(1) FYFFES GROUP LIMITED v (2) CARIBBEAN GOLD LIMITED [2000] EWHC 224 (Comm)

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION (Commercial Court)
[2000] EWHC 224 (Comm)Case No Case No: 1998 Folio No. 646Venue Royal Courts of Justice, Strand, London, WC2A 2LL
Between
(1) FYFFES GROUP LIMITED(2) CARIBBEAN GOLD LIMITED(3) E & F SHIPPING LIMITEDClaimants(1) SIMON TEMPLEMAN(2) MARNIX VAN OVERKLIFT(3) GEERT PEPPING(4) ERIK MUSTERD(5) SEATRADE HOLDINGS B.V.(6) SEATRADE GRONINGEN B.V.(7) SEATRADE GROUP N.V.Defendants
Before
Mr Justice ToulsonMr M Howard QC and Mr A White (instructed by Herbert Smith for the Claimants)Mr A Jones QC, Mr J Lockey and Mr N Hart (instructed by Dorman & Co for the second to seventh Defendants)
[1]Mr Justice Toulson: Introduction The claimants allege that over a five year period from 1992 to 1996 their employee Mr Simon Templeman, the first defendant, took bribes amounting to over US $1.4 million from or with the connivance of the second to seventh defendants. The essential issues are whether the allegation is true; and, if so, what loss the claimants have suffered and what remedies are available to them. The action against Mr Templeman was settled on terms that he would help the claimants in their action against the other defendants, and he gave evidence on the claimants' behalf. The parties The claimants belong to the Fyffe group of companies, and I will refer to them collectively as Fyffes. The group is involved in the banana trade. It is headquartered in Dublin with offices in London and elsewhere. The parent company is Fyffes Group plc. The chairman of Fyffes Group plc is Mr Neil McCann. His son David was appointed group managing director in 1989 and chief executive in 1995. During 1989 and 1990 Fyffes secured several contracts for the supply of bananas which necessitated a year-round shipping service to carry the fruit from Central America to Europe. The group did not have anyone experienced in ship chartering. It was therefore decided to advertise for a suitably experienced person. Mr Templeman applied. He had worked in the shipping industry for nearly thirty years and was experienced in the chartering of reefer vessels. In April 1990 he joined Fyffes Group Limited as its general manager, marine operations. He was never a director of the company. He resigned, supposedly on grounds of ill health, after the discovery by Fyffes in 1997 of the matters which have given rise to this action. From April 1990 until November 1991 Mr Templeman worked from Fyffes' offices in London, reporting to Mr Russell Peters, who was a director of Fyffes Group Limited and head of its marine department in London, which handled all shipping matters affecting the group. In November 1991 Mr Templeman was seconded to Fyffes Bananas International in Fort Lauderdale, Florida. This was a new division of Fyffes Group Limited with responsibility for the purchasing of bananas in Central America and related shipping operations. From November 1991 until he was transferred back to England in early 1997 he reported to Mr Dennis Martin. Mr Martin was a director of Fyffes Group Limited from 1987 until his retirement in 1995, and from 1991 he was managing director of Fyffes Bananas International. The fifth, sixth and seventh defendants belong to the Seatrade group of companies, and I will refer to them collectively as Seatrade. The group's ultimate owners were Mr Van Overklift and Mr Pepping, the second and third defendants. Mr Van Overklift and Mr Pepping both come from seafaring families and joined the group in the 1970s. Since then the group has developed considerably. By the 1990s Seatrade had become either the largest or one of the largest reefer operators in the world. In addition to vessels which were owned or partly owned by companies within the group, it also operated a pool scheme by which it managed vessels belonging to others on a commission basis. The size of the fleet gave to the group the advantages of economy of scale, and the variety of ships in the pool gave great flexibility in the service which it could offer to its customers. Mr Van Overklift is and was at the relevant times Seatrade's chief executive. Mr Pepping joined the group as chartering manager. He remained active on the chartering side until the late 1980s or early 1990s, although his interests and responsibilities developed in other directions. Mr Erik Musterd, the fourth defendant, joined the group as chartering manager in April 1987. His job title was later changed to director of chartering. His task was to find customers, negotiate the terms of transactions and oversee their performance. As Mr Musterd became established in his post, Mr Pepping's involvement on the chartering side gradually declined and in 1992 he ceased any direct managerial functions. Mr Musterd retired from Seatrade in 1995. Mr Musterd was an old friend of Mr Pepping. They had worked together in the early 1970s in Monaco for another Dutch shipping company, Transports, where Mr Pepping had been junior to Mr Musterd. Mr Templeman was then also working in Monaco and lived in the same apartment building as Mr Pepping. They came to know one another and Mr Pepping introduced Mr Templeman to Mr Musterd. Through that introduction Mr Templeman himself obtained employment with Transports. There he met his future wife Suzanne, who features later in the story. At Transports she worked as a secretary for Mr Musterd, Mr Pepping and Mr Templeman. Background to the negotiations for the service agreement Until 1986 Fyffes Group Limited had been a wholly owned subsidiary of another major fruit company, Chiquita, and bought most of its Central and South American bananas through Chiquita. Subsequently a commercial war developed as Fyffes sought to increase their market share in Central America. Fyffes found banana growers willing to switch to them from Chiquita, but they needed to establish a regular service for shipment of the bananas. Negotiations between Fyffes and Seatrade led to the preparation of a form of contract of affreightment (COA), dated 8 February 1990, between the seventh defendant and the second claimant, Caribbean Gold Limited (a Fyffes company based in Guernsey). It was signed on behalf of the seventh defendant but never executed by the second claimant. An addendum dated 9 February 1990 recorded that it was intended that the contract should last for 12 months, but that if the intended contract was not concluded the charterers should pay an extra lump sum freight of $50,000 for each shipment. That addendum too remained unsigned by the second claimant, but a number of shipments took place. At this time the "banana wars" (as they were described in press reports) reached the point that armed attacks were made in Honduras on Seatrade vessels carrying Fyffes bananas and cancellations occurred as a result of anticipated violence. Mr Templeman joined Fyffes in April 1990 at the height of the banana wars. In June 1990 a peace agreement was reached between Chiquita and Fyffes which opened the way for Fyffes to acquire a significant portion of the market, subject to a four month cooling off period in which Chiquita was to take all the growers' fruit from Honduras. At this stage Fyffes changed their shipping arrangements and made an agreement with Reefer Express Lines Pty Limited ("REL") for the shipment of their bananas during 1991. Unknown to anyone at Fyffes other than Mr Templeman, Mr Templeman received commission of 1.25% on the freight paid by Fyffes to REL. The payments were made to a Cypriot shell company, Daphne Business Corporation, formed by a Cypriot lawyer named Nestor Nestoros. Seatrade felt aggrieved at the loss of Fyffes' business and the way in which they saw themselves as having been treated after their support for Fyffes at a difficult time. They also claimed, but Fyffes denied, that they were entitled to an additional $50,000 for each voyage which they had performed prior to the ending of the banana wars. The REL contract turned out to be unsatisfactory for Fyffes. The volumes of bananas shipped during the year were lower than Fyffes had estimated, with the result that they had to pay substantial dead freight. Moreover Fyffes did not consider REL's fleet to be of the standard which they expected and there were various operational problems which led to legal claims. For 1992 Mr Templeman decided to try to negotiate freight rates based on a voyage rate per large box equivalent (LBE), which would translate into a lump sum round voyage cost for each class of reefer according to its capacity. Fyffes would nominate the class of ship required for each voyage on the basis of growers' estimates which would be received some weeks before the voyage in question was scheduled. This would allow the matching of ships to liftings and so minimise dead freight. The idea was sound, but it required a reefer operator who could offer the necessary flexibility. The largest operators were Seatrade and Cool Carriers. Mr Templeman gave Cool Carriers an opportunity to quote, but negotiations with them did not progress far because it became apparent at an early stage that they did not have the type of tonnage to match Fyffes' requirements. An opportunity to quote was also given to REL, but they were unable to match what was offered by Seatrade. Seatrade was the obvious candidate. The opening of negotiations with Seatrade Formal negotiations between Fyffes and Seatrade began with a fax from Mr Templeman to Mr Van Overklift and Mr Musterd dated 1 October 1991 enquiring whether Seatrade would be interested in offering for a COA covering weekly shipments of bananas from the Caribbean/Central America to the UK/Continent for 1992. Mr Musterd telephoned Mr Templeman in response to his fax and had a general discussion about Fyffes' requirements. This led to a fax from Mr Templeman to Mr Musterd dated 2 October 1991 giving further details. Then followed two important events, the first a telephone conversation between Mr Templeman and Mr Musterd later that day, and the second a meeting between Mr Templeman, Mr Musterd and Mr Van Overklift on the following day at the Edwardian International Hotel, Heathrow. The telephone conversation of 2 October 1991 During this conversation the question of commission was raised. Fyffes' initially pleaded case was that the subject of commission was first brought up at the meeting on the next day, but Mr Musterd made jottings on his copy of the 2 October fax during the telephone conversation, from which it is apparent that the matter was brought up then, and Mr Templeman and Mr Musterd were agreed in their evidence that this was so, although they disagreed sharply about what was said. Mr Musterd noted "av. Year $2.75". It is agreed that this was a reference to Mr Templeman proposing $2.75 as an annual LBE rate. Underneath that entry Mr Musterd noted "comm 1¼ thru Cyprus - slush fund". Mr Templeman's evidence was that he asked Mr Musterd for a commission, giving as an initial explanation that funds were required in connection with the banana wars. Mr Musterd asked him whether this was the real reason for the commission and he then admitted that the commission was for him personally. According to Mr Templeman's written statement, he told Mr Musterd in answer to further questioning that commissions from REL were going personally into his account in Cyprus and that he wanted a similar arrangement. In cross examination he was unsure whether the subject of his commission from REL was brought up by himself or Mr Musterd, but he maintained that he told Mr Musterd that he was receiving 1.25% commission from REL. His evidence was that he did not use the phrase "slush fund" so far as he could recall, but he did at first say that the money would be used to assist people in Honduras and he agreed that slush fund would be a concise description. According to Mr Templeman, it was left at the end of the conversion that Mr Musterd would come back to him on his proposal for a personal commission. It was also agreed that they would meet on the following evening at the Edwardian International Hotel. On that occasion Mr Musterd arrived in the bar before Mr Van Overklift and took the opportunity of confirming to Mr Templeman that Seatrade would pay him commission as he had requested. Mr Musterd's evidence was that during their conversation on 2 October Mr Templeman explained that Fyffes required a 1.25% commission to be routed through Cyprus as a contribution to what he called a slush fund to help finance their expansion activities in Central America. That information did not cause Mr Musterd surprise or suspicion in the light of the history of Fyffes' expansion into Central America and battle with their competitors. The struggle had involved kidnapping of Fyffes' personnel, armed threats and intimidation. Mr Musterd viewed the deduction of 1.25% as address commission at a normal rate. At no stage did Mr Templeman say anything to indicate or cause him to suspect that the commission might be intended for Mr Templeman personally. He had known Mr Templeman for many years and trusted him. He denied that he asked whether REL were paying Mr Templeman commission or that anything was said about them paying money to Mr Templeman's account in Cyprus. He at first agreed in cross examination that Mr Templeman's request was a matter which he would have needed to discuss with Mr Van Overklift and Mr Pepping, because it would ultimately be their decision whether it was proper to pay the commission requested, but he later corrected himself and said that, as far as he could recollect, Mr Templeman's request when he first made it and explained the reason for it. He denied confirming the matter to Mr Templeman in the hotel bar on the following evening. By that stage, so far as he was concerned, it had been agreed. There was a dispute whether anything was said about confidentiality. Fyffes' case as originally pleaded was that Mr Templeman told Mr Musterd in about December 1991 that the commission must not be revealed to anyone else in Fyffes. By amendment it was alleged that Mr Templeman said this in October 1991 and his evidence was that he said it during his conversation with Mr Musterd on 2 October. Mr Musterd denied that Mr Templeman ever said that the payment of commission was not to be divulged to anyone else at Fyffes, but he accepted in cross examination that, although it was not said in so many words, the gist of the understanding was that the arrangement was not to be recorded in any written exchange with Fyffes. He recognised that the payments were not intended to be shown in Fyffes' published accounts, and he agreed that it was an improper arrangement inasmuch as it provided a way of transferring money for the purpose of paying bribes in Central America. So far as he was concerned, everybody knew that such things went on in Central America but they were not matters to be talked about openly. Because of its inherently confidential nature, it was not a matter to be brought up by Seatrade with anyone else at Fyffes, and Mr Musterd never had cause to do so. The meeting at the Edwardian International Hotel The main purpose of the meeting between Mr Templeman, Mr Musterd and Mr Van Overklift on 3 October 1991 was to negotiate on a price for the proposed service. They had a lot to drink, and Mr Templeman went to bed about 6 am. Next day he felt too ill to work. Business matters were discussed during the earlier part of the evening and various notes were jotted on paper napkins, which Mr Musterd kept. Whether because of the alcohol or for other reasons, the meaning of the notes is in part obscure. Mr Musterd wrote down various figures, including "2.80" and a deduction of "special rebate .025". No one has been able to produce a satisfactory arithmetical explanation for the special rebate figure. The figure "2.80" also appears in Mr Templeman's writing. Although the witnesses' memories of the details of the evening were understandably not good, it seems clear from the evidence as a whole that they agreed on a figure of $2.80 for the LBE rate. The next phase of negotiations After the meeting Mr Templeman had second thoughts about the LBE rate. On 6 October 1991 he wrote to Mr Musterd:
"As I said Thursday until the apple juice twisted my thoughts, a rate of $2.75 is required."
