JSC Bank of Moscow v Kekhman & Ors

A plea of fraud must state the primary facts from which dishonesty is to be inferred. Those facts need not be consistent only with dishonesty. It is enough that they tilt the balance and justify an inference of dishonesty rather than innocence or negligence.

At an interlocutory stage, the court decides whether the pleaded facts justify the allegation and give the claim a real prospect of success. It does not decide disputed evidence or conduct a mini-trial. The absence of a direct admission of fraud does not prevent an inference being properly pleaded where the alleged control, knowledge and surrounding facts could justify it at trial.

The claimant bank alleged that Mr Kekhman and companies under his control conspired by unlawful means to divert assets and business opportunities from the JFC Group, thereby frustrating repayment of loans. It sought permission to amend its Particulars of Claim to add claims for fraudulent misrepresentation concerning accounts and security supplied when loans were obtained.

Mr Kekhman applied to strike out the existing conspiracy claim or obtain summary judgment. He contended that neither the original nor proposed pleading identified primary facts capable of supporting an allegation of fraud. The central issues were whether fraud had been sufficiently pleaded and whether the claims had a real prospect of success.

1. Disposition. The bank’s application for permission to amend was granted, subject to submissions on whether a further pleading amendment was needed. Mr Kekhman’s application to strike out the claim, or alternatively for summary judgment, was dismissed.
2. The court applied the pleading principles in Three Rivers District Council v Bank of England [2001] UKHL 16. A claimant alleging fraud must plead the primary facts said to support the inference of dishonesty. It need not plead facts incapable of an innocent explanation. The question is whether the pleaded facts make dishonesty more likely than innocence or negligence, or otherwise tilt the balance so as to justify the inference.
3. At this interlocutory stage, the court was concerned with the sufficiency of the pleaded facts and their real prospect of success, not whether the evidence would ultimately prove fraud. Conflicts over control of the group, knowledge of its financial position, the ownership of recipient companies, and the commercial justification for transfers required trial.
4. The original pleading was sufficient. The bank had an arguable case that assets and opportunities were diverted to companies ultimately controlled by Mr Kekhman, that he benefited from and directed or approved the diversions, and that no proper commercial explanation existed for material transfers. Those pleaded facts could justify an inference of dishonesty.
5. The proposed misrepresentation claims were also properly pleaded. If the bank established Mr Kekhman’s knowledge of the group’s true financial position, his continuing control, and his involvement in obtaining finance, it would be open to the trial court to infer that significant false representations to the bank were made with his direction or approval. Direct evidence from Mrs Zakharova admitting fraud was not essential.

This was a first-instance interlocutory decision.

• On 24 April 2015, the court refused permission to advance the proposed misrepresentation amendments in their then form because particulars of the alleged control by Mr Kekhman were required.
• After further particulars were supplied, the court determined the renewed amendment application together with the applications for strike out and summary judgment.