Neutral Citation Number: [2016] EWHC 2163 (Comm)
Case No: CL-2005-000491
Case No: CL-2016-000110
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 26/08/2016

Before :

MR JUSTICE MALES
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Between :

	FIONA TRUST & HOLDING CORPORATION	Claimant	
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	YURI PRIVALOV & OTHERS
	Defendant	

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Mr David Allen QC, Mr Dominic Dowley QC, Mr Justin Higgo & Mr Daniel McCourt Fritz (instructed by Ince & Co LLP) for the Claimant
Mr Steven Berry QC, Mr Nathan Pillow QC & Mr Adam Board (instructed by Lax & Co LLP) for the Defendant

Hearing dates: 4th-7th & 11th-14th July 2016
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Judgment Approved
Mr Justice Males : 
Introduction
1.	A freezing order improperly obtained which ties up several hundred million dollars for five years is likely, at least in normal circumstances, to cause significant losses to a defendant whose assets are frozen in this way, especially if the defendant is a businessman with undoubted entrepreneurial flair and a successful track record. The fact that he has been found to be dishonest in at least some of his business dealings and untruthful in his evidence in this court means that his evidence of losses suffered may command little or no weight, but need not affect the likelihood that some such losses will have been caused.
2.	The circumstances prevailing while the freezing orders in this case were in place were hardly normal. They included, from 2005 to mid 2008, the last few years of a remarkable and sustained boom in the shipping market when it would have been difficult for those engaged in the market not to make profits, followed in late 2008 by a crash of unprecedented severity. That complicates the assessment of losses in this case and underlines the need to avoid hindsight in considering what the businessman whose assets were frozen would have done with his money if unconstrained by any order, but does not affect the principle that, if losses can be proved to a sufficient standard, he is entitled to be compensated.
3.	The businessman in question is Mr Yuri Nikitin. He and companies controlled by him faced claims in this action for damages in excess of US $577 million. Those claims involved wide ranging allegations of bribery, corruption and diversion of assets. They succeeded only to a very limited extent after a trial lasting six months, with judgment being given in December 2010 for some US $16 million plus interest, but otherwise they failed (see the judgment of Andrew Smith J at [2010] EWHC 3199 (Comm), which I shall call the “liability judgment”). Despite dismissing most of the claims against Mr Nikitin, Andrew Smith J made damning findings about his honesty and credibility. So too did Christopher Clarke J in another case in this court, Novoship (UK) Ltd v Nikitin [2012] EWHC 3586 (Comm). In fairness, however, I should add that Andrew Smith J had some equally harsh things to say about the conduct of the claimants (the Russian state owned shipping company OAO Sovcomflot which is the largest Russian owner of tankers and other commercial vessels, together with a number of its subsidiaries) and the honesty and credibility of their witnesses, including Mr Sergei Frank who was the Russian Minister of Transport between 1998 and February 2004 and since October 2004 has been the Director-General of Sovcomflot.
4.	At the outset of the litigation, on 31 August 2005, the claimants obtained a worldwide freezing order in respect of assets up to the value of US $225 million, which was shortly afterwards discharged on security of US $208.5 million being paid into an account held by the defendants’ then solicitors, Lawrence Graham LLP, with the balance being provided by a charge over Mr Nikitin’s house. The money remained in the account, where it earned interest of US $33.5 million, until hand down of the liability judgment in December 2010.
5.	In May 2007 the claimants obtained a further order, this time freezing assets to the total value of US $377 million. The effect of this order was to freeze US $262 million in bank accounts of Mr Nikitin’s company Standard Maritime Holding Corp, the BVI company through which he conducted his shipping business, and a total of US $16 million held by certain of its subsidiaries. These accounts were held with the private Swiss bank Wegelin & Co and (until Credit Suisse terminated the relationship) with Credit Suisse. Wegelin did not pay interest itself but instead invested funds in the account with other banks or financial institutions. Until about November 2008 the funds were placed with other banks on fiduciary deposits from which they earned interest at modest rates. Thereafter a new strategy was adopted in response to the 2008 financial crisis, whereby investments were made in bonds, gold, foreign exchange transactions and other money market instruments. This was perceived by Wegelin as a strategy of diversification, adopted as a result of concerns about the solvency of some banks which had required bailouts during the crisis. The total return earned from the sums held in the accounts during the period when the 2007 order was in place was US $29.7 million.
6.	Thus the orders obtained by the claimants had the effect of freezing assets far in excess of the sums for which Mr Nikitin and his companies were ultimately held liable. Moreover, when they applied for the orders, the claimants committed serious and culpable breaches of their duty of full and frank disclosure, both in 2005 and in 2007. In brief, they failed to disclose in 2005 that (1) many of the transactions of which they complained had been considered by and were carried out with the approval of the Executive Board of Sovcomflot and (2) Sovcomflot had had the wrongdoing of which it complained investigated by investigators who had, to Sovcomflot’s knowledge, used unlawful methods to obtain information. In 2007 the claimants misled the court regarding both these matters.
7.	In order to obtain the freezing orders the claimants were required to give the usual undertakings in damages, namely that “If the court later finds that this order has caused loss to the respondent, and decides that the respondent should be compensated for that loss, the applicants will comply with any order the court may make”. As this and other cases demonstrate, the giving of such an undertaking is not a mere formality. It may represent a significant liability for a claimant. Failure to honour the undertaking is a contempt of court.
8.	Following the conclusion of the claimants’ unsuccessful appeal from the liability judgment (see [2013] EWCA Civ 275), Mr Nikitin and his companies sought an order for the enforcement of these undertakings, together with an order for an inquiry as to the damages suffered by them as a result of the orders. I shall refer to Mr Nikitin and his companies as “the defendants” without distinguishing between them: strictly most of the losses claimed are alleged to have been suffered by Standard Maritime; all the companies are beneficially owned and controlled by Mr Nikitin. There were other defendants in the action, but they have played no part in the proceedings before me.
9.	Enforcement of the undertakings was resisted by the claimants on the grounds that (1) the court should exercise its discretion not to enforce the undertakings because of conduct of or attributable to the defendants, and (2) the defendants had not shown a sufficient case that they had suffered loss that should be compensated. Andrew Smith J rejected those arguments and ordered an inquiry (see his judgment at [2014] EWHC 3102 (Comm), which I shall call the “enforcement judgment”). He held in summary that although Mr Nikitin was indeed guilty of misconduct relevant to the obtaining and continuation of both the freezing orders, the court should not readily refuse an inquiry as to damage when freezing orders had been improperly obtained, and that the impropriety of the claimants in obtaining the orders outweighed the misconduct of Mr Nikitin on which the claimants relied. He held also that it was no more than common sense that a businessman such as Mr Nikitin would have made profits from the shipping sector had he been free to deploy his funds and those of his companies unconstrained by the freezing orders, just as he had done in the past. There was no appeal from the decision to enforce the undertakings.
10.	The claimants say that the order for an inquiry should nevertheless be set aside, either because it was obtained by fraud on the part of the defendants or because the court retains a discretion to withhold an equitable remedy. That application has been heard before me together with the inquiry itself.
11.	Accordingly it is now necessary to determine (1) whether the order for an inquiry should be set aside, and (2) if not, what loss the defendants have suffered as a consequence of the freezing orders. In some ways this is the logical order in which to consider these issues. If the order for an inquiry is set aside as having been obtained by fraud, it is unnecessary to determine what loss the defendants have suffered. However, it was directed that the two issues should be tried together, as they have been, and there was no appeal from that direction. I propose to consider the issues in reverse order, which is also the way the parties addressed them at the trial. This also has its own logic. If the defendants have suffered no loss as the claimants contend, the question of setting aside the order for an inquiry or withholding a remedy becomes moot. Conversely, knowledge of the nature and amount of any loss which the defendants have suffered may inform the approach to any discretion which falls to be exercised. Accordingly I consider first the issues arising on the inquiry.
The defendants’ claims
12.	I begin by identifying the various ways in which the defendants put their case as to the loss caused by the freezing orders. They advance four alternative cases.
The newbuildings case
13.	The defendants’ primary case is that the funds used to provide security for the 2005 order (together with a portion of the funds caught by the 2007 order) would have been used to contract with Korean shipyards for the purchase of newbuildings, probably four Suezmax tankers and two VLCCs, which would have been ordered in the final quarter of 2005 and sold before delivery in the spring of 2008, as it happens close to the top of the market and before the collapse in vessel values resulting from the 2008 financial crisis. They say that the proceeds would then have been invested in non-shipping investments, earning further significant returns. The defendants had in fact recently undertaken a similar and profitable transaction, concluding resales of four Hyundai and Daewoo newbuildings in January 2005, two of which had been delivered and the resale proceeds had been received before the date of the 2005 freezing order, while the remaining two were delivered and the resale proceeds were received after the date of the order.
14.	The defendants’ pleaded case is that the spring 2008 resales would have yielded a total profit of US $221.6 million once the vessels were delivered and that the net proceeds of sale would have been invested in a portfolio of financial investments of “moderate” risk, cautiously managed but with “a calculated acceptance of some higher risks”. The defendants plead that on a conservative estimate this portfolio would have earned a return of US $229.83 million up to the date of discharge of the freezing orders.
15.	Thus the defendants say that over the five-year period when the freezing orders were in place they would have made a total cash profit of over US $450 million for which they ought to be compensated which, after giving credit of US $63 million for the interest and other returns in fact earned, results in a claim of US $387 million.
The financial investments case
16.	Secondly, the defendants plead that if the funds had not been used to purchase newbuildings, they would have been invested in a portfolio of financial investments of moderate risk which (following the same investment strategy described above) would have earned an annual compound return of 9.4% on the funds frozen by the 2005 order and 6% on the funds frozen by the 2007 order, producing a total return of US $183.7 million and thus a claim of US $120.7 million.
The other shipping investments case
17.	Thirdly, the defendants say that the funds would have been used for other investments in the shipping business, such as (1) sale and leaseback transactions, (2) chartering and (3) ship-owning and operating. Although the defendants acknowledge that they cannot specify precisely what investments would have been made and that they had no specific investments in mind at the date of the freezing orders, they say that Mr Nikitin had undertaken such business successfully in the past and that a return of US dollar three month LIBOR plus 2.5% represents a conservative estimate of what the defendants would have been likely to achieve. This would result in a total return (taking a midpoint between the experts’ calculations, which were not far apart) of US $113.8 million and thus a claim of US $50.8 million. 
18.	The justification for this figure is that US dollar three month LIBOR plus 2.5% is the rate at which banks will typically lend to borrowers in the shipping industry (as found by Andrew Smith J in this case: see his “costs judgment” [2011] EWHC 664 (Comm) at [17] to [22]), and that such borrowings are made because ship owners and operators expect to be able to achieve a return which makes it worthwhile and profitable to borrow at such rates. Inevitably, however, while some and perhaps most ship owners and operators who borrow at such rates do achieve such profits, they can only do so by accepting some element of risk. Thus while some achieve profits, including profits considerably in excess of this borrowing rate, others make losses and some go bankrupt. The defendants say that they would have made a profit and give examples of transactions which would if entered into have produced returns in excess of such borrowing rates. 
19.	In fact, although this “other shipping investments” case is put third in the defendants’ pleading, presumably because it produces a lower figure than the “financial investments” case, it is in reality their principal alternative to the “newbuildings” case. Mr Nikitin’s evidence was that (before the crash) he would have wished to invest the frozen funds in the shipping industry, with which he was familiar and in which he had a successful track record of investment both in newbuildings and in other transactions, and that if for some reason he had been unable to conclude newbuilding contracts with Korean shipyards, he would have looked next for other shipping investments. He would only have looked for other financial investments if shipping investments had not been available.
The commercial borrowing case
20.	Finally, the defendants say that they should be compensated for being kept out of their money in an amount equivalent to interest at a commercial borrowing rate, namely US dollar three month LIBOR plus 2.5%. This produces the same financial result as the “other shipping investments” case.