Mr Musterd was unwilling to give ground. On 7 October 1991 Mr Templeman reported to Mr Martin and Mr David McCann on his freight negotiations with Seatrade, REL and Cool. He said:
"I now have to broker Seatrade to give us a lower rate and a better bunker clause."
Mr Templeman gave contradictory evidence about whether he was sincere in this. At one stage (day 3, page 93) he said that the fax stated his genuine intention. At another (day 4, page 14) he said that it did not. On 8 October 1991 there was a meeting between Mr Templeman and Mr Hayward (an in-house accountant) for Fyffes and Mr Van Overklift and Mr Musterd for Seatrade. The principal commercial terms of the proposed agreement were discussed and largely agreed. In particular, it was agreed that freight would be based on a rate of $2.80 per LBE and on a bunker price of $75.00. No adjustment would be made for any variation in bunker rates up to $5.00 upwards or downwards, but thereafter the rate would be adjusted by $0.07 per standard box per dollar variation, the basis for calculation being the actual FOB price paid and substantiated. It is common ground that no reference was made to the 1.25% commission to be paid by Seatrade at that meeting or on any other occasion when anyone was present on Fyffes' behalf other than Mr Templeman. On 9 October 1991 Mr Musterd sent a detailed recap telex to Fyffes. There was no reference to the commission arrangement in that telex or in any other document which ever passed between Seatrade and Fyffes. From the time of the meeting on 8 October, if not earlier, there was a clear mutual understanding between Mr Templeman and Seatrade that there was likely to be a contract between them, although Seatrade knew that it would require the approval of Fyffes' board of directors and matters of detail had still to be agreed. There was also the unresolved question whether Seatrade were entitled to additional freight for past voyages. On 12 October 1991 Mr Templeman told Seatrade that REL had officially stated that they were unable to meet Fyffes' requirements. Mr Templeman said in evidence that he told Seatrade this because he wanted Seatrade to have the contract in view of their commission arrangements, although he received the same rate of commission from REL. A more likely reason is that Mr Templeman wanted to see an agreement concluded, that he had told Seatrade at the end of the meeting on 8 October that the agreement reached on that occasion was subject to any further offer from REL and to Fyffes' board approval, and that REL's withdrawal removed one of those conditions. On 14 October 1991 Mr Templeman instructed Mr David Robinson, a shipping solicitor and partner at Berwin Leighton, to act for Fyffes in drafting a service agreement. In faxes dated 15 and 17 November 1991 Mr Templeman told Mr Musterd that Fyffes' board would not give its approval until it was satisfied about various matters including dead freight (which involved arguments about stowage and load factor) and what he referred to as the "1990 COA threat". A meeting was arranged for 4 November 1991 in London, to be attended by senior representatives of both sides. Before the meeting Mr Templeman circulated a draft service agreement prepared by Mr Robinson. Fyffes also took advice from Ince & Co about Seatrade's outstanding claim. Mr Peters had accepted than an oral agreement had been reached between him and Mr Pepping in February 1990, but there was a dispute as to the nature of the agreement. Ince & Co advised that on the basis of the information and documents provided by Mr Peters and Mr Templeman, the parties had not entered into a year's COA, but Seatrade were entitled to compensation amounting to the difference between the relevant spot market rates prevailing at the time of each shipment and the freight actually paid. The letter said that Ince & Co understood that Fyffes were carrying out the necessary calculations to see what, if anything, was due to Seatrade on that basis, but there is no evidence what the result was. On Seatrade's version of what had been agreed, they had a claim worth $600,000. The meeting on 4 November 1991 The meeting on 4 November 1991 was attended by Mr Van Overklift, Mr Musterd, Mr David McCann, Mr Martin, Mr Peters, Mr Hayward and Mr Templeman. It was the only occasion on which Mr McCann spoke directly to anybody on Seatrade's side during the negotiations leading to the service agreement. From notes made by some of those who attended the meeting, it appears that Seatrade's outstanding claim was the first item discussed. It was eventually agreed at Mr Peters' suggestion that the claim would be dropped if the parties concluded a new service agreement. They then went on to discuss points of detail concerning the draft service agreement. It is common ground that at some stage Mr McCann sought a reduction in the freight rate, which Seatrade were not prepared to entertain, but there are conflicting accounts about what he said. Mr David McCann said in his witness statement:- On 4 November 1991 I attended a meeting in London... I stated during this meeting to all those present that there was no commission to be paid and that the freight rate should reflect this in Fyffes favour. Mr Van Overklift assured me that the rate being offered by Seatrade recognised this fact and was the best available. In his oral evidence Mr McCann said that he believed that he discussed with Mr Templeman and Mr Martin before the meeting how they would play the question of commission, because it was his particular hobby horse. He added that he recalled raising the question of commission on two occasions during the meeting, and he thought that Mr Musterd and Mr Van Overklift each separately said that the price that had been discussed and was on the table took into account the fact that there was no broker involved and was the best net price available. Mr Templeman had no recollection of the matter being raised at the meeting. If the subject had been raised with him by Mr McCann in advance, or if it had been raised in his hearing at the meeting, it is likely in the circumstances that he would have remembered it. In cross examination Mr Templeman agreed with Mr Jones QC that if the matter had been raised by Mr McCann his heart would have been in his mouth "or probably out of it" (day 3, page 139). Mr Jones relied heavily on that answer as an unguarded admission, because if Seatrade had agreed to pay him a secret personal commission, he would have been confident that they would not reveal it. Neither Mr Martin nor Mr Hayward remembered any mention of commission at the meeting. Mr Peters said in his written statement:
"I was present at the meeting at York Gate on 4 November 1991...I remember that at one stage in the meeting Mr McCann asked Mr Van Overklift for confirmation that there were no commissions involved in the deal, although I do not recall what Mr Van Overklift said in response. The negotiations then moved on to the level of freight rates that were to be agreed for the Service Agreement. In his oral evidence Mr Peters said that his recollection had become clearer since making his witness statement, and that in the middle of the meeting, while the parties were discussing matters of detail, Mr Templeman asked for a price cut on the $2.80 because there were commissions on either side. This interjection broke the course of the meeting and brought it to a temporary halt. When it resumed Mr Peters made his proposal for the dropping of Seatrade's claim for additional freight on past voyages if the parties were successful in reaching an agreement. Mr Musterd and Mr Van Overklift accepted that at some stage Mr McCann asked for a reduction in freight, but as far as they were concerned it was an attempt to reopen something which had already been agreed and they were not prepared to do so. They both denied that anything was said about commission and none of the notes of the meeting make any reference to commission. The meeting ended with the parties in substantial agreement but some of the terms of the contract still needed to be finalised. After the meeting Mr Musterd wrote a note dated 6 November 1991 to Mr Van Overklift. In translation it reads: Of course you realise that the Fyffes contract includes 1.25% confi (sic) commission (via Cyprus - "slush" fund). This has been included in the calculations. It does not appear anywhere in writing. I was informed of this on 2 October on the telephone by SRT. The word "confi" was underlined twice. On the same day Mr Ellis, the chairman of Fyffes Group Limited, sent a summary of the proposed agreement (prepared by Mr Templeman) to Mr Nikolaus Sch(es for an independent view. Mr Sch(es was an experienced charterer and shipowner with whom Mr Ellis was dealing at the time in connection with other matters. Mr Sch(es replied: As I told you already on the phone it is my impression that the result of Simon's negotiations is excellent. It gives you for 1992 utmost flexibility in both vessel sizes and selection for loading ports. In view of this the box rate seems reasonable. Under the given circumstances of quantities available from different sources in 1992 it is my recommendation to confirm this deal, however, of course, without any commitments for the following years. Conclusion of the service agreement The service agreement was signed on 19 December 1991 and came into effective operation from 1 January 1992, although it did not receive Fyffes' formal board approval until 3 February 1992. In outline, Seatrade agreed to provide for 12 months a weekly transportation service from four load ports in Central America and the Caribbean to Zebrugge and Portsmouth, based on a 35 day round voyage. Fyffes had the right to nominate alternative ports at no additional freight provided that the 35 day round voyage could be maintained. Fyffes had no obligation to ship a minimum number of boxes in any period or in the whole year, but they would be obliged to pay compensation at a specified rate if fewer boxes were carried in the second half of the year than in the first half. (This was because demand for reefers and, therefore, time charter rates are higher in the first half of the year, but the agreement provided for uniform freight throughout the year.) Fyffes could chose tonnage between 177,500 cubic fee and 540,000 cubic feet. They were to give 8 weeks' advance notice of approximate box liftings and 28 days' notice of any definite requirement of class of vessel. The commission payments Mr Templeman and Mr Musterd agreed that in a telephone conversation in late 1991 or early 1992 Mr Templeman told Mr Musterd that the 1.25% commission was to be paid to Daphne Business Corporation's bank account in Cyprus. Invoices from Daphne to Seatrade were in standard form, showing a PO box, telephone, fax and bank account numbers, all in Limassol. They identified a voyage, the lump sum freight and the commission due at 1.25%. They were undated and there was no covering letter. They were addressed initially for the attention of Mr Musterd. There was a delay in payment of the first four invoices, which led to a reminder from Daphne dated 10 February 1992. Mr Musterd replied by a fax dated 14 February 1992, apologising for the delay and saying that the amount had been remitted. The fax was addressed to the attention of "????", but on Seatrade's copy of the fax Mr Musterd wrote the initials SRT (for Mr Templeman) in the top corner. From April to December 1992 Daphne's invoices were addressed for the attention of Mr Pieter Hartog, an assistant of Mr Musterd who used to make out freight invoices under the service agreement. Mr Templeman gave evidence about an occasion in the course of negotiations for the renewal of the service agreement when there was a meeting in Groningen attended by Mr Van Overklift, Mr Musterd, Mr Hartog, Mr Martin and himself. Mr Templeman said that during the meeting, while Mr Martin's attention was elsewhere, Mr Hartog mentioned a problem which Mr Templeman had reported about one of the commission payments and was promptly silenced by Mr Musterd and himself. Mr Hartog was embarrassed because he realised that it was not something which he should have mentioned in the presence of Mr Martin. From the beginning of 1993 Daphne's invoices ceased to be addressed for the attention of Mr Hartog and were again addressed for the attention of Mr Musterd. It was suggested to Mr Musterd in cross-examination that the change was made after and because of Mr Hartog's unfortunate remark. Mr Musterd and Mr Hartog (in a written statement) denied that any such incident occurred, and Mr Musterd suggested that it was an invention on the part of Mr Templeman in order to provide the basis for an allegation that this was the reason for the change in the form of the invoices. Mr Hartog later left Seatrade, but before doing so he prepared for his successor a detailed account of how the Fyffes/Seatrade contract operated and a flow chart showing the various entities and people involved. Neither made any reference to Daphne or the payment of commission. It was suggested on behalf of Fyffes that if the payments were regarded by Seatrade as address commission, there would have been no reason for them not to be shown as such in Seatrade's internal documentation and included in Mr Hartog's handover instructions. Mr Musterd had no personal knowledge why there was no reference to the commission in those instructions, but he surmised that they related only to matters with which Mr Hartog's successor had to deal. After Mr Musterd retired from Seatrade in 1995 the invoices were addressed for the attention of Mr Hans Roodenberg, who had been a senior colleague of Mr Musterd. The addenda to the service agreement The service agreement was renewed by a series of annual addenda. For 1993 the nomination period was reduced from 28 to 21 days. It was intended to introduce a two ships weekly service from week 14 onwards, although the two ships service was not in fact introduced until later that year. For the first 13 weeks the lump sum freight was to be based on LBE rates of $2.85 for vessels of classes A to D, $2.75 for classes E and F and $2.70 for classes G and H. From week 14 onwards the rate for all classes was to be $2.85. Provision was introduced that if a round voyage was performed in less than 35 days Seatrade would pay despatch to Fyffes at the demurrage rate for any time saved. There was also a rise in bunker prices. At the time of renewal negotiations for 1994 the market was falling. Freight rates and bunker prices were reduced. Fyffes were also given an option, which they exercised, to extend the 1994 rates to 1995. In April 1995 the service agreement was terminated and replaced by two agreements. Under one the charterer was the second claimant and under the other the charterer was the third claimant, but there was no change to the commercial terms. The splitting of the service contract was done in the context of a restructuring of Fyffes' operations for tax purposes. Illogically the termination of the original service agreement in April 1995 did not prevent Seatrade and Fyffes from agreeing an addendum to it in December 1995, which extended its life for a further year at new freight rates, subject to a cancellation clause giving to Fyffes an option to terminate the agreement on 60 days' notice. Fyffes wanted this flexibility because they were considering the takeover of the banana division of a rival, Geest, and foresaw that they might want to change their shipping arrangements. The takeover occurred in January 1996. At the same time as Fyffes were negotiating for the extension of the Seatrade service agreement into 1996, they also negotiated an agreement with Cool Carriers for the time-chartering of four "
