VALERY VICTOROVICH POLETAEV V PAVEL PETROVICH MORGOUN HC NEL CIV 2008-442-394

VALERY VICTOROVICH POLETAEV V PAVEL PETROVICH MORGOUN HC NEL CIV 2008-442-394 18 November 2008IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY CIV 2008-442-394BETWEEN VALERY VICTOROVICH POLETAEV Plaintiff AND PAVEL PETROVICH MORGOUN Defendant Hearing: 13 November 2008 Appearances: Mr McRae for the Plaintiff Mr Fitchett for the Defendant Judgment: 18 November 2008 at 4.00 pmJUDGMENT OF MALLON JIntroduction[1] On 9 September 2008 Mr Poletaev obtained ex parte orders restraining Mr Morgoun from removing from New Zealand or otherwise disposing of any of his assets (that is, "mareva" orders). Mr Morgoun now applies to discharge the orders or alternatively to vary them. The discharge is sought on the basis that there is no risk of dissipation of assets, that full disclosure of relevant facts was not made to the Court when the orders were sought and that Mr Poletaev's undertaking as to damages does not offer real protection. The variation is sought in respect of funds said to be beneficially owned by Mr Morgoun's wife.Background[2] Mr Poletaev and Mr Morgoun are Russian businessmen. Mr Poletaev lives in Russia and Mr Morgoun now lives in Fiji but they both spend some time in Nelson, New Zealand. [3] Mr Poletaev contends that Mr Morgoun owes him US$1,054,498. He has commenced proceedings against Mr Morgoun seeking summary judgment for that sum. Mr Poletaev's claim is on the basis of an Acknowledgement of Debt dated 25 February 2005 which he says was signed by Mr Poletaev and Mr Morgoun in Fiji. [4] Mr Poletaev says that the background to the Acknowledgement of Debt was two earlier agreements. One of those agreements is said to be an agreement he entered into with Vista Limited, a company controlled by Mr Morgoun, on 21 December 1999. Under this agreement Mr Morgoun acted as Mr Poletaev's "banker". Monies were deposited into a USD bank account Vista held with the National Bank at Nelson and paid out at Mr Poletaev's direction. The other agreement is said to be one under which Mr Poletaev agreed to advance funds to Mr Morgoun to buy a fishing company in Fiji. There does not appear to be documentary evidence before the Court of this second agreement, although Mr Poletaev has produced a copy of agreements of an intended sale by Mr Morgounof this fishing company, which Mr Poletaev says were given to him by Mr Morgoun to show that he had the funds to repay Mr Poletaev. [5] Mr Morgoun contends that the Acknowledgement of Debt is a forgery and in any event is not supported by consideration. He accepts that there was an arrangement between Mr Poletaev and Vista under which third parties who purchased fish from Mr Poletaev's fishing operations in the Russian EEZ were deposited into Vista's account. Mr Morgoun says that Mr Poletaev's fishing activities were illegal and that the deposits into Vista's account were to evade Russian tax. [6] The summary judgment application came on for hearing before Associate Judge Christiansen on 12 November 2008. His Honour reserved his decision.Risk of dissipation[7] On the application for discharge and variation that is before me Mr Morgoun does not contest that Mr Poletaev has a good arguable case. The first ground on which the discharge is sought is that in obtaining the mareva orders Mr Poletaev did not show risk of dissipation of assets and there is no such risk. [8] The mareva orders in this case were granted pursuant to r 239 of the High Court Rules. That empowers the Court to restrain a party from "removing, or otherwise dealing with, assets in New Zealand whether or not the party is domiciled, resident, or present in New Zealand". [9] It is well established than an applicant for mareva orders must present evidence which shows a risk of dissipation of assets if the orders are not made. In this case counsel's memorandum asserted that Mr Morgoun now spends the majority of his time in Fiji and was intending to depart for Fiji on 9 September 2008. It said that Mr Poletaev believed that Mr Morgoun "at some stage in the past 12 or 18 months, has begun disposing of real property assets that [he] previously had in Nelson". Mr Poletaev's affidavit on which this submission was based said:I also believe that if Mr Morgoun returns to Fiji he will never pay me, but will continue do [sic] everything he can to avoid doing so. I am concerned that he has already disposed of a number of assets he had in New Zealand. I am aware that he used to have several properties in Nelson – at least four of which I am aware. Of the four properties that I am aware him [sic] having had interests in, a recent search of the Land Register shows that he and his wife are now registered proprietors of only one property. I annex and mark as "F" a search of copy of the title for NL156/63, a house property in Neale Avenue at Nelson. The property is in the name of the Morgouns and appears to be unencumbered.