Shell International Trading & Shipping Company Ltd & Ors v Tikhonov & Ors

The claimants in this action are companies within the Shell Group (“Shell”). They claim against their former employee, the defendant, Evgeny Tikhonov, in respect of substantial sums which they allege were paid to him as secret commissions or bribes in connection with his employment as an oil trader. Mr Tikhonov counterclaims for wrongful dismissal by Shell.

The sums in question fall into two categories. Those in the first category, the 2006 payments, were paid to Mr Tikhonov between August and December 2006 when Mr Tikhonov was working in Moscow. They total £284,843 and $252,856. These sums were paid into Mr Tikhonov’s account with HSBC in Jersey by Dunsink Trading Limited (“Dunsink”). Dunsink provides services for freight by sea. It is a company incorporated under the laws of the British Virgin Islands and has common shareholders with OAO Sovfracht. OAO Sovfracht is incorporated under the laws of the Russian Federation and provides services in connection with rail freight within the FSU – the Former Soviet Union. Shell seek to trace the monies which Mr Tikhonov received into a flat in Riga which he purchased in part with the monies. Mr Tikhonov asserts that the 2006 payments represented money due to him as his share of a profitable property investment outside Moscow. He says that the money was paid to him via Dunsink because the sale price of the property was paid in dollars in cash, and Dunsink was used as a conduit to get his share into his bank account.

The second category covers payments made by Dunsink or Sotra Logistic Limited into the accounts of T Capital Limited with UBS in Zurich during 2007, after Mr Tikhonov had returned to London. Sotra has shareholders in common with Sovfracht. Shell allege that these payments were made under an arrangement which Mr Tikhonov had made primarily with Mr Alexander Ivanov and Mr Evgeny Nenashev of Sovfracht that he should have a cut of inflated freight prices to be paid by Shell either directly for rail freight services or indirectly as part of the price paid by Shell for oil under contracts negotiated by Mr Tikhonov with suppliers of oil from the FSU. The monies were paid into the account of T Capital Limited. TCL was incorporated in the British Virgin Islands and Mr Erik Vanagels was the nominee shareholder and director appointed through International Overseas Services (“IOS”), the Latvian agents used in setting it up. Shell allege that Mr Tikhonov was the beneficial owner of TCL, the T standing for Tikhonov. Mr Tikhonov accepts that he instructed IOS to set up the company, but he asserts that the company was set up for the benefit of Mr Ivanov, a substantial shareholder in Sovfracht, and that the payments made to it were made on Mr Ivanov’s instructions and for Mr Ivanov’s benefit. Shell claims that TCL received $2,462,082 in this way, which it claims from Mr Tikhonov.

Evgeny Tikhonov was born in Lithuania, has Lithuanian citizenship and Russian nationality. He now lives in Riga in Latvia. His first language is Russian. He speaks fluent English as well as Lithuanian. Between 1998 and 2001 he studied international management and marketing at Ichthus University in Rotterdam. In 2000 while completing his university diploma he came to England to work for Albion Oil as a broker dealing in fuel and gas oil, mainly from the FSU. In 2003 he moved to Starsupply Tullett Energy where he continued in the same line. Between October 2004 and, October 2008 he was employed by Shell as an oil trader. He began in London with the first claimant, Shell International Trading & Shipping Company Limited in October 2004, and his main task was to familiarise himself with Shell’s systems. Between 1 February 2005 and December 2006 he worked in Moscow for the third claimant, Shell Trading Russia BV, which is incorporated in the Netherlands. He then returned to London, and, until his dismissal on 23 October 2008, was employed as an oil trader specialising in high sulphur fuel oils from the FSU. He had a two year contract commencing on 1 January 2007. Mr Tikhonov is a man of considerable intelligence, ability and energy. The evidence showed that he had good connections among oil traders and oil transporters dealing with the Baltic. That is as one would expect for a man who has worked in the field for 10 years.

The second claimant, Shell Trading International Limited, was included as a claimant because the trading of Shell Trading Russia BV was carried out on its behalf. As it was not the employer of Mr Tikhonov, I need not mention it further. I will refer to Shell International Trading & Shipping Company Limited as STASCO, and to Shell Trading Russia BV as STRU, those being the abbreviations which the Shell witnesses used.

Until 14 April 2010 Mr Tikhonov was represented by Kingsley Napley. On that date the firm ceased to act for him in relation to this trial although they continued to act for him in respect of committal proceedings then in the Court of Appeal. So he represented himself before me. He did so with ability, and showed a command of cross-examination which may have benefited from he himself having been cross-examined at length in the committal proceedings.

On 29 September 2008 Shell obtained a freezing injunction against Mr Tikhonov. It was part of the order that the names of the parties should be replaced with initials so they should not be identified. At the start of the trial I asked Mr de Verneuil Smith, who appeared for Shell, why this was. He said that it was to protect Mr Tikhonov. But Mr Tikhonov told me that he wished to be named. Mr de Verneuil Smith then suggested that the case was commercially sensitive. There is, however, no commercial sensitivity which could justify the identities of the parties being concealed. Mr Tikhonov faces criminal proceedings with a trial due to begin in February 2011. I do not consider that there is any real possibility of that trial being put at risk by such publicity as this judgment may receive, and it was not suggested otherwise. I mention that I have not seen the indictment nor the statements on which the prosecution is based – save one which was briefly used in cross-examination of Mr Tikhonov.

