Fiona Trust & Holding Corporation Ors v Privalov Ors

When Mr. Skarga became Director-General of Sovcomflot in May 2000, Sovcomflot employed the services of several different brokers, but they bought and sold vessels mainly through Sovchart, and the managing director of Sovchart, Mr. Prezanti, handled this business. Mr. Prezanti used the services of a broker called Mr. Dick Bergstrom, who traded as Shipcraft, and he sometimes instructed Arrow Shipbrokers to provide valuations. At a meeting on 20 August 2000 of Sovcomflot’s Executive Board, concern was expressed about Mr. Prezanti’s work. He was suspended and then dismissed by Sovchart in the autumn of 2000. According to Mr. Borisenko, Mr. Skarga decided that Mr. Prezanti should be dismissed, but in any case the decision was discussed by the Executive Board and Mr. Skarga was not acting alone. Mr. van Boetzelaer was appointed as managing director of Sovchart in place of Mr. Prezanti.

There were sensible reasons that Sovcomflot should change their broking arrangements. Mr. Bergstrom, who operated from a flat in Moscow, was not well placed to handle a major fleet renewal programme such as Sovcomflot planned. After Mr. Prezanti was dismissed, Sovcomflot therefore no longer used Sovchart as their brokers for sales and purchases. Mr. van Boetzelaer tried to interest Sovcomflot in giving Sovchart instructions to sell some vessels in late 2000 and early 2001, but, after Mr. Prezanti had been dismissed, Sovcomflot used Sovchart only as chartering brokers.

Accordingly, Sovcomflot went about finding new brokers for their sale and purchase business. Mr. Nikitin became aware of this from Mr. Skarga. He suggested that Sovcomflot might consider using Simpson Spence & Young (“SSY”), and he also told Mr. Skarga of two other firms whom he used for broking chartering fixtures: Alexia Shipping of Helsinki, where Mr. Mikko Jahonen worked, and Italia, where Mr. Carlo Cepollina and his brother Mr. Claudio Cepollina were brokers. Mr. Skarga had known Italia from when he worked for Kinex, and because Sovcomflot had sometimes used them as brokers.

Mr. Skarga and others at Sovcomflot had meetings in Moscow with a number of brokers to assess whether they would be suitable for their business, and he and Mr. Borisenko came to London between 29 October and 2 November 2000 to meet others. Before coming to London, Mr. Skarga and Mr. Borisenko went to Cyprus between 24 and 27 October 2000 because two of Sovcomflot’s Cypriot subsidiaries, Unicom and FGML, were being merged. Mr. Privalov’s evidence was that he met Mr. Skarga and Mr. Borisenko in Cyprus “towards the end of the year, possible late October/early November 2000”, and they had a general discussion about re-structuring of the fleet, and about how to improve Sovcomflot’s finances and commercial position. He said that they also discussed a proposal that Sovcomflot should sell three tankers, the “Liepaya”, the “Limbhazi” and the “Rikhard Zorge”, in order to acquire more modern

However, Mr. Privalov did assist to make arrangements for the visit of Mr. Skarga and Mr. Borisenko to London. Mr. Lyashenko advised him of brokers who might be suitable to work for Sovcomflot, including, according to Mr. Privalov, Arrow Shipbrokers and Mr. Richard Gale of Clarkson. In fact, Mr. Skarga and Mr. Borisenko did not meet Clarkson on this visit. There were meetings with Howe Robinson, Arrow Shipbrokers, Braemar and SSY, and Mr. Borisenko and Mr. Privalov attended at least some of them with Mr. Skarga.

Mr. Borisenko denied that he was involved in Sovcomflot’s sale and purchase transactions, and denied that on this visit he met any brokers to consider them for Sovcomflot’s purchase and sale business. I consider that his evidence gave a false picture of his involvement. Mr. Borisenko agreed that he discussed the Megaslot vessels over lunch with Howe Robinson, although he had little recollection of the conversation. SSY prepared a presentation for “Sovcomflot and Fiona – Mr. Dmitri Skarga, Mr. Igor Borisenko, Mr. Yuri Privalov”. Further, on another visit to London in late 2000 or early 2001 Mr. Borisenko attended a presentation by Clarkson, when they were, as I shall explain, seeking to win Sovcomflot’s business. This is reflected in an e-mail sent to Mr. Privalov in May 2001 by a Mr. Tom Cutler, who had worked for Clarkson and who referred to making a presentation at a meeting organised by Mr. Gale to Mr. Skarga, Mr. Borisenko and Mr. Privalov. Mr. Borisenko said that the meeting with Clarkson was “not my business in reality”, that he was “not paying attention to those meetings at all” and that he had no recollection of it. He was attempting to give the impression that Mr. Skarga alone was responsible for the decision to engage Clarkson as Sovcomflot’s brokers for sale and purchase business, and so to implicate him in Mr. Nikitin’s arrangement with Clarkson, but I do not consider his evidence to be reliable. Similarly, in his witness statement of 11 June 2009 Mr. Privalov denied that he attended the meeting with SSY, but, when he was shown in cross-examination the documentary evidence about SSY’s presentation, he accepted that he did so.

The claimants submitted that Mr. Skarga made no real attempt when he came to London in October and November 2000 to find a suitable broker for Sovcomflot’s sale and purchase business, and that the purpose of the meetings was only for Mr. Skarga to familiarise himself with the shipping market on a general level. Of course, these meetings were by way of first introductions to the brokers, and the documentary evidence about the meeting with SSY shows that they made a presentation about chartering rates. Mr. Skarga agreed that the “approach was a general one” and the visit to London was the occasion for a “kind of a roadshow of brokers”. Sovcomflot did not reveal to brokers much about the potential business that they might be placing. In the event, Sovcomflot were not sufficiently impressed by any of the brokers that they met on their first trip to enter into discussions about a broking relationship with them. But I accept Mr. Skarga’s evidence that he and Mr. Borisenko were genuinely looking for potential brokers for Sovcomflot’s sale and purchase business and in particular for the fleet modernisation programme that was planned. (The claimants submitted that Mr. Skarga would have had no reason to meet

At about this time, towards the end of 2000 and in early 2001, Mr. Privalov began to have some involvement with Sovcomflot’s ship sales and purchases. Before Mr. Skarga had joined Sovcomflot, Sovcomflot had decided to sell the “Liepaya”, the “Limbhazi” and the “Rikhard Zorge”. In November 2000 Mr. Cepollina told Mr. Skarga that a client of his might be interested in buying them, and Mr. Skarga asked Mr. Privalov to handle the enquiry. On 29 November 2000, the General Board gave approval to a proposal by Mr. Skarga and Mr. Terekhin that these tankers (and a fourth tanker) be sold as part of the fleet modernisation programme, agreements for their sale were reached, the vessels were delivered in early 2001 (or at least in the first quarter of the year) and the Executive Board resolved to approve the sales on 7 February 2001. In 2000 Mr. Privalov was also concerned with a proposal to order six container vessels to be built at Hanjin Heavy Industry in Korea and time chartered to Hanjin Shipping, but in fact the project was abandoned at about the end of 2000. (The claimants observed that, since Clarkson were apparently involved with this proposal, Mr. Privalov was working with Clarkson before November 2000. To my mind the evidence is too obscure to draw any firm conclusion about this.) The claimants submitted that Mr. Skarga alone decided to involve Mr. Privalov in ship sales and purchases, but I accept Mr. Skarga’s evidence that he acted with the concurrence and upon the advice of Mr. Borisenko.

Therefore, as I find, the background to the arrangement reached between Clarkson and Mr. Nikitin was that (i) Sovcomflot were looking for suitable brokers to handle their sale and purchase business; (ii) Mr. Nikitin heard about this from Mr. Skarga and suggested some brokers whom Sovcomflot might use; (iii) Mr. Skarga was taking a lead in the search, but he was not acting alone and in particular Mr. Borisenko was closely involved in it; and (iv) Sovcomflot were starting to use Mr. Privalov to assist with the sale and purchase of vessels.

There was some difference in the evidence about when and where Mr. Nikitin and Mr. Privalov first met. Mr. Privalov said that on Mr. Skarga’s instructions he met Mr. Nikitin in “early autumn, possibly September 2000” at a dinner at Scott’s Restaurant in London, which was also attended by Mr. Skarga and Mr. Claudio Cepollina. Although Mr. Nikitin said in his witness statement dated 13 February 2009 that he could not remember his first meeting with Mr. Privalov, he later recalled meeting him at the Square restaurant in London over a meal with Mr. Pavlov. He said that neither Mr. Skarga nor Mr. Cepollina was present at the restaurant, but that he and Mr. Privalov had a meeting with Mr. Cepollina the following day. The difference between the witnesses about this is not important and I cannot resolve it. On any view before the end of 2000 Mr. Privalov had met Mr. Nikitin in London.

Clarkson began to act as Sovcomflot brokers in early 2001. There is no dispute that at about that time they entered into an understanding with Mr. Nikitin that they would make payments to him or upon his instructions in respect of the business that they conducted for Sovcomflot. There are differences between the parties about how the understanding, to which I shall refer as the “Clarkson arrangement”, came about.

It is the claimants’ case that the Clarkson arrangement was made in or about December 2000 or early January 2001 when Mr. Skarga and Mr. Nikitin, through Mr. Privalov, entered into an arrangement that Clarkson would be instructed by companies in the Sovcomflot group to act as their brokers in return for Clarkson ensuring that substantial sums were paid to Mr. Nikitin or in accordance with his directions. Thus, Clarkson were retained as the Sovcomflot Group’s brokers for their sales and purchases, and Clarkson paid to the recipient companies sums amounting typically, but not always, to 1.5% of the price both (i) when Sovcomflot sold vessels, the payments for Mr. Nikitin coming, according to the claimants, from Clarkson charging Sovcomflot inflated commissions; and (ii) when Sovcomflot bought newbuildings, the payments being funded, it is said, from address commissions that the yards paid on the understanding that the purchasers would receive them; and (iii) in one case, when Sovcomflot bought two second-hand vessels.

Mr. Privalov’s evidence was that he identified Mr. Gale as a potential broker for Sovcomflot, having been introduced to him by Mr. Lyashenko some months earlier. When Mr. Privalov was asked to assist with the sale of the “Liepaya” and the two other vessels, at Mr. Lyashenko’s suggestion he asked Mr. Gale to investigate the market for potential purchasers. This is reflected in an e-mail from Mr. Privalov to Mr. Gale on 2 January 2001 in which he provided Mr. Gale with details of the vessels’ itineraries. After that, according to Mr. Privalov, Mr. Gale “began pushing to get some of Sovcomflot’s business”, and was involved with the proposal to have container vessels built by Hanjin Heavy Industry. Accordingly, when Mr. Nikitin and Mr. Skarga told him to ask Clarkson whether they would be prepared to generate commissions “for a third party” when conducting Sovcomflot’s business, Mr. Privalov spoke to Mr. Gale. As instructed, he told Mr. Gale at a meeting over coffee that, if Clarkson wanted business from Sovcomflot, they would have to pay commissions to a third party: his evidence was that he probably did not identify Mr. Nikitin initially. He said that this conversation “Would be January/February, something like this”. After about two weeks Mr. Gale agreed to the proposal, and so the Clarkson arrangement came about. However, according to Mr. Privalov at this initial stage nothing was said about the payments being funded by diverting what sellers intended to pay as address commissions, and he did not realise that this was being done until later in 2001, after the Clarkson arrangement had been put into operation, he saw correspondence between Clarkson and a shipyard which revealed this.

According to Mr. Privalov, Mr. Gale did not meet Mr. Nikitin until after the Clarkson arrangement had been operating for several months. At Mr. Nikitin’s request, he arranged a meeting for them to be introduced over lunch or tea at the Ritz, and at the meeting Mr. Nikitin expressed satisfaction with the deals that had been done by Clarkson.

According to Mr. Nikitin, he did not need Mr. Privalov to introduce him to Mr. Gale. He had known Mr. Gale since the mid 1990s, and his arrangement with Clarkson came about as follows. In 2000 he and Mr. Skarga had had discussions about which brokers might be suitable to handle Sovcomflot’s business, and initially he had suggested SSY, Italia and Alexia Shipping. In his witness statement of 13 February

Mr. Nikitin’s evidence was that he asked whether Clarkson would pay commissions for the business introduced and Mr. Gale indicated that they would do so. I shall return to Mr. Nikitin’s evidence about what arrangement he reached with Mr. Gale when I consider the part 20 claim that he and Milmont bring against Clarkson.

Mr. Nikitin and the Standard Maritime defendants present the Clarkson arrangement as a straightforward understanding that Clarkson were to pay to companies nominated by Mr. Nikitin introductory commissions from what they earned from business that he introduced to them, under which they did in fact make such payments. It continued for some years, but initially Mr. Nikitin did not expect that there would be more than a few transactions. From his discussions with Mr. Skarga, Mr. Nikitin knew how Sovcomflot were thinking of developing their fleet, and indeed on occasions, through conversations with Mr. Skarga, Mr. Nikitin prompted or guided Sovcomflot’s thinking. He was therefore in a position to suggest to Mr. Gale proposals that he might suitably put to Sovcomflot, and, if they were accepted, Mr. Gale recognised Mr. Nikitin’s contribution towards obtaining business for Clarkson. Mr. Nikitin denied that he ever contemplated that Clarkson would increase the commissions that they charged Sovcomflot in order to remunerate him: his understanding, he said, was that total commissions on ship sale and purchase transactions were commonly around 3%, and generally Clarkson’s commissions were not above that level. If Mr. Privalov, Mr. Gale or Clarkson were guilty of deceit or other impropriety in their dealings with buyers, sellers or yards, that was outside the Clarkson Agreement and done without Mr. Nikitin’s involvement, encouragement or knowledge.

Mr. Skarga’s case is that Clarkson came to be Sovcomflot’s main brokers for the fleet renewal programme, and they introduced to Sovcomflot valuable ideas about how the tanker fleet might be restructured and modernised. In the autumn of 2000, after SSY had failed to impress him, Mr. Nikitin suggested that Sovcomflot might engage Clarkson, and in particular he mentioned Mr. Gale. Mr. Skarga asked Mr. Privalov to have Clarkson evaluate the Sovcomflot fleet and to consider using their broking services for ship sales and purchases. Mr. Privalov and Mr. Nikitin never discussed the Clarkson arrangement with him, and he did not know of it or that Mr. Nikitin or his companies had any financial arrangement with Clarkson or Mr. Gale.

Mr. Skarga’s evidence was that he first met Mr. Gale and other employees of Clarkson in the spring of 2001 when he and Mr. Borisenko attended a presentation at Clarkson’s offices in London, and they later met Mr. Gale with Mr. Privalov at FML’s offices and had a general discussion about the market for selling and buying vessels. Clarkson’s standing in the market impressed him, and they satisfied him that they had good relations with major shipyards. In 2001 Mr. Privalov increasingly assumed responsibility for managing Sovcomflot’s sale and purchase transactions,

Clarkson’s case is that Mr. Nikitin never provided any ideas or other service for the payments that were made to Milmont and the other recipient companies, and that there was no agreement with Mr. Nikitin to pay him (or others upon his instructions). They paid the recipient companies simply because they understood from Mr. Privalov that otherwise they would not receive further instructions for Sovcomflot’s business and they were anxious to retain it. Clarkson also adopted the claimants’ contention that the payments were made in the course of a dishonest and unlawful conspiracy in which Mr. Skarga, Mr. Privalov and Clarkson were bribed or otherwise prevailed upon to act in breach of their duties to the claimants, and that therefore the arrangements whereby payments were made to the recipient companies were illegal. They did not call any evidence from any witness with contemporaneous knowledge of the Clarkson arrangement.

The issues between the parties and differences between the accounts given by the witnesses about how the Clarkson arrangement was made therefore include (i) whether Mr. Skarga was party to making it; and (ii) whether Mr. Privalov made the Clarkson arrangement with Mr. Gale, and introduced Mr. Gale to Mr. Nikitin.

The only evidence that Mr. Skarga was party to making the Clarkson agreement was given by Mr. Privalov, and I do not regard it as credible. Mr. Privalov was generally an unreliable witness, and his accounts about when and how the Clarkson arrangement was made have been inconsistent. In 2006 he told Ince & Co that he learned of the Clarkson arrangement only in about May 2001. Mr. Privalov said in cross-examination that this was not dishonest but that he was “down-playing [his] role”. To my mind this account is so different from his evidence at the trial that one of his versions of events must have been deliberately untrue. In his witness statement of 12 February 2009 he described a meeting at which Mr. Skarga and Mr. Nikitin instructed him to approach Clarkson to propose what was essentially the Clarkson arrangement, clearly implying that he first heard about the proposal at that meeting: he could not recall whether the meeting was in Moscow or London. In crossexamination he said that he first learned about a proposal to “generate commissions” for payment to a third party at an earlier discussion in London with Mr. Skarga alone. I cannot accept that there was any such discussion, or that Mr. Privalov believed that there had been. If there had been, he would have mentioned it before his crossexamination. He was giving false evidence in order to implicate Mr. Skarga in the Sovcomflot Clarkson commissions scheme.

Mr. Privalov also gave the only direct evidence that he introduced Mr. Gale to Mr. Nikitin and was involved in bringing about the Clarkson arrangement. His various accounts about this too have been inconsistent. Mr. Nikitin’s evidence was that he learned that Mr. Privalov was aware of the Clarkson arrangement only when Mr. Privalov mentioned it “at some point around the summer of 2001”, when, as he recalled, Mr. Privalov said that Mr. Gale had told him of it. The claimants submitted that I should reject Mr. Nikitin’s evidence about this and accept that Mr. Privalov was involved with the Clarkson arrangement from the start and helped to bring it about. They put forward three main arguments.

First, the claimants said that Mr. Nikitin’s account of the origins of the Clarkson arrangement is unconvincing. He would have had no reason to consider Mr. Gale a suitable broker to introduce or to recommend to Sovcomflot. As he acknowledged, he had had no professional dealings with Mr. Gale, but nevertheless he said that he considered that Mr. Gale was “a reliable and trustworthy broker” on the basis of discussions with him and because he understood that he was a director of Clarkson. (In fact, Mr. Gale was not appointed to Clarkson’s board until 11 February 2004.) Moreover, if, as Mr. Nikitin said, he knew Mr. Gale and had a high regard for him, he had no credible explanation that he did not recommend him to Mr. Skarga from the start. As I have said, in his first discussions about brokers with Mr. Skarga, he recommended SSY, Italia and Alexia Shipping, although his contact with SSY, Mr. Mike Ashford, was at least primarily a chartering broker, and Italia and Alexia Shipping were much smaller companies than Clarkson. I agree that Mr. Nikitin does not appear to have had convincing reasons for recommending Mr. Gale to Sovcomflot, but that does not mean that he did not make the introduction. When Sovcomflot had been unimpressed by his earlier suggestions, Mr. Nikitin would have had every reason to make another introduction in the hope that would be more successful and that he might earn introductory commissions, even if he did not actually know much about the brokers or have any very substantial reason for the recommendation.

Secondly, Mr. Nikitin’s account about his exchange with Mr. Privalov when he was told that Mr. Privalov was aware of the Clarkson arrangement was in some ways surprising. According to the pleading of Mr. Nikitin and Milmont in the part 20 claims in the Fiona action, Mr. Gale had agreed that the Clarkson arrangement should remain confidential “save to the extent required by law”. Therefore, according to Mr. Nikitin, Mr. Privalov had apparently learned about it from Mr. Gale although Mr. Gale had agreed with Mr. Nikitin not to speak about it. Nevertheless, on his account, neither was Mr. Nikitin interested whether others at Sovcomflot had been told about the arrangement nor did he ask Mr. Privalov to treat what he knew as confidential. It is, to my mind, curious that Mr. Nikitin would have been so unconcerned about whether Sovcomflot had learned of his arrangement with Clarkson, which was already proving very profitable to him. Mr. Privalov, for his part, is not said to have enquired of Mr. Nikitin why he was being paid. In fact, I conclude that Mr. Privalov knew of the arrangement before the summer of 2001. In March and April 2001 Mr. Privalov had been engaged with Mr. Gale in negotiations which were to generate funds to pay Mr. Nikitin, and I conclude that by then at the latest he probably knew that Clarkson had agreed to pay Mr. Nikitin (or to make payments to his order) in respect of business that they conducted for Sovcomflot. However, even if Mr. Privalov knew of the arrangement earlier than his conversation with Mr. Nikitin might indicate and even if Mr. Nikitin did not learn about Mr. Privalov’s involvement with Mr. Gale in the circumstances that he described, this does not necessarily mean that Mr. Privalov was party to introducing Mr. Gale to Mr. Nikitin and making the Clarkson arrangement.

Thirdly, and importantly, the claimants submitted that two draft letters prepared by Mr. Wettern corroborate Mr. Privalov’s evidence that, having introduced Mr. Gale and Mr. Nikitin, he was party to the Clarkson arrangements from the start. The Clarkson arrangement was not recorded in any written agreement when it was made, but in early 2001 Mr. Wettern drafted two forms of letter which, as the claimants contend, were designed to provide an explanation for payments made by Clarkson in accordance with it. Mr. Richard Latham, an IT manager employed by WFW, provided evidence (in the form of a witness statement) that the two documents, which were stored on WFW’s Document Management System in electronic files, were created on 2 and 18 January 2001, and I infer that the drafts were prepared by Mr. Wettern on those dates. Both drafts bore the date “[ ] January 2001”. Because of the importance that the claimants attach to them, I shall set them out.

The draft of 2 January 2001 was of a letter from Clarkson to FML, which read as follows:

“We are writing to you following our discussions about the continuation of Clarkson as brokers for the Fiona Group. We well appreciate that, when ordering new ships or arranging for sale or purchase of secondhand ships, there may be commercial requirements for the Fiona group to have two prices, a “headline” price and a net price actually payable or receivable by the Fiona Group as purchasers or sellers. In these circumstances, we are willing to act as intermediary on behalf of the Fiona Group, to collect and then to distribute an address commission for the benefit of the Fiona Group. We would achieve this by receiving a total commission payment equal to the aggregate of:

(a)

our own broker’s commission, as agreed with the

Fiona Group from time to time; plus

(b)

the address commission.

You will indicate to us in relation to each transaction how much address commission should be recoverable out of that particular transaction. We will then pay over to such bank account as may be nominated by an authorised representative of the Fiona Group from time to time the address commission that we have collected and which we are liable to account for.”

The draft of 18 January 2001 was of a letter from FML to Clarkson prepared for counter-signature by Clarkson, and read as follows:

“We write to you following our discussions together about the continuation of Clarksons as brokers for the Fiona Group. As we have explained to you, for commercial reasons the Fiona Group wishes to move away from the industry practice of there being “address commissions” included within the contract, either when ordering new ships or when arranging for sale or purchase of secondhand ships. Instead, in relation to projects in which you will act as broker for the Fiona Group, we request you please to confirm that you will agree instead to a method by which the commission due to Clarksons on any contract, either for ordering a new vessel or for arranging sale or purchase of a secondhand ship, will be agreed by us in each particular case, and that, out of the commission you receive, you will then pay to a company to be nominated within the Fiona Group the proportion of the commission which you collect that we have agreed on behalf of the Group will be retroceded back. As indicated, this arrangement will need to be agreed on a case-by-case basis, so that we agree in each case what the percentage division of Clarksons’ headline commission will be. Please confirm your agreement to this arrangement in principle by countersigning this letter.”

According to Mr. Privalov, he instructed Mr. Wettern to prepare the drafts, and he did so because, when he first suggested the Clarkson arrangement to him, Mr. Gale was concerned “how it would appear if Clarkson paid a commission to a third party unconnected with Sovcomflot”. Having discussed this concern by telephone with Mr. Skarga and Mr. Nikitin, Mr. Privalov sought advice from Mr. Wettern, and as a result Mr. Wettern prepared the drafts. Mr. Privalov said that he discussed them by telephone with Mr. Nikitin and Mr. Skarga, but there is no record of them receiving copies of the drafts by e-mail or otherwise. Mr. Privalov recalled that Mr. Nikitin and Mr. Skarga rejected the drafts. In his witness statement of 12 February 2009, Mr. Privalov said that he did not recall why they were rejected, but, when he was crossexamined by Clarkson, he explained that the reason was to avoid leaving “some kind of trace” of the discussions on FML’s files.

I should make clear that, although the draft letters refer to address commissions, the claimants did not allege that Mr. Nikitin knew that Clarkson were to generate funds from retaining or diverting address commissions. They plead that it is not their case that he knew “of the manner in which Clarkson procured the increase in gross purchase price or reduction in net purchase price”: see the part 18 further information dated 1 February 2008, response 60. On Mr. Privalov’s account, Mr. Gale was in communication with him and not with Mr. Nikitin, and so Mr. Nikitin would not have known that funds to pay him were to be generated in this way. As Mr. Privalov put it in cross-examination, “I was under the impression ... that it was up to [Clarkson] … how they arrange it with the shipyards”. Moreover, Mr. Privalov accepted that he did not think that Mr. Skarga knew that Clarkson were receiving what the sellers paid as address commissions.

I accept that Mr. Wettern drafted these letters in response to instructions from Mr.

Mr. Nikitin and the Standard Maritime defendants, however, disputed that the draft letters were concerned with the Clarkson arrangement. They pointed out that there

I see force in these arguments. The defendants went on to suggest that Mr. Privalov’s purpose in having the letters drafted was to prepare the ground for a fraudulent scheme similar to those that he had previously carried out with Mr. Wettern’s assistance in 1999 and 2000, but that is speculation and seems to me improbable.

There is no satisfactory explanation for these draft letters, and their purpose, to my mind, remains obscure. I do not accept the claimants’ submission that they demonstrate that by the beginning of January 2001 Mr. Privalov was party to the Clarkson arrangement. I conclude that, as I shall explain, Mr. Privalov was assisting Clarkson to generate funds to implement the arrangement from the time of the first transactions that were broked by Clarkson, but there is no convincing corroboration of Mr. Privalov’s evidence that he introduced Mr. Gale to Mr. Nikitin. I regard it as improbable that, as Mr. Privalov stated, Mr. Nikitin did not even meet Mr. Gale until the autumn of 2001 despite the large sums that Clarkson were paying for him. There is no proper reason to reject Mr. Nikitin’s account that he approached Mr. Gale independently of Mr. Privalov and proposed the Clarkson arrangement, and I accept that part of Mr. Nikitin’s evidence and I reject Mr. Privalov’s evidence about how the Clarkson arrangement was made.

I next explain how the Clarkson commissions scheme operated, and therefore (i) I describe the first transactions which were concluded by about the middle of 2001 and resulted in payments of some $19 million for the recipient companies, and other transactions that illustrate how Clarkson conducted Sovcomflot’s business; (ii) I examine how Mr. Privalov exploited (or further exploited) for his own profit the sales and purchases which Clarkson broked; (iii) I consider the documentation which was created to support the Clarkson arrangement or to disguise it and the payments to the recipient companies; (iv) I consider the evidence that Mr. Skarga was involved in or knew of the Clarkson arrangement; and (v) I explain how the Clarkson arrangement developed to include business that Clarkson did for the NSC group as well as for the Sovcomflot group.

The sale and purchase agreements that were negotiated through Clarkson and also those negotiated through Norstar and Galbraith’s were, in the vast majority of cases if not invariably, governed by English law and often contained provisions for English arbitration.

From early in 2001 Mr. Privalov had assumed responsibility for the day-to-day management of Sovcomflot’s sale and purchase transactions. There was good reason that Sovcomflot should give him this responsibility. He had acquired much experience in the market and in ship finance, and he was clearly shrewd. He was based in London and had been for many years, and so had more familiarity with, and more immediate access to, the London market than those based in Moscow and than Sovchart in Geneva.

The transactions concluded by the middle of 2001, which led to the recipient companies being paid some $19 million, were these:

The first transaction which Clarkson conducted for Sovcomflot was the sale of their seven OBO carriers: “SCF Trader”, “SCF Challenger”, “SCF Endurance”, “SCF Champion”, “SCF Spirit”, “SCF Star” and “SCF Trust”. They were sold by the 30^th to 36^th claimants in the Fiona action. On 18 January 2001 Mr. Gale reported to Mr. Privalov that General Marine Corporation (“Genmar”) had expressed interest in purchasing the vessels. Mr. Privalov said that this was an unsolicited approach, but I accept Mr. Nikitin’s evidence that it followed conversations that he had had with Mr. Gale. He had told Mr. Gale that, as he had learned from Mr. Skarga, Sovcomflot were interested in selling the vessels, and agreed to recommend that Clarkson should handle the sales. Mr. Nikitin explained that the focus of Mr. Gale’s approach to Sovcomflot for their business had been to try to interest them in buying container vessels. In order to demonstrate to Clarkson that he had influence with Sovcomflot, he told them that he had recommended Mr. Cepollina to them for the sale of the “Liepaya” and the other tankers, and he also advised them that Sovcomflot would be interested in finding buyers for the OBO ships.

Mr. Gale first reported to Mr. Privalov that Genmar had indicated that they would pay $196 million for the seven vessels, with payments of commissions of 1% to Clarkson

According to Mr. Privalov’s evidence, Mr. Skarga told him of this decision, and he was also told by Mr. Nikitin that the proposal would not generate enough money for him. Mr. Nikitin indicated that he should receive commissions of at least 2%. Mr. Privalov reported to Mr. Gale that, if he wanted the business, the “third party” mentioned in their earlier discussions would expect to be paid at least 2% commission. Mr. Privalov’s evidence about this is not corroborated, and I do not consider it reliable.

On 1 February 2001 Mr. Gale reported to Mr. Privalov, and recommended, an improved offer for the vessels of $210 million net of commissions, subject to the success of an initial public offer (“IPO”) whereby Genmar were raising finance. Mr. Gale wrote, “The ships are considered about 28 million each gross, perhaps a bit more but in order to pay net figure you require, then has to go to the market”. Mr. Privalov accepted, as I understood his evidence in cross-examination, that he had told Mr. Gale that Sovcomflot required $210 million for the seven vessels. Mr. Privalov had further discussions with Mr. Gale about the commissions that Mr. Nikitin required, and Mr. Gale eventually indicated that he would pay them at the rate of 2%.

On or about 27 March 2001, Genmar offered to buy the vessels for $203 million in cash less 4% commissions, which was the equivalent of a net price of $194.88 million in total or $27.84 million per vessel, subject to the successful completion of Genmar’s IPO by 15 May 2001. This offer was seen by Mr. Privalov (as is evidenced by his manuscript notes on a copy of it), but on 28 March 2001 Mr. Privalov sent an e-mail to Mr. Borisenko in which he reported an offer from Genmar in these terms: “7 OBOs en bloc at $27.8 mill net each with delivery in early May”. He gave no credible explanation for reducing the net amount that Genmar were offering, and I cannot infer the reason for this.

On 9 April 2001 Mr. Gale sent to Mr. Privalov an e-mail seeking authority to sell the ships for $214.5 million, with 4% “total commission for division”. On 11 April 2001 Mr. Gale sent Mr. Privalov an e-mail that the buyers were insisting on increasing the commissions “at their end”, that the total commissions would have to be at the rate of 4 1/3%, and that Sovcomflot should “take this into account when you arrive at the final price”. He continued, “Furthermore, I have to advise you that for the purpose of the IPO, no commissions can appear in the MOA”. According to Mr. Privalov, after he had initially instructed Mr. Gale to provide for enough commission to pay Mr. Nikitin at least 2% of the sale price, Mr. Nikitin required a higher payment, and Mr. Gale was disguising the true reason for the increase in correspondence which was to be kept on Clarkson’s files. In fact Pollak, the company that Mr. Nikitin nominated to be paid the commissions, was paid 2 1/3% of the sale price, and, whatever the precise the sequence of events, Mr. Gale increased the commissions charged to Sovcomflot in order to meet Mr. Nikitin’s demands. I accept Mr. Privalov’s evidence that he (Mr. Privalov) knew the reason that the commissions were increased.

After further negotiations, on 28 April 2001 a sale was agreed at a price of $212.5 million, including 4 1/3% commission. On 7 May 2001 conditional contracts were concluded and on 15 June 2001 they became unconditional after Genmar’s IPO was successful. The total commissions were $9.208 million, of which some $4.958 million, or 2 1/3% of the sale value, was paid to Pollak and some $1,373 million was for Clarkson.

On 27 June 2001, Mr. Gale sent to Mr. Privalov what he described as the “final agreement” for the sale. It referred to the price as “USD212,500,000 en bloc in cash less 4-1/3 pcnt total commission for division including address commission to Buyers”. On the same day Mr. Privalov sent a version of it to Mr. Skarga, describing it as a “recap” of the agreement of 15 June 2001. He had amended it to read: “USD212,500,000 en bloc, in cash less 4-1/3 pcnt total commission for division including 3 1/2 address commission to Buyers”. The statement that “address commission” of 3.5% would be paid to Genmar was deliberately misleading. Mr. Borisenko, rather than Mr. Skarga, passed the e-mail to Mr. Dobrynin with an instruction to implement the agreement. (It read, as translated by Mr. Borisenko in the course of his cross-examination, “Put under control and secure the cooperation of the interested departments”.)

Although the usual procedure would have been for the sellers’ brokers to distribute the commissions to those entitled to receive them, Clarkson did not pay Pollak directly. They paid the address commissions to the buyers’ nominees, Aylesbury Maritime, and remitted the rest, apart from their own share of $1.373 million, to the buyers’ brokers, M J Gruber of New York. M J Gruber paid the greater part of this to Pollak against invoices sent to them in Pollak’s name.

In my judgment, the history of this transaction shows that:

I also conclude, despite Mr. Nikitin’s evidence to the contrary, that:

There is no credible evidence that Mr. Skarga was aware of any of these matters.

By two Memoranda of Agreement dated 3 May 2001 Fiona agreed to buy for $46 million each from Ocean King Shipping and Trading Inc, a company in the Angelicoussis group, two Aframax vessels built in 1999 at the Daewoo Yard, the “Astro Maria” and the “Astro Saturn” (to which I shall refer as the “Astro vessels”).

By an e-mail to Mr. Privalov on 19 January 2001 Mr. Gale suggested that Sovcomflot “try USD 48 million each” to buy three vessels, including the Astro vessels. On 7 March 2001, as I interpret the fragments of the e-mails that are in evidence, Mr. Gale reported to Mr. Privalov that the Angelicoussis group were “aiming USD47 mil each” for the two vessels and suggested an offer of $44.5 million. On 17 April 2001 Mr. Gale reported to Mr. Privalov that Mr. John Angelicoussis was “looking for at least 90 million net” for a sale of the two vessels together, and he suggested an offer “at $90 million less buyers address [commissions]”.

In the exchanges that led to the sale, Mr. Gale acted for Sovcomflot, taking his instructions from Mr. Privalov, and Mr. Fulford-Smith liaised with the Angelicoussis group through Mr. Stelios Hadjigeorgiou of their brokers, Agelef Shipping Co (London) Ltd. On 19 April 2001 Mr. Angelicoussis indicated that he “was looking for at least 90 million net” of commissions for the two vessels “with a view to doing a quick clean deal with no subject on either side”. Mr. Privalov responded that he had “authority for 90.5 gross” on the basis that any “subject” could be lifted shortly, but Mr. Gale advised that an offer at that level “really won’t be enough”. On 20 April 2001 Mr. Gale made an offer on behalf of Fiona to pay $90.5 million less 2% total commissions. The sellers responded that they would accept $92.6 million, gross of commissions. On 23 April 2001 Mr. Gale sent to Mr. Fulford-Smith an offer on behalf of Fiona to pay $92 million with total commissions of 2% “of which 1.5pct is buyers adress (sic) comms”, which meant that the sellers would receive $90.16 million net of commissions. This offer was accepted.

There is no dispute that Mr. Skarga authorised Mr. Privalov to conduct these negotiations and specifically to make the offers of $90.5 million gross on 19 April 2001 and $92 million gross on 23 April 2001. Mr. Skarga said that he did so in accordance with “consultations and discussions with the fellow directors”, and in particular he discussed the negotiations with Mr. Sharikov. I accept that there was

On 24 April 2001 Mr. Gale sent Mr. Privalov a recap of the agreement, having first sent a draft to Mr. Fulford-Smith with a request that he “glance through it”. Mr. Privalov sent it to Mr. Skarga. It simply referred to a price of $92 million without mentioning address or other commissions. In other communications with Moscow Mr. Privalov avoided any mention of the address commissions. In an e-mail on 23 April 2001 addressed to Mr. Borisenko and Ms. Matveeva he wrote, “As discussed with Mr. Borisenko, here is short description of two Aframax vessels” and after describing the vessels he wrote “both vessels fixed on [subjects] at USD46 mil each”. Again there was no reference to the commissions. Clearly this was deliberate, and the address commissions of $1.38 million were concealed from Sovcomflot.

At a meeting on 28 April 2001 Sovcomflot’s Executive Board unanimously decided to approve the purchase of five Aframax vessels, the Astro vessels and three tankers from the Tsuneishi yard, hulls nos 1246, 1247 and 1231. The briefing note supporting the proposal stated that the purpose was to replace the OBO vessels, “the commercial and technical operation of which is already starting to pose specific problems related chiefly to the attitude of freighters to the concept of combined vessels and related to the increased operating costs as they become older”. The only details about the purchase of the Astro vessels were that “terms were agreed for the purchase of two Greek-owned Aframax-type tankers built in 1999”. The note did not refer to address or any other commissions.

After the purchase was completed, on 11 October 2001 the sellers paid Clarkson $1.84 million and on 12 October 2001 Clarkson paid Milmont $1.38 million, or 1.5% of the price.

Mr. Nikitin’s account in his witness statement was that he introduced this business to Clarkson, although he could not recall how that came about. In cross-examination he said that he told Clarkson that Sovcomflot would be looking to replace their OBO vessels with Aframaxes. Nothing corroborates this, and Mr. Nikitin’s evidence was so vague and inconsistent that I cannot accept that he played any real part in introducing the business.

I conclude with regard to this transaction that:

I come next to three transactions in which Sovcomflot bought newbuildings from Tsuneishi, Hyundai Mipo and Daewoo. The transactions were essentially similar, and the contracts for the vessels were all signed when Mr. Skarga, Mr. Privalov and Mr. Gale went to Japan and Korea in June 2001.

In the Tsuneishi transaction, Sovcomflot bought for $41.4 million each two newbuildings under an agreement reached in a letter of intent dated 27 April 2001 and contracts dated 15 June 2001 between Mitsubishi Corporation, acting for Tsuneishi, and two Liberian subsidiaries of Fiona, Big Shipping Company, the 59^th claimant in the Fiona action, and Romantic Navigation Inc, the 60^th claimant in the Fiona action, the buyers of hulls nos 1246 and 1247 respectively. Milmont received a payment representing 1.5% of the purchase price, a total of $1,242,000, and Clarkson kept for themselves commissions of 1%.

On 5 March 2001 Mr. Gale sent Mr. Privalov a report about the availability of newbuild Aframax vessels from Tsuneishi, and Mr. Privalov sent it to Mr. Skarga. Mr. Skarga instructed Mr. Privalov to approach Tsuneishi about buying two Euroversion Aframax vessels for $40 million with “discount for heavy prepayment”. Tsuneishi responded with an offer to sell them for $41.5 million per vessel.

In this and other transactions, Mr. Nicholas Wood acted as the yard’s broker, and negotiated with Mr. Gale. Mr. Wood was a broker with Clarkson and became Head of their newbuilding team before he left in September 2009 to become a partner in R S Platou. On 26 March 2001, in an exchange of e-mails between Mr. Gale and Mr. Wood, Mr. Gale suggested that Sovcomflot should offer to place a firm order for four vessels at $40 million each, and asked Mr. Wood to “make suggstd offer with 2pct and will persuade to come up on the money”. Mr. Wood pointed out that the proposal, taking into account commissions, which he assumed to be “one us, one them”, put forward a lower price than had originally been indicated to Tsuneishi. In the evening of 26 March 2001 Mr. Gale sought Mr. Privalov’s approval to propose an order of four vessels at a price of $40 million each “less 2 pct commission including address commission”. On 27 March 2001, Mr. Privalov responded, having spoken to Mr. Gale, with an e-mail that read, “as discussed, pls prepare revised draft counter

Mr. Privalov’s evidence was that the commissions were increased to 2.5% in order to respond to a demand by Mr. Nikitin and Mr. Skarga to increase the payment to be made under the Clarkson arrangement. This is not corroborated and I do not accept this. However, I do accept that Clarkson were increasing the commissions in order to generate sufficient funds to pay Mr. Nikitin and that this was why the price offered was increased. I also accept that Mr. Gale changed the terms of his earlier draft on instructions from Mr. Privalov and Mr. Privalov knew that the proposed commissions were increased in order to pay Mr. Nikitin, and that this was why a higher price was offered.

On 28 March 2001 Mr. Gale confirmed to Mr. Privalov that he had made an offer of $40.6 million per vessel, but he did not refer to address or other commissions. Mr. Wood confirmed to Mr. Gale that he had passed the offer on to Tsuneishi. Shortly afterwards Mr. Wood, having spoken to Tsuneishi, told Mr. Gale that:

“We should get a counter but it might be a close run thing as [Mr] Sato [of Tsuneishi] was not very impressed by the offer. The main problems/comments are:

...

4.

Price – not encouraged by the price – although better than what had originally been requested but with 1.5% address need to be prepared to pay well over US$41mill as the address is an extra US$600,000!”

On 29 March 2001, Mr. Wood sent directly to Mr. Privalov a counter-proposal that the price per vessel be $41.8 million “including 1.5% address commission”. Mr. Wood commented that, “we have absorbed half of address commission which is a substantial price deduction on our part in comparison with our previous indication”. When Mr. Privalov reported this offer to Mr. Skarga in writing, he did not mention commissions, and referred to the price as $41.8 million “per vessel (price reduced 200K)”. He suggested that Sovcomflot offer to pay an initial instalment of 40% in exchange for a reduction in the price. This suggestion was adopted, and Mr. Gale made a revised offer at the same price of $40.6 million, on the basis that it should be paid in three instalments of 40%, 10% and 50% (rather than five instalments of 20%, 10%, 10%, 10% and 50%). On 3 April 2001, Tsuneishi responded in these terms (as Mr. Wood informed Mr. Gale by e-mail): “Price – US$41million – this includes our 1% and 1.5% address (note this is a reduction by US$800,000 per vessel reflecting the upfront payment)”.

The negotiations were delayed while Tsuneishi considered when they could commit themselves to deliver the vessels. After further exchanges the parties agreed prices of $41.4 million each for two vessels, on the basis that their specifications should be lower than originally contemplated. Tsuneishi agreed to pay 2.5% commissions, and

On 25 April 2001 Mr. Privalov sent to Mr. Skarga and Mr. Borisenko a recap of the agreement with Tsuneishi, which referred to a price of $41.4 million per vessel, without mentioning commissions. Similarly, on 26 April 2001 Mr. Privalov provided to Mr. Skarga and Mr. Borisenko a draft letter of intent which again did not mention commissions; on 25 April 2001 Mr. Wood had initially sent the draft letter of intent to Tsuneishi referring to “2.5 pcnt commission for division including Buyer’s address commission”, but shortly thereafter he provided another draft. He said that he had “also sent a copy of this draft to the buyers for their comments” and asked Tsuneishi to “please note that we have deliberately not included the commission in this draft as the buyers do not want to have reference to the commissions in the [letter of intent]. Trust that this is okay”.

On 27 April 2001 Mr. Privalov signed a letter of intent committing Fiona to buy the vessels. As I have mentioned, at a meeting on 28 April 2001 the Executive Board of Sovcomflot unanimously agreed to buy five Aframax vessels, including hulls nos 1246 and 1247 from Tsuneishi.

After the letter of intent had been signed, Clarkson had to make arrangements for the commissions to be paid. Their position was not straightforward. On 14 May 2001, Mitsubishi Corporation, Tsuneishi’s agents, asked Mr. Wood, “please let us know to whom the return comm shall be paid from us. To avoid the interference from Japanese Tax Authority, we prefer to pay the return comm to the buying company itself. Please check if this is acceptable for Fiona”. The same day, Tsuneishi sent Mr. Wood a draft of a commissions agreement between themselves and Clarkson and recorded their understanding that address commissions would be paid “to the buyer immediately after receipt of the delivery payment”. Mr. Wood explained to Mr. Gale that “the Japanese Tax authorities are very concerned about payments to public officials and are worried that commission is diverted through commission to public officials. Therefore the Japanese want to pay the address commission directly to the Buying company ... rather than to Fiona. They are also not keen to have all the comms paid to us for division as this is not sufficiently transparent for the Japanese authorities. How do the buyers want the address paid? If they insist on payment through us I will push it”. The problem for Mr. Gale and Mr. Wood was, of course, that the address commissions were not to be paid to the buying companies, Fiona or Sovcomflot, although Tsuneishi understood that they would be.

Mr. Wood wrote to Mr. Gale again on 16 May 2001, asking “to whom/how does Yuri want address comms paid? Assume it is best to have paid to us for division? Can you confirm please?” In accordance, as I infer, with Mr. Gale’s reply, Mr. Wood responded to Tsuneishi:

“In terms of the address commission, the buyers would like all commissions – including ours – to be covered by a single commission agreement with Clarksons. We will collect all the commissions on behalf of the buying companies and will distribute to the buying companies against their invoices. This is the way that the buyers want it and trust that this can be arranged.”

Tsuneishi were still concerned about the Japanese authorities, and Mr. Ishii of Tsuneishi suggested that Clarkson might enter into a separate agreement with Tsuneishi about the 2.5% commissions. He commented:

“Since 2.5% comm. is rather big, to avoid the interference by Japanese Tax Authority, this kind of documents might be necessary”.

By commission agreements for each vessel dated 15 June 2001, Tsuneishi agreed to pay commissions to Clarkson. Mr. Fulford-Smith signed them on Clarkson’s behalf, apparently because Mr. Wood did not have authority to do so. They stated the amount of the commissions, but not the proportion of the purchase price that they represented either directly or by referring to the purchase price, and the agreements did not indicate that the commissions included address commissions or were otherwise for division or were anything other than commissions payment to Clarkson “in consideration of the broker’s efforts for the execution of the contract for construction and sale”.

In due course, each of the instalments under the newbuilding contracts was paid by the Big Shipping Company and by Romantic Navigation Inc, and corresponding payments of 2% of each instalment were made by Tsuneishi to Clarkson, and then of 1.5% of each instalment by Clarkson to Milmont. In total, for the two vessels, Clarkson received $2,070,000 from Tsuneishi, and paid $1,242,000 of this to Milmont.

In the Hyundai Mipo transaction, Sovcomflot bought for $31.2 million each four 1A Product Tanker newbuildings under a letter of intent signed on or about 3 May 2001 and contracts dated 18 June 2001 between Hyundai Corp and Hyundai Mipo Dockyard Co Ltd. (“Hyundai Mipo”) and four Liberian subsidiaries of Fiona, namely Integrity Maritime Inc, Scorpio Tankers Inc, Star Carriers Inc. and Wonderful Transport Co, the buyers of hulls 0125, 0126, 0127 and 0128 respectively and the 26^th, 61^st, 62^nd and 63^rd claimants in the Fiona action.

In late July 2000, Mr. Wood of Clarkson had approached three shipyards including Hyundai Mipo about building ice-class 1A product tankers for Fiona, and by 22 September 2000 Mr. Borisenko had received a report from Mr. Privalov about their response. In January 2001 Mr. Gale informed Mr. Privalov about what product carriers there were on the market. On 7 March 2001, Mr. Gale reported to Mr. Privalov about the availability of newbuild product tankers of 35,000 dwt and 45,000 dwt, including tankers constructed by Hyundai Mipo. According to Mr. Privalov, Mr. Skarga had expressed interest in Sovcomflot acquiring vessels of this kind.

Negotiations with Hyundai Mipo were started, and on 18 April 2001 Hyundai Mipo submitted a formal proposal to Mr. Gale for “shipbuilding of 4 units x 47k dwt product tanks for Fiona” at a price of $30.6 million per vessel. On 18 April 2001, Mr. Gale sent a counter-offer to Hyundai Mipo offering a price of $28 million per vessel and suggesting commissions of 2.5%: “commission under separate agreement 2.5ttl

On 20 April 2001, Hyundai Mipo proposed to Mr. Gale a price of $31.25 million per vessel, including 2.5% commissions. The gross price was $650,000 more than originally proposed, but the net price that Hyundai Mipo would receive was slightly lower, $30,468,750. When on 20 April 2001 the counter-offer was reported by Mr. Gale to Mr. Privalov, and then by Mr. Privalov to Mr. Skarga, commissions were not mentioned.

On 23 April 2001 Mr. Skarga wrote that Mr. Privalov should try to start negotiations by offering a price of $29 million, but in fact Mr. Privalov initially responded with an offer from Fiona of $30 million per vessel, with commissions of 2.5%. The claimants submitted that this indicates that Mr. Skarga knew that Hyundai Mipo’s offer of $31.25 million included address commissions of 2.5%, and that his instructions were to respond with a net price of $29 million. Mr. Privalov was not, they argued, ignoring Mr. Skarga’s instructions, but he understood that Mr. Skarga was giving him instructions about the net offer that Fiona should make. They relied upon this to support their contention that Mr. Skarga knew about how Clarkson generated funds to pay Mr. Nikitin. I reject this speculation: the wording of Mr. Skarga’s communication (“try to start [from] 29 mio because Korean [won] went down 25%”) indicates that he had in mind a counter-proposal that was optimistically low, and Mr. Privalov could have been confident that his higher offer would be approved. In fact, his counter-proposal was a price of more than $29 million net. Mr. Skarga’s message was in the nature of advice rather than an instruction.

In an e-mail of 25 April 2001 from Mr. Wood to Hyundai Mipo, Sovcomflot increased their offer. On the face of the e-mail, they offered $30.5 million less 2% commission, but it appears from the e-mail read as a whole and later exchanges they intended to offer $30.7 million. The e-mail read: “As per telcon, we are authorised to improve the buyers’ last counter to US$30.5million less total 2 pcnt commission otherwise as per buyers last proposal … As you can see the total commission has been reduced by 0.5% which is a gesture from Clarkson to try to get this deal done and to extend the relationship with Mipo with this deal. It has proved to be impossible to get the buyers to reduce their address commission and although they are there to improve a little more, it will need a contribution from each of the parties in order to close the gap and do the deal ...”. According to Mr. Privalov, Mr. Nikitin had been asked to accept less than 1.5%, but declined to do so, but I do not regard this as reliable evidence. What is clear is that Clarkson were not able to negotiate enough total commissions to pay Mr. Nikitin 1.5% without reducing their own remuneration.

On 30 April 2001, Mr. Wood sent Mr. Gale a further offer from Hyundai Mipo, and observed that “they have come into line on the price although they have been unable to give us what we wanted on the deliveries”. They agreed to accept a price of $30.7 million, and stated that the “price includes 2% commission”: Mr. Wood specifically drew this to Mr. Gale’s attention: “note this proposal includes commission!”. Mr. Gale sent the offer to Mr. Privalov, but as usual he omitted the reference to commissions, and Mr. Privalov sent this version of the offer to Mr. Skarga and Mr. Borisenko.

This offer was accepted, and a letter of intent between Fiona and Hyundai Mipo was signed on about 3 May 2001. Neither this nor the final contracts referred to commissions. As in the Tsuneishi transaction, a separate commission agreement was entered into for each of the four sale contracts and was signed for Clarkson by Mr. Fulford-Smith, and each referred only to the monetary amount of commissions to be paid and not to the proportion of the price that they represented or to the price itself.

As Hyundai Mipo received the instalments of the price for each vessel, they paid Clarkson commission of 2%. Clarkson paid to Horber a share of the first instalments (representing 0.3% of the price) and they paid to Milmont a share of the later instalments (representing 1.2% of the price). Therefore in total $1,872,000 was paid to the recipient companies. Clarkson kept for themselves commissions of $624,000, or 0.5% of the total price.

The pattern of the Daewoo transaction was similar. On 26 and 27 April 2001 Mr. Gale informed Mr. Privalov of an opportunity to have three Aframax vessels built at the Daewoo yard and negotiations led to the Daewoo transaction, in which Sovcomflot bought three newbuildings under an agreement made in a letter of intent signed by Fiona and Daewoo and dated 3 May 2001 and in three contracts dated 20 June 2001. Daewoo sold hull no 5230 to Universal Navigation Co Ltd., the 23rd claimant in the Fiona action, for $43,265,400; hull no 5231 to Progress Shipping Company, the 22nd claimant in the Fiona action, for $43,565,000; and hull no 5232 to Oriental Carriers Company, the 64th claimant in the Fiona action, for $43,140,400.

Horber received the equivalent of 0.3% of the prices, which was paid in respect of the first instalments paid to Daewoo, and Milmont received the equivalent of 1.2% of the purchase prices. A total of $1,948,817.79 was therefore paid as Mr. Nikitin directed. (I ignore minor discrepancies, which, as I infer, are attributable to bank charges or some similar explanation.) Clarkson retained commissions of 1% or $1,299,218. As with the Tsuneishi transaction, a separate commission agreement was entered into in respect of each of the three sale contracts between Clarkson and Daewoo. They referred only to the monetary amounts to be paid and not to the proportion of the price that they represented or to the price itself. The amounts in fact represented 2.5% of the price. (This is apparent from the commission agreement relating to hull no 5232 that is in evidence. I infer that the other two agreements were similar in this respect.)

On 30 April 2001 Mr. Gale sent to Mr. Privalov a draft letter of intent to be signed by Fiona and Daewoo. He wrote “This is what we would like to send to the shipyard, but I guess there are certain things to be left out/amended”. The draft included a provision that the contract price included 2% commission for address and brokerage. On 1 May 2001 Mr. Privalov sent to Mr. Skarga and Mr. Borisenko a version of the letter of intent that omitted that provision and it was also omitted from the version that was in fact signed by Mr. Privalov on behalf of FML as agents for Fiona and by Daewoo.

The letter of intent (which was subject to the approval of the buyers’ board of directors) stated that the price of each of the three vessels should be $43.5 million. In a letter dated 11 May 2001 from Clarkson to Daewoo, it was recorded that the parties had agreed to vary the terms of their agreement and the price of two of the vessels had been reduced and the prices were to be $43,250,000, $43,500,000 and $43,000,000. In the contracts of 20 June 2001 the parties agreed to rather higher prices. Daewoo paid commissions of 2.5%, not of 2% as contemplated in the draft letter of intent. Although there is no evidence about when the increased commissions were agreed, I infer that this was the reason for the increase in the prices that the buyers agreed. I

I conclude in relation to the Tsuneishi transaction, the Hyundai Mipo transaction and the Daewoo transaction that:

Mr. Nikitin gave no credible evidence that he had done anything to bring about these transactions. I infer that he did nothing.

By a re-sale agreement dated 16 May 2001, Sovcomflot agreed through Clarkson to buy from Athenian Sea Carriers Ltd. (“Athenian”) six Suezmax vessels, which were being built for Athenian by HHI in Korea. Sovcomflot effectively paid $56.2 million for each vessel, but the net price received by Athenian was $53.4 million per vessel. Thus, there was a difference of $2.8 million per vessel, or $16.8 million in total, between what Sovcomflot paid and what Athenian received. Of this, $8.4 million represented the buyers’ reserves, which had been deposited to cover the cost of any extras ordered during construction. The other $8.4 million comprised (i) $1 million paid to the sellers’ brokers; (ii) $700,000 that was retained by Clarkson as their own commissions; (iii) $1.2 million which represented address commissions (the so-called “Tam commissions”) that were payable by HHI to Athenian because under the construction agreements HHI agreed to pay address commissions of $600,000 per

Mr. Gale mentioned the vessels to Mr. Privalov in e-mail of 15 January 2001, and again in about March 2001 when a proposed sale to other potential purchasers, Neptune Orient Lines, appeared to be falling though. Mr. Privalov responded that Sovcomflot were interested in acquiring the vessels, but that they wanted to pay less than $55 million for each. Mr. Nikitin’s evidence was that he had told Mr. Gale that Sovcomflot might be interested in buying new non-ice class Suezmaxes, and I accept that, but he did not give Mr. Gale any more specific information that was relevant to the purchase.

According to Mr. Privalov, Mr. Nikitin told him that his commission should be about 1.5% to 2% of the price, but Mr. Gale advised that Athenian were looking to be paid $54 million net for each vessel, and it would be difficult to keep the gross price below $55 million and pay Mr. Nikitin more than 1.5%. Mr. Nikitin insisted to Mr.

By 13 March 2001 Mr. Gale had opened negotiations to acquire the vessels and reported in an e-mail to Mr. Privalov that he had told Athenian that Fiona “indicate[d] firm” that they would pay an average of $53.33 million for the vessels (the precise price for each depending on her delivery date) less 2% commissions “for division”, including commissions for “Buyers/Clarkson”. The net average price was therefore $52.267 million. Thus, from the start of the negotiations the proposal contemplated 2% commissions “for division”, and this, as I find, was designed to cover both what Clarkson were to keep and what they were to pay under the Clarkson arrangement.

Negotiations continued during March and April 2001. On 16 May 2001 Mr. Gale sent Mr. Privalov an e-mail about the price. It referred to a “headline price” of $54.8 million, and Athenian were also to be paid $1.4 million per vessel for the buyers’ reserves fund, which was held by the HHI for repayment upon delivery of the vessels to the extent that it had not been spent on extras. When explaining the total price of $56.2 million, Mr. Gale included an item of $10.3 million for “sellers’ profit”. This incorporated $1.4 million that was not to be paid to Athenian but covered commissions, including what was to be paid under the Clarkson arrangement. Nothing about commissions was said either in Mr. Gale’s e-mail or the re-sale agreement itself which was concluded on 16 May 2001. The parties to the re-sale agreement were six (presumably one-ship) selling companies and Athenian as their guarantor and six one-ship buying companies, the 53^rd to 58^th claimants in the Fiona action, and Fiona as their guarantor.

Clarkson understood that the details of the transaction, and in particular the commission arrangements, were to be kept confidential. This is reflected in the correspondence in March and April 2001. For example:

Mr. Skarga received reports from Mr. Privalov as the negotiations proceeded. The only direct evidence that he was aware of the arrangements about commissions was that of Mr. Privalov. The claimants argued, however, that it is to be inferred that Mr. Skarga was aware that price was gross of commissions and of the net price that the

The General Board gave their approval to the transaction on 16 May 2001, but, as far as appears in the evidence, the Executive Board did not formally consider it. Presumably this was thought unnecessary in view of the decision of the General Board. In any case, there is no evidence that the transaction was hidden from the members of the Executive Board by Mr. Skarga or anyone else. Mr. Borisenko was aware of the negotiations: on 14 May 2001 Mr. Privalov reported on progress by email to him as well as to Mr. Skarga. I infer that other members of the Executive Board too knew about them.

Athenian agreed to transfer to the buyers the Tam commissions, Rody’s entitlement to the final instalments of the address commissions from HHI, in return for a further $200,000 upon the price of each vessel. This is reflected in an e-mail of 25 April 2001 from Mr. Gale to Mr. Privalov: “You also pay another $200,000 now which you get back on payment of 10pct on Keel Laying”. HFW’s original draft of the re-sale agreement had included references to this, but the final version of the agreement of 16 May 2001 did not refer to the address commissions or their transfer as a term of the sale and purchase of the vessels. Instead this arrangement was recorded in a separate letter agreement from Rody to Tam.

Mr. Privalov had been aware that the Tam commissions were to be transferred under the re-sale agreement since 28 March 2001 (if not earlier), as is apparent from an exchange of e-mails that he had with Mr. Gale. The first draft of the letter agreement, which was prepared by HFW and sent to WFW on 16 May 2001, contemplated that the commissions should be paid to Caviar Estates SA of Liberia, a company acquired by Mr. Wettern on about 15 May 2001. However, after Mr. Privalov had seen the drafts, on 17 May 2001 Mr. Wettern went about acquiring Tam Enterprises Inc. (“Tam”), another Liberian company, and Tam were used to receive the payments. Mr. Nikitin and the Standard Maritime defendants invited me to speculate about the reason for this, but there is no reason to doubt Mr. Privalov’s

On 19 June 2001, HFW sent WFW a further draft of (inter alia) the letter agreement, which provided that the commissions should be transferred to Tam. As appears from Mr. Wettern’s handwritten notes on the draft, he amended this to provide that Tam might direct payment to a nominee, and the letter agreement was concluded in this amended form on 20 June 2001. This change allowed Tam to give instructions for payment to Milmont.

On 5 July 2001 Mr. Wettern sent to Mr. Privalov by fax the final version of the letter agreement under cover of a note which was headed “commission agreement” and was in the following terms:

“As per your request, I attach the letter from Rody to Tam, agreeing to transfer the remaining $200,000 address commission for each vessel to Tam. The original is on its way to you by bike, so you can forward that to Dmitri Skarga. You have already a copy of the underlying HHI/Rody agreement. You will need to liaise with Athenian about the payment arrangements”.

There is no documentary evidence that in fact Mr. Privalov sent Mr. Skarga this or any version of the letter agreement, and I do not accept that he did so. Mr. Skarga denied that he knew of it or of the arrangements about the Tam commissions. On 25 June 2001 Mr. Privalov had instructed WFW to send Sovcomflot documents relating to the transactions, but the letter agreement was not included among them.

On 31 July 2001 Mr. Wettern sent to Athenian instructions that the commission payments should be made to Milmont’s bank account with Wegelin and provided details of the account. $200,000 was paid into Milmont’s account on 8 or 9 August 2001, $200,000 was paid on 23 November 2001 and $800,000 was paid on 11 January 2002. Mr. Nikitin’s explanation for these sums being paid into Milmont’s account is the same as for the hull no 1231 address commission: that he allowed Mr. Privalov to use the account to deposit funds, but that he knew nothing about the payments themselves. I shall consider this explanation later.

The claimants’ pleaded case is that “At a meeting on or around 31 July 2001 Mr. Privalov was orally instructed by Mr. Skarga that the commission payments due to Tam should be paid as Mr. Nikitin directed”, and he had contacted Mr. Nikitin, who instructed him to pay the money “to Milmont, whose account details Mr. Nikitin provided to Mr. Privalov”. This is generally supported by Mr. Privalov’s evidence, although he did not specifically state the date of the meeting. However, according to Mr. Privalov, the scheme to divert the Tam commissions was first planned at an earlier meeting in Russia (as Mr. Privalov believed) that he had had with Mr. Nikitin and Mr. Skarga sometime in April or May 2001. He said that Mr. Skarga suggested the scheme, and that, although Mr. Nikitin was not immediately interested, Mr. Skarga insisted upon it provided it proved possible to avoid reference to the Tam commissions in the re-sale agreement. Mr. Wettern advised that this could be done, and was instructed to draft the necessary documents accordingly.

The defendants denied that there were was any such meeting and that they were party to any such plan, and they argued that the documents show that Mr. Privalov had set about planning to divert the Tam commissions before any such meeting could have taken place. The claimants, on the other hand, submitted that the documents corroborate Mr. Privalov’s account because they show that the parties went about removing references to the Tam commissions from the draft contracts after the meeting took place.

If the meeting described by Mr. Privalov took place, it must have been between 10 and 12 May 2001. The documents about travel and expenses show that he was in Moscow between these dates and not in Moscow on other dates in April or May 2001. In fact, the opportunity for such a meeting was narrower because Mr. Skarga’s evidence, which I accept, was that he was away from Moscow between 11 and 13

The claimants submitted that, after he returned from Moscow on 12 May 2001, Mr. Privalov immediately went about making the changes to the contractual documents necessary to implement the scheme. As I have said, the first version of the draft resale agreement dated 22 March 2001, had been sent by HFW to WFW. It had been put on to WFW’s system on about 25 April 2001, but no work had been done on it before Mr. Privalov went to Moscow. On 14 May 2001 HFW produced a further draft of the agreement, which referred to the Tam commissions. These references were removed from the draft agreement by 16 May 2001 after discussions between the parties. The claimants are therefore justified in their submission that the references were removed after Mr. Privalov’s visit to Moscow, but this is not remarkable. It was only then that there were discussions about the draft originally put forward by HFW.

On 27 March 2001 WFW had written to Mr. Privalov with their comments upon HFW’s draft, and on 28 March 2001 Mr. Gale had written to Mr. Privalov about it. Mr. Gale commented about the Tam commissions, “[You] get commission of 200k but not address”. Mr. Privalov responded that “Commission of 200k to us is OK. Otherwise as discussed please make it clear that the existing commissions/allowances should not affect anyhow our future obligations to the yard”. Later that day, after discussions with Mr. Privalov, Mr. Gale sent him a further e-mail, listing points to be covered in any offer. They included that, “All references to commissions to be deleted from any Underlying Agreement/Shipbuilding Contract/Novation Agreement and all such agreements to be settled directly between Hyundai and Athenian/Rodin (sic)”. Mr. Gale said that this should be discussed with WFW. This was also reflected in a draft counter-offer sent by Mr. Gale to Mr. Privalov on 30 March 2001. The claimants’ contended that these documents reflected a suggestion by Mr. Gale

I am not persuaded by the claimants’ contention about this. The implication of the argument is that, after the first exchange of e-mails on 28 March 2001, in which Mr. Gale and Mr. Privalov contemplated that the Tam commissions should be paid to Sovcomflot, Mr. Gale proposed that they should not be. There is no evidence that he did so. Mr. Privalov’s evidence was to the contrary. He agreed that, from the time of these exchanges on 28 and 30 March 2001, he and Mr. Gale agreed that references to the Tam commissions should be removed from the contractual documentation. His explanation was that he was “acting under instructions and this commission theft was undertaken by Mr. Skarga and Mr. Nikitin”. This is, of course, inconsistent with his other evidence that the scheme was first planned in April or May 2001.

The allegation that Mr. Skarga was party to the arrangement to divert the Tam commissions depended entirely upon the evidence of Mr. Privalov. In my judgment, it was not corroborated and was inconsistent, and I do not accept it. I shall consider the claimants’ contention that Mr. Nikitin was party to the arrangement when I examine the issue about the payments into the Milmont account and the payments from it to Sisterhood.

On 20 June 2001 Clarkson invoiced the sellers under the Athenian transaction for “lumpsum commission as agreed” in the sum of $7.2 million. On 21 June 2001 RTB invoiced Clarkson for payment of $5.5 million, and on 22 June 2001 Clarkson paid them that amount. On 3 July 2001 RTB paid $2,250,000 to Milmont and $3 million to Pollak. On the same day $200,000 was paid into Mr. Privalov’s bank account with RBS in the Isle of Man. As I explain later in my judgment, I conclude that RTB transferred the $200,000 to Mr. Privalov’s account and did so upon Mr. Nikitin’s directions. Thus, RTB retained only $50,000 of the $5.5 million. The claimants contended that the payments were routed through RTB so that Clarkson could record that they were paying another broker and not Milmont and Pollak, and this was also a convenient device for paying Mr. Privalov. RTB kept $50,000 to reward Mr. Cepollina for allowing RTB to be used for this purpose.

It was contemplated in early June 2001, as I infer, that the $5.5 million should be paid to Italia rather than RTB. A letter dated 31 May 2001 (to which I shall refer later) said that Clarkson had had discussions with Italia about the Athenian transaction, and Mr. Gale wrote on RTB’s invoice, “Payment due to Italia Chartering as agreed”. According to Mr. Privalov, Mr. Nikitin had originally told him that Italia would be invoicing Clarkson and he so advised Mr. Gale when they were travelling to Japan and Korea with Mr. Skarga for the signing ceremonies for the contracts to buy the newbuildings from Tsuneishi, Hyundai Mipo and Daewoo. Later, when Mr. Gale told him that Clarkson were ready to pay the $5.5 million upon receipt of an invoice, Mr. Nikitin instructed that the payment was to be made to RTB and provided Mr. Privalov with account payment details, which Mr. Privalov passed on to Mr. Gale.

Mr. Nikitin accepted that he arranged that Clarkson should pay to RTB the remuneration that he was to receive in respect of the Athenian transaction. In his witness statement of 13 February 2009 Mr. Nikitin said that Mr. Claudio Cepollina or

I cannot accept those explanations. There is no evidence that Mr. Cepollina or Italia or RTB had any significant involvement with the Athenian transaction. Mr. Carlo Cepollina (who worked with his brother Claudio) sent Mr. Privalov an e-mail on 23 April 2001 suggesting that one of the hulls might be available for $65 million and an e-mail on 14 May 2001 suggesting that Italia might be able to exploit an opportunity to replace Neptune Orient Lines in a re-sale of the vessels. These communications demonstrate that Italia knew nothing of the negotiations which were in fact taking place. Mr. Nikitin’s evidence about an “account balancing exercise” was quite unconvincing, and provided no credible explanation for paying such large sums through RTB.

It is impossible to discern any explanation for the division of the $5.5 million between Milmont and Pollak. In his witness statement Mr. Nikitin appeared to suggest that he simply decided that Mr. Malov and Mr. Katkov should share the benefit of the transaction, but in his oral evidence he spoke of balancing accounts. I cannot accept either explanation. But, whatever the reason for the separate payments to Milmont and Pollak, I conclude that Mr. Nikitin arranged for the payment to be made by Clarkson to RTB and paid on by RTB to Milmont and Pollak because he wanted to disguise that these companies were benefiting from the Athenian transaction.

After the first transactions in 2001, Clarkson continued to act for Sovcomflot on sales and purchases of vessels. As well as the 17 vessels purchased in 2001, the claim in the Fiona action relates to the purchase of 18 newbuildings in 2003 and 2004, and as well as the 7 vessels sold in the Genmar transaction, it concerns sales of two vessels in 2002, of 18 vessels in seven transactions in 2003 and of four vessels in two separate transactions in 2004. In the case of some sales, Mr. Gale suggested the transaction to Mr. Privalov, and in other cases Mr. Privalov was approached by Mr. Bonehill of Norstar (whose involvement with sales of Sovcomflot vessels I shall explain further later) and then Mr. Privalov involved Clarkson in the transaction. Payments to the recipient companies under the Clarkson arrangement were made in respect of all the sales and purchases. As I have said, in 2001 some payments were made to Horber, but from late 2001 or early 2002 they were all made to Milmont.

From September 2001 Clarkson made payments to companies associated with Mr. Privalov in respect of Sovcomflot’s business. On 5 September 2001 Clarkson paid $205,554.60 to Montrose and $44,445.40 to Continental. Mr. Privalov transferred these sums to his personal account with RBS’s Isle of Man branch.

A spreadsheet which, I conclude, was created on about 25 June 2001, shows how Clarkson treated the payments for their internal accounting purposes. It listed the vessels bought and sold in the Genmar, Astros, Tsuneishi, Hyundai Mipo, Daewoo,

Mr. Privalov’s evidence was that in June 2001 he asked, and Mr. Gale agreed, that he should receive payment from Clarkson as a reward for promoting Clarkson as Sovcomflot’s brokers. (Mr. Privalov believes that he made this request when he and Mr. Gale were returning from the signing ceremonies with Tsuneishi, Hyundai Mipo and Daewoo.) Shortly afterwards Mr. Gale suggested that Mr. Privalov be paid $250,000 and Mr. Privalov was content with that amount. His evidence is to some degree corroborated by the spreadsheet, and I accept it. I also accept that, although the first payment was funded from the commissions for the newbuilding orders, it was understood that the payments covered all the Sovcomflot transactions in which Clarkson had been involved.

Later, Mr. Privalov suggested to Mr. Gale that Clarkson should pay him commissions on future business. Mr. Gale agreed to pay commissions of 0.25% on future transactions, and thereafter Clarkson made payments for Mr. Privalov in relation to transactions that they handled for Sovcomflot and also for NSC. Mr. Privalov had them made to Shipping Associates, and he also had payments made to that company in relation to sales that were handled by Norstar and Galbraith’s.

There is some mystery about Shipping Associates and its purpose. It was established in January 2002, and there is no reason to reject Mr. Privalov’s evidence that he established it. It did not first receive payments from Clarkson until mid 2002. In his witness statement in the Intrigue action dated 2 December 2008 Mr. Privalov said that the company was used by himself, Mr. Lyashenko and Mr. Bonehill, and that, with regard to payments from Galbraith’s, “After a short while, although not from the outset, Mr. Bonehill became involved in relation to the payments …”. This was said to be because Mr. Rokison wished to make the payments to a company with which a broker was involved and, as Mr. Privalov put it, “Mr. Bonehill was therefore notionally standing behind Shipping Associates as far as Galbraith’s (and also Clarkson) were concerned”. He explained that he received only half of the money paid to Shipping Associates by Galbraith’s, and the rest went to Mr. Lyashenko and Mr. Bonehill.

On the other hand, in his witness statement in the Fiona action dated 12 February 2009 Mr. Privalov stated that Mr. Bonehill was not involved in Shipping Associates until Mr. Privalov transferred the company into his name in 2005. I am unable to accept that. There is in evidence a letter dated 1 July 2002 to Clarkson signed by “Christopher Courtney on behalf of Shipping Associates Inc”. Courtney is Mr. Bonehill’s middle name and the letter was probably signed by him. There is also a letter dated 11 August 2004 to Clarkson signed by Shipping Associates’ nominee directors which refers to “your commission sharing agreement with Mr. Christopher Bonehill dated 1^st July 2002”, which Mr. Bonehill is said to have undertaken to keep confidential. Mr. Privalov’s evidence was that these letters were concocted by Mr. Gale simply to disguise that payments were being made to Mr. Privalov, but this seems an inadequate explanation, particularly in view of Mr. Privalov’s evidence in his other witness statement in the Intrigue action. I am unable to tell quite what the purpose of Shipping Associates was and who had an interest in it, but I accept the submission of Mr. Nikitin and the Standard Maritime defendants that it might not have originally been established to receive commissions for Mr. Privalov. I cannot regard it simply as a vehicle for Mr. Privalov.

Clarkson broked only two transactions for Sovcomflot in 2002: the sale of the “Kapitan Betkher” and the sale of the “Zina”. The “Kapitan Betkher” was sold by Hope Victory Shipping Company Ltd. (“Hope Victory”), the 37^th claimant in the Fiona action, to Thoresen & Co (Bangkok) Ltd. (“Thoresen”) for $5.7 million less 3% commission pursuant to a memorandum of agreement dated 26 April 2002. Clarkson arranged to make out of the commission a payment to Mr. Nikitin’s order amounting to 2% of the sale price. Mr. Gale was concerned to find a way of doing so covertly. On 25 April 2002 he sent his colleague, Mr. Broke-Smith, an e-mail marked “top Secret”, in which he asked Mr. Broke-Smith to find out whether “Mat”, that is to say, Mr. Gruber, the New York broker who had been involved in the Genmar transaction, would agree to commissions being channelled through his company. He explained that Mr. Bonehill had declined to help. The purpose was “so RFS [Mr. Richard Fulford-Smith] doesn’t find out”, and Mr. Gale added that “Certain parties will be very pleased”. In fact, this proposal did not go ahead, whether because Mr. BrokeSmith declined to approach Mr. Gruber or because Mr. Gruber would not help or for some other reason. In the event, Clarkson simply presented an invoice dated 14 May 2002 for the 3% commission to Hope Victory, and Mr. Gale produced an invoice dated 11 July 2002 from Milmont for “introductory commissions” for $114,000, which sum was paid into Milmont’s account at Wegelin. This was the first invoice in which a payment to Milmont or any other recipient company was so described, and, as I shall explain, some invoices produced by Mr. Gale are back-dated. In this case, the date is the more questionable because a similar invoice from Shipping Associates relating to the sale of the “Zina” was, deliberately or by mistake, also dated 11 July 2002 although Shipping Associates’ invoice must have been produced later.

The “Zina” was sold by Zina Shipping Corporation, the 38^th claimant in the Fiona action, to a nominee of Allseas Marine Inc. (“Allseas”) for $7.1 million less 3% commission pursuant to a memorandum of agreement dated 18 December 2002. Allseas were, as far as appears from the documents in evidence, first reported to be interested in buying the “Zina” in an e-mail dated 22 October 2002 from Mr. Claudio Cepollina to Mr. Privalov. Mr. Privalov passed this information to Mr. Gale, who discovered that Allseas were a Greek owner whom Clarkson’s Greek office, Clarkson Hellas, might approach. Clarkson Hellas did indeed become involved in broking the transaction and terms were agreed on 17 December 2002. Mr. Skarga authorised Mr. Privalov to pay commissions of 3.25%, but in fact Clarkson charged commissions of 3% and retained 0.375% for themselves, paid 0.375% to Clarkson Hellas, paid 0.5% to Shipping Associates and paid 1.75% to Milmont. As I have said, Clarkson produced an invoice for Shipping Associates for introductory commission upon the sale of the “Zina”, which bore the date 11 July 2002, a date which would be much too early for any invoice relating to the sale of the “Zina”. The invoice produced for Milmont’s payment was dated 30 January 2003. The invoices of both Milmont and Shipping Associates were for “introductory commissions”, but there is no evidence that Mr. Nikitin contributed anything to bringing about this sale or that of the “Kapitan Betkher”, and I conclude that he did not do so.

The claimants submitted that the history of the sale of the “Zina” shows that Mr. Skarga was concerned to ensure that Mr. Privalov handled all sale and purchase transactions. On 5 June 2002 Mr. van Boetzelaer advised Mr. Skarga that Intermarine Services SA (“Intermarine”) were interested in buying the “Zina”. They were aware that Sovcomflot were looking for a price “above 8 million” and wished to inspect the vessel. Mr. Skarga agreed to the inspection, but he told Mr. van Boetzelaer that “the sale should be done via Fiona”. When Mr. van Boetzelaer reported in an e-mail of 3 July 2002 that he had had further discussions with Intermarine, Mr. Skarga warned him against depressing the market for the ship. In August 2002, Mr. Skarga again insisted that any interested parties should contact him directly, rather than have discussions with Mr. van Boetzelaer. As the claimants submitted, Mr. Skarga rebuffed the attempts of Mr. van Boetzelaer to become involved in the sale. I do not find this in any way suspicious. Mr. van Boetzelaer was trying to handle this business for Sovchart, and Mr. Skarga resisted his efforts, as he similarly resisted later attempts of Sovchart to become involved in sale and purchase broking. There is no reason that he should not have done so. It had been decided that purchases and sales should be broked through London, and there is no evidence that any other executive in Sovcomflot disagreed with this decision.

Sovcomflot paid commissions to both Clarkson and Norstar upon sales of 14 vessels in 2003 and a further vessel in 2004. The claimants say that, in many of these cases, Norstar had found the buyer and effectively broked the sale, with Clarkson playing no real broking role and being paid commissions only so that they would pass some of the money on to Milmont; and in other cases, Norstar had no real broking role and were paid commissions only because, as I shall explain, they too had entered into an arrangement with Mr. Nikitin similar to the Clarkson arrangement. Thus, the claimants allege Sovcomflot paid commissions on these sales to two brokers because of their corrupt relationship with Mr. Nikitin. The sales on which both brokers received commissions were those of the “St Petersburg Mariner”, the “Moscow Mariner”, the “SCI Gaurav”, the “Mekhanik Kurako”, the “Lesozavodsk”, the “Socofl Stream”, the “Socofl Tide”, the “MSC Atlantic”, the “MSC Nederland”, the “MSC Jordan”, the “MSC Suez”, the “Baykal Senator”, the “Berlin Senator, the “SCI Vaibhav”, and the “Nikolay Malakhov”.

