Palmali Shipping SA v Litasco SA [2025] EWHC 1149 (Comm)

[2025] EWHC 1149 (Comm)Case Nos: CL-2017-000458 and CL-2018-000030
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMMERCIAL COURT (KBD)
Venue Royal Courts of Justice, Rolls Building, Fetter Lane, London, EC4A 1NLDate Date: 23/05/25
Before
HIS HONOUR JUDGE PELLING KCSITTING AS A JUDGE OF THE HIGH COURT
Between
PALMALI SHIPPING SAClaimantLITASCO SADefendant
Nigel Eaton KC and Stephen Donnelly (instructed by Rosling King LLP) for Claimant;Tim Lord KC, Craig Morrison KC, Geoffrey Kuehne, Aarushi Sahoreand Firdaus Mohandas (instructed by Hogan Lovells International LLP) for DefendantHearing Hearing dates: 20, 21, 22, 23, 27, 28, 29 and 30 January; 3, 4, 5, 6, 10, 11, 12, 13, 17, 26 and 27 February 2025
Approved JudgmentThis judgment was handed down remotely at 11:05am on 23 May 2025 by circulation to the parties or their representatives by e-mail and by release to the National Archives..............................HIS HONOUR JUDGE PELLING KC SITTING AS A JUDGE OF THE HIGH COURT

HH Judge Pelling KC:

[1]This is the trial of the liability issues Issues B1, B2, B3 (in part), B4 and B5 of the List of Common Ground and Issues. that arise in the claim and counterclaim in Claim Number CL-2017-000458 (the “2017 Claim”) and the claim in Claim Number CL-2018-000030 (the “2018 Claim”), with all quantum issues that may arise in relation to the 2017 Claim having been directed (by agreement between the parties) to be determined to the extent necessary at a subsequent trial to be listed following final judgment in the liability trial.

The Parties

[2]The claimant (“PSSA”) was a company incorporated in accordance with the laws of the Federation of Saint Kitts and Nevis, which, until 2016, carried on business as a freight transport and ship operator with its central management being located in Istanbul. It was part of the Palmali Group of companies, which together owned or chartered and operated merchant ships principally registered in Malta and Russia. The defendant (“LSA”) is and was a company incorporated in accordance with the laws of the Swiss Confederation and a wholly owned subsidiary of Lukoil PJSC (“Lukoil”), a Russian registered company whose business is that of oil and gas extraction, refinement and sale. At all material times LSA carried on business marketing and selling Lukoil’s products.[3]Although there are a number of subsidiary issues that I will have to resolve, the main dispute between the parties concerns the 2017 Claim, which is for damages for alleged breach of what PSSA alleges was a contract between the parties entered into on 18 January 2005, by which (it is alleged by PSSA) LSA agreed with PSSA that PSSA would undertake on an exclusive basis the transportation of Lukoil product from “Tatyanka port of Volgograd or/and Astrakhan or/and Nikolaevskiy oil terminal (Kamyshin) … for discharge in the Black Sea and/or the Marmara Sea and/or the Aegean Sea and/or the Mediterranean Sea and/or the Caspian Sea ports…”, and from “… all the Black sea ports with destination for discharge in the Marmara Sea and/or the Aegean Sea and/or the Mediterranean Sea ports” as well as all “… transshipment of Cargo through mother storage vessels located at the Kertch strait area…” for an initial period of 10 years from 18 January 2005. PSSA alleges that in 2010 the parties agreed to extend what it alleges to be the contract between the parties for a further 5 years to 18 January 2020.[4]PSSA alleges that the effect of the alleged agreement was that LSA was required to provide to PSSA cargoes of not less than 400,000 and not more than 700,000 metric tonnes (“MT”) per month in lots of no greater than 10,000 MT throughout the period covered by what it alleges to be the contract between the parties. The alleged contract was in writing and was subject to an express English court jurisdiction provision. This document is referred to in these proceedings as the “Contract of Affreightment” or “CoA”. I adopt the same convention whilst acknowledging that LSA’s case is that the document is not and was not intended by the parties to be a binding contact.

The CoA

[5]Since the geographical context is important to the issues that I have to resolve, it is convenient that I start by identifying the location of the ports referred to in the CoA. As will be apparent from the map produced on behalf of LSA and reproduced below (“Map”), Volgograd, Astrakhan, and Nikolaevskiy are all inland oil terminals located close to or on river banks many miles to the northeast of the Black and Caspian Seas. Shipping cargoes from these refineries for international export requires transit south from inland ports at Volgograd, Astrakhan and the Nikolaevskiy oil terminal through the Volga Don Canal (which links the Rivers Don and Volga), then down the River Volga to the Sea of Azov and the Black Sea. The Volga Don Canal, and at least some parts of the Rivers Don and Volga, freeze so as to become impassible to shipping between November and April. Those areas that become unpassable are marked in red on the Map. The areas shown hatched in red are subject to sea icing although that is not material for present purposes. This reproduction of the Map should not be taken as indicating any position taken by the Court on any territorial issue.[7]The Volga Don Canal is narrow and shallow in parts and can only be navigated by small capacity, narrow beamed, oil carrying tankers that in practice carry cargoes of up to between 6,000 and 7,000 MT. In some years smaller cargoes have to be carried intermittently during the summer months due to the reduced depth of the canal caused by summer weather conditions. By way of example, on 19 June 2007, PSSA wrote to LSA reporting that “this summer in the Russian river is very dry and hot and we are facing strict draft restrictions”.[8]It follows, as is common ground, that no cargoes at all could or can be carried between the river ports and the Black Sea between mid-November and mid-April each year. PSSA maintains however that LSA was obliged to offer it cargoes of not less than 400,000 MT in lots of no more than 10,000 MT for sea passages between all Black Sea ports and from such ports for discharge in Marmara or Aegean or Mediterranean Sea ports to the extent that quantities referred to in the CoA could not be carried from the inland refineries to either Novorossiysk or other Black Sea ports or for storage on motherships located inthe Kerch Strait area. It will be necessary to consider in detail later in this judgment the passages that in fact were undertaken by or on behalf of LSA from Black Sea ports but in practice by far the most significant by number of voyages and volume and weight of cargo carried was between Novorossiysk in the east to Bourgas in the west. Typically in fact these passages were carried out using tankers capable of carrying cargoes of about 50,000 MT.[9]Against that background, it is convenient next to set out the terms of the CoA. The CoA refers to LSA as “the Client” and PSSA as “the Contractor”. In so far as is material the CoA provides that:
“1. OBJECT The Client has requested from the Contractor and the Contractor has undertaken to the Client on a long term (as referred to in clause 10 below) and exclusive basis: a) the transportation of all of the Client's cargoes, in lots of up to 10.000 mts dwt tons, including but not limited to crude oil, heating fuel oil, unleaded gasoline, gasoil undarker 2,5 NPA, fuel oil or/and vacuum gasoil with cargo temperature not less than 45 deg. C at loading port or/and luboil O1ereinafter the "Cargo"): - ex Tatyanka port of Volgograd or/and Astrakhan or/and Nikolaevskiy oil terminal (Kamyshin) with destination for discharge in the Black Sea and/or the Marmara Sea and/or the Aegean Sea and/or the Mediterranean Sea and/or the Caspian Sea ports spb aaaa - ex all the Black sea ports with destination for discharge in the Marmara Sea and/or the Aegean Sea and/or the Mediterranean Sea ports spb aaaa b) transshipment of Cargo through mother storage vessels located at the Kertch strait area. 2. CARGO QUANTITY AND LOADING TIME FOR EACH NAVIGATION PERIOD 2.1. It is agreed between the parties that the Client shall provide to the Contractor throughout each calendar year of the contract period the following minimum quantities of Cargo: Ex Volgograd or/and Astrakhan or/and ex Black sea or/and Caspian sea ports: from 400,000 up to 700,000 tonnes per month of crude oil, heating fuel oil, unleaded gasoline, gasoil undarker 2,5 NPA, fuel oil or/and vacuum gasoil with cargo temperature not less than 45 deg. C at loading port or/and luboil in lots of up to 10.000 mts dwt tons for carriage on board Sfat, 630 project, Lenaneft, Volgoneft, Armada, Lukoil, Radix, Brothers type vessels or motor-barges. 3. OBLIGATIONS A. LONG-TERM OBLIGATIONS The Contractor shall: Guarantee a steady throughput capacity of transport vessels with stable cost of services, to which end it shall where (sic) neccessary: - acquire or become the joint owner of the needed quantity of ships, - charter the missing number of ships from independent ship owners,_ - in case the quantity of river tonnage employed should need to be increased through construction of news ships, organize the financing of new buildings using the present contract as one of the forms of guarantee. The Client shall: - guarantee the stable supply of cargo for loading in order to ensure the full employment of the ships and storage vessels as referred to herein during the period of the validity of the contract, - secure smooth execution and performance of the contract enabling the Contractor to arrange financing of the construction of new ships by relying on the contract, - participate in the programs of upgrading of the storage terminals. … 4. LIABILITY 4.1. The Client is liable for all losses and expenses linked to: 4.1.1. Non-confirmation or late confirmation of export tanker chartering and, in relation to this, overfilling of the storage vessel, demurrage of tankers, and their late return to loading ports. 4.2. The Contractor is liable for all losses and expenses linked to: 4.2.1. Late supply of tonnages to loading ports in accordance with the schedule agreed upon by the parties and demurrage thus incurred. 4.2.2. Delayed or incorrect issuance of documents … 4.2.3. Quantitative losses and changes in cargo quality compared to initial indices fixed in shipping documents issued in all above mentioned loading ports until issuance of the ocean bill of lading and certificate of quality at the storage place of Kertch or/and at any respective destined discharge ports, in this case normal loss should not exceed 0.5%. The Client may retain the cost of losses from the cost of the Contractor's services at a price (including any truces) fixed on FOB certain loading ports terms, if otherwise not stipulated in an additional agreement. … 6. CLAIMS 6.1. Claims as to cargo quantity and quality shall be made by the parties within 65 calendar days from the date of completion of discharge of the relevant vessel. Any claim shall be presented in writing with all supporting documents attached to it. 6.2. The date of presentation of the claim is considered the date indicated in the acknowledgement of receipt of the claim by registered mail. If a party fails to present a claim within the time specified, then it shall be deemed to have been waived and absolutely barred. … 8. MISCELLANEOUS 8.1. After signature of the present contract, all former negotiations and correspondence regarding the contract shall become null and void. 8.2. All amendments and addendums to the present Contract shall be made by mutual agreement of the parties and in writing. 8.3. Save as stated in clause 10.1 below no termination of the current Contract is permitted otherwise then with the mutual consent of both parties in writing .. 8.4. This agreement shall be governed by and construed in accordance with English law. All disputes and disagreements linked to the fulfilment of the parties' obligations hereunder shall be settled amicably by the parties. If the parties fail to reach a mutual agreement, then the English High Court shall have exclusive jurisdiction over such dispute or disagreement. The amount of any recoverable fees and costs shall be determined by the court seized of the case. 8.5. The parties have agreed to consider the present Contract as confidential, and none of the parties shall divulge it to third parties without the consent of the other party. Exception is made in case of presentation of the contract to official persons in connection with its fulfilment by each party. … 10. PERIOD OF VALIDITY 10.1. The present Contract takes effect on 18th JAN 2005 and shall remain in full force and effect for 10 (ten) years commencing from that date and until all mutual accounts hereunder have been finally settled and closed. Any party wishing to terminate the present agreement unilaterally shall have to give the other not less than 12 months written notice of its intention to do so. If the Client chooses to exercise its right of unilateral termination under this clause before the expiry of the full term of the contract, it undertakes to settle all of the Contractor's losses, claims, damages costs and expenses that may arise from the early termination, immediately upon presentation by the Contractor of a written demand setting out a breakdown of such losses, claims, damages, costs and expenses. … 11. SPECIAL FREIGHT RATES' CLAUSE 11.1. It is mutually concluded between the parties that during the whole period of the present Contract all freight rates are to be agreed between the parties from time to time and subject to an increase or decrease of 5-10 % in comparison to the market rates.”
A. LONG-TERM OBLIGATIONS The Contractor shall: The Client shall:

The Claims

[10]PSSA’s primary claim is the 2017 Claim, by which it claims to be entitled to recover sums which it now quantifies as totalling approximately US$120m for alleged breach by LSA of what is contended by PSSA to be its obligations to supply(a) cargoes of not less than 400,000 MT per month for the duration of the CoA and(b) all cargoes within the apparent scope of the CoA in fact carried on behalf of LSA up to a total of 700,000 MT per month, between the dates of inception of the CoA and its expiry (following the alleged extension) on 18 January 2020.[11]The issues that I have to determine in the 2017 Claim concern whether the individual who signed the CoA on behalf of LSA was authorised to do so, or otherwise whether the CoA was, or was intended by the parties to be, binding, if it was, what its true meaning and effect was, whether it was extended in 2010 for a further term of 5 years until 2020 and whether any claims available to the claimant for alleged breach of the CoA were either time barred or barred by estoppel or waiver. I address each of the points that arise to the extent it is necessary to do so below in each case by reference to the facts and matters relevant to that issue.[12]The 2018 Claim is for various allegedly unpaid sums totalling US$4.1m alleged by PSSA to be due under various charterparties and bills of lading entered into by the parties between 2011 and 2015. By the start of the trial, there were a number of specific and partial defences that were still relied on by the defendant in relation to the 2018 Claim, but after the evidence had been completed and ahead of the delivery of their written closing submissions, the parties agreed not to “… argue the invoice-specific defences referred to in the parties’ pleadings in respect of the 2018 Claim, but instead agree a global figure of US$3,850,000 for the quantum of the invoices that (subject to the Defendant’s primary defences) would be payable under the 2018 Claim…” The “primary defences” LSA continues to rely on are “… waiver and set-off in respect of the sums claimed under the 2018 Claim.” The set off defence is advanced by reference to LSA’s counterclaim for repayment of(a) the balance of a loan by it to PSSA in the sum of $7.5m plus interest;(b) the sum of $1,459,697.62 paid by LSA to PSSA for the purpose of it paying sums due to third parties in respect of the vessel the MV Minerva Zoe, which in the end LSA paid direct as well and(c) of an over paid pre-payment by LSA to PSSA of US$2.6m odd and interest. I return to the counterclaim at the end of this judgment.

The Trial

[13]The trial took place between 20, 21, 22, 23, 27, 28, 29 and 30 January; and 3, 4, 5, 6, 10, 11, 12, 13, 17, 18, 19, 20, 24, 25, 26, and 27 February 2025. I heard oral evidence adduced by PSSA from: i) Mr Mubariz Mansimov, who was at all material times President and ultimate beneficial owner of Palmali Group, of which PSSA was part as I have explained; ii) Mrs Nuray Perker, who was at all material times Head of Finance and Business Development of Palmali Group; iii) Mr Andreas Hauenstein, a partner and head of litigation and arbitration at Baumgartner Mächler Attorneys Ltd in Zurich, who gives expert evidence on Swiss law in relation to LSA’s case that the individual who apparently signed the Contract and an extension to it had no authority to do so; and iv) Captain Rajesh Raman, a Master Mariner and consultant who gives evidence on another part of the factual matrix said to be relevant to the liability issues to be determined at this trial; and v) Mr Albert Stein, a shipping expert who gives evidence on part of the factual matrix said to be relevant to the liability issues to be determined at this trial. LSA adduced evidence under the Civil Evidence Act in the form of statements from(a) Mr Turhan Beriker, an external Financial Adviser to Palmali Group; and(b) Mr Oguz Perker, who between 2004–2010 was in charge of fixing voyages from ports in the Black Sea for Palmali Group; and from 2010 onwards worked in the Palmali Group’s dry cargo department.[14]LSA adduced oral evidence from: i) Mr Timothy Bullock, LSA’s Chief Executive from October 2012 until April 2018; ii) Ms Natalie Comrie, who, from 2008, led LSA’s heavy petroleum products operations team; iii) Dr Balz Gross, a partner and head of dispute resolution at Homburger AG in Zurich who gives expert evidence on Swiss law in relation to LSA’s case concerning authority; and iv) Mrs Jean Richards, who gave evidence on the shipping issue considered respectively by Mr Stein and Captain Raman. PSSA adduced evidence under the Civil Evidence Act in the form of a statement from Mr David Walker, who was at all material times the global chartering manager at Eiger Shipping SA, a wholly-owned subsidiary of LSA.[15]This is a commercial claim relating to events that occurred between 10-20 years ago. In those circumstances, the oral evidence of each of the witnesses of fact must be tested, wherever possible, against the contemporary documentation, admitted and inconvertible facts and inherent probabilities – see Onassis and Calogeropoulos v. Vergottis [1968] 2 Lloyds Rep 403 at 407 and 413 – and their subsequent conduct – see Bailey v. Graham [2012] EWCA Civ 1469 per Sir Andrew Morritt CHC at [57]. Whilst it is necessary to consider all of the relevant evidence and not simply such documentation as may be available – see Kogan v. Martin [2019] EWCA Civ 164 per Floyd LJ at [88]-[89] - there is nothing either in this authority or the requirement to consider all of the evidence that prevents the evaluation of oral evidence using the techniques referred to above. Given the passage of time that has elapsed since the occurrence of the events relevant to this claim, use of these techniques is all the more appropriate – see Gestmin SGPS SA v. Credit Suisse (UK) Limited [2013] EWHC 3560 (Comm) per Leggatt J (as he then was) at [15]-[22]. This is the approach I have adopted.[16]The defendant advances as its positive case that for various reasons I develop in detail later in this judgment the CoA is not and was not intended to be a binding contract or was not intended to take effect in the way its literal wording might suggest. As part of its positive case, LSA makes some serious allegations of dishonesty against PSSA and various individuals, some of whom have not given evidence. In those circumstances, it is important to identify at the outset some fundamental principles that I am bound to apply and have applied when reaching conclusions as to what has been alleged. In summary: i) The legal onus of proof rests from first to last on the claimant who must prove its pleaded factual case on the balance of probabilities although an evidential burden rests on the defendant to prove any affirmative case it seeks to advance; and ii) Whilst the standard of proof in a civil case is always the balance of probabilities, the more serious the allegation, or the more serious the consequences of such an allegation being true, the more cogent must be the evidence if the civil standard of proof is to be discharged – see Re H (Minors) (Sexual Abuse: Standard of Proof) [1996] AC 563 per Lord Nicholls at 586, where he said:
"The balance of probabilities standard means that a court is satisfied that an event occurred if a court considers that on the evidence the occurrence of the event was more likely than not. In assessing the probabilities, the court will have in mind as a factor to whatever extent it is appropriate in the particular case that the more serious the allegation the less likely it is that the event occurred and hence the stronger should be the evidence before court concludes that the allegation is established on the balance of probabilities. Fraud is usually less likely than negligence...Built into the preponderance of probabilities standard is a generous degree of flexibility in respect of the seriousness of the allegation."
The Authority Issue Introduction

The Authority Issue

[17]By the time of its closing submissions, LSA’s primary case was that the CoA was entered into as a result of a corrupt relationship between Mr Golovushkin, LSA’s then Chief Executive Officer, and Mr Mubariz Mansimov (“Mr Mansimov”), who as I have explained was at all material times the President and ultimate beneficial owner of Palmali Group, of which PSSA was part. LSA’s case was that as a result there was a plain conflict of interest between Mr Golovushkin and LSA that meant he had no authority to enter into the CoA and in consequence the CoA was void as a matter of Swiss law, the system of law that applied because LSA is a Swiss registered company.[18]It is common ground that the CoA was negotiated in Geneva in the course of 18 January 2005 by Mr Golovushkin, supported by one of LSA’s legal advisors on behalf of LSA, and by Mr Mansimov supported by a lawyer appointed for the purpose, Mr Bilgehan, and Oguz Perker and then signed there by Mr Golovushkin, ostensibly on behalf of LSA, and Mr Mansimov, on behalf of PSSA.[19]LSA’s case is that Mr Golovushkin signed the CoA because he had been corrupted by Mr Mansimov in a manner that gave rise to a conflict of interest between Mr Golovushkin and LSA. PSSA disputes that the facts and matters relied on by LSA as constituting the conflict were sufficiently serious to justify treating the CoA as void but in any event maintains that the CoA was not one that was entered into on behalf of LSA by Mr Golovushkin in any relevant sense even though he signed the CoA on its behalf but was entered into as a result of a prior discussion between Mr Mansimov and Mr Vagit Alekperov, then the President of Lukoil. It is not suggested that Mr Alekperov attended the meeting in Geneva or that there was any contact by anyone attending the Geneva meeting with Mr Alekperov during the course of 18 January 2005.[20]PSSA’s case is that there had been a close working relationship between Mr Alekperov and Mr Mansimov since 1995, that LSA is and always was a wholly owned subsidiary of Lukoil that acted in accordance with instructions given to it by or on behalf of Mr Alekperov and that in entering into the CoA, Mr Golovushkin was simply complying with the instructions that he had been given by Mr Alekperov so that there could be no question of Mr Golovushkin signing the CoA on behalf of LSA because he had been corrupted to do so by Mr Mansimov. In any event, PSSA maintains that the CoA was ratified by LSA’s subsequent conduct and was recognised internally by its various employees as binding upon it. It is common ground that if (as is alleged by LSA) Mr Golovushkin had no authority to bind LSA to any agreement, then the CoA could not be extended in 2010 as alleged by PSSA.[21]It is common ground between the parties that whether Mr Golovushkin had authority to enter into the CoA is to be determined as a matter of Swiss law because LSA is a Swiss registered company. It is also common ground that in the event I conclude that Mr Golovushkin did not have authority to sign the CoA, the question whether it was subsequently ratified is a question to be determined by the application of English law principles, because the CoA is governed by English law. Given this level of agreement it is not necessary that I consider further the governing law principles that might otherwise have arisen.

The Swiss Legal Principles Relating to Authority

[22]It is common ground that as a matter of Swiss law a director or officer of a company may cease to have authority he or she might otherwise have to act on its behalf either by reason of a conflict of interest between the director or officer and the company of which he or she is either a director or officer or if the transaction is contrary to company’s interest to the level required by Swiss law. Each requires separate consideration.

