Fiona Trust & Holding Corporation & 75 Ors v Yuri Privalov & 28 Ors

Factual and Procedural Background

This judgment follows a main judgment dated 10 December 2010 and addresses three discrete issues: (i) the claimants' relief regarding certain transactions under the Sovcomflot Clarkson commissions scheme, (ii) the rate and calculation of interest to be awarded to the claimants, and (iii) costs. The claimants seek an account of profits in respect of payments received by a defendant company under the commissions scheme related to specific ship hull purchases, while defendants contest liability and the accounting of sums received. The procedural context involves multiple related actions, including the Fiona and Intrigue actions, with complex factual and legal disputes over commissions, fiduciary breaches, and dishonest assistance.

Legal Issues Presented

1. Whether certain defendants are liable to account for sums received under the Clarkson commissions scheme relating to specific ship hull purchases.
2. The appropriate rate and method for awarding compound interest on the claimants' equitable compensation.
3. The determination of costs between the claimants and defendants, including the basis of assessment and whether costs should be paid on an indemnity or standard basis.

Arguments of the Parties

Defendants' Arguments

• The claimants' relief claim depends on the rescission ab initio of share sale agreements, which was rejected; thus, the claim should be dismissed on pleading grounds.
• The defendants argue no further account is due as they have not profited because the purchase prices paid by a third party reimbursed the sums paid to the defendants under the commissions scheme.
• They contend that the "address commissions" paid by shipyards were reflected in increased vessel prices, and payments by the third party effectively discharged any liability.
• They submit that they have been subrogated to the claimants' rights through the share purchase payments.
• Regarding interest, defendants argue for a rate of US three-month LIBOR plus 0.85% with annual rests, asserting this reflects the actual borrowing costs of the claimants.
• On costs, defendants assert they were largely successful, seek to limit their liability for costs, and argue for costs assessment on an indemnity basis.

Claimants' Arguments

• The claimants argue that the defendants remain liable to account for profits received before the share sale agreements and that the defendants’ liability was not discharged by subsequent share purchase payments.
• They assert the appropriate interest rate is the US Prime Rate or alternatively US three-month LIBOR plus 2.5%, with three-month rests, reflecting commercial borrowing rates for shipping companies.
• The claimants contend they are the successful parties in the litigation and seek costs orders against the defendants on an indemnity basis.
• They oppose paying the costs of certain successful defendants, arguing that the funding of their defence by the main defendants should preclude cost recovery.

Table of Precedents Cited

Court's Reasoning and Analysis

The court analyzed the claimants' entitlement to relief under the commissions scheme and rejected the defendants' argument that their liability was discharged by subsequent share purchase payments. Applying principles from Murad v Al-Saraj, the court held that hypothetical scenarios about what would have happened absent breach are irrelevant in accounting for profits. The court found no basis to infer that the shipyards would not have paid the commissions absent the defendants' receipt of payments.

On interest, the court exercised its discretion to determine a fair compensatory rate. It preferred US three-month LIBOR plus a 2.5% uplift with three-month rests over the conventional US Prime Rate, reasoning that LIBOR better reflects the borrowing rates of shipping companies like the claimants. The court rejected defendants' evidence suggesting a lower rate, noting it was fragmentary, related to secured loans rather than short-term unsecured borrowings, and did not justify departing from the uplifted LIBOR rate.

Regarding costs, the court considered the overall success of the parties, the conduct of the claimants and defendants, and relevant procedural rules. It found the claimants to be the successful parties overall despite limited success and rejected arguments for a refined, claim-by-claim costs approach. The court emphasized the claimants' dishonest conduct, unsatisfactory disclosure, and misleading evidence, as well as the defendants' dishonesty. Balancing these factors, the court exercised discretion to depart from the general rule and ordered that all parties bear their own costs in the main actions.

For costs of two individual defendants who successfully defeated claims against them, the court ordered the claimants to pay those costs but assessed them on the standard basis rather than the indemnity basis. The court rejected arguments that funding arrangements or some dishonest conduct by these defendants justified denying costs or awarding indemnity costs. The court also found that representation by two counsel was proportionate.

Holding and Implications

Holding: The court held that the defendants remain liable to account for profits received under the commissions scheme and are not entitled to credit for subsequent share purchase payments. Interest on the claimants' equitable compensation shall be awarded at three-month US$ LIBOR plus 2.5% compounded quarterly. The claimants are to be regarded as the successful parties for costs purposes against the main defendants, but all parties shall bear their own costs in the main actions. The claimants must pay the costs of two individual defendants who successfully defended claims against them, with costs assessed on the standard basis.

Implications: This decision confirms that liability to account for profits arising from fiduciary breaches or dishonest assistance is not discharged by unrelated subsequent transactions. The court endorses the use of LIBOR plus uplift as a commercially realistic benchmark for interest in shipping finance-related awards. The costs orders reflect a nuanced approach balancing limited claimant success with serious misconduct by claimants, resulting in a major departure from the usual costs rule. No new legal precedent was created, but the ruling clarifies the application of established principles to complex multi-party commercial litigation.