QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Strand, London, WC2A 2LL |
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B e f o r e :
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Claim no: 2005 Folio 534 Fiona Trust & Holding Corporation and 75 ors. |
Claimants |
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- and - |
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Yuri Privalov and 28 ors. |
Defendants |
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And in the part 20 proceedings between: |
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Yuri Nikitin and anr. |
Pt. 20 Claimants |
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and |
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H. Clarkson & Company Ltd |
Pt. 20 Defendant |
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Claim no: 2007 Folio 482 |
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And between: |
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Intrigue Shipping Inc. and 50 ors. |
Claimants |
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and |
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H. Clarkson & Company Ltd. and 8 ors. |
Defendants |
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And in the part 20 proceedings between: |
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Yuri Nikitin and anr. |
Pt. 20 Claimants |
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and |
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H. Clarkson and Company Ltd. |
Pt. 20 Defendant |
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Claim no: 2009 Folio 91 |
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And between: |
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Fiona Trust & Holding Corp. and 9 ors. |
Claimants |
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and |
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Dmitri Skarga and 3 ors. |
Defendants |
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Dominic Dowley QC
Justin Higgo
Simon Birt
Instructed by Ince & Co. for the Claimants in actions: 2005 Folio 534, 2007 Folio 482 and 2009 Folio 91.
Susannah Jones
Instructed by Stephenson Harwood for Mr. Dmitri Skarga
Steven Berry QC
Nathan Pillow
David Davies
Instructed by Lax & Co. for Mr. Yuri Nikitin and the Standard Maritime Defendants in actions:
2005 Folio 534, 2007 Folio 482 and 2009 Folio 91 and the Claimants in 2009 Folio 281 and the Part 20 claimants in 2005 Folio 534 and 2007 Folio 482.
Jern-Fei Ng
Instructed by Stephenson Harwood for Mr. Tagir Izmaylov
Hearing dates: 24, 25 and 28 February 2011
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Crown Copyright ©
Mr Justice Andrew Smith:
The Claimants' relief
"Claims are made in relation to the commissions agreed to be paid to Milmont in respect of Hyundai Hull Nos 1585 and 1586 and Daewoo Hull Nos 5272 and 5274 on the grounds that the share sale agreements entered into between Fiona and Standard Maritime have been rescinded ab initio by Fiona."
It is said that the premise of the claim is that the share sale agreements were rescinded ab initio and, since they were held not to have been, the pleaded claim must be dismissed.
i) The prices paid by Standard Maritime reflected the instalments that had already been paid to HHI and Daewoo. Thus, Standard Maritime paid for the shares in Pendulum and Titanium a premium of $2m over $9m, the first instalment of the price of hulls nos 1585 and1586 under the shipbuilding contracts with HHI (paras 918 and 966); they paid $11.58m for the shares in Accent, the amount paid to Daewoo as the first instalment of the price for hull no 5274 (para 588); and they paid $12.58m for the shares in Severn, a premium of $1m over the first instalment for hull no 5272 (paras 1005 and 1007).ii) The address commissions that the yards agreed to pay were reflected in a corresponding increase in the prices charged for the vessels (and, it is to be inferred, in each instalment of the prices): see para 1522.
iii) The address commissions were raised to fund the payments that Clarkson made to Milmont: see para 479.
Interest
"A "spread" or margin is normally added to LIBOR financing operations. A typical uplift for a long-term secured loan might be 1.25%. To give effect to the principle that arbitrators are to ascertain the cost of a short-term unsecured loan we recommend that members should award 2.5% over LIBOR as this would be a reasonable average rate to charge a reasonably creditworthy company for an unsecured loan. In special cases (depending on the credit worthiness depending on the plaintiff) a higher or lower uplift may be appropriate."
Costs as between the claimants and Mr. Nikitin and the Standard Maritime defendants
"The general rule is that the "unsuccessful party" will be ordered to pay the costs of the "successful party" (CPR44.3(2)(a)). Does this mean successful party on any particular issue or successful party in the litigation? As a matter of construction it must be the latter. Where the rule refers to part of a case or a particular allegation or issue it says so".
"Although bundled together in one phase of one trial, this is not a simplistic unitary action. It was really a whole series of trials of different alleged dishonest schemes based on different factual scenarios. … The true analysis is that there were many different pieces of litigation between different parties or groups of parties, relating to different allegations, and there were different successful parties in these different pieces of litigation".
"In deciding what order (if any) to make about costs the Court must have regard to all the circumstances, including-
(a) the conduct of all the parties;
(b) whether a party has succeeded on part of his claim, even if he has not been wholly successful;
and
(c) any payment into court or admissible offer to settle made by a party which has drawn to the Court's attention, and which is not an offer to which costs consequential under Part 36 apply".
In this case there was no such payment into court or admissible offer.
"The conduct of the parties includes –
(a) conduct before, as well as during, the proceedings…
(b) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;
(c) the manner in which the party has pursued or defended his case or a particular allegation or issue;
(d) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim."