Crystal class" vessels, which had on-deck container capacity and self sustaining container cranes. As a result, the tonnage shipped for Fyffes by Seatrade in 1996 fell to about half the amount shipped in 1995. At the end of 1996 Seatrade put forward proposals for a further extension of the service agreement, but Fyffes declined them because they had decided to change to time-chartering arrangements. The events of early 1996 In January 1996 Mr Templeman travelled from Florida to Europe to discuss future shipping arrangements in the aftermath of Fyffes' takeover of Geest's banana division. During his visit he met Mr Van Overklift in Southampton. He also met Mr Pepping and Mr Van Overklift at their offices in Antwerp. While Mr Templeman was in England, his wife Suzanne rang to tell him that she wanted a divorce. His evidence was that they had both been having affairs, and that Suzanne and her boyfriend knew about the Daphne arrangements. The Daphne payments went into a joint bank account of Mr and Mrs Templeman in Florida. Mr Templeman's evidence was that he realised immediately that he would have to change the Daphne account details in order to protect himself and to keep the funds away from Suzanne before they became part of any potential divorce settlement. So he rang Mr Nestoros, who said that he had already received a phone call from Suzanne and recommended that the account details should be changed. On the same day Mr Nestoros faxed the new details to Mr Templeman at his hotel. Daphne was to be replaced by a company called Paru Container Services Limited, which, like Daphne, had a PO box address and bank account in Limassol. In his witness statement Mr Templeman described what happened next as follows: The next time I saw Mr Van Overklift and Mr Pepping together, which was in Antwerp a couple of days later, I told them that Suzanne wanted a divorce. The conversation was quite emotional. (Following Suzanne's initial telephone conversation there had been further communications in which it became clear that her boyfriend was attempting to use the commissions against me in the proposed divorce proceedings.) I also told them that I was being blackmailed by Suzanne's then boyfriend over the commissions I had been receiving. I then handed over a copy of Mr Nestoros' fax giving the change in account details, and explained that the reason for the change was that Suzanne had been trying to get money from the Daphne account. Mr Van Overklift and Mr Pepping were upset to hear about my pending divorce but said that they would handle the change in the commission payment arrangements accordingly. They were very sympathetic and supportive and offered to do what they could to help Suzanne and myself out. In cross examination Mr Templeman admitted to an error in referring to blackmail at that stage by Suzanne's boyfriend, because blackmail from the boyfriend began in June 1996 after Mr Templeman and Suzanne became reconciled. In January 1996 the blackmail to which he was referring came from Suzanne herself, but he was adamant that it related to her knowledge of his commission payments. It was put to him that, while he may have told Mr Van Overklift and Mr Pepping that Suzanne was blackmailing him and may have mentioned her boyfriend, he did not link the blackmail to the commission payments in anything which he said to Mr Van Overklift or Mr Pepping. Otherwise the account which he gave in the passage from his witness statement set out above was not challenged. Mr Van Overklift gave evidence that at the time of the meeting in Antwerp Mr Templeman was in a highly emotional state and in tears or close to tears. He said a lot of things and might have used the word blackmail, but he did not say that he was being blackmailed over the commission payments. He mentioned the change from Daphne to Paru as he was leaving and produced the piece of paper with the new account details. He said that future invoices would be from Paru and asked for them to paid into Paru's account but he gave no explanation for the change. It did not strike Van Overklift as odd, because it was not the first time when dealing with Fyffes that there had been changes in company names. Mr Pepping said in a supplemental witness statement that he recalled a visit by Mr Templeman to Seatrade's Antwerp office in early 1996 when he referred to marital problems, but Mr Templeman did not mention blackmail or say anything about commissions. In his oral evidence Mr Pepping said that he left the meeting before there was any mention of Mr Templeman's marital difficulties. On 4 February 1996 Mr Templeman faxed to Mr Van Overklift the following message, marked confidential: Whilst I was recently in Antwerp and again when we met in Southampton you kindly offered to help me in my marital problems. I need your help as am in a very unpleasant situation with Suzanne in the divorce proceedings. Will call you from office Monday 5th. My sincere apologies for contacting you in this manner, but I am in serious problems. It is common ground that in the ensuing telephone conversation (of which Mr Van Overklift made a note) Mr Templeman asked Mr Van Overklift for a loan of up to $400,000 to fund a lump sum settlement with Suzanne, the loan to be repaid within three years. Mr Templeman said that he asked for the loan against the income from the commission payments; Mr Van Overklift denied this. It is also common ground that Mr Van Overklift said that he would discuss the matter with Mr Pepping, which he did, and that in a later phone call Mr Van Overklift told Mr Templeman that they were prepared to make the loan. However, the matter went no further because Mr and Mrs Templeman decided to stay together. Mr Van Overklift said in evidence that there would have been no benefit to Seatrade from the loan, but he and Mr Pepping agreed to make it because Mr Templeman was in deep trouble and they had a soft spot for him as a likeable person who had been a good friend of Mr Musterd and also of Mr Pepping in past times. Mr Pepping's evidence was that he and Mr Templeman had developed social ties when they were both working in Monaco. After Mr Pepping left Monaco in 1977 they had seen each other only occasionally over the next fifteen years. When Mr Templeman joined Fyffes they would have a few minutes' conversation with each other about once a year and would possibly see each other at meetings. Mr Pepping agreed in cross-examination that their degree of contact would not suggest a close personal relationship, but he described the position as follows (day 9, page 65): You know if you are in a foreign country and if you can imagine that in Transports under Mr Musterd we were working practically 7 days a week, most of the days were 12 hours or more, then you get to know people. So you do that for a few years, even after 10 years you still know the man and you talk to each other and you only need 10 or 15 minutes and you know what the status is and you know where you are; that was the situation. The Paru commissions were paid into the same joint account of Mr and Mrs Templeman as the earlier Daphne commissions. Mr Templeman's explanation was that when Suzanne began divorce proceedings in January 1996 "some very strong statements were made in the divorce papers so it was agreed that the money would still continue to flow in the manner that it had been flowing" (day 4, page 126). In cross-examination it was suggested to him that his story of blackmail, the substitution of Paru for Daphne and his approach to Mr Van Overklift and Mr Pepping for a loan were ploys contrived to set up some advance form of defence and to place Mr Van Overklift and Mr Pepping in a compromising position in case his criminal activities should ever come to light. Fyffes' discovery of the commissions On 15 November 1996 Mr Templeman was visited at his office in Fort Lauderdale by two agents of the United States Inland Revenue Service Criminal Investigation Division. They questioned him about non-declaration of income earned by him in addition to his salary from Fyffes. Mr Templeman believed that they were tipped off by Suzanne's former boyfriend. Mr Templeman appointed a firm of attorneys specialising in tax and criminal law. His attorney made it clear to him that it was inevitable that the IRS would contact Fyffes. Mr Templeman had been discussing with Fyffes the possibility of returning to the United Kingdom and he now pressed for a transfer home as soon as possible, but without disclosing the reason for his urgency. Mr Templeman also telephoned Mr Van Overklift to say that he was thinking of leaving Fyffes and to ask whether Seatrade would employ him. He did not tell Mr Van Overklift about the IRS inquiry. Mr Van Overklift said no. Mr Templeman was more successful in his efforts to persuade Fyffes to transfer him back to the United Kingdom, and he returned in February 1997. Before leaving Florida he destroyed all incriminating documents which he could. Fyffes learned of the IRS investigations in March 1997, when the IRS contacted their Fort Lauderdale office and issued them with a summons to produce information. The matter was reported to Fyffes' headquarters by a fax from the general manager of the Fort Lauderdale office as follows:- The IRS are conducting a criminal investigation on Simon Templeman for the years 1992 to 1997. The difference between a criminal and a civil investigation is with criminal there is a wilful intent to evade taxes. They say that Simon has received weekly payments from a Co called Daphne Business Corp in Cyprus to a level well in excess of his Fyffes salary. They say that Daphne is Service Co which pays out irregular payments, in this case kickbacks from Scaldis [ie Seatrade]. They would not say how long they knew this or what proof they had but seemed very sure and had Marnix Van Overklift's name. They visited Simon in the Ft Lauderdale office before Christmas and confronted him with their views. They would not tell us his reply but said he should not be surprised to hear that they had now involved Fyffes in their investigation. Mr David McCann immediately summoned Mr Templeman to Dublin. They had a short initial meeting. When it resumed, Fyffes' solicitor was in attendance and took notes. It was followed by a number of similar meetings in which Mr Templeman was questioned about his activities. Fyffes, as they are entitled, have maintained privilege in respect of their records of those meetings and any statements provided to them by Mr Templeman at that stage of their inquiries. On the evening of 14 March 1997, while Mr Templeman was driving home from Gatwick airport after his visit to Dublin, he received a call from Mr Van Overklift on his mobile phone. Mr Van Overklift had himself received a phone call from Sergeant Burde, the officer in charge of the IRS inquiry, and had put the matter in the hands of Seatrade's general office manager, Mr Larsson, and their legal department. Mr Van Overklift said that the IRS call left Seatrade flabbergasted and they decided to call Mr Templeman to find out what really had happened. For Seatrade it had been address commission, and they wanted to make sure that the IRS understood this. He did not call Fyffes, because they were sure that Fyffes would know about the matter and they had finished doing business with Fyffes. Mr Templeman and Mr Van Overklift gave conflicting accounts of their telephone conversation. According to Mr Templeman's version, Mr Van Overklift told him that David McCann had telephoned for him and was insisting on speaking to him. Mr Van Overklift wanted to know whether the conversation would be to do with the IRS and the payments to Mr Templeman, because the IRS had been in contact with Seatrade. Mr Templeman confirmed this and said that he was just returning from Dublin after seeing David McCann and telling him that Seatrade had been paying him a commission. Mr Van Overklift expressed sympathy for Mr Templeman and regret for the way in which matters had turned out, but said that he was going to tell David McCann that as far as Seatrade was concerned the payments were just address commissions. Mr Templeman said that he appreciated that this was the stance that he had to take. According to Mr Van Overklift's version, he confronted Mr Templeman with what he had been told by the IRS. Mr Templeman replied that it was true and that he had been in Dublin that day and told Fyffes the story. Mr Templeman also volunteered that he had told Dublin that Seatrade knew that the money was going to him. Mr Van Overklift replied that this was ridiculous because for Seatrade it had always been an address commission, and he could not understand why Mr Templeman should have come up with such a story. There the conversation ended. On 26 March 1997 the IRS wrote to Mr Larsson as follows: Mr SIMON TEMPLEMAN manager of Marine Operators for Fyffes Bananas International (FYFFES), is the subject of an official investigation by this Department. It is my understanding that your company, Scaldis Reefer Chartering (Scaldis), has contracted with Fyffes for a number of years for the purpose of providing shipping services for Fyffes produce. It is also my understanding that your company's contact at Fyffes was Mr Templeman. As you indicated during our conversation, it is common practice for shipping companies such as Scaldis to pay rebates or commissions to clients such as Fyffes. In this regard, you indicated that you rely on instructions from the clients as to the method of payment of these rebates or commissions. It is our understanding that Simon Templeman was the recipient of these rebates or commissions. Furthermore, the Daphne Business Corporation Cyprus appears to have been a conduit for many of these payments. Therefore, in furtherance of this official investigation, it is requested that you provide detailed records of the following: Identify all Fyffes officials involved in negotiating shipping contract with Scaldis since January 1st 1992;[2]Identify all Scaldis officials involved in negotiating shipping contracts with Fyffes since January 1st 1992;[3]Nature of Scaldis' business association with Simon Templeman; beginning and ending dates of Scaldis' business association with Simon Templeman;[4]Record of each rebate and or commission payment made by Scaldis as a result of doing business with Fyffes, and records of the corresponding transactions which generated these rebates or commissions, since January 1st 1992;[5]Details of how, to whom and by what means the rebates and commissions generated by doing business with Fyffes were made; and the identity of the Fyffes employee(s) who took part in providing these instructions;[6]Records of all banking and transmittal documents pertaining to the payment of these rebates/commissions including bank wires to Fyffes, Templeman and Daphne Business Corp. The IRS appear not to have known at that stage about the Paru commissions, but they asked for the dates of Seatrade's association with Mr Templeman and for details of all commission payments made since 1 January 1992. From documents disclosed by Seatrade, it appears that somebody on their behalf prepared summaries both of the commissions paid to Daphne between 1992 and 1995, which totalled $1,294,704, and of the commissions paid to Paru in 1996, which totalled approximately $185,000. Mr Van Overklift surmised that Seatrade's administration department must have gathered the figures together in connection with the request of the IRS. On 18 April 1997 there was a meeting in Dublin between Mr Musterd, Mr Van Overklift, Mr David McCann and Carl McCann. Mr Carl McCann produced in evidence his note of the meeting, about which he was not cross-examined. Mr David McCann said that Fyffes had become aware that Seatrade had paid large kickbacks to Mr Templeman and that the situation was extremely serious. Mr Mustard responded that Mr Templeman had said that Fyffes would like a commission paid in Cyprus. Mr Van Overklift said that he understood that it was an address commission of "some $1.2m". The meeting ended with Fyffes refusing to accept that explanation and threatening legal action. On 28 April 1997 Mr Larsson wrote to the IRS: To clarify the background the contract between Seatrade Group NV Willemstad, Curacao and Fyffes Group Limited, London, England was concluded 19 December 1991. At that time the organisation of Seatrade Groningen, Holland represented Seatrade Group NV and Fyffes was represented by their shipping manager Mr Simon Templeman. In 1993 Scaldis Reefer Chartering resumed the operational responsibilities for the Seatrade Group NV. During the negotiation of the contract it was made clear by Mr Simon Templeman that Fyffes demanded an address commission, which is a normal way of providing a rebate to cover the charter's administrative shipping cost. This commission was to be paid to Daphne Business Corporation and has as such been properly invoiced for each vessel under the aforementioned contract. The business has been conducted during the years 1992-1995 under this agreement and during this period with Mr Simon Templeman as the sole commercial contact with Fyffes. Please find enclosed a summary of the commission review covering 1992, 1993, 1994 and 1995. Mr Van Overklift was unable to say why Seatrade confined their answers to the IRS's questions to the years 1992 to 1995 and made no reference to the 1996 payments to Paru. He said that the matter was referred to Seatrade's claims department and, as far as he knew, they acted as advised by lawyers in Rotterdam. It was put to Mr Van Overklift that there was a deliberate decision to conceal the Paru commissions both from the IRS and from Fyffes at the meeting on 18 April 1997, when (according to Mr Carl McCann's note) he referred to the amount of the commission as about $1.2 million, because the transfer from Daphne to Paru and the circumstances in which it occurred were incriminating. Mr Van Overklift denied the suggestion. He said that if Mr Carl McCann's note was accurate in recording him as saying that he understood that Mr Templeman had received commission of some $1.2 million, he could not think of any reason for mentioning that sum, but that when he went to Dublin he did not have Seatrade's records or go for a discussion about detailed amounts. The Seatrade defendants' understanding of the payments The central issue on liability is stark. Fyffes say that Mr Musterd, Mr Van Overklift and Mr Pepping knew all along that the payments were for Mr Templeman personally. The defendants say that they believed at all times that the payments were not for him personally but were for the furtherance of Fyffes' business in the Caribbean. The allegation made by Fyffes is grave and requires correspondingly cogent proof: Hornal v Neuberger Products [1957] 1 QB 247 and Jyske Bank v Spjeldnaes , 29 July 1999, Court of Appeal (unreported). It would be unsafe to base a finding of liability on any uncorroborated evidence of Mr Templeman for several reasons. He acted with calculated dishonesty towards his employers for large gain over a long period. When caught, he faced an obvious risk of a substantial period of imprisonment if Fyffes reported him to the police. He was intelligent enough to know that his prospects of avoiding that result might well depend on how far he co-operated with Fyffes and how much value they placed on his co-operation. He therefore had an obvious motive to implicate Seatrade, truthfully or