Tolstikov v Ivanov

[2022] NZHC 2052

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-2196

[2022] NZHC 2052

BETWEEN

SV TOLSTIKOV

Plaintiff

AND

IA IVANOV

Defendant

Hearing:	6 May 2022
Appearances:	M Colthart and K Lydiard for the Plaintiff L Ponniah for the Defendant
Judgment:	18 August 2022

JUDGMENT OF ASSOCIATE JUDGE SUSSOCK

This judgment was delivered by me on 18 August 2022 at 4pm pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors/Counsel:

Calibrate Legal, Auckland Corban Revell, Auckland

M Colthart, Barrister, Auckland

TOLSTIKOV v IVANOV [2022] NZHC 2052 [18 August 2022]

Introduction

[1]    The parties entered into an agreement on 16 July 2019 concerning the purchase and development of a chain of retail stores trading under the name “Topcatch” (Topcatch Agreement). The plaintiff, Mr Tolstikov, resides in Switzerland and was the majority investor in Topcatch Limited. The defendant, Mr Ivanov, resides in New Zealand and was to manage and operate the stores on a day to day basis.

[2]    In late 2020 a dispute arose. As a result, the parties entered into a termination agreement on 7 December 2020 (Termination Agreement). The Termination Agreement required the defendant to repay the plaintiff “an amount equal to the total funds that [the plaintiff] invested into Topcatch which have not already been repaid”. The parties agreed this amount was $2,223,261 (Termination Sum) and was to be paid by 15 December 2020. Upon repayment, the Topcatch Agreement entered into in July 2019 would be terminated and the parties would have no rights, obligations or liabilities under that agreement.

[3]The defendant failed to pay the Termination Sum by 15 December 2020.

[4]    There were further discussions between the parties on 20 January 2021 and a variation to the Termination Agreement was agreed, delaying the date for repayment to 20 March 2021, varying the Termination Sum to $2,205,298 (Amended Termination Sum) and providing that Topcatch would pay interest to the plaintiff. The rate of interest was agreed to be 15 per cent per annum on the Amended Termination Sum, to be paid in monthly payments of $27,566 including taxes effective from January 2021. The first interest payment was due on 10 February 2021. Interest had been paid up until the date of the hearing except for a period of just over two months from July to September 2021.

[5]    The plaintiff has brought proceedings for breach of the Termination Agreement as varied seeking orders for payment of the Amended Termination Sum of $2,205,298 plus the monthly interest not paid between July and 10 September 2021 plus interest from 10 September 2021 at the rate agreed in the amendment to the Termination Agreement, accruing at $906.29 per day.

[6]    An application for summary judgment was filed at the same time on the basis that the defendant has no arguable defence to the claim.

[7]    The defendant opposes summary judgment on the grounds that the defendant has a reasonably arguable defence, as:

(a)the Termination Agreement and any variation is unenforceable because of a lack of certainty;

(b)the Termination Agreement fails for a lack of valuable consideration;

(c)payment under the original Termination Agreement was conditional on Topcatch obtaining sufficient finance;

(d)under the variation to the Termination Agreement there was no longer a settlement date by which the Termination Sum needed to be repaid, the defendant instead having agreed to Topcatch paying interest until Topcatch could secure a sufficient loan; and

(e)that there was no agreement for the defendant, Mr Ivanov, to pay interest, as opposed to Topcatch Limited.

Issues

[8]Five issues therefore arise:

(a)Does the Termination Agreement fail for want of certainty?

(b)Does the Termination Agreement fail for lack of valuable consideration?

(c)Was the original Termination Agreement conditional on finance?

(d)Was the Amended Termination Agreement conditional on finance or did it become so?

(e)Was the agreement for the defendant or Topcatch to pay interest?

Factual background

The purchase of the Topcatch business

[9]    In 2019 Mr Tolstikov and Mr Ivanov entered into the Topcatch Agreement. At that time the Topcatch business operated 11 stores throughout New Zealand selling fishing equipment and bait.

[10]   Under the Topcatch Agreement, Mr Tolstikov contributed 72 per cent of the capital whilst Mr Ivanov contributed 28 per cent.

