Kovarska v Otkritie International Investment Management Ltd & Ors

This is an application by the respondent claimants, Otkritie International Investment Management Ltd and other companies in the Otkritie group (“the respondents” or “Otkritie”), to set aside an ex parte order which I made, as a single Lady Justice, on the papers on 21 November 2016 (the “Order”), by which the appellant defendant (“Ms Kovarska”) was granted (a) a two-year extension of time for her application for permission to appeal from the final order of Eder J dated 14 March 2014, subsequent to two judgments dated 10 February 2014 (“the first judgment”) and 14 March 2014 (“the second judgment”) respectively; (b) permission to appeal on all nine of her proposed grounds of appeal; and (c) permission to adduce what was claimed to be “new” evidence.

The reasons which I gave in the Order for granting the relief were as follows:

“1.

A reasonable explanation for the delay in applying for permission to appeal has been given. If an extension of time were not granted, access to justice might be denied.

2.

The grounds of appeal have a real prospect of success for the reasons set out in counsel’s skeleton argument.

3.

Although the appellant’s witness statement does not explain why the additional evidence was not available at trial, it appears to be highly relevant to the issue whether the appellant had a power of attorney.”

The respondents submit that there are compelling reasons to set aside the Order. They contend that it was procured by serious (and, they infer, probably deliberate) misrepresentations of, and omissions to disclose, highly material facts going to the merits of Ms Kovarska’s applications, the evidence on which they were based, and the stated reasons for her extraordinary delay in making them – some two years after the deadline, for which Ms Kovarska had through her lawyers already sought and obtained a five-week extension in February 2014 when judgment was given (something she also failed to disclose to this court). They also submit that she failed to make any, let alone any adequate, presentation to the court of the authorities identifying the proper approach to be taken to her application to appeal out of time.

The application to set aside was heard on 3 May 2017. Mr Nathan Pillow QC, who had appeared as one of the respondents’ counsel at trial, represented the respondents and Mr D Giles, who had not appeared at trial, represented the appellant, Ms Kovarska. Subsequently, on 16 June 2017, the court made an order on the respondents’ application to the effect that the Order should be set aside. The parties were informed that the court’s reasons for making the order would follow in due course in a reasoned judgment and that any argument as to costs would be dealt with on the papers once the parties had received the judgment.

These are the court’s reasons for making that order.

The factual background to this application may be shortly stated as follows.

According to the facts established in the judgment, in August 2011, Otkritie discovered that it had been the victim of a fraud involving the purchase of Argentinian government warrants for US$213 million, when they were in fact only worth US$63 million. The trade had been carried out in March 2011 by Otkritie’s (then) employees, Georgy Urumov, Sergey Kondratyuk, Eugene Jemai and Mr Pinaev (Ms Kovarska’s husband), and resulted in a loss of $150 million (“the Argentinian Warrants Fraud”). Some US$120 million of the traceable proceeds of the fraud were discovered to have been paid into the Swiss bank accounts of companies owned and controlled by Messrs Urumov, Kondratyuk and Pinaev, from where they were laundered further by them and others, including Ms Kovarska.

Whilst investigations into the Argentinian Warrants Fraud were ongoing, a separate fraud was uncovered (“the Sign-On Fee Fraud”). Proceedings were commenced in October 2011, initially against Mr Urumov in relation to the Sign-On Fee Fraud that involved the payment by Otkritie of US$25 million for the recruitment of a five-person team in London, it having been established that rather than each person receiving US$5 million (as had been agreed and was confirmed in written contracts) Mr Urumov personally received about US$21 million, part of which he had used to pay bribes to Mr Kondratyuk and Mr Pinaev, both of whom were (as noted above) then employed by Otkritie and had assisted with the recruitment.

In December 2011, the proceedings against Mr Urumov were extended to include the Argentinian Warrants Fraud and to join his wife (Yulia Balk), who had helped to launder US$37 million of the fraud proceeds, a large part of which was used to buy a mansion on Avenue Road in St. John’s Wood, London.