The claimants’ response
21.	The claimants’ response pulls no punches. In brief, it is that these claims are a dishonest fiction invented with hindsight to produce the maximum possible claim, which bears no relationship to what would actually have happened in the absence of the freezing orders. They say that the freezing orders did not prevent transactions in the ordinary and proper course of business, so that if the defendants had wished (for example) to conclude newbuilding contracts, the freezing orders did not prevent them from doing so; nor did they in practice constrain Mr Nikitin from doing whatever he wished to do with the funds held by Wegelin which were invested in the manner described above. They say that there is no evidence that Mr Nikitin had any intention to invest in shipping, in particular in newbuildings and that he was in fact following a policy of asset protection after falling out with the claimants and relocating to this country; that the suggestion that he would have done so is contradicted by what was said at the time; that if he had wished to invest in newbuilding contracts, he had ample funds with which to do so unconstrained by the 2005 order; that he would in any event have been unable to conclude shipbuilding contracts with Korean shipyards; and that even if he had done so, it is pure speculation to suggest that he would have sold the vessels in the spring of 2008 or received the very substantial resale proceeds payable under contracts concluded at that time. They say further that the best evidence of the investment policy which he would have followed with any frozen funds was the policy which he did in fact follow with the funds held by Wegelin.
The evidence
22.	In addition to the factual evidence of Mr Nikitin (who gave oral evidence) and Mr Michael Baum, a senior manager at Wegelin (who did not, but who provided written evidence), there was evidence from a large number of experts in various disciplines.
23.	The defendants called Mr Philip Bailey to give evidence on ship finance and investment and on aspects of newbuilding sale and purchase and ship chartering and Mr Simon Day, a shipbroker, on aspects of newbuilding sale and purchase from a broking perspective. They also called Mr David Croft, a financial consultant, to give evidence on financial investments.  
24.	The claimants called Mr Robin Das on matters of shipping finance and investment and Mr Alan Marsh to deal with broking aspects of shipbuilding practice, as well as Mr Nicolas Borkmann, also a shipbroker, to deal with chartering issues. Their expert on financial investments was Mr Philip Irvine.
25.	I accept that these experts were doing their best to assist, and I am grateful for their evidence, although it has to be said that Mr Irvine was an argumentative witness who found it difficult to deal succinctly with even the most straightforward question. To some extent the experts’ evidence went beyond the strict scope of expert evidence, for example expressing opinions about what the management of Korean shipyards was likely to have done in particular circumstances which could not really be regarded as evidence of market practice. The expert evidence in general, both on shipping and financial topics, was enormously detailed. As a general comment, this suggested a much greater degree of exactitude in addressing the issues covered than was really practicable. I have sought to take all of this evidence into account but it is unnecessary to address in detail in this judgment all of the points which were canvassed.
The freezing orders
The 2005 Order
26.	The claimants obtained the 2005 freezing order on 31 August 2005 on an application made to Simon J without notice. It applied to assets held by the defendants worldwide up to a value of US $225 million and (as already noted) included the usual undertaking in damages. It was in conventional terms save for paragraph 30 which provided:
“This order does not prohibit Standard Maritime or any of its subsidiaries, from dealing with or disposing of any of its assets in the ordinary and proper course of business. For the avoidance of doubt, for the purpose of this Order, the sale and purchase of vessels (including vessels under construction), the sale and purchase of shares in any company or corporation and the grant of any security over vessels or shares are not in the ordinary and proper course of business.”
27.	The explanation given by the claimants for making the application at this particular time was that one of the vessels under construction for one of Mr Nikitin’s companies (a company called Titanium) was about to be delivered from the shipyard and had been resold to a purchaser. The claimants explained that they did not wish to interfere with the completion of the resale, but they claimed to be entitled to Titanium’s shares which (they said) had been transferred to Standard Maritime at an undervalue as a result of bribery by Mr Nikitin. They said that they sought to preserve the resale proceeds which were Titanium’s only asset. Equivalent claims were made in relation to the other vessels recently constructed or under construction. These claims eventually failed.
28.	For present purposes it is important to note that (1) the order expressly prohibited not only the sale but also the purchase of vessels, including vessels under construction and (2) the claimants claimed a proprietary interest in the shares of the companies which owned the four Hyundai and Daewoo newbuildings and thus an entitlement to receive the proceeds of the sales of these vessels. 
The application to vary the 2005 Order
29.	The return date of the freezing order was 7 September 2005. On that date the defendants made an application to vary the order in several respects, including the deletion of the word “not” from the second sentence of paragraph 30 so as to make clear (among other things) that the sale and purchase of vessels was not prohibited, but rather was in the ordinary and proper course of business. The defendants’ written submissions in support of this application stated that (emphasis added):
“32. It is usual and appropriate for freezing orders to exempt trading in the ordinary course of business. That is for good reason; so as not to prejudge the outcome of the action, and so as to avoid undue prejudice to the defendants.
33. Here it is plain enough that an aspect of Standard Maritime’s business is the purchase and sale of vessels. No other relevant business activity is really pointed to by the Claimants. Yet paragraph 30 seeks to deem the purchase and sale of vessels or share[s] in companies owning vessels as not being in the ordinary course of business.
34. The order ought to be amended by the deletion of the word ‘not’ in the second last line.
35. Unless that occurs the [defendants] may not be able to complete the acquisition of Vessel 1586 nor effect its sale. Similarly the claimed profits from the Accent and Severn owned ships cannot be realised (assuming the defendants sought to).
36. Particularly the $80m which was received from the sale of Titanium’s vessel was (in the ordinary course) to be used to fund the final instalment for the acquisition of vessel 1586 (some $32.5m). It is proposed that Standard Maritime (if free to do so) would fund the payment of the sums necessary to complete the acquisition and commissioning of that vessel fit for sale. The final payment required is in the order of $32.5m. Mr Nikitin will undertake to use his best endeavours to cause Standard Maritime to fund the payment from its own resources. However, should it not be able to do so, then it will be necessary to ensure that Standard Maritime is able to use part of the funds provided by the sale of vessel 1586 to pay the further instalments and other sums necessary to complete the acquisition and commissioning of that vessel fit for sale.
37. The order needs to be amended to make it clear that this can occur."
30.	The immediate focus of these submissions was the need to ensure the smooth completion of the resales of the existing newbuildings. However, while no other imminent or proposed purchases were identified, these submissions represent a clear statement by the defendants that at least one aspect of their ordinary business consisted of the purchase and sale of vessels and that the terms of paragraph 30 should be amended to make clear that they were not prohibited from concluding such transactions in future.
31.	It does not appear that these paragraphs of the defendants’ written submissions were the subject of much argument at the hearing on 7 September 2005, nor was there any indication of what if any future transactions the defendants might have in contemplation, but the claimants did confirm in the course of the hearing that they had a proprietary claim to the shares in the companies purchasing and reselling the vessels (“what we say are our vessels”) and submitted that the ordinary course of business exception should not apply. Counsel then appearing for the claimants submitted that:
“… bearing in mind we have got a proprietary claim, it would be wholly inappropriate that the party who is the subject to that proprietary claim should then be entitled to deal with the asset in the ordinary course of business thereby potentially depriving the other party who was claiming it was their property from having the value of the property which they are claiming.”
32.	This remained the claimants’ position at all times until delivery of the liability judgment.
33.	This topic was merely one of many topics addressed under some pressure of time at the hearing on 7 September 2005 and no judgment was given. However, the outcome was that the freezing order was continued. Paragraph 30 was varied to permit the payment for the vessel due to be made on 12 September 2005 and the resale of that vessel, as well as to permit other incidental payments. The defendants’ solicitors gave undertakings, not to be withdrawn without agreement between the parties or an order of the court, to hold any future sale proceeds. Otherwise the express prohibition on the defendants buying and selling vessels remained in place. Thus the application to delete the word “not” from the second sentence of paragraph 30 of the order was implicitly rejected.
The provision of security
34.	Following that hearing Mr Nikitin swore an affidavit, his second, dated 12 September 2005 explaining why, in his view, the amount which was subject to the freezing order was too high and the claimants’ undertaking in damages was inadequately secured. He referred to the fact that the accounts of Standard Maritime and its subsidiaries with Credit Suisse were frozen, that the Standard Maritime companies were operating 13 trading vessels and would suffer significant losses if the accounts remained frozen, and that:
“On top of that the Freezing Order prevents the sale and purchase of vessels. The potential losses from such activities are much greater than USD2.5m. I would respectfully ask for security of a much more significant and reasonable sum, namely at least USD40 million.”
35.	Although no particular purchase and sale transactions were identified, this put the claimants on notice that significant losses could be caused if the defendants were prevented by the freezing order from undertaking such activities. A skeleton argument dated 14 September 2005 submitted that dealings in the ordinary course of business ought to be permitted in accordance with the usual form of freezing order.
36.	In the event, however, in order to obtain the discharge of the freezing order the defendants decided to provide security by paying US $208.5 million into the account of their then solicitors, Lawrence Graham LLP, with the balance of the amount required provided by a charge on Mr Nikitin’s house. An order to this effect was made on 15 September 2005. Paragraph 5 of this order provided that:
“This order and the undertakings given are an interim measure only in order to allow the [defendants] sufficient time to seek to provide alternative security and nothing in the order or undertakings shall in any way affect the appropriate form of security. The [defendants] shall have liberty to apply to use funds in the Lawrence Graham Account in the ordinary course of business or to vary the undertakings given above so as to provide substitute security or otherwise. This shall be without prejudice to any contentions that might be put forward by the Claimants that such funds should not be used in the ordinary course of business or that such substitute security is not satisfactory or that the undertakings should otherwise be maintained.”
37.	The claimants gave an undertaking which replaced the undertaking in damages given when the 2005 freezing order was first obtained and was in the following terms:
“If the court later finds that this order, the orders made 31 August 2005, 7 September 2005 or the provision of the undertakings as set out in this Order or as may be provided in connection with the provision of security in accordance with this Order, have caused loss to any respondent, and decides that the respondent should be compensated for that loss, the applicants will comply with any order the court may make”.
38.	Thus the regime which the parties put in place prohibited the defendants from using the secured funds even in the ordinary and proper course of business unless they first made a successful application to the court to permit such use. In that event, however, the claimants expressly reserved a right to argue that such funds should not be used in the ordinary course of business. The claimants contend that this provision demonstrates that the defendants did not have a present need to use these funds and that the parties would reasonably have contemplated that if a future need arose, the defendants would say so and if necessary would make an application for permission. I do not regard this as realistic. The position was that the defendants had already said that their business included the purchase and sale of vessels and that they wished to be free to use their funds for that purpose; they had requested that the freezing order should be varied to permit this, but that request had failed; the order preserved the claimants’ right to oppose any such future request; and it was obvious that the claimants would vigorously oppose any such request on the ground that, as they had already stated, they had a proprietary claim to the proceeds of sale of the Hyundai vessels. It was therefore at least highly likely that any application to vary the terms of the order to permit the use of these funds would take some time to be determined and its outcome would be (at best for the defendants) uncertain.
39.	Although described as an interim measure, in fact no alternative security was ever offered or provided and the US $208.5 million paid into the Lawrence Graham account remained there until the liability judgment of December 2010. No application for permission to use the funds was ever made.
The application for increased security for the claimants’ undertaking in damages
40.	There was, however, an application by the defendants to require the claimants to increase the security of US $2.5 million provided as security for their undertaking in damages. It was supported by evidence that in the past the defendants had been able to generate returns on their assets of between 61% and 142%, and that they were being prevented from using the US $208.5 million effectively frozen in the Lawrence Graham account to generate similar returns. The defendants asserted that by the time the case came to trial they would have lost hundreds of millions of dollars. In addition to these unspecified losses the defendants also relied on what they contended were (and which Andrew Smith J eventually found to be) serious failures to make proper disclosure by the claimants when applying for the freezing order. 
41.	The application was supported by a witness statement from the defendants’ solicitor Mr Michael Lax which stated that “Mr Nikitin currently has no other business nor plans for other business until this litigation has concluded” and that “it is not his intention to embark on new ventures until this dispute has been disposed of, and his funds and other assets released from the undertakings which have been given”. On a fair reading of this evidence what was being said was that Mr Nikitin’s decision not to embark on new ventures was “because of the impact of the freezing order initially granted, particularly with the banks which had been served with the order, and the consequent holding of assets as security for the claimants’ claims”. It was not, therefore, a statement that Mr Nikitin would not have embarked on such new ventures if the freezing order had never been obtained.