The sales of the “St Petersburg Mariner” and the “Moscow Mariner”, two of the Senator ships, illustrate the complaint about Clarkson unjustifiably receiving commissions. The “St Petersburg Mariner” was sold by Megaslot V Shipping Co Ltd., the 7^th claimant in the Fiona action, for $21.5 million under a memorandum of agreement dated 3 April 2003, and the “Moscow Mariner” was sold by Megaslot IV Shipping Co. Ltd., the 6^th claimant in the Fiona action for $21.55 million under a memorandum of agreement dated 24 April 2003. The memoranda did not refer to commissions, but Clarkson charged commissions of 3% on both sales. They retained 0.375%, and distributed 1.75% to Milmont, 0.125% to Shipping Associates and

By an e-mail dated 25 March 2003 Norstar had advised Mr. Privalov of an offer from Zim-Ofer Shipbrokers to buy two or more Senator vessels, and this led to the sales, which had been concluded by 25 April 2003 at the latest. On 15 May 2003 the Executive Board of Sovcomflot approved the sales. (The briefing note for the Board

Clarkson had no part in the sales before they were concluded. They were first involved when on 25 April 2003 Mr. Privalov sent Mr. Gale a copy of the memorandum of agreement for the sale of the “St Petersburg Mariner”. Norstar continued to broke the sales after the agreements had been reached. On 15 May 2003 Norstar provided to Mr. Gale copies of the signed memoranda of agreement, and on 15 May 2003 and 19 May 2003 Mr. Gale sent e-mails to Mr. Privalov which were, as the claimants submitted and as I accept, designed to give the false impression that Clarkson had brought about the sales. On 15 May 2003 Mr. Gale referred to the sales being concluded “following our intervention”, and on 19 May 2003 he referred to “our various telephone conversations” (on 24 April 2003 in the case of the “Moscow Mariner” and on 29 April 2003 in the case of the “St Petersburg Mariner”) “wherein we advised you that Buyers had lifted their board approval”. These sales were broked by Norstar, and Mr. Gale deliberately wrote misleading documents to create a false record that would explain why Clarkson were being paid commissions.

There were other sales in which Norstar largely broked the deal, but commissions were paid to Clarkson, and they distributed most of what they received, paying a large part of it to Milmont. Although the documentary evidence about them is incomplete and sometimes Mr. Gale might have had some minor part in bringing the sales to a successful conclusion, I conclude that this was essentially the position with regard to these sales:

I also illustrate sale transactions where Clarkson found the buyers, but both they and Norstar were paid commissions. By four memoranda of agreement dated 29 July 2003, the “MSC Atlantic”, the “MSC Nederland”, the “MSC Jordan” and the “MSC Suez” were sold by Megaslot II Shipping Co Ltd., Megaslot VII Shipping Co Ltd., Megaslot X Shipping Co Ltd., and Megaslot IX Shipping Co Ltd., the 4^th, 9^th, 12^th and 11th claimants in the Fiona action respectively, to companies nominated by a Greek company, Niki Shipping Company Inc. By three memoranda of agreement dated 5 September 2003, the “Baykal Senator” the “Berlin Senator” and the “SCI Vaibhav” were sold by Megaslot I Shipping Co Ltd., Megaslot III Shipping Co Ltd and Megaslot VIII Shipping Co Ltd., the 3^rd, 5^th and 10th claimants in the Fiona action respectively, to companies nominated by Mediterranean Shipping Company. Norstar were paid commissions. The commissions charged by Clarkson on the sales was 3%, of which 2% was paid to Milmont, and the remaining 1% of the commissions was paid, on all the sales other than of the “SCI Vaibhav”, as to 0.25% to Norstar, as to 0.1875% to Shipping Associates and as to 0.5625% to Clarkson. As for the “SCI Vaibhav”, Norstar were paid 0.5%, Shipping Associates were paid 0.125% and Clarkson retained 0.375%. (The different distribution of commissions is not explained by the evidence.)

I conclude that Norstar played no part in broking at least many of these sales. For example, on 12 August 2003 Mr. Bonehill enquired of Mr. Gale about the sale of the “MSC Atlantic” and her three sisterships, and wrote, “Apparently one of these ships has just delivered. We need to send you an invoice for 0.25 pct. Please advise of name of ship, price and when she delivered?”. Had he played any part in broking the sale, clearly he would have had this information. Similarly, when Mr. Gale informed Mr. Bonehill that he should invoice to be paid upon the sale of three of the vessels, on 26 August 2003 Norstar asked for the names of the selling companies.

On the sale of the “Nikolay Malakov” by Nikolay Malakhov Shipping Co Ltd., the 50^th claimant in the Fiona action, the commission paid was 2.5%, and Milmont was paid only 1.25% of this. The remainder was distributed as to 0.5% to Norstar and as to 1.875% to Shipping Associates, with Clarkson retaining 0.5625%. There is no evidence about what Clarkson and Norstar contributed to the sale and it is unclear whether payment reflect their roles in broking it.

I accept Mr. Privalov’s evidence that Clarkson had no significant role in broking the sale of the eight vessels to which I have referred, and he included them in the transactions so that they could receive funds for transfer to Mr. Nikitin’s order. I recognise that Norstar too (as I shall describe) had an arrangement whereby they paid commission to Milmont, but the sales which they handled and the sums that they passed to Milmont were relatively small compared with much of Clarkson’s business: the most that they paid Milmont on any sale was $40,000, less than 10% of what Milmont were paid on the sale of the “SCI Gaurav”. I accept Mr. Privalov’s evidence that he preferred to involve Clarkson in major transactions because they had proved that they could operate the Clarkson arrangement successfully. I also accept (if it be disputed) the claimants’ submission that Mr. Nikitin played no part in bringing about these sales.

Clarksons acted as brokers for Sovcomflot upon the purchase of 18 newbuildings in 2003 and 2004: the HHI hulls nos 1562 and 1563, nos 1585 and 1586, nos 1602 and 1603 and nos 1758 and 1759, the Daewoo hulls nos 5272, 5273, 7274 and 5275 and nos 2241 and 2242 and the STX Shipbuilding hulls nos 2014, 2015, 2016 and 2017. The transactions with HHI and Daewoo are the subject of the newbuildings scheme, and I describe them later. The purchases from STX Shipbuilding were of 46,500 dwt tankers of ice-class 1A for $40 million, and the purchasers were the 72^nd, 73^rd, 74^th and 75^th claimants in the Fiona action, Kenjami Transports Inc, Machanter Shipping Corp, Duport Marine Services Inc. and Carrier Tanker Inc.

Clarkson arranged for the yards to pay address commissions of 1.5% upon the orders but did not account for this to the purchasers and never intended to do so. They paid to Milmont upon each purchase at least 1.5% of the price, and from what they retained having paid Milmont, Clarkson made payments to Shipping Associates. As a result, in many cases Clarkson’s commissions were no more than 0.375% of the price, and they were never more than 0.75%.

I need not describe the commission arrangements for these purchases in detail, but I refer to two matters. First, upon the purchases of HHI hulls nos 1602 and 1603, Milmont were paid $2,471,000 or 2.605% of the price. The vessels were being bought in connection with the Sakhalin I project, and the orders were placed with HHI because the prospective charterers had included them on a shortlist of possible builders. Mr. Privalov said that therefore it was “artificial” to involve a broker at all in placing the orders and the claimants submitted that Clarkson were therefore required by Mr. Skarga and Mr. Nikitin to arrange large payments to Milmont in order to earn their own commissions of 0.5%. This argument rests upon unsupported evidence from Mr. Privalov, which I regard as unreliable and speculative. I cannot say why the payments to Milmont were so high in the case of hulls nos 1602 and 1603, but I reject any suggestion that it is curious or suspicious that Sovcomflot used brokers to negotiate with the yard, and that they instructed Clarkson to handle the purchases.

Secondly, I refer to the purchase from HHI of hulls nos 1562, 1563, 1564 and 1565. Clarkson were driven to agree to commission arrangements which meant that, after paying Milmont and Shipping Associates, they would keep only 0.375%. They improved their position a little by arranging that they should be paid an additional

I should add that the arrangements about repayment of the commissions were concluded between HHI and Clarkson in March 2003, some two weeks or more after the contracts for the construction of the vessels. Mr. Gale and Mr. Wood went to some lengths to create a chain of back-dated exchanges between HHI and Clarkson beginning on 3 March 2003, the date of the contracts for the construction of hulls nos 1564, 1565, 1585 and 1586. Thus, for example, on 17 March 2003 Mr. Wood wrote to Mr. Gale advising that he had received a letter in the chain of correspondence from HHI and asked “Would you like me to wait a day before sending the reply from the buyers”, in order to give the appearance of a genuine exchange. I am unable to discern why Clarkson needed to create this fiction. The defendants suggested to Mr. Wood that this exemplifies a “fairly standard practice in the ship broking arena” to back-date correspondence, but I accept Mr. Wood’s response that there is no such practice in relation to properly conducted transactions.

Between 2001 and 2004 there were produced various kinds of documents about the payments made by Clarkson under the Clarkson arrangement that misrepresented and were designed to disguise the true nature of the payments. Clarkson and the claimants submitted that the very fact that they were produced is evidence that no genuine and legitimate agreement between Clarkson and Mr. Nikitin justified the payments. An honest arrangement, they argued, would have been openly reflected in documents between the parties, but in fact no contemporaneous exchanges or other documents reflect anything done by Mr. Nikitin that might provide an honest explanation for the payments. I describe six categories of documents: (i) the “summer 2001 correspondence”, (ii) invoices, (iii) Clarkson’s internal documentation, (iv) the “confirmation letters”, (v) the “general instruction” letter and (vi) the “2004 letters”.

The summer 2001 correspondence: in the summer of 2001 Mr. Privalov and Mr. Gale created letters about the earliest transactions in which Clarkson were involved. By two letters from Clarksons to FML marked for Mr. Privalov’s attention and dated 31 May 2001, Mr. Gale purported to seek confirmation that FML had no objection to Alexia Shipping being involved in ordering vessels from Daewoo and Hyundai Mipo and “other transactions to be advised you from time to time”, and confirmation that they had no objection to Italia being involved in the Astro vessels and Tsuneishi transactions, in the agreement with Athenian and in “other transactions to be advised to you from time to time”. By undated replies, Mr. Privalov advised that FML had no objection.

By another letter dated 31 May 2001 Mr. Gale stated that Clarkson had received an invoice from Milmont “relating to commissions due to” Italia, and sought confirmation that they should pay it and any further invoices relating to the purchases of the Astro vessels and the newbuildings ordered from Tsuneishi. Mr. Privalov provided the confirmation sought in a letter dated 31 May 2001. By a letter dated 8 August 2001 Mr. Gale stated that Clarkson had received an invoice from Horber, and sought (or purported to seek) advice that it was for monies due to Alexia Shipping in connection with transactions involving buyers represented by FML, and confirmation that it should be paid. Mr. Privalov so confirmed in a letter dated 8 August 2001.

There were also letters dated 8 August 2001 about the payment of $250,000 to be made to Mr. Privalov’s companies. In one of them Mr. Gale said that Clarkson had received an invoice from Continental for commission due to Italia and sought confirmation that Clarkson should pay the invoice “in connection with the purchase of [the Astro vessels] and the two newbuildings at Tsuneishi”. In a second letter Mr. Gale sought such confirmation in relation to an invoice from Montrose in relation to “payments due to [Alexia Shipping] in connection with various transactions involving Buyers represented by your company”. By replies dated 8 August 2001, Mr. Privalov gave the confirmation sought in these letters.

The letters were deceptive. Alexia Shipping and Italia had not been involved in the transactions. The letters created the impression that the payments to Horber and Milmont and to Mr. Privalov’s companies, Continental and Montrose, were earned by recognised brokers. The issue between the parties about this correspondence is whether it was created to justify the payments both to Horber and Milmont and to Mr. Privalov’s companies, Continental and Montrose, or whether, as Mr. Berry submitted, the purpose was to justify only the payments to Mr. Privalov’s companies, the letters about Horber and Milmont being concocted in order to make the other letters about Continental and Montrose the more convincing. This in turn leads to an issue about when the letters dated 31 May 2001 were created because on their face the earliest letters concerned only payments to Horber and Milmont.

In his witness statement of 12 February 2009 Mr. Privalov stated that all the letters were produced to him by Mr. Gale in around August 2001. I conclude that the letter dated 31 May 2001 in which Clarkson said that they had received an invoice from Milmont was indeed created in around August 2001. Milmont’s first invoice was dated 23 July 2001 and Horber’s first invoice was dated 8 August 2001, and it is likely that the two letters stating that invoices had been received from those two companies were presented by Mr. Gale together. I attach no significance to this letter being wrongly dated. It is likely to have been a mistake, the date of 31 May 2001 deriving from the other letters which were so dated (whether correctly or not).

I conclude that the other two letters dated 31 May 2001 were created at around the end of May. First, they were created on Clarkson’s IT systems and the metadata from the electronic files in which they are now stored shows that they were created by a “Clarkson user” and saved on the internal hard drive of a computer or computers. The metadata also indicates that the two letters were created in May 2001, although this evidence is not conclusive in that it depends upon the accuracy of the clocks of the relevant computer (or computers) because there was no independent timing information from a network or document management system. Secondly, the letter relating to Italia would not have referred to the Athenian transaction if, when it was

I accept the argument of the claimants and Clarkson that, if Mr. Gale had regarded the payments to Milmont as proper, he would have had no reason to pretend that payments were being made to Alexia Shipping and Italia. Neither Mr. Nikitin nor Mr. Skarga was involved in preparing these letters, but I conclude that Mr. Gale created them because he considered that otherwise the propriety of the payments to the recipient companies might have been questioned. He considered that, if they appeared to be made to other brokers, this was less likely, or that they could be more easily explained if they were challenged. This was also why other payments were artificially channelled through brokers: in the case of the Genmar transaction through M J Gruber, and in the case of the Athenian transaction through RTB. This device, however, required the co-operation of another broker, and the e-mail to Mr. BrokeSmith of 25 April 2002 shows that Clarkson could not readily find this help. Without it, Mr. Gale resorted to creating these letters to give an impression that the payments were made in connection with broking the transactions.

Invoices: Mr. Gale was concerned that Clarkson should have invoices for the payments under the Clarkson arrangement in order to further the impression that the payments were legitimate, and he used them to reinforce the pretence that they were made for the services of other brokers. Mr. Gale decided upon the form of invoice against which Clarkson paid under the Clarkson arrangement and himself produced invoices in the names of the companies to whom they were to be made. The payments were described as being for commission “as agreed”. At some stage, Mr. Gale provided a template for the invoices, and persons working for Mr. Nikitin or his companies produced them in St Petersburg.

It was submitted on behalf of Clarkson that the very fact that Mr. Gale, and not the recipient companies, first produced such invoices itself suggests that there were not genuine commercial dealings between the parties. I am not persuaded of that. Clarkson knew when they received commissions from the yards and when they should pay under the Clarkson arrangement. I do not find it odd that Clarkson then produced pro-forma invoices against which to pay what had fallen due.

Mr. Gale annotated invoices from the recipient companies and also invoices from Mr. Privalov’s companies to reinforce the fiction that he and Mr. Privalov had concocted in the summer 2001 correspondence. Mr. Gale wrote in manuscript on an invoice from Milmont dated 23 July 2001 for $124,200 in relation to the first instalments for the purchases of Tsuneishi hulls nos 1246 and 1247 that it was received “by courier from Italia Chartering as agreed”. He also wrote “Tsuneishi, Italia Chartering” on an invoice from Continental dated 10 August 2001 for $44,445.40. He wrote similar notes on invoices relating to the Hyundai Mipo and the Daewoo transactions referring to Alexia Shipping: “General Authority from Fiona. Payment to Alexia, Helsinki, Finland nominee as agreed” on Horber’s Hyundai Mipo invoice and “Alexia payment as agreed with Fiona” on their Daewoo invoice. On an invoice from Milmont dated 10 August 2001 for $1.38 million, Mr. Gale wrote “We agreed 2% total inc 1½% address, o.s. to [Clarkson]” and “Italia Chartering”.

Clarkson’s internal records: Mr. Gale had to make adjustments to how the payments under the Clarkson arrangement were recorded in Clarkson’s internal systems. Under the systems operated by Clarkson at the relevant times, the broker responsible for a transaction would complete in manuscript a “fixture slip”, which stated the basic details of the transaction, including the amount and timings of commission payments and any payments to be made by Clarkson to others. This was used to enter the transaction into a computer system called “CLASH”, which would generate a “fixture acceptance form” for Clarkson’s Sale and Purchase Division and their Finance Department.

It is sufficient to illustrate with one example how Mr. Gale arranged to provide within this system for the payments under the Clarkson arrangement and also the payments for Mr. Privalov. On 25 June 2001 Mr. Wood had completed an internal Clarkson fixture slip for the Tsuneishi transaction. It recorded what commission was to be paid and what payments Clarkson were to make from it. He wrote that Clarkson were to be paid commission of 2.5%, of which 1% was due to Clarkson and 1.5% was “due to Fiona Trust + Holdings Corporation”, which, as I conclude, reflected his understanding that there was an address commission of 1.5% to be paid to the buyers. A second, amended, version of the slip was later written in which the details about the address commission were changed and it was said to be “due to Buyers’ nom[inee] tba Fiona”.

Clarkson’s internal records about this transaction also reflect alterations made to provide a false explanation for the funds used for the payments to Mr. Privalov. On an amended version of the internal Clarkson fixture slip, there were noted the net amounts that Clarkson would retain after accounting for what had been allocated to Continental and Montrose. The difference between commission of 1% and the amended (or net) amounts falsely was attributed in the fixture acceptance forms produced by the CLASH system to a “buyers’ retention fund”.

The “confirmation” letters: Clarkson produced letters (the “confirmation letters”) in which they stated that they would pay Milmont introductory commissions in relation to transactions identified in the letters. According to Mr. Nikitin, Clarkson produced them at his request because, as there were more transactions covered by the Clarkson arrangement than he had anticipated when the arrangement was made, he wanted a record of what he was to be paid (or what was to be paid to his order) and when payments were due. Clarkson and the claimants submitted that the confirmation letters were another device designed to justify the improper payments to the recipient companies.

There were nine such letters dated 20 July 2001, addressed to Milmont and signed by Mr. Gale on behalf of Clarkson, one for each of the newbuildings ordered from Tsuneishi, Hyundai Mipo and Daewoo. Their wordings were similar: having identified the relevant shipbuilding contract, they said, “Please be advised that we confirm your entitlement to the following introductory Commissions, remuneration is based on a percentage of the value of each transaction, and will be paid in accordance

On 13 February 2002 Mr. Gale sent an e-mail to Mr. Gruber at M J Gruber with the request for a letter on M J Gruber’s headed paper that was said to be “wanted by the owners of Pollak”. The letter was to confirm payments made to Pollak in respect of the sale to Genmar “pursuant to a commission sharing agreement”, and Mr. Gale provided a draft. Mr. Gruber was asked to keep the request private. He provided a letter in the terms requested, although, of course, M J Gruber had no such agreement (or any agreement) with Pollak.

Mr. Gale wrote other letters, which were dated 14 February 2002. One addressed to Milmont concerned the purchase of the Astro vessels, and stated that “Pursuant to a commission sharing agreement, we confirm that we have made the following payments, as agreed, to you…”. Another letter addressed to Milmont about the Tsuneishi transaction and two addressed to Horber about Hyundai Mipo and Daewoo transactions were similarly worded except that they confirmed both payments that had been made and that further instalments were to be made concurrently with staged payments under the shipbuilding contracts. Unlike the confirmation letters, none of these letters of February 2002 referred to Clarkson making payments by way of introductory commissions.

At some time after February 2002 Mr. Gale produced further letters which were similar to the confirmation letters dated 20 July 2001. They referred to transactions entered into by Sovcomflot and to Clarkson paying introductory commissions upon the business. As I shall explain, Mr. Gale and Mr. Nikitin extended the Clarkson arrangement to cover transactions made by NSC as well as transactions entered into by Sovcomflot, and Mr. Gale also produced similar confirmation letters about vessels bought by NSC. They included four letters dated 22 April 2002 relating to the purchase by NSC of four vessels from Hyundai Mipo on 14 May 2002. These must have been back-dated because they bore a date before the purchase agreements had been made.

On 22 April 2003 Mr. Gale wrote a letter to Milmont in which he confirmed their “entitlement to the following introductory Commissions” and listed nine recent transactions, and stated that Milmont would be paid in respect of them. He produced other similar letters bearing various dates in 2003 and 2004.

Finally, Mr. Gale produced another form of letter dated 14 July 2005 to RTB in which they stated that, “In accordance with our February 2001 agreement we confirm we paid you a lumpsum of US$5,500,000 lumpsum (sic) in full and final settlement of our obligations to you covering this transaction”.

According to Mr. Privalov’s evidence, the letters dated 20 July 2001 were prepared some time after February 2002 and were back-dated. I conclude that they were not produced until October 2002 at the earliest. Mr. Gale back-dated them in order to

In his witness statement dated 13 February 2009 Mr. Nikitin said that that he had no reason to think that the letters of 20 July 2001 were not prepared by Mr. Gale on that date. He said that Mr. Gale handed him the letters when they met, but that later, when he checked them, he realised that there were not letters relating to some early transactions and asked Mr. Gale to produce letters about them. Mr. Gale produced the letters of 14 February 2002.

When he was cross-examined, Mr. Nikitin speculated that there might have been letters dated February 2002 relating to the same transactions because some letters dated 20 July 2001 had been misplaced. I reject that explanation. There are letters of 14 February 2002 in relation to all the purchases covered by letters dated 20 July 2001. If, as he said, Mr. Nikitin checked the 20 July 2001 letters, they had not all been misplaced. In any case, the letters of 20 July 2001 were written on notepaper which, as was explained by Mr. Michael Cahill, who is the Group Financial Controller of Clarkson plc, bore the number of a fax line which was not installed until around December 2001, and the number was first printed on Clarkson’s notepaper at some time between October 2002 and January 2003.

Mr. Nikitin was not party to producing the confirmation letters, but he gave false evidence about when he received the letters of 20 July 2001 and why further letters dated 14 February 2002 were produced. In cross-examination Mr. Nikitin said that Mr. Gale thereafter provided him with batches of confirmation letters from time to time. Mr. Nikitin and the Standard Maritime defendants disclosed copies of the confirmation letters in these proceedings, and I accept that at some point Mr. Gale provided copies of them to Mr. Nikitin, but it is impossible to say when he first was provided with copies of them. However, if they had been received by way of correspondence sent in the normal course of business, they would have been sent by post, fax or e-mail, and they were not.

I conclude that Mr. Gale did not produce confirmation letters referring to Milmont being entitled to “introductory commission” until 2003. They were produced in order to provide a consistent explanation for the payments under the Clarkson arrangement and were back-dated in order to give the impression that the payments had been referred to as introductory commission in 2001. They were produced by Mr. Gale to enable him to justify Clarkson making the payments and to continue to operate the Clarkson arrangement, and I conclude that Mr. Nikitin knew that this was their only purpose. He did not suggest any other credible reason for having confirmation letters concerning transactions already covered by the letters of 14 February 2002.

Clarkson submitted that it is to be inferred that Mr. Gale created the confirmation letters covertly and then suppressed them from others at Clarkson. The basis for this submission is that, as I accept, no hard copies of the letters were found on Clarkson’s

The “general instruction” letter: Mr. Gale prepared a further letter (referred to as a “general instruction” letter) about the payments made by Clarkson. It was dated 7 July 2004 and addressed to FML, and Mr. Privalov countersigned it. It referred to “various transactions in which [FML] has been and will be involved as Brokers and Consultants” and Clarkson’s understanding that Milmont and Shipping Associates would be entitled to participate in commissions and would be paid “appropriate compensation”; and said that the basis of remuneration would be “as agreed from time to time”. According to Mr. Privalov, this letter was one of two produced in draft by Mr. Gale in the autumn of 2004, and the other letter, which is not in evidence, referred to Mr. Skarga authorising payments. Mr. Nikitin said that they should be destroyed, and Mr. Privalov instructed Mr. Gale accordingly. Mr. Nikitin denied the discussion and any knowledge of the letter. The purpose of the general letter is obscure, and nothing corroborates Mr. Privalov’s evidence about his discussion with Mr. Nikitin or about a letter referring to Mr. Skarga. I reject Mr. Privalov’s evidence, but in any case I would not have considered that this account supports the contentions of Clarkson or the claimants.

The 2004 letters: Further correspondence purporting to set out the nature of the Clarkson agreement was created in 2004, and it was back-dated to February and March 2001. The claimants and Clarkson submitted that it represents a further attempt to concoct a false justification for the payments to the recipient companies, and that Mr. Nikitin was party to it. Mr. Nikitin and the Standard Maritime defendants said that it essentially sets out the terms of the Clarkson arrangement that were in fact agreed in early 2001. Because of the importance that the parties attach to this correspondence, not least in relation to the part 20 claims against Clarkson, I shall set out the four letters. Those from Milmont were signed by a Ms. Francesco Bernasconi, who is described as signing as their attorney in fact. The letter from Clarkson was signed by Mr. Gale.

There was a letter from Milmont to Clarkson dated 12 February 2001 in the following terms:

“We have advised you that as an independent consultant, we are able to provide you on an ongoing basis, our ideas, which we anticipate will allow your company, and may indeed already have allowed your company to participate in the development of Russian controlled shipping companies and their subsidiaries.

We therefore agree that we will provide this service on the basis that we receive a commission for introducing our ideas, of which you will be advised/have been advised. We make no claim for commission on business we have not discussed. You will receive our ideas relating to the buying and selling activities of Sovcomflot and/or Fiona Trust and Holdings, or any of their Single Purpose Buying or Selling Companies, also relating to buying and selling activities of Novorossiysk Shipping, Novoship and/or Intrigue, or any of their Single Purpose Buying or Selling Companies. There may be other Companies and opportunities, including Chartering, which we may advise you in due course, on which basis we again may mutually agree specific arrangements on a case by case basis.

Our normal commission for such business resulting from our services to you is 1.5% on the gross value of the transaction, whether Buying or Selling, however this may be varied from time to time by mutual agreement, but we are anxious that Clarksons receive standard rates of commission for all business transacted.

We request that all such payments be made to Milmont Finance Ltd., or such other Companies we may nominate from time to time, including Horber Financial SA and RTB Overseas Ltd. You will be invoiced for our introductory commission and we would ask you to make prompt payment when requested.

We hereby assure you, that there are no Government Officials of any affiliation or nationality involved with this Company, nor any Officers, agents or Employees of any Company to which our information refers involved with this company, and on which basis we will be remunerated.

Owing to the rather delicate nature of our exchanges, it would be appreciated that no reference is ever made to its source, and this agreement is kept entirely confidential between us, although we appreciate it must be shown to proper parties legally entitled to see it under English Law. The name of this Company or any other Company nominated by us to receive introductory Commissions, must not be disclosed to any third party without our express permission, unless you are required to do so under English Law.

For the purposes of clarification, when we make any statement relating to this Company, such undertakings and statements are and will be true of any company nominated by this Company.

We would be grateful, for your confirmation of receipt of this letter, in due course.”

There was a letter dated 20 February 2001, which purported to be a response from Clarkson to Milmont to the letter of 12 February 2001 and was as follows:

“Thank you for your letter of 12 February 2001.

We are pleased that we are able to have made contact, and regularised, our relationship which has been growing in its scope, and we might add our thanks for the most valuable assistance we have received from you which has already resulted in productive, discussions with the entities you mention.

We look forward to keeping in touch with Mr. Yuri Nikitin, whom our Mr. Richard Gale has known since the early nineties, and their meetings and telephone conversations have proved a most valuable and productive source of ideas.

We do appreciate, as per our discussion with Mr. Nikitin, that owing to the sensitivity of the ideas exchanged, we should be very careful with our records of communications, and keep them absolutely confidential. Thus most if not all exchanges will be in face to face meetings and by telephone.

On this basis we are more than pleased with our arrangement.

We must clarify certain aspects.

You have advised us that we can expect Invoices for introductory commissions both from yourselves, and also Horber Financial SA of Panama and RTB Overseas Ltd. of BVI.

Formally we must ask you to confirm that you are responsible for the disbursement of funds, and that no party to whom we make payment, will disburse any proceeds, to any party or parties benefiting from same, who may liable to UK Taxes. Furthermore you undertake to advise us if there is any change in this status.

Some shipyards are beginning to insist, and we believe will formally insist in due course, that in the event that a Builder is obliged to refund any or all instalments received from Buyers, they will repay to the Buyers the net amount received under the shipbuilding contract, and will look to us to compensate (refund to) them commissions we have received. We would ask you under our agreement, to refund to us any such amounts disbursed to you.

A letter from Milmont to Clarkson bearing the date 28 February 2001 read as follows:

“Your letter of 20 February has been received, and is acknowledged.

Please maintain contact with Mr. Yuri Nikitin. As you have stated, the ideas exchanged are of course extremely confidential, and communications should be maintained on their present basis, as stated in your letter.

For the sake of clarity, we confirm that no beneficiary of this or any Company nominated by us, including RTB Overseas of BVI, and Horber Financial SA, of Panama is a Company, entity or individual liable on these payments, to Tax in the UK, and we undertake to advise you if this changes.

You have explained the reason, for a potential claim against ourselves or any other Company nominated by us, for repayment of our introductory commissions, in the event of a refund by the Yard to the Buyer. We agree to refund amounts to you or the shipyard, as they fall due under the stated circumstances.”

Finally a letter from Milmont to Clarkson bearing the date 14 March 2001 read:

“You have again expressed your concern relating to the issue of UK Taxation.

We hereby advise you that Mr. Yuri Nikitin will take personal care that in any case of disbursement of the assets of Milmont or other accounts previously mentioned, or advised to you in the future, in writing, there will be no entity or person subject to UK Taxation.”

Mr. Nikitin said, and it is not disputed, that the letters were created “at the end of 2004”. By the time that they were prepared, Mr. Skarga had probably already been replaced as Director-General of Sovcomflot, and, if he had not already been replaced, Clarkson realised that he would not remain Director-General for long. On 14 September 2004 Mr. Gale wrote that “Moscow is in turmoil with changes all over the place and they will change the President of Sovcomflot…”.

According to Mr. Nikitin, Mr. Gale presented him with draft letters and asked Mr. Nikitin to assist to create an exchange of correspondence, because Clarkson wished to have on file correspondence reflecting the Clarkson arrangement, confirming that no commission had been paid to anyone subject to United Kingdom taxation and agreeing that commission should be repaid if a sale or purchase agreement was rescinded. Mr. Nikitin did not need such letters for his own purposes, he said, since Clarkson had already provided the confirmation letters, and, because he found Clarkson’s request for back-dated correspondence “somewhat strange”, he arranged to meet Mr. Gale with another senior director of Clarkson to confirm that more correspondence was needed and that “there was nothing wrong in producing it”. Mr.

I accept that the letters were probably drafted by Clarkson and that they were created upon Clarkson’s initiative. I also accept that Mr. Fulford-Smith, if he was not actually party with Mr. Gale to producing them, at least concurred in having them produced. Indeed, it is pleaded in Clarkson’s defence that he approved the wording of the letter dated 12 February 2001 and suggested the letter of 20 February 2001. I cannot, however, accept Mr. Nikitin’s evidence that he did not think that it would be deceptive to back-date the correspondence since they reflected an agreement that had in fact been made; and that his initial concerns about being party to back-dated correspondence were answered by reassurances from Mr. Fulford-Smith. His own evidence was that in fact Clarkson gave him no explanation about why the correspondence should be dated in 2001, and so he cannot have been told anything that might have allayed his concerns.

I conclude that Mr. Nikitin was party to a plan with Clarkson to create a deception that the arrangements had been documented in 2001. Indeed, through his solicitor, Mr. Lax of Lawrence Graham, he presented the letter dated 12 February 2001 as a genuine and properly dated document when he was responding to an application for a freezing order in these proceedings. Mr. Nikitin must have known that this was false evidence and he was content for the correspondence to be misleadingly presented. (I need hardly add that there is no suggestion that Mr. Lax was party to any impropriety, or that Lawrence Graham were.)

There is no dispute that in late 2003 and early 2004 Mr. Privalov prepared spreadsheets that set out the payments that had been made to the recipient companies by Clarkson and also by Norstar, Galbraith’s and Mr. Sawyer. He provided them to Mr. Nikitin by sending them to Ms. Malysheva, Mr. Nikitin’s assistant, and, in one case, to Mr. Nikitin’s own e-mail address. There are issues between the claimants and Mr. Nikitin and the Standard Maritime defendants about when Mr. Privalov first provided spreadsheets of this kind, why he started to do so and whether he provided to Mr. Nikitin a particular spreadsheet (to which I shall refer as the “2001/2002 spreadsheet”), which was in a different format from the later spreadsheets that are in evidence.

The 2001/2002 spreadsheet was maintained in electronic form and its metadata shows that the first version of it was created by a “Clarksons user” on 1 May 2001. The metadata also shows that the electronic version was last saved on 26 February 2002 and that it was last printed on 24 July 2001. For the most part, the spreadsheet records uncontroversial information about payments made or to be made under some of Sovcomflot’s sale and purchase transactions. At the end there is further information about Sovcomflot’s sales and purchases in the period to February 2002 that included details of payments under the Clarkson arrangement in respect of the Genmar transaction, the Astro vessels transaction, the Athenian transaction, the newbuilding purchases and the sale of the “Makarov” through Norstar. It lists the payment in columns under the headings “CC”, Pollak, Horber and Milmont. “CC”

It is not apparent from the 2001/2002 spreadsheet itself whether it set out a list of payments which had already been made, or of payments that were to be made, or both. On the one hand, the last transaction listed was the sale of the “Makarov” in February 2002, which might have been added shortly before the document was last saved on the system on 26 February 2002. On the other hand, the spreadsheet does not record accurately when the payments of $200,000 in respect of the Tam commissions were in fact made. It listed them as being made in six different months between July 2001 and August 2002, whereas in fact, as I have said, the $1,200,000 was paid in three instalments between August 2001 and January 2002. Further, the payment listed under RTB is the whole of the $5.5 million transferred to RTB and not only the $5.25 passed on to Pollak and Milmont. To my mind this uncertainty is not important. I do not accept, as Mr. Berry suggested, that it in some way undermines the evidential significance of the 2001/2002 spreadsheet. Most importantly, the fact remains that it records the hull no 1231 commission and the Tam commissions as payments to Milmont.

According to Mr. Privalov’s witness statement of 12 February 2009, he received the original version of the spreadsheet from Mr. Nikitin and added information to it. He continued to maintain spreadsheets until 2004, and Ms. Malysheva would e-mail them to him and he would update them. In his later statement of 28 September 2009 he said that in fact the initial spreadsheet was provided to him by Mr. Gale (not Mr. Nikitin) on a floppy disk. In his oral evidence he said that he received it from Mr. Gale by e-mail, and that he provided a version of it to Mr. Nikitin in hard copy at a meeting “probably in London”.

Mr. Nikitin denied that he had seen any documents in the form of the 2001/2002 spreadsheet, and it was submitted by Mr. Berry that Mr. Privalov maintained these spreadsheets for his own purposes. Mr. Nikitin’s evidence at trial was that he first received spreadsheets from Mr. Privalov in “around summer 2002”. This account was first given in a statement dated 13 November 2009, which was served only a few days before he gave evidence. In his earlier witness statements he had said that Mr. Privalov had volunteered to keep records of his commissions (not that he had been instructed to do so) “in around the summer of 2001”. When he was cross-examined about this change in his account, he said that his recollection was triggered by seeing later spreadsheets, and that they reminded him that spreadsheets had first been prepared in his office and, when at some time in 2002 his office was having difficulty in breaking down a lump sum, Mr. Privalov assumed the responsibility of keeping them.

This led to an issue about whether the metadata relating to the later spreadsheets demonstrated that the original author of spreadsheets in this form was Mr. Privalov, which would refute Mr. Nikitin’s account that they were originally produced in his office. I was not assisted by this debate. There was no expert evidence that assisted to resolve it. Although the metadata of the spreadsheets in this form records that the original author was Mr. Privalov, I am not persuaded on the evidence before me that

There are, however, other reasons that I am unable to accept Mr. Nikitin’s evidence about the 2001/2002 spreadsheet or to accept the submission that it might be a document created for Mr. Privalov’s own purposes. I found vague and unconvincing his explanation for retracting his original account that Mr. Privalov had volunteered to keep records in 2001. I conclude that he probably realised that the 2001/2002 spreadsheet referred to the payments to Milmont of the hull no 1231 commission and the Tam commissions and he wanted to provide an explanation for the spreadsheet that was consistent with his evidence that he did not know about these payments However, there would be no cogent reason that Mr. Privalov should have kept a record of this kind for his own purposes, without including in it the payments to his own companies. The inconsistencies between Mr. Privalov’s original and later accounts were relatively minor, and it seems to me probable that the spreadsheet was, as he said, prepared for Mr. Nikitin and provided to him.

However, in the end, the importance of the 2001/2002 spreadsheet does not depend entirely upon whether it was provided to Mr. Nikitin. On any view, a spreadsheet prepared by Mr. Privalov in 2001 or early 2002 included the hull no 1231 commission and Tam commissions as monies paid or payable to Mr. Nikitin.

It is not clear from the evidence when the later form of spreadsheets was first produced and first provided to Mr. Nikitin. It appears from a fragment of some electronic data that they were being produced by August 2002. I accept that they lend support to the claimants’ submission that Mr. Nikitin relied upon Mr. Privalov to liaise with Mr. Gale, and that he had played a central role in the Sovcomflot Clarkson commissions scheme. There is no evidence of direct e-mail contact between Mr. Nikitin and Mr. Gale or anyone else at Clarkson until after Mr. Privalov left FMA in 2005.

Mr. Privalov did not provide copies of these spreadsheets to Mr. Skarga, but Mr. Privalov claimed to have shown him some of them, and specifically to recall doing so in a car when driving to Domodedovo airport, Moscow, possibly in the winter of 2003. He recalled that Mr. Skarga commented upon how little Mr. Nikitin was paid upon the sales of the Uglegorsk vessels that were handled by Norstar. Mr. Privalov did not give this account before his witness statement of 28 September 2009, and I reject it. Had this important evidence been truthful, Mr. Privalov would have given it in an earlier statement.

The claimants’ case is that Mr. Skarga was party to the Clarkson arrangement, and more specifically that “before or during December 2000 or early January 2001” (as it is pleaded at paragraph 79A17(1) of the particulars of claim in the Fiona action) he agreed with Mr. Nikitin that, subject to Clarkson’s agreement, the Clarkson arrangement would be put in place and Sovcomflot would instruct Clarkson as their brokers when selling and buying vessels. I have rejected Mr. Privalov’s evidence

I observe that, even on Mr. Privalov’s account, Mr. Skarga did not speak to Mr. Gale about the Clarkson arrangement or the payments under it. Mr. Privalov said that he arranged for Mr. Skarga and Mr. Gale to meet over coffee in about March 2001, and they discussed Sovcomflot’s plans for selling vessels and buying newbuildings. According to Mr. Privalov, he instructed Mr. Gale that commission payments were not to be mentioned at the meeting. He did not tell Mr. Gale that Mr. Skarga knew of the Clarkson arrangement, although he recalled that “Mr. Gale was under the impression that I wasn’t acting on my own initiative as far as these commissions are concerned; I had some, sort of, instructions from above me”. Mr. Privalov explained that he did not want Mr. Skarga to be embarrassed, but I find that explanation unconvincing. If Mr. Skarga knew of the Clarkson arrangement, there was every reason for Mr. Gale to have assured him when they met that he would play his part in it.

In my judgment, the success of the Clarkson arrangement did not depend upon Mr. Skarga, or anyone else at Sovcomflot in Moscow, being party to it (and I have also concluded that the comparable schemes involving NSC were operated without anyone in Novorossiysk being party to them). Negotiations for purchases and sales were conducted through Mr. Privalov, and Mr. Skarga did not directly participate in them.

The claimants argued that the scheme could not have worked without Mr. Skarga’s support because it involved using funds paid by the yards or other sellers as address commissions, and, if Mr. Skarga had not been party to the scheme, he would have asked about whether Sovcomflot were to receive address commissions when he was liaising with and instructing Mr. Privalov in the course of negotiations. Even if he had not in fact done so, it is submitted, the parties to the scheme could not have operated it as they did on the assumption that Mr. Skarga would not ask whether the terms upon which vessels were being acquired provided for address commissions.

I am not convinced by this argument for the reasons to which I have already alluded when considering the Tam commissions scheme. Mr. Skarga’s evidence was that Sovcomflot did not look for address commissions, but preferred simply to negotiate for an acceptable “headline” price. None of the witnesses for the claimants gave contrary evidence or suggested that historically Sovcomflot had ever taken address commissions. (I do not overlook that the SLB arrangements included payments of address commissions. It was not argued by the claimants that this supported their argument that Mr. Skarga would have enquired about address commissions when Sovcomflot was purchasing ships.) Other executives at Sovcomflot, including the experienced and questioning Mr. Terekhin, considered the purchases that they were making and the prices that they were paying, and they did not suggest that Sovcomflot should be negotiating for address commissions. I accept Mr. Skarga’s evidence that “Sovcomflot don’t needed address commission and that is why we even never raised this question”.

This conclusion is supported by the evidence of the brokers who gave evidence. Mr. Pierot agreed that it would be absurd to suggest that a buyer who had not been asked for address commission should think about including it in an offer. Mr. Day said that address commission would not arise for discussion unless the buyer asked for it. Mr. Wood said that it was paid only at the request of the buyer (and agreed in crossexamination, despite a sentence in his witness statement that might have been understood otherwise, that this applied to Russian buyers as well as others).

It was therefore unlikely that Mr. Skarga would have raised the question of whether Sovcomflot should be paid address commissions or seek to negotiate for an address commission upon the purchases, and still less likely that Mr. Privalov could not have handled the matter if the suggestion had been raised. After all, he had successfully operated frauds by diverting address commissions before Mr. Skarga had joined Sovcomflot.

I add that, even on Mr. Privalov’s account, Mr. Skarga did not know that Clarkson were receiving address commissions without passing them on to Sovcomflot, and therefore did not know that it might create difficulties for the Clarkson arrangement if he suggested that Sovcomflot ask for an address commission. Nevertheless, as far as the evidence goes, he never suggested that Mr. Privalov should negotiate for Sovcomflot to be paid one.

The claimants argued that the scheme could not have been operated successfully without Mr. Skarga being party to it because of the risk that the yards’ representatives might have referred to the address commissions at signing or naming ceremonies or on other occasions which he attended. However, ceremonies were attended by other senior officials of Sovcomflot, including members of the General Board and, for example, Mr. Sharikov and Mr. Dobrynin, who were not alleged to have been party to the scheme. There is no reason to think that in fact address commissions were ever discussed in Mr. Skarga’s presence on these or other occasions. I observe that Mr. Wood warned Daewoo in an e-mail of 25 November 2003 that “It is important that … no serious business is discussed without Mr. Privalov being present as Mr. Skarga is not always involved in day to day management of projects”.

I also conclude that it was not necessary for Mr. Skarga to be party to the scheme in order for sufficient funds to be generated by way of commissions upon sales. Mr. Borisenko and Mr. Dobrynin were responsible for Sovcomflot making payments of that kind, and in practice commission payments were normally authorised by Mr. Dobrynin. Mr. Privalov arranged for commissions to be paid from the proceeds of sale, and Mr. Dobrynin reconciled the payments with what Mr. Privalov had agreed.

In the case of the Genmar transaction Mr. Privalov sent Mr. Skarga on 15 June 2001 a “recap” e-mail that referred to commission of 4⅓% but misleadingly stated that it included 3.5% address commission. Generally, as I infer, Mr. Skarga, like other executives, could have discerned the commissions paid to Clarkson from the profit calculations that they received. For example, on 15 May 2002, after the “Kapitan Betkher” was delivered, Mr. Sharikov sent Mr. Skarga information about the price, net proceeds and predicted profit, and the attached calculations showed that Clarkson

In any case, I am not persuaded that the levels of commissions paid by Sovcomflot on the sales through Clarkson were so high that Mr. Skarga would be expected to have questioned them, or that it is suspicious that he did not do so. I do not consider that his failure to challenge the commission payments indicates that he was party to the Sovcomflot Clarkson commissions scheme. Nor am I persuaded by the claimants’ argument that those operating the scheme needed to have Mr. Skarga as a party to it so that he could defend the level of commissions charged by Clarkson if it was challenged by others, the more so since payment of commissions fell within the responsibilities of Mr. Borisenko. Mr. Day (whose evidence I prefer to that of Mr. Pierot) said that it was not uncommon for total of commissions (other than address commissions) paid upon ship sales to be between 3% and 5% of the price. He estimated from a limited examination of sales of second-hand ships in which he had been involved that they were of this order in about a third of transactions. Mr. Day accepted that individual brokers would not generally expect to be paid commissions of more than 1% on sale and purchase transactions, but, of course, they might seek to negotiate a higher rate with their principals.

Profit calculations in relation to sales were, as Mr. Sharikov confirmed, circulated widely within Sovcomflot. They were made by Mr. Sharikov or someone in his Fleet Operations Department. Sovcomflot have not disclosed profit calculations for most of the sales conducted through Clarkson, but I infer that the levels of commissions paid on sales will have been known among Sovcomflot executives. They excited no relevant comment or criticism from executives with more experience than Mr. Skarga. Mr. Sharikov said that, while commissions of 3% would be very high in a seller’s market, they might be paid if it was a buyer’s market, and his evidence was that he never told anyone “at the top level” (which expression would clearly include Mr. Skarga) that he considered the commissions levels to be high. Mr. Orphanos accepted that commissions of 3% were in line with what Sovcomflot had paid “in previous years”.

Mr. Popplewell submitted that there are other reasons to suppose that Mr. Skarga was party to the Sovcomflot Clarkson commissions scheme. He was responsible, it is said, for appointing Clarkson as Sovcomflot’s brokers in place of Mr. Prezanti and for giving Mr. Privalov responsibility for their sales and purchases, and it was as a result of this that Mr. Gale and Mr. Privalov were in a position to operate the scheme. As I have said, I do not accept that these decisions were taken by Mr. Skarga alone, and I

Next, it is said that Mr. Privalov and Mr. Gale would not have risked operating the scheme without Mr. Skarga’s support. I am not convinced by that argument. Mr. Privalov had previously defrauded Sovcomflot, and, even while operating the scheme,

Mr. Popplewell also argued that, if Mr. Skarga had not been party to the scheme, Mr. Nikitin would have insisted that Mr. Privalov and Mr. Gale should undertake to keep his commissions confidential. However, it would have been obvious to those participating in the scheme that they should not be discussed. If Mr. Nikitin had been concerned that he needed a specific undertaking of this kind in order to prevent Mr. Privalov and Mr. Gale mentioning the payments to senior Sovcomflot executives who were not party to the scheme, he would have required it whether or not Mr. Skarga knew about them. On the claimants’ own case, Mr. Borisenko, Mr. Privalov’s “line manager”, knew nothing of the scheme until 2002, but this did not lead Mr. Nikitin to require specific undertakings.

According to Mr. Nikitin and Mr. Skarga, Mr. Skarga remained unaware of the payments made under the Clarkson arrangement until after he had left Sovcomflot and the Fiona action had been brought. Mr. Skarga said that he learned about the payments by Clarkson only when the claimants made allegations about them in the course of these proceedings. They first did so by draft pleadings served in April 2006, although the pleadings were not formally amended to introduce allegations about Sovcomflot’s Clarkson commissions scheme until May 2007.

Mr. Skarga said that he did not ask Mr. Nikitin about the allegations, although the payments were said in the draft pleading to be some $39 million, because he considered that it was no concern to him what relationship or arrangements Mr. Nikitin had with Clarkson. Mr. Nikitin’s evidence was that Mr. Skarga only had asked him whether the allegations were true and that he (Mr. Nikitin) had acknowledged receiving introductory commissions. They both said that Mr. Skarga showed no interest in the allegations, and did not, for example, ask how much Clarkson had paid or anything about the arrangement under which the payments were made. Mr. Dunning pointed out that it was not clear whether they were giving evidence about a time when Mr. Skarga was living in Mr. Nikitin’s house in England or about an earlier time when Mr. Skarga was in Russia and they might have communicated by telephone. Nevertheless, Mr. Skarga’s evidence was not that he thought it impolitic to discuss the allegations from Russia, but that they were of no interest to him.

I cannot accept that evidence. It beggars belief that, if these allegations were news to Mr. Skarga, he would not have been interested in them. Mr. Nikitin and Mr. Skarga were giving dishonest evidence about this. This might have been because Mr. Skarga knew of the payments earlier than he admitted, but equally Mr. Nikitin and Mr. Skarga might have been concerned that their discussions could prejudice Mr. Nikitin’s answer to this part of the claim. Indeed, it would perhaps have been remarkable if they had not been reticent in their evidence about any discussions that they had when the allegation was introduced into the proceedings (although no objection was pressed that their discussion were covered by privilege). I do not consider that this by itself is

In my judgment, there is no convincing evidence that Mr. Skarga was party to or knew of the Clarkson commission scheme, and no compelling reason to think that he was. I shall consider later in my judgment the claimants’ alternative contention that they nevertheless have claims against Mr. Nikitin and the recipient companies.

It is convenient next to consider the claims brought in the Fiona action by Mr. Nikitin and Milmont against Clarkson under part 20 of the CPR because they arise from the Clarkson arrangement. Their case is that under the arrangement it was agreed between Mr. Nikitin and Mr. Gale acting on behalf of Clarkson that Clarkson would pay commissions to Milmont or another company nominated by Mr. Nikitin, and, as I have explained, Clarkson provided in relation to purchases of vessels by Sovcomflot confirmation letters in which they stated specific amounts that they would pay by way of commissions to Milmont. The prices for newbuildings were paid to the yards in instalments, and Clarkson as brokers were paid commissions as each instalment of the sale price was paid. The confirmation letters reflected those staged payments. Mr. Nikitin and Milmont claim that in turn Clarkson were to pay an instalment of commission under the Clarkson arrangement as and when they received a commission payment from the yard. In the case of 14 vessels purchased by Sovcomflot (and 17 vessels purchased by NSC, which are the subject of the part 20 proceedings in the Intrigue action) Clarkson provided a confirmation letter and paid Milmont for one or more instalment of their commissions, but by letter dated 31 May 2006 from Messrs Norton Rose, who were then their solicitors, Clarkson advised Milmont that they were ceasing to pay them. Clarkson have not made payments that they stated in the confirmation letters would be made.

Mr. Nikitin and Milmont claim to be entitled to be paid $8,760,900 by Clarkson in respect of purchases of these vessels by Sovcomflot companies: three vessels, hulls nos 1757, 1758 and 1759, bought from HHI each for $49.5 million; a further vessel, hull no 1603, bought from HHI for $47.42 million; three vessels, hulls nos 5272, 5273 and 5274, and a further vessel, hull no 5275, bought from Daewoo for $57.9 million each and for $58.9 million respectively; two further vessels, hulls nos 2241 and 2242, bought from Daewoo for $160 million and $162 million respectively; and four vessels, hulls nos 2014, 2015, 2016 and 2017, bought from STX Shipbuilding company of South Korea for $40.58 million each. Clarkson produced confirmation letters for these purchases dated between 15 July 2003 and 27 October 2004.

All those letters relating to transactions which are the subject of the part 20 claim were in the form of the (back-dated) letters of 20 July 2001. They were dated 2003 and 2004, and there is no reason to think that these particular letters were back-dated. The relevance of the fact that earlier letters were given false dates is that it lends support to Clarkson’s submission that Mr. Nikitin was aware that those earlier letters were not genuine documents and were not intended to give rise to any liability, but they were created in order to provide a fictitious justification for the payments to Milmont; and that he knew that the purpose of the later letters was similar.

The formulation of the part 20 claims (in both the Fiona actions and the Intrigue action) developed in the course of the trial. At the start of the trial, Mr. Nikitin and Milmont both claimed liquidated amounts, which represented the total of the commissions said to be due in respect of the 14 vessels. During the trial, they amended their part 20 claims to plead a claim for a reasonable sum by way of introductory commissions. In the course of the closing submissions Mr. Berry applied for permission to make further amendments to the part 20 claims. Mr. Nikitin and Milmont no longer pursue claims for a reasonable sum, but seek to make, in the alternative to the claims in debt in respect of liquidated sums, a claim by Mr. Nikitin for an order that Clarkson pay to Milmont the liquidated sum. Clarkson did not resist the application to introduce this new claim, although they did oppose other parts of the proposed amendments, and I said that I would rule upon the applications in this judgment. I shall return to this.

Behind the different formulations of the claim, the substance of what Mr. Nikitin and Milmont say is this: that, when Mr. Nikitin and Mr. Gale made the Clarkson arrangement, they made a legally binding contract whereby it was agreed that Clarkson would make payments in accordance with directions of Mr. Nikitin; and that, as far as concerns the purchases that are the subject of the part 20 claims, in the event the directions that Mr. Nikitin gave (or is to be taken to have given because he did not object to the confirmation letters addressed to Milmont) were that the money to be paid under the Clarkson arrangement should be paid to Milmont. Thus, Mr. Nikitin and Milmont contended that the effect of the confirmation letters was, in the words of the pleading, that they “quantified and crystallised” the payments to be made by Clarkson to fulfil their obligations in respect of the relevant purchases under the Clarkson arrangement: that is to say, Clarkson exercised a discretion that they had under the Clarkson arrangement to determine what was to be paid, and by the letters they determined Mr. Nikitin’s and Milmont’s entitlement. Alternatively, they put their case on the basis that, by the confirmation letter relating to the particular purchase, Clarkson offered to make the payments stated in it, and the offer was accepted because no objection was taken to what the letters stated and the first payments which they promised were accepted.

The main issues that arise in relation to the part 20 claims are these:

I am unable to accept that the Clarkson arrangement was of contractual effect. First, even on Mr. Nikitin’s account, Clarkson did not enter into any commitment to make payments that could have been intended to be contractually binding. Secondly, I

Mr. Nikitin and Milmont plead that it was agreed that “Clarkson would pay Milmont (or such other company nominated by Mr. Nikitin) commission of around 1.5% (or such other percentage as Clarkson considered appropriate …) of the gross value of transactions in respect of which (i) Clarkson acted as shipbroker; and (ii) Mr. Nikitin had introduced the business to Clarkson”: see para 2 of the part 20 particulars of claim. They also assert that it was implied “as a matter of necessity and/or in order to give the agreement business efficacy that such percentage would be objectively reasonable and/or that Clarkson would act reasonably in their consideration of what was appropriate”. Mr. Nikitin’s evidence in his witness statement of 13 February 2009 about how much was to be paid was not that it simply depended upon how much Clarkson thought appropriate. He said that he and Mr. Gale agreed that Clarkson would pay around 1.5% of the transaction value for business that Mr. Nikitin introduced, but that if Clarkson thought that an introduction did not merit as much as that, he said that he “would be prepared to agree” another amount. However, in cross-examination he said that it was for Clarkson to decide on a case by case basis what they should pay because “they knew better the practice and how to do it properly”; and so the agreement did not contemplate that Mr. Nikitin should have to agree to the amount of commissions, even if they were for less than 1.5% of the transaction value. Further, and importantly, Mr. Nikitin said that he was not entitled to be paid for all business in which Clarkson acted for Sovcomflot, but Clarkson were to decide whether he had had any “input in putting the particular piece of business in question their way”. As I understood his evidence, Clarkson might decide in a particular case that they should not make any payment for Mr. Nikitin. He said in cross-examination that it was up to them to decide whether they believed that he was entitled to the commission. His evidence did not support any case that Clarkson were obliged to pay a reasonable sum, nor that Clarkson made any commitment at all to him.

Mr. Berry sought to overcome this difficulty by submitting that, since the arrangement was that Clarkson should have discretion about whether to make a payment and if so what payment they should make in respect of any transaction, the law will require them to exercise their discretion reasonably. He referred to the judgment of Leggatt LJ in Abu Dhabi National Tanker Co v Product Star Shipping Co Ltd., [1993] 1 Lloyd's Rep 397 at p. 404: "Where A and B contract with each other to confer a discretion on A, that does not render B subject to A's uninhibited whim. In my judgment, the authorities show that not only must the discretion be exercised honestly and in good faith, but, having regard to the provision of the contract by which it is conferred, it must not be exercised arbitrarily, capriciously or unreasonably." I do not consider that the principle described by Leggatt LJ has any application here. The question is not whether there were to be implied into a contract between Clarkson and Mr. Nikitin any constraints upon how Clarkson could exercise a power or discretion that the contract allowed them. The question is whether Clarkson and Mr. Nikitin entered into any contractual arrangement at all. Mr. Nikitin’s evidence was that Mr. Gale did not give any commitment on behalf of Clarkson other than that Clarkson would consider whether they should make a payment and if so how much, and no other evidence suggests that they undertook anything more. I do not consider that, in the circumstances of this case, such a commitment would have been understood by

In any case, even if Mr. Nikitin’s evidence is to be understood to support the contention that Clarkson entered into some contractual commitment, I should not accept that they did so. The case that is advanced by him and Milmont about the commitment is inconsistent and lacks coherence. The parties’ conduct in relation to it does not support the case that Mr. Nikitin and Milmont seek to advance. The agreement for which they contend would not have made any commercial sense for Clarkson. Mr. Nikitin was party to creating fictitious documentation and misleading devices to explain the payments made by Clarkson, which would have been unnecessary if he had reached a genuine agreement with them.

Mr. Nikitin and Milmont have not advanced a coherent case about what Clarkson arrangement was made or about what was Clarkson’s commitment under it. In the part 20 claim, they plead that the terms of the arrangement are “substantially set out and evidenced in the letter from Milmont to Clarkson dated 12 February 2001”: para 1 of the part 20 particulars of claim. That letter does not, however, describe an arrangement in the terms that they go on to plead or as described by Mr. Nikitin in his evidence.

First, the letter described an arrangement under which Milmont agreed to provide ideas to Clarkson “as an independent consultant” and would be paid for “introducing our ideas”. It did not describe an arrangement whereby they would be paid for introducing business to Clarkson, as is pleaded both in the part 20 claim and also in the defence of Mr. Nikitin and the Standard Maritime defendants (including Milmont) in the Fiona action, where it is said (at para 23A.1(4) that “Milmont (or another nominated company) would receive an amount of commission in respect of business introduced to Clarkson by Mr. Nikitin”. As I have said, the payments were, however, not described as introductory commissions until 2002 at the earliest. Mr. Nikitin’s evidence was that he was not paid simply because he “had put Clarkson and Sovcomflot in touch with each other”, but when he had some “input” into a transaction. In cross-examination he referred to being paid where he had provided information.

Secondly, the letter of 12 February 2001 described an arrangement by which Milmont’s “normal commission for such business resulting from our services” might be varied by mutual agreement. It did not describe an arrangement that Clarkson should pay when and in an amount that they considered appropriate, which is the agreement that Mr. Nikitin and Milmont allege to have been made.

Further, the letter stated that Milmont were anxious that Clarkson would receive “standard rates” of commission, and initially it was the pleaded case of Mr. Nikitin and Milmont that the Clarkson arrangement provided that Clarkson were to charge Sovcomflot only a standard rate of commission. In cross-examination, however, Mr. Nikitin said that Mr. Gale had not agreed to this, and the pleading was amended to allege that Mr. Gale agreed that Sovcomflot were to be charged “commission for division”, and that it should be “a normal level for such type of transactions”: para 3b of the part 20 particulars of claim. This was not stated in the letter of 12 February 2001, in which Milmont simply said that they were anxious that Clarkson should receive “standard rates of commission for all business transacted”.

The pleaded case that Mr. Nikitin and Mr. Gale entered into an agreement in the terms set out in the letter of 12 February 2001 has been discredited. If the parties had entered into an arrangement of the kind that Mr. Nikitin and Milmont assert, it would be expected that contemporaneous exchanges between the parties to it and other documentation would have reflected it. There is no such contemporaneous documentation, and this, as I infer, was because it was not an arrangement to which Clarkson were committed, but a private and secret understanding between Mr. Gale and Mr. Nikitin.

Further, the pattern of the payments made by Clarkson is not that that would have been expected under the arrangement that Mr. Nikitin described or one which would make any commercial sense from Clarkson’s point of view. Mr. Nikitin contributed little or nothing to the business that Sovcomflot did through Clarkson. No document indicates that he suggested any of the transactions for which Clarkson earned commission. The most that he claimed to have done was to indicate in general terms Sovcomflot’s thinking: for example, in the case of the Genmar purchase, he claimed to have told Mr. Gale that Sovcomflot had it in mind to sell the OBO vessels; in the case of the Tsuneishi transaction, that Sovcomflot were thinking about buying Aframax vessels; and in the case of the Athenian transaction, that Sovcomflot were looking for new ice-class Suezmax vessels. In the case of most transactions, including all those to which the part 20 claim in the Fiona action relates, there is no credible evidence that Mr. Nikitin had, as he put it, any “input” at all. As Mr. John Odgers, who represented Clarkson, observed, it is difficult to see what Mr. Nikitin could conceivably have contributed to Sovcomflot’s orders of further Aframax or Suezmax vessels from yards with which they and Clarkson had already dealt.

Nevertheless, Clarkson made payments to Milmont or another company nominated by Mr. Nikitin for all the Clarkson business that they handled, apart only for the sale in 2004 of two Tromso vessels, which were sold, as I shall explain, together with the Arbat vessels which were the subject of the SLB arrangements and sold by the Standard Maritime defendants that owned them. There was no reason for Clarkson to make any payments under the Clarkson arrangement that Mr. Nikitin described, and Clarkson could not have thought otherwise. However, not only did they make payments, but they paid on average more than 1.5% of the value of the transactions. The total value of the transactions in which Clarkson acted as brokers for Sovcomflot was some $2.35 billion, and Clarkson paid for Mr. Nikitin some $40 million, or over $4 million in excess of 1.5% of their value. In contrast, the amount that Clarkson kept by way of commission from these transactions was some $12.7 million, or $16.6 million if the amounts that Clarkson paid to Mr. Privalov’s companies are included. There was no sensible and proper commercial reason for Clarkson to have paid so much under the arrangement that Mr. Nikitin described. According to Mr. Nikitin, he could not recall Clarkson ever suggesting that he should be paid less than in fact they paid, and Mr. Gale did not tell him why the payments were sometimes for more than 1.5% of the value of transactions.

It was submitted by Mr. Berry that I should accept Mr. Nikitin’s account of the arrangement because no witness from Clarkson claimed to have any direct knowledge of the reason that Clarkson made payments to Milmont and other nominated companies. I do not accept that submission. Mr. Gale was engaged in various devices in order to prevent it appearing from Clarkson’s records that they were

This is not to say that everyone within Clarkson other than Mr. Gale was unaware of the payments to the recipient companies. As Mr. Berry observed, the documents allowing payments to be made were endorsed by others, including Mr. Broke-Smith and, apparently, Mr. Fulford-Smith. It is not clear how much others were aware about why the payments were being made, but, as I have said, Mr. Fulford-Smith at least concurred in the 2004 letters being created. The point does not depend upon how many people within the Clarkson organisation were aware of the payments and knew something about the Clarkson arrangement. The point is that Mr. Gale felt the need to disguise the nature of the payments.

Clarkson have another argument. Even if they entered into a contractual obligation under the Clarkson arrangement whereby they were to make payments where Mr. Nikitin had introduced the business to them, he and Milmont have not established that he introduced any of the transactions to which the claim relates. Indeed, in the part 20 proceedings Mr. Nikitin and Milmont do not plead that Mr. Nikitin did introduce the relevant business to Clarkson.

The part 20 claim therefore depends upon the arguments based on the confirmation letters. I am unable to accept that, by providing the letters, Clarkson somehow entered into a commitment arising from the Clarkson arrangement itself to pay the sums stated in the letters: that they “quantified and crystallised the amount payable” under it in respect of a particular transaction. First, if the Clarkson arrangement was not contractual and there was no contractual obligation to be quantified or crystallised, I do not consider that there is any legal basis for an argument that the confirmation letters made the Clarkson arrangement itself contractually binding. The only legal basis upon which Mr. Berry suggested that this was the effect of the letters was that they created an estoppel whereby Clarkson were precluded for denying the circumstances that would create a contractual obligation. Even if the letters can be interpreted as making the representations necessary to provide a basis for an argument along these lines, there is no evidence that Mr. Nikitin or Milmont relied upon the letters and they do not assert that they did so. For the reasons that I have explained, I am unable to accept that Mr. Nikitin ever thought that the confirmation letters had any purpose other than to provide Mr. Gale with a justification for having Clarkson make payments for him.

For similar reasons, I reject the argument that, even if the Clarkson arrangement was not of contractual effect, the confirmation letters constituted an offer to make payments to Milmont that was accepted. The letters do not purport to be contractual offers, and Mr. Nikitin and Milmont neither acted so as to accept any offers nor provided any consideration under an agreement such as that for which they contend.

I therefore reject the part 20 claim in the Fiona action. I would, in any case, have accepted Clarkson’s submission that the claim should not be enforced because, as I shall explain, I conclude that the payments were made under the Clarkson arrangement to Milmont and others because Mr. Nikitin was dishonestly participating in the brokers’ and Mr. Privalov’s breach of their fiduciary duties. The court will not assist a person to recover a benefit from his own wrongdoing: Stone & Rolls Ltd. v Moore Stephens, [2009] UKHL 39 at para 26 per Lord Phillips.

I return to the application of Mr. Nikitin and Milmont to amend their pleaded case. The purpose of the amendment would be to enable Milmont to bring a claim under the Clarkson arrangement. On the face of it, the arrangement was between Mr. Nikitin and Mr. Gale acting for Clarkson, and, even if the arrangement created an enforceable contract, Milmont would not have any claim under it. The proposed amendment sought to overcome this difficulty by pleading that Mr. Nikitin made the arrangement as agent for Milmont, as well as on his own behalf, and by asserting that Milmont are entitled to enforce Clarkson’s obligation to pay them under the arrangement because of the Contracts (Right of Third Parties) Act 1999 (the “1999 Act”). I consider that there is no proper basis for these contentions, and I refuse the application to make the amendments to assert them. There is no evidence that Mr. Nikitin acted on behalf of Milmont or any other recipient company when making the arrangement with Mr. Gale and he did not claim to have done so. In order to bring a claim under the 1999 Act, Milmont would have to establish that they were expressly identified in the Clarkson arrangement by name, as a member of a class or as answering a particular description: see section 1(3). There is no evidence that they were.

Sovcomflot had, for some time before 2001, contemplated selling their Uglegorsk vessels, which were old and relatively small. At a meeting of the Executive Board on 7 February 2001, Mr. Ambrosov was charged with making arrangements to sell them and also the “Byelorussia”, a ro-ro vessel. During the summer of 2001, if not earlier, Clarkson looked for buyers for them, but without success. Mr. Gale told Mr. Privalov that they were not the appropriate brokers to handle the sales. The claimants plead (at para 27 of the particulars of claim in the second Fiona action) that “In or around August or early September 2001” Mr. Skarga instructed Mr. Privalov of an intention to sell the Uglegorsk vessels, but, as I conclude, Mr. Privalov must have been aware of Sovcomflot’s intention earlier than that.

By September 2001 Norstar were trying to market at least two of the ships, the “Makarov” and the “Uglegorsk”. Between February 2002 and July 2003 Norstar acted as brokers upon the sale of seven Uglegorsk vessels and the “Byelorussia”. The “Makarov” was sold under a memorandum of agreement dated 12 February 2002, the other six Uglegorsk vessels were sold under memoranda of agreement dated between 4 November 2002 and 10 March 2003 and the “Byelorussia” was sold under a memorandum dated 10 July 2003. In total Sovcomflot were paid $17.11 million for the vessels. Norstar were paid by or on behalf of the selling companies total commissions of $434,075 on the sales, and from this they paid $238,396.50 to Milmont, who were paid between 1% and 2% of the sale price of each vessel.

The claimants’ case is that Norstar had entered into an understanding (the “Norstar arrangement”) with Mr. Nikitin which was similar to the Clarkson arrangement, and that they made payments on this business to Milmont in accordance with his instructions. They also say that Mr. Skarga knew of and was party to the Norstar arrangement. At the start of the trial their case was that the Norstar arrangement was made at a meeting between Mr. Skarga, Mr. Privalov and Mr. Bonehill at the Lipp Brasserie in Geneva that took place “in around October 2001”. After Mr. Privalov’s evidence, they amended their case to allege that Mr. Privalov and Mr. Bonehill made the Norstar arrangement in or around October 2001 and that Mr. Privalov was acting on Mr. Skarga’s instructions; and that the arrangement was discussed by Mr. Skarga, Mr. Privalov and Mr. Bonehill at a dinner at the Lipp Brasserie, when Mr. Skarga confirmed the arrangement. They were unable to say when the discussion took place.

The claimants contended that the scheme operated as follows: Mr. Nikitin would tell Mr. Privalov, either by telephone or at a meeting with him and Mr. Skarga, how much he was to be paid, and Mr. Bonehill, through Norstar, would include that amount in his invoice to the selling company and pay it into Milmont’s account. When Norstar rendered their invoices for commissions that were at a level that was sufficient to cover what they were to pass to Milmont, Mr. Privalov sought and obtained Mr. Skarga’s authority to pay it.

Mr. Privalov’s evidence was that Mr. Skarga asked him to find a broker to handle the sales of the Uglegorsk vessels, and, upon the suggestion of Mr. Lyashenko, he approached Mr. Bonehill. According to Mr. Privalov, he told Mr. Bonehill that he would not be instructed to handle the sales unless he agreed to make payments for Mr. Nikitin’s benefit, and Mr. Bonehill agreed to this at a meeting with Mr. Skarga and Mr. Bonehill at the Lipp Brasserie. Mr. Bonehill accepted that he should pay Mr. Nikitin, but he stipulated that the amount that Norstar should pay should depend upon the particular transaction. Mr. Privalov initially said in his witness statement of 12 February 2009 that the meeting was in around October 2001. In a witness statement dated 28 September 2009 he said that it could well have been earlier than October 2001, but that he believed that it was not later. In cross-examination he said that the meeting was later than “around October 2001”. In fact, as the documents show, Mr. Skarga was not in Geneva between September and November 2001.

Mr. Privalov said that Mr. Bonehill also agreed that Norstar would pay him on the business “a proportion of their commission (generally equivalent to 0.25% of the sale price”, and that he arranged for this to be paid to Shipping Associates. I accept that Mr. Privalov made some arrangement for Shipping Associates to be paid on this business, although the details of the arrangement are obscure and there is little documentary record of such payments. However, on 21 March 2002, after the sale of the “Makarov” in February 2002 for $2,025,000, Norstar paid to Shipping Associates’ account at Credit Suisse $20,245. I infer that this represented 1% of the sale price, net of charges. Although this is inconsistent with Mr. Privalov’s evidence about how much he was generally paid, in my judgment the records of this payment corroborates that Mr. Bonehill agreed to pay him. (It is perhaps curious that Mr. Privalov directed the payments to Shipping Associates if Mr. Bonehill himself had an interest in the company, but this was not explored when Mr. Privalov was cross-examined.)

Mr. Nikitin’s evidence was that Mr. Bonehill knew him, and some time in 2001 he approached Mr. Nikitin about whether Norstar could obtain business from Sovcomflot. When Mr. Nikitin heard that Sovcomflot were having difficulty in selling the Uglegorsk vessels, he suggested to Mr. Privalov that Sovcomflot might sell them through Norstar, and he introduced Mr. Privalov to Mr. Bonehill. (In his

Mr. Skarga too said that he knew nothing of any arrangement that Mr. Bonehill had with Mr. Nikitin, and was not involved in Norstar being asked to handle Sovcomflot’s business. He met Mr. Bonehill only once, in the winter of 2002-2003, when at the Lipp Brasserie in Geneva they discussed a yacht which had been presented to Mr. Putin and was being managed by Unicom.

The essential issues between the parties about the Norstar arrangement therefore mirror those about the Clarkson arrangement: (i) was Mr. Skarga party to it? and (ii) was Mr. Nikitin introduced to Norstar by Mr. Privalov and how did his arrangement with Mr. Bonehill come about?

The case that Mr. Skarga was party to the Norstar arrangement depends upon Mr. Privalov’s evidence, which has been inconsistent and is unconvincing. I reject his evidence and the various arguments advanced by the claimants in support of their contention about Mr. Skarga’s involvement.

First, they submitted that Mr. Privalov would not have arranged for Norstar rather than Clarkson to handle these sales unless he had been instructed to do so by Mr. Skarga. I do not accept this. The Executive Board had decided that the ships should be sold, and Clarkson had not succeeded in finding buyers for them. I see no reason to suppose that, even if Mr. Skarga had been party to the Clarkson arrangement, he would have insisted that they should be sold through Clarkson unless a comparable arrangement could be made with another broker, and no reason that Mr. Privalov should not have had a free hand to arrange for the disposal of these obsolete vessels, which were clearly of little value, as he saw fit and to appoint a broker for this purpose.

Nor am I persuaded by the claimants’ argument based upon Mr. Nikitin’s evidence that he did not require Mr. Privalov and Mr. Bonehill to keep the Norstar arrangement confidential. They submitted that he would have required secrecy unless Mr. Skarga was already aware of it. If there were force in this argument, Mr. Nikitin would have been concerned about others at Sovcomflot hearing of the arrangement, even if Mr. Skarga was aware of it. As with the Clarkson arrangement, Mr. Nikitin could expect that the others involved in the Norstar arrangement would understand that they should keep the arrangement confidential, without him giving the specific instructions to do so.

The claimants also relied upon an e-mail dated 30 December 2002 sent to Mr. Privalov authorising the payment of commission of 3% on the sale of the “Uglegorsk”. In his witness statement dated 29 May 2009 Mr. Skarga said that he believed that he had not sent the e-mail because he was away from the office at the time and because “the e-mail is not in my usual style”. The e-mail, although dated 30 December 2002, was not in fact sent until 20 January 2003. I conclude from the evidence of Mr. James Menzies, an expert witness about computing matters, in a report dated 10 July 2009 that in fact the e-mail was sent from Mr. Skarga’s computer and was probably written off-line and sent when the computer was again connected to Sovcomflot’s server. I am not persuaded that it necessarily follows that Mr. Skarga sent this e-mail, but, even if for some reason he did authorise the payment on this occasion, I am not persuaded (despite Mr. Privalov’s evidence to the contrary) that generally he authorised Norstar’s commissions payments. There would have been no reason for him to do so even if he knew of the Norstar arrangement. According to the evidence of Mr. Sharikov and Mr. Borisenko, it was largely a routine matter to authorise such payments, and Mr. Borisenko said that it was normal for him to refer requests for authorisation to Mr. Dobrynin. These sales and the amount of the commissions were relatively small, and there is no credible evidence that the normal procedures were not followed.

The claimants submitted that I should accept Mr. Privalov’s account that he arranged for Norstar to handle these sales, and that I should reject Mr. Nikitin’s claim that he introduced Norstar to Sovcomflot. Neither account was given by an honest witness, but the claimants argued that there are other reasons to accept Mr. Privalov’s account. First, Mr. Nikitin’s evidence about how he came to know Mr. Bonehill is vague and unconvincing, because Mr. Bonehill was a sale and purchase broker and Mr. Nikitin had not been involved in business of this kind. On the other hand, Mr. Privalov might well have been introduced to Mr. Bonehill by Mr. Lyashenko, who, according to Mr. Privalov, worked for Norstar after leaving FESCO. Further, an e-mail dated 14 September 2001 from Mr. Lyashenko (or at least from his company, FESCO UK) shows that he and Mr. Privalov were in communication about selling the Uglegorsk ships. Whether, as Mr. Skarga said, this was sent after discussions that he had had with Fesco in which they expressed interest in the ships and he had referred them to Mr. Privalov, or it was sent after Mr. Privalov had approached Mr. Lyashenko about brokers who might handle the sales, it does at least support Mr. Privalov’s evidence that he spoke to Mr. Lyashenko about selling the ships, and to that extent provides some support for his evidence that Mr. Lyashenko suggested Norstar as suitable brokers. Thirdly, Mr. Privalov’s account explains why Norstar made payments to Shipping Associates. Fourthly, the claimants observed that Mr. Nikitin claimed only to have introduced Mr. Bonehill to Sovcomflot. He did not say that he provided Norstar with ideas about Sovcomflot’s requirements. The claimants argued that in these circumstances it is improbable that Mr. Bonehill would have been left to assess how much he should pay to Mr. Nikitin “for the transaction in question”, as Mr. Nikitin claimed. There would have been no possible reason to adjust the amount of commissions.

I am persuaded by the claimants’ submissions and conclude that Mr. Privalov introduced Sovcomflot’s business to Norstar.

I therefore conclude with regard to the Norstar commissions scheme that:

I shall also consider later the defendants’ arguments (i) that the claims are timebarred, and (ii) that no claim can be brought in respect of the sale of four of the vessels, the “Makarov”, the “”Kurilsk”, the “Novikovo” and the “Nevelsk” because the companies that sold these vessels are not party to the second Fiona action.

The claimants do not allege that Mr. Izmaylov was corrupt while he was at Sovcomflot, or was party to or knew of any of the schemes to which Mr. Skarga is said to have been party. Before he moved to NSC, he did not have a close relationship with Mr. Nikitin or any substantial or relevant dealings with him. In the summer of 2001, Mr. Skarga recommended to Mr. Frank, in his capacity as Minister of Transport, that Mr. Izmaylov should be appointed President of NSC, and he also made the same recommendation to Mr. Yakunin. However, as Mr. Frank explained, it was not an appointment that Mr. Skarga could in any way have influenced because it was “the matter of the Government”. Still less could Mr. Nikitin have brought it about. The claimants’ case, however, is that by December 2001, before he was formally appointed as NSC’s President, Mr. Izmaylov had entered into a corrupt relationship with Mr. Nikitin and Mr. Privalov, and had set about arranging for NSC to appoint new brokers with a view to them making arrangements similar to the Clarkson arrangement in order to benefit Mr. Nikitin. They say that:

In May 2002 Mr. Sawyer, who traded as Marine and Finance, was retained by NSC as a financial advisor to arrange finance for their newbuildings programme and for refinancing existing debt. The claimants’ pleaded case (at para 10D(4) of the particulars of claim in the Intrigue action) is that Mr. Izmaylov arranged his appointment “on terms that NSC or its subsidiaries would pay Mr. Sawyer 0.30% commission of the amount of all debt arranged by him” and “Mr. Sawyer would be required to pay 50% of that commission to Mr. Nikitin or his companies”. Between December 2002 and October 2005 NSC paid him commissions totalling some $3.077 million, and, I infer, he paid some $1.538 million to Amon. (The total amount paid to Amon is a matter of inference in the absence of documents relating to any sums transferred to Amon in respect of commissions earned by Mr. Sawyer in 2005, but I understand that it not controversial. The exact figure is, in any case, not important.)

Before Mr. Izmaylov was appointed President of NSC, North South International Ltd. (“North South”) were their consultants and under a consultancy agreement with Intrigue dated 1 June 1998 had wide responsibilities, including for providing advice on acquisitions and sales of vessels, for providing assistance in negotiating and for reviewing the terms of acquisitions and sales, and for providing support in obtaining loans and financing arrangements. Mr. Sondre Tveitan provided North South’s financial advice, and Mr. Arjun Batra was responsible for providing on North South’s behalf services relating to ship acquisitions and sales, sometimes engaging for this purpose the services of brokers, such as Arrow and Braemar. Their appointment was terminated by NSC by three months’ notice given in a letter dated 15 January 2002.

When Mr. Izmaylov moved to NSC to take up his position as President in November 2001, the company was about to undertake a major programme to modernise the fleet over five years. This had been approved by NSC’s General Board before Mr. Izmaylov had been appointed. Mr. Izmaylov questioned whether North South should continue to handle NSC’s acquisitions and sales. He asked Mr. Oskirko to consider how to go about finding a suitable replacement, but Mr. Oskirko apparently did nothing. Mr. Izmaylov was busy with other matters immediately after his appointment and he did not press Mr. Oskirko about this.

According to Mr. Izmaylov, he considered that North South were not suitable brokers to undertake the programme because they were too small and appeared not to have a wide network of connections in the shipping world. He wanted to replace them with major brokers who had a greater market presence. He thought that Mr. Batra had “no obvious track record” as NSC’s broker upon acquisitions and sales. As for their work as financial consultants, NSC’s funding from banks appeared to him more expensive than Sovcomflot’s finance. He thought that Mr. Tveitan’s financial “knowledge seemed superficial” and that he did not understand “Russian business and Novoship’s position in the financial markets”, and he was unimpressed when Mr.

Thus, within some two months of Mr. Izmaylov moving to NSC, the decision had been taken to replace their established consultants. The claimants said that Mr. Izmaylov was responsible for dismissing North South, that he had no proper reason for doing so, that he did not properly investigate who should replace them, and that he chose brokers because they were willing to pay Mr. Nikitin on their business with NSC.

