B e f o r e :
THE RIGHT HONOURABLE LORD JUSTICE LONGMORE
THE RIGHT HONOURABLE LORD JUSTICE MOORE-BICK
THE RIGHT HONOURABLE LORD JUSTICE LEWISON
|| NOVOSHIP (UK) LIMITED & ORS
||- and -
AMON INTERNATIONAL INC
HENRIOT FINANCE LIMITED
(Transcript of the Handed Down Judgment of
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Mr Steven Berry QC & Mr Nathan Pillow (instructed by Lax & Co LLP) for the Appellants
Mr Michael Brindle QC, Mr Dominic Dowley QC, Mr Charles Dougherty QC & Ms L Crowley (instructed by Ince & Co LLP) for the Respondents
Hearing dates: 9th, 10th, 11th, 12th, 16th & 17th June 2014
HTML VERSION OF JUDGMENT
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Lord Justice Longmore:
- This is the judgment of the court to which we have all contributed.
- When Odysseus penetrated the underworld, he encountered, among many other ghosts, that of Eriphyle whom Homer (Od. 11.326) calls "hateful" because she had been bribed by Polyneices with Aphrodite's golden necklace to reveal the whereabouts of her husband, so that he could be found and compelled to march on Thebes where he foresaw he would be killed. This may or may not be the first recorded instance of a successful bribe but, centuries later, bribery is still prevalent and pervasive however much legislators and judges try to stamp it out. This case centres on the activities of a Mr Mikhaylyuk, a Mr Nikitin (both of Russian origin) and a Venezuelan, Mr Ruperti.
- Mr Mikhaylyuk acted as the General Manager and Commercial Manager of the first respondent ("NOUK") from October 2002. He was also a director of NOUK from November 2003. Mr Mikhaylyuk was responsible for (among other things) negotiating the charters of vessels owned by companies within the Novoship group (to which we refer when necessary as "NSC"), the remaining respondents. Mr Mikhaylyuk owed fiduciary duties both to NOUK and to the relevant ship-owning companies.
- While he held the position of Manager, Mr Mikhaylyuk acted in a corrupt and dishonest way. He arranged a series of schemes by which he defrauded the respondents and enriched himself and others – including the first appellant, Mr Yuri Nikitin – by the payment of bribes given to him by those who chartered the respondents' vessels. The various schemes included dishonesty on the part of Mr Mikhaylyuk which is not the subject of this appeal, including (1) the payment of bribes to Mr Mikhaylyuk by the charterers of the TULA (the bribes in question, totalling some US$158,000, being paid to a secret offshore account in Nevis in the name of Mirador Shipping Inc, a Nevisian company) and (2) the payment of bribes to Mr Mikhaylyuk by brokers involved in the charters of various vessels to Stena Bulk (these bribes, totalling some US$1.2 million, being paid to a secret offshore account in Nevis in the name of Pulley Shipping Limited, a further Nevisian company set up by Mr Mikhaylyuk). More importantly, a third scheme related to the chartering of 5 vessels ostensibly to Petroleos de Venezuela SA ("PDVSA") (the Venezuelan national oil company) but in reality to a company or companies owned and controlled by Mr Wilmer Ruperti. These vessels were then sub-chartered to PDVSA by the Ruperti companies at substantially higher rates giving a profit of some $58 million which Mr Ruperti has been found liable to disgorge to the respondents. These Ruperti/PDVSA charters commenced in late 2002, subsequent to Mr Mikhaylyuk's appointment as General Manager of NOUK in October 2002.
- The dishonest involvement of the appellants in these Ruperti/PDVSA charters arose because Mr Mikhaylyuk required Mr Ruperti, as the price of obtaining the charters, to make substantial payments of bribes not only to himself but also to Amon International (the seventh defendant and second appellant). Amon was a British Virgin Islands company owned and controlled by Mr Nikitin.
- The bribes paid by Mr Ruperti to Mr Mikhaylyuk were (like the Tula and Stena bribes) paid to the accounts of Mirador Shipping and Pulley Shipping in Nevis. The total payments amounted to some $1.7 million. The bribes demanded by Mr Mikhaylyuk for the benefit of Amon/Mr Nikitin on the PDVSA/Ruperti charters amounted to $410,304.39.
- In relation to the payments to Amon arranged between Mr Mikhaylyuk, Mr Ruperti and Nikitin, Christopher Clarke J found as follows:-
i) Mr Mikhaylyuk required Mr Ruperti, in connection with (or, as the learned judge put it, as the "price for") the Ruperti/PDVSA charters, to make secret payments between 27th February 2003 and 16th January 2004 to Amon for the benefit of Mr Nikitin in a total sum of $410,379.00. The respondents contended that it was to be inferred that the payments made were in fact significantly greater, on the basis that they probably represented a percentage of the total hires paid for the chartered vessels but the judge held that there was no evidence to support the respondents' contention that Mr Nikitin or Amon were paid more than $410,379.
ii) The explanation for the payments by Mr Ruperti to Amon put forward by Mr Nikitin was that, so far as he could recall or reconstruct, the payments were remuneration for introductions which he (Mr Nikitin) had made in order to facilitate Mr Ruperti's doing business with Russian oil traders or producers. (Mr Ruperti and Mr Mikhaylyuk gave, in their pleadings and witness statements, similar, although not entirely consistent, accounts, but neither gave evidence at trial.) By reference to the documents and the inherent probabilities, the judge rejected all these accounts as untruthful and concluded that Mr Nikitin, Mr Mikhaylyuk and Mr Ruperti had put the explanation forward in order to cover up the dishonest character of the payments to Amon.
iii) Of particular significance was a series of secret emails between Mr Mikhaylyuk and Mr Ruperti which showed Mr Mikhaylyuk demanding payments from Mr Ruperti in connection with the Ruperti/PDVSA charters. This email correspondence (the so-called "Misha Fu emails") was conducted via a secret email account used by Mr Mikhaylyuk which Mr Mikhaylyuk dishonestly sought to conceal from the respondents in this litigation. The emails made plain that Mr Mikhaylyuk was requiring payments to be made to Mr Nikitin (as well as himself) and was suggesting the creation of "side letters" to give a false explanation or "cover" for the payments. The judge dealt with these emails in great detail; he concluded that neither Mr Nikitin nor Amon had played any part in arranging the PDVSA charters and also that Mr Nikitin had no knowledge of the secret Misha Fu email account.
iv) The payments which Mr Ruperti made to Amon were commissions on the hire from the Ruperti/PDVSA charters which Mr Mikhaylyuk required Mr Ruperti to make in order to secure those vessels (on which Mr Ruperti was then able to make substantial profits by means of the sub-charters to PDVSA). The judge made the following critical findings:-
"358. The most likely explanation is that these [sc, the payments to Amon/Mr Nikitin] were commissions on the hire in respect of the PDSVA vessels, which had to be kept secret because they were being paid by Mr Ruperti at the behest of Mr Mikhaylyuk and were, thus, payments made by a third party on the direction of the agent of the principal with whom the third party was dealing. For that reason they were discussed in the secret Misha Fu email account which was used by Mr Mikhaylyuk and Mr Ruperti to deal with payments for the benefit of Mr Nikitin (Amon), Mr Mikhaylyuk and others.
361. Whilst I cannot be satisfied that Mr Nikitin was aware of the contents of the Misha Fu account it seems to me he must have been aware of the proposal to make Amon the beneficiary of commission on hire on the PDVSA charters. The suggestion that such a proposal occurred without Mr Nikitin's knowledge … is implausible. There would have been no reason for Mr Mikhaylyuk and Mr Ruperti to keep it from him.
390. I … infer that Mr Nikitin knew that the money coming to Amon was coming from Mr Ruperti's companies, and that the charters in respect of which commission was being paid were charters to Mr Ruperti's company. I regard it as wholly improbable that whereas Mr Mikhaylyuk and Mr Ruperti knew what the monies paid to Amon represented, Amon and Mr Nikitin did not."
v) The likely explanation for these payments being made to Amon/Mr Nikitin at the direction of Mr Mikhaylyuk was either (1) that Mr Nikitin had provided (or held out the prospect of) some benefit to Mr Mikhaylyuk or (2) that Mr Mikhaylyuk was seeking to benefit Mr Nikitin in the hope of some future advantage (para 389).
vi) At precisely the time that Mr Mikhaylyuk, Mr Ruperti and Mr Nikitin were acting dishonestly in this way in connection with the PDVSA/Ruperti charters by defrauding Mr Mikhaylyuk's principals, Mr Mikhaylyuk and Mr Nikitin were also arranging charters of other NSC vessels to Mr Nikitin's company, Henriot Finance Ltd, (Henriot"), a second British Virgin Islands company owned and controlled by Mr Nikitin. It is these Henriot charters, and the profits which Mr Nikitin and his companies made from them and for which the judge held the appellants liable to account to the respondents, which are the subject matter of the grounds of appeal for which the judge himself granted permission to appeal.
- As regards the connection between the PDVSA charters and the Henriot charters, the learned judge found:-
"505. The likelihood is that Mr Nikitin was well aware that the payment by Mr Ruperti of commission to him was the price for Mr Ruperti obtaining the PDVSA charters and that he agreed with Mr Mikhaylyuk that he should get Mr Ruperti to pay these commissions.
507. The Henriot Finance charters, which began to be entered into shortly after the first PDVSA charters were agreed, were, themselves, agreed in the same 16 month period (October 2002 to January 2004) during which the payments to Amon by Mr Ruperti of commissions on the PDVSA charters were sought and made. By reason of the requests for, and the making of, such payments there was a realistic possibility of a conflict between Mr Mikhaylyuk's duty to his principals and his personal interest preventing him from acting with complete loyalty towards them…
508. … An honest person in the position of Mr Nikitin would realise that he could not honestly contract, through Henriot Finance with Mr Mikhaylyuk's principals without their knowledge of what had occurred.
509 In those circumstances, Mr Mikhaylyuk was in breach of his fiduciary duties to NOUK, and to each of the relevant ship owning companies, in negotiating and recommending the Henriot Finance charters. Such breach was dishonest although that is not an essential ingredient of a claim against Mr Nikitin. Mr Nikitin dishonestly assisted Mr Mikhaylyuk in that breach of duty because he negotiated the Henriot Finance charters, when he knew:
i) that Amon, his alter ego, had dishonestly received the secret PDVSA charter commission payments made by Mr Ruperti at Mr Mikhaylyuk's direction (and had thereby assisted Mr Mikhaylyuk in the latter's breach of fiduciary duty); and
ii) that, in negotiating the Henriot Finance charters with Mr Mikhaylyuk and arranging for Henriot Finance to enter into them he was continuing a relationship which was corrupt at inception and had not been cleansed.
510. It had not been cleansed because, as he must have known, Mr Mikhaylyuk had not (or it was highly probable that he had not) revealed to his superiors that he had required Mr Ruperti to make the payments to Amon, let alone received their informed consent to continue dealing with Mr Nikitin in those circumstances. Mr Nikitin must have known (i) of Mr Mikhaylyuk's conflict of interest (which was obvious to a party to the corrupt relationship); (ii) that Mr Mikhaylyuk could not be trusted to act with complete loyalty to his principals; and (iii) that there was a real possibility that he might be minded to favour Mr Nikitin or his companies in the hope of benefit or for the avoidance of detriment, which at this stage could include any detriment, that might arise if the fact that Mr Mikhaylyuk had procured Mr Ruperti to pay Amon in relation to the PDVSA charters became known.
512. Put more shortly, the Henriot Finance charters were negotiated between (i) an agent (Mr Mikhaylyuk) who had been bribed in connection with a separate but contemporaneous set of transactions which the agent had carried out while acting for the same principal (NOUK); and (ii) a third party (Mr Nikitin) whom, in the first set of transactions, the agent had caused his briber (Mr Ruperti) to pay …"
- As regards causation, the learned judge stated:-
"519. In the present case, a sufficiently direct causal connection between the assistance and the profit is to be found given that the profit from the deployment of the vessels the subject of the Henriot Finance charters could not have been earned unless those charters had been entered into, and is, thus, a profit which results from Henriot Finance entering into those charters – which, itself, constitutes the dishonest assistance given to Mr Mikhaylyuk's breach of fiduciary duty.
