BL-2017-000665 - [2025] EWHC 2909 (Ch)

The Bank both pleaded and submitted that the payment of compound interest is justified under Ukrainian law and pursuant to the equitable jurisdiction of this court to award compound interest in cases of fraud - a jurisdiction which is applicable to a claim governed by foreign law if that foreign law confers on the foreign court a power to award compound interest. It was said that a Ukrainian court has the power to award compound interest as a claim for compensation for damage pursuant to Articles 22 and 1192 of the Civil Code. The discretion to award compound interest is a departure from the default award of simple interest and is justified in relation to a commercial entity, which would not receive full compensation without an award of compound interest.

As to rates, the Bank pleaded that it was entitled to compound interest at a rate reflecting the rate at which it borrowed or raised funds during the relevant period on its most expensive US$-denominated borrowingin the amount of the Bank’s principal loss, subject to a minimum rate of 3% per annum. It pleaded in the alternative that it was entitled to compound interest reflecting the weighted average cost of the Bank’s US$-denominated borrowingin each year, alsosubject to a minimum rate of 3% per annum as set out in a table annexed to its Reply. It pleaded in the yet further alternative that, if and to the extent the court concludes that the Bank would not have borrowed replacement funds, the appropriate rate is the minimum commercial rate of return that could have been achieved by the Bank if it had had use of the misappropriated sums, a reasonable estimate for which is 3% per annum. It was pleaded that each of these alternatives ought to be compounded with monthly rests.

As to quantifying the cost of that borrowing, the way that Mr Hunter KC described this in his submissions was that the Bank was operating a business model where it was making returns in various ways on US$. In the period up to 2017, the loss of opportunity to the Bank as a result of the loss of the funds it should have had absent the Misappropriation was therefore at least the cost of its borrowing. It was said that an economically rational bank will either pay down its most expensive borrowing or will invest (normally by lending on) to make a return in excess of that cost. In other words if a bank is going to use its money in the most economically efficient way to make a profit it will at the very least make more than the cost of its most expensive borrowing; otherwise it will simply repay its most expensive borrowing, which is why the presumed cost of borrowing is an accurate proxy as a matter of principle for the loss which it sustained by being kept out of the money.

However, it is said that the position changed when, as a result of a process of what has been called in the evidence the “de-dollarisation” of the Ukrainian economy, banks were not allowed to offer their depositors interest on US$ at free market values. The evidence is that the interest rates on the Bank’s US$-denominated borrowing dropped away from 8.6% in 2016 to 3.7% in 2017, 1.4% in 2018 and 0% in 2021 onwards and bore no continuing correlation to the interest rate on its US$-denominated lending. Over the same period, the Bank was able to lend on at higher rates, with minimum commercial terms of at least 3%. The obvious effect of this was to constrain the amount of US$ that could be raised from depositors. At the same time it would not have been economically rational for the Bank to have redeemed or reduced its US$-denominated borrowing portfolio, because the rates it was paying were below the bare minimum commercial rate. In such circumstances, the correct rate was the rate of return it could have obtained from those funds, the minimum of which is 3%.

Mr Kolomoisky’s pleaded case was that the Ukrainian courts have no power under Ukrainian law to award compound interest in respect of a tort claim and he denied that interest may be awarded as damages under Ukrainian law. He also said (and this much is common ground) that there is no express Ukrainian statutory power relating to compound interest, and that no expert has identified any case in which an award has been made in the absence of an express contractual entitlement. Mr Bogolyubov’s pleaded case was to the same effect and like Mr Kolomoisky he said that interest under Ukrainian law could only arise in respect of the claims against him pursuant to Article 625(2) of the Civil Code, which is simple interest running from the date of judgment (as the date from which there was delay in the execution of a monetary obligation arising out of a tort) to the date of payment. In their closing submissions at the trial, the Corporate Defendants made no additional submissions on interest (anyway so far as the claim against them was in tort) and simply adopted the arguments advanced by Mr Kolomoisky and Mr Bogolyubov.

However, during the course of oral submissions at the Second Consequentials hearing, Mr Morrison KC clarified that Mr Bogolyubov accepted that compound interest is in principle available under Ukrainian law as damages where that damage is proven. In other words, if compound interest is proven to be the loss, it would be recoverable as compensation for the harm sustained; but the real issue is said to be that the Bank has not discharged the burden of proving that loss. Notwithstanding the position adopted by Mr Morrison, it is appropriate for me to deal with the underlying principles, albeit quite shortly, in part because compound interest is sought against the Corporate Defendants, none of whom was represented while this issue was being argued.