I accept that Mr. Izmaylov went about replacing North South before he knew much about them and their work. For example, he did not know that North South sometimes used Arrow and Braemar to handle NSC business or that Mr. Batra was the managing director of Drewry Consultants. The trip to Holland and Norway was not an ideal opportunity to form a view about North South’s ability as financial consultants. It was, as Mr. Izmaylov described it, simply “an acquaintance trip to our bankers”. In any case, already before the trip Mr. Izmaylov had started to go about finding new brokers, and he told Mr. Oskirko that he was considering whether to replace Mr. Tveitan before he had met him. I am not, however, persuaded that Mr. Izmaylov had dishonest or improper motives in making these changes.

In about November 2001, Mr. Nikitin had telephoned Mr. Izmaylov. They had some discussion about NSC’s proposals to renew their fleet, and in the course of their conversation, Mr. Izmaylov voiced his doubts about whether NSC’s brokers were large enough and suitable to undertake the programme. Mr. Nikitin saw an opportunity to expand the Clarkson arrangement to cover NSC’s sales and purchases as well as Sovcomflot’s. Mr. Izmaylov and Mr. Oskirko came to London between 4 and 11 December 2001 to visit NOUK before they went on to Holland and Norway to visit bankers with North South. Mr. Nikitin had told Mr. Izmaylov that he would introduce him to brokers, and contacted him in London to arrange that he and Mr. Nikitin should meet at the Ritz Hotel with Mr. Rokison of Galbraith’s over breakfast and with Mr. Gale over lunch. He suggested that NSC might divide their business between two brokers, giving Clarkson responsibility for purchases, particularly of newbuildings, and using Galbraith’s to handle sales. These meetings were not included in the draft schedule prepared for Mr. Izmaylov’s trip. This, I infer, was because they were arranged only at the last minute, and it does not, to my mind, justify the inference suggested by the claimants that Mr. Izmaylov was concealing them from NSC. Nor do I find it curious that before the trip Mr. Izmaylov did not tell other directors that he might be meeting brokers whom NSC might engage: his conversation with Mr. Nikitin was too vague to call for discussion. It is not clear why Mr. Izmaylov attended the meetings without Mr. Oskirko. Mr. Oskirko was probably, but not certainly, in London, but there is no evidence from Mr. Oskirko or any other witness or from the documents about whether he had other commitments.

The claimants’ case is that, at his meeting with Mr. Rokison, Mr. Izmaylov agreed that NSC should appoint Galbraith’s to handle on an exclusive basis all of NSC’s ship sales. I do not accept that Mr. Izmaylov committed NSC to use Galbraith’s services, either exclusively or at all. Mr. Rokison reported to the board of Galbraith’s on 11 December 2001 that NSC “seemed to want Galbraith’s as their sole broker”. He did not state that they had agreed that they should be, and, if an agreement about this had been reached, Mr. Rokison would have reported accordingly. Similarly, I accept that, at the meeting with Mr. Gale, Mr. Izmaylov discussed the possibility of Clarkson acting as NSC’s brokers without committing NSC to anything. When he

NSC started to instruct Galbraith’s upon their sales. I accept Mr. Oskirko’s evidence that Mr. Izmaylov told him to do so, and on 24 December 2001 he said in an e-mail to NOUK that Mr. Izmaylov had requested them to appoint Mr. Rokison to handle sales of NSC’s ships, and that Mr. Batra had been told not to become involved in negotiations for ship sales or purchases. Mr. Rokison reported to the Galbraith’s board in January 2002 that NSC had offered them exclusive brokerage on the sale of four ships. In the event, from early 2002 NSC used only Galbraith’s to sell ships, but this was not, as Mr. Izmaylov explained and I accept, because they had any exclusivity agreement, but simply because NSC were satisfied with their services. Similarly, NSC began to use Clarkson for ship purchases, particularly of newbuildings, and in practice NSC used only Clarkson as their purchasing brokers except for the purchase in 2005 of the “Four Stream”, which was handled by

Clarkson and Galbraith’s were therefore appointed brokers without NSC interviewing other brokers or going through any such competitive procedure. However, Mr. Izmaylov’s evidence was that their appointment was discussed within the management of NSC, including Mr. Sakovich and Mr. Oskirko. Mr. Oskirko denied this, and said that, when he questioned whether NSC should have exclusive arrangements with brokers, Mr. Izmaylov shouted at him on front of colleagues. Mr. Izmaylov disputed this, and I was unconvinced by Mr. Oskirko’s evidence. I prefer Mr. Izmaylov’s evidence that other executives concurred in his decision that NSC’s business should be placed with Clarkson and Galbraith’s.

According to Mr. Privalov, Mr. Izmaylov’s meetings with Mr. Gale and Mr. Rokison were arranged after Mr. Nikitin and Mr. Skarga had approached him and told that they wanted to extend from Sovcomflot to NSC the scheme to make money from commissions paid on sale and purchase transactions. They claimed to have influence over how NSC were to be run and to have been instrumental in Mr. Izmaylov being appointed as President. Mr. Privalov said that he spoke to Mr. Gale about including NSC’s business in the Clarkson arrangement and, after speaking to others at Clarkson, Mr. Gale agreed to this. Mr. Privalov had further meetings with Mr. Gale and Mr. Fulford-Smith to discuss NSC’s business before Mr. Izmaylov met Mr. Gale. Mr. Privalov said that he also sought Mr. Lyashenko’s advice about a sales broker who, like Clarkson, would be willing to make payments to a third party on business that they broked, and Mr. Lyashenko suggested Mr. Rokison and met him to discuss the proposal. Mr. Rokison was interested to meet Mr. Privalov, and they discussed whether Galbraith’s would handle NSC’s business on the basis that they made payments to both Mr. Nikitin and Shipping Associates. It was only after he had had these preparatory discussions, according to Mr. Privalov, that Mr. Rokison met Mr. Nikitin.

An essential dispute between the claimants and the defendants about this part of the case is whether Mr. Skarga was party to extending the Clarkson arrangement to NSC’s business. It is common ground that Mr. Nikitin already knew Mr. Gale, and Mr. Nikitin agreed that, after he had sought his advice from Mr. Privalov about who might be a broker suitable to handle NSC’s sales, Mr. Privalov identified Mr.

I reject Mr. Privalov’s evidence that Mr. Skarga approached him with Mr. Nikitin about extending the Clarkson arrangement to NSC business. It is not corroborated and I conclude that again Mr. Privalov was giving untruthful evidence in order to implicate Mr. Skarga in corrupt dealings. The claimants argued that Mr. Nikitin would not have approached Mr. Privalov only to suggest a sales broker for NSC who would pay him if (as he said) he knew Norstar and Mr. Bonehill. I am not impressed by that argument. Mr. Izmaylov had said that he was looking for a major broker because he considered North South to be too small for the sales necessary for the NSC’s fleet renewal plans. Norstar could not be so described. It so happened, as Mr. Popplewell pointed out, that the first two vessels that NSC sold through Galbraith’s were Uglegorsk vessels (the “Nikolay Kantemir” and the “Novokubansk”) of the kind that Norstar were selling for Sovcomflot, but NSC were not looking for brokers just for those sales.

There is no dispute that Mr. Privalov arranged that Galbraith’s, like Clarkson, should make payments to Shipping Associates in respect of NSC’s business. Mr. Nikitin did not know about this, as Mr. Privalov acknowledged. The agreement between Galbraith’s and Shipping Associates was recorded in a document entitled “Introductory Agreement” dated 1 August 2003. Further Mr. Rokison has admitted that he personally was rewarded by Mr. Privalov in return for agreeing to this arrangement. He was paid £19,350 towards the purchase of a Saab motor car, and also $103,000 paid into an offshore bank account. These payments were described by Privalov as “a share of the Shipping Associates monies”, and were said to have been made “in return for Galbraith’s making and continuing to make the payments to Shipping Associates”. There is no suggestion that Mr. Nikitin knew of them.

I therefore conclude that, soon after he was appointed President of NSC, Mr. Izmaylov decided that North South should be replaced as NSC’s brokers for sales and purchases of vessels. Mr. Nikitin learned of this, and exploited the opportunity by introducing Mr. Izmaylov to Clarkson and Galbraith’s. Mr. Izmaylov was impressed by Mr. Gale and Mr. Rokison, and at his suggestion and with the concurrence of other executives, NSC began to instruct Galbraith’s, particularly upon sales. Clarkson made proposals to NSC about what vessels they might buy. I do not consider that anything in this indicates corruption on Mr. Izmaylov’s part. In reaching this conclusion I have it in mind that Mr. Izmaylov also decided that Mr. Sawyer should be appointed to be NSC’s financial consultants in place of North South, and that the claimants alleged that this reinforces their contention that Mr.

I do not need to refer to all the acquisitions which Clarkson handled for NSC. Clarkson arranged to have sufficient funds to make payments to Milmont and to Shipping Associates by the same device as when they handled purchases for Sovcomflot, that is to say by negotiating terms with the yards which provided enough address and other commissions to cover the payments. As I have explained, Clarkson wrote similar confirmation letters to Milmont about what “introductory commissions” they were to be paid, and payments to be made to Milmont for NSC’s purchases were included in the spreadsheets that Mr. Privalov provided for Mr. Nikitin. In their internal documentation Clarkson described the payments to Milmont and Shipping Associates as “due to buyer”. Mr. Privalov worked closely with Mr. Gale upon the purchases, although he had no position with NSC and NSC had not asked for his assistance. Mr. Izmaylov denied that he knew of Mr. Privalov’s involvement and there is no evidence that he did.

I can illustrate how the Clarkson arrangement operated in relation to NSC’s newbuilding purchases by referring to selected transactions. The first newbuilding purchases in which Clarkson acted for NSC were from Hyundai Mipo, from whom by memoranda of agreement dated 14 May 2002 NSC bought two Handymax product tankers, the “Rudy” (hull no 0201) and the “Kasbek” (hull no 0202), for $27 million per vessel, and by memoranda of agreement dated 5 July 2002 NSC bought two further similar vessels, the “Pamir” (hull no 0203) and the “Ebrus” (hull no 0204), for the same price. The purchasers were Seagull Shipping Ltd., Jupiter Shipping Ltd., Cora Navigation Ltd. and Nitara Carriers Ltd., respectively the 3^rd, 4^th, 5^th and 6^th claimants in the Intrigue action.

In the negotiations for these purchases, Mr. Wood acted for Hyundai Mipo. He described the dealings with Hyundai Mipo as “start[ing] out as a Fiona transaction”, which he realised was to be concluded by NSC only when discussions were at an advanced stage. He said that Mr. Privalov was much involved in this and subsequent transactions, and, because of this and because of the history of the dealings with Hyundai Mipo, he understood that Sovcomflot and NSC were in some way connected.

On about 26 February 2002, at Mr. Privalov’s request Mr. Gale approached Hyundai Mipo about whether they were interested in building two vessels, with options for two more, for Fiona “or their nominee”. Mr. Wood and Mr. Gale, acting for the NSC purchasers but receiving directions from Mr. Privalov, then entered into negotiations about prices and commissions. By 18 March 2002, as is apparent from an e-mail internal to Clarkson which was sent by Mr. Gale, Mr. Privalov had told Mr. Bae of Hyundai Mipo that the first two vessels were for NSC “unofficially at this stage”, and on 21 March 2002 Mr. Wood, when putting forward an offer to Hyundai Mipo, wrote “As we have discussed, the intention was always that the firm vessels would be for the account of Novoship (which is now effectively controlled by Sovcomflot/Fiona)”. Mr. Wood first proposed a price of $26.15 million, with commissions of 3%, of which 2% was to be address commission. On 20 March 2002, Mr. Wood reported Hyundai Mipo’s response to the proposed commissions: that their head office were “saying that

Mr. Privalov continued to play an active part in the negotiations over the 7 weeks or so before the contracts were signed. On 4 April 2002 Mr. Gale wrote to Mr. Bae of Hyundai Mipo to apologise for delay in signing a letter of intent, explaining that Clarkson were relying upon Mr. Privalov’s advice and guidance rather than “constant direct communication with Mr. Izmaylov”. Further, when NSC sent a preliminary specification that caused Hyundai Mipo concern, Mr. Gale referred the problem to Mr. Privalov. As is clear from an e-mail sent by Mr. Gale to Mr. Wood on 30 April 2002, Mr. Privalov also advised that NSC would like to use their own form of contract.

Mr. Izmaylov denied that he had any dealings with Mr. Privalov in relation to this transaction or other purchases, and he did not know that Mr. Privalov was involved in the negotiations. Mr. Privalov too said that he did not discuss any of NSC’s purchases (or sales) with Mr. Izmaylov. Nothing in the documents suggests otherwise. It is not clear from the evidence how or with whom Mr. Privalov dealt with the various problems raised by Clarkson, or why he was involved in the negotiations as he was, but there is no reason to reject Mr. Izmaylov’s evidence about this.

When the contracts were signed on 14 May 2002, Hyundai Mipo also signed a commissions agreement with Clarkson, and Clarkson’s fixture slip referred to the commissions of 3% as representing 0.5% for themselves and 2.5% that was “due to buyer”. As I have said, confirmation letters to Milmont, which refer to “introductory Commissions”, about paying them in respect of these purchases were back-dated to 22 April 2002, before the contracts to buy the vessels were made. I have concluded that they were in fact not written before 2003.

I refer next to the purchases in July 2003 by NSC from HHI of four vessels, the “NS Challenger”, the “NS Concord”, the “NS Concept” and the “NS Champion”, respectively hulls nos 1628 and 1629 and nos 1635 and 1636, which illustrate a similar pattern of operation by Clarkson. Mr. Wood dealt with the yard on the basis that they were to pay 2.5% of the price by way of commissions including address commissions, and Mr. Gale dealt with NSC, in communications with Mr. Izmaylov and Mr. Oskirko, without mentioning commissions and therefore implicitly on the basis that no address commissions were to be paid. On 16 June 2003 HHI and Intrigue signed a letter of intent which did not refer to commission payments. HHI advised that they could offer to supply two further vessels, and Mr. Gale sent this information to Mr. Privalov as an offer to “Sovcomflot/Novoship”, but to Mr. Oskirko as an offer to NSC. In early July 2003 it was agreed in principle that NSC should buy four vessels. On 7 July 2003 Mr. Wood sent Mr. Gale an e-mail in which he recorded that NSC had agreed a price of $36,846,770 for each.

However, Clarkson had to ensure that HHI paid “address commission” without NSC being aware of this. HHI for their part required protection against the risk that the contracts did not proceed to delivery. At the same time, as Mr. Gale observed in an e-mail to Mr. Wood on 9 July 2003, Mr. Privalov did not “want to be seen to be involved towards HHI on behalf of Intrigue”. When he was cross-examined about this, Mr. Wood was unable to give any satisfactory explanation about why, if, as he understood, Mr. Privalov was in a position to act for NSC companies, this should not have been made known to HHI or anyone else. However, Mr. Gale and Mr. Wood secured Mr. Fulford-Smith’s agreement that Clarkson should give HHI an indemnity to repay address commissions, provided that in turn Clarkson were given an indemnity by Mr. Privalov in the name of FML as agents only. Accordingly, on 24 July 2003 Mr. Privalov provided to Clarkson an indemnity signed on behalf of FML “as agents only” in respect of any repayment of commissions that they had to make to HHI in connection with these vessels.

Mr. Privalov had no authority or proper reason to give an indemnity on behalf of FML in respect of NSC’s contracts with HHI. In his witness statement dated 12 February 2009 in the Intrigue action, he said that he thought that it must have been given by mistake, and that he did not recall being asked either by Mr. Nikitin or by Mr. Gale to provide it. In his oral evidence, when cross-examined on behalf of Clarkson and shown that Mr. Gale’s e-mails in which he wrote of Mr. Privalov not wanting to be seen to be acting on behalf of NSC, Mr. Privalov said that he had signed the indemnity because he thought that he had no alternative and that Mr. Nikitin had agreed to reimburse FML if Clarkson called upon the indemnity. Mr. Nikitin denied this and denied knowing about the indemnity. Mr. Privalov gave accounts about this which were inconsistent and not corroborated. There is no independent evidence about the circumstances in which the indemnity was given and I cannot rely upon Mr. Privalov’s evidence. The claimants and Clarkson have not shown that Mr. Nikitin knew about the indemnity that Mr. Privalov provided to Clarkson.

Finally, I refer to the purchase from Brodotrogir (or shipyard Trogir) in Croatia of four product carriers, which Intrigue agreed to buy under shipbuilding contracts dated 25 July 2003 for the “NS Silver” and the “NS Stella” and dated 11 December 2003 for the “NS Stream” and the “NS Spirit”. The negotiations for the purchases were conducted directly between the yard and NSC, but by e-mail dated 5 April 2003 Mr. Gale instructed Mr. Wood that Mr. Privalov required him to attend upon discussions “to listen to what [Mr. Izmaylov] says and make “non-committal noises” about finding him what he wants”; and that he was not “to stir up too much with Yards until [Mr. Privalov] finds out what Moscow will authorise”. I cannot tell from the evidence why Mr. Privalov was involved with the purchases at all or why he required Clarkson to attend the meeting. On 19 November 2003 Clarkson sought commissions of 1% from Trogir on the basis that they had advised the yard that NSC required product carriers and they paid two thirds of what they received to Milmont and a sixth of it to Shipping Associates.

I cannot discern from the evidence why Mr. Privalov took such an active role in the purchases that NSC made through Clarkson, but there is no evidence that Mr. Izmaylov or any other executive of NSC knew that he was doing so or regarded his activities as suspicious or as giving them grounds to think that Clarkson were not conducting themselves properly and honestly as their brokers. Mr. Privalov said that

There is no credible evidence that Mr. Nikitin produced for Clarkson any significant information about what vessels NSC would be interested in acquiring or otherwise played any part in bringing about the purchases.

The part 20 claim in the Intrigue action is similar to that in the Fiona action. It is for $6,786,688, which Mr. Nikitin and Milmont say Clarkson are obliged to pay in respect of the purchases of 18 vessels: two Trogir vessels, hulls nos 313 and 314, six HHI vessels, hulls nos 1688, 1689, 1712, 1713, 1796 and 1797, four SAS vessels, hulls nos 467, 468, 469 and 470, four Samsung vessels, hulls nos 1615, 1616, 1617 and 1618, and two Samho vessels, hulls nos S-304 and S-305 They relied upon confirmation letters from Clarkson dated between 5 November 2003 and 12 May 2005. I reject the claim for the same reasons that I reject the part 20 claim in the Fiona action. I add only that my conclusion is further reinforced by Mr. Izmaylov’s evidence, which I accept, that Clarkson knew from NSC what ships they were interested in acquiring. They needed no ideas, information or other “input” from Mr. Nikitin. The only contribution that Mr. Nikitin said that he made was that he told Clarkson that NSC were interested in buying product carriers and Aframaxes, which I would have regarded as insignificant, but I do not accept that he provided even that information.

Galbraith’s acted as NSC’s brokers upon the sale of 38 vessels, upon the purchase of the “Four Stream” and in negotiations to re-finance the purchase of four vessels. In respect of at least some of the sales, Galbraith’s entered into memoranda of agreement with NSC whereby NSC appointed Galbraith’s to be their exclusive brokers to assist in the sale of a vessel for them and on their behalf, and Galbraith’s undertook to “arrange [their] best services for sale of [NSC’s] vessel when required so [sic] for and on behalf of [NSC]”.

I can explain how Mr. Rokison conducted these sales as NSC’s broker and how he generated funds to make payments to Amon by describing some illustrative transactions. There is no evidence that anyone else at Galbraith’s acted improperly.

The first negotiations that Galbraith’s conducted for NSC concerned the purchase by Intrigue of four Aframax vessels, hulls nos S182, S183 from Samho and hulls nos 1466 and 1467 from HHI. (In this passage of my judgment I shall together refer to Samho and HHI as “the yards”) The purpose, or at least the ostensible purpose, was to negotiate a reduction in the price in return for accelerating the payment schedules. The claimants contended that the true purpose was to generate commissions for Mr.

By February 2002 Mr. Rokison had been instructed to negotiate new terms with the yards. On 20 February 2002 the yards’ brokers, Nissho Iwai Europe PLC (“Nissho”), indicated that HHI and Samho would pay address commissions of 2% of the prices upon delivery to Intrigue or their nominee. After some exchanges on 26 March 2002 Mr. Rokison wrote to Nissho that Galbraith’s had instructions from “the contracting party” to put forward a proposal which included that the yards should pay address commissions to Intrigue or their nominee of $230,000 per vessel.

On 4 April 2002 Mr. Rokison had sent a fax to Mr. Privalov at the Hotel le Richemonde in Geneva. (This was referred to during the trial as the “Hotel le Richemonde fax”). He reported that the yards had agreed to a proposal to amend the contract prices and pay an address commission to Galbraith’s “for division”, and explained that they required a letter of nomination signed by the President of NSC appointing Galbraith’s to sign the commission agreement. He wrote “We have prepared the below letter of nomination which makes no reference to any commission agreement, which if buyers approve, we will send to the builders for their comment”. It is apparent from this fax and the attached letter of nomination that Mr. Rokison intended that NSC and Intrigue should not know about the commission agreement, and Mr. Privalov must have realised this. Mr. Privalov told Mr. Rokison that any reference to commissions should be removed from the letter. Mr. Rokison then prepared further versions of his fax of 4 April 2002 accordingly, and (as I infer, although the documents in evidence do not specifically demonstrate this) in due course an amended version was sent to Mr. Izmaylov.

Mr. Privalov’s evidence was that he took instructions from Mr. Nikitin about the original Hotel le Richemonde fax before arranging that references to commissions be removed. I do not accept that: Mr. Privalov was well practised in devices of this kind, and did not need to consult Mr. Nikitin. At one time the claimants’ pleaded case was that “It is to be inferred that Mr. Rokison prepared this further version of the fax, omitting all references to commission, after discussions with Mr. Privalov for Mr. Privalov to forward to Mr. Izmaylov for NSC’s records”: see para 37(9)(C) of the particulars of claim in the Intrigue action). This allegation was rightly abandoned. There is no evidence that Mr. Izmaylov was party to creating any documents designed to mislead others at NSC with regard to commission payments (or in any other way). On the contrary, according to Mr. Privalov’s evidence, the purpose of the Hotel le Richemonde fax was that Mr. Izmaylov and “everyone … in Novoship” should remain unaware of the commissions that were being paid.

On 18 April 2002 the Executive Board of Intrigue authorised that Galbraith’s be appointed “to act as agent to negotiate where appropriate amendment agreements to the contract and any and all associated agreements as may be deemed necessary”. On 3 May 2002 amendments to the shipbuilding contracts between NSC and the yards were concluded. NSC agreed to make an extra stage payment of $4 million on 10 May 2002 in consideration of a reduction of $171,000 in the price of each Samho vessels and of $170,000 in the price of each HHI vessels. The yards paid an address commission of $230,000 upon each contract.

The claimants observed that the Executive Board authorised Galbraith’s to negotiate “associated agreements”, and suggested that, because Mr. Izmaylov did not identify in cross-examination what other “associated agreement” there might have been, he was evasive and defensive in his evidence, and that the inference was that the expression was intended to cover commission agreements. I decline to draw any such inference, and I disagree with this description of Mr. Izmaylov’s evidence. He was, after all, being cross-examined about the details of the minutes of a meeting that had been held many years earlier, which he had read quickly after being assured by Mr. Oskirko that they were in order.

The minutes recorded that the new arrangements represented “a substantial saving for the Company”. Mr. Izmaylov said in cross-examination that the purpose of the refinancing transaction was “to make some kind of savings on the contract”. The claimants argued that in fact it was of no benefit to NSC: because they did not receive the address commissions, they saved only $170,000 or $171,000 on each vessel and in return they agreed to pay $4 million as an additional early instalment against a reduction in the final instalment. The economics of the transaction depended upon NSC having a low cost of borrowing. Mr. Oskirko prepared a spreadsheet that showed that a small increase in their interest rates would have meant that the revised arrangements were less favourable to NSC than the original agreements had been (even leaving aside any associated expenses such as lawyers’ fees). I do not consider that this provides any convincing evidence that Mr. Izmaylov was corrupt or allowed Galbraith’s to negotiate the arrangements only because he knew that Mr. Nikitin would profit from them. Whatever the calculations which led NSC to support this refinancing, they persuaded the Executive Board of NSC, who together approved the transaction. Mr. Izmaylov shared the views of others against whom no allegation of impropriety is made. The document authorising Galbraith’s to negotiate amendments was signed by Mr. Oskirko and Mr. Sakovich as well as Mr. Izmaylov, and the refinancing agreements with the yards had been signed by Mr. Sakovich and his signature was witnessed by Mr. Oskirko. After all, as I have observed when explaining Mr. Privalov’s fraud in 1999 in respect of the arrangement fee when the “Fili” and other vessels were refinanced, when he was at Sovcomflot Mr. Izmaylov had seen that Mr. Borisenko did not miss an opportunity to refinance borrowings even if the potential benefit was small.

On 5 April 2002 Mr. Rokison sent Nissho proposed wording for the nomination letter whereby NSC or Intrigue were to nominate Galbraith’s to receive the address commissions, observing that it should not directly refer to a “commission agreement”. On 12 April 2002 Nissho wrote that, unless the nomination letter did refer to the commission agreement, HHI required Galbraith’s letter of undertaking that they were authorised to sign the agreement and to indemnify HHI against any harm in respect of the commission payments. Mr. Rokison agreed to this, and in due course on 5 May 2002 Mr. Rokison on behalf of Galbraith’s sent to Nissho letters of undertaking in which they stated that they had been authorised by NSC and Intrigue to sign the commission agreement and to receive the commission payments of $230,000 for each vessel. In fact they had not been so authorised. By agreements dated 11 June 2002 Amon indemnified Galbraith’s in respect of the commission payments.

The total commissions received by Galbraith’s in respect of the renegotiation of each of the four contracts were $230,000. They paid $192,500 of each of the commissions to Amon.

I conclude that this transaction shows that Mr. Rokison was acting in breach of his duties to NSC and dishonestly. In particular, he deliberately removed the references to commissions from the draft in the Hotel le Richemonde, he arranged for Galbraith’s to have control over the commissions and he arranged for the address commissions, and further amounts, to be paid to Amon. Mr. Privalov was party to his dishonesty.

I also conclude that Mr. Nikitin knew that these arrangements were dishonest. He accepted that he arranged for Amon’s nominee directors to sign the counterindemnities to Galbraith’s, and there was, to my mind, no proper reason to do so. In cross-examination he said that he “didn’t just pay any attention” to the documents and that he “didn’t address my mind to any of the things”. I am unable to accept this explanation. He is too shrewd for that to be credible.

The claimants also submitted that Mr. Izmaylov knew that the arrangements were not to the benefit of NSC and were designed to benefit Mr. Nikitin and Amon. I reject this contention.

Mr. Rokison was also dishonest with NSC when acting as their broker on sales, in order to generate commissions to fund payments to Amon and to disguise what he was doing. This can be illustrated by describing three transactions.

When broking the sale of Hyundai Mipo hull no 0201 by Swan Navigation Ltd. (“Swan”), the 2^nd claimant in the Intrigue action, in August 2003, Mr. Rokison agreed with the brokers of the buyers, Marcoussi Shipping Co Ltd. (“Marcoussi”), that they and Galbraith’s should share equally commissions of 1% in total. However, on 8 October 2003 in an e-mail to Mr. Oskirko, referring to discussions with Mr. Oskirko and Mr. Izmaylov, he represented that Galbraith’s were unable to reduce the total commission to less than 2.5% because they needed to cover commission of the buyers’ brokers and an address commission. Although he referred to a conversation with Mr. Izmaylov, this does not, to my mind, indicate that Mr. Izmaylov was privy to Mr. Rokison’s deceit any more than it suggests that Mr. Oskirko was. In further emails dated 16 and 21 October 2003 Mr. Rokison essentially repeated to Mr. Oskirko the representation that the total commissions could not be less than 2.5% because of the commission of the buyers’ brokers and address commission. In fact, there was no address commission and Galbraith’s had arranged to pay Marcoussi commission of only 0.5%. They paid 1.5% to Amon and 0.17% from the remaining 0.5% to Shipping Associates. Swan therefore paid an additional $413,331.60 by way of commission.

Mr. Rokison again misrepresented to NSC the position about address commissions and the commissions charged by the buyers’ brokers when in September 2003 he negotiated the sale en bloc to Hanseatic Lloyd Reederei of four vessels, the “Altair”, the “Alioth”, the “Almak” and the “Arcturus”. They were sold by the 39^th, 40th, 41^st and 42^nd claimants in the Intrigue action, Altair Marine Inc, Almak Marine Inc, Arcturus Marine Inc, and Alioth Marine Inc. On 18 September 2003 Aquamarine Shipping Consultants (“Aquamarine”), the buyers’ brokers, sent an offer for the four vessels of $76 million “less 2% total commission including address”. On the same day Mr. Rokison reported to Mr. Oskirko an offer of $76 million “less 4.5% total commission including adress [sic]”. The sale was concluded, but on 23 September 2003 Mr. Rokison, as I find, persuaded Aquamarine to reduce their commissions to 0.75% on the understanding that Galbraith’s would be receiving the same level of commission and the total of brokers’ commissions would be 1.5%. Mr. Rokison did not report to NSC that Aquamarine had reduced their commissions. In an e-mail to Mr. Izmaylov dated 29 September 2003 Mr. Rokison explained the total commissions of 4.5% on the basis of “the number of offices involved on the buyers’/financiers’ behalf (2.5% add comm.)”, and advised that the net price offered by Hanseatic Lloyd Reederei was still significantly higher than by others. In fact, only 1% of the total commissions of 4.5% was paid as address commissions and 0.75% was paid to the buyers’ brokers. Of the remaining 2.75%, 1.75% was paid to Amon, 0.25% was paid to Shipping Associates and 0.75% was retained by Galbraith’s. The sellers paid additional commissions of 2%, not because of the high commissions on the buyers’ side but because of Galbraith’s arrangements with Mr. Nikitin and Mr. Privalov.

Thirdly, in September and October 2003 NSC agreed to sell to Stena companies the rights in respect of four Uljanik hulls that were being built for them in Croatia, hulls nos 448, 449, 450 and 451. There were protracted negotiations that began in about April 2003. Odin Marine Inc. (“Odin”) acted as brokers in the transactions. According to Mr. Oskirko’s evidence, they acted for the sellers, but the claimants’ pleaded case is that they were the buyers’ brokers (see para 37(2)(a) of the particulars of claim in the Intrigue action), and this was Mr. Izmaylov’s understanding. Although the position was complicated because of the time charter arrangements for the vessels, I reject Mr. Oskirko’s evidence about Odin’s role. Galbraith’s handled the sales for NSC.

Although Odin were to pay Galbraith’s commissions of $50,000 upon each of the four contracts, Galbraith’s also sought commissions from NSC. Initially they submitted draft invoices for commissions of 2%, but on 13 October 2003 Mr. Oskirko wrote that there was no reason that NSC should pay them. Mr. Rokison replied on 14 October 2003 that no fixed commissions had been agreed “as we strived to maximise the sale price – however you are aware that we are forced, in some cases, to cover both the buyers’ address commission and buyers’ brokerage in our total invoices … Our total invoices, inclusive of other brokers and address commissions were issued accordingly ... ”. The commissions that Galbraith’s were charging did not in fact include any buyers’ brokerage or address commission. Mr. Rokison repeated this misrepresentation in his e-mail to Mr. Oskirko of 16 October 2002 (the same e-mail as he gave the same false explanation for the commissions on the sale of hull no 0201). Mr. Oskirko on 15 October 2003 had offered to pay commissions of 1% or 1.5%, and Mr. Rokison responded on 21 October 2003 that “as a compromise” Galbraith’s could “convince parties involved this side” to accept commissions of 1.75%. In fact, only Galbraith’s, Amon and Shipping Associates were to be paid from the commissions. Mr. Rokison’s explanations for the level of commissions were deliberately misleading.

The claimants submitted that Mr. Izmaylov too acted dishonestly and in breach of his duty in relation to the sale of the Uljanik vessels. Their allegations were based upon the evidence of Mr. Oskirko, according to whom the negotiations for the sales were handled within NSC by Mr. Izmaylov. Although Mr. Izmaylov was involved in the major decisions concerning the sale, Mr. Oskirko mis-stated the position. He conducted the negotiations, although I accept that he kept Mr. Izmaylov informed and consulted him when necessary. In particular, Mr. Oskirko accepted that he carried on the negotiations about Galbraith’s commissions.

According to Mr. Oskirko, Mr. Izmaylov was concerned to ensure that Galbraith’s as well as Odin should be involved in handling these transactions. He recalled Mr. Izmaylov telling Odin that NSC were not going to pay commissions to any brokers other than Galbraith’s and that Odin should be paid their commissions by Stena, and after that Galbraith’s were instructed to represent NSC’s interests. Mr. Izmaylov had no recollection of such a conversation with Odin, but in any case I cannot attach any significance to it. Given that Odin were, as the claimants plead, Stena’s brokers, it is unremarkable.

Next, Mr. Oskirko said that, when he was negotiating with Mr. Rokison for a reduction in Galbraith’s commissions, Mr. Rokison told him that he was wasting his time in protesting that commissions of 1.75% were excessive because that was the level of commissions that he had been instructed to charge and had been agreed with Mr. Izmaylov. Mr. Izmaylov denied that he had instructed Galbraith’s to charge commissions at that or any rate and denied reaching any agreement about commissions with Galbraith’s. It seems improbable that he did so, given that Mr. Oskirko accepted that he dealt with Mr. Rokison about commissions. It is possible that Mr. Rokison said something to Mr. Oskirko for negotiating purposes to persuade him that Mr. Izmaylov was likely to support the level of commissions that he sought, but I do not accept that Mr. Izmaylov had spoken to Mr. Rokison in the terms that, according to Mr. Oskirko, Mr. Rokison reported. I conclude that Mr. Oskirko either decided, or at least concurred in the decision, to pay Galbraith’s commissions of 1.75%. I reject his evidence that he agreed to it only because Mr. Izmaylov insisted that he should do so. I therefore reject the allegation that Mr. Izmaylov intervened in the exchanges about the level of commissions in order to ensure that Galbraith’s were paid the commissions that Mr. Rokison sought and that he did so in order to ensure that Galbraith’s were paid enough commission to fund the payments to Amon.

The claimants make a further allegation against Mr. Izmaylov in relation to the sale of the Uljanik hulls. They alleged that there was no good reason for the decision to sell the hulls, and, according to Mr. Oskirko (or at least according to the evidence in Mr. Oskirko’s witness statement), Mr. Izmaylov instructed him and Mr. Agaev to adjust the profit calculations on the sales to show a profit of “close to $1.5 million per vessel”, but he declined to do so. In cross-examination, Mr. Oskirko gave a rather different account. He said that Mr. Izmaylov’s instructions were that the profit per vessel should be “not less than $1.5 million”, that Mr. Izmaylov gave the instructions to him (not to him and Mr. Agaev) and that, rather than refuse the instructions, he passed them on to Mr. Agaev in London.

The allegation is denied by Mr. Izmaylov. Mr. Agaev did not recall it and his evidence, which I accept, is that he would have done so. Mr. Oskirko’s evidence is

There is no direct evidence that Mr. Izmaylov knew of the payments to Milmont and Amon by Clarkson and Galbraith’s. He denied any knowledge of them. Mr. Nikitin’s evidence was that he did not mention anything about his commission arrangements with Clarkson and Galbraith’s to Mr. Izmaylov, and it is the claimants’ pleaded case that he made it clear to Mr. Rokison that nobody at NSC or NSC’s subsidiaries should be made aware of his arrangement with Galbraith’s. In support of this plea the claimants relied upon a memorandum from Mr. Rokison to Galbraith’s Board of Directors dated 11 October 2005, in which he wrote that, “No discussions of commissions ever took place in [Mr. Izmaylov’s] presence, in fact it was made clear that nobody at Novoship should be aware of the commission agreement”, that Mr. Izmaylov, “more than anyone, would try to squeeze us on commissions” and that “At no stage did we ever have any discussions with any persons within Novoship to suggest that they knew anything about this agreement. In fact all negotiations with Novoship resulted in us having to fight to obtain the commission that the structure required”. Mr. Oskirko and Ms. Spasova said that, as far as they had been aware, nobody at NSC was aware of payments to Amon or to Mr. Nikitin’s order. As I have said, Mr. Privalov did not have any discussions with Mr. Izmaylov about any of NSC’s purchases or sales of vessels, and he had no direct knowledge that Mr. Izmaylov knew of the commissions. He said that his impression or understanding was that Mr. Nikitin had “some influence” over Mr. Izmaylov and that he was aware of the payments, but he did not credibly explain on what it was based.

The claimants nevertheless argued that Mr. Izmaylov knew of, and was party to, Mr. Nikitin’s arrangements with Clarkson and Galbraith’s. Their argument rested largely upon their contention that he had and maintained control of negotiations for the sale and purchase of vessels, and that others at NSC simply acceded to and carried out his instructions. Mr. Izmaylov denied that this was the position. He said that negotiations for sales and purchases were conducted by Mr. Oskirko and then by Ms. Spasova, that he would rely upon information and advice from them in deciding whether transactions should proceed and he should confirm their decisions, and that the sale and purchase transactions were scrutinised and approved by the Executive Board and then the General Board of NSC.

There is no dispute that Mr. Oskirko was responsible for the day to day conduct of negotiations, and that, after he left, Ms. Spasova took over his responsibilities. She dealt with sales and purchases and Mr. Agaev assisted her, in particular with sales of foreign flag vessels. They liaised with Mr. Gale and Mr. Rokison. They had a good deal of personal control over and responsibility for the negotiations, although they would refer important decisions on transactions to Mr. Izmaylov. They did not report only to Mr. Izmaylov: Mr. Oskirko confirmed that he reported to the General Board about sales and purchases and about the progress of the fleet renewal programme. He also reported to the other executives on the progress of any proposed transactions at NSC’s weekly management meetings.

I accept that Mr. Oskirko or Ms. Spasova sought authorisation from Mr. Izmaylov before committing NSC to a contract. I also find that on occasions Mr. Izmaylov

Mr. Izmaylov said in cross-examination that he did not give instructions to Mr. Gale, and at first he appeared to be being untruthful about that. However, it became clear when he was questioned further that he did not intend to dispute that he discussed with Mr. Gale the purchases that NSC were negotiating. He considered that he had not given instructions to Mr. Gale because, as he saw it, Clarkson were paid by the yard to sell to NSC and were presenting proposals to NSC. Clarkson, to his mind, were not acting for NSC and he was negotiating with them rather than instructing them. This is not a correct understanding of NSC’s relationship with Clarkson: Clarkson were NSC’s brokers upon their purchases, as Galbraith’s were their brokers on sales. I accept, however, that Mr. Izmaylov genuinely saw NSC’s relationship with Clarkson, and his relationship with Mr. Gale, as he explained it, and I do not consider that he was giving deliberately untruthful evidence when he denied giving instructions to Mr. Gale. He readily accepted that NSC were trusting Mr. Gale and Clarkson to act in their best interests.

The picture painted by Mr. Oskirko in his witness statement of 28 November 2008 was that Mr. Izmaylov dictated the conduct of sale and purchase negotiations because he had a domineering personality. In particular, he said that Mr. Izmaylov would “invariably tell me not to push for any further reduction” in the level of commissions that Galbraith’s were earning, but I reject that evidence. Ms. Spasova said that she was guided about commission levels by what had been charged on previous deals, and she did not indicate that Mr. Izmaylov influenced, let alone dictated, her views about them beyond approving or confirming what she agreed. Mr. Oskirko himself accepted in cross-examination said that he would always try to secure the best price net of commissions for the vessels being sold and did not suggest that Mr. Izmaylov prevented him from doing so by insisting upon high commission levels. I accept Mr. Izmaylov’s evidence that generally he left the conduct of individual transactions to others, and that, particularly while Mr. Oskirko was at NSC, he recognised that he was relatively inexperienced in ship sales and purchases and did not dominate negotiations or impose his own thoughts about how they should be conducted.

Each proposed sale or purchase contract was presented to the General Board and the Executive Board for approval before it was concluded. In his witness statement, Mr. Oskirko described the Executive Board and the General Board as “rubber stamping” deals which had already been done. When he was cross-examined, he denied that he intended this description to cover the decisions of the General Board. I accept that, as Ms. Spasova explained, the General Board was more concerned to ensure that the fleet renewal programme was carried forward than about individual vessels or transactions, but they had reports that enabled them to appraise the merits of each sale or purchase.

I am also unable to accept that “rubber-stamping” fairly describes how the Executive Board took decisions. The true picture was given by Ms. Spasova. Before the Board considered proposals, generally the managerial departments had assessed them and decided that “the project was feasible”. Mr. Izmaylov too had “provisionally agreed” the costs and commissions concerned, and so the proposals put before the Board had Mr. Izmaylov’s support. Reports for the Board would then be prepared by the Economics and Finance Department in consultation with other relevant departments, and Ms. Spasova described the care with which they were composed. She specifically said that Mr. Izmaylov had never prevented her from presenting information about the commissions that NSC would be paying or sought to adjust calculations made by her department. Although most members of the Board would already be familiar with the proposed transaction through informal discussions in the course of their work, the proposal would be considered at the meeting of the Executive Board in order to decide what was in the best interests of the company.

There was no real dispute that the Executive Board approved of all the sales and purchases by NSC before they were concluded. Mr. Oskirko had said in his witness statement of 28 November 2008 that an agreement for the purchase of the only second hand vessels bought through Clarkson, the two Suezmax tankers which NSC renamed the “Kaspiy” and the “Kuzbass”, was “signed” before either the Executive Board had decided to support the purchase or the General Board had given their approval. However, in cross-examination, he agreed that no legally binding agreement had already been concluded, although he believed that NSC was commercially committed to the purchases because Mr. Izmaylov had told him that NSC were buying the vessels and that Mr. Sawyer would be arranging the finance. However that might be, NSC entered into memoranda to buy the vessels on 19 February 2003 (and they were eventually acquired through two Maltese single ship companies, whose formal resolutions of the Maltese companies to acquire the vessels were dated 2 June 2003). On 17 February 2003 the General Board had decided, upon the proposal of the Executive Board, to acquire the vessels for $43 million each. Mr. Izmaylov did not attend the meeting on 17 February 2003, and the proposal was presented to the board by Mr. Oskirko, who said that the acquisitions were greatly in NSC’s interest. He said that he did so on the instructions of Mr. Izmaylov, but I cannot believe that he would have expressed those views unless he subscribed to them.

I conclude that Mr. Izmaylov did not prevent others from participating in NSC’s decisions upon sales and purchases, and reject the claimants’ contention that he dominated NSC’s decision-making procedures in order to drive through sales and purchases broked by Galbraith’s and Clarkson.

The claimants also argued, that, just as Mr. Skarga must have known that address commissions were being diverted to Mr. Nikitin’s companies from the Sovcomflot purchases, so too Mr. Izmaylov must have known that they were being diverted from the NSC purchase contracts. Mr. Izmaylov’s response to that argument is similar to that of Mr. Skarga: that he had no knowledge or suspicion that the yards and others were paying address commissions for NSC, and that it was not NSC’s practice to negotiate for address commissions and so they were never discussed. I accept that evidence for the same reasons that I accepted Mr. Skarga’s corresponding evidence

As for the claimants’ argument that Mr. Izmaylov was likely to have learned about address commissions when attending closing ceremonies or naming ceremonies, the evidence was, and I accept, that Mr. Izmaylov did not always attend such ceremonies. Sometimes NSC were represented by Mr. Oskirko or Mr. Agaev. Mr. Izmaylov was no more likely to have heard about address commissions in this way than Mr. Oskirko and Mr. Agaev were, and there is no evidence that they were ever mentioned in the presence of any of them.

I add that in their pleaded case the claimants relied in support of their contention that Mr. Izmaylov was party to the arrangements with Mr. Nikitin upon an e-mail sent by PNP to Mr. Mihaylyuk’s office e-mail and then forwarded by him to his home address. It provided details of Amon’s bank account. Mr. Mihaylyuk’s evidence was that, as far as he recalled, PNP had sent the details because Mr. Nikitin had indicated that he would like NSC to use the company as brokers. On the face of it, this is an unconvincing explanation: Amon did not, as far as the evidence goes, have any business as shipbrokers and in any case this does not explain why Mr. Mikhaylyuk was sent details of their bank account. However, whatever the reason that Mr. Mikhaylyuk had details of Amon’s bank account, there is nothing to indicate that he provided the information to Mr. Izmaylov. Further, even if Mr. Izmaylov had known of or had been party to Mr. Nikitin’s arrangements with Clarkson or Galbraith’s or both, this would not explain why he would have needed information about Amon’s bank account. I do not consider that this e-mail supports the contention that Mr. Izmaylov knew of the payments to Amon or was party to a scheme that they should be made.

I conclude there is no evidence from the transactions handled by Clarkson and Galbraith’s for NSC that Mr. Izmaylov participated in or knew about the brokers’ arrangements with Mr. Nikitin.

When in about November 2001 Mr. Izmaylov expressed his thoughts to Mr. Nikitin about whether NSC should continue to use North South’s services, Mr. Nikitin also saw that opportunity to profit from introducing a financial consultant to them. He spoke to Mr. Privalov, who had, as Mr. Nikitin thought, good connections with financial advisors and asked him to suggest whom he could introduce to NSC. Mr. Privalov introduced him to Mr. Sawyer, and Mr. Nikitin in turn arranged a meeting between Mr. Izmaylov and Mr. Sawyer. He did not tell Mr. Izmaylov how he had come to know of Mr. Sawyer because he understood that Mr. Izmaylov did not hold Mr. Privalov in high regard.

Mr. Nikitin had not known Mr. Sawyer before Mr. Privalov introduced him, and he had met him only once before introducing him in turn to Mr. Izmaylov. Mr. Nikitin said that he did not require Mr. Sawyer to pay him for the introduction to NSC, and that he simply hoped that Mr. Sawyer might be grateful for the introduction and so encouraged to consult him about NSC’s newbuilding programme. In fact Mr. Sawyer paid to Amon half of the commissions that he received from NSC. I reject the evidence of Mr. Nikitin that he had no understanding with Mr. Sawyer that he

In April 2002 Mr. Izmaylov came to London with Mr. Oskirko, at least partly in order to attend the annual general meeting of NOUK. He and Mr. Sawyer met over lunch with Mr. Nikitin at the Ritz Hotel on 11 April 2002. Mr. Izmaylov gave Mr. Sawyer some general information about NSC, including information about the newbuildings programme. He was cross-examined about how much information he gave to Mr. Sawyer at the meeting, and the claimants submitted that Mr. Izmaylov must have disclosed more than he was admitted. I do not accept that criticism of Mr. Izmaylov’s evidence: he denied providing Mr. Sawyer with any documents or with specific and detailed financial information, but, as I understood his answers, he agreed that they discussed the nature and pattern of NSC’s requirements. Mr. Sawyer impressed Mr. Izmaylov with his financial experience and his banking contacts. Before the meeting Mr. Nikitin had told Mr. Izmaylov that Mr. Sawyer would be willing to review NSC’s finances without NSC committing themselves to engage his services and on the basis that he would be paid only if NSC accepted what he proposed. At the meeting Mr. Sawyer did indeed offer to conduct a review on this basis.

Mr. Oskirko was not at the lunch. He did not give evidence about why he did not attend, or even that he was in London at the time although it is probable that he was. I accept Mr. Izmaylov’s explanation that Mr. Oskirko was busy with other matters, including the annual accounts of NOUK. The documents show that a lunch was planned that day for those attending NOUK’s annual general meeting, and Mr. Oskirko might well have had to be there. It was suggested in cross-examination to Mr. Izmaylov that, if the purpose of the meeting had been proper, Mr. Oskirko would have attended it so as to meet a potential financial advisor and form a view about him. I see some force in the observation, but, in the absence of evidence from Mr. Oskirko, I conclude that there is no proper basis to reject Mr. Izmaylov’s account.

After the meeting Mr. Izmaylov discussed with Mr. Oskirko and other members of the Executive Board whether NSC should use Mr. Sawyer’s services. Mr. Izmaylov said that he discussed the meeting with Mr. Oskirko only after they had returned to Russia: it seems surprising, on the face of it, that he did not do so if he was in London, but again Mr. Oskirko gave no credible evidence about this. Mr. Izmaylov decided, in consultation with others at NSC, that Mr. Sawyer should be engaged as a consultant, and Mr. Oskirko was asked to negotiate commission arrangements and other terms of

On 10 May 2002 Mr. Sawyer wrote to Mr. Izmaylov and Mr. Oskirko, having first obtained Mr. Privalov’s comments on a draft letter. Mr. Sawyer expressed appreciation of the “frank and open discussion” on 11 April 2002 and made some general proposals about how he might assist NSC to improve their banking and financing arrangements. He asked for “further information regarding your general strategy and in particular whether you have any plans for further new-buildings and whether you have a disposal programme for the near future”. He continued, “Should you wish to employ my services I would propose that I send you a mandate letter. That letter would include, amongst other things, a success fee of 30pbs on the initial transaction and reducing to 25pbs for any future transactions. I would also expect reimbursement of all reasonable out of pocket expenses”. It is clear that this e-mail was seen by Mr. Oskirko as well as Mr. Izmaylov because he made manuscript notes on a copy of it.

On 16 May 2002 Mr. Sawyer sent a further e-mail to NSC, addressed to Mr. Izmaylov, with a mandate letter for consideration. He said that “further to our recent discussions” he would assist in arranging financing for NSC’s newbuilding programme and proposed that he should be paid “0.3% flat on the amount of debt arranged” and that the fee would be reviewed and agreed annually. He also expected to be paid his expenses. Again, Mr. Sawyer had consulted Mr. Privalov before sending this proposal. In an e-mail to Mr. Privalov of 16 May 2002 he had sent a draft of the proposal with the covering note “This is the simple version. What do you think?”. In that draft the proposal about remuneration was that Mr. Sawyer should be paid “0.3% flat for the first $150 million of debt arranged and 0.25% flat for all debt thereafter”.

Mr. Izmaylov was content with the proposal put forward on 16 May 2002. On 20 May 2002 he endorsed his copy of it “We confirm our agreement too”. He was asked in cross-examination why he agreed to pay a commission of 0.3% upon all transactions, given that Mr. Sawyer had initially proposed a lower rate upon “repeat business”. Mr. Izmaylov told me, and I accept, that he did not notice this change: it was Mr. Oskirko’s responsibility to deal with the details of the negotiations with Mr. Sawyer. In any case, the revised proposal would not prove to be less favourable to NSC than the original terms unless there was repeat business before the proposed review of the 0.3% rate. If, as seems likely, repeat business did not so rapidly follow an initial transaction, the rate for it would have depended upon the annual review.

On 20 May 2002 Mr. Oskirko wrote to Mr. Sawyer confirming that NSC accepted his services and seeking to negotiate lower fees. He wrote “In your message of 10.05.02 you mentioned 30pbs on the initial transaction and reducing to 25pbs on future transactions. We suggested that in case you arrange re-financing of a loan with the same banks the fee would be 15pbs.” He said that NSC would be raising around $500 million “within 2 coming years”, and invited Mr. Sawyer to review his proposals.

Mr. Sawyer did not agree to reduce his charges. I reject the claimants’ submission that this shows that he was relying upon an arrangement that he had already made secretly with Mr. Izmaylov, and that this was not an ordinary commercial exchange at arms’ length. Mr. Sawyer rightly judged that NSC wanted his services and would pay the fee that he had requested. On 22 May 2002 Mr. Oskirko wrote to Mr. Sawyer that Mr. Izmaylov had agreed to his proposed fees provided they were reviewed on a regular basis, and he recorded that they would first be reviewed in January 2003. Mr. Sawyer sent a letter agreement dated 22 May 2002 addressed to Mr. Izmaylov, which he and Mr. Oskirko both countersigned. By it Mr. Sawyer agreed “to assist Intrigue … in arranging finance for its new-building programme and refinancing of its current debt”, and recorded Mr. Sawyer’s understanding that he would be “their exclusive representative and any financings arranged during my period of appointment will be covered by the remuneration as detailed below”. His remuneration was to be “0.3% flat on the amount of debt arranged and such fee will be reviewed and mutually agreed annually but commencing January 2003. You undertake to reimburse all my reasonable out of pocket expenses including air travel within Europe/Scandinavia . . .” The letter stated that the agreement should be governed by English law.

There is a dispute between the claimants and Mr. Izmaylov about how this agreement was reached. Mr. Izmaylov’s evidence was that, after he met Mr. Sawyer, he was not involved in further discussions until Mr. Oskirko told him that he could not persuade Mr. Sawyer to accept less than 0.3%. He then agreed to Mr. Sawyer’s terms and countersigned the offer letter after Mr. Oskirko had said that he considered the terms acceptable and in line with his discussions with Mr. Sawyer. According to Mr. Oskirko, he considered the level of Mr. Sawyer’s commission excessive, but Mr.

The claimants submitted that North South were paid only 0.5% of the difference between new loans that North South arranged and the lending that was refinanced, and that therefore Mr. Sawyer’s fees were higher than those of North South had been. Whatever the true meaning of NSC’s consultancy agreement with North South dated 1 June 1998 (which to my mind is uncertain), the claimants have not disclosed documents that show how much North South charged in practice. A limited number of documents about North South’s charges were provided to the claimants by Mr. Batra in the course of the proceedings, and there is no information about how they were selected or why more invoices are not available. Much of the lending that NSC expected that they would need was for purchasing newbuildings and would not be by way of refinancing. In any case, NSC did not change their financial consultants and appoint Mr. Sawyer because of the level of North South’s charges. The purpose was to have better advice, not to economise on fees. I am unable to say whether NSC paid more or less by way of fees under the changed arrangements, but I do not consider this important to the issues that I have to decide.

After his appointment Mr. Sawyer acted for NSC as a financial consultant on various ship financing transactions and by the end of May 2003 he had earned commissions totalling $996,300. Mr. Privalov worked closely with Mr. Sawyer, and in particular was, as I conclude, the link between Mr. Sawyer and Mr. Nikitin and well placed to ensure that Mr. Sawyer paid Amon upon the business. Mr. Sawyer also rewarded Mr. Privalov by paying Shipping Associates. On 26 November 2002 Mr. Privalov sent Mr. Sawyer details of the bank accounts of Amon at Wegelin and of Shipping Associates at Dresdner Bank. Mr. Sawyer also passed to Mr. Privalov information about NSC’s business. For example, on 23 August 2002 Mr. Privalov sent Mr. Nikitin “as discussed” details of financing that Mr. Sawyer had set up for NSC to buy the four product carriers from Hyundai Mipo, which he must have obtained from Mr. Sawyer. On 12 September 2002 Mr. Sawyer sent to Mr. Privalov “as requested” information about “Intrigue cash flow” and Mr. Privalov sent it on to Mr. Nikitin “As discussed”.

Although when Mr. Sawyer was appointed it was intended that his remuneration should be reviewed in January 2003, nothing was done before June 2003. On 3 June 2003 Mr. Oskirko wrote to Mr. Sawyer that, “As per the letter of appointment dated 22.05.02 we agreed that we would review the fee in June. We suggest to bring it to the levels where we started while negotiating your appointment, i.e. 20-25 bps flat on the amount of debt arranged beginning 01.06.03”. Mr. Sawyer sent the letter to Mr. Privalov for his comments. On 9 June 2003 Mr. Sawyer responded to Mr. Oskirko that he would not reduce his fees, but suggested that “we leave things as they are at present”, and on the same day Mr. Oskirko replied that he agreed that the fees should remain unchanged. Again, Mr. Sawyer sent this exchange of e-mails on to Mr.

Mr. Oskirko said in evidence that Mr. Izmaylov was displeased that he had questioned Mr. Sawyer’s commission and instructed him to leave it as it was, and the claimants submitted that this explains why Mr. Oskirko was not more strenuous in his efforts to reduce Mr. Sawyer’s fees. I am not persuaded by this submission. Despite his position, Mr. Oskirko appears to have been an ineffective negotiator, and my impression from his evidence was that he would not show resolution when he met resistance. The claimants also submitted that Mr. Sawyer rejected Mr. Oskirko’s proposal because Mr. Izmaylov was party to a corrupt arrangement with him, and he was confident that Mr. Izmaylov would not have allowed his remuneration to be reduced. According to Mr. Privalov, when Mr. Sawyer told him that Mr. Oskirko had proposed that his fees be reduced, he spoke to Mr. Nikitin, who said that he would speak to Mr. Izmaylov and in due course Mr. Nikitin reported that Mr. Sawyer’s fees would remain unchanged. Mr. Nikitin and Mr. Izmaylov both denied this. I consider it likely that Mr. Nikitin was told of Mr. Oskirko’s proposal. Mr. Nikitin had an interest in it because the amount paid to Amon was tied to Mr. Sawyer’s commissions. However, whatever Mr. Nikitin said to Mr. Privalov, there

By a letter agreement dated 9 December 2004 which was countersigned by Mr. Izmaylov, Mr. Sawyer agreed with NSC that Mr. Sawyer’s services “would be retained to conclude these [forthcoming] financings. All other terms and conditions of our [22 May 2002] Agreement to remain unchanged”. The claimants submitted that this agreement was designed to secure Mr. Sawyer’s position, but I do not regard this agreement as suspicious and do not accept that it supports the claimants’ allegations against Mr. Izmaylov.

There is no evidence that I accept that Mr. Izmaylov was involved in dishonesty, corruption or breach of duty in relation to NSC’s dealings with Mr. Sawyer. The claimants’ pleaded case at the start of the trial was that “in about early 2002” Mr. Izmaylov, Mr. Nikitin and Mr. Privalov agreed together that Mr. Sawyer should be appointed as NSC’s financial consultant on the basis that he would be paid commission of 0.30% of all debt arranged by him and that Mr. Sawyer would be required to pay 50% of his commissions to Mr. Nikitin or his companies and one sixth of his commissions to Mr. Privalov or his companies. This case was put to Mr. Nikitin in cross-examination, but it was not supported by Mr. Privalov’s evidence. He said that he was not present at any meeting when Mr. Izmaylov met Mr. Nikitin and Mr. Sawyer. It was not put to Mr. Izmaylov that he was party to any agreement with Mr. Privalov or that he knew that Mr. Privalov was party to any agreement. The claimants’ case about the Sawyer commissions scheme remains, however, that Mr. Izmaylov was acting dishonestly to defraud NSC, and that in breach of his duties to NSC he was party to an arrangement that substantial sums from NSC should be unjustifiably paid to Mr. Nikitin and his companies.

The claimants have not pursued any claim in respect of Sawyer commissions scheme against Mr. Nikitin and the Standard Maritime defendants otherwise than upon the basis that Mr. Izmaylov was party to a dishonest scheme with Mr. Nikitin, and that Mr. Izmaylov acted dishonestly in breach of his fiduciary duties. They amended their pleaded claim towards the end of the trial to abandon any allegation that Mr. Privalov was party to the arrangements with Mr. Sawyer. If therefore I reject their contention that Mr. Izmaylov was dishonest in relation to the scheme, I should reject the claims about the Sawyer commissions scheme against all the defendants.

The RCB scheme concerns a debt of some $20 million (including interest) owed by Sovcomflot to the Russian Commercial Bank (“RCB”). The benefit of the debt was assigned through BCV to Gemarfin SA (“Gemarfin”), a Swiss company acting for Meino, in consideration of 45c. in the dollar or about $8.7 million, and was assigned by Gemarfin to Fiona in consideration of 61c. in the dollar or about $12.169 million. The claimants say that Mr. Skarga acted dishonestly in relation to these dealings. At the start of the trial they alleged that he had negotiated and agreed with RCB the assignment of the debt at 45c. in the dollar so as to enable Meino to profit from the dealings with the debt. This allegation was abandoned during the trial and the core of

In 1994 Sovcomflot’s predecessor, AKP Sovcomflot (“AKP”), had been granted a loan facility in the total of $26,059,787.73 (“the AKP loan”). It was by way of rescheduling part of a facility agreed on 7 April 1989. Another part of the 1989 loan was advanced by Eurobank, who did not participate in the re-scheduling. The lenders agreeing to the re-scheduling included the RCB as lead bank, acting through their Swiss branch, and their share was $13,004,901.58. The following lenders were Corporate Commercial Bank of Sofia and East-West United Bank of Luxembourg. Under the agreement, the banks were entitled to assign the benefit of that debt to “any other bank or reputable lending institution”. The agreement had been signed in Zurich and was governed by Swiss law. AKP submitted primarily to the courts of Zurich in respect of any legal action or proceeding arising out of the agreement, and AKP appointed Sovchart in Geneva to accept service of process.

After 31 July 1995, AKP made no payments in respect of the loan. On 8 August 1995 Mr. Borisenko wrote to RCB that AKP could not service it. Legal proceedings were threatened against AKP, but they were not brought. On 1 January 1996, by an Act of Transfer of State Property and Obligations, assets and liabilities of AKP were transferred to Sovcomflot. The transfer was said in the Act to be in respect of assets and liabilities “as per the list attached”, and the listed liabilities did not include the AKP loan. In 1999, following the Russian sovereign debt crisis of 1998, Mr. Borisenko as acting Director-General of Sovcomflot negotiated a settlement of the parts of the AKP loan owed to the following banks: they were assigned to VEB, a Russian state bank, who assigned them to Artesia Bank, Luxembourg SA, who in turn sold them to Fiona for 20c. and 18.5c. in the dollar. As Mr. Borisenko acknowledged in his evidence, Sovcomflot realised that the intermediary banks were making a profit under the settlement agreements, but they did not know and were not concerned about how much their profit was.

On 17 April 2000 Mr. Borisenko wrote to RCB about the debt. RCB had told Sovcomflot and Moore Stephens that at the end of 1999 the debt was some $26 million, and Mr. Borisenko asked RCB to explain why they had not reduced the debt to some $13 million. RCB later relied upon this letter as an acknowledgement of the debt when they bought proceedings to enforce their claim.

On 29 June 2000, RCB’s lawyers, Salans Herzfeld & Heilbronn International ZAO (“Salans”), wrote a letter before action to Sovcomflot. Mr. Skarga wrote on 25 July 2000 to Mr. Alexei Kudrin, the Deputy Prime Minister and Minister of Finance, seeking his assistance to resolve the matter without Sovcomflot having to pay the debt in full. No answer to the letter is in evidence, but at a meeting with Mr. Skarga and Mr. Borisenko VEB, who owned RCB, threatened court proceedings if the debt was not repaid in full. On 27 July 2000 Sovcomflot replied to Salans disputing their liability for the debt on the grounds that it was not among the listed assets and liabilities transferred from AKP under the Act of Transfer. However, as Mr. Lipka told me and I accept, “it was the common view of top management” that Sovcomflot could not successfully defend the claim.

In about October 2000, RCB brought proceedings in Geneva against Sovcomflot to enforce the debt and on 30 October 2000, in accordance with the Swiss procedure, they pursued their claim by having a payment order notified in the sum of $13.665 million, plus interest. By April 2001, RCB had obtained a court order against Sovcomflot for the debt and Sovcomflot’s attempt to appeal against it had been unsuccessful. On 16 July 2001 Sovcomflot brought proceedings against RCB in the Zurich courts for a declaration that they were not liable for the debts of AKP, but on 12 October 2001 Sovchart were served with an Avis de Saisie for enforcement of the claim.

Neither Sovcomflot nor their Swiss lawyers, Lalive & Partners, thought that they had any real chance of defending RCB’s claim. Mr. Borisenko, however, said in his witness statement of 11 February 2009 that he “had no views since [he] was not involved in handling the Swiss proceedings”. I reject that evidence, and I accept the evidence of Mr. Lipka that the settlement of the RCB loan was “first and foremost” the responsibility of Mr. Borisenko because he was the Chief Financial Officer. Although in his evidence he sought to minimise his involvement, Mr. Borisenko was well aware of the progress of RCB’s claim and the legal proceedings. For example, on 28 March 2001, in Mr. Izmaylov’s absence and at his request, Mr. Borisenko wrote to Lalive & Partners to explain the background to RCB’s claim and on 30 March 2001 he instructed Mr. Lipka to write a report recommending what should be done. When he was cross-examined, Mr. Borisenko acknowledged that, while he did not form an independent view of his own, he accepted and relied upon Mr. Izmaylov’s assessment that Sovcomflot were in a weak position to defend the claim. There is further evidence that Mr. Borisenko’s involvement with the RCB debt was more than he was prepared to acknowledge in a document that was disclosed by the claimants only after he and Mr. Lipka had given evidence, and that should have been disclosed earlier. At a meeting on 29 March 2001 Sovcomflot’s General Board approved “Plan of works on the implementing the Principal Lines of Development of OAO Sovcomflot for 2001”. It identified Mr. Borisenko, together with Mr. Izmaylov and Mr. Lipka, as responsible for dealing with the settlement of the RCB debt.

In about July 2000, Mr. Skarga, having discussed the problem of the debt with others on the Executive Board, spoke to Mr. Katkov and Mr. Malov about it when he was visiting Kinex. As shareholders in Kinex, they, together with Mr. Timchenko and Mr. Smirnov, had had an interest in Tokobank, a major Russian bank before the 1998 financial crisis, and Mr. Skarga hoped that they might use their influence with the Central Bank of Russia to gain for Sovcomflot more time to settle the debt from RCB,

Mr. Nikitin, however, had been present when Mr. Skarga met Mr. Katkov and Mr. Malov and had already gone about exploring this possible solution. On 4 September 2000 he had telephoned Ms. Imogen Rumbold, a partner in Lawrence Graham who acted for him, for advice about a loan agreement with a Swiss Bank which they were “ready to sell with a certain discount” (as Ms. Rumbold recorded what was said in her attendance note). Mr. Nikitin had not then had any contact with RCB. Ms. Rumbold recorded that the matter was “all highly [private and confidential]”. This would be expected, and does not suggest impropriety. Mr. Nikitin said that he would send her “a document”, which was, as Mr. Nikitin confirmed, a copy of the loan agreement with RCB which he had obtained from Mr. Skarga. It does not suggest to me improper collusion between Mr. Skarga and Mr. Nikitin that Mr. Nikitin had a copy of the agreement. There is no proper reason to suppose that Mr. Skarga provided it in order to assist Mr. Nikitin, and he probably provided it during the discussions on his visit to Kinex. On 8 September 2000 Ms. Rumbold wrote to Mr. Nikitin that she had received the loan agreement and confirmed that Mr. Nikitin sought advice “on the merits or otherwise of purchasing the debt (at a discount of course) and then recuperating (sic) the outlay if you did buy the debt”. I should make it clear that it is not alleged that Ms. Rumbold acted dishonestly or improperly in relation to this or any other matter.

On 22 November 2000 Ms. Rumbold wrote to Mr. Nikitin that she understood from a telephone conversation with him that “matters … have progressed in such a way that you are now intending to make an offer to [RCB] under which a British Virgin Islands company in your group of companies will buy the debt … at, say, a 40% discount and you will then collect the debt from Sovcomflot, maybe also at a discounted figure (say 20%)”. By this time, according to Mr. Nikitin’s evidence, which I accept about this, he had decided to conduct negotiations with RCB through Mr. Claudio Cepollina, whom he knew as a shipbroker and considered to be a skilful negotiator. He also had decided that the debt might be acquired from RCB by Gemarfin, since he thought that a Swiss bank might be more receptive to an approach from a Swiss company. (Gemarfin provided such services as ship management, banking intermediary services and related financial services, and was connected with Ms. Francesca Berlosconi and Mr. Alfonso Delorenzi, with whom Mr. Nikitin had previously had dealings as corporate services providers.)

On 24 November 2000 Mr. Nikitin spoke by telephone to Ms. Rumbold. In her note of that conversation she recorded that “One of our friends is top manager of [Sovcomflot]”, and Mr. Nikitin confirmed in his evidence that he was referring to Mr. Skarga. Ms. Rumbold recorded that Sovcomflot had been “taking their time to pay the debt”, but that they were “happy to pay at a discount”. She also recorded that “RCB understood their loan is not so solid because the nature of [Sovcomflot] has changed from State to joint stock and they understand that the loan is to a Soviet

By the end of November 2000 an approach had been made to RCB. On 27 November 2000 Ms. Rumbold sent to Mr. Nikitin suggested wording for a letter that might be sent to show that “the ‘unofficial’ approaches made are serious approaches from your side”. There was an exchange of correspondence between Gemarfin and RCB at the beginning of December 2000, and this led to a meeting in Zurich on 14 December 2000 at which Gemarfin were represented by Lawrence Graham and Mr. Cepollina.

According to Mr. Nikitin, early “unofficial” approaches to RCB had been made by Mr. Cepollina, and in a statement dated 7 November 2006 and put in evidence by Mr. Nikitin and the Standard Maritime defendants under the Civil Evidence Act 1995 Mr. Cepollina said that he approached Mr. Nigmetzanov of RCB as a broker for an unnamed principal and expressed interest in acquiring the debt: he had two or three meetings with Mr. Nigmetzanov. The claimants submitted that Mr. Cepollina could not have approached RCB without an introduction and invited the inference that Mr. Skarga was involved in arranging the introduction. I reject that submission as speculation, and also as inconsistent with Mr. Nikitin’s concern in December 2000 that RCB should not associate the approach with Russians. Mr. Nikitin would not have told Ms. Rumbold this if, when they met her, RCB might well have mentioned that Mr. Cepollina had been introduced to them by Mr. Skarga.

Mr. Nikitin first told Mr. Skarga in late 2000 or early 2001 that he was exploring the possibility of acquiring the debt from RCB with a view to selling it to Sovcomflot. There is no evidence that persuades me that Mr. Skarga knew at any earlier date that Mr. Nikitin was doing so. The claimants argued that Mr. Nikitin would not have expended money on legal fees without first ensuring that Sovcomflot would be interested in acquiring the debt from him at a discount, but I do not accept this argument. It must have been clear to Mr. Nikitin after the discussions at Kinex that Sovcomflot would be interested in an arrangement of this kind. Mr. Skarga discussed with other members of the Executive Board the possibility of an intermediary acquiring the debt and discounting it to them, and they contemplated paying something like 60c. in the dollar to acquire the debt. Mr. Borisenko confirmed in cross-examination that there had been these discussions, and, although he denied it, I conclude that Mr. Borisenko was party to discussions about how much Sovcomflot should pay. That would have been his concern as Chief Financial Officer.

On 20 March 2001 a company called R & S Investments AG of Zurich (“R&S”) wrote to Mr. Borisenko and Mr. Izmaylov, and offered to seek to acquire the debt and to discount it to Sovcomflot for 60c. in the dollar. This approach was not of interest to Sovcomflot because R&S’s proposal was that they should acquire and discount the debt owed to Eurobank from the 1989 loan as well as the RCB loan and because R&S required a deposit of $19.8 million. Mr. Skarga mentioned to Mr. Nikitin the letter

On 2 April 2001 Mr. Nikitin reported to Ms. Rumbold that Mr. Cepollina had had further discussions with Mr. Nigmetzanov in which RCB had spoken about selling the debt at a price of 40c. in the dollar for the interest and 50c. for the principal, and Mr. Cepollina had responded with a proposal to pay 45c. in the dollar for the interest. At some time in April 2001 Mr. Cepollina told Mr. Nikitin that RCB were prepared to accept 45c. in the dollar for the debt and after some further exchanges RCB and Mr. Nikitin agreed upon this price.

Mr. Nikitin also told Ms. Rumbold that he was prepared to discount the debt to Sovcomflot for 60c. in the dollar. She recorded in her attendance note of the telephone conversation, “We are ready to discount debt at 60c. per dollar”. Mr. Nikitin said that this does not reflect what he meant because at all times he had “higher ideas”, but in her witness statement dated 13 February 2009, which Mr. Nikitin and the Standard Maritime Defendants adduced in evidence, Ms. Rumbold confirmed that Mr. Nikitin did say that he was prepared to discount the debt at that price. I find that by this time Mr. Nikitin was indeed prepared to accept 60c. in the dollar for the debt, but I accept that he had it in mind to seek a higher price. I also accept Mr. Skarga’s evidence that at some point during discussions Mr. Nikitin suggested that the price paid by Sovcomflot should be 70c. in the dollar.

On 2 April 2001 Mr. Nikitin instructed Ms. Rumbold to start to draft the documents for the planned transactions. A number of questions arose: for example, the parties wished to understand the position about the debt owed by Sovcomflot to the following banks. It was learned that Sovcomflot had reached a settlement of their debts, and Ms. Rumbold wrote in her attendance note, “We know more than we are supposed to know”. Mr. Nikitin’s evidence about this was that Mr. Skarga had provided to him confidential documents that showed that Sovcomflot had settled the claims, and this is in accordance with Ms. Rumbold’s evidence. She said that “she probably felt slightly uncomfortable about the source of the documents”, but, since it appeared to be in Sovcomflot’s interests to have the concern about the following banks resolved in order to progress a proposal that was potentially to Sovcomflot’s advantage, she was not overly concerned about it. Certainly I do not consider that this suggests that Mr. Skarga was not acting in Sovcomflot’s best interests or was improperly promoting Mr. Nikitin’s interests.

In about May 2001, Mr. Skarga spoke to Mr. Nikitin about whether he would be interested in entering into a similar arrangement in relationship to the Eurobank debt to that which he was negotiating for the RCB debt. I accept his evidence that he discussed this with Mr. Borisenko before approaching Mr. Nikitin. Mr. Skarga suggested to Mr. Nikitin that he might approach Mr. Privalov for information about the Eurobank loan. Mr. Privalov confirmed that he was asked by Mr. Skarga to explore whether such an arrangement was feasible. He was asked to find a bank willing to acquire their debt from Eurobank and sell it to Mr. Nikitin or one of his companies, with a view to it being discounted to Sovcomflot. He approached Mr. Caze of BCV, who agreed that BCV might assist. As is reflected in Ms. Rumbold’s

However, Mr. Privalov had further dealings with Ms. Rumbold in relation to the RCB debt. In particular, at about the beginning of April 2001 it had come to be appreciated that RCB could assign the debt only to another bank or “lending institution”, and so it was necessary to introduce such an intermediary in the chain of assignments of the debt. Mr. Nikitin asked Wegelin whether they would assist by acting as an intermediary assignee, but they declined to do so. He asked Mr. Skarga for help to find a suitable intermediary, and Mr. Skarga turned to Mr. Privalov. Mr. Privalov approached Mr. Caze, who agreed that BCV would take an assignment from RCB and re-assign the debt to Gemarfin. Initially they sought to be paid by taking a share in the profits, but they agreed to act for a fixed fee.

On 18 July 2001 Mr. Nikitin instructed Ms. Rumbold to make contact with Mr. Privalov about this, and she spoke to him on 19 July 2001. On 20 July 2001 Ms. Rumbold sent to Mr. Privalov a draft letter that BCV might send to RCB. In her covering fax she said that she had “lifted the figures” from the draft assignment between RCB and Gemarfin. The draft letter that she sent to Mr. Privalov read, “We are pleased to offer to acquire from your bank its total interest and participations in the … loans for the amount of USD0.45 payable on closing of the final assignment of those interests and participations”.

Thus, Mr. Privalov learned, if he did not already know, what Gemarfin were paying for the RCB debt. Further Ms. Rumbold sent a copy of her communication to Mr. Nikitin, and so it would have been apparent to him that Mr. Privalov was aware of the price. Ms. Rumbold had assumed, from her understanding of Mr. Privalov’s role, that Mr. Privalov knew it anyway. Mr. Nikitin had not specifically authorised her to disclose this information, but he was not concerned that Mr. Privalov had learned it, because he did not think that Sovcomflot would wish to derail the deal at that late stage. There is no evidence that Mr. Privalov told Mr. Skarga, or anyone else at Sovcomflot, what Gemarfin were paying for the debt.

On 31 July 2001 Mr. Caze informed Ms. Rumbold that RCB and BCV had agreed, subject to contract, that the debt should be transferred for 45c. in the dollar. On 6 August 2001 Mr. Nikitin spoke to Ms. Rumbold about the structure of the transaction. He said that Gemarfin should act for a company which he would specify. He had it in mind that he might possibly use Pollak for this purpose, but he also said that he would probably use a different company. Ms. Rumbold recorded in her attendance note “Gemarfin propose to [Fiona] 71c. per dollar. [Fiona] will refuse. 61c”. According to Mr. Nikitin, this reflects that he hoped to negotiate a higher price for the debt than 61c. in the dollar, and intended to propose a price of 71c. so as to entice Sovcomflot to make a counter-proposal.

On 7 August 2001 Mr. Privalov gave Ms. Rumbold instructions about the structure of the transaction. It had been decided that Mr. Nikitin should use Meino, rather than Pollak, as the corporate vehicle, and that Gemarfin, as Meino’s agent, should assign the debt to Fiona. Gemarfin were to write to Fiona proposing the transaction without mentioning that they were acting for Meino. Ms. Rumbold and Mr. Privalov agreed upon the terms of the letter that Gemarfin were to write, which presented an offer to assign the loan for 71c. in the dollar. On 9 August 2001 Gemarfin sent to Mr. Privalov at FML’s offices a letter to Fiona which read, “We have negotiated to take an assignment of the [RCB] loan. We are in turn offering to assign to you the total interest and participation in the said loan for the discounted amount of $0.71 in the dollar … . The present offer is not intended to create any commercial relations between us at this stage … . We await your response with interest”.

The offer was considered on 9 August 2001 at a meeting of Sovcomflot’s Executive Board, which was attended by Mr. Skarga, Mr. Borisenko, Mr. Terekhin, Mr. Izmaylov and Mr.Lipka. The minutes record that Mr. Skarga “informed the Board about tentative negotiations to settle the indebtedness of the RCB bank credit the result of which was a proposal to settle the matter on the basis of 71c. per one US dollar…”. It was proposed that Mr. Privalov be authorised “to hold further talks on the basis of settling at no more than 61c. in the dollar”. Mr. Izmaylov, Mr. Borisenko and Mr. Terekhin spoke about the proposal, and it was approved unanimously. After the meeting Mr. Izmaylov sent Mr. Privalov a fax authorising him to settle the debt for 61c. in the dollar or less, on the basis that the whole loan and all interest on it would be discharged.

It is not clear what information was before the Executive Board when they made this decision because, as Mr. Lipka recalled and I accept, there was before the meeting a briefing note, and it is not in evidence. However, the proposal was fully discussed. Mr. Lipka said that the unanimous view was that it would be “a good deal for Sovcomflot and Fiona” to settle upon the terms proposed. Mr. Izmaylov’s evidence was that there was full and open consideration of the matter. Mr. Borisenko said in his witness statement of 11 February 2009 that he knew nothing of a proposal to settle the RCB indebtedness before the meeting, but I reject that evidence. It is incredible that the Chief Financial Officer did not know about the proposal, and the more incredible that he did not complain at the meeting if the proposal had come as a surprise to him. In any event he spoke in favour of the proposal, and he agreed in cross-examination that a settlement at 60c. in the dollar would have been “a very good deal”, and that a deal at 61c. in the dollar was in Sovcomflot’s best interests.

On 9 August 2001 Mr. Privalov sent to Gemarfin a fax that stated that he had authority to settle the loan for 61c. in the dollar, and asked for confirmation that this proposal was acceptable. There is no documentary evidence that Mr. Privalov attempted to negotiate a lower price; Mr. Nikitin could not recall whether or not Mr. Privalov sought to discuss the price further; and Mr. Privalov said that he did not seek to negotiate because he understood that Mr. Nikitin would not reduce the price below 61c. in the dollar. There was, as I understand it, no suggestion, and in any event there was no credible evidence, that Mr. Privalov was instructed by Mr. Skarga or anyone else not to attempt further negotiations or that he reported to anyone that he had not done so. I conclude that he simply offered 61c. in the dollar for the debt.

Although agreement upon the transaction had been agreed in substance by 9 August 2001, it was not formally concluded and documented for some time. On 5 October 2001 Ms. Rumbold, who had noticed that Gemarfin had not responded to Mr. Privalov’s letter of 9 August 2001, wrote to Gemarfin and suggested that they reply direct to FML.

By a series of agreements dated 24 October 2001, the outstanding debt to RCB, which was then $19,949,061.76 (comprising the principal sum of $13,004,901.58, unpaid interest due at 31 July 1995 of $660,165.32 and further interest which had accrued subsequently of $6,283,994.86) was acquired by Fiona through the following chain of assignments: RCB assigned the debt to BCV for 45c. in the dollar, that is to say for $8,997,077.79; BCV assigned the debt at the same price to Gemarfin, who acted as the agent for Meino; and Gemarfin assigned it to Fiona at 61c. in the dollar, that is to say for $12,169,927.67. Accordingly, Fiona paid 16c. in the dollar, or $3,191,849.88, more for the debt than RCB were paid for it, and Meino received most of this as their profit.