The freezing order, which was made on 29 September and continued on 9 October 2008, specifically prohibited Mr Tikhonov from selling, charging, using as collateral, or dealing with apartment no.7, Alberta iela 1, Riga, Latvia, that being the flat to which I referred at the start of this judgment. By notice dated 29 February 2009 Shell applied to commit Mr Tikhonov for contempt of court by entering two settlement agreements dated 2 December 2008 and 20 January 2009 with Mr Artis Hartmanis to transfer his rights to the property in settlement of a loan made by Mr Hartmanis to Mr Tikhonov on 29 August 2008. After a number of hearings Teare J handed down judgment, [2009] EWHC 2718 (QB), on 3 November 2009 finding the contempt proved. That holding was not disturbed by the Court of Appeal: [2010] EWCA Civ 533. Teare J held that the loan agreement with Mr Hartmanis was a sham devised by Mr Tikhonov as a means whereby the property might be removed from the assets subjected to the freezing order. He found that Mr Tikhonov had authorised someone to sign the two settlement agreements with signatures purporting to be his. He found that Mr Tikhonov had authorised a Latvian lawyer to apply to the Riga court to have the property transferred to Mr Hartmanis. I refer to paragraphs 70 to 75 of the judgment. The evidence before me was that Mr Hartmanis was a well-known figure in transportation in the Baltic, and had been seen in the company of Mr Tikhonov at a Shell conference.

The findings of Teare J show that Mr Tikhonov is capable of unscrupulous conduct of a high degree. They show that he is capable of giving evidence which is wholly dishonest. They are not findings which are in any way determinative of the claims which I have to decide. But they do tell me something about the kind of man Mr Tikhonov is, and they mean that I should be careful before accepting Mr Tikhonov’s evidence to me where it is unsupported. I should say, however, that the conclusions which I have reached as to those claims are conclusions which I would have reached had there been no committal proceedings.

I will take these first because there is more evidence in relation to them, and because they were the first to be discovered by Shell. Shell initially thought that the purchase of the Riga flat had been funded by the 2007 payments, but it turned out when they obtained copies of Mr Tikhonov’s Jersey bank accounts into which the 2006 payments were made, that this was not so.

Shell’s discovery of the alleged 2007 payments came about in this way. Caraline Trading Limited is a subsidiary of Sibir Energy plc, which is a substantial company in the Russian oil business. In 2007 it entered a number of contracts for the supply of fuel oil to STASCO, which were negotiated by Mr Tikhonov. The first was for DAF, Delivery at Frontier, Russia/Estonia, for Shell’s storage facility at Muuga in Estonia. The others were FOB Klaipeda in Lithuania. In the autumn of 2007 a claim by STASCO arose for $800,000, and in about April 2008 one for $933,000. Caraline’s case in relation to the first was that Mr Tikhonov had agreed that an earlier delivery should be treated as included as a delivery under the contract in question, and in relation to the second was that Mr Tikhonov had agreed to amend a contract tonnage from 40,000 tonnes to 30,000 tonnes but had not done so. That is a simplified picture of a far more complex situation, which was rightly not examined in any detail at the trial. [The outcome of the disputes was that Caraline paid the $800,000 claim, and Shell did not in the end pursue the $933,000 claim.] In February 2008 Mr Tikhonov failed to arrange a meeting between Mr Gugkaev and Mr Ivanchenko of Caraline and his superior Mr Thierry Girard, when Mr Gugkaev and Mr Ivanchenko were in London. He avoided meeting Caraline’s representatives at Shell when they next came to London in April 2008 but saw them elsewhere, and again failed to arrange a meeting with Mr Girard. On 15 July 2008 Mr Chapman, General Director of STRU, had a meeting in Moscow with Mr Henry Cameron, chief executive officer of Sibir, and the next day he had a meeting with Mr Gugkaev, the trader at Caraline, and Mr Oleg Ivanchenko, his superior. There was a further meeting in London on 31 July 2008 to discuss the claims. What emerged from these meetings was that $2.50 per tonne had allegedly been added to the price payable by STASCO to Caraline, which $2.50 was to be paid to Sovfracht who were responsible for the rail transport of the oil from refinery to Baltic coast, and then split between Sovfracht and Mr Tikhonov’s company, TCL. Caraline had agreed to the arrangement because it meant that it got the business. In September 2008 Mr Chapman had a further meeting with Mr Ivanchenko and Mr Gugkaev at which Mr Gugkaev explained how the scheme had worked, and how it had gone wrong because after two contracts Mr Tikhonov had failed to tell him to increase his price to Shell and so Caraline had been charged the increased price by Sovfracht without being able to pass it on. This had resulted in a dispute between Caraline, Sovfracht and Mr Tikhonov. At the meeting Mr Chapman was given a schedule in Russian prepared by Mr Nenashev, who had been responsible at Sovfracht for the administration of the scheme. On 24 September Mr Chapman had a meeting with Mr Nenashev, at which Mr Nenashev explained the schedule. He said that of the $2.50 uplift paid to Sovfracht by Caraline 50 cents was retained by Sovfracht as its own commission and the $2 was then split 30/70 between Sovfracht and Mr Tikhonov. In fact the schedule shows Mr Tikhonov as getting $1.27, which is 63.5%. Following the meeting Mr Nenashev provided Mr Chapman with a recording which he said he had made of himself and Mr Tikhonov discussing commission arrangements at Sovfracht’s offices in Moscow in the autumn of 2008.

