“13. There was no shareholders agreement between the respective foundations as to how the JFC Group would be managed. Mr Kekhman made it clear to Mrs Zakharova and myself that, as the controlling shareholder, he was to have complete control of JFC BVI and how the JFC Group of Companies were to be run, and Mrs Zakharova and I were to implement Mr Kekhman’s decisions and were accountable to him. … 15. It is incorrect for Mr Kekhman to say that he withdrew from the management of JFC Russia after December 2007. Mr Kekhman wanted to be kept informed about all aspects of the business, was involved in all the major decisions and remained as involved in the major decisions as beforehand… … 16…a. Mr Kekhman as the founder of the JFC business and indirect majority shareholder of its parent company, JFC BVI, controlled the entire JFC business both within Russia and internationally… b. It was the responsibility of Mrs Zakharova and me to implement Mr Kekhman’s instructions… c. …I also provided him with regular operational reports which included information on sales volumes and sales prices. I discussed with Mr Kekhman all the time the prices at which bananas were purchased and sold, both inside and outside Russia…I orally reported to Mr Kekhman at regular meetings held at the Mikhailovsky Theatre and sometimes at JFC’s offices as well as by phone. My reports were focused on operational activity…. d. Mrs Zakharova acted as the chief financial officer and was responsible for financial matters and was the General Director of JFC Russia. She delivered daily and subsequently weekly consolidated financial reports of the JFC Group comprising consolidated balance sheets and profit and loss accounts to Mr Kekhman who was therefore well aware of the overall financial position of the JFC Group and, in particular, the level of its external borrowings. 17. Both Mrs Zakharova and I were in almost daily contact with Mr Kekhman by telephone. Mr Tchernenko has exhibited extracts from my mobile phone records and he has provided an analysis showing calls made to the phone number which was used by Mr Kekhman at the time. From that breakdown, it can be seen that there were over 400 communications (calls and texts) between me and Mr Kekhman in each year of 2008 to 2011. In 2012 there were 368. … 19. There were also meetings with Mr Kekhman probably once a week (either by myself, or with Mrs Zakharova or with another member of staff) both before and after he was appointed as a director of the Mikhailovsky Theatre. The only difference was that instead of meetings being at the JFC Group offices in St Petersburg, some of those meetings took place at the theatre. It is therefore not correct for Mr Kekhman to say that there were only occasional discussions. 20. The purpose of those calls and meetings was to keep Mr Kekhman fully informed of all material developments within the JFC Group, both within Russia and internationally, and to raise issues on which decisions needed to be made that fell within the responsibility of either myself or Mrs Zakharova. Matters discussed included (but were not limited to) the hiring or dismissal of key employees, the setting of prices for the sale of bananas, obtaining additional financing or the acquisition or purchase of property. 21. Whilst the decision making process was very informal, no suggested course of action or decision could be made without Mr Kekhman’s approval… … 39. In our discussions with Mr Kekhman, Mrs Zakharova and I would discuss market conditions and other factors impacting upon the performance of the JFC Group of Companies. This included the following: … b. By 2011 the JFC Group was experiencing significant financial difficulties. These difficulties were discussed with Mr Kekhman. In fact, I do not remember any period of time at JFC Russia when Mr Kekhman or Mrs Zakharova said the financial position was good. All the time there were financial problems. This was caused by the syphoning off of funds from the JFC Group to Mr Kekhman’s other projects, including the LQ Group of companies’ development projects and the Mikhailovsky Theatre… c. Indeed both before 2011 and in 2011 there was a constant lack of funds due to the monies that Mr Kekhman was extracting from the JFC Group. He was at all times fully aware of the position and indeed was probably the only person who knew exactly what was going on as he knew how much money was being extracted. He used JFC as though it was his personal bank. … e. At the suggestion of Mrs Zakharova, Mr Kekhman agreed that I should take over as General Director of JFC Russia from April 2011 so that Mrs Zakharova could concentrate her efforts on finding alternative sources of funding. f. As a result JFC Russia applied for the loan from Bank of Moscow. The profit margins on the sale of bananas were insufficient to cover the moneys being siphoned off by Mr Kekhman in respect of his non-JFC Group activities. Therefore, of course Mr Kekhman knew that the JFC Group’s survival was dependent on further and increasing injection of external funding. That is why Mr Kekhman instructed Mrs Zakharova to raise funds. 40. As I have said, Mr Kekhman had full visibility at the time of these financial difficulties and the steps being taken to address them and was very much involved in the discussions concerning these matters… … 48. Mrs Zakharova reported (both orally and via the provision of financial reports) to Mr Kekhman on the financial position of the JFC Group. Accordingly, Mr Kekhman was well aware of the JFC Group’s overall financial position (not just limited to JFC Russia). 