“It follows that if you or any other members of the Revoker team were to seek to conclude personal arrangements with the Family, you or they would be in flagrant breach of your duties to Revoker. You would also be required to account to Revoker, as set out above, for any benefit you gained personally from any such arrangement and any other profits, or pay damages for any loss caused by any such breaches.”
“…I will do everything to make their [the Family's] life miserable until we get our money. All 100% of Revoker proceeds.”
“necessary to explain why the suggested Hunnewell variant in [sic] inacceptable…Besides, I consider that sitting at the negotiations table with the specialists who are supposedly mistaken for the third time, with regard to one and the same contract which is constantly changed not in our favor, we, obviously, make the mistakes which encourage the opposite side to make such actions. We would not like to think that we are made a fool of, but this is how it feels.”
“we withdraw our consent with immediate effect to Salford Capital Partners Inc engaging in any further discussions with or disclosing any further information to Legacy Management Limited concerning NWVF, VDP or its asset.”
“I had bad thoughts (but I didn’t act on them)”
“At times, the evidence which he gave was deliberately dishonest; sometimes he was clearly making his evidence up as he went along in response to the perceived difficulty in answering the questions in a manner consistent with his case; at other times, I gained the impression that he was not necessarily being deliberately dishonest, but had deluded himself into believing his own version of events.”
“what I’m saying is that we went into this agreement with a very clear understanding of what it was meant to reflect and we believe that it did. Now that you’re pointing to me that there are some missing paragraphs … Probably technically it does not say, but the intent and our understanding and the way we acted on it was of course the one as I’ve described…”
“Q. Yes, so what did you do? Did you look at the statute? A. The statute? Q. Yes, it was all about a statute. A. Sorry, I don't understand what you mean by “statute”…. Q. Did you look at the statutory provision? A. I did not, no. … My initial thought was just to find out the background, where it had gotten to, what had been happening in the trial so far, what the claim was about. A lot of that was available online.”
“much of this is not true, and I’d much rather trust my partners on this issue than Mr Nagle”
“[125] …we would sound a note of caution in relation to Lewison J’s second principle (unjust enrichment)… [126] The point we wish to emphasise is that the basic equitable rule is indeed a stringent one which requires an errant fiduciary to account to his principal for all unauthorised profits falling within the scope of his fiduciary duty. The rule is intended to have a deterrent effect, and to ensure that no defaulting fiduciary can make a profit from his breach of duty. It does not matter if the result is to confer a benefit on the principal which the principal would otherwise have been unable to reap … [127] It follows, in our view, that the doctrine of unjust enrichment has, at best, only a subsidiary role to play in limiting the liability of a fiduciary to account.”
“Removing the fruits of temptation is designed to neutralise the temptation itself by rendering it pointless”
“The local goodwill associated with the Bonfiglioli products distributed by Warman - the local product goodwill - was the property of Bonfiglioli just as the local product goodwill in Australia in Hospital Products (51) was that of the United States principal. That, of course, is not to deny the existence in Warman of a goodwill associated with its distribution of Bonfiglioli products. It does not appear that any distinction was drawn at trial between the goodwill of Bonfiglioli and that of Warman or that any attempt was made to identify and value each of them… …the local goodwill associated with the Bonfiglioli products had always remained the property of Bonfiglioli. Warman was entitled to exploit that local goodwill only during the period of its distributorship. Warman's agency had not extended at all to the local assembly of the Bonfiglioli products. Realistically, . the main basis of B.T.A.'s business was what Bonfiglioli had always retained and been entitled to exploit, namely, the local goodwill of the Bonfiglioli products after the termination of Warman's agency and the right to assemble those products locally.”
“It is necessary to keep steadily in mind the cardinal principle of equity that the remedy must be fashioned to fit the nature of the case and the particular facts.”
“Equitable principles have above all a distinctive ethical quality, reflecting as they do the prevention of unconscionable conduct. They are of great width and elasticity, and are capable of direct application, as opposed to application merely by analogy, in new circumstances as they arise from time to time. Thus at law a court is required to operate largely by analogy when presented with new situations. But in equity the establishment of fiduciary duties or the application of an equitable doctrine may arise in any circumstances at all, whether or not similar circumstances have come about previously, provided that the case falls within the general principles that originated in the Court of Chancery.”
