Supreme Court confirms invalidity of 1995 PrivatBank deposit agreement in EUR 3 bln case

The Civil Court of Cassation within the Supreme Court has satisfied the cassation appeal of the Cabinet of Ministers of Ukraine, whose interests were represented by the Ministry of Justice, and upheld the decision of the court of first instance on the application of the consequences of the invalidity of the 1995 current deposit agreement.

"The court established that the obligations of JSC CB "PrivatBank" under the agreement are not subject to execution, and recognized the absence of the right to perform all obligations and the obligation to perform obligations under such an agreement," the message on the website of the Ministry of Justice says on Wednesday.

Under the terms of the agreement, an individual deposited funds in the amount of 900 million rubles into the bank's cash desk for a period of four years, from the moment of concluding the agreement with monthly accrual at an annual interest rate of 220%.

At the same time, as of December 21, 2016 — the date of acquisition of ownership of PrivatBank shares by the state — the bank's obligations to the specified person under the agreement were not recorded in the bank's balance sheet and/or off-balance sheet accounts.

As a result of the alleged non-return of the deposit, the depositor demanded payment from the bank in the amount of almost EUR 3 billion. He applied to foreign courts with motions for recognition and enforcement of decisions of national courts on recognition of the agreement as extended and the obligation to return the deposit amount.

The Ministry of Justice proved that in accordance with Part Six of Article 41-1 of the Law "On the Deposit Guarantee System of Individuals," transactions, obligations under which were not recorded by the bank on the date of acquisition of ownership of the shares by the state, are considered null and void, and the obligations under them are not subject to execution. This means that the bank is not obliged to fulfill the terms of such agreements. The Supreme Court agreed with the arguments.

"The successful outcome of this case is extremely important, as this decision not only avoided significant financial losses, but also prevented the creation of negative judicial practice, which could open the way for other persons with unaccounted obligations to demand their fulfillment," the report states.

PrivatBank is the largest state-owned bank in Ukraine. Today, the bank serves over 18 million active clients, and in general, 70% of Ukrainians use its services. The bank is a leader in the retail segment and actively implements services for small and medium-sized businesses, has an extensive network of 1,186 branches, 6,850 ATMs, almost 10,400 self-service terminals and over 308,000 POS terminals throughout the country. The PrivatBank team has over 19,000 employees.

PrivatBank was nationalized in December 2016. The state became its sole shareholder in order to stabilize the banking system and protect depositors. Since then, a series of lawsuits have been ongoing both in Ukraine and abroad, in which the state defends the legality of the nationalization and prevents unfounded financial claims.