42.	The defendants’ application was unsuccessful. In a judgment given on 24 February 2006 ([2006] EWHC 758 (Comm)) HHJ Mackie QC held that it was not open to the defendants to make the application as there had been no relevant change of circumstances since September 2005. Dealing with the returns which the defendants claimed to be able to make “as competent shipping people” the judge observed at [56] that “the security on which the claimants are entitled to insist would never permit the risk to capital which the defendants’ commercial aspirations would require”. 
43.	In my judgment this observation is revealing. The defendants’ case now is that if there had been no freezing order they would have concluded newbuilding contracts in the fourth quarter of 2005. In one sense, therefore, what HHJ Mackie QC said in February 2006 about the possibility of the defendants being permitted to employ their capital in commercial ventures which, although they might prove very profitable, also carried high risk, is irrelevant. His observation demonstrates, however, that an application by the defendants for the release of the security which they had provided in order to employ the funds in a project such as the purchase of newbuildings would have been far from straightforward. It is possible, I suppose, that other Commercial judges (or, if the defendants could accept the inevitable delay, the Court of Appeal) might have taken a different view. But here is a clear statement from one judge in this court who had in mind, no doubt, the claimants’ proprietary claim to the secured funds, that risky ventures would not be permitted.
The 2007 Order
44.	On 21 May 2007 the claimants obtained a further freezing order, this time following a with notice hearing before David Steel J. This order contained the usual exception allowing transactions by Standard Maritime and its subsidiaries in the ordinary and proper course of business, although there was no such exception applicable to Mr Nikitin. The funds caught by this order remained in the control of the defendants’ bankers, Wegelin (and, until September 2007, Credit Suisse). They were funds held in the name of Standard Maritime and its subsidiaries, not Mr Nikitin personally. Accordingly dealings in the ordinary and proper course of business were permitted. The 2007 Freezing Order remained in place until the liability judgment was handed down.
Discharge of the Freezing Orders
45.	The trial took place over 76 days between October 2009 and March 2010. The liability judgment was handed down on 10 December 2010. The majority (around 95% by value) of the claims made against the defendants were dismissed. Andrew Smith J was scathing about the evidence and conduct of both parties. He commented in the costs judgment ([2011] EWHC 664 (Comm) at [48]) that without any significant exception the claimants’ witness statements had been shown to be misleading and that the claimants had made and pursued allegations that were obviously unsustainable when proper disclosure was eventually made, which in a number of cases had not occurred until during the trial. The freezing orders were discharged.
Legal principles
46.	The legal principles upon which damages are to be assessed were explained by Lord Diplock in F. Hoffmann-La Roche & Co. AG v Secretary of State for Trade & Industry [1975] AC 295 at 361: 
“[The court] retains a discretion not to enforce the undertaking if it considers that the conduct of the defendant in relation to the obtaining or continuing of the injunction or the enforcement of the undertaking makes it inequitable to do so, but if the undertaking is enforced the measure of the damages payable under it is not discretionary. It is assessed on an inquiry into damages at which the principles to be applied are fixed and clear.  The assessment is made upon the same basis as that upon which damages for breach of contract would be assessed if the undertaking had been a contract between the plaintiff and the defendant that the plaintiff would not prevent the defendant from doing that which he was restrained from doing by the terms of the injunction: see Smith v Day (1882) 21 Ch.D. 421 per Brett L.J. at p. 427.”
47.	In the present case, the court’s discretion whether to enforce the undertaking has been exercised in favour of doing so by Andrew Smith J in the enforcement judgment. I shall have to consider later in this judgment whether his order should be set aside or whether despite his exercise of discretion the court nevertheless retains a further discretion to withhold an equitable remedy. Subject to that, however, the defendants are entitled to recover damages for the losses suffered by them as a result of the freezing orders (not as a result of the litigation), assessed by reference to ordinary contractual principles, including principles of causation, mitigation and remoteness, although these principles may need to be applied with some flexibility to take account of the fact that the analogy with breach of contract is not exact: Hone v Abbey Forwarding Ltd [2014] EWCA Civ 711 at [38] to [44] and [63]. 
48.	Thus, in summary, the freezing order need not be the sole or exclusive cause of the loss in question, but must be an effective cause; the burden is on the party who obtained the freezing order to demonstrate a failure to mitigate; and the type of loss (but not the particular loss within that type: Hone at [66]) must be within the reasonable contemplation of the parties. The courts have recognised that a freezing order can have the effect of “ruining a thriving business” and, in that context, have described such orders as one of the law's “nuclear weapons”: Cheltenham & Gloucester Building Society v Ricketts [1993] 1 WLR 1545 at 1554G-H per Peter Gibson LJ. As a result a realistic approach will be taken to a submission that a defendant should have approached the claimant or made an application to the court for a variation of a freezing order. As acknowledged in Hone at [65], “some claimants are far from reasonable in practice” and an application for a variation is often “far from straightforward”.
49.	There was some debate whether a “liberal assessment” of damages is appropriate. The origin of this phrase is the speech of Lord Wilberforce in a case concerned with damages for patent infringement, General Tire & Rubber Co Ltd v Firestone Tyre & Rubber Co Ltd [1975] 1 WLR 819:
“There are two essential principles in valuing the claim: first, that the plaintiffs have the burden of proving their loss; second, that the defendants being wrongdoers, damages should be liberally assessed but that the object is to compensate the plaintiffs and not to punish the defendants.”
50.	The principle of “liberal assessment” was applied to an inquiry as to the damages caused by an interim injunction by Norris J in Les Laboratoires Servier v Apotex Inc [2008] EWHC 2347 (Ch), [2009] FSR 3. This was endorsed by the Court of Appeal in AstroZeneca AB v KRKA dd Novo Mesto [2015] EWCA Civ 484 at [16]. The question arose in the context of a statement by Norris J, also endorsed by the Court of Appeal, that although it is for the party seeking damages to establish its loss, the court should not be over eager in its scrutiny of the evidence or too ready to subject its methodology to minute criticism, in part because the very nature of the exercise renders precision impossible. Kitchin LJ referred at [16] to the need for “a liberal but fair assessment of loss".
51.	These were not freezing order cases and part of Norris J’s reasoning is inapplicable to such cases. Nevertheless I consider that a liberal assessment of the defendants’ damages should be adopted, provided that it is clear what this means. It does not mean that a defendant should be treated generously in the sense of being awarded damages which it has not suffered. It does mean, however, that the court must recognise that the assessment of damages suffered as a result of a freezing order will often be inherently imprecise, for example because the defendant cannot say precisely what it would have done with its funds but for the freezing order; that this problem has been created by the claimant’s obtaining of an injunction to which it was not entitled; that in the light of these factors the kind of over eager scrutiny of a defendant’s evidence and minute criticism of its methodology to which Norris J referred will not be appropriate; and that it is not an answer for a claimant to say that damages cannot be awarded because the defendant’s business venture was to some extent speculative and might have resulted in a loss. Thus the defendant is not absolved from proving its damages, but these factors must be borne in mind in determining whether it has succeeded in doing so.
52.	The claimants submit that as a matter of law damages cannot be awarded if the defendant would have used its funds in a way which might have resulted in a loss. They rely on three authorities for this submission, The Anselma de Larrinaga (1913) 29 TLR 587, E. Bailey & Co Ltd v Balholm Securities Ltd [1973] 2 Lloyd’s Rep 404 and Ata v American Express Bank Ltd (Court of Appeal, 17 June 1988). The first of these cases clearly stands for no proposition of law, but is simply a case where on the facts the claimant failed to prove that it had suffered a loss, but in the second case (where the claimant contended that it would have made profits from trading on the commodity markets) Kerr J said:
“Mr Staughton contended that they were entitled to substantial damages on the ground that they had lost the chance of making a profit. He relied on cases such as Chaplin v Hicks [1911] 2 KB 786 which deal with the measure of damages for the loss of a chance. But those were all cases in which the plaintiff might or might not have obtained some pecuniary advantage or benefit and lost the chance of doing so as the result of the defendant’s wrongful act. He therefore lost the chance of being better off than he was, but he was not exposed to the risk of being worse off. In cases like the present, on the other hand, a person who is prevented from speculating in cocoa or sugar futures may have lost the chance of making money or may have been saved from losing money. A cynical view would be that there is an equal chance either way. No doubt experience and skill play a large part, and to this extent there may be a better chance of winning than losing. But in my view this is not the kind of situation which the law should recognize as giving a right to damages for the loss of a chance. Even though in law trading in commodity futures does not amount to gambling, the loss of a general opportunity to trade – as opposed to the loss of a particular bargain – is in my view much too speculative to be capable of having any monetary value placed upon it.”
53.	This passage was cited with approval by the Court of Appeal in the third case, Ata v American Express Bank Ltd. 
54.	However, it is not the law that damages cannot be recovered for the loss of a chance merely because there is a risk that the claimant would have made a loss. In both of these cases the discussion of this issue was obiter and they are best viewed as cases where, on the facts, it was not proved that the claimant had a real or substantial chance of making a profit.
55.	The true position is that in principle damages can be awarded for loss of profits even if a claimant might have made a loss. The approach which the court will adopt is to ask whether the claimant has proved to a sufficient standard (which may be the balance of probabilities, or sometimes merely that there was a real and substantial chance as in loss of a chance cases) that its trading would have been profitable. If so, the court will make the best assessment of the damages that it can, applying if necessary a discount to reflect whatever uncertainty exists, while recognising that a party seeking to show what might have happened is not required to perform an impossible task with unrealistic precision. 
56.	This appears from the decisions of Flaux J and the Court of Appeal in Parabola Investments Ltd v Browallia Cal Ltd [2009] EWHC 901 (Comm) and [2010] EWCA Civ 486, [2011] QB 477. Parabola was a case where the beneficial owner of the claimant company had a remarkably successful track record trading in stocks and shares and their derivative products. The claimant sought to recover the profits which it contended that it would have made from trading in these products during a period when it was in fact wrongfully diverted from doing so. It did not attempt to identify any particular transactions into which it would have entered. The defendant contended that such profits were far too speculative to be recoverable and relied on the decisions in E. Bailey & Co Ltd v Balholm Securities Ltd and Ata v American Express Bank Ltd. Flaux J rejected this contention:
“159. … neither case establishes that as a matter of law, loss of profits from CFD trading which would have taken place but for the tort are not recoverable, on the basis that they are always too speculative. Man's submission to that effect seems to me to confuse the element of speculation inevitably present in trading of this kind, with the separate question whether the prospects of making a profit trading those derivatives is so speculative that the court should regard that as not a recoverable loss. If, in an appropriate case, the court concludes that, on a balance of probabilities, the alternative trading in which the claimant would have engaged but for the tort would have been profitable overall, I see no reason in principle why the court should not award damages for such lost profits, albeit possibly with a discount for the possibility that some of the trading was loss making or less profitable. 
160. Mr Brindle placed particular emphasis on the passage in Kerr J's judgment where he refers to the claimant being exposed to the risk of being worse off. It was contended that this case was analogous to Bailey, since it too involved speculative trading. Accordingly, the defendants submitted that as in that case, the court should conclude that the alleged possibility of profit was too speculative to be recoverable. However despite what Kerr J said, I do not see the fact that there is a risk of the claimant being worse off as a complete bar to recovery, if on a balance of probabilities the claimant would have been better off. After all, there are many other situations in which courts have recognised that damages are recoverable for loss of the opportunity to recover profits or other financial advantages, notwithstanding that there is a risk of the claimant being worse off. The classic example occurs in solicitors' negligence cases, where through the negligence of the solicitor the claimant is deprived of the opportunity to pursue an action against a third party. In all such cases, there is always a risk that the claimant might have been worse off, in the sense that the action against the third party might not have succeeded and he could have ended up paying the other side's costs. However that is no bar to damages being recovered for the loss of the opportunity to pursue that claim, provided that there is a real or substantial chance of profits or a financial advantage being gained. The position is an a fortiori one if on a balance of probabilities a profit or financial advantage would have been gained.” 
