to stop there >> uh for today. Um can I just quickly inquire how you're doing timewise generally? Do we need to start at 10:00 on Thursday or would it suffice to start at 10:30?
>> Um I I mean I have to say a little bit more on this particular topic and then one more topic which is asset transfers.
Um I I think we were all we were anticipating in devising the timetable that we were starting at 10:00 um today and on Thursday and then at 11:00 on Friday. I don't know whether >> it's still 11 on Friday. So in that in that event, unless it's too inconvenient, can I ask if we do sit at 10:00 on Thursday?
>> All right, >> we'll do that.
>> I'm I'm grateful and we will pause until then.
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