Tolstikov v Ivanov

[2024] NZHC 710

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-2196

[2024] NZHC 710

BETWEEN

S V TOLSTIKOV

Plaintiff

AND

I A IVANOV

Defendant

Hearing:	30 and 31 October 2023
Appearances:	M Colthart and K Lydiard on behalf of the plaintiff Mr Ivanov as self-represented defendant
Judgment:	28 March 2024

JUDGMENT OF  ROBINSON J

This judgment was delivered by me on 28 March 2024 at 3:30 pm pursuant to Rule 11.5 of the High Court Rules

…………………………………………………………………… Registrar/Deputy Registrar

Solicitors/counsel:

Calibrate Legal, Auckland M Colthart, Auckland

K Lydiard, Auckland

Copy to:
Mr Ivanov

TOLSTIKOV v IVANOV [2024] NZHC 710 [28 March 2024]

Introduction

[1]    On 16 July 2019, the plaintiff (Mr Tolstikov) and the defendant (Mr Ivanov) entered into an agreement to purchase and develop the business trading as “Top Catch”,  which  primarily  sells  bait  and  fishing  tackle   (Topcatch  Agreement). Mr Ivanov became the sole director and shareholder of Topcatch Limited (Topcatch) and managed the business on a day-to-day basis, but Mr Tolstikov was its major investor. The Topcatch Agreement provided that Mr Ivanov held shares in Topcatch as trustee, and that Topcatch was also a trustee of the Topcatch Trust.

[2]    Disputes arose between Mr Tolstikov and Mr Ivanov. On 7 December 2020, they entered into a Termination Agreement pursuant to which Mr Ivanov was to pay Mr Tolstikov the amount he had invested in Topcatch which they calculated to be

$2,223,261 (Termination Sum) by 15 December 2020. Mr Ivanov did not pay the Termination Sum on the due date.

[3]    Mr Tolstikov and Mr Ivanov had further discussions on 20 January 2021. They agreed to vary the Termination Agreement by extending the repayment date to 20 March 2021 and reducing the Termination Sum to $2,205,298 (Amended Termination Sum). They also agreed that Mr Tolstikov would receive interest on the Amended Termination Sum at the rate of 15 per cent per annum, payable in monthly instalments of $27,556 from January 2021. One of the issues in dispute in this proceeding is whether Topcatch or Mr Ivanov personally was liable to pay this interest.

[4]    Mr Ivanov has not paid Mr Tolstikov the Amended Termination Sum. However, Topcatch has paid Mr Tolstikov interest from 10 February 2021 until part way through July 2021.

[5]    On 1 November 2021, Mr Tolstikov issued these proceedings against Mr Ivanov alleging a breach of the Termination Agreement (as varied). He seeks orders for payment of the Amended Termination Sum of $2,205,298 together with the monthly interest not paid between July and 10 September 2021, plus interest from that date at 15 per cent per annum, accruing at $906.29 per day.

Mr Tolstikov’s summary judgment application

[6]    When Mr Tolstikov filed these proceedings, he also applied for summary judgment on the grounds that Mr Ivanov had no arguable defence to the claim.

[7]    Mr Ivanov opposed the summary judgment on the grounds that he had reasonably arguable defences, namely:1

1.the Termination Agreement and any variation is unenforceable because of a lack of certainty;

2.the Termination Agreement fails for a lack of valuable consideration;

3.payment under the original Termination Agreement was conditional on Topcatch obtaining sufficient finance;

4.under the variation to the Termination Agreement there was no longer a settlement date by which the Amended Termination Sum needed to be repaid, with Mr Ivanov instead having agreed that Topcatch would pay Mr Tolstikov interest until it could arrange finance; and

5.Messrs Ivanov and Tolstikov agreed that Topcatch, not Mr Ivanov personally, would pay interest to Mr Tolstikov.