The Sovfracht schedule – as I will call it, sets out month by month the oil transported by Sovfracht which was subject to the scheme. It shows the tonnages transported and the commissions paid to Sovfracht, and then the split of commissions between Sovfracht and TCL. In addition to Caraline there were four other companies for whom oil was transported covered by the scheme. These were Antos, Petrolux (one delivery only), Selberg (one delivery only) and Shell itself. The transportations for Shell by Sovfracht were made in respect of oil purchased by Shell for delivery to Shell within the FSU. So Shell then required transportation to the Baltic coast. The schedule shows that in 13 instances $1.50 on each tonne transported was paid by Sovfracht to TCL, and in 3 cases $8 per tonne were paid. Those ‘commissions’ came from the price paid by Shell to Sovfracht. Antos, Petrolux and Selberg were oil trading companies which had contracted to supply oil to Shell at the Baltic coast and had used Sovfracht to transport the oil. The schedule also shows the payments which were made to TCL.

I have referred to Sovfracht. Sovfracht is what I may call the leading company in an association of companies which have some shareholders in common. There was discussion at the trial whether the companies might be described as affiliates, but I did not find that helpful. They appear to be run as a group. Dunsink was the company in the association which engaged in maritime operations. Sotra and later Worldwide Transport, Shipping & Management SA engaged in operations by rail. A peculiarity of the companies’ management was that a debt might be paid by which ever company could conveniently pay rather than by the company which owed it. There would subsequently be a reconciliation. This was described by Mr Ilya Loginov, a lawyer and the deputy director for administrative and legal issues at Sovfracht, as ‘reciprocal use of financial resources’. The businesses of Sotra, Worldwide and Dunsink were managed by employees of Sovfracht. The Sovfracht schedule showed a number of payments to TCL. The amounts did not relate to the amounts of the individual commissions calculated. They were said to be lump sum payments on account of commissions. The ‘reciprocal use of financial resources’ was said to explain how the payments to TCL were made by Dunsink and Sotra.

The case against Mr Tikhonov is thus that he used his position as the Shell trader dealing with the FSU to procure that commissions were paid to his off-shore company in return for the placing of business.

Shell has analysed the Sovfracht schedule and has been able to match the tonnages referred to with contracts negotiated by Mr Tikhonov. There are some small discrepancies but they are immaterial. Shell has also been able to relate 22 of the 25 payments shown on the schedule to payments received by TCL, and has been able to provide an explanation for others. The total commission due to Mr Tikhonov or TCL shown by the schedule is stated to be $2,462,082.98, but in fact totals $2,461,723. The payments listed on the schedule total $2,539,409. However two payments of $477,686.01 are shown. If one is omitted, the total paid becomes $2,461,723, which is very close to the total commissions. In short, if the schedule is checked against the documents in so far as it can be, it stands up. There is no independent record of the rates of commission or the commissions.

The case of Mr Tikhonov is that the Sovfracht schedule and the allegations that he arranged for TCL to be paid commissions were an invention intended to discredit him with Shell in order to assist Caraline in its disputes with Shell. He asserts that he was asked to set up TCL by Mr Ivanov, as I have stated, and that the monies which were paid to TCL were paid for Mr Ivanov’s benefit. Mr Ivanov inherited an 18% shareholding in Sovfracht on the death of his father on 9 February 2007, and now holds approximately 32%. He does not have shares in Dunsink but owns 45% of Worldwide and Sotra. Mr Tikhonov asserted that Mr Ivanov was the beneficial owner of TCL in his first witness statement of 3 October 2008. He said that Mr Ivanov had told him that he wanted to invest in non-oil markets, and he surmised that Mr Ivanov may have applied his share of the profits of Sovfracht for that purpose. He again said that he had no interest in TCL in his affidavit of 7 October 2008. He also referred to a second company, T Capital Management Limited, in which he said he had no interest. In his second witness statement of 8 October 2008 he accepted that he had a power of attorney for TCL. He said that Mr Ivanov had asked him to set up TCL and TCML for investing in loans, shares and property. They would discuss investments. If a profit of 10% of the capital investment was made, they would split any further profits equally. In his witness statement dated 29 January 2010 he gave details of his relationship with Mr Ivanov and how he set up TCL and TCML and opened bank accounts at his request, transferred monies between accounts and made loans, all at Mr Ivanov’s request. Mr Ivanov gave evidence denying that he had any involvement with TCL and TCML beyond knowing that they were Mr Tikhonov’s companies and that commissions were being paid. He accepted that he and Mr Tikhonov had been friends. He said that Mr Tikhonov had told him in a telephone conversation shortly after his arrest on 27 September 2008 that he, Mr Tikhonov, had had to say that the monies in TCL and TCML belonged to Mr Ivanov because he had no other way out.