49. After 2007, meetings with Mr Kekhman were usually held at the Mikhailovsky Theatre, but occasionally elsewhere, such as the JFC offices. These meeting[s] would be regularly attended by myself and Mrs Zakharova… … 50. All major decisions in connection with financial statements / accounting were done with Mr Kekhman’s approval. Mrs Zakharova’s invariable practice was to obtain Mr Kekhman’s approval before taking significant decisions, and Mr Kekhman required that he should be consulted and his approval obtained before taking any significant decisions. … 56. I should also mention that Mr Kekhman had another business, namely, a citrus fruit business. The fruit business was in effect run by Mr Kekhman’s nominees (being Mr Akatsevich, Mr Sayapin and Mr Borovskikh). Although they legally owned the companies operating such businesses, they were minority shareholders of that business. I learned of their financial interest as a result of a conversation with Mr Kekhman. Around the end of 2011 or beginning of 2012, I met with Mr Kekhman at the VIP Lounge of Pulkovo Airport in St. Petersburg. While we were discussing the issues of the JFC Group, Mr Kekhman told me that there was a way to keep the business afloat and away from the reach of creditors by transferring parts of the operations to these nominees. Mr Kekhman said “there is an established working technology with these guys”, who in return for 30% of business would manage it for Mr Kekhman’s benefit. It is my belief that at least part of what used to be the JFC Group business is now being carried on by what, using Mr Kekhman’s terminology, was an ‘established working technology’. … 57. In April 2011, Mr Kekhman directed that Mrs Zakharova should step down as General Director of JFC Russia and Mrs Zakharova, in accordance with his instructions, did so. I replaced her, again on the instructions of Mr Kekhman, Thereafter, Mrs Zakharova’s principal role was raising further finance for the JFC Group, which JFC Russia was actively seeking on Mr Kekhman’s instructions. In carrying out this task, Mrs Zakharova interacted with and reported to Mr Kekhman. 58. After the application for a loan had been made (and I informed Dmitri Tchernenko that the application was made in June 2011) and the Bank had indicated the terms on which it was prepared to lend, there was a meeting at the Mikhailovsky Theatre on about August 2011, at which Mrs Zakharova presented the conditions of the proposed loan from the Bank to both Mr Kekhman and myself. Mr Kekhman indicated to Mrs Zakharova that Mrs Zakharova should proceed with the loan application. 59. I signed the two loan agreements with the Bank with Mr Kekhman’s approval. I could not have done this without Mr Kekhman’s approval. Mr Kekhman confirmed that JFC Russia should obtain money from the Bank. 60. In paragraph 37 of his witness statement, Mr Kekhman says he was not aware of how the facility was to work. This is not true. Mrs Zakharova discussed the key terms of the Bank’s loan with Mr Kekhman in my presence. 61. As to the board meeting approving the first loan facility of US$100 million , it is correct that the minutes of the meeting were brought to Mr Kekhman at the Mikhailovsky Theatre, where he signed it. He was well aware of what he was signing. As to the board meeting which approved the second loan facility, to the best of my knowledge, Ms Kuzina put Mr Kekhman’s facsimile on the resolution in respect of the US$50 million loan from the Bank. She would only have done it on his express instructions. She would not do it otherwise – she would have called Mr Kekhman to approve any use of Mr Kekhman’s facsimile. 62. I understand that the bank has discovered that the financial accounts for 2009, 2010 and the first six months of 2011 presented to it by JFC employees significantly overstated Garold’s revenues. I did not know that the accounts were overstated. I took my information from an accounting system - SAP - which had all the financial information which I needed for operational activities. The figures were reflected there almost instantaneously and were current. I did not need anything else. Sales in respect of goods were shown on SAP (including those sales on all markets). 63. As I have explained, all major decision in connection with financial statements accounting were done with Mr Kekhman’s approval. Mr Kekhman would have known the true picture, as Mrs Zakharova regularly prepared for him the management accounts. If the financial statements were not accurate, Mr Kekhman would have known about it. Mr Kekhman knew well that such statements would be provided to creditors, such as the Bank, as it was usually the case. 64. It is inconceivable that Mrs Zakharova would have presented false accounts to Mr Kekhman without telling him of their falsity and equally inconceivable that she would have presented the false accounts to the Bank without his approval. I say this for the following reasons. The fact of the matter is that Mrs Zakharova would never have taken such a momentous step as to present false accounts to the Bank on her own initiative. There would have been no benefit for her in doing so. The only person who benefited from all this was the person who controlled the whole business, who could extract money from the business at will (whether for his LQ projects or donations to the Mikhailovsky Theatre or otherwise), that is, Mr Kekhman, and not Mrs Zakharova or me. Furthermore, the nature of the relationship between Mr Kekhman and Mrs Zakharova was such that he dominated her and she would not take any significant steps concerning the business without his knowledge and approval.”