[8]    Associate Judge Sussock declined Mr Tolstikov’s application for summary judgment.2 Her Honour did not consider it reasonably arguable that the Termination Agreement failed for lack of certainty,3 or for lack of valuable consideration.4 Nor did she consider it reasonably arguable that the original Termination Agreement was conditional on finance.5 However, as for Mr Ivanov’s alternative contention that the January 2021 Termination Agreement was varied to become conditional on finance, Associate Judge Sussock held:6

1      Tolstikov v Ivanov [2022] NZHC 2052 at [7].

2 At [54].

3 At [34].

4 At [40].

5 At [41].

6      At [50]

In my view it is not possible to say there is no real doubt or uncertainty about whether the Termination Agreement was varied to be conditional on finance (with interest payable in the meantime) as Mr Ivanov submits is the position. I do not consider therefore that summary judgment can be entered for payment of the Amended Termination Sum, as Mr Ivanov has a reasonably arguable defence in this respect.

[9]    Her Honour also considered that Mr Ivanov had a reasonably arguable defence that under the varied Termination Agreement Topcatch is liable to pay Mr Tolstikov interest, not Mr Ivanov personally.7

Issues at trial

[10]The primary issues in dispute are:

1.whether the Termination Agreement (as varied) is valid and enforceable;

2.whether the Termination Agreement was conditional on finance;

3.alternatively, whether the Termination Agreement was varied orally in January 2021 to become conditional on finance; and

4.whether Topcatch or Mr Ivanov was obliged to pay Mr Tolstikov interest.

[11]   In his clear and concise submissions, Mr Ivanov says there was no conflict between the parties when they entered into the Termination Agreement. He says that he and Mr Tolstikov did not intend the Termination Agreement to be a legally binding contract, but merely an agreement as to the “numbers” he would need to pay Mr Tolstikov in order to bring their obligations to each other to an end. Mr Ivanov says that in any event, any agreement he had with Mr Tolstikov was entirely conditional on finance. He says that Mr Tolstikov was well aware that Mr Ivanov was unable to pay the Termination Sum without raising finance. He says that between December 2020 and March 2020 he spoke with Mr Tolstikov to give him regular progress reports on his attempts to raise finance, which he was ultimately unable to do.

7 At [53].

Factual background

[12]   The relevant factual background is largely set out at paragraphs [9] – [20] of Associate Judge Sussock’s judgment.

[13]   As I have noted, the parties entered into the Topcatch Agreement on 16 July 2019. At that time, the Topcatch business owned 11 stores throughout New Zealand selling bait and fishing equipment.

[14]   Under the Topcatch Agreement, Mr Ivanov was to purchase all of the shares in Topcatch, to be held on trust for the purposes of purchasing and developing the business of a number of related companies. Topcatch was also to be a trustee of the Topcatch Trust. Mr Tolstikov was to contribute 72 per cent of the equity for Topcatch and receive 72 per cent of the operational profit as a beneficiary of the Topcatch Trust. Mr Ivanov would contribute 28 per cent of the equity and would receive 28 per cent of the operational profit as a beneficiary of the Topcatch Trust.

[15]   By November 2020, there were various disagreements and differences between the parties, including about the levels of their relative contributions and Mr Ivanov’s drawings. On 10 November 2020, following various email exchanges between them, Mr Ivanov sent Mr Tolstikov an email stating: “I think that in that case we should part”.

[16]   On 11 November 2020, Mr Ivanov emailed Mr Tolstikov. He discussed the trust and mechanics of payments. He advised that he would give his solicitor “the task to prepare the paper and then send it to you for approval”.

[17]   On 12 November 2020, Mr Tolstikov replied to Mr Ivanov’s email of the previous day. He recorded “the main points of our conversation”, including that settlement would be scheduled for 15 December 2020, and that:

For my part, I sign a Paper according to which, in all senses and jurisdiction, you become the sole owner of Topcatch and I have no complaints against you. Accordingly, you also signed this paper, which also has no complaints against me from now on.

[18]   During cross-examination, Mr Ivanov accepted that Mr Tolstikov’s email contained the main points of their conversation.