520. Thus, for the reasons set out in paras 504ff Mr Mikhaylyuk was in breach of his fiduciary duty when negotiating the Henriot Finance charters, and Mr Nikitin and Henriot Finance dishonestly assisted that breach. The latter two are liable to account for the profits made by them from these charters. It is no defence to say that the charters were at commercial rates and not disadvantageous to the owners; or that, if there had been no breach of fiduciary duty, they would have been made anyway and at the same rates or that Henriot Finance would have made the same profit anyway by the charter of other vessels.
521. Further, it seems to me that, if Mr Mikhaylyuk's principals had known of the payment of bribes by Mr Ruperti, paid to Mr Nikitin via Amon, the Henriot Finance charters would not have been made …."
Grounds of Appeal
- This court has now given permission to appeal the learned judge's findings of fact. The appellants contend that the judge ought to have accepted Mr Nikitin's account of the reasons for the Amon payments (namely remuneration for effecting introductions to Russian business interests), but also that, even if (which the appellants do not accept) the judge was correct to reject Mr Nikitin's account, the judge ought nevertheless to have found that the respondents had failed to prove their case against Mr Nikitin. The appellants also contend that the judge's approach to the fact-finding exercise involved a reversal of the burden of proof. They say further that Mr Mikhaylyuk did not act in breach of his fiduciary duty to the respondents in negotiating the Henriot charters since all the charters were made at market rates and without the assistance of any bribery. Even if that is wrong, Mr Nikitin did not assist in any relevant breach of fiduciary duty, let alone did so dishonestly.
- In addition, the appellants contend that the learned judge made errors of law concerning the availability of the remedy of an account of profits for dishonest assistance in a dishonest breach of fiduciary duty. They contend that the remedy of an account of profits is not available against a dishonest assistant or if it is, the relevant profit must have been earned by reason of the dishonest assistance which, in this case, it was not.
- There are altogether 12 grounds of appeal which we shall consider in 3 groups: first we consider whether the judge's findings in relation to the Amon payments were correct; secondly whether the findings of dishonest assistance in relation to Mr Mikhaylyuk's breach of fiduciary duty were correct; and thirdly, whether it follows that Mr Nikitin or his companies must account for all the profits on the Henriot charters, a sum (we were told) of about $150,000,000. There is also a cross-appeal relating to interest.
Amon Payments, (1) Wrong Burden of Proof; Vagueness; Inferences in Absence of Evidence
- The first thing to say about Christopher Clarke J's 616 paragraph judgment is that it is a masterpiece of analysis of complex and somewhat obfuscatory material. The idea that the judge somehow got the burden of proof wrong is inherently unlikely. As one would expect, the judge guarded against making the elementary error that, because he rejected Mr Nikitin's evidence about the payments to Amon being for introductions, the respondents' case must be right.
- As one would also expect in a case in which it was difficult or impossible to rely on the oral evidence, he started with what was agreed and the relevant documents. The allegations were that Mr Ruperti bribed Mr Mikhaylyuk and that Mr Mikhaylyuk dishonestly directed that some of the payments be paid to Amon for the benefit of Mr Nikitin. The payments to Amon were admitted and, of course, called for an explanation of some kind. The respondents asserted that the amount of the bribes was calculated by reference to the amount of the hire payable in respect of the PDVSA charters and that Mr Nikitin knew that these payments were commissions on hire and that they were bribes requested by Mr Mikhaylyuk and were thus tainted monies. There was nothing vague about these allegations and the only question was whether those allegations were proved; the judge held that they were.
- The judge was well aware of the principle that the cogency of the evidence must be commensurate with the gravity of the allegations. As against that, it needs to be recorded that on 10th December 2010 Andrew Smith J held in different litigation Fiona Trust v Privalov  EWHC (Comm) 2583 that Mr Nikitin had bribed the director general of Sovcomflot (Mr Skarga) to the tune of $350,000 and had been dishonestly complicit in the misuse of commission payments paid by the English shipbroking companies, Clarksons and Galbraiths. The judge, however, said that he only gave limited effect to those conclusions of Andrew Smith J for the purpose of coming to his own conclusions.
- The judge was also plainly aware (paras 334 and 354) that one possible outcome of the proceedings was that the respondents might not have proved that there was any dishonesty or bribery on the part of Mr Ruperti or Mr Nikitin in relation to the Amon payments. He nevertheless found that the payments to Amon were commissions payable on the hire of the PDVSA vessels which Mr Mikhaylyuk required Mr Ruperti to make in order to secure those vessels and gave (by our calculation) 7 reasons for that conclusion in paras 357-382. It is true that the first of those reasons was that the judge had rejected Mr Nikitin's evidence that the payments were legitimate payments to reward him for seeking or obtaining contracts for Mr Ruperti. It is also true that in the course of giving his second reason (namely that the commissions were being kept secret) he said (para 361) that Mr Nikitin must have been aware of the proposal to make Amon the beneficiary of (some of) that commission and added:-
"The suggestion that such a proposal occurred without Mr Nikitin's knowledge (and therefore that of Amon) is implausible. There would have been no reason for Mr Mikhaylyuk and Ruperti to keep it from him."
The judge also inferred (para 390) that Mr Nikitin knew that the money coming to Amon was coming from Mr Ruperti's companies and that the charters were charters to Mr Ruperti's companies and said:-
"I regard it as wholly improbable that whereas Mr Mikhaylyuk and Mr Ruperti knew what the monies paid to Amon represented, Amon and Mr Nikitin did not."
- Mr Steven Berry QC (for the appellants) relied on these passages (particularly para 361) as supporting his submissions that the judge had got the onus of proof wrong and was somehow imposing some onus of proof on Mr Nikitin when it should have been on the respondents throughout.
- The most that can be said (and even this can only be said with difficulty) is that there may be some infelicity of expression in a judge stating that a defendant's evidence or account of the facts or "suggestion" is implausible without also expressly reminding himself that it is the claimant who has to convince him that, on the balance of probabilities, his factual assertions are correct. But it is inappropriate to pick on particular expressions in a long judgment and then to say that a highly experienced judge got the onus of proof wrong. We reject the first ground of appeal.
Amon Payments; (2) the rejection of Mr Nikitin's explanation and inability to ascribe a motive
- Here there were a number of planks in Mr Berry's argument:-
i) the judge was wrong to consider that, if the payments were honest payments, there was no need to dress them up (as the parties did) as commissions on hire and deal with them in the secret Misha Fu account;
ii) the judge's reliance on the absence of documentation for payments for introductions was unfair when all Mr Nikitin's documents had been seized by the police in Russia and there was genuine introductory business with a Mr Sawyer which produced no documentation;
iii) the actual amounts paid to Amon could not be aligned with the amounts of commission discussed in the Misha Fu emails (the arithmetic point);
iv) it was wrong to criticise Mr Nikitin for not producing witnesses in relation to the introductions he made or for failing to explain why he had not done so;
v) the judge should not have placed any reliance on spreadsheets which recorded other secret commissions as well as the payment to Amon with which the trial was concerned; and
vi) there was evidence that Mr Ruperti and his companies did, in fact, do business with the Russian oil exporter Sibneft.
- We deal with each of these points briefly but say first that the appellants face a distinctly high hurdle in trying to persuade this court to reverse the judge's findings on this question of fact. Mr Berry is, of course, right to remind us that a defendant has to prove nothing but the case against the appellants would have looked all the stronger if Mr Nikitin had made no attempt to explain the admitted payments to Amon; he did make that attempt by giving oral evidence which the judge rejected. It is a truism that the judge was in a far better position to assess that oral evidence than we can be. The fact that Mr Nikitin's cross-examination elicited little more than that he could not remember (and could not be expected to remember) events that took place some years earlier does not contradict that truism.
- The judge's approach was, as we have said, to consider such documentation as existed which was largely that contained in the secret Misha Fu emails. He accepted that Mr Nikitin was not a party to this secret email account but relied on the fact that Amon was referred to in the emails and the highly relevant fact that on 9th December 2002 a Nikitin Company (PNP) gave, to Mr Mikhaylyuk's NOUK email address, details of Amon's postal address and details of its bank account with the Swiss bankers Wegelin & Co. Mr Mikhaylyuk then forwarded that information to his home email address and on 18th December 2002 used the secret email account to forward that information to Mr Ruperti to which Mr Ruperti had replied "what amount". Christopher Clarke J regarded it as significant that when Mr Nikitin had been asked about PNP's email of 9th December 2002 during the Fiona Trust trial he had claimed to be unable to remember what it was about, whereas in the trial before him, he (Mr Nikitin) now remembered it was in connection with supposed introductions.
- The same secret email chain (with Mr Mikhaylyuk calling himself "Misha Fu" and addressing Mr Ruperti as "Father Angelus") continued in relation to one of the PDVSA vessels, the "ADYGEJA" on 6th January 2003 in this vein:-
Happy new year.
Hope you had a nice and enjoyable celebration.
Please issue, sign and sent (sic) via courier to my home address SIDE LETTER as following:
It is mutually agreed between the parties that Owners (Tuscany Maritime) and Charterers (PDVSA Marketing International) agree to compensate the AMON INTERNATIONAL INC. for their efforts in arranging the deal, and hereby confirm to pay 1.25% commission on all hire earned throughout this Charter. The first payment to be done on January 07th, 2003, in the amount of $4,456 ($11,5000 v 0.0125% x 31 days) for the period 15.12.2002 – 15.01.2003. The second payment to be done on January 15th, in the amount of $4,456 for the period 16.01.03 – 15.03.03, and each subsequent payment to be done on 15th of each month for 30 days in advance concurrent with hire. If vessel is schedule for re-delivery by the end of the Charter commission payment to be adjusted accordingly.
PDVSA M I on behalf of Tuscany Maritime
Please feel free to amend the layout in order to reflect the agreement accordingly.
- A very similar email on 17th January 2003 was sent in relation to another vessel chartered ultimately by PDVSA, the SOROKALETIYE POBEDY. On 25th February a secret email to Mr Ruperti referred to a "car" with "37,383 on the clock". Two days later Amon received the first payment of $37,356.20 from Mr Ruperti. On 15th January 2004 Mr Mikhaylyuk sent another secret email
"Have checked Amon
Since 01.0303 until 31.12.03
It has done 289,200."
The very next day Mr Ruperti paid $289,200 to Amon and the credit advice from Wegelin & Co sent to Mr Nikitin referred in terms to Father Angelus.
- The judge used all this material (and much more) to infer that Mr Ruperti was paying some of Mr Mikhaylyuk's secret commissions, at Mr Mikhaylyuk's direction to Mr Nikitin. That was an entirely natural inference which, in our judgment, the judge was entitled to draw. What, of course, was not clear was why Mr Ruperti was being required to pay Mr Nikitin. The judge (paras 329-334) considered four possibilities: first, that they were legitimate payments for Mr Nikitin's services in finding contacts for Mr Ruperti; second, that the payments were made as a result of an inducement or threat from Mr Nikitin to Mr Mikhaylyuk; third that Mr Mikhaylyuk wished to confer a benefit on Mr Nikitin, in which case the question would arise whether Mr Nikitin knew why he was being paid and what the payment represented; fourth, that the court could not say why Mr Nikitin was being paid in which case dishonesty on the part of Mr Nikitin would not have been proved.
- Mr Berry submitted that the judge ought to have accepted the first possibility. But the reasons he gave for rejecting it in paras 335-349 seem to us to be compelling. The documentary evidence on its own shows that the first and third payments to Amon were part of the bribes paid by Mr Ruperti to Mr Mikhaylyuk and, as the judge said, the likelihood must be that the second payment was part of those bribes as well.
- All the points made by Mr Berry, as set out above, were considered by the judge and rejected by him. The first point made by the judge that, if the payments were legitimate payments, there was no need to dress them up in the convoluted way revealed in the secret email account, seems to us particularly powerful. If Mr Ruperti wanted to thank Mr Nikitin for introducing business or Mr Nikitin wanted to charge Mr Ruperti for having done so, why pretend that the payments were commissions on hire of vessels with which Mr Nikitin had nothing to do, let alone attempt to conceal the pretence by reference to cars and mileage on the cars' clocks?
