Novoship (UK) Limited & Ors v Nikitin & Ors

Factual and Procedural Background

This case concerns corrupt and dishonest conduct by Mr Mikhaylyuk, who from October 2002 was General Manager and Commercial Manager of the first respondent, NOUK, and a director from November 2003. He owed fiduciary duties to NOUK and related ship-owning companies within the Novoship group (NSC). Mr Mikhaylyuk engaged in schemes to defraud these respondents by accepting bribes from charterers and brokers, which were paid into secret offshore accounts. A significant scheme involved charters ostensibly to Petroleos de Venezuela SA (PDVSA), but actually to companies controlled by Mr Ruperti, who paid bribes to Mr Mikhaylyuk and to Amon International, a company controlled by the first appellant, Mr Nikitin.

The bribes paid by Mr Ruperti to Mr Mikhaylyuk and Amon totalled approximately $1.7 million, with $410,304.39 paid to Amon. The trial judge, Christopher Clarke J, found that these payments were secret commissions on the hire of PDVSA vessels, required by Mr Mikhaylyuk as a condition for the charters. The judge rejected explanations by the appellants that the payments to Amon were legitimate remuneration for introductions, concluding instead that the payments were corrupt and that Mr Nikitin had knowledge of the corrupt scheme.

Contemporaneously, Mr Mikhaylyuk and Mr Nikitin negotiated charters of other vessels to Henriot Finance Ltd ("Henriot"), a company controlled by Mr Nikitin. The judge held that these Henriot charters were the subject of Mr Mikhaylyuk's breach of fiduciary duty, dishonestly assisted by Mr Nikitin, and that Mr Nikitin and his companies were liable to account for profits made from these charters. The appellants were granted permission to appeal these findings.

The appeal also raised issues concerning the appropriate remedy of an account of profits against a dishonest assistant, causation of profits, and a cross-appeal relating to interest on the judgment debt.

Legal Issues Presented

1. Whether the trial judge erred in finding that the payments made to Amon were corrupt secret commissions rather than legitimate payments for introductions.
2. Whether the judge was correct to find that Mr Nikitin dishonestly assisted Mr Mikhaylyuk in breach of fiduciary duty in relation to the Henriot charters.
3. Whether an account of profits is an available remedy against a dishonest assistant who is not a fiduciary.
4. What is the appropriate causation test for liability and accounting of profits in cases of dishonest assistance?
5. Whether the judge erred in ordering an account of profits against Mr Nikitin and his companies in respect of the Henriot charters.
6. Whether the first respondent, NOUK, is entitled to recover profits relating to two vessels (the KUZBASS and the KASPIY) owned by companies no longer in existence.
7. The appropriate rate of interest to be applied to the judgment debt.

Arguments of the Parties

Appellants' Arguments

• The judge should have accepted Mr Nikitin's account that the payments to Amon were legitimate remuneration for introductions to Russian business interests.
• The respondents failed to prove dishonesty or bribery on the part of Mr Nikitin.
• The judge reversed the burden of proof.
• Mr Mikhaylyuk did not breach fiduciary duty in negotiating the Henriot charters as they were at market rates and untainted by bribery.
• Mr Nikitin did not dishonestly assist any breach of fiduciary duty.
• The remedy of an account of profits is not available against a dishonest assistant who is not a fiduciary, or if it is, the profit must be causally connected to the dishonest assistance, which was not established here.
• The judge erred in exercising discretion on the rate of interest, departing from the statutory 8% rate without adequate justification.