"A more convenient method, while keeping in mind the issue based approach, is to assess all the costs together and then apply a proportion which reflects the fact that a party has won on some issues and lost upon other issues."
i) Mr. Frank, who was largely responsible for the conduct of the Fiona actions on behalf of the claimants, was, as I concluded in the main judgment, dishonest. I give two examples here: before bringing the proceedings, the claimants arranged for private investigators to examine the affairs of Mr. Skarga, Mr. Nikitin, Mr. Borisenko and Mr. Privalov: see paras 219ff. Mr. Frank dishonestly denied knowing about these investigations and any involvement with the investigators. (The defendants alleged that these investigations involved unlawful and illegal activities in different countries, including the United Kingdom, but I did not need to determine that.) Secondly, he dishonestly supported Mr Borisenko's untruthful account about Mr Skarga being party to bribing him: para 303.ii) Mr. Oskirko, part of whose duties as NSC's Vice-President of Corporate Affairs from December 2005 was to deal with the litigation on behalf of the claimants in the Intrigue action, also gave thoroughly dishonest evidence: para 317.
iii) As I explained at para 36, without any significant exception the claimants' witness statements were shown to be misleading. I could not rely upon the statements even of honest witnesses because their oral evidence departed so far from them. I do not accept that they ever gave the witnesses' real account of events. This affected the presentation of important issues at trial: see, for example, paras 254 and 1081.
iv) The claimants' disclosure was unsatisfactory, as I explained at paras 41-43. The claimants made and pursued allegations that were obviously unsustainable when proper disclosure was eventually made, often during the trial: see, by way of example, paras 1040 and 1404. The claimants made further disclosure of significant documents after the close of final submissions, as result of which a further hearing on 9 July 2010 was required.
v) The key witnesses called by the claimants gave dishonest evidence, in particular Mr. Borisenko and Mr. Privalov in the Fiona actions and Mr. Oskirko and Mr. Privalov in the Intrigue action. Mr. Popplewell submitted that I should distinguish between the conduct of parties and the conduct of witnesses, and I accept that CPR44.3(4)(a) refers to the conduct of "the parties". However, Mr. Borisenko was a member of Sovcomflot's Executive Board when the Fiona action was brought. Moreover, CPR 44.3(4) requires the Court to have regard to "all the circumstances", and I consider it relevant that the claimants' primary contentions of corrupt conspiracies were pursued almost entirely on the basis of dishonest evidence. Further, as I stated at para 1450, many specific allegations that had been pleaded and relied upon in the claimants' opening submissions were either not developed or not supported by evidence that survived cross-examination.
Mr. Skarga's costs
i) First, it is said that Mr. Skarga received bribes from Mr. Nikitin by way of family holidays and the provision of a credit card. I do not consider that this is a reason to refuse Mr. Skarga an order for his costs: I rejected the claim against him in bribery. The claimants referred to my observation at para 1355 that Mr. Skarga said in cross-examination that he would have considered it wrong to have accepted the holidays without making any repayment but that, as I concluded, in fact he did not repay anything like the cost of them. Although he had an instinct that it would be wrong to accept the holidays, Mr Skarga denied that he thought them an incentive for him to act in breach of his duty.ii) Secondly, the claimants rely upon my findings that Mr. Skarga acted dishonestly in dealings with Sovcomflot. For example, he dishonestly signed Mr. Privalov's employment contract (paras 1422-1425); he dishonestly signed the Supplemental Agreement (paras 1406-1421); and he acted dishonestly in collusion with Mr. Nikitin and Mr. Wettern in doing so. I did make findings of dishonesty against Mr. Skarga in some limited respects. This conduct on his part did not significantly affect the costs incurred in these proceedings and does not seem to me a reason for departing from the general rule.
iii) Thirdly, Mr. Skarga's evidence in the trial was in some ways dishonest: see para 1436. However, this untruthful evidence did not go to the heart of the allegations made against him. In very broad terms, on the central issues I preferred Mr. Skarga's account to the generally dishonest evidence given by many of the claimants' witnesses, including in particular Mr. Privalov and Mr. Borisenko. I observed at para 1435 that on a number of significant points the account in Mr Skarga's witness statements was corroborated by later disclosure given by the claimants.
iv) Finally, the claimants observe that on particular issues Mr. Skarga's submissions were rejected. This is entirely unsurprising given the scale and nature of this litigation. I do not consider that they were sufficiently significant to affect the costs order.
Basis of assessment
"The differences are two fold. First, the differences are as to the onus which is on a party to establish that the costs are reasonable. In the case of a standard order, the onus is on the party in whose favour the order has been made. In the case of an indemnity order, the onus for showing the costs are not reasonable is on the party against whom the order has been made. The other important distinction between a standard order and an indemnity order is the fact that, whereas in the case of a standard order the court will only allow costs which are proportionate to the matter in issue, this requirement of proportionality does not exist in relation to an order which is made on the indemnity basis. This is a matter of real significance. On the one hand, it means that an indemnity order is one which does not have the important requirement of proportionality which is intended to reduce the amount of costs which are payable in consequence of litigation. On the other hand, an indemnity order means that a party who has such an order made in their favour is more likely to recover a sum which reflects the actual costs of the proceedings…".