- The judge's reliance on the absence of any documentation in relation to the supposedly legitimate payments is also sound. Mr Berry submitted that, in the Fiona Trust trial it was shown that Mr Nikitin had introduced a Mr Sawyer to NSC's Mr Izmaylov (who had been alleged to have been acting dishonestly in relation to commissions paid to Mr Sawyer) as a financial consultant and said that there were no records of the substantial payments made to Amon by Mr Sawyer out of the commissions he received from NSC. This is an odd matter for Mr Nikitin to rely on; he had sought to persuade the Fiona Trust judge, Andrew Smith J, that he had no agreement with Mr Sawyer for payment at all but the judge (para 660) rejected Mr Nikitin's evidence and held that there had been an agreement for payment. Andrew Smith J did not hold that there had been no documentation of that arrangement since that was not a relevant issue before him and Mr Nikitin can, in any event, give no discovery if he is right that the Russian police have seized his papers. The judge did not regard the point as compelling because Mr Sawyer's introduction was a one-off event whereas Mr Nikitin's case in relation to Russian business was that there was more than one introduction although he could not be specific about them. We agree with Mr Brindle QC for the respondents that the point goes nowhere.
- The judge accepted that the amounts paid could not be precisely related to commissions on hires; but he was correct to say (para 378) that the first payment was sufficiently close to 1.25% on the hire of the first PDVSA vessels to make coincidence unlikely and that the third payment was "pretty close" to a March-December 2003 commission of 1.25% for 3 vessels and 1% for two vessels. There was also the coincidence of timing we have already referred to.
- Mr Berry submitted that the fact that the second payment could not be correlated to any commission payment was the "13th chime of the clock" which showed that all the payments must refer to introduction of business. That is an ambitious submission when only one of the three payments (and by no means the largest) is in question. But as the judge pointed out the second payment covered part of the period covered by the first payment which does not make it very likely the payment was for introduction services.
- As far as the absence of witnesses is concerned, Mr Berry floated the possibility that Russian witnesses might well be reluctant to give evidence on behalf of a fugitive from the Russian state. But there was no evidence that any one had ever been approached to see if they would assist. In the absence of witnesses who could support the supposed introductions, Mr Nikitin's own evidence would be critical. His inability to give precise answers on this aspect of the case seems not to have impressed the judge.
- The judge did not in terms rely on the spreadsheets compiled between October 2003 and January 2004, which recorded lists of commissions payable to Amon (including commissions fraudulently diverted under the Clarksons and Galbraith's schemes), when he rejected Mr Nikitin's case that the payments were for introductory services; but he did rely on them for the purpose of expressing himself satisfied that the commissions were commissions on hire (which is part of the overall picture). The spreadsheets were compiled by Mr Nikitin's assistant, Ms Malysheva who was said by Mr Nikitin to have no memory of them. There was no evidence about that from Ms Malysheva herself. The first two payments were referred to in all those lists which, as the judge concluded, is good evidence that they were in fact commissions.
- The entries relating to the first and second payments have a notation "???". Mr Nikitin suggested that that was because Ms Malysheva did not know what the payments represented. The judge thought that the notation had been misaligned and should have been in the "due" column and thus related to ignorance whether the amount was correct rather than ignorance of what the payment represented. That may be right but it seems that Ms Malysheva was in England at about the time of the trial and there was no impediment preventing Mr Nikitin from calling her if he had wished to do so. In her absence, the inference that these payments were commissions on hire and were secret commissions is virtually irresistible.
- Lastly, Mr Berry emphasised that there was evidence that Mr Ruperti and one of his companies did do business with Sibneft. This was shown by an email of 6th January 2004 for a voyage charter of the MOSCOW KREMLIN itself one of the vessels time chartered ultimately to PDVSA. This was a document which only emerged late in the trial and, said Mr Berry, supported Mr Nikitin's case that there had been introductions and that the payments were for such introductions, especially since Mr Nikitin's witness statement, compiled some months before the email recap came to light, did refer to a "vague recollection" of his having introduced Sibneft business to Mr Ruperti. The judge's only reference to this important evidence was to say that Mr Ruperti had made no mention of it in his witness statement, whereas Mr Nikitin had made some reference (however vague) to Sibneft in his statement. The judge did, in fact, refer (para 324) to Mr Berry's submission but does not specifically reject it in paras 335-349.
- We do not think the judge can be blamed for not dealing with this point specifically. Mr Mikhaylyuk had already said in his defence (recorded by the judge at para 318) that he used his contacts to effect introductions to major Russian cargo clients and that there was no obvious reason why Mr Ruperti would prefer Mr Nikitin to effect introductions when the evidence (Day 11 Page 41) was that Mr Nikitin did not know Mr Ruperti. In these circumstances the business could just as well have come via Mr Mikhaylyuk. Moreover the time of the third payment cannot be made to fit with this charter. Although the charter was made on 8th January 2004 and the payment of $289,200 was made on 16th January 2004, the freight invoice for $900,000 was dated 2nd February 2004 and it is unlikely that any payment for an introduction would be made by Mr Ruperti before he received the invoice. The amount (nearly 33% of the invoice) seems, moreover, a very large proportion of the total freight.
- In these circumstances the judge was amply justified in concluding that the payments were not legitimate payments for introductory services and that Mr Nikitin cannot have been telling the truth about this. The first sub-ground of the second ground of appeal must therefore fail.
- The false evidence from Mr Nikitin justifiably formed the first reason for the judge's conclusion that the payments did represent commissions on hire. The other reasons given by the judge (in para 358-380) are in our judgment equally convincing.
- The judge then concluded (para 381) that the amounts paid to Amon represented commission which was agreed to be paid on all of the PDVSA vessels "especially in the absence of any plausible alternative" adding
"The strong likelihood is that all the payments made are of the same character as the payment contemplated by the draft side letters and sought by Mr Mikhaylyuk's emails, namely commissions on hire which Mr Ruperti was required by Mr Mikhaylyuk to make to Amon."
- He then pointed out that this conclusion left unanswered the question whether Mr Mikhaylyuk procured Mr Ruperti to pay Mr Nikitin because he (Mr Mikhaylyuk) (a) had received some benefit or the promise or expectation of some benefit from Mr Nikitin (b) had been blackmailed or threatened by him or (c) wished to confer some benefit on Mr Nikitin. He excluded the possibility that Mr Nikitin had bribed Mr Mikhaylyuk (presumably in some lesser sum than Mr Mikhaylyuk had arranged for Amon to be paid) and said (para 389) that on the balance of probability either Mr Nikitin provided (or held out the prospect of) some other benefit or Mr Mikhaylyuk was seeking to benefit Mr Nikitin in the hope of some future advantage. He could not tell which.
- The second sub-ground of the second ground of appeal says the judge was wrong to make that finding. But we cannot see any justifiable criticism in the way the judge approached the matter. Throughout the judgment he was astute to refrain from making findings if the evidence did not justify them. This is just an example of his care in coming to his conclusions.
- Mr Berry then said that, if it was impossible to find a motive, the respondents had not proved their case. But the fact that the judge could not ascribe a definite motive to the payments is no reason for holding that the payments made were not commissions on hire. We therefore reject this sub-ground of ground 2.
- As the judge was scrupulous to observe, however, when discussing the limited number of possibilities as to the nature of the payments to Amon, once he ruled out the possibility that the payments were legitimate payments for introductory services or prompted by some threat or similar inducement, the only possibilities were that Mr Mikhaylyuk wished to confer some benefit on Mr Nikitin or that the court could reach no conclusion about the nature of the payments. The judge decided that this was not a case where no conclusion could properly be reached since he had no doubt that the payments were indeed commissions on hire of the PDVSA vessels but, as he was further scrupulous to observe (para 332), if he did reach the conclusion that the intention was to benefit Mr Nikitin in some way the question would arise
"as to the extent of Mr Nikitin's knowledge as to why he was being paid and what the payment represented."
He then went on to hold that Mr Nikitin did know that the payments represented part of the commissions on hire of PDVSA vessels and that they were intended to benefit him. It is this finding of knowledge which forms the third ground of appeal.
Amon payments: (3) Mr Nikitin's knowledge
- Mr Berry's main submission under the head was that there was no evidence (and no reason to suppose) that Mr Mikhaylyuk and Mr Ruperti had disclosed the fact that the money coming to Amon was any part of the scheme whereby Mr Ruperti had bribed Mr Mikhaylyuk to permit the charters of the PDVSA vessels to be made with Mr Ruperti's own companies rather than PDVSA itself. The oddity of this submission is that Mr Nikitin knew full well that the money was coming from Mr Ruperti albeit that it was being paid to Amon by Mr Mikhaylyuk. (That was the reason why Mr Nikitin was so keen to explain the payments away as payments from introducing business to Mr Ruperti). So Mr Berry had to submit that, for all Mr Nikitin knew, it was money which was at Mr Ruperti's free disposal; but in that case why was Mr Mikhaylyuk to be involved at all, let alone be the effective paying party? As the judge observed (para 390) once he concluded that Mr Nikitin knew that the money coming to Amon was coming from Mr Ruperti's companies and that the charters in respect of which commission was being paid were charters to Mr Ruperti's companies, it is wholly improbable that whereas Mr Mikhaylyuk and Mr Ruperti knew what the monies paid to Amon represented, Amon and Mr Nikitin did not. It is true that in the earlier passage in his judgment to which we have already referred (para 361), the judge puts the point more tentatively by saying that Mr Nikitin must have been aware of the proposal to make Amon the beneficiary of the commission on hire of the PDVSA charters and that the suggestion that the proposal occurred without Mr Nikitin's knowledge was implausible but that is merely a step in the judge's reasoning in support of his conclusion that the Amon payments did indeed represent commission on the hire of the PDVSA vessels. The dispositive part of his judgment in respect of Mr Nikitin's knowledge is paragraph 390 where he uses the phrase "wholly improbable" in a manner which we consider to be correct and beyond criticism.
- As to the suggestion that the money paid to Amon was Mr Ruperti's to do with as he pleased, the judge pointed out that that might have been right if it was not part of the secret commission being paid to Mr Mikhaylyuk. But the fact was that it was part of that secret commission being paid to Mr Mikhaylyuk and Mr Nikitin was aware of that fact.
- In this context it was, of course, telling that the judge held that Mr Nikitin had given false evidence of amnesia to Andrew Smith J in the Fiona Trust case in relation to the email in which he gave Mr Mikhaylyuk details of Amon's bank account in Switzerland and further false evidence before himself about the money relating to supposed introductions. In these circumstances the judge's finding that Mr Nikitin knew that the payments to Amon represented part of the secret commissions (namely bribes) being paid by Mr Ruperti to Mr Mikhaylyuk in respect of the PDVSA charter is not in the least surprising. The third ground of appeal must therefore fail.
Amon Payments; (4) Dishonesty
- The fourth ground of appeal is that, even if Mr Nikitin knew that Amon was being paid out of the secret commission on hire being paid by Mr Ruperti to Mr Mikhaylyuk, the judge was wrong to hold that Mr Nikitin was thereby dishonest.
- This seems to us an impossible ground of appeal as expressed since once Mr Nikitin knew that Amon has received monies paid out of secret commission paid to Mr Mikhaylyuk, it is dishonest for Mr Nikitin/Amon to seek to retain them. Indeed once it is shown that Amon has received part of Mr Mikhaylyuk's secret commission, the respondents have a good cause of action for money had and received in any event and there is no need to prove dishonesty at this stage as a matter of English law.
- Mr Berry said that the claim had never been pleaded in this way but it seems to us that a claim so framed is included in the claim form and the prayer to the frequently amended particulars of claim so that, as the judge found, there must, in any event, be a liability to repay the 3 payments made to Amon in the sum of $410,304.39.
- We are, of course, aware that the respondents' substantive claim is for an account of profits resulting from Mr Nikitin's supposed dishonest assistance of Mr Mikhaylyuk's breach of his fiduciary duty owed to the respondents in relation to the Henriot charters. In that context dishonesty is highly relevant and is better discussed under that head.
Henriot charters; (5) Mr Mikhaylyuk's breach of fiduciary duty
- These were the charters negotiated between Mr Mikhaylyuk and Mr Nikitin contemporaneously with the negotiation and performance of the charters made in respect of the PDVSA vessels. The charters of two of these PDVSA vessels, the MARSHAL CHUYKOV and the ADYGEJA were made in October and December 2002. The first of the Henriot vessels to be fixed was the TROGIR in respect of which negotiations began on 9th December 2002 leading to a fixture of 8th January 2003. The payments to Amon in respect of the PDVSA vessels, it will be remembered, occurred on 27th February and 6th May 2003 and 16th January 2004. Negotiations and fixtures of Henriot vessels continued throughout 2003 culminating in the fixtures of the KALUGA and the KAZAN on 30th March 2004.