As I understand it, there are four strands to the claimants’ contentions that Mr. Skarga acted dishonestly in relation to the RCB debt scheme. First, the claimants plead (having amended their case in the course of the trial) that Mr. Skarga directed the negotiations with RCB. There is no convincing evidence that supports this contention, and I reject it.

Secondly, it is said that Mr. Skarga knew that the debt was being acquired from RCB for 45c. in the dollar, but this was not disclosed to others on Sovcomflot’s Executive Board, and was concealed so that Gemarfin, and therefore Meino and Mr. Nikitin, could profit from the transaction. I reject the contention that Mr. Skarga knew of the price of 45c. in the dollar. Mr. Privalov had no recollection of discussing the price with Mr. Skarga. He spoke in cross-examination of having an “impression” that Mr. Skarga knew, but he did not explain why he had that impression and his evidence was, in my view, vague and unreliable. Mr. Nikitin’s evidence was that he did not tell Mr. Skarga how much he was paying for the debt and, as far as he knew, Mr. Skarga did not have this information. Mr. Skarga said that he did not learn of the terms of the deal that Mr. Nikitin had made with RCB, including the price that he was paying, and did not know what profit Mr. Nikitin was hoping to earn or what he did earn.

The claimants argued that, unless Mr. Nikitin knew that Mr. Skarga already was aware of the price being paid to RCB, he would have been concerned about Mr. Privalov learning it from Ms. Rumbold. I disagree: by then the proposal was sufficiently advanced for Mr. Nikitin to feel confident that Sovcomflot would not want to take advantage of the information and Mr. Skarga had indicated that they would pay something like 60c. in the dollar for the debt. In any event, the corollary of the claimants’ argument is that Mr. Nikitin would have been equally concerned about Mr. Privalov revealing the price to Mr. Borisenko (who was his “line manager”) and others on the Executive Board. The claimants also argued that Mr. Skarga would have asked Mr. Nikitin for this information because it would be important to Sovcomflot’s negotiating position. I am not persuaded of this. Of course Mr. Skarga, like others on the Sovcomflot Executive Board, knew that Mr. Nikitin was making a profit on the transactions. However, Mr. Skarga explained that he decided to indicate to Mr. Nikitin what Sovcomflot were willing to pay for the debt and to maintain that stated position. This was, to my mind, a perfectly reasonable negotiating strategy, and I reject the claimants’ suggestion that, if he had been acting honestly, Mr. Skarga would have sought to negotiate a lower price than what he had originally indicated. That course would have lacked credibility.

Thirdly, the claimants argued that Mr. Nikitin and Mr. Skarga agreed before the Executive Board meeting on 9 August 2001 that Sovcomflot would pay 61c. in the

Fourthly, it is said that Mr. Skarga did not present the proposal honestly to the Executive Board on 9 August 2001. In this context the claimants (at paragraph 102.19 of their particulars of claim) plead that:

The claimants also alleged that Mr. Skarga concealed from the Executive Board that the counter-party to the transaction was, in effect, Mr. Nikitin. The claimants have not proved this. Mr. Izmaylov could not remember whether Mr. Nikitin’s involvement was mentioned because it was not something that would have interested him, and I accept Mr. Skarga’s evidence that Mr. Borisenko worked with Mr. Privalov in arranging the transaction and knew of Mr. Nikitin’s interest.

At the start of the trial it was alleged that Mr. Skarga also concealed the role of BCV in the transaction. This was based upon the allegation that Mr. Skarga, together with Mr. Nikitin and Mr. Privalov, instructed Ms. Rumbold to conceal from Sovcomflot “the true nature of the arrangements” between the parties to the transaction. The allegation that Mr. Skarga so instructed Ms Rumbold was abandoned when the claimants amended their pleading during the trial. In any event the claimants have not shown that Mr. Skarga was party to any attempt to conceal BCV’s role. Mr. Borisenko accepted in cross-examination that he knew that the terms of the loan prevented RCB from assigning it except to a bank or financial institution, and I reject his evidence that he thought that Gemarfin were a bank. His evidence was he knew of BCV’s role only after Mr. Skarga had left Sovcomflot, but I also reject that evidence because on 25 October 2001 Mr. Privalov sent him a copy of the assignment agreement between Gemarfin and Fiona from which BCV’s role was apparent. I accept Mr. Privalov’s evidence that he made no attempt to conceal BCV’s role and received comments from Sovcomflot’s legal department upon draft documents that revealed it.

I therefore do not consider that the evidence about the RCB scheme supports the allegations of dishonesty on the part of Mr. Skarga made by the claimants, and I

In 2002 Sovcomflot secured funding through finance leases or SLB transactions which were arranged with Mr. Nikitin. I shall consider later who provided the funding: it is convenient in describing the transactions simply to refer to the “Investors”. The claimants say that the transactions were dishonest and collusive arrangements concluded between Mr. Nikitin and Mr. Skarga with Mr. Privalov’s assistance, and that they are “inexplicable” on any basis other than that Mr. Skarga was motivated by bribes or other personal benefit. Mr. Skarga and Mr. Nikitin contend that they were proper arrangements whereby Sovcomflot obtained funding that they needed and that they could not have expected to obtain on better terms.

Sovcomflot sold the eight Arbat-type sisterships to the Investors and leased them back on bareboat charters. The Investors agreed to sell and the charterers agreed to buy the vessels at the end of the charter period for an agreed price, that is to say, in the terminology of such transactions, the “residual risk” was with the charterers. The charterers’ obligations, both under the charterparties and as to the residual risk, were guaranteed by Fiona. There were three such transactions or groups of transactions: the first concerned only the “Fili”; the second group, July SLB arrangements, concerned three vessels; and the third group, November SLB arrangements, concerned four vessels.

Before 2002 Sovcomflot had occasionally entered into SLB arrangements. Mr. Borisenko and Mr. Sharikov were both familiar before 2002 with this means of raising finance. In about 1992 and 1993 Mr. Sharikov had been involved with such finance leases of two of the Tromso vessels, the “Romea Champion” and the “Tropic Brilliance”, and also of a newbuild gas carrier. When Mr. Kornilov was DirectorGeneral, Sovcomflot had entered into a SLB arrangement in respect of the “Maxim Gorky”. In 2000, after Mr. Skarga had become the Director-General, Sovcomflot had provided finance under a SLB arrangement for a reefer called the “Electra”, earning a return of 16.75% per annum. Mr. Borisenko also gave evidence of entering into a SLB arrangement with Mitsubishi.

According to Mr. Skarga and as I accept, Mr. van Boetzelaer prompted him to consider raising funds by SLB transactions. On 7 September 2001 Mr. van Boetzelaer sent him an e-mail about an unsolicited proposal from a German company, Buettner Shipping, to purchase and charter back a sea class tanker. He described the advantages to Sovcomflot of such an arrangement, including that it would “free up cash”, that Sovcomflot could earn a trading profit, that Unicom could manage the

The claimants contended that Mr. Skarga introduced Sovcomflot to commercially unfavourable SLB arrangements because of his relationship with Mr. Nikitin. This must be considered against the evidence that other executives were involved in Sovcomflot’s discussions and decisions about how they should meet the demands upon their finances. Mr. Borisenko sought in his evidence to give the impression that he was not party to any discussions that led Sovcomflot to raise funds through the SLB transactions, but I reject that evidence. He was responsible for ensuring that the Sovcomflot group had the funding that they needed and for considering about how they might best acquire it. The claimants have not made disclosure of documents showing how Mr. Borisenko, and through him the group, planned to meet their financial commitments. Mr. Borisenko said that he had had only “general discussions” with Mr. Skarga about how Sovcomflot should fund their requirements in 2002 before the SLB agreements with the Standard Maritime defendants were concluded. Given his position, Mr. Borisenko must have had more detailed discussions about the group’s finances with Mr. Skarga and with other members of the Executive Board than he was prepared to acknowledge. For example, Mr. Borisenko was, as I infer, involved in preparing Sovcomflot’s strategic plan for 2002, which was presented to the General Board on 15 February 2002. The plan itself is not in evidence, and I understand that it has not been disclosed by Sovcomflot, but it will have covered projected bank borrowings and funding plans, as the comparable plans for 2003 and 2004 did.

Sovcomflot invited bankers to a conference on 20 and 21 February 2002 at Krasnogorsk. One purpose was for Sovcomflot to report to their bankers about their financial position, their plans for new projects and their intentions about developing Russian trade. Sovcomflot also wished, no doubt, to demonstrate to banks that they faced competition between each other for Sovcomflot’s business. I accept Mr. Skarga’s evidence, despite Mr. Borisenko’s reluctance to acknowledge this, that the conference was an opportunity for Sovcomflot to discuss how they might raise funds and to gauge the banks’ willingness to lend to them. In any case, the senior executives of Sovcomflot would not have arranged and participated in such a conference without discussing between themselves the funding requirements of the group.

At a meeting of the Executive Board on 4 February 2002, Mr. Borisenko was charged with organising the conference. It was agreed that he should give a presentation on the “prospects of the fleet’s development and financing”. When he was first crossexamined about what he said at the conference, Mr. Borisenko, insisting that he had little involvement with Sovcomflot’s plans for raising funds, said that the presentations at the conference were not those that had been planned at the Executive Board meeting, and that he had spoken only about Sovcomflot’s results for 2001. After he had given this evidence in cross-examination, the claimants disclosed the slides that accompanied Mr. Borisenko’s presentation, and they show, in my judgment, that he also spoke of how Sovcomflot were re-financing the newbuilding programme: that the cost of newbuildings was $681.5 million, of which $179.7 million had been met by “own cash paid to shipyards” and that $322.7 million had been raised by bank loans arranged for the ten newbuilding contracts to which Sovcomflot committed themselves in 2001. It would have been obvious that Sovcomflot would need further funds. On 14 March 2002, Mr. Borisenko presented a report on the “financing of newly-built ships” to a meeting of the Executive Board.

Accordingly it seems to me that there were many occasions when Mr. Borisenko would inevitably have discussed the group’s finances with Mr. Skarga and other executives. As I shall explain, in January and February 2002 Clarkson had made enquiries for Sovcomflot about the rates available for SLB funding, and Mr. Borisenko accepted that he would have expected to have been informed about any enquiries of this kind. No contemporaneous document indicated that he complained or expressed surprise that he was not being properly informed about discussions that were taking place. Even if Mr. Skarga had it in mind to enter into collusive and dishonest SLB arrangements with Mr. Nikitin and the Investors, he would have had no reason to risk provoking Mr. Borisenko’s suspicions by conducting secret discussions behind his back.

Mr. Skarga’s evidence was, and I accept, that he first discussed with the Investors the suggestion that they might provide SLB finance at about the end of February or the beginning of March 2002. Between 27 February and 1 March 2002 he and Mr. Borisenko visited Unicom in Cyprus. By this time, as I find, they and other executives knew that the Investors might provide finance, and Mr. Skarga had asked Mr. Borisenko to put together some proposals that Sovcomflot might make. According to Mr. Skarga, Mr. Borisenko provided him with a schedule of two pages: one set out proposals in the form of a spreadsheet that Mr. Skarga might present to the Investors, and the second page indicated possible adjustments that might be made to the proposal if the Investors sought to negotiate. Mr. Nikitin stated that Mr. Skarga did produce such a document during their discussions. Mr. Borisenko denied any recollection of it, and no schedule of the kind described is in evidence. Mr. Orphanos said that he was “pretty sure” that no such spreadsheet was provided by Unicom because he would have known if his staff had produced it. I accept Mr. Skarga’s evidence at least in that he had discussed the proposal for a SLB arrangement with Mr. Borisenko before he approached the Investors with any specific proposal. I also conclude that Mr. Borisenko probably provided a schedule of the kind that Mr. Skarga described: if finance leasing was under discussion, it is likely that the Chief Financial Officer made such calculations.

It was the evidence of both Mr. Nikitin and Mr. Skarga, and I accept, that Sovcomflot approached the Investors with a suggestion that they might provide finance. The discussions were not initiated by Mr. Nikitin or the Investors. Mr. Skarga told Mr. Malov that Sovcomflot contemplated SLB funding for the “Fili” and three other Arbat vessels, and Mr. Nikitin, Mr. Smirnov and Mr. Katkov were also present at the early discussions. They had several meetings. Mr. Skarga explained the concept of SLB financing because neither Mr. Nikitin nor the other potential Investors were familiar with it, and he spoke of the potential benefits for them of developing their business association with Sovcomflot. He presented Sovcomflot’s proposals on the basis that the terms were not negotiable: that Sovcomflot should sell the vessels for $17 million, lease them back on a 5-year charter at the rate of $8,000 per day and re-purchase them

Mr. Skarga did not usually become so directly involved in negotiations to raise funding for Sovcomflot, and the SLB transactions were the only time that he did so. It seems to me readily understandable that he should have conducted these discussions. Sovcomflot were seeking finance from Mr. Nikitin and others with whom Mr. Skarga had worked in the past, and it is not surprising that he should have made the approach to them. In itself this does not, to my mind, suggest that the arrangements were collusive, dishonest or improper. The evidence about what involvement other executives at Sovcomflot had with the proposals and discussions is unsatisfactory. However, I accept Mr. Skarga’s evidence that he was acting with the knowledge and support of others, and also that there were e-mail exchanges and other relevant documents that would have reflected this: they have not been disclosed and are not in evidence. I shall refer later to the evidence that Mr. Borisenko knew of the discussions and explain why I reject his evidence about when he first learned of them.

At first it was contemplated that the Investors would themselves finance the SLB arrangements for the “Fili”, but Mr. Nikitin then made it clear that they wished to raise their own funding. At Mr. Skarga’s suggestion, Mr. Privalov assisted Mr. Nikitin in this. On 10 April 2002, he sent an e-mail to Mr. Caze, inquiring whether BCV would finance a SLB transaction. After a meeting on 18 April 2002 BCV agreed to do so, and they provided an indicative term sheet on 22 April 2002, which Mr. Privalov forwarded to Mr. Wettern, who was acting for the Investors.

On 22 April 2002 Mr. Privalov sought from Mr. Gale a valuation of the “Fili” at $17 million. Mr. Gale advised him that Clarkson’s current valuation was $15.75 and asked “what do you want me to do?” Whatever the response, Clarkson produced a valuation certificate dated 9 May 2002 giving a valuation at $17 million. Mr. Privalov’s evidence was that the valuation was sought in order to help the Investors to raise finance. This seems to me the most likely reason that Mr. Privalov obtained it, but I do not accept Mr. Privalov’s evidence that Mr. Nikitin knew that Mr. Gale provided an adjusted valuation for this purpose.

On 29 April 2002, Mr. Wettern sent Mr. Privalov the following e-mail: “Please see attached the text of the proposal. As you can see, this has been structured in such a format that you can forward it to Moscow as if you had received it directly from the prospective buyer. I hope this is OK.” The proposal was made in the name of Cepsa Shipping SA (“Cepsa”), which had been acquired by the Investors as a vehicle for the SLB transactions. In early May 2002 it was realised that, since the “Fili” was registered in Cyprus, she had to be acquired by a Cypriot company. She was in fact bought by Blanter, which was owned as to 999 of the 1,000 shares by Cepsa and as to the remaining share by Elpico Nominees Ltd., which it held on trust for Mr. Nikitin in accordance with a declaration of trust dated 13 May 2002.

The proposal was addressed to Fiona. Its terms were essentially those upon which the SLB arrangement for the “Fili” was later concluded. Mr. Privalov sent the email on to Mr. Skarga on the same day, 29 April 2002, writing “As per your authority, we have encouraged potential buyers for “Fili” to send attached offer. The offer represents competitive proposal of what is available on the market for this type of sale and bareboat charter back transactions. Please authorise to proceed.” Mr. Skarga replied on 30 April 2002, “Looks attractive, pls develop. Can you check with buyers abt package deals or some options.”

Mr. Skarga’s reply gives the impression that he expected Mr. Privalov to conduct negotiations to improve the proposed terms. In fact there were no such negotiations, and Mr. Skarga did not expect there to be. On his own account, he had approached the Investors on the basis that Sovcomflot’s proposal was not negotiable. Mr. Skarga’s explanation for the exchange with Mr. Privalov was that he understood from other board members that Sovcomflot preferred to receive rather than to make offers: it reflected their general “style of operating”. He explained his response on the basis that, although terms had been agreed with the Investors in principle, they still needed to be encapsulated in a formal agreement. I do not accept this: there is no credible evidence that Sovcomflot had a general practice of receiving rather than making offers, and the expressions “looks attractive” and “develop” in the reply would not have been used in an instruction to Mr. Privalov to have documented an agreement that had already been reached in principle.

Mr. Berry submitted that, if the purpose was to create a false picture of negotiations, the deception would have been carried out more thoroughly, and a chain of offers and counter-offers would have been concocted. I am not persuaded of this. Mr. Skarga and Mr. Privalov might have thought that this exchange would suffice if the history of the transaction was explored. However, I agree with Mr. Berry’s submission that it is difficult to see how the exchange would have contributed to the collusion that the claimants allege, and whom it was intended to deceive. As far as the evidence goes, negotiating documents of this kind would not be seen by the Executive Board. Although the exchange is curious and, to my mind, has not been satisfactorily explained by the defendants, I find it difficult to ascribe any specific dishonest or improper purpose to it. There is no evidence that Mr. Skarga or Mr. Privalov ever did use the e-mails to mislead others.

The SLB transaction for the “Fili” was concluded on 21 May 2001 at a meeting in St Petersburg attended by Mr. Skarga, Mr. Privalov, Mr. Wettern and Mr. Nikitin. Fili Shipping Company Ltd. (“Fili Shipping”), the 14^th claimant in the Fiona action, sold the “Fili” to Blanter for $17 million, less a 1% address commission payable to Blanter on delivery; Blanter chartered the “Fili” to Fili Shipping for 5 years at a daily hire rate of $8,000 with hire prepayment of $240,000; and Fili Shipping agreed to re-purchase and Blanter agreed to re-sell the vessel for $10,500,000 at the end of the charter period on terms that delivery should be when she was re-delivered under the charter. The following agreements were signed to give effect to the arrangements:

The agreements gave addresses in Cyprus for Fili Shipping and Blanter, and stated that the “Fili” was a Cypriot vessel. The guarantee stated Fiona’s address in Liberia, but provided for service of proceedings upon Fiona at the address of FML in London, and proceedings upon Blanter at an address in Panama. All the agreements were stated to be governed by English law. The two memoranda of agreement and the charterparty contained an agreement to London arbitration, and the guarantee contained a clause that the English High Court should have jurisdiction. All the agreements were signed by Mr. Wettern on behalf of Blanter and by Mr. Privalov on behalf of Fili Shipping and Fiona.

Blanter funded the transaction (i) by borrowing $10 million from BCV against the security of a first charge over the “Fili”; and (ii) by taking a subordinated loan of $7 million provided by Meino, secured by a second charge on the “Fili”. The benefit of Fiona’s guarantee was assigned to BCV as additional security.

On about 17 May 2002 Mr. Wettern had sent to Mr. Lipka the documents to be executed in order to conclude the agreements relating to the SLB of the “Fili”, including a power of attorney authorising Mr. Privalov to execute documents on behalf of Fiona and Fili Shipping. He introduced the e-mail with the words, “As I think you are aware, [the “Fili”] is to be the subject of a sale and leaseback …”. Mr. Lipka wrote to Unicom on 20 May 2002 accordingly. Mr. Lipka’s evidence was that, despite the wording of Mr. Wettern’s e-mail, he had not previously known about the SLB (he described the expression “As you are aware” as “just a polite form of address”), and that he spoke to Mr. Borisenko about it. Mr. Borisenko denied this, but it would have been natural for Mr. Lipka to have dealt with the Chief Financial Officer on a matter such as this, and I prefer the evidence of Mr. Lipka. On 30 May 2002 Mr. Wettern sent to Mr. Borisenko and to Mr. Lipka a fax that summarised the SLB arrangement for the “Fili”. He attached copies of the contractual documentation.

On 30 May 2002 Mr. Lipka sent to Mr. Wettern minutes of a meeting of the Board of Fiona signed by Mr. Skarga, Mr. Borisenko, Mr. Lipka, Mr. Terekhin and Mr. Ambrosov. As usual, no meeting had actually taken place, and minutes prepared by Mr. Wettern were simply signed by the directors. However, as I have said, Mr. Lipka’s evidence, which I accept, was that each signatory scrutinised the minutes before signing them. They recorded the Board’s unanimous decision to enter into the agreements comprised in the “Fili” SLB transaction.

According to the claimants’ pleaded case (in para 120A-d of the particulars of claim) and his evidence, Mr. Borisenko first learned of the proposed SLB of the “Fili” only on about 26 April 2002 when Mr. Privalov told him of it in St Petersburg. Mr. Borisenko said that he then guessed, but was not told, that the counter-parties were Mr. Nikitin and his business associates. He said that Mr. Privalov mentioned the proposed SLB while they were talking in the street, and that, when they were travelling back to Moscow from St Petersburg, he told Mr. Skarga that it was expensive to raise finance through SLB arrangements. He learned the terms of the “Fili” transaction, he said, only on about 21 May 2002 after the agreements had been concluded, and Mr. Skarga then spoke about SLB arrangements with the Investors for three other ships as well as the “Fili”. Mr. Borisenko’s account was supported by Mr. Privalov, who said that he spoke to Mr. Borisenko about the proposed SLB of the “Fili”, as he believed, in April 2002. (I have referred to the case pleaded by the claimants in the particulars of claim. At para 12.2.8 of their Reply, the claimants plead that their case is that both Mr. Privalov and Mr. Borisenko agreed to “organise and support” the SLB transactions, including that for the “Fili” in the expectation of being bribed. Mr. Borisenko denied that he organised any of the SLB transactions, and I understand that that contention is not pursued by the claimants.)

I reject this evidence. In fact, as I conclude from the documents in evidence, Mr. Skarga did not travel back from St Petersburg to Moscow with Mr. Borisenko in April 2002. In any case, I consider Mr. Borisenko’s account incredible. If he, being the Chief Financial Officer, had learned that funding had been arranged without reference to him, he would have not responded simply by mentioning in general terms that SLB funding was expensive. He would have wanted to know the details of what was being arranged and why he had not been told about it earlier.

Mr. Borisenko also stated in his witness statement of 11 February 2009 that on 7 June 2002 Mr. Skarga told him to obtain the terms of the “Fili” transaction from Mr. Privalov, and that he telephoned Mr. Privalov, who advised him of them. Mr. Borisenko knew the terms of the transaction before 7 June 2002 because he had been sent the copies of the contractual documents. In cross-examination Mr. Borisenko sought to explain that in his witness statement he meant that he telephoned on 7 June 2002 in order to “refresh those terms in [his] memory”, but that is simply not what his witness statement said. His statement was untruthful. I accept Mr. Skarga’s evidence that during April 2002 he kept Mr. Borisenko informed about discussions with the Investors. They discussed them, for example, on a train journey from Zermatt to Geneva in April 2002 and after a meeting in London with JP Morgan on 10 April 2002, which was attended with Mr. Privalov.

On 7 June 2002 Mr. Borisenko sent to Mr. Privalov an e-mail in which he calculated effective interest rates for five possible SLB arrangements. (I explain below the concept of an effective, implied or nominal interest rate in relation to a SLB arrangement or financial lease.) It was headed “Fili plus 3” and so, when he sent it, Mr. Borisenko clearly knew that it was contemplated that Sovcomflot would enter into SLB arrangements for three more vessels as well as the “Fili”. The e-mail read:

“17m less 1%, 5 years, 8000 pd, 10,5m : 11,7% p/a.

17m less 1%, 5 years, 8000 pd, 10,0m : 11,18% p/a.

17m less 1%, 5 years, 7500 pd, 10,5m : 10,42% p/a. 17m less 1%, 5 years, 7500 pd, 10,0m : 9,86% p/a.

17m less 1%, 5 years, 7000 pd, 10,5m : 9,12% p/a.”

Each calculation, therefore, assumed a five years’ charterparty, but Mr. Borisenko added, “Maybe try: 17m less 1%, 3 years 8,000 pd 12.6m: 10.64%”, that is to say, he suggested the possibility of a three years’ charterparty.

Mr. Borisenko said that he sent this e-mail because Mr. Privalov asked him to calculate the effective interest rate on these five sets of assumptions, and that he added the calculation based upon a three years’ charterparty because he thought that SLB funding was expensive, and that, if it was required at all, cheaper funding could have been found after three years. I reject that explanation. Mr. Privalov would not have needed Mr. Borisenko to calculate effective interest rates for him, and in any case the arrangements for the “Fili” had been concluded. I consider it more probable that Mr. Borisenko knew by 7 June 2002 that Sovcomflot planned finance leases for three other vessels, and he was setting out proposals that might be put to the Investors.

The arrangements for the SLB of the “Fili” were considered at a meeting of the Executive Board on 10 June 2002. Mr. Borisenko instructed Mr. Dobrynin to prepare a briefing note for the meeting, and told him what to put in it. The note stated the main terms that had been agreed and supported the transaction, saying that, “This arrangement will provide free assets and keep the ship in the fleet, effectively with 100% financing”. The proposal was presented to the Board by Mr. Borisenko. The minutes, which I accept are accurate, record that Mr. Borisenko referred to negotiations about the Megaslot debt and observed that in order finally to discharge it Sovcomflot needed not less than $160 million in “freely available cash” assets. The minutes continued:

“The company does have such means available. However, to provide for normal current work and a stable financial position it is still necessary to have not less than 30-50 million US dollars in freely available assets. In connection with this it appears to be advisable to confirm the transaction with M/V “Fili”. Selling the vessels and subsequently chartering her on bareboat charter allows an extra roughly 7 million US dollars net to be obtained without drawing on additional loans from financing banks. Opportunities to obtain credit at the present time are limited owing to implementation of the fleet renewal programme.”

The Board approved the transaction “on the terms proposed” by Blanter. The decision was taken unanimously by Mr. Skarga, Mr. Borisenko, Mr. Ambrosov, Mr. Terekhin, Mr. Lipka and Mr. Sharikov.

According to Mr. Borisenko, what he told the Executive Board on 10 June 2002 was incomplete and misleading, and, because no other sources of funding had been explored, there was no real reason to think that the opportunities to obtain credit elsewhere were limited. The briefing note did not state the effective or implied rate of interest under the arrangement, and this is not mentioned in the minutes. It was suggested when Mr. Borisenko and other witnesses were cross-examined that this information was provided in a schedule to the briefing note, but I do not accept this.

Mr. Borisenko said that, although Sovcomflot needed more capital assuming that they repaid the Megaslot debt, he thought that the SLB arrangements were too expensive to be justified, and that he supported the proposal before the Executive Board only to avoid disagreeing with Mr. Skarga and because Mr. Skarga had told him that he would be paid for his support. I refer later to Mr. Borisenko’s evidence about his complaints to Mr. Skarga about the bonuses that he was receiving from Sovcomflot: it is sufficient here to say that I reject his account, and I reject his explanation for supporting the SLB arrangements. I conclude that he, like the rest of the Executive Board, thought that they were in Sovcomflot’s best interests.

The July SLB transactions concerned three vessels: Presnya Shipping Company Ltd. (“Presnya Shipping”), the 15th claimant in the Fiona action, sold the “Presnya” to Repmar; Poliyanka Maritime Company Ltd. (“Poliyanka Maritime”), the 16th claimant, sold the “Poliyanka” to Plutorex; and Sokolniki Shipping Company Ltd. (“Sokolniki Shipping”), the 17th claimant, sold the “Sokolniki” to Socoseas. The vessels were hired back on bareboat charters to the Sovcomflot companies that sold them. Mr. Wettern had incorporated Repmar, Plutorex and Socoseas, all Cypriot companies, on the instructions of Mr. Nikitin. Agreements similar to those in the “Fili” transaction were executed in St Petersburg on 18 July 2002.

As with the arrangements for the “Fili”, Mr. Privalov assisted in arranging finance with BCV for the Investors, and on 4 July 2002 BCV provided a term sheet for a facility of $30 million, which they planned to syndicate with Helaba Bank. Repmar, Plutorex and Socoseas were to fund the purchase price of $17 million per vessel (less 1% address commission) (i) by borrowing $30 million (or $10 million each) from BCV against the security of the vessels; and (ii) by taking subordinated loans of $7 million provided by Meino to each company, secured by a second charge on the vessels. Mr. Privalov arranged to have the ships released from securing other loans. In the event Milmont, instead of Meino, provided all the finance to Plutorex and 20% of the finance to Socoseas. Fiona guaranteed the obligations of Presnya Shipping,

There were no negotiations between Sovcomflot and the Investors about the terms of these transactions. According to Mr. Skarga and Mr. Nikitin, this was because it had been decided that, provided the Investors were satisfied with the agreement for the “Fili”, the arrangements for the other three vessels should be similar. Their evidence was unclear about whether the parties were already committed to the July SLB transactions: in cross-examination Mr. Skarga said that there was a “firm commitment, subject that [the Investors] will decide whether to continue or not”. The claimants challenged this evidence, and I conclude that the parties had not committed themselves to the further transactions. Mr. Borisenko’s e-mail to Mr. Privalov of 7 June 2002 shows that he at least thought that the further transactions might be on different terms. Further, in June 2002 Mr. Privalov and Mr. Gale sought quotations or indications about the terms available elsewhere for SLB arrangements, which might suggest that Sovcomflot were not committed to entering into the July SLB transactions with the Investors on the same terms as for the “Fili”.

On 10 July 2002 Mr. Privalov sent to Mr. Skarga “three offers received” from the Investors for the further three vessels. They were in similar form to that sent on 29 April 2002 in respect of the “Fili”. The purchasing companies wrote letters which formally proposed terms, “Following exploratory discussions with your representatives”. The e-mail under cover of which Mr. Privalov sent them to Mr. Skarga simply asked for authority to proceed, and nothing indicates that on this occasion Mr. Privalov and Mr. Skarga were concerned to create an impression of prior negotiations between the parties. I do not consider that the reference in the formal letters to “exploratory discussions” when introducing the terms was calculated to do so: the expression is, to my mind, unremarkable in a letter of this kind.

On 11 July 2002 Mr. Wettern sent to Mr. Lipka draft resolutions for the directors of Fiona to execute so as to authorise the July SLB transactions. Mr. Lipka had them signed by Mr. Skarga, Mr. Ambrosov and Mr. Terekhin, he signed them on his own behalf and as proxy for Mr. Borisenko, and he returned them to Mr. Wettern. Again, no meeting of the Fiona board was in fact convened.

As I have said, the agreements for the July SLB arrangements were concluded in St Petersburg on 18 July 2002. Mr. Privalov signed them on behalf of the selling and chartering companies and Mr. Wettern signed on behalf of the purchasing companies. Mr. Borisenko and Mr. Skarga were present when they were signed.

The Executive Board considered and approved the July SLB arrangements at a meeting on 30 July 2002. Mr. Borisenko arranged for Mr. Dobrynin to prepare a briefing note which was, so far as is relevant, similar to that for the proposal about the “Fili” which was before the meeting on 10 June 2002. Mr. Borisenko presented the matter to the Board. The minutes record that he said that negotiations about the Megaslot deal with the Ministry of Finance and VEB were nearly completed, and confirmed, “At the same time it was pointed out that for the final discharge of debt to the Company it is essential to have a considerable sum freely available in cash, which the company has. However, to provide for normal current work and a stable financial situation it is essential to have additional funds freely available and for this reason it is advisable to approve the transaction involving the sale of the Oil products tankers “Presnya”, “Poliyanka” and the “Sokolniki” and the vessels subsequently being chartered on bareboat charter. The transaction will allow 100% financing to be obtained while keeping the vessels on the fleet’s books”. Mr. Terekhin, Mr. Skarga and Mr. Lipka spoke in support of the proposal and it was approved unanimously.

I accept that the minutes are accurate. Mr. Lipka confirmed that he checked them before signing them. He also confirmed that all the members of the Executive Board considered that the transactions were in the best interests of Sovcomflot. Mr. Borisenko’s evidence was that, although what he is recorded in the minutes as telling the meeting was true, he avoided saying that finance could be arranged more cheaply or that Sovcomflot had no need for more working capital, because he did not want “to intervene to find a competitive arrangement to what was proposed by Mr. Skarga and his partners”. I reject that evidence and find that he genuinely supported the proposal as being in Sovcomflot’s best interests.

The November SLB arrangements concerned the “Arbat”, the “Izmaylovo”, the “Ostankino” and the “Nagatino”. They were concluded on 28 November 2002 when the agreements were executed by solicitors of WFW acting for the parties, as I infer in London. The structure and terms of the agreements was similar to the earlier ones, but the charters were for only three years. Each vessel was sold by her owner for $16 million, less an address commission of 1.25%: Ostankino Shipping Company Ltd. (“Ostankino Shipping”), the 18th claimant in the Fiona action, sold the “Ostankino” to Martex Navigation; Glefi Shipping V Company Ltd. (“Glefi V”), the 19th claimant, sold the “Arbat” to Class Properties; Glefi Shipping VII Company Ltd. (“Glefi VII”), the 20th claimant, sold the “Izmaylovo” to Akola Maritime; and Glefi Shipping VIII Company Ltd. (“Glefi VIII”), the 21st claimant, sold the “Nagatino” to Savory Trading. Martex, a Cypriot company, and Class Properties, Akola Maritime and Savory Trading, Liberian companies, had been incorporated by Mr. Wettern on Mr. Nikitin’s instructions. The sellers entered into bareboat charters of the vessels at a rate of hire of $7,250 per day for three years. The charterers agreed to re-purchase the vessels and the lessors agreed to re-sell them at the end of the charter periods for $11.9 million.

The purchase price was funded by Martex, Class Properties, Akola Maritime and Savory Trading (i) by borrowing $42 million (or $10.5 million each) from Credit Suisse against the security of the vessels; and (ii) by taking subordinated loans of $5.5 million each, in the case of Martex and Class Properties from Kosta, which was owned by Mr. Nikitin, and in the case of Akola Maritime and Savory Trading from Meino. Fiona guaranteed the obligations of Ostankino Shipping, Glefi V, Glefi VII and Glefi VIII under the charterparties, and the benefits of the guarantees were assigned to Credit Suisse.

Mr. Privalov went about arranging the November SLB transactions in September 2002. On 11 September 2002 he sought valuations of the four vessels from Mr. Gale. He referred to the valuation of the “Fili” at $17 million, and asked Mr. Gale, “could you do a bit better than that?” The “Arbat”, the “Izmaylovo” and the “Nagatino”, which were built in 1991, were valued on Clarkson’s system “shipvalue.net” at $16.07 million, and the “Ostankino”, built in 1992, was valued at $16.27 million. The estimated values had been increased by 5% over those which would have been given for standard vessels of their type because the four vessels were ice-strengthened. On 2 October 2002 Mr. Privalov pressed Mr. Gale for valuations

Mr. Privalov said that the purpose of obtaining these increased valuations, as with the adjusted valuation of the “Fili”, was to help raise funding for the Investors. Mr. Berry submitted that the Investors bore the risk that the security would prove to be inadequate because the bank’s security interest in the vessels had priority over theirs, and they argued that Mr. Privalov, far from assisting them to exploit Sovcomflot, was working against their interests to raise funds for Sovcomflot. I am not persuaded of this argument. The Investors might well have been willing to risk being under secured in order to earn the return.

It is not clear whether Mr. Gale was deliberately giving the vessels a higher value than could properly be placed upon them, and I do not need to decide whether he was being deliberately dishonest in this way. Even assuming that he was, his ploy would not support the claimants’ contentions that Mr. Privalov was colluding with Mr. Nikitin against Sovcomflot, but neither do I accept that it provides evidence that Mr. Privalov was misleading him.

Mr. Nikitin’s evidence was that, like the previous SLB transactions, the November SLB arrangements were proposed by Mr. Skarga, who again presented the proposal on the basis that it was not negotiable, and said that the Investors’ return, although lower than for the previous arrangements, reflected the “going rate”. Mr. Skarga, however, said that, while he might have made an initial approach to Mr. Nikitin, the terms were negotiated by Mr. Privalov. This account has support in the documentary evidence and I prefer it to that of Mr. Nikitin. As I shall explain, on 13 September 2002 Mr. Privalov provided Mr. Nikitin in a spreadsheet with a calculation of the return upon the November SLB arrangements. In October 2002 Credit Suisse, who had been introduced to Mr. Nikitin by Mr. Caze, made an initial proposal to finance the purchase of “two (max four) vessels”, which apparently reflects that the proposal still was under discussion. Mr. Nikitin and Mr. Privalov considered different possible arrangements, including charter terms of three years and of five years, address commissions of 1% and of 1.25% and an arrangement providing for capital repayment to the Investors of $200,000. Thus, Mr. Privalov became involved in considering the return which, in view of the finance available from Credit Suisse, the Investors might earn from different arrangements with Sovcomflot.

These transactions were complicated because the four vessels and other vessels were the subject of inter-linked security arrangements and Sovcomflot had to make new arrangements to secure their borrowings. On 16 October 2002 Mr. Privalov sent to Mr. Skarga and Mr. Borisenko a fax in which he calculated that $33.44 million would be generated from the November SLB arrangements after repaying other loans secured on the vessels. Mr. Borisenko denied that he saw this fax, but he accepted when cross-examined that he knew that Sovcomflot were going about releasing the securities over the vessels and that he probably asked Mr. Privalov about the proposed arrangements. At a meeting on 31 October 2002 the Executive Board approved refinancing arrangements, and Mr. Borisenko spoke upon this matter. Although he was reluctant to accept it in cross-examination, he must have explained to the meeting that the refinancing was part of a proposal to raise further SLB funds.

The November SLB arrangements were themselves considered at a meeting of the Executive Board on 15 November 2002, before they were concluded. As with the earlier SLB transactions, Mr. Borisenko had Mr. Dobrynin produce a briefing note for the meeting. It reported the terms of the proposed transactions, and that loans for $69.6 million would be discharged early, and recommended that the transactions be approved. At Mr. Borisenko’s request, Mr. Dobrynin also presented the proposal at the meeting on 15 November 2002. Mr. Borisenko said that he asked Mr. Dobrynin to do this because he “felt uncomfortable” about presenting the proposals which he knew were not “good deals as far as Sovcomflot were concerned”. I cannot accept this: he had himself presented the previous proposals for SLB arrangements, about which he claimed to have had similar reservations. The effective rate of return in respect of the “Fili” and the July SLB arrangements was 11.84%, and so that funding was more expensive than the finance raised by the November SLB transactions, for which the return was 9.65%. Moreover, he spoke in support of the proposal at the meeting. The minutes of the meeting on 15 November 2002 record that Mr. Skarga, Mr. Terekhin and Mr. Khlyunyev also spoke upon the proposal, and that the Board unanimously decided to support it. They read as follows:

“Yu. A. Dobrynin reported to the Governing Body that owing to implementation of the programme for renewal of the fleet, the opportunities for obtaining credit at the present time were limited, but to provide for normal current work and a stable financial position it was necessary to have additional freely available funds and in connection with this it seemed advisable to approve a transaction for the sale of the Oil products tankers “Izmaylovo”, “Arbat”, “Nagatino” and “Ostankino” with the vessels being chartered subsequently on bareboat charter. The said transaction would allow 100% financing to be obtained without drawing on additional bank loans while keeping the vessels on the fleet’s books … ”.

According to Mr. Borisenko and Mr. Dobrynin, the minutes do not accurately reflect what was said at the meeting of 15 November 2002 in that Mr. Dobrynin simply reported to the meeting what was said in the briefing note that he had prepared, and he did not state that the “opportunities for obtaining credit at the present time were limited”. Mr. Borisenko said in his witness statement of 11 February 2009 that after the meeting Mr. Porechniy asked how the proposal should be recorded and that he dictated to Mr. Porechniy what he should write. He presented an explanation to justify entering into the SLB transactions rather than raising any necessary funds through secured borrowing. In fact, however, Mr. Porechniy had not attended the meeting and Mr. Lipka took notes of what was said and signed the minutes as secretary to the Board. In cross-examination Mr. Borisenko said that, although he referred to a conversation with Mr. Porechniy in his witness statement, he was “pretty

On 18 November 2002 Mr. Privalov sent to Mr. Skarga and Mr. Borisenko letters from the purchasing companies formally offering terms for the November SLB arrangements. They were similar in form to the offers for the July SLB arrangements, and again, for similar reasons, I reject the claimants’ submission that their wording was designed to mislead about the discussions that led to the offers. Documents recording board resolutions of Fiona to authorise the November SLB arrangements dated 18 November 2002 were signed by Mr. Skarga, Mr. Borisenko, Mr. Lipka and Mr. Terekhin. The documents formally recording the SLB arrangements themselves were dated 28 November 2002 and the documents recording the funding arrangements were dated on 3 December 2002.

I have rejected Mr. Borisenko’s evidence that he was not involved in discussions that led to the “Fili” transaction. I also reject his evidence that he was little involved in discussions before later transactions, and learned of them only shortly before they were concluded. He knew about them well before the meetings of the Executive Board at which they were approved. His contrary evidence in his witness statement of 11 February 2009 was untrue. In it he said of the July SLB arrangements that, apart from his discussions with Mr. Privalov in June about funding rates, he was not involved in any negotiations, and that he believed that he learned about the terms of these transactions “shortly before”, meaning, as he said in cross-examination, a day or two before, the Executive Board Meeting on 30 July 2002 at which Mr. Skarga asked him to report on them. In fact he went to St Petersburg on 17 July 2002 to sign the relevant agreements, and accepted in cross-examination that he knew the terms of the transactions before he went. He had also appointed Mr. Lipka as his proxy to sign the Fiona board minute of 12 July 2002.

As for the November SLB arrangements, Mr. Borisenko said that he was not informed that they were planned and not involved in negotiating them However, on 27 September 2002 Mr. Privalov sent Mr. Borisenko by e-mail a spreadsheet setting out proposed terms, including a calculation of the Investors’ return. I shall refer to this later, but I reject as incredible his evidence that he thought that he was sent the spreadsheet in error and deleted it unread from his computer because he thought the information was not intended for him. The spreadsheet shows that he was aware that the November SLB arrangements were under discussion.

There is no credible evidence that any of the other members of the Executive Board expressed any disquiet or reservations about any of the SLB transactions or the cost of the funding that they provided. The Board approved all the transactions unanimously, and I cannot accept that they did so without understanding them or considering them properly. Admittedly the arrangements for the “Fili” and the July SLB arrangements were concluded before the Executive Board meetings that considered them, but that is no reason that the executives should not have voiced any concerns that they had. Mr. Terekhin and Mr. Ambrosov did not give evidence, but Mr. Terekhin, as it appeared from Mr. Lipka’s evidence, would not have supported proposals uncritically

I should mention that, when Unicom were converting accounts and schedules prepared under International Financial Reporting Standards (“IFRS”) to US Generally Accepted Accounting Principles (“US GAAP”), Mr. Orphanos noticed with some concern that under the first four transactions the funding was very expensive compared with the Group’s other borrowings in 2002, which was by way of bank loans secured on vessels in the fleet and Fiona’s guarantees, but he did not voice his concern to Mr. Skarga, Mr. Borisenko, Mr. Dobrynin or any other senior executive at Sovcomflot.

In about April 2002, at about the time that BCV offered to provide finance for the first SLB transaction, Mr. Privalov began to prepare for Mr. Nikitin spreadsheets in a form designed to show the cashflow and net return for the Investors. He said that, using information from Mr. Gale about the market rates for SLBs and with some assistance from Mr. Caze, he calculated the return that the Investors might expect.

On 13 September 2002 Mr. Privalov sent to Mr. Nikitin an e-mail that read, “As discussed, please find attached investors’ return figures for another four Arbat vessels. [Sovcomflot] cost of finance will be 9.87% (without taking into account address com of 1.25%)”. A spreadsheet headed “Arbat Cashflow XLS” was attached to the e-mail: the calculations were similar in format to other spreadsheets that Mr. Privalov had previously from time to time provided to Mr. Nikitin, and they contemplated a SLB over five years. First, there was a calculation of the excess of income from freight and hire over the expenses of operating the vessels and of servicing and repaying the finance. It was a curious calculation in that it brought into account the operating costs that would be incurred by the Sovcomflot companies and the finance costs that would be incurred by the Investors. Secondly, there was a calculation of the income to the Investors by way of hire under the bareboat charters and the return that they would earn net of the financing costs (or “loan’s service”). The income was described as “Investors return (incl 1.25% com and reduced bank’s fees plus other fees)”. It showed an average return over the five years of 14.61%, and it was calculated that in the first year the investment return would be $674,819 or 11.25%.

On 27 September 2002 Mr. Privalov sent to Mr. Borisenko the e-mail to which I have referred, with a copy of the same spreadsheet. The e-mail had no covering message. Mr. Privalov said that he sent it to Mr. Borisenko by mistake. Mr. Borisenko said that in September 2002 (as he put it, in “the very late days of September”) Mr. Privalov sent him a spreadsheet which he realised set out the terms of financing arranged by the Investors and which he deleted because he realised that he was been sent it by mistake. I cannot accept that explanation. Mr. Privalov was keeping Mr. Borisenko informed about his calculations of what the Investors were to earn, but I cannot tell why he was doing so.

Mr. Privalov provided to Mr. Nikitin further spreadsheets in October and November 2002. He was continuing to assist Mr. Nikitin to complete the transactions and was working closely with him. On 1 October 2002 he sent two spreadsheets with the headings “FiliCashflowactualxls” and “PPSCashflowactualxls”, which were said in the e-mail to be “revised actuals” in respect of the “Fili” and the second group of vessels (“PPS” connoting the “Presnya”, the “Poliyanka” and the “Sokolniki”). Mr. Privalov said that Mr. Nikitin had asked for them, and they showed differences from previous spreadsheets prepared by him for Mr. Nikitin to calculate the anticipated returns from those arrangements. They were based upon commission of 1%, not 1.25%, and the returns for the first years were $828,016 for the “Fili” spreadsheet and $856,828 for the other three vessels. On 2 October 2002 Mr. Privalov sent a further e-mail to Mr. Nikitin, which was headed “sale and c[harter] back” and read, “Here is revised Arbat type figures”. There was attached to it a spreadsheet showing the return on investment for the four vessels that were the subject of the November SLB arrangements on the basis of a lease of three years. On 11 November 2002 Mr. Privalov sent a further spreadsheet under cover of an e-mail headed “revised spreadsheet” and reading “as discussed”. On 14 November 2002 he sent a further spreadsheets under cover of another e-mail headed “revised spreadsheet” and reading, “As discussed yesterday, here is the revised spreadsheet with $200,000 annual repayments of investors’ capital”. Mr. Privalov said, and I accept, that the spreadsheets of 11 November and 14 November 2002 were also produced at the request of Mr. Nikitin.

According to Mr. Privalov, at some earlier date he had discussed the SLB arrangements at a meeting with Mr. Nikitin and Mr. Skarga at Mr. Nikitin’s dacha outside St Petersburg. He presented to them his calculations about the rate of return that might be earned, and about cashflows. Mr. Skarga instructed him to proceed with the “Fili” SLB transaction on terms that included 1% address commission for the

Mr. Privalov’s evidence about these discussions was denied by Mr. Nikitin and Mr.

I reject both Mr. Privalov’s written account and his oral account as untruthful. I do not accept that Mr. Privalov ever went to Mr. Nikitin’s dacha or that Mr. Skarga was present at any discussion about Mr. Privalov receiving payment from Mr. Nikitin in relation to the SLB transactions.

The parties called expert evidence about ship finance. Mr. Jonathan Hill gave evidence for the claimants and Mr. Raymond Bailey was called by Mr. Nikitin and the Standard Maritime defendants. Mr. Hill is an accountant and a director of Tufton Oceanic (Middle East) Ltd., who are based in Dubai, and he has been employed by the Tufton Oceanic group since 1989. The group provide financial advice to the shipping industry and arrange finance of different kinds, including leasing. Mr. Bailey is the managing director of Theisen Securities Ltd., a private company owned by him and his family, which for some 20 years has specialised in giving financial advice and arranging debt for the shipping industry. Both were well qualified to give expert evidence about how Sovcomflot might have arranged finance through SLBs or otherwise, and both were honestly seeking to assist the court. However, the issues about this part of the case so developed that their evidence was of relatively marginal importance.

The claimants’ case about the defendants’ liability in respect of the SLB arrangements scheme had been pleaded on the basis that SLB funding was by way of mezzanine funding, and the SLB arrangements made by Sovcomflot cost them much more than the cost of mezzanine debt available on the market. That case was not pursued. Their case was further defined in exchanges before the parties called their expert witnesses about ship finance. The exchanges were prompted because Mr. Nikitin and the Standard Maritime defendants had served a supplementary report of Mr. Bailey shortly before these expert witnesses were called, and Mr. Popplewell explained that he was not in a position to cross-examine about it. It became apparent in the exchanges that, in view of the case that the claimants were pursuing, they did not need to cross-examine Mr. Bailey about the supplementary report upon any issue about liability, and the expert witnesses gave evidence about shipping finance accordingly. In light of the exchanges, I said that, whatever conclusion I reached on liability in respect of the SLB arrangements scheme, I should not determine any question about the quantum of damages in this judgment and without giving the claimants an opportunity to respond to Mr. Bailey’s report.

The claimants’ case, as Mr. Popplewell explained it, is that Mr. Skarga, to Mr. Nikitin’s knowledge, acted dishonestly in arranging for Sovcomflot to enter into the SLB transactions. In support of this case the claimants said that Sovcomflot entered into the transactions when they had no particular need to raise further funding or at least they had no sufficient need to explain why they paid such expensive rates for it. The claimants also said that, even if Sovcomflot did need more funding, there was no

Mr. Berry rightly observed that this case is different from and narrower than the pleaded allegation. It represents a shift from an allegation that the SLB transactions were so “uncommercial” that they are explicable only on the basis that Mr. Skarga stood personally to gain from bribes or otherwise. Essentially, as I see it, the allegations about the SLB arrangements scheme, and, more particularly, the question whether the evidence supports the claimants’ allegations that Mr. Skarga was acting dishonestly in collusion with Mr. Nikitin, raise these issues: (i) Did Mr. Skarga genuinely believe that Sovcomflot needed the funding? (ii) Did Mr. Skarga genuinely believe that it was in Sovcomflot’s interests to raise the funding through SLB arrangements? (iii) If Mr. Skarga had been honest, would Sovcomflot have arranged cheaper SLB funding than that provided by the Investors? And (iv) Does the way in which the SLB arrangements were made indicate that Mr. Skarga was dishonestly acting in the interests of the Investors or against Sovcomflot’s interests?

According to Mr. Skarga, when he became Director-General, Sovcomflot’s financial position was very unhealthy, and the SLB arrangements were concluded because their financial problems continued and there was a pressing need to improve the group’s liquidity. The claimants disputed the extent of Sovcomflot’s financial difficulties and submitted that Mr. Skarga exaggerated them, particularly criticising him for describing Sovcomflot as a company “close to collapse”. There is some force in this criticism: Sovcomflot did not face an immediate short-term cashflow crisis during the early months of 2002. The annual report of the Sovcomflot group for the year to 31 December 2001, which Mr. Skarga signed in about March 2002, reported consolidated group profits of $111.6 million, described the year as quite successful, and stated that Sovcomflot had “the necessary financial … resources for successful performance of tasks before the … Company”. At a meeting of the General Board on 25 December 2001, the General Board resolved to pay a bonus to employees in recognition of “the positive results of activities and Sovcomflot’s steady financial position”. The Action Plan presented to the General Board on 19 April 2002 did not indicate a crisis or immediate need for funding. Sovcomflot’s forecasts indicated that they would have sufficient funding if they abandoned the plan to settle the Megaslot debt.

However, Sovcomflot undoubtedly faced major demands upon their finances in 2002, given their plan to repay the outstanding part of the Megaslot debt and in view of the fleet renewal programme. Part of the Megaslot debt, as I have explained, had been discharged in 2001, and Sovcomflot planned to discharge the remainder in 2002. At the end of 2001 the principal debt exceeded $330 million. Sovcomflot’s accounts for the year ending 31 December 2001 recorded that, “The Group’s Directors assume that “Megaslot” will repay its debt to the Ministry of Finance … during 2002”. At a meeting on 19 April 2002 the General Board approved an “action plan” relating to “Implementation of tasks in the key spheres of activity…”, and it included, as I interpret it, discharging the debt. In August 2002 Sovcomflot went about settling the Megaslot debt, which was then more than $360 million, and by 27 August 2002 they had paid at least $150 million to VEB. At a meeting of the Executive Board on 9 September 2002 the settlement was approved. Sovcomflot were not legally obliged to discharge the debt in 2002 or for some years, but they had cogent commercial reasons to rid themselves of the debt at a discount of 50%, and, as I conclude, the decision to do so reflected the settled policy approved by the General Board and was taken by the Executive Board as a whole. Although it had been expected in June 2002 that the debt could be discharged for $160 million, in fact $180 million was needed.

In 2001 Sovcomflot had assumed major obligations under the fleet renewal programme. Mr. Bailey calculated that the total contract value of ships ordered by the end of 2001 was $681.5 million (excluding “SCF Altai”, one of the Athenian vessels, which had been delivered in December 2001, and the “Tucknov Bridge”, a tanker ordered from the Admiralty shipyard in Russia, which appears despite a contract date of 1 November 2001 to have been formally ordered in 2002). Sovcomflot could expect to fund up to 70% of the purchase prices through secured borrowings, and to have to find the balance of 30% from cash resources or from loans secured on other vessels.

The position later in 2002 about financing the programme was set out in a briefing note prepared for a meeting of the General Board on 3 September 2002. It reported that 20 vessels had been acquired for a total cost of $856.8 million. Sovcomflot had arranged bank loans of some $552.2 million, and some $225.1 million had been paid from Sovcomflot’s funds. As for the balance of $77.5 million, it was anticipated that there would be further bank lending of $38.5 million and that Sovcomflot would need some $39 million from their own resources.

On any view, in the second half of 2001 and in 2002 Sovcomflot needed to raise substantial additional finance. Mr. Popplewell pointed out that Sovcomflot’s annual report for 2001 shows that at 31 December 2001 the group had $164,414,000 as money by way of “working capital”. However, in the event $180 million was needed to settle the Megaslot debt, and, given the policy to do so, at the end of 2001 they were not in a position to place further orders for new vessels. This was the conclusion of Mr. Bailey, and I accept his evidence. This placed a restraint upon plans for expansion: for example, Sovcomflot were to hold discussions with Sakhalin Energy about ordering a gas tanker, but this would require more funding.

Sovcomflot also had reduced income from the fleet. There is room for debate about how much less they were earning, but the general picture, which is sufficient for present purposes, is illustrated by Mr. Novikov’s forecast on 6 December 2001 that the operating profit in 2002 would be little more than half of the corresponding figure in 2001. In the first quarter of 2002 the operating profit was much less than that for the same quarter in 2001, and this pattern continued during the year. The minutes of the meeting of the General Board on 3 September 2002 record that receipts were only

The Executive Board had recognised in 2001 that they needed to keep a close watch on the financial position. At a meeting on 9 July 2001, Mr. Dobrynin had presented a forecast of Sovcomflot’s capital expenditure to the end of 2002, with details of the sources and application of funds. As at 1 July 2001 Sovcomflot had $88 million by way of unallocated funds, after taking into account that $105 million had been allocated to repay part of the Megaslot debt in 2001. Some $354 million was required before the end of 2002 for the planned programme of newbuilding purchases, and a further $7 million for new offices for Unicom in Cyprus. Mr. Dobrynin reported that Sovcomflot had sufficient funds on the basis that foreign commercial banks would advance about 70% of the price of newbuildings and that seven OBO ships would be sold. The Executive Board decided to adopt a reporting procedure to provide monthly accounts for circulation to the Board. (In fact according to Mr. Dobrynin’s evidence, which I accept, the reports were not circulated to the whole Board, but were sent only to Mr. Borisenko.) Further, Mr. Shatov, then the Head of the Fleet Operations Department, was instructed to present the Executive Board with cash flow forecasts for the group to the period until 2003. I accept the submission on behalf of Mr. Skarga that this reflects that the Executive Board appreciated that the group’s commitments were placing pressure upon their finances.

I conclude that Mr. Skarga believed in 2002 that Sovcomflot needed further funds and that it was in Sovcomflot’s best interests to raise them even if they were relatively expensive. I also conclude, if it be relevant, that Mr. Skarga had reasonable grounds to think that the funds were required because of Sovcomflot’s fleet renewal programme and in order to fulfil their established policy to settle the Megaslot debt. This view was shared by the other members of the Executive Board, and this is why they supported the SLB transactions. This is confirmed by the letter of Moore Stephens dated 28 July 2005 and their report of what they were told when conducting their audit in 2002 by Mr. Borisenko and, as Mr. Borisenko said in evidence and I accept, by other members of the Executive Board.

I come to the evidence about whether Sovcomflot could have raised the necessary finance more cheaply than by SLB arrangements. There was a difference between the expert witnesses as to how much funding was in fact raised through the SLBs. The claimants’ pleaded case is that they raised additional capital of $52,200,333. That case was not supported by either Mr. Orphanos or Mr. Hill by the time that they gave evidence. They said that the additional capital was $53.6 million, comprising $30.4 million raised from the “Fili” transaction and the July SLB arrangements and $23.2 million raised from the November SLB arrangements. Mr. Bailey’s evidence was that the total additional finance was $62.2 million, comprising $30.5 million from the “Fili” transaction and the July SLB arrangements and $31.7 million from the November SLB arrangements. Thus, the difference is almost entirely attributable to the treatment of the funds raised from the November SLB arrangements, and that in turn depends upon the treatment of the repayment of loans that were secured by charges over the four vessels.

The “Arbat” and the “Izmaylovo” were subject to first charges to NIB Capital Bank NV (“NIB”) (to secure an advance referred to as loan L795) and second charges to ING Bank (“ING”) (by way of security for loan L860). The “Nagatino” was subject to a first charge to Nordea, formerly known as CBK, (by way of security for loan L820, together with charges over the “Kapitan Tasman” and the “Sokol 8”) and a second charge to ING (by way of further security for loan L860). The “Ostankino” was subject to a first charge to Nordea (by way of security, together with charges over the “Tromso Trust” and the “Nikolay Malakhov”, for loan L855).

Sovcomflot made a new financing arrangement with Nordea (known as loan L597) in order to release the vessels from the charges over them. This involved both refinancing the loans with ING (loan L860, secured by the second charges over the “Arbat”, the “Izmaylovo” and the “Nagatino”) and with Nordea (loan L855, secured by the first charge over the “Ostankino”), and also early repayment of the loan from Nordea which was secured on the “Nagatino”, the “Kapitan Tasman” and the “Sokol 8” (loan L820). This is apparent from the request sent on 16 October 2002 by Mr. Privalov to Mr. Skarga and Mr. Borisenko for authorisation to sign the new terms proposed by Nordea; this document also shows that the early repayment of this loan was integral to the November SLB arrangements. Mr. Privalov stated that the “Total cash to be generated” from the November SLB arrangements was $33.44 million after the various prepayments of loans were brought into account. Mr. Dobrynin confirmed in the evidence that Mr. Privalov’s request reflects how the financing position was regarded in Sovcomflot at the time, and that he so presented it to the meeting of the Executive Board on 31 October 2002 when he put forward the proposal that they approve the re-financing of the loans, which was necessary to allow the November SLB arrangements to go ahead. Mr. Borisenko was evasive when cross-examined about this meeting, but, if he intended to dispute this, I reject his evidence.

Nordea’s proposal was accepted and the advance made on 3 December 2002, when funds were paid under the November SLB arrangements. The security provided to Nordea for the new advance (loan L597) was to be over five vessels, the “Kapitan Vaga”, the “Mekhanik Kurako”, the “Tromso Fidelity”, the “Tromso Trust” and the “Nikolay Malakhov”. The “Kapitan Vaga”, the “Mekhanik Kurako” and the “Tromso Fidelity” were then financed under a separate loan from ING (loan L529) and ING required this to be repaid as a condition of releasing the vessels. The “Tromso Trust” and the “Nikolay Malakhov” were available to secure the new advance (loan L597) because Sovcomflot repaid the loan that they had secured (loan L855).

In calculating that Sovcomflot secured additional finance of $23.2 million Mr. Hill brought into account against the receipt for the four vessels of $62,330,000 (the sale prices less address commissions and bareboat charter hire prepayments) the payment of amounts which he regarded as secured upon the four vessels, namely: (i) $13.2 million to redeem the loan by NIB; (ii) $6.2 million to repay the part of the loan from Nordea that was secured on the “Nagatino”; (iii) $10.6 million to repay the part of the loan from Nordea that was secured on the “Ostankino”; and (iv) $4.8 million to repay part of the loan from ING that was secured by the second charges over the “Arbat”, the “Izmaylovo” and the “Nagatino”. He also brought into account the payment of $4.3 million to secure the release by Nordea of the charges over the “Kapitan Tasman” and the “Sokol 8”, so that those two vessels could provide replacement security for ING and so allow the release of the second charges over the “Arbat”, the “Izmaylovo” and the “Nagatino”. He did not otherwise bring into account the refinancing arrangements with Nordea because, while he recognised that they were made at the same time as the November SLB arrangements, he considered that the proper way to identify the capital raised by the transactions is to identify the amounts required to release the loans of the four vessels and otherwise to regard the refinancing operations as separate arrangements.

I am unable to accept this approach. The purpose is to identify what effect the SLB arrangements in fact had on Sovcomflot’s finances so as to assess whether they could have raised similar sums by other means and if so what they would have cost. There is no evidence, and no reason to suppose, that Nordea would have entered into the new arrangements with Sovcomflot otherwise than in the context of the November SLB transactions. I therefore agree with Mr. Bailey that, in order to assess how the transactions affected Sovcomflot’s finances and in particular the capital available to them, the right approach is to bring fully into account the implications of the new arrangements with Nordea and ING. More specifically, Mr. Bailey was criticised by the claimants because he brought into account the prepayment of the ING loan (loan L529), and it is said that he did so “unnecessarily”. To my mind, this is necessary in order to take full account of the impact of the arrangements.

The claimants contended that Mr. Hill’s approach is to be preferred to that of Mr. Bailey because that is how Mr. Orphanos calculated the capital raised and Moore Stephens used a similar method in allocating loan security in the group’s consolidated accounts. Further, it is pointed out that the Sovcomflot’s Executive Board gave approval on 31 October 2002 for the new Nordea loan on the basis that it would itself generate funds of some $8 million, and did not regard it as part and parcel of the November SLB arrangements. To my mind, these points do not meet Mr. Bailey’s argument.

In any case, the important question is not how an expert in shipping finance or an accountant would measure how much was raised by the transactions. At the time, as I conclude, the executives of Sovcomflot, including Mr. Skarga, were proceeding on the basis that, having raised some $30 million in the “Fili” transaction and the July SLB arrangements, they were raising some $33 million in the November SLB arrangements. In considering whether there is evidence of corruption on Mr. Skarga’s part, the question is whether he knew or believed that Sovcomflot could raise a comparable amount more cheaply by other means.

I should refer to three alternative sources of funds that have been suggested might have been available to Sovcomflot. First, ship sales: Mr. Skarga’s evidence was that there was good reason that Sovcomflot should avoid selling vessels in 2002. It would have been politically unpopular if sales had led to Russian crews being laid off, and it was not a good time to sell ships. The tanker market was depressed in late 2001 and for most of 2002 with regard to sale prices for second hand vessels, as well as chartering rates. (I have already referred to the views expressed by Dr Stopford at Sovcomflot’s banking conference in February 2002.) Mr. Skarga, in my view, had good reason to consider that Sovcomflot should not look to ship sales to raise funds. Mr. Borisenko too was reluctant to do so because, as he put it, the volume of the fleet was of paramount importance. In fact, Sovcomflot did not rule out vessel sales altogether. In early 2002, on Mr. Privalov’s instructions, Clarkson made enquiries

Secondly, unsecured finance: in September 2002, when Sovcomflot learned that they would have to pay not $160 million but $180 million in order to settle the Megaslot debt, their immediate need for cash was alleviated by an unsecured facility provided by RCB Cyprus to Megaslot for $30 million for 12 months at an interest rate of 8.5%. It was obtained with the assistance of Mr. Andrey Kostin, who was the Chairman of VEB, the owner of RCB Cyprus, and a member of the General Board of Sovcomflot. The loan was approved by the Executive Board on 9 September 2002 and the funds were paid on 20 September 2002. Its purpose was to fund the settlement of the Megaslot debt and it could be used only for that purpose. The facility was obtained for a specific purpose in special circumstances. I do not consider that it supports a case that Sovcomflot could have obtained further unsecured facilities in 2002, still less that they could have done so at an interest rate of 8.5%, or that Mr. Skarga should have had Sovcomflot make further efforts to do so.

Thirdly, could and should Sovcomflot have raised funds by refinancing the fleet and increasing borrowings against the security of the fleet? There is a difference between Mr. Hill and Mr. Bailey about whether Sovcomflot could have obtained funding of this kind. I shall deal with the question how much banks and other financial institutions might have lent as briefly as I can because I do not consider that in the end the answer to it helps to determine whether Mr. Skarga was acting honestly in relation to the SLB transactions in 2002. The answer largely depends upon whether there was enough equity in Sovcomflot’s fleet to support increased borrowing in a comparable amount to that raised through the SLB transactions, and so depends upon (i) the value of the fleet, and (ii) what proportion of the value bankers or other lenders would have regarded as acceptable security. Mr. Hill concluded that Sovcomflot could have borrowed up to 70% of the fleet’s value and that on this basis Sovcomflot could have raised additional finance of $92.1 million. Mr. Bailey considered that Sovcomflot could not have raised more than 65% of the value and that Mr. Hill had placed an excessive value on the fleet at the relevant time. He concluded that the maximum Sovcomflot could have raised was $41.1 million (or some $20 million less than Sovcomflot raised through the SLB transactions).

I prefer the opinion of Mr. Bailey, whose careful and detailed report about this I thought impressive. After a detailed assessment of what funds might have been borrowed, his opinion was encapsulated as follows:

“I do not consider it likely that Sovcomflot’s management would have undertaken the type of detailed analysis I have made in order to assess the cost of the financing alternatives open to them in 2002. However, they were aware of the different cost of debt, lease and equity capital and must have been aware of the limitations they had on raising additional secured debt funds due to the falling value of their vessels in 2001 and 2002 as well as the difficulty of raising new equity to sit side-by-side with that provided by the Russian State. In 2002 they had many new investment projects in which to invest, such as the redemption at a 50% discount of the MinFin loan, payments for their committed newbuilding contracts and new investments to be made in the Sakhalin crude oil and LNG transportation projects. They were also aware in 2002 of the major task ahead to raise new loans from international shipping banks to fund Sovcomflot’s large, committed newbuilding program. In my opinion, a clever and resourceful ship owner, such as Sovcomflot, could have concluded that, on balance, the higher cost of SLB financing compared to bank debt was acceptable because of the limited amount of alternative bank debt available, the impracticality of accessing such additional bank debt at that time and the benefit of retaining the additional debt capacity that was available for future use, considering the good return on capital that could reasonably be expected to be obtained from the funds raised from the SLBs.”

My main reasons for accepting Mr. Bailey’s view about this are these. First, I accept his evidence that lenders would be unlikely to advance more than 65% of value of the fleet, given the age and type of Sovcomflot’s vessels. Mr. Bailey seemed to me to have wider and more relevant experience about this question than Mr. Hill, and I consider it inherently probable that financiers would take as acceptable security a smaller proportion of the value of the old vessels of the Sovcomflot fleet than of newbuildings. Further, Mr. Hill attributed a value to the vessels in order to assess what security they would have provided by taking an average of the values attributed to them by Clarkson as at 31 December 2001 and as at 31 December 2002. This was done in order to assess their value at 30 June 2002, and was directed to assessing what funding could then have been raised. This is likely to have overestimated the security then available. In particular, the defendants also cogently criticised the use of values at 31 December 2002 because values increased only in December 2002 after falling for most of the year. The use of the year end valuations exaggerates the value of the fleet at earlier times in the year.

Moreover, Mr. Bailey explained that lenders generally rely upon lower values of vessels than those provided by owners or would have been provided by Clarkson because they assess values net of expenses that would be incurred upon sale to realise the security. Often banks advance money on the basis of an average of a valuation provided by the borrower and their own more conservative valuation. Mr. Hill agreed that historically banks had been sceptical of brokers’ valuations and discounted them as Mr. Bailey described, but he considered that by the early 2000s the position had changed, and he explained the Clarkson Shipping Intelligence Network had been introduced in order to avoid inconsistency between different valuations provided to different interests or for different purposes. Mr. Hill therefore did not consider it necessary or appropriate to adjust Clarkson’s valuations on this account. Mr. Bailey did not claim to have direct experience about whether the Clarksons’ system would produce different values for owners and banks, but I accept his evidence that in practice owners’ valuations tend to be higher than those of banks, and I prefer his evidence about this to that of Mr. Hill. In assessing what funds Sovcomflot could have raised by secured borrowing, Mr. Bailey reduced Clarkson’s valuations of the vessels by 5%. He recognised, as do I, that the amount of the deduction is somewhat arbitrary, but I accept Mr. Bailey’s evidence that some deduction of this order is realistic.

Undoubtedly SLB finance was more expensive than secured borrowing would have been if it could have been obtained. The cost of finance leases, such as SLB financing, is measured by reference to their implicit or effective interest rates. These are assessed by calculating the difference between the fixed lease payments (or lease rentals) and the total amount advanced by the lessor to the lessee (the lease principal amount), and bringing into account any finance charges other than interest (such as payments of commission and fees). The difference is taken to represent interest on the funding provided by the finance lease. Thus, under the SLB arrangements the lease principal amount was the purchase price of the vessel and the lease rentals were the daily hire charges, and so the sum of the lease rentals is the fixed daily bareboat charter rate multiplied by the number of days from the start to the end of the charter. The address commissions were brought into account as finance charges.

Mr. Hill calculated that the effective interest rate for the “Fili” transaction and the July arrangements was 11.84%, and that for the November arrangements it was 9.65%. Mr. Bailey calculated that the rates were lower: 11.52% for the “Fili” and the July arrangements and 9.10% for the November arrangements. The difference between their assessments is attributable to their different treatment of the address commissions. I do not need to resolve this difference. On either view, the SLB finance was markedly more expensive than what Sovcomflot would have paid for borrowing against the security of their ships. According to Mr. Orphanos’ evidence, which I accept, between August 2001 and November 2002 Sovcomflot paid between 1.1% and 1.25% over three months LIBOR upon such borrowings.

I conclude that in 2002 Sovcomflot did not explore whether they could and should increase their secured borrowings rather than raise funds through the SLB arrangements. Mr. Skarga did not recall them doing so, and, although he suggested at one point in his cross-examination that Mr. Borisenko might have investigated the position, there is no evidence that he did so. Mr. Skarga also said in crossexamination that he thought that further borrowings would have caused Sovcomflot to be in breach of a limit on borrowing ratios, but this does not explain why the possibility was not examined. The simple fact is that none of the Executive Board or the responsible executives, such as Mr. Dobrynin, suggested at the time that Sovcomflot should increase the secured borrowing rather than enter into the SLB transactions.

I conclude that the executives collectively supported the SLB transactions. They were properly informed about the cost of the SLB finance and knew that it was more expensive than secured borrowings, and they had the experience to judge what was in Sovcomflot’s best interests. The obvious inference, as it seems to me, is that they recognised that Sovcomflot could not raise as much by secured borrowing as by entering into the SLB arrangements, and that it was thought better not to exhaust Sovcomflot’s limited lines of available credit. There is, in my judgment, no proper basis for concluding that Mr. Skarga was alone responsible for Sovcomflot’s decisions to raise finance through SLBs, and I conclude that the Executive Board collectively decided to do so. Mr. Skarga shared the views of other executives against whom no corruption is alleged. His support for SLB funding other than secured borrowing is not evidence that he was corrupt or dishonest.

In their opening submissions, the claimants did not really allege that the cost of the SLB funding for the “Fili” transaction and the July arrangements was more expensive than other SLB funding that was available to them. They said that “From the limited information available, it appears that the first four transactions may have been at rates slightly higher than could have been achieved elsewhere”. They said in respect of the November SLB arrangements that “significantly more favourable terms were available elsewhere …”. This position reflects the opinion expressed by Mr. Hill in his report dated 14 May 2009. It does not reflect the claimants’ pleaded case in so far as it is directed against Mr. Skarga in that it is only pleaded that he was in breach of duty with regard to the November SLB arrangements because the terms were uncompetitive and uncommercial in that the claimants could have borrowed additional capital less expensively by refinancing all or part of their fleet: paras 156.4 and 159 of the particulars of claim.

By January 2002 Clarkson were making market enquiries on behalf of Sovcomflot about the rates at which SLB funding was available. According to Mr. Privalov, Mr. Skarga had already spoken to him about Sovcomflot selling vessels to Mr. Nikitin and leasing them back, and the purpose of Mr. Gale investigating the market was to be able to justify what Mr. Nikitin charged. I do not regard this evidence as reliable: his answers about this in cross-examination were unconvincing. The claimants’ pleaded case (at para 106A of the particulars of claim) is that “In or about March 2002” Mr. Privalov was told about Mr. Nikitin’s wish to invest in Sovcomflot’s shipping business, and that a SLB arrangement for the “Fili” was proposed. There is no credible evidence that, when the Sovcomflot executives first discussed SLB funding, Mr. Skarga planned that Mr. Nikitin or the Investors should provide it.

Clarkson reported about the cost of SLB funding in a series of e-mails sent by Mr. Gale to Mr. Privalov in January and February 2002. On 29 January 2002 Mr. Gale wrote of a market for (i) a sale of Arbat vessels for $16 million, less 2% commission, on the basis that Sovcomflot would take five years’ bareboat charters of the vessels at $8,250 per day and (ii) a sale of the vessels for $16 million, less 3% commission, on the basis that Sovcomflot would take five years’ charters of the vessels at $13,250 per day. On 30 January 2002 Mr. Gale wrote that Drytank, a ship-owning company, had indicated that they would pay $16 million for an Arbat vessel and lease her back to Sovcomflot for 5 years under a bareboat charter for $8,250 per day:

“Arbat-Drytank says willing to compete with

Norwegian/German indication 16 mil and [bareboat charter at $]8250, funny thing is, that there seems to be a consensus from potential buyers around this level – would be inclined to say 17.5 million at 8000 for 5 yrs which gives 10pct return basis future value of 10 million (current estimated value for 86 built) – the downside risk on residual would of course be for buyers account”.

On 1 February 2002 Mr. Broke-Smith, who had been or was about to be appointed as the head of the second-hand desk of the Sale and Purchase Division of Clarkson, reported to Mr. Gale an indication that the Bergshav AS group were interested in a SLB arrangement for the Arbat vessels on the basis of purchasing them for $17.5 million and Sovcomflot taking bareboat charters either for 5 years at $8,975 per day or for 7 years at $8,350 per day. On 12 February 2002 Mr. Gale wrote to Mr.

On 28 February 2002 Mr. Gale sent Mr. Privalov a summary of the “main competitive sale and charter back proposals for “Arbat” type for 5 years with no buyback options or profit sharing but buyers take all residual risk”. Having set out the responses that Clarkson received, he said, “It would appear to us that still a small margin for negotiation for five years”, and expressed the view that a “realistically achievable aim” would be a sale for $17 million with a bareboat charter for five years at $8,000 or $8,100 per day, and that for a seven years’ bareboat charter he would expect the rate of hire to be about $500 lower.

It is not possible or necessary to compare exactly the effective rates of interest under these indicated terms with those earned by the Investors. Clarksons had obtained initial indications of rates, which might have been improved through negotiations. They were on the basis that the residual risk would rest with the purchaser or the financier. Mr. Hill’s evidence, which I accept on this point, was that this would increase the effective rate of interest by some 1.5%. The rates reported by Mr. Gale would indicate that the effective rate of interest paid to the Investors under the “Fili” transaction and the July SLB arrangements was towards the top end of the market range, but not higher than it and certainly not significantly so.

Two other pieces of evidence support this view. First, Mr. Bailey gave evidence of his own experience of arranging in May or June 2002 a SLB of a tanker for another Russian owner. The effective interest rate was above 12%. Further, in June 2002 Mr. Privalov made further enquiries about the market for SLB arrangements for Arbat type vessels. On 11 June 2002 he asked DVB Bank for an indication of the rate on the basis of a sale price of $17 million and a bareboat charter of five years, and on 17 June 2002 received a response, on the basis of “some rough calculations” and subject to directors’ approval, that for a sale at $16.5 million (not $17 million) and on the basis of a “hell and high water bareboat charter”, the rate could be $8,650 per day. This was subject to DVB Bank having a put option to sell the vessel to the charterers at the end of the charter for $9 million and the charterers having a call option to buy her for $11 million. The effective interest rate for this arrangement was calculated by Mr. Hill to be 12.96% and by Mr. Bailey to be 12.63%.

Mr. Privalov wrote the words “alternative quote” on a printed copy of this e-mail exchange. On his account he obtained this indication from DVB Bank because Mr. Skarga had asked him to do so in order to “justify” the terms of the “Fili” transaction and he chose to approach DVB Bank because he “was confident that they would not provide a very competitive quote”. I reject this evidence. Mr. Hill accepted that DVB (or more precisely their Norwegian-based joint venture that provided SLB financing) was a “credible” provider of SLB finance, and that there was no convincing reason to

On 10 September 2002 Mr. John Ring of McQuilling Brokerage Partners Inc. (“McQuilling”) approached Mr. Skarga by e-mail indicating Boeing Capital Corporation (“Boeing”) would be interested in providing SLB financing to Sovcomflot and would be competitive in their pricing. Earlier in the year he had heard that Sovcomflot might be interested in such finance and developed contacts with Mr. Terekhin, whom he already knew, Mr. Sharikov and Mr. Skarga, and in the summer of 2002 he had met Mr. Sharikov and Mr. Skarga in New York. Mr. Skarga referred the approach in September 2002 to Mr. Terekhin and asked him to check the rates that were being offered. Mr. Ring and a Mr. John Schmidt of McQuilling had a meeting at Sovcomflot’s offices on 24 September 2002 with Mr. Terekhin, Mr. Sharikov and Mr. Borisenko. (In his first witness statement dated 11 February 2009 Mr. Ring said that Mr. Skarga too was at the meeting, but his notes of the meeting do not mention Mr. Skarga being there and in a witness statement on 15 June 2009 he acknowledged that his initial recollection about that was likely to be wrong. Mr. Borisenko in his first statement dated 11 February 2009 made the same error.) Mr. Ring indicated at the meeting that he had three clients interested in providing SLB finance, Boeing Capital, GECC and Transamerica, but he was not in a position to put forward a firm offer. He proposed rates at 200 to 300 basis points above US Treasuries range, which was then the equivalent of interest rates of approximately 5.5% to 6.5%. Mr. Ring told me that he would not himself have been able to calculate the effective interest rate under a SLB transaction.

The terms that Mr. Ring indicated were available would have provided finance at a lower effective interest rate than those that had been agreed for the “Fili” transaction and the July SLB arrangements, and lower than the rate at which Sovcomflot were to obtain finance through the November arrangements. Nevertheless, Sovcomflot did not explore further whether they might enter into SLB transactions through Mr. Ring. Mr. Skarga said that this was because he asked Mr. Terekhin to consider Mr. Ring’s approach and Mr. Terekhin was apparently not interested by it. The claimants submitted that this is incredible, and that, if Mr. Skarga had been concerned to find the best terms available or to compare the terms that Mr. Nikitin was providing with the market, he would have made himself aware of what Mr. Ring had said. I accept Mr. Skarga’s evidence about this. It is entirely understandable that the Chief Executive Officer should delegate a matter of this kind. Mr. Terekhin was an experienced member of the Executive Board. It was for him and Mr. Borisenko, who had met Mr. Ring, to pursue anything that they judged worth further consideration. I cannot tell whether, had Mr. Ring’s indications been pursued, Sovcomflot would have obtained SLB funding more cheaply than that provided by the Investors, but it is unrealistic to criticise Mr. Skarga for delegating consideration of what was, after all, simply an unsolicited approach from a broker with whom Sovcomflot had not had previous dealings. I do not consider that his response to Mr. Ring’s approach provides any evidence of dishonesty.

