In a mercifully short judgment in the long running Fiona Trust case, Andrew Smith J considered (1) what conduct is relevant in deciding whether an enquiry for damages on a cross-undertaking should be refused; and (2) whether in the circumstances of that case it would be proper to refuse an enquiry.
By way of judgment in December 2010, claims in respect of only two of the seven schemes were upheld. The claimants appealed, but the appeal was dismissed and the Supreme Court rejected an application for permission to appeal. The enquiry as to what should be paid under the cross-undertakings was sensibly only pursed once the appellate process was concluded.
In round terms, the claimant’s success was only for sums of about $17 million. In contrast, in 2005, $208.5 million of security had been provided (following a freeze) and in 2007 further sums amounting to $278m had been frozen. The disparity speaks for itself.
Andrew Smith J first accepted that the conduct of the principal defendant, Mr Nikitin, should be attributed to the corporate defendants (who were essentially his vehicles). It would be inequitable to enforce the judgments for the corporate defendants if it was inequitable to enforce for the benefit of Mr Nikitin.
In an oft quoted (but obiter) dictum in Hoffman-La Roche  1 AC 295, Lord Diplock said that the court:
“retains a discretion not to enforce the undertaking if it considers that the conduct of the defendant in relation to the obtaining or continuing the injunction or the enforcement of the undertaking makes it inequitable to do so, but if the undertaking is enforced the measure of damages payable under it is not discretionary.”
Andrew Smith J took the view that Lord Diplock was not introducing any novel restrictions on what conduct might be relevant to the question of equity, but merely observing how equitable principles apply in such a case. Accordingly the conduct on which the claimants relied in resisting an enquiry as to damages was only relevant in so far as it related to the obtaining of the freezes in 2005 and 2007.
Evidence was deployed by the claimants at this time which related to the two schemes for which claims were upheld. Andrew Smith J concluded that the significance of this went beyond the claims directly linked to that evidence: more generally it supported the wider claims that were made. Accordingly Mr Nikitin was found to be guilty of misconduct linked to the obtaining and continuation of the 2005 and 2007 orders.
But that was not the end of the matter. Allegation and counter-allegation were made. This was a case where much of the evidence (claimant and defendant) was found to have been dishonestly given. Directly of relevance was that the claimants were seriously and culpably in breach of their duties (of full and frank disclosure) when the 2005 and 2007 orders were obtained. So the relevant misconduct of Mr Nikitin had to be assessed against that background. The judge concluded that the impropriety of the claimants in obtaining the 2005 and 2007 orders was such that even if all of the misconduct of Mr Nikitin was considered, the judge would still order an enquiry as to damages.
Fiona Trust & Holding Corporation and others v Yuri Privalov and others  EWHC 3102 (Comm)