AS Latvijas Krajbanka v Antonov

Members of a company’s supervisory body may be liable for losses caused by dishonest or careless conduct contrary to the company’s interests. A person who, in bad faith, induces such an office-holder to act against the company’s interests may likewise be liable. Liability requires a causal connection between the wrongful conduct and the company’s loss.

Where monetary loss is claimed under Latvian law, statutory interest may be recoverable for loss of use of money. The statutory presumption concerning lost profits on unpaid debts does not apply where the claim is founded on a different wrongful act rather than non-payment by the due date.

AS Latvijas Krajbanka, a Latvian bank in liquidation, brought two consolidated claims against Vladimir Antonov, its former supervisory council member and the majority beneficial owner of its parent bank. The Bank alleged that he caused it to enter into eight uncommercial transactions benefiting himself or connected persons.

The defendant had been debarred from defending the claims because of persistent failures to comply with disclosure orders and did not attend the trial. The court considered whether the evidence established dishonest conduct, breach of duties under Latvian law, causation and recoverable loss.

1. Liability. The court entered judgment for the Bank. Across eight transactions, the evidence showed a repeated pattern in which Mr Antonov subordinated the Bank’s interests to his own and used his influence to procure loans or other arrangements for connected borrowers. The transactions were not arm’s-length dealings and involved inadequate security, grossly inflated valuations, sham documentation, unexplained extensions and diversion of funds.
2. For transactions occurring after Mr Antonov joined the Supervisory Council, he was liable under Article 169 of the Latvian Commercial Law for losses caused by failing to act as an honest and careful manager. For earlier transactions, he was liable under Article 168 because he had acted in bad faith to induce the Bank’s management to act against the Bank’s interests. Article 1779 of the Latvian Civil Code provided an additional basis for recovery of losses caused by his acts or omissions.
3. The court found liability in respect of the Plazmexon, Krapivny, Eagle River, Multikapitals, Clarkson, VTB bank, EWUB and Davitiashvili transactions. The sham €7m Multikapitals loan itself caused no loss because it was immediately repaid, but the separate €2.5m loan caused recoverable loss.
4. The proved direct losses totalled €60,499,567 and US$30,762,458. The Bank was in principle entitled under Article 1784 of the Latvian Civil Code to claim profits lost through deprivation of the money, but it had not proved the amount of those profits.
5. Article 1788 of the Latvian Civil Code did not apply on its wording because the claim was not based on a monetary debt unpaid by its due date. It appeared instead to limit recovery, where applicable, to statutory interest unless greater lost profits were proved. The court invited submissions on whether the applicable interest rate was governed by Latvian law or English law.