57.	Thus merely to label the prospect of profits as “speculative” takes matters nowhere unless that prospect is so speculative that it must be disregarded. In principle, however, trading which is speculative in the sense that it may turn out to be loss-making is capable of giving rise to an award of damages if on the evidence the court is able to find to a sufficient standard that it would in fact have been profitable. Applying this approach, Flaux J found as a fact on the balance of probabilities that the claimant would have made profits. He awarded damages accordingly, adopting what he regarded as a conservative figure pitched at a level which took account of the inherent trading risks and the probability that some individual trades would have been loss-making (see e.g. [188] and [192]). This decision was upheld in the Court of Appeal [2010] EWCA Civ 486, [2011] QB 477. Toulson LJ said:
“22. There is a central flaw in the appellants' submissions. Some claims for consequential loss are capable of being established with precision (for example, expenses incurred prior to the date of trial). Other forms of consequential loss are not capable of similarly precise calculation because they involve the attempted measurement of things which would or might have happened (or might not have happened) but for the defendant's wrongful conduct, as distinct from things which have happened. In such a situation the law does not require a claimant to perform the impossible, nor does it apply the balance of probability test to the measurement of the loss. 
23. The claimant has first to establish an actionable head of loss. This may in some circumstances consist of the loss of a chance, for example, Chaplin v Hicks [1911] 2 KB 786 and Allied Maples Group Limited v Simmons and Simmons [1995] 1 WLR 1602, but we are not concerned with that situation in the present case, because the judge found that, but for Mr Bomford's fraud, on a balance of probability Tangent would have traded profitably at stage 1, and would have traded more profitably with a larger fund at stage 2. The next task is to quantify the loss. Where that involves a hypothetical exercise, the court does not apply the same balance of probability approach as it would to the proof of past facts. Rather, it estimates the loss by making the best attempt it can to evaluate the chances, great or small (unless those chances amount to no more than remote speculation), taking all significant factors into account. (See Davis v Taylor [1974] AC 207, 212 (Lord Reid) and Gregg v Scott [2005] 2 AC 176, para 17 (Lord Nicholls) and paras 67-69 (Lord Hoffmann)). 
24. The appellants' submission, for example, that ‘the case that a specific amount of profits would have been earned in stage 1 was unproven’ is therefore misdirected. It is true that by the nature of things the judge could not find as a fact that the amount of lost profits at stage 1 was more likely than not to have been the specific figure which he awarded, but that is not to the point. The judge had to make a reasonable assessment and different judges might come to different assessments without being unreasonable. An appellate court will therefore be slow to interfere with the judge's assessment. … 
25. … No method of assessment could be perfect, but the method of measurement accepted by the judge as a basis for estimating the lost profits was rational and supported by the opinion of an expert who impressed him. …” 
58.	I adopt this approach. There is necessarily a degree of uncertainty in determining what Mr Nikitin would have done with his money if it had not been held in the Lawrence Graham account as security for the claimants’ claims. Even if it can be said with reasonable confidence what he would have done or sought to do, for example that he would have sought to invest in a programme of newbuildings, there remains considerable uncertainty in assessing the financial outcome which would have resulted. However, these uncertainties are not fatal to the defendants’ claims. What the defendants need to prove is that on the balance of probabilities they would have sought to invest in a way that had a real as distinct from fanciful chance of making a profit. If so, it will be necessary to make the best possible assessment of the profit which the defendants would have made, taking account of the uncertainties inherent in this exercise. In a case such as this where there are a number of such uncertainties, what needs to be assessed is the “overall chance” of the defendants making the profits in question (see Tom Hoskins Plc v EMW Law [2010] EWHC 479 (Ch) at [133] to [135]).
Mr Nikitin’s evidence
59.	Mr Nikitin was the only factual witness who gave oral evidence before me. His background was described by Andrew Smith J in the liability judgment, from which I take the following brief summary. Mr Nikitin was born in St Petersburg and attended the Ship Building Institute there in the 1970s. In 1989 he set up what proved to be a very successful company providing survey and tallying services. In 1992 he established with partners a ship chartering company which grew rapidly, handling up to 1 million tons of cargo each month by the late 1990s and chartering about 200 vessels each year. In 2003 he decided to organise many of the offshore companies through which he conducted business under the umbrella of Standard Maritime. His business continued to be enormously profitable during what proved to be a sustained boom in the shipping market, a market to which Andrew Smith J found that Mr Nikitin was committed. In December 2004 Mr Nikitin left Russia and came to England. Since then he has returned to Russia for only half a day in February 2005 in order to obtain a visa. He now lives in England where he has been granted political asylum. An application was made by the Russian authorities to extradite him on criminal charges, but on 8 December 2008 that application was refused. There has been no appeal against the refusal.
60.	Mr Nikitin gave oral evidence in the liability trial over a period of nine days. As already indicated, he was found to have been dishonest in some of his business dealings and to have given untruthful evidence. In the enforcement judgment Andrew Smith J observed at [37] that “throughout this litigation he has apparently been prepared to tell any lies that he considers will assist him”.
What would the defendants have done with the US $208.5 million provided as security? 
61.	Mr Nikitin’s evidence in his 7th witness statement was that if it had not been for the 2005 freezing order and the provision of security to which that led, Standard Maritime would have invested the funds from the resale of the Hyundai and Daewoo newbuildings in further newbuilding projects, probably for four Suezmax vessels and two VLCCs, discussion of which with the brokers Clarksons would probably have begun in about September 2005, leading to the conclusion of shipbuilding contracts later in the year; these vessels would then have been sold before delivery, in about the spring of 2008 if the profit margin on such sales was attractive at that time, although the price would not have been payable until delivery which would not have occurred until autumn 2008 onwards; by that time it would have been apparent that the newbuilding market was becoming unstable, and he would not have sought to invest the proceeds in yet further newbuildings, but would have sought other investments for them. He said that the money caught by the 2007 order “remained at Wegelin, earning interest” (evidence to which I must return) and that but for that order Standard Maritime would have been looking for opportunities to invest, probably in the shipping business by chartering or lending on sale and leaseback transactions (though not newbuildings where the company would already have been fully committed) or, if not in shipping, in other areas.
62.	In further witness statements Mr Nikitin reiterated that the resale proceeds of the existing Hyundai and Daewoo newbuildings would have been reinvested back into shipping and that he had no other plans for the funds, which it would not have made sense to keep in a low interest earning account when he had been so successful in the shipping business. He said that, given his background and the very profitable investment in newbuildings which he had already made, further investment in shipping was the obvious thing to do and the most obvious type of shipping investment was newbuildings. No other investment could have absorbed so readily the very substantial funds which he had available from the resale of the existing vessels. He made clear, however, that by the time of the 2005 freezing order he had not formulated any firm plans or begun discussions with Clarksons. He thought that four Suezmax vessels and two VLCCs would have been the most likely order as it would neither have overstretched Standard Maritime nor left large amounts of cash unused, but he would have needed to take advice on this. He acknowledged that it was difficult to say a decade later precisely what he would have done and that all he could do was to set out a strategy which would probably have been deployed if there had been no freezing orders, relying on experts to calculate how that strategy would have worked out and what returns it would have made. He said that his continuing commitment to the shipping business was shown by the fact that in about May 2005 he had opened an office in Cyprus, Astroseas Shipmanagement. He would not have done this unless he was planning to expand his shipping business rather than to terminate it.
63.	Mr Nikitin was cross-examined before me for less than a day. Much of his cross-examination was directed to showing that he was a habitual liar, with various adverse findings which had been made by Andrew Smith J and also by Christopher Clarke J in the Novoship case being put to him. This presented Mr Nikitin with a forensic dilemma. He could admit that he had lied in his previous evidence, in which case the claimants would be entitled to submit that he was an admitted liar. Or while acknowledging that these judges had not believed him, he could maintain that he had been telling the truth, in which case the claimants would be entitled to submit that this was itself a further lie. Mr Nikitin chose the latter course. I did not find this cross-examination particularly illuminating.
64.	I do not propose to go behind the findings of Andrew Smith J as to Mr Nikitin’s general lack of credibility. He had a much better opportunity to assess Mr Nikitin than I did, not least as the cross-examination in the liability trial enabled Mr Nikitin’s evidence to be tested by reference to actual transactions rather than (as in this inquiry) by reference to hypothetical events which might or might not have happened without the freezing orders. So too did Christopher Clarke J in Novoship. But even a habitual liar may sometimes be telling the truth. Dealing with Mr Nikitin’s evidence that but for the 2005 order Standard Maritime would have “been free to reinvest its money back into shipping and would have done so by ordering further newbuildings”, Andrew Smith J said that he viewed this evidence circumspectly and that if the defendants’ contention that they suffered loss had depended on the credibility of Mr Nikitin, he would have hesitated to direct an inquiry (see [37] and [39] of the enforcement judgment). He concluded, however, (at [40]) that:
“It is highly credible that, but for the orders, Mr Nikitin would have continued to invest in shipping. He had done so for many years with success and there is no evidence or reason to infer that he would have ceased to do so but for the orders. Mr Croft’s evidence was directed to the loss from the 2005 orders, but it really does little more than illustrate the commonsense proposition that a businessman with Mr Nikitin’s entrepreneurial flair, which he undoubtedly has although it is overlaid by his dishonest conduct, would have made profits from the shipping sector had he been free to deploy his funds. …”
65.	I respectfully agree. Mr Nikitin’s evidence has now been tested by cross-examination and the matters relied on by the claimants as casting doubt on this claim have been examined in greater detail than was necessary before Andrew Smith J, but his conclusion that it is highly credible that Mr Nikitin would have continued to invest in shipping remains valid. 
66.	Three matters in particular were emphasised by the claimants. The first was that there is no evidence that Mr Nikitin had any intention to invest in shipping, in particular in newbuildings, and that he was in fact following a policy of asset protection after falling out with the claimants and relocating to this country. Certainly there was nothing said at the time about any specific plans such as the purchase of four Suezmax vessels and two VLCCs which now comprise the newbuildings case. Nor were there any documents, such as feasibility studies (including analysis of the types and numbers of any vessels to be purchased) or calculations of the cost and how the vessels would be funded, even at a very preliminary stage. However, that is not inconsistent with Mr Nikitin’s evidence. Indeed he pointed out, and it was not challenged, that there had been no such preliminary documents for the vessels previously ordered from Hyundai and Daewoo. 
67.	It may be that these initial stages of the project would not have begun quite as early as September 2005, but there was plenty of time for initial ideas to be formulated, for the project to be crystallised and for contracts to be negotiated and concluded before the end of the year. As for the policy of asset protection, Mr Nikitin was indeed following such a policy, but only for assets which were not to be deployed in the shipping business. I accept that the opening of the Cyprus office (a fact which the claimants did not challenge) evidences his continuing commitment to that business. Although Mr Nikitin had lost his connections with the claimants which had been valuable (for the most part legitimately so) in the past, that did not mean that he was excluded from further shipping business opportunities. It did mean that trading the vessels himself would have been more challenging as he would no longer have the access to Russian ports or cargoes which had been an important part of his past success, but that supports the view that an investment in newbuildings to be resold before delivery would have been an attractive way of investing in the shipping business. Such an investment would not need the kind of access to Russian ports or cargoes which Mr Nikitin had previously enjoyed.
68.	Second, the claimants say that not only is there no evidence of any intention to enter into shipbuilding contracts, but that this suggestion is contradicted by statements made on behalf of Mr Nikitin at the time. However, when it is borne in mind that the defendants do not claim that any particular project had been decided on, or even that consideration of this matter had gone beyond some very general initial thinking, there is in my judgment no such contradiction. I have already referred to the statements made in the course of the various court applications to the effect that the purchase and sale of vessels was an aspect of the defendants’ ordinary course of business, and that the defendants were prevented by the 2005 order from generating similar returns to those which they had been able to generate in the past. As explained in the first witness statement of Ms Imogen Rumbold of the defendants’ solicitors dated 22 December 2005, those past returns very largely consisted of the profits made on the resale of the Hyundai and Daewoo vessels. This was a clear complaint that the effect of the 2005 order was to prevent the defendants from doing again what they had done successfully before. I consider that the position was accurately stated by the defendants’ solicitors in a letter dated 18 January 2006 in response to a Part 18 Request by the claimants for Further Information. The letter stated that “Mr Nikitin had been looking for projects in which to invest the proceeds of sale but had not finalised anything by the time your clients started their legal action”. 
