HPOR Servicos De Consultoria Ltda v Dryships Inc & Anor

An account of profits is not the appropriate remedy for recovering contractual remuneration which an agent earned under its agreement with the principal. That remedy concerns benefits which ought to have come to the principal, such as profits from misuse of the principal’s property or unauthorised benefits from a third party.

Forfeiture is a distinct equitable remedy. It may apply to remuneration already paid or contractually due, including for breaches other than bribery or secret commissions. The court must distinguish serious breaches going to the root of the agency from minor or harmlessly collateral breaches. Loss is unnecessary. A serious, continuing conflict of interest which infects the whole agency relationship may justify forfeiture despite valuable services being provided.

HPOR appealed under section 69 of the Arbitration Act 1996 against two arbitral awards concerning its entitlement to remuneration under agency contracts with Dryships Inc and Ocean Rig UDW Inc.

The tribunal’s majority found that HPOR, through its alter ego, had deliberately concealed past corruption involving Petrobras, thereby entering and continuing the agency relationship in breach of fiduciary duty, creating an irredeemable conflict of interest and disabling disinterested performance. The majority ordered forfeiture of pre- and post-termination remuneration. One arbitrator dissented, relying on the value of the services provided and the absence of corruption in the performance of the agency contracts.

The central issues were whether the remuneration could be recovered through an account of profits and, if not, whether it was liable to forfeiture.

1. Account of profits. The majority’s reliance on FHR European Ventures LLP v Mankarious, Logicrose Ltd v Southend United Football Club Ltd and Aberdeen Railway Co v Blaikie Bros did not establish that contractual remuneration could be recovered by an account of profits. Those authorities concerned secret commissions, bribes, unauthorised third-party benefits, or materially different conflicts. An account of profits is directed to sums which should have come to the principal, or profits from misuse of the principal’s property. It is not a remedy for forfeiting remuneration to which the agent was contractually entitled. The appeal therefore succeeded on this aspect.
2. Forfeiture. Forfeiture is a separate remedy applicable to an agent’s remuneration, whether or not already paid, and is not confined to bribery or secret commissions. The court must draw a fact-sensitive line between serious breaches and relatively harmless or collateral breaches. The nature and seriousness of the breach are central. The principal need not prove loss, although the effect of the breach, the scope of the agency and the value of services may assist in assessing seriousness.
3. The findings established a serious breach going to the root of the relationship. HPOR was in conflict from the outset, deliberately concealed the corruption, repeatedly gave false assurances and could not provide disinterested advice or undivided loyalty. The breach affected the whole relationship and caused significant compliance consequences for the defendants. The valuable services provided did not alter that conclusion. The case was materially different from situations in which blameless work could be cleanly separated from the breach.
4. The absence of a total failure of consideration did not preclude forfeiture, because forfeiture is not restitutionary. Nor did proportionality principles require a different result. The court upheld the tribunal majority’s outcome, although by a different legal route.

This was an appeal from two arbitral awards dated 7 March 2018 under section 69 of the Arbitration Act 1996. Permission to appeal was granted on 6 July 2018. The court rejected the account-of-profits reasoning but upheld the forfeiture of remuneration and therefore maintained the substantive result of the awards.