Both Mr. Hill and Mr. Bailey recognised that it is difficult to identify a “market rate” for SLB transactions because they are individually tailored to the specific circumstances of the borrower. The transactions earned the Investors a good return over the period of some two years before they were terminated: the precise amount is controversial but is calculated by the defendants’ expert accountant, Mr. Andrew Grantham, to be $9.7 million. The only risk that the Investors bore for this return was that the chartering companies and Fiona as guarantor might not meet their obligations. There is, however, no evidence that persuades me that the SLB funding provided by the Investors was more expensive than comparable funding that might have been available to Sovcomflot from other sources.

Mr. Skarga was largely responsible for the decision that Sovcomflot should approach Mr. Nikitin in order to obtain SLB finance, and, as I have said, he conducted the discussions himself. He did not approach anyone else for funding of this kind. According to Mr. Skarga, Sovcomflot did not enter into discussions with others because it appeared that the terms that they might offer by way of the sale price, the charter rate and the term of the charter would be less attractive than Sovcomflot “ideally were looking for”. He saw advantage in dealing with Mr. Nikitin because this avoided brokerage fees, which might, he understood, have amounted to 2% of the transaction value. In his witness statement dated 13 February 2009 Mr. Skarga also said that Sovcomflot did not wish to deal with other companies who might have provided funding (i) because “during our discussions” with them it became apparent that they would require due diligence surveys of the vessels, and the price that Sovcomflot would receive would then have been reduced because of their condition, and (ii) because other companies would have required a guarantee from Fiona or Sovcomflot, which would in turn have led to due diligence investigation of Sovcomflot and revealed their weak finances. In cross-examination, Mr. Skarga accepted that in fact Sovcomflot had no discussions with other potential financiers: his witness statement referred, he said, to what he understood from Mr. Borisenko and Mr. Terekhin would have been required by other lenders.

None of these explanations appears to me to provide a compelling reason that Sovcomflot did not pursue further the indications obtained by Mr. Gale, and, on the face of it, they indicated that others might offer comparable terms to those to which the Investors agreed. After all, Sovcomflot did not even explore with other financiers what their requirements might in fact be. Mr. Gale’s reports did not indicate that vessels surveys or due diligence exercises would be required. BCV apparently did not require surveys when providing finance to the Investors. There appears to be no obvious or convincing reason that Sovcomflot sought SLB funding only from the Investors and did not explore what terms might be available from others.

This does not in itself mean that Mr. Skarga did not consider it in the best interest of Sovcomflot to deal with the Investors. He might have genuinely considered that there were potential advantages for Sovcomflot in dealing with those whom they knew: for example, the first transaction was the easier to arrange because the “Fili” was already chartered to PNP. This is, however, to my mind, a consideration to be weighed when deciding on the whole of the evidence whether the claimants have established their allegations of dishonesty against Mr. Skarga and Mr. Nikitin.

When Mr. Nikitin and the other Investors expressed interest in Mr. Skarga’s approach, Mr. Skarga instructed Mr. Privalov to assist to find finance for them. He did not consider this improper, as he explained, because he thought it in Sovcomflot’s interest that the Investors should raise the finance that they needed so that the transaction might proceed. He also said that he knew nothing of Mr. Nikitin paying Mr. Privalov for his help, but that, if he had known about this, it would not have troubled him or Sovcomflot. They would have turned a blind eye to it because, as Mr. Skarga explained, Russians working abroad often earn extra income as well as their normal remuneration. This underlines that Sovcomflot were not dealing at arms’ length with the Investors. Had they been, the Investors would not have wished Mr. Privalov to know the terms upon which they were obtaining finance. Whether or not these terms were also known to Mr. Skarga and Mr. Borisenko, they were not made known to other members of the Executive Board. I reject Mr. Skarga’s evidence that he discussed Mr. Privalov’s role with other directors. Indeed, he eventually agreed in cross-examination that he could not recall doing so.

I therefore conclude with regard to the SLB arrangements scheme that Mr. Skarga and other executives of Sovcomflot genuinely and honestly considered that Sovcomflot needed further funding in 2002 and that it was in Sovcomflot’s interests to raise it by entering into SLB arrangements. The claimants have not shown the effective rate of interest paid to the Investors was above the market rates for similar comparable finance that might have been available elsewhere. I have already observed that the effective rate of interest that Sovcomflot paid was stated in Sovcomflot’s accounts and known to the members of the General Board, who did not object to or question the arrangements. Mr. Skarga approached the Investors to provide finance without exploring whether better terms for SLB finance might have been obtained from other sources, and this was because of Sovcomflot’s and in particular Mr. Skarga’s close relationship with Mr. Nikitin. I shall consider later whether this helps the claimants to show that Mr. Skarga was dishonest in relation to these transactions and more generally.

I have referred to the participation of “Investors” in the SLBs. They included Mr. Katkov and Mr. Malov as well as Mr. Nikitin. The transactions in relation to the “Fili”, the “Socoseas” the “Presnya”, the “Ostankino” and the “Arbat” were financed by Meino, and, as I conclude, before August 2003 Meino were owned by Mr. Katkov and Mr. Malov, as well as Mr. Nikitin. The record of resolutions of Meino and Kosta dated 21 November 2002, to which I have referred, identified the purchases made in the “Fili” transaction and the July SLB arrangements, and recorded an agreement by the owners and directors of Meino and Kosta to “allocate ultimate ownership of the [companies owning the four vessels] in proportion to shareholders’ funding that Meino’s shareholders had provided to [Meino] and to Kosta”, and that entitlement to repayment of subordinated loans should be allocated correspondingly. It then recorded resolutions that the “Fili” and associated entitlements relating to the “Fili” should be owned in equal shares by Mr. Malov and Mr. Katkov; that the “Presnya” and associated entitlements relating to the “Presnya” should be owned wholly by Mr. Nikitin; that the “Poliyanka” and associated entitlements relating to the “Poliyanka” should be owned wholly “to the order of [Milmont]”; and that the “Sokolniki” and associated entitlements relating to the “Sokolniki” should be owned as to 20% by Mr. Malov, as to 20% by Mr. Katkov, as to 40% by Mr. Nikitin and as to 20% “to the order of” Milmont.

On any view this is a strange document, and I do not understand its purpose. Mr. Nikitin said, and I accept, that it was drafted by Mr. Wettern. Mr. Nikitin also described the document as “inaccurate” and said that, despite the large sums involved in these investments, he did not examine the distribution of shares that it recorded with care because the participants had “very friendly and informal relations”. He denied knowing why the ownership of Plutorex was said to be “to the order of” Milmont”. As for the shares recorded about the “Sokolniki”, he said that the interests reflected that, although Mr. Smirnov had indicated that he was not interested in participating in the investment, Mr. Nikitin decided again to invite him to do so, and a 20% interest in the “Sokolniki” transaction was set aside for him. However, Mr. Smirnov again declined the proposal.

Mr. Nikitin’s evidence that Mr. Smirnov had indicated that he might be interested in taking a small share in these investments is not corroborated, and I reject as incredible the account that this share of 20% was allocated to him despite him having, as Mr. Skarga put it, “made it pretty clear early on that he was not interested”. In any case, this would not explain the curious drafting of this document.

The position is more mysterious because Mr. Nikitin and Mr. Privalov both give evidence that they had some discussion about this 20% share in the “Sokolniki” transaction. Mr. Nikitin said that he asked Mr. Privalov if he knew of anyone interested in taking a share in one of the SLB transactions, and Mr. Privalov reverted with the suggestion that Getwire might take it, producing a draft agreement for this purpose. When Mr. Nikitin required to know who was behind Getwire and Mr. Privalov acknowledged his interest, Mr. Nikitin said that he did not consider it appropriate that he should have an interest. Mr. Privalov, on the other hand, gave evidence that Mr. Nikitin approached him with a proposal that the 20% of the “Sokolniki” transaction might be invested through Getwire and later produced a draft agreement, albeit for an investment by Getwire of only $500,000. In the event, no such arrangement was made. Both accounts seem to me to be improbable. I cannot discern from the evidence how or between whom Mr. Nikitin intended the interest in the investment to be shared.

I cannot accept that Mr. Nikitin’s evidence about this matter was honest and conclude that he was concealing something about who was to participate, or who it was contemplated might participate, in the SLB transactions. I do not, however, accept the claimants’ contention that it is therefore to be inferred that Mr. Skarga had or was to have an interest in them. There is no evidence to support this suggestion, and I regard it as simply speculation.

I received submissions about issues between the parties that would arise if Mr. Nikitin or others are liable to give an account of profits. It is common ground that any account of the profits from the SLB transactions should be taken on the basis that the profits were earned upon termination of the arrangement; and that accordingly the

First, the sum of $9,714,555 is calculated on the basis that there is to be deducted from the gross profits earned by Blanter, Repmar, Socoseas and Plutorex the sum of $2,619,000, which represents payments made in February and March 2003 to Kosta and Vicco Invest Corporation (“Vicco”), in which Mr. Malov and Mr. Katkov were interested. The question whether this sum should be deducted depends upon the nature of the payments and whether they can properly be treated as expenses incurred by Blanter and the other companies. Kosta and Vicco had provided funding to Meino for promissory notes with which Meino funded the four companies, and Mr. Dominic Wreford, the claimants’ expert accountant, considered that the payments were most likely either repayment of this lending or a distribution, neither of which would justify their treatment as deductible expenses. The accounting records relating to these items give them various descriptions, but Mr. Grantham pointed out that in the accounts for the companies for the year ended 31 December 2004 they were included in the “Depreciation account”, with the relevant narrative stating “Bad debt write-off related party”. He considered that they were properly treated as expenses because they were either payment of loan interest or the waiver of a debt. Despite the description in the accounts to which I have referred, and although the accounts were audited by Ernst & Young, it is, in my judgment, unlikely that Blanter and the other companies would have lent funds to Kosta and Vicco and no explanation for why they might have done so has been advanced. Further, there is no evidence that the four companies were paying interest on their funding: the promissory notes of Meino said that they could bear interest, not that they did so. Although the evidence is not conclusive, on balance I conclude that Mr. Wreford is right not to treat these payments as expenses to be deducted from any monies due on an account.

Secondly, the sum of $9,714,555 is calculated on the basis that Mr. Nikitin paid to Mr. Privalov $700,000 by way of consultancy fees in respect of the SLB transactions. As I shall explain, I do not accept Mr. Nikitin’s evidence that he did so. Whatever the reason for the payments to Mr. Privalov, I do not consider that they, or part of them, can properly be deducted by the defendants from any account.

Thirdly, there is an unresolved dispute about whether there should be deducted from the profits certain legal fees amounting to $31,827. The disputed items are included in a list of items which are in total $43,035.98. Some of the items in the list undoubtedly are included in the defendants’ accounting records and to treat those items as further expenses would involve double counting. In the absence of proper documentation about the disputed items, on balance it seems to me more probable that the disputed items have similarly already been brought into account, and that they should not be treated as additional expenses.

I would therefore conclude, if an account of the defendants’ profits were ordered, that the profits should include these three disputed items of $2,619,000, $700,000 and $31,827.

On 26 April 2004 agreements were signed for the sale to Primal Tankers Inc. (“Primal Tankers”) of the eight Arbat vessels that were the subject of the SLB arrangements and two Tromso vessels, the “Tromso Confidence” and the “Tromso Fidelity”. The sellers were the Standard Maritime defendants who bought the Arbat vessels under the SLB transactions and two other companies associated with Mr. Nikitin, Buckingham Tankers Inc. (“Buckingham”), named as the seller of the “Tromso Confidence”, and Marshall Transportation Corp. (“Marshall”), named as the seller of the “Tromso Fidelity”. Primal Tankers agreed to pay a total of $178 million for the Arbat vessels and $36.4 million for each of the Tromso vessels. Their agreement was subject to various conditions which were to be lifted by different dates on or before 15 July 2004, including a condition that the Board of Primal Tankers should approve it when it would be known whether an IPO in New York had been successful.

In order to carry out the agreement, the sellers needed the concurrence of the Sovcomflot companies who were charterers of the Arbat vessels and who owned the Tromso vessels. By agreements dated 16 July 2004 between the owners and the charterers of the Arbat vessels, the charterers agreed to terminate the SLB arrangements on the basis that the owners paid them in total $20 million.

The claimants’ case is that these agreements were not the result of arms’ length dealings between Sovcomflot and the charterers on the one hand and Mr. Nikitin and the owners on the other hand, but that Mr. Skarga dishonestly preferred Mr. Nikitin’s interests over those of Sovcomflot and he and Mr. Nikitin planned that Mr. Nikitin should keep as much of the profit from the sale of the Arbat vessels as possible, the total profit being some $56 million. They contend that to this end (i) Mr. Skarga arranged for Clarkson to reduce their valuations of the Arbat vessels, so that the lower values might be used to justify Sovcomflot receiving less from the sale proceeds, and (ii) in May 2004 Mr. Privalov provided to Sovcomflot’s accounts department a spreadsheet headed “BBC termination prices”, which was prepared on the basis that Sovcomflot would receive from the sale proceeds $20 million, a sum calculated to show a small profit for Sovcomflot as a result of the SLB arrangements being terminated but to allow Mr. Nikitin to keep most of the proceeds. The claim is for an account or for compensation (by way of damages or equitable compensation). It seems to me that the claimants who would be entitled to any compensation would be the charterers of the vessels under the SLB arrangements, the 14^th to 21^st claimants in the Fiona action, who lost, if the claimants establish liability, the difference between the value of their rights under the SLB arrangements and what they received for agreeing to terminate them.

The ships in Sovcomflot’s fleet were valued annually by Clarkson as at 31 December for the purpose of preparing their financial statements. This was usually done in about January. On 13 January 2004 Mr. Borisenko asked Mr. Orphanos at Unicom to send to FML a list of the vessels that should be valued, and Unicom did so on 14 January 2004. It was provided to Clarkson, and on 14 January 2004 Mr. Gale sent to Mr. Borisenko a copy in which Clarkson had valued each vessel, valuing at $18.6 million the 1991 Arbat vessels and at $20.4 million the 1992 Arbat vessels. Mr. Borisenko sent this to Mr. Dobrynin, who in turn forwarded it to Mr. Orphanos.

Mr. Orphanos had been asked by Mr. Borisenko in January 2002, if not earlier, to consider how changes to the valuations of the fleet affected the group’s income statements. On about 22 or 23 January 2004 Mr. Orphanos was in London to prepare for the audit of FML, and he had a discussion with Mr. Gale about the valuation of the vessels. His concern, which was shared by Mr. Borisenko and Mr. Dobrynin, was that unnecessary fluctuations in the values should not have a significant impact upon Sovcomflot’s income statements, and so he wished any increases in values to be no more than were properly required. In their discussion Mr. Gale agreed to reduce the values of the “Tropic Brilliance” and the “Romea Champion” by $2 million each, but there is no evidence about the reason for this.

On 28 January 2004 Mr. Orphanos sent to Mr. Dobrynin what he called “a list of minimum vessels values”. It set out the values provided by Clarkson on 14 January 2004 and also a “minimum value” for each vessel, which he described in the covering e-mail as “the minimum acceptable vessel values”. Those for the Arbat vessels built in 1991 (the “Fili”, the “Arbat”, the “Izmaylovo” and the “Nagatino”) were $15.5 million and for the 1992 vessels (the “Ostankino”, the “Presnya”, the “Poliyanka” and the “Sokolniki”) were $16.5 million. He explained that his purpose was “to have as small credit in the income statement as possible resulting from the vessels’ revaluation. In this way we will avoid huge write-offs to the income statement next year. Also with lower valuations the depreciation charge for next year will be lower”. He was seeking the support of the finance department in Moscow to this end. Mr. Dobrynin sent Mr. Orphanos’ e-mail on to Mr. Privalov, asking him to “approach the Clarksons asap”. It was urgent because of the timetable for preparing the annual accounts. Mr. Privalov sent Mr. Dobrynin’s e-mail on to Mr. Gale on 2 February 2004 with the comment, “Please revert if can be adjusted as requested”.

In an e-mail on 2 February 2004, Mr. Gale reduced the values of the Arbat vessels built in 1991 from $18.6 million to $15.66 million and the values of those built in 1992 from $20.4 million to $17.18 million. Apart from making the reductions to the values of the “Tropic Brilliance” and the “Romea Champion” and correcting a mistake about the valuation of another vessel, the “Petropavlovsk”, he did not change any other values. Mr. Gale sent FML a revised schedule, which he described as providing “corrected amended valuations”. Mr. Privalov sent it on to Mr. Dobrynin and Mr. Orphanos under cover of an e-mail that read, “Ref your request here is the message from Clarkson”.

After Mr. Borisenko returned from holiday on 9 February 2004, Mr. Dobrynin provided him with the revised valuations, and on 13 February 2004 Mr. Dobrynin, at the request of Mr. Orphanos, asked Clarkson for an official valuation which could be presented to the auditors. He was sent an e-mail attaching what were described as “Clarksons valuations as requested”. The attachment was a letter from Mr. Gale addressed to FMA, which itself attached Clarkson’s “Valuations of the [Fiona] fleet as at 31st December 2003”. The letter stated that the valuations assumed that the vessels were in “good seaworthy condition” and were made “on the basis of prompt charter free delivery and between a willing Buyer and a willing Seller for Cash payment upon normal commercial terms”. The letter was dated 15 January 2004, but it is clear that the valuations were in fact made on 2 February 2004.

I reject the claimants’ contention that Mr. Skarga required Clarkson to adjust their valuations of the Arbat vessels. The only evidence in support of it was from Mr.

In his e-mail dated 2 February 2004 to Mr. Dobrynin and Mr. Orphanos, Mr. Gale explained why he changed the values of the Arbat vessels: “We have … reconsidered the values of Arbat class, bearing in mind that they were allocated a “premium” for being double hull, but now “market vessels” has been re-assessed as also double hull and premium therefore should be cancelled”. The claimants submitted that this explanation should be rejected because there had been no re-assessment of what were regarded as “market vessels” in the case of ships such as the Arbat product carriers. Most vessels of the type had double hulls, and since at least 2001 this had been recognised in standard valuations. For example, from March 2003 Clarkson Research Services (“Clarkson Research”) in Clarkson Shipping Intelligence Weekly (“CSIW”) had specifically described the standard vessel as “d/h”, that is double-hulled.

As I have explained, Clarkson’s valuations first introduced a 15% uplift in valuing the eight Arbat vessels on the basis that they were (as it was entered on their Shipvalue.net system) “double/double exceptional for age” after Mr. Privalov had asked Mr. Gale on 11 September 2002 if he could “do a bit better” with regard to the value of vessels for the November SLB arrangements than the $17 million valuation that had been provided for the “Fili”. On 12 September 2002 Mr. Nigel Thorne of Clarkson advised Mr. Gale that Clarkson’s Shipvalue.net system valued the 1991 Arbat vessels at $16.07 million and the 1992 vessels at $16.27 million. However, after some discussion within Clarkson, on 3 October 2002 Clarkson advised Mr. Privalov that they estimated the value of the 1991 vessels at $16.5 million and of the 1992 vessels at $17.5 million because they understood that they were ice strengthened and had “double hull (side and bottom)”. This was reflected in the 15% uplift to the values entered in their system.

In September 2003 Mr. Thorne was asked by a banking client of Clarkson to provide valuations of two Arbat vessels. He reduced the values shown in the Shipvalue.net system in that (i) he reduced a premium for the ice strengthening of the vessels from 5% to 3%, and (ii) he removed the 15% uplift that had been introduced in October 2002. However, in January 2004, when initially providing the valuations for the

However, the evidence of Dr Stopford was that this enhanced value for the Arbat vessels had never been justified, and I accept that evidence. There is no evidence from Mr. Thorne explaining his decision in 2003 to remove the uplift: possibly he was valuing the vessels more conservatively for a banking client, but that is speculation. Equally, there is no evidence from Mr. Gale about why he re-introduced it in January 2004: it is again tempting to speculate and to suppose that he thought it right for the valuations to be made on the same basis as those of the previous year. Nevertheless, the fact remains that, when asked to do what he properly could do to reduce values, he removed an unjustified uplift. To my mind, this explains why it was the values of the Arbat vessels that were reduced when Mr. Orphanos was concerned about the overall value of the fleet. I reject the contention that the reduction was to do with a plan to end the SLB arrangements and to sell the Arbat vessels. In fact the values that he produced were higher than Mr. Orphanos’ “minimum acceptable values” for the ships.

In support of their contention that the revised valuations were dishonest, the claimants submitted that the original valuations of January 2004 properly reflected the values of the Arbat vessels at 31 December 2003 and no honest and competent broker of the experience and professed expertise of Clarkson and Mr. Gale would have subscribed to the revised values. It would not assist the claimants to establish this since I reject their allegation that Mr. Skarga was responsible for the revised valuation. In any event, I reject this submission.

The claimants argued that various features of the Arbat vessels meant that they were worth more than a standard double-hulled carrier of their age and size. They relied upon the expert evidence of Mr. Nicholas Willis, who spent some 15 years as a sale and purchase broker between 1985 and 2000, and since 2000 has worked as a consultant and now has his own company, Ship Valuation Consultancy Ltd. Mr. Willis expressed the view that the values of the 1991 vessels were $18.75 million and those of the 1992 vessels were $20.25 million. These values are close to a contemporaneous valuation given by Galbraith’s to BNP Paribas (who had taken over loans that had been originally provided to the Standard Maritime defendants by BCV) on 23 January 2004, which put a value of $19 million on the “Fili”, a 1991 vessel, and a value of $20 million on the “Presnya”, a 1992 vessel.

Mr. Day, who gave expert evidence for the Standard Maritime defendants about ship values as well as broking practice, considered that at 31 December 2003 the value of the 1991 Arbat vessels was between $15 million and $16 million and the value of the 1992 vessels was between $16 million and $17 million. This in itself answers the case that the revised valuations could not represent the opinion of an honest broker of Mr. Gale’s competence and position. It was not suggested to Mr. Day either that he had not honestly presented his views about the values or that his background and experience differed significantly for present purposes from that of Mr. Gale. In fact, I

Clarkson Research published in CSIW values for 45,000 dwt product carriers, and on 19 December 2003 and 2 January 2004 they gave values of $18.5 million for a 10 years old vessel and $11 million for a 15 years old vessel. This would, on the face of it, indicate that for the 1991 Arbat vessels values were towards the middle of a range between $18.5 million and $11.0 million and that the values for the 1992 vessels were probably somewhat higher. However, Mr. Willis relied upon the Clarkson Research’s index of prices for second hand sales of carriers which were 10 years old to demonstrate that around 31 December 2003 the market was “sharply rising”: it stood at $17.25 million in November 2003, at $18.5 million in December 2003, at $20 million in January 2004 and at $22 million in February 2004. Mr. Willis acknowledged that price tracking indices provide only a rough guide to market value, and he thought that, particularly in a volatile market, they can “lag behind real events”. Nevertheless, unless the Arbat vessels were superior to a standard product carrier, I consider that the index supports Mr. Day’s assessment rather than that of Mr. Willis.

There were no reported sales of comparable vessels at around the end of December 2003. The most relevant comparator was the sale of the “Garnet Lady”, which was reported as at 21 November 2003 for $18 million. Mr. Day spoke to the former owners of the vessel, and was told that the price was in fact $17.7 million. I accept that this information was probably correct. However, on any view a single sale of a comparator vessel is of limited help in establishing a market value, and in this case the experts disagreed about whether the “Garnet Lady” would have been regarded as an especially attractive vessel on the market. If it matter, Mr. Day gave reasons that persuaded me that she would have been. She had been built by Tsuneishi, a leading Japanese yard, and she was more stable than the Arbat vessels because of the layout of her cargo tanks and her transverse sections.

Mr. Willis also relied upon a reported sale en bloc of the “Samothraki” and three sister ships on 5 December 2003. The prices were reported at $16 million for vessels built in 1989 and at $17 million for a 1990 vessel. However, since Mr. Day, to my mind convincingly, observed that this sale might well have been by way of a refinancing arrangement and in any case the vessels were subject to five-years’ bareboat charters when they were sold, this provides no useful guidance to the values of the Arbat vessels. Nor do I consider that sales of the younger tankers, the “Torm Alice” and the “Eagle”, reported in February and March 2004, provide any guidance to the value of the older Arbat vessels some weeks earlier, especially given the volatility of the market.

I am not persuaded that the Arbat vessels had such attractive features that they were worth significantly more than a standard vessel of their type, age and size. They had some advantages over a standard vessel but they also had some unattractive features. Their engines were larger. They were ice strengthened, but only to ice-class 1C and so they could trade only in very light ice conditions. While at 47,000 dwt the Arbat vessels were slightly larger than standard 45,000 dwt carriers, their extra space was of limited use because products were often traded in parcels of fixed sizes. They had eight hydraulic cargo pumps, but, as I understand the evidence, this did not increase their pumping capacity. Their tanks were epoxy coated, but the coating had deteriorated and was expensive to maintain. This is apparent from the briefing notes to the Sovcomflot’s Executive Board of 27 July 2004 about the termination of the SLB arrangements, to which I shall refer.

On the other hand, Mr. Day identified features that would have depressed the value of the Arbat vessels. They were built by the Halla yard in Korea, which had gone into insolvency in 1997 and was not held in high regard. Some potential buyers might have been concerned because, as the experts agreed in their Joint Memorandum, “Russian controlled ships do tend to have a reputation for poor maintenance”. Further and more importantly, the vessels were constructed with a large amount of high tensile steel, which tended to cause cracking. Mr. Willis acknowledged that by the early 2000s such construction was associated with this problem, and the Arbat vessels were certainly affected by it. In their annual report for 2001 Sovcomflot had reported that, “Analysis of the cracks appearing in the “Arbat” type tankers … indicated that fatigue affected the hull structures subject to the greatest stress in those vessels, and that there had been no exact method of calculating these at the time they were built, as a result of which the structure of the designs used proved inadequate after 8-10 years intensive operation of the vessels. A method of repairing such cracks and strengthening the structure of the “Arbat” type vessels was agreed with the classification society is [sic] being implemented during scheduled and unscheduled repairs of the vessels of the class for 2001 and the first half of 2002”. The problem was aggravated because the vessels did not have a centre-line bulkhead, which caused concern about to their stability as well as their structural strength.

I reject the claimants’ contention that the revised valuations by Clarkson undervalued the vessels. They were not at levels that suggest that Mr. Gale and Clarkson were dishonest in providing them. After all, if in February 2004 Mr. Gale had been seeking to place the lowest possible value on them, he would not have increased the ice premium to 5%.

The claimants contended that the revised valuations were used to maximise, at Sovcomflot’s expense, Mr. Nikitin’s profit from the sale of the Arbat vessels and the termination of the SLBs. Their reasoning was that, in order to justify for accounting purposes Sovcomflot’s agreement to terminate the SLBs, Mr. Skarga and Mr. Privalov needed to show that the benefits to Sovcomflot of terminating them were worth more than the value of the vessels. The benefits to Sovcomflot were (i) that they would be freed of their contractual obligations to pay hire to the end of the charter periods and to pay the prices of re-purchasing the vessels, and (ii) that they would receive from the owners a “release price” for agreeing to the terminate the arrangements. For this reason, it is said, the lower the value of the vessels, the smaller the amount of the release price that needed to be paid in order for the termination to be presented as profitable to Sovcomflot. They submitted that, because of the lower valuations, this could be achieved with a release price of only $20 million.

On 26 May 2004 Mr. Privalov sent to Mr. Dobrynin, under cover of an e-mail which simply read “As discussed”, a spreadsheet entitled “BBC termination prices” (which presumably meant “bareboat charter termination prices”). The spreadsheet set out the names of the eight Arbat vessels and the year when each was delivered, and stated

I am not persuaded by this argument. As the defendants pointed out, the figures show at most only that Sovcomflot had calculated for their internal purposes that they would accept $20 million for agreeing to end the SLB arrangements. The document does not provide evidence that this sum had been agreed between Mr. Skarga and Mr. Nikitin, or even discussed by Mr. Nikitin.

In any event, the claimants’ witnesses did not, in my judgment, support their contention that these figures were used to present the termination of the SLB arrangements as profitable. On 26 May 2004, Mr. Orphanos sent to Mr. Dobrynin an e-mail entitled “expected vessel disposals”, to which he attached a spreadsheet that listed the eight Arbat vessels, the six Tromso vessels and the “Nikolay Malakhov” and set against each an expected disposal date. For the Arbat vessels, the “Tromso Confidence” and the “Tromso Fidelity”, the date was 31 July 2004. There was a “sales proceeds” column, but that was left blank for all the vessels except the “Nikolay Malakhov”. By 2 June 2004 Mr. Orphanos had obtained figures for the “sales proceeds” for the Arbat and the Tromso vessels, and sent a copy of the spreadsheet with those details included to Mr. Dobrynin. The figures for the Arbat vessels were those which Mr. Privalov had sent to Mr. Dobrynin on 26 May 2004 as the BBC termination prices. The sale proceeds for the “Tromso Confidence” and the “Tromso Fidelity” were $35 million, although by then Primal Tankers had provisionally agreed to pay $36.4 million for each of them.

Mr. Orphanos was confused about what the “BBC termination prices” were. In his witness statement dated 13 February 2009 he said that he intended to include in the spreadsheet the “anticipated selling prices of the Arbat vessels”, but it is not disputed, as I understand it, that this was because he misunderstood what Mr. Privalov’s “BBC termination prices” were. Although this was not apparent on the face of the schedule of prices sent by Mr. Privalov, according to Mr. Dobrynin’s evidence, which I accept, he and Mr. Orphanos appreciated that it supposed that the termination prices were $20 million more than the outstanding liabilities under the SLB arrangements. However that may be, Mr. Orphanos said in a witness statement dated 8 October 2009 and in his oral evidence that his misunderstanding was not relevant to the accounting calculation of Sovcomflot’s loss or profit. He accepted that this did not depend upon knowing the selling prices of the vessels, but he had thought that the proceeds for Sovcomflot from the sales of the Arbat vessels were equal to the anticipated selling

Despite Mr. Orphanos’ misunderstanding or confusion, it is to my mind clear that the “BBC termination prices” did not mislead or confuse Sovcomflot’s financial and accounting departments. They recognised that they were simply a calculation of what the financial position would be if the charterers were paid release prices totalling $20 million. The claimants plead that the sum of £20 million was identified as being an amount which would pass the scrutiny of Sovcomflot’s financial department and Fiona’s auditors because, in view of the reduced valuation of the vessels that Mr. Gale had produced, it could be presented as generating a profit. The defendants, however, pointed out and I accept that the claimants have not shown that the downwards revision of the valuation of the vessels in February 2004 was necessary in order to show a profit upon the termination of the SLB transactions. Sovcomflot prepared financial statements in accordance with both US GAAP standards and IFRS (International Financial Reporting System) standards. The reduction in the values of the Arbat vessels would not have affected any GAAP profit and loss or other calculation because the calculation was based upon a depreciated fair market value. As far as calculations in accordance with IFRS were concerned, an increase in vessel values would not be shown in a profit and loss account, but would be recorded in a revaluation reserve, and remain in the reserve until the vessel was disposed of. The reduced valuation of the Arbats would not have affected profit and loss calculations unless there was an insufficient revaluation reserve to absorb them. Given the general increase in market values of vessels, the reserve was likely to be sufficient.

However precisely the “BBC termination prices” were calculated and whatever their purpose, I am not persuaded that they were provided to Mr. Dobrynin and then to Mr. Orphanos as part of a scheme to maximise Mr. Nikitin’s profit from the termination of the SLB arrangements and the sale of the Arbat vessels, or in order to minimise the amount that the charterers were to be paid upon termination. These documents seem to me to provide no support for the claimants’ contention of a dishonest conspiracy.

I next consider the history of the sale of the Arbat vessels itself because the claimants contend that it shows that Mr. Skarga and Mr. Nikitin were working together dishonestly to prefer Mr. Nikitin’s interests to those of Sovcomflot. In 2002, when they entered into the SLB arrangements, Sovcomflot knew that the Arbat vessels had problems with cracking, but they were expected to trade profitably for the charter periods of three or five years. In fact, in 2002 and 2003 they did operate profitably. Sovcomflot had no settled plan in early 2004 to sell the Arbat vessels. On 16 February 2004 Mr. Skarga presented to the Executive Board a report summarising the main operating and financial activities of the group, which indicated that they planned to sell only six “Socofl” timber carriers and still to have the Arbat vessels at the end of the year.

Sovcomflot were nevertheless, as I conclude, interested in disposing of the Arbat vessels if they received a satisfactory offer, because of concern about their condition and the expense of repairing them, and because Sovcomflot’s general policy was to dispose of tankers after 15 years’ operational service. These reasons were set out in briefing notes for an Executive Board meeting on 27 July 2004 at which Board considered the decision to cancel the SLB arrangements, and, although the claimants challenged whether these were genuine reasons, the Executive Board would not have been misled on a matter of this kind. Mr. Sharikov and others would have been well aware of the vessels’ problems and Sovcomflot’s policy about disposing of vessels. Mr. Thompson confirmed in his evidence that there had been discussion for some years about disposing of the Arbat vessels, and that the aim was to replace them with new carriers. Their disposal was, as described in Sovcomflot’s annual report for 2004, part of the fleet renewal programme.

By November 2003 Mr. Skarga had arranged for Clarkson to explore the market, but it was not anticipated that the Arbats would all be sold “en bloc”. (On occasions Clarkson wrote to buyers about a possible “en bloc” sale, but, even assuming that this reflected Sovcomflot’s instructions, they probably had in mind a block sale of a number of ships but not of all eight of them.) By the end of January 2004 Mr. Gale was trying to stimulate buyers’ interest in the “Fili” and the “Izmaylovo”. On 9 February 2004, in an e-mail that was internal to Clarkson, Mr. Gale referred to the possibility that, if target prices were achieved for these two vessels, “Sovcomflot may be tempted to sell the remaining sisters …”.

On 7 April 2004 Allied Shipbroking Inc. of New York sent to Clarkson a formal proposal on behalf of Primal Tankers to buy en bloc the eight Arbat vessels together with the “Tromso Confidence” and the “Tromso Fidelity”. There had been some communication about at least some of these vessels between Allied Shipbroking and Clarkson for some time, but it is not clear how far their previous discussions had progressed. On 5 December 2003 Clarkson had sent Allied Shipbroking details of the “Fili” and the “Izmaylovo”. On 23 January 2004 Allied Shipbroking expressed interest in the Tromso vessels, and on 27 February 2004 Clarkson wrote to them that “ideas 35 mill each but this should be somewhat negotiable”. On 14 April 2004 Clarkson responded to the proposal of 7 April 2004 and their negotiations resulted in the concluded agreements dated 26 April 2004 for the sale and purchase of the 10 vessels.

Mr. Wettern signed the documents on behalf of the selling companies. They comprised ten memoranda of agreement and two letter agreements. The memoranda were for the sales of the eight Arbat vessels and the two Tromso vessels. One of the letters recorded that the commitment of Primal Tankers was subject to inspection of the vessels’ records, with approval to be declared by 17 May 2004; physical inspection of the vessels, with approval to be declared by 14 June 2004; and an IPO on the New York stock exchange achieving a target subscription of $90 million, with declaration of this to be made by 15 July 2004. It also recorded two purchasers’ options: to buy only six of the ten vessels, and, if the sale did not otherwise proceed, to buy one of four vessels, the “Fili”, the “Izmaylovo”, the “Tromso Confidence” and the “Tromso Loyalty”. The total sale price was $251.2 million: $21.8 million was paid for the 1991 Arbat vessels, $22.8 million for the 1992 Arbat vessels and $36.4 million for the Tromso vessels. Overall, the prices were very good for the sellers. As well as disposing of the Arbat vessels, Primal Tankers were offering to pay for the two Tromso vessels what Mr. Sharikov described as “fantastic” prices. It was a particularly good deal in light of predictions from some that the market would fall. For example, Dr Stopford again expressed pessimistic views at Sovcomflot’s Bankers Conference in May 2004.

Although Primal Tankers’ commitment to buy the vessels was subject to conditions, the commitment of the selling companies was unqualified. They committed themselves although:

Thus, Mr. Nikitin’s companies entered into commitments that they could fulfil only with Sovcomflot’s cooperation. The claimants submitted that Mr. Nikitin would not have put them in this position if he had had a proper relationship with Sovcomflot, and that the fact that he did so is evidence that his relationship with Mr. Skarga was corrupt.

The evidence about the discussions about the sales within Sovcomflot and between Sovcomflot and Mr. Nikitin is not satisfactory. The claimants have disclosed no correspondence exchanged between 1 and 25 April 2004, although there are in evidence some documents that were disclosed by Clarkson. Sovcomflot must have had more exchanges and internal documentation about the sale. For example, in an internal e-mail dated 21 April 2004 Mr. Gale wrote that Mr. Privalov was “going to put the full proposal forward tomorrow, it has already been favourably considered”, but no documents about this have been produced. It was clear from Mr. Borisenko’s evidence that Mr. Terekhin, the Fleet Department, Sovchart and Mr. van Boetzelaer and Unicom would all have been involved in such matters as arranging the inspection of the vessels, discussions with time charterers and providing access to class records The sale would have required changes to budgets and plans for repairs, and the cancellation of dry dockings schedules. I accept Mr. Skarga’s evidence that there was internal correspondence about the sale, and Mr. Borisenko, Mr. Terekhin and Mr. Sharikov knew how much Primal Tankers were paying. Given that Mr. Terekhin and the Fleet Department knew about the sale, Mr. Skarga could hardly have concealed the prices from them without exciting their suspicions.

I therefore reject the evidence of Mr. Borisenko about when he learned of the proposed sales. He denied that he was told anything about them in April 2004, and said that he first learned of them in early May 2004, when he received a telephone call from Mr. Anthony Argyropoulos of DVB Bank. Mr. Argyropoulos, who was working for Primal Tankers in relation to the IPO, asked for more time to lift one of the conditions governing Primal Tankers’ commitment to the agreement. Mr. Borisenko’s evidence was that, knowing nothing of the matter, he referred Mr. Argyropoulos to Mr. Privalov, and that he then telephoned Mr. Privalov to ask what was happening. He was told by Mr. Privalov that the vessels were to be sold, but, on Mr. Borisenko’s account, he was not told the price to be paid and he did not ask. He said only that he “was aware that the disposal to a company doing a IPO would usually result in a good sale price”, and that he did not discuss the sale with Mr. Skarga before July 2004. I find this evidence incredible. If Mr. Borisenko, the Chief Financial Officer, had learned of the disposal of the vessels from a third party,

I also reject Mr. Sharikov’s evidence that he learned of the proposed sales only shortly before a meeting of the Executive Board on 27 July 2004. Mr. Skarga said, and I accept, that, for example, they were discussed when between 21 and 24 May 2004 Sovcomflot held their third Bankers’ Conference in Cyprus, which was attended by Mr. Skarga, Mr. Borisenko, Mr. Privalov, Mr. Dobrynin, Mr. Orphanos and Mr. Sharikov. Certainly, on 26 May 2004 Mr. Orphanos e-mailed Mr. Dobrynin about “expected vessel disposals” and the inference is that they knew about them when they were in Cyprus, if not before. Mr. Sharikov would not have been excluded from discussions to which Mr. Dobrynin and Mr. Orphanos were party. A transaction on this scale simply could not have been concealed from the members of Sovcomflot’s Executive Board. Obviously it would come to the Board’s attention in due course and it would have been futile to have tried to conceal it. I conclude that the members of Sovcomflot’s Executive Board including Mr. Sharikov were kept informed about the sales and knew, among other things, the prices that Primal Tankers were paying.

Against this background, I come to the account given by Mr. Nikitin and Mr. Skarga about their discussions in April 2004. They said that Sovcomflot did not seek Mr. Nikitin’s agreement to end the SLB arrangements and to sell the Arbat vessels before they had received the proposal from Primal Tankers on 7 April 2004, and that by 26 April 2004 they had not reached any agreement about the terms upon which they should cooperate to complete the agreement with Primal Tankers and to share the proceeds of the sales. There is no convincing evidence that they had reached any understanding about this, and I conclude that they had not done so. Mr. Privalov said that he supposed that an agreement was reached between them in April or May 2004 only because his “BBC termination prices” assumed that Sovcomflot would receive $20 million. He did not claim to have been party to an agreement or to have been actually aware of one.

The evidence of Mr. Nikitin and Mr. Skarga about their discussions was not entirely consistent. Mr. Nikitin said that Mr. Skarga approached him, either by telephone or at a meeting, and proposed that the SLB arrangements should be terminated. In his witness statement of 13 February 2009 he said that it was proposed that Sovcomflot should share the profits, although he did not recall whether Mr. Skarga indicated what their share should be. He recalled that he first rejected the proposal, believing that he had a strong negotiating position, but when pressed by Mr. Skarga he indicated that he would terminate the arrangements if he might keep all the proceeds from the sales; and later he agreed in principle to the sales on the basis that, if they went through, he and Sovcomflot should later discuss how the proceeds should be divided. In crossexamination, Mr. Nikitin said that at first Mr. Skarga did not mention dividing the profits, and no agreement or understanding was reached before 26 April 2004 about whether Sovcomflot should be paid any, and if so what, share of the sale receipts. Later Mr. Skarga spoke of dividing the sale proceeds, and he thought that Mr. Borisenko also spoke to him about this and suggested that they should be shared equally.

Mr. Skarga said in his witness statement of 13 February 2009 that, when he first contacted Mr. Nikitin between 8 and 23 April 2004 to seek his agreement in principle to the sales to Primal Tankers, Mr. Nikitin was “negative”. He thought that Mr. Nikitin had no real incentive to agree to the proposal in view of the return that he was earning from the SLB arrangements, not least because Mr. Nikitin had changed the owners’ funding agreements so that they were paying at a floating rate of interest. Mr. Skarga said that he had further discussions with Mr. Nikitin in particular about the poor condition of the Arbat vessels, and Mr. Nikitin came round to accepting that they should be sold. Mr. Skarga believed that by 26 April 2004 Mr. Nikitin had accepted the proposal “in principle”, or at least Sovcomflot were confident by then that he would do so. However, no agreement had been reached about dividing the profit. In later telephone conversations he and Mr. Borisenko pressed for an equal division of the profit between Sovcomflot and Mr. Nikitin, but Mr. Nikitin only agreed, after some pressure, that he would allow Sovcomflot to take $10 million. In cross-examination Mr. Skarga said that Mr. Nikitin had agreed to the sales before 26 April 2004 mainly because of the condition of the Arbat vessels, but he and Sovcomflot had not agreed upon the terms upon which the charters should be ended. He did not discuss these terms because he did not want to jeopardise the deal with Primal Tankers by having a prolonged debate about them.

The claimants submitted that Mr. Nikitin and Mr. Skarga were together planning to sell the vessels in order that Mr. Nikitin should, as Mr. Popplewell put it, “keep the lion’s share of the profits”, with Sovcomflot receiving only “the amount necessary to ensure that there was no adverse internal scrutiny”. They argued that it is incredible that discussions between them about the sales had not taken place before 8 April 2004, and that on any view they were not engaged in honest business dealings.

The Arbat vessels could not, of course, have been sold by Sovcomflot alone, and the “Fili” and the “Izmaylovo”, which apparently had been specifically identified by Clarkson for sale, were chartered to Henriot with options to extend the hire periods until April 2005. The claimants argued that it would have been pointless for Sovcomflot to have had Clarkson market the vessels without Mr. Nikitin’s agreement and without first finding out whether he would co-operate in sales if Clarkson found a buyer, and so Mr. Skarga would inevitably have discussed with Mr. Nikitin any plans to dispose of the vessels.

The claimants also referred to Mr. Privalov’s evidence in cross-examination that Mr. Nikitin, when first approached, was reluctant to agree to sell the Arbat vessels “at the prices indicated originally, something like below $20 million”. They said that this supported their contention that Mr. Nikitin knew about the marketing of the vessels before 7 April 2004. I do not agree. Even accepting Mr. Privalov’s evidence, the proposal of 7 April 2004 put forward an offer of only $19.5 million for the 1991 Arbat vessels.

In fact, in cross-examination Mr. Skarga agreed that he might have mentioned to Mr. Nikitin that Sovcomflot were looking to sell the ships, but he could not recall doing so before April 2004, and Mr. Nikitin said that he could not remember whether Mr. Skarga had told him that Sovcomflot were looking for buyers. It is likely that Mr. Skarga would have said something to Mr. Nikitin about this, but there is no reason to think that Mr. Nikitin and Mr. Skarga had significant discussions about selling the

On any view, and whatever inconsistencies there were in their evidence, both Mr. Nikitin and Mr. Skarga said that Mr. Wettern was instructed to commit the selling companies controlled by Mr. Nikitin to selling the ships to Primal Tankers before the charterers had given any certain or formal commitment that they would cooperate in selling the Arbats vessels and when Marshall and Buckingham were not in a position to deliver the Tromso vessels; and that Mr. Skarga concurred in him doing so without discussing the terms upon which the charterers would give up their rights and Glefi XX and Glefi XXII would sell the Tromso vessels. Mr. Nikitin agreed that this left his companies exposed to commitments that they could not have fulfilled without Sovcomflot’s support, and that “in theory” Sovcomflot could have exploited this in later negotiations, but said that he could not believe that “they could behave in some nasty way” and that it was “simply not imaginable” that Sovcomflot would “squeeze” him.

Mr. Skarga, as far as I understood his answers in cross-examination, said that he saw nothing unusual in Mr. Nikitin exposing the selling companies to these commitments to Primal Tankers without proper arrangements to fulfil them. I do not accept that. Mr. Nikitin put the selling companies in an extraordinary position, and there was no obvious reason to do so. It is remarkable that Mr. Nikitin, an acute and experienced businessman, should have done so. However, on any account that is what he did: the selling companies entered into their commitments on the basis of some inconclusive discussions and an informal understanding that Mr. Nikitin had with Mr. Skarga. If in the event Sovcomflot did not concur in the sales, Mr. Nikitin was, or more precisely the selling companies were, exposed whether his discussions with Mr. Skarga and the understanding between them were proper or improper and whether they were honest or dishonest. This does not, to my mind, show that Mr. Nikitin and Mr. Skarga had by then reached an understanding that Mr. Nikitin would exploit the sales at the expense of Sovcomflot. I should have been the more reluctant so to conclude without any of the documentation about the relevant exchanges within Sovcomflot and without relevant and credible evidence from the claimants’ witnesses.

Primal Tankers’ IPO was successful and in July 2004 the agreement for the sales of the vessels proceeded. Primal Tankers took all ten vessels, and did not exercise their option to take only six. The owners and charterers of the Arbat vessels reached agreements, which were signed by Mr. Wettern on behalf of the owners and by Mr. Privalov on behalf of the charterers, whereby the charterers of the 1991 vessels were paid $2 million and the charterers of the 1992 vessels were paid $3 million, and the chartering and re-purchase agreements were terminated. They were dated 16 July 2004, but there is no dispute, as I understand it, that they were concluded some days later, after a meeting on 20 July 2004 between Mr. Nikitin, Mr. Skarga, Mr. Borisenko and Mr. Privalov.

The meeting was specifically arranged to discuss how the sale proceeds of the Arbat vessels should be shared. I accept Mr. Skarga’s evidence that by then, probably in around May 2004, Sovcomflot had made a calculation that the profits on the sales of

The meeting was in a restaurant in St Petersburg called “Behind the Stage”, which was near the opera house. Mr. Skarga had been to a production of “The Nose” by Shostakovich, in which a friend of his, Mr. Sergei Skorokhodov, was singing. None of the witnesses gave a wholly convincing account of the discussions at the restaurant. I reject Mr. Borisenko’s evidence of a meeting lasting only five minutes at which there was no real discussion. Mr. Nikitin had come direct from the airport for the meeting and Mr. Privalov had travelled from London to be there: they would not have done so if there was nothing to discuss. Indeed Mr. Privalov accepted that (contrary to Mr. Borisenko’s account) Mr. Nikitin and Mr. Borisenko debated about how much Sovcomflot should be paid. This is corroborated to some extent by Mr. Skorokhodov, who said in a witness statement that, having arranged to meet Mr. Skarga, he was kept waiting while discussions continued.

Mr. Nikitin said that he was unsure whether any agreement was reached at the meeting or whether it was concluded by telephone the next day. I accept Mr. Skarga’s evidence that it was agreed at the meeting, after genuine negotiations, that Sovcomflot should be paid $20 million. It is unclear whether before the meeting Mr. Nikitin had been told that Sovcomflot would be looking for $20 million, but Mr. Skarga never suggested to Mr. Nikitin that they would accept less than that.

On 27 July 2004 the Executive Board of Sovcomflot approved the decisions that the chartering arrangements for the Arbat vessels should be terminated and that the two Tromso vessels should be sold. The proposals were presented by Mr. Sharikov, and the proposal about the Arbat vessels was supported by Mr. Skarga and Mr. Borisenko and also by Mr. Dobrynin, who had been invited to attend the meeting. The Board had briefing notes, which had been signed by Mr. Dobrynin and prepared by Ms. Matveeva with the assistance of other executives, including Mr. Buchumov, Sovcomflot’s Chief Engineer, Mr. Orphanos and Mr. Sharikov. There is no evidence that Mr. Skarga influenced the preparation of the briefing notes or determined what information they should include. They referred to Sovcomflot’s policy of operating ships for no longer than 15 years, and stated that the Arbat vessels had problems by way of cracking and deterioration of coatings. They also referred to predictions that chartering rates would fall, and concern that this would affect the sale value of the ships. They assessed the profit on sale of each ship according to IFRS and GAAP standards and stated the amount that each Sovcomflot chartering company was to be paid on termination of the chartering arrangements.

The briefing notes did not state how much was being paid by Primal Tankers for the ships, but I am not persuaded that this was concealed from any member of the Executive Board. Mr. Privalov’s evidence was that, although the sales were reported “at least by Clarkson”, Mr. Skarga was the only member of the Executive Board to know the prices, and, while others might have discovered the information for themselves, it was thought unlikely that they would do so. I do not accept that evidence: undoubtedly Mr. Borisenko also knew the prices, and, as I have said, I conclude that Mr. Terekhin and Mr. Sharikov had been aware of them since April. I

In reaching this conclusion, I do not overlook that on 26 July 2004 Ms. Matveeva asked Ms. Janet Atherton, Mr. Privalov’s secretary or personal assistant, for copies of the memoranda of agreement for the Arbat vessels, and she replied that “As all the Arbat type vessels are only on bareboat charter to [Fiona] there will not be any MOAs”, that the memoranda would be between the owners and the buyers and that Fiona would be party only to a cancellation agreement with the owners. Ms. Matveeva did not press the enquiry. Further, in October 2004 Mr. Orphanos sought completion statements for the sales when he was preparing management accounts, and, having received statements for the “Fili”, the “Izmaylovo” and the “Poliyanka” apparently by accident, he asked Ms. Atherton to obtain from the sellers the price of each of the vessels. She responded that Mr. Privalov advised her that “we do not have the sale price of the vessels on which we were bareboat charterers as we were not party to the sales. The only thing we were required to have was the Termination Agreement”.

Mr. Privalov’s evidence was that this information was withheld in order to conceal the prices because he and Mr. Skarga were concerned that this information might lead to questions about the reduced Clarkson valuations and what Sovcomflot was paid. Mr. Privalov’s evidence about this is not reliable, and without it I do not consider that these responses of Ms. Atherton show that anyone was attempting to conceal the prices from the Sovcomflot. On the face of it, Ms. Atherton understood that Ms. Matveeva was asking for memoranda of agreement between Sovcomflot companies and the buyers, and she rightly pointed out that there were no such documents in relation to the Arbat vessels; and Ms. Matveeva appeared to accept that. Mr. Orphanos requested the documents after Mr. Skarga had left Sovcomflot and at a time when the future of the relationship between Sovcomflot and the Standard Maritime defendants was uncertain. It is understandable that Mr. Privalov should have been cautious about supplying to Sovcomflot copies of documents to which they were not party.

The claimants contended that Mr. Nikitin, Mr. Skarga and Mr. Privalov also had a scheme to exploit for Mr. Nikitin’s advantage the sale to Primal Tankers of the two Tromso vessels, which were sold by Buckingham and Marshall. Mr. Gale had been involved in the discussions about Buckingham and Marshall selling the ships. On 23 April 2004, when Mr. Wettern pointed out that Buckingham and Marshall did not own them, Mr. Gale responded “Well I guess that as long as they do when the deposit is lodged it doesn’t matter. Some people, we have to trust”. Mr. Wettern suggested that he speak to Mr. Privalov because in fact the companies would still not own the vessels when the deposit was to be paid by Primal Tankers. Nevertheless,

In the event, no such scheme was put into practice. According to Mr. Privalov, Mr. Nikitin told him that the sale to Primal Tankers had attracted too much publicity for the plan to go ahead. The defendants denied that there was ever any plan of this kind. The allegation (which has not been pleaded) was first made in the summer of 2009, and the defendants submitted that, if true, it would have been made in Mr. Privalov’s first witness statement.

The defendants argued that the claimants’ contention is inconsistent with the contemporaneous documents, which support their case that Buckingham and Marshall were named as the selling companies because Sovcomflot did not want their companies named in any memoranda of sale until it was clear that Primal Tankers’ IPO was successful and the sale would proceed. On 2 July 2004 Mr. Gale sent an internal e-mail to Mr. Coleman in which he emphasised that Sovcomflot did not wish to have their name associated publicly with the Primal Tankers transaction. In an e-mail of 29 July 2004 to Mr. Skarga, which was copied to others including Mr. Lipka, Mr. Privalov explained that, until Primal Tankers’ IPO had succeeded, Sovcomflot had not wanted to sign memoranda of sale but intended to sell the ships to “nominee companies”, which would sell them on to Primal Tankers. In the event, Glefi XX and Glefi XXII were, in effect, substituted as the selling companies for the Tromso vessels.

I do not find convincing the defendants’ explanation that Sovcomflot did not want their name associated with the sales in case they fell through. The sales of the “Tromso Confidence” and the “Tromso Fidelity” to Primal Tankers were, unsurprisingly, reported in the shipping press, and this in itself would have associated Sovcomflot with the sale to Primal Tankers. It would not have assisted them to avoid signing memoranda of agreement. However, the claimants simply have not provided any convincing evidence in support of their contention that the history of the sales of these vehicles reflects a dishonest scheme which was planned between Mr. Skarga and Mr. Nikitin, but was abandoned. There is no reason to associate them, and no convincing reason even to associate Mr. Privalov, with the mis-statement of the price by Mr. Dobrynin in his e-mail to Mr. Orphanos. Again, it is likely that this curious matter is the more obscure because so few documents from April 2004 have been disclosed by the claimants.

I do not consider that the claimants have shown that the history of the sale to Primal Tankers and of the termination of the SLB arrangements provides evidence of dishonest collusion between Mr. Skarga and Mr. Nikitin. Other members of the Executive Board knew that the vessels were to be sold and concurred in the decision to do so. I reject the claimants’ contentions that Mr. Gale revised the values of the Arbat vessels for improper purposes and that the revised values were used to justify the total release price of $20 million. That price was finally agreed after negotiations on 20 July 2004. There has been no convincing explanation about why Mr. Nikitin allowed Standard Maritime companies to enter into the agreements with Primal Tankers without having reached a firm understanding with Sovcomflot about the terms upon which the SLB arrangements should be ended and about arrangements

The newbuildings scheme concerns newbuildings that were constructed in Korean shipyards and were acquired by six of the Standard Maritime defendants and also Hayes Enterprises Ltd. (“Hayes”), another company associated with Mr. Nikitin which is not a defendant in these proceedings. On 3 March 2003 Buckthorn and Southbank, two Liberian companies, concluded contracts with HHI for the construction of hulls nos 1564 and 1565 respectively. In January 2004 Standard Maritime acquired the shares in Titanium and Pendulum, which companies were the buyers of hulls nos 1585 and 1586 respectively under contracts with HHI dated 3 March 2003. In February 2004 Standard Maritime acquired the shares in Accent, which had entered into a contract with Daewoo for the construction of hull no 5274, and on about 23 March 2004 they acquired the shares in Severn, which had entered into a contract with Daewoo for the construction of hull no 5272. On 15 June 2004 Hayes entered into an agreement with HHI for construction of a LPG vessel, hull no 1757.

I shall refer to these seven companies, Buckthorn, Southbank, Titanium, Pendulum, Accent, Severn and Hayes, as the “purchaser companies”. These acquisitions were very profitable to the purchaser companies, and all except Hayes realised their profits by selling their vessels in 2005, 2006 and 2007.

The claimants say that the purchaser companies acquired the benefit of these contracts through Mr. Skarga and Mr. Privalov acting dishonestly and in breach of their fiduciary duties to Sovcomflot, Fiona and FML. They complain (as pleaded in para 163 of the particulars of claim) that the transactions were of no commercial benefit to Fiona and Sovcomflot, but were of very significant commercial benefit to Mr. Nikitin or companies or others with whom he was associated; that Fiona guaranteed the purchasing companies’ obligations under shipbuilding contracts; and that the security provided to Fiona against potential liability under the guarantees was inadequate. The defendants say that Sovcomflot were collaborating with Mr. Nikitin and his companies in acquiring newbuildings, and this collaboration was proper and undertaken because it was, and was recognised to be, to the advantage both of Sovcomflot and of Mr. Nikitin and his companies. The benefits of the collaboration were, according to the defendants, set out in a so-called “Co-operation Agreement”, and it is convenient first to refer to this agreement.

The “Co-operation Agreement” was a letter from Standard Maritime to Fiona dated 26 February 2003. It was signed by Mr. Wettern for Standard Maritime and countersigned by Mr. Privalov for Fiona, his signature being dated 1 March 2003. In fact Standard Maritime were not incorporated until 17 March 2003, and there is no dispute that the Co-operation Agreement was created in 2004. It purported to record an agreement about collaboration between Fiona and Standard Maritime in ordering new oil tankers, and to recount the benefits of doing so. The defendants contended that it reflected the nature of and rationale for the understanding that Mr. Skarga and Mr.

The Co-operation Agreement was headed “Vessel Investments”, and it read as follows:

“This letter confirms the agreement that we have reached, following discussions together, about ordering new oil tanker vessels.

1

You will keep us informed about your programme of ordering new ships.

2

When you order new ships, we may decide to order additional ships of the same type at the same time. If so, we will collaborate together to place series of orders. This will be of mutual benefit, because:

(a)

you will get a better price for the ships you have already decided to order, because of the “bulk-volume discount effect”;

(b)

we will be able to utilise the technical skills of your designers and supervision teams, to buy suitable vessels ourselves;

3

Taking into consideration the benefits you will derive from our orders as described in (2) above, we may agree with you that you will provide security arrangements for our orders (e.g., to cover our buying company’s obligations to shipyards by your guarantee) but all payments to the shipyards for ships that we order will remain our sole and full responsibility.

4

You will arrange for us to have access to and use of your supervision teams, to supervise construction of our vessels also. We will pay for this.

5

After delivery, you will arrange for us to be able to utilise Unicom as managers of our vessels. We agree to use them, and to pay reasonable fees.

6

The arrangements under (4) and (5) will need to be documented formally.

7

In relation to employment of vessels after delivery, we agree at all times to collaborate and to work together, with the objective of mutually advantageous optimisation of use of your and our fleets. Within the scope of this, we will both share with each other all vessel employment opportunities that may arise that may be suitable. Nevertheless, ultimate decision-making for employment of each vessel will be held by the group which owns it.”

On 19 March 2004 the letter was sent by Mr. Wettern to Mr. Nikitin under cover of this message: “Following advice from Privalov that Standard Maritime will be taking over the contract for the first [Daewoo] newbuilding [sc hull no 5272], please find enclosed the following: ... short and informal ‘letter of intent’ which is designed to pre-date all of the contract transfers …”. A signed copy of the document was sent by Mr. Wettern to Mr. Baum on 25 March 2004, when it was referred to as “the ‘Heads of Agreement’ which was signed at the same time [as the contract for Standard Maritime’s purchase of the shares in Severn, the purchaser of hull no 5272], but backdated, between Fiona and Standard Maritime …”. In a letter of the same date, Mr. Wettern sent the original of the letter to Mr. Baum, describing it as the “Overall Letter of Intent”.

The claimants’ case is that in March 2004 Mr. Wettern was instructed to draw up the Co-operation Agreement by Mr. Privalov, who in turn was acting on the instructions of Mr. Skarga and Mr. Nikitin. When he was cross-examined, Mr. Privalov said that he did not remember whether he was instructed by Mr. Nikitin or by Mr. Skarga or by both, and there is no evidence that Mr. Nikitin was involved in arranging for the agreement to be prepared.

Mr. Nikitin’s evidence was that he recalled the Co-operation Agreement only vaguely: he was told that a simple document was required to reflect the collaboration between Fiona and Standard Maritime, but he did not pay much attention to what Mr. Wettern produced because he did not regard it as important. He said that he did not recall whether he had authorised Mr. Wettern to sign it on behalf of Standard Maritime, and that he did not realise that the document was back-dated. I am unable to accept this: Mr. Wettern had specifically mentioned in his e-mail of 19 March 2004 that the agreement was back-dated and, despite Mr. Nikitin’s insistence that he was relying upon Mr. Wettern as his lawyer to behave properly, he must have been aware of this.

Mr. Skarga said that the Co-operation Agreement was produced after he had told Mr. Nikitin that they should have a document recording their collaboration “in view of the increasing amount of business conducted between Sovcomflot and Mr. Nikitin’s companies” and as a result of discussions that he had with his “fellow directors”. In his witness statement of 13 February 2009 he said that he gave instructions for Mr. Wettern to produce it, either directly or through Mr. Privalov. I find that he did so, and I reject his suggestion in cross-examination that Mr. Lipka might have instructed Mr. Wettern. Mr. Skarga said that he could not recall whether he saw the document after it had been signed, and that he did not know, or he did not pay attention to the fact, that it was back-dated. I am unable to accept that he was unaware of this. Mr. Wettern would not have taken it upon himself to back-date the agreement without Mr. Skarga knowing, and Mr. Privalov would not have instructed Mr. Wettern to backdate it without Mr. Skarga’s agreement.

I accept that the agreement records advantages which Sovcomflot thought in early 2003 might result from collaboration in ordering vessels from yards. An Option Exercise Agreement dated 3 March 2003 between Fiona and Kosta and Vicco (to which I shall refer later) referred to Sovcomflot supervising the orders placed by the Standard Maritime defendants and to Unicom managing the vessels after delivery. I infer, because of the timing and because of what Mr. Wettern wrote to Mr. Nikitin and Mr. Baum, that the Co-operation Agreement was prepared at least partly in connection with the sale of the shares in Severn, but there is no evidence that gives a cogent explanation about why it was prepared or why it was back-dated. Mr. Skarga or Mr. Nikitin or both apparently thought that it might be useful for some purpose to have a document that set out why Sovcomflot and Mr. Nikitin collaborated about ordering vessels, but there is no evidence that they ever used it. Ms. Matveeva used the Co-operation Agreement when she prepared briefing notes for an Executive Board meeting on 2 July 2002 about the sales to Titanium, Pendulum, Accent and Severn, but Mr. Skarga did not suggest that she should do so. Mr. Privalov, through his secretary, Ms. Atherton, provided her with a copy of it when she sought his help to explain the sales in the notes.

The collaboration over ordering vessels took place when in 2003 and 2004 Sovcomflot were pursuing their fleet renewal programme in accordance with the Principal Directions. I should first describe how Sovcomflot were funding their programme, and shall also deal with the evidence about the value of the vessels and of the rights that the Standard Maritime defendants acquired.

Since 2002 and earlier Sovcomflot had considered the possibility of raising money through an IPO of Fiona’s shares on the New York stock exchange. On 31 October 2002, the Executive Board resolved that a proposal for an IPO and Sovcomflot’s investment plans should be presented to the General Board. On 22 November 2002 the General Board resolved that Sovcomflot should explore this possibility further: Mr. Skarga was to select a consultant and to report back to them. It was contemplated that an IPO might raise something of the order of $250 million. The purpose was to raise funds for newbuildings, and, as is clear from the presentation to the General Board on 22 November 2002, it was particularly associated with plans to exploit the gas and oil resources of Sakhalin Island off the coast of Siberia and to supply the Far East market. The briefing note referred to the need for Aframax vessels in relation to the Sakhalin 1 project and the need to acquire LNG carriers in relation to the Sakhalin 2 project. On 26 December 2002 Mr. Skarga presented to a meeting of the General Board a plan for 2003 (under the title “Reference on the key directions of production and financial indications of the Sovcomflot Group of 2003”) that stated, “… in order to provide for the supplies of New-build vessels and the implementation of new projects (Sakhalin 1 and Sakhalin 2) in the course of 2003, provided there is a successful placement of shares on the stock exchange it is planned to organise new bank loans in the summer of about USD270 million and to raise equity cash in the sum of USD250 million”.

The IPO proposal was not straightforward. Because Sovcomflot were owned by the Russian state and designated a “strategic enterprise”, the Ministry of Property, the Ministry of Transport and the Ministry of Finance all had to give their approval, and other government bodies, including the Ministry of Economics, were also involved in the process. In February 2003 the Ministry of Transport approved the proposal but

I have referred to plans to export oil and gas from Sakhalin Island to the East Asian markets. Sovcomflot tendered, in the event successfully, for transport contracts for both phases of this project. This was in line with their objectives to collaborate with Russian business, to carry Russian cargoes and to support the export of Russian oil and other products. This strategy presented Sovcomflot with a dilemma about the ships that they should acquire in that they had to have suitable vessels if their tenders were successful, but at the same time they were reluctant to commit themselves to buying newbuildings for this specialist trade in case they were not. They therefore sought to persuade yards to keep available for them “slots” for newbuildings and, as Mr. Skarga stated in his evidence and I accept, they thought that yards would be readier to do so if they were placing large orders. This was one reason, he said, for collaborating with Mr. Nikitin over orders when dealing with yards.

The Claimants allege that Sovcomflot allowed the purchasing companies to acquire from them the benefit of shipbuilding contracts, or the shares in single-purpose companies with rights under the shipbuilding contracts, for less than their true value. This allegation is made about all the vessels that the Standard Maritime defendants acquired, but not about HHI hull no 1757, which was acquired by Hayes. The parties called expert evidence about the value of the rights and the vessels to be delivered by the yards from Mr. Willis and Mr. Day.

I was not impressed by Mr. Willis’ evidence. He was not himself an active participant in the market at the relevant time, having retired from broking and become consultant in 2000, and some of Mr. Day’s evidence showed the advantage of his more direct experience of market sentiment. On occasions Mr. Willis allowed himself to use hindsight in order to confirm, or, I think, to form, his views about market movements, and he did not distinguish what information would have been available contemporaneously. Some of his views seemed to me contrary to normal commercial experience: for example, he said that in a strong market a buyer ordering several ships would expect to pay a higher price than for a single order, and would have no negotiating advantage from the size of his order. However, the main reason that I am unwilling to rely upon Mr. Willis’ evidence was that he had formed many of his opinions on the basis of information that was inaccurate or at least incomplete; and, perhaps more importantly, when this became apparent, rather than reconsider his conclusions, he sought new arguments to support them. I refer, by way of example,

Mr. Day’s evidence was of a much higher quality. Although he had had no experience at Jubilee of buying newbuildings as large as Aframax and Suezmax vessels, he had more direct knowledge of the market at the relevant time. More importantly, he was more moderate in his views and willing to assess dispassionately all the relevant information. He was generally careful, and when he did make errors (as on occasions he did) he was willing to reassess his views. He recognised the difficulties in dealing with some of the issues, and in particular, he engaged with the difficulty of valuing contractual rights rather than vessels. Overall, I consider that he provided much more balanced and reliable opinions than Mr. Willis.

By an option agreement made on 13 February 2003, HHI granted Fiona an option to buy two 159,000 dwt Suezmax tankers, hulls nos 1564 and 1565, for a price of $45 million each. Fiona exercised the option and HHI entered into shipbuilding contracts dated 3 March 2003 for the vessels with Buckthorn and Southbank, which were not in the Sovcomflot group but companies with which Mr. Nikitin was associated. The claimants submitted that, when the option to buy these vessels was exercised, the price for the vessels which a yard such as HHI could have agreed on the market would have been about $1.5 million more than $45 million, and so Fiona passed to Buckthorn and Southbank the benefit of favourable option rights.

I observe that, even if the claimants’ submission is correct, it would not follow that Fiona disposed of option rights for less than some value that they had on the open market. I accept Mr. Day’s evidence that the option conferred on 13 February 2003, which had to be exercised by 3 March 2003, was not an asset that could have been sold on the market because there was not enough time to do so. It would not have been realistic to start to market the option before it had been formally granted on 13 February 2003, notwithstanding that HHI had entered into a letter of intent to grant it on 27 January 2003.

The claimants’ submission is based upon Mr. Willis’ evidence about the market value of the vessels. His opinion was that in February 2003 the market price for Suezmax tankers such as hulls nos 1564 and 1565 was about $46 million or $46.5 million. He relied in particular upon reports at the beginning of 2003 from shipbrokers of a strong prevailing market, of shipyards’ slots for constructing vessels becoming less readily available and of the delivery schedules of yards becoming longer; upon the prices shown in Clarkson Newbuilding index, which increased for Suezmax newbuildings from $43.75 million in December 2002 to $45.5 million in February 2003 and to $46.5 million in March 2003; and upon a schedule of reported prices of comparable sales of Suezmax newbuildings.

The newbuildings ordered from HHI were in some ways more attractive than standard Suezmax vessels, and Mr. Willis considered that they would therefore command a higher value. One of his reasons was that mistakenly he believed that the vessels’ tanks were to be fully epoxy coated. He also observed that they were to be larger than an average Suezmax vessel and were to have other attractive features.

Undoubtedly at the end of 2002 and the beginning of 2003 brokers were reporting that the market was strengthening, but it is apparent only with hindsight that a sustained period of rising prices had started. Mr. Day recalled that, while brokers were speaking enthusiastically of a recovery and there was a “positive feeling” around, the market generally felt uncertain about the future, and some, those who Mr. Day described as the “research fraternity”, were less “bullish”. To give just one example of a more pessimistic view, on 22 January 2003 Fearnleys AS of Oslo (“Fearnleys”) published in their Weekly Report that they doubted the “robustness” of the “present firm interest”.

Further, the schedule of reported prices on which Mr. Willis relied was incomplete. He omitted reports of sales of an unnamed Daewoo vessel for $45 million in January 2003 and of another Daewoo vessel, the “Nordic Freedom”, reported on 7 February 2003 at $44.5 million. Although Clarkson’s index reported a price of $45.5 million for a Suezmax newbuilding at the end of February 2003, other brokers’ indices were rather more cautious: a report of 28 February 2003 from Compass Maritime Services LLC of New Jersey (“Compass”) and a report of 26 February 2003 from Fearnleys assessed the price at $45 million.

I accept that by the end of February 2003 the price of vessels generally had increased to some extent. The strengthening market is reflected in a briefing note before the meeting of Sovcomflot’s Executive Board on 11 February 2003, to which I shall refer. If it were relevant to place a value on these HHI Suezmaxes towards the end of February 2003, my best estimate is that they were worth $45.8 million. As I shall explain, this is the price which HHI initially sought in February 2003 for the further options for similar vessels, although in fact they agreed to lower prices because arrangements for address commissions were adjusted.

On 3 March 2003 HHI entered into contracts for the construction of two further Suezmaxes, hulls nos 1585 and 1586, for $45 million with Titanium and Pendulum. The hulls were sisterships of hulls nos 1564 and 1565. The shares in Titanium and Pendulum were sold by Fiona to Standard Maritime, and the claimants allege that they were sold at a substantial undervalue. For reasons that will become apparent, Mr. Willis and Mr. Day gave evidence about the value of the shares as at 14 August 2003, 23 November 2003 and 6 January 2004.

Titanium and Pendulum were single-purpose companies and they had no assets or liabilities other than their rights and liabilities under the shipbuilding contracts with HHI. The value of the companies therefore depended upon the value of the contracts. This does not simply reflect how much yards would have charged to build a similar vessel. Mr. Willis and Mr. Day agreed, and I accept, that, whatever legal mechanism is adopted to transfer contractual rights of this kind, there are disadvantages and difficulties, which would have been reflected in the price that could be obtained for them. Thus:

Mr. Willis considered that potential buyers of hulls nos 1585 and 1586 might nevertheless have been attracted because their delivery dates were 30 September 2005 and 30 November 2005 respectively whereas, as far as he knew, by August 2003 yards were not committing themselves to delivery dates before 2006 on orders for vessels of this size. I was not convinced by his evidence about the available delivery dates, but, even accepting it, I conclude that the disadvantages of transferring a contract would have reduced the price which a buyer would have agreed to pay, and that the delivery dates of these newbuildings would not significantly have off-set this. It is impossible to measure the adverse impact at all precisely, but I accept Mr. Day’s estimate that some 5% to 10% against a yard’s price for a newbuilding should be recognised, and adopt his reduction of 7.5% as a sensible approximation.

Standard Maritime paid for the shares in Pendulum and Titanium $47 million, a premium of $2 million over $45 million, which was the price of the vessels under the shipbuilding contracts. The claimants submitted that this was less than their value in August 2003. The evidence of Mr. Willis was that they were then worth $48 million. Mr. Day’s view was that as at 14 August 2003 the contractual rights (and shares in the companies) had no value that was realisable on the markets, or at least no value greater than the prices that Standard Maritime paid.

I prefer the evidence of Mr. Day. When Mr. Willis first assessed the value of the rights, he understood that the vessels’ tanks were to be fully epoxy coated, but this was not correct. He also relied upon a schedule of reported prices of comparables that, at best, omitted relevant matters: for example, with regard to the sale of a vessel called the “Soponata”, he referred to a reported price of $46.3 million, without mentioning that according to another report the price was $45 million, and he referred to a sale of two vessels to the Thenamaris group without observing that they were reported to be ice-class vessels. Moreover, in my judgment the market in August 2003 was less buoyant than Mr. Willis suggested. Some were expressing concern

Mr. Willis agreed in cross-examination that in the summer of 2003 prices for Suezmax newbuildings were within a range from $45 million to $49 million and that the more expensive vessels were of ice-class status. This is not significantly different from the view of Mr. Day, who, having considered reports of sales of comparable vessels and the reports of Clarkson Research and of Drewry, concluded that prices were between $45 million and $48 million. Even without a discount for the disadvantages of transferring contractual rights, the claimants have not shown that in August 2003 the value of hulls nos 1585 and 1586 was more than Standard Maritime agreed to pay for Titanium and Pendulum.

Mr. Willis considered that by 23 November 2003 the value of the contracts for the HHI hulls had increased to $52,750,000. Mr. Day considered that they still had no value that was realisable on the market or no value greater than the price paid by Standard Maritime. I do not accept Mr. Willis’s evidence. I acknowledge that the price shown by the Clarkson Research in their Suezmax index had increased by November 2003 to $51 million. However, this appears to me to be out of line with reported sales. Mr. Day and Mr. Willis agreed that price tracking indices should always be treated with caution and only used as a rough guide. In this case it is possible that Clarkson Research gave a price as high as $51 million because it reported a sale of three vessels on 19 September 2003 to be for $52.5 million per vessel whereas others reported the prices at only $46.7 million. In any case, I have seen no other evidence that corroborates Clarkson Research’s price of $51 million for November 2003, and I do not accept that the index is a reliable guide in this instance. Drewry gave a price of $49 million in November 2003.

I accept the defendants’ submission that the best comparable indicating the price in November 2003 of a Suezmax newbuilding is the sale of two 160,000 dwt tankers by Samsung to Viken Shipping AS (“Viken”) at a price of $48 million each. This reported price is in line with the price of $48.5 million for which Daewoo offered to supply standard (rather than ice-class) Suezmax tankers to Sovcomflot. In his report of 28 September 2009 Mr. Willis said that the sales to Viken provided “excellent guidance to market activity for this type at that time”. When he wrote this, he thought that hulls nos 1585 and 1586 would command higher prices because the tanks would have full coatings. I do not overlook that Mr. Willis sought to support his assessment of the value in November 2003 by reference to orders by Marmaras Navigation with Hyundai Sambo, but in my judgment there is such confusion about the reporting of these orders that they do not provide a useful or a reliable comparator.

Mr. Day observed that, even taking the Clarkson Research index price for November 2003 at face value, the range of prices indicated by the indices and the prices paid in the comparable Viken sale would be between $48 million and $51 million for a vessel such as the HHI newbuildings. I accept that evidence, and reject Mr. Willis’ view that

I conclude that the claimants have not shown that Standard Maritime acquired the shares in Titanium and Pendulum at a price below their true value as at 14 August 2003 (when the defendants say that the price was agreed) or at 23 November 2003 (by which date the claimants accept that the price was agreed). The claimants’ pleaded case, however, is not directed to the value of the shares (or the vessels) in August or November 2003. They plead that the shares were transferred to Standard Maritime at a substantial undervalue because by January 2004 the value of the hulls (not the shares) had increased to $54.5 million: see para 202.3 of the particulars of claim. Mr. Willis’s evidence was that as at January 2004 the value of the contracts of Titanium and Pendulum was $54.5 million. Mr. Day disagreed, and again I prefer Mr. Day’s opinion. I shall deal with this issue only briefly because I consider irrelevant the value of the shares (or contractual rights or vessels) at a date after the price had been agreed. Mr. Day gave evidence, and I accept, that, even if no contractually binding agreement had been made earlier, it would have been contrary to normal commercial practice to seek to increase the price while written contracts were being prepared.

The indices of Drewry and Clarkson Research indicated (admittedly on the basis of few reported transactions) that as at 6 January 2004 the price of vessels was around $53 million. Applying a discount of (say) 7.5% to reflect that the sale was of contractual rights rather than a vessel, this would indicate a price of $49 million. If account is taken of commissions that would have been incurred if Sovcomflot attempted to sell the rights in the vessels on the market, this would indicate a price of around $48 million. The claimants have not shown that the shares were transferred for a substantial discount against their market value in January 2004. Indeed, given the fragile nature of any calculation of a market value of contractual rights such as these, I do not consider that they have shown that they were transferred at a discount at all.

The claimants say that Standard Maritime acquired at an undervalue the shares in more two companies, Accent and Severn, who had entered into contracts with Daewoo to construct for $57.9 million hulls nos 5274 and 5272 respectively, two 162,000 dwt Suezmaxes of ice-class 1A. They contended that on 20 February 2004 the price of such a vessel would have been $61 million and by 23 March 2004 it would have been $62.5 million. Mr. Willis’ evidence supported this contention. Thus, the claimants contended, when in February 2004 Standard Maritime acquired the shares in Accent for $57.9 million, they paid $3.1 million less than their value, and when in March 2004 they paid $58.9 million for the shares in Severn, they paid $3.6 million below their value. The defendants disputed this. Mr. Day considered that they were worth no more than the price of $57.9 million which was to be paid for the vessels under the shipbuilding contracts with Daewoo.

There is no dispute that between November 2003, when Daewoo and Fiona agreed upon the price of these vessels in a letter of intent and a side letter of intent, and February or March 2004 the price for Suezmax newbuildings increased considerably. In November 2003, the Clarkson price index for a standard vessel of 156,000 dwt to 158,000 dwt was at $51.5 million and by March 2004 it had risen to $57 million. Mr. Willis considered that the specification of the Daewoo vessels was such that they would command a higher price in that they were 162,000 dwt, rather larger than the standard size of a Suezmax vessel; they were of ice-class 1A; they had bigger engines; and they had superior tank coatings.