“(12) When directing Mrs Zakharova to apply for the loan, Mr Kekhman must have known that the claimant would require accounting information concerning the JFC Group as part of the process of applying for the loan and that such accounting information would include [the previous year's audited accounts for the Group and the management accounts] (13) Given the significance of a decision to present false accounts for the JFC Group overstating receivables by over U.S.$200 million and materially misstating profits and having regard to the matters set out at 8 and 8A above, it is inconceivable that Mrs Zakharova would have given a direction in the presentation of those accounting documents to the claimant without first having obtained the direction and agreement of Mr Kekhman. It is to be inferred that such was given.” 61 Mr Gourgey QC relied upon the following primary facts which he submitted would justify the inference of fraud by Mr Kekhman: (i) the close control of the Group that he exercised even after his departure for the Theatre, on an almost daily basis; (ii) that he was aware of the true financial position and the need to obtain funding; (iii) that he had specifically required Mrs Zakharova to resign as general manager so that she could work on finding funding; (iv) that she did so in conjunction with him; (v) that in respect of any significant decisions she and Mr Afanasiev sought the instructions of Mr Kekhman; (vi) that overstating the financial position by U.S.$200 million in false accounts to be produced to the bank was clearly a significant matter; and (vii) that in relation to the existing conspiracy claim, Mr Kekhman exercising his control over the JFC Group required Mrs Zakharova to divert assets wrongfully from the Group for his benefit. 62 Mr Gourgey QC submitted that, applying the correct test for pleading fraud, these primary facts made an inference of fraud by Mr Kekhman in the present case far more likely than any other inference. He submitted that Mr Kekhman's case that it was an equally plausible inference that he had nothing to do with the fraudulent misrepresentations and was unaware of them, would not be sustainable if those primary facts were established at trial. … 64 As I have already held in the context of the existing pleading, the bank has a good arguable case (i) that Mr Kekhman was well aware at all material times about the true financial position of the JFC Group and that his denial of such knowledge in his evidence is untrue; (ii) that his involvement in the management of the Group in 2010 and 2011 was greater than he is prepared to admit in his evidence, so that his evidence about that is also untrue; and (iii) that that involvement included involvement in the process of obtaining the loans from the bank. In my judgment, if that case is established by the bank at trial, then the court will be entitled to draw the crucial inferences set out at [60] above, namely that it is inconceivable that the fraudulent misrepresentations would have been made without the direction and agreement of Mr Kekhman. 65 Indeed, if that case is established by the bank at trial, it is difficult to see how an explanation of the fraudulent misrepresentations having been made which was consistent with Mr Kekhman’s innocence would be sustainable. On this hypothesis, he would not have told the truth in respect of two critical aspects of his evidence and the obvious question is why he would do that unless he were trying to conceal his own involvement in the relevant wrongdoing. Furthermore, I accept Mr Gourgey QC’s submission that on this hypothesis, Mr Swainston QC’s suggestion that Mrs Zakharova was on some frolic of her own, engaged in fraudulent misrepresentations to the bank in order to cover up her own mismanagement and wrongdoing, is completely implausible. If Mr Kekhman was aware of the true financial position of the JFC Group, then there was nothing for Mrs Zakharova to conceal from him. On the assumption that both Mrs Zakharova and Mr Kekhman were aware of the true position of the Group, it is inconceivable that, if she had found that a loan could not be raised without misrepresenting the accounts, she would have proceeded on a U.S.$200 million overstatement of the accounts without informing Mr Kekhman and procuring his approval. Indeed, on this assumption and the further assumption that Mr Kekhman maintained close control of the Group (in relation to both of which assumptions the bank’s case has a real prospect of success) it is far more likely that it is he who instructed her to misrepresent the accounts rather than her thinking of the idea and seeking his approval. Either way, I consider that if the bank establishes its case at trial as to Mr Kekhman’s knowledge and control, the court would be entitled to draw the inference that he was a party to the fraudulent misrepresentations. … “(12) When directing Mrs Zakharova to apply for the loan, Mr Kekhman must have known that the claimant would require accounting information concerning the JFC Group as part of the process of applying for the loan and that such accounting information would include [the previous year's audited accounts for the Group and the management accounts] (13) Given the significance of a decision to present false accounts for the JFC Group overstating receivables by over U.S.$200 million and materially misstating profits and having regard to the matters set out at 8 and 8A above, it is inconceivable that Mrs Zakharova would have given a direction in the presentation of those accounting documents to the claimant without first having obtained the direction and agreement of Mr Kekhman. It is to be inferred that such was given.” 71 Mr Swainston QC placed a great deal of emphasis in his submissions on the fact that the bank does not allege that Mr Afanasiev was dishonest, which he suggested presented the bank with an insuperable difficulty in alleging fraud against Mr Kekhman. In my judgment, that analysis is misconceived. Mr Afanasiev can and does give a great deal of evidence about the extent of the control exercised by Mr Kekhman over the Group and Mr Kekhman's awareness at all material times of the true financial position of the Group, all of which directly contradicts the evidence of Mr Kekhman and will, if accepted at trial, establish that Mr Kekhman's evidence is not true in a number of important respects. I also consider that Mr Swainston QC's criticism of the last paragraph of Mr Afanasiev's statement as no more than assertion or “foot stomping” seriously underestimates the potential value of his evidence. Mr Afanasiev worked closely with both Mrs Zakharova and Mr Kekhman and was able to observe their relationship at first hand. If his evidence that Mr Kekhman dominated her and that she was scared of Mr Kekhman is accepted at trial, that is evidence which will support the bank's case that it is inconceivable that Mrs Zakharova would have committed a fraud on the bank without the direction or approval of Mr Kekhman. It is no answer to say that, if Mr Kekhman had been acting fraudulently Mr Afanasiev would have known about it. He was not concerned with the finances of the Group but the operational side of the fruit business so there is no reason why he should have known that a fraud had been committed.”
