Shell International Trading & Shipping Company Ltd & Ors v Tikhonov & Ors

An employer may recover from an employee the amount of a bribe or secret commission received in connection with the employer’s business. The remedy is available even where payment was made to an offshore company at the employee’s direction and for his benefit; the corporate veil does not prevent personal accountability. An employee may also be treated as a constructive trustee of the bribe and property acquired with it, provided the trust property can be identified. In tracing mixed funds, the court applies equitable principles to do justice while avoiding unfairness to the wrongdoer.

Shell companies claimed substantial sums from their former oil trader, alleging that he had received secret commissions or bribes through offshore companies and had used some of the money to purchase a flat in Riga. The defendant denied the allegations, asserting that payments were investment proceeds or belonged to a business associate. He also counterclaimed for wrongful dismissal.

The court considered the 2007 payments made to the offshore company and the 2006 payments made directly into the defendant’s Jersey accounts. The central issues were whether the payments were bribes or secret commissions, whether the defendant was personally accountable for payments made to a company at his direction, and whether the 2006 payments could be traced into the Riga property.

1. 2007 payments. The court found that commissions totalling $2,461,723 were paid into T Capital Limited for Mr Tikhonov’s benefit in order to procure contracts with his employer, which he was responsible for placing. The Sovfracht schedule was sufficiently accurate to establish the sums due, subject to one duplicated payment.
2. An employer may recover the amount of a bribe received by an employee in connection with the employer’s business, or may claim compensation for loss caused by entering the transaction: Mahesan v Malaysia Government Officers’ Co-operative Housing Society Limited [1979] AC 374. Although the money was paid to T Capital Limited, it was paid at Mr Tikhonov’s direction and for his benefit. The corporate veil therefore did not prevent personal accountability.
3. Mr Tikhonov could also be treated as a fiduciary and constructive trustee of the bribes and property acquired with them: Attorney-General for Hong Kong v Reid [1994] 1 AC 324. A proprietary remedy required the trust property to be identified. On the evidence then available, Shell was entitled to judgment for the 2007 payments with interest.
4. 2006 payments. The defendant’s explanation that the payments represented proceeds of a property investment was dishonest. The payments were therefore treated as bribes or secret commissions paid in return for showing favour to Sovfracht and associated companies in the course of his employment.
5. The sterling and dollar payments, with interest, were traced into the Riga flat in accordance with equitable principles and the rule in Hallett’s case. The court calculated STRU’s beneficial interest in the flat at 72.4 per cent.
6. Shell was entitled to dismiss Mr Tikhonov. His counterclaim for wrongful dismissal failed. Default judgments had been obtained against T Capital Limited and T Capital Management Limited, but nothing had been recovered under them.

Not stated in the judgment.