Novoship (UK) Ltd & Ors v Mikhaylyuk & Ors

Factual and Procedural Background

This action concerns allegations of dishonest conduct and bribery involving the First Defendant ("Mr Mikhaylyuk"), who was employed by the First Claimant ("NOUK") and held various managerial and directorial positions until his dismissal in 2006. NOUK acted as agent and manager for multiple one-ship companies, all indirect subsidiaries of a Russian shipping company ("NSC"), itself majority owned by a Russian state-owned entity.

The Defendants are divided into three groups: Mr Mikhaylyuk; the Ruperti defendants, comprising a Venezuelan businessman ("Mr Ruperti") and two Panamanian companies he controls; and the Nikitin defendants, including a defendant ("Mr Nikitin") and two British Virgin Islands companies he controls, including Henriot Finance Ltd.

The Claimants allege that Mr Mikhaylyuk dishonestly solicited and received bribes connected with four areas of chartering business: the PDVSA charters, the Henriot Finance charters, the Stena charters, and the Tula charter. The Claimants seek recovery of bribes, damages, accounts of profits, and equitable compensation against the Defendants.

The action was commenced in 2006 initially against Mr Mikhaylyuk alone but was later amended to include additional Claimants and Defendants. Prior related proceedings ("Fiona Trust") addressed some claims against Mr Nikitin but did not find a corrupt relationship in respect of the Henriot Finance charters, a finding not appealed by the Claimants.

Legal Issues Presented

1. Whether Mr Mikhaylyuk dishonestly solicited and received bribes in breach of his fiduciary and contractual duties to NOUK and the ship-owning Claimants.
2. Whether the Ruperti defendants dishonestly assisted Mr Mikhaylyuk's breaches by making secret payments and participating in corrupt chartering arrangements.
3. Whether Mr Nikitin and his companies knowingly received secret commissions and dishonestly assisted breaches of fiduciary duty.
4. Whether the Henriot Finance charters, negotiated by Mr Mikhaylyuk and involving Mr Nikitin's companies, are tainted by a conflict of interest arising from the bribery connected with the PDVSA charters.
5. The appropriate remedies and measures of damages, including accounts of profits and equitable compensation, for breaches of fiduciary duty, dishonest assistance, bribery, and conspiracy.

Arguments of the Parties

Claimants' Arguments

• Mr Mikhaylyuk solicited and received secret payments (bribes) from the Ruperti defendants related to the PDVSA charters, which breached his fiduciary duties.
• The Ruperti defendants made these payments dishonestly and concealed the true chartering arrangements involving PMI Trading and Sea Pioneer, which allowed them to profit at the Claimants' expense.
• Mr Nikitin and his companies received secret commissions via Amon International, arranged by Mr Mikhaylyuk, and knowingly assisted in breaches of fiduciary duty.
• The Henriot Finance charters are tainted by a conflict of interest due to the corrupt relationship evidenced by the PDVSA charters, entitling the Claimants to an account of profits from Mr Nikitin and Henriot Finance.
• Mr Mikhaylyuk breached his duties also in relation to the Stena charters by diverting address commissions and receiving secret payments via Pulley Shipping.
• Mr Mikhaylyuk demanded secret payments in relation to the Tula charter, paid into Mirador Shipping's account.
• The Compromise Agreement settling Mr Mikhaylyuk's unfair dismissal claim was procured by fraudulent misrepresentations and is voidable.

Mr Mikhaylyuk's Arguments

• He denies having any beneficial interest or control over Pulley Shipping or Mirador Shipping and denies soliciting bribes.
• He claims the payments from Mr Ruperti were remuneration for legitimate advisory services unrelated to the PDVSA charters.
• He asserts that the chartering arrangements involving PMI Trading were approved by senior management at NOUK and NSC and that references to PDVSA were for banking purposes.
• He denies knowledge of or involvement in the diversion of address commissions in the Stena charters.
• He claims the Compromise Agreement was valid and denies fraudulent inducement.
• He alleges political motivation behind the proceedings and denies various accusations against witnesses.

Ruperti Defendants' Arguments

• They deny involvement in concealing the true chartering arrangements and assert the payments made were rewards for services rendered by Mr Mikhaylyuk.
• They contend that the payments to Amon International were for introductions to the Russian oil cargo market and not bribes.
• They maintain that the sub-chartering arrangements with PDVSA were necessary due to PDVSA's approval requirements and that they did not act dishonestly.

Nikitin Defendants' Arguments

• They deny knowledge of or involvement in bribery relating to the PDVSA charters.
• They contend that payments to Amon International were remuneration for introductions made to Russian cargo interests and were legitimate.
• They deny any dishonest assistance in relation to the Henriot Finance charters and deny that those charters were tainted by any conflict of interest.