The Conflict of Interest Issue

[23]It is agreed between the Swiss legal experts that a transaction apparently entered into by a board member or corporate officer on behalf of a Swiss registered company is void if it is entered into in circumstances where: i) there was a conflict of interest between the board member's or corporate officer’s duty to protect the interest of the company and the board member’s or corporate officer’s interests in promoting his or her interests or a third party’s interests at the time of the conclusion of the agreement; but ii) the board member or corporate officer did not take appropriate measures to neutralize the risk stemming from his or her conflict of interest in violation of his or her fiduciary duties towards the corporation; and iii) the counter party of the Swiss registered company concerned acted in bad faith, either by having actual knowledge of the conflict of interest or because it should have known of the conflict of interest at the time the contract was entered into. - see Para 12 and 15 of the Joint Expert Memorandum of Mr Hauenstein and Dr. Gross dated 20 May 2022 (“Swiss JM”).[24]The experts also agree that it is not necessary for the conflict actually to have influenced the actions of the board member or corporate officer concerned – see in particular paragraph 14 of the Swiss JM - or to have caused any disadvantage to the company for whom the relevant director or officer was acting – see in particular paragraph 11 of the Swiss JM.[25]Finally it is agreed that the test to be applied concerning the knowledge of the other party to the impugned transaction, where constructive knowledge alone is alleged, is that to be expected of the average reasonable person in the same circumstances, given the nature of the legal transaction – see Swiss JM, paragraph 13. LSA submits that the legal debate around what constitutes sufficient constructive knowledge of a counter party for these purposes is immaterial in this case. I agree. On LSA’s case the facts and matters relied on by it as constituting the conflict of interest were if true all actually known to Mr Mansimov and it is not in dispute but in any event I find that his knowledge is to be attributed to the claimant by reason of him being at all material times the President and ultimate beneficial owner of the Palmali Group, of which PSSA was part.[26]There was a difference of view between the experts as the level of conflict required in order for the principles so far identified to be engaged. Dr Gross considers that whether a given conflict is sufficiently serious to trigger the legal consequence that the relevant contract is void is to be decided on a case-by-case basis, taking into consideration all the circumstances of the individual case and that the allegedly conflicting interests do not have to be directly and diametrically opposed in order to have that consequence, as Mr Hauenstein maintains is the law. Mr Hauenstein’s opinion was that the mere overlap of divergent interests is not sufficient to create a relevant conflict of interest and that before there could be a relevant conflict the conflicting interests had to be effectively opposed to the interests of the complaining party – see paragraphs 18-19 of his supplemental report and the judgment of the Swiss Federal Tribunal there referred to.[27]Mr Hauenstein was subjected to extensive cross examination by Mr Lord KC on this issue. It is not necessary I set out at any length that cross examination. In his closing submissions on this point, Mr Eaton KC identified and adopted what Dr Gross had said on this issue as summarised above and his evidence in cross examination. In my judgment he was right to do so. It is worth recording what Dr Gross said on this issue when cross examined by Mr Eaton:
“Q: … is the question really this: is the situation sufficiently serious to justify treating the contract as void? A. That's not the analysis of the Swiss Supreme Court. I think the question would be whether there's a situation that would create potential bias or a bias or an appearance of a bias on the part of the member of the board of directors so that the company would not want that person to represent it. Q. But a bias, as you said, of sufficient seriousness to qualify for legal consequences and part of the question, you say, is whether this in turn warrants the legal protection of the company. When you're talking about legal protection of the company, you're talking about treating the transaction as void, aren't you? A. Yes. That's what I said…. Q. And you say that whether the sufficient level of seriousness has been reached depends upon all of the relevant circumstances of the individual case; correct? A. Yes, that's correct. I think that also comes relatively clearly out of the long line of precedents of the Swiss Supreme Court, yes….”
I am satisfied that on this issue the evidence of Dr Gross is to be preferred. When Mr Hauenstein’s position was tested in cross examination it did not withstand the point that the clear balance of authority and certainly the most recent court judgments identified by the experts support Dr Gross’s opinion and the academic material on which Mr Hauenstein relied did not, on careful analysis, support the proposition he was advancing. I also accept the point made by Mr Lord in his oral closing submissions that although LSA alleges corruption, the existence or otherwise of corruption is not of itself the material issue.[28]In summary, I conclude that the relevant question I have to resolve is whether there was a conflict of interest between Mr Golovushkin’s duty to protect the interest of LSA and his interest in promoting his, or his daughter’s, interests at the time he signed the CoA on behalf of LSA that was of sufficient seriousness to merit treating the CoA as void. That is a factual question that depends upon all of the relevant circumstances of the individual case. I turn to that below.[29]Before doing so, I should refer to another element to the Swiss law analysis of the conflict of interest issue that was disputed between the experts. Again however ultimately it does not matter. The issue was whether a mere appearance of a conflict of sufficient seriousness was enough to constitute a relevant conflict of interest applying the principles I have so far considered. That was what Dr Gross was referring to in his answer to Mr Eaton quoted above where he referred to the need for a situation “… that would create … an appearance of a bias…”[30]The Swiss Law experts disagreed as to whether the mere appearance of a conflict of interest is sufficient to void an agreement. Mr Hauenstein’s opinion was that the mere appearance of a conflict of interest is not sufficient and there must exist an actual conflict of interest that relates to the specific transaction in question before the principles I am now considering are engaged. Dr Gross disagreed and maintained that the position for officers and directors of a company was the same as that which applied to auditors and judges with the result that a mere appearance of a conflict was sufficient. Mr Eaton did not really engage with that issue. Realistically, he was content to submit that as a matter of fact and by reference to whatever test was applied the facts and matters relied on by LSA did not establish the necessary seriousness required for such an allegation. Given the way in which this issue was approached by Mr Eaton, it is not necessary that I attempt to resolve this issue of Swiss law.[31]The principal point that Mr Eaton was anxious to establish was that the law on conflict of interest is relevant only to conflicts affecting the decision maker. This is important to PSSA because of its overarching point that the real decision maker was Mr Alekperov not Mr Golovushkin.[32]In the course of his cross examination Dr Gross accepted that where A was an officer of a company but not a member of the board and the board had decided to offer a job to A’s brother (without any involvement on the part of A) and had directed A to sign the contract of employment, then no conflict of interest situation would arise even though A had signed the contract. It is this concession that is the springboard for Mr Eaton’s submission that the law on conflict of interest is relevant only to conflicts affecting the decision-maker.[33]I accept Mr Eaton’s submission as to the true extent of the concession made by Dr Gross, that is to say that the contract would not be void for conflict of interest where a company officer, A, simply implemented a decision made by the Board, to which he was not in any way party, by signing the contract concerned on the express instructions or with the express authority of the board to do so. As Mr Eaton clarified with Dr Gross:
“Q. Pursuant to the board's instructions, the board havingmade the decision, yes. A. He would not make any decision? Q. No. A has not made any decision. He's simply told, asyou say, to put his name on the contract and he doesthat. A. I don't think that the conflict of interest principles [apply]…”
A. He would not make any decision? A. I don't think that the conflict of interest principles [apply]…” The Facts Relevant to the Conflict Issue – the Oil Barge and Palmali Maritime Shares.