[11]The terms of the Topcatch Agreement included:

(a)Mr Ivanov was to purchase all the shares in Topcatch Limited (Topcatch) to be held in trust for the purposes of purchasing and developing the business of a number of related companies, defined as “The Project”;

(b)Mr Ivanov was to be the sole director and shareholder of Topcatch;

(c)Mr Tolstikov was to contribute 72 per cent of the equity for Topcatch and be entitled to 72 per cent of the operational profit as a beneficiary of the Topcatch Trust;

(d)Mr Ivanov was to contribute 28 per cent of the equity for Topcatch, and be entitled to 28 per cent of the operational profit as a beneficiary of the Topcatch Trust; and

(e)covenants whereby it was intended that the Topcatch retail store network increase significantly over a period of six years.

[12]   In the period from 16 July 2019 to 15 December 2020, Mr Tolstikov alleges that he contributed in excess of $2,300,000 equity into Topcatch.

Dispute arising

[13]   In the latter part of 2020, a dispute arose between Mr Tolstikov and Mr Ivanov as to the operation and management of Topcatch. Mr Tolstikov’s evidence is that he

lost trust in Mr Ivanov as the director of Topcatch as, in his view, Mr Ivanov was taking money from Topcatch for his personal needs. Mr Ivanov disputes this but the relevant fact for the purposes of this application is that Mr Ivanov sent an email on 10 November 2020 saying, as translated, “I think that in that case we should part”.

[14]   In December 2020 the parties entered into the Termination Agreement. The Termination Agreement was drafted by Mr Ivanov’s solicitor at the time, Mr Allister Craig Wong Doo.

[15]Under the Termination Agreement:

(a)Mr Ivanov was to pay Mr Tolstikov the sum of $2,223,261 on 15 December 2020 (Termination Sum);

(b)upon repayment of the Termination Sum, the Topcatch Agreement would be terminated;

(c)upon termination of the Topcatch Agreement:

(i)Mr Tolstikov’s ownership interests in, and entitlement to a share of the profit of, Topcatch would end;

(ii)Mr Tolstikov would release Topcatch and Mr Ivanov from any existing or future claims against them; and

(iii)Mr Ivanov in his personal capacity and on behalf of Topcatch would release Mr Tolstikov from any existing or future claims against him.

[16]   Mr Ivanov failed to pay the Termination Sum by 15 December 2020. Mr Tolstikov’s evidence is that he agreed with Mr Ivanov, by telephone, on 20 January 2021 to vary the Termination Agreement and that the amended terms included:

(a)Mr Ivanov was to pay the Amended Termination Sum ($2,205,298) rather than the original amount agreed;

(b)Mr Ivanov was to pay the Amended Termination Sum on 20 March 2021;

(c)Mr Ivanov would pay Mr Tolstikov interest on the Amended Termination Sum at the rate of 15 per cent per annum by monthly instalments of $27,566; and

(d)Mr Ivanov would make the first interest payment on 10 February 2021.

[17]   Mr Tolstikov attaches to his affidavit an email that Mr Tolstikov received from Mr Ivanov on the same day as the telephone call, 20 January 2021. Mr Tolstikov describes this email as confirming the amendment. The email states:

Hi Sergey [Mr Tolstikov],

Please see summary of our conversation below.

Minutes from the telephone conversation on 20/02/2021 [Should be 20/01/21]

(a)Agreed to shift the settlement day to 20/03/2021

(b)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.

[18]   Mr Ivanov’s evidence is that after Mr Ivanov had advised Mr Tolstikov of his difficulties in obtaining a loan, Mr Tolstikov threatened to involve lawyers and take steps to remove him as a director or to liquidate Topcatch. To avoid a conflict that would damage the business in which he was the sole director and guarantor to landlords, banks and suppliers, Mr Ivanov said he agreed to Topcatch paying Mr Tolstikov interest at the rate of 15 per cent per annum on Mr Tolstikov’s total investment of $2.2 million “until Topcatch Ltd could secure sufficient loan and repay [Mr Tolstikov] his investment”. Mr Ivanov’s evidence is that he understood the above was a new arrangement and he did his best to honour that commitment despite the payments to Mr Tolstikov placing a severe financial burden on the business.

