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By John Helmer, Moscow

A three-judge panel of the UK Court of Appeal has unanimously dismissed a claim by the Sovcomflot subsidiaries, Intrigue Shipping and Novorossiysk Shipping Company (Novoship), for court and legal costs against former fleet charterer Yury Nikitin (second image). Endorsing the earlier judgements of High Court Justice Andrew Smith, the new ruling says the dishonesty of Sovcomflot and its chief executive, Sergei Frank (third image), in making their case against Nikitin balances Nikitin’s dishonesty in conducting his business with the group. For that reason, the Court of Appeal has decided the fair outcome must be that each side should pay its own legal expenses. In addition, for the cost of reaching this conclusion all over again, Nikitin — says his lawyer — has won the appeal court’s order that Sovcomflot should pay his lawyers’ charges.

Sovcomflot has yet to issue an official response to the new judgement, which was decided early in the month and released publicly in London last week. Until now Sovcomflot’s financial reports have been claiming “it is possible that further assets may be recognised in the future in relation to the outcome of the Intrigue [Novoship] costs appeal.”

How much the new judgement will cost Sovcomflot isn’t clear. The latest financial report from Sovcomflot for the quarter ending March 31 indicates “receivables under High Court judgement award” of $3.2 million. The amount reportedly owing to Sovcomflot from the UK court proceedings for all of 2012 was $9.3 million (see page 12). No liabilities or contingent costs are recognized in the report in the event the UK judgements went against Sovcomflot.

According to Mike Lax, spokesman for Nikitin, “the figures for costs were never finalised — they would only have been assessed after Novoship [Intrigue] had succeeded in getting an award of costs, which they failed to do. Similarly, the costs awarded in favour of Nikitin on appeal now have to be agreed or assessed by the court. But the costs of appeal will be small compared with the costs of the main action which Novoship were claiming. They would have amounted to millions of pounds because the trial was over many months and was very complicated. The costs of appeal will be much less.”

Lord Justice Sir Colin Rimer wrote the 17-page judgement of the court for Lord Justice Sir Andrew Longmore and Lord Justice Sir Stephen Tomlinson. The hearing of the appeal was on March 11 this year. The Sovcomflot group was appealing against two judgements issued by High Court Justice Andrew Smith on December 9, 2010, and March 24, 2011.

Smith had ruled that Nikitin had been dishonest on several counts charged by Sovcomflot, and was ordered to pay costs and compensation. Of four claims by Intrigue, an operating company for Novoship, two succeeded, and Nikitin was ordered to pay $26.4 million, plus interest; two of the claims were dismissed by the judge. The appeal was pursued by the Sovcomflot group’s lawyers in an attempt to recover partial costs which had been denied by Justice Smith. He had ruled that chief executive Frank had also been dishonest, as were other Sovcomflot witnesses and evidence in court. For that reason, and because Nikitin was required to pay partial compensation, Smith ruled it would be fair for each side to bear its own legal fees and expenses.

The Court of Appeal has now agreed, dismissing the Novoship claim for more money. According to Rimer, “courts do not look sympathetically on dishonest litigants”. Smith was right to dismiss the additional costs claim from the Sovcomflot group, Rimer has judged, “(i) because the claimants failed in their primary case, and (ii) because of the conduct of the claimants before and during the proceedings.” Frank, Rimer quoted from the initial High Court rulings, had been “largely responsible for the conduct of the main Fiona [Sovcomflot] actions on behalf of the claimants, [and] was… dishonest… 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.”

Nikitin had been crooked too, according to the High Court rulings and now the appeal court judgement. Rimer, again quoting from Smith with approval: “The main judgment explains the nature and extent of his [Nikitin’s] dishonesty in his dealings with Sovcomflot and Intrigue, and it shows the extent of his dishonest evidence. I need not list all the relevant findings: he paid substantial bribes to Mr Privalov, including payments under sham agreements, and, while it was not possible from the evidence to discern the reason for all the payments, he secured Mr Privalov’s assistance in conducting the dishonest commissions schemes; he was party to creating forged and back-dated documents and to other dishonest devices; and his evidence on many matters was shown to be dishonest, both in relation to the commissions claims and about other schemes where the claims were dismissed.”

Rimer wound up: “there is here no basis for any conclusion that the judge [Smith] erred in principle in making the order he did.”

Longmore added: “There was no error of principle nor any reason to suppose that the judge had not taken relevant considerations into account. A judge who conducts a 76 day trial is inevitably far better placed than this court to make a proper assessment of the incidence of costs. Mr Dowley [advocate for Intrigue and Novoship] assumed a very difficult burden in seeking to displace the judge’s discretion and in the event has, not surprisingly, been unable to discharge it.”

Still to come before the 7-year litigation by Sovcomflot concludes is a decision by the Supreme Court, Britain’s highest judicial panel, on whether to hear a further appeal against Smith’s judgements. The latest ruling by the appeal court judges makes this unlikely. Nikitin is also appealing a separate judgement by High Court Justice Christopher Clarke against him for corruption in dealings with Novoship. Details of that case can be read here. Sovcomflot says Nikitin has had to put $138 million in security with the court in case his appeal is dismissed.

There is also a pending claim by Nikitin against Sovcomflot for $184.1 million in losses he says he suffered while his assets were frozen during the litigation. Sovcomflot has reported to shareholders that the amount is “speculative and the likelihood of this claim being successful is remote.”

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