A. He would not make any decision?

[34]The facts relevant for present purposes are those concerning whether (assuming he was the decision maker as opposed to a mere cypher for Mr Alekperov) there was a conflict of interest between Mr Golovushkin’s duty to protect LSA’s interests and his interest in promoting his personal interests and/or the interests of his daughter at the time of the conclusion of the CoA that was of sufficient seriousness to merit treating the CoA as void.[35]LSA’s primary case on this issue is that at the time of signing the CoA,(i) Mr Golovushkin’s daughter, Ms Golovushkina, held (either for herself or as nominee for her father) a half interest in 5 vessels through her shareholdings in Oil Barge Trading Company Limited (“Oil Barge”) and Palmali Maritime Co Ltd (“Palmali Maritime”), which were intended to be and were used to carry CoA cargoes;(ii) Mr Golovushkin was therefore subject to a conflict of interest in relation to the CoA that(iii) was actually known to PSSA by reason of the actual knowledge of Mr Mansimov; and(iv) was not disclosed to, and still less approved by, LSA’s Board of Directors, which was the competent body to whom any relevant conflict of interest was required to be disclosed. Even if Mr Alekperov was capable of being someone to whom a relevant declaration could be made, there is no evidence of any such disclosure.[36]LSA also relies on a further allegation said to demonstrate the existence of a conflict of interest between Mr Golovushkin’s personal interests and his duty to protect and advance the interests of LSA, but it necessary to consider that in any detail only if LSA’s factual case concerning Mr Golovushkin’s daughter’s interest fails.[37]The facts relevant to the Oil Barge and Palmali Maritime Shares issue are largely not in dispute.[38]On 26 February 2003, Oil Barge was incorporated in Malta. The shareholders were Mr Mansimov’s brother (“Marif”) and Ms Golovushkina (Mr Golovushkin’s daughter), each of whom held 250 shares. LSA alleges and it does not appear to be in dispute that at that time Ms Golovushkina was a law student living and studying in London. LSA maintains that it is to be inferred that Ms Golovushkina held the shares as nominee for her father. In April 2003, Oil Barge became the owner of MT Brothers-6, and May 2004 it became the owner of Paloil-3, Paloil-4 and Paloil-5, each of which was a “non-propelled Products Tank Barge”, as Mr Mansimov accepted in the course of his cross examination.[39]Two days after Oil Barge had been incorporated, on 28 February 2003, Palmali Maritime was incorporated. Mr Mansimov was allocated 499 of the shares and one share was allocated to a Mr Sleptov. In March 2003, Palmali Maritime became the owner of the MT Brothers-5. On 12 July 2003, Mr Mansimov transferred 249 shares in Palmali Maritime to Ms Golovushkina and Mr Sleptov transferred his share to Ms Golovushkina. In the result from that date Ms Golovushkina and Mr Mansimov each held 250 shares in Palmali Maritime and Marif and Ms Golovushkina each held 250 shares in Oil Barge. Mr Mansimov’s evidence contained in paragraph 51 of his second statement is that Ms Golovushkina transferred her shares to Caspian Holding Company Limited (another Palmali company) in December 2005. I accept this evidence because it is corroborated by Notices of transfer or transmission of shares dated 13 February 2006 recording transfers as taking place on 1 December 2005.[40]Mr Mansimov’s evidence at paragraph 51 of his witness statement was that neither of the companies did any business. The material part of this paragraph was:
“I understand that Litasco has also referred to shareholdings held by Mr Golovushkin’s daughter, Elena, and my brother, Marif, between 2003 and 2005. I was not involved in that business but my recollection is that the purpose of those companies was to provide bunker services. My recollection is that neither companies did any business as it was not possible for the business to secure the necessary funding. Elena transferred her shares to a company in the Palmali Group, Caspian Holding Company Limited in December 2005. Litasco”
In fact, in the period between 1 January and 31 December 2005, the vessels owned by Oil Barge and Palmali Maritime undertook 55 voyages carrying just short of 200,000 MT of cargo on behalf of LSA. LSA submits that applying the agreed freight rates applicable during this period, that would have generated about US$6m in revenue.[41]Notwithstanding his written evidence that neither of Oil Barge or Palmali Maritime did any business, Mr Masimov accepted in the course of his cross examination that the vessels owned by the companies “(u)sually… were employed on the river…” but were not employed either in the bunkering business he had referred to in paragraph 51 of his witness statement or in the waste water disposal business, which is what he said in the course of his cross examination was their planned use.[42]Initially in his oral evidence Mr Masimov was at pains to explain that the vessels were not used in carrying cargo for LSA or Lukoil – see T5/54/3-11. It was put to Mr Mansimov that his evidence in paragraph 51 of his witness statement that neither of the companies did any business was therefore untrue. He said in answer that his written evidence meant only that the companies did not perform what he called the “dirty water business”. In my judgment this answer was untrue and obviously so given what he had said in paragraph 51 of his statement was that “… neither companies did any business…”. Aside from the fact that he made no mention of the “dirty water business” in his witness statement, Mr Mansimov is a very experienced ship owner and operator and I reject the notion that he could seriously have thought that the companies were not doing any business at the material time when their vessels were engaged in carrying oil as he accepted and thus were generating revenues measured in millions of Dollars.[43]His answer that no cargo was carried on behalf of LSA was also untrue as he accepted when he was cross examined by reference to some Further Information provided by PSSA. One of the questions that had been asked by LSA in its Part 18 Request had concerned the quantities of cargo carried for LSA in the period between February 2005 and December 2009. Mr Mansimov was taken to the answers that had been provided with a statement of truth signed by Mr Erdem, the Palmali Group Chief Financial Officer. He was taken to and accepted as accurate the information that MT Brothers 5 carried gasoline and gasoil for LSA in 2005 and that Paloil 2, 4 and 5 likewise carried cargoes during 2005 for LSA. It was put to Mr Mansimov and he accepted (after an attempt to divert and disrupt the flow of cross examination, which in my judgment was deliberate) that the total volumes shipped on the vessels MT Brothers 5, MT Brothers 6, and Paloil 3, Paloil 4, Paloil 5 for LSA during 2005 was 194,000 MT – see T5/58/19-20. Mr Mansimov sought to explain away the difference between this and what he had stated in paragraph 51 of his witness statement by saying that what he was referring to in his statement was the “dirty water business”. I reject this evidence as untrue for the reasons given already – that is not what he said in that paragraph and that Mr Masimov could not seriously have thought that the companies were not doing any business at the material time when they were engaged in the way he described and thus generating revenues measured in millions of Dollars. That is all the more the case when, as in the end he accepted, those vessels were engaged in revenue earning cargo carrying activities for LSA. None of this was the result of linguistic misunderstanding. No translation errors were alleged.[44]As things stand no explanation has been offered as to how the revenues generated from this business (and also from non LSA cargoes carried during the same period using the vessels owned by Oil Barge and Palmali Maritime) were accounted for in relation to those companies. The only accounts that are available for the relevant period are those for Palmali Holding Company Limited for the period ending 31 December 2005. That company’s director is Mr Mansimov. The accounts included a specific reference to the CoA which was summarised as requiring LSA to provide minimum quantities of cargo each year for a period of 10 years from 18 January 2005 of “… 400,000 up to 700,000 Mts per month of crude oil, heating oil, fuel oil, unleaded gasoline and other fuel oils & luboils in lots of up to 10,000 Mts for carriage on board the Palmali Holding Group's vessels … from any of the following [ports]: Volgograd, Astrakhan, Black sea ports and Caspian Sea ports” and as being of benefit to the Palmali Group because it was “… a sustainable and constant cargo stream thereby reducing overall cargo risk”.[45]The accounts list all the group’s subsidiaries. Both Palmali Maritime and Oil Barge are listed with the business of each being described as “Ship owning/operating”. Each was described as being a Subsidiary of Caspian Holding Company Limited (“Caspian”), which in turn was a subsidiary of Palmali Holding Company Limited, presumably because Ms Golovushkina transferred her shares to Caspian on 1 December 2005. That statement would have been wrong but for that transfer. The accounts list the ships apparently owned by each subsidiary. The accounts accurately recorded MT Brothers 5 as owned by Palmali Maritime and MT Brothers 6 as owned by Oil Barge. They also record Oil Barge as owning Paloil 3, 4 and 5.[46]There are no accounts relating to the activities of either Oil Barge or Palmali Maritime. The notion that neither had any income is inconsistent with the trading history of the vessels owned by each in the period 1 January to 30 November 2005, when those companies were not subsidiaries within the Palmali Group. What became of that income is entirely unclear.[47]Mr Mansimov said in his oral evidence that he and Ms Golovushkina were “partners” even though, as he also accepted, she was at that time studying in London to become a solicitor and had been admitted as a non-practising solicitor on 1 October 2004 – see T5/37. When it was suggested to Mr Mansimov that Ms Golovushkina was holding the 50% interest in Oil Barge as nominee for her father, Mr Mansimov responded:
“What I remember is that Elena and Marif, my brother Marif had also studied in England, they knew each other very well. Marif came to me and said, "We want to do something like this" and I approved it. Elena was my friend's daughter so, just as Alekperov was my friend, Golovushkin was also my friend. So I don't see any criminal matter -- element there. Mr Alekperov, had he given permission, all of this would have been realised and I didn't see any harm in that.”
He also accepted inevitably that he knew Ms Golovushkina only because she was the daughter of Mr Golovushkin. It is important to understand the nature of this relationship. According to Mr Mansimov the relationship was long standing, personal and close – as he put it at T6/77/1, “Golovushkin and his family was – they were family friend always.” I accept this evidence because it was contrary to his interests to give it. Although Mr Mansimov denied that this was a way by which he could channel some financial benefit to Mr Golovushkin, he maintained that within the Palmali Group there were: “… many partners who were not Mr Golovushkin's daughter so why can't such circumstances come about? I've got partners with vessels. It might not be Golovushkin's daughter or could be someone from Azerbaijan or someone from Russia or Turkey. In 2005 -- sorry, in 2002, I had a partner in Palmali and his name was Ibrahim Paksoy. So partnership in shipping is not something novel. I consider this disingenuous because it is not suggested that Ms Golovushkina paid anything material for her shares or that there was any reason for her receiving them other than as nominee for her father. Indeed, at one point it was suggested by Mr Mansimov that Ms Golovushkina did not really own the shares at all because some form of fee was due from her and her husband that was not ever paid. Again there is no documentary evidence to support that point, it is not one made at any stage prior to it being mentioned by Mr Mansimov in the course of his cross examination and in my judgment it is inconsistent with the unqualified terms of the documents relating to the transfer of the shares in Oil Barge and Palmali Maritime to and by Ms Golovushkina, which make no mention of a fee that required to be but had not been paid or to any involvement of Ms Golovushkina’s husband in any of these transactions.[48]Regrettably Mr Mansimov has given different accounts of Ms Golovushkina’s involvement in the company. He addressed the issue at paragraph 51 of his second statement, the relevant part of which I set out earlier, where he said that the purpose of the companies was to operate a bunkers business, that neither company did any business and that in December 2005, Ms Golovushkina transferred her shares to another company within the Palmali Group called Caspian. Returning to his oral evidence, although initially he denied that the purpose of the arrangement was to reward Mr Golovushkin – see T5/39/3 – when he was taken to paragraph 51 of his statement, he accepted that the entities being considered in that paragraph were Oil Barge and Palmali Maritime – see T5/40/15-17 – but then maintained that Mr Alekperov had been told about the arrangements concerning Oil Barge and Palmali Maritime – see T5/41/8-18. None of this appeared in paragraph 51 of his statement as he accepted – see T5/41/25. Notwithstanding this plain inconsistency, he continued to maintain that he discussed the position with Mr Alekperov and he told Mr Mansimov that there must be no business dealings between his employees and their children and companies with whom he or companies controlled by him had dealings – see T5/42/11-16. This is significant because on any view what Mr Mansimov said in his statement and what he said on the same topic in his oral evidence cannot both be true. This is an issue of central importance in this litigation as Mr Mansimov clearly understood. This conflicting evidence means in my judgment that I must be very careful before I accept Mr Mansimov’s evidence save where it is corroborated or admitted or is against his interest.[49]There is one point that emerges from these exchanges however that is significant. It was a point that Mr Lord put fair and square to Mr Mansimov. If as Mr Mansimov now alleges, he did indeed discuss these dealings with Mr Alekperov, that can only have been because he recognised that it created an obvious and serious conflict of interest between Mr Golovushkin’s duties to LSA and his personal interest or that of his daughter in Oil Barge or Palmali Maritime. His response was that he did not pay bribes (which was not the question that had been asked) and then he went on:
“So it was I myself, who told Alekperov and he said, "Please, don't go ahead with that" and as a result of both my respect and also because I thought it would not be correct, I went to Marif, my brother, and said, "Please speak with Elena and transfer the shares in that company and withdraw from that matter". That was -- those were my instructions. There's nothing other than this.”
Although this was part of a long answer, its essential effect was and I find that Mr Mansimov well knew that the arrangement gave rise to a plain conflict and that is so whether as he now says Mr Mansimov did discuss the position in relation to these companies with Mr Alekperov or, as he said in his statement, he did not.[50]There is another point that emerges from this oral evidence. Mr Lord pressed Mr Mansimov to explain when this alleged conversation with Mr Alekperov took place. His oral evidence was that it was in 2004 and then he added “… You're right, yes, it was October.” If so, the conversation between him and Mr Alekperov was not a candid one because, apparently, Mr Mansimov did not explain that the arrangements I am now considering had been in place for months prior to the alleged conversation. There then followed this exchange:
“Q. So his Lordship can take it then, Mr Mansimov, that between February/March 2003 and October 2004 Mr Alekperov had not been consulted about Mr Golovushkin's daughter co-owning Oil Barge Trading and Palmali Maritime; yes? A. Yes, absolutely, he hadn't been consulted on that previously.”
The significance of this point is obvious – if and to the extent that Mr Alekperov was the person to whom a conflict of interest had to be made known if the conflict was to be neutralised, then he was not aware of its existence prior to October 2004 or that it continued down to the date when the CoA was signed on 15 January 2005 and for months thereafter. As noted already, it was only in December 2005 that Ms Golovushkina transferred her shares to Caspian. When this point was put to Mr Mansimov, there was initially some diversionary indignation that did him no credit and only served to damage his credibility as a witness, but when the point was put again it resulted in this exchange:
“Q: … I think it follows that you'd accept that between February/March 2003 and October 2004 Mr Alekperov had not been consulted about Mr Golovushkin's daughter's interest in these two companies; that's right, isn't it? A. In 2004, this was mentioned to Mr Alekperov. It hadn't been mentioned to him in 2003, that's true. I'm just repeating: Golovushkin said to me he had obtained permission.” [Emphasis supplied]
Given the conversation that Mr Mansimov now alleges he had with Mr Alekperov was in October 2004, there must have been some discussion between him and Mr Golovushkin thereafter in which the arrangements concerning Oil Barge and Palmali Maritime were discussed if his evidence is correct that he was told by Mr Golovushkin that he had “obtained permission”. He did not give any context of the details concerning the alleged discussion, nor did he suggest he discussed the matter further with Mr Alekperov, as in my judgment he was almost bound to have done if his evidence concerning the October 2004 discussion is true. In short having been allegedly told by Mr Alekperov to bring the arrangements with Mr Golovushkin’s daughter to an end, if he had then been told by Mr Golovushkin that he had obtained permission, Mr Mansimov would have been bound to seek confirmation from Mr Alekperov in his own commercial best interests. A. Yes, absolutely, he hadn't been consulted on that previously.”[51]This oral evidence was the first time Mr Mansimov asserted that Mr Golovushkin had informed him that he had sought and obtained permission for the Oil Barge and Palmali Maritime arrangements from Mr Alekperov. It is his only explanation that renders his evidence about the alleged conversation between him and Mr Alekperov in October 2004 consistent with Mr Golovushkin's daughter's interest continuing until December 2005.[52]In my judgment Mr Mansimov’s oral evidence concerning these issues must be rejected. Firstly, none of it appears in his written evidence even though the issue was one that he purported to address in paragraph 51 of his second statement. It is inconceivable that he could have forgotten about these critical events but then remembered them in the course of his cross examination.[53]Secondly, his evidence concerning Oil Barge and Palmali Maritime given in that paragraph of his statement was accepted by him in the course of his oral evidence to be wrong. The vessels were not acquired to operate a bunker business or a “dirty water” business but more to the point they did trade and traded extensively carrying oil and other liquid hydrocarbon cargoes for LSA and third party consignors. I have no doubt that Mr Mansimov well knew that to be the case by the time he came to write his statement. If that was not so, then he would certainly have known it by the time he came to give his evidence, would have told PSSA’s solicitors that was so and would have corrected his statement at the start of his oral evidence or more likely offered a supplemental statement correcting the position before the start of the trial and certainly before he started to give his oral evidence. He did none of these things.[54]Thirdly, I reject Mr Mansimov’s evidence that that he discussed these issues with Mr Alekperov in October 2004 or at all because(a) there is no obvious reason why there would be a discussion at that time given how long the arrangements had been in place prior to that;(b) had there been a discussion to the effect alleged, then it is likely Mr Golovushkin would have known that was Mr Alekperov’s view and he (Mr Golovushkin) would not have entered into the arrangements or (if his daughter was not merely his nominee) permitted the arrangements to have been entered into in the first place;(c) had such a discussion taken place then there would have been a discussion then between Mr Mansimov and Mr Golovushkin concerning the need to inform Mr Alekperov of what in fact had occurred and that it had been unravelled, but it is not suggested by Mr Mansimov that there was any such discussion;(d) it was not suggested by Mr Mansimov that there was a subsequent discussion between Mr Mansimov and Mr Golovushkin concerning the need to unravel the arrangements, which was bound to have taken place if there had been the October 2004 discussion between Mr Mansimov and Mr Alekperov that Mr Mansimov now alleges took place and(e) because nothing was done to act on what it is now alleged Mr Alekperov said in the October 2004 meeting until months later and in particular months after the CoA had been entered into. I conclude therefore that I should reject Mr Mansimov’s evidence concerning the October 2004 conversation and what he alleges he was told by Mr Golovushkin concerning Mr Alekperov giving permission.[55]Aside from the substantive findings set out above, my conclusions so far lead me to conclude also that I cannot safely accept the oral evidence of Mr Mansimov save where it is admitted, is contrary to his interest or that of PSSA or is corroborated by otherwise unimpeachable evidence from another witness or by contemporaneous documentation about which there is no authenticity dispute.[56]That leaves only Mr Mansimov’s evidence that “… Golovushkin said to me he had obtained permission.” I reject that evidence for the following reasons.[57]Firstly, Mr Mansimov’s evidence concerning what he had been told by Mr Golovushkin is not anywhere referred to in his written evidence. This cannot be explained away as a matter of detail that could be easily overlooked any more than can his failure to refer to his alleged October 2004 conversation with Mr Alekperov. The authority issue was a critical issue in this litigation, the Swiss law experts were agreed that the good faith of the counterparty was a critical element in deciding whether a contract had been vitiated by conflict of interest as a matter of Swiss law and if (as Mr Mansimov now says) “… Golovushkin said to me he had obtained permission…” then on any view that would have been important evidence, although it would have invited a further enquiry as to whether Mr Mansimov had believed what he was told and had done so reasonably. There could be and there is no sensible explanation for this supposedly critical conversation not being mentioned if it had taken place.[58]Secondly, in relation to that alleged conversation, in my judgment the evidential burden of proving that it occurred rested on the claimant. The absence of any evidence from Mr Golovushkin engages the principles considered most recently by the Supreme Court in Efobi v Royal Mail Group Ltd [2021] UKSC 33 and earlier by the Court of Appeal in Wisniewski v Central Manchester Health Authority [1998] PIQR P324. Whilst Lord Leggatt JSC considered the latter to contain “sensible statements” in relation to whether inferences should be drawn from the absence of a witness apparently able to give relevant evidence on an issue, he considered that the issue should generally be approached by the application of common sense, though he added that relevant considerations will include:
“… such matters as whether the witness was available to give evidence, what relevant evidence it is reasonable to expect that the witness would have been able to give, what other relevant evidence there was bearing on the point(s) on which the witness could potentially have given relevant evidence, and the significance of those points in the context of the case as a whole. All these matters are inter-related and how these and any other relevant considerations should be assessed cannot be encapsulated in a set of legal rules.”
In relation to the issue I am now considering, I consider it was reasonable to have expected PSSA to adduce evidence from Mr Golovushkin in relation to the issue I am now considering to the effect (if it was the case) that he had told Mr Mansimov that “… he had obtained permission…” to the arrangements concerning Oil Barge and Palmali Maritime and also (if it was the case) that in fact he had obtained such permission. Although Mr Mansimov’s evidence in relation to the availability of Mr Golovushkin to give evidence was that “… He's an elderly person. Now he's a patient. If only it would have been possible for you to call him and hear him as well…” that is uncorroborated evidence not previously given which I am not able to accept, given the conclusions I have reached concerning the degree to which I can safely rely on Mr Mansimov’s uncorroborated oral evidence.[59]If the position was as Mr Mansimov now alleges it to be, then(a) it would have been pleaded;(b) it would have appeared in his witness statement and(c) a statement would have been produced from Mr Golovushkin confirming what is now being said. If the position is that Mr Golovushkin was considered too old to travel but he was otherwise able to give evidence then he would have been offered as a witness who could give evidence by video link. If he was too ill to give evidence then his statement could have been tendered under the Civil Evidence Act. If he was too ill to be capable of giving any evidence at all then that fact would have been asserted with credible supporting material prior to the start of the trial. None of this was done. It was not done, I infer, because (as is consistent with the conversation not being mentioned in the pleadings or Mr Mansimov’s witness statement) the point was not one made to anyone by Mr Mansimov at any stage prior to his oral evidence. I conclude that was so because this evidence was recent invention on the part of Mr Mansimov. Mr Golovushkin is said by Mr Mansimov to be a close personal friend. There is no reason other than Mr Mansimov’s self-serving and uncorroborated oral evidence concerning Mr Golovushkin’s health that suggests Mr Golovushkin would not have been ready, willing and able to give evidence if asked.[60]PSSA made a similar inference point against LSA concerning Mr Alekperov. However that is a submission that I reject. The issue I am now concerned with is part of PSSA’s positive case. LSA has adduced evidence that in my judgment establishes a prima facie case of conflict of interest. The points on which this evidence might have assisted all arose in the course of Mr Mansimov’s cross examination. None of these points could have been anticipated and at that stage LSA was fully entitled to rely on that as supporting an inference that the evidence was untrue and should be rejected.[61]Finally the alleged conversation between Mr Mansimov and Mr Golovushkin is inconsistent with the conversation that is alleged to have taken place between Mr Alekperov and Mr Mansimov in October 2004. If and to the extent the alleged conversation took place after the October 2004 conversation with Mr Alekperov, then Mr Mansimov could not in good faith have accepted what he was allegedly told at face value at any rate without first confirming what he had been told with Mr Alekperov while at the same time continuing with the negotiations leading to the CoA. If the conversation with Mr Golovushkin took place before the alleged October 2004 conversation with Mr Alekperov then he would at that point have known there was no question of any permission having been given or (if it had been) that it was being maintained and in that event Mr Mansimov could not have permitted the arrangements to continue not merely while the CoA was being negotiated between him and Mr Golovushkin but for months after those negotiations had ended and the CoA signed.[62]In my judgment the fact that Mr Mansimov resorted to this evidence in this way involves an implicit recognition on his part that the Oil Barge and Palmali Maritime arrangements created a plain conflict of interest between Mr Golovushkin’s duties to LSA and his (or his daughter’s) personal interests. In my judgment, given that no credible reason has been identified for giving Ms Golovushkina the shares apparently registered in her name it is probable that she held the shares as nominee for her father and that that arrangement was entered into in order to disguise Mr Golovushkin’s true interest in the shares. That such an arrangement was entered into is itself evidence that both Mr Mansimov and Mr Golovushkin knew that such an arrangement created precisely the sort of conflict that in fact arose.[63]Even if all this is wrong, and there was the October 2004 conversation that Mr Mansimov now alleges, that does not assist him or PSSA because in fact Mr Golovushkin's daughter continued to co-own Oil Barge Trading and Palmali Maritime Company until the end of 2005. It necessarily follows that her (ostensible) ownership continued for about a year or slightly more after the conversation that Mr Mansimov now alleges he had with Mr Alekperov, in which Mr Alekperov told Mr Mansimov that there must be no business dealings between his employees and their children and companies with whom he or companies controlled by him had dealings, at the time when the CoA was being negotiated and signed in Geneva and for about 11 months after the CoA was signed in Geneva by Mr Mansimov on behalf of PSSA and Mr Golovushkin on behalf of LSA.[64]I return now to the first question that arises in respect of the authority issue I am now concerned with namely whether there was a conflict of interest at the date when Mr Golovushkin signed the CoA, between Mr Golovushkin’s duty to protect LSA’s interests and his interest in promoting his personal interests and/or the interests of his daughter that was of sufficient seriousness to merit treating the CoA as void. I am considering this issue at this stage exclusively by reference to the ownership of Oil Barge and Palmali Maritime. The onus rests on LSA to establish the existence of a relevant conflict of interest. Aside from the legal burden that rests on any claimant, the evidential burden rests on the claimant in this case to prove any fact on which it relies as part of its positive case that there was no such conflict.[65]I have set out the primary facts in relation to Oil Barge and Palmali Maritime at some length above by reference to the documentation that is available. This documentation establishes the registered ownership of each company during the material period and the ownership by each company of the vessels I have referred to in detail above. The material disclosed by PSSA establishes that the vessels owned by each company were trading throughout the period that Mr Golovushkin's daughter co-owned Oil Barge and Palmali Maritime. Whether she owned her registered interest beneficially or as nominee for her father makes no material difference for present purposes.[66]There is no satisfactory explanation from PSSA as to how the income earned by the vessels owned by Oil Barge and Palmali Maritime during this period was accounted for. However the sums earned were substantial. I accept as materially correct LSA’s calculation of the likely income received from LSA for the LSA cargo carried by the vessels during the calendar year 2005 and I also accept that the vessels would have earned a substantial income from carrying cargoes other than LSA cargos, not least because Mr Mansimov admitted the carriage of such cargoes.[67]If Mr Mansimov’s evidence concerning his conversation with Mr Alekperov is correct, then that provides strong evidence that if the true ownership of Oil Barge and Palmali Maritime were known to the board of LSA or even by Mr Alekperov as being the position at the date when the CoA was entered into (18 January 2005), it or he would have regarded that as a significant conflict of evidence. In fact I reject that evidence for the reasons set out earlier. However, by giving that evidence (and his evidence, which I have also rejected, of his alleged conversation with Mr Golovushkin in which he alleged he was told that Mr Alekperov had given permission for these arrangements) Mr Mansimov recognised at least implicitly that the arrangements were such as to give rise to a serious conflict of interest and would have been regarded by the Board of LSA and (to the extent it matters) by Mr Alekperov as giving rise to a serious conflict of interest.[68]Finally that Mr Mansimov sought to conceal the trading that the vessels owned by Oil Barge and Palmali Maritime undertook during 2005 both when carrying LSA cargoes and more generally provide further inferential evidential support for these conclusions.[69]Whilst I accept there is no direct evidence of a direct financial benefit flowing either to Oil Barge or Palmali Maritime, none of the information concerning these issues is available to LSA other than to the extent that it has been provided by PSSA. As I have explained the evidence adduced by PSSA in relation to these issues is unsatisfactory. Finally I should make clear that I do not accept the suggestion that Ms Golovushkina’s shares had a nominal value of US$1,500. No serious attempt has been made to explain why that was so. No attempt has been made to explain how shares in a company owning the ships referred to earlier could have such a value, when the ships concerned were trading.[70]As Mr Hauenstein accepted, there would be a sufficient conflict if Mr Golovushkin's daughter co-owned a company that was going to be used for CoA business between Mr Golovushkin's duty towards LSA and his interest in supporting a company in which his daughter was interested – see T11/123/17-25 - and he accepted that would be all the more so if she held her shares in the company as nominee for Mr Golovushkin – see T11/124/3-8 – as would be the case if there was an arrangement whereby Mr Golovushkin would assist Palmali by signing the CoA in return for some future benefit or favour – see T11/124/13-20.[71]Two other issues remain, Firstly, in relation to the Swiss law requirement to take appropriate measures to neutralize the risk stemming from what would otherwise be a conflict of interest capable of rendering a contract or other transaction void as a matter of Swiss law, I am bound to conclude this requirement was not satisfied in this case (since it is not alleged that the board of LSA was informed of the matters alleged to constitute the conflict of interest) unless I accept the evidence of Mr Mansimov that Mr Golovushkin had informed him that he had sought and obtained permission for these arrangements from Mr Alekperov. I have rejected that evidence for the detailed reasons already given.[72]The final issue concerns the knowledge of PSSA concerning the conflict. As noted earlier if the CoA is to be treated as void by reason of Mr Golovushkin's conflict of interest between his duty to LSA and his own interest (or those of his daughter) then LSA must establish that PSSA acted in bad faith in purporting to enter into the CoA while having either actual or constructive knowledge of the conflict of interest. As I have said already, it is not suggested by PSSA that Mr Mansimov’s knowledge is not to be attributed to PSSA. I find that Mr Mansimov knew of the arrangements concerning Oil Barge and Palmali Maritime referred to earlier and that they gave rise to the conflict I have described again for the reasons identified earlier. That knowledge is to be attributed to PSSA as I have said and it follows that the knowledge requirement is made out. This would only arguably not be the case if I had accepted the evidence that Mr Golovushkin had told Mr Mansimov he had obtained permission from Mr Alekperov and Mr Mansimov could reasonably have accepted that assurance at face value without further enquiry. My conclusions set out earlier are fatal to any allegation to this effect.[73]PSSA’s only answer to this point is to maintain that Mr Golovushkin did not negotiate in any meaningful sense the CoA but had been instructed prior to the meeting in Geneva by Mr Alekperov to sign whatever document was proposed by or on behalf of PSSA. Nothing less than that will do, given Dr Gross’s evidence on this issue set out at paragraph 31 above. That could only make commercial sense if it was alleged that a draft of what was proposed had been seen and approved by Mr Alekperov prior to the meeting in Geneva. There is no evidence that is so, nor is such even alleged by PSSA. Had that been the position it is entirely unclear why it would have been necessary for both parties to travel at some expense to Geneva accompanied by various advisors. The only alternative is that Mr Alekperov had instructed Mr Golovushkin to agree to whatever was proposed by or on behalf of PSSA. It cannot be anything other than this because the CoA was signed in Geneva on 18 January 2005 at the conclusion of the negotiations between the parties.[74]I reject this part of PSSA’s case for the following reasons. Firstly, it depends upon Mr Mansimov’s uncorroborated evidence. For the reasons I have given elsewhere, I am not able to accept his uncorroborated evidence.[75]Secondly, it is inherently improbable that someone as experienced and obviously astute as Mr Alekperov would authorise someone to attend a meeting and sign whatever was placed in front of him or her, when much more probably, the document could have been obtained from PSSA and supplied to Mr Alekperov and for him then to approve the documents for signing, without the need for anyone to travel to Geneva supported by various officials and outside lawyers.[76]Thirdly, what is now said on behalf of PSSA is not what was being said on his behalf, it is to be presumed on his instructions, at earlier stages in these proceedings. Thus in a letter from PSSA’s then solicitors dated 27 September 2018, it was asserted:
“Mr Bilgehan informs us that he was the lawyer involved with negotiating the wording of the COA with Litasco's lawyers on behalf of Palmali and that the commercial negotiations for the COA had been carried out directly between Mr Mansimov and Mr Golovushkin. To the best of his recollection, Mr Bilgehan believes that the negotiation of the wording of the COA immediately preceded the signing of the contract by Mr Mansimov and Mr Golovushkin in January 2005.” 76. In his second statement, Mr Mansimov described Mr Bilgehan as being “… of the Istanbul Law Firm, Ersoy Bilgehan... Mr Bilgehan had trained as an English barrister and had worked as a lawyer for the West of England P&I Club in London.”
The case advanced by PSSA’s former solicitors was maintained 9 months later when in a letter of 17 June 2019, they stated:
“… the discussions and commercial negotiations that led to the formation of the COA were conducted orally between Mr Mubariz Mansimov and Mr Valery Golovushkin (the then CEO of Litasco) at a meeting in Geneva in early 2005. The terms agreed were then drafted by Palmali's external lawyer and Litasco's in-house legal advisers at the time. It is noticeable that your client's disclosure is equally lacking in documents relating to the creation of the COA notwithstanding that the document was negotiated and drafted at your company's offices.”
This is entirely inconsistent with the case that PSSA now advances. These letters were put to Mr Mansimov in cross examination. Although the responses attempted to divert attention away from the issues that mattered, he was forced to accept that Mr Golovushkin was giving instructions to LSA’s “team” at the negotiations and he had no coherent explanation as to why he would have travelled from Istanbul to Geneva with a lawyer retained for the specific purpose of representing PSSA’s interests if everything had been agreed beforehand. In reality, the terms of the CoA were negotiated at a commercial level by Mr Mansimov on the one hand and Mr Golovushkin on the other, which they then each signed, all at a time when Mr Golovushkin was under the material conflict of interest referred to above and which derived more generally from the long standing close commercial and personal relationship between Mr Golovushkin and Mr Mansimov to which I refer in more detail below.[77]Fourthly, none of the circumstances suggest that what PSSA suggests might even arguably be correct. This involves considering a number of circumstantial points. As to these factors: i) Firstly, it is inherently improbable that that Mr Alekperov would have agreed to a relationship with PSSA that in effect could have been dictated by PSSA. Lukoil is one of the largest oil producing and refining companies in the world. Mr Alekperov was its founder and chairman. It is absurd to suppose that he would have authorised Mr Golovushkin to enter into whatever agreement PSSA proposed. I accept of course that even very large companies can find themselves in situations where they have no choice but to enter into transactions on disadvantageous terms. However there is no evidence that this was so in relation to the transportation of Lukoil product generally or specifically down the River Don. ii) Secondly, Mr Mansimov’s written evidence is that Mr Alekperov had agreed to enter into a 15 year agreement - see paragraph 41 of his statement - but “… sometime after my agreement with Mr Alekperov but before January 2005 when the COA was signed, Gati Al-Jebouri, who was Litasco’s finance director at that time, told me that whilst he understood that Mr Alekperov had promised us a 15 year contract, Gati felt as finance director of Litasco, it wouldn’t look good for Litasco to have such a long commitment on their books. He suggested that we agree instead a 10- years’ period and that after 5 of those 10 years had expired, Lukoil would ensure that we were given a 5 year extension, so we would still end up with a 15 year contract.” In my judgment it is inherently improbable that LSA’s finance director would have said anything of the sort if Mr Mansimov’s discussion with Mr Alekperov had been as he alleges. What evidence there is suggests that Mr Alekperov was the dominant force in Lukoil and was someone to whom all those who managed LSA would defer. Furthermore, I consider it inherently improbable that if Mr Mansimov had agreed with Mr Alekperov a long term contract of 15 years duration, he would have simply accepted what it is alleged Mr Al-Jebouri had said. Rather he would have objected and relied on what he had allegedly agreed with Mr Alekperov. In this connection, Mr Mansimov does not suggest that he was told by Mr Al-Jebouri that he (Mr Al-Jebouri) was acting on Mr Alekperov’s instructions. iii) Thirdly, although it is asserted by Mr Mansimov that “… Gati felt as finance director of Litasco, it wouldn’t look good for Litasco to have such a long commitment on their books…”, there is no explanation offered as to why a 10 year as opposed to a 15 year agreement would have this effect, nor is there any suggestion by Mr Mansimov that he sought to challenge this analysis either when the alleged discussion took place or later when the CoA came to be negotiated in Geneva in January 2005, when Mr Mansimov was negotiating with his friend Mr Golovushkin. iv) Finally, Mr Mansimov maintained that Mr Al-Jebouri suggested that if the agreement was for a 10 year period, “… after 5 of those 10 years had expired, Lukoil would ensure that we were given a 5 year extension, so we would still end up with a 15 year contract.” Three points arise from that: a) First, if that was the understanding, why was a formal option to that effect not included in the agreement; b) More fundamentally, why was that understanding not relied on by Mr Mansimov when 5 years later LSA asserted that board approval was required before an extension could be agreed: c) Finally and yet more fundamentally, why did Mr Mansimov not contact Mr Alekperov when this problem arose if there had been a meeting in late 2004 at which the 15 year term had been agreed between them? Mr Lord put that point to Mr Mansimov. In keeping with the manner in which Mr Mansimov chose to respond to many questions asked of him he commenced with a speech, which did not appear to answer the question even in passing – see T8/27/23-29/13 – then by answering a question with a question in my judgment to disrupt and divert attention from the issue at hand - see T8/29/16-18 - which was followed by an admonishment from me and a direction to answer the question – see T8/29/19-30/1 – which was followed by another answer that did not answer the question – see T8/29/23 – 30/6. v) The evidence referred to in (c) above provides yet further support for the conclusions I reach elsewhere in this judgment concerning the degree to which I can safely rely on Mr Mansimov’s evidence but for present purposes convinces me that there was no answer to this point other than that no such approach was made because Mr Alekperov had not agreed to enter into a 15 year agreement as Mr Mansimov alleges either because there was no conversation between them concerning what became the CoA in late 2004, or if there was such a conversation it was of such a high degree of generality that it did not extend even to the length of the proposed agreement.[78]Fifthly, had it been correct, there would have been no necessity for anyone to travel to Geneva, for each of Mr Mansimov and Mr Golovushkin to be accompanied by lawyers, or for there to be an extended negotiation in Geneva between lawyers before the CoA was signed. If Mr Alekperov was the decision-maker in any relevant sense then PSSA would have drawn up a contract, sent it to LSA and instructions would have been given by Mr Alekperov in his apparently laconic style that the agreement was to be executed and Mr Golovushkin would then have executed it. There would have been no need for meetings, no need for lawyers to negotiate and no need for anyone to travel to Geneva.[79]Sixthly, even if I had accepted that PSSA had proved that there had been a prior discussion between Mr Alekperov and Mr Mansimov, it could only have been about an agreement in very general terms because there was no draft available or any rate no evidence of a draft being available and, critically for present purposes, Mr Golovushkin was left to handle the detail at a time when (as I have explained, unknown to the board of LSA or Mr Alekperov) there was the conflict of interest referred to at length above. Indeed, on Mr Mansimov’s own evidence it would appear there was no agreement even as to duration since on his evidence that was negotiated with LSA after his alleged conversation with Mr Alekperov.[80]Finally, although PSSA placed reliance on the point already considered concerning the principles addressed by the Supreme Court in Efobi v Royal Mail Group Ltd (ibid) with Mr Eaton submitting that “… no good reason has ever been given for [Mr Alekperov’s] absence from this trial; and, where he would have had relevant evidence to give, PSSA invites the Court to infer that it would have supported Mr Mansimov’s account…” in my judgment that is not a submission that assists PSSA. It is PSSA’s affirmative case that the true decision-maker was Mr Alekperov. That being so the legal and evidential burden of proving that case rested on the claimant. If its case was that Mr Alekperov had instructed Mr Golovushkin to enter into whatever agreement PSSA sought (whether following the alleged conversation between Mr Alekperov and Mr Mansimov or otherwise), then it would have been straight forward for PSSA to have adduced evidence from Mr Golovushkin as I explained earlier. If Mr Alekperov’s instruction was no more than authority to Mr Golovushkin to enter into negotiations with Mr Mansimov that takes matters no further because on that basis the negotiations were ostensibly undertaken by Mr Golovushkin while he had a conflict of interest as described above. If there was no conversation at all, the position is in essence the same. In either event, as I also explained earlier, there is no satisfactory explanation as to why PSSA was unable to adduce evidence from Mr Golovushkin, given the apparently long standing, close and continuing friendly relations that exist between Mr Golovushkin, his family and Mr Mansimov. In my judgment the only inference that is properly to be drawn is from the fact that PSSA did not adduce any evidence from Mr Golovushkin, when on the face of it he could have given evidence as to the nature of any instructions he received from Mr Alekperov if any were given. There is no other evidence that supports this part of PSSA’s case other than the uncorroborated testimony of Mr Mansimov, which for the reasons given elsewhere in this judgment I am not able to accept. There was no obligation on LSA to adduce evidence from anyone on this topic.[81]For these reasons I reject PSSA’s case as to why the conclusions reached earlier concerning Mr Golovushkin’s conflict of interest should not be given effect to. In my judgment it is plain there was a sufficient conflict in the circumstances to justify treating the CoA as void applying what I have concluded to be the correct principles of Swiss law. My conclusion concerning the existence of such a conflict at the date when the CoA was ostensibly agreed is strengthened by my conclusions concerning the other aspects of the relationship between Mr Mansimov and Mr Golovushkin relied on by LSA to which I now turn. The Facts Relevant to the Conflict Issue – Other Alleged Conflicts.[82]The IGM Holding Company Issue On 24 May 2004, a company called IGM Holding Company Limited (“IGM”) was incorporated in Malta. There were three shareholders - Mr Iskender Khalilov, who was allotted 170 shares, Mr Mansimov who was allotted 165 shares and Mr Golovushkin, who was also allotted 165 shares.[83]There are some audited accounts for IGM for the year ending 31 December 2004. The narrative within the Accounts record that on 9 September 2004 IGM entered into a long-term bank loan agreement by which it borrowed US$35.5 million from Parex Banka, a Latvian registered lender. The accounts then report that the sum lent was used to finance the acquisition of five motor tankers, one of which was registered in the name of each of five of IGM’s subsidiaries.[84]On 6 December 2004 (about 6 weeks before he signed the CoA on behalf of LSA), Mr Golovushkin apparently transferred his shares in IGM to Mr Mansimov. At the time of that transfer, according to the accounts of IGM for the period ending 31 December 2004, the ships owned in the way I have explained had a value of US$49.65m and IGM had net assets (after taking account of all liabilities) of US$13.5m odd. Following the transfer of shares by Mr Golovushkin to Mr Mansimov, Mr Mansimov held 330 shares in IGM, which he retained until he transferred his entire shareholding to Palriver Shipping Limited (“Palriver”) on 9 September 2005. On 8 November 2006, Mr. Khalilov transferred his 34% shareholder interest to Palriver and received US$8,652,823 for his shares – see Note 10 to the Palriver accounts for the period ending 31 December 2007.[85]Two points are made by LSA about these transactions. The first it is submitted that it cannot safely be assumed that Mr Golovushkin transferred his shares in IGM prior to 18 January 2005, when he signed the CoA and secondly, whilst there is no direct evidence to this effect, it is to be inferred that Mr Golovushkin received a substantial payment in return for his shares.[86]As to the first of these points, I do not consider it can be fairly or safely inferred that Mr Golovushkin transferred his shares on or after 18 January 2005. My reasons for reaching that conclusion are as follows.[87]The form of transfer in evidence was obtained by LSA’s solicitors after the trial had commenced and is that lodged with the Malta Registry of Companies as is apparent from the receipt stamp to that effect in the top left hand corner. There is a date stamp in the top right hand corner of 4 January 2005. The document purports to record that the transfer of shares was registered on 6 December 2004 even though the Notice of Transfer appears to be dated 20 December 2004. There is no reason to suppose that IGM’s company secretary would have back dated the date of transfer from that which actually applied. However even if I was wrong to reach that conclusion it does not lead to the conclusion that the transfer took place after 18 January 2005 because I conclude on the balance of probability that the date stamp at the top right hand corner of the document was placed on the document by the Registry of Companies official who received the document and stamped it as being received.[88]I conclude therefore on the balance of probabilities that the transfer of shares took place on 6 December 2004 and could not have taken place any later than 4 January 2005 on any view. There is no basis for thinking the document is not authentic because it was LSA’s solicitors who obtained the document from the Registry of Companies during the course of the trial. I reject LSA’s submission that the effect of the document is that the transfer took place on 20 December. That is not the effect of the document as I have said and appears to be based on a misreading of it. On its face, the transfer took place on 6 December 2004.There is no evidence that the transfer could only lawfully take place on the date when Notice of Transfer was lodged with the registry in Malta or on the date of the Notice of Transfer. The Notice purports to record that the transfer of shares was registered on 6 December 2004 which I understand to mean registered in the books of the company concerned by its company secretary or registrar.[89]It follows from this that I find that Mr Golovushkin transferred his shares some time on or after 6 December 2004 but no later than 4 January 2005 and on the balance of probability did so on or about 6 December 2004. It follows that this transfer took place before the signature on 18 January 2005 of the CoA.[90]However, if Mr Golovushkin received anything for his shares, none of what I have considered so far says anything about when Mr Golovushkin secured that receipt. Further, there is no evidence of which I am aware as to when the meeting in Geneva was arranged. Mr Mansimov says only that “… arrangements were made for me to come to Geneva after the orthodox Christmas in early 2005 for a signing ceremony.” The Orthodox Church celebrates Christmas Day on 7 January each year. Whether the share transfer took place following the making of these arrangements is not something I am able to reach conclusions about given the absence of any reliable evidence concerning when these arrangements were made. All that can safely be said is that the arrangements appear to have been made sometime in December if what Mr Mansimov says in paragraph 43-44 of his witness statement is taken at face value. On that basis the arrangements for the Geneva meeting were made on or about the time of the transfer on 6 December and probably on or before the date of the Notice of Transfer on 20 December.[91]As to the second of these points (the substantial payment point), the accounting material suggests that whilst it is inherently improbable that the shares would have been transferred for nil consideration, the evidence does not permit even a broad assessment of what was likely to have been paid. Although Mr Mansimov maintained that no payment of any kind had been made to Mr Golovushkin, the material available suggests that Mr Golovushkin transferred his shares in IGM to Mr Mansimov between 6 and no later than 20 December 2004. IGM’s accounts for the period ending 31 December 2004, audited by the Malta branch of Deloitte & Touche suggest that at the time of the transfer IGM was a valuable company. Although it made a loss over the year of US$1,056,099, its balance sheet shows that it had net assets of US$13,503,077, after taking account of all its debt including the loss for the year and all other creditors. In very approximate terms and assuming it would be correct to value the company on the basis of its net assets, Mr Golovushkin had a 33% interest implying his shares were worth about US$4.4m odd at the date when they were transferred.[92]However, most of the surplus of assets over liabilities was made up of a revaluation over book price of the ships owned by the company (or its subsidiaries). The revaluation was of the ships owned by the company at its year end in accordance with the policy described in Note 5 to the accounts – see Note 17 to the Accounts. Note 5 describes the policy as being to revalue at the end of each financial period with “… such revaluation aimed to reflect the asset at its estimated market value at the balance sheet date.” However, “… market value is determined by the director following consultation with senior group technical executives and third parties, where considered necessary.” The director is Mr Mansimov. This was not explored in cross examination. As things stand the revaluation would appear to have been a figure arrived at by Mr Mansimov. As the Auditors Report makes clear:
“… Such market value is estimated by the director following consultation with senior group technical executives and third parties, where considered necessary. The director is satisfied with the reliability of the valuations reached for the group's tankers and does not consider that any additional benefit would be derived by obtaining a further independent valuation carried out by a professionally qualified, industry recognized appraiser.”
This led the Auditors to qualify their opinion in these terms:
“In our opinion, except for any adjustments that might have been found to be necessary had we been able to obtain sufficient independent evidence concerning the accuracy of restated fair value of the tankers, the financial statements give a true and fair view of the state of the affairs of the group and of the company at 31st December, 2004” [Emphasis supplied]
[93]In light of this material, it would be unsound for me to reach any inferential conclusions concerning even the approximate value of Mr Golovushkin’s shares at the date of their transfer since there are question marks over(a) the surplus that appears on the balance sheet for the period ending 31 December 2004,(b) whether it would be appropriate to value the shares being transferred on a net asset valuation basis or(c) if it was whether that valuation should be carried out by reference to the ship revaluation figure that appears in the Accounts and(d) whether and if so what discount ought to be applied to the sale of a minority shareholding in a closely held private company. That said, it was not suggested on behalf of PSSA either by Mr Mansimov or otherwise that IGM’s accounts overstated the net value of its assets other than by reference to an assertion that the shares were of no value because Mr Khalilov allegedly provided US$11m of capital required by IGM in addition to its bank financing. If so, that would reduce IGM’s surplus in December 2004 to about US$2.5m and Mr Golovushkin’s shares at the date of their apparent transfer to 33% of that sum before account is taken of any minority interest discount.[94]I reject Mr Mansimov’s evidence that the shares were of no value because Mr Khalilov allegedly provided US$11m of capital required by IGM in addition to its bank financing. I reject that evidence for the following reasons.[95]Firstly, if Mr Khalilov had lent US$11m to IGM in 2004, then it could and would have appeared as such in the accounts of that company for that year. There is no mention of such a loan in the IGM 2004 accounts for the period to 31 December 2004. True it is that in the Palmali Group accounts for the financial period to 31 December 2005, there is a liability to Mr Khalilov recorded of US$11,592,000. However, that entry appears in Note 19 to the 2005 Palmali Group accounts. That refers back to the “Other Financial Liabilities” line in the Palmali Group balance sheet within those accounts. During 2005, IGM was not an ultimately wholly owned subsidiary of Palmali. Until 9 December 2005, it was in effect jointly owned by Mr Mansimov and Mr Khalilov personally and jointly. It was only after 9 December 2005 (when Mr Mansimov transferred his shares to Palriver) down to 31 December 2005 that the shareholders in IGM were Palriver as majority shareholder and Mr Khalilov as minority shareholder. In consequence, IGM was not a Palmali Group company before 9 December 2005. There is no evidence therefore that the liability recorded in the Palmali Group accounts as due to Mr Khalilov was due from or in respect of IGM and there is no evidence that there was such a liability due from IGM prior to the end of December 2004 by which time Mr Golovushkin had transferred his shares in IGM to Mr Mansimov.[96]That being so, I conclude that the shares I have found were transferred by Mr Golovushkin to Mr Mansimov on or about 6 December 2004 and no later than 20 December 2004, had material value at the date of transfer that was more than de minimis and was likely to be of substantial value. In those circumstances, I am not able to accept Mr Mansimov’s uncorroborated evidence that Mr Golovushkin had received no payment of any kind in return for his shares. On the contrary I consider it probable that he received a significant payment for them though when and how much or in what currency or other valuable consideration is impossible to quantify without the evidence that Mr Mansimov could have but failed to adduce from Mr Golovushkin and Mr Khalilov. The evidential burden of proving a gratuitous transfer of the shares rested on PSSA because that was its affirmative case.[97]What I can safely conclude from this material (in combination with what I have concluded already concerning the Oil Barge and Palmali Maritime relationship) shows that in fact Mr Mansimov had not merely a long standing and close personal relationship with Mr Golovushkin but that this relationship was also a commercial one of long standing.[98]I have already made some seriously adverse findings concerning the credibility of Mr Mansimov as a witness. It is necessary that I return to that issue at this stage. Mr Lord submits that Mr Mansimov sought to avoid giving evidence concerning the IGM arrangements and that once what had been obtained was tested in cross examination it disclosed that on any view Mr Mansimov had given evidence initially which was dishonestly false. Mr Eaton sought to avoid the sting of this submission by suggesting that this arose out of a misunderstanding of an earlier part of Mr Mansimov’s evidence, that LSA’s approach to this was “theatrical” and that it could be explained as innocent error resulting from audio cut outs and transmission issues resulting from Mr Mansimov giving evidence by video link from Turkey in Russian using a simultaneous translation process.[99]I do not underestimate the difficulties that giving and taking evidence by video link using simultaneous translation poses, many of which were apparent during Mr Mansimov’s evidence and which I am bound to say he made much more problematic by repeatedly over speaking counsel, by making speeches at great speed and by failing to engage straight forwardly with the questions that he was asked. All of that said, I do not accept that Mr Mansimov dealt with this issue honestly. My reasons for reaching that conclusion are as follows.[100]The key and fundamental point is that initially Mr Mansimov’s evidence of his relationship with Mr Golovushkin was encapsulated in this exchange at T7/77/1:
“A: … I did not have any trading business relationship with him at all. When he was at Litasco, we did business and we went on holidays together, but please believe me, please, I am sincere, I did not have any business relations with Mr Golovushkin. If Mr Alekperov permitted, we would have. He didn't permit. It didn't happen. Q. So can his Lordship take it -- A. Please interpreter could you word-for-word interpret what I said. Q. So Mr Golovushkin -- Mr Mansimov, from that last answer, can his Lordship take it that you are saying, on oath, you have never had any business dealings with Mr Golovushkin, ever, is that right? A. We did have -- we did have business relationship on behalf of Lukoil or we did together business with SOCAR. We owned SOCAR. We were very close friends. We were very close and his late wife, Olga, was friend with my wife. His daughter was raised in front of my eyes, just like my daughter. So we were family friends. Q. Just to be clear, Mr Mansimov, is it your evidence, on oath, that you have never had any business relationship or interest with Mr Golovushkin on a personal basis; in other words, you and Mr Golovushkin, rather than you and Mr Golovushkin where he's acting on behalf of, say, Lukoil or SOCAR? I think you understand what I mean. I'm looking at business dealings or interests you may have had with Mr Golovushkin in his personal capacity. Are you saying you've never had any of those, ever, in your whole life? Think very carefully, Mr Mansimov, before you answer that question, please. A. I thought and I am saying very -- in 2014 and 2015 he worked as advisor in Palmali, which was very minimum wage, like $200/300 and this was only to obtain residency permit in Turkey rather than getting a visa, so the companies were established, but Mr Alekperov did not permit any business dealings, and then Mr Golovushkin did not need anything. He owned the SOCAR Trading. He was partner and doing any business with me would have been conflict of interest because it was controlled directly by the Azerbaijan parliament. Q. So, Mr Mansimov, apart from the examples you've just given of your dealings with Mr Mansimov, can his Lordship take it -- sorry, with Mr Golovushkin, can his Lordship take it that you've had no other personal business dealings or business interests with Mr Golovushkin at any time, including in 2004 and 2005? A. Certainly didn't have.”
Pausing only to note Mr Mansimov’s evidence that “… Mr Alekperov did not permit any business dealings…” which provides further support for my conclusions above concerning PSSA’s imputed knowledge for conflict of interest purposes, the thrust of this evidence was entirely clear: Mr Mansimov and his wife had a very close personal relationship with Mr Golovushkin and his late wife and that at any rate during the period that is relevant to the issue I am now considering, Mr Mansimov “(c)ertainly didn't have” any business relationship other than that between PSSA and LSA. In my judgment when that is contrasted with what I have set out above concerning the IGM arrangements, it is clear that this evidence was plainly untruthful. This provides further support for the conclusion set out earlier namely that I am unable to accept Mr Mansimov’s evidence save where it is an admission, against his interest or that of PSSA or is corroborated by either a witness whose evidence I accept or by contemporaneous documents the authenticity of which are not in dispute. Q. So can his Lordship take it -- A. Certainly didn't have.”

