Otkritie International Investment Management Ltd & Ors v Urumov & Ors (Rev 1 - amended charts)

There is one civil standard of proof: the balance of probabilities. Serious allegations do not require a heightened standard or automatically more cogent evidence, although inherent probabilities remain relevant. In fraud claims, circumstantial evidence must be assessed cumulatively.

A secret payment to an agent is a bribe where it creates an actual or potential conflict between duty and interest. Dishonest assistance is assessed objectively in the light of the defendant’s actual knowledge and personal attributes. Handling traceable fraud proceeds may constitute assistance where the breach continues through the laundering process. Knowing receipt depends on unconscionable retention of traceable assets.

The claimants alleged two substantial frauds: a sign-on fraud involving a payment for the recruitment of a trading team, and an Argentinean warrants fraud involving an overpayment for securities. Claims were brought against numerous individuals and companies for deceit, conspiracy, bribery, breach of fiduciary duty, dishonest assistance, procuring breach of contract, knowing receipt and proprietary relief.

The defendants disputed the alleged misrepresentations, fraud, dishonest participation and receipt of proceeds. Applications to amend the defences to rely on ex turpi causa had been refused, and that refusal was upheld during the trial by the Court of Appeal in [2013] EWCA Civ 1196. The central issues were whether the frauds occurred, which defendants were liable, and the extent of their liability.

1. Outcome. Liability was established against numerous defendants in respect of both frauds. The principal claims against Mr Urumov, Mr Pinaev, Mr Gersamia and Mr Jemai in relation to the Argentinean warrants fraud succeeded. Claims against certain defendants were rejected in part, including the claim that Ms Balk participated directly in that fraud and the claim that Mr Jemai received more than US$400,000 as his personal share. Quantum, recoveries, interest, costs and the precise form of proprietary and declaratory relief were left for further argument.
2. Sign-on fraud. Mr Urumov made fraudulent representations that the recruited team members had guaranteed remuneration of US$5m and would each receive US$5m from the sign-on payment. Otkritie relied on those representations in executing the deeds and paying US$23m. Mr Urumov was liable in deceit for US$23m. Secret payments to Mr Pinaev and Mr Kondratyuk were bribes because they created actual or potential conflicts with their fiduciary duties. The relevant liabilities were concurrent, not cumulative.
3. Argentinean warrants fraud. The court found that the warrants were bought at a grossly inflated price, that the currency and exchange-rate representations were false, and that the supposed forward sale to Threadneedle was fabricated. The false representations induced OSL to pay US$213,468,750 and caused a loss of US$150,933,750. The principal participants and assisting recipients were liable in deceit, conspiracy, breach of fiduciary duty, dishonest assistance, knowing receipt or related accessory liability, according to their roles.
4. Applicable principles. The court applied the requirements of deceit, conspiracy, bribery, dishonest assistance, procuring breach of contract and knowing receipt. It rejected the suggested heightened standard of proof, holding that the civil standard remained the balance of probabilities. It assessed the circumstantial evidence cumulatively and considered the defendants’ experience, conduct, false documents and attempts to conceal the proceeds.
5. Further findings. The court held that laundering traceable proceeds could constitute dishonest assistance even where the assistant had not participated in the original breach, because the breach might continue through the handling of the proceeds. However, a claimant still had to identify the dishonest assistance relied on; receipt of the entire proceeds did not automatically establish liability for the entire loss.

This was a first-instance judgment of the Commercial Court. The judgment records that interlocutory amendments raising ex turpi causa were refused and that the refusal was upheld during the trial by the Court of Appeal in [2013] EWCA Civ 1196. The present court determined liability and reserved certain issues concerning quantum, recoveries, costs and the form of relief.