The issue I have to decide is a stark one. Either the whole of the case advanced by Shell is a fabrication by Mr Nenashev, Mr Ivanov, Mr Loginov, Mr Ivanchenko and Mr Gugkaev, or commissions were agreed and payments were made as set out in the schedule, or at least broadly in accordance with the schedule, and Mr Tikhonov’s case as to TCL and TCML being fronts for Mr Ivanov is a fabrication.

On any view the court is here dealing which what might be called ‘murky waters’, or, as Mr Loginov put it, ‘not white’. The evidence from Caraline and from Sovfracht involved the witnesses stating how the companies had agreed to pay commissions or bribes to Mr Tikhonov in return for getting Shell’s business. The only record that was disclosed was the Sovfracht schedule. Shell had agreed that, if the Sovfracht witnesses agreed to give evidence, Shell would not sue Sovfracht. I was told that Shell saw it as more important to pursue the allegedly corrupt trader than to pursue Sovfracht. Mr Ivanov, Mr Nenashev and Mr Loginov came to London to give their evidence. The statements of Mr Ivanchenko and Mr Gugkaev were admitted under the Civil Evidence Act. Their evidence may carry less weight as being untested by cross-examination. I should be alert to the possibility that there may be matters which these witnesses would not want to reveal even if they were being essentially honest as to Mr Tikhonov’s role. Secondly, I have no experience of how business is done in Russia and how companies and their shareholders operate. The usual touchstones by which I might judge commercial conduct in England are missing. Thirdly, I should keep in mind the difficulties which translation imposes. I was very conscious on re-reading some of the transcript of the possibility that in places the sense of what a witness had said might be somewhat different to what I was reading in English.

The evidence of Mr Ivanov was that in early 2007 Mr Tikhonov approached him with the concept that Sovfracht should pay a commission to TCL in return for services in easing the passage of oil wagons across the frontiers. Mr Ivanov said that he left the details to Mr Nenashev. Mr Ivanchenko’s evidence was that early in 2007 Mr Ivanov or Mr Nenashev called him to tell him that Mr Tikhonov was proposing a scheme whereby the price for transportation would be $2.5 higher per tonne, and Mr Tikhonov would get that money to solve problems with transhipment logistics. Mr Ivanchenko then instructed Mr Gugkaev, Caraline’s trader. Both Mr Ivanov and Mr Ivanchenko already knew Mr Tikhonov, Mr Ivanov as a friend and Mr Ivanchenko from trading. The operation was then left to be worked out between Mr Tikhonov, Mr Nenashev and Mr Gugkaev. Mr Nenashev said that he was in frequent contact with Mr Tikhonov by telephone and by e-mail as to the commission arrangements. No e-mails were provided.

I found Mr Ivanov somewhat vague on dates and detail, but he seemed otherwise a careful and convincing witness. Mr Nenashev came across unconvincingly and was uncomfortable in giving his evidence. It was difficult to get him to provide a straightforward explanation of what had been going on during the period when the commissions were being earned, and as to how the amounts were calculated. He was asked about the services which TCL were to provide. It seemed to me that the idea that Mr Tikhonov was to provide these logistical services when he was a trader in London was a nonsense and must be a sham reason for the commissions. (There is nothing to suggest that any money which went to TCL was in fact used to provide such services). But Mr Nenashev did not suggest or hint that it was a sham. He had stated in paragraph 14 of his witness statement that Mr Tikhonov would arrange for people to pick up the rail cars on the border, and he had spoken to two persons involved on the telephone. But in his evidence at the trial he said that those men worked for another carrier, Comsail, and had no connection with TCL: Day 4 page 45. Mr Nenashev said that he made a schedule of commissions, similar to the Sovfracht schedule, every month, and here I found him more convincing. It was he who had recorded his conversation with Mr Tikhonov about commissions in the autumn of 2008. He was convincing as to the circumstances.

I heard no evidence as to the arrangements involving Antos, Petrolux and Selberg other than what was provided in the Sovfracht schedule. But the position regarding the transactions with Shell was covered in the evidence, and that should be summarised.