“13… I think that the time has come to say, once and for all, that there is only one civil standard of proof and that is proof that the fact in issue more probably occurred than not. I do not intend to disapprove any of the cases in what I have called the first category, but I agree with the observation of Lord Steyn in McCann's case, at p 812, that clarity would be greatly enhanced if the courts said simply that although the proceedings were civil, the nature of the particular issue involved made it appropriate to apply the criminal standard. 14 Finally, I should say something about the notion of inherent probabilities. Lord Nicholls said, in the passage I have already quoted, that— “the court will have in mind as a factor, to whatever extent is appropriate in the particular case , that the more serious the allegation the less likely it is that the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability.” 15 I wish to lay some stress upon the words I have italicised. Lord Nicholls was not laying down any rule of law. There is only one rule of law, namely that the occurrence of the fact in issue must be proved to have been more probable than not. Common sense, not law, requires that in deciding this question, regard should be had, to whatever extent appropriate, to inherent probabilities. If a child alleges sexual abuse by a parent, it is common sense to start with the assumption that most parents do not abuse their children. But this assumption may be swiftly dispelled by other compelling evidence of the relationship between parent and child or parent and other children. It would be absurd to suggest that the tribunal must in all cases assume that serious conduct is unlikely to have occurred. In many cases, the other evidence will show that it was all too likely. If, for example, it is clear that a child was assaulted by one or other of two people, it would make no sense to start one's reasoning by saying that assaulting children is a serious matter and therefore neither of them is likely to have done so. The fact is that one of them did and the question for the tribunal is simply whether it is more probable that one rather than the other was the perpetrator.”
“Where a serious allegation is made in a civil case, such as an allegation of criminal conduct, the standard of proof remains the civil standard. Otherwise, where there was a claim for fraudulent misrepresentation and breach of warranty, the court might hold that the warranty claim was proven and the fraud claim was not proven on the same facts. However, the civil standard is flexible in its application. Thus if a serious allegation is made then more cogent evidence may be required to overcome the unlikelihood of what is alleged in order to prove the allegation.”
“It is well established that “cogent evidence is required to justify a finding of fraud or other discreditable conduct”: per Moore-Bick LJ in Jafari-Fini v Skillglass Ltd.,[2007] EWCA Civ 261 at para.73. This principle reflects the court's conventional perception that it is generally not likely that people will engage in such conduct: “where a claimant seeks to prove a case of dishonesty, its inherent improbability means that, even on the civil burden of proof, the evidence needed to prove it must be all the stronger”, per Rix LJ in Markel v Higgins,[2009] EWCA 790 at para 50. The question remains one of the balance of probability, although typically, as Ungoed- Thomas J put it in In re Dellow's Will Trusts,[1964] 1 WLR 415 ,455 (cited by Lord Nicholls in In re H,[1996] AC 563 at p.586H), “The more serious the allegation the more cogent the evidence required to overcome the unlikelihood of what is alleged and thus to prove it”
“The authorities were exhaustively reviewed recently by this court in R(N) v Mental Health Review Tribunal[2006] 2 WLR 850 . They showed that there could be no ‘straightjacket of classification’ and that – “… the civil standard of proof is flexible in its application and enables proper account to be taken of the seriousness of the allegations to be proved and the consequences of proving them.” (per Richards LJ, at para 59) Thus in civil proceedings, the “presumption of innocence” is not so much a legal rule, as a common sense guide to the assessment of evidence. It is relevant not only where the cause of action requires proof of dishonesty, but wherever the court is faced with a choice between two rival explanations of any particular incident, one innocent and one not. Unless one is dealing with known fraudsters, the court should start from a strong presumption that the innocent explanation is more likely to be correct.” “… the civil standard of proof is flexible in its application and enables proper account to be taken of the seriousness of the allegations to be proved and the consequences of proving them.” (per Richards LJ, at para 59) Thus in civil proceedings, the “presumption of innocence” is not so much a legal rule, as a common sense guide to the assessment of evidence. It is relevant not only where the cause of action requires proof of dishonesty, but wherever the court is faced with a choice between two rival explanations of any particular incident, one innocent and one not. Unless one is dealing with known fraudsters, the court should start from a strong presumption that the innocent explanation is more likely to be correct.”
“I would accept that if you found that the - - that a witness was giving you important directly relevant dishonest, deliberately dishonest evidence in a material matter which he had every reason to - - should have been able to give you a correct and honest answer, then you might take that factor - - I will call it, not a fact, it is a factor - - into account in the general mix of determining the issue.”