“But the basic principle remains that a principal who so elects is entitled to an account of profits, subject to considerations of the kind already mentioned [i.e. established defences and limits]”
“When one looks at the way the cases have gone over the centuries it is plain that the question whether or not the benefit would have been obtained but for the breach of trust has always been treated as irrelevant.”; b. Murad at [59-60]: “the liability of a fiduciary to account does not depend on whether the person to whom the fiduciary duty was owed could himself have made the profit.”
“In determining what is the appropriate relief and its extent … require two questions to be answered: (i) what is the breach of fiduciary duty the misappropriation of 'trust' property; the improper diversion of an opportunity; an undisclosed personal interest in a sale or purchase, etc?; and (ii) what is the profit or benefit which the fiduciary has made in consequence of that breach?..”
“reasonable relationship” vs “equitable causation”
“There needs to be some link or nexus between the breach of duty proved and the profits for which an account is ordered, such that there is a ‘reasonable relationship’ between them (as Lewison J said in the Ultraframe case). But a link or nexus does not need to be of a causal character. It will normally be sufficient if the profit arose within the scope of the defaulting fiduciary’s conduct in breach of duty.”
“In these latter decisions, the liability to account effectively treats the profits as an "accretion to the property which has yielded them", which provides an effective means of stripping the profit that the fiduciary otherwise claims for himself. In Tang v Tang, Lord Millett N.P.J. rebuked counsel and the courts below for seeking to apply profit-stripping principles to the case at hand, rather than tracing principles, arguing that the two involve conceptually distinct principles. However, that distinction is not as clear as he suggested. In Scott v Scott, for example, which Lord Millett relied on in Tang v Tang, the High Court of Australia held that a trustee who purchased property using a mixture of trust funds and his own could be required to account for the profit generated when that property increased in value, and that the obligation to account for that profit would be secured by a lien against the property. The High Court mentioned, but expressly did not decide, the question whether this could potentially be given effect through a co-ownership constructive trust, of the kind that the House of Lords (including Lord Millett) later recognised, following a tracing exercise, in Foskett v McKeown. The point here is not to argue that tracing and accounts of profits necessarily operate on identical principles and will always produce the same results. The point being made, and to which it will be necessary to return, is that the principles overlap, in the sense that both provide mechanisms for stripping profits from an errant fiduciary, and that the principles have influenced one another in their development.”
“[t]here was no warrant for allowing the respondents to stand by for nearly two years and then to obtain a remedy which, in effect, exposed them to none of the risks but gave them all of the rewards of the business having been run in the meantime.”
“A mine which a man works is in the nature of a trade carried on by him. It requires his time, care, attention and skill to be bestowed on it, besides the possible expenditure and risk of capital, nor can any degree of science, foresight and examination afford a sure guarantee against sudden losses, disappointments and reverses. In such cases a man having an adverse claim in equity on the ground of constructive trust should pursue it promptly, and not by empty words merely. He should shew himself in good time willing to participate in possible loss as well as profit, not play a game in which he alone risks nothing. … There was here, in my opinion, no sufficient apology, no excuse for the delay from 1846 to 1855.”
“… laches and estoppel are well established equitable doctrines. However, at least in a case such as this, I am not convinced that acquiescence adds anything to estoppel and laches. The classic example of proprietary estoppel, standing by whilst one’s neighbour builds on one’s land believing it to be his property, can be characterised as acquiescence: …. Similarly, laches, failing to raise or enforce an equitable right for a long period, can be characterised as acquiescence… Although I would not suggest that it is an immutable requirement, some sort of detrimental reliance is usually an essential ingredient of laches, in my opinion…”
“The argument based on laches faces two problems. The first is that, as pointed out by David Richards J, laches only can bar equitable relief, and a declaration as to the existence of a long-term property right, recognised as such by statute, is not equitable relief. It is arguable that a declaration should be refused on the ground of laches if it was sought solely for the purpose of seeking an injunction or other purely equitable relief. However, as already mentioned, that argument does not apply in this case. Secondly, in order to defeat Mr Fisher’s claims on the ground of laches, the respondents must demonstrate some “acts” during the course of the delay period which result in “a balance of justice” justifying the refusal of the relief to which Mr Fisher would otherwise be entitled. For reasons already discussed, the respondents are unable to do that. They cannot show any prejudice resulting from the delay, and, even if they could have done so, they have no answer to the judge’s finding at para 81, that the benefit they obtained from the delay would outweigh any such prejudice.”