69.	Once the freezing order was served, it is not surprising that nothing further was done to develop any ideas for such a project. The defendants had much to do to defend the action and to challenge the freezing order, including investigation of the disclosures made by the claimants which Andrew Smith J was later to castigate. To have spent time and effort developing hypothetical plans for a project which they were prevented from undertaking with a view to a later claim for compensation if the claims against them failed would not have been a sensible use of resources.
70.	Third, the claimants say that if Mr Nikitin had wished to invest in newbuilding contracts, he had ample funds with which to do so unconstrained by the 2005 order. However, Mr Nikitin’s evidence was that after providing the security of US $208.5 million in September 2005, he did not in fact have sufficient ready funds available for a new building programme until after April 2006 when the final Hyundai and Daewoo vessels were delivered, while the prospect of borrowing in order to finance the initial payments which would have been required pending receipt of the April 2006 funds was destroyed by the freezing order which caused great damage to his relationship with Credit Suisse, his principal bank; and that by April 2006 (when the claimants amended their pleadings in the action) there was already a looming threat of a further freezing order being made which meant that it would not have been sensible to undertake a newbuilding programme at that time. Mr Nikitin’s evidence about this was not specifically challenged, other than by reference to his general propensity to tell lies. It was supported to some extent by the written evidence of Mr Michael Baum, a senior manager of Wegelin, who described Mr Nikitin’s approach as being to divide his capital between risk capital deployed in shipping investments and other capital invested in safer financial instruments. Although Mr Baum was not prepared to be cross-examined, that being the policy of his bank, he did offer to answer questions in writing but none were submitted to him. I consider that his evidence, although untested, is entitled to some albeit limited weight. 
71.	In these circumstances I do not think that much if any significance can be attached to the fact that Mr Nikitin did not in fact undertake a newbuilding programme with whatever funds were available to him after provision of the security of US $208.5 million. Even if, contrary to his evidence, he had sufficient funds to do so prior to April 2006, that would have been a high risk strategy. He would not only have been risking whatever capital was invested in that programme but would also have had to recognise that the security provided in the Lawrence Graham account was also at risk in the event of an adverse judgment in this action. Even if he was confident about an eventual favourable outcome, he would have appreciated the inherent uncertainty of litigation. Accordingly the investment policy which he in fact adopted faced with the freezing order says very little about what he would have done if there had been no such order. 
72.	Taking all these matters into account, it remains inherently credible, without needing to depend to any real extent on Mr Nikitin’s credibility, that but for the 2005 order Mr Nikitin would have wished to invest the proceeds of resale of the four Hyundai and Daewoo newbuildings; that he would have wished to invest them in the shipping business where he had been successful in the past and which was experiencing a boom which he considered (rightly as it turned out although inevitably there was a risk that he might be wrong) had some way still to go; and that by far the most likely shipping investment for him was a further programme of newbuildings. I conclude, therefore, that on the balance of probabilities Mr Nikitin would have sought to invest the funds which were in the event lodged in the Lawrence Graham account in such a programme.
73.	It does not necessarily follow that such a program would have consisted of the purchase of four Suezmax vessels and two VLCCs. Mr Nikitin did not suggest that it did, only that this is what he would probably have done. However, the claimants did not suggest that the profits to be made from such vessels were markedly out of line with profits from the purchase of other types of vessel. I will therefore proceed on the basis that these are the types of vessel which Mr Nikitin would probably have sought to purchase, making some allowance for the uncertainty involved in this choice. 
What would the defendants have done with the money frozen by the 2007 order?
74.	The position is different so far as the funds frozen by the 2007 order are concerned. Here there is no comparable inherent credibility to which the defendants can point. The defendants’ case is that (to the extent they were not needed to fund the newbuilding programme) these funds would have been invested in a portfolio of financial investments of “moderate” risk following a strategy described as cautious management “but with a calculated acceptance of higher risk to a shrewd investor.” Considerable time was taken at the hearing and in preparation for it in debates between the financial investment experts as to what this actually meant and to what extent it corresponded or overlapped with more established categories of investment strategy such as “cautious” or “balanced” portfolios, as well as with what the financial outcome of such a strategy would have been. 
75.	It was, moreover, a strategy which – as defined by the defendants – involved some deft footwork to avoid the adverse consequences of the 2008 financial crisis. Thus it proceeded on the basis that there would be a reallocation of the portfolio at the end of September 2008, reducing the allocation to equities from 60% to 15%, with a corresponding increase in investment grade bonds. Mr Nikitin did not claim to have expertise himself in making financial investments. Whether any adviser chosen by him would have been able to avoid the effect of the financial crisis is entirely speculative. Some did but many did not.
76.	The defendants’ financial investment expert Mr David Croft was able to show that it would have been possible to construct a portfolio, without the benefit of hindsight, which could fairly be described as containing investments of moderate risk, and which (assuming the reallocation in September 2008) would have achieved the returns pleaded in accordance with the defendants’ financial investments case. In order to do this he set himself the task of constructing a portfolio containing investments with a historical volatility of between 10% and 12% and an expected return of 10% per annum. He accepted, however, that there were a very large number of combinations of investments which would conform to these criteria and that other portfolios constructed by reference to the same ostensible criteria would have performed markedly less well over the period 2005 to 2010. For example, his portfolio contained 60% equities before the September 2008 reallocation, of which as much as two thirds were invested in emerging markets. While Mr Croft was able to explain this choice, which in the event produced remarkably good returns in the period before the crash, that would have been a bold and somewhat unusual holding. 
77.	In my view a fair summary of Mr Croft’s approach is seen in the following passage from his evidence:
“Mr Justice Males: Does what you have just said mean this, in effect you have constructed one portfolio which you regard as meeting the criteria of moderate risk and, having constructed it, you can see that it will have achieved a result. In fact it will have produced a good profit over the period. But somebody else applying the same criterion, moderate risk, could have constructed a rather different portfolio which, if you look to see how that would have performed, could have performed very differently?
A.	Yes, my Lord.
Mr Justice Males: Is that fair? It could have produced the same result as yours or perhaps better or perhaps significantly worse or even made a loss. Are those all real possibilities?
A.	Making a loss? I hadn’t really considered that. I am afraid it depends very much on the era that we are talking about.
Mr Justice Males: Well, we are talking about the same period as your portfolio, over –
A.	Well, there were distinct tranches of investments. Almost anything that was invested after 2008 would have shown profit by December 2010.
Mr Justice Males: Because things were so bad in 2008, there is only one way up –
A. 	There were enormous returns to be had in the market in, I would venture to say, almost every asset class. The S&P 500, for example, had returns of high 20 per cent in the years after the financial crash. It would have been very hard to lose money, I think, with a moderate risk portfolio for that period. If one is looking from 2005, it is a different picture. …
Mr Allen: In essence, what it really comes down to is time – I suppose it is the same with everything in investments. It is all to do with when you put your money in and when you decide to take it out?
A. 	Timings are crucial.
Q. That also presents an imponderable because, as you have discussed already in the context of the economic crisis and as you accepted, we don’t really know whether Mr Nikitin or anyone else would have thought, ‘Well, I will take the risk and hang on and set this out’ or ‘I’m not going to take the risk and I’m going to sell now or next month or next week’. We just can’t say.
A. 	No.
Q. Those imponderable questions result, as his Lordship has just surmised, in huge differences of either a significant return or a very small return or a loss. It is all timing?
A. 	Timing greatly influences the return, there is no doubt about it, particularly at this period. This period spans a quite extraordinary time in the financial markets.”
78.	Although Mr Croft’s portfolio (including the assumed reallocation at the end of September 2008) produced handsome profits over the 2005 to 2010 and 2007 to 2010 periods, the claimants’ expert Mr Philip Irvine was able to demonstrate that these returns would have exceeded by a considerable margin the average returns actually achieved by both “cautious” (or “conservative” – in this context at least the terms are interchangeable) and “balanced” funds according to figures published by Lipper, a subsidiary of Thomson Reuters which publishes statistics as to the performance of investment funds around the world. This at least calls into question the validity of Mr Croft’s approach as a reliable guide to what an investment portfolio constructed in accordance with some rather general criteria such as “moderate risk, cautiously managed, calculated acceptance of higher risk” would actually have achieved.
79.	However, this whole elaborate edifice of expert evidence was built upon the flimsiest of foundations. It was never really Mr Nikitin’s evidence that this was the investment strategy which he would in fact have followed. The closest he came was to say that if he was unable to invest in shipping, he would have consulted a financial adviser. The investment strategy pleaded by the defendants was essentially no more than an artificial construct based upon Andrew Smith J’s description of Mr Nikitin as a shrewd businessman. As the defendants put it in closing, it was “an amalgam of the findings made about him”. But those findings were not directed to – and say nothing about – the financial investment strategy which he would have instructed an adviser to follow. Mr Nikitin’s evidence was that his general policy between 2005 and 2007 was one of preserving his assets by low risk and reasonably liquid investment of money not needed for shipping investments. He was sceptical about investing in equities. There was, therefore, no valid evidential foundation for concluding that Mr Nikitin would have followed the pleaded strategy on which the financial investments case depended. 
80.	In fact the money caught by the 2007 order was held in the various accounts at Wegelin where it was invested as described above. I am not persuaded that anything different would have been done with this money in the absence of the 2007 order. I find on the balance of probabilities that it would not. It follows that the defendants have failed to prove any loss suffered as a result of the 2007 order.
81.	Accordingly the question whether the defendants have suffered a loss as a result of the freezing orders arises only in relation to the 2005 order. Before considering the factual question whether Mr Nikitin would have been able to conclude contracts with Korean shipyards for a series of new buildings if not prevented from doing so by this order, and if so with what outcome, I must consider the claimants’ argument that the defendants were not in fact prevented from doing so by the 2005 order at all and that any such losses suffered are too remote.
Causation, mitigation and remoteness
82.	The claimants contend that a freezing order permits a defendant to make payments in the ordinary and proper course of business, and that the order dated 15 September 2005 whereby the defendants agreed to provide security was to the same effect. Accordingly, they say, if the defendants had wished to undertake any specific transactions in the ordinary and proper course of their business, the injunctions did not in fact prevent them from doing so, while if they had wished to undertake transactions that they were concerned might fall outside the ordinary and proper course of business, they could have sought the claimants’ consent and, if it was refused, applied for the court to sanction the proposed transaction(s) or vary the relevant order(s) to permit them. Applying this reasoning to the possibility of the defendants concluding new shipbuilding contracts, they say that such contracts were either in the ordinary and proper course of the defendants’ business, in which case the defendants were not prevented from concluding them or (at worst) could have applied to the court for permission, in which case their failure to do so amounted to a failure to mitigate; or they were outside the ordinary and proper course of such business, in which case they were too remote.
83.	In my judgment these submissions fall wide of the mark. I find that the conclusion of newbuilding contracts would have been in the ordinary and proper course of the defendants’ business. That was a business in which they had previously engaged successfully in the ordinary course of business. Indeed, Andrew Smith J found that they had done so legitimately. If it had not been for the freezing order, there was no reason why they should not have sought to do so again. However, although a freezing order will not generally prohibit transactions in the ordinary and proper course of business, and will usually include express provision making this clear, that was not so in this case. As appears from the history set out above, the order made by Simon J expressly prohibited the conclusion of newbuilding contracts. The defendants sought unsuccessfully to have this provision removed at the hearing on 7 September 2005 and eventually the parties agreed a regime for the provision of security which prohibited the defendants from using the secured funds in the ordinary and proper course of business at all unless they first made a successful application to the court. 