In March 2012, Mr Pinaev and his company (Pleator) was joined as a defendant and a worldwide freezing order made against him, it having been established that he was also involved in both frauds, and had personally benefited by around US$42 million, much of which had been transferred to Pleator’s account at Bordier et Cie, a private Swiss bank (“Bordier”). Ms Kovarska was joined as a defendant in June 2012, on account of her alleged dishonest assistance in helping to launder the proceeds of fraud through the purchase of a lavish Geneva villa in her name and through her operation of various bank accounts, and a freezing order was made against her.

Other defendants included Eugene Jemai and his sister Irina (both Swiss nationals, the former of whom was employed by Otkritie) and Vladimir Gersamia, a trader employed by Threadneedle Asset Management in London, who helped to execute the fraud.

The trial took place before Eder J over 46 days between June and November 2013, and involved around 25 witnesses giving oral evidence, including Ms Kovarska and Mr Pinaev (by video-link from Israel).

Eder J gave judgment on 10 February 2014. The final order was made on 14 March 2014 and time started running as at that date for the purposes of an appeal (it having been agreed that time would not start from the date of the judgment itself).

Also on 14 March 2014, Eder J made a post-judgment freezing order against the defendants, including Ms Kovarska (“the Freezing Order”). Eder J was satisfied that there was sufficient evidence that Mr Pinaev and Ms Kovarska were or might be ‘recycling’ the proceeds of the fraud in order to pay their foreign lawyers that his Freezing Order also required them to disclose to the respondents: (i) the fee arrangements with their Swiss and Israeli lawyers, including any documents evidencing those arrangements and the amounts due or deferred or conditional on success; and (ii) by 5pm on the tenth business day after payment had been made to any lawyer, details of the amount paid, the bank account from which it was paid, the name of the paying party, to whom it was paid and the basis of the payment. The respondents contend that Ms Kovarska is in flagrant breach of this order.

At all times from the date that she was joined as a defendant in the English proceedings, Ms Kovarska was represented by experienced solicitors and counsel (Cartier & Co and Mr Antony Peto QC and Mr Jonathan McDonagh) including in the period post-judgment, as was evident from the communications with her junior counsel over the form of the final order.

The deadline for Ms Kovarska to file an appeal was 1 April 2014. At no stage did she ask for an extension of time, despite being advised by solicitors throughout. The respondents assert that she must have been advised of the relevant time limits at the time, although her witness statement dated 1 April 2016 – whilst revealing (at para 3) that she received advice as to the time and cost for preparing an appeal immediately after the judgment – is silent on this particular point (which the respondents submit is a material non-disclosure).

Ms Kovarska was represented by solicitors in England until at least 26 June 2014 nearly three months after the time for her to file an Appellant’s Notice expired. The firm of solicitors acting for Otkritie, Steptoe & Johnson (“SJ”) was still corresponding with them in late August 2014 (more than five months after the Appellant’s Notice was due). These matters were not mentioned or explained, in Ms Kovarksa’s application and evidence.

In the judgment Eder J made a large number of factual findings that Mr Pinaev and Ms Kovarska had laundered a very significant part of the proceeds of fraud through the purchase of the Geneva villa, diamonds bought from a Geneva jeweller, and by making sham loans to friends and associates (which they used to launder fraud proceeds into cash). Mr Pinaev was found liable in conspiracy in relation to the Argentinian Warrants Fraud and for the receipt of US$6 million bribe in relation to the Sign-On Fee Fraud. Ms Kovarska was found liable for around US$18 million representing the part of the fraud proceeds that the judge found she had helped to launder.

Of the US$42 million fraud proceeds received by Mr Pinaev, about US$14 million was spent to purchase the Geneva villa in the sole name of Ms Kovarska (as to which Eder J found that Ms Kovarska had told a series of lies in her evidence and to the Swiss authorities); about US$4.5 million was invested by Mr Pinaev in a fund he set up in Luxembourg; and around US$5 million was spent by Mr Pinaev on vintage sports cars. To date the respondents have only recovered around US$13 million of the Pinaev’s total US$42 million share of the fraud proceeds. Around US$6 million of the fraud proceeds is still frozen in Switzerland where Ms Kovarska continues to oppose recovery through her Swiss lawyer.