“In my submission it would be inconceivable if there were such a significant point being raised at that sort of level for somebody not to have taken it up, given how fundamental it is to the whole architecture of this part of the law. It is not something which is a small little point which could have been developed, you know, in the dark without anybody noticing. It just isn't that sort of a point. It is incredibly important in terms of the rationale for the taking of the account.”
“does it have to be unlawful and, if it's unlawful, does it have to be criminally unlawful or is it enough if it's a breach of the civil law? If it is a breach of the civil law, if you sort of cascade down, does it have to be a breach of duty owed to the defendants or can it be a breach of duty owed to anyone, to a third party? Does that breach of duty to a third party have to have some relevance to the facts? What is the degree of relevance to the facts if you're in that territory of being in a third party? Does it have to be deliberate? Is it okay if it's negligence or accidental?... Does the conduct need to have succeeded?”
“The maxim does not, in my view, enforce manners, or require apology; it is reserved for exceptional cases where those seeking to invoke it have put themselves beyond the pale by reason of serious immoral and deliberate misconduct such that the overall result of equitable intervention would not be an exercise but a denial of equity.”
“an account of profits…is a procedure to ensure the restitution of profits which ought to have been made for the beneficiary and not a procedure for the forfeiture of profits to which the defaulting trustee was always entitled for his own account.”
“As a general rule a fiduciary must not be allowed to benefit from a breach of fiduciary duty unless there has been some antecedent agreement for profit sharing.”
“While it seems courts in Australia may be more willing to grant such allowances than courts in England, authority on when such an allowance is appropriate remains ‘scanty’. There is, necessarily, an element of discretion or ‘judgment’ in determining whether allowances should be made in a particular case, particularly for the fiduciary's time, effort and skill, and what allowance might be reasonable in the circumstances of that case. That decision depends heavily on the circumstances of the particular case, and so it is difficult to formulate any general rule, but a significant factor in the scant authority that exists appears to be whether the profit would not have been generated without the exercise of time, effort and skill, and whether it was reasonable - such that the court would have approved it if asked in advance - to pay someone to exercise that time, effort and skill without which the profit would not have been generated. If that is the case, the work can be considered a legitimate expense in generating the profit, and thus deducted as a just allowance in the accounting process. If granted, the allowance covers reasonable or ‘fair remuneration’ for the work done in generating the profit, rather than an estimate of what the particular defendant could have negotiated as remuneration for that work. If the fiduciary could have negotiated a better rate of pay for the work which generated the profit, the failure to take that step is the fiduciary's own fault and so does not further diminish the amount of the profit for which he or she must account. In O'Sullivan v Management Agency and Music Ltd., the Court of Appeal indicated that this remuneration could potentially include a profit element, but it is important to recognise that Fox L.J. explained this on the basis that the ‘allowance could include a profit element in the way that solicitors' costs do’. In other words, what was accepted was that the remuneration could go beyond mere recovery of expenses out of pocket (disbursements and the like) and could extend to ‘profit costs’ which would include payment for the expenditure of professional skill and labour. This approach anchors the decision as to the amount of the allowance to a reasonable sum for the work which was needed to generate the profit, bearing in mind relevant market conditions, rather than it being a free-floating discretion to divide the profit between principal and fiduciary in some arbitrary proportion. In this way, an allowance for time, effort and skill, like allowances for other expenses which are determined to have been appropriately incurred in generating the relevant profit, is part of the calculation of the net profit which has been made in breach of fiduciary duty.”
