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scf_loses

By John Helmer, Moscow

The British Court of Appeal has issued a ruling to deny the Sovcomflot group and its Novoship subsidiary the right to appeal a corruption judgement to the Supreme Court, the highest of the British courts. The judgement puts an end to nine years of attempts by Sovcomflot group chief executive Sergei Frank and Russian government officials to have the British courts convict Yury Nikitin, their former chartering partner, of bribery and corrupt profiteering in the business of shipping oil.

Sovcomflot started with a claim for recovery of about $880 million in profits Nikitin had made as a charterer of Sovocomflot and Novoship oil tankers between 2000 and 2004. A series of UK court judgements commencing in December 2010 and concluding this week, dismissed most of the claims for lack of proof, as well as for lack of legal foundation. Nikitin has been ordered to pay back $61.3 million, and Sovcomflot to pay out more than $30 million in costs and penalties, not counting its own litigation costs of more than $50 million. In the process of the attempt to prove Nikitin corrupt, the courts in London have judged Frank to have been dishonest and vindictive. The courts have also judged Nikitin to have been dishonest. “Mr Nikitin knew,” the Court of Appeal ruled on July 4, “not merely that he was negotiating with a man who had received bribes but also that he (Mr Nikitin) had been a beneficiary of part of those corrupt payments.”

The judgements against Nikitin can be sampled here. Between December 2012 and this week, Nikitin has had his Novoship corruption bill cut by the courts from $108.2 million to $410,304.39. The liabilities of Novoship and the Sovcomflot group have multiplied concomitantly.

longmoreIn the ruling issued this week the Court of Appeal ordered Novoship to pay Nikitin 20% of his costs starting from the first hearing on the Novoship claims in June 2011; plus 40% of Nikitin’s costs for the Court of Appeal proceeding since December 2012. The fractions have been decided because the Court of Appeal has accepted the lower court assessment that Nikitin’s transactions weren’t innocent. “[Nikitin]”, wrote Lord Justice Sir Andrew Longmore (right), “made large profits because he judged the market well but that does not alter the fact that the source of those profits was the chartering of vessels through a bribed agent by his company when he, via another company, was the beneficiary of the bribe.”

According to the now final judgement of the Court of Appeal, “corruption rots the entire business relationship between principals once the agent through whom negotiations are conducted is known to have taken bribes. That is so even if the bribes are given by a principal to other transactions, but the bribes are known about (and shared in) by the parties to the transactions in question.” Notwithstanding, “since the ship owning companies [Novoship] wished to avoid the risk of fluctuating rates for freight, and wished to secure a long term income, they necessarily wished to lay off the risk on to the charterer. Thus the profits that Mr Nikitin in fact made were the kind of profits that the ship owning companies deliberately decided to forgo. In our judgment they cannot be described as profits which ought to have been made for the beneficiary, and therefore they fall outside the rationale for the ordering of an account [repayment].”

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The Supreme Court reserves for its decision issues of law, not of fact. An earlier attempt by Sovcomflot to reverse its losing streak was dismissed by the Supreme Court in October 2013.

Next week Nikitin’s lawyers will be in the UK High Court to argue that he should recover $184 million from the Sovcomflot group as compensation for the freeze of his assets and bank accounts during the lengthy court proceedings.

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