An agreement was made between Sovfracht and STRU dated 2 December 2005. It was a framework agreement and did not define the services to be provided save in general terms, and it contained no prices. Those matters were to be covered in annexes to be agreed from time to time. So what it did was to set out the terms which would apply to business to be specified in an annex. No annexes were agreed and no transport services were supplied to which the agreement applied. A number of departments on either side would have been involved in finalising the agreement. The person primarily responsible for it being made with Sovfracht was Mr Tikhonov, who was then Shell’s trader in Moscow. It was extended on 19 December 2006 to run until 31 December 2007. It was effectively replaced by an agreement dated 23 May 2007 between Worldwide and STASCO. That ran until 31 December 2007 unless extended. It was a framework agreement. Addenda were agreed setting prices for rail transport of oil from particular loading points. Again a number of departments would have been involved on either side in finalising the terms of the agreement but the person primarily responsible for it being made was Mr Tikhonov. Likewise the prices in the addenda were those agreed by Mr Tikhonov, and he signed the addenda on STASCO’s behalf although not the agreement itself. Mr Tikhonov was the only member of the trading team or desk for fuel stocks in Europe with knowledge of rail transport within the FSU, and he was trusted by the team leader, Mr Girard. He was the only Russian speaker on the desk apart from Mr Nemkov who only joined in a junior capacity on 1 July 2007. Mr Nemkov did not involve himself in Mr Tikhonov’s trading, though when Mr Tikhonov was away he assisted with the post-contract operations. As he said: ‘[Mr Tikhonov’s] field was an opaque business and I did not get involved. I did not understand the logistics involved and there were no market price bench marks available to me.’ Mr Girard was cross-examined by Mr Tikhonov to the effect that Mr Girard could have checked whether the addenda prices were appropriate. Mr Girard had no reason to do that. It was also put to Mr Girard that he could have checked the prices at which Mr Tikhonov did his deals in oil and seen whether they were inflated. Mr Girard had no particular knowledge of the market within the FSU: provided the oil could be resold at a profit he and the other traders were happy. It was from the monies paid by Shell pursuant to the addenda that the commissions to TCL are alleged to have come.

A further agreement was made by STACSO which is dated November 2007. It was made with Sundar Development Limited. According to Mr Ivanov this came about because Mr Nenashev was in partnership with Vadim Tchigorinski, whose father Shalva Tchigorinski was then a major shareholder in Sibir. Mr Ivanov wished to keep Sovfracht’s connection with Sibir and the Moscow refinery, and was therefore willing to allow Mr Nenashev to take over Sovfracht’s relationship with Mr Tikhonov. Mr Nenashev was the sole beneficial owner of Sundar. He and Mr Vadim Tchigorinski were the beneficial owners of a company called Independent Firm Inc. Mr Nenashev stated that Sundar made the same commission payments to TCL as had been made by or on behalf of Worldwide, and that they were made through Independent Firm Inc to distance Sundar from TCL. He provided a list of payments between Independent Firm and TCL, which can be correlated with TCL’s bank statements. The dealings between Independent Firm and TCL and TCML were more complex than the simple payment of commissions, as Mr Nenashev explained in paragraph 23 of his witness statement. There was no documentation produced showing payments by Sundar to Independent Firm and therefore nothing save Mr Nenashev’s word to tie these payments to commissions on business with Shell. On the other hand it is unlikely that Mr Nenashev would volunteer further improper dealings if they did not happen. On any view there is nothing to connect the payments from Independent Firm with Mr Ivanov.

The accounts of TCL and TCML show a number of transactions apart from those which I have mentioned. They show a number of receipts from Dunsink which are not included on the Sovfracht schedule, totalling nearly $1 million. Mr Nenashev and Mr Ivanov did not know what those represented. They show receipts from a number of companies about which Mr Tikhonov said he knew nothing, as did Mr Ivanov. I refer to Ergani Holdings, Forum Transit Limited, Nordic Trade Ltd, Commercial Ventures Ltd and Harwood Consulting. If Mr Tikhonov is the beneficial owner of TCL and TCML, it is difficult to see what they might represent besides commission payments. But that is speculation. I am not concerned with those payments. Nor does Shell make any claim in respect of the monies which Mr Nenashev said had been paid to TCL by Sundar via Independent Firm. The account shows certain loans which Mr Tikhonov said he was instructed by Mr Ivanov that TCL or TCML should make. Some loan agreements were produced. The balance in the TCL account was transferred to the TCML account on 30 July 2008, and the TCML account was in effect emptied by a transfer to Selberg Products Limited of $5,916,047 on 29 September 2008, which was very shortly after Mr Tikhonov’s arrest. It is not known what happened after that. Selberg is a company which trades in oil and appears on the Sovfracht schedule.

It has been a matter of concern to me that there is so much that is not explained. However, whatever else may have been going on, I have only to decide the issue which I have set out in paragraph 17 above. My conclusion is that commissions were paid to TCL for Mr Tikhonov’s benefit, that he was the beneficial owner of TCL, and that the Sovfracht schedule is accurate as to how the commissions due were calculated by Mr Nenashev on behalf of Sovfracht, and, subject to the omission of the payment which appears to have been included twice, is sufficiently accurate as to the sums paid. I do not think that in the end there can be any doubt about Mr Tikhonov’s conduct.

My reasons are as follows:

I therefore find that Mr Tikhonov arranged for sums totalling $2,461,723 to be paid for his benefit into the account of TCL, and that these payments were agreed to procure contracts with his employer, STASCO, which contracts he was responsible for placing.