untruthfully. Because Fyffes did not report him to the police, and because they conducted their interviews with him in circumstances attracting privilege, I have no detailed information about what he said when he was first questioned. However, there are a number of pointers towards inconsistency. I will refer to two examples. Paragraph 10(3) of the points of defence alleged: On 2 October 1991 Mr Templeman of Fyffes spoke with Mr Musterd on the telephone to review Mr Templeman's fax of 2 October 1991 which provided estimated volume information, distance and scheduling details. In the course of the telephone conversation, Mr Templeman indicated to Mr Musterd that Fyffes would require a 1.25% commission on the lump freight to be paid under the proposed service agreement ....Mr Templeman indicated to Mr Musterd that Fyffes required the 1.25% commission to be paid to them "through Cyprus" to be used by Fyffes to finance their market expansion activities in Central America. Paragraph 4.3 of the points of reply, presumably based on a statement provided by Mr Templeman, stated: It is denied that Mr Templeman indicated to Mr Musterd that Fyffes would require a payment of 1.25% commission, or that Fyffes required the 1.25% commission to be paid to them through Cyprus to be used by Fyffes to finance their market expansion activities in Central America, as alleged or at all. As I have previously set out, Mr Templeman's evidence (after disclosure by Seatrade of Mr Musterd's annotated copy of the fax of 2 October 1991) was that he did indeed begin by saying words to that effect, or something very similar, but that Mr Musterd questioned him and he then admitted that the payment would be for himself. The second example does not directly affect Seatrade but has some similarity to the first. On 22 August 1997 Mr Klaus Hinrichsen, REL's broker, wrote to Mr David McCann after a meeting in Dublin, saying: Your allegation was that we actively made approaches to ST by offering him a private participation of 1.25%, payable to an account in Cyprus, on all freight paid under a contract of affreightment that we negotiated between him as the charterers' representative and Ira Heisler of Reefer Express Lines. This must presumably have reflected what Mr Templeman was saying at that stage; but his evidence at the trial was that, as in the case of Seatrade, he was the one who raised the subject of commission and that he initially put forward the story that it was to be for Fyffes. The other witnesses called on behalf of Fyffes were all undoubtedly honest. For the most part their accuracy was not in dispute, although there was a major controversy about whether Mr David McCann raised the subject of commission at the meeting on 4 November 1991 when trying to obtain a reduction in freight. In relation to that issue, Mr Howard QC submitted that logic would suggest that Mr McCann would have wanted to put forward a reason for a reduction in freight and that it would have been natural for him to put forward the lack of commission. The point is a fair one; but logic would also suggest, as Mr David McCann himself recognised, that he would have discussed the matter in advance with the Fyffes team including Mr Templeman. He indeed believes that he would have done so, but if he had, it is hard to believe that Mr Templeman would have forgotten it. As to whether Mr McCann did or did not expressly raise the question of commission at the meeting of 4 November 1991, I have summarised the evidence. To my mind it is too uncertain and conflicting to justify a finding that he did. On the defendants' side, Mr Musterd, Mr Van Overklift and Mr Pepping are experienced and respected members of the reefer trade, which is a small world. Their evidence was that they trusted Mr Templeman as someone who was similarly well regarded in the trade and had been known to Mr Musterd and Mr Pepping for many years. It was submitted on their behalf that they were not the only people to be so duped, and that Mr Templeman also obtained commissions from REL and Cool Carriers by pretending that they were for Fyffes. That was the explanation advanced by Cool Carriers and REL's broker, Mr Hinrichsen, in 1997 when the payments obtained from them by Mr Templeman came to light. Mr Jones submitted that it was unrealistic to suppose that there was collusion between Cool Carriers, REL/Mr Hinrichsen and Seatrade as to the explanation which they would give, and that the similarity of their accounts tended to support the conclusion that they were all deceived by Mr Templeman. Mr Howard submitted that there were good reasons to disbelieve Cool Carrier's and REL/Mr Hinrichsen's assertions of innocence. I am concerned in this action with the knowledge of the Seatrade defendants. For that purpose it is not necessary that I should make any finding of fact as to the knowledge of Cool Traders or REL/Mr Hinrichsen, nor would I be in a proper position to do so on the limited evidence which I have heard in relation to them. Mr Jones further submitted that the documents relied upon by Fyffes as incriminating were all capable of innocent explanation, and he pointed to the fact that many of them had been disclosed by the defendants as an indication of lack of guilty knowledge on their part. In considering where the truth lies, I take as a starting point the question of the apparent normality or abnormality of Mr Templeman's request to Seatrade for the payment of commissions. The position taken by the Seatrade defendants in their points of defence was that Mr Templeman's request on behalf of Fyffes for payment of commission was not unusual. There is certainly nothing unusual about a shipowner and ship charterer agreeing that the charterer should receive what is misleadingly termed "address commission", but is in reality a discount or rebate on the hire. It is also not uncommon for such "commission" to be paid to a nominee of the charterer. However the practice may have arisen, its existence was acknowledged by the experts on both sides and is recognised by textbook writers, including Harvey Williams, who comments in his book on Chartering Documents, 4th ed. 1999, at p 94: Address commission is not really commission at all, but rather a discount on the hire, usually made payable to a nominee of charterer for primary fiscal reasons. The effectiveness of such arrangements if contrived purely for the avoidance of tax may be doubtful, but I am not concerned with that question. I am concerned only with what the Seatrade defendants understood the position to be. Mr Templeman's request presented some unusual features. These were highlighted in a request for further information, made by Fyffes pursuant to CPR Pt 18, in which they asked: Have the second to seventh defendants or any of them, at any time, paid address commissions to charterers or to third parties in circumstances where:(a) no reference was made to that address commission in the contractual documentation relating to the particular transaction; and(b) the address commission was paid to offshore account/s with no apparent connection to the contracting party/parties? In reply, Seatrade stated through an affidavit sworn by their solicitor on 30 November 1999: The answer to the question posed in the claimants' request under CPR 18 is to the affirmative. However, the defendants object to wholesale disclosure of these documents on two grounds. First, most are irrelevant, for the reason stated in the defendants' expert report: they are contracts negotiated against a background of far ranging variations in market rate, product destination, risk and flexibility. The Service Agreement was for the same reasons, unique. Second, the documents requested here refer to commercially sensitive material of which disclosure would automatically breach client confidentiality on the part of Seatrade. On 1 December 1999 Colman J ordered that Seatrade disclose all documentation evidencing each and every payment, during the period from 1991 to October 1995, of address commission to charterers or to third parties in circumstances where no reference was made to that address commission in the contractual documentation relating to the particular transaction and the address commission was paid to an off shore account with no apparent connection with the contracting party or parties. No such documents were produced and the defendants were unable to cite any incidents of payment to any other party in the circumstances identified in Fyffes' request. The evidence for the defendants at the trial was that they had been mistaken in thinking that there were other examples. An agreement to pay address commission would ordinarily be documented in some way between the parties. An arrangement, intended not to be documented or subsequently mentioned, by which commission was to be paid to an off shore company lacking apparent connection to the charterer, was not an ordinary arrangement. As the trial progressed, this was acknowledged by Seatrade. For example, when Mr Musterd was asked (day 6, page 135) why in October 1991, in response to a fax from Mr Templeman proposing a reduction in freight rate to $2.75, he did not make the point that Seatrade had agreed to pay address commission, he said: If it would have been a true address commission, I would have certainly made that statement. In Seatrade's closing written submissions it was accepted that "On Seatrade's case, it was no ordinary address commission because of its special features". (This was in answer to Fyffes' point that the napkin note made by Mr Musterd at the Edwardian International Hotel meeting referred to "special rebate", rather than address commission, Seatrade's submission being that "special rebate" was an adequate way of describing the arrangement.) Given that Mr Templeman's proposal to Mr Musterd had such unusual features, as Mr Musterd must have appreciated, I have to consider the plausibility of Mr Musterd's evidence that he was taken in by the explanation which it is common ground that Mr Templeman put forward when introducing his request, the effect of which (whatever the precise words used) was that the commissions were to go to a slush fund for the promotion of Fyffes' interests in Central America. In considering that question I am conscious of the need to guard against the risk of being influenced by the knowledge that the commissions in fact went to Mr Templeman personally. However, I find it extremely difficult to believe that the thought never entered Mr Musterd's mind that the money might be intended for Mr Templeman. Mr Musterd came across in his evidence as shrewd, quick, worldly and intelligent. Was he gullible on this occasion? It seems to me overwhelmingly probable that Mr Musterd would have had immediate suspicions and would have asked Mr Templeman if the money was really for him, as Mr Templeman says happened. I also consider it natural and highly probable that Mr Musterd would have asked if Mr Templeman was receiving commission from REL, as Mr Templeman claimed and Mr Musterd denied. Mr Musterd accepted (day 6, page 89) that Mr Templeman's request was something which he would have needed to discuss with Mr Van Overklift and Mr Pepping and that he probably did so, but went on to say (page 91) that so far as he recollected he agreed to Mr Templeman's request as soon as he mentioned it. He later said (day 7, page 17) that his recollection was that he discussed it with Mr Van Overklift, but he could not remember when, where or how. Mr Van Overklift's evidence was that he had no recollection of the subject being mentioned either before or at the meeting on 3 October 1991 at the Edwardian International Hotel. I believe that he must have been aware of it for two reasons. First, it is overwhelmingly probable that Mr Musterd would have mentioned it to him, for I do not believe that Mr Musterd would have agreed to pay a confidential offshore commission without telling Mr Van Overklift what was going on. Secondly, if the words on the napkin "special rebate" are a reference to commission, the matter must have been mentioned during the meeting at the Edwardian Hotel when Mr Templeman was negotiating with Mr Musterd and Mr Van Overklift over the freight rate. "Special rebate" was not a natural way to describe address commission, as was accepted by Mr Musterd (day 6, page 109) and Mr Van Overklift (day 8, page 62). They suggested the possibility that the words might have some other meaning altogether, but they were not able to suggest a credible alternative, and I conclude that "special rebate" must have been intended to refer to the commission arrangement. Mr Van Overklift has played a major part in building up a successful business and, like Mr Musterd, he came across as mentally agile and worldly wise. I do not find credible the idea that both he and Mr Musterd accepted without suspicion that the unusual commission requested by Mr Templeman was to be to the benefit of Fyffes, as is Seatrade's case - and necessarily so, for, if they had in any way suspected otherwise, honesty would have compelled them to make further enquiries. I do not regard Mr Templeman's remark that his heart would have been in his mouth, or out of it, if he had heard mention of the subject of commission at the meeting on 4 November 1991, as an unguarded admission that he had deceived Seatrade, for it would have been a natural human reaction for his guilt alone to make him feel nervous. I regard as much more significant Mr Musterd's note to Mr Van Overklift after that meeting referring to confidential commission, the absence of any reference to the arrangement in the negotiations after 3 October 1991 and the secrecy about the arrangement in Seatrade's internal documentation. The events of 1996 make sense, and make sense only, if Seatrade already knew the true nature of the payments. Mr Templeman's disclosure of his marital difficulties, his request for the commission payments to be changed from Daphne to Paru, his request for a loan of up to $400,000 to buy a divorce settlement and Seatrade's agreement to make such a loan are readily explicable on that basis. If Suzanne blew the whistle on him, the potential consequences not only for Mr Templeman but also for Seatrade were serious. If, however, Mr Templeman had been deceiving Seatrade, he would hardly have told Mr Van Overklift in the same conversation about his matrimonial difficulties, about his being blackmailed by Suzanne and about his wish to change the commission payments from Daphne to Paru. The suggestion that this was all a deliberate ploy by Mr Templeman somehow falsely to implicate Seatrade seems to me far-fetched and does not in any event account for Mr Van Overklift's and Mr Pepping's agreement to the proposed loan. Mr Van Overklift said in his evidence (day 8, page 139) that he never suspected in 1996 that there might be any connection between the change of commission instructions, the breakdown of Mr Templeman's marriage and the request for a loan. He added: It was later on, when the IRS had called and explained what they were after, that we thought maybe we have been very naive by not putting things together at the time. I did not find that evidence credible. Nor do I believe that Mr Van Overklift and Mr Pepping were willing to lend Mr Templeman $400,000 because he was a nice man down on his luck and for the sake of his past friendship with Mr Pepping and Mr Musterd. Mr Van Overklift and Mr Pepping did not come across as either soft headed or soft hearted, and their evidence on this subject was unconvincing and implausible. When questions began to be asked by the IRS and Fyffes in 1997, I am satisfied that a decision was made by Seatrade to keep silent about the Paru payments, a decision which must have been taken at the highest level. Seatrade's internal documents show that they calculated the amount of the payments made to Daphne and to Paru, but their answers to the IRS's questions were misleading because they chose to confine the information they gave to the Daphne payments about which the IRS already knew. I accept that at the meeting in Dublin on 18 April 1997 Mr Van Overklift referred to commission payments of around $1.2 million (as recorded in Mr Carl McCann's note), which similarly did not include the Paru payments, and I think that it is improbable that this was accidental or that Mr Van Overklift did not know the amount involved. I conclude that Mr Van Overklift recognised that the Paru payments and the circumstances of the change from Daphne to Paru were incriminating and hoped that neither Fyffes nor the IRS would learn about them. In his closing submissions Mr Jones referred to Mr Van Overklift's evidence about realising in 1997 that he had possibly been naive in 1996, and he suggested that this might have been the reason for Seatrade's decision not to come out in to the open about Paru in 1997. But that was not an explanation advanced by Mr Van Overklift himself. Rather, he tried to distance himself from the correspondence with the IRS by saying that it was handled by Seatrade's claims department and he denied any intention to withhold information from Fyffes. Mr Jones argued that quantum was highly relevant to liability, because if the terms of the service agreement were reasonable, that made it less likely that Seatrade would be prepared to pay a bribe. I do not regard that argument as compelling for this reason. On any showing, Seatrade agreed to pay 1.25% commission before they knew what the final terms of any agreement with Fyffes would be. If they knew that Mr Templeman was receiving personal commission from REL and they believed