- In the Fiona Trust case it had been alleged that those Henriot charters had been entered into on uncommercial terms to the knowledge of Mr Mikhaylyuk's superior Mr Ismaylov and that Mr Nikitin had been a party to that arrangement. Andrew Smith J found however that the rates which the vessels commanded were not uncommercial and the allegation was not repeated in the trial before Christopher Clarke J; this led the latter to say (para 491) that Mr Mikhaylyuk appeared "to have acted in owners' best interests" in relation to the Henriot charters. Despite this he held also (paras 507-509) that Mr Mikhaylyuk was in breach of the fiduciary duty which he owed to both NOUK and each of the relevant shipowning companies in negotiating and recommending the Henriot charters because in the light of the PDVSA commissions
"there was a realistic possibility of a conflict between Mr Mikhaylyuk's duty to his principals and his personal interest preventing him from acting with complete loyalty towards them.."
- Mr Berry submitted that if the judge was right to say that Mr Mikhaylyuk acted in owners' best interests, he did not have any personal interest nor was there a realistic possibility of a conflict of interest and, in any event, Mr Mikhaylyuk had no incentive to favour Mr Nikitin.
- In our view this is to look at the matter too simplistically. The fact that Mr Mikhaylyuk in breach of his fiduciary duty to his principals took secret commissions in relation to the PDVSA charters and paid some of them to Amon/Mr Nikitin but decided not to favour Mr Nikitin in relation to the Henriot charters cannot mean that one can look at the Henriot charters in a vacuum. There was certainly a risk that Mr Mikhaylyuk might decide to favour Mr Nikitin, since he had in fact already done so. Moreover Mr Mikhaylyuk never revealed his breach of duty in relation to the PDVSA vessels to his principals and Mr Nikitin could have no reason to suppose that he had done. Mr Mikhaylyuk was thus continuing to act dishonestly in relation to the PDVSA charters while at the same time negotiating the Henriot charters. That, of itself, constituted a breach of Mr Mikhaylyuk's continuing fiduciary duty to his principals.
- Mr Berry submitted that there could be no conflict (or even possibility of conflict) of interest unless Mr Nikitin himself bribed Mr Mikhaylyuk or (at least) Mr Mikhaylyuk hoped that Mr Nikitin would do so. But that is not true; the whole relationship with Mr Nikitin was corrupt and, as Mr Brindle put it, corruption rots the entire business relationship between principals once the agent through whom negotiations are conducted is known to have taken bribes. That is so even if the bribes are given by a principal to other transactions, but the bribes are known about (and shared in) by the parties to the transactions in question. As the judge put it (para 507):-
"Having already been prepared to favour Amon and, therefore, Mr Nikitin once in this way he [Mr Mikhaylyuk] would be tempted, or have an incentive or be prepared to favour them again either for the reason he had done so in the first place or some other reason."
- Mr Berry suggested that it could not be the law that, once an agent or employee has received a single bribe, he is in breach of his duty in negotiating on behalf of his principal with some other principal, in other transactions. That is a large question which this case does not need to decide. It is sufficient to say that if an agent or employee receives a bribe which he then shares with another, he is in breach of his fiduciary duty in then negotiating other transactions with that other person for as long as he has not disclosed the matter to his principal. That is this case and we agree with the judge that Mr Mikhaylyuk was in breach of his fiduciary duty to the respondents in negotiating new and different contracts with Mr Nikitin with whom he was contemporaneously sharing bribes, in the form of commissions on hire, earned under the PDVSA charters.
Henriot charters; (6) Assistance
- If Mr Mikhaylyuk was indeed in breach of fiduciary duty in negotiating with Mr Nikitin for the Henriot charters, it must follow that Mr Nikitin in conducting such negotiations in the knowledge or belief that Mr Mikhaylyuk had not informed his principals of the bribes, assisted that breach of duty. Once Mr Nikitin indicated that negotiations had some prospect of resulting in a contract (as they in fact did for all seven ships in 2003-2004) those negotiations assisted the breach of duty. Mr Berry submitted that mere negotiations (as opposed to making a contract which Mr Mikhaylyuk had no authority to do without reference to his principals) could not in law amount to assistance. We can only say we disagree.
Henriot charters; (7) Was the Assistance Dishonest?
- We have already set out the judge's conclusions about this as contained in paras 505-512 in his judgment. Mr Berry had three main criticisms of these passages of his judgment:-
i) the original corruption was not engineered by Mr Nikitin but by Mr Ruperti. Mr Mikhaylyuk was never corrupted by Mr Nikitin. The fact that Mr Nikitin was a beneficiary to Mr Ruperti's bribery of Mr Mikhaylyuk did not mean that there was any dishonesty in the different negotiation of the Henriot charters;
ii) It cannot be right to say that a negotiation of different contracts is dishonest merely because one of the negotiators knows that his counterpart in the negotiations is susceptible to corruption; and
iii) The fact that Mr Mikhaylyuk did not succumb to any temptations in relation to the Henriot charters shows that any risk of continuing dishonesty had dissipated by 8th January 2003 when the negotiations for the first Henriot vessel, the TROGIR, matured into a contract.
We do not accept these criticisms of this aspect of the judgment.
- While it may be right to say that the bribery in relation to the PDVSA charters originated with Mr Ruperti and that the judge could not decide whether Mr Mikhaylyuk's gift of part of those bribes to Amon was motivated by some inducement or some wish to benefit Mr Nikitin in the hope of future favours, it is important that the judge also found (and we agree) that Mr Nikitin knew he was participating in the bribery scheme when Amon received the payments discussed above. Once it is found that Mr Nikitin knew that he was the beneficiary of a corrupt bribery arrangement conducted by Mr Mikhaylyuk and Mr Ruperti, it was dishonest to conduct negotiations with Mr Mikhaylyuk, an employee whom he knew was receiving bribes in which he had himself shared. In these circumstances the judge was right to say that Mr Nikitin was dishonestly assisting Mr Mikhaylyuk in the breach of fiduciary duty because he (Mr Nikitin) knew
i) that he, through Amon, had dishonestly received part of the secret commission paid by Mr Ruperti; and
ii) that he was continuing a relationship which was already corrupt and had not been cleansed.
- In the course of his reply, Mr Berry referred to this point as being the same as or associated with the "reverse bribery" point made in ground 9 of his Notice of Appeal to the effect that an account of profits could not or should not be awarded against a non-fiduciary who has received a bribe rather than one who has paid the bribe. As will appear we do not accept that, for the purpose of accounting for profits, it makes any difference whether a defendant is the payee or the payer of the bribe; the only question is whether he is a dishonest assistant in a breach of duty by a fiduciary. Nor is it helpful in discussing the question of dishonesty to differentiate between the payer and payee of a bribe. The dishonesty here is continuing to negotiate with an agent from whom one has already received an illegitimate benefit in a prior transaction.
- It follows that Mr Berry's second point under this head is expressed too widely. Whatever may be the general position when a party to a negotiation knows that his counter-party has been corrupted in the past and may therefore be susceptible to corruption in different negotiations in the future, that is not this case. Here Mr Nikitin knew not merely that he was negotiating with a man who had received bribes but also that he (Mr Nikitin) had been a beneficiary of part of those corrupt payments. In those circumstances there can, we think, be no doubt that, by continuing to do business with Mr Mikhaylyuk in relation to the Henriot charters, Mr Nikitin was dishonestly assisting Mr Mikhaylyuk's continuing breach of fiduciary duty to his principals.
- There is equally little in Mr Berry's third point; the fact that Mr Mikhaylyuk neither asked for nor received a bribe for the TROGIR charter does not mean that the risk of continuing dishonesty had dissipated. Negotiations for the corrupt payment in relation to the ADYGEJA had taken place in December 2002 and Mr Nikitin's company had sent details of Amon's bank account to Mr Mikhaylyuk on 9th December 2002. Negotiations in relation to the SOROKALETIYE POBEDY took place in January 2003. Amon's first corrupt payment was made on 27th February 2003. This was all happening contemporaneously with the negotiation for the TROGIR which began on 9th December 2002 and concluded with a charter of 8th January 2003. It is impossible in these circumstances to talk of any risk of dishonesty being dissipated when the Henriot charters were being negotiated. The fact that in the Henriot negotiations no bribes were offered or requested is nothing to the point.
- In our judgment ground 7 of the appeal must fail. We therefore uphold the judge's findings of fact and the stage is set for what one suspects is the real focus of this appeal from the parties' point of view, namely whether the judge was correct to award an account of profits on the Henriot vessels.
(8) – (11) Was the judge wrong to order an account of profits under the Henriot Charters?
- The question arising on this part of the appeal is whether Mr Nikitin is liable to account for the profits that he (or his companies) made from the Henriot charters. The judge held that he was so liable, because he had dishonestly assisted in a breach of fiduciary duty by Mr Mikhaylyuk either in (a) negotiating the terms of the fixtures with him or (b) concluding charters resulting from those negotiations, in either case at a time when Mr Mikhaylyuk had not disclosed to his principals that he had been bribed by Mr Ruperti and that part of the bribe had been diverted to Mr Nikitin.
- This raises the following potential issues:
i) Is the remedy of an account of profits available against a dishonest assistant as opposed to a fiduciary?
ii) If so, is there a requirement for some causal connection between the dishonest assistance and the profit for which the assistant is asked to account?
iii) If so, what is the nature of that causal connection?
iv) If there is a requirement for a causal connection was it satisfied on the facts of this case?
v) If it is, would it be right, on the facts of this case, to order an account of profits?
- A separate point may arise in relation to two vessels, the KUZBASS and the KASPIY, which have been sold to third parties who are not claimants in this action. The question in relation to those vessels is, assuming that Mr Nikitin is liable to account for profits made on those charters, whether he is liable to account to NOUK rather than to the owners of those vessels who have made no claim.
- The judge set out in detail Mr Mikhaylyuk's role in negotiating each of the relevant charters. He described it as a major role in which he was in a position to influence, and did influence, the making of the agreements. We need not go through the details. But the judge's overall conclusion was that in negotiating these charters Mr Mikhaylyuk appeared to be acting in his principals' best interests; the rates of hire and terms of the charter were on market terms and rates. Indeed in the case of the first of the Henriot charters (the TROGIR) the judge found that Mr Mikhaylyuk "was doing well for owners" in obtaining the rates that he did; and he also recorded (and did not reject) Mr Nikitin's evidence that his perception was that Mr Mikhaylyuk "was doing everything he could to get good rates." In relation to four other vessels (the MOSCOW UNIVERSITY, the MOSCOW RIVER, the KALUGA and the KAZAN) he recorded without dissent the finding of Andrew Smith J that there was nothing to suggest that Mr Mikhaylyuk had been dishonest or in breach of his duties. He also recorded Andrew Smith J's finding that the rates of hire of the KUZBASS and the KASPIY were lower than the rates that the markets were commanding, but that there were genuine and cogent reasons that would explain why NSC accepted them.
Remedies against third parties
- NOUK claims an account of Mr Nikitin's profits from the Henriot charters. This is a personal claim only: Mr Brindle accepted that there is no proprietary claim. Mr Berry in turn accepted that a fiduciary would be compelled to account for an unauthorised profit made and falling within the scope of his fiduciary duty. However, he submitted that (a) an account of profits could never be ordered against a third party who had not voluntarily assumed fiduciary obligations to the claimant; alternatively (b) that an account of profits could not be ordered against a third party whose liability arose only because of his dishonest assistance in a breach of fiduciary duty; alternatively (c) an account of profits could not be ordered against a third party unless there had been some misapplication of trust property. These arguments were not deployed below, and so the judge did not deal with them.
- Where a person is not himself a fiduciary, he may become mixed up in a breach by another of a fiduciary duty. He may be liable in one of two ways:
i) As a knowing recipient of trust property or its traceable proceeds or
ii) As a dishonest accessory to the fiduciary's breach of duty.