Around US$10 million of the fraud proceeds received by Mr Pinaev remains unaccounted for. The Judge concluded on the evidence that much of this was taken with the Pinaevs when they fled to Israel and emptied bank accounts which they held. The respondents contend that it can be inferred that the US$10 million is still in the control of the Pinaevs and includes the following:

The respondents contend, and it would appear likely, that the laundered monies are now being used to fund what the respondents describe as the Pinaevs’ expensive lifestyle in Israel, including a house in Jaffa overlooking the sea in which the Pinaevs resided for four years. According to the respondents’ evidence this property was leased in the name of Mr Pinaev’s parents. The Pinaevs’ two children attend a private school in Tel Aviv. The respondents contend that none of this is consistent with Ms Kovarska’s claimed impecuniosity or with her alleged inability to have instructed (and paid) English lawyers to lodge an appeal on time, if she had wished to do so.

Both Mr Pinaev and Ms Kovarska gave lengthy oral evidence at trial by video-link from Israel. Ms Kovarska was found by the trial judge to have lied repeatedly when giving evidence at trial. The respondents contend that she has also repeatedly breached the English court’s freezing orders in relation to payments to her army of lawyers worldwide (knowing that she is not at risk of the contempt jurisdiction because she is in Israel) and that she has failed repeatedly to answer the respondents’ reasonable questions about her ready access to funds and the financing of a lavish lifestyle in Israel. They accordingly submit that this Court should proceed with considerable caution when considering her evidence and that given on her instructions.

Ms Kovarska’s applications to appeal out of time and to rely on additional evidence were made in her Appellant’s Notice dated 1 April 2016 which was supported by:

Although on 6 April 2016 Ms Kovarska served the respondents with a copy of her Appellant’s Notice (including the Grounds of Appeal and the witness statements), in breach of PD52C §7.1A she did not serve the skeleton argument that she subsequently filed. The respondents were unaware that a skeleton had been filed until they requested a copy from the Court in November 2016 after seeing it mentioned in the Order itself.

On 8 November 2016 SJ sent a Jolly v Jay letter to the Civil Appeals office providing the respondents’ brief observations “as to Ms Kovarska's reasons for applying for permission to appeal two years out of time and to summarise the relevant legal principles”. In the letter the respondents submitted that Ms Kovarska had failed to show any legitimate excuse for filing her appeal two years out of time and that her reasons did not come close to justifying any extension applying the relevant legal principles.

Contrary to the inference which the respondents sought to draw in their submissions, that Jolly v Jay letter was indeed before me when I considered Ms Kovarska's applications and made the Order on 21 November 2016. However, for obvious reasons the letter did not address the submissions made in Ms Kovarska's skeleton argument as to the merits of the proposed appeal, since that skeleton argument had not been served on the respondents.

On 6 December 2016 the respondents applied to set aside the Order. It was supported by the forty-sixth witness statement of the principal solicitor acting for the respondents, Mr Dooley of SJ (“46-Dooley”).

Subsequently:

The respondents served evidence in reply by Mr Dooley in his forty-seventh statement (“47-Dooley”).

Subsequently Ms Kovarska changed solicitors again and at the hearing before this Court was represented by Patron Law, the fifth firm that has represented her in these proceedings, and Mr D Giles of counsel. The managing partner of Patron Law, Mr Benjamin May, has apparently given expert evidence to the Israeli courts on behalf of the Pinaevs in support of their attempts to resist enforcement of the judgment, to the effect that even long after the expiry of the 21-day deadline for filing an appeal, an application for permission to appeal against any English judgment may still be made and granted because it is always open to the appellant to apply to extend time.