[19]   Mr Ivanov failed to pay the Amended Termination Sum or any part of it by 20 March 2021. Since agreeing to the amended terms, Mr Ivanov has paid the monthly interest payments other than:

(a)$10,012 (for part of July) being the balance of interest due on 10 July 2021;

(b)       $27,566 due on 10 August 2021;

(c)       $27,566 due on 10 September 2021.

[20]   Mr Ivanov has still not paid the Amended Termination Sum or any part of it. Mr Tolstikov says that Mr Ivanov therefore remains in breach of the Termination Agreement.

Relevant legal principles

[21]The parties are agreed on the legal principles that apply.

Summary judgment principles

[22]   Summary judgment is provided for in part 12 of the High Court Rules 2016. Rule 12.2(1) provides for summary judgment in favour of a plaintiff:

The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.

[23]The summary judgment principles are well-settled. The leading authority is

Krukziener v Hanover Finance Limited where the Court of Appeal stated:1

The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR at 3 (CA). The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 at 341 (PC).

1      Krukziener v Hanover Finance Ltd [2008] NZCA 187 at [26]–[27].

[24]   Although the onus is on the plaintiff in the case of a plaintiff’s application for summary judgment, if the defendant contends that there is an available defence, they must be able to point to an evidential foundation establishing an issue or issues worthy of trial.2 In order to enter summary judgment against a defendant, the Court must be satisfied that the plaintiff’s case is “unanswerable”, a conclusion that will not be available where there is an arguable defence or cross-claim.3

Requirements for a valid contract

[25]    A valid contract requires an agreement on certain terms, an intention to create legal relations, and consideration.4

[26]   To constitute a binding contract, the parties must, at the point of agreement, intend to be bound by it.5 There also must be an agreement, express or implied, or the means of reaching an agreement, on every term that is essential in law or is regarded by the parties as essential.6 In general, an agreement will not be binding as a contract if its terms are so vague or indefinite that it cannot be ascertained with reasonable certainty what the parties intended by the words used.7

[27]   Consideration is a further requirement for the valid formation of a contract, except in the case of contracts made by deed. A promise made without consideration cannot be sued upon, and an agreement made without consideration is not enforceable.8

[28]   Consideration has been defined as an act or promise offered by one party and accepted by the other as the price of that other’s promise.9 Consideration may consist in some right, interest, profit, or benefit directed to one party, or some forbearance,

2      Auckett v Flavey HC Wellington CP296/86, 20 August 1986; and MacLean v Stewart (1997) 11 PRNZ 66 (CA).

3      Towers v R & W Hellaby Ltd HC Auckland CP185/86, 13 May 1986.

4      Stephen Todd and Matthew Barber Laws of New Zealand Contract: Part II Formation of Contract (online ed) at [15].

5      Electricity Corp of New Zealand v Fletcher Challenge Energy Ltd [2002] 2 NZLR 433 (CA) at [53]; Todd and Barber, above n 4, at [57].

6      Ibid.

7 At [58].

8 At [64].

9      Stephen Todd and Matthew Barber Burrows, Finn and Todd on the Law of Contract in New Zealand (7th ed, Lexis Nexis, Wellington, 2022) at [4.5].

detriment, loss, or responsibility accepted or undertaken by the other party. It may be indirect. However, there must be some cause and effect between the promise and the benefit or detriment before it may amount to consideration.10

[29]   Consideration may also consist of forbearing, or promising to forbear, from doing something the person is otherwise at liberty to do.11 The consideration in such cases is said to be the surrender, not of a legal right, which may or may not exist and whose existence, at the time of the compromise, remains untested, but of the claim to such a right. A plaintiff who relies upon the surrender of a claim to support a contract must prove, at the least, that he or she has an honest belief in the chance of its success.12

[30]I now consider the five issues outlined at the beginning of this judgment.

Does the Termination Agreement fail for want of certainty?