that he was in a position to influence Fyffes' choice of contracting partner, they had a motive to offer the same as REL. Various other arguments were advanced on both sides about liability which I have considered but to which I have not referred. For the reasons which I have set out, I am convinced that Mr Musterd and Mr Van Overklift must have known and did know the true nature of the payments from the outset. Mr Pepping's involvement was much less active. He was present at the meeting with Mr Templeman and Mr Van Overklift in Antwerp in early 1997, although there was a conflict between his witness statement and his oral evidence about whether he was in the meeting when Mr Templeman talked about his marital difficulties. He agreed to Mr Templeman's request for a loan shortly afterwards. There was also evidence from documents disclosed by Seatrade that he had some involvement at the time of the IRS investigation and was aware then of the payment of commission both to Daphne and to Paru. In his witness statement he said: I have been asked if there has been mention of a commission in connection with the Service Agreement which was ultimately negotiated with Fyffes. I can be sure that at some stage a commission of 1.25% was indeed mentioned. It was mentioned at a time that preparations were made for the completion of the service agreement. I do not recall many details because by then it was late 1991 and, as I said above, my contact with the chartering division of Seatrade had dwindled. But I do remember overhearing a discussion between Erik and Marnix in which it was mentioned that Fyffes were preparing to fight their bitter experiences with internal influential figures in Central America. This had been therefore quite an unusual situation, although not one which I felt needed either much discussion (there was not) or separate investigation. Marnix Van Overklift and or Erik Musterd did not approach me to endorse the giving of a commission to Fyffes in exchange for the contract. They simply mentioned it as being a run of the mill rebate negotiated by Fyffes. In his oral evidence Mr Pepping emphasised that he had known Mr Van Overklift for many years and had always found him trustworthy. If, as I am satisfied, Mr Van Overklift and Mr Musterd knew the true nature of the commissions, and if one or both of them told Mr Pepping about the payment of commission prior to the completion of the service agreement, did they tell him the truth or did they deceive him by telling him that it was a "run of the mill rebate"? I cannot believe that they would have deceived him and I am therefore driven to the conclusion that Mr Pepping must also have known the true nature of the arrangement. That would also explain his willingness to agree to a loan of up to $400,000 to Mr Templeman in 1996. It was accepted on behalf of Seatrade that no distinction was to be drawn between the defendant companies. It was also not suggested that any distinction should be drawn between the claimant companies. I conclude that the claimants succeed on liability against the second to seventh defendants. Relief claimed Fyffes claim the following relief:[1]Payment of all sums paid to Mr Templeman by way of bribes or secret commissions as money had and received; or[2]Damages in tort for fraud, or equitable compensation for dishonestly assisting in Mr Templeman's breaches of fiduciary duty, amounting to the total of the losses sustained by Fyffes in consequence of the transactions in respect of which the bribes or secret commissions were paid to Mr Templeman; or[3]An account of all profits made by Seatrade as a result of dishonestly assisting in Mr Templeman's breaches of fiduciary duty. Fyffes accepts that these are alternative not cumulative remedies, and wish to make their election after they have considered this judgment. The claim for payment of the amount of the secret commissions The archaic action for money had and received has now become part of the law of restitution. Under it a principal whose agent has been bribed is entitled to recover from the briber (or from the agent) the amount of the secret commissions paid to the agent: Mahesan v Malaysia Housing Society [1979] AC 374. Damages or equitable compensation This head of claim gives rise to no dispute about the law but a sharp dispute about the facts. Fyffes are entitled to recover as damages for tort any loss which they can prove to have suffered as a result of entering into the service agreement (Mahesan) . There is also a right in equity to compensation for dishonestly assisting in Mr Templeman's breach of his fiduciary duty to Fyffes (Royal Brunei Airlines v Tan [1995] 2 AC 378 ). It is accepted that the same principles apply in assessing either form of compensation (Target Holdings Ltd v Redferns [1996] 1 AC 421 , 432), although it may be argued that different principles apply to interest. The issue which I have to decide at this stage is whether Fyffes have shown that they suffered any loss as a result of the payment of the secret commissions beyond the amount of the commissions themselves. There can be no dispute that Fyffes' loss amounts at least to the amount of the bribes, because they were taken into account by Seatrade in agreeing the amount of the freight for each year, which would have been correspondingly less for Fyffes if they had only had to pay the net sum which Seatrade were prepared to accept. The contentious question is whether Fyffes have established that they have suffered greater loss. Fyffes' case is that the terms on which they traded with Seatrade from 1992 to 1996 were unduly favourable to Seatrade in a number of respects. Their case as originally pleaded was that, but for the corrupting effect on Mr Templeman of the bribes, he would have negotiated better terms for his employers, as Mr Templeman himself said in his evidence. On that approach the essential questions would have been whether that confession was true or false and, if true, to what extent Fyffes would have secured better terms if Mr Templeman had not been corrupt. At the start of the trial Fyffes amended their case to say that the proper method of determining the amount of their loss was to compare the terms agreed for each year with the terms which would on the balance of probabilities have been negotiated by an honest and prudent negotiator owing undivided loyalty to Fyffes. Seatrade agreed that this was the correct approach, and each side called expert evidence on the issue. The consequence of that approach is that it does not matter for the purposes of assessing damages to what extent Mr Templeman's conduct of the negotiations was actually influenced by the commissions which he received, because the question is not whether he would personally have acted differently but for the receipt of those commissions but whether a hypothetical prudent and honest negotiator would have acted differently. I questioned whether this was in truth the correct approach, but since both sides agreed that it was and argued the case on that basis, I am content to assess damages accordingly. In his closing submissions Mr Howard advanced the further alternative that damages should be assessed not by determining as a matter of probability what a hypothetical honest and prudent negotiator would have done but by estimating the value of Fyffes' lost chance of obtaining better terms through an honest negotiator. I will return to the question of loss of a chance after considering the question of loss on the approach otherwise agreed. In considering the individual criticisms made by Fyffes of the terms agreed it is important to see them in the context of the entire agreement for each year, and not to lose sight of the overall picture. 1992 freight The expert witnesses, Mr Needham for Fyffes and Mr Thomassen for Seatrade, each had many years' experience of the reefer market. They agreed on the same method for considering the reasonableness of the freight rates agreed between the parties. This was:[1]to ascertain the market time charter rates for each class of vessel in the service agreement over the period of the agreement judged by reference to the rates prevailing at the time when the agreement was negotiated;[2]to ascertain the time charter equivalent (TCE) for each class of vessel in the service agreement using the lump sum freights in the service agreement;[3]to consider what was an appropriate mark-up over market time charter rates for the additional risks which would have been on the charterers under a time charter, but were to be carried by Seatrade under the service agreement; and[4]to compare the market time charter rates so adjusted with the TCEs. They agreed that the information available on COAs entered into between third parties was insufficient (both as to the details of the COAs and as to the strategic and policy considerations of the contracting parties) for a proper evaluation of their time charter value. Adopting that common approach, they were able to agree figures for average time charter market rates per class of ship. Interestingly those figures tended quite often to be lower than the time charter rates obtained by Seatrade under other contracts (according to appendix F to Mr Needham's first report). This was consistent with Mr Musterd's evidence that Seatrade generally tried to agree rates above the average market level. That they were about to do so was presumably a reflection of the position which they enjoyed in the market. Mr Needham and Mr Thomassen were not able to agree TCE figures. The main difference between them was that Mr Thomassen deducted 1.25% commission from the freight rates stipulated in the service agreement before calculating TCE values for each class of vessel. I can see that if one is starting from the position that the commission was an overcharge and the question is whether the freight rates were otherwise excessive, it is convenient to deduct the amount of the commission; but that is the only justified for doing so. Otherwise, the individual differences between Mr Needham and Mr Thomassen on TCE rates were small in the overall scheme of things. The major difference between them came at the final stage of considering the reasonableness of the uplift of the TCE rates over market time charter rates. The uplift varied from class to class because the freight rates for the various classes of vessel in the service agreement were based on a standard LBE figure, whereas time charter rates for the different classes would have varied. The practical impact of this on Fyffes would have varied according to which classes of vessel they nominated. The uplift also varied from year to year. One of the points made by Seatrade, and accepted by Mr Needham, was that there was no standard pattern of overcharging and that for some classes in some years there was undercharging on Mr Needham's figures. Mr Needham considered that a reasonable mark up would have been around 5%. Mr Thomassen considered that a reasonable mark up would be 10 to 15%. For 1992 the total freight paid was $20,297,855. If 5% would have been the appropriate mark up, Fyffes calculate the over payment on Mr Needham's TCE figures at $929,114, of which $253,723 represented the 1.25% commission paid to Mr Templeman. In his evidence Mr Needham fairly recognised that the question of the reasonableness of the mark up is not a scientific matter but contains a large subjective element because much would depend on the perceptions of the negotiating parties. He recognised this in his first report, where he wrote: There are two other points which should be noted in this context. The first is that the Service Agreement did provide the Claimants with an excellent degree of flexibility. It is probable that no other shipowner could have provided the same type of service with the same degree of reliability as did the defendants. I say this because of the sheer size of the defendants' fleet in the required sizes. I am not able to judge the degree of risk undertaken by the defendants in agreeing to provide such flexibility. Conversely, I am not able to judge the overall benefits to the defendants in obtaining this contract or the degree to which any such benefits might compensate for the risks taken. The risks referred to here are those attendant on meeting the size and date requirements of the claimants. The second point is that, despite the careful calculations that a shipowner might make as to the target rate(s) required, in the final analysis he may not realise his goal but will settle for whatever reasonable level of remuneration he can obtain. This will be not only be a function of the parties' perception of the market but also how each perceives the relevant strength of his negotiating position. The question must be asked as to whether the claimants' desire for the defendants' service outweighed the defendants' desire for the claimants' business or the reverse was true. Quite properly, Mr Needham did not attempt to resolve those questions. In support of their suggested percentage uplifts, both experts sought to identify relevant factors and apply individual percentages to them. Obviously the differences between a time charter and the form of agreement which the parties were negotiating would have been present to the minds of the negotiators, but nobody suggested that in commercial negotiations the parties would actually have set about trying to put an individual percentage value on each factor in the way that the experts attempted to do so. Moreover such an arithmetical exercise makes no allowance for the marketing strength which Seatrade had from the fact that no other shipowner could offer the same type of service with the same degree of reliability. In his second supplemental report Mr Needham set out in detail the factors which he would build in to arrive at a 5% margin over time charter. Those factors would have applied regardless of whether or not there were other companies equally able to provide the same service. Mr Needham accepted in his oral evidence (day 10, page 79) that he would not expect the result of the negotiations to be the same in both cases, but he did not attempt to put a price on the marketing edge which Seatrade had, observing candidly that it would be a matter for negotiation between the parties. The service agreement offered considerable attraction to both parties. From Seatrade's viewpoint, it offered the hope (although not the certainty) of employment of vessels throughout the year including the low season. From Fyffes' viewpoint, it was not merely desirable but a matter of very great importance to secure a satisfactory service. Their experience with REL had not been satisfactory. Mr Martin made the point in his witness statement: From the lessons learned in 1991, and because Fyffes was not an established shipper, ensuring that vessels were 100% loaded was more important from my perspective than an argument over 10 cents on the basic freight rate. 100% lading at a basic rate of $2.50 per box is $2.50 per box actual. A 50% loading at a basic rate $2.00 per box is $4.00 per box actual. The service which Seatrade was to provide offered unparalleled flexibility and an assurance that Fyffes would be able to use a vessel of whichever size if required, with no corresponding minimum volume commitment on the part of Fyffes. Mr Thomassen in his first report not unreasonably described the service agreement as "an open ended requirement contract within the size band of 175,000 to 540,000 cubic foot bale vessels". Mr Sch(es, who had no personal interest in the matter but great experience of the trade, was impressed by the flexibility which the agreement gave to Fyffes and considered that in view of it the box rate seemed reasonable. He was referring of course to a box rate of $2.80, from which the deduction of 1.25% would leave $2.765. Neither REL nor Cool Carriers offered lower terms than Seatrade, and REL made it clear that although they wanted to keep the business they were not prepared to agree to a freight around $2.75. Reliance was placed by Fyffes on a contract made between Seatrade and Geest in December 1991, which had a number of similarities to the service agreement between Seatrade and Fyffes, although there were also a number of differences in the detailed terms. A comparison showed that for some classes of vessels Geest paid lower freight rates than Fyffes. However, this was not a matter on which Fyffes' expert relied and I have no information about the details of the negotiations between Seatrade and Geest. As the experts agreed in their joint statement, it would be unsafe to try to draw conclusions from a COA entered into between other parties without knowing the strategic and policy considerations of the parties to the agreement. Among other things, I do not know what alternative arrangements were available to Geest. Another factor to be borne in mind is the abandonment by Seatrade of its claim for extra freight on previous voyages. This was regarded as a matter of importance at the meeting on 4 November 1991 for understandable reasons. If Seatrade were right, they were owed $600,000. If Fyffes were right, it is not apparent from the evidence what would have been the value of the claim. I have no doubt that the strong likelihood is that Fyffes and Seatrade would have entered into a service agreement in any event. Taking into account the various matters to which I have referred, I am not persuaded as a matter of probability that the freight rate would have been lower than was actually concluded by more than 1.25% if the negotiations had been conducted by a hypothetical prudent and honest negotiator. 