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By John Helmer, Moscow

Sovcomflot, Russia’s state-owned shipping company and one of the largest oil and gas tanker operators in the world, has today been ordered by a London court to pay compensation of $70 million, plus legal costs, to Russian shipowner and Sovcomflot’s former charter partner, Yury Nikitin.

The penalty, imposed by Justice Sir Stephen Males of the High Court, has been imposed after the judge ruled that Sovcomflot’s chief executive, Sergei Frank (lead image) and his company, had fabricated evidence in the case, given dishonest testimony in court, and improperly frozen hundreds of millions of dollars of Nikitin’s funds for years. Frank and Sovcomflot were judged to have been more culpable than the court’s findings that Nikitin had been dishonest to win new vessel and tanker charter business.

In a judgement released on October 7, Males put an end to a sequence of court actions and appeals which commenced in 2005, and have subsequently gone through the High Court, the Court of Appeal, and the Supreme Court, and been reviewed by almost a dozen of the most senior judges on the British bench. The penalty puts a stop to eleven years of what one judge called Frank’s “vindictive claim”.

In an earlier ruling on August 26, Males declared that Frank and his company should be punished and Nikitin (pictured below, left) compensated for what had happened. “The potentially devastating consequences of a freezing order have often been recognised,” ruled Males. “It is only just that those who obtain such orders to which they are not entitled, a fortiori when they are guilty of serious failures to disclose material facts and have pursued claims described by the trial judge as ‘obviously unsustainable’, should be ordered to provide appropriate compensation for losses suffered.”

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From left to right: Yury Nikitin, Dmitry Skarga,Tagir Izmaylov

Read this for more details of the case, which also exonerated and compensated Dmitry Skarga (above, centre), the chief executive of Sovcomflot whom Frank ousted; and Tagir Izmaylov (right), chief executive of Novorossiysk Shipping Company (Novoship), which Frank forced into a merger with Sovcomflot. The rulings of Frank’s misconduct against Skarga can be opened here. Notwithstanding, Sovcomflot has asked Russian state prosecutors to keep open charges against Skarga which have been dismissed in the UK. The August 26 judgement can be read in full.

According to today’s judgement from Males, until the Sovcomflot lawsuit intervened Nikitin had been planning to invest $556.8 million in new tanker construction. By freezing his money and depriving Nikitin of the opportunity to make a regular business profit, Sovcomflot is liable now to compensate Nikitin for the return he would have earned on building, then selling the new tankers over the period of the freeze; plus a 5% return on funds invested; less the bank interest Nikitin’s frozen money earned over the same period. Males also ordered Sovcomflot to pay Nikitin interest of 3-month LIBOR plus 2.5% on the value of the penalty compensation during almost six years of Frank’s unsuccessful court appeals since the first judgements against Sovcomflot were issued.

A London shipping source commented: “Sovcomflot’s motto at sea is Safety Comes First. But in court it has spent years with high-risk, high-cost claims it has lost. Almost six years of unsuccessful appeals have now added millions in interest to the bill.”

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Sovcomflot has until October 14 to decide whether to attempt another appeal. High Court lawyers say the Males judgements leave no point of law to argue, so the Court of Appeal is likely to reject an application.

To save his job in Moscow, Frank has managed to suppress reporting of the judgements in the Russian press. Frank also attempted to pressure the Russian Foreign Ministry into withdrawing the accreditation of a journalist for reporting the case in the international maritime press.

At one time too, Frank ordered Sovcomflot funds for lawsuit threats against Fairplay,Снимок2 a leading London-based maritime publication, to deter and discredit reporting of his management operations. Rupert Earle (right), a London solicitor engaged on Frank’s order, charged that Fairplay might be liable for inaccurate reporting on the London litigation. “In particular,” Earle wrote in 2011, “Fairplay suggested that Sovcomflot and Mr Frank had sought to mislead potential investors by concealing, extraordinarily (it was said) a significant likelihood that Sovcomflot would lose the litigation against [Mr] Skarga and [Mr] Nikitin.”

In Sovcomflot’s latest financial report, in a note on contingencies and legal liabilities, the company reported Nikitin’s compensation claim in the High Court , adding: “management is of the opinion that the defendants [Nikitin and his companies] will more likely than not fail in their claim.” That was issued on August 23. The Males judgement against Sovcomflot came three days later. His order for Sovcomflot to pay compensation — $70.8 million, plus $2 million in costs – will almost halve the $166 profit Sovcomflot reported on its shipping business in the first six months of this year.

Frank’s blackout began to lift in Moscow last week with reports on Echo Moscow radio , and in an investigative law website, Legal.Report.
Sovcomflot has been unable to make an initial public offering (IPO) and sell a bloc of its state-owned shares on the London, New York and Frankfurt markets during the litigation, as the company’s operations also suffered financially from the collapse of oil prices and tanker rates, and sank into loss.

American shipping sources speculate that Frank, who celebrated his 56th birthday in August, may be pushed into early retirement to pave the way for Sovcomflot to make a fresh start at cultivating London investors next year. Frank has conceded that tanker rates, sanctions, Brexit, and the UK court judgements are “additional obstacles”.

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