Corrao Associates Inc v Sensation Yachts Limited HC Auckland Cp.294/00

[2001] NZHC 399

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY CP.294/00

BETWEEN MARNELL CORRAO ASSOCIATES INC
Plaintiff

AND SENSATION YACHTS LIMITED
First Defendant

AND IVAN VLADIMAR JOSEPH ERCEG
Second Defendant

Hearing: 23 May 2001

Counsel: R B Stewart QC, J W Turner and S R Crosswell for Plaintiff
D A R Williams QC, C J Christie and D A Welsh for Defendants

Judgment: 23 May 2001

ORAL JUDGMENT OF RANDERSON J

Background

[1] I have before me an application by the plaintiff for certain orders arising from alleged contempt of Court by the first and second defendants.

[2] This proceeding arises from the termination of a contract between the plaintiff, Marnell, and the first defendant, Sensation, for the construction of a substantial motor yacht for a price in excess of NZ$18 million. The vessel was in the course of construction at Sensation’s yard in West Auckland when, after the issue of default notices by each party to the other, Sensation gave notice on 30 June 2000 terminating the contract. Thereafter, Marnell sought to remove the partly completed vessel and remaining inventory from Sensation’s yard for completion elsewhere in Auckland by an alternative boat builder. Difficulties arose which resulted in a series of orders by way of interim relief, mainly at the insistence of Marnell, the first of which was issued on 11 July 2000 and the last on 12 September 2000.

[3] Of importance to the matters now before the Court is the decision of Wild J given on 22 August 2000 in which His Honour granted Sensation’s application for a stay of this proceeding on the basis that the issues between the parties arising from the termination of the contract ought to be determined by the arbitration procedures provided for in the contract. Those issues include whether the contract was validly terminated and whether damages for alleged breach of contract should be awarded in favour of Marnell. On that occasion, Wild J also made certain orders against Sensation for the purpose of facilitating the removal of the vessel from its yard to that of the alternative boat builder.

[4] In late August and early September 2000, the partly completed vessel and associated inventory were removed from Sensation’s yard.

[5] In December 2000 the parties entered into a reference to arbitration and agreed on a timetable for that purpose. A hearing was set down for six weeks from 30 July 2001 before three very experienced gentlemen, all of whom are former Judges of this Court or the Court of Appeal.

[6] It was not until 1 March 2001 that Marnell filed the present application for orders arising from alleged contempt of Court by Sensation and its principal, the second defendant Mr Erceg. That application alleged non-compliance by the defendants with the interlocutory orders made in this Court last year. As a result of the filing of this application, Sensation applied for and was granted an adjournment of the arbitration which is now to be heard in March 2002.

[7] In the meantime, Marnell’s present application has been set down for hearing before me with an indicated hearing time of three days. The affidavits filed on each side are extensive and fill some five Eastlight folders. Mr Stewart QC for Marnell indicates he may wish to cross-examine some of Sensation’s deponents in relation to credibility issues.

The preliminary issue

[8] At the outset of the hearing today, I raised the issue whether this Court should be hearing the contempt proceedings at this stage at all, given what appeared to be a substantial overlap between the issues which would arise on this application and at least some of the issues which have been referred for determination by the arbitrators. I have heard argument on that question and I propose to rule on it now.

Marnell’s submissions

[9] Although the application as filed is very extensive in scope, Mr Stewart has informed me today that the issues are now quite limited. In particular, the following are now said to be the matters at issue with an indication of the relief sought in each case:

[a] The alleged destruction by Sensation of certain superstructure moulds on the weekend of 15 and 16 July 2000 in alleged breach of an order made by Fisher J on 11 July 2000 restraining Sensation from working on the vessel. The relief sought is the cost of re-assembling the moulds (said to amount to $235,000), a fine of a similar amount, and the payment of Marnell’s solicitor and client costs in relation to that issue.