In his report of 15 May 2009 Mr. Willis considered that, “The most significant market guide is undoubtedly the report in early February 2004 of two 162,400 Dwt, Ice 1A, coated Suezmaxes contracted at HHI with the Tsakos group for a price in excess of $60 million each. They are very similar specification vessels to the two Daewoo vessels … and I believe they provide a very accurate guide to their value”. The report produced to support this was one of 13 February 2004 by Southport Atlantic of Florida, which stated that the vessels were “estimated to cost around US $60 million each” (not in excess of $60 million). When he was cross-examined about this, Mr. Willis said that he believed that he had seen another report of the sale and had amended his records of sales to reflect the other report. He later produced a report of the sale from Clarkson Asia Ltd., which stated that the sale of the HHI vessels was “at an undisclosed price estimated to be in excess of USD 60 mill.” He explained his earlier report on the basis that all such reported prices are a rough guide and could not be regarded as necessarily accurate. I consider it unfortunate that his original report did not reflect all the information that Mr. Willis had about the sale to the Tsakos group in view of the importance that Mr. Willis attached to it as a comparator.

In fact, the reports about the sale were, as I conclude, inaccurate. Mr. Day was told by Mr. Jona Desselberger, a broker who worked on the transaction, that the price paid by the Tsakos group was $57.1 million, payable in four instalments of 10% each and a final instalment of 60%. Mr. Desselberger confirmed to Mr. Willis this information about the price. I consider it more reliable evidence about the price paid than market reports. It is beside the point that a higher price was mentioned in both reports, because mistakes of this kind, once made, are often repeated.

After he had been cross-examined, the claimants served a further report of Mr. Willis dated 15 February 2010 in which he defended his view about the value of the Daewoo vessels, notwithstanding the new evidence about the price paid by the Tsakos group. He stated that comparisons of this kind provide only a rough guide because they do not take account of differences in specification, and that the specification of the Daewoo vessels was superior to that of the HHI vessels. He explained that in his report of 15 May 2009 he had wrongly assumed that the HHI vessels were of extremely high specification. I found this unconvincing. Mr. Willis had given evidence through his report that the Daewoo vessels and the HHI vessels were “very similar specification vessels”. I do not propose to analyse the various features that led Mr. Willis later to opine that the Daewoo vessels’ specification was superior. It suffices to say that Mr. Day, having considered them carefully in a further report dated February 2010, concluded that “the differences in design (some of which favoured the Tsakos vessels) would not have resulted in any material difference in the value of the Tsakos contract compared with the Sovcomflot contract and indeed the

Mr. Day was right to recognise that what matters in this case is not the value of vessels, but the value of contractual rights against the Yard. As I have explained, this requires that some discount be introduced against the price of ordering a vessel. The contracts with Daewoo provided for delivery dates for the vessels of August 2006 for hull no 5272 and of September 2007 for hull no 5274. The September 2007 date would not have provided an incentive for buyers to prefer to take over the contract rather than to order a vessel from a Yard. The position with regard to an August 2006 delivery date is less clear. Mr. Willis considered that by March 2004 the delivery schedules of yards extended “well into 2007”, and Mr. Day agreed that in March 2004 the delivery dates offered by yards were later than August 2006. There is no convincing evidence that the delivery dates would have significantly off-set the discount to be made for the disadvantages of transferring contractual rights.

In my judgment, the claimants’ case that the value of the contracts for Daewoo vessels was as high as the claimants allege, or indeed above the price that Standard Maritime paid for the shares in Accent and Severn, depends upon the rise in the Clarkson and Drewry indices after Fiona and Daewoo agreed upon the price of $57.9 million in the letters of intent in November 2003. This evidence must be assessed in light of (i) the sale to the Tsakos group, which, on the face of it, presents a good comparator for the value of the Daewoo vessels and indicates that the published indices were too high; (ii) the difficulty of disposing of contractual rights for specialist vessels; and (iii) the limited market for vessels of this kind. The Daewoo vessels were specialised ships, and, as Mr. Day put it, there were very few nonRussian buyers who “have an absolute need for an ice-class 1A ship”. I am not persuaded that Standard Maritime bought the shares in Accent and Severn at a substantial undervalue, or indeed that it has been shown that they bought them at any undervalue.

I come to the dealings about which the claimants complain in respect of the newbuildings scheme. Towards the end of 2002 Sovcomflot decided that they should buy new Suezmax vessels, and Mr. Skarga instructed Mr. Privalov to investigate the market. Mr. Privalov advised that prices for newbuildings were low and that it was a good time for Sovcomflot to place orders. Mr. Gale opened negotiations with HHI about placing an order for vessels from their yard at Ulsan, Korea. Mr. Nikitin had spoken with Mr. Skarga about Sovcomflot’s plans to buy new Suezmax vessels, and I accept that from the start Mr. Nikitin and Mr. Skarga had discussed whether the Investors, that is to say Mr. Nikitin, Mr. Katkov and Mr. Malov, might also acquire Suezmax vessels and collaborate with Sovcomflot if they did so.

On 9 December 2002 in an e-mail to Mr. Wood, who was HHI’s broker, Mr. Gale said that Sovcomflot had instructed Clarkson to enquire of HHI about ordering two Suezmax vessels with an option to purchase two more. On 11 December 2002 Mr. Wood wrote to HHI about Fiona ordering Suezmax vessels on this basis that they intended to sign firm orders for two vessels in January 2003 and sought options for two more vessels which would be for declaration in March and June 2003. Clarkson and HHI carried on negotiations into January 2003. HHI advised Clarkson that they were being pressed hard by other potential customers for their berths, and in an e-mail to Mr. Privalov on 7 January 2003 Mr. Gale advised that “At the moment all Korean shipyards are raising prices like hell and fast”, and that HHI were treating Sovcomflot more favourably than other customers. In an e-mail of 15 January 2003 Mr. Gale advised that the delivery date for the second vessel that HHI might build had been delayed to the second quarter of 2005 because the yard was “committing berths the whole time under current market pressures”. The claimants relied upon these communications as evidence of heavy demand in the market in early 2003 and submitted that the Investors were able to buy newbuildings from HHI only by exploiting Sovcomflot’s relationship with them. I am not persuaded of this: these were the comments of a yard engaged in negotiations or of brokers anxious to conclude a deal.

The negotiations resulted in Fiona signing a letter of intent with HHI dated 27 January 2003 to buy two 159,000 dwt crude oil carriers, with an option to buy two more. The price for each was $45 million payable in four instalments: 10% on signing the contract, 10% six months thereafter, 10% upon keel laying and 70% on delivery. The first vessel was to be delivered in the first quarter of 2005 and the second vessel was to be delivered in the second quarter of 2005, subject to HHI’s option to deliver her in the first quarter. The optional vessels were for delivery in the second quarter of 2005. The options were to be declared on or before 3 March 2003. The letter of intent stated that Fiona were to provide a performance guarantee if the contractual buyer of the vessel was “a special purpose company or a company who has no substance”.

Mr. Privalov gave Clarkson instructions during the negotiations on behalf of Fiona, and signed the letter of intent. He said that he understood that Fiona intended to place the firm orders and take the options for themselves, and that before early February 2003 he did not know that Mr. Nikitin or the Investors associated with him might acquire any of the vessels. I am unable to accept that evidence. On 24 January 2003 Mr. Privalov sent Mr. Nikitin a draft of the letter of intent under cover of an e-mail which, to my mind, makes it clear that Mr. Nikitin was familiar with, and had been following, the negotiations with HHI. This is not only consistent with the evidence of Mr. Skarga and Mr. Nikitin that they had discussed collaboration, but shows that Mr. Privalov knew of Mr. Nikitin’s interest.

In early February 2003 Mr. Privalov sought Mr. Wettern’s advice about how the option for further vessels might be exercised by or on behalf of the Investors, given that HHI were to have a performance guarantee from Fiona. Mr. Wettern responded in an e-mail dated 10 February 2003, in which he recalled that Mr. Privalov had explained that, “The Investors might well wish to purchase the first two option vessels” and that Sovcomflot would be asking HHI to agree to them having options for two further vessels. Mr. Wettern suggested that, “Because in your accounts it is going to look odd if Fiona has given Guarantees to HHI in respect of contracts of

This suggestion of Mr. Wettern was not adopted, and on 11 February 2003 he wrote to Mr. Nikitin setting out an alternative arrangement whereby Sovcomflot would exercise the option for the two vessels and the contracts for them would be made in the name of two new Liberian companies which would become subsidiaries of the Investors’ companies, Kosta, a company of Mr. Nikitin, and Vicco, in which Mr. Katkov and Mr. Malov were interested. Mr. Wettern wrote that he understood that it was to be agreed that Fiona would supervise construction of the vessels and be reimbursed for the work at cost, that from delivery Fiona would manage the vessels, that the Investors would fund the payments under the shipbuilding contracts and that the Investors would provide a counter-guarantee to Fiona for their guarantee to HHI.

At about this time Mr. Lipka and Mr. Terekhin signed, on their own behalf and as proxies for Mr. Borisenko and Mr. Skarga, minutes of a meeting of the board of Fiona on 7 February 2003 that recorded a resolution that Fiona should execute guarantees in respect of the purchase from HHI of hulls nos 1562 and 1563 by two subsidiaries of Fiona, Tam Enterprises Inc. (“Tam”) and Cambridge Carriers Ltd. (“Cambridge”). It was also resolved that Fiona should execute an Option Letter for two subsidiaries to take delivery of two further vessels. Mr. Lipka did not know who were to acquire these further vessels, but he acknowledged that he must have known by this stage that they were not for Sovcomflot. I infer that Mr. Terekhin and (despite his denials) Mr. Borisenko also knew this.

On 11 February 2003 the Executive Board of Sovcomflot considered the purchase from HHI, and unanimously decided to place an order for four vessels. The meeting was attended by Mr. Privalov. The minutes record that he reported that he had signed a letter of intent to buy four vessels with an option to order two more: there is no dispute that this was an error in the minutes. Mr. Privalov reported that, “These ships were ordered at a very good price, considering the general increase in the cost of newly built vessels, which has been brought about by the raising of rates in the charter market”. A briefing note for the meeting, which had been prepared by Mr. Sharikov and Ms. Matveeva, said that the price of $45 million corresponded “to the lower limit of prices for new built ships for delivery in 2005 and is considerably less than the cost of modern ships now in use”.

The minutes do not specifically refer to the Investors. They refer to the letter of intent giving an “option of the customer ordering two more tankers”. The defendants submitted that “the customer” was not a natural expression to describe Fiona and it was intended to refer to the Investors. I disagree: Fiona were HHI’s customer and naturally so described in the context of the reference to the letter of intent. However, this is not important. The discussion at the meeting must have been on the basis that Sovcomflot were not to acquire the two optional vessels for themselves. For example, Mr. Terekhin, who had signed Fiona’s minutes, knew this and he spoke in support of the proposal.

On 13 February 2003, at a signing ceremony in Korea, Sovcomflot entered into contracts with HHI for the purchase of hulls nos 1562 and 1563 in the names of Tam and Cambridge and also an agreement that Fiona could declare no later than 3 March 2003 an option to buy two further vessels. Fiona were to provide a guarantee if the buyers were special purpose companies or had no substance. It was a single option to buy two vessels, and Fiona were not entitled, as I interpret the agreement, to elect to buy one further vessel. The shipbuilding contracts and the option agreement were governed by English law.

When the agreements with HHI were concluded, according to Mr. Skarga’s evidence, which I accept, Mr. Nikitin had not firmly committed the Investors to buying two vessels from HHI, but he had indicated that they were likely to wish to do so. They took a firm decision to acquire them on about 14 February 2003 and advised Sovcomflot of it. On 17 February 2003 Mr. Wettern sent to Mr. Privalov and Mr. Nikitin a draft of an Option Exercise Agreement to be made by Fiona with Kosta and Vicco. He observed in his covering e-mail that “If this were to be done on armslength terms”, Fiona might ask for security for Kosta’s and Vicco’s indemnity in respect of Fiona’s guarantees to HHI. Although he was not sure whether this was required “given the proximity of relations”, he advised that without it Fiona’s auditors would treat the purchasers of hulls nos 1564 and 1565 as companies in the Fiona group. In a further e-mail on 28 February 2003 Mr. Wettern wrote to Mr. Nikitin and Mr. Privalov that, after discussions with Mr. Privalov, he thought that, because the arrangements needed to be “capable of being defended from the point of view of Fiona”, there should be security for the indemnity. He enclosed the draft of an agreement whereby the bearer shares in Buckthorn and Southbank, which were to acquire the vessels and to be owned by Kosta and Vicco, should be pledged as security and held by WFW for this purpose. Mr. Wettern explained that, in broad effect, this meant that Fiona would be secured by the instalments of the price paid to HHI, the first of which were due when the shipbuilding contracts were made.

Once the Investors firmly decided to acquire the two vessels, Sovcomflot went about acquiring from HHI further options for a fifth and a sixth vessel. HHI proposed prices of $45.8 million for them. Clarkson had arranged for HHI to pay address commissions of 2.5% in respect of the agreements for the first four ships. This was, I infer, to fund payments to be made under the Clarkson arrangement, and was not known to Mr. Skarga or any other executive of Sovcomflot in Moscow. Clarkson proposed in an e-mail to HHI on 18 February 2003 that the address commissions be reduced from 2.5% to 2%, or by $225,000, for all six vessels and that the price for the further optional vessels should be $45 million. HHI agreed to this on 19 February 2003, and Fiona immediately exercised the options for the fifth and sixth vessels, which were for hulls nos 1585 and 1586.

On 19 February 2003 Mr. Privalov stated in an e-mail to Mr. Wettern that “As agreed, vessels number 3 and 4 will be assigned by [Fiona] to investors”, and asked him to incorporate two companies to acquire hulls nos 1585 and 1586 for Sovcomflot. HHI were not told that the Sovcomflot group did not intend to acquire all six vessels for themselves, and HHI clearly believed that they were to do so.

Clarkson were not straightforward in the way that they brought about this agreement. On 18 February 2003 Mr. Wood told HHI that “the buyers are prepared to reduce their address commission by 0.5%...”, although he had no proper basis for believing

The documents show that the further options from HHI were known to Mr. Borisenko, Mr. Terekhin and Mr. Lipka, as well as to Mr. Skarga, and I infer that the other members of the Executive Board knew about them as well. Mr. Privalov sent to Mr. Borisenko a copy of his e-mail of 19 February 2003 to Mr. Wettern. On 24 February 2003 Mr. Wettern sent an e-mail to Mr. Lipka in which he set out which companies were to buy the four optional vessels: Buckthorn were to buy hull no 1564; Southbank were to buy hull no 1565; Titanium were to buy hull no 1585; and Pendulum were to buy hull no 1586. He pointed out that Buckthorn and Southbank were not owned by Fiona, but Titanium and Pendulum were.

Mr. Wettern prepared two sets of minutes to record resolutions of the directors of Fiona. As usual, no meeting was actually held but minutes of meetings on 25 February 2005 were signed by Mr. Terekhin and Mr. Lipka on their own behalf and as proxies for Mr. Skarga and Mr. Borisenko, and they were returned to Mr. Wettern. The first minutes recorded a resolution that Fiona should provide to HHI performance guarantees for Buckthorn, Southbank, Titanium and Pendulum and that a director should execute a power of attorney in favour of (among others) Mr. Privalov to enter into them. The other minutes recorded a resolution to authorise the execution of an Option Exercise Agreement to be made by Fiona with Kosta and Vicco, and stated (i) that Kosta and Vicco should own the shares in Buckthorn and Southbank, and (ii) that the Option Exercise Agreement should provide (among other things) that Kosta and Vicco would indemnify Fiona in respect of performance guarantees to be given to HHI, fund the instalments under the shipbuilding contract and have Unicom supervise the construction of the vessels and manage them after delivery. It was resolved that a director of Fiona should execute powers of attorney in favour of (among others) Mr. Privalov to enter into the Option Exercise Agreement. Mr. Terekhin executed powers of attorney authorising Mr. Privalov (among others) to execute the guarantees and the Option Exercise Agreement. It is clear from an e-mail sent on 11 March 2003 from Mr. Privalov to Ms. Matveeva that Mr. Borisenko had a copy of the Option Exercise agreement.

The Executive Board of Sovcomflot had again met on 18 February 2003. The agenda did not include any item about the further options. According to Mr. Skarga, they were discussed at the meeting and he suggested that the matter be on to the agenda, but others on the Board, in particular Mr. Terekhin, considered this unnecessary because two of the options were not for Sovcomflot. Mr. Lipka and Mr. Khlyunev did not recall this, but there is no reason that Mr. Skarga should have invented this evidence, and I accept that there was some discussion such as he described either at the meeting or in exchanges between members of the Executive Board before the meeting.

On 3 March 2003 there were executed the following: (i) shipbuilding contracts made by HHI with Buckthorn and Southbank for the construction of hulls nos 1564 and 1565; (ii) shipbuilding contracts made by HHI with Titanium and Pendulum for hulls nos 1585 nos and 1586; (iii) guarantees by Fiona of the obligations of Buckthorn, Southbank, Titanium and Pendulum to HHI; and (iv) an Option Exercise Agreement whereby Kosta and Vicco agreed to indemnify Fiona in respect of the guarantees for the obligation of Buckthorn and Southbank and to provide security to support the indemnities. All the agreements were governed by English law. In the guarantees the parties agreed upon the jurisdiction for the English courts. The Option Exercise Agreement included an agreement for English arbitration. The agreements were executed in London and Mr. Privalov signed them on behalf of Fiona under authority conferred upon him by the powers of attorney.

In January 2005 Southbank and Buckthorn entered into agreements to sell the vessels upon delivery for $80 million each to purchasers financed by Schoeller Holding Ltd. and Koenig & Cir GmbH & Co KG, who were referred to as the “Koenig purchasers”. The claimants’ contention is that by then Standard Maritime owned both Southbank and Buckthorn because (i) the shares in Southbank were owned from the date of incorporation by Kosta and Mr. Nikitin was the beneficial owner of Kosta; (ii) the shares in Buckthorn were owned from the date of incorporation by Vicco and after about July 2003, when Mr. Malov and Mr. Katkov transferred to Mr. Nikitin such interests as they had in shipping investments, Mr. Nikitin was the beneficial owner of Vicco; and (iii) at some time Mr. Nikitin arranged for the ownership of Southbank and Buckthorn to be transferred to Standard Maritime. The claimants did not develop these contentions before me and, had I needed to make findings about whether they were justified by the evidence, I would have invited further submissions about them. In view of my conclusions on other matters, I do not need to do so.

The claimants’ pleaded complaint in relation to hulls nos 1564 and 1565 is directed to how Fiona dealt with the option to which HHI agreed in the letter of intent on 27 January 2003 and the option agreement dated 13 February 2003 and which Fiona exercised on about 19 February 2003. The Fiona board resolved on 25 February 2003 to enter into the Option Exercise Agreement which recognised that the optional vessels would be bought by Buckthorn and Southbank, and Fiona entered into the contract on 3 March 2003. The claimants alleged that Mr. Skarga, and also Mr. Borisenko and Mr. Privalov, all acted dishonestly and in breach of fiduciary duties owed to Sovcomflot, Fiona and FML “By causing or permitting Fiona to transfer the benefit of the shipbuilding options to Buckthorn and Southbank”: see para 187 of the particulars of claim. They are said so to have acted because they had been paid or expected to be paid bribes. It is also alleged that FML were in breach of fiduciary

This pleading is open to proper criticism. First, as I have observed, there were not separate options for the two vessels, but a single option to buy two vessels. Secondly, the complaint is about how Fiona dealt with the options, and I do not consider that Mr. Skarga or Mr. Borisenko or Mr. Privalov acted in breach of duties owed to Sovcomflot or FML. Thirdly, in so far as the claimants argued that Mr. Privalov, being employed by FML, acted in breach of his duty to FML, because he caused FML in turn to be in breach of some duty to Fiona, I cannot accept either that FML were acting in any relevant way so as to be in breach of duty to Fiona or that Mr. Privalov was acting at any relevant time as employee of FML. Specifically he signed the agreements on 3 March 2003 on behalf of Fiona because he personally had been authorised to do so by the powers of attorney executed by Mr. Terekhin in accordance with the resolutions of the board of Fiona on 25 February 2003.

Fourthly, and more fundamentally, as a matter of legal analysis Fiona did not “transfer” any option to Buckthorn and Southbank, nor as a matter of commercial reality did Fiona allow the Standard Maritime defendants through Buckthorn and Southbank to acquire vessels which Fiona planned to buy for themselves. As I have concluded, from the start and certainly by the time the letter of intent was signed, it was contemplated that the Investors might buy the two vessels. By the time that HHI entered into the option agreement of 13 February 2003, the Investors were likely to decide to take them. By then, Sovcomflot had, as I conclude, decided that they might want four vessels from HHI. I accept Mr. Skarga’s evidence that they so decided because it was then looking more likely that the IPO would proceed and this allowed or encouraged Sovcomflot to press ahead more ambitiously with the fleet renewal programme, but the reason for Sovcomflot’s decision is not important. As a result of it, Sovcomflot approached HHI for the two further optional vessels, and HHI did agree to Sovcomflot’s request. As far as Mr. Skarga and Sovcomflot were aware, HHI’s price for each of the six vessels was $45 million. They knew nothing about Clarkson’s negotiating manoeuvre about the address commissions. It is not clear how Sovcomflot and the Investors would have resolved the position if HHI agreed to sell only four vessels, but the question never arose.

I come to the more specific allegations that the claimants make in support of their contention that, dishonestly and in breach of duty Mr. Skarga (and others) caused or allowed Fiona to transfer the benefit of the options. First it is said (at para 187.1 of the particulars of claim) that “The options were a valuable item of property acquired by Fiona, inter alia, on the strength of its commercial relationship with [HHI] and its covenant as guarantor”. I do not find it easy to understand this allegation: Fiona did not give a guarantee of “the options”, although they might be required to provide guarantees if the option was exercised. In so far as it is said the option rights had a value on the open market, I accept Mr. Day’s evidence that they did not. Whether it be supposed that Sovcomflot might have tried to sell the option when it was granted on 13 February 2003 or that they might have done so after the letter of intent was signed, there was simply not enough time to find a purchaser before the option had to be declared. Mr. Day observed that Sovcomflot would have needed a purchaser of the option who would buy vessels although they would have had no control over their specification. Even if Sovcomflot would have contemplated jeopardising their relationship with HHI by trying to sell the option on the market, I conclude that it had no transfer value.

The focus of the claimants’ claim, however, as they developed it in submissions, was that HHI’s contracts with Buckthorn and Southbank were valuable because the market in Suezmax newbuildings had strengthened and the price for such vessels was, by the end of February 2003, higher than $45 million. As I have explained, in my judgment, they have not established that.

Next, the claimants alleged that Mr. Skarga acted in breach of duty and dishonestly because, “The options would not … have been available to Mr. Nikitin or any of his companies”: para 187.2 of the particulars of claim. I understand that they mean that Mr. Nikitin could not have placed orders for comparable vessels on comparable terms.

The claimants also alleged that it was of no benefit to Sovcomflot or Fiona to collaborate with Mr. Nikitin and the other Investors in buying newbuildings. Mr. Skarga said that he and Sovcomflot considered that they might benefit in that (i) they strengthened their negotiating position and improved standing in the market by placing a large order with the HHI; (ii) they similarly put themselves in a stronger position when ordering equipment (buyer’s supplies) for the vessels; (iii) Unicom were to be appointed by the Investors to supervise the construction of the vessels: and (iv) Unicom were to manage the vessels after delivery. The third and fourth of these considerations were reflected in the Option Exercise Agreement, which also provided that the parties should “collaborate in relation to mutually advantageous opportunities in relation to the vessels’ employment after delivery… ”. While it was a matter of negotiation how much Unicom would charge for their services, Mr. Thompson confirmed that he would negotiate as much as Unicom could obtain.

Mr. Skarga’s evidence is corroborated by the explanation of the collaboration that Mr. Borisenko gave to Moore Stephens during their audits in 2003 and 2004. In any case, these were obvious potential advantages for Sovcomflot in this collaboration and in later collaborations with the purchasing companies over purchases of newbuildings. The collaboration was also in accordance with Sovcomflot’s strategic aim of developing relations with Russian business. I accept that for these reasons in February 2003 Mr. Skarga regarded it as being proper for Sovcomflot to collaborate with the Investors in this way and to Sovcomflot’s advantage to do so. Further, the decision to do so was supported by others on the Executive Board such as Mr. Terekhin, who, I infer, also considered it in the best interests of Sovcomflot and Fiona to do so.

I come to the complaint that Fiona guaranteed the obligations of Buckthorn and Southbank to HHI and, it is said, they were provided with “wholly inadequate security, which entitled Southbank and Buckthorn to retain the benefit of any rise in the market value of the ships under construction regardless of default”: para 187.3 of the particulars of claim. The shares in the buying companies were to be deposited with WFW and the Option Exercise Agreement provided that Kosta and Vicco should

The effect of the provision is that, in the event that they made payment to HHI under their performance guarantee, Fiona had not only an in personam right to an indemnity against Kosta and Vicco but also the right, but not the obligation, to take over the relevant shipbuilding contract by paying the market price of the vessel. This would provide adequate security for the liability unless the market value of the vessel had fallen by more than the amount of any instalments paid to HHI. Since 10% of the price, some $4.5 millions, was payable when the shipbuilding contract was concluded, Fiona were exposed only if the market value fell to more than 10% below the contract price. As further instalments were paid to HHI, Fiona’s security increased.

I accept that under the agreement Kosta and Vicco would benefit from any rise in the market value in the vessels under construction. The claimants have no proper grounds to complain about this. Fiona’s security was, in substance, the instalment or instalments paid to HHI, not the vessels themselves. The scheme was that Kosta and Vicco should have the benefit or disadvantage of any change in the value before Fiona took over the contract.

In any case, even if the security could have proved inadequate in some circumstances, this is not evidence of dishonesty or improper conduct on the part of Mr. Skarga or indeed Mr. Nikitin. It is clear that, understandably, this part of the contractual arrangements was left to Mr. Wettern. He introduced the provision about security into the draft of the Option Exercise Agreement that he suggested on 28 February 2003. I accept Mr. Skarga’s evidence that this matter was “left to the lawyers to draft” and Mr. Nikitin’s evidence that he was relying upon Mr. Wettern “to do the way how he believes it’s proper”. The defendants rightly observed that the guarantees and counter-security were referred to in Fiona’s financial statements and attracted no contemporary criticism.

I therefore reject the claimants’ allegations that Mr. Skarga acted in breach of duty to Fiona (or to Sovcomflot or FML) in relation to the options for hulls nos 1564 and 1565 and that he acted dishonestly in that regard. The reality is that the decision to enter into the arrangements was taken by the board of Fiona collectively. I accept Mr. Lipka’s evidence that he was not aware of the identity of the Investors who were behind the companies entering into the contracts, but there is no reason to think that

By shipbuilding contracts dated 3 March 2003 HHI agreed with Titanium to construct hull no 1585 for $45 million and agreed with Pendulum to construct hull no 1586 for $45 million. The shares in Titanium and Pendulum were bearer shares and by a letter dated 11 March 2003 Mr. Skarga and Mr. Borisenko authorised Unicom to hold them.

On 6 January 2004 Fiona and Standard Maritime entered into two agreements whereby Fiona sold the shares in Titanium and Pendulum to Standard Maritime. The transfer was to be completed on 14 January 2004. The consideration for the shares in each company was $2 million and an amount equal to the payments made by Titanium or Pendulum to HHI. The agreements provided for Fiona to maintain the performance guarantees given to HHI for the obligations of Titanium and Pendulum under the shipbuilding contracts. Standard Maritime agreed to indemnify Fiona for any payments under the guarantees and to provide security for their indemnity by depositing with WFW the shares in Titanium and Pendulum on terms similar to the security for the indemnity in relation to hulls nos 1564 and 1565.

The share sale agreements were in similar form, and were also in the same form as the agreements whereby later the shares in Accent and Severn, who owned the Daewoo hulls nos 5274 and 5272, were sold. They were all governed by English law and contained an agreement to arbitration in accordance with English legislation. They were signed by Mr. Wettern on behalf of Standard Maritime and by Mr. Privalov on behalf of Fiona. In each case the agreement was stated to have been made “as of” a specified date. In the case of the sales of the shares in Titanium, Pendulum and Accent (but not in the case of the sale of the shares in Severn), the claimants allege that the agreements were falsely dated.

The agreements for the sale of the shares in Titanium and Pendulum were stated to have been made “as of 14 August 2003”, and were drafted accordingly (so that, for example, in the recitals it was stated that the second instalment of the price for the vessel “will be due” on 7 September 2003). The claimants contended that there was no proper basis for this, and, as they plead at para 204.3.6(3) of the particulars of claim, “It is to be inferred that Mr. Skarga, Mr. Nikitin and Mr. Privalov required the insertion of that date in the sale and purchase agreement to conceal the true date from Fiona in the knowledge that the shares were being transferred at a substantial undervalue in a rapidly rising market”. They plead that Mr. Wettern was informed on 23 November 2003 that the shares were to be transferred to Standard Maritime and that it is to be inferred that the agreement was reached between Mr. Skarga and Mr. Nikitin on around that date. The defendants contended that there was proper reason for the agreements to be dated “as at 14 August 2003”, because Mr. Skarga and Mr. Nikitin then agreed to the transfer of the shares and the price to be paid.

In January 2005 Titanium and Pendulum agreed to sell hulls nos 1585 and 1586 upon delivery by HHI to the Koenig purchasers for $80 million each. The claimants contend that therefore Standard Maritime made a profit of $33 million per vessel from these dealings, and that they are obliged to account for it to Fiona (and other claimants) because they dishonestly assisted breaches of fiduciary duties on the part of Mr. Skarga, Mr. Borisenko and Mr. Privalov.

In respect of this claim and the other claims about hulls nos 1585 and 1586, including the claims against Mr. Skarga for breach of fiduciary and other duties, it is not pleaded that Sovcomflot’s decision to sell Titanium and Pendulum to Standard Maritime itself was not proper. The focus of the complaint is the terms on which they did so. The central issues about this part of the claim are (i) whether in August 2003 Mr. Nikitin and Mr. Skarga entered into any agreement about Mr. Nikitin acquiring the shares, or hulls nos 1585 and 1586, or the rights under the shipbuilding contracts with HHI; and (ii) what was the value of hulls nos 1585 and 1586, or more precisely the contractual rights with HHI or the shares in Titanium or Pendulum, at the time that it was agreed that they should be transferred. I have already concluded that the claimants have not shown that the companies were transferred for less than their value either in August 2003 or in November 2003.

There is no written record of any agreement in August 2003. Mr. Nikitin’s evidence was that in August 2003, when they were on holiday together in Sardinia, he and Mr. Skarga had discussions about hulls nos 1585 and 1586 along these lines: Mr. Skarga had said that, when Sovcomflot decided to acquire four Suezmaxes from HHI in February 2003, they had thought that the IPO would go ahead, but the process of obtaining the necessary government approvals had stalled. He asked Mr. Nikitin whether he wanted to “take over the contracts” for hulls nos 1585 and 1586, and said that Sovcomflot would transfer them for the amount already paid to HHI and a “premium” of $2 million per vessel, because at that time the price for a comparable vessel ordered from a yard would have been $47 million. Mr. Nikitin sought to negotiate an arrangement that the premium should be repayable if the price for vessels fell but Mr. Skarga would not agree to this, and Mr. Nikitin accepted the proposal as presented by Mr. Skarga. Accordingly, Mr. Nikitin said, he considered that around mid-August they had “struck a deal” at a price for each company of $2 million over the amount of the instalments paid under the corresponding shipbuilding contract.

I cannot accept Mr. Nikitin’s account. If he and Mr. Skarga had reached a firm and unconditional agreement in August 2003, they would have had no reason to wait until November 2003 before instructing Mr. Wettern to draft the required documentation, or doing anything else to implement it. Mr. Nikitin explained that he was very busy at around this time because he was ending his business relationship with the other Investors, and he overlooked the need to deal with the agreement, but this does not explain why Mr. Skarga should not have done so. Further in September 2003, six months after the agreements with HHI had been concluded, the second instalments of 10% of the price fell due under them. If an unconditional agreement as described by Mr. Nikitin had been concluded, the instalments would have been paid or funded by him, but nobody suggested that he should do so.

Mr. Skarga did not say that an unconditional agreement was reached in August 2003. He said that by August 2003 Sovcomflot were not confident whether the IPO would go ahead. It had been at least delayed because of the requirements stipulated by the Ministry of Finance on 18 July 2003. They also faced unanticipated demands on their finances: for example, the Admiralty shipyard increased the prices of their ships. At the same time, the Russian Government were emphasising to Sovcomflot that they should increase their involvement in Russian trade from Primorsk and other ice-bound

Against this background, Mr. Skarga said that he and others at Sovcomflot decided to ask Mr. Nikitin whether he would be interested in buying HHI hulls nos 1585 and 1586. They investigated the appropriate price by consulting Sovcomflot’s on-line service and considering a “Weekly Marine Project Report” of Poten & Partners dated 1 August 2003 and information from Clarkson, and thought that a “premium” of $2 million per vessel would be appropriate. Mr. Skarga then raised the matter with Mr. Nikitin when they were together in Sardinia in August 2003. After some discussion Mr. Nikitin agreed to “take over the contracts” on the basis that he would reimburse Sovcomflot for instalments of the price that had been paid and pay a premium of $2 million for each contract. He said that Mr. Nikitin firmly committed himself to the agreement, but that he did not commit Sovcomflot to it. He explained that Sovcomflot’s decision depended upon two conditions: they were to investigate whether hulls nos 1585 and 1586 could be converted to an appropriate ice-class specification at a reasonable price, and they were to see how the plans for an IPO developed. They were to take a firm decision “within a quarter”, which would mean by mid – November 2003, or at least they were to decide by then whether the IPO appeared likely to proceed. (In his witness statement of 13 February 2003 Mr. Skarga said that he was uncertain whether he told Mr. Nikitin that Sovcomflot’s decision would turn upon these questions or whether they were only what he had in mind. In cross-examination he said that he believed that he spoke to Mr. Nikitin about them.)

On 23 or 25 November 2003 Mr. Skarga and Mr. Nikitin again discussed hulls nos 1585 and 1586 in St Petersburg. Mr. Wettern was present and, as Mr. Skarga believed, Mr. Borisenko was as well. Mr. Skarga said that at this meeting they “finalised this negotiation”. Sovcomflot recognised that they no longer had good reason to qualify their commitment to the conditional agreement, and that it should be binding upon them. Mr. Wettern was given instructions to draft the necessary documentation. Mr. Skarga provided him with the date of 14 August 2003 as the date of the agreement.

Mr. Borisenko was vague in his evidence when he was cross-examined about this matter. He said that he had no recollection of an agreement in August 2003, and that he could not recall when he first learned about the shares in Titanium and Pendulum being transferred. But he accepted that it might have been decided in November 2003 that hulls nos 1585 and 1586 should be sold to Mr. Nikitin pursuant to an agreement that Mr. Nikitin had made with Mr. Skarga in August 2003.

The claimants submitted that, nevertheless, Mr. Skarga’s account is to be rejected, and they dispute that the decision to sell Titanium and Pendulum had any connection

As I have explained, in my judgment, Mr. Skarga overstated the position when he said that by the end of October 2003 the proposal for an IPO was evidently not going to succeed, and I recognise that no contemporaneous documentary evidence indicates that the decision whether to sell hulls Titanium and Pendulum was driven by the progress of the IPO proposal. However, I reject Mr. Borisenko’s evidence and the claimants’ submission that the IPO was proposed only with a view to funding newbuildings associated with the Sakhalin projects, and had no bearing upon the fleet renewal programme generally. There is, to my mind nothing improbable in Mr. Skarga’s evidence that one reason for Sovcomflot selling Titanium and Pendulum was that the IPO proposal appeared to be making no real progress.

The claimants disputed that the disposal of hulls nos 1585 and 1586 was connected with any requirement that Sovcomflot had for ice-class vessels, and specifically vessels of ice-class 1A. They argued that the true position was that during the autumn of 2003 Sovcomflot were examining, in parallel but separately, two possible projects: the practicability of up-grading the specifications for hulls nos 1585 and 1586 to ice-class status, and the acquisition of newbuildings of ice-class 1A. Thus, on 21 August 2003 Mr. Gale enquired of HHI about up-grading the specifications of two vessels and also about the price of ice-class 1A Suezmax vessels. On 29 and 30 September 2003 Mr. Gale reported to Mr. Privalov the cost of up-grading hulls nos 1585 and 1586 to ice-class status 1A specification for the hulls and ice-class status 1C specification for the machinery. In October 2003 Unicom continued to explore the possibility of up-grading the vessels to ice-class 1A hull/1C machinery status. At the same time Clarkson were continuing discussions about Sovcomflot acquiring ice-class 1A newbuildings, and on 17 November 2003 Fiona and Daewoo exchanged letters of intent for the construction of two ice-class 1A Suezmax vessels with an option for a third. On 31 October 2003 HHI had made it clear that hulls nos 1585 and 1586 could not be up-graded to ice-class 1A or 1B specification for their machinery because they had reached too advanced a stage of construction. The exchanges about the possibility of up-grading the specifications to ice-class 1A hull/1C machinery status continued, and on 27 November 2003 Mr. Thompson and Mr. Robinson of Unicom had a meeting with HHI about the technical problems that this would entail. After that meeting Mr. Thompson sent Mr. Skarga a memorandum about the changes to the specification that would be necessary. However, on 24 November 2003 Mr. Skarga had sought and obtained confirmation that Sovcomflot had not given any contractual commitment to change the vessels’ specifications, and on 3 December 2003 Mr. Thompson, having spoken to Mr. Skarga, advised HHI that Sovcomflot would “not be proceeding with the ice-class modification to the last two hulls. The intended trade will likely require a full ice-class specification of 1A”.

I conclude that Sovcomflot had not made a clear decision by August 2003 that, if they could not up-grade the specifications for hulls nos 1585 and 1586 so that they could trade to Primorsk and more northerly ports every winter, they would dispose of them and instead acquire ice-class 1A vessels. Their thinking, as I infer from the documents, was more fluid than that. In the autumn of 2003 Sovcomflot probably wished to keep alive their discussions with HHI about up-grading the specifications partly in order to strengthen their negotiating position with Daewoo, but, even after

I accept the evidence of Mr. Nikitin and Mr. Skarga that in August 2003 they discussed the proposal that Mr. Nikitin should take over from Sovcomflot the contracts with HHI for hulls nos 1585 and 1586, and that Mr. Nikitin made it clear that he was willing to pay for each vessel $2 million in addition to the instalments of the purchase price that had been paid. No firm agreement was made, and Sovcomflot did not give a binding commitment to any arrangement. Indeed, they so qualified their position that they could hardly be said to have committed themselves at all, even on a conditional basis. However, when Mr. Nikitin and Mr. Skarga agreed in November 2003 to proceed with this proposal, Mr. Skarga provided Mr. Wettern with the date of 14 August 2003 as the date of the agreement because it was around that time that he and Mr. Nikitin had agreed what the prices should be if the proposal went ahead. I also accept that in August 2003 Mr. Skarga told Mr. Nikitin that the decision whether Sovcomflot would go ahead with the proposal would be taken in light of the progress of the proposal for an IPO and of further consideration about Sovcomflot acquiring ice-class ships.

I therefore reject the submission that, when the agreements of January 2004 were given the date “as of 14 August 2003”, this was an entirely fictitious date chosen simply to cover up a dishonest scheme to justify the prices paid for the shares. There is no evidence that the date in the agreements was used for that purpose, and when the matter was put before the Executive Board in July 2004 the contracts were said to have been made in January 2004. There is no reason to suppose that anyone at the meeting referred to the agreements being dated “as of” 14 August 2003. It is not clear to me who it is said might have been misled by the dating of the agreements, but, if the purpose were to mislead, there is no obvious reason that the contracts should not have simply been dated 14 August 2003. The expression “as of” signified that the documentation was created later.

The claimants also suggested that, having instructed Mr. Wettern in November 2003 to draw up documents to record the agreement, the defendants deliberately did not execute them until January 2004 in case the market prices for the vessels fell in the interim. No credible evidence supports this suggestion and I reject it.

On 6 January 2004, Mr. Wettern sent to Mr. Privalov, Mr. Borisenko and Mr. Lipka by e-mail copies of contracts which he and Mr. Privalov had signed on behalf of Standard Maritime and Fiona respectively, and Mr. Privalov sent the e-mail on to Mr. Orphanos. On 12 January 2004 Mr. Wettern sent to Mr. Lipka draft minutes of a meeting of the Board of Fiona dated 12 January 2004 for the directors to sign, and they were signed by Mr. Borisenko, on his own behalf and as proxy for Mr. Terekhin, by Mr. Skarga and by Mr. Lipka. Mr. Lipka confirmed in his evidence that he, like other members of Fiona’s board, approved the sales because he considered them to be

The directors of Fiona also knew that the guarantees given by Fiona were to continue, and about the indemnity given by Standard Maritime and the security for it. Mr. Wettern drew attention to this in his e-mail of 6 January 2004. The claimants alleged that Mr. Skarga and Mr. Borisenko did not act properly in that the Fiona guarantee remained in place and “Fiona was provided with holding inadequate security and on terms which entitled Standard Maritime to retain the benefit of any rise in the market value of the ships under construction regardless of default”: see para 202.4.2 of the particulars of claim. I have explained why I reject this argument when considering hulls nos 1564 and 1565. Indeed, here there was more security because two instalments of 10% of the price, $9 million in total for each vessel, had been paid to HHI by January 2004.

As I shall explain, the Executive Board unanimously approved sales of Titanium and Pendulum at a meeting on 2 July 2004, together with the sale of the shares in Accent and Severn. I do not consider that the history of the sales indicates that Mr. Skarga acted in breach of his fiduciary duties or dishonestly in relation to them. I do not accept that the shares were sold at an undervalue, or that Mr. Skarga had any reason to believe that they were.

Severn, the 17^th claimant in the Fiona action, and Bassett Oceanway Ltd. (“Bassett”), the 70th claimant in the Fiona action, two subsidiaries of Fiona, entered into agreements dated 17 December 2003 with Daewoo to construct two ice-class Suezmax tankers, hulls nos 5272 and 5273, for $57.9 million each, the delivery dates being 31 August 2006 and 15 October 2006. Fiona guaranteed to Daewoo that Severn and Bassett would fulfil their obligations. Daewoo agreed that Fiona should have options for the construction of two further ice-class tankers, hulls nos 5274 and 5275: if Fiona declared them within one month, the prices were to be $57.9 million for hull no 5274 and $58.9 million for hull no 5275, but otherwise the options could be declared within three months at a price of $58.9 million each. In fact the options for both vessels were declared within one month on 16 January 2004, the exercise of the option for hull no 5275 being subject to the approval of the buyer’s board, which was to be given by 16 February 2004.

In about January 2004 Fiona acquired Accent Tanker Inc. (“Accent”), and on 5 February 2004 Accent entered into a shipbuilding contract with Daewoo for the construction of hull no 5274 for $57.9 million. Another subsidiary of Fiona, Angelic Seas Corporation (“Angelic”), entered into a contract for the construction of hull no 5275. Fiona guaranteed to Daewoo the obligations of Accent and Angelic. Between 18 and 20 February 2004 Mr. Privalov, acting for Fiona, and Mr. Wettern, acting for Standard Maritime, signed an agreement whereby Fiona sold and Standard Maritime bought the shares in Accent for $57.9 million. The share sale agreement was dated

In February 2007 Accent agreed to sell hull no 5274 upon delivery by Daewoo to Knutsen Boyelaster XI KS of Norway (“Knutsen”) or to Knutsen’s nominee for $95.5 million, and the claimants claim that Standard Maritime and Mr. Nikitin are therefore liable to account to Fiona (and other claimants) for profits of $37.6 million in respect of their dealings with hull no 5274.

On about 23 March 2004 Standard Maritime made an agreement with Fiona to buy the shares in Severn, the purchaser of hull no 5272, for $12.58 million, that is to say for $1 million more than the first instalment of the price paid to Daewoo, which was $11.58 million. The agreement was dated “as of 23 March 2004”, and was signed by Mr. Wettern for Standard Maritime and by Mr. Privalov for Fiona. A minute of a meeting of the directors of Fiona on 26 March 2004 approving the sale was signed by Mr. Skarga, Mr. Borisenko, Mr. Lipka and Mr. Terekhin.

In April 2006 Severn agreed to sell hull no 5272 upon delivery by Daewoo to clients of Barclays Shipping, Greece for $90 million, and the claimants claim that Standard Maritime and Mr. Nikitin are therefore liable to account to Fiona (and other claimants) for profits of $31.3 million in respect of their dealings with hull no 5272.

As I have said, the agreements for the sale of the shares in Accent and Severn were similar to those for Titanium and Pendulum. Fiona agreed to maintain their guarantees of their obligations under the shipbuilding contracts, Standard Maritime agreed to indemnify Fiona in respect of the guarantees, and the shares in Severn and Accent were deposited with WFW as security for the indemnity.

The defendants’ case is that Sovcomflot never intended to acquire more than two of the vessels from Daewoo for themselves, and that the additional vessels were acquired so that Mr. Nikitin might take them. The claimants dispute this and say that Mr. Skarga, dishonestly and in breach of his fiduciary duties, allowed Standard Maritime to acquire vessels that were intended for Sovcomflot and that the prices were unjustifiably low.

The background to the agreements was this. By a fax to Clarkson dated 15 October 2003 Daewoo made a proposal to Sovcomflot to supply two ice-class 1A Suezmax newbuildings for $56 million each, including 1% commissions, with delivery by the end of August 2006 and October 2006. Mr. Gale reported it to Mr. Privalov, without mentioning commissions, on the basis that the price for the vessels was $57 million. On 24 October 2003 Clarkson advised Daewoo that the delivery dates were important to Sovcomflot, and wrote, “Potentially this project is for up to 4 vessels and we are encouraged by the buyers that if we could find 4 ships within 2006, they could be prepared to increase the order to four firm ships initially”. On 31 October 2003 Mr. Gale advised Mr. Privalov that he had made an offer to Daewoo, subject to the approval of the buyers’ directors, to buy two vessels with an option to buy two more, on the basis of a delivery date for all the vessels by the end of October 2006. On 5 November 2003 Mr. Gale advised Mr. Privalov that Daewoo had “allocated” to Sovcomflot berths to build two vessels, but that “the berths are heavily sought after by numerous projects”.

As I have mentioned, on 17 November 2003, after further exchanges, Fiona and Daewoo signed a letter of intent for Daewoo to supply two ice-class Suezmax vessels for $54.9 million payable in five instalments of 20% each, for delivery by the end of August 2006 and by 15 October 2006. It contemplated that the purchases should be supported by finance from the Korean Export Import Bank (“Kexim”). They also signed a “Side Letter of Intent” whereby they agreed that Fiona should have options (i) to chose an alternative arrangement for the instalments, namely that $56 million might be paid by four instalments of 10% and a fifth instalment payable on delivery of 60%; (ii) to take vessels that were not of ice-class specification; and (iii) to take a third vessel with delivery in the second or third quarter of 2007. The option for the third vessel was to be exercised within three months, and the price was to be the same as for the firm orders if the option was exercised within one month of the contract for them and otherwise it was to be $1 million higher.

On 14 November 2003 Clarkson had sought an option for a fourth vessel (or second optional vessel), but Daewoo had initially refused this request. Clarkson made it clear to Daewoo, however, that Sovcomflot still wanted a further option. In an e-mail on 24 November 2003 Mr. Wood of Clarkson warned Daewoo that at a signing ceremony on 1 December 2003 Sovcomflot were likely to press for an option for a fourth vessel, which they regarded as “very important”. On 25 November 2003 he wrote to Daewoo that the buyers wanted to have a revised form of the side letter of intent that would allow them to take two optional vessels. In the event, Daewoo did agree on 17 December 2003 to Fiona having an option to take one or two further vessels, but the price of the second optional vessel was to be $58.9 million even if the option was declared promptly.

The defendants’ case is that Sovcomflot never considered acquiring more than two Daewoo vessels for themselves. The pleaded case of Mr. Nikitin and Standard Maritime defendants (at para 84 of their defence) is that Mr. Skarga approached Mr. Nikitin “In about late November or early December 2003 with a view to his participating in the acquisition of two new vessels to be constructed by Daewoo” on the basis that it would assist Sovcomflot to negotiate with Daewoo about four vessels rather than about two. Mr. Nikitin’s evidence was that he spoke with Mr. Skarga about acquiring one or more of these vessels in November.

In his witness statement Mr. Skarga was vague about when he first spoke to Mr. Nikitin about possible collaboration over Daewoo vessels, but said that he might have done so when they met in St Petersburg in November 2003: they met there on around 23 or 25 November. When he was cross-examined, Mr. Skarga said that Mr. Nikitin had expressed an interest in acquiring a vessel or vessels before the letter of intent was signed on 17 November 2003, and indeed before Mr. Gale put forward the proposal of 31 October 2003. Mr. Skarga recalled that he was then interested in only one vessel, and that after 17 November 2003 the second option was requested because Mr. Nikitin had expressed an interest in two vessels. By 10 December 2003 Mr. Nikitin had made a firm decision, Mr. Skarga said, to take one vessel and was still to decide whether to take a second.

Mr. Skarga said that other members of the Executive Board knew that Mr. Nikitin interested in acquiring vessels from Daewoo, and knew of his decisions to do so. There is no indication that the directors of Fiona were taken by surprise when they were asked to sign the required documentation, or that other members of the Board

There is, however, other evidence that Sovcomflot had it in mind that they might take as many as four tankers. Although Kexim were to support the purchases, Sovcomflot would also require finance from a commercial bank. CAI prepared for Fiona a presentation dated December 2003 about how it might be provided. They recorded that Fiona had decided to “focus … on the tanker market only ... in anticipation of a listing on the New York Stock Exchange”, and had signed the letter of intent for up to four tankers. It is clear from the document itself and from the indicative termsheet attached to it that CAI understood that Sovcomflot might be purchasing and require finance for the four vessels referred to in the letter of intent and the side letter of intent. Mr. Skarga said that this presentation could have been arranged for Sovcomflot without him knowing about it. This would not explain a

I do not accept that Sovcomflot had firmly decided by December 2003 that they would not acquire more than two tankers from Daewoo. The presentation of CAI shows that Sovcomflot were undecided about how many they might order. I also conclude that before the end of 2003 Mr. Nikitin did not give a firm commitment to taking a Daewoo vessel. The position was less certain than that. In December 2003, when Daewoo agreed to the second option, neither Sovcomflot nor Mr. Nikitin was firmly committed to taking either or both of the optional vessels. However, there is no proper reason to reject Mr. Skarga’s and Mr. Nikitin’s evidence that, when the letter of intent was signed, Mr. Nikitin had already made clear that he was interested in the possibility of acquiring at least one vessel from Daewoo. I accept that, as the claimants pointed out, there is no documentary evidence of Mr. Nikitin’s interest in a vessel before 23 January 2004 and no documentary evidence of his interest in a second vessel until 17 March 2004, but that would not be surprising if nothing was firmly decided.

When the contracts with Daewoo for hulls nos 5272 and 5273 were concluded, Sovcomflot intended to take those vessels for themselves. If Mr. Nikitin decided to take any vessels, he was to take the optional vessels. It is not clear when he finally decided to take two vessels.

Documents disclosed by Clarkson indicate that there was some debate within

Mr. Skarga’s evidence was that the Executive Board was not “suspicious”, as Mr. Gale described them. They were, he said, content that Mr. Nikitin should take two vessels and that one of them should be hull no 5272 or hull no 5273. They were only concerned, according to Mr. Skarga, that Sovcomflot should not buy the fourth vessel for the higher price. As I see it, what the Clarkson documents reflect is that at the start of 2004 Mr. Nikitin wanted more time to decide whether to take the optional vessels, and he also hoped to avoid paying the additional $1 million for a second vessel if he decided to acquire it. I infer that Mr. Nikitin was still not committed to a firm decision about the Daewoo vessels even when Fiona exercised the option on 16 January 2004 or by the time that Daewoo entered into the contracts with Accent and Angelic on 5 February 2004. Otherwise Standard Maritime companies would have bought the vessels, and there would have been no reason to resort to Standard Maritime buying the purchasing companies from Sovcomflot.

The agreement concluded in February 2004 for the sale of the shares in Accent was dated “as of 25 November 2003”. The claimants submitted that there was no proper reason for this, and that the purpose was “to conceal the true date [of the agreement] from Fiona in the knowledge that the shares were being transferred at an undervalue in a rapidly rising market”. Presumably the allegation is that “the true date” was to be concealed from Fiona’s directors. Mr. Skarga said that he could not remember why the date was used, but that he then reached an “in principle agreement” with Mr. Nikitin. I do not consider that an agreement had been reached in November 2003, and no convincing explanation has been suggested for the date of the agreement for the share sale, but, whatever the reason, it is not likely to have been to conceal anything from Fiona’s directors. That is improbable speculation. Mr. Skarga, Mr. Borisenko, Mr. Lipka and Mr. Terekhin signed minutes of a meeting of the board of Fiona held on 4 March 2004 in which they approved the sale of Accent’s shares and which referred to the agreement dated 25 November 2003 (not “as of” 25 November 2003). I do not accept Mr. Borisenko’s evidence that he did not notice the date of the agreement: the evidence is that the directors read carefully the minutes that they signed. There is no reason to think that any director of Fiona was influenced to approve the sale by the date, or that Mr. Skarga or anyone else would have supposed that someone might have challenged the sale if it had been given a later date. If the purpose had been to conceal when the agreement was made, the contract would simply have been back-dated, and the back-dating would not have been signalled by the expression “as of”. Moreover, if this were the purpose, the same device would probably have been used to conceal from the board of Fiona the date of the agreement with Standard Maritime about the second Daewoo vessel that they were to acquire. Instead, as I shall explain, on the claimants’ case, Mr. Nikitin paid an additional $1 million for the shares in Severn. Although Mr. Skarga’s evidence about the reason for the date inserted in the agreement was unconvincing, it has not been shown that it was done for the reason that the claimants allege or for any dishonest reason.

I come to the agreement dated “as of 23 March 2003” for the sale and purchase of the shares in Severn. Although Fiona had ordered hulls nos 5272 and 5273 in December 2003 because they wanted to take them for themselves, they agreed that Standard Maritime should acquire Severn and therefore hull no 5272, and that they should keep Angelic and so have hull no 5275. The two potential disadvantages to Sovcomflot in this arrangement were the delivery date of hull no 5275 and the price. Hull no 5272 was to be delivered by 31 August 2006, whereas hull no 5275 was not to be delivered until 2007. I accept Mr. Skarga’s evidence that this arrangement suited Sovcomflot because the construction of the Murmansk pipeline for transporting oil from the polar fields had been delayed, and so they needed the ice-class vessels less urgently. The claimants adduced no contrary evidence.

The price of hull no 5275 was $58.9 million, $1 million more than the other three Daewoo vessels. The defendants contended that this is why Standard Maritime paid Fiona $12.58 million for the shares in Severn, $1 million more than the amount of the first instalment paid to Daewoo under the shipbuilding contract. The claimants denied that Mr. Nikitin ever intended to take the optional vessel, hull no 5275, and disputed the reason that he paid the additional $1 million. When Mr. Wettern started to draft the documentation for the sale of Severn, he did not know about it. On 19 March 2004, when he sent to Mr. Nikitin and Mr. Privalov a draft contract, he wrote that Standard Maritime were to pay $11,580,000. Mr. Privalov instructed him later that day to “incorporate USD 1 mill premium”. I accept the claimants’ submission that probably it was decided only shortly before the contract was concluded that Standard Maritime should pay the premium, but to my mind this is consistent with the explanation for the payment given by Mr. Skarga and Mr. Nikitin. Mr. Nikitin said in cross-examination that he was reluctant to pay the extra $1 million and agreed to do so only after negotiations.

The claimants pointed out, however, that this explanation for the additional payment is inconsistent with the briefing notes prepared for the Executive Board of Sovcomflot. As I shall explain, Ms. Matveeva prepared a briefing note for the meeting of the Executive Board in April 2004 and a revised note about the Daewoo vessels was prepared for a meeting on 2 July 2004. In the first draft, Ms. Matveeva presented the additional payment as profit upon re-sale of the tanker. In the revised note it was said that the extra payment was because the value of the shares increased between when the ship was ordered and the purchasing company sold. Neither version suggested that the additional $1 million was paid because Sovcomflot was allowing Standard Maritime to take the less expensive hull no 5272 rather than hull no 5275. Mr. Skarga said that the briefing note was wrong, but that the error was unimportant because everyone was aware of the true position, and that it was simpler to present the $1 million payment as profit “to deal with accounting issues”.

I am not convinced by defendants’ evidence about why Sovcomflot allowed Standard Maritime to take hull no 5272 and why they paid the additional $1 million for the

The agreements for the sale of shares in both Accent and Severn contained provisions that Fiona should maintain their performance guarantees to Daewoo, and that Standard Maritime should indemnify them and secure their indemnity by depositing with WFW the shares in the buying companies upon terms similar to those agreed in relation to the HHI vessels. For reasons that I have explained in relation to those sales, I do not consider that this indicates that Mr. Skarga acted in breach of duty or dishonestly in relation to these transactions.

At a meeting on 2 July 2004, the Executive Board of Sovcomflot unanimously resolved to approve the sale of the shares in Titanium, Pendulum, Accent and Severn and the contracts for HHI hulls nos 1585 and 1586 and Daewoo hulls nos 5272 and 5274. The claimants argued that, had the transactions been proper, the Executive Board would have considered them earlier. However, Mrs Matveeva had prepared and signed a briefing note with a view to them being considered at a meeting of the Executive Board on 30 April 2004. According to Mr. Skarga, consideration was deferred from that meeting because the draft briefing note was inadequate. I accept that explanation because the note was very short and did not even identify by their hull numbers the vessels under consideration. Mrs Matveeva’s evidence was that at the time she was told by Mr. Sharikov that her note was considered unsatisfactory, and she understood that Mr. Skarga specifically had said this. It is not important who rejected the note. I accept that this is why the Executive Board considered these sales only in July 2004.

For the meeting on 2 July 2004, two separate briefing notes were prepared about the HHI vessels, hulls nos 1585 and 1586, and the Daewoo vessels, hulls nos 5272 and 5274. They were considerably more detailed than Ms. Matveeva’s original draft, and were signed by Mr. Sharikov and Ms. Matveeva. Both stated that in February 2003 Standard Maritime “approached [Fiona] with a proposal to cooperate with regard to commissioning the construction of a tanker fleet”, and as a result an agreement was reached. The agreement that was described set out the points contained in the “Cooperation Agreement”, without specifically referring to it. Ms. Matveeva explained that, when her note was rejected, Mr. Sharikov could not tell her properly what changes she should make. She therefore spoke to Mr. Privalov, who told her of the Co-operation Agreement and provided her with a copy. She drew upon this when preparing the revised note.

The briefing notes described the orders placed with the yards. The note about the HHI vessels referred to the order for six vessels, explained that hulls nos 1564 and 1565 were for Standard Maritime and hulls nos 1562 and 1563 were under construction for Sovcomflot, and said that shares in the purchasing companies of hulls nos 1585 and 1586 were sold to “a new owner” in January 2004 at a price $2 million in addition to the instalments paid for each vessel. It observed that, “Implementing this deal resulted in a profit of US$4 million, a saving of US$2 million in respect of the reduction in the contract price due to the size of the order and likewise gave Unicom Company the opportunity to earn additional income for the provision of its services”.

The note about the Daewoo vessels described the order for the four vessels, and explained that shares in the purchasing company for hull no 5274 were sold to “the new owner” for the amount that had been paid to Daewoo “since the deal was carried out practically at the moment the contract was signed”. The sale of the company buying hull no 5272 was said to have been made “later in April 2004 and therefore the value of the shares was US$1 million higher than the payment already made in respect of that ship”. The note observed that, “Implementing this deal resulted in a profit of US$1 million, a saving of approximately US$4 million in respect of the reduction in the contract price due to the size of the order and likewise gave Unicom Company the opportunity to earn additional income for the provision of its services”.

Mr. Sharikov was on holiday on 2 July 2004, and Mr. Novikov presented to the Executive Board the proposal to approve the sales. Mr. Borisenko, Mr. Skarga and Mr. Lipka spoke in favour of it, and it was unanimously approved.

The claimants alleged that Mr. Skarga misled the Executive Board because he required the briefing note to be changed from that originally prepared by Ms. Matveeva and that he did so in order that it might refer to the Co-operation Agreement and present that as the “basis for the share sale agreements”. (They originally pleaded that Mr. Skarga dictated to Mr. Sharikov draft amendments to the briefing note, but that allegation was withdrawn during the trial.) I reject this allegation, and consider that no credible evidence supports it. Mr. Borisenko said in cross-examination that he had no reason to doubt what was stated in the briefing note. Mr. Novikov spoke to Mr. Borisenko and Ms. Matveeva before the meeting and was told that the reason for the sales was that Sovcomflot was short of cash for the newbuilding programme. There is no proper reason to doubt that that was the position and was the reason that the Executive Board approved the sales.

There are some aspects about the sale of the Daewoo hulls which are not satisfactorily explained by the evidence and about which I do not accept the defendants’ accounts or explanations. However, in my judgment, the claimants have not made out their essential allegations that are said to provide evidence that in dealing with these vessels Mr. Skarga acted dishonestly and sought to favour the Standard Maritime defendants at the expense of Sovcomflot.

The last purchase that the claimants allege was made by the purchasing companies under the newbuildings scheme was of a liquefied petroleum gas (“LPG”) vessel, hull no 1757, from HHI by Hayes, a subsidiary of Standard Maritime. The claimants do

In about May 2004, Sovcomflot decided to acquire LPG vessels. In his witness statement of 13 February 2009 Mr. Skarga said that they had been advised to do so by Mr. Gale because prices were relatively low. In cross-examination he said that he was so advised by Mr. Nikitin. Mr. Nikitin also said that he gave Sovcomflot this advice and that it was always contemplated that Sovcomflot might acquire two LPG vessels and he might acquire one. The claimants submitted that Mr. Skarga was inconsistent in his evidence about whose advice led to the decision to buy LPG carriers, but I see no contradiction between these accounts. I accept that both Mr. Gale and Mr. Nikitin encouraged Sovcomflot’s decision.

On 29 April 2004 Clarkson advised HHI that Fiona wished to register their interest in building “a pair of … LPG vessels”. On 14 May 2004 Clarkson put forward to HHI an offer to place a firm order for two LPG vessels, with an option to take two more. They offered a price of $48 million per vessel and the delivery dates were to be in the first quarter of 2007 for the two firm orders and in the second quarter of 2007 for the two optional vessels. Negotiations continued about an order for two vessels with one or two optional vessels. On 21 May 2004 HHI offered a third vessel for delivery in the first quarter of 2006. On 25 May 2004 Clarkson advised HHI that Fiona accepted this proposal, and Mr. Privalov told Mr. Wettern that an agreement had been reached with HHI for an order for three vessels, two for Sovcomflot for delivery in the first quarter of 2007 and one for Standard Maritime for delivery in the first quarter of 2006. On 26 May 2006 Fiona and HHI signed a letter of intent for three vessels at a price of $49 million each, with an option for Fiona to take one or two further vessels for $49.7 million each. One of the three vessels had a delivery date of the first quarter of 2006 and the other two had delivery dates of the first quarter of 2007.

On 15 June 2004 agreements were concluded with HHI for the construction of the three vessels, hulls nos 1757, 1758 and 1759. The price of each vessel had increased to $49.5 million because of changes to the specifications. The agreement for hull no 1757, which was for delivery in the first quarter of 2006, was made by Hayes and the agreements for the other two hulls, which were for delivery in the first quarter of 2007, were made by subsidiaries of Fiona. Fiona gave HHI guarantees of the obligations of Hayes and the other two buyer companies.

The directors of Fiona resolved to provide the guarantees by signing the minutes of a meeting on 11 June 2004. They were signed by Mr. Skarga, Mr. Borisenko and Mr. Terekhin (on his own behalf and as proxy for Mr. Lipka). They recorded that Mr. Skarga, as chairman of the meeting, stated that Fiona would sign an agreement with Standard Maritime in relation to Fiona “sponsoring Hayes in its relations with the Builder”. There is no reason to think that, when they approved the minutes, either Mr. Borisenko or Mr. Terekhin did not know the nature of the arrangements whereby Fiona came to be giving this guarantee.

At some later date Standard Maritime and Fiona entered into an agreement by which Standard Maritime agreed to indemnify Fiona against any liability under their guarantee to HHI in respect of hull no 1757. It was dated “as of” 15 June 2004. It was in similar terms to the indemnities given to Fiona for their other guarantees, and provided for the indemnity to be secured by the shares of Hayes being deposited with WFW. The claimants plead (at para 245.4 of the particulars of claim) that there was no “legitimate commercial basis for Fiona to execute any such guarantee prior to the grant to adequate security”, but I infer that it was through oversight that the indemnity agreement was not concluded at the same time as Fiona gave their guarantee to HHI. I reject the allegation that this was associated with or indicative of dishonesty on the part of Mr. Skarga or anyone else. I also reject the allegation that the security was inadequate, as I have rejected the similar allegation in relation to other guarantees.

It is not clear why Sovcomflot sought and obtained options to order one or two additional LPG vessels from HHI. Mr. Skarga’s evidence was that they were seeking to acquire them for NSC, but I am unable to accept that. However, it is clear from Mr. Privalov’s e-mail to Mr. Wettern that by 26 May 2004, when the letter of intent was signed, Standard Maritime were to acquire the vessel that was to be delivered in the first quarter of 2006. I reject the claimants’ allegation that Mr. Skarga was acting dishonestly because Fiona “transferred” to Standard Maritime the right to acquire her: there was no transfer of rights. (In their submissions, the claimants argued that Standard Maritime was improperly favoured at the expense of Fiona because they took the vessel that was to be delivered first. This is not a pleaded allegation, and it is not open to the claimants to make it as they have. Nor is it supported by the evidence.)

The claimants do not bring a claim for compensatory damages in respect of hull no 1757, but they say that by the time that the vessel was delivered to Hayes in about February 2006, her value was between $62 million and $65 million. Their contention about her value was supported by unchallenged evidence of Mr. Willis and I accept it. They say that therefore they are entitled to an account of profits made Standard Maritime and Mr. Nikitin which were between $12.5 million and $15.5 million. Had I upheld the claim, I would have invited further submissions about the claim, including (i) the contention that any defendant other than Hayes might be liable to account for profits and (ii) the claimants’ submission that they are entitled to have the profits assessed at $15.5 million, the top of the range that they say that they have proved.

On 28 November 2002 the owners of the “Romea Champion”, the Sovcomflot company Glefi Shipping XXVIII Company Ltd. (“Glefi XXVIII”), the 25^th claimant in the Fiona action and the 9^th claimant in the second Fiona action, agreed with Europetroleum Ltd. (“Europetroleum”) to charter the vessel. The charterers were to be Europetroleum or a nominee to be guaranteed by them, and on 4 December 2002 ST Shipping and Transport Inc., a company in the Glencore group, were nominated as charterers. It is claimed that Mr. Nikitin and Mr. Skarga improperly arranged for PNP to be paid a commission for the fixture. The claimants also allege that, although it was agreed that Sovcomflot should be paid $35,000 per day, the charter stated a rate of hire of $19,000 per day in order to provide a justification for Sovcomflot chartering

Europetroleum were an independent trading company associated with Russians including a Mr. Yefremov, and they were said to have had a good relationship with Transneft, but there is no other evidence about the ownership of the company. Their “juridical” address was said in September 2002 to be Pasea Estate in the BVI, which is also PNP’s registered address, but that is commonly used as the registered address for off-shore companies. It cannot be inferred from this that there was a connection between Europetroleum and Mr. Nikitin or any of the Standard Maritime defendants.

The background to the charterparty was that Mr. Nikitin had learned and told Sovcomflot that Europetroleum had cargoes for shipment from Primorsk. Sovcomflot were interested to develop a business relationship with them to promote their involvement in carrying Russian cargoes, and Mr. Skarga entered into discussions with Europetroleum at a strategic level to this end. On 15 August 2002, Sovcomflot and Europetroleum entered into a voyage charter of the “Tropic Brilliance” upon terms that PNP and Sovchart should be paid brokerage commissions of 1.25% each and total commissions of 2.5% were to be deducted from the freight payments. On 7 and 23 October 2002, Sovcomflot entered into two voyage charters of the “Romea Champion” with Europetroleum. I accept Mr. Skarga’s evidence that he did not conduct or take part in the negotiations for them. They were fixed between Sovchart and Europetroleum, and Sovchart sent recaps of them to Mr. Novikov, with copies to Mr. Sharikov and Mr. Terekhin but not to Mr. Skarga.

At a meeting of the Executive Board of Sovcomflot on 31 October 2002 Mr. Skarga informed the Board about negotiations for a six-months’ time charter for the shipment of crude oil from Primorsk and, after Mr. Terekhin and Mr. Sharikov had spoken, the Board resolved unanimously to endorse the charter of the “Romea Champion”.

Mr. van Boetzelaer said in his witness statement of 13 February 2009 that he understood that Mr. Skarga and Mr. Maxim Karpin of Europetroleum had conducted negotiations about the terms of the charter. By an e-mail sent on 30 October 2002 to Mr. Betty at Sovchart, Mr. Karpin wrote, “As you certainly know the agreement was reached yesterday in respect of long business for Romea and possibly for Tropic. Please find below the recap. Would be pleased to hear from you the confirmation all in order”. Mr. Karpin then set out a recap of terms. The hire was to be $19,000 per day, and the period of hire was stated to be between 20 and 180 days; and it referred to a charterers’ option, which had to be declared by 5 December 2002, to charter the “Tropic Brilliance” upon similar terms.

On 30 October 2002 Mr. van Boetzelaer sent an e-mail to Mr. Skarga about the terms in the recap, and wrote, “Following our discussion yesterday you were still in talks with Europetroleum regarding possible [time charter] and profit sharing”. He commented of the period of hire that the “wide spread leaves owners in a dangerous position” and that the current rate of hire for the “cross-continent” voyages (which would include voyages between Primorsk and Rotterdam or Wilhelmshaven) indicated a rate of $35,000 per day. He suggested that, given that the rate of hire had been agreed, Sovchart should seek to negotiate a profit sharing arrangement. He also said that, the market being “still on the up-swing”, Sovchart should not agree to an option for the “Tropic Brilliance” at the same rate. According to Mr. van Boetzelaer, Mr. Skarga told him that the rate of $19,000 per day had been agreed on the basis that the owners would not share the profit.

After speaking to Mr. Skarga, Mr. van Boetzelaer sent an e-mail to Mr. Karpin stating that he understood the terms that he set out had been agreed, including a rate of $19,000 per day. In this e-mail, he recorded the period of hire as “6 months plus/minus 15 day in [charterers’] option”, and he did not refer to the option to charter the “Tropic Brilliance”. Mr. Karpin responded on 31 October 2002 that “there are some differences between what we thought was agreed during the talks with Mr. Skarga and your recap”, and said that the period of hire was understood to be “20/180 days”. He too did not refer to an option to hire the “Tropic Brilliance”.

Mr. Karpin’s first e-mail is, in my judgment, consistent with Mr. Skarga’s evidence that he was not involved in discussions about the terms of the charterparty, but only at a strategic level about developing a business relationship. Its introductory words recite an agreement that there should be “long business” in respect of one or possibly two vessels. Mr. Karpin’s second e-mail, however, indicates that Mr. Skarga had more detailed discussions about the terms of the charterparty, and I reject his evidence to the contrary. I also conclude that, as appears from the e-mails between Mr. Skarga and Mr. van Boetzelaer, on about 20 November 2002 Mr. Skarga discussed a difference that had arisen in the negotiations about ballast bonus. I do not conclude that Mr. Skarga was deliberately seeking to mislead in his evidence about his part in the negotiations. As Director-General he would not usually be involved with such details, and, if negotiations for specific terms developed from more general discussions, Mr. Skarga might well have not recalled it.

Under the charterparty of 28 November 2002, the hire was stated to be $19,000 per day and the period of hire was stated to be 6 months, more or less 15 days at the charterers’ option. There was a trading exclusion that the vessel was not to force ice but was to follow ice breakers “as far as the ice channel is sufficiently wide but always subject to Master’s approval which not to be unreasonably withheld”, and the Owners confirmed that the vessel would trade in slushed ice. Under the heading “Approvals”, the charterparty stated, “To the best of the Owners’ knowledge the vessel at time of sub-fixing is approved by BP-Amoco, Exxon, Statoil, TotalFinaElf. Owners warrant that they will be instrumental in arranging inspection for, and will endevour (sic) to maintain throughout the duration of this charter, approvals by BPAmoco, Exxon/Mobil, Statoil and TotalFinaElf. Also other major oil companies on Charterers’ request…”.

I should refer to two other provisions of the charterparty. It provided that address commission “of 2.5 percent is payable by Owners to Charterers on the hire earned and paid under this Charter and 2.5 percent commission is payable to Sovchart S.A. on hire for division.” The claimants submitted that some of this was paid on to PNP, who in turn paid it on to Milmont, although neither Mr. Nikitin nor PNP nor Milmont had had any part in fixing the charter or providing any other service.

Secondly, although, as I have said, the period of hire was stated to be six months, the charterparty also provided that the charterers might cancel the hire at any time by giving 15 days’ notice of re-delivery. This effectively gave the charterers as much flexibility over the period of hire as a charter period of between 20 and 180 days. In his evidence, Mr. Skarga said that the period of hire stated in the e-mails was “an obvious mistake” for a period of 120 to 180 days. He said in cross-examination that a round voyage from Primorsk to a continental port and back would take twenty days, and there would be no sense in agreeing a time charter (rather than a voyage charter) for a period that could, if the charterers so decided, be as short as 20 days. I reject Mr. Skarga’s evidence about this, and I infer that Sovcomflot agreed with Europetroleum at an early stage of the discussions that the charterers should have such flexibility about the hire period. This is undoubtedly unusual. In crossexamination Mr. Skarga sought to explain it on the basis that Europetroleum were uncertain whether they would have cargoes for the vessel to carry and Sovcomflot were anxious to encourage them to take the vessel in order to develop business of this kind.

The vessel was used to trade between Holland and Primorsk. She sailed from Wilhelmshaven for Primorsk in ballast on 30 December 2002 and made a laden return voyage to Rotterdam where she arrived on 8 January 2003. By an addendum dated 8 January 2003 it was agreed that the rate of hire was to be increased to $35,000 per day for voyages “involving Primorsk” while remaining at $19,000 for all other voyages. On 9 January 2003 Mr. van Boetzelaer sent Mr. Skarga an e-mail setting out what Glencore told him had been agreed and asking for Mr. Skarga’s confirmation of it. The e-mails also show that, when on 20 January 2003 Mr. van Boetzelaer asked him to agree different wording of this addendum, Mr. Skarga referred to the change as having been agreed in relation to trading in ice.

Mr. Skarga explained, however, and I accept that he was not himself involved in discussions with Glencore about this change in the hire rate, and that he was on holiday at the time. Mr. Terekhin dealt with the matter, briefing Mr. Skarga by telephone about what was happening. I recognise that in e-mails to Mr. Skarga Mr. van Boetzelaer used such expressions as “your agreement” or “you agreed” in relation to the increased rate of hire, but they are ambiguous about whether they refer to an agreement made by Sovcomflot or an agreement by Mr. Skarga personally.

According to Mr. Skarga, the increased rate arose from difficulties caused by particularly severe winter weather. Ice fields had built up and were continuing to build up in the Baltic, and it became difficult for an ice-class 1C vessel such as the “Romea Champion” to reach Primorsk. On 9 January 2003 Unicom advised that there should be at least two ice breakers in a convoy with vessels such as the “Romea Champion” to cut through the ice. However, the Russian Ministry of Transport and Transneft considered it important that cargoes should be lifted from Primorsk, and, according to the evidence of Mr. Skarga and as I accept, put pressure on Sovcomflot in discussions with Mr. Terekhin to assist to keep the port working. On 10 January 2003 the “Romea Champion” sailed from Rotterdam bound for Primorsk, but she did not reach her destination. On 14 January 2003, she found that because of the ice conditions she could not proceed. She damaged her propeller and rudder in the ice and required assistance from tugs. She turned back and eventually sailed from the Gulf of Finland on 29 January 2003.

The claimants cross-examined Mr. Skarga and Mr. Nikitin on the basis that it had always been intended that the rate of hire under the charterparty should be increased to $35,000, and that the increased rate of hire could not credibly be attributed to severe winter conditions because the increase was agreed by 8 January 2003 (and indeed was agreed in principle by 6 January 2003, when the “Romea Champion” was

Nevertheless, the claimants continued to argue that the account given by Mr. Skarga and Mr. Nikitin about this in some way undermined their credibility. It did not. The only possible criticism is that in a witness statement of 10 June 2009 Mr. Nikitin stated that he understood from Mr. Yefremov of Europetroleum that in the first voyage to Primorsk there was no problem with ice and that this arose only on the second voyage. In so far as this might be inaccurate, it is most likely that Mr. Yefremov did not recall the incident precisely when asked about it some years later.

By an e-mail sent to Mr. Skarga on 23 January 2003, Mr. van Boetzelaer sought confirmation that PNP were to be included as brokers for this fixture, and in an e-mail dated 28 January 2003 Mr. Skarga told him that PNP were to be so treated. Mr. van Boetzelaer did not know the reason, and he did not inquire. Accordingly, on 29 January 2003, Mr. van Boetzelaer told Mr. Nikitin by e-mail that the Owners had agreed to include PNP as brokers in respect of the “Romea Champion” fixture and invited him to submit an invoice for commission, and PNP sent two invoices to Sovchart on 29 January 2003, one for $9,237.00 for commission at 1.25% in respect of hire from 21 December 2002 to 21 January 2003, and the other for $7,362.50 being 1.25% commission for hire from 21 January 2003 to 21 February 2003. Both invoices requested payment to PNP’s account at Wegelin. Payment was made to that account on 25 February 2003, and the sums received from Sovchart were then paid on 3 March 2003 by PNP to Milmont’s account at Wegelin.

The pleaded case of Mr. Nikitin and Standard Maritime defendants (at response 83 of further information in the Fiona action dated 7 December 2007) is that “the Defendants received no benefit whatsoever from the charter of the Romea Champion to Europetroleum”. Mr. Skarga pleaded (at response 86 to of further information in the Fiona action dated 10 December 2007) that to the best of his knowledge Mr. Nikitin had no involvement in arranging charters with Europetroleum or in other dealings with them. These pleadings were served, and verified by Mr. Nikitin and Mr. Skarga, before the claimants brought the “Romea Champion” commission scheme claim in the second Fiona action. Faced with this claim, they gave evidence inconsistent with their pleaded case. Mr. Nikitin’s evidence was that he “pressed Mr. van Boetzelaer for a commission” around early 2003 because he had introduced Europetroleum to Sovcomflot, and the introduction had resulted not only in this time charter of the “Romea Champion”, but also in earlier voyage charters of the “Tropic

The claimants’ case is that there was no proper basis for PNP to be paid a commission upon the charterparty of 28 November 2002 because PNP had duly been paid commissions on the voyage charters for introducing Europetroleum to Sovcomflot, and there was no reason to pay further commission upon subsequent hire of the vessel by Europetroleum. It is said that Mr. Skarga simply arranged to divert money to Mr. Nikitin. I am not persuaded of this. It could properly and reasonably have been thought that the time charter effectively resulted from the fixtures on the spot market and that commission on the time charter was properly earned. I do not consider that these allegations provide evidence of dishonesty or impropriety on the part of Mr. Skarga, or that it has been shown that the commission payment was improper.

I shall therefore reject the claim about the “Romea Champion” commission scheme. I add that the defendants also submitted that it was time-barred under English law because, as they argued, it was agreed by 29 January 2003, more than six years before the second Fiona action was brought on 12 February 2009, that Glefi XXVIII should pay commission to PNP. I reject that argument: the agreement referred to in Mr. van Boetzelaer’s e-mail of 29 January 2003 was not, as I interpret it, an agreement between Glefi XXVIII and PNP, but simply Glefi XXVIII’s agreement with Sovchart that commission to PNP should be paid. This internal arrangement did not cause the claimants damage. Any damage was suffered when PNP were paid after 12 February 2003. I add that no argument of limitation was advanced on the basis that any breach by Mr. Skarga of his duties would have been before 12 February 2003. Had I otherwise upheld the “Romea Champion” commission scheme claim, I would not have concluded that was time-barred under English law.