84.	There is therefore no doubt that at all times the defendants were in fact prohibited by the orders from concluding newbuilding contracts. Causation is therefore established. It is moreover unrealistic to think that an application to the court for the removal of this prohibition would have been straightforward. There is no need to speculate here. As already noted, the defendants had in fact sought its removal at the hearing on 7 September 2005, but without success. The reaction of HHJ Mackie QC in his judgment of 24 February 2006 further demonstrates the difficulty which the defendants would have faced. The claimants would undoubtedly have resisted vigorously any application to vary the terms of the security to permit the defendants to conclude such contracts. They had expressly reserved the right to do so and, with a proprietary claim over the proceeds of resale of the Hyundai and Daewoo vessels, had strong prospects of being able to see off successfully any such application. The duty to mitigate is only a duty to act reasonably. Any failure by the defendants to make a further application which would have taken time, would have been strongly resisted, and which had only moderate prospects of success, was not unreasonable. There was here no failure to mitigate.
85.	This view is reinforced by the practical dilemma which the defendants would have faced. What were they supposed to do? They could hardly go to the Korean shipyards to request a quote on the basis that they would like to conclude some shipbuilding contracts, but would need to make an application to the court in order to find out whether they were allowed to do so. On the other hand, they could hardly apply to the court for permission without having some concrete proposal in hand for the court to assess.
86.	The claimants’ submission that losses consisting of the profits to be made from shipbuilding contracts were too remote is equally unsound. It was within the reasonable contemplation of the parties that, if free to do so, the defendants would wish to invest the proceeds of sale of the Hyundai and Daewoo vessels in further shipping ventures. The terms of paragraph 30 of the freezing order demonstrate that the sale and purchase of vessels including vessels under construction was an activity expressly contemplated by the claimants. Indeed it was to some extent the claimants’ knowledge of the substantial profits which Mr Nikitin’s companies had made by selling the Hyundai and Daewoo vessels that motivated the claimants’ claims against them.
87.	If there had been room for doubt about the claimants’ contemplation, that would have been dispelled by the defendants’ written submissions for the hearing on 7 September 2005 which expressly stated that an aspect of the defendants' business was the purchase and sale of vessels. The claimants’ response did not take issue with this, but rather relied on their proprietary claim over the proceeds as a reason why the prohibition should nevertheless continue. The defendants warned the claimants in Mr Nikitin’s second affidavit dated 12 September 2005, seeking an increase in the security provided by the claimants in support of their undertaking in damages from US $2.5 million to US $40 million, that the losses which could be sustained if the prohibition on the purchase and sale of vessels continued could be substantial.
88.	In the event the loss claimed is considerably higher than the figure of US $40 million for security which Mr Nikitin advanced. But that is merely a consequence of the greater than expected rise in the market during the period after September 2005. The loss which Mr Nikitin was saying might be suffered was loss of the profit to be made from concluding a shipbuilding contract at one price and reselling the vessel closer to delivery at what it was hoped would be a higher price as a result of a rise in the market. The loss which is now claimed is not different in kind. It is exactly the kind of loss, albeit greater in extent, of which the defendants warned.
89.	Accordingly, even if (contrary to my view) the losses claimed do not fall within the first limb of the rule in Hadley v Baxendale (1854) 9 Ex 341, they fall within the second.
The newbuildings case
90.	I turn, therefore, to examine further the defendants’ newbuildings case.
91.	Once it is determined that the defendants would have sought to conclude shipbuilding contracts with Korean yards, there are three main areas of controversy. These are (1) whether they would have been able to conclude such contracts, (2) if so, whether they would have resold the vessels in the spring of 2008, and (3) whether they would have received the price payable under such resale contracts concluded before but to be performed after the financial crash of 2008. All of these issues depend to some extent on the actions of third parties and are therefore subject to at least a degree of uncertainty. My task is to determine whether there was a real and substantial chance that the defendants would have concluded such contracts and resold the vessels at a profit and, if so, to evaluate that chance and that profit as best I can.
Could the defendants have concluded shipbuilding contracts with Korean yards?
92.	The claimants contend that even if the defendants had wished to do so, they would not have been able to conclude shipbuilding contracts with Korean yards in the final quarter of 2005. Although there were shipyards in other countries in the world, the main Korean shipyards had a good reputation for quality and reliability and it was at these yards that the defendants’ previous vessels had been built. They did not suggest that they would have sought to purchase vessels elsewhere if for any reason they were unable to do so in Korea.
93.	The starting point for consideration of this issue is that by the end of the trial it was common ground between the experts that there was capacity at Korean yards to accommodate an order by the defendants for four Suezmaxes and two VLCCs. Indeed the concept of capacity is better understood as concerned with the number of building slots available. If a yard has committed all its available slots for a period of (say) two years, there is little it can do to offer additional slots within that period, but nothing to stop it from taking an order for a vessel or vessels to be delivered at a later stage. It may be that a yard which has a high degree of forward cover will be less anxious to obtain new business and therefore able to drive a harder bargain, for example as to price, or will be less keen to accept an order for a type of vessel which is less profitable to it than some other type, but in principle this is merely a matter of negotiation. The business of the yards is to take orders and fulfil them.
94.	In the present case it is known that in January 2006 a number of orders for Suezmax vessels were placed with Samsung and that in March 2006 Hyundai and Hyundai Samho accepted orders for a total of eight VLCCs from three different commercial owners. There is no reason to suppose that all these slots were being reserved by the yards for particular buyers, although some of them may have been. Unless they were reserved in this way, however, they would have been available to a prospective purchaser such as Mr Nikitin in the final quarter of 2005. These actual transactions demonstrate that the yards were not averse to accepting new orders for these types of vessels. The delivery dates for the Suezmax vessels were from September 2008 to February 2009 and for the VLCCs from November 2008 to February 2009. 
95.	While it is possible that earlier dates might have been available if contracts had been concluded in the final quarter of 2005, these dates at least would have been available. In accordance with Mr Bailey’s evidence and methodology, I consider that if the Korean yards had been prepared to deal with Mr Nikitin, it would have been possible for contracts to have been concluded in the final quarter of 2005 and that these are the most likely delivery dates which would have been included in such contracts. Delivery dates would have been staggered in this way to the advantage of both parties. This would have assisted the yard or yards in the organisation of their work and would have enabled the defendants to finance the final delivery instalments of the later ships in the series from the proceeds of resale of earlier vessels. I accept Mr Bailey’s evidence that this represented a reasonable and prudent approach by a buyer such as Mr Nikitin to the provision of working capital to finance the purchases.
96.	The claimants say, however, that the main Korean yards would not have been prepared to contract with Mr Nikitin, in part because he was an unknown purchaser so far as they were concerned and in part because, so far as he was or would have been known to them, they would have been unwilling to deal with a purchaser who was involved in a major dispute with Sovcomflot, an important customer, and who was accused by Sovcomflot of serious dishonesty. 
97.	It is true that Mr Nikitin and his companies were not known to the yards. Although his companies were the buyers of four Suezmax vessels, these had been ordered through Sovcomflot and the buyers’ performance of the shipbuilding contracts had been guaranteed by Sovcomflot. Mr Nikitin’s involvement had not been apparent to the yards and he would therefore have been essentially a new customer so far as they were concerned. Obviously he would not in 2005 have had the benefit of any Sovcomflot guarantees. Nevertheless Clarksons, the brokers who would have acted for him, who had also been involved in the previous contracts, would have been able to explain that the actual buyers of the vessels concerned were Mr Nikitin’s companies and that the contracts had been satisfactorily performed, with punctual payment and no technical disputes of the kind which can sometimes sour relationships between shipyards and their customers. 
98.	Moreover, and importantly, Mr Nikitin would have been able to demonstrate that he had sufficient funds available to perform what would have been a substantial and attractive order and could if necessary have provided any guarantee of performance which the yards required. In addition, it would have been an important feature of any shipbuilding contract that the first instalment consisting of 20% of the purchase price would have been payable within days of signature of the contract, while the second instalment would have been payable one year later. As Mr Day, the defendants’ broking expert put it, on a substantial order worth US $500 million in total the yards “would be only too pleased to deal with” Mr Nikitin as they would get US $200 million “before raising one blow-torch”. Mr Marsh agreed that for the yards, there was no credit risk (indeed if Mr Nikitin defaulted, he would lose his deposit, which could be a positive benefit to the yard) and effectively no commercial or technical risk in accepting an order from Mr Nikitin.
99.	The evidence is clear that the yards’ willingness and perhaps even enthusiasm to take Mr Nikitin’s money would not have been affected in the slightest by knowledge that he was accused of dishonesty which, in 2005, had not been proved (and in due course was not proved to anything like the extent alleged). Reference was made to the position of a well-known shipowner who, as was notorious, had not only been accused of dishonesty but had served time in prison for stealing bunkers. His ability to order vessels from Hyundai had not been affected. Closer to home, the findings of dishonesty made against Sovcomflot and its Director-General Mr Frank in this action have not prevented it from placing orders for newbuildings with the Korean yards. Nor would the consciences of the broking experts in this case have prevented them from acting as brokers for Mr Nikitin if given the opportunity to do so. I see no reason to think that their attitude was other than typical. The mere fact of serious allegations of dishonesty against Mr Nikitin would have made no difference to his ability to conclude shipbuilding contracts with the Korean yards in the final quarter of 2005 even if the yards had known about those allegations, although there is no evidence that they did in fact have such knowledge.
100.	The position might have been different if Sovcomflot had pressurised the yards not to deal with Mr Nikitin, for example by threatening to withhold further business from them. However, it is difficult to envisage a convincing scenario in which this would have happened. Despite the speculations of the claimants’ experts, in particular Mr Marsh, it seems unlikely that the Korean yards, in receipt of an approach through Clarksons from Mr Nikitin, would have attempted to contact Sovcomflot in order to find out what it thought about him. If they had wished to do so, it is not at all apparent how they would have gone about it in circumstances where their commercial contacts with Sovcomflot had been through Clarksons, the same brokers who would have been acting for Mr Nikitin. Nor is it likely that Sovcomflot would itself have taken the initiative in attempting to warn the yards against dealing with Mr Nikitin. It would have had no reason to do so. In any event the pressure which Sovcomflot could exert is also a matter of speculation. It was an important customer, but on the other hand it had to buy its ships somewhere and would not have wished to cut itself off from the main Korean yards as a source of supply. If a scenario had occurred in which Sovcomflot was exerting pressure not to deal with Mr Nikitin, the yards would have had to evaluate the risks of any threats to withhold future business against the immediate availability of Mr Nikitin’s money.
101.	I conclude, therefore, that there is at least a real and substantial chance that Mr Nikitin would have been able to conclude newbuilding contracts with Korean yards in the final quarter of 2005. Indeed I think it highly probable that he could have done.
102.	The likely project costs for such an investment programme are agreed in large part between the experts.  The newbuildings would have cost US $74.5 million for each Suezmax and US $128 million for each VLCC, with the price payable in five equal instalments. The costs of supervising the construction would have been between US $2.62 million and US $2.7 million in total, with brokerage costs of around 2.39%. 
Would the defendants have sold the vessels under construction in the spring of 2008?
103.	There is no doubt that the defendants could have sold the newbuildings to new buyers in the spring of 2008. The experts agree that the market was buoyant and that such sales would have been possible. It is agreed that the prices obtained at that time would have been about US $107.2 million for each Suezmax and US $158.4 million for each VLCC. The real issue is whether that is what the defendants would have done. 
104.	I cannot attach much weight to Mr Nikitin’s evidence that this is when he would have sold the vessels which, quite apart from the issues as to his credibility generally, cannot but be affected consciously or subconsciously by hindsight. However, there is no real doubt that if he had concluded newbuilding contracts in the final quarter of 2005, Mr Nikitin would have wished to sell the vessels at some point before delivery under the shipbuilding contracts in order to finance the delivery instalments and to lock in an attractive profit. That was his previous modus operandi and would have been repeated. To have effected these resales in the spring of 2008 would have comfortably achieved this objective. So it would have made good sense for him to sell then. In a sense, therefore, the question whether he would have sold the vessels at this time can be turned on its head: why would he not have done so? To this there are two possible answers.
105.	The first possible answer is that he might already have sold them by that stage, locking in a profit (and thus a potentially valid claim in this inquiry) albeit a lesser one. This cannot be completely discounted, but is unlikely. The market was continuing to rise which meant that a resale would not have been perceived as urgent, and it would have made sense not to sell the vessels too far in advance of delivery.  