Q. So can his Lordship take it --

[101]In my judgment the conclusions I have reached so far concerning the true nature of Mr Golovushkin’s relationship with Mr Mansimov gains some limited further support from the arrangements that were made concerning the VM Shipping companies.[102]The VM Shipping Companies issue The primary facts relating to these entities are largely a matter of record. On 8 October 2004, three companies called respectively VM Shipping One Co. Ltd (“VM 1”), VM Shipping Two Co Ltd (“VM 2”) and VM Shipping Three Co Ltd (VM 3”) were formed in accordance with the laws of Malta. The shareholders in each were Mr Mansimov and Mr (Valery) Golovushkin. As is obvious V stands for Valery and M for Mubariz, Mr Mansimov’s first name. The address given for each is Palmali’s corporate offices in Istanbul. On 20 October 2004, Mr Golovushkin transferred all bar one of his shares in each of these companies to Mr Mansimov and the remaining share to TCV Management and Trust Services Limited, another Malta registered company. On 12 July 2005, each of the VM companies was placed in voluntary liquidation.[103]Mr Mansimov maintains that these vehicles were registered for the purpose of purchasing up to 10 ice-class vessels from Lukoil but that the scheme was abandoned because Mr Alekperov declined to give permission for it. Inferentially, this must have occurred sometime in or around October 2004. Two points arise from that. Firstly, if correct that places that event very close in time to the conversation Mr Mansimov alleges took place that he maintains is relevant to the Oil Barge and Palmali Maritime arrangements, and secondly, it shows that on any view by that date both Mr Mansimov and Mr Golovushkin was aware that Mr Alekperov would not agree to private business arrangements between Mr Mansimov and Mr Golovushkin. That is significant given the continuation of such a relationship in respect of Oil Barge and Palmali Maritime and IGM beyond 20 October. Mr Mansimov’s evidence was that the VM companies never did any business. There is no real evidence to contrary effect. Whether these companies traded or not is not material for present purposes. What matters is what was contemplated, when taken together with the Oil Barge, Palmali Maritime and IGM arrangements, shows the depth of the commercial as well as the personal relationship between Mr Alekperov and Mr Mansimov. What is significant is that in truth that relationship did not change when Mr Golovushkin transferred his shares in the VM companies to Mr Mansimov, not least because he retained his interest in IGM until he disposed of that interest to Mr Mansimov and he retained or his daughter retained her interest in Oil Barge and Palmali Maritime for a significant period after that.

Ratification

[104]The parties are agreed that English law applies to that issue because that is the governing law of the alleged contract that has allegedly been ratified namely the CoA. Given that this is agreed, I need not take up time explaining why that is so in any greater detail. It is supported by all the standard texts and the authorities therein referred to – see by way of example Bowstead and Reynolds on Agency, 23rd Ed., para. 12-017. The ratification defence continued to be relied on by PSSA in its closing submissions – see paragraphs 282-287. LSA’s position throughout has been that this defence is inadequately pleaded and could not be pursued unless that was rectified. No attempt was made to do so. LSA maintains that it considered this point had ceased to be relevant because it was left out of the agreed issues for trial.[105]In my judgment ratification is not properly available to PSSA for the following reasons.[106]It is trite that before ratification can be relied on, the person alleged to have ratified must be shown to have had full knowledge of all the material facts and circumstances in which the unauthorised act was done – see Bowstead and Reynolds on Agency, ibid, at para. 2-071, illustrations 1, 2 and 6 there referred to and Suncorp Insurance and Finance v Milano Assicurazioni SpA [1983] 2 Lloyd’s Rep. 225.[107]I agree with Mr Lord that PSSA has not pleaded or otherwise specified how LSA (or those [unpleaded] individuals who are said to have acted on its behalf in ratifying the CoA) acquired the knowledge of the facts constituting the conflict of interest relied on by LSA by the time whatever acts of ratification that are relied on took place. In his closing submissions, Mr Eaton submitted that ratification was to be implied from part performance permitted by LSA. Aside from the difficulty that this is nowhere pleaded, the real problem is that it has neither been pleaded or proved that any of the decision makers at LSA had any knowledge of the material facts and circumstances. Mr Golovushkin’s knowledge is immaterial for present purposes – see footnote 445 to Bowstead and Reynolds on Agency, ibid, at para. 2-071. Not merely was PSSA under an obligation to plead the particulars of its ratification case properly by pleading who knew what, when and what they did (or did not do) with the benefit of such knowledge but the burden of proving ratification rests on PSSA as the party alleging it – see Bowstead and Reynolds on Agency, ibid, at para. 2-072 and footnote 456 thereto. Aside from this, there is no evidence that Mr Golovushkin’s conduct was known to the board of LSA prior to the commencement of these proceedings.[108]For the reasons set out in detail above, there were clear conflicts of interest for Mr Golovushkin from the shareholdings in Oil Barge and Palmali Maritime and a probable conflict from his involvement in IGM Holdings. These conclusions are sufficient to determine this claim. The issues I consider below arise only if I am wrong in everything that I have so far decided.

The Best Interests Issue - the Swiss law Principles

[109]The Swiss law experts are agreed that independently of whether an agreement is tainted by a conflict of interest as considered above, a transaction entered into on behalf of a Swiss company by a corporate officer or board member will be void and so not be binding on the company concerned if: i) The corporate officer and/or board member was acting in breach of his/her fiduciary duties by entering into the transaction because it was contrary to the interest of the corporation; and ii) The contracting counter-party acted in bad faith, either by its actual knowledge of the relevant breach of fiduciary duty or because it should have known of the relevant breach; and that the Swiss Federal Tribunal has consistently held that transactions that are contrary to the interests of the company concerned or to the obligations of the representative owed to that company are void if the third party (here PSSA) did not act in good faith – see paragraphs 17-19 of the Swiss JM.[110]Both experts are agreed that whether or not a transaction is contrary to the corporation's interest is determined in an objective manner – see Dr Gross’s evidence at T12/16/3-5 – on a case by case basis taking into account all circumstances – see paragraph 20 of the Swiss JM and Dr Gross’s oral evidence to similar effect at T12/15/21-25 – although Dr Gross is also of the view that whether a transaction is contrary to the company's interest is also determined in light of the fiduciary duties owed to the company by the respective board member and/or corporate officer, such duties including, among others, the duty to ensure that the company receives adequate consideration in transactions and the duty to promote long-term profit maximisation.[111]In my judgment great caution is required about the deployment of this concept since there is a danger of every disappointed contractual party relying on this concept after the event for the purpose of avoiding a contract that it has come to consider disadvantageous. Given this obvious risk, to establish that the CoA was not in LSA’s best interests or unfavourable to it or was unusual would be insufficient to trigger invalidity on the ground I am now considering because in an arm’s length negotiation each party is entitled to (indeed is probably under an obligation to obtain) the best it can from the negotiations – see Dr Gross’s evidence at T12/17/6-10. That is why it is important to emphasise that the doctrine I am now considering applies only where the third party (here PSSA) did not act in good faith – see Dr Gross’s evidence at T12/16/16-21 and T12/19/20-24 – and why I also accept Dr Gross’s evidence that:
“Swiss courts exercise great restraint when reviewing whether a particular business decision taken was in the best interests of the company. This is even more so if the decision was taken by the competent bodies and observing the correct decision-making processes, and on an informed basis and without the existence of conflicts of interest (business judgment rule). Moreover, the assessment whether a particular decision was in a corporation's best interests must be made without hindsight bias, i.e. based on the information available to the board member and/or corporate officer at the time the decision was made.” [Emphasis supplied]
In relation to this restraint point, in his oral evidence in cross examination, Dr Gross added:
“Q. This principle of restraint, to some extent, presumably, it is because the Swiss court is reluctant to second-guess the decisions that have been made by the people managing the business of the company? A. You will in principle not second-guess, yes. Q. Is another reason why the Swiss courts exercise great restraint that a contract in principle should not be void just because it turned out to be a good deal for the counterparty? A. You say "turned out", I mean the analysis is made as of the time the contract is entered into. Q. Was a good bargain for the counterparty? A. Yes, that's not the relevant point, yes. The relevant point is the protection of the interest of the company…” [Emphasis supplied]
Unsurprisingly therefore, Dr Gross accepted that it is not common for Swiss courts to decide that a particular contract is invalid because it was contrary to the interests of one of the parties and the other party was in bad faith in the way described above – see T12/19/25-20/6. As he added at T12/20/10-21/5:
“… the Swiss court will exercise restraint, will use the business judgment rule, will not second-guess. If despite these restraint the Swiss court determines that the contract was entered into not in the best interest of the company, then it will proceed to the second part of the test, namely the good faith/bad faith analysis, where there's a reversal of the burden of proof also in order to protect the business world where the company -- in fact the company will have to prove that either the opposing party knew or was acting in bad faith. What is always one of the additional statements that the courts make is that in the presence of unusually favourable conditions or totally out of market agreements, they have a close look. So if a contract provides for unusually favourable conditions, as I already said, then this will raise suspicion on both sides of the test, the objective analysis and also the good faith/bad faith analysis.” [Emphasis supplied]

Q. Was a good bargain for the counterparty?

[112]Drawing this together, I conclude that a Swiss court would declare void a contract on the application of one of the parties to it (“A”) only if: i) The contract concerned was contrary to the interest of A in the sense of it being unusually favourable to the counter party (“B”) or totally contrary to what would be expected given prevailing market conditions, in either case judged objectively at the time the contract was entered into and taking into account as part of that assessment whether the decision to enter into the contract concerned was taken(a) by those authorised to take the decision(b) observing the correct decision-making processes,(c) on an informed basis and(d) without the existence of conflicts of interest; and ii) A has proved that B was acting in bad faith by entering into the challenged contract either well knowing the contract was unusually favourable to it or contrary to what was to be expected given market conditions or when it ought to have known that such was the case, again judged objectively. I also conclude that in many and perhaps most cases whether B was acting in bad faith in this sense will be a matter of inference from the primary facts, with the result that the more extreme the benefit bias is to B, the more likely it will be that bad faith will be found proved inferentially.[113]In this case therefore, in assessing whether the CoA was contrary to the interests of LSA in either of the senses referred to in (i) above, it is necessary to do so taking account of the conclusion I have reached already that in purportedly committing LSA to the CoA, Mr Golovushkin did so while acting under a conflict of interest as described above. In practice what role that element has to play is obscure. If there is a conflict of interest that is of sufficient gravity to merit voiding the contract then there is no necessity to consider the best interests issue I am now concerned with. I am inclined to think therefore that a conflict of interest is likely to be relevant for present purposes only if it is of insufficient gravity to merit treating the contract concerned as void. Again although the point is unclear, I consider the business judgment rule as defined by Dr Gross is unlikely to be significant other than at the margin as a means of according the benefit of any doubt in favour of upholding the contract. In most cases where a contract is shown to unusually favourable to the counter party or contrary to what would be expected given prevailing market conditions, viewed at the time the contract is entered into the controlling factor will be the knowledge of the counter party that the contract was unusually favourable to it or contrary to what was to be expected given market conditions.[114]Before turning to the facts there is one point that I should mention at this stage. In the course of his cross examination of Dr Gross, Mr Eaton suggested to him that where a sole shareholder (here Lukoil) “… had decided that the company (i.e. LSA) should enter into the transaction … the transaction must be taken to have been corresponding to the will of the general meeting…” to which Dr Gross agreed. That will no doubt be so in some cases but for the reasons that I have explained already when considering the conflict of interest issue that is not applicable on the facts of this case. Firstly, Mr Alekperov was not a shareholder much less the sole shareholder in LSA, which was a wholly owned subsidiary of Lukoil. No evidence has been drawn to my attention concerning how the shares in Lukoil were held. Secondly, and more fundamentally, I have concluded that Mr Alekperov was not aware of the terms of the CoA prior to it being signed in Geneva – either because there was no meeting at all at which he discussed the subject with either Mr Mansimov or Mr Golovushkin or if there was such a discussion it went no further than sanctioning a negotiation between LSA and PSSA that in the event took place between Mr Mansimov and Mr Golovushkin at (or possibly before) the Geneva meeting. Thus the principle identified in this part of the cross examination could not apply because neither Lukoil or (if relevant) Mr Alekperov had decided that LSA should enter into the CoA.

The Issues of Construction and Fact Relevant to the Best Interest Defence

[115]I turn now to the facts that LSA relies on as demonstrating that the CoA was plainly not in LSA’s interest to the level required by the summary of the requirements of Swiss law referred to above and that PSSA acting by Mr Mansimov well knew that such was the case. In doing so, I repeat what I have said already, this question is to be judged objectively at the date when the relevant contract was entered into – that is in this case on 18 January 2005. How in fact a contract worked out subsequently for one or other party is immaterial.[116]The key submission that LSA makes is that the CoA was entirely uncommercial and was known to Mr Mansimov to be entirely uncommercial for numerous connected reasons to which I refer below and in those circumstances the requirements of the Swiss principles concerning contracts that are contrary to the interest of a Swiss registered company summarised above are satisfied. Mr Eaton submits that “…. (t)he touchstone of each of these alleged factors is whether they created problems of such magnitude that, despite the language of the CoA and the fact that the parties acted on it for years, the Court is bound to conclude….” that the requirements of Swiss law identified above are satisfied. This means that although the question I have to decide depends upon the objective effect of the CoA on the date it was entered into, it will be necessary to decide whether in fact “… the parties acted on it for years…” since LSA’s case is most emphatically that is not what had happened. Whilst I address that issue below I do so only because PSSA invite me to do so and I do so only for the purpose of helping to decide whether the CoA was contrary to LSA’s best interests (in the sense summarised above) at the date when the CoA was entered into.[117]Before turning to the factual detail it is necessary to start by identifying the true meaning and effect of the CoA to the extent that it is in dispute since only once those issues have been resolved will it be possible to determine whether the CoA was contrary to the interest of LSA in the sense of it being unusually favourable to PSSA or contrary to what would be expected given prevailing market conditions in each case judged on 18 January 2005.[118]There is a free standing dispute as to whether the CoA is binding as a matter of English law but that issue does not arise at this stage because the issue I am now considering depends on it being assumed that subject to the Swiss law point concerning whether the CoA is void because it was contrary to the interests of LSA, the CoA is otherwise binding and takes effect in accordance with its terms. It goes without saying that my further consideration of this point assumes that I am wrong to have concluded that the CoA is void for a want of authority by reason of the conflict of interest that applied to Mr Golovushkin.[119]Turning to the main terms of the CoA, it is not in dispute that the effect of cl. 2.1 of the CoA was that LSA was obliged to provide PSSA with at least 400,000 MT of the Cargo per month. There is however a dispute as to whether the CoA on its proper construction required LSA to instruct PSSA to ship its first 700,000 MT per month of all cargo shipped by it from the specified ports to specified destinations.

Relevant English Law Principles of Contractual Construction

[120]The principles that apply when construing contracts as a matter of English law (and which apply therefore to the CoA) are now very well established. They have been summarised in various judgments at all levels over the last decade or so and were authoritatively re-stated by the Supreme Court in Wood v Capita Insurance Services Ltd [2017] AC 1173 (“Wood v Capita”) in the judgment of Lord Hodge JSC at [10] and following.[121]In summary, all contracts must be interpreted objectively by asking what a reasonable person, with all the background knowledge that would reasonably have been available to the parties when they entered into the contract, would have understood the language of the contract to mean. As Lord Hodge emphasised in his judgment in Wood v Capita, in carrying out that exercise:
“It has long been accepted that this is not a literalist exercise focused solely on a parsing of the wording of the particular clause but that the court must consider the contract as a whole and, depending on the nature, formality and quality of drafting of the contract, give more or less weight to elements of the wider context in reaching its view as to that objective meaning. … Interpretation is … a unitary exercise; where there are rival meanings, the court can give weight to the implications of rival constructions by reaching a view as to which construction is more consistent with business common sense. But, in striking a balance between the indications given by the language and the implications of the competing constructions the court must consider the quality of drafting of the clause … and it must also be alive to the possibility that one side may have agreed to something which with hindsight did not serve his interest … Similarly, the court must not lose sight of the possibility that a provision may be a negotiated compromise or that the negotiators were not able to agree more precise terms. … This unitary exercise involves an iterative process by which each suggested interpretation is checked against the provisions of the contract and its commercial consequences are investigated … … Some agreements may be successfully interpreted principally by textual analysis, for example because of their sophistication and complexity and because they have been negotiated and prepared with the assistance of skilled professionals.”
[122]To this it is only necessary to add, in this case at least, that whilst the unitary exercise to which Lord Hodge refers requires a court to consider commercial consequences, commercial common sense should not be invoked retrospectively, or to rewrite a contract in an attempt to assist an unwise party, or to penalise an astute party. Where the parties have used unambiguous language, the court should apply it – see FCA v. Arch Insurance (UK) Limited and others [2020] EWHC2448 (Comm); [2020] Lloyd’s Rep IR 527 per Sir Julian Flaux CHC and Butcher J at [64], approved by the Supreme Court in the same case at [2021] UKSC 1, [2021] AC 649 per Lords Hamblen and Leggatt JJSC, with whom Lord Reed PSC agreed, at [47] and Lords Briggs JSC with whom Lord Hodge DPSC agreed, concurring at [314].