At the hearing before us, the respondents argued in the alternative, that if, contrary to their submissions, the Order were not set aside in its entirety, the Court should (a) impose a condition requiring Ms Kovarska to consent to the restitution to the respondents of the proceeds of sale of the Geneva villa; and (b) order Ms Kovarska to provide security for costs of her appeal.

Ms Kovarska’s application for permission to appeal was decided on the papers and without a hearing under the usual “essentially ‘without notice’ procedure” (per Brooke LJ in Jolly v Jay [2002] EWCA Civ 277 at [46]). Ms Kovarska was therefore under a duty to make full and frank disclosure of all material facts (and a fortiori not positively to misrepresent material facts): see the White Book (2017) at §52.18.2 (p. 1805).

By CPR 52.9 (as it stood at the relevant time), the Court may set aside permission to appeal in whole or in part, where there is a compelling reason to do so. It has been held that CPR 52.9 is “there to cater for the rare case in which the Lord Justice granting permission has actually been misled” (per Laws LJ in Barings Bank v Coopers & Lybrand [2002] EWCA Civ 1155); and that, unless some decisive authority or statutory provision has been overlooked, an applicant for an order “would normally have to show that the single lord justice has actually been misled in the course of the presentation of an application” (per Longmore LJ in Nathan v Smilovitch [2002] EWCA Civ 759.

In Obsession Hair and Day Spa v Hi-Lite Electrical [2011] EWCA Civ 1148, Ward LJ (with whom Sullivan LJ agreed) considered an application made pursuant to CPR 52.9 to set aside an order both extending time to appeal and granting permission to appeal. There was no suggestion that CPR 52.9 was not the appropriate route to challenge all aspects of what were (and are in all such cases, including the present one) effectively two facets of a single order granting permission to appeal out of time. Echoing the comments of Laws LJ in Barings, Ward LJ referred at [28] to the fact that the duty to make full and frank disclosure was an aspect of the obligation owed by litigants to the Court not to abuse its process.

Finally and in any event, the Court also has the power to vary or revoke any aspect of the Order pursuant to CPR 3(7), in circumstances where it is misled as to the correct factual position in various important respects, whether in relation to the application for an extension of time or in relation to the merits of the appeal.

I am satisfied that in granting the extension of time, permission to bring an appeal out of time and permission to adduce so-called “new” evidence as set out in the Order, I was misled by serious misrepresentations and non-disclosures made by Ms Kovarska or by her legal representatives on her behalf. It is not necessary for me to decide whether such misrepresentations or omissions were deliberate or simply careless. They were certainly highly unfortunate as they have resulted in interference and delay with Otkritie‘s execution process and unnecessary wastage of court time and costs. Had I been aware of the full facts, I should not have granted any of Ms Kovarska's applications.

I should say first of all that I do not accept Mr Pillow’s argument that the fact that Mr Townsend, in making his written submissions in support of the applications, did not draw the court’s attention to the authorities identifying the proper approach to be taken to her application to appeal out of time, is a reason for this court to consider setting aside the permission. The court was, and is, well aware of the authorities that require a strict approach to be taken to applications for extension of time to seek permission to appeal after the 21 day period prescribed by the rules, as articulated in cases such as R (Hysaj) v Home Secretary (Practice Note) [2014] 1 WLR 2472 (CA). But if the interests of justice nonetheless require an extension of time to be granted, and sanctions to be relieved, and there is a real prospect of success on appeal, then permission will be granted.

However, having heard and considered the submissions of Mr Pillow and Mr Giles, I have no doubt that this court should set aside the order which I previously made in relation to all three aspects – namely extension of time, permission to appeal and permission to introduce further evidence. I conclude that I was indeed misled by the materials presented on behalf of the appellant, Ms Kovarska, and the absence of reference to certain critical facts, relevant to her applications. My reasons are as follows.

Ms Kovarska, whilst represented by counsel and solicitors, did in fact consider an appeal in time

In the evidence and skeleton argument filed in support of her applications, Ms Kovarska conveyed the clear impression that she could not afford and was therefore unable to obtain legal advice and assistance within the time-limit for lodging an appeal; and was only in fact able to do so more than a year later. However, the actual position was very different.