- The former is now known by the shorthand "knowing receipt" and the second by the shorthand "dishonest assistance". Although, for the purpose of legal analysis it is convenient to distinguish between the two types of secondary liability, a person may be liable under both heads, depending on the facts of a particular case. Mr Berry correctly points out that neither a knowing recipient nor a dishonest assistant has ever promised either expressly or inferentially to subordinate his own interests to those of the beneficiary. Neither is a fiduciary. In some areas of the law this does lead to a different legal treatment of a dishonest assistant on the one hand, and a fiduciary on the other. This is now settled at the highest level in the case of limitation of actions. Whereas a trustee is not entitled to raise a defence of limitation against a beneficiary alleging a fraudulent breach of trust or seeking to recover trust property, a knowing recipient or a dishonest assistant is entitled to rely on the Limitation Act 1980. This is the result of the decision of the Supreme Court in Williams v Central Bank of Nigeria  UKSC 10;  2 WLR 355. Mr Berry drew attention in particular to the observations of Lord Neuberger at para 118:
"So far as raising a limitation defence is concerned, this conclusion places dishonest assisters and knowing recipients (i) in the same position as those who are liable in common law for improper or dishonest conduct, and (ii) in a better position than defaulting trustees. The first result seems appropriate: as Millett LJ said in the Paragon case at p 414, "[t]here is no case for distinguishing between an action for fraud at common law and its counterpart in equity". As for the second result, it is plainly justifiable, as defaulting trustees have pre-existing fiduciary duties to claimants which dishonest assisters and knowing recipients do not."
- Building on this distinction Mr Berry pointed out that in the case of a common law action based on fraud the response of the courts is to require the fraudster to compensate the victim for loss that he has suffered. The common law does not strip the fraudster of his gain: Halifax BS v Thomas  Ch 217 at 227 (Peter Gibson LJ) and 229 (Glidewell LJ). As Longmore LJ put it in Devenish Nutrition Ltd v Sanofi-Aventis SA  EWCA Civ 1086;  Ch 390 at para 147:
"Neither the law of restitution nor the law of damages is in the business of transferring monetary gains from one undeserving recipient to another undeserving recipient even if the former has acted illegally while the latter has not."
- However, we note that at para 149 Longmore LJ excluded "fiduciary claims" from his reluctance to encourage a restitutionary system of damages. Moreover in Williams itself Lord Sumption made it clear that equity's intervention in the case of a knowing recipient or dishonest assistant was "purely remedial" (see para 10); and he was careful to distinguish between the question of limitation and the question of remedy. Nor did he rule out the possibility that a knowing recipient might be liable to account for profits: see Williams at para 31. At the heart of the issue, therefore, is the question whether a dishonest assistant should be treated differently from a true fiduciary; and, if so, to what extent.
- There is now a body of modern case-law at first instance which recognises that the court has the power to order an account of profits against a dishonest assistant, even where no corresponding loss has been suffered by the beneficiary. They include: Fyffes Group Ltd v Templeman  2 Lloyd's Rep 643 (Toulson J); Ultraframe (UK) Ltd v Fielding  EWHC 1638 (Ch);  WTLR 835 at paras 1589 to 1594 (Lewison J); Tajik Aluminium Plant v Ermatov  EWHC 7 (Ch) at para 23 (Blackburne J); OJSC Oil Company Yugraneft v Abramovich  EWHC 2613 (Comm) at paras 377 and 392 (Christopher Clarke J); Fiona Trust and Holding Corporation v Privalov  EWHC 3199 (Comm) at para 66 (Andrew Smith J) and Otkritie International Investment Management Ltd v Urumov  EWHC 191 (Comm) at para 79 (Eder J). The proposition for which these cases stand is unequivocally supported by Underhill and Hayton on Trusts and Trustees (18th ed) at para 98.3. Ranged against this body of case-law are the obiter doubts expressed by Rimer J in Sinclair Investment Holdings SA v Versailles Trade Finance Ltd  EWHC 915 (Ch);  2 All ER (Comm) 993 at paras 129 to 134.
- Mr Berry correctly submitted that none of these cases are binding on this court; and further submitted that, apart from Sinclair, they are wrong.
- Mr Berry submitted that his position was supported by the seminal decision of the Privy Council in Royal Brunei Airlines Sdn Bhd v Tan  2 AC 378. It is necessary to make two points about that case at the outset. First the only issue on the appeal was whether liability for assistance in a breach of trust required the breach itself to be dishonest. Second, the case was one in which, on the facts, the beneficiary was only seeking to recover its loss from the dishonest assistant. Lord Nicholls' opinion must be read in that context. The passages on which Mr Berry relied were these (with emphasis added):
"If, for his own purposes, a third party deliberately interferes in that relationship [i.e. the trust relationship] by assisting the trustee in depriving the beneficiary of the property held for him by the trustee, the beneficiary should be able to look for recompense to the third party as well as the trustee. Affording the beneficiary a remedy against the third party serves the dual purpose of making good the beneficiary's loss should the trustee lack financial means and imposing a liability which will discourage others from behaving in a similar fashion." (386-387)
"A liability in equity to make good resulting loss attaches to a person who dishonestly procures or assists in a breach of trust or fiduciary obligation. It is not necessary that, in addition, the trustee or fiduciary was acting dishonestly, although this will usually be so where the third party who is assisting him is acting dishonestly." (392)
- Since the question of remedy was not in issue in that case, we do not consider that it can be said unequivocally to support Mr Berry's argument. Like all judgments, Lord Nicholls' opinion should not be read as if it were a statute. The way in which (at least in recent times) the liability of a dishonest assistant has been described is "accountable in equity": Paragon Finance plc v D B Thakerar & Co  1 All ER 400 at 409; Dubai Aluminium Co Ltd v Salaam  UKHL 48;  2 AC 366 at para 141. In the latter case Lord Millett said:
"Equity gives relief against fraud by making any person sufficiently implicated in the fraud accountable in equity. In such a case he is traditionally (and I have suggested unfortunately) described as a "constructive trustee" and is said to be "liable to account as a constructive trustee". But he is not in fact a trustee at all, even though he may be liable to account as if he were. He never claims to assume the position of trustee on behalf of others, and he may be liable without ever receiving or handling the trust property."
- It is true that the phrase "accountable in equity" does not expressly answer the question: accountable for what? But if the limit of a dishonest assistant's liability is a liability to make good losses suffered by the beneficiary it is an odd phrase to use. We agree with Snell's Equity (32nd ed §30-079) that, subject to one qualification to which we will come, both a liability to make good loss and a liability to account for profits "follow from the premise that the defendant is held liable to account as if he were truly a trustee to the claimant."
- In our judgment this position is supported both by policy and authority. The policy was articulated by Gibbs J in Consul Development Pty Ltd v. DPC Estates Pty Ltd (1975) 132 CLR 373, 397. He said:
"If the maintenance of a very high standard of conduct on the part of fiduciaries is the purpose of the rule it would seem equally necessary to deter other persons from knowingly assisting those in a fiduciary position to violate their duties. If, on the other hand, the rule is to be explained simply because it would be contrary to equitable principles to allow a person to retain a benefit that he had gained from a breach of his fiduciary duty, it would appear equally inequitable that one who knowingly took part in the breach should retain a benefit that resulted therefrom. I therefore conclude, on principle, that a person who knowingly participates in a breach of fiduciary duty is liable to account to the person to whom the duty was owed for any benefit he has received as a result of such participation."
- If the phrase "knowingly took part in" is replaced by "dishonestly assisted in" we cannot see that it undermines the policy as formulated. It is true that in Australia the concept of "knowing participation" does not correspond precisely to our concepts of knowing receipt and dishonest assistance. However, so far as accounting for profits are concerned, even in Australian law a knowing participant is not generally required to account for profits that he did not make: Grimaldi v Chameleon Mining NL (No 2)  FCAFC 6 at para 536.
- So far as authority is concerned, in Grimaldi at para 520 Finn J referred to the decision of Lord Brougham LC in Docker v Somes (1834) 2 My & K 655. In that case the Lord Chancellor ended his discussion of a trustee's liability to account for profits with the words:
"So it is also where one not expressly a trustee has bought or trafficked with another's money. The law raises a trust by implication, clothing him, though a stranger, with the fiduciary character, for the purposes of making him accountable."
- Given that this comes at the end of a passage that is dealing only with a trustee's liability to account for profits, the Lord Chancellor can only have uses the word "accountable" as meaning accountable for profits. As Finn J observed, these sentences are "an embryonic version of Barnes v Addy".
- In Rolfe v Gregory (1865) 4 De GJ & S 576 Lord Westbury LC said:
"This wrongful receipt and conversion of trust property place the receiver in the same situation as the trustee from whom he received it, and by the principles of this Court he becomes subject in a Court of Equity to the same rights and remedies as may be enforced by the parties beneficially entitled against the fraudulent trustee himself. …
The relief is founded on fraud and not on constructive trust. When it is said that the person who fraudulently receives or possesses himself of trust property is converted by this Court into a trustee, the expression is used for the purpose of describing the nature and extent of the remedy against him, and it denotes that the parties entitled beneficially have the same rights and remedies against him as they would be entitled to against an express trustee who had fraudulently committed a breach of trust."
- Lord Selborne's famous statement of principle in Barnes v Addy (1874) LR 9 Ch App 244 at 251 is as follows:
"Those who create a trust clothe the trustee with a legal power and control over the trust property, imposing on him a corresponding responsibility. That responsibility may no doubt be extended in equity to others who are not properly trustees, if they are found either making themselves trustees de son tort, or actually participating in any fraudulent conduct of the trustee to the injury of the cestui que trust. But, on the other hand, strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers, transactions, perhaps of which a Court of Equity may disapprove, unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees."
- As we have seen, the decision in Royal Brunei Airlines v Tan altered the conditions that must be satisfied before liability arises, but did not, in our judgment, alter the nature of the liability. The nature of the liability, as it seems to us, is that the knowing recipient or dishonest assistant has, in principle, the responsibility of an express trustee. That responsibility would include, in an appropriate case, a liability to account for profits. We can see the principle at work in Cook v Deeks  1 AC 554, a decision of the Privy Council. Messrs Deeks and Hinds were the directors of the Toronto Construction Company. They negotiated a lucrative construction contract with the Canadian Pacific Railway. During the course of the negotiations, they decided to enter into the contract personally, on their own behalves. However, they incorporated a new company, the Dominion Construction Company to carry out the work. It was that company that made the profit under the contract. The Privy Council held that Messrs Deeks and Hinds were guilty of a breach of duty in the course they took to secure the contract, and must be regarded as holding it for the benefit of the Toronto Construction Company. The Board added:
"Their Lordships have throughout referred to the claim as one against the defendants G. S. Deeks, G. M. Deeks, and T. R. Hinds. But it was not, and it could not be, disputed that the Dominion Construction Company acquired the rights of these defendants with full knowledge of all the facts, and the account must be directed in form as an account in favour of the Toronto Company against all the other defendants."
- The reference to "all the other defendants" is a reference both to the directors and to the Dominion Construction Company. Thus the Dominion Construction Company was ordered to account for the profit that it had made. The Dominion Construction Company was not a fiduciary. This, then, is a case in which an account of profits was ordered against a non-fiduciary who became mixed up in a breach of fiduciary duty.
- There is one further point to be made. As Lord Nicholls explained in Attorney-General v Blake  1 AC 268, 279-80, in proceedings for equitable wrongs in the Court of Chancery the court had a discretion to order an account of profits, even in cases which did not involve fiduciaries. Similarly, Arden LJ pointed out in Murad v Al-Saraj  EWCA Civ 959,  WTLR 1573 at paras 46 and 56 that it has long been the law that equitable remedies for the wrongful conduct of a fiduciary differ from those available at common law: "Equity recognises that there are legal wrongs for which damages are not the appropriate remedy". Where, as here, the equitable wrong is itself linked with a breach of fiduciary duty we see no reason why a court of equity should not be able to order the wrongdoer to disgorge his profits in so far as they are derived from the wrongdoing.
- We therefore reject Mr Berry's first argument under this head.
- Where limitation periods are concerned, there is no differentiation between knowing recipients and dishonest assistants: Williams v Central Bank of Nigeria at paras 30 – 31. In Dubai Aluminium Co Ltd v Salaam Lord Millett made it clear that liability to account in equity did not depend on receipt of trust property. In our judgment, it would be equally inappropriate to differentiate between the availability in principle of remedies relating to profits made by a knowing recipient on the one hand and profits made by a dishonest assistant on the other. As Lord Westbury said in Rolfe the "relief is founded on fraud". We therefore reject Mr Berry's second argument.
- The third argument is that the misapplication of trust property is a necessary condition for the availability of an account of profits. This is put in two ways. First, since the Henriot charters were time charters they were no more than contracts for services with no disposition of trust property. We would be surprised if equity were to take a radically different view according to whether a charter were a time charter or a demise charter (or if the dishonest assistant took a licence of land rather than a lease), so we approach this way of putting the point with some scepticism. The second way in which the point is put is that although Mr Mikhaylyuk was a fiduciary, he had no power of disposition over his principal's property (unlike a trustee in whom trust property is vested, or a company director, who has power to dispose of the company's property). Lewin on Trusts (18th ed) at §40-16 says that in such a case it is an open question whether a misapplication of trust property is a necessary pre-condition to an order for an account of profits.