The relevant Construction Issues

[123]The issue that remains to be resolved as a matter of construction is whether clauses 1 and 2.1 of the CoA, when read together(a) required LSA to instruct PSSA to ship its first 700,000 MT of cargo per month from the specified ports to the specified destinations and if so(b) whether that obligation applied to all cargo shipped by LSA from the specified ports to the specified destinations or merely to shipments of below 10,000 MT.[124]PSSA submits that clause 1 is an operative part of the CoA and that it is clear on its face that it creates an exclusivity obligation in favour of PSSA so as to engage the principle that where the parties have used unambiguous language, the court should apply it. Particular reliance is placed by PSSA on the use by the parties in the clause of the phrase that LSA “… has undertaken to…” PSSA on an “… exclusive basis…” the transportation of “… all of [LSA’s] cargoes in lots of up to 10,000 mts dwt tons…”.[125]In my judgment this is a mistaken construction of clause 1 when it is read as a whole with the rest of the contract and in particular with clause 2.1. I reach that conclusion for the following reasons when taken together.[126]Firstly, although sub headings are not generally useful in construing the operative effect of contractual provisions, they can provide some assistance where the contract concerned is not well drafted, as in my judgment is the position with the CoA. Clause 1 has the sub heading “OBJECT”.[127]Secondly, the parts of the clause on which PSSA relies ignores much of the opening part of the clause ending with “a)”. It thus ignores the phrase “[LSA] has requested from [PSSA] and [PSSA] has undertaken to [LSA] on a long term (as referred to in clause 10 below) and exclusive basis…”[128]Finally it ignores the literal inconsistencies between clause 1 when read as a whole and clause 2.1, when read as a whole. Thus clause 1 refers to “… all of [LSA’s] cargoes in lots of up to 10,000 mts dwt tons…” whereas clause 2.1 refers to what is said in the following part of clause 2.1 as having been “… agreed between the parties…” to “minimum quantities” rather than “… all of [LSA’s] cargoes…” but in common with clause 1 refers to a requirement for such cargoes to be provided in “… lots of up to 10.000 mts dwt tons…”. However, clause 2.1 specifies (and clause 1 does not) the vessels on which the cargoes were to be carried, as being “… Sfat, 630 project, Lenaneft, Volgoneft, Armada, Lukoil, Radix, Brothers type vessels or motor-barges”.[129]These textual points would lead a reasonable person with all the background knowledge reasonably available to the parties to conclude that clause 1 was not intended to be of operative effect but was intended to fulfil the role of a recital seen in more conventionally drawn contracts, the purpose of which is to set the commercial context for (and therefore assist in the construction of) the operative parts of the agreement that follow. This is an explanation for the obvious inconsistencies between what is expressly said to have been agreed (which is set out in clause 2.1) when compared to the generalised statement in clause 1. In my judgment that this was the intended role of clause 1 is emphasised by its subheading when compared and contrasted with that used in clause 2 which in so far as is material referred expressly to “CARGO QUANTITIES”. In my judgment that this is the correct approach also receives some support from the fact that the first grammatical clause in clause 2.1 is in bold and records expressly that “(i)t is agreed between the parties that [LSA] shall provide to [PSSA] throughout each calendar year of the contract period the following minimum quantities of Cargo:…”[130]The effect of this conclusion is that a reasonable person with all the background knowledge reasonably available to the parties would conclude that the ostensible intended effect of the CoA was that LSA would provide for carriage by PSSA on board Sfat, 630 project, Lenaneft, Volgoneft, Armada, Lukoil, Radix, Brothers type vessels or motor-barges no less than 400,000 MT and no more than 700,000 MT of cargo per month in lots of up to 10,000 MT from Volgograd or/and Astrakhan and/or (as a matter of construction using the context provided by clause 1 since there is no rational basis for excluding it) the Nikolaevskiy oil terminal or/and from Black Sea or/and Caspian Sea ports and that as a matter of construction, aided by the context provided by clause 1, such cargoes had to be for discharge either at any storage vessel located in the Kerch Strait or any sea port in the Black Sea and/or the Marmara Sea and/or the Aegean Sea and/or the Mediterranean Sea and/or, in the case of cargoes loaded at the river load ports of Volgograd or/and Astrakhan, at any Caspian Sea ports (which could be accessed from either of those locations via the river or canal system as is apparent from the Map). The effect of this approach is that whilst the contract ostensibly required a minimum quantity of cargo to be provided each month there was no exclusivity requirement since that depends on clause 1 having operative effect as opposed to being a mere recital. For the reasons I have explained I do not consider it was intended by the parties to have or had operative effect.[131]I do not accept however that the effect of this is that (as contended by LSA) the agreement would apply only if LSA should happen to require transportation of a lot of 10,000 MT or less from one of the designated ports. This ignores the express requirement of clause 2.1 that LSA would provide “… throughout each calendar year of the contract period the following minimum quantities Cargo…in lots of up to 10.000 mts dwt tons…”.[132]In the result I conclude that as a matter of construction, the effect of the CoA was that ostensibly it required LSA to provide PSSA with a minimum of 400,000 MT up to a maximum of 700,000 MT of cargo monthly for carriage from specified ports in lots of 10,000 MT but did not require LSA to provide to PSSA all cargoes shipped from those specified ports, in lots of 10,000 MT, up to a limit of at least 700,000 MT of cargo a month.[133]I do not accept that this construction re-writes the contract or fails to give effect to its clear language, but rather it gives effect to the iterative process which Wood v Capita requires to be carried out, in which each suggested interpretation is checked against the provisions of the contract and its commercial consequences. As I explain below, even these conclusions result in commercially startling consequences (to put it no higher at present) and that would be all the more the case if PSSA’s submissions as to the effect of clause 1 were correct. By the same token, LSA’s construction referred to in the previous paragraph is untenable given the express language used by the parties. In the result, the construction I have concluded should be adopted gives effect to what a reasonable person with all the knowledge that was reasonably available to the parties would consider to be the intended effect of the CoA judged at the date when the agreement was entered into, once account is taken of the express language used, the relevant commercial context as set out earlier in this judgment and returned to below and the overlapping but partial inconsistencies between clauses 1 and 2(a) which are explainable if clause 1 is treated as a recital. Factual Analysis Relevant to the Best Interests Defence.[134]Against that background, I now turn to the factual case advanced by LSA as to why, applying the Swiss law principles summarised above, it should be concluded that the CoA is void as being contrary to the best interests of LSA.[135]LSA submits that in truth the CoA is nonsensical if effect is given to the CoA as I have construed it or even more so if effect was to be given to it as PSSA maintains it should be construed. Although I will have to examine the issues in more detail below, in essence this is because(a) LSA was dependent on Lukoil deciding what cargo was to be shipped on its behalf and so was not in a position to commit to supplying the minimum quantities of cargo specified in clause 2.1 of the CoA;(b) it was physically impossible for any cargo to be carried along the Volga Don Canal and at least parts of its associated river systems from Volgograd or/and Astrakhan and/or the Nikolaevskiy oil terminal to either the Black Sea or to or from the Caspian Sea during the period between mid-November and mid-April each year because they were iced over and closed to shipping by the authorities that manage the canal and river system during this period and(c) it was commercially nonsensical for such quantities to be carried in quantities of only up to 10,000 MT on sea passages, because (i) of the exponentially increased costs of such carriage when compared to carriage in larger vessels, something that at all material times was well known and obvious to everyone in the shipping industry including in particular Mr Mansimov and Mr Golovushkin; (ii) the lack of capacity and/or the congestion that would result at discharge ports in particular if cargo was carried in that fashion and (iii) PSSA did not have the volume of ships to carry cargo in such lots on sea voyages and such ships were not readily available for charter. All this leads LSA to submit that applying the Swiss law principles summarised above the CoA was void because it was plainly against LSA’s interest and PSSA entered it knowing that was so and thus entered it in bad faith. It would add that if and to the extent the conflict of interest to which I referred earlier did not of itself justify the CoA being held void, the existence of the conflict was relevant to and supported an assessment that the contract should be held void as contrary to LSA’s best interests judged at the time the CoA was signed applying what is described by the Swiss law experts as the business judgment rule summarised above.[136]It is necessary to start by considering what might be the legitimate commercial purpose of a long term contract such as the CoA. Generally such a contract will be entered into in order either(i) to hedge against market fluctuations in price by fixing a price applicable over the term or different parts of the term of the contract or providing a contractually mandated price adjustment formula; or(ii) to lock in a service provider to provide a contractually mandated level of service over the life of the contract. Where a long term contract is entered into for either of these purposes, the parties accept that over the life of the contract one or other party may benefit but each is willing to accept that consequence because of the price or supply stability the contract secures.[137]In this case the first of these possibilities does not arise because the CoA does not fix the price to be paid by LSA to PSSA for shipping services. Clause 11 provides instead that “… all freight rates are to be agreed between the parties from time to time…” Although the clause refers to “market rates” it is common ground that there was no market rate either for river transport of refined oil products using the Volga Don Canal and its associated river systems in any conventional sense nor for sea shipping using ships of the very small capacity the CoA ostensibly required to be used. There was thus no price locking or agreed price escalation mechanism in the CoA. Assuming it was enforceable at all, the CoA required the parties simply to agree a price from time to time for the carriage of the specified quantities of cargo. As I explain below, the consequence of this is that the CoA was void as a matter of English law other than to the extent that in fact the parties subsequently agreed an applicable price for particular seasons and categories of voyage.[138]What the CoA apparently required was for PSSA to hold available a sufficient tonnage of shipping to carry up to the contractual maximum quantity of cargo each month in lots of up to 10,000 MT. This would make sense only if it could be demonstrated that at the date the contract was entered into LSA could reasonably anticipate having at least 400,000 MT of cargo a month that it required to be carried in lots of up to 10,000 MT and that the conditions that applied on the routes covered by the CoA were such that it was necessary for LSA to lock in a shipper to provide at least that capacity each month. If those were not the market conditions that applied at the date when the CoA was entered into, or were anticipated at the date when the CoA was entered into as likely to occur during at least part of the duration of the CoA, then the CoA starts to look commercially irrational from LSA’s point of view and therefore contrary to its best interests. By definition if this was so then it would be something well known to PSSA at the date when the CoA was entered into.[139]The evidence that is available suggests that there was no requirement for LSA in January 2005 to lock in a shipper to provide at least 400,000 MT of cargo carrying capacity a month for 12 months each year in lots of up to 10,000 MT.[140]The shipping experts are agreed that the length of the lock chamber in the Volga Don Canal was 145m; the width 18m and the depth was approx. 3.65 – 3.7m and that the effect of this was to restrict the physical dimensions of each vessel capable of transiting the canal to 17.2m width resulting in a vessel size limitation of 5,000 MT dwt or for larger a limitation on cargo weights in order to enable sufficient draft to be maintained to permit the canal to be transited. These constraints were also the subject of evidence from Ms Comrie who confirmed that usually, river cargoes would be transported on small barges in small lots that would be discharged into large storage tankers located in the Kerch Strait. Her evidence was that on occasion it was necessary to tranship cargo being carried down the Volga Don Canal because of draught constraints and that there were capacity constraints due to the number of vessels that could be accommodated in the lock system each day. I accept that evidence. I referred to one documented incident of this type at the start of this judgment.[141]A requirement for LSA in January 2005 to lock in a shipper to provide at least 400,000 MT of cargo carrying capacity a month in lots of up to 10,000 MT could arise only in relation to cargoes to be carried through the Volga Don Canal. Aside from the fact that lots of no greater than 5,000 MT could be carried along the canal for the reasons explained above, there was no, and it is not suggested there was any, such requirement in relation to sea crossings.[142]It is conceivable that it might be in the best interests of LSA to enter into a contract of this sort in order to secure access to PSSA’s river fleet during the months that the canal was open. Whilst this is a possible explanation for requiring LSA to provide a minimum cargo for each month including each month when the canal was closed to traffic as a mechanism for paying a premium to PSSA to secure access to its river fleet when the canal was open, I regard that as vanishingly improbable. Firstly, that suggestion was not made by or on behalf of PSSA. Secondly, there was a much more straightforward way for providing for such a premium – that is to say by agreeing that a premium would be payable during the period the canal was closed. Thirdly and in any event there was no need and no need foreseeable in January 2005 for LSA to lock in access to PSSA’s river fleet in order to transport cargo from the riverside ports referred to in the CoA.[143]I explored this last point with Mr Bullock at the end of his cross examination. I considered Mr Bullock to be an honest and straightforward witness. There were limits to what he could say because he only became involved with LSA many years after CoA had been purportedly entered into. However, his is the only evidence available to me on this topic. In relation to a shortage of carriage capacity on the River Volga route in 2005, he told me that he was not aware of any - see T9/146/19-147/1 - whilst noting, tellingly in my judgment, that it would be logical for there to be such a shortage “… if you were committing to a contract of affreightment…”. That was highly significant because it involved an implicit recognition of what is obvious – that since there was no price hedging involved (and no one suggests or could suggest there was) and no actual or anticipated shortage of capacity on the canal routes at 18 January 2005, then there is no commercially rational reason for entering into the CoA in the terms that it was drawn or, put another way, it would not be in LSA’s best interests to enter such an agreement.[144]Mr Bullock added that he was not aware of any such shortage at any stage in the period covered by the CoA - see T9/147/4-6 – and he confirmed that at least while he was involved there were other carriers on River Volga route apart from PSSA – see T9/147/10-14. I regard this evidence as significant. It is inherently improbable that Mr Bullock would not have been told about such a shortage as being the justification for the CoA had that been its actual justification given his seniority with the LSA hierarchy. In any event, there was an alternative to river transport namely rail transport. The availability of this alternative was not in dispute – see T1/39/16-25. In relation to this issue, Ms Comrie’s evidence (which I accept) was that:
“During the winter, Lukoil would invariably move the product by rail or, in respect of crude oil only, by pipeline, to an accessible sea port where it would be discharged and accumulated into large shore tanks so that it could be sold (generally FOB) to Litasco and exported.”
[145]This evidence suggests that not merely were there other shippers operating on the Volga Don Canal route in January 2005 and the contrary was not foreseen as a realistic possibility at the date the CoA was signed but that product could be and was transported by rail for refined products or by pipeline for crude oil for at least 5-6 months of the year without any apparent difficulty.[146]Thus whilst the ostensible effect of the CoA was to lock in a committed supply of small tankers and barges to transport products from Volgograd (principally) via the Volga Don Canal to storage tankers in the Kerch Strait it apparently did so at very significant potential cost to LSA in circumstances where there were other operators with ships using the same route and alternatives to using ships that were in fact used for between 5-6 months of the year. Thus the benefit to LSA of locking in supply has to be weighed against the availability of these other resources and the apparent cost to it of locking in such supply.[147]Some reliance was placed by PSSA on a report obtained on disclosure from LSA dated 27 May 2005. It is not suggested that PSSA had any earlier access to this document or that its contents formed the basis of the negotiations leading to the CoA. To that extent, PSSA’s reliance on it is opportunistic. In any event, the limitations of this document need to be noted. Firstly it was a report prepared apparently for LSA by an external consultant McKinsey & Company. It was for use at a workshop, the aim of which was said to be “… to develop a sense of on [sic] the strategic direction of LITASCO shipping to enable the development of business and organization models…”. Secondly, it was concerned with LSA’s worldwide shipping requirements operating from various regional offices – see the slide at Bundle J/32.1/7. Thirdly, it does not refer at all to the Volga Don Canal or Black Sea when considering fixtures – see the slide at Bundle J/32.1/8. Critically for present purposes, the document was concerned with developing a strategy in order to create value for Lukoil. It was concerned therefore not with the position as it was but with the development of a worldwide shipping strategy for the future.[148]PSSA relies on one option recognised within the report as being to “Lock in capacity to support the Lukoil business”. However that is only one of four options there being considered, it is highly macro in its scope and in any event it is necessary to note that the “Driver of Selection” for this strategy was whether there were “… situations where the market is unable to provide capacity at any cost?”. Thus on the face of the document, it begs entirely the question that arises. The other page on which PSSA relies (J/32.1/73) is concerned with capacity in the Black Sea. It is not at all concerned with locking in capacity on the Volga Don Canal and much less is it concerned with locking in capacity in the form of uneconomic small carriers. The point this part of the report is concerned with is the difficulty identified at J/32.1/69, being the effect of geographical constraints in the Black Sea limiting the availability of higher quality (and by definition high capacity) tanker tonnage. This judgment is not the place to attempt a detailed analysis of this document generally or even the parts relied on by PSSA. It is sufficient to say that the document is irrelevant to the issue that arises namely whether it was necessary for LSA in January 2005 to lock in carrying capacity on the Volga Don Canal route for at least 10 years at what would be enormous cost if the CoA was to take effect in accordance with its terms.[149]Finally, PSSA places some reliance on a memorandum in fact undated but said to be dated 2 March 2005 – that is about 2 months after the CoA was signed. It notes various requirements that Lukoil required to be satisfied by “third-party shipping companies”. The point that PSSA relies on is that the document suggests that in various respects, Palmali vessels may be preferable to other operators on what is described as being the “River-sea” route. There is no evidence that this was the basis of any of the discussions leading to the CoA.[150]In my judgment the first point that emerges from that document is that there were indeed other operators with ships on that route including OAO Volgatanker, which is said to have “… a large number of vessels and offers a lower rate for transportation but it is inferior to PALMALI in terms of fleet operations.” This does not suggest a shortage of river ship capacity at the date when the CoA was entered into. To the contrary, it suggests there were other operators with large fleets seeking lower freight rates.[151]True it is that it was said in the memorandum that Volgatanker was only at the beginning of the vessel vetting process and that many of its vessels were approaching the maximum age acceptable to Lukoil. Importantly however, the memorandum did not suggest that Volgatanker vessels should not be fixed but rather that a letter should be sent by LSA to all “heads of Shipping Companies” which set out certain requirements that had to be fulfilled before vessels could be fixed in the future. How this document came into existence and what if anything Mr Golovushkin (to whom it was apparently addressed) did with it is not known. In my judgment it shows that there was a question mark concerning the suitability of some or perhaps many of the Volgatanker vessels and that it may be necessary or desirable in the future to favour more modern ships including those operated by PSSA on the River trade. It does not however demonstrate an absence of capacity that would justify entering into a 10 year contract that required LSA to provide cargos to PSSA of 400,000 MT each month for 12 months of the year for a minimum of 10 years when for between 5-6 months of the year there was no requirement for such vessels because the Volga Don Canal was closed to shipping.[152]Where does this lead? It sets the context at the date when the CoA was signed in January 2005 for considering the effects of the CoA if it took effect in accordance with its terms. It means those effects must be considered against a background in which: i) there is no evidence of an actual or anticipated shortage of tanker capacity on the Volga Don Canal route in January 2005 or thereafter. To the contrary there is some evidence that there were other operators with capacity to carry cargoes on the Volga Don Canal route although there may have been a question mark as to whether they all complied with (or in the future would comply with) the technical requirements imposed by Lukoil; ii) there was no material change of circumstances concerning capacity in the period after 2005, much less one that could have been or was anticipated in January 2005; iii) there were alternative means (rail and the pipeline) for transporting cargoes that would otherwise be carried by ship and furthermore they were means that were used for between 5 and 6 months of each year exclusively with no explanation as to why they would not have been a feasible alternative for use during the summer months, particularly when there is some evidence that in and after 2015, rail transport in particular was used extensively because of the benefits of paying in Roubles as opposed to US$ following a Rouble devaluation; iv) it is inherently probable that the cost of these alternatives, even if higher than using ships, would be significantly less than the cost of shipping a minimum of 400,000 MT of oil and refined hydrocarbons per month in cargoes of less than 10,000 MT from Black Sea ports during the period when the canal system was closed; and v) whilst there may well have been a requirement for higher quality tonnage in the Black Sea it was not a requirement for such tonnage to be capable of carrying cargoes in lots of 10,000 MT or less. On the contrary it was a requirement for more modern large capacity tonnage for transportation of cargoes across the Black Sea and from the Black Sea to the Mediterranean Sea and beyond. All this means that the effects of the CoA have to be considered against a background where there is no evidence of a need on the part of LSA to enter into a disadvantageous contract to secure long term carrying capacity on the Volga Don Canal route and where it is common ground that the CoA had no price hedging advantages for LSA.[153]This is damaging to PSSA’s case on the issue I am now considering because PSSA accepted at any rate by the start of the trial that “… if you're not required by physical constraints to ship it in small lots and you could ship it in big lots, then it is going to be economically more sensible to ship it in big lots than small lots…”. Its point however was that “… you have to look at the contract and balance the bargain as a whole and it's not appropriate to look at a particular aspect of it and say, well, that can't be right because that will be uneconomic in itself for Litasco. You have to look at what is the whole … a contract is give or take. And it may be in order to secure the benefits that you get under this contract, Litasco are prepared to shoulder some of the burden…” – see T1/36-37 passim.[154]I agree with that approach as a matter of principle as I have acknowledged in what I have said already. Aside from the points I have considered already, there remains one that is fundamental. If LSA entered into the CoA because it wished to secure at all costs the use of PSSA’s ships for use on the River route, then it could have entered into an agreement containing recitals to that effect with an agreed pricing formula embedded within it that included a premium for non-use of reserved tonnage while the river and canal system was closed, with a contractual mechanism for increasing the price each year if required and a minimum quantity to be carried in the 6-7 month open period each year with a penalty mechanism in the event that the minimum was not supplied in each month that the canal was open. Had that been the purpose and if such a purpose could have been justified commercially then the agreement would have been relatively straightforward to draft. That this was not done means that it is highly improbable that was what was intended. Whilst the drafting of the CoA is not satisfactory as I have noted, it is inherently improbable that the lawyers acting for each of the parties to the CoA would not have approached the issue essentially in the manner I have outlined if that was truly the purpose of the exercise.[155]The second reason why this proposition is problematic is the financial burden that it is suggested LSA would be willing to undertake in order to secure the security of carriage that the CoA apparently represented. As I have said the Volga Don Canal was shut usually from mid-November until the following mid-April: a period of 5 months. However on some occasions the canal did not and does not shut until early December. Taking an average closed season of 4.5 months, that would result in an obligation on LSA to pay PSSA to carry 1.8m MT of cargo. The freight rates that applied from March 2004 from any of the river ports to Kerch was US$30 per MT and to Novorossiysk was US$29 per MT. It appears to follow that the monetary value of the 4.5 month closed season would be circa US$52m or about US$11.6m per month. In addition, the cost of transporting by pipeline or rail during the closed season would have to be met as well. It is inherently improbable that any company negotiating at arm’s length would have agreed to a contract that exposed to it paying US$11.6m per month for services that in reality it could never take advantage of, particularly when there were alternatives available as set out earlier.[156]It is scarcely less likely that a party in such a position would agree to supply sea cargoes of 400,000 MT per month for 4.5 months in lots of no more than 10,000 MT, when such cargoes would otherwise be carried in lots of up 80,000 MT or more and when as Mr Eaton correctly accepted when opening PSSA’s case, “it is plain as a matter of economics of scale that is cheaper, per tonne, to carry cargo in a big ship than a small ship” – see T1/34/8-12. Given that this proposition is not controversial it is perhaps not necessary to say much more about it. However an example has been extracted from the available data at paragraph 421 of Mr Lord’s closing submissions. I need not set it out in length. The short point is that for a shipment across the Black Sea from Novorossiysk to Constanza for a cargo of just short of 80,000 MT of crude oil, the freight rate was US$7.78/MT. Under the freight rates agreed between LSA and PSSA for shipments of up to 10,000 MT on the same route the rate would have been US$17/MT – a difference of US$9.22/MT. It follows that the cost to LSA of shipping under the CoA would have been about US$737,600 more for that single cargo 80,000 x (US$17 - US$7.78) = 80,000 x US$9.22 = US$737,600 . 1.8m MT carried at this differential would result in an additional cost to LSA during the 4.5 month close season of over US$16.5m 1.8m MT x (US$17 – US$7.78) = 1.8m MT x US$9.22 = US$ 16.596m .[157]The commercial absurdity of this sort of outcome is why, when asked whether there was any commercially coherent reason why anyone in LSA’s position would agree such an outcome, Captain Raman (PSSA’s maritime expert) answered “… (c)ommercially, I agree, it does not -- it would be very expensive, or it could have been very expensive for Litasco to do this…” and why Mr Stein accepted that the arrangement would be “…chronically loss making…”.[158]The point about all this, as I have explained already is not that such losses could never be agreed by any commercial entity acting rationally but that it would do so only if there was what Mr Lord characterised as an “extraordinarily powerful” economic or commercial reason for so doing. As explained at length above, there was no such reason. It is nonsensical to suppose that an experienced ship owner and charterer such as Mr Mansimov would not have known that this was so. To those in the liquid hydrocarbon industry this would be both plain and obvious. As Captain Raman (PSSA’s marine expert) put in in the course of an answer in cross examination at T12/102, “… It should have been obvious to anybody reading that CoA that shipping crude oil in 10,000-tonne lots is not going to be commercially viable...”[159]The financial implications I have so far referred to are exacerbated by the source of LSA’s liquid hydrocarbons. It is common ground that LSA is a wholly owned subsidiary of Lukoil and is wholly dependent for what product it receives on the commercial judgment and requirements of Lukoil. As Ms Comrie put it in her evidence:
“As I mentioned above, Litasco is the exclusive international marketing and trading arm of Lukoil. This means that the volume of clean or heavy products that Litasco receives in the area depends, almost entirely, on the volume Lukoil decides to export (with the exception of a few isolated third-party purchases made by Litasco to be loaded at the port of Astrakhan at the time; these additional quantities were placed in the floating storage in order to upgrade the quantity of cargo produced by Lukoil and provided to Litasco ). Litasco receives clean or heavy products from Lukoil that are destined to be exported; Litasco does not produce any Petroleum Products itself. Lukoil will either sell the clean or heavy products on the domestic market on its own account, or sell them to Litasco so that they can be exported and sold internationally. When Lukoil decides to export and sell to Litasco, it will move the refined product from the refinery where it was refined, to a nearby river or sea port where it will be sold to Litasco on an Incoterms FOB basis. 8. The commercial objective for Lukoil, therefore, is to move its product from the refinery to a nearby port to be exported as cargo. The commercial objective for Litasco is to move the product from that port and sell it to a third party.”
LSA was, as Mr Bullock put it in paragraph 9 of his statement, “… the international trading department of Lukoil…”. In consequence it was Lukoil that decided “ … how much of the Lukoil production we sold domestically and how much would be allocated to Litasco for international sales…” – see T8/135/2-5 – LSA had little say on the issue – see T8/135/7-8 – and could not change the volumes – see T8/135/10-11. In consequence, it was Lukoil that decided “… what proportion of the production from the Volgograd refinery in particular would be exported…” – see T8/135/15-17 – and it was Lukoil’s decision as to “…what proportion of the Volgograd production was to be exported [that] would in turn determine what volume would be handed to PSSA to transport down the Volga-Don canal …” – see T8/135/22-136/2. Lukoil decided these issues from month to month and it was Lukoil that provided the lifting schedules – see T8/136/6-15. Although Mr Bullock became CEO of LSA many years after the CoA was entered into, it is not suggested that these practices changed at any stage between January 2005 and Mr Bullock’s appointment.[160]It follows therefore that in entering into the CoA, Mr Golovushkin committed LSA to provide a minimum of 400,000 MT of cargo each and every month at a time when to his knowledge what was made available to LSA was entirely dependent on what Lukoil was willing to release to it. It is not in dispute that PSSA (by Mr Mansimov) knew full well that LSA was Lukoil’s trading arm and thus that the volumes of cargo released were entirely within its control since the refineries located on the banks of the Rivers Don and Volga were controlled by Lukoil and it was Lukoil that provided the lifting schedules to PSSA. It is manifest that it would be contrary to LSA’s best interest to agree to provide a minimum of 400,000 MT of cargo each month of each year for an initial period of 10 years when (to the knowledge of PSSA and Mr Mansimov) it could not be sure from month to month what it would be required to purchase from Lukoil or from which refinery the product was to be delivered to it. It is as commercially nonsensical and contrary to LSA’s best interests as it was to have to have committed to an agreement that would have required it to transport most of Lukoil’s crude oil production from Novorossiysk (where the pipelines from Lukoil’s refineries to the North and East of the Black Sea terminated) to Bourgas (Lukoil’s main oil refinery on the Black Sea) in lots of up to 10,000 MT when the most economical way of doing as was well understood by PSSA was in lots of about 80,000 MT in large tankers. PSSA and Mr Mansimov knew that to be so. PSSA was a major shipping operator and so can be taken to be well aware of the economics.[161]Whilst I accept of course that LSA may have been willing to take the risk of cargo not being released to it in sufficient volume, if there was a commercially powerful reason for wanting to secure carrying capacity from PSSA, in the absence of such a consideration, it is difficult to see how anyone with the knowledge of the facts and matter to which I have referred above could think that such a commitment was in the best interests of LSA in the absence of such a reason, particularly given my conclusions as to the availability of alternative methods of transport and the financial implications for LSA of such an agreement.[162]There are other operational reasons why the CoA is obviously contrary to LSA’s best interests. Given the conclusions I have reached already I hope to be able to take these points rather more quickly. In considering the effect of these points, it is important to remember that these issues are not viewed in isolation. They should be viewed holistically with the facts and matters I have considered so far. The point I have made already concerning the hypothetical willingness of a commercial entity to enter into an apparently disadvantageous contract in order to gain a very powerful commercial benefit does not apply in the same way to the points I am about to consider because at least in part they depend on the willingness of unconnected third parties to facilitate what on the face of it would be very expensive and inconvenient arrangements that would or might expose the third parties to significant risks including claims from others.[163]These issues were explored with the maritime experts in some detail. This part of the evidence depends on a conclusion that during the 4-5 month close season all of the minimum tonnage of cargo was to be supplied by LSA in relation to Black Sea voyages and similarly in respect of any shortfall on river tonnage during the 7-8 month open season. It follows that a minimum of 400,000 MT of cargo was to be carried each month for a total period of between 4 and 5 months in lots of up to 10,000 tons on voyages across the Black Sea.[164]It is common ground that the principal load port in the Black Sea for LSA cargoes is and was Novorossiysk and the principal discharge port was and is Bourgas, where Lukoil has a major refinery. Bourgas is a fully functioning commercial port which accepts ships other than those chartered by LSA. Novorossiysk has two berths apparently able to accommodate ships of the size that could accommodate a cargo of up to 10,000 MT. Neither is equipped to enable crude oil to be loaded at those berths. It is not suggested that there has been any material change between January 2005 and the end of the CoA – see Captain Raman’s evidence at T12/78/20 – 79/2.[165]Captain Raman’s evidence (given on behalf of PSSA) was that this could be worked round. Captain Raman was at sea for a period of 19 years. In that time almost all his service was on tankers, although the smallest he served on was one of 16,000 MT dead weight. After ending his sea service, Captain Raman worked in various marine service roles including as a commercial and operations manager from 2005 to 2013. In that capacity he was responsible for fixing 2-3 charters for voyages from Novorossiysk, none of which were for cargoes of crude oil. Each was for ships of the Aframax class – that is vessels of 110,000 MT dead weight capable of carrying cargoes of between 70-80,000 MT. Notwithstanding his limited experience of ship manangement of vessels in the Black Sea trade and of vessels of the small size this part of this case is concerned with, I conclude that Captain Raman is qualified by experience to give evidence on the issues I am now considering.[166]Captain Raman accepted when cross examined that there was no sense in splitting trans Black Sea cargoes into lots of up to 10,000 MT:
“Q. …you would agree, wouldn't you, that it would not be commercially sensible to voluntarily ship a 100,000-tonne cargo in ten separate 10,000-tonne lots voluntarily? Is that a fair summary of your view? A. Well, it wouldn't make sense to split, say, 80,000-tonne cargo in to eight different parcels, but for - I wouldn't like to second-guess Litasco's intentions in the charterparty.”
He added a little later in his evidence that absent a port restriction (and there were none suggested) “… it would definitely make more commercial sense to ship it in a larger parcel…” . He accepted too what I have already found namely that a consignee would pay a much higher price per metric tonne to ship the same amount of oil in multiple smaller ships in comparison with one large ship – see T12/80/16-22. He also accepted that the consequence of using multiple smaller ships to carry a cargo that could otherwise be carried in a single larger ship would be multiple port and docking costs that would otherwise not be incurred – see T12/81/18-82/11. It follows that his evidence concerning work rounds has to be read in the context of that concession – that is that the work rounds that Captain Raman suggests are to achieve a result that he considers would not make any sense. It is no doubt for that reason (as Captain Raman accepted) that of the 60 million-plus tonnes of cargo shipped by LSA in the Black Sea during the relevant period, all but 80,000 tonnes of that was shipped in lots of larger than 10,000 MT. The average shipment by LSA from Novorossiysk was 63,000 MT – see T12/98/16-17 – and none was shipped in ships smaller than 80,000 tons dead weight – see T12/99/23-100/1.[167]Returning to the manner in which cargo was transported between Novorossiysk and Bourgas in actuality, what happened was that crude oil was uplifted into large capacity tankers at Novorossiysk, transported to Bourgas where it was refined by Lukoil and then distributed from Bourgas to various ports round the Mediterranean Sea and beyond.[168]In fact an 80,000 ton delivery from Novorossiysk to Bourgas would be carried by a single ship as I have explained. If this cargo should have been offered to PSSA under CoA that would have involved either at least 8 ships each loading, carrying and then discharging 10,000 MT cargoes or 1-2 ships loading carrying and then discharging 10,000 MT cargoes 4-8 times each month. Captain Raman concluded in his supplemental report that the first of these options would result in port congestion at both the load and discharge ports and that the second alternative was the more realistic of the two. He maintained this in his oral evidence – see T12/ 111/20. He considered that a round trip for a vessel carrying a 10,000 MT load from Novorossiysk to Bourgas would be 1-2 days to load, 2 days on passage, 1-2 days to unload and then 2 days to return in ballast to Novorossiysk – see T12/123/14-126/5. I consider 1 day to unload and 1 day to load to be unrealistic given Mr Stein’s evidence on these issues and that it is improbable that a vessel would on each occasion arrive, give NOR and then be able immediately to dock, discharge and leave without delays caused by the need for inspections, document checks, the need to carry out maintenance or repair to the vessels or her systems, take on fuel and port congestions of one sort and another. Even ignoring these sources of friction, Captain Raman accepted, implicitly at least, that this method of working would involve LSA re-scheduling significantly its deliveries to (by way of example) Bourgas and that for a hypothetical 80,000 MT cargo that would involve shipping the cargo over up to 8 weeks in one or perhaps two ships – see T112/12-17 – as opposed to the week it would take for a single ship to load 80,000 tons of cargo, cross the Black Sea from Novorossiysk to Bourgas and discharge at Bourgas.[169]As is obvious, aside from the cost implications already considered, the two would be entirely different commercial ventures, which, at least potentially, would affect Lukoil’s refining operations because it would be a completely different delivery programme with it receiving 80,000 MT of crude oil for refining over an 8 week period as opposed to 80,000 MT on a fixed date. Captain Raman accepted that to be so – see T12/113/19. In those circumstances it does not perhaps matter greatly whether it is likely a round trip could be completed in 6 days as opposed to 8. When it was suggested that this was unlikely to be acceptable to Lukoil or third party customers, Captain Raman’s only answer, given on a number of occasions over a number of different questions was in essence that LSA should have arranged its deliveries in accordance with the CoA. The franker answer is that in the “just in time” manufacturing world, it is highly unlikely that receiving an 80,000 MT cargo in the manner that would be required if effect had been given to the CoA would be acceptable to the cargo’s receiver or could have been thought likely to be acceptable to such a receiver on the date when the CoA was signed.[170]Turning to the technical port operations aspects, the point made by LSA is that of the 8 berths available for tanker loading at Novorossiysk, only two are capable of handling tankers of the small size contemplated by the CoA and of those, one is not connected to the relevant shorelines at all and the other is not equipped for loading crude oil which by some margin was the major cargo carried by or on behalf of LSA from Novorossiysk to Bourgas.[171]Captain Raman maintained that this could be worked round by re-configuration of at least the loading arms of the berth with a landline connection although he accepted that without such re-configuration, none of the loading arms could handle crude oil – see T12/148/7-12. However, as he accepted, where a delivery line is used to load dirty (i.e. un-refined) cargo such as crude oil, it would have to be cleaned before it could be used to load clean (i.e. refined) cargo such as petrol or gas oil – see T12/137/8-12. Whilst that might not affect loading notionally a tanker capable of carrying no more than 10,000 MT of crude oil, it would have obvious implications for the port operation authorities at Novorossiysk, who would have to arrange for the pipes to be cleaned before the berth could be used once again for its default purpose. This is likely to be obviously unsustainable if the task involved loading one or perhaps two vessels over a day each 8 days or so since it would be necessary to clean the delivery pipes multiple times each month unless the berth was to be treated as unusable for the purpose for which it had been configured at any rate during the 4 – 5 month period when the canal and river system was closed. That is unlikely to be anything other than costly and time consuming and in reality a port authority would do everything it could to avoid changing from dirty to clean cargoes – just as ship owners do – see Captain Raman’s evidence at T13/7217-19.[172]Thus while I accept that in theory at least it may be possible to use a loading arm that is nominally dedicated to the loading of gas oil for the purpose of loading crude, that is not something that could be undertaken without cost or delay due to non-availability of the berth while the cleaning process is undertaken and is something that in my judgment any port authority would strive to avoid. There is no evidence that was in any sense feasible or would be acceptable to the port authorities at Novorossiysk. There is no evidence that this was ever even investigated prior to the signature of the CoA in January 2005. To be clear, the port of Novorossiysk is not owned or operated by Lukoil or LSA but is owned and operated by other Russian registered trading entities and/or the Russian Federation. I consider it is inherently highly improbable the port authorities would agree to a method of working of this sort other than perhaps at the sole cost to LSA. Whilst it might be possible to avoid this problem by dedicating this berth exclusively to loading 10,000 ton tankers, that would imply the use of a number of ships loading on a continuous basis. That is not what Captain Raman considers practical. It is inherently commercially absurd to suppose that the port authorities would simply let that berth stand idle other than when using used notionally to load two 10,000 ton cargoes every 7-8 days. I conclude this part of the judgment by re-iterating a point made many times already – none of this would have been anything other than blindingly obvious to both Mr Golovushkin and Mr Mansimov when they signed the CoA.[173]I reject the evidence of Captain Raman that another berth (Berth 7) at Novorossiysk could be used for such ships. On the documentary material available that berth was only capable of being used for ships of greater than 15,000MT dead weight. Captain Raman was not in a position credibly to suggest that material was wrong, particularly since at a practical level he has not loaded crude oil at the port or surveyed the berth. Indeed it was not mentioned in his written material. His responses in cross examination on this point – see T112/151/22-154/4 - were unpersuasive and damaged the credibility of his remaining evidence. His attempt to suggest that there were other berths that could be used other than those considered in his report located AT Sheskharis Oil Harbour at Novorossiysk was even more unsatisfactory. Having suggested that possibility, when pressed in cross examination he withdrew the point – see T12/154/11-155/12.[174]In relation to Berth 8 (which according to the published data in evidence was too small for a ship of the size necessary to carry up to 10,000 MT of crude oil), Captain Raman first asserted that a larger ship could dock there. I reject that evidence as contrary to the published material. When faced with this point in cross examination, Captain Raman sought to suggest the answer would be for PSSA to charter ships to provide this service that could be accommodated in this berth. There is no evidence that any such ships exist or in any event were available for charter at any material time – see T12/166/1-6. Captain Raman’s evidence concerning chartering therefore is evidence I must also reject.[175]Captain Raman accepted that on the material available every single oil shipment in fact made from Novorossiysk was in lots of 80,000 MT or more and none as small as 10,000 MT. That demonstrates the commercial absurdity of the proposition and in any event inferential support for the proposition that technically it was so impractical as to be all but impossible. Captain Raman’s answer to this was ultimately that: “You're right in saying that this terminal has not been used for shipping small parcels of fuel oil and crude oil, but that is not the point that I'm asked to address. My point is simply that it can be done from this port. For the reasons I have considered so far, whilst I accept the first of these points, I reject the second.[176]It is not necessary that I consider Bourgas in any detail because the capacity of that port to handle multiple ships carrying sub 10,000 MT cargoes depends to an extent on whether all of the cargo in any month has to be shipped on PSSA ships (because of the exclusivity obligation and because in most months the total crude oil being shipped to Bourgas was less than 700,000 MT) or only the minimum quantity of 400,000 MT. However the point that Captain Raman accepted was that if significant quantities of crude oil were being shipped to Bourgas in vessels carrying sub 10,000 MT cargoes then “… that could leave very little space for the export of fuel oil from Bourgas in the [PSSA] fleet again…”. He accepted that even if only the minimum quantity requirement applied (as I have concluded was the case) and even if 300,000 MT of cargo carrying could be provided by carrying products other than crude oil to Bourgas, there would still be a problem because at least 100,000 MT of crude oil would have to be carried in lots of 10,000 MT or less each month, most of which would have to come from Novorossiysk (assuming it could be loaded there) and be delivered to Bourgas. That would still result in congestion at the docks in Bourgas because “Yes, there would be a point at which all the berths would be occupied and it would be difficult to achieve throughput…” as to which it was put to him that it would become impossible rather than difficult, to which he responded “(a)t one point it would become impossible, yes.” Ultimately, Captain Raman was driven to accept as follows: “Q. Right. Can I ask you, in that case, it must follow, mustn't it, that I think what you're saying is the only way this contract could be performed is not just if Litasco restructured its principal crude oil carrying trade from Novorossiysk to Bourgas, but it restructured all of its exports to fit the requirement to ship oil in the minimum cargo obligation or the exclusivity obligation in 10,000-tonne increments? What you're saying is that's what it should have done, but I think that is the implication of your position; is that right? A. Yes, that is correct. … Q. …They had to reprogramme every single major port to ship parcels in order to distribute the 10,000 tonnes in different types of oil to different ports? A. Yes. Q. To make it physically possible? A. Correct, and that's exactly what my testimony is about. I'm not saying it would have made commercial sense for Litasco. I'm just saying it is possible to do. Q. Your position is this five pages required Litasco to restructure its business from the ground up in order to make this contract performable? A. That's what they signed up for.