Principle 3 of the Statement of General Business Principles of STASCO, which formed part of Mr Tikhonov’s contract provided in part:

“The direct or indirect offer, payment, soliciting or acceptance of bribes in any form is unacceptable. Facilitation payments are also bribes and should not be made. Employees must avoid conflicts of interest between their private activities and their part in the conduct of company business.”

An employer may recover from his employee the amount of a bribe which the employee receives in connection with the employer’s business. He may alternatively recover compensation for such loss as he has sustained through entering into the transaction. I refer to Mahesan v Malaysia Government Officers’ Co-operative Housing Society Limited [1979] AC 374. STASCO had originally pleaded a claim for damages but that has been deleted by amendment. STASCO seeks simply to recover the amount of the bribes. The money was received by TCL and not by Mr Tikhonov. But it was received by TCL at his direction and for his benefit. The corporate veil cannot here stand as a barrier between STASCO and Mr Tikhonov, and Mr Tikhonov is to be held accountable as if he had received the money himself.

Mr Tikhonov may also be held accountable as a fiduciary, that is to say as holding the amount of the bribe and any property acquired with it on constructive trust for his principle, here his employer, STASCO. I refer among other cases to Attorney-General for Hong Kong v Reid [1994] 1 AC 324. In order for this to be an effective remedy it seems to me necessary for STASCO to identify money or other property to which the trust may apply. Unless the subject matter of the trust can be identified, the court cannot make a declaration of trust. For there is nothing on which it can bite, nor is any other equitable remedy available consequent on a trust. I am prepared to hear further submissions from Shell as to this, but as the evidence stands it seems to me that in respect of the 2007 payments Shell is simply entitled to judgment against Mr Tikhonov in the sum I have stated, together with appropriate interest.

The evidence in respect of the 2006 payments is simpler because it consists only of the payments and Mr Tikhonov’s explanation for them. There is nothing equivalent to the Sovfracht schedule and the supporting evidence from Sovfracht and Caraline. Between 1 February 2005 and 31 December 2006 Mr Tikhonov was employed in Moscow by STRU. He had initially two functions. One was to trade in oil FOB the Baltic coast. The other was to investigate and develop the possibility of purchasing oil within the FSU. That would bring Shell a step closer to the refineries and would cut out some middlemen. It involved Mr Tikhonov developing his contacts in the oil trading and oil transport businesses in Moscow, the FSU and the Baltic. Mr Tikhonov traded on FOB Baltic coast terms in 2005 and perhaps into early 2006. He did not continue because it appears that Shell had decided that no further such trading should be done from the Moscow office for tax reasons. The contracts which Mr Tikhonov negotiated were not put in evidence. I have already referred to the freight contract which Mr Tikhonov negotiated with Sovfracht dated 2 December 2005, and stated that this was a framework contract and that no business was actually done under it.

In his witness statement Mr Loginov said the 2006 payments were made to Mr Tikhonov on the instruction of Mr Ivanov senior (who died on 9 February 2007). It appears that this was a matter of deduction by Mr Loginov. He said that there was no surviving documentation instructing the payments. He could not provide the rationale for the payments. None of Shell’s other witnesses had personal knowledge as to the payments.

The 2006 payments were made into Mr Tikhonov’s accounts with HSBC in Jersey between 7 August and 27 December 2006. The sterling payments totalled £284,843 and the dollar payments totalled $252,856. All the payments were described on the statements as ‘as part of the fee under contract DD28’ or ‘….. DD20’, save one which was described simply as ‘as part of fee’. They were made by Dunsink.

Mr Tikhonov’s explanation for the payments was as follows. In about 2003 Mr Tikhonov had met Mr Alexander Morozov in Moscow. Mr Morozov works for Roza Mira, a crude oil processing company, in Russia. They became friends and it was through him that Mr Tikhonov became friends with the younger Mr Ivanov. At some point in 2005, probably in the summer, Mr Morozov suggested to him that they should invest in a plot of unbuilt land of about 0.7 hectare to the south west of Moscow. The price was $700,000. Mr Tikhonov provided one half. He borrowed it from his parents who provided it to him in cash from their home which was then in Lithuania. He drove to Moscow and gave the money to Mr Morozov. Later he provided a further $10,000 also in cash to pay for fees. He gave a confused and contradictory account of how he obtained that money: Day 7 page 75; compare his witness statement of 29 January 2010 where he simply said that he had the cash in his safe in his flat. He said that Mr Morozov showed him the registration document for the land, and that he had had a copy but could not now find it. The property was put into the name of a friend of Mr Morozov for tax reasons. After a year, in the summer of 2006, the property was sold for $1,500,000, the price being paid in cash. He saw no documents relating to the sale. He and Mr Morozov sat together and calculated what was due to him. Mr Morozov asked him if he wanted it in cash or by a bank transfer. He said a bank transfer. It was about $760/770,000. Mr Morozov told him it would take time to arrange the transfer. He had provided details of his account to Mr Morozov by e-mail. He said that Mr Morozov had told him that he had used his connection with their mutual friend, Mr Ivanov, to arrange transfer of the money by Dunsink: Day 7 page 53. Mr Ivanov denied that that had happened: Day 9 at pages 16 and 42. Mr Tikhonov then suggested to Mr Ivanov that the money might have come through Mr Morozov’s employer, Rosa Mira, and Dunsink in some other way, which threw doubt on his assertion that Mr Morozov had told him that he had utilised the services of Mr Ivanov.