[b] The alleged obstruction by Sensation of the removal of the vessel from its yard by placing another vessel in the way of the removal of the subject vessel and by alleged unjustified delay over insurance issues. In those respects, the defendants are alleged to be in breach of orders made by Wild J on 22 August 2000. In this case, the relief sought is by way of a fine for contempt.

[c] Alleged failure by the defendants to comply with orders made by me on 19 August 2000 and by Wild J on 22 August 2000 in relation to the provision of a list of inventory of components, materials, drawings, tools, and other items. It is also alleged that there has been a breach of those parts of the orders which related to the identification and location of the inventory items and alleged failure to comply with an order made by me on 29 August 2000 permitting Marnell to remove the items listed in the inventory. The allegation in this case is that those orders have still not been fully complied with. The relief sought is for solicitor and client costs of $150,000, a fine of a similar amount, and an order for sequestration of Sensation’s assets to take effect in the event that the orders made are not fully met within 28 days.

[10] Mr Stewart submitted that these issues can and should be dealt with now. They were, he said, serious contempts if proved and he submitted their determination now would not impact on or prejudice the ability of the arbitrators to carry out the arbitration. He submitted that Sensation had changed its stance having submitted to the arbitrators that the contempt should first be heard while now submitting the opposite in this Court. It would, he said, be a grave injustice if Marnell were now prevented from proceeding with the contempt application until after the arbitration is dealt with in March next year. He also raised the possibility that if the contempt application were delayed until after the arbitration, Sensation’s witnesses might decline to answer questions in the arbitration on the grounds that their answers might incriminate them in the contempt proceedings.

Sensation’s submissions

[11] For Sensation and Mr Erceg, Mr Williams QC took the opposite stance on the points raised by Mr Stewart and submitted it would be contrary to the whole thrust of Wild J’s decision of 22 August last year to permit this matter to proceed first. He also pointed out that Wild J issued a stay of this proceeding except for limited purposes and no application has been made to rescind or vary that order. Wild J had also reserved leave to apply on matters of implementation of the orders he made, yet no such application has been made. Mr Williams also submitted that Marnell had, by its conduct in submitting all matters to arbitration, waived its right to bring contempt proceedings. He sought an order for dismissal or stay of Marnell’s application while indicating that Sensation would not resist what he called a focussed application in relation to the enforcement of the orders sought about inventory matters pursuant to the leave reserved by Wild J.

Decision

[12] 1 have decided it would not be right to proceed with the present applications at this juncture for these reasons:

[a] I am satisfied there will be a substantial overlap with the issues and evidence which will arise in the arbitration. It is clear from paragraphs 138 to 150 of Marnell’s statement of defence and counterclaim in the arbitration proceedings that it is claiming damages for losses sustained, including legal costs and damages for delay, the obstruction of the removal of the vessel by various means including the alleged cutting up of the superstructure moulds, the failure to deliver inventory, and the placement of a boat in the way of the subject vessel. Damages are claimed on the basis that they are consequential on Sensation’s breach of contract or on the basis of some as yet unspecified tortious claim, possibly trespass, negligence, conversion or on some other basis such as bailment. The determination of the present applications will require findings by this Court, amongst other things, on whether these things occurred; who had ownership or possessory interests in the vessel and its componentry at the relevant time; in what circumstances the alleged breaches arose; the extent and nature of any damage caused; the cost of putting any such damage right, whether there was reasonable justification for the steps taken or not taken as the case may be; and whether Sensation’s conduct was wilful or at least contumacious. Even if damages issues were put to one side in this Court, findings of liability for contempt alone would necessarily impact on the findings the arbitrators will be obliged to make in relation to these issues.

[b] It will not usually be right in the context of interlocutory proceedings to decide issues of this kind ahead of the substantive issues to be determined by the Court or, as in this case, by an arbitration which will range over far wider issues between the parties and in a forum where matters can be fully explored at greater leisure: AustralianConsolidatedPressLtdvMorganandAnor [1964] 112 CLR 483, 489 (HCA). There is a serious risk in the present case that findings by this Court on this application could prejudice both the specific and the wider issues to be determined in the arbitration. That is plainly undesirable as was recognised by Wild J at paragraph 92 of his decision of 22 August last year when referring to ChannelTunnelGroupLtdvBalfourBeattyConstructionLtd [1993] AC 334 (HL) at 367-368.