[10] Counsel for Mr Morgoun submits that Mr Morgoun disposed of properties in the ordinary course of business. Mr Morgoun's affidavit attaches an email from him to his solicitor setting out the following: 1996 Purchase of 39 Aldinga Avenue, Stoke 2002 Purchase of house in Fiji March 2004 Purchase of flat at 24/1 Tasman Street, Nelson September 2004 Sale of house in Fiji December 2004 Purchase of 51 Neale Avenue, Stoke March 2005 Purchase of Hill Street, Richmond March 2005 Sale of 39 Aldinga Avenue, Stoke February/March 2006 Sale of 24/1 Tasman Street, Nelson January 2008 Sale of Hill Street section [11] An affidavit which has since been filed on behalf of Mr Poletaev, and which attaches QV sales history, shows that the information provided by Mr Morgoun is not entirely correct in that the Tasman Street property was sold in early 2007 (and not 2006) and the Aldinga Avenue property was sold in 2007 (and not 2005). The affidavit also shows that the January 2008 Hill Street sale relates to the date of the agreement for sale and purchase and that settlement occurred in March 2008. [12] Counsel for Mr Poletaev accepts that the history does not show a nefarious intent to dispose of assets in the face of a claim by Mr Morgoun. He submits that this is not required. He submits that the sale of these properties shows that Mr Morgoun's assets have been liquidated and are able to be readily transferred out of New Zealand.[13] Mr Fitchett, counsel for Mr Morgoun, advises that Mr Morgoun's assets in New Zealand presently comprise a house, which has a value of approximately $650,000 and which is in the joint names of Mr Morgoun and his wife, and a deposit of approximately $290,000 in the Nelson Building Society, which is also in the joint names of Mr Morgoun and his wife. Mr Fitchett submits that there is no risk of dissipation even if the restraining orders were discharged and Mr Morgoun were to take the funds presently on deposit in New Zealand to Fiji. He submits that, because the Acknowledgement of Debt was signed in Fiji and Mr Morgoun lives in Fiji, assets taken to Fiji are not assets that are dissipated. He notes that Mr Morgoun was only able to be served in New Zealand with the proceeding because Mr Poletaev obtained an injunction restraining him from leaving. [14] Mr Fitchett accepts that this is a "novel" submission. It also does not address the risk that the power in r 239 is directed at. That risk is that assets "in New Zealand" will be removed or otherwise dealt with so that a judgment in New Zealand will not be able to be readily enforced. The rule applies "whether or not the party is domiciled, resident, or present in New Zealand". I therefore do not accept Mr Fitchett's submission. [15] In my view there is a risk of dissipation such that there is a danger of default on the judgment sum that Mr Poletaev is claiming. Mr Morgoun now lives in Fiji. He is separated from his wife. He has sold three New Zealand properties in the last two years. His only remaining assets in New Zealand are the proceeds in the National Bank shares and the house. There is a risk, as acknowledged by the submissions for Mr Morgoun, that his remaining assets will be transferred to Fiji. Mr Poletaev's affidavit referred to a number of requests for payment he has made and the difficulty he has had in contacting Mr Morgoun in Fiji. There are aspects of his disclosure of his assets that are of concern (see [32] below). In these circumstances there is a danger that Mr Morgoun will not have assets in New Zealand against which a judgment may be enforced and that whatever assets Mr Morgoun has in Fiji will not be made available by Mr Morgoun to meet any judgment sum.Non-disclosure[16] It is well established that an applicant for mareva orders has a duty to disclose all material facts. Mr Morgoun's notice of opposition took issue with Mr Poletaev's disclosure to the Court in a number of respects. Not all of these were pursued at the hearing before me. [17] The first matter of alleged non-disclosure that is pursued is that the debt was a debt of Vista Limited, and the applicant failed to explain how that became a debt of Mr Morgoun. It is said that Mr Morgoun has requested a breakdown of how the debt is said to be comprised but that has not been forthcoming. [18] In my view this ground of non-disclosure is not made out. Mr Poletaev's claim is based on the Acknowledgement of Debt. A copy of this document was attached to his affidavit filed in support of his application for the mareva orders. Mr Poletaev's affidavit explained that the Acknowledgement of Debt was signed in Fiji. He explained that it was on the basis of the agreements referred to above (at [4]). He annexed a copy of the December 1999 agreement. This agreement was recorded as being between Vista Limited as "Banker" and Mr Poletaev as "Depositor" and, amongst other things, provided that "[a]ny funds from any source shall be accepted to the Banker's account and transferred in any currency on the Depositor's instructions to any account". Mr Poletaev explained that, in consideration of Mr Morgoun's promises to pay the debt, he forbore taking any immediate enforcemental action. [19] The accompanying memorandum from counsel for Mr Poletaev said the following:The plaintiff intends to bring summary judgment proceedings against the defendant for debts the plaintiff alleges are owed to him by the defendant under a 'protocol' or agreement and acknowledgement of debt (the "acknowledgement agreement"). The debts arose out of various business dealings since about 2000 between the