As I have said, during the 1990s Kirishi Shipping and PNP hired vessels on the spot market, but by 2000 Mr. Nikitin had decided that they should consider entering into time charters, and discussed this with the Kinex partners. From February 2001 three of the Standard Maritime defendants, PNP, Remmy and Henriot, entered into time charters of Sovcomflot vessels, and from January 2003 Henriot entered into time charters of vessels owned by NSC. These were the first time charters entered into by the Standard Maritime defendants and, possibly with the single exception of a time charter of the “Emerald Star”, did not then enter into time charters with any other owners.

The claimants allege that these charterparties were another aspect of the corrupt dealings in which Mr. Nikitin engaged with Mr. Skarga and Mr. Izmaylov (although they do not allege that Mr. Privalov was party to these arrangements), and that this is reflected in:

The claimants in the Fiona action also complain that:

All the chartering arrangements between the claimants and the Standard Maritime defendants were by the express terms of the charterparties governed by English law and provided for English arbitration. In the case of some of the charters which are the subject of the Sovcomflot time charters scheme claim, the owners have challenged the validity of the charters and sought to rescind them on the grounds that Mr. Skarga was bribed, but the House of Lords has determined that those claims are the subject of arbitration agreements, the owners’ court proceedings have been stayed and the dispute about the validity of the charters is the subject of an arbitration reference. The arbitration proceedings are awaiting the outcome of this litigation.

The parties called expert witnesses who considered the rates and other terms of the charterparties about which the claimants complain. The claimants’ witness was Mr. Pearce, who has spent most of his working life with Shell. In 1987 he became their Head of Global Products Chartering, and between 1991 and 1996 he was Head of Global Crude Oil Chartering, responsible for the Shell crude oil fleet (of about 50 vessels) and time chartered fleet (of about 15 vessels) and for chartering in further capacity as required. After he had left Shell in 1996, Mr. Pearce became the Chartering Manager of Agelef Tanker Chartering. During his career he has had a wide experience of negotiating charterparties both for owners and for charterers, has been concerned with both time and voyage charterparties and has dealt with vessels of all the types relevant to these proceedings: product carriers, Aframaxes and Suezmaxes.

Mr. Nikitin and the Standard Maritime defendants called Mr. Huttemeier, who spent his career with the AP Moller Group. Between 1980 and 1986 he was in charge of their product tankers division. In 1990 he became director in charge of the crude carriers division, which included the Suezmaxes and Aframaxes, and in that position until 1995 he was involved with chartering in and chartering out tonnage. He returned in 2000 to take charge of the crude carriers division, which by then comprised only of VLCCs (very large crude carriers), although he also had some peripheral involvement with chartering product tankers.

Neither expert had any significant direct experience of chartering ice-class vessels, but generally both had impressive experience and knowledge of the industry and they were well qualified to express opinions upon the matters about which they gave evidence. Both were, in my judgment, straightforward witnesses and were seeking to assist the court. The claimants submitted that I should prefer the evidence of Mr. Pearce about questions upon which the experts did not agree because he had more contemporaneous experience than Mr. Huttemeier. I do not accept that submission: Mr. Huttemeier generally gave clear evidence supported by convincing reasons, and I did not detect that he was handicapped by any lack of experience.

The expert witnesses had a difficult task. They were asked to gauge the rate of hire for vessels in a market which on any view was very illiquid. Indeed, Mr. Berry questioned whether there can really be said to be an objective market rate when each fixture depended so much upon what were described as “subjective factors” reflecting the particular requirements and business assessments of the particular parties in relation to a particular vessel. I see much force in that observation: it emphasises the danger that, once a rate has been so identified, any fixture at a lower rate is scrutinised with undue suspicion. On any view, there is a very wide range of rates at which parties in arms’ negotiations might properly fix a vessel. Nevertheless, I shall use the expression “market rate” as a convenient term to refer to the rate at which the vessel would have been chartered by a notional typical owner to a notional typical charterer in an arms’ length transaction. However, it is important to consider the circumstances of the particular owner and the particular charterer when assessing the terms of a charterparty, particularly when it is alleged by the claimants that the terms of a fixture departed so far from the “market rate” or were so unusual as to suggest that they were not agreed honestly. (I recognise, of course, that this was not the only purpose of this expert evidence. It would also be relevant to establishing the quantum of any compensation if liability is established.)

The task of the expert witnesses was the more difficult because the information available to them about other fixtures in the market is incomplete and often unreliable. They used such information as was available, but often there were no useful comparators against which to assess a rate of hire, and, when there were, they were too few to draw confident conclusions from them. Any individual fixture, even of a sistership, can be influenced by special considerations irrelevant to Sovcomflot or NSC and to the Standard Maritime charterers.

The experts used brokers’ indices and market assessments for chartering rates. Mr. Pearce relied particularly upon the indices of CSIW, who published their assessment of prevailing rates for time charter of vessels of different kinds for different periods. These and other indices are drawn from reports which the compilers obtain, in particular from brokers in the market. Clarkson explain in their CSIW publication that, “With respect to timecharter rates, data is collected … by requesting brokers to fill in a weekly pro forma with the latest rate for each ship type or by estimating the likely rate acceptable to an owner in the absence of any fixture”. Mr. Huttemeier tentatively agreed that CSIW reports, along with those of ACM Shipping (“ACM”), might generally be regarded as the leading brokers’ indices for chartering rates. He also used the market assessments and forecasts published by Drewry who, being consultants rather than brokers and not themselves participating in the market, are able to collate information from a particularly wide range of sources. Mr. Huttemeier considered, and I accept, that for two reasons brokers’ indices tend to overstate the rates in the market: brokers are inclined to “talk up” the market and to exaggerate the minimum that an owner would be willing to accept; and, whereas owners often correct any reports of fixtures of their vessels which state too low a rate of hire, neither they nor charterers generally correct reports that give too high a rate.

There was, I think, some difference between the experts in their approach to assessing rates of hire against the market. Mr. Pearce relied upon the CSIW indices heavily and, in my judgment, on occasions excessively. This sometimes led him to adopt an almost mechanical calculation of market rates, which I found at times unconvincing. This became particularly vulnerable to criticism when he adjusted chartering rates drawn from the indices, which he assumed to be for a non-ice class vessel, in order to assess a higher rate for an ice-class vessel. This was an unreliable approach given that he agreed with Mr. Huttemeier that it depends upon the particular circumstances whether a fixture would attract any “ice premium” at all. On the whole I preferred the evidence of Mr. Huttemeier, who placed less reliance than Mr. Pearce upon the published indices and more upon such comparator fixtures as were available. He generally took careful account of all the relevant material available before expressing his views, and expressed them more cautiously than Mr. Pearce. In my judgment, this made his evidence more convincing: often it was unrealistic for the experts to express more than a tentative opinion about a chartering rate and how it compares with the market.

I have said that the experts recognised that the parties’ subjective reasons for entering into a charterparty on particular terms are important. As Mr. Huttemeier put it, “[s]ubjective factors are perhaps the most important when considering whether a time charter should be considered to have been “commercial” [and they] are certainly at least as important as … objective factors”. (By a “commercial” charter, Mr. Huttemeier meant a charter on terms upon which a reasonable owner in the position of Sovcomflot, or as the case might be NSC, could have fixed the vessel at the relevant time.) Mr. Pearce did not disagree with view of the importance of “subjective factors”. Such factors include, for example, the views of an owner about how the market will move, whether he wants to encourage a continuing relationship with the charterer, his assessment of the quality of his vessel, and his trading strategy. They can also include an owner’s assessment of the standing of a charterer.

Mr. Pearce adopted a rather artificial categorisation of charterers into four classes (ranging from the highest category A to category D) in order to assess the standing or desirability of the Standard Maritime defendants as charterers, and he placed PNP as a category B charterer but Henriot as a category D charterer. I did not find this evidence useful. Both Sovcomflot and NSC considered that Henriot were really (as Mr. Sakovich of NSC put it in his report to the NSC board dated 2 September 2005) “a chartering subdivision” of PNP, and the executives of Sovcomflot and NSC thought them desirable counterparties. To give just one example, Mr. Vyvorotnyuk of NSC said that he had no reason to think that Henriot were not reliable charterers, and, as it seems to me, Mr. Skarga and Mr. Izmaylov cannot properly be criticised for sharing this assessment. I was not convinced that Mr. Pearce had any sound basis for taking any other view, and in any case I did not find expert evidence about this useful.

Sovcomflot had sound reasons to place vessels on time charter between 2001 and 2004. Particularly in view of their fleet renewal programme, they needed a reliable and relatively stable income stream. This thinking is reflected in contemporary documents. To cite just one example, in Sovcomflot’s annual report for 2003 it is stated that, “Sovcomflot’s chartering policy was aimed at obtaining a stable income from fleet operations regardless of seasonal and market fluctuations in the freight market”. While Mr. Skarga was the Director-General, there was a perceptible, but not dramatic, increase in the proportion of their vessels which Sovcomflot placed on time charters. In December 1999, just under 60% of the fleet were on time charters and in March 2004 this proportion had increased to about 75%. Like many owners, they did not foresee the strong and sustained growth in the market, and so did not take full advantage of the opportunity of profitable trading on the spot market.

Sovcomflot’s policy is the more understandable because they were receiving “bearish” advice about the prospects for the shipping market. The broking advice from Mr. van Boetzelaer in 2000, 2001 and 2002 was distinctly cautious, if not pessimistic. It is recorded that, at a brokers’ meeting on 3 November 2000, he “recommended that Sovcomflot takes advantage of today’s levels either by chartering vessels out for long term charter or sell futures to lock in a comparatively high return, even at a discount to today’s market”. In an e-mail of 11 January 2002, he apparently advocated selling vessels “at a loss” so that Sovcomflot could order newbuildings “and avoid potential losses on the chartering”. In the same message, he refers to the time charter rates being lower than they had been a few months earlier, in September 2001. At the Sovchart shareholders’ meeting on 9 March 2004, Mr. van Boetzelaer acknowledged that the strong recovery in the freight market was “contrary to his predictions last year” and said, “We took advantage of the good market to time charter out many of the vessels for 1 up to 5 years. Therefore the income should stabilise this year and be only partially influenced by the spot market. 75% of our vsl being on time charter”.

These predictions were in line with those that were being made by some other commentators, including those of Dr Stopford to which I have referred elsewhere in this judgment. It was also an assessment of the market shared by others at Sovcomflot. For example, on 28 May 2004 Mr. Novikov, whose duties included the preparation of market forecasts, sent to Mr. Orphanos and Mr. Borisenko what was described as a “fleet & income forecast” that took a gloomy view of future over a five year period from 2004. In cross-examination Mr. Novikov sought to explain this document on the basis that Mr. Borisenko had instructed him to prepare “a pessimistic scenario of cashflow for the next five years”, which he described as a “surprising request”. He therefore used what he described as “extraordinary low” rates in preparing the document. I am unable to accept this explanation for the document. Nothing in the covering e-mail supports it, and I considered Mr. Novikov’s evidence about it contrived and unconvincing. The document was a forecast, as it purported to be, and, while it might have been deliberately conservative, it reflected Sovcomflot’s thinking about chartering rates.

Given this assessment of the market and their financial commitments, it is understandable that Sovcomflot’s policy should have been to place their vessels on time charter and to seek to develop long-term relationships with charterers. At a meeting of the Executive Board on 10 September 2004, as it was recorded in the minutes, “The meeting noted the positive results of operations as well as the right choice of tactics for leasing ships for time charter which allowed to reduce company’s costs and avoid the negative effect of the oil crisis”. Mr. Skarga agreed with and supported this policy, but there is no evidence that he was the author of it, still less that in any way he imposed it upon the other executives or that he in particular was responsible for Sovcomflot’s chartering strategy.

The claimants plead in the Fiona action (at para 297.3A of the particulars of claim) that the charterers’ options to which Sovcomflot agreed “provided no commercial benefit to Fiona’s subsidiaries but gave substantial benefits to the charterers”. The nature of a charterers’ option is, of course, that, unless and until it is exercised, it creates a legal right only for the charterers and a legal obligation only for the owners. This does not mean that there can be no proper or commercial reason that an owner might grant an option to a charterer to extend the period of hire. It is readily understandable that an owner might agree to a charterer’s option as a term of a charterparty in order to induce a charterer to hire a vessel, and do so for sound commercial reasons even if the owner does not receive in return any distinct or recognisable consideration, by way, for example, of an identified increase in the rate of hire or a lump sum. Mr. Pearce and Mr. Huttemeier agreed that owners such as Sovcomflot and NSC, who were not established as leaders in the market, need to be flexible when negotiating charters, and that it is a feature of the market that on occasions owners of their standing do agree to charterers having with-charter options (as opposed to stand-alone charters) to extend the period of hire. In their experience, the rate of hire is not normally increased because the charterparty contains a charterers’ option of this kind: indeed, neither expert knew of any case in which it had been increased. Sovcomflot did not agree to options of this kind only when chartering to the Standard Maritime defendants or to charterers associated with Mr. Nikitin. Mr. van Boetzelaer said in his witness statement dated 13 February 2009 that, when Sovchart had fixed time charters for Sovcomflot, it was “not unusual within the initial charter to grant options to extend the charter”.

The position of the “stand-alone” options is different. Neither of the expert witnesses had had experience of an owner entering into a separate agreement with a charterer after a charterparty had been fixed that the charterer should have an option to extend the hire period. There is no evidence that Sovcomflot entered into similar arrangements with other charterers. Mr. Skarga said that he could not recall them being agreed with other charterers, but, if they had not been, it was because other charterers had not asked for them. Mr. Novikov could not recall Sovcomflot arranging a “stand-alone” option with any charterer other than the Standard Maritime defendants, and I conclude that they did not do so.

Mr. Huttemeier drew attention to other arrangements in which Sovcomflot had showed some flexibility to charterers of their vessels and described them as “what appeared to be … further examples of options granted … during the currency of existing charterparties to other charterers”. These arrangements are not, to my mind, comparable with the “stand-alone” options that Sovcomflot granted to the Standard Maritime defendants.

First Mr. Huttemeier referred to an agreement with BP about the chartering of the “SCF Ural”. The vessel had been chartered on 1 August 2003 for a period of four months, with a charterers’ option to extend the period of hire for a further two months at a rate of $26,000 per day. On 16 September 2003 Sovcomflot agreed that BP should instead have an option to hire the vessel at the end of the charter period for 8 months at $25,000 per day. However, BP had to declare the option within two weeks: it was not an option which they were to hold over an extended period and Mr. Pearce regarded this arrangement as really being in the nature of an agreement for a further 8 months’ hire period “on charterers’ subject”. I consider Mr. Pearce’s view realistic.

Secondly, Mr. Huttemeier mentioned the charter of the “SCF Caucasus” to Chartering and Shipping Services SA for six months with an option of a further six months’ hire. The chartering documentation is confused and confusing, but it appears unlikely that a charterers’ option was granted separately from the original charterparty, and probable that there was a mistake in the first addendum to the charterparty in that it stated that the option period was to run from 29 January 2004 and the option was to be declared by 29 April 2004.

Next, Mr. Huttemeier referred to arrangements reached with Europetroleum about when the “Romea Champion” was to be re-delivered to the owners. It suffices to say that it was agreed that the vessel might be used for a voyage from the East Coast of Mexico to Spain and agreement was reached about re-delivery to accommodate this. This arrangement was not comparable to the stand-alone options agreed with the Standard Maritime defendants.

Fourthly, Sovcomflot agreed that Clearlake, the charterers of the “Petrozavodsk” under a charter dated 26 October 2005, should have an option to re-deliver the vessel earlier than was permitted under the charterparty. The arrangements were reached in the context of fixing the charter of another vessel, the “Liteyny Prospect”. The nature of the arrangements and the context in which they were agreed were quite different from the stand-alone options granted to the Standard Maritime defendants.

Fifthly, Mr. Huttemeier referred to the owners’ agreement to extend the period within which Gunvor were to declare an option to extend the period of hire of the “Tromso Trust”, but Sovcomflot agreed to this because the vessel was going into dry dock.

Finally, reference was made to the charter in about May 2001 of the “Kapitan Kermode”, but there is no credible evidence that any charterers’ option was granted in relation to her.

The claimants submitted that the stand-alone options were not only unusual, but that they cannot be justified and that Sovcomflot agreed to them only because of the corrupt relationship between Mr. Skarga and Mr. Nikitin. Their case is that Mr. Skarga personally agreed the terms of the chartering arrangements with the Standard Maritime defendants including the stand-alone options, and that others had no significant part in doing so. The defendants argued that the claimants exaggerate Mr. Skarga’s involvement in fixing the vessels with the Standard Maritime defendants, and that others within Sovcomflot were responsible for agreeing the terms, or others knew and approved of them.

The Executive Board considered and approved some, but not all, of the impugned charters either before or after they were concluded, but the Board did not consider any of the stand-alone options at their formal meetings. However, the defendants contended that both Sovchart and the Fleet Operations Department and Mr. Terekhin, to whom the head of the Fleet Operations Department reported, arranged them or at least concurred in Sovcomflot agreeing to them. I shall consider below the evidence about the individual stand-alone options, but, as I shall explain, the claimants face particular difficulty in attributing them to Mr. Skarga’s dishonesty because (i) Mr. Terekhin did not give evidence and his role in agreeing the chartering arrangements is important, (ii) the only evidence from Mr. van Boetzelaer is his witness statements, which are unreliable, and (iii) the documents disclosed by the claimants about how the stand-alone options were agreed appear to be incomplete, and in the only case where there is satisfactory documentary evidence, the option in respect of the “Tropic Brilliance” agreed in December 2003, it indicates that Mr. Terekhin authorised the option.

Throughout the relevant period Sovchart, and in particular Mr. van Boetzelaer, arranged charterparties for the Sovcomflot group. Mr. van Boetzelaer was, in the words of Mr. Sharikov, “a very experienced chartering broker”. Although it was not, as far as the evidence goes, recorded in writing, the understanding between Sovcomflot and Sovchart was that Sovchart had authority to conclude voyage charters and time charters for periods of up to six months, but they required authorisation from Sovcomflot in Moscow to enter into longer fixtures, or to extend the period of a charter or to grant an option that committed Sovcomflot to hire of a period longer than six months. Mr. Skarga was in a position to give such authorisation, and so too were others, including Mr. Terekhin and, as I conclude, Mr. Sharikov.

The claimants served two witness statements made by Mr. van Boetzelaer, which were dated 13 February 2009 and 16 June 2009. He declined to attend to give oral evidence, and his written statements were put in evidence. I do not consider that generally I can rely upon that evidence, particularly about whether Mr. Skarga was responsible for the chartering arrangements with the Standard Maritime defendants. The statements are inconsistent with other evidence given on behalf of the claimants. For example, he said that after Mr. Skarga’s appointment, although he still had some dealings with Mr. Terekhin and the Head of the Fleet Department, he more usually dealt with Mr. Skarga, who would respond more quickly to enquiries, and that he thought that Mr. Terekhin was less involved in chartering than he had been previously. Mr. Sharikov’s impression, however, was that Mr. Skarga and Mr. Terekhin “worked closely together”, and I prefer that evidence to Mr. van Boetzelaer’s. I also consider unreliable Mr. van Boetzelaer’s evidence that Mr. Skarga and Mr. Nikitin would negotiate the “basic elements of a deal” leading to the chartering arrangements, and that he would simply record the agreement reached. The documents do not support this.

The transcript of an interview of Mr. van Boetzelaer on 14 June 2006 conducted by the Swiss authorities at the request of the Russian authorities, which the claimants did not disclose until after closing submissions had been concluded, confirmed that Mr. van Boetzelaer’s witness statements are unreliable. For example, in response to a question as to whether he raised any, and if so what, objections to the chartering to the Standard Maritime defendants, he replied that he objected to the series of options attached to the charters of the “Nevskiy Prospect” and the “Ligovsky Prospect”. The clear implication was that he did not otherwise raise any objections. He also said that the charters of the “Azov Sea”, the “Tropic Brilliance” and the “Romea Champion” were at market rates. The defendants did not rely upon these or other answers in the interview as evidence of the truth of their contents, but they submitted that they belie the contrary evidence in Mr. van Boetzelaer’s witness statement. I accept that submission.

Mr. Terekhin, as First Deputy Director-General, had special responsibility for chartering. His contract of employment, which was dated 25 January 2000, stated that, “The Company charges the First Deputy Chief Executive Officer with managing commercial and technical operation of the tanker fleet, developing cooperation with Russian oil and petroleum product exporters, ensuring implementation of procurement projects and construction of tanker tonnage”. As I have said, when he joined Sovcomflot from NSC in 2000, he already had extensive experience of chartering, as well as ship finance and newbuilding construction.

Although he was a non-executive director of NSC when witness statements in these proceedings were exchanged in February 2009, no witness statement of Mr. Terekhin has been served and he did not give evidence. The claimants have provided no explanation for this. There is no suggestion that Mr. Terekhin was himself corrupt, and on occasions he authorised Mr. van Boetzelaer to enter into time charterparties. The claimants submitted, however, that Mr. Terekhin was “acting on Mr. Skarga’s instructions” and “providing no independent scrutiny” of the chartering arrangements with the Standard Maritime defendants. No credible evidence supports this submission. On the contrary, Mr. Lipka, in cross-examination, described him as an independently minded executive who questioned decisions that he did not understand or of which he did not approve, and I accept that assessment of him.

As I have said, I conclude that Mr. Sharikov was entitled to authorise Sovchart to enter into time charters. This was Mr. Skarga’s evidence and I accept it, and reject Mr. Sharikov’s evidence to the contrary. Before Mr. Skarga was appointed as Director-General, Mr. van Boetzelaer would seek such authorisation from Mr. Terekhin or from Mr. Shatov, who was Mr. Sharikov’s predecessor as Head of the Fleet Department, and there is no convincing reason to think that Mr. Sharikov had or exercised less authority than Mr. Shatov had done. Moreover, on some occasions when Mr. Skarga and others were absent, Mr. Sharikov was appointed to act as Director-General, but Mr. Sharikov denied that even then he was permitted to authorise charterparties. I find that implausible.

The claimants submitted that Mr. Sharikov and the Fleet Operations Department played no part in chartering vessels or in scrutinising chartering rates. In his witness statement of 12 February 2009, Mr. Sharikov said that, although he received weekly consolidated reports relating to the positioning and efficiency of the fleet, he did not review individual rates or “pay much attention to charters fixed by Sovchart”. Mr. Novikov, who worked in the Fleet Operations Department and was its Deputy Manager between April 2003 and September 2004, produced the weekly reports to which Mr. Sharikov referred. He stated in his witness statement dated 27 March 2009 that these involved no review or analysis of the charters referred to.

I cannot accept the picture of the work of the Fleet Operations Department given by Mr. Sharikov and Mr. Novikov in their witness statements, and a different picture emerged from their evidence in cross-examination. They received weekly reports with information about market rates, including reports from brokers, and Sovchart too sent them market information. Although the weekly reports produced by the department before August 2003 are not in evidence because they were destroyed in April 2007 by the claimants, the later reports that are in evidence contain extensive information about all of Sovcomflot’s vessels, including their current and previous hire rates and details of any options granted to the charterers. After a draft prepared by Mr. Novikov had been approved by the Head of the Fleet Operations Department, these reports were circulated to Mr. Borisenko, Mr. Skarga and Mr. Terekhin. Mr. Sharikov accepted that, as well as preparing weekly reports, the department prepared quarterly reports comparing vessels’ chartering rates with market rates. Mr. Novikov accepted that it was his responsibility to make a report to Mr. Sharikov, or in his absence to Mr. Terekhin, if a charter was fixed at a rate that did not correspond to the prevailing market. This is reflected in a job description that Mr. Novikov had been given by Mr. Shatov in 1996 in which one of his tasks was to “perform daily monitoring of the terms for chartering out vessels and the state of the freight market for the purpose of analysing the level of vessels chartered out by … Sovchart Geneva”. I conclude that it was the role of the Fleet Operations Department to consider the terms of charters entered into through Sovchart and to compare them with the market rates, with a view to maximising the profitable deployment of the fleet.

Mr. Skarga did not curtail the activities of the Fleet Operation Department in scrutinising charters made by Sovcomflot with the Standard Maritime defendants or more generally. Shortly after he became Director-General, Sovchart were instructed to prepare daily reports to Sovcomflot, on 19 December 2001 the Executive Board decided to reassess and improve their systems for statistical reporting, and on 13 March 2003 the Executive Board instructed Mr. Borisenko, Mr. Terekhin and Mr. Sharikov to propose further improvements in the collation of statistical data on the fleet’s performance. Mr. Sharikov said in his evidence, and I accept, that Mr. Skarga supported these changes.

In a witness statement dated 5 December 2008 that Mr. Nikitin and the Standard Maritime Defendants put in evidence, Mr. Betty, who worked as a broker for Sovchart between 1994 and September 2004, confirmed that Mr. Terekhin and the Fleet Operations Department assessed whether fixtures were profitable. He was aware that Sovcomflot reviewed the terms upon which fixtures had been made because sometimes Mr. Terekhin or the Fleet Operations Department would ask him why the results of a charter compared badly with the market. I accept that evidence. Mr. Novikov agreed that he sometimes spoke to Sovchart about chartering rates, but said that this was “purely to satisfy my own curiosity”. In view of the responsibilities of the Fleet Operations Department and Mr. Novikov’s own duties, I cannot accept that explanation. He made enquiries of Sovchart so that he could understand and explain any rates that appeared out of line with the market or concerned him for some other reason. According to Mr. Betty, Sovchart were never so questioned about the rates of the chartering arrangements with the Standard Maritime defendants, and neither Mr. Sharikov nor Mr. Novikov disputed this. I accept Mr. Betty’s evidence about that too.

Mr. Novikov said, however, that his impression was that some of the chartering rates agreed with the Standard Maritime defendants were low. I shall refer below to his evidence about a charter of the “Romea Champion” dated 2 June 2003. When he was cross-examined, Mr. Novikov also gave an account of an occasion when, in Mr. Sharikov’s absence, he reported to Mr. Terekhin concerns that he had about another chartering rate agreed with either Henriot or PNP that he considered to be low. According to Mr. Novikov, Mr. Terekhin had instructed him “very clearly and unambiguously that [he] should keep away from [individual charterers] because such decisions are taken at the very top level”. I am unable to accept that this evidence was truthful. Had it been, such a significant exchange would have been mentioned before Mr. Novikov was being cross-examined.

Mr. Sharikov said that, if he observed that the rate of hire in a charterparty seemed strange, he would mention it to Mr. Terekhin, but not to Mr. Skarga. He said in cross-examination that he had spoken to Mr. Terekhin about some rates of hire agreed with the Standard Maritime defendants, but his evidence about this was vague and unconvincing and I do not accept it. Had he done so, like Mr. Novikov he would have said so in his witness statements.

I conclude that the rates and other terms on which vessels were chartered were known and assessed by the Fleet Operations Department. Mr. Terekhin was also well aware of them. Apart from Mr. Novikov’s concerns about the chartering rate for the “Romea Champion”, the terms and rates of the charters to the Standard Maritime defendants caused no disquiet. This, in my judgment, was because they were generally in line with the view taken within Sovcomflot of the prevailing market.

Against this background I consider the individual agreements entered into by Sovcomflot with the Standard Maritime defendants in order to assess (i) whether they are upon terms which indicate that they indicate a corrupt relationship, (ii) the part played by Mr. Skarga and Mr. Nikitin in agreeing the terms, and (iii) the involvement of others at Sovcomflot in making the charterparties.

The “Fili” and the “Azov Sea” were small, medium range crude oil or product carriers. The “Fili” was built in 1991, and the “Azov Sea” was built in 1998. By a charterparty dated 28 February 2001, the “Fili” was chartered to PNP by Fili Shipping for 12 months from 20 April 2001 at a rate of $18,000 per day, and PNP were granted

The rate of hire of the “Fili” was apparently agreed directly between Sovcomflot and the charterers. For example, Mr. van Boetzelaer wrote on 29 January 2001 to the charterers’ agent that he understood the rate had been agreed “between our principals”. Mr. Nikitin and Mr. Skarga accepted that they had had some discussions which led to the charter, and Mr. van Boetzelaer was probably referring to negotiations conducted by Mr. Skarga.

Under a charterparty dated 26 March 2001, the “Azov Sea” was nominated for charter to PNP by her owner, Valloy Shipping Co Ltd., the 27^th claimant in the Fiona action. The terms as to the period of hire, the rate and a charterers’ option were similar those for the charter of the “Fili”. There is no evidence whether the rate for the “Azov Sea” was agreed between brokers or between principals, but Mr. Skarga authorised Sovchart to enter into the fixture. On 21 March 2001 Mr. van Boetzelaer reported by e-mail to Mr. Shatov that he had entered into it subject to charterers’ approval “As per the authority of Mr. Skarga”. (The e-mail in fact referred to a charter not of the “Azov Sea” but of her sistership, the “Barents Sea”, which Sovcomflot originally planned to charter to PNP and for which the “Azov Sea” was substituted.)

Both the “Fili” and the “Azov Sea” were chartered at rates that were in line with the market, if not above it, and upon terms that are consistent with normal industry practice. They were as high as any rate that Sovcomflot agreed during this period for a vessel of this kind. In Sovcomflot’s report for the first six months of 2001 it was said that, of Sovcomflot’s eight vessels of this type, six were hired on time charters to ST Shipping, Vitol and PNP for periods of between one and two years at a daily rate of between $14,700 and $18,000 “due to the instability of the spot freight market for product carriers”. It was submitted by Mr. Dunning that this in itself is evidence that Mr. Skarga did not by early 2001 have a corrupt relationship with Mr. Nikitin and so that he was not party to the Sovcomflot Clarkson commissions scheme. I reject that submission: too little is known about how agreement about the rates of hire of the “Fili” and the “Azov Sea” was reached, and in any case Mr. Skarga might have thought it too risky to agree to low rates until Sovcomflot had a well established chartering relationship with the Standard Maritime defendants

At about the end of December 2001 the hire rate for the “Fili” was reduced from 29 December 2001 to $13,500 per day and the rate of hire for the optional period was changed to $14,000 per day because she had been chartered on the basis that she had ice-class 1C status whereas in fact she had only the lower ice-class C status. PNP had threatened to terminate the charter because she did not comply with the charter description. The hire was reduced by way of a compromise of this complaint. PNP’s initial proposal was that the rate of hire for the “Azov Sea” as well as for the “Fili” should be reduced to $13,000 from 1 December 2001, but it was agreed that only the rate for the “Fili” should be adjusted.

The charterers did not declare the options to extend the period of hire of either vessel, but after further negotiations both vessels were chartered for a further 12 months’ hire at $13,250 per day with a further charterers’ options at a rate of $14,500 per day for 12 months from April 2003 (from 20 April 2003 in the case of the “Fili” and from 24 April 2003 in the case of the “Azov Sea”) to be declared by 10 March 2003. The new rate of $13,250 ran from 1 March 2002 for the “Fili” and from 15 March 2002 for the “Azov Sea”, that is to say, from before the date when the original charters expired. PNP declared the options on both vessels on 10 March 2003. (For the sake of completeness, I mention that, for reasons that are not explained in the evidence and are irrelevant for present purposes, in June 2003 it was agreed that the rate of hire of the “Fili” should be increased to $16,000 and the rate for the “Azov Sea” should be correspondingly reduced.)

Neither the rates of hire nor anything else in these dealings suggests anything other than normal commercial dealings between the parties. In August 2003 Sovcomflot granted the charterers further options for the hire of the “Fili” and the “Azov Sea”, which I shall consider below.

Before I consider the charters of the “Tropic Brilliance” and the “Romea Champion”, I shall describe the condition of the vessels. They were Tromso type double-hulled Suezmaxes, built in 1992. The defendants contended that they were in poor condition, and that this supports their contention that they were chartered to the Standard Maritime defendants at proper rates. The Tromso vessels had no centre-line bulkhead in the cargo tanks, and by 2002 this was causing problems. Class restrictions had not been imposed, but some oil companies considered that the design might cause instability during loading and discharging operations. It also meant that stresses upon the vessels might cause cracking in the cargo and ballast tanks. Further, the coatings in the tanks were prone to deteriorate, and this led to corrosion and wasting of metal structures.

Several relevant documents about the “Tropic Brilliance” and the “Romea Champion” were not disclosed by the claimants until after the close of final submissions. The defendants applied to re-open their case and to adduce some of the documents in evidence, and I permitted them to do so. I accept that the claimants did not deliberately withhold them, but the late disclosure hampered consideration of these issues. In particular, the evidence of Mr. Thompson about the condition of the vessels should have been tested against some of the documents, and, for example, in view of them I am unable to accept his evidence about how the condition of their ballast tanks compared with those of other vessels on the market, or his evidence that the “Tropic Brilliance” was in better condition than Sovcomflot’s other Tromso vessels.

It suffices to illustrate selectively the problems of the “Tropic Brilliance” with cracking and deterioration of her tank coatings without reciting their full history between 2002 and 2004. Between May and July 2002, when she underwent her second special survey, cracking was found in the cargo and ballast tanks, and the condition of the coating in the wing ballast tanks was described as “poor”. Although a “riding squad” was put on board in the second half of 2002, the “Tropic Brilliance” continued to have problems with cracking and deterioration of the coatings throughout 2003 and 2004. A condition of class was imposed in October 2002 when cracks were discovered in the transverse bulkhead. Work on the coatings had not been completed in time for the class annual survey in February 2003, and a requirement of annual class inspections of the wing and double bottom ballast tanks was imposed. In February 2004 further cracking and corrosion was found and she was required to have repairs completed by 23 May 2004. On 12 March 2004 Mr. Thompson recommended that the vessel be dry-docked for her intermediate survey in July 2004, the earliest permitted date. With the agreement of Henriot, the charterers, she went into dry-dock in Bahrain in August 2004. Steel was replaced, reinforced coatings were up-graded and permanent repairs of cracks were carried out in order to meet class requirements. On 6 November 2004, on her maiden voyage after leaving dry-dock, the “Tropic Brilliance” grounded in the Suez Canal, but there is no reason to suppose that this was because of the problems that I have described. The grounding was said by the defendants to have been caused by a failure of her steering gear, but I cannot determine the cause.

Mr. van Boetzelaer’s evidence was that the condition of the “Tropic Brilliance” did not affect the rates of hire that, in his view, the vessel could command, and that he would not expect it to have done so provided that major oil companies gave her their approval. I am unable to accept this. I prefer Mr. Skarga’s evidence that Sovcomflot discussed the problems with Sovchart, and it was recognised that the “Tropic Brilliance” was a difficult vessel to charter on the market. Further, even if, as Mr. van Boetzelaer asserted, potential charterers did not question her condition in negotiations, Sovcomflot’s concerns would, as I infer, have made them readier to accept a proposal to fix the vessel, especially from charterers, such as the Standard Maritime defendants, who already had chartered vessels from them and had not been unduly aggressive when problems occurred.

It is, in any case, accepted by the claimants that the condition of the vessel might have affected rates if major oil companies did not approve her for their business. By the early years of this century, it was less clear than previously whether a vessel could be said to hold such approvals, for reasons that I should explain briefly. In the 1990s oil companies might, after a confidential inspection, give a general approval to a vessel to carry their cargoes, and the major oil companies had, through the Oil Companies International Marine Forum (“OCIMF”), developed the Ship Inspection Report System (“SIRE”) whereby companies subscribing to the system would make available inspection reports to other members. However, after the explosion on the “Erica” in December 1999 and even more after the pollution caused when the “Prestige” sank in November 2002, oil companies were reluctant to give prior approval to a vessel, and they increasingly reserved the right to carry out their own inspection. Thus, while many (but not all) major oil companies would still indicate that a vessel was generally acceptable to them, owners and managers could not claim that their vessel was formally approved by major oil companies. Generally, they could only say that oil companies had accepted a vessel based on the last SIRE inspection report, and thus had given what Mr. Komyshev referred to as “implicit approval”. In reality, a vessel’s “approval status” was best indicated by identifying what major oil companies had allowed her to lift cargo and ascertaining whether oil companies had shown reluctance to do so or had even rejected her.

In these circumstances and without a prevailing system of formal approvals, it is the more difficult to judge how far the condition of the “Tropic Brilliance” and the “Romea Champion” caused concern to the oil companies and as a result affected marketing of the vessels for hire and the rates that they commanded. I conclude that to some extent Sovcomflot experienced problems of this kind with all the Tromso vessels. For example, on 28 January 2003 BP advised that the Tromso vessels were not acceptable to them without further information about their condition. At a meeting of Unicom’s Operators Weekly Meeting on 4 September 2003 it was said (as recorded in the minutes) that “Tromso class is still trading with difficulties due to the precise screening of Majors and Class records. It was noted the pressure of commercial and marine departments giving positive results like in “Tromso Confidence” case, however technical conditions of vessel and Class records require to be improved”.

In the case of the “Tropic Brilliance”, undoubtedly some major oil companies had accepted her in 2002, and continued to do so, but I accept the defendants’ submission that others had raised concerns about her condition. In an e-mail to PNP dated 29 November 2002, for example, Mr. van Boetzelaer was able state that the vessel was then approved by BP, by Total Fina Elf and by Exxon, but this did not tell the whole story. In August 2002 Total Fina Elf had given their approval only after the classification society had endorsed the condition of her ballast and cargo tanks, and, when cracking in the traverse bulkhead had been found in October 2002, such endorsement could probably not have been obtained. Unicom cancelled an inspection by Shell in December 2002 because the vessel would not have passed it. In 2004 Sovchart remained concerned about having oil companies’ approval in order to attract business for the “Tropic Brilliance”, and on 2 February 2004 they said of forthcoming inspection by Statoil, “We really do need a good SIRE report on this vessel”.

In March 2002 the “Romea Champion” underwent her second special survey. She had problems similar to those of the “Tropic Brilliance” (and the other Tromso vessels), and overall her condition does not appear to have been significantly better than her sistership. For example, in December 2002, cracks were found in her tanks and she was detained by the Savona Port Authority. Further cracks were discovered in around March and April 2003. In May 2003 Unicom decided to carry out a full inspection of the ballast coating of all the Tromso vessels, and it was found that in the case of the “Romea Champion” up to 90% of the coatings had deteriorated.

The “Romea Champion” performed voyages in 2002 for Total Fina Elf, for Chevtex and for Sun, and in 2003 for BP, Chevoil and Petrobras. However, she had some difficulty over approvals from some major oil companies. In December 2002, for example, Exxon Mobil withdrew their approval pending further investigations, in February 2003 Agip would not accept her and by June 2003 she had also been rejected by Total Fina Elf and by Noble Denton. Moreover, as I have described, in January 2003 she suffered damage from ice in the Gulf of Finland, and, while the damage itself was relatively minor and quickly repaired, the incident attracted unwelcome publicity. Like the “Tropic Brilliance”, the “Romea Champion” would not, as I conclude, have been an easy vessel to market for hire.

Despite Mr. van Boetzelaer’s evidence, I accept the defendants’ submission that the problems that arose from the design and condition of the “Tropic Brilliance” and the “Romea Champion” are relevant when assessing the claimants’ complaints about the

The claimants rightly observed that, at considerable cost both by way of expenditure and lost earnings while modifications were being carried out, at the time of their second special surveys in 2002 Sovcomflot had undertaken work to up-grade the “Tropic Brilliance” and the “Romeo Champion” so as to acquire ice-class 1C status for their hulls and ice-class C for their machinery. As was stated in Sovcomflot’s annual report for 2001 (which Mr. Skarga signed), this work was done with a view to the vessels being able to trade from Primorsk. Mr. Skarga and Mr. Nikitin said that in fact this purpose was not achieved by the modifications because the vessels did not have heating in their ballast tanks, and, unless they were ballasted, their propellers would not be sufficiently low beneath the ice level. I do not accept that evidence because both vessels had another mechanism, an air bubbling device, which prevented freezing in the ballast tanks.

However, I do not accept that this meant that the vessels commanded higher chartering because they had acquired ice-class status rates. As Mr. Pearce and Mr. Huttemeier agreed and I accept, the question whether a vessel attracts an “ice premium”, that is to say an increased rate of hire because she has ice-class status, depends upon a variety of circumstances, including the degree of ice strengthening. There is nothing in the contemporary documents that suggests that anyone at Sovcomflot or at Sovchart considered that the rate of hire of the “Tropic Brilliance” and the “Romea Champion” should be higher than that of other Tromso vessels because their specification had been up-graded to ice-class status. They were effectively strengthened only to ice-class C, because, as Mr. Pearce accepted, if the status of a vessel’s hull and that of her machinery are different, she is taken to be of the lower status. In any case, Sovchart would not have warranted that the “Tropic Brilliance” could cope with ice at Primorsk even on the basis that she was of ice-class 1C status. On 7 August 2002 Sovchart wrote to PNP that, “There is no doubt that in case of severe conditions a vessel of ice-class 1C such as the “Tropic Brilliance” will not be permitted to call at Primorsk as the risk of damage to the vessel would be unacceptably high”. They would give a warranty only that the vessel would “trade in slushed ice”. The published guidance which was available in 2002 stated that, in order to trade to Primorsk during the winter, a vessel should be of ice-class 1C, and Mr. Pearce accepted that a prudent charterer would not in these circumstances have paid an ice premium for the “Tropic Brilliance” with a view to her trading from Primorsk during the winter of 2002/03. In so far as the claimants argued that the chartering rates were unduly low because they did not reflect the ice-class status of vessels, I conclude that they would not have attracted an ice premium, and in any case the “Tropic Brilliance” and the “Romea Champion” were less suitable than other class ice 1C vessels for trading in demanding ice conditions because of concerns about their strength and general condition.

By a charter dated 9 December 2002 Glefi Shipping XXIX Co (“Glefi XXIX”), the 24^th claimant in the Fiona action, chartered the “Tropic Brilliance” to Henriot for 12 months at $19,000 per day, the charterers’ obligations being guaranteed by PNP. The rate of hire had been agreed, subject to charterers’ approval, on 20 or 21 November 2002. The charterers’ approval was given and the charter was firmly concluded, as I infer, after it had been considered at a meeting of Sovcomflot’s Executive Board on 9 December 2002 and the Board had unanimously approved the proposed charter. A briefing note before the Board referred to a “commercial offer” from Henriot and set out the essential terms of the charter. The proposal to approve it was introduced by Mr. Sharikov, and Mr. Terekhin, Mr. Borisenko and Mr. Skarga all spoke in support of it. The minute of the meeting expressly referred to the hire rate of $19,000 per day. Nobody at the meeting suggested that it was too low.

The claimants plead that the rate for the charter had been directly agreed between Mr. Skarga and Mr. Nikitin, and that Mr. Skarga instructed Mr. van Boetzelaer to fix the vessel: see para 297.15 of the particulars of claim in the Fiona action. Mr. Skarga accepted that he had authorised Mr. van Boetzelaer to agree the charter and rate. He denied that he had any direct discussions with Mr. Nikitin about this fixture, but I reject that evidence. In e-mails dated 21 November 2002 and 22 November 2002 to Mr. Skarga, Mr. van Boetzelaer referred to “your negotiations” and what “you agreed with PNP”, and Mr. Nikitin accepted that, if PNP had had negotiations with Mr. Skarga, he would have conducted them himself. Further, in a witness statement made on 16 June 2009 Mr. Skarga accepted that he had discussions with Mr. Nikitin about the fixture, and that he agreed with Mr. Nikitin that the fixture should remain subject to the approval of the charterers’ management. Although in crossexamination he said that he did not recall this, I consider that this confirms what would in any case have been the most natural inference from Mr. van Boetzelaer’s communications.

The claimants also plead that the rate of hire was “significantly below the market rate” and “substantially lower than the then market rate”: see paras 297.15 and 297.41.3 of the particulars of claim in the Fiona action. Mr. Huttemeier considered that the rate of $19,000 was a commercial rate for the vessel. One reason that he gave for this view was that, shortly after the rate was agreed, Sovcomflot agreed to charter the “Romea Champion” to Europetroleum at the same rate for six months with a charterers’ option for a further period of six months. The claimants submitted that the rate of hire of the “Romea Champion” is not a guide to the proper rate of hire of the “Tropic Brilliance” because Mr. Skarga always intended that it should be increased, as indeed it was in January 2003. For reasons that I have explained, I reject the claimants’ contention about the intention to adjust the hire rate, but my conclusion about the rate of hire of the “Tropic Brilliance” does not depend upon the rate of hire of the “Romea Champion”.

Mr. Huttemeier had other reasons for his opinion about the rate of hire of the “Tropic Brilliance”, and to my mind they justify it regardless of the charter of the “Romea Champion”. First, Drewry reported a rate of hire for a charter of 6 to 12 months of a 5 years old Suezmax of $18,000 in November 2002 and of $19,000 in December 2002. For the week of 15 November 2002 (when the rate of hire for the “Tropic Brilliance” was agreed) CSIW reported a rate of $18,750 per day for Suezmaxes of the early 1990s, although they increased the rate to $19,000 per day in the next week.

The claimants accepted that the rate of hire of $19,000 would have been appropriate for a standard Suezmax vessel which did not have ice-class status, but submitted that, given her status, the “Tropic Brilliance” commanded a higher rate. The defendants disputed that ice-class status generally commands a higher chartering rate, and also submitted that in any case the “Tropic Brilliance” would not have done so because of her condition. For reasons that I have explained, I agree with both of these submissions. Even leaving aside the condition of the “Tropic Brilliance”, the claimants have not, in my judgment, shown that the rate of hire of $19,000 per day for the hire of the “Tropic Brilliance” was below the market rate for a vessel of her iceclass specification.

There is no evidence that persuades me that the rate at which the “Tropic Brilliance” was chartered was below what Sovchart and Sovcomflot considered might be obtained on the market, or that they could in fact have obtained a higher rate. I conclude with regard to this fixture of the “Tropic Brilliance” that:

On 31 March 2003, the “Izmaylovo”, a small crude oil or mid range product carrier built in 1991 and owned by Glefi Shipping VII Company Ltd. (“Glefi VII”), a subsidiary of Sovcomflot, the 20^th claimant in the Fiona action, was chartered to Henriot for 12 months at a rate of $16,000 per day, with a charterers’ option, to be declared at least 60 days before the end of the first period, for an additional year at the same rate of hire. Glefi VII was under the terms of the charter protected as to the place of re-delivery of the vessel because they were to be paid a ballast bonus of $150,000 if she was re-delivered in the United States Gulf, the Caribbean or the Mediterranean and $120,000 if she was re-delivered on the East Coast of Canada.

The claimants accept that the rate of hire for this fixture was within the contemporary market range. At a meeting on 3 September 2003 Mr. Sharikov reported upon the fixture to the Executive Board of Sovcomflot and the Board endorsed it. In his evidence, Mr. Sharikov said that Mr. Terekhin, as well as Mr. Skarga, had already approved it. There is no basis for criticising the terms or rate of the charter, and nothing suggests collusion or that it was not a fixture made on terms reflecting the market.

On 2 June 2003, Glefi XXVIII chartered the “Romea Champion” to Henriot for one year at a rate of $19,000 per day with a charterers’ option, declarable by 30 April 2004, for an additional year at the same rate. It was a term of the charterparty that, if Glefi XXVIII decided to sell the vessel, they could give 30 days’ notice that they required her to be re-delivered. It was also stated that “at the time of offering and to the best of Owners’ knowledge the vessel hold the following approvals: BP, ChevTex, EXXON, Statoil, TFE, Repsol”. Until 3 December 2003, Henriot’s obligations were guaranteed by PNP.

Towards the end of May 2003 Mr. Nikitin told Mr. van Boetzelaer that he was interested in hiring the “Romea Champion” and invited the Owners to make an offer of chartering terms. By an e-mail of 26 May 2003 Mr. van Boetzelaer proposed a rate of $19,000 per day for a 12 months’ fixture with no optional period. On 27 May 2003, PNP responded by way of an e-mail from Mr. Pavlov requesting an optional 12 months’ period on the same terms as the initial period, declarable by 30 April 2004. Mr. van Boetzelaer sent an e-mail to Mr. Skarga dated 30 May 2003 seeking authority to agree to the request, and asking whether he should seek for an increased rate of hire (“should we ask for an additional USD500??”). In an e-mail to PNP dated 2 June 2003 Mr. van Boetzelaer agreed to the charterers’ option that PNP had requested, but stipulated that the Owners should be entitled to terminate the hire on 30 days’ notice if they sold the vessel.

Mr. van Boetzelaer said in his witness statement that he was instructed by Mr. Skarga to offer the vessel at $19,000 per day, and that he considered that the rate of hire was “definitely low” because the market rate at the time was around $26,000, but that he did not recall whether he expressed this view to Mr. Skarga. Mr. Skarga did not recall any conversation with Mr. van Boetzelaer, and denied that, if they did speak, he would have given instructions about the rate of hire without discussing with Mr. van Boetzelaer what it should be. I do not regard Mr. van Boetzelaer’s evidence as reliable, and I reject it. If he had believed the rate of hire to be so low, he would not have suggested, rather diffidently, charging only a further $500 per day for the option period. It is unlikely that Mr. Skarga gave Mr. van Boetzelaer authority to agree to the charterers’ option or gave instructions about this fixture. Between 30 May 2003 and 2 June 2003 he was busy in St Petersburg as a member of the committee organising the celebrations for the 300^th anniversary of the foundation of the city. On 3 June 2003 Mr. van Boetzelaer sent a recap of the terms of the fixture to, among others, Mr. Terekhin, Mr. Sharikov and Mr. Novikov. It was not sent to Mr. Skarga.

On his copy of the e-mail, against a reference to the fixture being made “as per your authority”, Mr. Novikov wrote “who confirmed?” and against the rate of hire of $19,000 per day he wrote “$27,000 per day” and “in relation to Clarkson but only one fixture”. His explanation of the note was that, when he received the recap, he thought that the market rate of hire, as indicated by CSIW, was $27,000 per day and therefore the rate of hire agreed with Henriot was very low. In his witness statement dated 27 March 2009 he recalled that he told Mr. Sharikov this and that he was curious to know who had authorised the charter. In cross-examination he said that he might have spoken to Mr. Terekhin rather than Mr. Sharikov. He had been unable, he said, to discover who had authorised the fixture. At their meeting on 3 September 2003 Mr. Sharikov informed the Executive Board about the charter, and the Executive Board endorsed it. There is no evidence that anyone on the Board shared any concerns that Mr. Novikov had expressed about the rate of hire.

It was suggested to Mr. Novikov in cross-examination that he had not written his notes on the recap document in 2003, but at some later time when he was reviewing the charterparties entered into by Sovcomflot with Standard Maritime defendants. I accept Mr. Novikov’s evidence that he wrote his notes in 2003. However, this does not persuade me either that the rate of hire for the charterparty was below the prevailing market or that this was generally the view within Sovcomflot. On the contrary, Mr. Novikov’s view was based only upon the rate reported in CSIW, and he observed that only one comparator fixture appeared to support the CSIW rate (presumably the fixture of the “Sikinos”, to which I shall refer). More significantly, any disquiet expressed by Mr. Novikov was apparently not shared by the member of the Executive Board to whom he spoke, whether that was Mr. Sharikov or Mr. Terekhin. Both voted to endorse the fixture at the meeting on 3 September 2003.

The claimants submitted that the rate of hire of the “Romea Champion” of $19,000 per day in the charterparty of 2 June 2003 was substantially lower than the market rate, which they say was $29,687. They contended that the market rate for a vessel which was not of ice-class status was some $26,000 per day and the “Romea Champion” would have commanded an “ice premium”, which Mr. Pearce calculated in his report of 5 February 2010 at $3,687 per day. (They did not pursue their pleaded case that the market rate, again disregarding the option, was $31,000.) They said that their contention that the market rate was $26,000 is justified by the indices published contemporaneously by brokers. For the week ended 30 May 2003 CSIW reported the rate to which Mr. Novikov referred in his note on the recap, $27,000 for a one year’s hire of a modern 150,000 dwt vessel. Their corresponding rate for a 140,000 dwt vessel of “early 90s” was $25,000. ACM and Drewry published similar rates, indicating rates of $25,000 to $26,000 in their monthly figures for May and June 2003.

As with the charter of the “Tropic Brilliance” of 9 December 2002, I reject the contention that the ice-class status of the “Romea Champion enhanced the market rate for hire of the vessel. This part of Mr. Pearce’s evidence, and the claimants’ case, was undermined when he accepted that a prudent charterer would not pay an ice premium for either vessel. On the face of it, however, the indices do support the claimants’ contention that the market rate for a Suezmax at and around the end of May 2003 was about $26,000 per day.

The claimants also referred to reports at around the end of March or early April 2003 that the Suezmax vessel “Sikinos”, which was built around 2000, had been fixed on a charter to Petrobras that was variously reported to be for two years or for 33 months at a rate of around $26,500. These reports do not, to my mind, provide a reliable comparator because, as Mr. Huttemeier pointed out, the “Sikinos” was a more modern vessel and because the fixture was concluded some two months earlier. More importantly, the vessel was again fixed to Petrobras in September 2003, this time for a three years’ period. Mr. Berry suggested that this indicates that the period of the charter in March or April 2003 was in fact for 3 months with a three months’ option period and a term of “3+3” was erroneously transcribed as “33 months”. It is unduly and unnecessarily speculative to go that far, but the September 2003 fixture does indicate that the reports of the fixture in March/April 2003 are unreliable.

In their defence, Mr. Nikitin and the Standard Maritime defendants plead that rates for vessels such as the Tromsos were expected to fall significantly, and say that Marsoft reported that they were expected to fall to $17,000 per day: see para 147A.8(2)(b) of their defence. This latter contention about Marsoft’s report is not justified. It is based, apparently, upon a report which was published after the “Romea Champion” had been fixed, and which contained a “risk analysis”, setting out an “upside potential” and a “downside potential”. The pleading refers only to the latter. Marsoft’s contemporaneous reports were broadly in line with the indices.

In Mr. Huttemeier’s opinion, there is no reason to think that the rate and other terms of the charter of the “Romea Champion” were anything other than commercial terms, the only unusual feature being that the owners had the right to cancel the option period in the event of a sale. He considered that there was little reason to rely upon the estimated rates in the indices because “it is difficult to see how their figures could have been much more than guesswork” in view of the paucity of comparable contemporaneous fixtures. He was unable to find any other reported fixtures of a Suezmax vessel in May or June 2003. He observed that in September 2003 NSC chartered the “Kuzbass” and the “Kaspiy” to Remmy at a rate of $18,000 per day (misreported to be at $21,500 per day), but the claimants disputed that these fixtures were properly negotiated at arms’ length.

I see force in defendants’ submission that the dearth of comparator fixtures both casts doubt upon the authority of the indices as evidence of a market rate and makes it particularly difficult to judge whether the rate of hire agreed for the charter of the “Romea Champion” to Henriot was below what would have been expected if the parties were dealing at arms’ length. The rate does appear to be broadly consistent with rates that Sovcomflot were accepting from other charterers of their Suezmax vessels. They chartered three of their relatively modern SCF Suezmaxes in the summer of 2003. Mr. Huttemeier said, and I accept, that these vessels would be expected to attract higher rates, especially for short periods of hire, than the year’s charter of the “Romea Champion”. On 9 May 2003 Sovcomflot agreed to charter a new (2002 built) Suezmax, the “SCF Khibiny”, to Chevtex for about 120 days at a daily rate of $26,300. On 1 July 2003 Mr. van Boetzelaer recommended to Mr. Skarga that Sovcomflot accept a proposal from Chevtex for a charter at $22,750 per

As for the Tromso vessels, on 25 November 2002 the “Tromso Trust” was chartered to Gunvor for a period of six months with a charterers’ option for a further six months at a rate of $20,500. On 23 May 2003 Mr. van Boetzelaer wrote to Mr. Terekhin that, before deciding whether to declare the option, Gunvor wanted to know the owners’ intentions with regard to having major oil companies restoring their approvals for the ship, and on 26 May 2003 Sovchart extended the date by which Gunvor might declare the option until 29 June 2003. As Mr. Huttemeier observed, this indicates that Sovcomflot did not expect to achieve a significantly higher rate for the vessel in the market than the option rate of $20,500. Otherwise they would not have extended the date, but would have let the option lapse. Mr. van Boetzelaer warned Sovcomflot of the difficulties in marketing the vessel without approvals from major oil companies, writing “Without approvals, the vessel becomes virtually impossible to trade”.

As for the “Romea Champion” herself, in May 2003 Mr. Skarga agreed to extend the period of the charter to Europetroleum for 30 days at a rate of $19,000 per day. In a report to Mr. Skarga in June 2003 Mr. van Boetzelaer advised that, after she had completed the charter to Henriot, she should not be hired again until she had had “the necessary repairs”. It is not clear from the documents what repairs he had in mind, but it seems that he might have experienced difficulties in marketing her.

Sovcomflot might well have taken a pessimistic view of the market for the “Romea Champion”, and they might have achieved higher rates for their Suezmax vessels closer to those indicated in the brokers’ indices, but without any reliable comparator fixtures I do not consider that the claimants have established that the rate of hire of the “Romea Champion” was far below market rates. In any case, I conclude that the rate at which Sovcomflot chartered the “Romea Champion” to Henriot was broadly consistent with the rates at which Sovcomflot agreed to charter other Suezmax vessels to other charterers in the summer of 2003.

My conclusions with regard to the charter of the “Romea Champion” on 2 June 2003 are that:

By charterparties dated 10 June 2003, Sovcomflot agreed to hire to Remmy the “Ligovsky Prospect”, owned by Progress Shipping Co, the 22^nd claimant in the Fiona action, and the “Nevskiy Prospect” owned by Universal Navigation Co Ltd., the 23^rd claimant. (I shall refer to these two vessels together as the “Prospect vessels”) The charters were for three years at a rate of $20,500 per day, with three charterers’ options for three further years’ hire at the same rate, each option to be declared 3 months before expiry of the immediately prior period. The Prospect vessels were two of a series of three double-hulled Aframax tankers of 113,970 dwt, which were at the time of the charters still under construction at the Daewoo shipyard in South Korea. The third vessel was the “Liteyny Prospect”. The specification of the three vessels was of ice-class 1B for hull, and 1C for machinery, and they were being acquired for trading in the Baltic Sea during winter months. The charters of the Prospect vessels provided that they were to “force ice and follow ice breakers”. The delivery date ranges were between 15 October 2003 and 30 November 2003 for the “Nevskiy Prospect” and between 15 October 2003 and 15 February 2004 for the “Ligovsky Prospect”.

On 24 March 2003, Mr. van Boetzelaer sent Mr. Nikitin by e-mail an offer to PNP of a time charter of one of the three vessels being constructed by Daewoo for three years at the rate of $21,500 per day. Following further exchanges, he sent on 25 March 2003 an offer to charter the “Nevskiy Prospect” at a rate of $20,500 for three years with the three option periods of a year each. The offer was subject to the approval of the prospective charterers’ management until 31 May 2003, and so it was open for acceptance for some 9 or 10 weeks. Mr. van Boetzelaer also sent an e-mail to Mr. Skarga that “as per your authority” he had concluded the fixture to PNP. Mr. van Boetzelaer’s evidence was that Mr. Skarga instructed him to offer the three option periods and to allow the offer to remain subject to approval for so long.

Mr. Nikitin advised Mr. van Boetzelaer that the charterers wished to charter two vessels on such terms, and on 26 March 2003 Mr. van Boetzelaer passed the request to Mr. Skarga and Mr. Terekhin by e-mail. On 31 March 2003 Mr. Terekhin confirmed the Owners’ agreement to the request, and Mr. Skarga also did so in an email dated 6 April 2003. The claimants argued that Mr. Terekhin was probably instructed by Mr. Skarga to do so, but there is no evidence to support that submission and I reject it. To my mind, the pattern of e-mails simply exemplifies that Mr. Skarga and Mr. Terekhin were working together in chartering the fleet, as Mr. Sharikov said that they generally did. On 24 April 2003 Mr. van Boetzelaer sent Mr. Nikitin a recap of the fixture of the “Ligovsky Prospect” for a period of 3 years with three charterers’ options of a year each at a rate of $20,500 per day, the fixture being subject to the approval of the prospective charterers’ management until 31 May 2003.

At a meeting of the Executive Board of Sovcomflot on 15 May 2003 Mr. Sharikov informed the Board of the fixtures of the Prospect vessels, and presented briefing notes drafted by Mr. Novikov, which stated (among other things) the rates of hire and the option periods. The Executive Board unanimously endorsed them. After further discussions the fixtures were finally agreed and confirmed in recap e-mails on 10 June 2003. The charterers were Remmy, but their obligations were guaranteed by PNP until, as with other charterparties, PNP’s guarantee was determined on 3 December 2003.

The claimants relied in support of their contention that Mr. Skarga acted improperly in relation to these charterparties (i) upon the rates of hire, (ii) upon the three options, and (iii) upon the length of time for which the fixtures were subject to the charterers’ approval.

The claimants submitted that the hire rates under the charters of the Prospect vessels were substantially lower than the market rate for the vessels. They accepted that the rates are higher than the current rates for Aframax vessels without ice-class status. When the rate of hire for the “Nevskiy Prospect” was agreed, CSIW indicated a hire rate of $20,000 per day, and when the rate of hire for the “Ligovsky Prospect” was agreed, the indicated rate had fallen to $17,750 per day. However, the claimants contended that the ice-class status of these vessels should have been reflected in rates of $26,125 for the “Nevskiy Prospect” and of $23,875 per day for the “Ligovsky Prospect”. (The claimants did not pursue their pleaded contention for rather higher market rates than these.)

Mr. Pearce supported this contention, and the claimants relied upon the rates of hire that Remmy secured when they sub-chartered the vessels. Remmy sub-chartered each vessel on 24 September 2003 to Dukkar SA (“Dukkar”) for six months (from their date of delivery to Remmy, with laycan of between 15 October and 15 November 2003 for the “Ligovsky Prospect” and between 15 October and 30 November 2003 for the “Nevskiy Prospect”) at $25,000 per day when trading outside the ice period (which was from 15 December 2003 to 15 May 2004) and $79,000 per day in the ice period. Mr. Nikitin said that he was able to secure these rates on the sub-charters because he could exploit his contact with Mr. Janchev of Dukkar, but there is no reason to think that the sub-charter rates were not negotiated at arms’ length. Remmy again were earning high rates for the ice period on sub-charters the next winter. On 14 March 2004 Remmy chartered the vessels to Europetroleum for a year at a rate of $90,000 during the ice period and for $25,000 at other times.

I am not persuaded that Sovcomflot could have obtained such high rates for the vessels or that these sub-charter rates reflected any market rate that was generally available. Mr. van Boetzelaer did not consider that the vessels would command such a high ice premium. In an e-mail dated 10 February 2003 he advised Mr. Skarga that the going rate for a non-ice class Aframax vessel would be $17,500 and “if we can get USD20,500 then [charterers] are paying $3,000 more than for a similar non-ice class vessel”. The implication was that he considered that an appropriate uplift. On 23 January 2003 Mr. van Boetzelaer had offered one of the vessels to Gibson for three years at a rate of $21,500 per day, but Gibson did not accept the proposal. There is nothing to indicate that the market rate strengthened between January and April 2003. On 2 April 2003 Sovcomflot concluded a fixture of the “Liteyny Prospect” for three years with Stena Bulk AB (“Stena”) at a rate of $20,500. As Mr. Pearce observed, Stena were not granted options to extend the period of hire, but, as I have stated, he and Mr. Huttemeier agreed that in practice such options do not enhance the rates of hire. The charter to Stena suggests that Sovcomflot generally and Mr. Skarga in particular were not agreeing to rates which were especially favourable for Remmy.

Further, Stena promptly sub-chartered the “Liteyny Prospect” to Progetra SA for three years at $21,500 per day. Mr. Pearce did not consider that the sub-charter provides evidence of the market rate because he thought that it was part of a complex deal involving two other vessels, but there is no convincing evidence that this affected the

I accept Mr. Huttemeier’s evidence about the two other features of these chartering arrangements criticised by the claimants. The charterers had the advantage of options for three extensions of a year each, but Mr. Huttemeier did not consider this arrangement unusual, particularly, as I understood his evidence, for charters with initial period of hire as long as these. He said that between 2000 and 2005, when options were becoming increasingly usual, A P Moller had on several occasions negotiated similar successive options.

The claimants plead that Sovcomflot agreed that the charters should be on “subject time” for long periods (9½ weeks in the case of the “Nevisky Prospect” charter and 5½ weeks in the case of the “Ligovsky Prospect” charter), and that this was “highly unusual for a charterer of the status of Remmy”. It is not alleged that the periods were unusually long in themselves. Nor did the claimants rely upon the fact that the dates for the charterers lifting the “subject” were extended from 31 May 2003 to 10 June 2003. In fact, as I understand it, the agreements to charter the vessels were made with PNP although in the end the charterer was Remmy, with PNP guaranteeing the charterers’ obligations. Mr. Huttemeier did not consider that the periods for which the vessels were “on subjects” were unusually long, given that the vessels were still under construction and were not to be delivered for some months and given the length of the charters. Mr. Pearce too considered that owners would accept such periods if dealing with major oil companies, but that the periods which Sovcomflot allowed PNP or Remmy were “excessive”. There is little, if any, reported information about what periods of “subject time” are usually granted, and no such evidence supports Mr. Pearce’s view. Sovcomflot’s policy was to promote business with Russian charterers, and they regarded the Standard Maritime defendants as desirable counter-parties. There is no evidence that, during the two years or more that they had been hiring vessels to Standard Maritime defendants on time charters, Sovcomflot had encountered any significant any difficulties in their dealings with them. The claimants have not shown anything about the status of Remmy or PNP that indicates that the subject periods were “highly unusual” or indicates that they were not properly agreed.

I conclude that:

On Monday 18 August 2003 PNP, as charterers of the “Fili” and the “Azov Sea”, and Henriot, as charterers of the “Tropic Brilliance”, requested that the terms of their charterparties be amended and that they be given further options to extend them. In the case of the “Fili” and of the “Azov Sea”, PNP requested options declarable by 10 March 2004 for periods of 12 months from 20 April 2004 and 24 April 2004 respectively at a rate of $14,500 per day. Henriot requested an option declarable by 30 November 2003 to charter the “Tropic Brilliance” for a period of 12 months from 14 January 2004 at a rate of $19,000 per day. On 19 August 2003 Sovchart agreed to the charterers’ requests. They sent e-mails confirming that they had done so “as per your authority” to Unicom, with copies to Mr. Novikov and Mr. Sharikov, but not to Mr. Skarga or Mr. Terekhin. These were the first “stand-alone” options granted to the Standard Maritime defendants: the requests were not made in the context of other negotiations, and Sovchart agreed to them without any consideration.

The charterers had first approached Mr. van Boetzelaer about these options on 28 May and 29 May 2003, and Mr. van Boetzelaer had sent their requests on to Mr. Skarga and Mr. Terekhin under cover of the request “Please authorise”. There is no evidence of a response, and the requests were apparently not pursued until August. They were repeated on 18 August 2003 in e-mails to Mr. van Boetzelaer following telephone conversations, and Mr. van Boetzelaer sent them on to Mr. Skarga and Mr. Terekhin under cover of e-mails addressed to Mr. Skarga that asked that he “Please confirm owners’ agreement”.

In the weeks of 4 and 11 August 2003 Mr. Skarga had been on his annual leave, and as I have said he was with Mr. Nikitin in Sardinia. Mr. Nikitin denied that they agreed upon the additional options when they were there, but I conclude that they must have had some discussions about them. This explains why the requests were renewed after nearly over two months.

Mr. Skarga returned to Russia, as his passport shows, on Sunday 17 August 2003, and he had returned to the office by 19 August 2003 at the latest. His evidence was that he did not return to work on 18 August 2003 but, having flown into Pulkovo airport, he spent that day on his dacha near St Petersburg. I accept his evidence: he gave this account in his witness statement of 13 February 2009, before the claimants had disclosed documents about when Mr. Skarga was away from the Moscow office. They subsequently disclosed an order dated 1 August 2003 about who should exercise his functions of Director-General in his absence, which stated that it was “In connection with annual leave from 4 August 2003 to 18 August 2003”. Although the claimants submitted that it is ambiguous as to when the annual leave ended, in my judgment it supports Mr. Skarga’s account. I so conclude although the order appointed Mr. Borisenko to exercise his functions only until 17 August 2003 and no one was appointed to exercise them on 18 August 2003. Mr. Borisenko went on holiday to Sardinia, taking over the accommodation vacated by Mr. Skarga, and so apparently for one day no-one was appointed to be acting Director-General.

This does not, as I see it, show that it was not Mr. Skarga who authorised Mr. van Boetzelaer to agree to the options because he could have done so upon his return on 19 August 2003. Mr. Skarga said that this was unlikely, describing it as a routine matter that would be “below [his] level”. I cannot accept that explanation: the first “stand-alone” options to which Sovcomflot agreed were not a routine matter. Mr. van Boetzelaer was undoubtedly authorised to agree to them, but it is impossible to say whether he was authorised by Mr. Skarga or by Mr. Terekhin. He was not authorised by Mr. Sharikov: I accept Mr. Sharikov’s evidence that he was on holiday. In any event, Mr. Terekhin had been aware since the end of May 2003 that the charterers were seeking these option arrangements, and there is no evidence that he opposed their requests.

The claimants do not complain about the rate of hire for the additional option periods for the charters of the “Fili” and of the “Azov Sea”. They say that the rate of hire of $19,000 per day for the option period for the “Tropic Brilliance” was “substantially lower” than the current market rate for a one year’s time charter. The claimants contended that the market rate was $27,187.50 per day: they did not pursue their pleaded claim that the market rate was $28,500 per day. Mr. Pearce’s opinion was that the rate for a standard Suezmax was $22,187.50 and that status of the “Tropic Brilliance” warranted an ice premium of $5,000 per day, and that, even without an ice premium, the market rate for the “Tropic Brilliance” would have been $23,500 per day. For reasons that I have already explained, I do not accept that the ice-class specification warranted any premium.

The rate of $23,500 is based upon an average of the rates given by CSIW for a one year’s charter of a “modern” double-hulled, 150,000 dwt Suezmax and of a singlehulled 140,000 dwt Suezmax of the early 1990s. It is not supported by any comparator fixtures. (If account is to be taken of the fixtures by NSC of the “Kuzbass” and the “Kaspiy” to which I shall refer, the CSIW index would appear to be high, but my conclusions about this issue do not depend upon that consideration.) However, Mr. Pearce agreed that it is “entirely inappropriate” to compare the rate for an option for a future hire period with the contemporary market rate. Account must be taken of predictions of how the market is likely to move before the option might incept, or at least before it is to be declared. Around August 2003, many respected commentators were gloomy: to take just two examples, on 11 September 2003 J P Morgan predicted “weak freight rates for most of 2004”, and on 17 September 2003 Dr Stopford of Clarkson said that “by 2004 the market will be moving into recession again … the scene could be set for a fairly lengthy recession”. The claimants have not shown that the rate for the option period for the “Tropic Brilliance” was lower than was to be expected.

I conclude that:

The “Anichkov Bridge” was a newly built double-hulled crude oil or product tanker of 47,842 dwt owned by Integrity Maritime Inc. (“Integrity”), the 26^th claimant in the Fiona action. She was one of a series of four ice-strength product carriers built for Sovcomflot by Hyundai Mipo, the others being the “Hermitage Bridge” the “Narodny Bridge” and the “Okhta Bridge”. Her ice status specification was ice-class 1A, the highest ice classification, but I accept Mr. Huttemeier’s evidence that this would have been of interest only to the limited market of potential charterers who might deal in cargoes from ice-bound ports. On 15 September 2003 the “Anichkov Bridge” was chartered to Remmy for a year at a rate of $18,000 per day. The charterparty provided for the vessel “to break ice or follow ice breakers”, and included an option for a further year at the same rate of $18,000 per day, the option to be declared nine months after delivery (which was, in fact, on 23 November 2003).

The claimants contended that the charter rate was agreed between Mr. Skarga and Mr. Nikitin at some time before 18 August 2003. Mr. Skarga said that he had a discussion with Mr. Nikitin “to initiate his interest in this vessel”, but that he reached no agreement with him. Mr. Nikitin denied fixing any charter with Mr. Skarga, and said that, at most, he might have mentioned to Mr. Skarga that he was looking for a vessel and what sort of rate he was prepared to pay. They said that, on this and other occasions, the fixture was agreed through Sovchart.

I reject the evidence of Mr. Skarga and Mr. Nikitin, and conclude that they did agree upon the rate at which the vessel was to be chartered, and that they did so when they were on holiday together in Sardinia. This, to my mind, is clear from Sovchart’s emails. Mr. van Boetzelaer had had some discussions with Mr. Nikitin about the Hyundai Mipo vessels around the middle of August 2003. On 18 August 2003, Mr. van Boetzelaer sent an e-mail to Mr. Skarga stating that Sovchart had offered time charters of two of them to Lukoil for a rate at around $20,000, but that he understood “from Yuri that you fixed, subject charterers’ reconfirmation, one vessel to PNP at USD 18,000 per day”: he asked whether the agreement was to charter one or two vessels. Mr. Skarga replied on 21 August 2003 that he had agreed initially to charter one vessel. On 22 August 2002 Mr. van Boetzelaer sent an e-mail to PNP setting out his understanding of what had been agreed, and sent the text of this to Mr. Skarga with the introductory text, “Following sent to PNP, which please confirm according to your negotiations”.

The terms of the fixture set out in the e-mail of 22 August 2002 provided that the fixture was subject to the approval of the charterers’ managers until 15 September 2003. On 3 September 2003 Mr. Sharikov proposed that the Executive Board of Sovcomflot endorsed the charter of the “Anichkov Bridge”, and they unanimously did so.

On 19 September 2003 Remmy entered into a sub-charter of the vessel to Dukkar for six months’ hire at a rate of $20,000 per day for 40 days after delivery (during most of

The claimants said that the rate of hire was “substantially lower” than the market rate of $20,000 per day, especially in view of the charterers’ option. I do not consider that, even if the “market rate” for chartering the vessel was $20,000 per day, a rate of $18,000 can be regarded as “substantially” below the market, and I do not accept that the market rate was as high as $20,000 per day. The focus of the claimants’ complaint appeared in the end to be that the sisterships of the “Anichkov Bridge” were chartered, for periods of two or three years, for $18,500 per day (on 18 April 2003 in the case of the “Hermitage Bridge” and the “Narodny Bridge”, which were both chartered to Dukkar SA, and on 17 October 2003 in the case of the “Okhta Bridge”, which was chartered to Gunvor). I do not consider that any inferences can be drawn from such small differences in chartering rates. Indeed, in crossexamination Mr. Pearce accepted that the rate of hire of the “Anichkov Bridge” was “within a reasonable market range”. As I have explained, I accept the expert evidence that the option would not have been expected to affect the rate of hire, but in any event the charterers of the three sisterships had options to extend them.

I conclude that:

On 28 November 2003 Henriot exercised the option to extend the hire of the “Tropic Brilliance” that had been agreed in August 2003. They proposed that they should have a further option, declarable by 30 November 2004, for one year’s hire from 14 January 2005 at the rate of $19,000 per day. In an e-mail dated 28 November 2003 to Mr. Skarga, which was copied to Mr. Terekhin, Mr. van Boetzelaer sought authority to agree to this, and on 30 November 2004 Mr. Novikov authorised him to do so provided that the owners had an option to sell the vessel. Mr. Novikov said that he was directed to give this reply by Mr. Sharikov, and Mr. Sharikov recalled that Mr. Terekhin gave him oral instructions to authorise Sovchart to agree to the option: his evidence was that, whenever he gave Sovchart authority to commit Sovcomflot to a chartering arrangement, he acted on Mr. Terekhin’s instructions. The option was accordingly agreed by an addendum to the charterparty dated 17 December 2003. No premium was paid for it. On 23 December 2003 Sovchart sent a fax Sovcomflot for the attention of Mr. Sharikov and Mr. Skarga confirming that the addendum to the charterparty had been agreed “As per your authority”.

The claimants originally pleaded that Mr. Skarga had instructed Mr. Novikov to grant the option, but that contention was inconsistent with the evidence and was abandoned. Mr. Skarga said that he had no recollection of authorising this option, and there is no evidence that he did so. The claimants submitted that nevertheless it is to be inferred that, when Mr. Terekhin gave instructions to Mr. Sharikov, he was in turn acting upon Mr. Skarga’s instructions. I see no reason to suppose that he was. In his witness statement of 13 February 2009, Mr. van Boetzelaer appeared to suggest that he discussed the rate of hire with Mr. Skarga, but accepted that he did not clearly recall doing so. This evidence was too tentative to be reliable (even if generally Mr. van Boetzelaer’s evidence had been credible).

The claimants contended that the rate of hire under this option was substantially lower than the market rate current when the option was agreed for a one year’s time charter: that, they say, was $33,312.50. This is based upon Mr. Pearce’s evidence that the rate for a one year’s charter of a non-ice class vessel (derived from CSIW) was $26,500 and that the appropriate ice-class premium was $6,812.50. Thus, Mr. Pearce’s approach to calculating the rate was that which he had used elsewhere, and involved him introducing an ice premium that represented an average of ice premiums supposed to have been attracted by other vessels in other fixtures. For reasons that I have already explained, I am not persuaded that it provides a proper assessment of a chartering rate, and in any case it is not appropriate for assessing the rate for an option period.

The claimants rightly pointed out that the rate of hire for the optional period was the same as that for which the “Tropic Brilliance” was first chartered to the Standard Maritime defendants in December 2002, and that since then the CSIW and other indices had significantly increased. Against that, however, Mr. Huttemeier observed that there were reported fixtures of other vessels well below the rates indicated by the indices. For example, in December 2003 the “Zallaq”, a Suezmax built in 2001, was reported to have been chartered for 12 months (or for 6 months with a six months’ charterers’ option) at a rate of $20,000 and in November 2003 the “Glen Maye”, which was of a similar age to the “Tropic Brilliance”, was chartered for 12 months at a rate of $23,000 per day. Other vessels commanded higher rates, but the reported fixtures around this period demonstrate the wide differences between time-charter rates for broadly comparable vessels and the difficulty of identifying a “market rate”.

The condition of the “Tropic Brilliance” continued to cause problems. There were predictions that there would be a downturn in the market generally and continuing predictions of a drop in charter rates for Suezmax vessels specifically. The rate of hire of $19,000 per day for the further option period was lower than I would have expected on the basis of the evidence before me, but I am not persuaded that it is so low as to indicate that Sovcomflot could not have agreed to it without improper influence.

I conclude that:

By addenda to the charters of the “Fili” and the “Azov Sea” dated 3 December 2003, the Owners agreed that PNP might be replaced as charterers by Henriot. The claimants plead a complaint that the Owners agreed to this without receiving any consideration and without obtaining any guarantee from PNP of the obligations of Henriot. This complaint was not developed by the claimants, and (if it be pursued) I reject it. There was no reason that by December 2003 Sovcomflot should not have regarded Henriot as acceptable charterers, and there is no evidence that Mr. Skarga was involved in authorising this change.

On 28 April 2004 Henriot declared the option to extend the charter of the “Romea Champion” for 12 months from 1 July 2004, and they requested a further option for 12 months from 1 July 2005 at a rate of $19,000 per day. Sovchart reported this to Mr. Terekhin, Mr. Sharikov and Mr. Novikov. On 13 May 2004 Mr. van Boetzelaer sent an e-mail to Mr. Skarga asking how he should respond to the request, and recommending that the rate for the additional option period should be $25,000 per day: “Henriot has declared their option for another 12 months and are asking for the option for an additional 12 months. Believe optional year should be $25,000”. The defendants rightly observe that he apparently supported Henriot’s proposal that they should have a further option to extend the period of hire, and his concern was only about the rate. However, as far as the evidence goes, Mr. Skarga and others at Sovcomflot did not respond to this request.

By September 2004, therefore, the Standard Maritime defendants had six vessels on time charterparties from Sovcomflot. As well as the Prospect vessels, which had been chartered to Remmy in June 2003 for three years (with charterers’ options to extend the periods), Henriot had charters of the “Tropic Brilliance” until 14 January 2005, with a charterers’ option to extend the hire for a year, of the “Romea Champion” until 30 June 2005, of the “Azov Sea” until 24 April 2005 and of the “Anichkov Bridge” until 23 November 2004, with an option to extend the hire for a further year.