Q. To make it physically possible?

[177]Much time was taken up at trial with exploring the degree to which if at all complying with the terms of the CoA was not merely contrary to LSA’s best interest but would be ruinous to PSSA given the nature of its owned fleet and the need therefore to charter in tonnage in order to comply notionally with its obligation to carry a minimum of 400,000 MT of cargo a month on sea passages either across the Black Sea or from Black Sea ports to Mediterranean Sea ports and beyond. I have not considered that issue at this stage because whether the contract would be ruinous for PSSA to comply with is an issue which if relevant at all is relevant to an English law issue as to whether the parties intended the contract to be binding as a matter of English law. That is an issue which I consider below to the extent that it is necessary to do so. It is not however material to the Swiss law Best Interest defence I am currently considering.[178]Taking a step back from the detail, and reminding myself that each of the factors I have considered has to be considered together with all the others, in my judgment the requirements of the Best Interest defence are plainly made out. No one seriously suggests that the contract would be anything other than commercially ruinous for LSA if it had been given effect to in accordance with its terms and that is so even though I have concluded that as a matter of construction the CoA only purported to impose an obligation to offer a minimum quantity of cargo of 400,000 MT to PSSA not an exclusive obligation to offer up to 700,000 MT of cargo each month. That of itself would not be sufficient to satisfy the requirements of the defence if there was some identifiable commercial benefit that objectively was capable of benefitting LSA. I am satisfied that any such benefit would have to be very substantial given the negative aspects of what ostensibly had been agreed. Whilst the effect of the CoA was to guarantee security of service supply from PSSA to LSA in respect of the river and canal trade it did so at what on any view would be enormous cost, either by exposing LSA to paying very substantial sums each year calculated by reference to an obligation to deliver a minimum of 400,000 MT of cargo each month for the 4-5 month period when the Volga Don Canal and its associated river systems were closed to navigation or any other month when there as a shortfall – something LSA had no, and only Lukoil had, control over – or provide cargo for sea transport in lots of 10,000 tons or less when it was obviously absurd from a commercial perspective to carry oil or any other hydrocarbon in such small lots because of the substantially higher freight cost, the associated port costs and because at best attempting to perform the obligations on that basis was highly impractical or close to impossible and would require the support of third parties such a port owners and operators when what would have to happen would be against their commercial interests and would generate yet further substantial cost.[179]All this was close to obvious to both Mr Golovushkin and Mr Mansimov when they signed the CoA. In my judgment these conclusions derive further support from my conclusion that at the time when he committed LSA to the CoA Mr Golovushkin had a conflict of interest as described in detail earlier in this judgment. If and to the extent I was wrong to conclude the conflict was so serious as to justify the CoA being held void applying Swiss law, it was nonetheless a conflict that prevents the CoA being saved from voidness when applying the Best Interests tests by the business judgment rule. The existence of the conflict in most cases will preclude the counter party from upholding the judgment on the basis that the party entered into the agreement concerned using business judgment. In any event, in this case at least PSSA’s actual knowledge of the factors that rendered the CoA contrary to LSA’s best interests means that as a matter of Swiss law it cannot claim to be acting in good faith in entering into the CoA on the terms it contained.[180]In light of these conclusions the remaining issues are ones that strictly it is not necessary for me to resolve. In those circumstances, I set out my conclusions in relation to them as concisely as is possible in the circumstances. The English Law Defences The Contractual Intention Defence.

