By assessing the most recent proceedings in the JSC Commercial Bank Privatbank v Kolomoisky and others  EWHC 403 (Ch) saga, we can see valuable takeaways for those involved in cryptocurrency civil fraud litigation.
In these proceedings it was found, in summary, that the cross-examination of a respondent to a freezing/asset preservation order with regard to disclosures made as to his assets would be disproportionate. Usefully, we can also see what is expected of respondents in terms of asset disclosure in fraud litigation, and that the courts are unlikely to allow cross-examination as a mini-trial to explore complicated commercial arrangements such as cryptoasset mining investments.
Background of JSC Commercial Bank Privatbank v Kolomoisky
The background to these proceedings is that JSC Commercial Bank Privatbank (the bank) alleges that its former majority shareholders, including Mr. Kolomoisky for present purposes, have misappropriated $1.9 billion from the bank on the back of fraudulent loans and supply agreements.
On 19 December 2017, a worldwide freezing order of up to $2.6 billion was made against the eight defendants. As part of this freezing order against Mr. Kolomoisky, he was required to provide details of all his assets worldwide exceeding £25,000 in value in the form of an affidavit, noting the value, location, and details of all such assets.
Disclosure was provided by Mr. Kolomoisky in 2018. Disclosure included, amongst other assets, a “Bitcoin investment”. All was quiet on the Bitcoin front until the investment’s imminent maturity in January 2021. At this point, the bank wrote to Mr. Kolomoisky’s solicitors seeking further details about the Bitcoin investment. In answering the bank’s queries, it was then alleged by the bank that Mr. Kolomoisky’s further particularisations of the Bitcoin were inconsistent with his original disclosure so that “the nature of the asset now disclosed was fundamentally different”.
It follows that the bank then pursued an application for an order that Mr. Kolomoisky be cross-examined before a High Court judge in relation to his assets. Mr. Kolomoisky also made two witness statements with further details of the Bitcoin investment prior to the hearing on this application. The bank argued this further evidence was illustrative of the “serious and significant deficiencies” in Mr. Kolomoisky’s asset disclosure, such that it is supportive of its case for it to be just and convenient for an order to be made to cross-examine him.
Conclusion and Case Commentary
The judge refused the relief sought by the bank, noting that an order for cross-examination of Mr. Kolomoisky on his assets would be “disproportionate… not just and convenient”.
Interestingly, Trower J noted that the starting point is whether the asset can be identified (and then preserved) for freezing order purposes via the description provided – any deficiencies in the description are less significant than had the asset not been disclosed at all. So, although the asset ended up being very different from the asset originally described by Mr. Kolomoisky, the description was not “actively misleading”. The bank was open to making further enquiries of the asset list if it wished, and it chose not to for three years. As such, Trower J did not consider the deficiencies in the disclosure to be “significant or serious” (Jenington International v Assaubayev  EWHC 2351).
Trower J reminded the parties that cross-examination is “exceptional relief”, to only be granted where:
- the court considers it just and convenient to do so
- it is in aid of an asset disclosure order only – it is the exception rather than the rule
- it is likely to further the purpose of the order by, for example, preventing asset dissipation;
- it must be proportionate and just and in cases of “significant or serious deficiencies” in the existing disclosure, and not where the undertaking is oppressive or for an ulterior purpose
- assets have already been disclosed in excess of the value of the claim
- there are no other alternative means of achieving the same end, or other routes have been exhausted
Therefore, applicants are reminded that they should seek to obtain the information they require in other ways, by way of correspondence and the like, before pursuing applications to cross-examine a respondent to a freezing/asset preservation order.
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