1993 freight and the two ships service Fyffes accept that the actual time charter equivalent for 1993 fell within a margin of 5% over the agreed time charter rates. Their only complaint in relation to the freight agreed for 1993, other than that it ought to have been lower by the amount of the commission which Seatrade agreed to pay to Mr Templeman, concerns the agreement to increase freight for certain classes on the introduction of a two ships service. Addendum 2 to the service agreement provided that for the first 13 weeks of 1992 the freight for classes E and F would be based on an LBE rate of $2.75, and for classes G and H on an LBE rate of $2.70, but that from week 14, when the two ships service was intended to commence, the freight for all classes would be increased to $2.85 per LBE. Fyffes say that an honest and prudent negotiator would not have agreed to an increase in freight for the last 39 weeks of the year, the majority of which would have been in the low season. Seatrade say that this was a fair trade off against other benefits introduced by the same addendum, namely a reduction in the final nomination date from 28 to 21 days on all voyages and the introduction of a despatch clause. The introduction of a two ships service certainly made a reduction in voyage times likely and therefore increased the case for a despatch clause (without which Fyffes would be paying for a vessel after the voyage was complete), but I am not persuaded by the argument that the introduction of that clause or the reduction in the nomination period would have been seen by an honest and prudent negotiator as a reasonable quid pro quo for the agreed increase in freight, nor was that argument advanced by Mr Thomassen. His argument in his original report and in his oral evidence was that the increase in freight was justified by the additional obligation on the part of Seatrade to have two vessels available weekly throughout the remainder of the year. To say that the change increased Seatrade's obligations is to look at only half of the picture. It also increased their opportunities for the profitable engagement of their vessels as the annual amounts paid demonstrate. On this issue I found Mr Needham's evidence more compelling than that of Mr Thomassen. I accept that an honest and prudent negotiator would not have agreed to the increase in freight. Mr Needham calculated the resulting loss to Fyffes at $830,022, and those calculations were not challenged. 1994 and 1995 freight At the end of 1993 the market was flat and the future was difficult to read. Mr Templeman negotiated rates for 1994 and 1995 and that decision cannot itself be criticised. On Mr Needham's figures the average actual TCE for the different classes of vessels was $74.25, and was 92 cents above what he would consider a fair margin, i.e. 5% over actual time charter rates at the time of the negotiations. If a margin of 5.5% were taken, the uplift in 1994 over time charter rates would have been less than the amount of the commissions paid to Mr Templeman. Without repeating the matters already discussed, I am not persuaded that the freight rates agreed for 1994 and 1995 would have been lower by more than the 1.25% commission paid to Mr Templeman if Fyffes had been represented by an honest and prudent negotiator. 1996 freight The negotiations for 1996 took place at a time when storm clouds were gathering over Mr Templeman's head, although this was not yet known to Fyffes or Seatrade. The IRS criminal investigation was under way and Mr Templeman was trying to arrange for his transfer back to London. It was about this time that he approached Seatrade unsuccessfully for a job. He was drinking heavily and his marriage was in a bad state. The terms agreed for 1996 differed from those in previous years in that the year was divided into 4 periods in which the choices of vessels were not identical and the rates varied to reflect the seasonality of the reefer trade. Only one class of vessel (the Nova or C class) was required to be available for the whole year. Fyffes also had a choice of routing round voyages for either 28 days or 35 days. Mr Musterd had retired and Van Overklift was in charge of the renewal negotiations for Seatrade. It is common ground that Seatrade's mark up over time charter rates was substantially greater in 1996 than in previous years. Two reasons were suggested on behalf of Seatrade to justify this. The first was that both parties knew that there would be a substantial reduction in volume compared with the previous year, but I do not see that as a reason why a prudent and honest negotiator for Fyffes should have agreed to a significant increase in freight rates. The volume shipped in 1996 was still substantial and the freight generated was over $15 million. The other argument, which Mr Thomassen advanced (day 11, pages 37 to 40), was that the terms for 1996 were very special. He described the contract for that year as "options left and right and centre." The contract was more complicated in its form, but Seatrade's obligations' were not materially more onerous than in previous years. The flexibility afforded to Fyffes was a relevant factor, but from the outset the service agreement had provided Fyffes with great flexibility, and I do not see why an honest and prudent negotiator for Fyffes would have been willing to pay significantly higher freight rates for the additional amount of flexibility in the 1996 terms. The same applies also to the right of cancellation provided in the 1996 terms. I accept Mr Needham's evidence (day 10, pages 88 to 89) that this was not something for which a prudent negotiator acting for Fyffes would have expected to pay additional freight. In the previous years Fyffes were not committed to any particular volume, although they would have to pay compensation to Seatrade if the volume in the second half year was less than in the first half year. Under the 1996 terms there was no need for such compensation because the freight rates themselves were seasonally adjusted. I conclude that the freight rates agreed for 1996 were higher than would probably have been agreed with Seatrade, who did not want to lose the business, and an honest and prudent negotiator for Fyffes. Calculating the amount of Fyffes' loss is a harder exercise particularly in view of the complexity of the contractual terms for 1996. Various approaches could be adopted and would produce different results. Fyffes themselves have made three attempts. They originally pleaded a loss under this head of $1,004,586. The process by which they did so is explained in paragraphs 55 to 58 of Mr Needham's first report, Taking the Nova class of vessel (for which rates were agreed for the whole year) they calculated a weighted average time charter equivalent of $0.89 per cb ft per 30 days. The agreed time charter rate was $0.75. For the purposes of their calculations Fyffes allowed a mark up of 10% increasing the $0.75 to $0.825. The difference between $0.825 and $0.89 is $0.065 or 8%. They therefore calculated their claim for excess freight in 1996 by applying 8% to the cash result achieved on each voyage undertaken by deducting voyage expenses from the freight. This produced a figure of $1,004,586. Mr Needham considered that this claim was reasoned fairly and calculated correctly. In particular, he supported the TCE figure of $0.89. His method of calculating the time charter equivalent of the voyage freight was by a simple arithmetical process involving the following steps:-(a) calculate the per voyage freight;(b) calculate the expenses of the voyage;(c) deduct (b) from (a) to arrive at a freight for the duration of the voyage;(d) convert the net voyage freight into a daily hire by dividing it by the appropriate number of days;(e) multiply (d) by 30 to arrive at 30 days' hire;(f) divide (e) by the cubic capacity of the vessel to arrive at a TCE rate per cubic foot per 30 days. Mr Thomassen arrived at a lower figure mainly by deducting the amount of Mr Templeman's commission and also by making individually small deductions for other potential expenses, which Mr Needham considered were more properly to be taken into account (so far as valid) in considering the appropriate mark up. It is therefore not a case of them performing the same exercise and disagreeing over the result, but of performing slightly different exercises. It seems to me that Mr Needham's approach is valid and helpful, provided that one remembers at other stages what that exercise has been (in particular, that his TCE figures include the amount of commission paid to Mr Templeman). In paragraphs 65 to 75 and appendix J to his first report Mr Needham set out an alternative and more complicated method which resulted in a figure for excess freight in 1996 of $1,050,637. This method also involved taking a TCE figure of $0.89 for all classes of vessels in 1996, derived from the calculations in relation to the Nova class. So matters stood when the experts had a joint meeting in December 1999 and produced a table setting out their agreed time charter rates and their respective TCE figures (E2, page 164). Mr Thomassen in his comments on Mr Needham's original report made the point that it was not logically sound to base the 1996 calculations on the Nova class alone. After their joint meeting Mr Needham produced a second supplementary report setting out a revised set of calculations in which he attempted to meet that criticism by producing separate TCE figures for each class of vessel. The result of his recalculation was to increase the claim for 1996 to $1,612,592. It has to be remembered that each of these methods is no more than an aid. Criticism can be made about the methodology of each. It seems to me that the first is the most simple and is attractive for that reason, but the third is the most logical although the most complex. But there is an important matter of judgment in which they differ. The first method allowed a 10% uplift on market time charter rates. The third method allowed a 5% uplift. If the same uplift were used in the third method as in the first, the resulting figures would be much closer. I do not know what the exact figure would be under the third method, but from a table of figures produced by Mr Howard it appears that it would be in the region of $1.1 million. I would assess damages under this head by the third method subject to that adjustment. Bunker clause Seatrade originally proposed to Mr Templeman that the service agreement should contain a bunker adjustment clause by which there should be upward or downward adjustment at $0.007 per box on variations in bunker prices of more than $5.00 by reference to Platts prices at a port to be agreed. This would have been a standard form of bunker clause. Mr Thomassen was at that time acting on behalf of Cool Carriers and he made a similar proposal to Mr Templeman. However, at the meeting on 8 October 1991 between Mr Van Overklift, Mr Musterd, Mr Templeman and Mr Hayward, Seatrade proposed instead that the clause should operate by reference to actual prices paid and substantiated, and Mr Templeman agreed. Clause 11 of the service agreement provided accordingly. Comparison with other contracts made by Seatrade confirms Mr Needham's evidence that the clause actually agreed was most unusual. His evidence was that an honest and prudent negotiator should not have accepted the clause, which exposed Fyffes to additional cost if Seatrade bunkered at a more expensive port before arriving at the first loading port. The clause should have named a major bunkering port or on close to the intended route as the reference port. Mr Thomassen in cross examination (day 10, pages 129 to 130) substantially conceded the point. Mr Musterd said in evidence (day 7, page 55) that they changed the clause from that originally proposed because they needed the possibility of bringing in ships from distant places. He made the point (day 7, page 59) that if Fyffes had been entering into separate voyage charters, the owner would in each case have had to include in his calculation his actual bunkering costs incurred in order to be able to perform the voyage. Seatrade also relied on the evidence of Mr Robinson, who said in his witness statement that he did not believe that it was unusual for bunkerage to be adjusted on the basis of prices actually paid. In his oral evidence he confirmed that he did not regard the bunker adjustment clause in the service agreement as unusual in being based on actual prices, but he said that he could not comment on whether an experienced charterer would have agreed to the clause. As far as he was concerned, it was a matter agreed between the parties and his only role was to draft wording which reflected what they had agreed. For the reasons given by Mr Needham and largely accepted by Mr Thomassen, I do not think that an honest and prudent negotiator for Fyffes would readily have agreed to the alteration to the bunker adjustment clause proposed by Seatrade; and, if he had remained firm on the point I think it probable that Seatrade would have agreed to the standard clause originally proposed by them. Fyffes have calculated the resulting loss by taking Antwerp as a nominal reference port. Seatrade criticised that approach on the ground that Antwerp would not have been an appropriate port in any event, but I do not attach weight to that criticism for the reasons given by Mr Needham in response to it. Firstly, he expressed the view that the use of Antwerp was not unreasonable as a major bunkering port within close proximity to a major discharge port, Zeebrugge. Secondly, he supported the use of Antwerp as a good indicator for bunker price movements by comparing it with various other ports, including Rotterdam. The sum claimed under this head is $1,618,129, and I accept that figure as a reasonable calculation. Ballast leg Schedule 4 to the service agreement, dealing with demurrage, specified a theoretical ballast leg duration for each class of vessel. Over generous allowance for the ballast leg would be liable to increase the likelihood of demurrage (and reduce the likelihood of despatch) by unjustifiably increasing the length of a round voyage. The calculated ballast duration in schedule 4 were longer than the figures which would have been produced by dividing the distance by the speeds of the vessels (as specified in schedule 2 to the agreement). According to Seatrade, it was reasonable to allow an average reduction in speed of 1 knot to allow for poor Atlantic weather. On the laden voyage the risk of bad weather was on the charterer. Mr Needham and Mr Thomassen were in agreement that the risk of bad weather of the ballast leg to the first loading port was a factor to be taken into account in calculating the freight. Mr Needham said that there was then no justification for also adjusting the ballast leg in schedule 4 to allow for that risk. In cross examination (day 10, pages 152 to 153) Mr Thomassen appeared to agree. Mr Musterd also accepted in cross examination (day 7, page 67), that this was a point on which he probably felt that he did very well in the negotiations. I accept Fyffes' case that an honest and prudent negotiator should have objected to it, and that in that case Seatrade would probably have backed down on the point. Fyffes are accordingly entitled to damages under this head. The sum claimed is $1,822,001, and that figure has not been challenged. Steaming saved Under clause 10 of the service agreement Fyffes were obliged to pay Seatrade for any bunker fuel consumed in additional mileage resulting from a substitution of ports on any voyage. There was no converse provision entitling Fyffes to a rebate for the reduction in bunker fuel consumed if steaming was saved. Mr Needham considered it very unusual for such a provision not to work both ways and that an honest and prudent charterer would not have agreed to clause 10 as drafted. Mr Musterd (at day 7, pages 76 to 77) and Mr Thomassen (at day 10, page 156) effectively conceded the point. Fyffes are entitled under this head to $471,940 as claimed. Despatch Despatch is the opposite of demurrage in that it is a sum payable by a shipowner to a charterer if a voyage charter is completed early. For 1992 the service agreement contained provision for demurrage but not despatch. Provision for despatch was included from 1993 to 1995. (It was not included in 1996, but no claim has been made in respect of its absence in that year.) Fyffes make two complaints about despatch. The first is that it was not included in 1992. The second is that their rights to despatch from 1993 to 1995 were not properly enforced. As to the first, Mr Needham accepted in his report that is not in itself unusual for demurrage to be payable but not despatch. Although Mr Templeman accused himself of being soft in a number of respects, this was not one of them. It would seem that when the parties were negotiating in late 1991, the round voyage time estimate was thought to be realistic. Mr Musterd's evidence (day 7, page 74) was that everyone thought that 35 days was a realistic figure and nobody expected or thought about despatch. Mr Needham agreed in cross examination (day 11, page 73) that at the end of 1991 it was both parties' realistic expectation that they were talking about 35 day round voyages. He also agreed that this was a possible explanation for there being no provision for despatch in the 1992 contract, but he added:
"Still I think a good negotiator would have had a counterveiling provision in there. It never hurts to have these things in place."