plaintiff, the defendant and Vista Limited a New Zealand company at one time incorporated with a registered office in Nelson New Zealand and controlled by the defendant. In the business dealings the defendants acted as the plaintiff's "banker" or agent in New Zealand in respect of various payment-related and other transactions or services, provided in and from New Zealand and required in respect of theplaintiff's and his associates' fishing and other businesses in the wider Pacific region. The defendant on about 25 February 2005 acknowledged in writing his indebtedness to the plaintiff for amounts totalling US$1,111,034. Since then and despite many promises to pay or to raise funds by various means, the defendant has failed or neglected to pay the plaintiff, except for US$55,536 paid to the plaintiff's brother Vitaly Poletaev. The plaintiff agrees at [sic] the sums paid to his brother are to his benefit and accepts that the outstanding debt under the acknowledgement agreement now stands at $1,055,498 (the "outstanding debt"). The plaintiff is not aware of any defence the defendant might have against the plaintiff's claim for summary judgment. At the very least, he submits he has a good arguable cause against the defendant, based on their written agreement, in the acknowledgement agreement.[20] If the Judge considering the ex parte application had any questions in light of this it was open to him to enquire further. [21] The next area of alleged non-disclosure is that the Court was not told that the money being deposited was money laundered from illegal fishing operations. This is a ground on which the summary judgment application is opposed. Counsel for Mr Poletaev says there was simply no way Mr Poletaev could predict this allegation would be made and that he could not disclose what could not be predicted. It is not possible on the material before me to resolve this. The issue is before the Associate Judge in the summary judgment application. In the meantime Mr Morgoun has not established that the account was used for money laundering of illegal fishing activities and so has not established that there was a failure to disclose this. [22] Mr Morgoun contends that Mr Poletaev, or his counsel, failed to refer the Court to the proper principles to be followed when a deponent is not fluent in English. I do not consider this to be material non-disclosure. Mr Poletaev's affidavit filed in support of the application explained:I do not speak very much English. I have had the contents of my affidavit read to me by my solicitor and those contents explained to me carefully in Russian by my friend Mrs Irina Wares, who is a professional interpreter I am confident that I understand what is in my affidavit and I confirm its truth, to the best of my knowledge and belief.[23] Mr Morgoun contends that Mr Poletaev, or his counsel, failed to refer the Court to whether the agreements should be construed pursuant to New Zealand,Fijian, Russian or United States law. He did, however, disclose that he and Mr Morgoun were Russians and that the Acknowledgement of Debt was signed in Fiji in respect of payments made in New Zealand. Mr Morgoun's counsel acknowledges that the failure to refer to a conflict of law issue "would not be determinative of itself". I agree – the relevant facts in this respect were all disclosed: the nationality of the parties, where the debt arose and where the Acknowledgement was signed. Subsequently, copies of the Russian version of the agreements have also been supplied. [24] There is an allegation that an English translation of an email exchange is inaccurate in some respects. Counsel for Mr Morgoun acknowledges that this is not a sufficient ground to discharge the mareva orders even if the inaccuracy were established. [25] The alleged grounds of non-disclosure are not made out. Even if they were, counsel for Mr Morgoun says that the Court would then need to review the orders "de novo". Given that the existence of a good arguable case is not challenged, and the risk of dissipation is established, the orders would be appropriate even looking at the application afresh at this point.Undertaking as to damages[26] In support of the mareva application Mr Poletaev provided an undertaking as to damages and disclosed that he had unencumbered real property at Atawhai. Counsel for Mr Morgoun advises that, because of the limited details provided by Mr Poletaev, it was only by good luck that Mr Morgoun was able to investigate the details of this property. But Mr Morgoun's main point here is that this property is on the market and could be easily sold, with the proceeds remitted overseas and the undertaking thereby rendered valueless. [27] There has been correspondence between the parties about this. I am told that counsel for Mr Morgoun has proposed that an "all obligations mortgage" be given over the property in favour of the Registrar. Counsel for Mr Poletaev advises that an unlimited mortgage over the property, which has a rating valuation of $300,000, isuncalled for, but that Mr Poletaev is prepared to provide a mortgage securing up to $20,000 in support of his undertaking. [28] The purpose of an undertaking as to damages is to protect a defendant if he or she sustains damage from the making of the