[31]   Mr Ivanov submits the Termination Agreement fails for want of certainty on the basis that the Termination Agreement does not set out what happens in the event of breach. However, as Mr Tolstikov submits, there is no need to have such a term in a contract. If there is a failure to perform, the parties will be able to pursue all the usual remedies at law for breach.

[32]   Counsel for Mr Ivanov further submits that if payment of the Termination Sum was not made, it is not clear whether the Topcatch Agreement and the business relationship, would continue. However, clause 2.2 of the Termination Agreement recorded that the 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”. Evidenced by both this clause and its heading “Termination Agreement”, the intention was clearly to bring the business relationship to an end.

10     Todd and Barber, above n 4, at [71] citing Couch v Branch Investments (1969) Ltd [1980] 2 NZLR 314 (CA).

11     Todd and Barber, above n 9, at [4.5.1].

12     At [4.5.1]; citing Couch v Branch Investments (1969) Ltd, above n 10, at 327 per Richardson J.

[33]   Moreover, the original Termination Agreement is in writing and the terms used cannot be said to be so vague or indefinite that it cannot be ascertained with reasonable certainty what the parties intended. In addition, the variation to the terms of the Termination Agreement were confirmed by email on the day the variation was agreed.

[34]   In my view, aside from the issue of whether the Termination Agreement was varied to be conditional on finance discussed further below, it is not reasonably arguable that the Termination Agreement fails for lack of certainty.

Does the Termination Agreement fail for lack of valuable consideration?

[35]   Mr Ivanov submits that he received no valuable consideration for his obligation to repay Mr Tolstikov’s investment. This submission is made on the basis that Mr Ivanov would not have received the shares in Topcatch as a result of the payment, as Mr Ivanov was holding the shares on trust for the Topcatch Trust and Mr Tolstikov remained a beneficiary of the Topcatch Trust.

[36]   Mr Tolstikov submits that this position is incorrect. The consideration for Mr Ivanov’s promise to repay Mr Tolstikov’s investment in Topcatch was Mr Tolstikov’s agreement not to enforce his rights under the Topcatch Agreement (which he was otherwise entitled to do) and not to pursue Mr Ivanov or Topcatch. Mr Tolstikov submits that as a result of Mr Ivanov entering into the Termination Agreement, upon payment of the Termination Sum, Mr Tolstikov:

(a)could not pursue Mr Ivanov for any amounts invested in Topcatch, of which Mr Ivanov was the sole director and shareholder;

(b)could not pursue Topcatch, of which Mr Ivanov was the sole director and shareholder; and

(c)would have no rights of ownership or rights to profits of Topcatch.

[37]   Mr Tolstikov submits that Mr Ivanov received these benefits in exchange for his promise to repay Mr Tolstikov’s investment in the Topcatch business.

[38]   As counsel for Mr Tolstikov accepted in the hearing, the Termination Agreement might also have usefully dealt with the Topcatch Trust. However, the release in the Termination Agreement is broadly expressed.

[39]   Counsel for Mr Ivanov submits that the trustees’ powers under the Topcatch Trust are absolute and uncontrolled and not affected by anything in the Topcatch Agreement, so no valuable consideration passed between the parties. However, Mr Tolstikov is the appointor of the trustees under the Topcatch Trust with the power of appointment and removal.

[40]   In these circumstances, and with reference to the law on consideration as set out above, I do not consider that it is reasonably arguable that the Termination Agreement fails for lack of valuable consideration.

Was the Termination Agreement conditional on finance?

[41]   In my view it is not reasonably arguable that the original Termination Agreement was conditional on finance. This agreement was drafted with the assistance of legal advisers and does not refer to such a condition. Nor is there any contemporaneous documentation from around the same time supporting this position. Furthermore, if the original 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.

Was the Amended Termination Agreement conditional on finance or did it become so?

[42]   Mr Ivanov’s email confirming the varied terms following the telephone call on 20 January 2021 set out a new settlement date and the new interest terms. It does not appear that, as originally varied, the payment of the Amended Termination Sum was therefore conditional on finance. Mr Ivanov’s email expressly states a new settlement date and would have been expected to mention the condition if that was the new arrangement.