The starting point is to identify the applicable law. In Nicholls v Mapfre Espana [2025] 1 WLR 660 at [59], the Court of Appeal was concerned to identify the law applicable to issues of interest where a claim is made for damages for breach of a non-contractual obligation covered by the Rome II Regulation and the law applicable to the tort is a foreign law. The test which emerged from Nicholls, as even more recently applied in The Kingdom of Sweden v Serwin [2025] EWHC 1620 (Comm), is to ask whether the entitlement to interest under the foreign lex causae of the tort is intertwined with the issue of damages. If it is, it will be governed by the lex causae (Rome II, Article 15(c)).

In my view, this test is satisfied in relation to the way in which the Bank puts its case, because the Bank submitted that compound interest can in principle be awarded under Ukrainian law as a substantive remedy in accordance with the principle of “full compensation” under Article 1166(1). This requires the Bank to show that, but for the misappropriation, either: (i) “the funds could have been invested, with any interest income (based on fair market terms) similarly invested, so as to earn returns over time on a compound basis”; or (ii) “the claimant would have repaid loans on which interest was accruing on a compound basis, thus avoiding an expense” (Article 22(2)(1) of the Civil Code). It is accepted that it is for the claimant to prove that loss; otherwise, no compound interest is payable.

This approach to a claim for compound interest was confirmed by Mr Beketov at the trial. He confirmed, in evidence which was not challenged by the Defendants, (i) that there is no express statutory power to award compound interest as a matter of Ukrainian law, (ii) that a sum equivalent to compound interest may be awarded under Ukrainian law as part of the full compensation to which the Bank is entitled for any harm caused by the Defendants’ conduct, and (iii) that the existence and extent of the loss are matters which the Bank must plead and prove. The way in which he put the point in his supplemental report was that a claimant can obtain an award of compound interest if it represents a fair quantification of the claimant’s lost profit, and/or is necessary to ensure that the claimant is fully compensated for the harm caused to it.

I accept this evidence and I therefore agree that, as a matter of Ukrainian law, compound interest can be awarded as part of the compensation for the harm done to the Bank to the extent that it is the measure of the commercial value of the money of which a claimant has been deprived over time. Mr Beketov’s evidence to this effect is consistent with English law; see e.g., the explanation of Foxton J in Hotel Portfolio II UK Limited v Ruhan [2022] EWHC 1695 (Comm) (“Hotel Portfolio”) at [42]:

“Compound interest reflects the commercial value of money – it is both the cost paid by those having to borrow it, and the return expected by those investing or saving it, whether they are trading entities or not.”

As I have indicated, the submissions made on behalf of Mr Bogolyubov (and adopted by Mr Kolomoisky) did not challenge the point of principle that compound interest to compensate for the loss of the commercial value of money is capable of being paid as a matter of principle. Rather they focussed on the question of whether the Bank had successfully established on the evidence that compound interest is part of the full compensation to which the Bank is entitled. In those circumstances, and before giving separate consideration to the Bank’s case on the different elements of the claim to compound interest, I should identify the correct approach to the evidence.

The Bank submitted that, in accordance with the general rule that the question of how facts in issue must be proved is a matter for the lex fori, it is appropriate for the court to have regard to cases which are authoritative in England on the relevance and weight of the evidence relied on. It cited the following statements of principle identified in a decision of the Privy Council concerned with the application of a claim for Sempra Metals compound interest (Sagicor Bank Jamaica v YP Seaton [2022] UKPC 48 at [33] and [37]):

This approach has been approved in an English context by the Court of Appeal in Royal Mail Group Ltd v DAF Trucks Limited et al [2024] EWCA Civ 181 at [130ff] and [159ff]). Similarly, the desirability of avoiding an elaborate factual enquiry as to what would have happened if the money of which the Bank has been deprived by the Misappropriation had not been lost, is also apparent from the way in which Foxton J in Hotel Portfolio explained the correct approach, albeit in the different context of compound interest where equitable compensation is ordered in favour of a beneficiary. There are differences because, in that type of case, there is less obviously a need to show that a beneficiary would have put the compensation to some commercial use, but in my view some of the same considerations apply. He said at [42]:

“In many ways, it is the “default” rule of awards of simple interest in court proceedings which is the anomaly. Nor am I persuaded that it is necessary for the court, before awarding compound interest for equitable compensation, to engage in a complex counterfactual enquiry as to what the beneficiary would have done with the money if paid sooner – for example as to whether HPII, in a scenario in which it would have had a surplus of assets over liabilities, would have continued to operate or been wound up in a solvent liquidation.”