[19]   On 17 November 2020, Mr Ivanov forwarded to Mr Tolstikov a draft of the termination that had been prepared by Mr Ivanov’s solicitor. Mr Ivanov commented that the document was “simply and clearly stated in my opinion”.

[20]   The parties exchanged further drafts of the Termination Agreement. On 7 December 2020, Mr Tolstikov’s solicitor sent Mr Ivanov’s solicitor a copy of the Termination Agreement signed by Mr Tolstikov. Mr Ivanov’s solicitor forwarded this to him asking for comments, “particularly on the settlement date and the amount to pay”. On the same day, Mr Ivanov signed the Termination Agreement without amendment. Mr Ivanov’s solicitor witnessed his signature.

[21]   In December 2020, the parties entered into the Termination Agreement. The Termination Agreement had been drafted by Mr Ivanov’s solicitor. It provided:

Terms

1.    The parties entered into an agreement dated 16 July 2019 (“Topcatch Agreement”) in relation to Topcatch Limited (“Topcatch”).

2.    On 15-th of December 2020 - 16-00 New Zealand time (“Termination Date”):

2.1[Mr Ivanov] must repay to [Mr Tolstikov] in cleared funds without deduction or set-off an amount equal to the total funds that [Mr Tolstikov] invested into Topcatch which have not already been repaid as follows:(1) $1,253,674 Loan 1, (2) $61,624 Loan 2, (3) $890,000 Investments, (4) $13,713…(5) $4,250 Total $2,223,261 (two million two hundred twenty three thousand two hundred sixty one New Zealand dollars)

2.2The parties agree that the Topcatch Agreement will be terminated upon repayment as provided for at clause 2.1 and the parties will have no rights, obligations or liabilities under the Topcatch Agreement.

3.    The consequences and effects of termination of the Topcatch Agreement will include that:

3.1[Mr Tolstikov] will have no rights of ownership or right to profits of Topcatch;

3.2[Mr Tolstikov] acknowledges he is not owed any amounts by [Mr Ivanov] and Topcatch and release [Mr Ivanov] and Topcatch from any claims he may have against them now or in the future;

3.3[Mr Ivanov] acknowledges he is not owed any amounts by [Mr Tolstikov] and releases [Mr Tolstikov] from any claims he may have against him now or in the future;

3.4On behalf of Topcatch, [Mr Ivanov] acknowledges Topcatch is not owed any amounts by [Mr Tolstikov] and releases [Mr Tolstikov] from any claims it may have against him now or in the future.

4.    This agreement will be governed by and interpreted according to the laws of New Zealand. Each party irrevocably submits itself to the jurisdiction of the New Zealand courts.

[22]   Mr Ivanov did not pay the Termination Sum of $2,223,261 by 15 December 2020. However, as noted, Mr Ivanov’s evidence is that the Termination Agreement was not intended to be a binding contract, but merely a record of the amount he would need to pay Mr Tolstikov in order to bring their arrangements to an end. In any event, and somewhat in the alternative, Mr Ivanov says that any agreement recorded in the Termination Agreement was entirely conditional on finance.

[23]   In a discussion on 20 January 2021, Mr Ivanov and Mr Tolstikov agreed to vary the Termination Agreement so that Mr Ivanov would pay the Amended Termination Sum ($2,205,298 on 20 March 2021). They also agreed that Mr Tolstikov would be paid monthly interest at the rate of 15 per cent per annum. Mr Ivanov’s evidence is that they agreed his obligation to pay the Amended Termination Sum was conditional on finance and interest would be paid by Topcatch, not by Mr Ivanov.

[24]   After their discussion on 20 January 2021, Mr Ivanov sent Mr Tolstikov an email as follows:

Hi Sergey,

Please see summary of our conversation below. Minutes from the telephone discussion on 20/02/2021.8

1.Agreed to shift the settlement day for termination agreement to 20/03/2021

2.Agreed that TopCatch Limited will pay to investor Sergey Tolstikov an interest of 15% p.a. on total investments received from investor of

$2,205,298 in monthly payments of $27,566 including taxes. Effective from January 2021. First payment increased interest on 10/02/21.