106.	The second possible answer is that Mr Nikitin would not have sold in spring 2008 because there were still some months to go before the first delivery and he might have thought that it was preferable to continue to wait as the market might go still higher. There is no reason to think that Mr Nikitin would have seen the crash coming any more than anybody else did. In fact the market did continue to rise for a short while before the crash came. It must be a real possibility that Mr Nikitin would not have sold in the spring of 2008 but, if he had waited a short while only, he might have hit the very top of the market and achieved an even greater profit. On the other hand, if he had not achieved a sale by mid September 2008, he would have found it very difficult to sell the vessels before delivery and would have had to sell them, possibly some months after delivery, at very much lower post crash prices. 
107.	The key factor here is the probability that the first vessel was due for delivery no later than September 2008. It is highly likely that Mr Nikitin would have wished to conclude sales for the vessels a reasonable time before the first delivery was due. He would have wished to ensure that the resale proceeds would be available in order to fund the delivery instalments on both the first and subsequent vessels. He would not have wanted to incur the expense and inconvenience of arranging officers and crew for the vessel, or to incur running costs, or to trade the vessel for only a short period. Similarly, a buyer would need time to make the necessary arrangements to take physical delivery of the vessel and to obtain employment for it. It is therefore probable that even if the resale contracts were not concluded in the spring of 2008, they would nevertheless have been concluded in good time before the crash came in September. That is the critical issue for present purposes. If the resales were concluded before the crash, on any view the defendants would show a handsome profit. Although the prices achievable in the summer of 2008 may have been different from those achievable in the spring, in the context of this case the difference would not be very significant. But if the vessels had not been resold by September 2008, the position would be very different.
108.	In these circumstances my conclusion is that there is a real and substantial chance that Mr Nikitin would have sold the vessels in the spring of 2008, although there is also a possibility that he would not have done. If he had not done so, he might have achieved a better or a worse price, although on any view it is likely that he would have achieved a price which (assuming that the resale contracts were performed) would show a substantial profit. 
Would the defendants have received the price payable under such resale contracts?
109.	It is common ground that (save for a 10% deposit) the price payable under any resale contracts concluded in advance of delivery under the shipbuilding contracts would only have been payable on delivery. The possibility arises, therefore, that buyers of vessels which would only have been delivered after the 2008 crash would have defaulted, either because they could not or because they were unwilling to pay the agreed pre-crash price to acquire a vessel which on delivery was worth far less. This consideration would probably not have affected the first vessel, due for delivery in September 2008, but could potentially have affected later vessels.
110.	The buyers in question would have been special purpose vehicles, that is to say newly formed companies with no other assets, which gives rise to the possibility that they might have chosen to default. There was considerable debate between the experts about the likelihood of buyers choosing to default, which would have involved a weighing of any loss of reputation (which can be important in the relatively limited tanker market) against the immediate undesirability of paying out millions of dollars more than the vessel was currently worth. The claimant’s expert Mr Robin Das had no doubt about the side on which any buyer would come down: “I think ‘My word is my bond’ is one thing, but losing $60 million is another”. Sadly, perhaps, this is probably realistic, although buyers deciding to default would have to factor the loss of their 10% deposits into their calculations. 
111.	However, the risk of such a default prompted by a downturn in the market is such an obvious risk, at any rate in the case of a contract concluded more than a month or two before delivery, that such buyers would have been required to provide a guarantee from their parent company. This would have been quite usual in the shipping market. While some buyers would have been reluctant to provide a parent guarantee, there would have been no valid commercial reason for refusing to do so. A refusal could only have meant that the buyer wished to preserve the option of defaulting if the market turned adversely. In practice, therefore, a serious buyer who wanted to conclude a contract for the purchase of one or more of the vessels in spring 2008 would have had to provide such a guarantee. There is no reason to think that buyers in general in the buoyant market of spring 2008 would have been unwilling to do so. In practice, therefore, it should not have been difficult to avoid the problem of a default by a special purpose vehicle buyer in this way.
112.	That leaves the possibility of defaults by parent companies as a result of insolvency. There was no evidence as to the extent of any such insolvencies in the tanker sector of the shipping industry following the 2008 financial crisis, although it is well known that trading conditions generally were disastrous. In the absence of such evidence I consider that the risk of defaults cannot be discounted, but is difficult to quantify.
Conclusion on the new buildings case
113.	As already indicated, there are a number of contingencies which call into question whether the defendants would have achieved the profits which they claim pursuant to their newbuildings case. Nevertheless I have found that the defendants would on the balance of probabilities have sought to conclude newbuildings contracts in the final quarter of 2005 and that there is at least a real and substantial chance that they would not only have succeeded in doing so but would have achieved the profits which they claim (or something very like those profits) based on resale contracts concluded in or about the spring of 2008 pursuant to which the resale price would have been received on delivery of the vessels. 
114.	In my judgment the fairest way to reflect the findings which I have made is to apply a suitable discount to the defendants’ claim figures. In accordance with the approach of Floyd J in Tom Hoskins Plc v EMW Law [2010] EWHC 479 (Ch) at [133] to [135], it is not appropriate in a case of “multiple contingencies” to apply “percentage upon percentage”. It would in any event be highly artificial to attempt to do so. Rather it is necessary to evaluate “the overall chances” of the defendants achieving the profit claimed. Inevitably this is a somewhat impressionistic assessment, but I must do the best I can. My conclusion, taking account of all the uncertainties which I have mentioned, is that the defendants had a 50% chance overall of achieving this profit and that the damages should be calculated accordingly.
115.	The defendants would have received the proceeds of resale on the delivery dates identified above, between September 2008 and February 2009. The proceeds on earlier vessels would have been needed to fund the delivery instalments on later vessels. It is not difficult to accept the defendants’ case that in February 2009 they would not have reinvested these proceeds in the shipping business. That was after the financial crash, when only the bravest souls would have contemplated or been able to undertake new shipping investments. Nor would the defendants have invested the proceeds in a portfolio such as Mr Croft described. That notional investment strategy is as inapplicable here as it was in relation to the funds caught by the 2007 order. I find that the proceeds would have been invested with Wegelin and would have achieved much the same return as the funds actually invested with Wegelin during this period. There is no need for any discount here as, once the financial investments case based on Mr Croft’s portfolio is rejected, there is very little room for doubt about what the defendants would have done.
116.	The profit which the defendants claim that they would have made on a resale of the vessels in spring 2008 is US $188.72 million. Half of that figure is US $94.36 million. Accordingly the damages to which the defendants are entitled pursuant to the 2005 order are as follows:
a.	US $94.36 million; plus
b.	the return which would have been earned by investing the notional resale proceeds with Wegelin from about February 2009 until December 2010; less
c.	US $33.5 million in fact earned on the funds frozen in the Lawrence Graham account; less
d.	US $28.67 million which would not have been earned on the funds held by Wegelin.
117.	This figure will need to be calculated. I make three comments by way of clarification. First, the defendants say that the figure of US $94.36 million should be US $111.11 million. Their reasoning is that they would have earned US $33.5 million by way of interest on the frozen funds in any event, so that it was only the difference between US $188.72 million and the US $33.5 million actually earned which was exposed to any loss of chance risk. Thus, they say, the loss of chance percentage should be applied to the difference between these two figures and not to the full sum of US $188.72 million. I do not think that this logic is correct. It is not the case that interest of US $33.5 million would have been earned in any event – for example, if the defendants had been unable to conclude shipbuilding contracts and had done something else with their money which might or might not have produced a profit (see below); or if the defendants had concluded such contracts, but their resale buyers had defaulted. 
118.	Second, the “notional resale proceeds” to which I have referred will be the figure arrived at by adding the discounted profit figure of US $94.36 million to the purchase cost described above. 
119.	Third, the claimants say that in order to earn the profit claimed under the newbuildings case, the defendants would have needed to use the entirety of the funds frozen by the 2007 order in order to fund their newbuilding programme and must therefore give credit for the US $29.7 million in fact earned on these frozen funds. In fact the defendants’ calculations show that US $249.30 million of the funds frozen by the 2007 order would have been needed for this purpose. The claimants’ financial investment expert Mr Irvine estimated that the return earned on US $249.30 million would have been US $28.67 million. The defendants must give credit in this amount. This is to some extent an approximate figure, which as I understand it does not take account of the facts that funds would not have been needed to pay instalments under the shipbuilding contracts until August 2007, that from then they would only have been needed in tranches spread over three monthly intervals, and that from delivery of the first vessel in September 2008 the defendants would have begun to receive the resale proceeds as the vessels were delivered. However, while a calculation which took all these matters into account may be possible, I suspect that any apparent accuracy resulting would be spurious. 
120.	Finally in relation to the newbuildings case, the claimants say that it is unfair that the defendants should be awarded damages for loss of profits which they could only have earned by accepting a significant risk when in fact they incurred no risk at all because their money was sitting safely in Lawrence Graham’s account earning interest. I do not regard that as a valid objection. It would apply whenever the court awards damages for loss of profit the earning of which would have required (as will generally be the case) the undertaking of risk. In any event this objection is taken into account in the assessment of a suitable discount to the defendants’ claim figures. I have assessed the chance that the defendants would have achieved the figures claimed as being 50%. That is my best assessment, but if it is wrong it is just as likely to be too low as it is to be too high. The defendants’ valid complaint is that the claimants’ conduct has deprived them of the opportunity to invest their money in a way which, while accepting a risk of loss, could have brought very substantial profits. They have been deprived of the opportunity to demonstrate that they could in fact have achieved the profits claimed.
The defendants’ alternative claims
121.	In view of my conclusion concerning the newbuildings case it is unnecessary to say much about the alternative ways in which the defendants put their case. 
122.	I did not find the “other shipping investments” case compelling. While it would, no doubt, have been possible to make significant profits during the period from 2005 up to the financial crisis of 2008, timing here would have been everything. If the defendants had entered into shipping commitments which would have come to an end before the crisis struck, their method of calculating this claim by reference to a margin of 2.5% over US dollar three month LIBOR would have been reasonable. On the other hand if the transactions into which they had entered, for example buying and operating a small fleet of Handysize vessels or taking in vessels on time charter in order to charter them out on the spot market, had extended beyond September 2008, their financial position would have been very different. There is no reason to think that Mr Nikitin would have succeeded in exiting the market in time to avoid the consequences of the crash.
123.	Although some examples were given in very general terms of the kind of transactions into which the defendants might have entered, there was no real or at any rate no convincing attempt (as there was with the newbuildings case) to plot the likely outcome of such transactions. In ordinary market conditions it may well be reasonable to use a margin over LIBOR as an indication of the profits which could be made by investing in the shipping business, possibly with some adjustment to represent the risk that some ventures will fail. But that is not so in the extraordinary and unprecedented market conditions of the financial crisis. If the hypothesis is that the defendants had invested in unspecified shipping transactions other than newbuildings, my conclusion would be that they have failed to prove a loss. 
124.	In my view the primary relevance of the “other shipping investments” case is to demonstrate that if Mr Nikitin had wished to invest in the shipping business, as I accept he did, an investment in newbuildings was by some distance the most likely home for his money.
125.	I have already explained why the “financial investments” case must fail. There is a further reason why it cannot arise. Mr Nikitin’s evidence was that if he had been unable to invest in newbuildings, he would have looked for other shipping investments. In that scenario the defendants have failed, as just indicated, to prove a loss, but it also follows that their money would not have been available for investment in financial instruments, whether in accordance with the “financial investments” case or even deposited with Wegelin. It is therefore unnecessary to extend this judgment further by exploring the detail of the “financial investments” case.
126.	Finally, there is in my view no scope for the “commercial borrowing” case. The defendants must prove their loss. As it happens, I have found that they have succeeded in doing so. But if they cannot prove a loss, they are not entitled to a conventional award which, in effect, deems them to have done so. 
Conclusions on the inquiry
127.	For the reasons given above, my conclusions on the inquiry as to the damages suffered by the defendants as a result of the freezing orders are that:
a.	the 2005 order caused the defendants to suffer losses calculated in accordance with the newbuildings case as indicated above; but
b.	the 2007 order caused no loss to the defendants.
The set aside claim
128.	In the light of these conclusions, I must now consider whether the order for an inquiry must be set aside or whether the damages to which the defendants are otherwise entitled should be withheld on equitable grounds.