The Bank submitted that damages for loss of the use of money in the form of compound interest can be, and often is, justified on the conceptual basis that a claimant either has had to maintain a higher level of borrowing than it otherwise would have done, and has had to do that on a compound basis, or that a claimant has lost the opportunity to make returns, which would have been on a compound basis if they had been made. The loss of opportunity to the Bank if it had the funds it should have had is at least the cost of its borrowing. The Bank submitted that this principle most certainly applies to it because, as a bank, it self-evidently uses money as part of its business. It submitted that it inevitably suffered harm from being deprived of money. It had to incur the cost of raising equivalent money to that which it should have had. It has also lost the return it would have made from deploying that money in its business. In the Bank’s case, this was more than mere concept, because its core business involved using funds from depositors and others to lend to customers (which in the event were mainly companies owned or controlled by the Individual Defendants). The Bank’s accounts showed that substantially all of its financing was undertaken on a compound interest basis, because it required the Bank to pay monthly interest on customer deposits denominated in UAH and US$.

The Bank’s other primary source of funding was lending from the NBU. In its closing submissions at the end of the trial, it relied on the fact that, around the period in which the UAH Relevant Drawdowns were made (UAH 8.8bn between February 2014 and the beginning of September 2014), the Bank entered into loan facilities with the NBU with a face value of UAH 10 billion, while between 31 December 2013 and 31 December 2014, its total borrowing from the NBU increased from UAH 3.4 billion to UAH 18.3 billion. It then increased further to UAH 27 billion by 31 December 2015. It was demonstrated that all of the NBU loans provided for interest to be paid monthly (and thus on a compound basis) until maturity. Against that background, the Bank said that it is entitled to compound interest.

The Defendants’ overarching submission was that the Bank has provided no or no sufficient evidence either of what was alleged to be an additional US$1.7 billion of borrowing, or the terms on which it was sought or achieved. They said that it is insufficient for the Bank merely to show that it borrowed in the relevant years and that its borrowing was on compound terms. It was submitted that the Bank has provided no evidence that it continued to borrow to ‘plug the hole’ after nationalisation, when it was re-capitalised. It was said that, despite this point being made at trial, the Bank has failed to fill this evidential void. In particular, the Defendants pointed out that Mr Thompson did not undertake an analysis of the compound interest actually paid by the Bank and had failed to produce evidence that the Bank would have taken out additional borrowing.

It was said that eight sets of customer account terms do not provide evidence of the monthly compound interest actually paid on customer deposits over the relevant period. It was also submitted that a handful of NBU facilities relating to UAH (rather than US$) denominated lending do not prove its case either; indeed, they no longer appeared to be relied upon by the Bank. In summary, it was said that the evidence failed to show that substantially all the Bank’s borrowing from 2013 onwards required the Bank to pay monthly interest to its lenders and depositors, as claimed. It was said that, in practice, interest would be paid according to the contractual terms of the deposit; the compound period may thus vary with those terms.

The Bank's answer to these submissions is that they miss the point. The question is whether the impact on the Bank of not being paid US$1.7 billion immediately is that it was not then given the opportunity to deploy the additional money in order to reduce the borrowing portfolio where it was rational in economic terms for it to do so, or on the Bank’s alternative case to make other profitable use of the missing money on profitable compound terms. It is not therefore, a question of showing that it took out new borrowing specifically related to the misappropriated US$1.7 billion.

I agree with the Bank’s submission. There is relatively little significance in the fact that the Bank has not shown that it did in fact borrow to replace the missing US$1.7 billion. What matters is whether it has shown how that money is likely to have been used if it had continued to be available to it. The material, which has been analysed in great detail by Mr Thompson, proves how the Bank deployed the US$ which it did have available to it during the period from the time of the Relevant Drawdowns to the date of judgment, an exercise which has been cross checked against the rates of return which were commercially available in the market over the period. His conclusions (by reference to the Bank’s most expensive US$-denominated borrowings and to a weighted average of all of the Bank’s US$-denominated borrowings, both compounded monthly) were that:

In my judgment the Bank has proved that this is a case in which compound interest is the only fair way of compensating it for its loss of the use of money over time. There is sufficient evidence to justify a conclusion that in this, as in many other cases, compound interest reflects the commercial value of the money which the Bank lost as a result of the Misappropriation. I reach this conclusion not just because of the point of principle articulated by Foxton J in Hotel Portfolio, but also because the very nature of the Bank’s business was that it was using money in this way as part of its business. In my judgment, this is reflected in Mr Beketov’s evidence as to what amounts to full compensation for the purposes of Ukrainian law. This is an unsurprising conclusion, which in my view is sufficiently evidenced by the terms of the Bank’s financial statements, the reports produced by Mr Thompson and a sample of the Bank’s standard terms and conditions.