8      The parties agree this should be 20/01/21.

Kind regards, Igor Ivanov.

[25]   Mr Ivanov did not pay the Amended Termination Sum or any part of it by   20 March 2021. However, Topcatch paid Mr Tolstikov the monthly interest payments from January 2021 until June 2021, and made a part payment ($10,012 short) for July.

[26]   On 14 March 2021, six days before the Amended Settlement Sum was due, Mr Tolstikov emailed Mr Ivanov as follows:

Hi Igor

We agreed that we were breaking up. I’ve given you enough time. I’m sorry you didn’t make it.

Kind regards Tolstikov

[27]Mr Ivanov replied:

Hi Sergey

We have already broken up. The whole issue is technical difficulties [sic] Kind regards

Igor

[28]   The next day, on 15 March 2021, Mr Tolstikov emailed Mr Ivanov to say “given the current situation, I suggest you the following [sic]”. Mr Tolstikov went on to inform Mr Ivanov that he wanted full access to Topcatch’s accounting software and bank accounts and control over the company’s payments. He advised he would be appointing a new trustee who would arrange an audit of the company.

[29]   Mr Ivanov responded that he did not accept any of these demands, which he considered to be unreasonable. He advised that:

Meanwhile Topcatch will continue to fulfil its obligations in regards of interest payments to you and will keep working with banks to replace your investments according to the Termination Agreement you have signed.

[30]   On 25 March 2021, Mr Tolstikov’s solicitor wrote to Mr Ivanov’s solicitor as follows:

1.   My clients [sic] hope is that you honour the termination agreement as amended on 20 February 2021 and settle prior to a deadline of 4pm on 2 April 2021.

2.   Failure to settle as agreed prior to 4pm on 2 April 2021 will result in a notice to remove you as Director of Topcatch Limited as provided for in the Agreement regarding Topcatch purchase and development to be followed by court proceedings being filed against you for breach of trust and breach of contract to recover all losses.

[31]   Later that same day, Mr Tolstikov’s solicitor wrote to Mr Ivanov and his solicitor making “interim demands”. These were essentially in the same terms as set out in Mr Tolstikov’s email of 15 March 2021 requesting, amongst other things, access to MYOB and the company’s bank accounts.

[32]   On 7 April 2021, Mr Ivanov’s solicitor wrote to Mr Tolstikov’s solicitor challenging the basis of his “interim demands” and asking for particulars of the alleged breach of trust and breach of contract. On 14 April 2021, Mr Tolstikov’s solicitor advised Mr Ivanov’s solicitor that, if proceedings were to be issued, “[t]he first cause of action will be breach of contract simply because [Mr Ivanov] has failed to settle in accordance with the Termination Agreement. The loss suffered is for the full amount for settlement plus usual court costs”.

Was the Termination Agreement a valid and enforceable contract?

[33]   As noted, Mr Ivanov suggested that the Termination Agreement was not a binding contract, but merely an agreement as to the amounts that would need to be paid to Mr Tolstikov in order to bring their obligations to each other to an end.

[34]   I do not accept that submission. The evidence shows that they had agreed to part ways, and the terms on which they would do so. Mr Ivanov then instructed his solicitor to draft the Termination Agreement, which was essentially in accordance with the  terms  they  had  agreed.  It  provided  for  payment  of  Termination  Sum  on  15 December 2019, at which point the rights and obligations between them would end, as would the rights and obligations between Mr Tolstikov and Topcatch. They agreed

that the Termination Agreement would be governed by the laws of New Zealand, and they would submit to the jurisdiction of the New Zealand courts.

[35]   In those circumstances I am quite satisfied that Mr Ivanov and Mr Tolstikov intended the Termination Agreement to be a legally binding agreement; and that is what it was.