The English Law Defences

[181]The Legal Principles LSA’s central thesis is that the CoA was commercially absurd from LSA’s perspective for the reasons already identified, was in addition commercially absurd from PSSA’s perspective and was practically unworkable for at least the reasons already identified and that factor, in combination with the parties not conducting themselves by reference to the terms of the CoA from the moment it was apparently entered into all lead to the conclusion that the parties never intended the CoA to be binding between them. In truth, LSA maintains, the commercial relationship between the parties was governed by(a) the Annual River Agreements, which were executed both before and after the purported CoA was signed and which were concerned exclusively with the transport of oil by tanker from the river ports to the Black Sea during the season each year when the Volga Don Canal was open to navigation and(b) by various charterparties under which PSSA (or associated companies) carried LSA’s cargoes by sea from Black Sea ports. On this basis LSA contend that as a matter of English law the CoA was never intended to be a binding agreement. Alternatively, LSA maintain that the CoA is a sham in the sense identified by Diplock LJ as he then was in Snook v London and West Riding Investments Ltd [1967] 2 Q.B. 786.[182]The legal basis on which the first of these submissions is based is fragile and tends to be expressed in abstract terms in cases with facts that are very different to the facts of this case. In essence, LSA submits that to create a contract, “… there must be a common intention of the parties to enter into legal obligations, mutually communicated expressly or impliedly." – see Rose and Frank Co. v. R. Crompton and Brothers Ltd [1923] 2 KB 261 per Atkin LJ at p. 293. An intention that the parties’ agreement was not intended to be legally enforceable “… may be implied from the subject matter of the agreement… - see Rose and Frank Co. v. R. Crompton and Brothers Ltd (ibid) per Scrutton LJ at 288 but for obvious reasons (some of which I have set out earlier when considering the effect in Swiss law of the Best Interests defence) at least where the apparent subject matter of the agreement is a business relationship, “… the onus is on the party who asserts that no legal effect was intended, and the onus is a heavy one…" – see Edwards v. Skyways Ltd [1964] 1 W.L.R. 349 per Megaw J at 355.[183]LSA rely on the decision of the House of Lords in Esso Petroleum Co. Ltd. v Customs and Excise Commissioners [1976] 1 WLR 1. Some caution is required in relation to that case. Firstly, the facts were very different from the commercial relationship that was apparently intended to be governed by the CoA, secondly only two of the law lords determining the appeal (Lords Dilhorne and Russell) resolved the appeal on the basis there was no contractual intention and one of them (Lord Dilhorne) expressly stated that he did “… not wish in any way to criticise or qualify…” the comments in the earlier cases referred to above and in particular therefore those of Megaw J in Edwards v. Skyways Ltd (ibid). Lord Russell did not refer to any of the relevant case law referred to by Lord Dilhorne. Two of the panel expressly did not adopt that course – see the opinion of Lord Simon at 5F-G, with whom Lord Wilberforce agreed at 3A-B. Lord Simon expressly (albeit necessarily obiter) recorded his agreement with Megaw J’s comments in Edwards v. Skyways Ltd (ibid) referred to above. Lord Fraser dissented in the result. In my judgment this authority adds nothing material to the earlier case law beyond Lord Dilhorne’s endorsement of Megaw J’s analysis in Edwards v. Skyways Ltd (ibid).[184]In deciding whether LSA has discharged the heavy burden of establishing that it was not intended that the CoA should have any legal effect, LSA maintain that a court must resolve the question by assessing it objectively. In principle I agree with this analysis as orthodox – see RTS Flexible Systems Ltd v Molkerei Alois Muller GmbH and Co KG [2010] UKSC 14; [2010] 1 WLR 753 per Lord Clarke at [45], where he held that the answer will not depend on the parties’ subjective state of mind (that is an uncommunicated but genuinely held reservation) but:
“ … upon a consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded or the law requires as essential for the formation of legally binding relations.”
To that I would only respectfully adopt the qualification that Leggatt J as he then was identified in Blue v Ashley [2017] EWHC 1928 (Comm) at [63] that in carrying out this analysis “… the touchstone is how the words used, in their context, would be understood by a reasonable person. For this purpose the context includes all relevant matters of background fact known to both parties.” LSA goes further however and says that the assessment is one that should be conducted “… through the lens of commercial sense…” and that a “… reasonable business person may be unlikely to have intended to be bound where the purported terms of the agreement are contrary to commercial sense…” Some caution is required here. As I have said subjective intention is not what this enquiry is concerned with. I accept however that in appropriate circumstances, a lack of commercial sense may support the inference that neither party intended the agreement to have legal effect. However the circumstances in which such an inference can safely be drawn are likely to be narrow. LSA also submits and I agree that where an agreement provides for an essential or fundamental element of the bargain to be agreed then not merely does that mean that the contract is void for uncertainty but also and relevantly for present purposes that may support an inference that the parties did not intend the supposed agreement to have legal effect - see the quotation from Lord Clarke’s opinion in RTS Flexible Systems Ltd v Molkerei Alois Muller GmbH and Co KG (ibid) set out above. By the same token however, if a transaction has been performed, that may militate against a conclusion that the agreement was not intended to be binding just as it may undermine a suggestion that the agreement is void for uncertainty – see paragraph 50 of Lord Clarke’s opinion in RTS Flexible Systems Ltd v Molkerei Alois Muller GmbH and Co KG (ibid) where he summarised with apparent approval a statement to this effect by Steyn LJ in G Percy Trentham Ltd v Archital Luxfer Ltd [1993] 1 Lloyds Rep 25 at 26.[185]Finally, in assessing whether the parties intended to be legally bound by the agreement in question, a court is fully entitled to consider the subsequent conduct of the parties because the rule about subsequent conduct being disregarded applies only to questions concerning the true construction of a contract not whether it exists or what its terms are – see GNER v Avon Insurance Plc [2001] EWCA Civ 780; [2001] 2 Lloyds Reports 649 (CA) per Longmore LJ at [29] and Lark v Outhwaite[1991] 2 Lloyd’s Rep 132 where when considering an issue as to whether the parties had intended to create legal relations, it was held that subsequent conduct could and should be considered when deciding that issue – see page 141 RHC.[186]Factual Analysis I have already considered at length the evidence concerning the commerciality of what was apparently agreed from the standpoint of LSA and need nor repeat that material or my conclusions in relation to it. I have also considered the operational impracticability of what had apparently been agreed. I have also explained why it is that both the uncommerciality and impracticality were well known to both Mr Golovushkin and Mr Mansimov at the date when they signed the CoA. These are factors which in my judgment point fairly strongly towards the true intention of both these individuals (in each case on behalf of the companies they respectively apparently represented) not intending the CoA to be binding legally. In my judgment that is supported by three further issues considered below.[187]The first concerns payment. The payment provision within the CoA is relied on by LSA for two distinct purposes. Firstly it relies on the terms of the clause as being a true agreement to agree, which it is submitted is consistent with it not being intended by the parties that the CoA would be binding and secondly on the basis that, independently of the contention I am now considering, the terms in which clause 11 is expressed mean that the CoA is an unenforceable agreement to agree. Although these points are logically distinct, it is convenient that I consider them together.[188]Clause 11 of the CoA LSA’s focus for the purpose of this submission is on clause 11 of the CoA, which provides that:
“11. SPECIAL FREIGHT RATES’ CLAUSE 11.1. It is mutually concluded between the parties that during the whole period of the present Contract all freight rates are to be agreed between the parties from time to time and subject to an increase or decrease of 5-10% in comparison to the market rates.”
LSA submits this is no more than an agreement to agree because, as is common ground, there are no “Market rates” in any conventional sense for the shipments that formed the subject matter of the CoA including in particular voyages from the river refineries to the Black Sea. In this regard, LSA relies on the oral evidence of Mr Stein, PSSA’s shipping expert, given in the course of his cross examination. In relation to the river trade, Mr Stein’s evidence was there was no objective standard by which a market price could be ascertained other than what the parties themselves agreed from time to time – see T13/81/24-82/21. In relation to the sea routes, by definition there was no market rate because of the commercial absurdity that surrounds the carriage of liquid hydrocarbon cargoes across the Black Sea in lots of no more than 10,000 MT. As Mr Stein said in the course of his cross examination on this issue, “… We're saying there is no market rate. We're saying we are deriving a market rate but that's not the same as saying there is a market rate.” – see T13/135/19-21. As he added:
“Q. Okay. So if a party said, "I agree to transport 10,000 tonnes of oil, Novorossiysk to Bourgas, at the market rate", that by itself is a meaningless statement? You would need to know more -- you would need to have some additional – A. I don't think that statement market rate that we talk about World Scale Rate on something like that. Not on small vessel; they would talk about a fixed price contract or some other mechanism, but I don't think they use the term "market rate". If they did I'm wrong, but -- Q. Well, but if they did use the market rate, you would be puzzled by that? A. I would be puzzled by that term, yes. Q. If someone came to you and said, "Mr Stein, what is the market rate for that voyage?", you would say, "You have asked the wrong question"? A. We spent years trying to figure out what the market rate is for these 10,000 tonne vessels and we're still not that much wiser for it.”
This is something that I consider both parties would have known to be so at the date when the CoA was entered into for the reasons explained on a number of occasions earlier. In essence however, Mr Golovushkin was the CEO of LSA at the time the CoA was signed by him and thus can be taken to have been intimately familiar with the issues I am now considering and Mr Mansimov was the UBO of the Palmali Group and an experienced ship owner of many years’ standing, with a particular familiarity with the river trade and the transportation of liquid hydrocarbon cargos across and from the Black Sea. On this basis LSA argues that there was no objectively identifiable start point for the purpose of agreeing a price. The other point relied on by LSA is that it is entirely uncertain how effect was to be given to the words “… subject to an increase or decrease of 5-10%...” both because there was no market price from which to start and because, even if that was wrong, there is no identified mechanism for calculating where within the range of minus 10% to plus 10% from the (non-existent market rate) the price was to be fixed other than by agreement and is thus an agreement to agree within a range with no mechanism for resolving, in the event of disagreement, where within the range the price should be fixed.[189]PSSA submits that these arguments should be rejected. It submits that the argument is one of last resort, with caution being required (particularly where the parties have acted on the agreement) since otherwise contracts intended to have legal effect at the time they are entered into would be deprived of contractual force subsequently and usually at the time when the party seeking such an order no longer considers what had been agreed to be in its commercial best interests. PSSA also submit that this point is of limited assistance to LSA given that, in years when the parties did agree Additional Agreements the necessary freight rate was agreed so as to complete the CoA.[190]The general principle on which LSA relies is that identified by the House of Lords in May v Butcher Ltd v. The King [1924] 2 KB 17. As is well known that case concerned a contract for the sale of war surplus tents at a price that “… shall be agreed upon from time to time…” between the purchaser and the seller. All courts up to and including the House of Lords concluded that there was no binding contract entered in to by the parties. This was so because “… it is not open to [parties] to agree that they will in the future agree upon a matter which is vital to the arrangement between them and has not yet been determined…” – see Lord Buckmaster C at page 20. As Lord Dunedin stated:
“As a matter of the general law of contract all the essentials have to be settled. What are the essentials may vary according to the particular contract under consideration. We are here dealing with sale, and undoubtedly price is one of the essentials of sale, and if it is left still to be agreed between the parties, then there is no contract.” and Lord Warrington added: “The decision of this case depends upon the application of a well-known and elementary principle of the law of contract, which is that, unless the essential terms of the contract are agreed upon, there is no binding and enforceable obligation. In the present case we have a document that purports to be an agreement for the sale by one party to the other party of certain specified goods at a price to be hereafter agreed between them. If that price is thereafter agreed there is a binding contract within the principle to which I have alluded; each of the essential terms has been agreed. If the parties fail to arrive at an agreement, then the price has not been ascertained in the way in which the parties stipulated that it should be ascertained, and there is therefore no binding agreement.”
In reaching that conclusion the Law Lords distinguished between an agreement expressly to agree a price in the future (which was not enforceable in the absence of subsequent actual agreement) and one where the contract was silent as to price, when a term can be implied to the effect that it was agreed that the purchaser would pay and the seller would accept a reasonable price for the goods sold. As Lord Warrington said, in the former case to imply such a term “… would not be to imply something about which the parties have been silent; it would be to insert in the contract a stipulation contrary to that for which they have bargained … to do that would be to contradict the express terms of the document which they have signed.” The principle that a term is not to be implied if to do so would contradict the express terms of a written agreement has received recent emphasis at the highest level – see Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72; [2016] AC 742, at paras 14-32 (Lord Neuberger PSC); Ali v Petroleum Co of Trinidad and Tobago [2017] ICR 531 and (most recently) Tesco Stores Ltd v USDAW [2024] UKSC 28; [2025] ICR 107, at para 35.[191]The distinction between an agreement expressly to agree a price in the future and one where the contract was silent as to price has been one that has been adopted since May v Butcher Ltd v. The King (ibid) was decided. This has led to some very fine distinctions which reflect no credit on the law. PSSA places some reliance on Foley v Classique Coaches [1934] 2 KB 1, a decision of the Court of Appeal arrived at after May v Butcher Ltd v. The King (ibid) had been decided. That case concerned the sale of land which was made subject to the purchasers’ agreement to purchase all their petrol requirements for the business to be run from the land “… at a price to be agreed by the parties in writing and from, time to time”. In the face of a submission that the contract was void for uncertainty, the first instance judge and the Court of Appeal both held that the agreement was to be read subject to an implied term that a reasonable price would be paid for the petrol. The contract contained an arbitration clause that on its true construction required any dispute arose as to what constituted a reasonable price that was to be resolved by arbitration.[192]Scrutton LJ concluded that there was a valid contract because(a) the parties believed they had an agreement;(b) they had acted for three years on the basis that they had an agreement (including transferring the land to the purchaser) and(c) there was an arbitration agreement in place that enabled any dispute as to what constituted a reasonable price to be resolved. For Greer LJ the significant factor was that if the claimant was correct then it would have obtained the land without it having to pay more than the cash element of the consideration. He concluded that there was nothing inconsistent between the terms of the agreement and implying a term concerning reasonable price although he did not explain why that was so – see Foley v Classique Coaches (ibid) at pages 11-12. He added that the case was to be distinguished from May v Butcher Ltd v. The King (ibid) because in that case “… there was no consideration unless a term to agree a price in the future was consideration…” Maugham LJ acknowledged it to be “… indisputable that unless all the material terms of the contract are agreed there is no binding obligation. An agreement to agree in the future is not a contract; nor is there a contract if a material term is neither settled nor implied by law and the document contains no machinery for ascertaining it.” Maugham LJ concluded that the contract should be upheld because (a) it formed part of the consideration for the sale of the land and had been acted on for three years; (b) the petrol sale contract was intended to be a binding contract that formed part of the consideration for the sale of the land; and (c) on his construction of the arbitration agreement it referred expressly to any dispute concerning the subject matter of the contract namely the petrol to be supplied.[193]In my judgment this case is much more closely aligned to May v Butcher Ltd v. The King (ibid), Kings Motors (Oxford) Ltd v Lax [1970] 1 WLR 426, which it is not necessary to analyse beyond noting that it concerned an option for a further term at a rent to be agreed between the parties, that in it Foley v Classique Coaches (ibid) was distinguished by reference to the effect of the arbitration agreement point considered above and May v Butcher Ltd v. The King (ibid) was followed, and the counter-factual situation identified by the Court of Appeal in Mamidoil-Jetoil Greek Petroleum Company SA v Okta Crude Oil Refinery [2001] EWCA Civ 406; [2001] 2 Lloyds Rep 76. In that case the relevant express provision fixed a manipulation fee for the first two years of the contract but was silent as to what was to be paid for the remainder of the 10 year term. One of the factors relied on by the Court of Appeal as leading to its conclusion that a reasonable price type term should be implied was that:
“The contract does not expressly state that the fee after the end of 1994 is “to be agreed”
. It is simply silent as to what is to happen in that period. Therefore, this case is simply not presented with the difficulties which arise in the face of “to be agreed” language, where it is uncertain whether there is any contract at all. It cannot be said, as was said in May v Butcher Ltd v. The King that the statutory implication of a reasonable price, ort an implication that the fee should be such reasonable fee as the arbitrator may decide, is excluded by express agreement that the parties are to agree the figure”. These authorities clearly distinguish between agreements which are silent on price, where a term is likely to be implied requiring the payment of a reasonable price and those where the parties have chosen expressly to postpone agreeing something fundamental such as price, where generally such a term will not be implied. Foley v Classique Coaches (ibid) is distinguishable because (i) the petrol agreement was part of the consideration for the transfer of property, (ii) effect had been given to the agreement for about three years before the purchaser sought to avoid it on grounds of uncertainty and (iii) the arbitration agreement expressly referred to disputes concerning the subject matter of the contract, that is petrol and therefore applied expressly as a matter of construction to disputes concerning the price to be paid for the petrol.[194]The CoA is much more closely aligned to May v Butcher Ltd v. The King (ibid), Kings Motors (Oxford) Ltd v Lax (ibid) and the counter factual identified by Rix LJ in Mamidoil-Jetoil (ibid) because the parties did not remain silent as to the rate that would be paid. To the contrary they expressly agreed that “… all freight rates are to be agreed between the parties from time to time…” which in my judgment necessarily means that the parties left an essential term of their contract to be agreed in the future. The additional words that such agreement was “… subject to an increase or decrease of 5-10% in comparison to the market rates…” do not assist because: i) it is common ground there are no “market rates” for vessels of the capacity contemplated by the CoA at any rate in the sense that the phrase would be understood by a reasonable person with all the knowledge reasonably available to the parties at the date when the CoA was signed; but even if that is wrong; ii) the parties had agreed that the rate would be agreed from “time to time”, which is hopelessly uncertain; and in any event iii) they had agreed that the rate to be agreed would fall in an unspecified range between +10% and -10% of whatever was meant by “market rates”, which by definition could vary from “time to time”, which serves only to emphasise that the parties had chosen to agree that an essential element of their agreement would be agreed at some unspecified time or times in the future. I do not consider that PSSA can properly rely on the suggestion that the CoA was carried into effect because, it was not carried into effect for years as alleged. To the contrary as I explain in more detail below, the minimum quantity provision was ignored for years until the parties finally ended their relationship. In fact in most years the parties entered into annual river trade agreements by which amongst other things a rate was agreed for various passages to and from defined ports and various sea carriage charterparties as and when sea carriage by PSSA on behalf of LSA was required. Finally, the CoA was not subject to an arbitration agreement, much less one that expressly contemplated that any dispute as to price would be referred to and resolved by arbitration as was the case in Foley v Classique Coaches (ibid).[195]In the result, “… there is no binding and enforceable obligation…” created by the CoA other than to the extent that in fact for certain years the parties agreed a rate that would apply to certain passages to and from certain ports for certain purposes, which were governed by separate annual river agreements with sea passages being made the subject of separate charterparties as and when the need arose. In relation to the logically separate legal relations issue, the absence of any agreement as to price that was anything other than profoundly uncertain, in combination with my conclusions concerning the commercial absurdity of the agreement from LSA’s point of view and the operational impossibility or grave impracticality of what the CoA purported to require, is a further factor that supports the conclusion that the parties acting respectively by Mr Golovushkin and Mr Mansimov had no intention of the CoA having legal effect.[196]Two factors remain to be considered. The first concerns the commercial and operational impact of the CoA on PSSA had it been intended to take effect in accordance with its terms and the second concerns what in fact happened after the CoA was signed. For the reasons I set out below, both point firmly towards it never having been intended that the CoA should have legal effect.[197]I turn first to the commercial consequences so far as PSSA is concerned. I have not had to consider that issue so far because as explained earlier it is irrelevant so far as LSA’s Swiss law Best Interests defence is concerned. LSA’s submission is that the CoA would have been “ruinous” for PSSA if carried out in accordance with its terms. That submission has to be viewed with some care because it was advanced on the basis that not merely did the minimum quality obligation apparently apply but also on the basis that (as PSSA alleged but I have rejected) clause 1 imposed an obligation on LSA to offer all the cargo that was otherwise within the scope of the CoA up to 700,000 MT each month for carriage by PSSA in lots of up to 10,000 MT. The effect of my conclusions on this issue is to reduce the impact of the points made by LSA concerning the commercial impact of the CoA taking effect in accordance with its terms but does not eliminate that impact.[198]The operational points that I made earlier concerning the practicability of delivering what had apparently been agreed impacts both parties and I need say no more about those points. The PSSA specific points are those which I refer to below. An initial point that arises concerns PSSA’s fleet. LSA repeatedly submits that PSSA did not own any ships capable of carrying lots of “10.000 mts dwt tons”. It followed that PSSA would have to either buy, build or charter such ships. Although the CoA states that the minimum quantity of cargo was to be carried “… in lots of up to 10.000 mts dwt tons for carriage on board Sfat, 630 project, Lenaneft, Volgoneft, Armada, Lukoil, Radix, Brothers type vessels or motor-barges.” That does not assist PSSA because it was for LSA to provide the cargoes not PSSA to choose the size of the lots as long as the lots did not exceed 10,000 MT. Thus although LSA could in theory choose to supply cargoes of less than 10,000 MT it was profoundly unlikely to do so in respect of sea crossings and would have been understood by the parties to be profoundly unlikely to do so given the economics that apply to the carriage of liquid hydro carbon cargoes across and from the Black Sea. I have set out the detail relating to this point earlier in this judgment and do not need to repeat it. It follows that if it had been intended that the CoA was to have legal effect, PSSA would have to have been ready from 18 January 2005 (the date when by clause 10.1 of the CoA it was purportedly to take effect) with enough ships to carry a minimum quantity of LSA’s cargoes of 400,000 MT in lots of 10,000 MT. It did not have any such ships. The only record of what was available is what appears in Note 1(e) to the Palmali Group accounts for the accounting period ending 31 December 2005. That shows that the group owned and operated 46 ships as at 31 December 2005 all bar three of which had a DWT of between 3,942 and 7,970 MT, of which three were barges. The three ships outside this DWT range were each sea going tankers with a DWT of between 22,100 and 33,490 MT.[199]Thus if the CoA was to take effect in accordance with its terms, PSSA would have had to buy or charter at least one and probably multiple such ships just to cover the cargoes notionally to be carried in 10,000 MT lots between Novorossiysk and Bourgas. This ignores the carriage of cargoes in similar lots between other ports in the Black Sea. The reasoning as to why in reality two ships would be required for sea crossings just between Novorossiysk and Bourgas is set out above and does not need to be repeated. The key points for present purposes are that(a) PSSA did not have any such ships;(b) there is no evidence it made any attempt to charter such ships;(c) there is no evidence that any such ships were available for time charter within reasonable voyage time of the Black Sea either on 19 January 2005 or at all, much less for the very limited time period between mid-January and mid-April 2005 and for that matter for the period between mid-November to mid-April in any subsequent year with the result that any ships chartered would include a significant re-positioning premium that would either not be recoverable from LSA, thereby rendering the exercise uneconomic for PSSA or if recoverable from LSA would make the exercise even more uneconomic from its point of view;(d) there is no evidence that PSSA sought or LSA offered such cargoes on or after 18 January 2005; and(e) the operational points made earlier would mostly apply with at least equal force had any attempt been made to use the smaller DWT ships to which PSSA apparently had access for trans Black Sea voyages.[200]Palmali’s shipping expert, Mr Stein, analysed the fleet available to PSSA in the period between 2011 and 2017 in his first report as consisting of up to 78 vessels of which 6 were tugs and 5 barges. Of the remaining 67 only two (each with a DWT of circa 13,000 MT) were capable of carrying 10,000 MT oil cargoes – see his concession at T13/109/10. None were owned by or otherwise available to PSSA in 2005 but only in 2007 or 2008 depending on which ship is being considered. Those that were available for carrying oil cargoes were located at all material times in the Caspian Sea – see T13/120/1-7 (Mr Stein) – save when one operated in the Baltic and North Seas – see TR13/120-121 passim. Transporting a ship from the Caspian to the Black Sea would involve a voyage of many months because she could not be brought through the Volga Don Canal because of her draft and would have to be taken via canals to the north of Russia then by sea probably via the North Sea, Channel then the Atlantic and Mediterranean – see 13/120/25-122/13. Such a redeployment would take about 2 months – see T13/123/7-11. In fact no attempt was made to deploy these ships to the Black Sea. This suggests that was because it was never intended that the CoA would have legal effect. Had it been otherwise the relevant ships would have been made available (whatever the cost) by PSSA for use on trans Black Sea voyages from 18 January 2005 and certainly in later years. That did not happen. There is an added difficulty about this: even if otherwise it was practical to redeploy ships to the Black Sea for a five month period, those ships would be idle between mid-April and mid-November because they could not be used for transporting oil via the Volga Don Canal by reason of their draft or would have to be moved to other markets once the canal re-opened each year.[201]In light of this, I accept LSA’s submission that if the CoA was intended to have legal effect,(a) it would have been impossible for effect to have been given to it from the date it was signed even though ostensibly that is what had been agreed by clause 10.1 and(b) it would have required tonnage to be chartered in, probably at high or very high rates, for short periods or with the prospect of the ships being ide for long periods between mid-April and mid-November each year. Whilst I accept that the additional volume required would not be as large as would have been the case had I reached a different conclusion about the effect of clause 1(a) of the CoA, it would still have required the charter of multiple ships. The alternative of long term time charter or purchase of ships of the relevant size is almost equally unattractive for similar reasons. The vessels would either have to stand idle for the majority of the year or be re-deployed over long distances and then reposition in order to meet the ostensible obligations imposed by the CoA.[202]It is inherently improbable that PSSA would have entered into an agreement in those terms that was intended to be legally binding, particularly if the real commercial purpose was to ensure that LSA secured the use of PSSA’s river fleet, when that could have been achieved by the simple expedient of agreeing a long term supply at a premium freight rate coupled to an adjustment mechanism for future years.[203]I turn now to what actually happened following signature of the CoA on 18 January 2005. I do not propose to further lengthen this already over long judgment by setting out the statistical material. The key point is that aside from August 2006, August 2007, May 2008, August and October 2009, May – August 2010, October 2010, and May-July 2011, the actual volumes shipped were beneath the minimum volume of cargo referred to in clause 2 of the CoA. In the period between January 2005 and September 2015, there were 128 months. In that period more than the minimum was shipped in only 13 of those months and the volumes over the period varied significantly below the minimum as is apparent from the graphical representation of the statistics relied on by LSA reproduced below: Mr Mansimov acknowledged the thrust of this to be correct in paragraph 65 of his second witness statement, where he accepted that:
“… during the summer navigation season at any rate, Litasco broadly complied with the minimum quantity of 400,000 m/t per month although in some months they shipped a little less and in some months a little more. It is fair to say that the amount of Cargo shipped by river was usually less than 400,000 mt per month and that the Volga Don canal is closed for approximately 3-4 months year. However, Litasco’s obligations were not limited to shipments by river and nor were they limited to providing Cargo only during the months that the Volga Don channel was navigable. … Even though the COA provided that Litasco should provide the same levels of cargo for each calendar month, I recall however that Litasco generally provided Palmali with a lot less cargo during the winter months… Notwithstanding the closure of the river system to ship traffic Litasco was still exporting plenty of cargo in winter from ports in the Caspian and from the Black Sea although not enough under the terms of the COA or to make up for the closure of the Volga-Don Channel. In the winter of 2006-2007 for example, Litasco provided Palmali with around 200,000 mt of cargo per month from ports on the Caspian Sea as well as from the Lukoil refinery at Bourgas, Tuapse and Novorossiysk on the Black Sea. However, after a few years the amount of cargo provided by Litasco to Palmali from the Black Sea ports during the winter significantly declined and Litasco started shipping more cargoes from the Black Sea on larger tonnage vessels rather than offering the cargoes to Palmali to carry in smaller vessels. I believe that this was a result of the arrival of Mr Subbotin as the vice-president of Sales and Supply at Lukoil. Although Litasco continued to provide Palmali with some cargoes during the winter months it was well below the amounts it was contractually obliged to give us. I would often telephone Mr Subbotin to complain about this and we would argue about the lack of cargo Litasco was providing. Mr Subbotin would assure that he would look into the matter and get back to me but this was in reality just an attempt to stall for more time.”
[204]Notwithstanding this, the first complaint about the failure to provide minimum quantities of cargo came in an email from Mr Mammadov to various LSA addressees dated 27 January 2011 where a complaint about the failure to comply with the minimum cargo provision was made in the context of a negotiation about rates. The first formal complaint received by LSA from PSSA came in a letter from Mr Mansimov dated 4 February 2011 – that is just over 6 years after the CoA had been signed. Although Mr Mansimov maintains he complained orally as set out above, there is no material that corroborates this allegation. There is no internal note that records the making of such complaints and more significantly perhaps, the oral complaints are not referred to in the 4 February 2011 letter. This is significant because had Mr Mansimov understood the CoA to be a legally enforceable obligation he would have been complaining in much more emphatic terms about LSA’s failure to comply with its ostensible obligations.[205]In fact even the letter of 4 February 2011 is difficult to characterise as a complaint. The reference is only to the minimum quantity obligation in clause 2 of the agreement made in the context of a claim by Mr Mansimov for a significant increase over the previous year of the rates appliable to river routes. In that context, Mr Mansimov wrote:
“As concerns the year-round transportation of goods, we are compelled to report that despite the commitment to provide a monthly volume of 400,000 to 700,000 tonnes, this figure does not exceed 25 percent of the guaranteed volume in the winter months. These circumstances force the tanker fleet to be put on winter lay-up, while the large-capacity fleet is used to ship light and dark petroleum products from Black Sea ports to ports in the Marmara, Aegean and Mediterranean seas.”
As is apparent from the text quoted, there is no complaint of losses caused over many prior years failure to supply the minimum quantity of cargo (even though those losses ran into many millions of US Dollars) nor any claim for compensation for such losses nor any threats of legal action in order to recover the losses that by then were the result of a breach of contract if it had been intended the CoA was to have legal effect. The complaint within the 4 February 2011 letter was not the result or any drop off that had occurred immediately prior to the letter being sent but was included only in a letter seeking an increase of the rates applicable to river voyages in the coming year. In fact the CoA voyages for 2010 were slightly higher than the previous year.[206]Correspondence then followed that it is not necessary for me to set out in detail. In summary, PSSA asserted reliance on the terms of the CoA at a time when LSA and Lukoil were seeking to negotiate reduced rates for the coming year and were threatening to let some or all of its requirements to rival entities offering River transport for the coming season. This culminated in an email from Mr Mammadov to various LSA addressees dated 6 May 2011 in these terms:
“We would like to bring your attention that as per contract dated 18 January 2005 clause 2.1. the Client shall supply the Contractor with minimum 400,000 metric tons of the Cargo per month. According to the attached file the cargo volume supplied by Litasco for period from 15 January 2011 till 30 April 2011 equal to 549,639.274 metric tons. The Clients are not acting fair against Contractor not only due to COA terms and conditions but also bearing mind the longstanding relations between our companies. In view of above, we have no other choice than to give instruction to our Finance Department for invoicing to Messrs Litasco Geneva the balance freight $ 25,135,606.70 for the period from 15 January 2011 till 30 April 2011 which is payable by the Client to the Contractor’s bank account within 5 days after date of invoice. Please arrange payment of balance freight $ 25,135,606.70 latest by 12° May 2011 and revert to us with corresponding swift copy accordingly.”
This was the first time that PSSA articulated a claim for losses said to have been caused by the failure of LSA to comply with its ostensible obligations under the CoA. Thereafter increasingly hostile negotiations continued in which LSA was seeking to replace the CoA and PSSA was seeking to uphold it, or as much of as possible. In the course of that dispute, PSSA continued to complain about the failure of LSA to comply with the clause 2 obligation – see by way of example the email of March 12, 2014. This culminated in an email from Mr Mammadov to Mr Harwood of LSA dated 31 March 2014 referring to an invoice based on the minimum quantity obligation. The negotiations continued, with LSA seeking the waiver of claims by PSSA and PSSA seeking to uphold its entitlements under the CoA. In the course of that debate the issue concerned whether the CoA had been extended but with PSSA asserting that it was owed millions of Dollars “… because in every year of our agreement including the current year, Litasco failed to ship the contractual quantities….” – see paragraph 1 of Mr Mammadov’s email of 16 March 2015.[207]The only question that arises from the narrative set out above is whether the conduct of the parties assists in reaching a conclusion concerning whether the parties acting respectively by Mr Golovushkin and Mr Mansimov intended the CoA to have legal effect. In my judgment, the post 18 January conduct that is most relevant for present purposes is that down to early 2011. In that period, there can be no real doubt that there was a very substantial failure by LSA to supply CoA cargoes to at least the minimum volume identified in clause 2 of the CoA. That much is apparent from the figures quoted above. I accept the point made by Mr Eaton in his closing submissions that there is a danger in attempting to be too precise about the figures because various differences that arise depending on which schedule is examined and the purpose for which the schedule was brought into existence. However those are differences at the margin. The correspondence emanating from PSSA a small portion of which I have referred to above relies on shortfalls over many years valued in millions of US Dollars. In broad terms I accept as accurate the figures that are relied on by LSA to which I referred at the start of this section of this judgment. In most if not all of the months for which figures are given by LSA there was a shortfall from the minimum volume figure.[208]The further key point is that PSSA made no complaint about that until the commencement of the fractious negotiations concerning rates referred to above. I accept (indeed it is obvious from the correspondence, some of which I have referred to above) that once those negotiations became protracted PSSA sought to rely on LSA’s failure to comply with the minimum volume obligation. However that does not assist for present purposes. The key point that matters is that for about 7 years, until mid-2011 LSA did not comply with what is said to have been its legally binding obligation to supply to PSSA a minimum of 400,000 MT of defined types of cargo for carriage to and from defined places and no objection of any sort was raised. That is particularly significant in the period between 18 January 2005 (when the CoA was signed) and 12 March 2008, when Mr Golovushkin tendered his resignation from his roles with Litasco and took up a post as the new CEO of SOCAR Trading, the trading division of the State Oil Company of Azerbaijan. In that period both signatories of the CoA remained in post and at no stage was any complaint raised concerning the non-fulfilment by LSA of the minimum volume requirement. In the course of his evidence Mr Mansimov repeatedly made the points that(a) once account was being taken of non-CoA cargoes, there was no real shortfall and(b) no account was being taken of the business being undertaken by PSSA for LSA in the Caspian Sea. The last of these points is simply wrong as was demonstrated to Mr Mansimov in the course of his cross examination and the first of these points is irrelevant. If there is a minimum volume entitlement under the CoA, the fact that other business is being provided is not a justification for not complying with that obligation in the absence of a variation or waiver.[209]It is necessary now to stand back from the detail. For the reasons set out in the section of this judgment addressing LSA’s Swiss law Best Interests defence I set out in detail why the CoA was commercially absurd from LSA’s perspective. In this section, I have set out why the CoA was almost as commercially absurd from PSSA’s perspective. In the Best Interests section of this judgment I have set out why complying with the CoA would have been operationally impossible or at best highly impractical, a consideration that is equally relevant to both parties. I have explained that the parties chose expressly to postpone the agreement of what on any view is a critical element to a long term supply agreement namely price to some unidentified time or times in the future and have concluded that is consistent with the parties not intending the agreement to have legally binding effect. I have shown how it was that PSSA did not seek to enforce the obligations it now relies on for getting on for 7 years after the signature of the CoA notwithstanding substantial failures on the part of LSA to comply with the minimum cargo obligation over many years. All these factors when taken together lead me to conclude that neither of the parties acting respectively by Mr Golovushkin and Mr Mansimov intended the CoA to have legal effect.[210]The reality is that the relationship was one that ran from year to year on the basis of annual River Agreements that fixed the rate for carrying cargo from the inland refineries via the Volga Don Canal to Black Sea ports with the parties entering bespoke charterparties for shipment of cargoes from Black Sea ports as and when lots of 10,000 MT or less required to be moved using rates agreed periodically for voyages between identified ports. There are numerous examples included within the trial bundle. It is not necessary that I refer to them all. However, inevitably, those that were closer in time to the date when the CoA was signed are of most interest for present purposes.[211]One relating to sea voyages came into effect from 27 April 2005. It is unremarkable except to note that it describes itself as “Addendum 2 to the Contract Charter Party Dated 18.01.2005” and appears to contemplate carriages in quantities greater than lots of up to 10,000 MT because it includes a provision to the effect that “… Freight rate for the vessels with dead-weight of from 5.000 up to 10.000 are USD 0.75 cents less than above rates”. It contains no mention of minimum quantities much less that all cargoes were to be carried in lots of up to 10,000 MT. Indeed, the rates qualification makes no sense if that as the understanding of the parties.[212]An early example of a river agreement is one dated 7 March 2006. It is a formal agreement between PSSA, which is described as being the disponent owner of the vessels identified in clause 2 of the CoA, and LSA. It was described as being “… Additional Agreement as Addendum 3 to the Contract of Affreightment basis consecutive voyages in direct continuation during the summer navigation 2006…” . It is a conventional and comprehensive shipping agreement with detailed provisions concerning Lay days, detailed definitions of the load and discharge ports and the cargoes the subject of the agreement, specifies the applicable demurrage rates, the types of vessel to be used and defines the quantities to be carried by reference amongst other macro parameters, the vessels’ “… permitted passage draft in inner water ways”. It contains no reference to any minimum or maximum cargoes to be carried but specifies comprehensively the rate that was to apply for passage from defined load ports to defined discharge ports. The key point about this agreement is that although it is described as being an addendum it is in fact a contract in which all the essential matters relevant to a contract of this sort have been agreed, none of the provisions within the agreement (other than the title) refer to the CoA and there is no expectation that a minimum cargo will be provided each month, only that the basis of the agreement was “… consecutive voyages in direct continuation” starting from “(t) he beginning of the river navigation of 2006 at tbc moment opening of the Volga--Don channel till the last allowed voyage for passing locks of Volga-Don channel down bound in the end of the river navigation period”.[213]Although none of the subsequent agreements refer to a minimum monthly cargo volume, it might have been possible to construe the CoA and the subsequent agreements as working together on the basis that there was no need to repeat the minimum cargo requirement in the subsequent agreements and if the only point had been that clause 11 of the CoA was so uncertain as to render the CoA void for uncertainty, I would have been likely to accept Mr Eaton’s submission that that uncertainty was removed once a rate agreement had been reached for the period covered by the subsequent agreement. Even then it would not have saved the CoA in relation to any period not covered by the subsequent agreements. However, as I have explained, that is not the real point at all. The real point is that the factors I have referred to above, together with the conclusions I have reached concerning the relationship between Mr Golovushkin and Mr Mansimov, point firmly towards the parties not having intended the CoA to have legal effect. That derives support from the fact that the subsequent agreements are all capable of working effectively as binding contracts. Had the only issue been freight rates, there would have been no need for the formal agreements adopted in particular for the River trade. All that would have been required was an exchange of emails setting out what had been agreed as rates for the applicable year. The fact that the parties considered it necessary to enter into formal agreements comprehensively covering every aspect of the river voyages is consistent with the parties not having intended the CoA to have legal effect. Whilst this point would not have been enough of itself, it is when taken together with the other factors I have considered.[214]I have not so far considered why it is that Mr Golovushkin and Mr Mansimov considered the CoA was an agreement worth entering. Unsurprisingly, it is difficult for me to reach any definitive conclusions on that issue because Mr Mansimov was not a witness who I could safely rely on and Mr Golovushkin did not give evidence. Only they could explain what the purpose of all this was. Given this state of the evidence and that it is not necessary for me to make any findings on this issue I express myself with some caution. I have set out my conclusions concerning Mr Golovushkin and his commercial relationship with Mr Mansimov and the Palmali Group above. For those reasons, I consider that he had a continuing interest in the well-being of the Palmali Group at the date when he signed the CoA and even if he had not, his relationship with Mr Mansimov means that it is probable that he could be persuaded by Mr Mansimov to sign the CoA, particularly if (as I conclude is the case) they each knew that it was not intended to have legal effect. From Mr Mansimov’s point of view the purpose is clearer. The CoA was referred to in Palmali Group accounts. In the Palmali Group accounts for the period ending 31 December 2005 there appeared the following statement:
“Since 2000 Palmali Shipping SA has entered into two different transportation agreements of significance to the Palmali Holding Group with Litasco, Geneva which is the subsidiary of Joint Stock Company Lukoil, Moscow. These agreements are (a) The Cargo Supplying Contract, and (b) the Tanker Voyage Charter Party Contract. (a) Cargo Supplying Contract dated 24th November, 2003 and amended on 18th January, 2005. By virtue of this agreement which took effect on 18th January, 2005 and remains in force for ten years, it was agreed that Litasco shall provide Palmali Shipping SA, throughout each calendar year of the contract period, with minimum quantities of Cargo. These quantities range from 400,000 up to 700,000 Mts per month of crude oil, heating oil, fuel oil, unleaded gasoline and other fuel oils & luboils in lots of up to 10,000 Mts for carriage on board the Palmali Holding Group's vessels. This cargo emanating from any of the following: Volgograd, Astrakhan, Black sea ports and Caspian Sea ports (b) Tanker Voyage Charter Party Contract (contract of Affreightment) dated 20th March, 2005. By virtue of this agreement is was agreed that with Litasco that transportation would be provided by Palmali Shipping SA on the basis of consecutive voyages in direct continuation during the summer navigation of 2005 commencing from the beginning till the end of allowed river navigation on the Volga-Don Channel. As a result of the above two contracts the Group has secured a sustainable and constant cargo stream thereby reducing overall cargo risk.” [Emphasis supplied]
[215]The contract referred to in (a) is the CoA. The earlier agreement referred to in (a) is the agreement referred to in these proceedings as the “Armada Agreement”. Although some reliance was placed on this earlier document as demonstrating that the CoA was intended to have legal effect, I am not able to agree. Firstly, it is in different terms to the CoA. It does not purport to refer to a minimum quantity each month. It refers to an annual quantity of “about 1,600.000 tonnes…”. This equates to about 133,000 MT per month. It was expressed to be effective for a 7 year period ending at the end of November 2010 and it was subject to a freight rate provision in materially different terms as well. It was discharged by the CoA. That agreement did not in any sense “amend” the Armada Agreement. It replaced it. In my view therefore the statement in the accounts was a material misstatement. More generally, there is no evidence as to how the Armada Agreement came to be agreed, it is signed by Mr Golovushkin and Mr Mansimov and the degree to which each was pursing their own interests in signing it was largely unexplored in the evidence because the issue was collateral to those that matter in these proceedings and the degree to which it at all that agreement could ever be said to have been performed was not explored for similar reasons. Subsequently, Mr Mansimov was able to use the CoA as a means of representing to lenders that Palmali a “ … sustainable and constant cargo stream thereby reducing overall cargo risk…”. These communications are relied on by LSA to support a contention that PSSA’s claim would is barred by the illegality defence. Given the findings I have made so far, it is not necessary that I consider that issue. However this issue was the subject of some unsatisfactory evidence from Mrs Perker in the course of her cross examination at T3/52/20 in which Mr Lord pressed her to agree that the CoA was used by the Palmali Group as a means of persuading banks to lend the group money. Although the content of her answers differed throughout this part of her cross examination in a manner that did her no credit at all, I accept as truthful her answer that “… (w)hat I am saying is of course we always presented this CoA when we wanted to get credits from the banks.” The real point that emerges from the evidence as a whole is that Palmali held out the CoA as securing a long term “… constant cargo stream thereby reducing overall cargo risk…” when to the knowledge of all concerned that was not the case as is apparent from the figures concerning actual compliance with the ostensible minimum monthly cargo requirement set out earlier in this judgment. In fact, Palmali was carrying cargoes by reference to the annual River agreements to which I have referred and otherwise on the same basis as any other ship operator - by carriage pursuant to sea charter parties entered into from time to time. But for the CoA, the Palmali Group would not have been able to make that representation.