However, this conclusion does not of itself establish the terms of the compound interest to which the Bank is entitled. The important elements are period, frequency of rests and rate.

As to period, the Bank seeks pre-judgment interest running from the dates it suffered loss (i.e., the date of each Relevant Drawdown) up to the date of judgment (i.e., 30 July 2025). This was not in dispute, and in a case of this sort, it seems to me to be correct that as a matter of principle CPR 40.8(1) should be applied so that post-judgment interest takes over from the time that judgment is handed down even though the terms of the order may not by then have been finalised or entered.

As to the frequency with which interest should be calculated and added to the principal balance, the Bank submitted that this should be quantified on a monthly basis. It said that its borrowing portfolio overall was far too complex to be susceptible to a detailed analysis, but that does not mean that a broad approximation cannot be adopted. I agree that (consistently with the approach of Foxton J in Hotel Portfolio) the solution is to try and make a reasonable but necessarily approximate estimate of the appropriate intervals. This is entirely consistent with the fact that, while Ukrainian law entitles the Bank to “full” compensation, how that is proved is a matter of English law as the lex fori.

I accept the Bank’s submission on this point. It has produced evidence of the Bank’s standard terms for interest payable on customer deposits in the period 2013 to 2017, which were relied on in its closing submissions at trial and have not been gainsaid by the Defendants. I have had regard to the fact that, throughout the period, far and away the most substantial source of financing (both in US$ and UAH) were customer deposits, in respect of which the Bank paid interest on a compound basis with monthly rests.

As to rate, the Bank’s primary case is that the interest payable to it should be calculated based on the cost of its most expensive US$-denominated borrowings in the amount of the Bank’s principal loss. In support of this approach, it referred to basic assumptions as to what an economically rational actor in the position of the Bank, acting in its own best economic interests, would have done if it had not been deprived of the principal judgment sum during the period. It submitted that the presumed cost of the Bank’s funds can be measured by reference to its borrowing portfolio, since an economically rational bank would either pay down its most expensive borrowing or make a return in excess of that. It followed that this approach reflected both the cost to the Bank of funds it was required to borrow, and a measure of the loss of use of the funds which it did not have to invest.

By way of alternative to the most expensive rate the Bank had to pay, it argued for a more conservative minimum loss, calculated by Mr Thompson as a weighted average across the whole of its borrowing. This approach assumes that the Bank would have either been able to generate returns in excess of that cost of borrowing or, if not, that it would have reduced borrowing evenly across its portfolio, subject to a 3% minimum floor.

Mr Steadman had two general comments on the Bank’s evidence from Mr Thompson, which were not developed in submissions but which I ought to mention. The first was that he had used the PrivatBank group’s consolidated financial statements to ascertain the cost of its borrowing. I agree with the Bank that, given the significance of the Bank within the group as a whole, this was not an inappropriate course for Mr Thompson to have adopted, more particularly because the use of the Bank’s own financial statements would in fact have led to a higher rate for the weighted average in each of 2014 and 2015 and the same rate thereafter. I also accept Mr Thompson’s view that it is appropriate to have used all of the Bank’s US$ denominated borrowing for the purpose of assessing the weighted average and not just those derived from customer deposits. As Mr Thompson explained, it is relevant to consider other sources of funds, especially where the interest rate is intended to provide a proxy for rates of return that the Bank could have achieved by investing US$.

On the question of whether the Bank has established that it is appropriate for compound interest to be calculated based on the cost of its most expensive US$-denominated borrowings, Mr Morrison submitted that there were a number of problems with the Bank's approach. The principal one was that, while it might be rational to choose to minimise the most expensive borrowing if the Bank had some kind of open-ended completely flexible facility and an ability to move back and forth between different types of facility without negative consequences, this aspect of its case had to be proved. But he said that this was implausible, not least because all things being equal the highest rate instruments are likely to have the tightest conditions on repayment. Furthermore, Mr Morrison suggested that such evidence as there was in fact went the other way, and he drew my attention to a 10.875% instrument maturing after five years, which was not redeemable at will.

