JSC Bank of Moscow v Kekhman & Ors

Fraud must be distinctly alleged and supported by pleaded primary facts which make dishonesty more likely than innocence or negligence. Those facts need neither themselves constitute dishonest conduct nor exclude every innocent explanation. At an interlocutory stage, the court assesses whether the pleaded facts justify the allegation. Proof of fraud remains for trial.

A sufficiently particularised fraud claim with a real prospect of success should proceed despite material conflicts of evidence. The court should avoid a mini-trial when deciding strike-out, summary judgment or amendment applications. Other material may justify an inference of participation in fraud even without an admission or direct incrimination by an alleged participant.

The claimant bank alleged that Mr Kekhman controlled the JFC Group and conspired with its companies to divert assets and business opportunities, preventing repayment of loans and performance of guarantees. The corporate defendants, JFC Group Holding (BVI) Limited, Whilm Management Limited and Garold Projects Limited, were guarantors. The bank had obtained an unsatisfied judgment against them.

The bank sought permission to add fraudulent misrepresentation claims concerning loans of US$150 million. These concerned allegedly inflated accounts and incomplete disclosure of security given to another lender. It alleged that Mrs Zakharova, head of group finance, made the representations with Mr Kekhman's direction or approval. Mr Afanasiev, responsible for operational matters, supplied evidence of control and knowledge, but the bank did not allege that he was dishonest.

An earlier amendment application had been refused because the bank had not particularised the control relied on to infer participation in fraud. After a revised pleading was supplied, Mr Kekhman applied to strike out the existing claim or obtain summary judgment. The questions were whether fraud was properly pleaded and whether the existing and proposed claims had a real prospect of success.

1. Mr Kekhman's application to strike out the claim, alternatively for summary judgment, was dismissed. The bank's application for permission to amend was granted, subject to further submissions about one possible additional particular ([73]).

2. Under CPR 3.4(2), a claim involving disputed issues of fact should survive strike-out unless the court was certain that it was bound to fail. Colin Richards & Co v Hughes [2004] EWCA Civ 226 was applied. Summary judgment for a defendant required the claim to have no real prospect of success. A proposed amendment likewise required a real prospect of success. The court should avoid a mini-trial of disputed facts ([12]; [45]; [74]).

3. Applying Three Rivers District Council v Bank of England [2001] UKHL 16; [2003] 2 AC 1, fraud had to be distinctly alleged and sufficiently particularised. An unequivocal allegation could not cure deficient particulars. The pleaded primary facts had to make dishonesty more likely than innocence or negligence, rather than exclude every innocent explanation. Those facts need not themselves constitute dishonest acts. Once they justified the plea, whether the evidence ultimately established fraud was for trial ([15]-[20]; [68]).

   Fraud and negligence could also be pleaded in the alternative where the primary facts justified an inference of dishonesty. That alternative recognised the possibility of a finding of negligence at trial ([21]).

4. The conspiracy claim satisfied those requirements. The alleged control of the recipient companies, Mr Kekhman's benefit from the diversions and the absence of a proper commercial explanation supported an arguable inference of direction or approval. Possible legitimate explanations for some transactions did not dispose of the remaining allegations. The transfers, diversion of business opportunities and conflicting evidence required investigation at trial ([43]-[52]).

5. The proposed misrepresentation claims also had a real prospect of success. If the bank established Mr Kekhman's close control, knowledge of the group's financial position and involvement in obtaining finance, the trial court could infer that the substantial misrepresentations were made with his direction or agreement. Legitimate instances of control could contribute to that inference when considered with the other pleaded facts ([63]-[69]).

6. The absence of an admission or incriminating account from Mrs Zakharova did not defeat the claim where other material justified the inference of fraud. Mr Afanasiev's honesty likewise created no insuperable difficulty. His evidence about control, knowledge and the relationship between Mrs Zakharova and Mr Kekhman could support the inference without his having known that fraud was committed ([70]-[72]).

7. The court reserved submissions on whether the alleged direction of wrongful diversions required an additional express particular in the amended pleading. It indicated that permission for such an amendment would probably be given, since the allegation was already pleaded generally and no apparent prejudice arose at that early stage ([66]-[67]; [73]).

• High Court (Commercial Court): In the present judgment, [2015] EWHC 3073 (Comm) , the court dismissed Mr Kekhman's strike-out or summary judgment application and granted permission to amend, subject to further submissions about one possible additional particular.
• Earlier amendment hearings: On 26 June 2015, the amendment application was adjourned to 8 September 2015 for determination alongside the anticipated strike-out or summary judgment application. On 24 April 2015, permission to amend had been refused because particulars of control and clarification of participation in the alleged fraud were required. A revised draft was provided on 22 May 2015, followed by further information on 22 June 2015.
• Earlier guarantee judgment: In November 2012, the bank obtained summary judgment against the second to fourth defendants. That judgment remained unsatisfied.