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Wills & Trusts Law Reports

Cadogan Petroleum plc & Ors v Mark Tolley & Ors [2011] EWHC 2286 (Ch)

WTLR Issue: November 2015 #154

CADOGAN PETROLEUM PLC

CADOGAN PETROLEUM HOLDINGS LIMITED

LLC ASTROINVEST-UKRAINE

US ENCO UKRAINE

LLC CADOGAN UKRAINE

COLBY PETROLEUM LIMITED

LLC GAZVYDOBUVANNIA

LLC ASTROINVEST-ENERGY

JV KOLOMIYSKA NAFTO GAZOVA KOMPANIYA DELTA

OJSC AGRONAFTOGASTECHSERVICE

V

MARK TOLLEY

MARKSMAN INTERNATIONAL LIMITED

NATURAL RESOURCE LIMITED

VASYL VIVCHARYK

VPV OIL INVESTMENTS LLC

SMITH EURASIA LIMITED

VLADIMIR SHLIMAK

SONICGAUGE INC

GLOBAL PROCESS SYSTEMS LLC

GLOBAL PROCESS SYSTEMS INC

CLINT ELGAR

ANTHONY WRIGHT

WAYNE GORANSON

AOE ENERGY INC

PHILIP MARCH

OLGA KONOSHCHUK

RIBELANT LIMITED

VITALIY PODOLYAKA

BOHAI ENERGY SERVICES LIMITED

SC INVEST POINT CONSULTING GRUP SRL

Analysis

The claimants, who were a group of companies engaged in the business of exploration and exploitation of gas reserves in Ukraine, brought claims against, inter alia, the fourth and fifth defendants (Vivcharyk defendants), respectively the former chief operating officer and the company controlled by him, in relation to alleged bribes or secret commissions which, directly or indirectly, they received in connection with commercial contracts for the supply or acquisition by the Cadogan Group of drilling equipment and services, two gas plants and a company. Proceedings were issued on 19 June 2009 and, on the same day, without notice worldwide freezing injunctions were granted against the Vivcharyk defendants. The relief sought included declarations that such bribes or secret commissions or their traceable proceeds were held on constructive trust for the claimants. The present applications included the question whether those proprietary claims should be disposed of summarily and related parts of the freezing injunctions deleted.

Held (granting the application):

The Court of Appeal decision in Sinclair Investments (UK) Ltd v Versailles Trade Finance Group plc [2011] WTLR 1043 rendered the proprietary claims advanced by the claimants unsustainable and, as a result, the Vivcharyk defendants were entitled to summary judgement in respect of those claims and the proprietary elements of the freezing injunctions deleted. The question for the court, where an agent or employee accepted a bribe or secret commission, was whether his principal or employer beneficially owned that bribe or secret commission. It had been previously held in the Court of Appeal in Lister & Co v Stubbs (1890) LR 45 Ch D 1 that bribes which an employee had taken from suppliers to his employers were not held on trust for the employers. However, the Privy Council had come to the opposite view in Attorney General for Hong Kong v Reid [1994] 1 AC 324 and concluded that properties brought with bribes which a prosecutor had accepted in breach of fiduciary duty were held on trust for the Crown. Lord Neuberger, MR (as he then was) considered that there was a real case for saying that the decision in Reid was unsound and that the court was bound to follow Lister & Co v Stubbs (1890) LR 45 Ch D 1. There was a fundamental distinction between (i) a fiduciary enriching himself by depriving a beneficiary of an asset and (ii) a fiduciary enriching himself by doing a wrong to the beneficiary. A beneficiary of a fiduciary’s duties cannot claim a proprietary interest (but was entitled to an equitable account) in respect of any money or asset acquired by the fiduciary in breach of his duties to the beneficiary, unless the asset or money is or has been beneficially the property of the beneficiary or the trustee acquired the asset or money by taking advantage of an opportunity or right which was properly that of the beneficiary. In general, bribes or secret commissions were not money which formed part of the assets subject to the fiduciary’s duties or were otherwise derived from such assets. Moreover, it could not be said that the bribes and secret commissions in this case were acquired by taking advantage of an opportunity or right which was properly that of the beneficiary. Instead, a bribe or secret commission should be seen as something the fiduciary obtained by doing a wrong rather than by depriving the beneficiary of an opportunity. Even it could be shown that the alleged bribe or secret commission was paid from funds which could be tracked back to money which had once belonged to the claimants, it would make no difference in this case because none of the contracts in question were rescinded and, in both circumstances, they could not assert any proprietary interest in the money which they paid pursuant to those contracts – it had become the payees’ rather than their money both at law and beneficially and, it followed, that any bribes or secret commissions paid from sums derived from those payments was not money belonging to the claimants. Accordingly, the claimants had no real prospect of success in their proprietary claim and, therefore, the Vivcharyk defendants were entitled to summary judgement and deletion of the proprietary elements of the freezing injunctions.