Looking at the matter overall, although despatch might have been included in the service agreement, I am not persuaded that Fyffes have established that an honest and prudent negotiator would have ensured that this was so. As to the second complaint, Fyffes have produced a schedule, now agreed, of voyages during 1993 to 1995 in respect of which despatch was payable under the terms of the contract but was not paid. They say that an honest and prudent person in Mr Templeman's position would not have allowed that situation. Seatrade's answer is that on most of those occasions the vessel returned immediately into Fyffes service and that it was agreed between Seatrade and Fyffes within the spirit of the service agreement that neither despatch nor demurrage should be payable in circumstances where the vessel performed one round trip under the agreement immediately after another. Mr Templeman said in his witness statement: From 1993 onwards, when despatch was included in the service agreement, there were several occasions where the round voyage taken would have been less than 35 days. Some of these were situations where the vessel in question immediately turned round and embarked upon the ballast leg of another Fyffes voyage. On these occasions it was agreed that there be no despatch paid. Mr Needham said in his original report: In my opinion it would not have been unusual for a charterer to give up despatch due in the circumstances, particularly if the ship was going to wait at the loading port. It could have been one of those quid pro quos that occur in the operation of a contract, although I have seen no evidence to support this. However, strictly speaking it should not have been conceded as it is inconsistent with the basis of the contract that presenting the ship on time at the nominated first loading port is the defendants' risk. In a third supplementary report, served during the course of the trial, Mr Needham hardened his position, saying: Considered in complete isolation, it does not seem unreasonable for despatch to be forgiven if a ship is to return for another voyage in direct continuation of one just completed, particularly when the loading date is fixed and the time saved becomes waiting time for the shipowners. However, the matter is not as simple as that. In this case the despatch to be paid was actually such a fundamental part of the freight equation that to forgive it in these circumstances was tantamount to increasing the anticipated freight cost to the charterer. In cross examination he agreed that the service agreement appears to have been successful from an operational viewpoint throughout the period of its duration and that this was due to the generally co-operative spirit in which it was performed. He also accepted that for such an agreement to work satisfactorily "The dialogue between the parties is all important and there will be bits of give and take" (day 11, page 78). An example of latitude on the part of Seatrade was that when a vessel was performing successive round voyages it would sometimes carry freight for Fyffes on the theoretically unladen leg at no additional cost. No doubt Seatrade did so because they saw it as being within the spirit of the agreement and conducive to a successful working relationship. Similarly, I think that it was not unreasonable for the parties to regard it as being within the spirit of the agreement for there to be no demurrage or despatch where a ship was performing successive round voyages. For that reason this part of Fyffes' claim fails insofar as it relates to occasions when a vessel performed successive round trips. Fyffes' alternative claim for the same sums by way of contractual debt also fails on the ground that the debt was waived under the arrangement to which I have referred. There were also instances in which despatch was waived although the vessel did not immediately perform another round voyage under the service agreement. That is a different matter, and I do not accept that there was any sound basis for an honest and prudent person in Mr Templeman's position to agree to the waiver of despatch in such circumstances. Some attempt was made by Seatrade at the trial to suggest that the responsibility for doing so rested on the shoulders of other people besides Mr Templeman, but no case to that effect was either pleaded or made out. Mr Templeman was the person centrally involved and in my view Fyffes are entitled to damages under this head to the limited extent which I have indicated. Loss of a chance Mr Howard submitted that by agreeing to Mr Templeman's request for secret commission Seatrade deprived Fyffes of the opportunity of negotiating through an honest and prudent negotiator; and that if, in relation to any particular aspect of the service agreement and its addenda about which they complained, Fyffes failed to establish that an honest and prudent negotiator would probably have negotiated a more favourable agreement, they are entitled to damages reflecting the value of their lost chance that he would have done so. Mr Jones submitted that if Seatrade failed to establish as a matter of probability that any particular clause was objectionable by the standard to be expected of an honest and prudent negotiator, Fyffes would have failed to establish any loss under that head and that it would be wrong in those circumstances to award them damages under the head of loss of a chance. The subject of damages for loss of a chance can give rise to vexed questions, and so it is important to start from first principles. On any question of damages the fundamental principle is that the object of the law is to put the injured party in the same position as he would have been in but for the wrong. As Denning J put it in Duke of Westminster v Swinton [1948] 1 KB 524, 534: The real question in each case is: What damage has the plaintiff really suffered from the breach? In approaching that question there is an important distinction between identification and measurement of the wrong (injury) done to the claimant - or, to use legal terms, between causation of loss and quantification of loss. The distinction is easy to see in theory, but drawing the boundary line can be difficult in practice because questions of causation and quantum can be closely entwined. Causation of a head of loss must be established on a balance of probabilities. Quantification of a head of loss may involve an assessment of all shades of risks and possibilities. If after a road accident an injured person develops epilepsy, which impairs his job prospects, it is for him to establish on a balance of probabilities that the epilepsy was caused by the accident. If he succeeds, in assessing his pecuniary loss the court will have to take into account his prospects of promotion, any risk of redundancy and all other factors which might materially have affected his future employment prospects. In that sense quantification of damages often involves assessment of a loss of a chance. However, there is a separate sense in which the expression is also used, and it is important not to confuse them. As I have said, causation of a head of loss has to be established on the balance of probabilities. But there are cases where the courts have recognised a loss of a chance as a form of head of loss in itself. In those cases causation is established by showing on the balance of probabilities that the claimant has lost a chance of some real value. The lost chance may be of securing a benefit (eg a prize in a beauty competition, as in Chaplin v Hicks [1911] 2 KB 786 ) or of avoiding a liability (eg under the terms of a lease, as in Allied Maples Group Ltd v Simmons and Simmons [1995] 1 WLR 1602 ). In Allied Maples Group Ltd v Simmons and Simmons the Court of Appeal rejected a submission that a loss of a chance could only constitute a head of loss where the claimant lost a valuable right or chose in action. A loss of a chance may constitute an identifiable head of loss where the provision of the chance was the object of the duty which has been breached; for in such a case the deprivation of that chance is the essence of the wrong. Thus in Chaplin v Hicks the wrong consisted of failing to give the plaintiff a fair opportunity of succeeding in the competition. In the solicitors' negligence cases (such as Hall v Meyrick [1957] 2 QB 455, Cook v Swinfen [1967] 1 WLR 457, Kitchen v Royal Air Force Association [1958] 1 WLR 563 and Allied Maples Group Ltd v Simmons and Simmons ) the essence of the breach of duty was that it deprived the client of a chance of securing a benefit or avoiding a liability which it was within the object of the retainer to secure or avoid. Richardson v Mellish (1824) 2 Bing 229 and Davies v Taylor [1974] AC 207, often cited as loss of a chance cases, were concerned with questions of quantification rather than causation of loss. The former concerned the extent of the plaintiff's loss of earnings resulting from the defendant's breach of contract and the latter concerned the value of a widow's dependency on her deceased husband for the purposes of her claim under Fatal Accidents Acts. In the present case the essence of Fyffes' claim against Seatrade for damages is that they were defrauded by being overcharged for Seatrade's services as a result of the corrupt relationship between Seatrade and Mr Templeman, an allegation which the parties agreed should be tested by reference to the hypothetical honest and prudent negotiator. If they have failed to establish as a matter of probability that they overpaid Seatrade in a particular respect, in my view they have failed in that respect to establish causation of a head of loss, with the result that no question of quantification arises, and I reject their alternative claim for damages for loss of a chance. If I had reached the opposite conclusion, it would have been necessary to apply it consistently. The reason for recognising a loss of a chance in certain circumstances as a head of loss is not to provide a fall back for a claimant who fails to provide his primary case, but because there are circumstances in which deprivation of a chance is the essence of the wrong. If in the present case it were right to regard Fyffes' ground of action not as being that they overpaid Seatrade in consequence of the corrupt relationship between Seatrade and Mr Templeman (which is their real complaint), but that Seatrade wrongfully caused them the loss of a chance to obtain a benefit through an honest and prudent negotiator (which is to confuse the substance of the claim with the mechanism for determining it), each part of the claim would have to be approached on that basis. Taking the bunker clause as an example, where I have found for Fyffes in the amount claimed by concluding that as a matter of probability an honest and prudent negotiator for Fyffes would not have agreed to the revised clause proposed by Seatrade, on a loss of a chance approach it would have been necessary to discount the sum claimed to allow for the possibility of a different outcome. Account of profits Mr Templeman's position is clear. Equity holds a fiduciary accountable to his principal for any secret benefit derived by him from his fiduciary position. At common law he is also accountable for any secret commission under what used to be called an action for money had and received or, as it is more understandably now expressed, in restitution. These remedies are alternative to the principal's right to recover damages from his bribed agent in tort. A wrong turning was taken in Lister & Co v Stubbs (1890) 45 Ch D 1 , where it was held that the relationship between an employer and his bribed employee was merely that of debtor and creditor with the consequence that, although the employee would be required to account for the bribe which he received, he could not be required to account to his principal for any profits made from it. That decision was disapproved by the Privy Council in Attorney General for Hong Kong v Reid [1994] 1 AC 324 . The question raised in this case is whether an order for an account of profits is available against the briber and, if so, how the jurisdiction should be exercised. There is no direct English authority on the point, and the text books tend to imply that there is no such remedy against the briber. As long as Lister & Co v Stubbs was thought to be the law, there could be no such remedy against the briber. That obstacle has now gone, but it does not necessarily follow in law that because an account of profits is available against the bribed agent it is therefore available against the briber. The justification of the availability of an account of profits against the bribed agent is that equity considers it unconscionable for a fiduciary to make a personal profit out of his position without his principal's informed consent, and therefore unconscionable for the agent to retain such a profit, a rule which serves the purpose of maintaining the highest standards on the part of fiduciaries. Equity also deems that done which ought to be done (deeming being a device for developing the law to meet the demands of justice), and it therefore regards the bribed agent as holding the bribe and any property representing the bribe in trust for the injured person, so affording to the injured party a proprietary remedy; but that is to go further than is presently necessary, for this is not a case in which the claim for an account is founded on the assertion of a right to a proprietary remedy. Do the same rationale and purpose apply equally in the case of the one who bribes the fiduciary? The Australian courts have given an affirmative answer. In Consul Development Pty Ltd v DPC Estates Pty Ltd [1975] 132 CLR 373, 397, Gibbs J said: The strict rule of equity that forbids a person in a fiduciary position to profit from his position appears to be designed to deter persons holding such a position from being swayed by interest rather than by duty (see Bray v Ford [1986] AC 44, 51); it is "A rule to protect directors, trustees, and others against the fallibility of human nature": Costa Rica Railway Co Ltd v Forwood [1901] 1 Ch 746 , 761. If the maintenance of a very high standard of conduct on the part of fiduciaries is the purpose of the rule it would seem equally necessary to deter other persons from knowingly assisting those in a fiduciary position to violate their duties. If, on the other hand, the rule is to be explained simply because it would be contrary to equitable principles to allow a person to retain a benefit that he had gained from a breach of his fiduciary duty, it would appear equally inequitable that one who knowingly took part in the breach should retain a benefit that resulted therefrom. I therefore conclude, on principle, that a person who knowingly participates in a breach of fiduciary duty is liable to account to the person to whom the duty was owed for any benefit he has received as a result of such participation. On that occasion Gibbs J spoke only for himself, but the principle was applied by the High Court of Australia in Warman International Ltd v Dwyer (1995) 182 CLR 544, 128 ALR 201. Fyffes submit that the principle is sound and should be recognised in English law. Seatrade submit that it is unsound and inconsistent with the way in which English law has developed in this area. Seatrade rely particularly on the decision of the Privy Council in Royal Brunei Airlines v Tan [1995] 2 AC 378 . The defendant was the managing director and principal shareholder of a of a company appointed by the plaintiff airline as its agent for the sale of passenger and cargo transportation. The defendant dishonestly caused or permitted the company to pay into its own account money which it should have kept in a separate account on trust for the plaintiff. The company became insolvent, and the plaintiff sued the defendant for the money owed to it by the company. It was held that a liability in equity to make good the resulting loss attaches to a person who dishonestly procures or assists in a breach of trust or fiduciary obligation. The question of an account of profits was not in issue. However, Seatrade rely on the distinction drawn in the judgment between the liability of a person as a recipient of trust property and the liability of a person as an accessory to a breach of trust, the latter form of liability not being property or restitution based. The rationale for imposing a liability on a dishonest accessory to a breach of trust was explained by Lord Nicholls as follows at page 386-387: Affording the beneficiary a remedy against the third party serves the dual purpose of making good the beneficiary's loss should the trustee lack financial means and imposing a liability which will discourage others from behaving in a similar fashion. The rationale is not far to seek. Beneficiaries are entitled to expect that those who become trustees will fulfil their obligations. They are also entitled to expect, and this is only a short step further, that those who become trustees will be permitted to fulfil their obligations without deliberate intervention from third parties. They are entitled to expect that third parties will refrain from