“1440 In this case, it is not disputed that Mr. Borisenko and Mr. Privalov were dishonest in carrying out their duties for Sovcomflot. Mr. Dunning submitted that the dishonesty of Mr. Privalov and Mr. Borisenko does not make it more probable that Mr. Skarga would have behaved dishonestly or accepted bribes. He observed that in fact Mr. Privalov had acted dishonestly and defrauded Sovcomflot before Mr. Skarga joined the group, and thereafter he continued to act dishonestly in matters which he concealed from Mr. Skarga, including making agreements with Clarkson and Norstar for secret payments. It is impossible to tell from the evidence the full extent of Mr. Borisenko’s financial dealings in association with Mr. Privalov, but, as he accepted, Mr. Skarga was unaware of them. I refer, by way of example, to their parallel share dealings through Wegelin, and the manner in which he had his funds paid when he withdrew his investment from Capco. I cannot infer from what Mr. Borisenko and Mr. Privalov did that dishonesty was so prevalent amongst executives in the Sovcomflot group as to affect the inherent probability (or improbability) that Mr. Skarga was similarly dishonest. However, as I conclude, Mr. Nikitin made payments to Mr. Privalov by way of bribes or secret commissions, and that he dishonestly involved him in acting in breach of his fiduciary and other duties. I accept the claimants' submission that this is relevant in assessing the likelihood that he would be prepared similarly to corrupt Mr. Skarga and Mr. Izmaylov, and involve them in acting dishonestly and in breach of their duties. 1441 Moreover, in assessing the allegations against Mr. Skarga, it must be recognised that he did in some ways act dishonestly in relation to Sovcomflot. He admitted, for example, that he was dishonest in signing Mr. Privalov’s employment contract, and in my judgment he was certainly dishonest when he signed the Supplemental Agreement. His dishonesty on both occasions involved collusion with Mr. Nikitin and Mr. Privalov, and also with Mr. Wettern. I have also concluded that he has given dishonest evidence. I accept the claimants' submission that this makes it the less improbable that he behaved dishonestly on other occasions and again did so in collusion with Mr. Nikitin, Mr. Privalov and others. I am therefore unable to accept that, in assessing the likelihood that Mr. Skarga colluded dishonestly in relation to the various schemes, my starting point should be that it is inherently unlikely that he would have behaved so improperly.”
“I am prepared to accept that in a very broad general sense, it may well be true to say that it is inherently improbable that a particular defendant will commit a fraud. But it all depends on a wide range of factors. For example, if the court is satisfied (or it has been admitted) that a defendant has acted fraudulently or reprehensibly on one occasion, it cannot necessarily be considered inherently improbable that such defendant would have done so on another; or if, for example, the court is satisfied (or it has been admitted) that a defendant has created or deployed sham or false documents, the court cannot assume that it is inherently unlikely that such defendant did so on other occasions. For the avoidance of doubt, I should make absolutely plain that this is not to say that inherent probability is irrelevant. On the contrary, as submitted by Mr Casella, I accept, of course, that the court should take into account the inherent probability of an event taking place (or not taking place) as is made abundantly plain by Baroness Hale in the passage from Re S-B quoted above. However, as it seems to me, the court must in each case consider carefully what is – and is not – inherently probable having regard to the particular circumstances – but the standard of proof in civil cases always remains the same i.e. balance of probability.”
“The suggestion that such a proposal occurred without Mr Nikitin's knowledge … is implausible. There would have been no reason for Mr Mikhaylyuk and Mr Ruperti to keep it from him… I … infer that Mr Nikitin knew that the money coming to Amon was coming from Mr Ruperti's companies, and that the charters in respect of which commission was being paid were charters to Mr Ruperti's company. I regard it as wholly improbable that whereas Mr Mikhaylyuk and Mr Ruperti knew what the moneys paid to Amon represented, Amon and Mr Nikitin did not”
“Speaking from my own experience, I have found it essential in cases of fraud, when considering the credibility of witnesses, always to test their veracity by reference to the objective facts proved independently of their testimony, in particular by reference to the documents in the case, and also to pay particular regard to their motives and to the overall probabilities. It is frequently very difficult to tell whether a witness is telling the truth or not; and where there is a conflict of evidence such as there was in the present case, reference to the objective facts and documents, to the witnesses' motives, and to the overall probabilities, can be of very great assistance to a judge in ascertaining the truth.”