In fact, as the respondents’ evidence to this court has revealed, she did seek legal advice as to whether to appeal within the relevant deadline, which she herself had successfully applied to extend, at a time when she was still represented by leading and junior counsel and solicitors, i.e. Mr Peto QC, Mr McDonagh and Cartier & Co. What neither Ms Kovarska nor her legal representatives thought necessary to mention in her applications were the following:

Had I been given the full picture relating to Ms Kovarska’s position during this period, I do not believe that I would have considered it appropriate to grant her a further extension of time to seek permission to appeal, let alone an extension of two years. I would have regarded Ms Kovarska as having had, and having taken, ample opportunity to consider and seek advice on appealing; and as having made a deliberate and informed decision not to do so, for whatever reason. That was not the impression conveyed by Ms Kovarska’s evidence in support of her applications. At the very least I would have required a convincing explanation as to why Ms Kovarska had changed her mind in the intervening period.

The so-called new evidence relating to ground 2 - in relation to the judge’s finding that Ms Kovarska had a power of attorney over the Pleator bank account

As paragraph 3 of the Order recorded, in granting permission to appeal out of time, I was strongly persuaded by Ms Kovarska’s suggestion to the effect that she had only recently obtained important new evidence “conclusively” demonstrating that the judge’s finding that she had a power of attorney over a particular bank account to have been wrong, despite the absence of any explanation by her for the unavailability of this evidence at trial.

The account in question was that of a Panamanian company beneficially owned by Mr Pinaev (Pleator Holding Inc., the seventh defendant (“Pleator”)) at Bordier, into which some US$37 million of the proceeds of the fraud had been received and transferred to others, including Ms Kovarska. The “fresh” evidence was said to be the bank’s “General Power(s) of Attorney/Authorised Signature(s)” form for Pleator dated 22 April 2010, showing that Mr Pinaev (alone) had such powers (the “Pleator PoA”).

In making her applications, Ms Kovarska had represented to the court:

But this was not the correct position. I infer that Ms Kovarska must have known that to be the case at the time her applications were made to me. The actual position was as follows:

Furthermore, Ms Kovarska failed to draw to this Court’s attention various highly material facts concerning the timing of receipt of this information and what she and her lawyers knew (and could have done, but did not do) about the error of which she now complains. Thus:

Had I known of the above matters, I would not have granted permission to appeal out of time. Ms Kovarska’s failure to disclose the fact that she, whilst legally represented and before judgment was even handed down, knew of and had every opportunity to present the relevant evidence and correct the error, was clearly a breach of her obligations of disclosure to this court.

Misrepresentation/non-disclosure in relation to Ground 7

Ground 7 of Ms Kovarska’s appeal challenges the judge’s finding that Ms Kovarska was liable for dishonest assistance and/or knowing receipt in respect of the transfers of €1.45 million of the fraud proceeds from Pleator to a company called Haymoks Trend.

The basis of the challenge is that the judge concluded (after hearing Ms Kovarska’s evidence in cross-examination on the subject, which he rejected as “deliberately false”) that the email Ms Kovarska sent to Bordier with the bank details for the payments to Haymoks Trend had been tampered with, but that this allegation had not been pleaded by Otkritie and “the consequence was that Ms Kovarska was deprived of the opportunity to make inquiries into the contents of the email”, which it was submitted “was significant”.

However, the evidence now provided by the respondents has shown that the suggestion that Ms Kovarska was deprived of such opportunity was in fact incorrect and contrary to Ms Kovarska’s own submission at trial. Thus:

Again I would not have given permission to appeal in relation to this ground, had I been apprised of the correct position.

Non-disclosure in relation to Ground 8

Ground 8 seeks to raise an issue of law concerning the allocation or appropriation of recoveries made by Cs to the judgment debts of particular defendants. This was the subject of Eder J’s second judgment dated 14 March 2014 after the consequentials hearing.