[36]   For completeness, I also agree with Associate Judge Sussock that it is not reasonably arguable that the Termination Agreement fails for lack of either certainty9 or consideration.10 The Termination Agreement is in writing and its terms are sufficiently clear.  Both parties gave  consideration.   Mr Ivanov promised to pay   Mr Tolstikov the Termination Sum and, on his own behalf and on behalf of Topcatch, released Mr Tolstikov from present and future claims. For his part Mr Tolstikov gave up ownership rights and rights to profits, and released Mr Ivanov and Topcatch from present or future claims.

[37]   I did not understand Mr Ivanov to seriously pursue these defences at trial. They cannot succeed.

Was the Termination Agreement conditional on finance (before or after variation)?

[38]   At trial, in his submissions and during cross-examination, Mr Ivanov clarified his position that the Termination Agreement was conditional on finance from the outset.

[39]   Mr Ivanov says that Mr Tolstikov always knew that he (Mr Ivanov) did not have the money to pay Mr Tolstikov out under the Termination Agreement, and would only be able to do so if he could raise finance. Mr Ivanov therefore submits that both parties knew and understood that the Termination Agreement was conditional on finance. Mr Ivanov says that he gave Mr Tolstikov regular updates on his efforts to raise finance, which ultimately he was unable to do.

9      Tolstikov v Ivanov at [31] – [34].

10     At [35] – [40].

[40]   Mr Tolstikov accepted in cross-examination that, when he signed the Termination Agreement, he knew that Mr Ivanov did not have the money required to pay him the Termination Sum. Mr Tolstikov also accepted that he knew Mr Ivanov was in discussions with banks and finance companies, at least after Mr Ivanov first defaulted under the Termination Agreement. But Mr Tolstikov’s evidence was that he and Mr Ivanov never discussed a finance condition, and he would never have agreed to it. He said that the Termination Agreement records that Mr Ivanov would repay his investment personally, and their business relationship would then end. How Mr Ivanov financed the arrangement was over to him.

[41]   On the other hand, Mr Ivanov says there was always an oral understanding that if he could not arrange finance he would not have to repay Mr Tolstikov’s investment. In cross-examination Mr Ivanov was adamant that Mr Tolstikov always knew that Mr Ivanov would not be able to make the payment without finance. He says that if Mr Tolstikov had told him he would have to make payment even if he could not arrange a bank loan then he would not have signed the Termination Agreement.

[42]   Having the considered the written and oral evidence I do not accept Mr Ivanov’s submission that the Termination Agreement was conditional on finance. It was drafted by Mr Ivanov’s solicitor. As Mr Ivanov noted, it is simple and clear. If such an important condition had been agreed it is reasonable to expect it would have been incorporated into the written agreement. But it was not.

[43]   I also agree with Associate Judge Sussock that if the Termination Agreement had been conditional on finance, there would have been no need to vary it in January 2021 when finance had not been obtained.11

[44]   By way of affirmative defence, Mr Ivanov alleges (clearly in the alternative) that when the parties orally agreed to vary the Termination Agreement in January 2021 it became conditional on finance, with interest payable in the meantime.

[45]   I do not accept that defence. Again, if the parties had agreed in their discussion on 20 January 2021 that the agreement had become conditional on finance, one would

11     Tolstikov v Ivanov at [41].

expect Mr Ivanov to have recorded this in his email of the same date in which he recorded that settlement had shifted to 20 March 2021, with interest to be paid in the meantime.12 But again, he did not.

[46]   Similarly, there is no record in the subsequent correspondence between the parties and their solicitors of them varying the Termination Agreement to make it conditional on finance. As noted above, when Mr Ivanov’s solicitor asked for particulars of Mr Tolstikov’s allegations, Mr Tolstikov’s solicitor replied that his first cause of action would be in breach of contract for failing to settle in accordance with the Termination Agreement. There was no suggestion from Mr Ivanov’s solicitor in response that his settlement obligation was conditional on finance.