On 17 and 20 September 2004 Sovchart agreed that Henriot should have further options to extend the hire periods for these four vessels: by an addendum to the charter of the “Tropic Brilliance” dated 23 September 2004 it was agreed that the charterers should have an option for two years’ hire at a rate of $30,500 from 15 March 2006, which was to be declared by 15 December 2005; by an addendum to the charter of the “Romea Champion” it was agreed that the charterers should have an option for two years’ hire at daily rate of $30,500 from 1 July 2005, which was to be declared by 1 April 2005; by an addendum to the charter of the “Azov Sea” it was agreed that the charterers should have an option for two years’ hire at a rate of $18,000 from 24 April 2005 to be declared by 24 January 2005; and by an addendum to the charter of the “Anichkov Bridge” it was agreed that the charterers should have

As far as the evidence goes, these options were not discussed before 17 September 2004. On 17 September 2004 Mr. Skarga and Mr. Nikitin were on holiday together in Ischia, and by mid-September 2004, it was widely believed that Mr. Skarga would soon be leaving Sovcomflot. The claimants contended that Sovcomflot had no proper commercial reason to agree to these options and that they were agreed between Mr. Skarga and Mr. Nikitin in order to secure for Henriot the right to continued hire of the vessels after Mr. Skarga had left. The defendants deny that Mr. Nikitin and Mr. Skarga discussed the options at all.

On Friday 17 September 2004 at 15.25, Mr. van Boetzelaer sent an e-mail to Mr. Nikitin advising him that the owners of the “Tropic Brilliance”, the “Romea Champion” and the “Azov Sea” offered charterers’ options of 2 years. He referred to a conversation that he had had with Mr. Nikitin. In the e-mail, he mistakenly stated a rate of hire of $30,500 for the “Azov Sea” as well as the two Tromso vessels, but he corrected this in a further e-mail sent shortly afterwards, in which he put forward a rate of $18,000. He also sent a separate e-mail offering an option to extend the hire of the “Anichkov Bridge” at a rate of $22,000.

These e-mails did not refer to the existing charterers’ option for a one year’s extension of the hire of the “Tropic Brilliance”, which had been agreed on November 2003. Shortly afterwards at 16.44 Mr. van Boetzelaer sent a further e-mail to Mr. Nikitin stating that because of the existing option it was “premature to discuss a further option for 2006 and 2007”, and asking that this part of his earlier e-mail about the “Tropic Brilliance” be ignored. Mr. Nikitin’s response was to declare the option to extend the hire of the “Tropic Brilliance” for one year from 15 January 2005 at the daily rate of $19,000 per day, and to ask for a further option for two years’ hire from January 2006 at a rate of $31,000.

I infer that Mr. van Boetzelaer had been authorised to put forward this offer some time earlier on 17 September 2004. There is in evidence part of an e-mail that Mr. van Boetzelaer sent to a private e-mail address of his own at 11.08 on 17 September 2004. It is addressed to Mr. Nikitin and set out a proposal “subject management approval” to grant charterers’ options for the hire of the “Tropic Brilliance” and the “Romea Champion”, and the fragment then breaks off. This must have been a draft that Mr. van Boetzelaer intended to send after discussing the options with Mr. Nikitin and before receiving approval from Sovcomflot to put forward an offer. I conclude that before it was sent Mr. van Boetzelaer received authorisation to put forward the firm offers, and so the draft was never sent.

Mr. van Boetzelaer reported the options which had been agreed in an e-mail to Mr. Skarga timed at 16.24 on 17 September 2004. It was addressed to Mr. Skarga personally (“Dear Dmitry”), and stated “as per our discussion today” Sovchart had agreed to options for the hire of the “Romea Champion”, the “Azov Sea” and the “Anichkov Bridge”. Mr. van Boetzelaer repeated the mistake of stating a rate of $30,500 for the “Azov Sea”. As for the “Tropic Brilliance”, Mr. van Boetzelaer stated that Henriot had just declared the option for a year’s hire from 14 January 2005, asked for a further option for two years’ hire from 2006 at a rate of $31,500, and wrote, “Although I believe that it is premature to grant such an option 2006 and 2007,

On 20 September 2004 Sovchart also sought to include in the charterparty a provision that the owners might cancel it without penalty if they sold the vessel. The charter of the “Romea Champion” included a provision of this kind. Mr. van Boetzelaer sent an e-mail addressed to Mr. Novikov in which he confirmed that this had been requested in respect of the “Tropic Brilliance”. In an e-mail to Mr. Skarga on 20 September 2004 Mr. van Boetzelaer advised that Henriot would not agree to this right of cancellation for either vessel unless they were to receive “sufficient notice” of cancellation, and he asked what the period of any notice should be. There is no evidence about what, if any, response he received, but it was apparently decided that the owners should not have this cancellation right. This was reflected in an addendum to the charterparty which provided for the cancellation right to be deleted from the charterparty of the “Romea Champion”. In their pleading the claimants complain about the decision in relation to the “Romea Champion”, but not about the “Tropic Brilliance”. The complaint was not developed in submissions. I do not consider that it assists the claimants. There is no evidence that it was a right that was likely to be of any real value to the owners, or that it was Mr. Skarga who decided not to insist upon retaining it.

Mr. Skarga denied that he discussed with Mr. van Boetzelaer on 17 September 2004 the grant of the options for the “Romea Champion”, the “Azov Sea” and the “Anichkov Bridge”, and said that he would have been reluctant to do so because he did not have available to him information about the prevailing market rates, details of the charters or Mr. van Boetzelaer’s own recommendations. Mr. Sharikov’s evidence was that “probably” Mr. Terekhin authorised Sovchart to grant the options or “maybe” Mr. Skarga did so. It was clear that he had no real recollection about it. There is no documentary evidence of any exchange between Mr. van Boetzelaer and Mr. Skarga before 15.25 on 17 September 2004 and there is no relevant record of a telephone call to or from Mr. Skarga’s mobile telephone or from Sovchart to an Italian telephone number.

Nevertheless, I think it incredible that Mr. Nikitin and Mr. Skarga said nothing about these options when they were in Italy together on 17 September 2004 and I reject their evidence that they did not do so. I also conclude that Mr. Skarga communicated with Mr. van Boetzelaer about agreeing to the options and authorised him to do so. There is no dispute that at some time on 17 September 2004 Mr. Skarga spoke with Mr. van Boetzelaer, and I cannot accept that, as Mr. Skarga maintained, this conversation took place only because Mr. van Boetzelaer was concerned to speak to him about the undeclared option for a one year’s extension of the charter of the “Tropic Brilliance”. There would have been no reason for Mr. van Boetzelaer to telephone Mr. Skarga about this if he had previously discussed the options with Mr.

The claimants plead that Mr. van Boetzelaer told Mr. Skarga on 17 September 2004 that the options should not be granted because “some of the vessels should be kept free for the voyage charter market because the market was going up”: see para 297.39 of the particulars of claim in the Fiona action. This reflects the evidence of Mr. van Boetzelaer in his witness statement of 13 February 2009, but it is not corroborated and I regard it as unreliable. I conclude that the claimants have not established this contention.

The claimants also plead that the rates of hire in the two years’ options of the “Romea Champion”, the “Tropic Brilliance” and the “Anichkov Bridge” were substantially below that current market rates “even for a two year time charter (rather than an option)”: see paras 297.35, 297.36 and 297.38 of the particulars of claim in the Fiona action. No complaint is made about rate of hire agreed in the option for the “Azov Sea”.

I consider first the rate for the “Anichkov Bridge”. According to the prevailing CSIW estimates, the rate of hire for a standard (non-ice class) 45,000 to 47,000 dwt modern product carrier was $19,750 for a one year’s charter and $17,250 for a three years’ charter, which would indicate a rate for a two years’ charter of about $18,500. Mr. Pearce considered that the only suitable comparator fixture was the sub-charter of the vessel by Henriot to Dukkar on 5 May 2004 at a rate of $40,000 per day during the ice period but otherwise at a rate of $18,000 per day. On this basis, he estimated that overall the daily rate for the ice-class vessel for a two years’ time charter was $25,000. I am not persuaded by that reasoning. There is simply too much uncertainty about what, if any, increase in the rate of hire might have been attracted by her ice-class status. The point can be illustrated by comparing the rates attracted in the autumn of 2003 by the “Anichkov Bridge” and her sistership, the “Okhta Bridge”. On 19 September 2003 the “Anichkov Bridge” was chartered for 6 months for $20,000 for the first 40 days of her hire (after delivery in Korea in contemplation of a trip in ballast to the White Sea) and at $39,000 per day thereafter, an average rate of $34,632 for the 6 months’ charter period or $26,975 per day averaged over a year. On 17 October 2003 Sovcomflot chartered the “Okhta Bridge” to Gunvor for 3 years (with a charterers’ option for a further period of one year) for $18,500 per day. The difference between these rates suggests that the Standard Maritime defendants were able to negotiate particularly favourable terms with Dukkar. In any case, it shows that Sovcomflot did not achieve such high rates for these ice-class vessels when chartering to Gunvor, and undermines the claimants’ argument that the rate of hire for the two years’ option period for the “Anichkov Bridge” was below the prevailing rate for a fixed charter term.

I come to the rate for the Tromso vessels. The prevailing CSIW Suezmax rates at 17 September 2004 were $31,000 and $27,000 respectively for a one year’s charter and a three years’ charter of a 140,000 dwt single-hull built in the early 1990s, and were $38,500 and $33,000 respectively for a one year’s charter and a three years’ charter of a 150,000 dwt double-hull modern vessel. Mr. Pearce considered that the vessels would by September 2004 be classified with the 140,000 dwt single-hull vessels of the early 1990s, and so, leaving aside any ice premium, a daily rate for a two years’ charter of around $29,000 would be indicated. The claimants contended, however, that the rate for the hire of the “Tropic Brilliance” and the “Romea Champion” would have been $41,000 because they would each have attracted an ice premium of $12,000. Mr. Pearce calculated this on the basis of the average of the ice premium that he estimated was paid under two other fixtures, namely the sub-charter of the “Tropic Brilliance” by Henriot to Dukkar on 19 March 2004, under which the ice premium was, he estimated, $20,000 per day, and the charter in April 2004 of the “Primorsk”, an Aframax with ice-class 1C status, under which he estimated that a premium of $4,000 was paid. Because he was unable to distinguish which ice premium was more representative of market levels, Mr. Pearce estimated that the Tromso vessels might have attracted an ice premium of the average, $12,000 per day. I am not persuaded by this reasoning: these two fixtures simply demonstrate how uncertain it is whether any, and if so what, ice premium might by attracted under any fixture. Certainly the comparator fixtures show that there is no convincing reason to assume that, if the vessels might have attracted any ice premium, it would have been of more than $4,000 per day.

Moreover, the “Tropic Brilliance” and the “Romea Champion” continued to have problems from cracking and by way of their coating, and they did not have approvals from some major oil companies. For example, in July 2004 Exxon Mobil had rejected the “Romea Champion” pending a full structural review concerning her ballast and cargo tanks, a decision that was based upon an inspection by STASCO (Shell) in May 2004; it appears that they too had required further investigations before approving her. By 30 August 2004, the “Tropic Brilliance” had approvals only from BP and Statoil. I consider that this would have affected the rate of hire that the two vessels commanded, and conclude that the claimants have not shown that for a fixture of two years concluded on 17 or 20 September 2004 the prevailing market rate would have exceeded $30,500 by a significant amount, if at all.

In any case, as I have already observed, the prevailing market rate at the date that an option was agreed is of no real relevance to assessing the rate for an option that was to be declared and might come into effect some considerable time in the future. In so far as the claimants’ complaint depends upon the rate at which the options were granted, account must be taken of how the market was expected to move. Sovcomflot were pessimistic: for example, briefing notes to the Executive Board on 27 July 2004, which Mr. Sharikov assisted to prepare, referred to Clarkson’s data giving a charter rate on the general index for vessels of all types at $25,932 per day and stated, “Clarkson forecasts that the charter market will start gradually falling in near future. By 2006-2007, according to the estimates provided by the analysts, charter index shall be ca US$10 thousand a day, which is compatible (sic) with the crisis year of 1992”. In their report for the first 6 months of 2004 Sovcomflot stated with regard to their Suezmax vessels, “In order to protect guaranteed employment on the edge of an unstable market, vessels of the type “Tromso” and the type “SCF Altai” were freighted in long term charterers”. Given that this was the view within Sovcomflot, the rates at which the stand-alone options were agreed are readily understandable and do not indicate impropriety.

I conclude with regard to the stand-alone options agreed in September 2004 that:

The claimants’ case is that Mr. Skarga acted dishonestly and in breach of fiduciary and other duties owed to the ship owning companies, to Sovcomflot, to Fiona and to Sovchart in “causing or permitting” these chartering arrangements. I do not accept the claimants’ contention that he was acting in breach of any duty owed to Fiona or to Sovchart. Sovchart needed authorisation from Sovcomflot in order to agree to the chartering arrangements on behalf of the ship owning companies, and in giving any such authorisation or in allowing other officers of Sovcomflot (such as Mr. Terekhin, Mr. Sharikov and Mr. Novikov) to do so, Mr. Skarga was acting in his capacity of Director-General of Sovcomflot. It seems to me that the claimants who would be entitled to any claim for an account are Sovcomflot and the various owners of the chartered vessels. Any loss from the matters about which the claimants complain was suffered by the owners of the vessels, and they are the claimants who would be entitled to recover any damages.

I reject the contention of Mr. Nikitin and Mr. Skarga that they never discussed these chartering arrangements. I also conclude that on some (but not all) occasions Mr. Skarga authorised Sovchart to make the arrangements with the Standard Maritime defendants. They were made with the knowledge of Mr. Terekhin, who himself authorised Sovchart to enter into some of the charters and charterers’ options, and of the Fleet Operations Department, who considered the rates which were agreed. There is no evidence that I accept that Mr. van Boetzelaer had or expressed any unhappiness or concerns about the terms that were agreed.

The claimants have not shown that the rates of hire agreed in the charterparties and in the charterers’ options support their allegations. Nor have they established that any support for them is provided by the agreement to grant with-charter options, the periods for which the Prospect vessels were fixed subject to charterers’ approval, the change of charterers of the “Fili” and the “Azov Sea” or the decision to abandon the right to cancel the charterparty of the “Romea Champion” in the event of a decision to sell her.

Sovcomflot entered into agreements for stand-alone options on three occasions, in August 2003, December 2003 and September 2004. Mr. Skarga caused the owners to agree to the options in September 2004 in that, as I conclude, he authorised Sovchart to agree to them. It has not been shown that he caused the owners to agree

Mr. Skarga’s evidence was that he regarded options as a “legitimate marketing device” designed to keep the charterers’ interest in continuing to hire a vessel, and that this view was shared by other members of the Executive Board and also by Mr. van Boetzelaer. The options were agreed through Sovchart by Mr. van Boetzelaer. The evidence about who within Sovcomflot was party to the decision within Sovcomflot to authorise them does not provide a complete picture. Although the string of exchanges leading to the option for the “Tropic Brilliance” in December 2003 is apparently complete, the documents relevant to the options granted in August 2003 and September 2004 are not: for example, Mr. van Boetzelaer’s draft e-mail of 17 September 2004 is incomplete. Mr. Terekhin did not give evidence. Mr. van Boetzelaer’s witness statements are unreliable and he did not give oral evidence.

There is no evidence that either Mr. van Boetzelaer or any executive of Sovcomflot opposed the decisions to grant the stand-alone options. I infer that Mr. van Boetzelaer supported them: in May 2003 and August 2003 he asked for authority to conclude the options that were in fact agreed in August 2003, and in May 2004 he questioned only the proposed rate for a further option to hire the “Romea Champion” and not the principle of agreeing to a stand-alone option. The draft e-mail of 17 September 2004 also indicates that he supported the proposal for the options for at least the “Tropic Brilliance” and the “Romea Champion”.

I have concluded that Mr. Terekhin was responsible for Sovchart being authorised to agree to the option for the “Tropic Brilliance” in December 2003 and, if he did not himself authorise them, he at least concurred in the decision to agree to the options in August 2003. Mr. Sharikov said in cross-examination that he thought that Mr. Terekhin “probably” authorised Sovchart to agree to the options of September 2004 before accepting that he did not know whether Mr. Terekhin or Mr. Skarga had done so: his initial answer that the authority was given by Mr. Terekhin is not reliable, but it shows that he did not associate stand-alone options with Mr. Skarga rather than Mr. Terekhin, still less did he suggest that Mr. Terekhin would not have contemplated them.

I accept that Mr. Skarga and others considered that there were commercial (or “marketing”) advantages for Sovcomflot in agreeing to the options in that they encouraged the Standard Maritime defendants to hire the subject vessel rather than look for a different ship. I also accept that, at least by the time that the first “standalone” options were agreed in August 2003, Mr. Skarga and others at Sovcomflot had proper reasons to encourage the Standard Maritime defendants in particular to charter their vessels. They were Russian charterers with some access to Russian cargoes; they had proved reliable in paying hire; they had chartered a number of vessels for some time; and there had not been any significant disputes about (for example) drydocking schedules or performance warranties. Importantly, there is no convincing evidence that the decisions to enter into the stand-alone options were taken by Mr. Skarga alone or imposed upon Sovcomflot without the concurrence of others who had more experience in chartering vessels than he did. I do not consider that the fact

As with the Sovcomflot time charters scheme, the claimants’ allegations about the NSC time charters scheme and Mr. Izmaylov’s dishonesty in conducting it raise questions about both the terms of the chartering arrangements and the part played by the defendant and other executives in bringing them about. NSC’s Russian vessels were managed by NSC from Novorossiysk, and their other vessels were managed by NOUK from London, where Mr. Mikhaylyuk dealt with chartering them. The charterparties about which the claimants bring claims were of vessels managed by NOUK, but they also relied in support of their case that Mr. Izmaylov was corrupt upon the chartering of the vessels, the “Kuzbass” and the “Kaspiy”, which were managed by the Russian office of NSC.

NSC’s procedure at the relevant time for entering into charterparties was set out in a document called the Commercial Fleet Management Guidelines, or, as it was more commonly referred to, the “Standard”. The version of the Standard in force for most of the relevant time was Company Standard STP 335.175-03, “Company Management Guidelines” (“the 2003 Standard”), which was introduced by an order dated 27 March 2003, and which replaced a version of the Standard that had been in force since October 1998. The differences between the 2003 Standard and its predecessor are not relevant for present purposes. The 2003 Standard was drafted in accordance with the internationally recognised ISO 900-2000 standards and was approved and endorsed by Det Norske Veritas. It established the structure, organisation, principles and procedures for the commercial management of the fleet and a framework for considering the terms of a proposed charter. Under it, a written recommendation was required for time charterparties which were for longer than three months. In the case of Russian vessels managed from Novorossiysk, it was to be made by the Director of the Commercial Fleet Operations Department, who was Mr. Sergei Senshin until November 2003 and then Mr. Vyvorotnyuk, and in the case of other vessels it was to be made by the General Manager of NOUK, Mr. Mikhaylyuk. The recommendations were reviewed and considered by Mr. Sakovich in his capacity as the First Senior Vice-President of NSC with overall responsibility for chartering vessels in the fleet. If Mr. Sakovich agreed to the proposal, it was presented to Mr. Izmaylov for his approval. The recommendations and approvals were recorded either on an approval form, for charters of Russian vessels, or in e-mail exchanges.

NSC observed this formal procedure, except that sometimes when Mr. Sakovich was away from the office Mr. Izmaylov would consider a proposal before Mr. Sakovich had approved it. The claimants submitted, and I accept, that Mr. Izmaylov’s role in making chartering arrangements was not simply one of endorsing decisions in accordance with the Standard which had effectively already been taken. He also chaired weekly management meetings at which the senior executives discussed, among other things, chartering proposals and market rates and trends. Normally opportunities to enter into a chartering arrangement of more than three months would be reported to him, and so he was aware of them from an early stage in any discussions or negotiations. As far as the Standard Maritime defendants are concerned, Mr. Izmaylov would speak with Mr. Nikitin perhaps twice a week and it is, I conclude, likely that their discussions would have covered chartering proposals. However, they did not, as far as the evidence goes and as I accept, conduct negotiations about specific chartering rates or other terms.

I reject any submission that in practice decisions about chartering arrangements were taken by Mr. Izmaylov alone (or with the concurrence of only Mr. Mikhaylyuk) or that he either bullied others into silence or drove decisions through despite their opposition. No credible evidence supports this, and the evidence of Mr. Sakovich and Mr. Vyvorotnyuk in cross-examination did not support these parts of their witness statements. Both these executives had a wealth of experience of chartering matters. Mr. Sakovich had been the First Senior Vice-President of NSC since October 1995 and his duties included overall supervision of NSC Group chartering activities. Mr. Vyvorotnyuk had been employed by NSC since 1986 and employed in the Chartering Department as an in-house broker between 1996 and 2003 before becoming the Acting Head of the Commercial Department in November 2003 and then its Head in June 2004. I cannot believe that either would be overborne if they disagreed with Mr. Izmaylov on chartering matters. It was clear when he gave evidence that Mr. Sakovich in particular is too powerful a character to have allowed that.

Before he left NSC on 6 January 2004, Mr. Oskirko was also involved with chartering vessels in that Mr. Mikhaylyuk would send him details of proposed arrangements and, after discussion with Mr. Sakovich and Mr. Izmaylov and possibly others, he would respond to them. Although chartering was not primarily his responsibility, he had the knowledge and experience to form his own view about whether a proposal should be supported.

No contemporaneous complaints or concerns about the chartering arrangements with Henriot are recorded. The Commercial Fleet Operations Department made monthly reports to NSC’s Executive Board about such matters as the market rates and what rates were being achieved by NSC. These reports did not, apparently, lead anyone to express concerns about these fixtures. In their oral evidence Mr. Sakovich and Mr. Vyvorotnyuk did not say that they thought the chartering rates were below the market or less favourable than should have been negotiated. Their only criticism was that the “Kuzbass” and the “Kaspiy” should not have been fixed on time charters in September 2003 when they were, because NSC should first have obtained more approvals from oil companies and should not have chartered them during the summer lull in the market. This is not a criticism which, as I understand it, the claimants pursue in these proceedings, and there is no evidence that this view was expressed contemporaneously.

Mr. Sakovich made an assessment of the charters to Henriot in a report that he wrote and was dated 2 September 2005 (“the Sakovich report”). It was prepared at the request of Mr. Igor Tyamushkin, a member of NSC’s General Board. Mr. Sakovich was assisted in preparing it by, among others, Mr. Mikhaylyuk and Mr. Vyvorotnyuk. He considered all the charters of which the claimants complain, and he concluded that the arrangements were commercially justified. When his report was presented to the General Board in September 2005 few questions were asked of Mr. Sakovich, and no member of the Board challenged his views or criticised the report. Mr. Sakovich’s evidence was that his report accurately stated the position at the time that the chartering arrangements were concluded, and it was clear from his cross-examination that he had tried to conduct a thorough and honest investigation. Although in his witness statement Mr. Sakovich had said that Mr. Izmaylov had told him that his report should “show the management’s good work and justify the company’s activity and results”, I conclude that nothing that Mr. Izmaylov said was designed improperly to influence the report, and he did not prevail upon Mr. Sakovich to express anything other than his true views.

The only evidence of an executive of NSC expressing concern contemporaneously about the chartering rates or terms was given by Mr. Oskirko. He said that in September 2003 he telephoned Mr. Mikhaylyuk to discuss a proposal to charter the “Kuzbass” and the “Kaspiy” to Henriot. Mr. Izmaylov had asked him to authorise the fixtures, and he enquired of Mr. Mikhaylyuk whether the rates were in line with the market. According to Mr. Oskirko, Mr. Mikhaylyuk advised him that the rates could be higher, that he had tried to persuade Mr. Izmaylov to insist on rates close to $20,000 per day, but that Mr. Izmaylov had threatened him with dismissal if the vessels were not fixed at rates that he directed. Mr. Izmaylov denied having told Mr. Mikhaylyuk this, and Mr. Mikhaylyuk denied having this telephone conversation with Mr. Oskirko.

Until July 2009 the claimants’ pleaded case was that Mr. Oskirko and Mr. Mikhaylyuk had had a conversation along these lines in relation to the hire of the “Kaluga” and the “Kazan”, and this is what Mr. Oskirko had told Ince & Co on 16 January 2006. He could not have had such a conversation about the charters of those vessels because they were fixed on charter to Henriot in March 2004, and Mr. Oskirko had left NSC in December 2003. He was re-employed by NSC in December 2005, shortly before he reported the conversation to Ince & Co.

Ince & Co prepared a draft witness statement for Mr. Mikhaylyuk which contained an account of such a conversation about the charters of the “Kaluga” and the “Kazan”, and asked Mr. Oskirko to have Mr. Mikhaylyuk sign it. Mr. Oskirko did not tell Ince & Co that the statement referred to the wrong vessels, and Mr. Oskirko’s explanation was that he had not read it. I reject that evidence, because I do not accept that he would not have gone about persuading Mr. Mikhaylyuk to sign a statement that he had not read.

Mr. Oskirko met Mr. Mikhaylyuk for dinner on 23 March 2006 and again at a meeting on 24 March 2006. According to Mr. Oskirko, Mr. Mikhaylyuk accepted in the course of the dinner that Mr. Izmaylov had threatened him as described in the draft statement. Mr. Mikhaylyuk denied that he and Mr. Oskirko had had this conversation at dinner, and said that he first saw the draft statement at the meeting on 24 March 2006. I reject Mr. Oskirko’s evidence. Mr. Mikhaylyuk would not have said that the draft statement was correct since, on any view, Mr. Izmaylov did not threaten him about the charters of the “Kaluga” and the “Kazan”, and in any case, if Mr. Oskirko had not read the statement, the conversation that he described seems to me an improbable one. Moreover Mr. Oskirko’s evidence is inconsistent with an affidavit by him dated 5 December 2006, which he swore in support of an application by NOUK against Mr. Mikhaylyuk for a freezing order, and in which he stated that he did not recall what Mr. Mikhaylyuk said about signing the statement on 23 March 2006. Mr. Oskirko had no coherent explanation for this inconsistency, and I am

I therefore reject Mr. Oskirko’s account of the telephone conversation about the rate of hire for the “Kuzbass” and the “Kaspiy” in September 2003, and his evidence that in January 2006 he simply made a mistake about which vessels were concerned. I conclude that no such conversation took place in relation to any charters. Apart from the inconsistency about the vessels’ names, there is a further reason that I cannot accept Mr. Oskirko’s evidence. He said that the telephone conversation took place when he (Mr. Oskirko) called Mr. Mikhaylyuk in London. The sequence of events shows that any such conversation would have been on 1 September 2003, but it is clear from Mr. Mikhaylyuk’s passport that he had not returned to the United Kingdom by 1 September 2003 and did so only on 3 September 2003. It was suggested that Mr. Oskirko might have mistakenly thought that Mr. Mikhaylyuk was in London because he telephoned him on his mobile telephone, but I reject that. I cannot believe that such a misunderstanding would not have become apparent during a conversation such as Mr. Oskirko described. In any case, Mr. Mikhaylyuk was, as I conclude, in NSC’s offices on 1 September 2003 and working from Mr. Oskirko’s room. There would have been no reason for them to speak by telephone about the chartering rates or anything else.

Before considering the specific chartering arrangements about which the claimants complain, I refer to some considerations which, as I accept, influenced NSC’s chartering decisions during the relevant period. First, NSC executives discussed and assessed how the market was likely to move, and their views informed their chartering decisions in that, as Mr. Sakovich and Mr. Vyvorotnyuk both confirmed, they tried to arrange time charters if they expected the market to fall. They used market forecast reports to assist them in their market assessment. Although at one time Mr. Pearce seemed to suggest that it would have been irresponsible to make chartering decisions in reliance upon market forecasts, he did not, I think, maintain this view, and in any case I cannot accept it.

Secondly, NSC were concerned to ensure that they had a stable income stream, which they needed to meet their loan repayment obligations and to continue their fleet renewal programme. As I understood Mr. Sakovich’s evidence, NSC’s “financial people” therefore encouraged a conservative chartering policy with long-term arrangements rather than the pursuit of increased profits through a more speculative approach.

Thirdly, NSC, like Sovcomflot, were a state owned corporation and their policy was to encourage business with Russian charterers who were carrying Russian cargoes. For example, the Standard stated, “Fleet marketing is carried out along the following lines … Development of priority freight areas (Russian exports and imports first of all)”. Mr. Sakovich confirmed in his evidence that, other things being equal, NSC preferred to deal with Russian charterers, and the Sakovich report referred to NSC’s policy to develop business by way of transporting Russian cargoes.

The claimants plead that, when chartering to Henriot, NSC should have included a “risk premium” because they were a “BVI company with no capital reserves” and “a new participant in the time charter market with no established track record of honouring its obligations under time charters”: see para 10D(1)(c) of the particulars of

The “Trogir” was one of NSC’s “T” range of vessels, which were handymax coated product carriers. She was built in Croatia in 1995, was of 40,727 dwt, and was owned by Trogir Shipping Ltd., a subsidiary of NSC and the 46^th claimant in the Intrigue action. On 8 January 2003, the “Trogir” was chartered to Henriot for a year at a rate of $13,000 per day with a charterers’ option for an additional year at $13,500 per day.

On 9 December 2002, Mr. Mikhaylyuk had reported to Mr. Izmaylov, Mr. Sakovich and Mr. Oskirko about possible time charters for their T-type product carriers. For the “Tikhvin” and “Temryuk”, two sister ships of the “Trogir”, Mr. Mikhaylyuk reported on possible extensions of chartering arrangements with StenTex, a charter for another year at $12,750 or a charter of six months at $13,000 with an option for a further six months at $13,250. For the “Trogir”, he reported interest from StenTex in a charter of 6 or 12 months at charterers’ option at a rate of $12,500, and “firm interest” in a charter of one year with the option of a second year from PNP, who were said to be ready to pay $12,500. Mr. Mikhaylyuk suggested that NSC deal with PNP “for better money”, proposing hire of $13,000 for the first year and $13,500 for the second year. Mr. Sakovich replied on 11 December 2002 that, with regard to the “Trogir”, NSC would consider “any possibility with money level just above USD 13,000 pd”.

After further negotiations with PNP, Mr. Mikhaylyuk reported to Mr. Izmaylov, Mr. Sakovich and Mr. Oskirko on 3 January 2003 that “seems we get our maximum terms”. The reported terms, subject to the Owners’ approval, were for a year’s hire at $13,000 with an option for a further year at $13,500. Mr. Sakovich replied on 4 January 2003, “Owners confirm the rates and main terms you negotiated. We will be fully satisfied if you try to get hundred dollars more for the first year (at least try)…”.

Mr. Izmaylov gave his approval for the fixture, and it was concluded.

It was suggested to Mr. Mikhaylyuk in cross-examination that the rate of hire for the “Trogir” was favourable to Henriot, or at least that Mr. Mikhaylyuk so regarded it, because on 30 November 2002 he had offered to hire the vessel to another potential charterer for $15,000 per day, and when presenting the proposal he wrote, “you are really stretching me”. I cannot accept that the use of such an expression in the course of negotiations indicates Mr. Mikhaylyuk’s real views about the market rate of hire of the vessel.

In the Sakovich Report Mr. Sakovich wrote that, because of falling rates and the rates that were being forecast, it was “highly advantageous” to place the T type vessels on time-charter, and he justified the rate, observing that the “Trogir” had less cargo tank covering than her sisterships and commanded lower rates by between $500 and $1,000 per day .

The claimants accepted that the “Trogir” was chartered at a rate within the market range. There is nothing unusual about the terms of the charter or how the fixture was concluded, either with regard to Mr. Izmaylov’s role or otherwise. The claimants referred to this fixture only because they contended that, since the charter was a result of Mr. Izmaylov’s corrupt relationship with Mr. Nikitin and his breach of duty to them, they are entitled to an account of the profits that were earned from the charter. The defendants submitted that everything about the fixture supports their contention that the chartering relationship between NSC and the Standard Maritime Defendants was a normal commercial one, and I accept that nothing about the fixture indicates otherwise.

In June 2003, NSC, through Kuzbass Shipping Ltd. and Kaspiy Shipping Ltd., bought from Greek owners two second-hand Suezmax vessels, which were named the “Kimolos” and the “Atlantis” and which NSC re-named the “Kuzbass” and the “Kaspiy”. The vessels, built in 1998, were of about 150,000 dwt and had double hulls. They were delivered on 17 June 2003 and 2 July 2003 respectively. They were both chartered to Henriot on 11 September 2003 for one year at a rate of $18,500 per day with a charterers’ option for a further year’s hire at $18,750 per day.

The claimants do not bring any claim in relation to these charterparties. The companies that owned the vessels and entered into the charterparties are no longer in the NSC group, and they are not claimants. However, the claimants argued that these charterparties and the manner in which they were concluded provide evidence that Mr. Izmaylov had a corrupt relationship with Mr. Nikitin, and so that the charters of other vessels were “caused and/or procured and/or permitted by Mr. Izmaylov at an undervalue”. Their contention is (i) that the terms of the charters were so favourable to Henriot that I should infer that they were not agreed in a bona fide transaction but as a result of corruption, and (ii) that Mr. Izmaylov was party to that corruption. I reject both parts of that contention. I conclude that the fixtures were not made as a result of impropriety, and in any case I should not have concluded that Mr. Izmaylov was party to it.

The vessels were managed by NSC from Novorossiysk, not by NOUK. NSC’s normal practice was that one person had authority to fix vessels, and at the time Mr. Vyvorotnyuk, who then held the position of chartering manager, was so authorised for the “Kuzbass” and the “Kaspiy”. Although they were managed in Novorossiysk, Mr. Izmaylov asked Mr. Mikhaylyuk to provide general market information to assist to fix the vessels and to enquire for what rate they might be hired. This is readily understandable: NSC had no recent experience in chartering out Suezmax vessels, and

After the vessels had been delivered to NSC, they were first traded on the spot market. On 4 June 2003 a broker called Mac Fischer had sent an e-mail to Mr. Anatoly Nelipovich of NSC in which he said that, at Mr. Mikhaylyuk’s suggestion, he was making contact about the possibility of arranging time charters. In his response Mr. Nelipovich said that NSC were interested in entering into time charters, but that “our management board is considering hire rate not less than USD 28,000 pd”. He continued, “If you have respective (sic: an error for respectable) charterers who are ready to pay around these numbers let me know”. Further, on 3 June 2003 there was an e-mail to Mr. Nelipovich to Mr. Gleb Timchenko in the chartering department of NSC forwarding an approach from brokers, Banchero Costa & Co, in which they stated that they had charterers who were willing to hire the vessels and were “speaking about USD 28,000”.

The e-mail of 4 June 2003 shows that even in June 2003 NSC were interested in fixing the vessels on time charters, but I accept Mr. Izmaylov’s evidence that he knew nothing of any consideration by the Executive Board about the rates that they would accept. When Mr. Nelepovich referred to the rate that the “management board” was considering, he was replying to a brokers’ enquiry and he might well have been trying to provoke an offer of a high rate. They were under no immediate pressure to fix the vessels, which had not yet been delivered to them. I do not consider that these exchanges provide any evidence about market rates for the hire of the vessels upon which I can rely. The claimants have not disclosed documents which would give a full picture of these exchanges, and there was no evidence from either Mr. Timchenko or Mr. Nelipovich.

On 4 August 2003, Mr. Mikhaylyuk had sent an e-mail to Mr. Izmaylov setting out what he considered were appropriate voyage charter and time charter rates for Suezmaxes. He wrote of time charters, “During July there were not much of change on the t/c rates on Suezmax, keeping the rates at about $24,000-25,000 levels. There were few fixtures reported at a fixed rates”, and he identified some reported fixtures. He also attached reports from Barry Rogliano Salles (“BRS”), which referred to a sharp increase in market rates, and from Poten & Partners, which assessed a rate of $25,500 per day for a one year’s charter and a rate of $24,000 per day for three years’ hire of a modern Suezmax. But he observed that, because the “Kuzbass” and the “Kaspiy” did not have approvals from major oil companies, this “could have its impact”, and in fact in August 2003 the vessels were fixed on the spot market at rates far below those mentioned in the e-mail. When Mr. Izmaylov was cross-examined, it was suggested to him that he had instructed Mr. Mikhaylyuk to send this e-mail to help to justify the rate at which the vessels were later to be hired to Henriot. I reject

In late August 2003 Mr. Izmaylov was told by Mr. Vyvorotnyuk that Henriot had expressed interest to NOUK in chartering the vessels for a year. On 25 August 2003 Henriot sent an e-mail in which they offered to pay rates of $18,000 per day per vessel for a one year’s charter with a further year at the charterers’ option. Mr. Izmaylov said that this rate seemed to him to be “a low proposal a little bit, but not a long way”, and he considered that it was worth exploring it. Mr. Sakovich was away from the office, but Mr. Mikhaylyuk happened to be in Novorossiysk. He had come from London on 12 August 2003 for business followed by a holiday, and from time to time he would come into NSC’s offices. Mr. Izmaylov asked him to handle the negotiations with Henriot, working from Mr. Oskirko’s office and computer. Mr. Mikhaylyuk told Mr. Vyvorotnyuk that he had been given these instructions by Mr. Izmaylov, and asked Mr. Vyvorotnyuk to transfer to him the authority to fix the vessels.

The claimants submitted that there was no good reason that Mr. Izmaylov should have called upon Mr. Mikhaylyuk to handle these negotiations because, even with Mr. Sakovich away, the Novorossiysk office could have handled them competently, and that his purpose was that Mr. Mikhaylyuk should fix the vessels on terms that were favourable for Henriot. Mr. Izmaylov said that he preferred that Mr. Mikhaylyuk handle the negotiations because they were for time charters with Henriot, to whom NOUK had already chartered the “Trogir”. I accept this explanation. Mr. Mikhaylyuk had, after all, already provided guidance about the market for chartering the vessels. Mr. Izmaylov also said that Mr. Vyvorotnyuk advised that Mr. Mikhaylyuk deal with the proposal. This was not suggested to Mr. Vyvorotnyuk when he gave evidence, and, while there is no evidence that Mr. Vyvorotnyuk objected to the decision, I do not accept that it was taken on his advice.

On 28 August 2003 Mr. Mikhaylyuk wrote in an e-mail to Mr. Nikitin that the owners were interested in the proposal to hire the vessels, and had authorised him to indicate rates of $18,500 per day for the first year and $19,500 per day for the optional second year, with $3,500 per day for representation, communications and victualling and an even split of profits. Later on 28 August 2003, Mr. Ivanov of NOUK sent “a brief review of the Suezmax market covering the first three weeks of August 03”, and wrote of the time charter market that “It seems like no significant jumps or falls reported within said period and hire rates remain at levels ranging from USD 23,000 pd to USD 25,000 pd depending of vessels age/[fuel oil] consumption and agreed period”. There were attached market reports from BRS, Poten & Partners, Braemar Seascope Ltd. and O-J Libaek & Partners AS. The market report of Poten & Partners indicated a rate of $24,750 for one year’s hire. This information was sent to Mr. Oskirko’s e-mail address and was marked for Mr. Mikhaylyuk’s attention, but his evidence was that he did not see it. I do not accept this evidence. The information had been requested and Mr. Mikhaylyuk would have chased for it if he did not receive it.

On 29 August 2003 Henriot, responding to Mr. Mikhaylyuk’s offer, proposed rates of $18,100 per day for the first year and $18,500 for the optional second year. Mr. Mikhaylyuk’s evidence was that he discussed the strength of the market with NOUK’s office in London, he believed on 29 August 2003, and, although he had only

On 1 September 2003 Mr. Mikhaylyuk reported by e-mail to Mr. Izmaylov and to Mr. Sakovich that, “Having worked with PNP … this requirement for two Suezmax ships for 1+1 year in CHOP [sc. charterers’ option] we managed to get” an offer of $18,500 for the first year and $18,750 for the optional second year. He described the market as follows: “spot market is rather weak at the moment and [time charter equivalent] during August was at around $14,000 per day nearly in all areas. [Time charter] market has been falling and for ice-class ships was reported at low $20,000 [per day pro rata]. While it is usual paid a premium for ice class, the normal ships obtained much lower levels. Due to considerable delay with Iraq oil export there may be further low oil supply for this year and next year as well, thus some weak rates expected on the market.” He concluded, “Taking into account the current situation seems reasonable to consider such business possibility”.

It was put to Mr. Mikhaylyuk that he did not send this e-mail of 1 September 2003 to Mr. Oskirko so as to prevent him from knowing the rates at which the vessels were fixed. I reject that suggestion because Mr. Oskirko would clearly soon learn the rates anyway, and indeed he did so within the day. I accept Mr. Mikhaylyuk’s evidence that the contents of the e-mail had been discussed with Mr. Oskirko before it was sent, and so there was no need to send it to him. I reject Mr. Oskirko’s evidence that he did not know about the e-mail. In fact, later on 1 September 2003, Mr. Oskirko responded to it, and I cannot accept that he did so without paying attention to what it said. The reply was that, “Based on your information”, the owners agreed with Mr. Mikhaylyuk’s recommendation. Mr. Oskirko had spoken with Mr. Izmaylov before sending this reply, and there is no credible evidence that he disagreed with Mr. Mikhaylyuk, or questioned whether the terms should be accepted. Mr. Oskirko authorised the fixtures in his e-mail of 1 September 2003, and I find that he did so because he considered them to be in NSC’s interest and because, as Mr. Mikhaylyuk put it, he was “appointed as in charge” of these fixtures, and not, as he claimed, simply because he was instructed by Mr. Izmaylov to authorise them. On 2 September 2003 Henriot advised Mr. Mikhaylyuk that the terms had been agreed subject to confirmation by 8 September 2005.

On 5 September 2003 Mr. Mikhaylyuk sent an e-mail to Mr. Senshin, writing “as discussed I understood that you have instruction from Mr. Izmaylov to liaise with myself enabling conclusion of this [business]. Moreover I have confirmation from Mr. Izmaylov to go on [subjects], and work terms but obviously without information from chartering dept in Novorossiysk have no possibility to complete the deal. If you do not have enough authority to liaise please let me know in order same can be arranged.” After further exchanges in which it was agreed that the fixtures should remain subject to confirmations until 15 September 2003, they were confirmed in a

“final recap” communication on 15 September 2003, giving the dates of the charters as 11 September 2003.

A “Standard” approval form was drawn up for the proposed fixture by NSC’s chartering department. It recorded that the hire rates compared favourably with those achieved on the spot market (“The time-charter equivalent reached for 2003 for these vessels on 31 August 2003 is: USD 13,503 per day”), and exceeded the breakeven point for the vessels by at least $2,200 per day. Mr. Senshin’s name appeared at the bottom of the second page of the form, but Mr. Vyvorotnyuk acknowledged that he signed it. It was submitted to Mr. Sakovich and Mr. Izmaylov for them to approve the charters with an implicit recommendation that they should do so. It stated that,

“Henriot is a subdivision of [PNP], which operates a fleet of time charters. The Novorossiysk and London offices have worked with PNP on scheduled charters since 1997. There has not been any delay in freight payments during this time. At present, the Trogir and a few Sovcomflot vessels have been chartered to the company. According to Novoship UK reports, there have been no delays in rental fees and no unfounded claims have been presented by the charterer .... Negotiations on bargaining for deal conditions have been held by Novoship UK. Higher amortisation rates are proposed for the first 12 months for the Kuzbass at $2,500/day and at $2,200/day for the Kaspiy. The spot market for Suezmaxes currently stands at approximately $15 000-16 000/day and it is not clear in which direction they will evolve. Long-term charters provide guaranteed income and the ability to fulfil credit obligations in a timely manner.”

In accordance with NSC’s procedures, Mr. Sakovich recorded his approval for the fixtures by signing the proposal form submitted by Mr. Senshin. He could not recall when he did so, and his signature is undated. He was away on holiday between 19 and 29 August 2003, and signed it after he returned to the office on 1 September 2003. Mr. Sakovich understood that he was endorsing fixtures that had already been concluded, whether contractually or by way of only a commercial commitment. He said that he had this impression both from what he was told by NSC’s broking department and from a document, but it is unclear whether he recalled seeing the confirmation telex of 2 September 2003 or the final recap communication of 15 September 2003.

The form recorded that Mr. Izmaylov endorsed the fixtures by telephone. I infer, as Mr. Izmaylov supposed to have been the case, that he was away from the office at the relevant time, but told those at Novorossiysk that he agreed with the proposal.

The claimants say that these fixtures were concluded at rates below the market. The index of rates published by CSIW for the hire for one year of a modern Suezmax tanker was at $25,000 for the weeks of 15, 22 and 29 August 2003, and had been at about that rate throughout 2003. There are other indices and brokers’ reports in evidence, but it suffices to say that Mr. Huttemeier agreed that there was “a reasonable consensus amongst the indices of a figure of around $25,000”. The fixtures provoked comment in the shipping paper “Trade Winds” on 19 September 2003 that reported (in the mistaken belief that the rates were $21,500 per day):

“Novoship of Russia is said to have locked two modern Suezmax tankers into 12-month charters at a surprisingly low level. Sources suggest that the 150,000-dwt Kuzbass and Kaspiy (both built 1998) have been fixed by an undisclosed Russian charterer at $21,500 per day. In light of a firmer spot market for Suezmax tankers, brokers expected that the rate for such a period would be higher. London broker Clarkson says average one-year rates for modern Suezmaxes should be $26,000 per day.”

However, the market was not as robust as this might suggest. There is some evidence about comparator fixtures, and I conclude that other owners were agreeing to charters at rates below what the indices indicated. I do not propose to discuss all the fixtures examined in the evidence, but generally the rates for these vessels would appear to have been around $22,000 or $23,000. At the beginning of September 2003 the younger and larger tanker, the “Four Smile”, was fixed for 30 months at a rate variously reported as $23,500 and $23,375. The “SCF Ural” was chartered to BP for 4 or 6 months at a net rate of only $20,213. Overall the picture is that the brokers’ estimates in the indices were, as Mr. Huttemeier said tended to be the case, distinctly at the higher end of the market range.

Other matters are relevant to NSC’s decision to enter into these fixtures. First, Mr. Mikhaylyuk referred in his e-mail of 1 September 2003 to the spot market, and so too did the approval form. The rates agreed for the time charters of the “Kuzbass” and the “Kaspiy” were higher than the equivalent rates that they were attracting on the spot market. This might partly reflect a lull in the spot market during the summer months, but I accept that this consideration affected the view of the NSC executives about the time charters. There is no proper basis to think that the comments on the approval form were unreasonable, still less that they were bogus.

Secondly, contemporaneous forecasts predicted that the market would fall, and there were signs that it had started to do so. Cargo rates were dropping and in particular there had been a fall in rates in the mid-Black Sea region, the centre of NSC’s operations. The market forecasts to which NSC subscribed were pessimistic: RLA had predicted that there would be a “sharp correction of rates in 2004, bringing prices to a low of $16,000/day”, and Marsoft Tanker Market eBrief, which NSC used and Mr. Oskirko himself read, predicted in June 2003 and August 2003 that the tankers market generally and the rate for Suezmax vessels in particular would weaken over the coming year. On 17 September 2003 Dr Stopford of Clarkson Research predicted rates of below $20,000 in 2004. Both Mr. Huttemeier and Mr. Pearce recalled that their own views reflected the prevailing market sentiment at the time, and that this uncertainly particularly affected rates for Suezmax vessels, which Mr. Pearce described as “the class of vessels in which the market volatility was highest”.

This perception of the market was shared within NSC. Mr. Vyvotoronyuk said that there was a significant drop in cargo rates for Suezmaxes in this period. Mr. Sakovich considered, as he put it in cross-examination, that “this market is going down”. As I have said, the view within NSC was that the vessels should be fixed on

Thirdly, NSC had no presence as owners in the Suezmax time charter market and needed to establish themselves. At the same time, the “Kuzbass” and the “Kaspiy” had lost their approvals from major oil companies when NSC acquired the vessels. Mr. Izmaylov said, and I accept, that this made the vessels less marketable, and it affected the rates that they would command. NSC had taken steps to obtain new approvals, and made some progress towards doing so, although there is no clear picture as to what had been achieved by the end of August 2003. According to Mr. Sakovich, the vessels had “one or two approvals but those were not enough”. (BP had approved the “Kaspiy” on 6 August 2003, but did not approve the “Kuzbass” until 2 September 2003. ChevronTexaco had declined to inspect the vessel until NSC had managed her for six months) NSC recognised that the vessels still needed to reestablish themselves with major oil companies, and that this created difficulty in placing them on time charters.

I therefore conclude that, while the rates at which vessels were fixed were lower than the rates that the market was generally commanding, there were genuine and cogent reasons that would explain why NSC accepted them. I reject the submission that the terms of the fixtures and the circumstances in which they were concluded show that they did not result from bona fide dealings. The picture that Mr. Mikhaylyuk gave in his e-mail of 1 September 2003 was gloomier than was justified, but I am not persuaded that it did not represent his genuine views. Even if it did not, I reject the suggestion that Mr. Izmaylov knew that.

Mr. Izmaylov supported the decision to enter into the charters of the “Kuzbass” and the “Kaspiy”. So too did Mr. Vyvorotnyuk, Mr. Senshin, Mr. Oskirko and Mr. Sakovich, and there is no suggestion that they were corrupt. The procedures at NSC were designed to ensure that decisions of this kind were taken only with the support of a body of executives and the decision to enter into these charterparties were so taken. For this reason too, I reject the claimants’ argument that the fixtures indicate corruption on the part of Mr. Izmaylov.

Mr. Oskirko, as I have said, was the NSC executive who supervised these fixtures and authorised Mr. Mikhaylyuk to accept the terms offered by Henriot. He had told the Russian General Prosecutor’s Office on 12 December 2006 that Mr. Izmaylov instructed him “to coordinate this deal without checking it”, but that was not his evidence before me. Mr. Oskirko accepted in cross-examination that he wanted “for myself to be aware … what is going on”, and I reject any suggestion that he authorised the fixtures without understanding them or being in a position to assess them

Some time after the fixtures were concluded, Mr. Vyvorotnyuk commented upon the article in Trade Winds about the rate of these fixtures. He wrote (in a report the date of which is uncertain but must have been written at some time between June 2004 and February 2005) that the charters were agreed because of concerns about falling freight rates:

“On 19 September 2003 information that Novoship had chartered out its Suezmax vessels Kaspiy and Kuzbass at a rate of $21,500 a day was published in the Norwegian newspaper, Trade Winds. The newspaper asserted at the same time, with reference to the London brokerage company Clarkson, that the vessels could have been chartered out at a rate of $26,000 a day. Talks regarding the chartering of the above vessels, including the agreement of conditions regarding the value of the freight, were held in August 2003. A significant fall in cargo rates for Suezmax vessels was observed during this period, as shown by the attached data, provided by representatives of the international organisation Intertanko and the same brokerage company, Clarkson. According to Intertanko’s information, the average cargo rate in August 2003 was $17,021. Furthermore, a fall in cargo rates was noted during August in the mid Black Sea Region, where the above vessel was working for $21,676 to $12,010 [sic] thousand a day. It was under such circumstances that the vessels were chartered in accordance with the market price conditions, which were even higher than the average market rates, but the information on average rates cited in the newspaper cannot be recognised to be reliable, seeing as it contradicts other data provided by expert sources.”

Although Mr. Vyvorotnyuk said in cross-examination that he was presenting the deal “in a positive light”, he also confirmed that the note was true and that his assessment in September 2003 had been that NSC should conclude the fixtures.

Mr. Sakovich returned to the office on 1 September 2003 and signed the approval form without making any criticism of them or expressing any reservations. I accept his evidence that, when he did so, he considered that NSC were committed to the fixtures commercially, if not legally, but Mr. Sakovich would, in my judgment, have made his views known if he did not think that they should have been concluded. In his report Mr. Sakovich said with regard to the charters of the “Kuzbass” and the “Kaspiy” that, “Keeping in mind predicted levels around $16,000 plus per day, the time-charter rates of $18,500 + $18,750 per day with Henriot was a protection for the Owners to comply with obligations for loan repayments and to get steady earnings through possible difficult time ahead”. He confirmed in his evidence that this conclusion was “really reflecting the situation at the time” as well as other information and analysis, and also reflected his contemporaneous reasons for endorsing the fixtures.

I add that in March 2004 NSC’s auditors, Moore Stephens, questioned the rates at which the “Kuzbass” and the “Kaspiy” had been chartered. They were satisfied with the explanation that they were given, and the defendants relied upon this as evidence that the charters were commercially justified. I reject that argument because there is no sufficient evidence about the extent of the auditors’ enquiries or the basis upon which their concerns were satisfied. Indeed, after receiving responses to his questions, Mr. Chasty, the audit partner of Moore Stephens, wrote to Mr. Izmaylov that he “assume[d]” that he was “fully satisfied with the explanations given by your Operations Department”, apparently taking the view that, if Mr. Izmaylov was content, further investigations were unnecessary.

The “Moscow University” and the “Moscow River” were Aframax tankers owned by Fancy Maritime SA and Canyon Maritime Corp, two subsidiaries of Intrigue and the

The charters were concluded as follows: on 20 January 2004 in an e-mail to Mr. Mikhaylyuk Henriot wrote that they were looking for two Aframax vessels for a two years’ charter at a rate of $18,000 per day. On 21 January 2004 Mr. Mikhaylyuk replied that, “having checked with Owners on possible candidates”, he offered the “Moscow River” and the “Moscow University” at rates of $20,000 per day for two years with an optional third year at $21,000 per day. On 22 January 2004, Henriot offered rates of $18,250 for the first two years, and $18,500 for an optional further year; Mr. Mikhaylyuk responded by proposing rates of $19,000 for the first two years and $20,000 for the optional further year; and on 23 January 2004, Henriot offered rates of $18,500 with $18,750 for the optional period.

On 26 January 2004 Mr. Mikhaylyuk sent an e-mail to Mr. Izmaylov referring to discussions with him “during last week” and reported Henriot’s offer, which he said was the product of “very difficult negotiations”. He wrote, “This business could help to protect the cash-flow within next two years and allow the newbuilding programme to continue with 8 Aframax deliveries over next 2 years. There is strong anticipation on the market that due to numbers of ships to be delivered the rates would not be that firm as they are now, therefore, hedging could cover such uncertainty of the future. Would appreciate if Owners can consider this proposal and authorize accordingly to complete negotiations. Please advise if Owner’s Board is in agreement to such deal enabling us to lift subject on time.” Mr. Izmaylov did not dispute that, as is reflected in the words “as discussed” (and possibly the reference to checking with the owners), he spoke to Mr. Mikhaylyuk about these proposals. Mr. Izmaylov wrote to Ms. Spasova (who had taken over some of Mr. Oskirko’s responsibilities when he left NSC at the beginning of 2004, but had no responsibility for chartering matters) a note at the top of a printed copy of the e-mail, which reads (in translation), “Confirmed, taking into account the amounts and “programme””: the “programme” was the newbuilding programme to which Mr. Mikhaylyuk had referred. Mr. Izmaylov was involved in approving these proposals at the stage of negotiations because Mr. Sakovich was on holiday. In cross-examination he said that he gave his approval on the basis of what Mr. Mikhaylyuk told him and his own views of the market. On 28 January 2004 Ms. Spasova replied to Mr. Mikhaylyuk, “President approval your message”. After some minor changes to the terms, the fixtures were firmly agreed on 2 February 2004.

At the time of these fixtures, CSIW gave daily rates for Aframax vessels of $26,000 for a one year’s charter and $20,000 for a three years’ charter, which would indicate a rate of around $23,000 for a two years’ fixture. Other indices were at similar levels.

The claimants submitted that Mr. Izmaylov and Mr. Mikhaylyuk both knew that the rates agreed with Henriot were low compared with the market. On 16 October 2003 Mr. Mikhaylyuk had written to Mr. Izmaylov that, because the spot market had strengthened, there was not much interest in owners chartering Aframax vessels at rates below $20,000 per day, and that $21,000 per day for a two years’ charter could be “very reasonable”. Since October 2003 the CSIW indices had reflected a marked strengthening of the market generally and the rate for a one year’s charter of an Aframax had increased from $20,000 to $26,000.

The defendants said that Mr. Mikhaylyuk’s e-mail of 26 January 2004 set out NSC’s reason for agreeing to these fixtures, and that the purpose was to secure a cash-flow in an uncertain market in order to have an income to pay for the newbuilding programme. The claimants plead (at para 10DD(2) of the particulars of claim) that the e-mail was deliberately concocted on Mr. Izmaylov’s instructions in order to justify chartering arrangements that he had already agreed with Mr. Nikitin, and that the charterers provided “no real protection for the cashflow” because of doubt about Henriot’s ability to meet their obligations. I reject the latter contention because NSC had no real basis to doubt that Henriot would meet their obligations. No evidence supported the assertion that the e-mail of 26 January 2004 was deliberately contrived by Mr. Mikhaylyuk to give a false justification for the fixtures. Mr. Sakovich subscribed to the reasoning in the e-mail in that he considered that the rates were “sufficiently high” and that the charters provided “a continuous income”. He expressed that view in the Sakovich report, and it reflected his thinking at the time of the fixtures.

As I have said, the claimants did not pursue their pleaded case that the chartering rates for these fixtures were below the contemporary market range. The defendants justified them by reference in particular to the charter in February 2004 of the “Unique Priority” for a year with two charterers’ options of a year each at a rate of $19,500. The “Unique Priority” was of a similar size to the “Moscow River” and the “Moscow University”, and Mr. Pearce accepted that she was a “very similar ship”. Indeed, in two ways she would have been more attractive to a charterer. She was a newbuild whereas the Moscow vessels were some five years old, and Mr. Pearce accepted that this might be reflected in a slightly higher chartering rates. More importantly, her tanks were fully coated and this would, as I accept, have attracted a premium. (Mr. Huttemeier put the premium at $1,000 to $1,500 per day. Mr. Pearce accepted in his report of 15 May 2009 that coating would attract a slight premium when considering a sister-ship, the “Unique Privilege”, but said in cross-examination that he did not think that this feature would increase the rate for the “Unique Priority”. I prefer the more consistent evidence of Mr. Huttemeier.) Mr. Pearce considered that the rate of the charter of the “Unique Priority” was not “reflective of the market at the time” and undoubtedly generally Aframax rates were higher. They would indicate that the Moscow vessels might have attracted, say, $22,000 per day. The fixture of the “Unique Priority” does show that the rates for the Moscow vessels were, as Mr. Huttemeier put it, “at the lower end” of the market range, but not below it.

The reasoning put forward in Mr. Mikhaylyuk’s e-mail of 26 January 2004 must be considered against this background. Mr. Mikhaylyuk said in cross-examination that he thought it prudent to have regard not only to the CSIW indices of January 2004 but also lower figures representing the average rate for the whole of 2003. I am not convinced that they played any part in NSC’s thinking, or reasonably could have done. More importantly, however, it is readily understandable that NSC were concerned to secure the fixtures that were available in view of gloomy market reports and market uncertainty at the beginning of January 2004. For example, Marsoft, which was read by NSC executives, were predicting lower rates for Aframax spot fixtures, and the rates for spot fixtures, of course, influenced the time charter rates, as Mr. Mikhaylyuk had stated in his e-mail of 16 October 2003.

I do not consider that the claimants have shown that Mr. Mikhaylyuk was stating in his e-mail of 26 January 2004 anything other than his true views. In reaching this conclusion I do not overlook that in August 2005 he defended the rates for the fixtures on the basis that Shell and Navion had expressed their thinking that rates for a 12 to 18 months’ charter were $18,000 per day, and in cross-examination Mr. Mikhaylyuk was unable to provide any satisfactory support for this. In any case, I conclude that there is nothing in the terms of these fixtures or Mr. Izmaylov’s part in concluding them that suggests that he was dishonest or in breach of his duties.

The “Kaluga” and the “Kazan” were large Aframax vessels of 115,707 dwt and 115,626 dwt respectively. They were owned by Kaluga Shipping Inc. (“Kaluga”) and Kazan Shipping Inc. (“Kazan”), two subsidiaries of Intrigue and the 49^th and 50^th claimants in the Intrigue action. They were chartered to Henriot on 30 March 2004 at a rate of $20,800 per day for three years.

On 24 March 2004 Mr. Mikhaylyuk offered to Henriot three years’ charters of the vessels at $20,800 per day. Mr. Izmaylov had authorised him to do so, either directly or though Mr. Sakovich. On 25 March 2004, Mr. Mikhaylyuk repeated the offers (with some changes to the terms that did not affect the rates), and they were accepted on 26 March 2004. There is no documentary evidence of negotiations about the actual fixing of these vessels, but on 26 March 2004, Mr. Mikhaylyuk sent an e-mail to Mr. Izmaylov and Mr. Sakovich:

“As discussed over the telephone and after a week of hard negotiations we managed to put vessels on subjects on following conditions: … In view of the market development this rate is a good hedging against any possible fluctuation and gives us coverage for the next three years on the Aframax tonnage newbuildings against their delivery program (within next 2 years). We think that such rates could be rather beneficial to Novoship, therefore, would appreciate if Owners could give consideration to this business opportunity, and authorise accordingly enabling us to complete the deal.”

Mr. Sakovich replied on 29 March 2004, sending a copy of his reply to Mr. Izmaylov: “During performance of previous time-charters there were not any delays with hire payments and non supported claims from Charterers side. Owners lift their subs for proposed deal to guarantee earnings for next three years.” Mr. Izmaylov said that he probably discussed this reply with Mr. Sakovich before it was sent, and I find that he did so. He also said that he relied primarily upon Mr. Sakovich’s recommendation about the charterparties, and I accept that at the least Mr. Sakovich supported the decision to conclude them. On 2 April 2004 Mr. Mikhaylyuk reported to Mr. Izmaylov and Mr. Sakovich that Henriot had “lifted the subjects” and the fixtures were concluded.

The claimants plead (at para 10EE(2) of the particulars of claim) that the e-mail of 26 March 2004 (like the e-mail of 26 January 2004 about the chartering of the Moscow vessels) was sent on Mr. Izmaylov’s instructions and was “designed to provide an apparent justification” for the fixtures. In support of this, they say that the charters provided no reliable income for NSC because Henriot were not a reliable counterparty and their income depended upon sub-chartering the vessels. I reject that allegation for the same reason as I have rejected it in relation to other charters, and conclude that there was no reason that NSC should have so regarded Henriot. They also argued, as I understand their submissions, that because there is no written record of any negotiations, the inference is that there was no “hard week of negotiations” and the email is misleading. While it is possible that Mr. Mikhaylyuk was exaggerating the efforts that he had made, there is, in my judgment, no proper basis to reject his evidence that he had had negotiations with Henriot before he put forward the offer of 24 March 2004. It would be remarkable if there had not been negotiations, and there is no evidence to support any contention that they were conducted by someone other than Mr. Mikhaylyuk. I reject the suggestion that Mr. Nikitin and Mr. Izmaylov had agreed between themselves upon the rate for these charterers before the e-mail of 24 March 2004 or at any time.

CSIW reported on 29 March 2004 that the rate for a three years’ charter of a modern Aframax was $23,000 per day. Mr. Huttemeier preferred to identify the prevailing rate by taking an average of the CSIW rate and the rate in the ACM index, which was $21,500, and put it at $22,250. Mr. Pearce did not support the pleaded case and accepted that the rates for these fixtures were within “the market range”, although he placed them at the bottom of it. At the time of these fixtures, there were still pessimistic reports predicting that rates for Aframaxes would fall. I accept Mr. Pearce’s evidence, and consider that, if it were necessary to identify a rate at the middle of the market, it would be one of $22,250, which Mr. Huttemeier drew from the indices. I reject the contention that the difference between this and the rate to which NSC agreed reflects any impropriety on the part of Mr. Izmaylov (or anyone else). It reflects that he and others at NSC wanted to secure the fixtures because they were concerned to secure an income in an uncertain market.

On 23 December 2003, Henriot declared the option to extend the charter of the “Trogir” for a year. In September 2004 Henriot and NSC agreed to extend the charter of the “Trogir”, and on 4 October 2004, the vessel was fixed at a rate of $17,000 for a year, with a charterers’ option for a further year.

On 20 September 2004 Mr. Mikhaylyuk wrote in an e-mail to Mr. Izmaylov and Mr. Sakovich that Henriot had asked to extend the hire of the “Trogir” for a year from 28 January 2005, the expiry of the current charter, with an option of the further year, and

Mr. Mikhaylyuk wrote to Henriot on 21 September 2004 offering a fixture at $17,000 per day “as per discussions during last several days”. Henriot responded later on 21 September with a counter-proposal based on the same chartering rate. On 22 September 2004 Mr. Sakovich sent an e-mail to Mr. Mikhaylyuk, copied to Mr. Izmaylov, thanking Mr. Mikhaylyuk for “the developing of the next long term business opportunity”, and stating that the rate and terms were acceptable. He continued, “taking into account the different market forecasts for this segment of the market, we need to protect the steady income and support our cashflow”. He authorised Mr. Mikhaylyuk to enter into the fixture. The charterers firmly accepted the offer on 4 October 2004, and on 6 October 2004 Mr. Mikhaylyuk reported to Mr. Izmaylov and Mr. Sakovich that the fixture was concluded.

The claimants’ pleaded case (at para 10BB(8) of the particulars of claim) is that the email sent by Mr. Sakovich on 22 September 2004 was written on Mr. Izmaylov’s instructions in order to provide an “apparent justification” of the charter. Mr. Sakovich did not support that allegation in cross-examination. He said, and I accept, that the e-mail represented his genuine view about the proposed charter, which he formed in light of what he was told by Mr. Mikhaylyuk, and that nobody put him under pressure to write it. (Mr. Sakovich had some language difficulties with these questions in cross-examination, but the meaning of his answers was, I think, clear.) Mr. Popplewell decided not to put the allegation to Mr. Izmaylov and, as I understand it, it is not pursued.

The claimants, however, submitted that Mr. Mikhaylyuk’s e-mail of 20 September 2004 was probably written upon Mr. Izmaylov’s instructions “as part of a paper trail to justify the rates” (although this allegation, as Mr. Bryan observed, was not pleaded). There is no documentary evidence of negotiations such as are referred to in the e-mails, but Mr. Mikhaylyuk insisted in cross-examination that they took place. He concluded that he could not persuade Henriot to pay more for the vessel, and he did not think that he could obtain a higher rate of hire from another charterer. The claimants suggested that Mr. Mikhaylyuk had not had “long discussions” with Henriot and that the rate had already been agreed between Mr. Nikitin and Mr. Izmaylov . As with the similar allegations made about other charters, there is no evidence to support these allegations, and I reject them.

The claimants also argued that the vessel was fixed at below the market rate. Before Henriot confirmed the charter on 4 October 2004, they sub-chartered the “Trogir” to Adam Maritime Corp (“AMC”) on 1 October 2004 at a rate of $21,250 per day for about 15 months to 28 January 2006 (plus or minus 15 days). The net income to Henriot under the sub-charter was (after brokerage) $20,506 per day, whereas they were paying just $13,500 per day under the old charter until 28 January 2005 and $17,000 per day under the new charter thereafter. NSC could not have entered into the charter with AMC because the “Trogir” was chartered to Henriot until January 2005, but the claimants relied upon the sub-charter to support their contention that the market rate for the vessel was above $17,000 when NSC agreed the charter rate. According to CSIW the market rate had strengthened by about $1,000 during the second half of September 2004, but this does not account for the difference between the charter and the sub-charter rates.

There are few other fixtures that provide evidence about whether the charter of the “Trogir” was at market rates. On 3 November 2004 NSC chartered the “Tambov”, a sistership of the “Trogir”, to Stena for $18,750, but the market had continued to strengthen since the rate for the charter of the “Trogir” had been agreed. Mr. Pearce accepted that the rate for the “Tambov” was “not hugely inconsistent” with the rate for the “Trogir”, although he thought that the Tambov charter was a “better deal” for NSC.

The claimants also pointed to CSIW rates to support their contention that the rate for the “Trogir” was low. They published rates for vessels of 47,000 dwt and 30,000 dwt, and for the week of 17 September 2004 they were at $19,750 and $17,750 respectively: this would indicate a rate of about $18,750 for the “Trogir”, which was 40,791 dwt. However, Drewry index for a 10 year old vessel of between 40,000 dwt and 45,000 dwt was at $15,570 for September 2004 and at $18,000 for October 2004.

If it were relevant to identify a market rate for the charter of the “Trogir” I would place it at $18,000 rather than $17,000. However, in my judgment, there simply is not enough market evidence to support the claimants’ contention that the rate agreed by NSC was significantly low against the market in so far as they suggest that it indicates that Mr. Izmaylov was in breach of duty, or that he was acting dishonestly or improperly.

The claimants claim that the owners of the chartered vessels are entitled to compensatory damages, and that they and NSC are entitled to an account of the profits made by charterers and through them Mr. Nikitin. They pleaded four matters in support of their contention that Mr. Izmaylov was responsible for NSC entering into time charters which conferred substantial benefits on the charterers at the owners’ expense. The focus of the complaint as it was developed was that “the rates of hire were at the low end of contemporary rates or well below contemporary rates”. I do not accept that the rates agreed by the claimants were below contemporary rates, and, while they were generally towards “the low end of contemporary rates”, I do not accept that this indicates impropriety in Mr. Izmaylov’s part. They reflected rates for which the responsible executives of NSC together decided to hire the vessels, and Mr. Izmaylov was not solely or especially responsible for NSC agreeing to them.

The claimants also relied upon the facts that some of the charters provided for withcharter options, and that NSC did not require a “risk premium” to reflect Henriot’s standing. I have explained why I am not persuaded by these contentions.

The fourth matter that the claimants plead (at para 10D(1)(d) of the particulars of claim in the Intrigue action) is that “all the time charters, with the exception of the first “Trogir” charter, were entered into in breach of NSC’s policy regarding the balance to be maintained in letting of the NSC fleet between time and voyage charters”. Mr. Popplewell made it clear when opening the case that the claimants no longer relied upon this in support of their contentions as to liability. (The claimants maintain that, if they are entitled to damages in respect of the NSC time charters scheme, they should be calculated on the basis that NSC would, but for the wrongdoing, have kept more vessels than they did on the spot market. I do not consider that the evidence supports this contention, and in any case I do not accept that this would entitle any of the specific owner claimants to increased damages unless it be shown that it would have affected the deployment of their own vessel. However, since I reject the claim, I do not need to consider this argument further.)

I therefore do not consider that the claimants’ allegation of corruption against Mr. Izmaylov is supported by the evidence about how the time charters came to be fixed or about their terms.

I have considered each of schemes and whether there is evidence from the way that it was carried out or otherwise that indicates that Mr. Skarga or Mr. Izmaylov was corruptly engaged in it. I come to consider the other matters that the claimants relied upon as evidence of Mr. Skarga’s dishonesty. They alleged that:

Between 2001 and 2005 Mr. Nikitin arranged for money to be transferred to Mr. Privalov and companies associated with him. It is the claimants’ case that these were improper payments made for Mr. Privalov’s benefit because of the part that he played in the various schemes. They have identified certain payments for Mr. Privalov upon which they specifically relied, but submitted that there were probably other payments of which they are unaware. In their pleaded case, they allege that particular payments were made in relation to particular transactions or schemes in which Mr. Privalov assisted Mr. Nikitin, but they also submitted that the payments constituted

Mr. Nikitin denied making any payments to Mr. Privalov that could properly be characterised as bribes or that were otherwise dishonest or improper. He said that the payments made to Mr. Privalov and his companies included repayments of money that he had allowed Mr. Privalov to deposit in Milmont’s account with Wegelin; and that he made other payments to Mr. Privalov to reward him for work that he had done for him. He submitted that they were proper payments and were made because Mr. Privalov had properly provided him with services and assistance.

In the summer of 2001 Mr. Privalov opened with Credit Suisse in Zurich an account in the name of Getwire after Mr. Nikitin had introduced Mr. Privalov to Mr. Philipp Senn of Credit Suisse. Mr. Nikitin’s evidence about the introduction was vague and unsatisfactory, but in my judgment he must have realised when he made the introduction, even if he was not specifically told, that Mr. Privalov wanted to open an account with the bank in Switzerland. On 14 December 2001 Milmont, on Mr. Nikitin’s instructions, transferred $25,000 to Getwire. It is not clear from the evidence why the payment was made, but Mr. Privalov nominated the account into which Mr. Nikitin had the money paid. Although Mr. Nikitin said that Mr. Privalov might have been directing payment into a third party’s account, the most obvious and probable implication was that Mr. Privalov controlled Getwire and the account. I reject Mr. Nikitin’s evidence that he did not realise this.

Mr. Privalov’s evidence was that Mr. Nikitin did not simply introduce him to Mr. Senn. He said that Mr. Nikitin wanted him to open the account so that he had a Swiss bank account into which he could receive secret payments, and that “everything was done” to open it at a meeting in Mr. Nikitin’s room at the Hotel Baur au Lac, Zurich. Mr. Privalov’s evidence about how the account was opened was inconsistent, it is not corroborated, it is disputed by Mr. Nikitin and I reject it. I do not need to go through the different accounts in Mr. Privalov’s various witness statements. Credit Suisse have disclosed documents about the opening of the account, some of which were dated 3 July 2001, and they show that the account was not opened before that date. Before they were disclosed, Mr. Privalov had said that the meeting at which the account was opened was in “either late May or early June”. I also infer from the documents about Mr. Privalov’s travel expenses, that he did not travel to Switzerland at any relevant time after 5, 6 and 7 June 2001. He could not have been in Switzerland to meet Mr. Nikitin as he described.

The documents disclosed by Credit Suisse about the opening of the account include a “client profile” form, which states that the “Expected account movements” were “About 1m in the next 6 months”, and states that the “Origin of money deposited with the Bank” was “Director of Premium Nafta Products, Russia”. According to Mr. Privalov, the information included on the form was provided to Mr. Senn by Mr. Nikitin, and he said that Mr. Nikitin told Mr. Senn that he would provide the money to be paid into the account from funds that he, Mr. Nikitin, generated as a director of PNP. I cannot tell quite what Credit Suisse were told that led them to complete the form as they did, but I reject Mr. Privalov’s explanation: it is not what the form says,

As I have explained, on 3 July 2001 $200,000 was paid into Mr. Privalov’s personal bank account at the RBS in the Isle of Man, and I conclude that it was paid by RTB from what they had received from Clarkson in respect of the Athenian transaction, and that the payment was made at Mr. Nikitin’s direction. No bank credit advice from RBS or similar document is in evidence, and Mr. Privalov’s evidence was that in any case the credit advice did not state who made the payment. He said that he did not know who made it, but he “expected” that it was from RTB, Mr. Cepollina or Mr. Nikitin, and that Mr. Cepollina had told him that he had arranged a payment for him. On 25 June 2001 RTB had received from Clarkson $5.5 million in respect of the Athenian transaction, and on 3 July 2001 they also transferred $2.25 million to Milmont and $3 million to Pollak.

On 29 October 2001 Mr. Nikitin directed Wegelin to transfer $390,000 from Meino to Falbridge International Ltd. (“Falbridge”), a company which, as I infer because Mr. Cepollina asked Mr. Nikitin to pay monies due to him into Falbridge’s account, was also associated with Mr. Cepollina. On 8 November 2001 Falbridge paid $300,000 to Getwire and $50,000 into Mr. Privalov’s RBS bank account. On 29 November 2001 Mr. Nikitin directed Wegelin to transfer $317,000 from Meino to Falbridge and on 6 December 2001 Falbridge transferred $310,000 to Getwire. Thus, $660,000 of the $707,000 transferred by Meino to Falbridge was in turn transferred to Getwire or to Mr. Privalov. The claimants’ pleaded case is that Mr. Nikitin’s purpose in making the transfers to Falbridge was to route through the company payments amounting to $660,000 to Mr. Privalov, and that the payment of $50,000 was for assistance in relation to the RCB scheme and the $300,000 was paid in relation to the Sovcomflot Clarkson commissions scheme: see para 11D of their reply and para 79A.23A(3C) of the particulars of claim in the Fiona action.

Thus, it is the claimants’ case that the payments to Mr. Privalov and Getwire in July, November and December 2001 were all made at the direction of Mr. Nikitin and that he used Mr. Cepollina’s companies in order to disguise them. The allegation that these payments were made by way of bribes for Mr. Privalov was introduced into the claimants’ pleading at late stages in the proceedings. The plea about the payments of $200,000 and $50,000 to the RBS account was introduced in July 2009, and the plea about the payments to Getwire was introduced during the trial in November 2009. Mr. Nikitin denied that he knew anything about the payments to Mr. Privalov and Getwire, and said that he arranged the payments to Falbridge because he wanted to reward Mr. Cepollina for his assistance with the RCB scheme “as well as for other transactions such as for various charters that he fixed for PNP”, and that he thought that Mr. Cepollina’s “RCB fee” would have represented around $300,000 of the payments. Mr. Cepollina nominated the Falbridge account to receive the payments.

Mr. Privalov’s evidence did not convincingly explain why he was paid these sums or why some money was paid to his RBS account and some to Getwire. He associated

Mr. Privalov did not refer to the two payments to Getwire in his earlier witness statements and first mentioned them in a witness statement dated 28 September 2009, which he made after he had seen documents about the Getwire account provided by Credit Suisse. His explanation that he had forgotten about such large payments is incredible. I do not consider that I can rely upon the evidence of Mr. Privalov about these payments, or that he provided any reliable evidence in support of the claimants’ contentions that these payments represented bribes to him from Mr. Nikitin.

Much about the payments is obscure, but the fact remains that each of them was made shortly after Mr. Cepollina’s company had been paid a rather larger amount upon Mr. Nikitin’s instructions. I infer that the payments to Mr. Privalov and Getwire were arranged by Mr. Nikitin and he routed them through Mr. Cepollina’s companies. I cannot accept that Mr. Nikitin would otherwise have had $250,000 paid to RTB in July 2001 and $707,000 paid to Falbridge in November 2001. Mr. Cepollina had not provided services for which Mr. Nikitin would have paid him so much. Mr. Cepollina’s evidence in a witness statement dated 7 November 2006 was that he believed that he was paid something between $50,000 and $100,000 for his contribution to the RCB scheme. It is likely that the payments related to assistance that Mr. Privalov provided to Mr. Nikitin, and it is likely that the payment in July 2001 was made at least in part, for assistance with the Athenian transaction, from which the funds derived, and the associated Tam commissions scheme. It is not possible to explain more specifically the reason for the payments.

Before considering other smaller payments made in 2001 and 2002, I refer next to two payments of $780,000 and $819,000 made on 23 December 2002 into Sisterhood’s account at Wegelin. The credit advice for the payment of $780,000 stated that it was a transfer from Mobil Services Inc. Bulgaria under a service agreement no F-124/02 and in payment of an invoice dated 22 November 2002. The credit advice for the payment of $819,000 said that it was a transfer from Mobil Services Inc. Bulgaria under a service agreement no G-84/02 and to pay an invoice dated 28 December 2002.

There are in evidence what purport to be service agreements dated 16 and 20 December 2002, numbered F-124/02 and G-84/02 respectively and made between Sisterhood, who is described as the “Executor”, and Mobil Services Inc, who is described as the “Customer”. There is no dispute that they are shams. The former provided for the “Executor” to be paid $780,000 for work and services described in such general terms as, for example, “Research of international financial market, analysis of its trends and future prospects” and “Analysis of financial instruments, providing reports on their advantages and present preference”, and the latter provided for the “Executor” to be paid $819,000 for similarly vague “work and services”. It was never contemplated that Sisterhood would provide any such services, and there is no real reason to think that a company called Mobil Services Inc. of Bulgaria ever existed.

Mr. Privalov and Mr. Nikitin were party to creating the agreements to disguise the payments of $780,000 and $819,000 to Sisterhood on 23 December 2002. On 21 November 2002 Mr. Pavlov sent Mr. Privalov a form of service agreement. On 22 November 2002 Mr. Privalov sent the form of agreement to Mr. Baum under cover of an e-mail which asked him to arrange for the directors of Sisterhood to sign the agreement and to fax a signed copy to “another Yuri”, that is to say to Mr. Nikitin. On 25 November 2002 Mr. Privalov sent Mr. Pavlov an e-mail asking who the counterparty to the agreement was to be. Mr. Nikitin accepted that he instructed Mr. Pavlov that Mobil Services Inc. were to be the counterparty.