- Mr Berry's main authority for this argument was Satnam Investments Ltd v Dunlop Heywood & Co Ltd  3 All ER 652. Satnam had an option to acquire a development site. In breach of fiduciary duty their agents told a rival developer (Morbaine) about the site. Morbaine acquired the site. Satnam claimed to be entitled to the site itself because Morbaine held it on constructive trust. The claim failed. In the course of delivering the judgment of the court Nourse LJ referred to the two cases of third party liability: knowing receipt and dishonest assistance. He continued at 671:
"Before a case can fall into either category there must be trust property or traceable proceeds of trust property. Clearly, DH and Mr Murray can be regarded as trustees of the information and, clearly, Morbaine can be regarded as having been a knowing recipient of it. However, even assuming, first, that confidential information can be treated as property for this purpose and, secondly, that but for the disclosure of the information Morbaine would not have acquired the Brewery Street site, we find it impossible, in knowing receipt, to hold that there was a sufficient basis for subjecting the Brewery Street site to the constructive trust for which Satnam contends. The information cannot be traced into the site and there is no other sufficient nexus between the two. As for knowing assistance, of which dishonesty on the part of the accessory is a necessary ingredient (see below), we would not have wanted to shut out the possibility of such a claim's being successful if the judge had made a finding of dishonesty against Morbaine, dishonesty for this purpose having been equated, for the most part, with conscious impropriety."
- We agree that in order to found liability for knowing receipt there must be trust property. After all, receipt of trust property is the gist of the action. But Nourse LJ was careful not to rule out the possibility of a successful claim in the case of dishonest assistance even without trust property. In addition one must not lose sight of the fact that was what claimed in that case was the development site itself and not merely a personal liability to account for profits. We do not therefore consider that Satnam is strong authority for the proposition that there can be no personal liability to account for profits in the case of dishonest assistance in the absence of a misapplication of trust property. The court's judgment in Satnam was delivered on 21st December 1998. In fact, some three weeks earlier, on 1st December 1998, the Court of Appeal had also considered that question in Brown v Bennett  BCC 525. The claim was one for dishonest assistance. Rattee J had struck out the claim. Morritt LJ said that the judge's conclusion on the question of dishonest assistance was based on two points. The first was that "in the view of the judge, there must be a breach of trust in relation to property, a breach of duty in management not being sufficient." As regards that point Morritt LJ said:
"I would not … uphold the judge's conclusion on knowing assistance on the first point. I recognise that to be arguable and were that the only point I would be minded to allow the appeal."
- However, the appeal was in fact dismissed for other reasons. Understandably, Brown v Bennett was not cited in Satnam, which weakens its authority still further. The Court of Appeal returned to the point in Goose v Wilson Sandford & Co  Lloyd's Rep PN 189. Morritt LJ delivered the judgment of the court (which included Robert Walker LJ). Having referred to Satnam he said at para 88:
"We agree that the statement that "there must be trust property or traceable proceeds of trust property" is not a decision binding on us. … However we feel that the statement quoted above may be so compressed as to admit of misunderstanding. It applies to both the alternatives recognised by Lord Selborne in Barnes v Addy. In the case of the first, "knowing receipt" there must, by definition, be or have been trust property or its traceable proceeds of sale. But it is not a prerequisite of liability that it is still in existence at the time the claim form is issued. In the case of the second, "knowing assistance", it is not a requirement of liability that any property should have been received or handled by the defendant. The issue is whether the dishonest breach of trust in which the defendant assisted must have involved the misapplication of trust property or its proceeds of sale. The formulation of the principle by Lord Nicholls of Birkenhead [in Tan] does not embrace such a requirement. Whether or not such a requirement is an essential feature of this head of liability is not a point we have to decide and, like the Court of Appeal in that case, we would not like to shut out the possibility of such a claim in its absence."
- These cases were considered by Peter Smith J in JD Wetherspoon plc v Van den Berg & Co Ltd  EWHC 639 (Ch). He concluded at para 518 that misuse of trust property was not a pre-requisite to a liability to account for profits for dishonest assistance in a breach of fiduciary duty. He reasoned thus:
"In my view in a case for accessory liability there is no requirement for there to be trust property. Such a requirement wrongly associates accessory liability with trust concepts. That has led to difficulties which were addressed by Lord Millett in Paragon Finance. Accessory liability does not involve a trust. It involves providing dishonest assistance to somebody else who is in a fiduciary capacity [and] has committed a breach of his fiduciary duties. The consequences of those breaches (as this case shows) might have different consequences. One might be that the fiduciary has received a bribe. Another is that the fiduciary has made a profit in breach of his fiduciary duty. Another possibility is that assets are available into which it can be shown were acquired in breach of the fiduciary duty. Third party recipients are also potential candidates. Finally the breach of fiduciary duty might only sound in damages. In all of those cases I can see no logic or grave difficulty where the fiduciary is involved who has committed a breach of his fiduciary duty that an accessory who acts dishonestly in relation to those breaches should not be liable. It must not be forgotten that in most cases the breach can only occur as a result of the activities of the assistor."
- In Fiona Trust at para 61 Andrew Smith J said that he agreed with Peter Smith J and adopted his reasons. So do we. But in addition as we have said it would be a triumph of form over substance if a dishonest assistant escaped liability by entering into a time charter but not if he entered into a demise charter, or took a licence of land rather than a lease. We therefore reject Mr Berry's third argument. Because dishonesty can take many different forms (as well as having many different consequences) we do not agree that it makes all the difference that the dishonesty consists of receiving as opposed to paying a bribe. As we have said, the only question is whether liability as a dishonest assistant in a breach of fiduciary duty has been established. If it has, then an account of profits is one possible remedy.
- We therefore conclude that the remedy of an account of profits is available against one who dishonestly assists a fiduciary to breach his fiduciary obligations, even if that breach does not involve a misapplication of trust property.
- In Ultraframe Lewison J said at para 1594 that a dishonest assistant is liable to account "for any profit that he makes from his dishonest assistance or from the underlying breach of trust". However, he was not considering the precise nature of the test of causation which was not in issue. We have already referred to the observations of Gibbs J in holding that questions of policy support the availability of the remedy of an account of profits against a dishonest assistant. His Honour concluded that a dishonest assistant is:
"liable to account to the person to whom the duty was owed for any benefit he has received as a result of such participation." (Emphasis added)
- This also suggests that a causation test is appropriate. We note also that his Honour referred to a benefit received as a result of the participation (rather than a benefit received as a result of the breach of fiduciary duty). Snell at §30-081 suggests that the test should be that of "a sufficiently direct causal connection between the defendant's assistance and the alleged profit accruing to him".
- A fiduciary's liability to account for a secret profit does not depend on any notion of causation. It is sufficient that the profit falls within the scope of his duty of loyalty to the beneficiary. Arden LJ made this point in Murad at para 57 by reference to the judgment of Morritt LJ in United Pan-Europe Ltd v Deutsche Bank AG  2 BCLC 461:
"If there is a fiduciary duty of loyalty and if the conduct complained of falls within the scope of that fiduciary duty as indicated by Lord Wilberforce in New Zealand Netherlands Society "Oranje" Inc v Kuys  1 WLR 1126 then I see no justification for any further requirement that the profit shall have been obtained by the fiduciary "by virtue of his position". Such a condition suggests an element of causation which neither principle nor the authorities require. Likewise it is not in doubt that the object of the equitable remedies of an account or the imposition of a constructive trust is to ensure that the defaulting fiduciary does not retain the profit; it is not to compensate the beneficiary for any loss. Accordingly comparison with the remedy in damages is unhelpful."
- Jonathan Parker LJ made the same point in Murad at para 112. Mr Brindle argued that our conclusion on the question of causation should not run contrary to the decision of this court in Murad, and in particular what Arden and Jonathan Parker LJJ said about the decision of Toulson J in Fyffes. Although he did not say that we were bound by Murad (which concerned a fiduciary rather than a dishonest assistant) he did say that we should give full effect to it.
- It is, therefore, necessary to go back to Fyffes, and then to see what this court said about it in Murad. In Fyffes the claimant employed Mr Templeman as its chartering manager. He negotiated a service agreement with Seatrade under which Seatrade was to provide shipping services to Fyffes. However, unknown to Fyffes Seatrade had agreed to bribe Mr Templeman by paying him a percentage of the freight earned. That was dishonest assistance by Seatrade in Mr Templeman's breach of fiduciary duty to Fyffes. The question was whether Fyffes could require Seatrade to account for the profit that it had made in providing the shipping services under the service agreement. Toulson J said that there were "cogent grounds, in principle and in practical justice, for following the approach of Gibbs J" in Consul. He therefore held that "the briber of an agent may be required to account to the principal for benefits obtained from the corruption of the agent" (our emphasis). But he decided on the facts that he should not order an account. First, he said that Seatrade would have entered into a service agreement with Fyffes, even if Mr Templeman had not been dishonest. Second, he said that the ordinary profit that Seatrade made under the service agreement was not "caused by the bribery of Mr Templeman". Third, he did not see the equity of ordering Seatrade to account to Fyffes for the whole of its profit, because that would amount to the unjust enrichment of Fyffes. As we read this decision the first two reasons for refusing to order an account related to the question of causation; and the third to the overall equity of the result.
- In Murad, Arden LJ said at para 69:
"Reliance has been placed … on the Fyffes case where Toulson J declined to make an order for an account of profits in favour of the principal of a bribed agent as against the briber because the transaction with the defrauded principal was one into which the defrauded principal would have entered in any event. Toulson J held that those profits were attributable to the provision of services under the agreement, not the payment of the bribe. On the face of it, this holding is precluded by the Regal case. However, while it is not entirely clear, it may be that this should be treated as a case where the wrongdoer was held to be entitled to an allowance for its services despite his fraudulent conduct."
- The Regal case (Regal (Hastings) Limited v Gulliver  2 AC 46) to which Arden LJ referred was a case about true fiduciaries. The principle that it established was described by Lord Russell thus:
"The rule of equity which insists on those, who by use of a fiduciary position make a profit, being liable to account for that profit, in no way depends on fraud, or absence of bona fides; or upon such questions or considerations as whether the profit would or should otherwise have gone to the plaintiff, or whether the profiteer was under a duty to obtain the source of the profit for the plaintiff, or whether he took a risk or acted as he did for the benefit of the plaintiff, or whether the plaintiff has in fact been damaged or benefited by his action. The liability arises from the mere fact of a profit having, in the stated circumstances, been made." (Emphasis added)
- Toulson J was not, however, dealing with the case of a fiduciary; but with a dishonest assistant. So the Regal case does not in terms preclude his decision. In Murad Jonathan Parker LJ said at para 120:
"Like Arden LJ … I have difficulty in reconciling Toulson J's reasoning in the above passage with the authorities to which I have referred, and I note that it appears from the report of the case that none of those authorities was cited to Toulson J apart from Target v. Redferns (a case concerning equitable compensation for breach of trust). Had the judge been addressing a claim for equitable compensation for breach of trust, his reasoning would in my judgment have been entirely in accordance with authority (see paragraph 110 above); but in the context of the "no conflict" rule, the authorities, as I read them, preclude such an approach."
- It is fair to say that although these passages do not in terms disapprove or overrule Fyffes, they proceed on the assumption that precisely the same principles as regards causation apply in the case of a dishonest assistant as apply in the case of a true (but defaulting) fiduciary. But whether that assumption is correct was not before the court and neither Arden LJ nor Jonathan Parker LJ explicitly considered the question. Moreover in Satnam at page 671g-j this court held that the principle in Regal and Boardman v Phipps  2 AC 46 did not apply to one who was alleged to be no more than a knowing recipient of trust property. As Nourse LJ put it: "In the absence of a fiduciary duty the principle of those cases cannot apply." Satnam was not referred to in Murad. We do not consider that Murad will bear the weight that Mr Brindle seeks to place on it.