Conclusions Concerning the 2017 Claim

[216]For the reasons set out above, I conclude that the CoA was void as a matter of Swiss law because it was entered into on behalf of LSA by Mr Golovushkin at a time when there was a plain conflict of interest between his personal interests and those of LSA and because the CoA was not in the best interests of LSA at the time it was entered into, in each case as was well known to Mr Mansimov at the time he signed the CoA on behalf of PSSA. In any event it is to be inferred that was not intended by either Mr Golovushkin on behalf of LSA or Mr Mansimov on behalf of PSSA that the CoA would have legal effect. In light of these conclusions it is not necessary for me to resolve any of the other issues that arise on the main claim. It is common ground that the extension issue would fall away if I reached conclusions to the effect I have in fact reached. The Counterclaim and 2018 Claim. Counterclaim[217]The Counterclaim has three elements being(a) sums claimed by LSA under a loan agreement dated 10 December 2013 (“Loan”);(b) an overpayment of freight under the 2014 River Agreement and(c) a payment by LSA relating to the MT Minerva Zoe.[218]Loan In relation to the Loan, the sums claimed - $7,500,000, together with interest totalling around $2.3m as at December 2017 and accruing thereafter at 3-month LIBOR plus 7% - are admitted. The defences advanced are by reference to two alleged implied terms of the loan being: i) LSA would not act so as to prevent performance by PSSA of the Loan Agreement; and/or ii) no principal or interest would be due or repayable by PSSA if and for as long as LSA was in breach of the Minimum Cargo Obligation.[219]In light of the conclusions I have reached the defence advanced by reference to these implied terms (even if otherwise arguable on its own terms) has become unarguable since both are premised on LSA at all material times being in breach of the minimum cargo obligation – see paragraph 31 of the re-re-re amended Reply and Defence to Counterclaim.[220]Overpayment The 2014 over payment claim is for $2,581,492.06 (over)paid to PSSA under clause M7 of the 2014 River Agreement for the season May to November 2014 and is admitted subject to PSSA’s 2018 claim.[221]The Minerva Zoe claim Turning finally to the Minerva Zoe claim, it concerns a payment of $1,459,697.62 by LSA to PSSA on or about 8 September 2014, in respect of freight owed by LSA which PSSA would ordinarily have paid on to the owners of Minerva Zoe but which in fact PSSA did not transfer. The claim arises because the parties had an arrangement with PSSA whereby LSA would pay PSSA the sum due on shipping transactions brokered by PSSA. On this occasion, the sums required were paid by LSA to PSSA but not passed on and LSA paid the sums due to the owner direct. It is admitted that the sum paid by LSA to PSSA was not paid on to the owner of the vessel and has not been returned to LSA. The sum is claimed by LSA as “restitution”. The cause of action relied on is therefore one of unjust enrichment.[222]The requirements of this cause of action are clearly made out:(a) PSSA has been enriched at the expense of LSA by it retaining LSA’s payment rather than paying it on to the ship owner in accordance with the parties’ agreement; and(b) that enrichment is unjust because PSSA has retained the sum concerned rather than paying it on. Thus subject to the defence of set off to which I turn below, this claim has been made out. 2018 Claim[223]Turning to the 2018 Claim. The sums due have been agreed in the sum of US$3.85m, subject to the points to which I turn in a moment. PSSA admits that if (as is the case for the reasons identified above) the 2017 Counterclaim results in a monetary award to LSA that will be set off against the sum found due to PSSA in the 2018 Claim. The sum I have found due on the counterclaim exceeds the agreed value of the 2018 Claim.[224]However there is one final issue that I will have to resolve in relation to the 2018 Claim and that concerns an allegation by LSA that the claims the subject of the 2018 Claim “… have been waived, released and/or abandoned by Palmali (and/ or Palmali is estopped from asserting such claims) by letters dated 22 May 2015 (signed by Mr Ramiz Mammedov, the Vice President of Palmali, and addressed to Mr Tim Bullock, the CEO of Litasco) and 13 April 2017 (signed by Mr Mubariz Mansimov, the President of Palmali, and addressed to Mr V Vorobyov of Lukoil…”. This issue was also one that is relied on in relation to the 2017 Claim but I did not have to resolve as explained already.[225]As is apparent from what has been pleaded, this defence depends on the contents of three letters. The first dated is 22 May 2015, was addressed to Mr Bullock, then the CEO of LSA and stated simply:
“We confirm mutual agreement between the Parties irrevocably to waive, release, cancel and discharge all rights and claims that each Party has, may have had until 22nd May 2015 against the other party.”
This was followed by another letter of the same date in the following terms:
“We confirm mutual agreement between the Parties irrevocably to waive, release, cancel and discharge all rights and claims that each Party has, may have had until 22nd May 2015 against the other party arising out of or in connection with COA dated 18th January 2005. This agreement shall not affect invoices related to freight, demurrage and other expenses issued by [PSSA] to [LSA] up today.”
The final letter relied on is dated 13 April 2017 and is from Mr Mansimov to an official employed by Lukoil, Mr Vorobyov and was in these terms, in which Mr Mansimov confirmed the absence of any claims by PSSA against LSA.[226]The content of these letters was explored with Mr Bullock in the course of his cross examination. This cross examination established that what was set out in the letter was not acceptable to LSA and was not accepted. In essence the position was that LSA had concluded that PSSA was no longer a reliable counter party and in the context of the negotiations then taking place had sought confirmation that PSSA did not have any claims against LSA that might surface after the negotiations had been completed. The position that PSSA has adopted down to 22 May was that it would agree a mutual waiver of claims but would not offer a unilateral waiver of such claims as it may have. It was in this context that the following exchanges took place between Mr Eaton and Mr Bullock, initially concerning the first of the two 22 May letters referred to above:
“Q. Then the next day you get this. Did this come as a surprise to you, Mr Bullock, can you remember? A. I don't believe that it did because in my mind this is Palmali maintaining their original position, which both -- that we have to waive our rights against them as well. Q. And that's the point then, "We confirm mutual agreement"? A. Yes. Q. So this is two-way? A. Yes. Q. So you will be giving up your rights, they would be giving up their rights? A. Correct. Q. So you would have to give up 2014 balance of payments, 2013 loan, Minerva Zoe? A. Yes. Q. And in point of fact this doesn't actually mention the CoA at all, does it? A. No. Q. This is entirely general, you could be giving up all sorts of things? A. Yes. Q. You could be giving up claims you didn't even know you had? A. In theory, yes. Q. And you were not prepared to give up the three financial items that we've discussed, were you? A. Correct. Q. And that was consistent with your stated position? A. Yes. Q. And you wouldn't have been prepared to enter into a mutual waiver that wasn't even confined to the CoA and was as general as this? A. Correct. Q. Your position presumably was that this was not acceptable? A. Correct.”
In relation the second 22 May letter, there was this rather shorter exchange:
“Q. There's no carveout in favour of Litasco? A. Correct. Q. And the first sentence, again, it's mutual agreement. A. Yes. Q. So it was more of a waiver by you, it would involve you waiving the three financial matters we've already discussed? A. Yes. Q. Again, presumably, that was just unacceptable to you? A. Correct.”
Q. And that's the point then, "We confirm mutual agreement"? Q. So this is two-way? Q. This is entirely general, you could be giving up all sorts of things? Q. You could be giving up claims you didn't even know you had? Q. And that was consistent with your stated position? Q. Your position presumably was that this was not acceptable? A. Correct.”

Q. Again, presumably, that was just unacceptable to you?

[227]Turning to the 2017 letter on which LSA relies, it was written in reply to a letter from Mr Vorobyov to Mr Mansimov in the context of negotiations concerning the 2017 inland waterway navigation period dated 12 April. In that letter attention was drawn to the cost advantages that transport rail now offered when compared to transport using the canal route. In summary rail costs were charged in Roubles and had become cheaper than river transport, which was costs in US Dollars, following a Rouble devaluation. In the context of PSSA seeking to provide services on Russian inland waterways in the navigation period, Mr Vorobyov sought confirmation “… regarding the absence of any claims on the part of Palmali Shipping SA concerning fulfilment of the 2005 to 2015 contract certified by the responsible representative of Palmali Shipping…”. Mr Mansimov responded to that letter. Much of his response dealt with the ongoing commercial negotiations but he also stated “…We confirm the absence of any claims from Palmali Shipping S.A. against [LSA]…”. However he went on to say that had been “certified” to Mr Bullock in the correspondence in 2015 referred to above. Although the initial part of this assurance appears to have been the unilateral assurance that Mr Bullock, LSA and Lukoil has been seeking, that became at best much more ambiguous once the earlier correspondence which plainly did not have that effect was incorporated into the response by reference. Mr Bullock’s understanding of this letter was therefore that it took matters no further than had the 2015 correspondence and on that account was not acceptable – see his evidence at T9/94/4-18.[228]Mr Eaton submits that this evidence is fatal to any suggestion of either waiver by agreement or estoppel. In his closing submissions, Mr Lord submitted that a contractual waiver is subject to usual principles concerning the formation of contracts as a matter of English law. I agree. Indeed the point is not in dispute – see Mr Eaton’s written closing submissions at paragraph 336. The point which Mr Eaton makes is that the waiver argument is bound to fail because the waiver in fact offered was never accepted. In my judgment this submission is well made and I accept it. Although Mr Lord submits that the effect of the second 22 May letter ought to have satisfied LSA because LSA’s claims did not arise under the CoA, there are really two answers to that. Firstly, as a matter of fact it did not satisfy LSA as Mr Bullock’s evidence set out above makes clear. Secondly, I do not accept that the construction argument advanced by Mr Lord is correct – the words “…arising out of or in connection with COA…” are very wide and in my judgment justify the caution that Mr Bullock adopted.[229]The alternative way in which the waiver argument is advanced by LSA is that the letter constituted waiver by estoppel. As Mr Lord correctly submits, for an estoppel to arise the addressee of the representation or promise must act upon it by altering his or her position, so that it would be inequitable to permit the first party to withdraw the promise – see, by way of example of the many authorities to similar effect, Kodric v Bitstamp Holdings NV [2022] EWHC 210 (Ch) per Mr Eason Rajah QC (as he then was) at [129]. Mr Eaton submits that this requirement is fatal in light of Mr Bullock’s evidence referred to above because LSA did not rely on the representation. Again I agree. The waivers offered were not acceptable to Mr Bullock and accordingly there could be no reliance on them. Mr Lord submits that this is wrong because it reflects Mr Bullock’s subjective view. In my judgment this submission is mistaken. The issue that arises is not one of construction at all, nor is the question one that involves a subjective as opposed to an objective view. The questions that arise are binary ones – was an offer accepted or was a promise acted upon. Mr Bullock’s evidence demonstrates that neither of these requirements was satisfied.[230]In the result, I reject the waiver argument. In consequence, the 2018 Claim succeeds in the amount agreed, which must be set off against the sums found due on the counterclaim in the 2017 Claim. I will hear the parties on the impact of interest on these conclusions at the hand down of this judgment.