129.	The claimants advance two grounds for saying that this should occur:
a.	the judgment of Andrew Smith J ordering an inquiry as to damages should be set aside as having been obtained by fraud; and 
b.	pursuant to the “unclean hands” principle the court retains a discretion in equity not to enforce the undertaking in damages if it would be inequitable to do so.
130.	A third ground, revocation of the order for an inquiry pursuant to CPR r. 3.1(7), was not pursued.
Setting aside for fraud
131.	It is common ground that in principle a judgment obtained by fraud will be set aside and that the relevant principles for the exercise of this jurisdiction are those summarised by Aikens LJ in Royal Bank of Scotland plc v. Highland Financial Partners LP [2013] EWCA Civ 328, [2013] 1 CLC 596 at [106]:
“The principles are, briefly: first, there has to be a ‘conscious and deliberate dishonesty’ in relation to the relevant evidence given, or action taken, statement made or matter concealed, which is relevant to the judgment now sought to be impugned. Secondly, the relevant evidence, action, statement or concealment (performed with conscious and deliberate dishonesty) must be ‘material’. ‘Material’ means that the fresh evidence that is adduced after the first judgment has been given is such that it demonstrates that the previous relevant evidence, action, statement or concealment was an operative cause of the court’s decision to give judgment in the way it did. Put another way, it must be shown that the fresh evidence would have entirely changed the way in which the first court approached and came to its decision. Thus the relevant conscious and deliberate dishonesty must be causative of the impugned judgment being obtained in the terms was. Thirdly, the question of materiality of the fresh evidence is to be assessed by reference to its impact on the evidence supporting the original decision, not by reference to its impact on what decision might be made if the claim were to be retried on honest evidence.” 
Unclean hands
132.	The circumstances in which equitable relief will be refused by reason of the applicant’s “unclean hands” were explained by Aikens LJ in the same case at [158] and [159], which include a reference to an earlier judgment in the present case:
"158. There is no dispute that there exists in English law a defence to a claim for equitable relief, such as an injunction, which is based on the concept encapsulated in the equitable maxim 'he who comes into equity must come with clean hands'. … 
159. It was common ground that the scope of the application of the 'unclean hands' doctrine is limited. To paraphrase the words of Lord Chief Baron Eyre in Dering v Earl of Winchelsea (1787) 1 Cox Eq Cas 318 at 319 the misconduct or impropriety of the claimant must have 'an immediate and necessary relation to the equity sued for'. That limitation has been expressed in different ways over the years in cases and textbooks. Recently in Fiona Trust & Holding Corp v Privalov [2008] EWHC 1748 (Comm) Andrew Smith J noted that there are some authorities in which the court regarded attempts to mislead it as presenting good grounds for refusing equitable relief, not only where the purpose is to create a false case but also where it is to bolster the truth with fabricated evidence. But the cases noted by him were ones where the misconduct was by way of deception in the course of the very litigation directed to securing the equitable relief. Spry: Principles of Equitable Remedies (8th edn, 2010) suggests that it must be shown that the claimant is seeking 'to derive advantage from his dishonest conduct in so direct a manner that it is considered to be unjust to grant him relief'. Ultimately in each case it is a matter of assessment by the judge, who has to examine all the relevant factors in the case before him to see if the misconduct of the claimant is sufficient to warrant a refusal of the relief sought."
133.	The defendants contend that, in accordance with the statement of Lord Diplock in the Hoffman-La Roche case, the court had a discretion whether to direct an inquiry as to the damages suffered as a result of the freezing orders, but that once this discretion was exercised in favour of doing so, as it has been, there is no room for any further discretion to withhold relief and no scope for any doctrine of “unclean hands”. Rather, once the discretion is exercised, damages must be assessed on common law contractual principles. It is unnecessary to decide this issue. I will assume that in principle the “unclean hands” doctrine applies. Clearly, however, and on the assumption that it applies at all, it can only apply to new material and not to matters which have already been fully taken into account in deciding to enforce the undertaking in damages. 
The conduct on which the claimants rely
134.	The allegedly fraudulent conduct on which the claimants rely falls into two categories. First, the claimants say that the defendants deliberately suppressed relevant evidence as regards their investment intentions, policy and activity. This refers to Mr Nikitin’s evidence that, but for the 2005 order, he would have invested the US $208.5 million lodged as security in the shipping industry, and in particular in a series of newbuilding contracts. This evidence is said to have been demonstrated to be false by evidence subsequently served in this inquiry showing that at all material times Mr Nikitin had substantial funds available which could have been but were not invested in such a project and that, instead, he was pursuing a policy of asset protection. Second, the claimants say that Mr Nikitin knowingly gave false evidence in relation to the impact of the 2007 order on the defendants’ investment activities. The allegation here is that the statement in Mr Nikitin’s 7th witness statement that the sums caught by the 2007 order “remained at Wegelin earning interest”, which also referred to this money being tied up “at modest rates of interest”, was untrue. In fact from November 2008 the funds held by Wegelin were used for a variety of investments, including foreign exchange forward contracts, bonds and gold. It is Mr Baum’s evidence that he believed that all the investment transactions undertaken were in the ordinary course of the defendants’ business as they were transactions of a type which Mr Nikitin had entered into in the past and therefore were not prohibited by the 2007 order so long as the proceeds of such transactions remained under the control of the bank and were not released to the defendant. It is unnecessary to decide whether that understanding was correct.
135.	The first category of conduct is relevant to whether loss was suffered as a result of the 2005 order. It is concerned with the way in which the US $208.5 million provided as security in substitution for that order would have been dealt with in the absence of any freezing order. The second category is concerned only with the impact of the 2007 order. Although Andrew Smith J dealt with both orders together in directing an inquiry, they are in reality separate matters. If the circumstances justify this course, there is no reason why the order for an inquiry could not be set aside in relation to the 2005 freezing order and maintained in relation to the 2007 order, or vice versa.
Availability of funds to invest in newbuildings
136.	So far as the first of these categories is concerned, the claimants say that if Mr Nikitin had informed Andrew Smith J that between 2005 and 2007 he made no shipping investment at all, this would have had a material impact on the decision whether to order an inquiry. However, as the claimants acknowledge, it was their case before Andrew Smith J that the defendants had at all relevant times very substantial funds available with which to enter into newbuilding contracts at any time following the provision of security in September 2005 had they so desired. The claimants accept that they were able to allege that the defendants had (1) received US $80 million on 10 October 2005, (2) received US $88.5 million in April 2006, (3) accumulated US $128.3 million in cash by September 2006, (4) received US $95.5 million in May 2007 and (5) accumulated cash balances exceeding US $505 million (including the US $208.5 million provided as security) by June 2007. All this was apparent from evidence served by the defendants at earlier stages of these proceedings and was before the court on the defendants’ application for an order directing an inquiry into loss caused by the freezing orders.
137.	Andrew Smith J was well aware of this evidence and referred to it at [38] of the enforcement judgment. As he said, after referring to the absence of documentary evidence to corroborate the claim that the defendants would have entered into contracts for more newbuildings either in late 2005 or at any relevant time: “Nor did Standard Maritime in fact invest in newbuildings when, after the 2005 orders were made and security had been provided, they received substantial sums ($80 million on 10 October 2005, $88.5 million in about April 2006, $95.5 million in May 2007), and apparently had large sums in their accounts”. Nevertheless he was persuaded that the defendants had adduced sufficient evidence that they had suffered a loss to justify making an order for an inquiry.
138.	In these circumstances none of the requirements for setting aside a judgment on the grounds of fraud are satisfied. There was no conscious and deliberate concealment of the defendants’ accumulation of assets which could have been available to invest in shipping including newbuildings. On the contrary this evidence was before the court. Even if later disclosure had added further detail, any new evidence was not material. I am not persuaded that it would have made any difference to the decision of Andrew Smith J to order an inquiry.
139.	Nor can the claimants invoke the doctrine of “unclean hands”. There is no need for any assessment whether the misconduct of the claimant is sufficient to warrant a refusal of the relief sought. There is no relevant misconduct to be considered. If there were, however, it would in my judgment be necessary to take into account (1) that having heard the evidence on the inquiry itself, I have accepted on the balance of probabilities that without the 2005 order Mr Nikitin would have sought to invest in a newbuilding programme and has suffered substantial losses as a result of being prevented from doing so and (2) the claimants’ own misconduct in suppressing material facts when applying for the order. I would not in those circumstances have regarded the misconduct of the defendants as sufficient to warrant a discretionary refusal of relief.
Funds at Wegelin “earning interest”
140.	As already explained, although it was Mr Nikitin’s evidence that the sums caught by the 2007 order “remained at Wegelin earning interest”, and that the money was tied up “at modest rates of interest”, that was untrue. Even if, as Mr Baum of Wegelin explained, the change in investment strategy from November 2008 was perceived as a low risk strategy of diversification necessitated by concerns in the light of the financial crisis as to the safety of funds held on deposit with other banks, I cannot accept that Mr Nikitin’s evidence was substantially accurate (as the defendants contend) or that the reference to modest rates of interest was an honest mistake. It is no answer to say that some part of the return obtained (for example from investment in bonds) could loosely be referred to as “interest”. The return from other investments, such as foreign exchange transactions and holdings in gold or gold-related funds, plainly could not. Indeed such transactions could result in losses. So far as the losses caused by the 2007 order were concerned, what had actually been done with the funds caught by this order was of obvious importance. I am inclined to think, therefore, that there is at least a strong argument that the order for an inquiry as to the damages suffered as a result of the 2007 order was obtained by fraud and should be set aside. 
141.	However, I have already found that even without the 2007 order, nothing different would have been done with the money held by Wegelin and accordingly that the defendants have failed to prove any loss suffered as a result of that order. In those circumstances it matters not whether the order directing an inquiry is set aside or whether the defendants’ claim for damages is merely dismissed. The circumstances in which this would make a practical difference would be circumstances where the defendants had suffered a loss as a result of the order and the question was whether despite this the order for an inquiry should be set aside or the defendants should be prevented on equitable grounds from recovering in respect of that loss. If that were the position, it is not at all clear that Mr Nikitin’s evidence would be “material” in the sense explained by Aikens LJ or that it would be inequitable (having regard to the serious and culpable failures of disclosure by the claimants in obtaining the freezing order in the first place) to require the claimants to compensate the defendants for the loss suffered. But as that question is academic, I need not pursue it.
Conclusions
142.	For the reasons set out above I conclude that:
a.	On the balance of probabilities the defendants would have sought to invest the funds provided as security following the 2005 freezing order in a programme of newbuildings.
b.	They had a 50% chance of making the profits claimed, based on (1) shipbuilding contracts concluded in the final quarter of 2005, (2) resales concluded in spring 2008 and (3) receipt of the resale proceeds on delivery of the vessels under the shipbuilding contracts.
c.	The proceeds would then have been invested by Wegelin & Co in the same way and with the same return as the defendants’ funds in fact held with Wegelin.
d.	The defendants are entitled to damages accordingly, after giving credit for (i) the interest earned on the funds held in the Lawrence Graham account and (ii) the return earned on funds held with Wegelin which would have been used to fund instalments due under the shipbuilding contracts.
e.	The 2007 freezing order caused no loss to the defendants.
f.	The claimants’ application to set aside the order directing an inquiry as to the damages suffered as a result of the 2005 freezing order or for relief to be withheld on equitable grounds is dismissed.
g.	The claimants’ equivalent application in relation to the 2007 order does not arise. 
143.	As I began this judgment by observing, Mr Nikitin has been found to be dishonest in at least some of his business dealings and untruthful in his evidence in this court. It may therefore seem odd to be awarding damages for his benefit running into tens of millions of dollars. However, as Andrew Smith J pointed out at [32] of the enforcement judgment, even serious and well-founded criticisms of a defendant’s character do not mean that claimants can be less scrupulous in complying with their duties when applying for a freezing order. Nor do they provide a reason not to enforce an undertaking: 
“It is an integral part of the court’s procedure to require undertakings when making such interim orders so that defendants can be compensated in appropriate cases, and it is no less important where the character of the defendant or the nature of the case apparently justifies a freezing order.”
144.	The potentially devastating consequences of a freezing order have often been recognised. 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.