- Where the dishonest assistant is sued for losses, the cases do show that a causal connection is required: Grupo Torras SA v Al-Sabah  CLC 221 at para 119; Casio Computer Co Ltd v Sayo  EWCA Civ 661 at para 15:
"…in a claim for dishonest assistance it is not necessary to show a precise causal link between the assistance and the loss…. Loss caused by the breach of fiduciary duty is recoverable from the accessory. This is the relevant causal connection for this purpose."
- It is important to appreciate the special position in which a fiduciary finds himself. The essence of the relationship between a fiduciary and beneficiary is that the latter has placed his trust in the former. The core duty of the fiduciary is single minded loyalty to his beneficiary. Thus the breach of duty does not consist in the making of a profit by the fiduciary, but in the keeping of it for himself. That is not a breach of a personal obligation; it is an abuse of the trust and confidence placed in him by his principal who put him in a position to make the profit because he trusted him not to serve his own interests. Equity's response to the breach of this trust is not to give redress for the breach in the form of equitable compensation but to enforce the duty: see Millett Bribes and Secret Commissions Again  CLJ 582. It is this attitude of equity which explains why a true trustee cannot raise a limitation defence against his beneficiary: see Williams at para 13.
- We agree with Mr Berry that in the case of one who is not a fiduciary this approach is inappropriate, for the dishonest assistant has no pre-existing duty whose scope can be determined and enforced. It seems to us therefore that the scope of the wrongdoer's liability must be determined by reference to some other principle. In the case of a claim against a fiduciary for equitable compensation (as opposed to an account of profits) in respect of a breach of duty a court of equity will apply a "but for" test of causation, thus precluding recovery for loss that would have occurred even if the breach of duty had not taken place, although the common law rules of causation and remoteness do not apply in such a case: Target Holdings Ltd v Redferns  AC 421. Lord Browne-Wilkinson concluded in that case:
"Equitable compensation for breach of trust is designed to achieve exactly what the word compensation suggests: to make good a loss in fact suffered by the beneficiaries and which, using hindsight and common sense, can be seen to have been caused by the breach."
- Although Target was treated as a case of breach of fiduciary duty, it was in fact a case of misapplication of trust property by a fiduciary, and in that respect is, to some extent, controversial: see Mitchell: Stewardship of Property and Liability to Account  Conv. 215. A fiduciary duty is one that springs from the trust and confidence reposed in the fiduciary. Its key component is single-minded loyalty. But not all duties owed by fiduciaries are fiduciary duties. Thus, for example, the duty imposed by equity upon a fiduciary to use proper skill and care in the discharge of his duty, although arising in equity, is not a fiduciary duty: Bristol & West BS v Mothew  Ch 1, 16. As Millett LJ went on to explain in that case:
"Although the remedy which equity makes available for breach of the equitable duty of skill and care is equitable compensation rather than damages, this is merely the product of history and in this context is in my opinion a distinction without a difference. Equitable compensation for breach of the duty of skill and care resembles common law damages in that it is awarded by way of compensation to the plaintiff for his loss. There is no reason in principle why the common law rules of causation, remoteness of damage and measure of damages should not be applied by analogy in such a case. It should not be confused with equitable compensation for breach of fiduciary duty, which may be awarded in lieu of rescission or specific restitution."
- In our case Mr Nikitin was not a fiduciary either as regards NOUK or the ship owning companies. He is not sued for a breach of fiduciary duty. He is sued because he has committed an equitable wrong. Where a claim based on equitable wrongdoing is made against one who is not a fiduciary, we consider that, as in the case of a fiduciary sued for breach of an equitable (but non-fiduciary) obligation, there is no reason why the common law rules of causation, remoteness and measure of damages should not be applied by analogy. We recognise that these rules do not apply to the case of a fiduciary sued for breach of a fiduciary duty; but that is because the two cases are different. Arden LJ made this clear in Murad at para 74. We note also that in Satnam some three pages of the court's judgment (665-668) were devoted to considering the question of causation.
- The common law does not usually apply a simple "but for" test of causation. The common law distinguishes between a breach which is the effective cause of a loss and one which is merely the occasion for the loss. How to distinguish between the two is a question of the application of common sense: Galoo Ltd v Bright Graham Murray  1 WLR 1360. Common sense, as we have seen, also plays its part in determining the extent of equitable compensation.
- The question of causation has a bearing on the fashioning of the account. Even in the case of a fiduciary the cases stress the importance of identifying as precisely as possible the extent of the benefit or profit attributable to the breach of fiduciary duty.
- The judge dealt with the question of causation at a number of points in his judgment. At para 513 he posed the question whether as regards causation the dishonest assistant was in the same position as a fiduciary. He referred to the well-established proposition that, in the case of a fiduciary, it is no defence to say that the profit would have been earned anyway even if there had been no breach of fiduciary duty; and said at para 518:
"It seems to me that the same should apply to the assister in respect of whom the need for deterrence is similar."
- However, in the following paragraph 519 he said:
"In the present case, a sufficiently direct casual connection between the assistance and the profit is to be found given that the profit from the deployment of the vessels the subject of the Henriot Finance charters could not have been earned unless those charters had been entered into, and is, thus, a profit which results from Henriot Finance entering into those charters – which, itself, constitutes the dishonest assistance given to Mr Mikhaylyuk's breach of fiduciary duty."
- Thus in para 518 he said that the same test should apply to the dishonest assistant as applies to a fiduciary; and in para 519 he said first that there was a "sufficiently direct causal connection" but then in the same paragraph he appears to us to apply a simple "but for" test of causation. But he then went on to say in para 520:
"It is no defence to say that the charters were at commercial rates and not disadvantageous to the owners; or that, if there had been no breach of fiduciary duty, they would have been made anyway and at the same rates or that Henriot Finance would have made the same profit anyway by the charter of other vessels."
- We agree with Mr Berry that that paragraph appears to disavow even a "but for" test of causation.
- For the reasons we have given we do not agree with the judge that the same considerations that apply to a fiduciary apply to a dishonest assistant who has no fiduciary duties. We agree with the judge that if Mr Nikitin (or his companies) had not entered into the Henriot charters, the profits would not have been made. In other words, "but for" entry into the charters the profits would not have been made. But in our judgment the simple "but for" test is not the appropriate test. In our judgment what Mr Nikitin acquired as a result of his dishonest assistance (and also as a result of Mr Mikhaylyuk's breach of fiduciary duty) was the use of the vessels at the market rate. That was merely the occasion for him to make a profit. The real or effective cause of the profits was the unexpected change in the market. As the judge recognised at para 525 Mr Nikitin made the profits "because he judged the market well".
- We would therefore hold that there was an insufficient direct causal connection between entry into the Henriot charters and the resulting profits. We must stress, however, that had Mr Nikitin been a true fiduciary, and had entry into the Henriot charters been a breach of fiduciary duty, then the causation test we have adopted would not have applied.
- We said that there was a qualification to our agreement with Snell and it is this. What the ship owning companies wanted to do was to charter their vessels on time charters at market rates. That is what they achieved. As Arden LJ put it in Murad at para 85:
"The kind of account ordered in this case is an account of profits, that is a procedure to ensure the restitution of profits which ought to have been made for the beneficiary and not a procedure for the forfeiture of profits to which the defaulting trustee was always entitled for his own account."
- Since the ship owning companies wished to avoid the risk of fluctuating rates for freight, and wished to secure a long term income, they necessarily wished to lay off the risk on to the charterer. Thus the profits that Mr Nikitin in fact made were the kind of profits that the ship owning companies deliberately decided to forgo. In our judgment they cannot be described as profits which ought to have been made for the beneficiary, and therefore they fall outside the rationale for the ordering of an account.
- Mr Brindle relied on the inflexible rule of equity that where a fiduciary has made an unauthorised profit within the scope of his duty he is bound to account for it to his principal. We do not wish to cast any doubt on that well-established principle. But at the risk of tedium we repeat that Mr Nikitin was not a fiduciary and is not sued for any breach of fiduciary duty.
- We consider that where a claim for an account of profits is made against one who is not a fiduciary, and does not owe fiduciary duties then, as Lord Nicholls said in Blake, the court has a discretion to grant or withhold the remedy. We therefore agree with Toulson J in Fyffes that the ordering of an account in a non-fiduciary case is not automatic. One ground on which the court may withhold the remedy is that an account of profits would be disproportionate in relation to the particular form and extent of wrongdoing: see Satnam at 672b-c; Walsh v Shanahan  EWCA Civ 411. In our judgment that is the case here.
- We allow the appeal in so far as it relates to the Henriot charters on the grounds that (a) no sufficiently direct causal link has been established and (b) because an account of profits would be disproportionate on the facts of this case.
(12) The KUZBASS and the KASPIY
- In view of our conclusion on the Henriot charters the separate point relating to the KUZBASS and the KASPIY does not arise. We will therefore express our conclusions shortly. Each of these two vessels was owned by a separate Maltese company. At the time of the events with which we are concerned the two companies were managed by NSC and NOUK acted as their chartering agent. However, before the action began the two companies were sold out of the group and they have since been wound up and dissolved in Malta. Accordingly, they no longer exist.
- The question thus arises whether NOUK, rather than the ship owners, is entitled to recover any profits made by Mr Nikitin out of these two vessels. The judge dealt with this very briefly:
" In my judgment that entitlement also extends to NOUK in respect of the Kuzbass and the Kaspiy since in arranging these charters Mr Mikhaylyuk was still acting as an employee of NOUK. He had, as General Manager of NOUK, arranged the hire of the Trogir and he was asked by Mr Izmaylov to assist in that capacity in the fixture of these two vessels when on holiday in Russia. He was never at any material time an employee of any Novoship Group company other than NOUK. The relevant e-mails were sent from his NOUK address and signed by NOUK "as agent only". He availed himself of a chartering report from the chartering department of NOUK in fulfilling his task. He received no reward from NSC. In carrying out this task Mr Mikhaylyuk was acting as an employee and agent of NOUK, and owed it fiduciary duties, even though NOUK, through him was acting for the ship-owning companies which were subsidiaries of Intrigue and, like NOUK, indirect subsidiaries of NSC.
 Accordingly, in negotiating the charters of these two vessels, he owed fiduciary duties to NOUK. As a result those who dishonestly assisted him in the breach of those duties are liable to account to his principals for the profits made thereby. It is no bar to NOUK recovering the profits that Mr Mikhaylyuk and NOUK may also be liable to the owners of the two vessels; or that NOUK could not have earned the profit itself."
- In Powell & Thomas v Evan Jones & Co  1 KB 11 the principal (P) engaged an agent (A) to arrange a loan. A in turn arranged for that to be done by a sub-agent (SA). SA took a secret commission from a third party (TP). The main question was whether P was entitled to recover the secret commission from SA. This court held that the answer was "yes". Collins MR said that SA stood in a fiduciary relation as regards P and that "he would be a debtor as for money received for the use of the persons to whom he stood in that fiduciary capacity". Mathew LJ agreed. Stirling LJ went further. He said that the question was "who were the real principals". He considered that the real principals were P. He continued:
"The question arises, for whom in this case ought the sum paid by way of commission by [TP] to [SA] to be considered to have been earned, and who ought to be considered as really entitled to receive it? It seems to me that [P], and not the plaintiffs [A], are the persons who ought to be considered as so entitled. [SA] was dealing with [A] in their capacity as agents. They could not, without authority from [P], their principals, have authorized him to accept a commission from [TP]. In my judgment, if he had, on the strength of an authority conferred on him by [A], accepted such a commission, it would have been at his own risk; and, if it turned out that [P] had not in fact conferred such an authority on [A], he would have been accountable to [P] for the commission he received. … In these circumstances I think that [P] have a right to call on [SA] to account for the sum which he has received from [TP], as being money improperly accepted by him in the course of his employment without their sanction, and which he is under an obligation to pay over to them, and not to [A], who had no authority from [P] to release him from that obligation, or to deal with it in any way." (Emphasis added)
- If this analysis is right, then it must follow that NOUK ([A] in the example) was not the correct claimant. The correct claimants were the ship owning companies ([P] in the example). For most of the vessels that does not matter very much because the ship owning companies were also joined as claimants and judgment was entered in their favour. But so far as the KUZBASS and the KASPIY are concerned it matters a good deal. Not only are the companies that owned those vessels not parties to the action, they no longer exist. If NOUK recovers Mr Nikitin's profits relating to those two vessels then, on the face of it, it will recover a profit to which it is not entitled, retention of which would itself be a breach of fiduciary duty as regards those companies. Mr Brindle sought to meet that point by saying that NOUK would be under a liability to account for any recovery attributable to those vessels. But that appears to be no more than theoretical. In practical terms the companies no longer exist; we do not know whether they can be revived and if so by whom. As things stand therefore we do not consider that, even if we are wrong about causation, the account of profits should include those attributable to the KUZBASS and the KASPIY. We reach that conclusion for two reasons. First, we find the substance of Stirling LJ's point persuasive and consider that the real claimant was the ship owning company in question. To put the point another way Mr Nikitin's profits were not profits "which ought to have been made" for NOUK: see Murad at para 85. Second, even if that is wrong, on the facts as we know them the inclusion of profits attributable to the KUZBASS and the KASPIY would amount to an unjust enrichment of NOUK because it would leave them with an unauthorised profit in circumstances where there is no practical possibility that that profit would be passed on to the person "really entitled to receive it".