Respondents' Arguments

The opinion does not contain a detailed account of the respondents' legal arguments.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Fiona Trust and Holding Corporation v Privalov [2010] EWHC 3199 (Comm)	Establishing bribery and dishonest assistance in breach of fiduciary duty.	Used to support findings of bribery and dishonest assistance involving Mr Nikitin.
Williams v Central Bank of Nigeria [2014] UKSC 10	Limitation periods and liability of dishonest assistants and knowing recipients.	Distinguished fiduciary liability from liability of dishonest assistants; confirmed limitation defences for dishonest assistants.
Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378	Dishonest assistance liability requires dishonesty of the assistant, not necessarily the fiduciary.	Clarified the nature of liability for dishonest assistance; discussed remedy but did not address account of profits specifically.
Cook v Deeks [1916] 1 AC 554	Non-fiduciary parties involved in breach of fiduciary duty may be ordered to account for profits.	Supported ordering account of profits against non-fiduciary company that benefited from breach.
Murad v Al-Saraj [2005] EWCA Civ 959	Equitable remedies for breach of fiduciary duty include account of profits; fiduciary liability differs from dishonest assistant liability.	Confirmed availability of account of profits for fiduciaries; discussed causation and discretion in awarding remedies.
Fyffes Group Ltd v Templeman [2000] 2 Lloyd's Rep 643	Briber may be liable to account for profits obtained from corruption of an agent.	Held that account of profits remedy is not automatic and depends on causation and equity considerations.
Satnam Investments Ltd v Dunlop Heywood & Co Ltd [1999] 3 All ER 652	Requirement of trust property for knowing receipt; scope of dishonest assistance claims.	Held misapplication of trust property not necessary for dishonest assistance liability; discussed limitations of knowing receipt claims.
Brown v Bennett [1999] BCC 525	Dishonest assistance does not require breach of trust involving property.	Supported view that dishonest assistance liability can arise absent trust property.
Goose v Wilson Sandford & Co [2001] Lloyd's Rep PN 189	Clarified differences between knowing receipt and dishonest assistance; no requirement of property for dishonest assistance.	Confirmed dishonest assistance liability can arise without receipt or handling of trust property.
Powell & Thomas v Evan Jones & Co [1905] 1 KB 11	Real principals entitled to profits where agent accepts secret commissions without authority.	Applied to determine correct claimant for profits relating to vessels owned by companies no longer parties.
Miliangos v George Frank (Textiles) Ltd [1976] AC 443	Courts may give judgment in foreign currency; interest rates should reflect prevailing commercial rates.	Supported discretion to vary judgment interest rate for foreign currency debts.
Standard Chartered Bank v Ceylon Petroleum Corporation [2011] EWHC 2094 (Comm)	Interest on foreign currency judgment debts should reflect compensatory principle.	Supported awarding interest rate appropriate to foreign currency judgment debts.

Court's Reasoning and Analysis

The court undertook a detailed factual and legal analysis of the payments to Amon and the Henriot charters. It upheld the trial judge's findings that the payments to Amon represented secret commissions on PDVSA vessel hires, required by Mr Mikhaylyuk as a condition of the charters, and that the appellants' explanations were implausible and rejected. The court found that Mr Nikitin knew the payments were corrupt commissions and was dishonest in retaining them.

Regarding the Henriot charters, the court agreed that Mr Mikhaylyuk was in breach of fiduciary duty due to a conflict of interest arising from his receipt of bribes in relation to the PDVSA charters, which he failed to disclose to his principals. Mr Nikitin knowingly assisted this breach by negotiating the Henriot charters while aware of the corrupt relationship, thus dishonestly assisting a breach of fiduciary duty.

On the question of remedies, the court analyzed whether an account of profits is available against a dishonest assistant who is not a fiduciary. It reviewed authorities and concluded that such a remedy is available in equity, even absent misapplication of trust property, as dishonest assistants are "accountable in equity" akin to trustees for profits obtained through their participation in breaches of fiduciary duty.

However, the court distinguished between fiduciaries and dishonest assistants in applying causation principles. While fiduciaries are liable for all profits within the scope of their duty regardless of causation, dishonest assistants must have a sufficiently direct causal connection between their dishonest assistance and the profits sought to be recovered. Applying this to the Henriot charters, the court found that the profits resulted primarily from market fluctuations and Mr Nikitin's commercial judgment, not directly from the dishonest assistance, thus failing the causation test.

The court exercised its discretion to withhold the account of profits remedy against Mr Nikitin and Henriot on the Henriot charters, finding it disproportionate and lacking sufficient causal connection.

Regarding the two vessels owned by companies no longer in existence, the court held that NOUK was not the proper claimant for those profits and that including them would result in unjust enrichment of NOUK. Therefore, those profits were excluded from any account.

On the issue of interest, the court upheld the judge's discretion to depart from the statutory 8% rate for sterling judgment debts and awarded simple interest at 2.5% above three-month US dollar LIBOR, finding this consistent with the compensatory principle and appropriate for a foreign currency judgment. The court rejected arguments for compound interest or a higher rate to compensate for the cessation of compounding.

Holding and Implications

The court ALLOWED the appeal in part by setting aside the order for an account of profits against Mr Nikitin and Henriot in respect of the Henriot charters on grounds of insufficient causation and disproportionality.

The court DISMISSED the appeal regarding the payments of $410,304.39 due from Amon, confirming liability to repay the secret commissions.

The court DISMISSED the cross-appeal against the interest rate order, upholding the judge's discretion to award simple interest at 2.5% above three-month US dollar LIBOR.

The direct effect is that Mr Nikitin and his companies remain liable to repay bribe-related commissions but are not required to account for profits made on the Henriot charters. NOUK cannot recover profits relating to the two vessels owned by dissolved companies. No new precedent was established beyond clarification and application of existing principles on dishonest assistance, causation, and remedies.