Novoship (UK) Limited & Ors v Nikitin & Ors

A person who knowingly shares in secret commissions paid to an agent may dishonestly assist the agent’s continuing breach of fiduciary duty by negotiating further undisclosed transactions with that agent. This may be so even where the further contracts are made on market terms.

An account of profits is available in principle against a dishonest assistant, without a misapplication of trust property. Unlike a fiduciary’s strict liability to account, however, a non-fiduciary assistant is liable only for profits having a sufficiently direct causal connection with the dishonest assistance. The remedy is discretionary and may be refused where the profits arose from an independent market movement and an account would be disproportionate.

The respondents alleged that Mr Mikhaylyuk, their chartering manager, had dishonestly procured secret commissions from companies controlled by Mr Ruperti. Some payments were made to Amon International Inc, a company controlled by Mr Nikitin.

At first instance, Christopher Clarke J held that Mr Nikitin and his companies had dishonestly assisted Mr Mikhaylyuk’s breach of fiduciary duty when negotiating later Henriot charters. He ordered an account of profits made on those charters and entered judgment for the Amon payments. He also set foreign-currency judgment-debt interest at a simple rate of 2.5% above three-month US dollar LIBOR.

The appellants challenged the findings of dishonesty and the account of profits. The respondents cross-appealed on the rate of judgment-debt interest. The central issue was whether a dishonest assistant could be required to disgorge profits made under market-rate contracts.

1. The appeal was allowed in part. The court upheld the findings that Mr Nikitin knew that Amon had received part of the secret commissions paid in connection with the PDVSA charters. The appeal against the US$410,304.39 liability of Amon was dismissed.

2. Mr Mikhaylyuk remained in breach of fiduciary duty while he negotiated the Henriot charters. He had shared secret commissions with Mr Nikitin and had not disclosed the corrupt relationship to his principals. A counterparty who knows that it has received such an illegitimate benefit dishonestly assists that continuing breach by negotiating further transactions with the agent. It is immaterial that the later charters were at market rates or that no separate bribe was sought for them.

3. An account of profits is available in principle against a dishonest assistant. The assistant need not be a fiduciary and the breach need not involve a misapplication of trust property. Equity may require a person accountable for dishonest participation in a fiduciary breach to disgorge profits derived from that wrongdoing.

4. However, a non-fiduciary assistant is not subject to the fiduciary’s strict no-profit rule. There must be a sufficiently direct causal connection between the dishonest assistance and the profit. A simple “but for” connection is insufficient. Here, the Henriot charters gave Mr Nikitin use of vessels at market rates; they were merely the occasion for profit. The effective cause of the profits was his successful judgment of an unexpected market change.

5. The remedy was also discretionary. The owners had deliberately transferred the risk of freight-rate fluctuations to the charterer in return for market-rate, long-term income. The resulting profits were not profits which ought to have been made for the owners. An account would in any event have been disproportionate. The orders awarding an account of profits against Mr Nikitin and Henriot were set aside.

6. The cross-appeal was dismissed. Under Administration of Justice Act 1970, section 44A, the judge was entitled to adopt a compensatory rate for a US dollar judgment debt rather than the statutory 8% rate for sterling judgment debts. Simple interest was within the broad discretion conferred by that provision.

• Court of Appeal (Civil Division): By [2014] EWCA Civ 908 , allowed the appeal only by setting aside the account-of-profits orders against Mr Nikitin and Henriot; dismissed the appeal concerning Amon’s liability and dismissed the cross-appeal on interest.
• High Court, Commercial Court: Christopher Clarke J found dishonest assistance, ordered an account of profits on the Henriot charters, and entered judgment for the Amon payments. The lower-court citation is not stated in the judgment.