On 4 March 2010 Kingsley Napley disclosed four e-mails between Mr Tikhonov and Yana Topunova. Mr Tikhonov said that Topunova was the maiden name of Mrs Morozov. Mr Ivanov confirmed that Yana was Mrs Morozov’s first name, but he did not know her maiden name. The first was dated 16 July 2006 and in it Mr Tikhonov gave the details of his sterling account with HBSC in Jersey. That was repeated on 4 August 2006. The first 2006 payment was a sterling payment on 7 August 2006. On 14 August Mr Tikhonov gave the details of his dollar account. The first dollar payment was on 26 October 2006. On 21 December 2006 he sent an e-mail saying that ‘Transfer is done 13 December 2737 GBP’, and he gave the payment reference. That ties in with a payment made from the account in the amount of £2,752. The difference is probably a fee of £15. The payment was to Dunsink. Mr Tikhonov said that it was made because he had been over-paid. The e-mail disclosure also contained one other e-mail from Mr Tikhonov to Yana Topunova. It is dated 8 April 2008 and relates to a loan agreement between TCML and Rogeon Limited, a British Virgin Islands company represented by Mr Igor Filimov. Mr Filimov was the trader at STASCO whose position Mr Tikhonov took when he returned to London from Moscow. Yana Topunova was evidently involved on behalf of Rogeon. The e-mail was not investigated in the evidence, so it does not help me as to who Yana Topunova is and as to what position or positions she held at the relevant times. The e-mails relating to the HBSC accounts are the only documents which may support Mr Tikhonov’s case.

Mr Tikhonov’s case was that he had borrowed the $350,000 from his parents in cash. It was unexplained why he had not repaid the money to them in cash provided by Mr Morozov instead of having it paid to him in Jersey. In his evidence he first said that the loan had been repaid by the purchase of the Riga flat: Day 7 page 60, 61. He was then shown his mother’s affidavit made in the contempt proceedings. She had there said that she had received repayment at the end of the summer in the sum of 300,000 euros in cash. After some prevarication he affirmed that he had repaid his parents in cash in euros. He said the money had come from Mr Hartmanis’ loan – which Teare J found to be a sham.

Mr Tikhonov said that Mr Morozov would not provide a statement because of concern as to the Russian tax authorities.

If Mr Tikhonov’s explanation for the monies related to a property transaction in England, it would be laughable. I am in the unhappy position of not knowing how credible it is in a Russian context. I do know that the rouble has in recent years had an unhappy history, and Russian banks also. In the circumstances I should not discount Mr Tikhonov’s explanation simply because it centres on cash deals in dollars. I should say that I have checked the amounts transferred using exchange rates for the dates of transfer and I reached a total of $797,489. The rates I used taken from the internet would not be those used by Mr Morozov if he was the origin of the payments. So there is no evident discrepancy there.

I have to view the 2006 payments against the background of the 2007 payments, and also Mr Tikhonov’s lies to Teare J. It is a very substantial coincidence that the payments were made by Dunsink like most of the 2007 payments. I thought that Mr Ivanov’s denial that he had been involved was something I should accept. I found Mr Tikhonov’s explanation as to the source of the $10,000 unconvincing. He was likewise in great difficulty as to how he repaid his parents. I do not think that I know enough about Yana Topunova for the Topunova e-mails to assist Mr Tikhonov very much, and their late disclosure throws doubt as to whether they are genuine.

My conclusion is that Mr Tikhonov’s explanation for the 2006 payments has been shown to be dishonest. It follows from this that they must be payments which he has received dishonestly in breach of his duty to his employers and are of the nature of bribes or secret commissions. For there can be no other reason in the circumstances for his having lied. It appears that they must have been paid on the instructions of Mr Ivanov senior, who was then the person who would authorise such payments: his son had not then taken up the position he now holds. They may have been paid in anticipation of business coming to Sovfracht under the framework agreement of 2 December 2005. They may have been paid in anticipation of Mr Tikhonov putting future business Sovfracht’s way. Or they may have been paid in connection with something that I know nothing about. The precise reason for the payments is ultimately immaterial. What matters is that I am satisfied that they were paid to Mr Tikhonov in return for him showing favour to Sovfracht and its associated companies in the course of his employment by Shell.

Mr Tikhonov submitted that he had signed a contract with STRU which was governed by Russian law, and he sought to rely on an opinion as to Russian law. It is possible that he did sign such a contract, but, if he did, it was in anticipation of the employees of STRU moving to Russian law contracts and was not to be put into effect immediately. For reasons which were explained, STRU did not transfer its employees to Russian law contracts while Mr Tikhonov was in Moscow, and if he did sign such a contract it was never counter-signed on behalf of STRU. No provisions of Russian law were pleaded and Mr Tikhonov had no permission to call expert evidence as to it. The opinion of Mr Aleksey Melnikov is to the effect that under Russian law Mr Tikhonov was entitled to have other work besides his work for STRU, and did not have to report that work or his income from it to STRU. It says nothing about bribes.