mareva order which the Court finds the plaintiff ought to pay. The undertaking must have substance. Where there may be difficulty in enforcing the undertaking because, for example, the applicant resides out of the jurisdiction, security for a reasonable amount to support the undertaking may be required: see McGechan on Procedure at HR 238.20. [29] In this case Mr Morgoun has not provided evidence as to loss he may sustain from the mareva. In the absence of such evidence I agree that security by way of a mortgage over the Atawhai property for an amount up to $20,000 is sufficient.Variation[30] If the Court does not discharge the mareva orders Mr Morgoun seeks, in the alternative, a variation. The variation proposed is that one-half of the $290,000 (approx) that is held in the joint names of Mr Morgoun and his wife should be released to his wife. In support of this variation Mr Morgoun has produced an "Agreement of Separation" dated 7 July 2008 signed by Mr Morgoun and Mrs Morgoun. This agreement refers to their separation on 1 December 2006 and sets out an agreed division of assets under which all the money in the joint account is to be owned by Mrs Morgoun as a "child support lump sum until July 2014". [31] Mr Fitchett advises that his instructions from Mr Morgoun are that the freezing of those funds is causing hardship to Mrs Morgoun. He acknowledges that "probably the 'correct' course" would be for Mrs Morgoun to instruct separate solicitors and for them to make an application. But to avoid unnecessary costs the application for variation has been pursued by Mr Morgoun's counsel. Counsel further advises that he is aware that Mr Morgoun and Mrs Morgoun have been involved in protracted discussions concerning relationship property and that he was not aware of this July 2008 agreement until recently. He notes that the agreement has not been certified to show that each party has received independent legal adviceand so, if New Zealand law applies to the agreement, it is not valid. He submits that at the least Mrs Morgoun is beneficially entitled to half of the proceeds and that therefore a variation releasing half of the proceeds to Mrs Morgoun would be appropriate. [32] Counsel for Mr Poletaev opposes this variation. He submits that the Court should be sceptical about Mr Morgoun's claims. He refers to a number of reasons for the Court to be sceptical. Amongst those matters are: a) The inaccuracies in the dates properties were sold; b) Mr Morgoun did not include the joint account in his Statement of Assets and Liabilities; c) Mr Morgoun did not include his shares in Vista Imports Ltd in his Statement of Assets and Liabilities; d) Mr Morgoun sought to transfer his shares in Vista Imports Ltd to a third party after the mareva orders were in place. [33] Mr Morgoun has offered explanations for these matters, but the fourth of these matters is of particular concern to me. Whether the shares in Vista Imports Ltd were valueless or not the Court had ordered that all his assets were frozen. That does give cause for scepticism about the July 2008 agreement, particularly when Mrs Morgoun has not applied for the variation. Indeed Mr Morgoun acknowledges in his affidavit that his statements about the funds in the joint account "will be looked on with cynicism". He also advises that his wife is agreeable to him accessing some of the funds for his legal purposes. [34] Putting the July agreement to one side, the funds are held in their joint names. Counsels' submissions proceeded on the basis that, absent any contrary agreement, the funds were held "jointly". On the face of it therefore, each of Mr Morgoun and Mrs Morgoun are the legal owners of the whole of the funds unless and until their interests are severed. The mareva orders properly apply to those funds.Mrs Morgoun could, however, seek the release of funds necessary to meet her living expenses. Mr Poletaev's counsel advises that if this was sought by Mrs Morgoun, Mr Poletaev would consent to a reasonable proposal from her in this respect. [35] As a further alternative, counsel for Mr Morgoun submits that $6,000 should be released to Mrs Morgoun if she wishes to seek legal advice and to pursue an application to the Court for the release of funds if she wishes to do so in light of that advice. I consider that is an appropriate variation to make in the circumstances and it was not opposed by counsel on behalf of Mr Poletaev.Result[36] The application for discharge of the mareva orders made on 9 September 2008 is dismissed. The plaintiff is to provide a mortgage over his Atawahi property for up to $20,000 as security in support of his undertaking as to damages. The application for variation succeeds to the extent that the $6,000 may be released to Mrs Morgoun if she wishes to seek legal advice in respect of the mareva orders and to make an application for variation in light of that advice. [37] I leave it to the parties' counsel to agree as to how these orders are to be implemented, with leave to apply to the Court on short notice if necessary. Mallon JSolicitors: F Farr, C & F Legal, Solicitors, PO Box 1049, Nelson (ph: 03 545 8080, fax: 03 545 8082) J Fitchett, Rout Milner Fitchett, Solicitors, PO Box 580, Nelson (ph: 03 548 0064, fax: 03 546 9107)