Two of the other defendants (Ms Balk, the fourth defendant, and Ms Jemai, the 15^th defendant) had previously sought and obtained permission to appeal on this point from me, although neither appeal was ultimately effective. The respondents accepted in this court that, all other things being equal, it would therefore have been appropriate to grant Ms Kovarska limited permission to appeal on this ground, assuming (which the respondents denied) she could have: (a) satisfied the appropriate requirements for the necessary extension of time; and (b) established that the point made any practical difference to her (given that the respondents have still made no relevant recovery; and she has in any case not paid a penny of the judgment debt).

However, although Ms Kovarska’s skeleton argument in support of her applications for permission to appeal did state this “was not a point pursued by her counsel at the hearing”, that was not a full and frank description of the material circumstances. In fact:

Had Ms Kovarska properly disclosed in her applications for permission to appeal out of time that: (a) her own leading counsel had conceded that the issue raised in Ground 8 did not apply to her; (b) he had therefore been “neutral” on the point in the court below; (c) he chose to make no submissions on it, even to assist the court on the point of law that arose; and (d) the judge in his presence expressly recorded that he was treating him as having abandoned any point on this issue for Ms Kovarska, I would not have granted her permission to appeal on this Ground, let alone a two-year extension of time in which to do so.

Ms Kovarska’s assertions of impecuniosity and an inability to find English lawyers); and supposed practical difficulties in instructing English lawyers and lodging an appeal because she was in Israel

Nor in the light of the detailed evidence provided by the respondents in relation to Ms Kovarska’s financial position, her defence of enforcement proceedings and her current lifestyle, do I remain satisfied, as I was at the time of my making the Order on the basis of the information provided by Ms Kovarska, that she faced genuine and substantial financial difficulties and difficulties in instructing lawyers, which for all practical purposes prevented her from lodging an appeal within time.

Ms Kovarska’s evidence at the time of her applications conveyed the impression that she had no money, or access to funds or other financial assistance, except for the very limited sum she was belatedly able to withdraw in cash from her Israeli account, which (she claims) was derived from allowances paid to her by the Israeli government; and that she had therefore been unable, prior to April 2015 at the earliest, to afford to instruct English lawyers for her appeal. That was a misleading picture since, as was not disclosed to the court at the relevant time, throughout the relevant period:

Moreover, the evidence provided by the respondents demonstrates that Ms Kovarska is perfectly able, when she considers it in her interests to do so, to procure the services of experienced lawyers, and engage in extensive and costly litigation, including in Israel, Latvia and Switzerland (and to incur the cost of travelling overseas).

None of this was disclosed to the court by Ms Kovarska in the context of her applications for permission to appeal. The picture which was presented to me was a misleading and incomplete one. In particular, she should have explained why she was apparently able to fund litigation elsewhere, resisting attempts by the respondents to execute against her assets, but unable to launch the necessary appeal in England. Likewise she should have explained why she was unable to raise funds from her various properties, particularly in circumstances where, as this court was informed by the respondents on the appeal, her counsel made it clear to Eder J at the consequential hearing in March 2014 that she intended to cooperate fully with the respondents and sell her real property in order to pay her judgment liability; and she specifically sought (and obtained) a provision in the post-judgment freezing order enabling her to do so.

For all the above reasons, I was satisfied when this court made the order on 16 June 2017, that the Order should be set aside because of Ms Kovarska’s serious misrepresentations and non-disclosures when making her applications for permission to appeal out of time and to adduce new evidence. Moreover, even on the assumption that it would be appropriate for this court to reconsider her applications, not only am I satisfied that no extension of time should be granted, given the circumstances which I have outlined above, but also I am satisfied that the arguments which she put forward for justifying a real prospect of success on the substance of the appeal, are, on proper analysis, and in light of the matters put forward by the respondents, without foundation.

For the above reasons I granted the respondents' application to set aside the Order and dismissed her application for permission to appeal.

I agree.