“Once it is accepted that the court can make an appropriate allowance to a fiduciary for his skill and labour I do not see why, in principle, it should not be able to give him some part of the profit of the venture if it was thought that justice as between the parties demanded that. To give the fiduciary any allowance for his skill and labour involves some reduction of the profits otherwise payable to the beneficiary. and the business reality may be that the profits could never have been earned at all, as between fully independent persons, except on a profit sharing basis. But be that as it may, it would be one thing to permit a substantial sharing of profits in a case such as Phipps v. Boardman [1967] 2 A.C. 46 where the conduct of the fiduciaries could not be criticised and quite another to permit it in a case such as the present where, though fraud was not alleged, there was an abuse of personal trust and confidence. I am not satisfied that it would be proper to exclude Mr Mills and the M.A.M. companies from all reward for their efforts. I find it impossible to believe that they did not make a significant contribution to Mr O'Sullivan's success. It would be unjust to deny them a recompense for that. I would, therefore, be prepared as was done in Phipps v. Boardman to authorise the payment (over and above out of pocket expenses) of an allowance for the skill and labour of the first five defendants in promoting the compositions and performances and managing the business affairs of Mr O'Sullivan, and that an inquiry (the terms of which would need to be considered with counsel) should *469 be ordered for that purpose. Such an allowance could include a profit element in the way that solicitors' costs do. In my view this would achieve substantial justice between the parties because it would take account of the contribution made by the defendants to Mr O'Sullivan's success. It would not take full account of it in that the allowance would not be at all as much as the defendants might have obtained if the contracts had been properly negotiated between fully advised parties. But the defendants must suffer that because of the circumstances in which the contracts were procured.”
“The authorities establish, in my judgment, a general principle that where a person seeks to enforce a claim to an equitable interest in property, the court has a discretion to require as a condition of giving effect to that equitable interest that an allowance be made for costs incurred and for skill and labour expended in connection with the administration of the property. It is a discretion which will be sparingly exercised; but factors which will operate in favour of its being exercised include the fact that, if the work had not been done by the person to whom the allowance is sought to be made, it would have had to be done either by the person entitled to the equitable interest (as in In re Marine Mansions Co., L.R. 4 Eq. 601 and similar cases) or by a receiver appointed by the court whose fees would have been borne by the trust property (as in Scott v. Nesbitt, 14 Ves. Jun. 438); and the fact that the work has been of substantial benefit to the trust property and to the persons interested in it in equity (as in Phipps v. Boardman [1964] 1 W.L.R. 993)”
“Is the maximum sum for which the Third Defendant is liable to account limited to amounts constituting fees (net of expenses) that he has received for the Recovery Services since25 May 2011 ?”
“there was a mismatch between the company to which the fiduciary duty was owed (Keystone) and the company which made the overpayment (Holdings)”
“It is true that the context for much of the negotiation at this time was Mr Jaffe discussing his effective withdrawal from the project and on occasion he (particularly in documents for internal consumption) took an exasperated tone and spoke about finality; however, in essence the nature of this position was clear. Mr Jaffe was negotiating with Mr Rukhadze (and to an extent the Family) the terms on which he would either allow Mr Rukhadze to take over what was essentially an SCPI opportunity or keep the opportunity. He was not actively pursuing it as a sole goal on the same basis as had been done originally, but he was pursuing it in the sense of trying to monetise the value of the opportunity. He intended to keep it if he could not monetise it. That is clear from the correspondence in May 2011, including Mr Munro's statement: “Revoker still intends to pursue this opportunity”
“[424] …I conclude that each of the Individual Defendants breached their fiduciary duties: Mr Rukhadze to SCPI, RP and Revoker, Mr Alexeev to SCPI and Revoker and Mr Marson to Revoker alone. That breach consisted of what was in essence a bad faith resignation. There was certainly a resignation with intention to compete, but the necessary element of disloyalty to give a liability in respect of acts done post resignation is provided by the preparatory steps which the Defendants took before their resignation and the disloyalty involved in their failing, while notionally acting for SCPI/RP/Revoker, to support the entities to whom they owed fiduciary duties, and in actively aligning themselves with the Family and away from their respective companies at the key point in the timeline.”
“[421] (viii) By mid-April 2011 the Park Street team had actively or passively made clear that they were prepared to continue providing the Recovery Services if the Family severed ties with SCPI; this was inherent in the fact that they involved themselves in assisting the Family to evaluate SCPI’s proposal and that the evidence strongly suggests that Mr Marson assisted them to retain legal advice… [422] …there is no doubt in my mind that, in the context of the fiduciary duties owed these actions amounted to disloyalty, particularly when taken together with the actions which the Defendants were taking to make themselves ready to continue the Recovery Services in a post SCPI world.”
