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By John Helmer, Moscow

The UK High Court and the Court of Appeal have now ruled three times to dismiss almost eight years of legal claims by state shipping company Sovcomflot, adding up (with interest and costs) to about one billion dollars. On top, Sovcomflot’s chief executive Sergei Frank (image left, left, tree) has been judged by the British justices to have been personally dishonest; to have procured dishonest or perjured testimony; and last week in the Court of Appeal, to have pursued vindictive claims.

There are two ways for Sovcomflot to avoid the ignominy. The first is to keep appealing, and yesterday (March 11), the Sovcomflot subsidiary Novorossiysk Shipping Company (Novoship) did just that. The second is to persuade the maritime media internationally, and the Russian business media in Moscow, that nothing has happened. For the time being, the media being more susceptible than the judges, the news blackout is proving to be more successful.

Monday’s hearing in London was focused on one of the trickier bits of shipping business, in which shipping companies use brokers or agents to arrange the purchase of vessels, newly constructed at shipyards, and receive commissions for their role in this business, called address commissions. These are a standard practice. How much of the payments is a conspiracy by the agent or the fleet operator to defraud the fleet buyer varies from case to case, commission to commission. And that’s what Sovcomflot, Novoship and their UK subsidiaries (Fiona Trust, Intrigue Shipping ) have spent years trying to get the British courts to accept.

Last week the UK Court of Appeal upheld the earlier rulings by High Court Justice Sir Andrew Smith dismissing most of Sovcomflot’s claims. Here is that story.

The 3-judge appeal panel – Lord Justices Sir Andrew Longmore, Sir Colin Rimer, and Sir Stephen Tomlinson – convened a separate hearing yesterday in order to hear the appeal by the Novoship group of companies (including Intrigue) against Smith’s ruling that the group was not entitled to recover from its targets the money it had spent on suing them.

Asked by the court to explain what had happened, Dominic Dowley QC, advocate for Novoship, said that Yury Nikitin, the former fleet charterer for the Sovcomflot and Novoship group, defended his commission payments on the basis that “he was entitled to reach an arrangement with the brokers, whereby they would agree to pay him commissions on the business that they did from me [Novoship, Intrigue] , as he was instrumental in some way of obtaining that business or whatever it was.” Because the High Court had upheld the legality of the larger part of these commissions, dismissing the allegation they were frauds, Nikitin, represented by Stephen Berry QC, has argued the High Court made no error in principle, in law, or on the evidence not to award the costs Novoship is claiming.

Dowley argued yesterday that Novoship had won enough of the claims against Nikitin and the brokers to warrant receiving costs. While the arithmetic of the claims dismissed and claims paid was argued in some detail, Dowley admitted the difficulty of accounting numerically for who had won, who had lost. “It is not entirely easy,” he conceded, “to see the extent to which I [Novoship] won and I lost from the documents, as you may have seen… in the Intrigue [Novoship] proceedings there were essentially four areas of claim, and I lost on two of them and I won on two of them.”

As happened during last week’s Court of Appeal hearing, the three judges expressed open scepticism towards the Sovcomflot-Novoship claims. According to Rimer, “you don’t normally receive indemnity costs merely because the claimant brought them forward, do you?..I know it is commonly asked for, I didn’t know it was commonly granted.”

Longmore reminded the lawyer that the Sovcomflot group had been already been judged to have been at fault, and claiming costs for a partial success was dubious. “If it was an innocent person charging somebody with fraud successfully, one understands that…If you have people who are in pari delicto [equal fault], it might be rather different.”

Sovcomflot has yet to issue a public statement on the appeal court proceedings, or on last week’s dismissal. The company is reported by Kommersant today as saying “the official position on the matter would be announced later.” Novoship maintains its own website. It too is ignoring the London court case.

According to Dowley for Novoship, in the High Court case Justice Smith had made an error in failing to differentiate between the conduct of Sergei Frank, the chief executive of the Sovcomflot group, and Vladimir Oskirko, chief executive of Novoship when the litigation started. “It’s my submission,” Cowley said, “that the learned judge failed to distinguish between the conduct of the Fiona and Sovcomflot claimants on the one hand, and the conduct of the Intrigue claimants on the other.”

This claim then triggered a recital in court of the earlier High Court rulings that Frank had been dishonest. For the detail and the verbatim judgement on Frank, click here.

Dowley did not defend Frank, nor dispute the judgement against him. Instead, he argued that Frank had not been responsible for the “conduct of the Intrigue action and in fact… that was Mr Oskirko’s responsibility… The two groups merged in December 2007, which was some time after the actions had been brought.”

Berry for Nikitin told the appeal court the distinction between Frank and Oskirko was false. The two cases were, he argued, “run together and were, as I put it, two peas in the same pod and dependent upon each other…So it was when Sovcomflot merged and took control of Novoship, under the tutelage, under the directorship of Mr Frank, with his legal committee Mr Mednikov, that is when it was that the time charter allegations were added, and that the conspiracy against Mr Nikitin were introduced. My Lord, not only were they carbon copies, not only was the Novoship claim parasitic in large part upon the Sovcomflot claim, but the claimants themselves avowedly relied on the allegations in Fiona [Sovcomflot] to prove the allegations in Intrigue [Novoship].”

It was unclear from Novoship’s presentation exactly how much in costs it wants if it wins this appeal. According to Dowley, the percentage share of its success has been small. “The extent of the success, if one is doing it that way, is probably about 28 per cent. So it is still well less than 50 per cent, but it is not 12 per cent.”

According to Mike Lax, the lawyer coordinating Nikitin’s appeal, “the sums involved are probably less than $10 million, a small fraction of the sums originally in dispute and indeed of Mr Nikitin’s own claim against Sovcomflot.”

As he did last week, Justice Longmore critized the appealing lawyer for attempting to retry the old case on the facts, and come up with an outcome which has already been dismissed. “I am not quite sure where these submissions are fitting in. They don’t sound like submissions that the judge was erring in principle, they sound more like submissions if one did think that he had erred in principle, what one might do consequentially.”

Remarks by Longmore point either to dismissal of the appeal altogether; or to an order asking Justice Smith to reconsider the evidence and claims. The appeal court is reluctant, according to Longmore, “to exercise a discretion afresh in a case like this when the judge took 74 days to hear the trial, conduct the trial, and months to write his judgment. One view might be that it is really quite impossible for us to exercise a discretion afresh in a case like this.”

According to Lax for Nikitin, the case “has been on-going for nearly 8 years. With interest and costs, the Sovcomflot claims would have exceeded $1 billion. Today’s proceeding was only an appeal by Novoship, not Sovcomflot, in respect of Novoship’s costs. This was presumably because Sovcomflot recognised that any attempt on its part to appeal the costs order was doomed to fail in view of the damning indictment of its conduct of the litigation by Justice Smith, as well as the fact that it lost on most of the claims that it brought.”

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