Mr Tikhonov’s contract with STRU was governed by Dutch law. By paragraph 4 of STRU’s Guidelines 2004, which formed part of the contract, a similar term was incorporated to that which I have quoted in respect of his contract with STASCO. No provisions of Dutch law are relied on, and I therefore assume that Dutch law is the same as English law. Nor has Latvian law been relied on.

It follows that STRU is entitled to recover from Mr Tikhonov the dollar and sterling sums constituting the 2006 payments. Here STRU has elected to treat Mr Tikhonov as a constructive trustee of those sums and to trace them into the Riga flat in order to secure a proprietary interest in the property. In a situation such as this Mr Tikhonov is assumed to have removed his own monies from the accounts in priority to the monies representing the trust monies, here the 2006 payments. That is the rule in Hallett’s case. It is necessary to examine the bank accounts to see what happened. I will identify the accounts by the last three figures of their numbers.

I will start with the sterling payments from Dunsink. The first payment of £66,168 was made on 7 August 2006. It was paid into account 285, the sterling current account. The next day £100,000 from this account was paid into account 550, the sterling serious saver account. The balance on that account was then £200,000. Of that £66,168 came from Dunsink, so £133,832 came from elsewhere. On 14 August £158,321 was paid into account 285. On the same day £100,000 was transferred to account 550, and on 15 August another £50,000 was transferred, bringing the balance on account 550 to £350,000. On 29 August £1,497 was paid into account 285, which then had a balance of £20,618. On 13 November £58,857 was paid into account 285, and £58,857 was transferred to account 071, an on-line saver account. That left a balance of zero in account 285. Meanwhile on 3, 6 and 7 November a total of £350,000 had been transferred from account 550 to account 071, leaving a balance in account 550 of £2,451 and making the balance on account 071 £375,754. In December credits totalling £60,000 were made to account 071, which cannot be related to the 2006 payments. The balance in account 071 was gradually increased by credits of interest until on 18 February 2008 it stood at £519,490. That balance was then transferred to account 285, the current account. The next day, 19 February, £493,025 was transferred to account 705, the euro current account, as 650,000 euros. That left £62,595 in account 285. With a transfer from the dollar account of 202,980 euros the balance on account 705 became 853,630 euros. On 20 February 720,033 euros were transferred to Latvia to purchase the flat, and on 21 February a further 80,033 euros were transferred. 33 euros in each case may represent bank charges making a total transferred to Latvia and used to purchase the flat of 800,000 euros. On 22 February a further 50,033 euros were transferred to Latvia. Shell make no claim in respect of that. The balance on the euro account was then 3,559 euros.

The first dollar payment was of $149,956 on 26 October 2006 into the dollar current account, account 706. That money was immediately transferred to a dollar on-line saver account, account 076, and was the first payment into that account. The second dollar payment was of $102,900 on 27 December 2006 into account 706. That money was immediately transferred to account 076, to give a balance in account 076 of $254,924. In August 2007 $31,000 was paid into account 076 which was not related to the 2006 payments. The balance became $294,244. With interest the balance had reached $298,950 on 11 February 2008, when it was transferred to the dollar current account, account 706, from which it went into the euro account, account 705, as 202,980 euros, as I stated in the previous paragraph.

The bank movements which I have set out make this a difficult tracing task. I have in mind that I am here exercising an equitable jurisdiction. It seems to me that Shell can say that the reality is that the 2006 payments have finished up in the Riga flat. The court should not be defeated by technicalities. It should try to do justice to the party wronged – Shell, while avoiding unfairness to the wrongdoer, Mr Tikhonov.

The solution I propose is to take the sterling and dollar amounts of the 2006 payments, add interest as they were transferred by Mr Tikhonov to interest bearing accounts, and to see how they contributed to the purchase price of the flat.

The sterling payments totalled £284,843, made between August and December 2006. The transfers to Latvia were in February 2008. I intend to add 16 months interest at 4.5% per annum which seems an average rate for the monthly credits of interest which were made to account 071. That gives interest of £17,090, which totals £301,933 when added to the sterling payments. Converted to euros at the rate used on 19 February 2008 that becomes 398,066 euros.

The two dollar payments totalled $252,856 made in October and December 2006. The interest rate on account 076 appears to vary between about 4 and 5% per annum, so I will again take 4.5% per annum, but here for a period of 15 months. That gives interest of $14,223, which totals $267,079 when added to the dollar payments. Converted at the rate used on 19 February 2008 that gives 181,340 euros.

The total euro sum from the two last paragraphs is 579.407 euros. The purchase price of the flat was 800,000 euros. So the beneficial interest which STRU can claim in the flat is 72.4 per cent rounded to the first decimal place.

It follows from my findings against Mr Tikhonov that Shell were entitled to dismiss him and that his counterclaim fails.

I should lastly record that Shell has obtained default judgments against TCL and TCML, and that nothing has been recovered under those judgments.