JUDGMENT NEWEY J: [1] A variety of applications came before me in July. Some of them have been adjourned or otherwise dealt with by agreement. The matters that remain to be decided at this stage can be summarised in broad terms as follows: i) Should certain proprietary claims made by the claimants be disposed of …

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Counsel Details

Mr Richard Morgan QC (7 Stone Buildings, Lincoln’s Inn, London WC2A 3SZ, tel 020 7406 1200, e-mail clerks@maitlandchambers.com) and Mr Thomas Munby (7 Stone Buildings, Lincoln’s Inn, London WC2A 3SZ, tel 020 7406 1200, e-mail clerks@maitlandchambers.com) instructed by Dewey & LeBoeuf LLP (1 Minster Court, Mincing Lane, London EC3R 7YL, tel 020 7459 5000) for the claimants.

Mr Richard Millett QC (24 Lincoln’s Inn Fields, London WC2A 3EG, Tel 020 7813 8000, e-mail clerksroom@essexcourt.com), Mr David Davies (24 Lincoln’s Inn Fields, London WC2A 3EG, Tel 020 7813 8000, e-mail clerksroom@essexcourt.com) and Mr Anton Dudnikov (24 Lincoln’s Inn Fields, London WC2A 3EG, Tel 020 7813 8000, e-mail clerksroom@essexcourt.com) instructed by Holman Fenwick Willan LLP (65 Crutched Friars, London EC3N 2AE, tel 020 7264 8000) for the fourth and fifth defendants.

Cases Referenced

Cases in bold have further reading - click to view related articles.

  • Attorney General for Hong Kong v Reid [1993] UKPC 2
  • Daraydan Holdings Ltd v Solland International Ltd [2004] EWHC 622 (Ch); [2004] WTLR 815
  • El Ajou v Dollar Land Holdings Ltd [1993] EWCA Civ 4
  • Halton International Inc v Guernroy Ltd [2006] WTLR 1241
  • Hovenden and Sons v Millhoff (1900) 83 LT 41
  • Lister & Co v Stubbs (1890) 45 Ch D 1
  • Metropolitan Bank v Heiron (1880) 5 Ex D 319
  • Paragon Finance Plc v D B Thakerar & Co (a firm) [1998] EWCA Civ 1249
  • Re Caerphilly Colliery Company (Pearson's case) (1877) 5 Ch D 336
  • Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd [2011] WTLR 839; [2011] EWCA Civ 347; [2011] WTLR 1043
  • Ultraframe (UK) Ltd v Fielding [2005] EWHC 1836 (Ch); [2007] WTLR 835

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Previous PostPrevious WA v The Executors of the estate [2015] EWHC 2233 (Fam)
Next PostNext Barclays Wealth Trustees (Jersey) Ltd & anr v HMRC [2015] EWHC 2878 (Ch)

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Case Details

Court

High Court of Justice (Chancery Division)

Judge(s)

  • Newey J

Neutral Citation

[2011] EWHC 2286 (Ch)

Hearing date

20-22 July 2011

Judgment date

07 September 2011

Topics

  • freezing injunctions
  • Commercial contracts
  • bribes or secret commissions
  • fiduciary and beneficiary
  • proprietary claim or equitable account
  • diversion of opportunity belonging to beneficiary
  • summary disposal
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