[c] I accept Mr Williams’ submission that the purpose of the stay order made by Wild J was to have all relevant issues determined by arbitration in accordance with the parties’ agreement in their contract for construction of the vessel: paragraphs 61, 62 and 67 of His Honour’s decision.

[d] The proceeding was stayed by Wild J under his order [g] in paragraph [98] of his decision “except to the extent necessary to give effect” to his prior orders [a] to [f]. As well, in order [h], Wild J reserved leave to all parties to apply “in respect of implementation of these orders”. No application has been made either to lift the stay (which I am satisfied would be necessary) or for further relief in relation to the implementation of Wild J’s orders.

[c] The present proceedings, with the exception of the issues relating to the inventory, are for the purpose of punishing the defendants for past breaches, not for the purpose of enforcing or implementing orders not yet complied with. It follows that there is no pressing need to have the contempt issues determined now.

[f] The issue of the alleged change of stance by Sensation is not as clear cut as Mr Stewart submits. There is some support for Mr Williams’ submission that Sensation’s main concern in seeking an adjournment of the arbitration was that its resources would be diverted from preparation from the arbitration by the late filing of this present application by Marnell. Those concerns on the part of Sensation are reflected in the reasons given by the arbitrators for adjourning the arbitration. The arbitrators did not suggest the contempt proceedings should take precedence over the arbitration. Given the serious nature of the present application (which includes an application that Mr Erceg be imprisoned) both Sensation and Mr Erceg were understandably concerned. I am also satisfied that Sensation adequately signalled the stance it has adopted today in its notice of opposition in the form in which it was first filed on 6 March 2001.

[g] This is not to say that if there are breaches as alleged by Marnell, the Court would not treat them seriously. It is simply a question of the proper timing of the determination of the present application. I am satisfied that the appropriate time for the determination of this application is after the conclusion of the arbitration.

[13] I therefore propose to make an order staying the present application so far as it deals with all issues, except that relating to the inventory. I will shortly hear further submissions from counsel in relation to how the inventory issue should best be dealt with. I also indicate that I will make it a condition of the order for stay that both Sensation and Mr Erceg file written undertakings in this Court that neither of them, nor any of their witnesses, will decline in the context of the forthcoming arbitration, to answer questions arising on the grounds that their answers might incriminate them or prejudice their position in relation to the present application.

[14] I have now heard from counsel with regard to the issue of the inventory and how the parties wish to progress that matter. A proposal has been made by Mr Williams on behalf of Sensation which has yet to be considered by Mr Stewart and his client. Accordingly, counsel are agreed that this matter should simply be reserved at this stage until counsel have had the opportunity of discussing it further and advising the Court whether the Court’s assistance will be needed. I can indicate that I will be available over the next two days at any time to assist in any way I can in helping the parties to progress that matter. Counsel should communicate by way of letter or memorandum to the Registrar as soon as their position is known.

Orders

[15] The formal orders of the Court will be:

[a] Until further order, the plaintiff’s application for orders arising from alleged contempt by the first and second defendants, will be stayed on condition that the first and second defendants file formal undertakings in this Court within seven days of today to the effect that neither they nor any of their witnesses will decline to answer questions arising in the arbitration between the parties on the grounds that it might incriminate them or prejudice their position in relation to this application.

[b] The stay does not apply to issues arising in relation to the inventory identified in this decision in respect of which I will reserve my decision pending further advice from counsel.

[c] I have considered the issue of costs. In my view, it would not be right to make orders for costs either way in relation to this application. There has been a decree of fault on both sides and the making of an order in the context of the present dispute will simply exacerbate the differences between the parties. Accordingly, there will be no order for costs although that will not affect any costs order I may make in relation to the inventory aspects of the application should it become necessary to deal with that further.