In my view, the Defendants’ submissions on this part of the argument are to be preferred, anyway in the sense that I do not consider that the cost of the Bank’s most expensive US$-denominated borrowings has been established to give the right answer (although, as I explain below, I do not think the Defendants are right about the 3% floor). While I accept that an economically rational approach may point to repayment by the Bank of its most expensive debt first, on this particular issue I place more weight on a balanced assessment of the Bank’s debt overall. The Bank’s principal case presumes that payment of the most expensive debt first is what would have happened, but for the reasons given by Mr Morrison, that is not an assumption it is safe to make. I think that the weighted average approach subject to a 3% floor is the most appropriate rate to adopt, recognising that there is inevitably a level of approximation in any solution that is adopted.

The 3% floor requires some explanation. The Bank accepted that it paid significantly reduced rates on US$-denominated deposits from 2018 onwards, decreasing (from 2021 onwards) to 0%. The decline in interest rates for US$ customer deposits was a result of NBU intervention and its pursuit of a macro-economic policy of de-dollarisation of the Ukrainian banking sector. However, adopting the 0% rate in calculating the interest due to the Bank amounted to an assumption that the Bank would have made no return whatsoever had it retained the US$ misappropriated funds and been able to lend them. I agree that the evidence analysed by Mr Thompson shows that this is clearly wrong. The decline in customer deposit interest rates during this period was not matched either by a decline in the rate of return that the Bank was able to achieve on lending US$ or by a decline in commercially available US$ saving or borrowing rates outside Ukraine. It follows that the low interest rates offered by the Bank on US$ customer deposits from 2018 onwards do not indicate the rate of return the Bank would have been able to receive had it retained the misappropriated funds. This therefore broke the broad correlation between the borrowing costs to the Bank of US$ deposits already made and held by the Bank, and the return it could expect to get when investing those US$. Applying the basic principle that the Bank would have used the foreign currency of which it has been deprived in an economically rational way, it would have made a return (regarded by Mr Thompson as reasonable if not conservative) of at least 3%.

The Defendants submitted that this was unprincipled and the evidence for the conclusion did not exist. In short they pointed out that there was no evidence that there were constraints on the Bank’s ability to borrow at very low levels in that period. It was also said that the Bank could not argue its case by reference to the minimum commercial rate of return that could have been achieved by the Bank if it had had use of the misappropriated funds, because that argument was not available to it on the pleadings in the absence of proof that the Bank would not have borrowed replacement funds.

I do not accept the pleading point. The Bank made clear in its Particulars of Claim that the applicable rate should be assessed by reference to its actual or presumed commercial cost of funds which it then particularised in its Reply as a reflection of the rate at which the Bank borrowed or raised funds during the relevant period. The exception was where it would not have borrowed replacement funds, in which event it pleaded that the appropriate rate was the minimum commercial rate of return that could have been achieved by the Bank if it had had use of the misappropriated sums.

It pleads that this evidence is an appropriate measure of the minimum commercial rate of return it could have achieved with the misappropriated funds, in circumstances in which it would not have borrowed replacement funds. The Defendants’ criticism is that there is no evidence that it would not have done so, but I agree with the Bank that it is right to infer that it would not have done so in circumstances in which it was only offering very low (and latterly 0%) levels of return when commercial returns were available in the market at a much higher rate. On the evidence, the Bank has established on the balance of probabilities that it in fact made returns on its US$-denominated lending which did not reflect the fact that it paid significantly reduced rates on US$-denominated deposits, decreasing (from 2021 onwards) to 0%. Indeed, the evidence contained in parts of Mr Thompson’s report if anything shows that the 3% floor is conservative.

In all the circumstances, I am satisfied that it is appropriate to award the Bank interest at a rate based on all of the Bank’s US$-denominated borrowing for the period running from the dates of each applicable Relevant Drawdown up to 30 July 2025 compounded monthly (i.e., Case 2). This means that each of the Individual Defendants is liable for interest in the total sum of US$1,190,083,824.

As to the Corporate Defendants, Mr Thompson has calculated the pre-judgment interest on the loss attributable to each of them, deducting interest on credits for repayments attributable to the harm for which they are each responsible, but otherwise applying the same methodologies as he has done for the Individual Defendants. I can see no reason for adopting a different approach. I accept his evidence and have no reason to doubt the accuracy of his calculations, which establish that the interest payable up to 30 July 2025 is as follows: