BALENIA LTD V IVJ ERCEG AND ORS HC AK CIV 2008-404-003853

BALENIA LTD V IVJ ERCEG AND ORS HC AK CIV 2008-404-003853 1 September 2008IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2008-404-003853BETWEEN BALENIA LTD Plaintiff AND IVAN VLADIMAR JOSEPH ERCEG First Defendant AND C K & S LTD Second Defendant AND SENSATION YACHTS LTD Third Defendant Hearing: 21 August 2008 Appearances: G J Kohler for the Plaintiff L Ponniah for the Defendants Judgment: 1 September 2008 at 4:00 pmJUDGMENT OF ASSOCIATE JUDGE HOLEThis judgment was delivered by me on 1 September 2008 at 4:00 pm pursuant to Rule 540(4) of the High Court Rules. Registrar/Deputy Registrar Date: .Solicitors/Counsel: Burton & Co (AJ Nicholson), PO Box 4338, Auckland Corban Revell, PO Box 21180, Henderson G J Kohler, PO Box 4338, Shortland Street, Auckland[1] This judgment relates to an application for summary judgment in favour of the plaintiff against the first defendant. The plaintiff seeks either an order for specific performance of a settlement agreement entered into between the parties or summary judgment as to liability against the first defendant arising from an alleged breach of the settlement agreement.Preliminary matters[2] At the commencement of the hearing, objection was taken on behalf of the first defendant to the filing and reading of two affidavits in reply. The first was that of Mr Taylor which was filed and served on 15 August 2008. The second affidavit was that of Mr Nicholson in respect of which the defendant received a faxed copy on 19 August 2008 and the original the following day. In addition, concern was expressed at the late filing of the plaintiff's submissions which were received by the defendant on 19 August 2008. [3] On 9 July 2008 a case management conference was held by Harrison J. He ordered a priority fixture to be allocated on the first available day after 8 August 2008. He directed that the defendants were to file any further affidavits by 23 July 2008 and that the plaintiff was to file any affidavits in reply by 8 August 2008. [4] The defendants ultimately elected not to file further affidavits. The only affidavit filed by the first defendant is that dated 9 July 2008 which is referred to in Harrison J's Minute. Unfortunately, that affidavit is intitulled as being in support of the notice of opposition to an interlocutory application for an interim injunction. It does not refer to the summary judgment application. Nevertheless it was intended by the solicitors acting for the first defendant to also apply in opposition to the summary judgment application. [5] On 29 July 2008 the solicitors acting for the defendant advised counsel for the plaintiff that they would rely on the first defendant's original affidavit. As the notice of opposition to the summary judgment application contemplated an affidavit to be sworn in its support, counsel for the plaintiff expected a new affidavit to befiled. It was not until 8 August 2008 that the solicitors for the first defendant confirmed that the affidavit purporting to relate to the injunction proceedings also applied to the summary judgment application. [6] By this time the plaintiff was out of time to file its affidavits its reply. It is for this reason that the affidavits in reply were filed and served late. [7] The confusion was caused, inadvertently, by the defence. [8] In these circumstances leave was granted for the affidavits in reply to be filed late. [9] This raised the question as to whether or not the first defendant should be entitled to an adjournment. It will be recalled that the fixture was a priority fixture. The first defendant's counsel was given the opportunity of an adjournment to a date during the week following the original date of hearing. After some consideration, he elected to proceed with the hearing on 21 August 2008 indicating that he was sufficiently familiar with the case for the first defendant to proceed.Background[10] The plaintiff is an incorporated company having its registered office in the Cayman Islands. Sensation Yachts Limited ("Sensation") is an incorporated company which operates a boat building business in Auckland. [11] Throughout, the first defendant was a director and sole shareholder in Sensation. [12] On 24 February 2004 the plaintiff and Sensation entered into a contract whereby Sensation agreed to design and build five luxury super yachts for the plaintiff. The first super yacht was to have been completed by April 2005 and the last by May 2007. [13] Various disputes arose between the plaintiff and Sensation that became the subject of arbitration hearings. The last of those was on 29 June 2007.[14] A further dispute arose. Another arbitration hearing was scheduled to commence on 15 October 2007. [15] On or about 27 September 2007 the plaintiff, Sensation and the first defendant entered into a settlement agreement which is evidenced by an exchange of letters dated 24 September 2007 (Sensation to the plaintiff) and 27 September 2007 (Burton & Co (acting for the plaintiff) to Sensation). The letters provide as follows:SENSATION YACHTS 24 September 2007 Balenia LimitedAttentionMr Leonid Cheshinsky Dr Valery CheshinskyBalenia Limited – Sensation Yachts Limited SY30 Series ProjectThe principals of Balenia (Messes Leonid and Valery Cheshinsky) and Sensation have agreed: 1. That Balenia will sell the vessels constructed under the Vessel Construction Agreement (VCA) to the principal of Sensation, Mr Ivan Erceg. 2. The sale from Balenia will be to a nominated Cayman Islands company owned and controlled by the principal of Sensation. 3. The purchase price for the sale from Balenia has been agreed to by both parties at US$21,500,000. The purchase price shall remain confidential between the parties and their legal advisers. 4. The payment by Mr Erceg, or nominee shall be made as follows: (a) A 10% deposit shall be made to Balenia within 7 working days of Balenia providing evidence to the satisfaction of Clyde & Co (London) that it has clear title to SY32, SY34 and SY35. (b) The balance of the purchase price to be paid to Balenia: (i) Upon release by Balenia of clear title to SY32, SY34 and SY35. Title to be free and clear from any finance arranged by Balenia, liens or other secured interests, including registration on the Personal Properties Security Register; and (ii) Upon execution by both parties of all documentation necessary to terminate the VCA.5. All paperwork regarding purchase of the vessels, release of title and termination of the VCA shall be prepared in conjunction with Mr Paul Sills and Clyde & Co (London) on behalf of Sensation and Sensation's principal. Balenia to advise Sensation who will represent them for title transfer and release of contractual obligations both in New Zealand and in the Cayman Islands. 6. By agreement, the arbitration scheduled to commence on 15 October 2007 is hereby cancelled. Yours faithfully"Paul Sills" "Ivan Erceg"Managing Director Director" BURTON & CO 27 September 2007BY E-MAIL & FAXPaul Sills Sensation Yachts LimitedAUCKLANDFax: +64 (09) 836-1775 Email: sensation@sensation.co.nzBALENIA LIMITED – SENSATION YACHTS LIMITEDWe refer to your second letter dated 24 September 2007 (the one sent on 25 September). Our instructions are that the letter is mistaken in its suggestion of a 'done deal' on the terms set out therein. However the parties are very close and provided the following matters are confirmed by Sensation and Mr Erceg then Balenia accepts there is a binding settlement: 1. The settlement achieved is in full and final settlement of all issues arising out of the VCA, any amendments thereto and of the parties' relationship generally. There will be no further claims by either party against the other or the other's principals, agents or servants. 2. Each party will complete and execute all documents reasonably required to give effect to the agreement and shall take all reasonable steps and act with all reasonable speed to complete the settlement. Clyde & Co will need to advise promptly precisely what documents it requires pursuant to clause 4(a) of your letter. 3. The payments to be made pursuant to clauses 3 and 4 to be made without any deduction or set off of any nature whatsoever. Sensation is not to seek in the future to recover GST or any other sum from Balenia.4. It may be implicit but we want it clear that what has been cancelled in clause 6 of your letter is the arbitration hearing scheduled for 15 October itself. If Sensation does not make the payments required of it under the settlement agreement then Balenia would be entitled to cancel the settlement agreement and continue with its current claim agreement itself. Obviously Sensation would be in the same position were Balenia to fail to comply with its obligations. Provided the above clarifications / additions are accepted there is a binding settlement. To confirm that position please complete as below. Yours faithfully"T Nicholson"Tony Nicholson"P Sills" "I Erceg"Confirmed Paul Sills Confirmed Ivan ErcegManaging Director Sensation Yachts"[16] The settlement as envisaged by the two letters has not been implemented. Neither party disputes the settlement. The difference between them is that the plaintiff considers that the time for payment of the deposit and settlement (as set out in paragraph 4 of the letter dated 24 September 2007) has arrived. The first defendant claims that the date for payment of the deposit and subsequent settlement has not yet occurred. In particular, the first defendant claims that the plaintiff has failed to provide evidence to the satisfaction of Clyde & Co (London) that it has clear title to SY32, SY34 and SY35.Parties to the settlement agreement[17] The first submission raised by counsel for the first defendant was that the plaintiff was not a party to the settlement agreement as evidenced by the letters. The argument was that Messrs Leonid and Valery Cheshinsky had entered into the agreement but not the plaintiff. There is no merit in this argument. It is clear that the parties to the settlement agreement were the plaintiff, first defendant, and Sensation. Whilst the letter dated 24 September 2007 did commence with the words "The principals of Balenia (Messrs Leonid and Valery Cheshnisky) and Sensation have agreed," nevertheless it is plain from the tenor of both letters that the plaintiffwas a party to the agreement and could sue on it. Significantly, the letter dated 24 September 2007 (which was written by Sensation) was sent to "Balenia Limited". Throughout the letter there is reference to the plaintiff being obliged to undertake certain obligations and receiving various benefits from the settlement. The letter dated 27 September 2007 from Burton & Co makes it absolutely clear that the plaintiff was a party to the settlement agreement. It is plain that that letter was written by Burton & Co on behalf of "Balenia Limited".Clyde & Co[18] The letter dated 24 September 2007 states that the 10% deposit should be paid to the plaintiff "within seven working days of Balenia providing evidence to the satisfaction of Clyde & Co (London) that it has clear title to SY32, SY34 and SY35". [19] The first defendant argued that Clyde & Co were intended to be independent verifiers for both parties in respect of the issue of clear title. Clyde & Co are a firm of London solicitors who specialise in shipping matters. They have previously acted for Sensation. On 13 December 2007 Clyde & Co wrote to Mr Nicholson, of Burton & Co inter alia, as follows:Our firm was asked to be verifiers of whether clear title was provided or not. Notwithstanding this our primary obligation is to our client, your client has agreed to rely on our judgment as verifiers as to whether evidence of good title has been provided.[20] Thus, Clyde & Co considered that in respect of the title issue, they were acting for the defendants, and not the plaintiff. They were not independent: they were not being instructed by both parties to the settlement. [21] The first defendant refers to the settlement agreement and to the position of Clyde & Co at paragraph 12 of his affidavit. Paragraph 12.6 of the affidavit reads:As a result, we insisted that in the settlement arrangement, our London solicitors, Clyde & Co, be satisfied that clear title to the items we were purchasing had been demonstrated by Balenia. We are entirely dependent on Clyde & Co for that and they are correct to be careful on our behalf [22] Paragraph 1 of the affidavit reads:I am the director and sole shareholder of Sensation Yachts Limited, the third defendant. I am authorised by that company to make this affidavit on its behalf and of course on my own.[23] It is plain from a perusal of those two clauses that where clause 12.6 refers to "our London solicitors" that means the London solicitors for both the first defendant and Sensation. [24] The first defendant argues that Clyde & Co were not instructed by him to act for him: they only ever acted for Sensation. Clyde & Co's letter did not differentiate between the first defendant and Sensation as clients. However, in terms of the settlement agreement, payment was to be made by the first defendant. In return he was to purchase the vessels from the plaintiff. It was in his interest that he be presented with evidence that he was acquiring clear title to the three super yachts. It was of no benefit to Sensation. I have no doubt that Clyde & Co were acting for the first defendant when they wrote the letter of 13 December 2007. If I am wrong, then (for the reasons set out later in this judgment) the first defendant should have instructed Clyde & Co to act for him.Has the condition as to clear title been satisfied?[25] The letter from Clyde & Co dated 13 December 2007 set out Clyde & Co's requirements for it to be satisfied as to clear title. The two affidavits of Mr Nicholson set out in detail the steps taken by the plaintiff to meet those requirements. [26] The starting point, of course, was that the plaintiff's title to the three yachts was based on the original vessel construction agreement entered into between Sensation and the plaintiff. It provided that title to the super yachts was to have passed to the plaintiff. To secure its position, the plaintiff registered a security interest against the three yachts. The plaintiff recognises that the security interest must be discharged upon settlement of the settlement agreement. [27] After Burton & Co had sent to Clyde & Co all the information Clyde & Co had requested in its letter of 13 December 2007, Burton & Co heard nothing. On 23 May 2008 Burton & Co had sent to Clyde & Co a letter sending the last of thedeclarations requested by Clyde & Co and asked for arrangements as to settlement to be made urgently. The email from Burton & Co to Clyde & Co dated 29 May 2008 notes that there had been no response but that Mr Nicholson, of Burton & Co, had been in Europe and had been happy to meet with Clyde & Co if there were any legitimate concerns. He had not heard from Clyde & Co. Ultimately, on 29 May 2008 Burton & Co received from Clyde & Co an email reading:We are currently not advising Sensation. At this time I can only direct you to contact Sensation direct.[28] Thus, the plaintiff has endeavoured to provide Clyde & Co with all the information it seeks in respect of the clear title requirements. It has received no response from Clyde & Co as to whether or not the information it has given Clyde & Co is adequate. Clyde & Co's letter says it does not have instructions to act for Sensation. It may be inferred that by 29 May 2008 Clyde & Co no longer had instructions to act for the first defendant.Determination[29] The condition that the plaintiff provide evidence to the satisfaction of Clyde & Co as to clear title to the three super yachts was clearly a condition inserted into the settlement for the benefit of the first defendant. Plainly he did not wish to hand over the purchase moneys unless he knew that he was to receive the three super yachts unencumbered. There was good reason for his concern given that the plaintiff was a company registered in the Cayman Islands with Russian principals. He needed to be satisfied that there was no way that any third party (of which he might be unaware) might have any interest in the three super yachts which he was purchasing. [30] The law relating to a party's obligations in respect of conditions such as that set out in paragraph 4(a) of the letter of 24 September 2007 may be summarised as follows: a) A party for whose benefit a condition is inserted has an obligation to take all reasonable steps to enable the condition to be fulfilled;b) Whilst the onus of proving a failure to take reasonable steps lies with the party asserting the failure, the party relying on the failure of the condition carries the burden of satisfying the Court that it was not satisfied on a reasonable and fair basis: see Lerner v Schiehallion Nominees Ltd [2003] 2 NZLR 671, Mirams v Bruce (2006) 5 NZ ConvC 194, 292, Dashwood Vineyards v Hammond HC BLE CP15/99 21 July 2000 Wild J, and Burrows Finn & Todd Law of Contract in New Zealand (3rd ed) para 8.2. [31] In this case, the plaintiff has done everything required of it as set out in the letter of 13 December 2007 from Clyde & Co. It is clear that Clyde & Co were the agents of the first defendant in respect of the approval of title. While Clyde & Co have not confirmed their approval, nevertheless, the first defendant has failed to take such steps as were reasonable to enable Clyde & Co to either approve or reject the plaintiff's documentation. [32] In addition, paragraph 2 of the letter of 27 September 2007 required both parties to act with all reasonable speed to complete the settlement. The plaintiff needed to satisfy Clyde & Co's requisitions. It claims it has done so and there is no evidence to the contrary. The first defendant needed to give Clyde & Co instructions to enable it to carry out the obligations imposed on it in terms of clause 4(a) of the letter of 24 September 2007. The first defendant has not done so. It is in breach of the settlement agreement. [33] The plaintiff also claims that the evidence before the Court should be sufficient to satisfy it that it has done everything necessary to enable Clyde & Co to give its approval as to clear title. I agree that this seems to be so. However, this is not a matter for determination by the Court but by Clyde & Co. If it is suggested that the plaintiff has failed in this regard then there is an evidential onus on the first defendant to show that this has occurred. There is no evidence in this regard from the first defendant.Conclusion[34] I am satisfied that the first defendant has failed to pay the deposit and otherwise settle the settlement agreement as required by its terms. It has endeavoured to rely upon a condition which required performance by it for its implementation. The first defendant has failed to take such steps as were necessary to enable the condition to be satisfied. The plaintiff has done all that was required by it in terms of the condition. In these circumstances I am satisfied that the first defendant has failed to carry out its obligations in terms of the settlement agreement. [35] This is a summary judgment application. In terms of High Court Rule 136(1), the plaintiff has established that the first defendant has no arguable defence. As a matter of law the first defendant's defence of the non-fulfilment of the conditions in clause 4(a) of the letter of 24 September 2007 fails because of the failure of the first defendant to ensure that it could be fulfilled. Accordingly, the plaintiff is entitled to summary judgment. [36] Specific performance will not be ordered if there is an adequate alternative remedy in law – see Tipping J in Attorney-General for England and Wales v R[2002] 2 NZLR 91 at 120. Further, specific performance is an equitable remedy involving the exercise of judicial discretion which must be exercised in a principled way. In this case, there is no suggestion that the settlement agreement was unfair. It was a commercial contract entered into by commercial entities, both of whom were legally advised. It cannot be claimed that hardship would result to the first defendant if specific performance were ordered. The only hardship possibly accruing to the first defendant is that he might not receive unencumbered title to the three super yachts. In this regard, the remedy was in the first defendant's hands: he failed to avail himself of it. [37] Given the significant value of the property changing hands in terms of the settlement agreement, the Court was concerned as to whether specific performance was an appropriate remedy. The alternative would have been judgment on liability for the plaintiff. This could have had the effect of re-opening all the disputes which the settlement agreement was designed to cure. Neither party seeks this. At the endof the hearing, both parties agreed that the most appropriate remedy, if summary judgment was to be granted, was an order for specific performance. [38] Accordingly, there is an order for specific performance of the settlement agreement referred to in the letters dated 24 and 27 September 2007 between the plaintiff and the first defendant, as follows: (i) The first defendant shall cause payment to be made of the deposit of US$2,150,000 to the plaintiff within seven days of the date of this judgment; (ii) The plaintiff and the first defendant shall forthwith cause completion of all documents required for the plaintiff to pass title in super yachts SY32 / SY34, and SY35 to the first defendant and/or his nominee; (iii) On completion of (ii) above, the first defendant shall cause payment to the plaintiff of the balance due in terms of the settlement agreement in the sum of US$19,350,000 forthwith. [39] The parties did not argue costs. Prima facie costs calculated in accordance with 2B of the scale are justified in favour of the plaintiff against the first defendant. There is an order accordingly. _____________________ Associate Judge J D Hole