[43]   However, the correspondence around the new date for payment of the Amended Termination Sum suggest that there may be a defence available to Mr Ivanov that the agreement became conditional on obtaining finance.

[44]   Although the summary email on 20 January 2021 from Mr Ivanov clearly states the settlement date was adjusted, Mr Tolstikov sent an email to Mr Ivanov on 15 March 2021, just in advance of the date by which payment was apparently due, stating “Given the current situation, I suggest you the following”, and then setting out steps requiring Mr Ivanov to give Mr Tolstikov access to Topcatch’s accounting software, MYOB and its bank accounts, setting monthly income limits for Mr Ivanov and appointing a trustee who, Mr Ivanov advised, would begin an audit through an auditor.

[45]   If Mr Tolstikov was expecting payment of the Amended Termination Sum on 20 March 2021, five days later, the timing and content of the 15 March 2021 email seems unusual. Additionally, in Mr Ivanov’s reply to this email the following day, he does not refer to any settlement date coming up but instead refers to Topcatch not failing to pay interest as due and that Mr Tolstikov has no legal rights to take control. Mr Ivanov concludes by saying he will keep working with banks to replace Mr Tolstikov’s investments “according to the Termination Agreement you have signed”.

[46]   Following that, and five days after the Amended Termination Sum was apparently due to be paid, Mr Tolstikov’s lawyer wrote to Mr Ivanov saying:

1.My clients hope is that you honour the Termination Agreement as amended on 20 February 2021¹³ 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.

[47]   There is no reference in this email to the settlement date of 20 March 2021 that had apparently been agreed. Furthermore, rather than advising that Mr Tolstikov would pursue his remedy for breach of the Termination Agreement, the email refers to

13     This date refers to the date used in Mr Tolstikov’s email following the 20 January 2021 telephone call but counsel accepted that the email should instead have referred to 20 January 2021.

removing Mr Ivanov as director, a step available to Mr Tolstikov under the Topcatch Agreement. The email refers to court proceedings for breach of trust and breach of contract which may have included breach of the Termination Agreement but the Termination Agreement is not referred to expressly.

[48]   There is then a further letter on 5 April 2021 from Mr Tolstikov’s lawyers to Mr Ivanov notifying him of Mr Tolstikov’s “interim demands”, including the same steps referred to in Mr Tolstikov’s 15 March 2021 email, including access to MYOB and bank accounts and appointment of trustee and so forth. Again, there is no reference to breach of the Termination Agreement.

[49]   Mr Ivanov’s lawyers responded to this letter two days later asking a number of questions. Mr Tolstikov submits that if the Termination Agreement or its variation had been conditional on finance, then Mr Ivanov’s lawyer would have said that in this letter. However the letter on behalf of Mr Tolstikov had not referred to the Termination Agreement. It is not surprising that Mr Ivanov’s lawyer’s letter in response does not refer to it either but instead simply appears to be an attempt to obtain information about the circumstances.

[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.

Was the agreement for the defendant or Topcatch to pay interest?

[51]   There is a further complication in that Mr Tolstikov is claiming not only payment of the Amended Termination Sum but also payment of interest on the Amended Termination Sum at the rate of 15 per cent per annum to the extent that it has not been paid.

[52]   Although Mr Tolstikov deposes that the agreement was that Mr Ivanov was to personally pay this interest, at the same time Mr Tolstikov describes Mr Ivanov’s email on 20 January 2021 (as set out above) as confirming the variation agreed. This email records that Topcatch Limited was to pay the interest not Mr Ivanov personally.

[53]   As a result, I consider that Mr Ivanov has a reasonably arguable defence in respect of the interest payment and so summary judgment ought not to be granted in respect of interest either.

Result

[54]The plaintiff’s application for summary judgment is declined.

Costs

[55]   At this stage, because the issue is a factual issue and appears to be finely balanced, I consider it is appropriate for costs to be reserved until determination of the substantive proceeding.14

Associate Judge Sussock

14     High Court Rules 2016, 14.8(3) and see NZI Bank Ltd v Philpott [1990] 2 NZLR 403, (1990) 3 PRNZ 695 (CA).