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

A person liable to account for profits cannot discharge that liability through a payment made under a distinct contract which neither purports nor is intended to satisfy it. The court will not investigate whether the same profit would have arisen without the wrongdoing.

Interest is discretionary and compensatory, not punitive. It should ordinarily reflect the objective borrowing cost of the relevant class of claimant. For non-US shipping companies awarded US dollars, three-month US dollar LIBOR may be more appropriate than US Prime Rate.

For costs, success is assessed across the relevant action or stage before individual issues are considered. The court may depart substantially from the general rule because of limited success and litigation conduct.

This first-instance judgment followed the court’s main merits judgment of 10 December 2010. It determined outstanding questions of relief, interest and costs in several related commercial actions arising from dishonest shipping commission schemes.

The relief issue concerned whether profits received through the Clarkson commissions scheme remained accountable when companies associated with the defendants had subsequently paid for the relevant ship-owning companies. The interest issues concerned the proper US dollar benchmark, uplift and compounding periods for substantial equitable compensation. The costs issues concerned overall success, the parties’ conduct, third-party funding of individual defences and the appropriate bases of assessment.

1. Account of profits. Milmont’s liability to account arose when it received the relevant payments from Clarkson. Later payments by Standard Maritime under distinct share purchase agreements did not discharge that liability. Neither the payer nor Fiona intended those payments to satisfy liabilities owed by Milmont or Mr Nikitin. The defendants could not receive credit for any part of the share prices. When assessing profits from knowing receipt or dishonest assistance, the court does not investigate whether the accounting party would have made the profit without the wrongdoing. Such an inquiry would undermine the policy of the remedy, even if its exclusion produces a windfall.
2. Interest. The jurisdiction to award interest, including its rate and compounding periods, is discretionary. Its purpose is fair compensation for deprivation of money, rather than punishment or recovery of the defendant’s gain. The court ordinarily uses a broad-brush, objective assessment of the borrowing cost of the relevant category of claimant, without conducting a detailed inquiry into the claimant’s particular finances.
3. Although US Prime Rate was the conventional benchmark for US dollar awards, LIBOR better reflected borrowing by shipping companies operating outside the United States. The relevant borrowing comparator was short-term unsecured borrowing. Secured or medium-term rates would assume that the claimants had encumbered assets which would otherwise have remained available. Interest on equitable compensation was therefore awarded at three-month US dollar LIBOR plus 2.5%, compounded at three-month rests, from a date to be determined until judgment.
4. Costs between the principal parties. The claimants were the successful party against Mr Nikitin and the Standard Maritime defendants. Parties with common representation and associated interests could be treated as one party. Success was assessed across the relevant actions, rather than separately by reference to each issue or individual litigant. Nevertheless, the claimants’ limited success, failure on their primary case and serious litigation misconduct justified a major departure from the general rule. Each side was ordered to bear its own costs.
5. Individual defendants. The source of funds used to pay a successful defendant’s costs did not justify refusing recovery. The claimants were ordered to pay Mr Skarga’s costs on the standard basis. His own dishonesty and unsatisfactory evidence made indemnity assessment inappropriate. They were ordered to pay all Mr Izmaylov’s costs on the indemnity basis, apart from expert disbursements on the standard basis. The allegations against him were particularly weak, his evidence was honest and he had done nothing reasonably to excite suspicion about his integrity.

This was a first-instance supplemental judgment following the court’s main merits judgment of 10 December 2010 in the same actions. No appellate history is stated in the judgment.