“76 …Whenever an allegation of fraud or similar misconduct is made it is particularly important to consider the whole of the evidence before reaching a final conclusion, to test the oral evidence by reference to any contemporaneous documents and to consider the inherent probabilities. Having said that, however, it must be recognised that since the final conclusion must be capable of accommodating any facts which are admitted or which are established by evidence which is not capable of being seriously challenged, such facts provide a useful starting point for the assessment of the more controversial parts of the evidence. … 80 It is necessary to bear in mind, however, that this is not one of those cases in which the accounts given by the witnesses can be tested by reference to a body of contemporaneous documents. As a result the judge was forced to rely heavily on his assessment of the witnesses and the inherent plausibility or implausibility of their accounts. In these circumstances considerable weight must be given to the fact that the judge had the great advantage of seeing most of the principal actors give evidence. We have not had that advantage and in my judgment are not well-placed to differ from his assessment of the truthfulness and reliability of Mr. Rowland or any of the other witnesses, particularly in relation to matters that are not reflected in any of the documents…”
“197. So far as Mr Zharimbetov’s own liability for the Bank’s losses is concerned it is necessary to determine whether, when he signed the “minutes”, he knew that Mr Ablyazov was, by means of the Original Loans, misappropriating the Bank’s money for his own purposes. 198. Mr Zharimbetov said that he did not know this. He is not a reliable witness but I have to decide whether the Bank has established that he did know. The Bank must do so on the balance of probabilities but the allegation is extremely serious and exposes Mr Zharimbetov to a personal liability of over US$1 billion . The evidence must therefore be of a cogency commensurate with the seriousness of the allegation. The Bank's case is based upon inference from circumstantial evidence. In this regard it is helpful to recall what Rix LJ said about circumstantial evidence in his judgment on the occasion of Mr Ablyazov's appeal against the finding of contempt at[2012] EWCA Civ 1411 at paragraph 52: “It is, however, the essence of a successful case of circumstantial evidence that the whole is stronger than individual parts. It becomes a net from which there is no escape. That is why a jury is often directed to avoid piecemeal consideration of a circumstantial case: R v Hillier (2007) 233 ALR 63 (HCA), cited in Archbold 2012 at para 10-3. Or, as Lord Simon of Glaisdale put it in R v Kilbourne[1973] AC 729 at 758, 'Circumstantial evidence . . . works by cumulatively, in geometrical progression, eliminating other possibilities'. The matter is well put in Shepherd v R(1990) 170 CLR 573 (HCA) at 579/580 (but also passim): ‘. . . the prosecution bears the burden of proving all the elements of the crime beyond reasonable doubt. That means that the essential ingredients of each element must be so proved. It does not mean that every fact - every piece of evidence - relied upon to prove an element by inference must itself be proved beyond reasonable doubt. Intent, for example, is, save for statutory exceptions, an element of every crime. It is something which, apart from admissions, must be proved by inference. But the jury may quite properly draw the necessary inference having regard to the whole of the evidence, whether or not each individual piece of evidence relied upon is proved beyond reasonable doubt, provided they reach their conclusion upon the criminal standard of proof. Indeed, the probative force of a mass of evidence may be cumulative, making it pointless to consider the degree of probability of each item of evidence separately.’” “It is, however, the essence of a successful case of circumstantial evidence that the whole is stronger than individual parts. It becomes a net from which there is no escape. That is why a jury is often directed to avoid piecemeal consideration of a circumstantial case: R v Hillier (2007) 233 ALR 63 (HCA), cited in Archbold 2012 at para 10-3. Or, as Lord Simon of Glaisdale put it in R v Kilbourne[1973] AC 729 at 758, 'Circumstantial evidence . . . works by cumulatively, in geometrical progression, eliminating other possibilities'. The matter is well put in Shepherd v R(1990) 170 CLR 573 (HCA) at 579/580 (but also passim): ‘. . . the prosecution bears the burden of proving all the elements of the crime beyond reasonable doubt. That means that the essential ingredients of each element must be so proved. It does not mean that every fact - every piece of evidence - relied upon to prove an element by inference must itself be proved beyond reasonable doubt. Intent, for example, is, save for statutory exceptions, an element of every crime. It is something which, apart from admissions, must be proved by inference. But the jury may quite properly draw the necessary inference having regard to the whole of the evidence, whether or not each individual piece of evidence relied upon is proved beyond reasonable doubt, provided they reach their conclusion upon the criminal standard of proof. Indeed, the probative force of a mass of evidence may be cumulative, making it pointless to consider the degree of probability of each item of evidence separately.’”
“…matters of this importance, in a case of this kind, should be proved by oral evidence … I cannot think that theCivil Evidence Act 1968 was intended, in general, to change the long-established system by which seriously disputed central issues in civil cases are tried on oral evidence, given on oath and capable of being tested by cross-examination, and to substitute for it a system of trial on unsworn documents brought into existence by parties to the proceedings post litem mortam, and I do not think the Act should be used, or rather abused, so as to produce such a result.”” “…matters of this importance, in a case of this kind, should be proved by oral evidence … I cannot think that theCivil Evidence Act 1968 was intended, in general, to change the long-established system by which seriously disputed central issues in civil cases are tried on oral evidence, given on oath and capable of being tested by cross-examination, and to substitute for it a system of trial on unsworn documents brought into existence by parties to the proceedings post litem mortam, and I do not think the Act should be used, or rather abused, so as to produce such a result.””