"(1) The court should have regard to all the circumstances of the case and the discretion to award indemnity costs is extremely wide.
(2) The critical requirement before an indemnity order can be made in the successful defendant's favour is that there must be some conduct or some circumstance which takes the case out of the norm.
(3) Insofar as the conduct of the unsuccessful claimant is relied on as a ground for ordering indemnity costs, the test is not conduct attracting moral condemnation, which is an a fortiori ground, but rather unreasonableness.
(4) The court can and should have regard to the conduct of an unsuccessful claimant during the proceedings, both before and during the trial, as well as whether it was reasonable for the claimant to raise and pursue particular allegations and the manner in which the claimant pursued its case and its allegations.
(5) Where a claim is speculative, weak, opportunistic or thin, a claimant who chooses to pursue it is taking a high risk and can expect to pay indemnity costs if it fails.
(6) A fortiori, where the claim includes allegation of dishonesty, let alone allegations of conduct meriting an award to the claimant of exemplary damages, and those allegations are pursued aggressively inter alia by hostile cross-examination.
(7) Where the unsuccessful allegations are the subject of extensive publicity, especially where it has been courted by the unsuccessful claimant, that is a further ground.
(8) The following circumstances take a case out of the norm and justify an order for indemnity costs, particularly when taken in combination with the fact that a defendant has discontinued only at a very late stage in proceedings:
(a) Where the claimant advances and aggressively pursues serious and wide ranging allegations of dishonesty or impropriety over an extended period of time;
(b) Where the claimant advances and aggressively pursues such allegations, despite the lack of any foundation in the documentary evidence for those allegations, and maintains the allegations, without apology, to the bitter end;
(c) Where the claimant actively seeks to court publicity for its serious allegations both before and during the trial in the international, and national and local media;
(d) Where the claimant, by its conduct, turns a case into an unprecedented factual enquiry by the pursuit of an unjustified case;
(e) Where the claimant pursues a claim which is, to put it most charitably, thin and, in some respects, far-fetched;
(f) Where the claimant pursues a claim which is irreconcilable with the contemporaneous documents;
(g) Where a claimant commences and pursues large-scale and expensive litigation in circumstances calculated to exert commercial pressure on a defendant, and during the course of the trial of the action, the claimant resorts to advancing a constantly changing case in order to justify the allegations which it has made, only then to suffer a resounding defeat."
i) Litigation on an enormous scale has been pursued against a private individual.ii) It is said that the claims against him were always speculative. It was not suggested when he left his employ with Sovcomflot that he had been dishonest or acted against Sovcomflot's interests. As I concluded at para 230, after a thorough, extensive and expensive investigation the claimants found no evidence of financial dealings between Mr. Skarga and Mr. Nikitin. Nevertheless, the claimants pursued wide-ranging allegations of dishonesty against him, and their case was described upon an interlocutory application by their solicitor as follows: "It is the claimants' case that Sovcomflot would not have done business with Mr. Nikitin's companies at all had it not been for the alleged bribes and other benefits provided by Mr. Nikitin to Mr. Skarga".
iii) As I have said, the litigation was pursued on the basis of dishonest evidence, including dishonesty on the part of Mr. Frank.
iv) Allegations were made against Mr. Skarga which were not pursued when proper disclosure was given: I gave one example at para 229, and see too para 1450.
v) Much of the evidence in the statements of the claimants' witnesses did not withstand cross-examination.
vi) The disclosure of the claimants was unsatisfactory. In many cases when a proper disclosure was made it demonstrated that accounts given by Mr. Skarga were true; I gave examples at paras 1404 and 1435.
Mr. Izmaylov's costs
i) A weak case was pursued against him, in which the claimants in the Intrigue action made wide-ranging allegations of dishonesty and claimed enormous sums. The claim in respect of the NSC time charter scheme was always particularly thin in view of NSC's procedures for sharing between executives responsibility for placing charters and the conclusions of the Sakovich Report.ii) The case was pursued on the basis of dishonest evidence of Mr. Privalov and of Mr. Oskirko, who was, with others, responsible for managing the litigation.
iii) There were serious allegations of impropriety made against Mr. Izmaylov which the claimants abandoned, including the allegations pleaded at para 10K of the particulars of claim (that he was "likely to have been aware of the corruption of Mr. Skarga, Mr. Borisenko and Mr. Privalov by Mr. Nikitin" while he was at Sovcomflot) and at para 10L (that before leaving NSC Mr. Izmaylov "had instructed NSC's Information Technology Department to delete information from the hard drive of his computer and from NSC's company server…"). Neither allegation was pursued at trial, nor, by way of further example, was the allegation concerning the Hotel le Richemonde fax (see paras 625 and 626). The case about the Sawyer commissions scheme as pleaded at the start of the trial, which was always very weak, had to be abandoned: paras 675 and 676.