“an agreement at least on the part of the three Individual Defendants to continue with the Recovery Services and to attempt to acquire a contract for those services with the Family. …Messrs Rukhadze, Alexeev and Marson wanted the Recovery Services and were prepared to scupper any lingering chance of an SCPI deal by letting the Family know that they would do the business if SCPI were sent packing.”
“To what extent did the Responsive Receipts have any or a sufficient degree of connection to the breaches found by the Judge so as to fall within the account, including by reference to any change in nature or scope of the Recovery Services in relation to: 15.1. The recovery of assets in Georgia which had been expropriated by the Government of Georgia or which had been the subject of Mr Kay’s certificate of inheritance (paragraph 26(1), 29(2)). 15.2. Mr Berezovsky’s claim against the Family (paragraph 26(2)). 15.3. The recovery of Mr Patarkatsishvili’s assets from Mr Anisimov (paragraph 26(3), 29(1)). 15.4. The recovery of assets held in NWVF (paragraph 29(3)). 15.5. The recovery of assets relating to Fisher Island (paragraph 29(4)).”
“this result can be reached in a number of different ways, recognising the relevant case-law.”
“it was ‘agreed’ prior to the split that Mr Rukhadze would receive 40% of the profits from the Recovery Services, in the sense that Mr Jaffe agreed to allocate that share.”
“I do accept that I promised to Irakli initially 40% for him and his team, then it was increased to 46% and then I was willing to increase it to 50% should we agree on everything else.”
“had this issue not being dragged on by Irakli, and you not been drawn into this by him and the final agreement with Revoker had been executed this issue would be far behind us now - Irakli and his team would have perfected their interest in 50% of the recovery proceeds…”
“Did the Individual Defendants bring to the Recovery Services skills which made them “uniquely well-suited” to carrying out those Services as alleged at paragraph 31 of the Defendants’ Re-Amended Position Statement; were they “entirely dedicated” to the Recovery Services project as alleged at paragraph 32 and did they take “significant financial, commercial and personal risk” as alleged at paragraph 32A?”
“were and they are, by the way, billionaires, billionaires, billionaires, they just didn’t have control of those billions, and the whole point was they wanted to get this control and for that they needed cash and they needed to somehow settle with Berezovsky, with Anisimov, with [etc.]”
“I consider the BTA to be a reasonable starting point, and I note that when it comes to Responsive Receipts, Mr Davies states that he supplements the BTA work by checking other sources to see if they indicate any receipts which the Defendants have not recognised. I agree that testing receipts for understatement is an important part of the forensic accountant’s role in this case (as is the testing of expenses and other deductions for existence and reasonableness).”
“Mr Davies and I weren’t dramatically off in our approach, but there were differences.”
“Mr Barton and my approaches are different. I mean, I have followed what the defendants have presented in the DAPS and looked to identify whether I could find support for the expenditure …. And Mr Barton has adopted a different approach. We both have said it's up to the court to determine what is allowable or not. I've been told to make assumptions and I have. Mr Barton has done something different.”
“I think I wouldn't be able to form a view on whether the expenditure had been performed in accordance with the recovery services work .. because that would involve knowledge that simply wouldn't be available to me. I mean, it's the defendants' case that is the case [that money was spent in the Recovery Services] but I simply couldn't form a view on that… I would have to tell the Court that I can’t form a view on the assumption.”
“Where Responsive Receipts falling within the scope of the obligation to account consist of assets or benefits other than cash, what is their value?”
“Management expected Lomi 3 would generate US$12.5 million EBITDA in 2021 for Rustavi promising a fundamental step change in the Company’s performance.”
“…the real point is that absent any agreement, the decision as to what would happen to the shares was [Mr Jaffe's] as it had historically been his decision who acquired carried interest in assets and to what extent.”
“Badri would often say that he was waiting for money from VA and that VA was managing money for him, but he did not explain what he meant by this in any detail.”
“I think that it is important to mention that, particularly in the early days of my relationship with Badri and Mr Berezovsky, I did not understand in full the details of all of Badri’s business affairs”; “I was sometimes unclear about what assets were owned and by whom”; “I therefore cannot say confidently whether or not Badri ever had any interest at any time in MGOK”