“In general a party is required to challenge in cross-examination the evidence of any witness of the opposing party if he wishes to submit to the court that the evidence should not be accepted on that point… This rule serves the important function of giving the witness the opportunity of explaining any contradiction or alleged problem with his evidence. If a party has decided not to cross-examine on a particular important point, he will be in difficulty in submitting that the evidence should be rejected.”
“I regard it as essential that witnesses are challenged with the other side's case. This involves putting the case positively. This is important for a judge to enable him to assess that witness's response to the other case orally, by reference to his or her demeanour and in the overall context of the litigation. A failure to put a point should usually disentitle the point to be taken again a witness in a closing speech. This is especially so in an era of pre-prepared witness statements. A judge does not see live in-chief evidence, thereby depriving the witness of presenting himself positively in his case.”
“failure to cross examine a witness on some material part of his evidence or at all, may be treated as an acceptance of the truth of that part or the whole of his evidence”
“Although they legally owned the companies operating such businesses, they were minority shareholders of that business. I learned of their financial interest as a result of a conversation with Mr Kekhman. Around the end of 2011 or beginning of 2012, I met with Mr Kekhman at the VIP Lounge of Pulkovo Airport in St. Petersburg. While we were discussing the issues of the JFC Group, Mr Kekhman told me that there was a way to keep the business afloat and away from the reach of creditors by transferring parts of the operations to these nominees. Mr Kekhman said “there is an established working technology with these guys”, who in return for 30% of business would manage it for Mr Kekhman’s benefit. It is my belief that at least part of what used to be the JFC Group business is now being carried on by what, using Mr Kekhman’s terminology, was an ‘established working technology’”
“It is inconceivable that Mrs Zakharova would have presented false accounts to Mr Kekhman without telling him of their falsity and equally inconceivable that she would have presented the false accounts to the Bank without his approval. I say this for the following reasons. The fact of the matter is that Mrs Zakharova would never have taken such a momentous step as to present false accounts to the Bank on her own initiative. There would have been no benefit for her in doing so. The only person who benefited from all this was the person who controlled the whole business, who could extract money from the business at will (whether for his LQ projects or donations to the Mikhailovsky Theatre or otherwise), that is, Mr Kekhman, and not Mrs Zakharova or me. Furthermore, the nature of the relationship between Mr Kekhman and Mrs Zakharova was such that he dominated her and she would not take any significant steps concerning the business without his knowledge and approval.”
“Q. Mr Afanasiev is also right, Mr Kekhman, when he says that Mrs Zakharova’s invariable practice was to obtain your approval before taking significant decisions, and that you required that you should be consulted and your approval obtained before taking any significant decisions. That, again, is correct, isn’t it, Mr Kekhman? A. Significant decisions, that’s correct. Serious decisions. That is true.”
“All major decisions in connection with financial statements / accounting were done with Mr Kekhman’s approval. Mrs Zakharova’s invariable practice was to obtain Mr Kekhman’s approval before taking significant decisions, and Mr Kekhman required that he should be consulted and his approval obtained before taking any significant decisions.”
“At the time ZAO Gruppa JFC was in litigation with Star Reefers – there was a risk of arrest of their cargo outside the Russian Federation – I was invited to ZAO Gruppa JFC office and we discussed this in general terms with Mr Afanasyev and Mr Kekhman. When ZAO Gruppa JFC made the decision that Andrei Afanasyev and I should assist in the cargo’s support we discussed all the details of the bank details of the company, my rate for buying the bananas, importing the bananas to the Russian Federation and selling them to ZAO Gruppa JFC at an agreed rate… After the issues with Star Reefers were settled the contract with Fruitservice LLC was terminated and JFC resumed importing directly from Ecuador and Central America…”
“At the time when Star Reefers was suing ZAO Gruppa JFC there were risks associated with that. Mr Kekhman came to me asking for help… The essence of the deal was my company that I managed was borrowing money based on a loan agreement. I had to return the money on a 1st call from the lender. That’s exactly what happened. I think it was LQ Development which lent money to Gepson. When the threat of arrest from Star Reefers passed, I was asked to return the money in accordance with the loan agreement.. I dealt with Mr Kekhman…”
“I do remember that when I was hired and Chernishova was leaving the job, she was repeatedly saying that she is fed up digging in this shit, this trash hole, fed up of lying to the auditors…it should be clear this will never end…”
“Q. Mr Afanasiev is also right, Mr Kekhman, when he says that Mrs Zakharova’s invariable practice was to obtain your approval before taking significant decisions, and that you required that you should be consulted and your approval obtained before taking any significant decisions. That, again, is correct, isn’t it, Mr Kekhman? A. Significant decisions, that’s correct. Serious decisions. That is true.”
“All major decisions in connection with financial statements / accounting were done with Mr Kekhman’s approval. Mrs Zakharova’s invariable practice was to obtain Mr Kekhman’s approval before taking significant decisions, and Mr Kekhman required that he should be consulted and his approval obtained before taking any significant decisions.”