[47]   Essentially, Mr Ivanov’s simple argument was that Mr Tolstikov always knew Mr Ivanov would need finance to buy him out. Therefore, their agreement was conditional on finance. However, in terms of their contractual rights and obligations, I do not consider Mr Ivanov’s obligations to pay Mr Tolstikov were ever conditional on finance. Such an important condition could easily have been recorded but there is no mention of it in the Termination Agreement or any previous or subsequent correspondence.

Who is liable to pay the interest?

[48]   Mr Colthart for Mr Tolstikov submits that when the parties orally agreed to vary the Termination Agreement in January 2021 Mr Ivanov personally became liable to pay interest. Mr Ivanov pleads that interest was payable by Topcatch.

[49]   The parties entered  into  the  Termination  Agreement  in  order  to  bring  Mr Tolstikov’s investment in Topcatch to an end. He was not a shareholder, but he was the major investor. He was a beneficiary of the Topcatch Trust, and under the Topcatch Agreement he was to receive 72 per cent of its profits in that capacity.

[50]   On the same day that they agreed orally to vary the Termination Agreement, Mr Ivanov’s email of 20 January 2021 records that Topcatch would pay Mr Tolstikov

12     At [24] above.

interest from 10 February 2021. Up until July 2021, that is what occurred. Although Topcatch was not a party to the Termination Agreement, Mr Ivanov was its sole director and shareholder and clearly had authority to bind it. As I have noted, the Termination Agreement records (amongst other things) that Mr Ivanov on behalf of Topcatch releases its claims against Mr Tolstikov, and Mr Tolstikov releases its claims against Topcatch.

[51]   In those circumstances, I am satisfied that the parties agreed that Topcatch would pay interest to Mr Tolstikov, not Mr Ivanov personally.

[52]   In written and oral submissions, Mr Colthart submitted that if the Court found Topcatch rather than Mr Ivanov personally to be liable to pay contractual interest,  Mr Ivanov would in the alternative be liable to pay Mr Tolstikov interest pursuant to the relevant provisions of the Interest on Money Claims Act 2016 (Act).

[53]   That might be  so.  However,  the  difficulty  with  this  submission  is  that Mr Tolstikov has not claimed interest under the Act in his Statement of Claim. Section 25 of that Act provides that:

25 Court may not award interest unless procedural requirements complied with

(1)A court may not award interest under a section of this Act for a period unless the party who claims interest under the section for that period specifies the section and, as far as possible, the period in that party’s statement or notice of claim or counterclaim.

(2)If a party claims interest under section 17, 18, 22, or 24,-

(a)the party must specify in that party’s statement or notice of claim or counterclaim the amount or rate of interest claimed; and

(b)the court may not award interest-

(i)exceeding the amount claimed under paragraph (a); or

(ii)at a rate exceeding the rate claimed under paragraph (a).

(3)Nothing in this section prevents interest being claimed in a statement or notice of claim or counterclaim in the alternative.

(4)Nothing in this section prevents a court from making an award of interest where the court has at any time made or accepted an

amendment to a statement or notice of claim or counterclaim in accordance with the rules of court and where that statement or notice of claim or counterclaim, as amended, complies with the requirements in subsections (1) and (2).

[54]   As matters stand, the Court is unable to award interest under the Act. It has not been claimed in the plaintiff’s statement of claim, as an alternative or otherwise.13

[55]   In those circumstances I propose to reserve the issue of interest. If the plaintiff wishes to pursue a claim for interest under the Act, counsel should file a memorandum within 10 working days setting out how he intends to do so. Mr Ivanov will, of course, have an opportunity to respond. I will make particular directions for Mr Ivanov’s response after any memorandum from counsel for Mr Tolstikov has been received.

Result

[56]I enter judgment for the plaintiff in the sum of $2,205,298.

[57]The plaintiff’s claim for contractual interest is dismissed.

[58]The issue of interest is otherwise reserved, as is the issue of costs.

Robinson J

13 At [23].