England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		07/10/2016

Mr Justice Males :

1. I deal now with the calculation of the damages payable to the defendants which the parties have been unable to agree following delivery of my judgment dated 26 August 2016 ([2016] EWHC 2163 (Comm)).

The notional resale proceeds

2. The first issue is as to the amount of the notional resale proceeds which would have been available for investment with Wegelin (see [116(b)] of the judgment).
3. It was agreed between the parties' experts that the total cost of the defendants' newbuilding programme would have been US $556.82 million, i.e. US $554 million plus supervision costs of US $2.82 million. (The brokerage costs of around 2.39% referred to at [102] of my judgment would have been costs of the resale and not of the purchase; they have been taken into account in the calculation of the defendants' profit and need not be further considered here).
4. The defendants' case at trial was that they would have funded this programme by using (1) the US $208.5 million frozen by the 2005 Order and paid into their solicitors' account and (2) US $249.3 million held in accounts at Wegelin. This would have left a shortfall of US $99.02 million. It was the defendants' case, which I accepted (see [115]), that this shortfall would have been funded by using the proceeds received from the resale of earlier vessels in the programme to fund the delivery instalments on later vessels. It follows that earlier resale proceeds applied in this way would not have been available for investment at Wegelin from February 2009.
5. Accordingly the amount of the notional resale proceeds available for investment is US $ 552.16 million, calculated as follows:

Agreed purchase cost	US $556.82 million
Plus profit as per judgment	US $ 94.36 million
Less proceeds used to fund purchases	US $ 99.02 million

6. The defendants do not accept the deduction of US $99.02 million but I can see no answer to the claimants' submission that these funds would not have been available for investment at Wegelin.

The rate of return on funds at Wegelin

7. The next issue concerns the return which would have been earned on funds held at Wegelin over the period from February 2009 to December 2010. The defendants held a number of accounts, some in the name of Standard Maritime and others in the name of other individual subsidiaries of Standard Maritime. The rates of return varied for each account over the relevant period depending on how the funds in each account were invested.
8. The defendants say that the returns earned by two companies, Accent and Severn, are the most representative of the returns which would have been earned on the notional proceeds of resales of the newbuildings for which the defendants would have contracted. The funds in the Accent and Severn accounts (1) represented the proceeds of Mr Nikitin's previous newbuilding programme, (2) were held continuously over the relevant period, and (3) earned a total return of about 7% over that period. In contrast, they say, the amounts held in accounts in the name of Standard Maritime fluctuated from time to time as those accounts were used for trading purposes and for the payment of other expenses, making the calculation of an overall investment return more difficult.
9. While it may be that fluctuations in the account render the calculation more difficult, it does not appear to be in dispute that the calculation can be done. The claimants have done that calculation and say that it results in an investment return over the relevant period of about 3%. Although the defendants have not disclosed the result of any comparable calculation which they have done, it is safe to conclude that they have reached at least a broadly similar conclusion.
10. While the defendants submit that the returns earned by Accent and Severn are more representative of the returns which the defendants would have earned, the claimants submit that the relevant loss was suffered by Standard Maritime and that it is only the Standard Maritime accounts which are relevant for the purpose of assessing the investment return on the notional resale proceeds.
11. I do not accept either party's submission. It is impossible to say precisely how the resale proceeds would have been invested. Any conclusion that they would have earned a return equivalent to either (1) those earned by Accent and Severn or (2) those earned by Standard Maritime would be speculative to some extent. What can safely be said is that the return earned is very likely to have been somewhere between 3% and 7%. In my view the appropriate course, applying the "liberal but fair" approach referred to at [49] to [51] of the judgment, is to take a figure midway between the two, namely 5%.

The defendants' damages

12. Accordingly the damages to which the defendants are entitled are US $59.8 million, calculated as follows in accordance with [116] of the judgment:

Profit on newbuildings	US $94.36 million
Plus investment return (5% of US $552.16 million)	US $27.61 million
Less in fact earned	US $33.50 million
Less return not earned on Wegelin funds	US $28.67 million

Interest

13. It is agreed between the parties that the defendants are entitled to pre-judgment interest on these damages at the rate of 3 month LIBOR plus 2.5%, compounded quarterly, with interest running from 18 December 2010; and that post-judgment interest should continue at the same rate but should be simple rather than compound interest.