“It is inconceivable that Mrs Zakharova would have presented false accounts to Mr Kekhman without telling him of their falsity and equally inconceivable that she would have presented the false accounts to the Bank without his approval. I say this for the following reasons. The fact of the matter is that Mrs Zakharova would never have taken such a momentous step as to present false accounts to the Bank on her own initiative. There would have been no benefit for her in doing so. The only person who benefited from all this was the person who controlled the whole business, who could extract money from the business at will (whether for his LQ projects or donations to the Mikhailovsky Theatre or otherwise), that is, Mr Kekhman, and not Mrs Zakharova or me. Furthermore, the nature of the relationship between Mr Kekhman and Mrs Zakharova was such that he dominated her and she would not take any significant steps concerning the business without his knowledge and approval.”
“(i) The financial information in respect of JFC Group was inaccurate; (ii) Garold’s revenue for 2010 and consequently JFC Group’s total revenue as well as JFC Group’s accounts receivable were artificially and fraudulently inflated by means of “fresh air” invoices; and (iii) The true position was that Garold (which the Credit Committee had been informed was JFC Group’s principal trading company) made substantial losses in 2010 and that the JFC Group as a whole made substantial losses in 2010 I would have rejected the application outright at the meeting, as I am sure would my fellow committee members”
“Indeed, if that case is established by the bank at trial, it is difficult to see how an explanation of the fraudulent misrepresentations having been made which was consistent with Mr Kekhman’s innocence would be sustainable. On this hypothesis, he would not have told the truth in respect of two critical aspects of his evidence and the obvious question is why he would do that unless he were trying to conceal his own involvement in the relevant wrongdoing. Furthermore, I accept Mr Gourgey QC’s submission that on this hypothesis, Mr Swainston QC’s suggestion that Mrs Zakharova was on some frolic of her own, engaged in fraudulent misrepresentations to the bank in order to cover up her own mismanagement and wrongdoing, is completely implausible. If Mr Kekhman was aware of the true financial position of the JFC Group, then there was nothing for Mrs Zakharova to conceal from him. On the assumption that both Mrs Zakharova and Mr Kekhman were aware of the true position of the Group, it is inconceivable that, if she had found that a loan could not be raised without misrepresenting the accounts, she would have proceeded on a U.S.$200 million overstatement of the accounts without informing Mr Kekhman and procuring his approval. Indeed, on this assumption and the further assumption that Mr Kekhman maintained close control of the Group (in relation to both of which assumptions the bank’s case has a real prospect of success) it is far more likely that it is he who instructed her to misrepresent the accounts rather than her thinking of the idea and seeking his approval. Either way, I consider that if the bank establishes its case at trial as to Mr Kekhman’s knowledge and control, the court would be entitled to draw the inference that he was a party to the fraudulent misrepresentations.”
“Harm caused to the person or property of a citizen and also harm caused to the property of a legal person shall be subject to compensation in full by the person who has caused harm.”
“who fails to perform or improperly performs an obligation is liable in case of fault (intent or negligence)……A person is not considered to be at fault where with that degree of care and negligence which are required by the nature of the obligation and business customs, it took all measures for proper performance of such obligation.”
“[Q] But if fraud was proved then there is going to be liability under [Article] 1064. A. Yes, I would agree that if it is proved that defendant commits a fraud upon the claimant and he suffers loss then that is going to give rise to liability, yes.”
“In determing the causal relation between the breach of obligation and the loss it is necessary to take into account inter alia the fact to what consequence in the ordinary course of business such a breach might lead. Where the occurrence of losses, compensation of which is claimed by the creditors, the ordinary consequence of the breach of obligation committed by the debtor then the existence of causal relation between such breach and the losses proved by the credit is assumed”
“Discharge does not release the bankrupt from any bankruptcy debt which he incurred in respect of, or forbearance in respect of which was secured by means of, any fraud or fraudulent breach of trust to which he was a party.”
“In my judgment, a ‘fraudulent breach of contract’ or a ‘fraudulent breach of fiduciary duty’ is as capable of coming within the meaning of the word ‘fraud’ at s.281(3) as is the tort of deceit. The purpose of s.281(3) as a qualification to s.281(1) is to prevent a person from using the process of bankruptcy or invoking his bankruptcy and discharge therefrom as a medium for becoming free from debts and liabilities resulting from his actual dishonesty. In other words, s.281(3) is an anti-avoidance and preservative provision aimed at continuing the rights of a creditor who has been defrauded by the bankrupt. Thus, ‘fraud’ as the gateway to the application of s.281(3) and a route through the barrier imposed by s.281(1) is not satisfied by establishing ‘fraud’ in the equity sense (‘against conscience’ or ‘unconscionable’). To pass through the gateway and remain on the road to recourse against the discharged bankrupt, a creditor must prove ‘fraud’ in the common law sense; this is not to be understood as restricting access only to bankruptcy debts founded in the tort of deceit, but rather as a reference to debts tainted by actual dishonesty.”