The Cross-Appeal: Judgment Debt Interest
- On 14th December the judge gave judgment in favour of NOUK against Mr Nikitin and his companies in the sum of US$108,497,732.39, together with interest as agreed between the parties at 2.5% over the three-month US dollar LIBOR rate compounded with three-monthly rests. By the time of the hearing of the appeal the total judgment debt amounted to some US$153 million and continues to grow. The judge also dealt with various consequential matters, including an application by Mr Nikitin for a stay of execution pending appeal. That application was not seriously opposed, but in due course it will be necessary to refer in a little more detail to the circumstances in which the order was made. A decision on the rate at which interest should run on the judgment debt was deferred until 18th January 2013.
- When the matter came back before the judge he made an order in the exercise of his discretion under section 44A of the Administration of Justice Act 1970 ("the 1970 Act") that the judgment debt should carry simple interest at the rate of 2.5% over three-month US dollar LIBOR, rather than the rate of 8% currently prescribed in respect of sterling judgment debts by section 17 of the Judgments Act 1838 ("the 1838 Act") and the Judgment Debts (Rate of Interest) Order 1993.
- NOUK has appealed against that part of the judge's order. It contends that the judge erred in the exercise of his discretion in one or other of two respects: either by departing from the ordinary judgment debt rate of 8%, or by failing to adopt a rate that would adequately compensate it for being kept out of its money pending satisfaction of the judgment.
(i) Departure from the Judgments Act rate
- Section 17(1) of the 1838 Act, as amended, provides as follows:
"Every judgment debt shall carry interest at the rate of 8 pounds per centum per annum from such time as shall be prescribed by rules of court until the same shall be satisfied, and such interest may be levied under a writ of execution on such judgment."
- As originally enacted the 1838 Act provided for a rate of interest of 4%, per annum, but section 44 of the 1970 Act gave the Lord Chancellor power by statutory instrument to vary the rate of interest payable from time to time. The rate was varied on a number of occasions until by the Judgment Debts (Rate of Interest) Order 1993 it was set as 8% per annum, where it has remained ever since, despite significant variations in both the Bank of England Minimum Lending Rate ("MLR") and rates available commercially. As is well known, MLR currently stands at 0.5% per annum.
- The recognition by the House of Lords in Miliangos v George Frank (Textiles) Ltd  A.C. 443 that the courts had power to give judgment in currencies other than sterling prompted the intervention of the Law Commission, which, in its Report Private International Law—Foreign Money Liabilities (Law Com. No.124 (1983), Cmnd 9064), recommended that the court be given the power to fix the judgment debt rate in respect of judgments entered in foreign currency in order to ensure that it fairly reflected interest rates prevailing in respect of loans in the currency in question. That eventually led in 1995 to an amendment to the 1970 Act by the insertion of section 44A, which provides as follows:
"44A.— Interest on judgment debts expressed in currencies other than sterling.
(1) Where a judgment is given for a sum expressed in a currency other than sterling and the judgment debt is one to which section 17 of the Judgments Act 1838 applies, the court may order that the interest rate applicable to the debt shall be such rate as the court thinks fit.
(2) Where the court makes such an order, section 17 of the Judgments Act 1838 shall have effect in relation to the judgment debt as if the rate specified in the order were substituted for the rate specified in that section."
- It seems clear that the Law Commission's recommendation was based on an understanding that the rate of interest payable on sterling judgment debts would be varied from time to time to reflect changes in prevailing interest rates and that the rates of interest payable on foreign currency judgment debts should reflect the same principle. However, there is now a wide divergence between the sterling judgment debt rate and prevailing sterling interest rates, with the result that any attachment to the compensation principle, at least in relation to such debts, has become questionable.
- The judge started from the proposition that the primary purpose of an award of interest is to compensate the creditor for having been kept out of his money. (For convenience we refer to that, as did the judge, as "the compensatory principle"). That is the conventional basis on which interest is awarded on the sum for which judgment is given and in the judge's view there were no sufficient grounds for adopting a different approach to judgment debt interest. However, Mr Brindle submitted that the judge's approach was wrong, because the compensatory principle has been abandoned in relation to sterling judgment debts, the current rate acting as no more than a consistent and readily ascertainable rate which has the added advantage of providing an effective incentive to prompt payment. These considerations are best met in the case of foreign currency judgment debts by adhering to the rate prescribed from time to time in respect of sterling judgment debts. Moreover, he submitted, to award a rate of interest on foreign currency judgment debts which does no more than reflect prevailing commercial rates discriminates unfairly against those creditors. Mr Pillow submitted that the judge had adopted the correct approach, since, notwithstanding the statutory anomalies, the compensatory principle still underpins the award of interest on judgment debts of all kinds.
- We think it is reasonably clear that the original purpose of section 17 of the 1838 Act was to ensure that judgment creditors were not penalised by being kept out of their money. An interest rate of 4% was widely adopted by courts in the 19th century as reflecting a fair rate of return and one sees no sign in the 1838 Act of any intention to provide for an enhanced rate that might act as a spur to prompt payment. Moreover, between the introduction of section 44 of the 1970 Act and the making of the current Order in 1993, the rate was adjusted broadly to reflect changes in prevailing commercial rates for sterling. It is true that amendments sometimes lagged well behind the market, but on the whole there was an attempt to adjust the rate to reflect broad market movements. Certainly, when it published Report No.124 in 1983 the Law Commission understood that the compensatory principle still applied. The Report included the following passage which makes that clear:
"4.8 As we have explained in paragraph 4.1 above, the question of interest on foreign-currency judgments was not canvassed in Working Paper No.80. On consultation, however certain commentators referred to the difference between the rules governing the award of interest on a foreign-currency claim in respect of the period to the date of judgment and the interest that automatically ran on judgments debts; and they suggested that this difference constituted an anomaly. This anomaly arises because the rate of interest applicable from time to time to judgments debts, whether expressed in sterling or in foreign currency, is fixed in the light of the interest rates currently prevailing in the United Kingdom. Thus, for example, the court might exercise its statutory discretion to award interest on a particular foreign-currency debt at the rate appropriate to the currency in question at, for example, 6% per annum in respect of the period from the date on which the debt fell due to the date of judgment, yet the rate of interest prescribed for judgment debts at the date of judgment may be, say, 12%. To express the point in different terms: the judicial development of the rules concerning interest on foreign-currency claims to the date of judgment has not been matched by legislative change relating to the rate of interest that automatically runs on foreign-currency judgment debts."
- The question that arises in this case was considered by Hamblen J. in Standard Chartered Bank v Ceylon Petroleum Corporation  EWHC 2094 (Comm), in which the defendant put forward a number of the arguments now relied on by Mr Nikitin. Judgment was given in US dollars. The judgment creditor sought to persuade the judge that he should not depart from the statutory rate, but the judge was unimpressed. Although he did not say so in terms, he clearly proceeded on the basis that he should apply the compensatory principle. Mr Brindle also drew our attention to Gater Assets Ltd v Nak Naftogaz Ukrainiy (No.3)  EWHC 1108,  2 Lloyd's Rep 295, on which he sought to place some reliance, but the point with which we are concerned was not the subject of argument in that case and we do not find it to be of any assistance.
- Since 1993, when the rate of interest payable on sterling judgment debts was last reviewed, much has happened. It is difficult to deny that the failure to vary the rate broadly in line with changing market conditions has produced the anomaly to which NOUK drew attention, but we are not persuaded that it is one of which, as the holder of a US dollar judgment debt, it can properly complain. The failure of successive Lord Chancellors to keep the sterling rate broadly up to date cannot, in our view, affect the essential purpose of the 1838 Act or the obvious intention of Parliament in giving the court the power to award an appropriate rate of interest on foreign currency judgment debts. If it had intended to impose an arbitrary rate for purposes other than simple compensation, Parliament would no doubt have repealed or amended section 44A of the 1970 Act.
- All this points to the conclusion that the judge was right to hold that the compensatory principle provided sufficient (we might even say compelling) grounds for departing from the prescribed rate applicable to sterling judgments. However, Mr Brindle submitted that the judge should not have departed from the rate prescribed by the 1838 Act, because the application had been made late and in circumstances that prejudiced NOUK. That submission was based on certain comments made by Mr Dowley Q.C. on 14th December 2012 in the context of a discussion about the proposed stay of execution. He had told the judge that NOUK did not actively oppose a stay and would have the benefit of judgment debt interest running while the judgment remained outstanding. Mr Brindle submitted that if Mr Nikitin had it in mind to ask the judge to depart from the sterling rate, he ought to have said so there and then, rather than waiting until the matter came back to court on 18th January 2013.
- We are unable to accept that submission. It is true that when the stay was being discussed Mr Dowley referred to the fact that judgment debt interest would be running in the meantime and we are prepared to accept that NOUK thought that it would accrue at the rate of 8% in accordance with section 17 of the 1838 Act. However, we are unable to accept that the stay was granted on the clear understanding that interest would accrue at 8%, partly because NOUK did not make its position clear about that and partly because the whole question of judgment debt interest had been put over to January. It is interesting to note that, when Mr Nikitin asked the judge to adopt a lower rate more suitable to a US dollar debt, NOUK did not seek to argue that it was precluded from doing so because it had obtained a stay of execution on terms that the sterling rate would apply; nor did it seek to have the stay lifted on the grounds that it would not be just to maintain it under those circumstances. Given the course of the proceedings before the judge on 14th December 2012, we do not think that Mr Nikitin can be criticised for not raising the issue more clearly at that time.
- For these reasons we do not think that the judge was wrong to exercise his discretion to depart from the rate prescribed by the 1838 Act.
(ii) The appropriate rate
- Mr Brindle submitted that if the judge was right to adopt an interest rate that was more appropriate to a US dollar judgment debt, he should have chosen a higher rate in order to give proper effect to the compensatory principle. His submission was based on the fact that the judge had awarded NOUK compound interest in respect of the period down to the date of judgment, but only simple interest at the same rate on the judgment debt. If compound interest to the date of judgment was appropriate to give effect to the compensatory principle, he submitted, the same should in principle apply thereafter. However, since the judge did not have the power to award compound interest on the judgment debt, he should have adopted a higher rate to achieve the same result.
- Although the statutory provisions giving the court power to award interest on sums for which judgment is given provide only for the award of simple interest, the practice of equity has long been to award compound interest in appropriate cases. These include cases in which an order is made for an account of profits to be taken and payment of the amount found to be due. When passing the 1838 Act, therefore, Parliament must be taken to have been aware that in some cases the interest payable on a judgment debt might, because of the absence of compounding, be less generous to the creditor than that which the court had awarded on the judgment sum. The statutory provisions can therefore be taken in part to reflect a policy decision to that effect.
- The judge dealt with the point very briefly. He considered that the cessation of compounding was a necessary consequence of entering judgment and thus appears to have accepted that there was a policy behind the legislation which he ought to apply. In the eye of the law simple interest is generally regarded as adequate compensation and we think he was right in taking that view. Moreover, to award an artificially high rate of interest in order to achieve the equivalent of an award of compound interest poses its own problems, since the court cannot know how long the judgment will remain outstanding. Quite apart from that, the discretion given to the judge by section 44A of the 1970 Act is very broad and is one with which this court is likely to interfere only in the clearest of cases. In our view the order made by the judge in this case was well within the broad ambit of his discretion.
- For these reasons NOUK's cross-appeal will be dismissed.
- We therefore allow the appeal to the extent of setting aside paras 1(d) and (f) of the judge's order in so far as they award an account of profits against Mr Nikitin and Henriot. We dismiss the appeal in relation to the US$410,304.39 due from Amon pursuant to para 1(e) of the order and we dismiss the cross-appeal.