intentionally intruding in the trustee - beneficiary relationship and thereby hindering a beneficiary from receiving his entitlement in accordance with the terms of the trust instrument. There is here a close analogy with breach of contract. A person who knowingly procures a breach of contract, or knowingly interferes with the due performance of a contract, is liable to the innocent party. The underlying rationale is the same. According to Seatrade's argument, in relation to the remedy of an account of profits there is a critical difference between the positions of the person bribed and the briber. The fiduciary owes a personal obligation to his principal not to make a secret profit from his position and for that reason must account for any such profit to the principal. By contrast, the dishonest intruder owes no such personal obligation to the principal. If he causes the principal loss he should recompense him, but if he makes a profit for himself beyond the loss suffered by the principal he is entitled to retain it. He can only be required to account to the principal if he receives the principal's property. The contrary argument is that, although the dishonest intruder owes no personal obligation of loyalty to the injured party, it is unconscionable for him dishonestly to suborn the loyalty of the agent and equally unconscionable for him to keep benefits which he has obtained by dishonestly abusing to his own advantage the position of the agent whose duty was to his principal. In Cook v Deeks [1916] AC 554 (cited by Gibbs J in Consul ) the directors of the Toronto Construction Company had the opportunity to obtain a railway construction contract for that company, in which the plaintiff was a shareholder, but they diverted the opportunity to the Dominion Construction Company, in which they were shareholders but the plaintiff had no interest. The Privy Council held that the directors acted in breach of their duty to the Toronto Construction Company and must account to it for their profits from the transaction. It also held that the Dominion Construction Company should account to the Toronto Construction Company for its profits. It might be suggested that this was a case of so-called lifting of the corporate veil, but there is no support for that suggestion in the judgment delivered by Lord Buckmaster LC. He stated succinctly the basis for holding Dominion liable to account as follows (p 565): But it was not, and could not be, disputed that the Dominion Construction Company acquired the rights of these defendants [ie the directors] with full knowledge of all the facts, and the account must be directed in form as an account in favour of the Toronto Company against all the other defendants. An instructive parallel may also be found in the law of confidentiality. In Attorney General v Guardian Newspapers (No.2) [1990] 1 AC 109 (the Spycatcher case) the Sunday Times knowingly assisted Mr Peter Wright to breach his duty of confidentiality to the British Government by publishing extracts from his memoirs as an MI5 agent. The House of Lords held unanimously that it was liable to account to the Crown for its profits. Lord Keith (at p 262), with whom Lord Griffiths and Lord Jauncey agreed, cited Reading v Attorney General [1951] AC 507 as an authority in support. Lord Brightman (at p 266) cited the same authority. Reading v Attorney General was not a confidentiality case but concerned the question whether an army sergeant who took bribes to escort contraband through military checkpoints was entitled to retain the proceeds. In using it as a precedent in the Spycatcher case, the majority of the judges adopted a broad approach. Lord Keith noted that an account of profits made through a breach of confidence was a recognised form of remedy available to a claimant: Peter Pan Manufacturing Corporation v Corsets Silhouette Ltd [1969] 1 WLR 96 (in which the defendants were the original recipients of confidential design information and thus under a fiduciary duty to the claimant to use the information only for the purpose for which it was supplied). He reasoned that it was justifiable to make the remedy available against the Sunday Times in order to satisfy the principle that a person should not be permitted to gain from his own wrongdoing (Reading v Attorney General) and it would serve to lessen the temptation for recipients of confidential information to misuse it for financial gain. Lord Goff expressed doubts about a general statement that a man is not to be allowed to profit from his own wrong. He said (at p 286): The statement that a man shall not be allowed to profit from his own wrong is in very general terms, and does not of itself provide any sure guidance to the solution of a problem in any particular case. That there are groups of cases in which a man is not allowed to profit from his own wrong is certainly true. An important section of the law of restitution is concerned with cases in which a defendant is required to make restitution in respect of benefits acquired through his own wrongful act - notably cases of waiver of tort; of benefits acquired by certain criminal acts; of benefits acquired in breach of a fiduciary relationship; and, of course, of benefits acquired in breach of confidence. The plaintiff's claim to restitution is usually enforced by an account of profits made by the defendant through his wrong at the plaintiff's expense. Whether by the broader route favoured by the majority or the narrower route favoured by Lord Goff, the extension which the Spycatcher case marked beyond Peter Pan Manufacturing Corporation v Corsets Silhouette Ltd was that the remedy of an account was not limited to a defendant between whom and the plaintiff there was a prior relationship of confidence. The Sunday Times was an accessory to Peter Wright's breach of his duty of confidence which it utilised to his benefit. In so doing it itself acted unconscionably and was held liable to account for the benefit which it had obtained. Seatrade argued in their written closing submissions that confidential information is regarded as if it were a form of property. The proposition that confidential information may be regarded as property is highly controversial. It has had distinguished supporters from time to time, but it presents formidable conceptual difficulties. Holmes J described the word property as applied to trade secrets as "an unanalysed expression of certain secondary consequences of the primary fact that the law makes some rudimentary requirements of good faith": E.I. Du Pont de Nemours Powder Company v Masland (1917) 244 US 100, 102. It is not a necessary foundation for the law of confidentiality and, if accepted, it would itself cause problems, for example, in relation to innocent third parties. Most importantly, it certainly formed no part of the reasoning of the House of Lords in the Spycatcher case. Lord Goff alone (at p 281) made reference to the question whether confidential information might be regarded as property; and he stated that he deliberately avoided it. In Satnam Investments Ltd v Dunlop Heywood & Co Ltd [1993] 3 AER 652 the trial judge held that a development company which acquired property through taking advantage of an opportunity provided by an agent's breach of fiduciary duty held the property on constructive trust for the principal. The decision was reversed on appeal. In its judgment the Court of Appeal emphasised that there had been no finding that the development company had participated in the agent's breach of its fiduciary duty, and that in those circumstances it would be contrary to commercial good sense that the development company should have to disgorge property which it had acquired merely through an opportunity provided by a breach of fiduciary duty of another in which it was not itself implicated. The case is therefore different from the present. It is difficult to see that it would offend commercial sense if a briber were made to give up benefits obtained by his bribery. I have previously avoided the ambiguous and misleading phrase "constructive trustee", which was used in argument in the sense identified by Millett LJ in Paragon Finance plc vDB Thackerah & Co [1999] 1 AER 400, 409 as follows: It arises when the defendant is implicated in a fraud. Equity has always given relief against fraud by making any person sufficiently implicated in the fraud accountable in equity. In such a case he is traditionally though I think unfortunately described as a constructive trustee and said to be "liable to account as a constructive trustee". Such a person is not in fact a trustee at all, even though he may be liable to account as if he were. He never assumes the position of a trustee, and even if he receives trust property at all it is adversely to the plaintiff by an unlawful transaction which is impugned by the plaintiff. In such a case the expressions "constructive trust" and "constructive trustee" are misleading, for there is no trust and usually no possibility of a proprietary remedy; they are "nothing more than a formula for equitable relief": Selangor United Rubber Estates Ltd v Cradock (No 3) [1968] 2 AER 1073 at 1097, [1968] 1 WLR 1555 at 1582 per Ungoed-Thomas J. This is such a case and the argument is what form of equitable relief should be granted. Seatrade's argument that liability to account on the part of a person implicated in the fraudulent misuse of a fiduciary's position should be confined to benefits consisting of property owned by the principal raises practical as well as policy considerations. Similar problems arose in relation to the fiduciary himself under the rule in Lister v Stubbs that a proprietary remedy was available only where the principal sought to recover his own property and not where the fiduciary had merely made a profit for which he was accountable to his principal. The practical objections were spelt out by Lord Millett in "Bribes and Secret Commissions" [1993] RLR 7, an address delivered to the Society of Public Teachers of Law and cited with approval by LT in Attorney General for Hong Kong v Reid . Lord Millett referred to the distinction drawn by some between restitutionary claims said to have a proprietary base and restitutionary claims where a fiduciary exploits his position to make a personal profit. He also referred to an analysis of Professor Goode, who distinguished between (1) cases where the plaintiff's claim has a proprietary base, (2) cases where the defendant obtained benefits which he was under a duty to obtain (if at all) for the plaintiff and (3) bribes and other illegal payments which the defendant was under a duty not to obtain at all. Lord Millett commented, at p 15-16: These nice distinctions are all very well in theory; they are too fine to be drawn in practice. The witnesses with the closest knowledge of the facts are likely to be the least reliable. As a useful illustration, take the Logicrose case [1988] 1 WLR 1257. The chairman of a football club negotiated the grant of a 12 year licence of its car park to a market trader at a rent but no premium. In order to obtain the licence, the trader paid a sum of £70,000, not to the club, but to an off-shore company controlled by the chairman of the club. The payment was not disclosed to his fellow directors. The club sued to set aside the licence, claiming that the money represented a bribe or secret commission. The chairman and the trader both denied this, giving innocent and plausible (but inconsistent) explanations. They were the only witnesses who knew what had happened. They were both found to be liars, and the payment was found to be a bribe. In the course of the trial, the conveyancing file was put in evidence and the solicitor who drew the licence was called as a witness. His recollection was poor, the file was incomplete, and the various drafts it contained were undated. One of them, however, was a draft licence at a rent and a premium of £70,000. No explanation of the document was forthcoming. Now, if a legally binding legal contract came into existence for the grant of a licence at a premium which was later suppressed and replaced by a licence without a premium, then this was a case within Professor Goode's first category; the chairman received a payment made out of the club's own money. If, on the other hand, the parties negotiated the grant of a licence at a premium and then substituted a payment to the chairman's offshore company before any binding contract was concluded, the case fell within Professor Goode's second category. And, if, as was quite possible, the payment was intended from the outset to be paid to the chairman; and if the draft licence showing it to be a premium payable to the club was the result of a misunderstanding on the part of the solicitor, who naturally took his client to be an honest man and did not recognise that the money was intended as a bribe, then the case fell into Professor Goode's third category. But there was simply no way of telling And why should it matter? It is submitted that these are distinctions without a difference. They are either impossible to draw in practice, or on grounds of public policy they are forbidden to be drawn. They are irrelevant to liability, and should be equally irrelevant to the nature of the remedy granted. Would such distinctions have been any more sensible in relation to the off-shore company which dishonestly received the payment than in relation to the chairman? I do not think so. On Seatrade's argument an account of profits would have been available against the company only if the case had fallen into the first category, but that is not consistent with Cook v Deeks . I would conclude that there are cogent grounds, in principle and in practical justice, for following the approach of Gibbs J and holding that the briber of an agent may be required to account to the principal for benefits obtained from the corruption of the agent. In Attorney General for Hong Kong v Reid Lord Templeman described bribery (p 330) as "an evil practice which threatens the foundations of any civilised society". The law should not assist a party to retain the profits of such a vice. However, there is in my view a compelling reason why it would not be right to direct an account of profits in this case. I have already found that it is highly probable that Fyffes would have entered into a service agreement with Seatrade if Mr Templeman had not been dishonest. Insofar as the terms agreed were more favourable to Seatrade than would have been agreed to by an honest and prudent negotiator on Fyffes' behalf, Fyffes are entitled to damages, which I have assessed. Insofar as Seatrade made an "ordinary" profit element, it was not caused by the bribery of Mr Templeman, but was profit for the provision of services for which there would have been a contract in any event. I do not see the equity of ordering Seatrade to account to Fyffes for that profit. It is important to remember the warning of the High Court of Australia in Warman , at paragraph 33 of the judgment, that "the liability of the fiduciary should not be transformed into a vehicle for the unjust enrichment of the plaintiff." Mr Howard advanced an alternative argument for an account on a common law rather than an equitable basis. The argument drew heavily on an interesting and valuable article by Caroline Needham on Recovering the Profits of Bribery (1979) 95 LQR 536. Although it is not possible to do full justice to her argument in a short extract, its essence for present purposes is contained in the following passage at p 548: In proceedings against the briber, it is irrebuttably presumed that a briber who sells goods to the principal has inflated the price of the goods by the amount of the bribe, and hence that his wrongful profit is at least the amount of the bribe ( Hovenden & Sons v Millhof (1900) 83 LT 41). The same reasoning can be applied to any transaction in connection with which a bribe has been paid: it may be taken that the briber had sound reasons for offering the bribe, and therefore that his profit on the transaction is at least equal to the amount of the bribe. However, if it can be shown that the briber obtained some further profit from his wrongdoing over and above the amount of the bribe, this should also, it is submitted, be recoverable as money had and received. The briber must disgorge the whole of his unjust gain. Lord Diplock referred in Mahesan , at p. 383, to the conceptual difficulties raised by the extension to the briber of liability to account to the principal for the amount of the bribe as money had and received. Caroline Needham's analysis offers an interesting rationale. However, it is unnecessary to consider it further for this reason. On her approach restitution will only be available to the extent that the giving of the bribe caused the briber to obtain profit in excess of it. To the extent that this happened in the present case, Fyffes are entitled to damages which I have assessed. In those circumstances it would not be appropriate to direct the taking of an account for the purpose of a restitutionary claim which could add nothing to the amount of their recovery.

Cited in 1 later judgment