Table of Precedents Cited

Court's Reasoning and Analysis

The court conducted a detailed and extensive analysis of the evidence, documents, and communications involving the Defendants and Claimants. It found that Mr Mikhaylyuk dishonestly solicited and received secret payments (bribes) from the Ruperti defendants in connection with the PDVSA charters. These payments were concealed from NOUK and the ship-owning Claimants and breached Mr Mikhaylyuk's contractual and fiduciary duties.

The court rejected Mr Mikhaylyuk's denials of control over offshore companies Pulley Shipping and Mirador Shipping, finding that these were vehicles established and operated for his benefit to conceal dishonest payments.

The court found that the Ruperti defendants knowingly made these secret payments and dishonestly assisted Mr Mikhaylyuk's breaches. The sub-chartering arrangements whereby vessels appeared chartered to PDVSA but were in fact chartered to PMI Trading and then sub-chartered at a profit to PDVSA were dishonest and concealed from NOUK and the owners.

Regarding payments to Amon International, the court found that these were secret commissions paid by the Ruperti defendants at Mr Mikhaylyuk's direction for the benefit of Mr Nikitin, who must have been aware that these were dishonest payments connected to the PDVSA charters. Various possible explanations for these payments were considered and rejected except that they represented commissions on the PDVSA charters paid secretly to Mr Nikitin.

In relation to the Henriot Finance charters, the court found that although these charters were negotiated at commercial rates and were not themselves the subject of bribery, the corrupt relationship evidenced by the PDVSA charters created a realistic possibility of conflict of interest for Mr Mikhaylyuk. Mr Nikitin and Henriot Finance knowingly assisted Mr Mikhaylyuk in breach of fiduciary duty and are liable to account for profits made on these charters.

The court rejected arguments that there was no causal connection between dishonest assistance and profits on Henriot Finance charters, holding that the dishonest assistance was sufficiently connected to the profits to justify an account.

Regarding the Stena charters, the court found that Mr Mikhaylyuk received secret payments via Pulley Shipping from Odin Marine and dishonestly diverted address commissions which Stena did not require. The exclusion of ACM Shipping from commission on renewals was unauthorized and caused additional loss. These payments were bribes and breaches of fiduciary duty.

The Tula charter involved secret payments of $400 per day to Mirador Shipping at Mr Mikhaylyuk's direction, constituting bribery and breach of fiduciary duty.

The Compromise Agreement settling Mr Mikhaylyuk's unfair dismissal claim was procured by fraudulent misrepresentations and is voidable, entitling NOUK to recover payments made.

The court found that Mr Mikhaylyuk and Mr Ruperti engaged in a secret corrupt arrangement, concealed from NOUK and the owners, involving dishonest sub-chartering and bribery. Mr Nikitin knowingly benefited from these arrangements and dishonestly assisted breaches of fiduciary duty.

The court accepted the expert accountants' evidence on the calculation of profits relating to the Henriot Finance charters, subject to certain disputed expenses and income items addressed in the appended analysis.

Holding and Implications

The court made the following holdings:

• Judgment is entered against Mr Mikhaylyuk and the Ruperti defendants in favour of the relevant Claimants for damages and equitable compensation in respect of the PDVSA charter claims, including an account of profits made by the Ruperti defendants from the PDVSA sub-charters.
• The ninth Claimant is entitled to judgment against Mr Ruperti for damages for loss of hire on the Sorokaletie Pobedy vessel.
• Judgment is entered against Mr Nikitin and Amon International for the secret commissions received from the Ruperti defendants related to the PDVSA charters.
• Judgment is entered against Mr Nikitin and Henriot Finance for an account of profits made on the Henriot Finance charters, with the amount to be determined in accordance with the court's analysis.
• Judgment is entered against Mr Mikhaylyuk for payments received via Pulley Shipping from Odin Marine in relation to the Stena charters and for costs related to the dispute with ACM Shipping.
• Judgment is entered against Mr Mikhaylyuk for secret payments received via Mirador Shipping in relation to the Tula charter.
• Judgment is entered against Mr Mikhaylyuk for repayment of sums paid under the Compromise Agreement on the basis of fraudulent misrepresentation.

The implications are that the Defendants are liable to make restitution and pay damages to the Claimants for breaches of fiduciary duty, dishonest assistance, bribery, and conspiracy. The court's findings reinforce the strict approach to fiduciary loyalty, the prohibition on secret profits, and the liability of third parties who dishonestly assist breaches of duty. No broader precedent beyond the application of established equitable principles and case law is established.