Antons Trawling Limited v Dawson & Associates Limited [2016] NZHC 982 (16 May 2016)

Last Updated: 19 May 2016

IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY

CIV 2014-442-070 [2016] NZHC 982

BETWEEN	ANTONS TRAWLING LIMITED Plaintiff
AND	DAWSON & ASSOCIATES LIMITED Defendant

Hearing:	9-12, 15-18 February 2016
Counsel:	C M Meechan QC and A Borchardt for Plaintiff M C Harris and O Ostrovsky for Defendant
Judgment:	16 May 2016

_{JUDGMENT OF BROWN J}

ANTONS TRAWLING LTD v DAWSON & ASSOCIATES LTD [2016] NZHC 982 [16 May 2016]

Table of Contents

_{Paragraph No.}

Introduction [1] Retainer and alleged breaches of duty of care: the pleadings [5]

Retainer [5] Duty of care [7] Alleged breaches of duty of care [8]

Issues [14] The facts [15]

History of the Zlatno More [15] The original cash-sale agreement with SB Co [23] The Lloyd’s Class difficulty [28] The first Christchurch negotiation on 2 July 2008 [32] Developments in early July [35] The second Christchurch negotiation: Annex 3 [44] The third Christchurch negotiation: Annex 4 [50] Preparations for delivery of the vessel in Korea [56] The first meeting in Busan [61] Settlement of the transaction in Busan [67] The release of the funds [80] The pursuit of payment [91] The Master Bank mortgage [99] Proceedings in Russia and London [104] The plaintiff abandons its recovery attempts [110]

Issue 1: What was the scope of the defendant’s retainer? [112] Issue 2: Was there failure in the defendant’s advice on Annex 3? [119] Issue 3: Is the cause of action in Issue 2 time-barred? [154] Issue 4: Was there failure in the defendant’s advice on release of funds? [171]

Issue 5: Was there failure in the defendant’s release of funds on

1 October 2008? [190] Issue 6: What loss was caused by the defendant’s failure? [207]

Counterfactual analysis for Issue 2 [212] Counterfactual analysis for Issues 4 and 5 [220] “Loss of chance” assessment [225]

Issue 7: Was the plaintiff contributorily negligent? [238] Disposition [247]

Introduction

[1] The fishing trawler Zlatno More¹ was sold by the plaintiff to a Russian company, Severnyi Briz Co Ltd (SB Co), in 2008. The original agreement for sale dated 11 April 2008 was the subject of protracted renegotiation resulting in variations on several matters, including in particular provision for a mortgage over the vessel to be executed and registered to secure vendor finance.

[2] In September 2008 SB Co obtained possession of the Zlatno More without having provided an executed mortgage in favour of the plaintiff. Indeed a mortgage was never subsequently provided. SB Co defaulted on its scheduled repayments resulting in a shortfall for the plaintiff of USD800,000. For some years the plaintiff endeavoured to recover the debt from SB Co without success, incurring legal and other costs of NZD199,459.37.

[3] In this proceeding the plaintiff seeks to recover those sums and interest from the defendant as damages occasioned by the alleged negligent performance of legal services, which the defendant provided to the plaintiff in connection with the sale of the Zlatno More. The defendant denies liability and raises two affirmative defences, namely limitation² and contributory negligence.

[4] Before tracing the history of the transaction and the legal services provided, it will be convenient first to note the assertions in the pleadings concerning the scope of the defendant’s retainer and the nature of the alleged breaches of the duty of care owed by the defendant to the plaintiff. The latter was the subject of amendment during the course of the trial.

Retainer and alleged breaches of duty of care: the pleadings

Retainer

[5] There was no written record of the terms of the defendant’s retainer and, at least in the pleadings, there was a difference between the parties as to its scope.

¹ _{Subsequently renamed Rybak.}

² The proceeding was filed on 26 September 2014.

[6] The plaintiff contended that there was a “full service” retainer, asserting that:

[In early 2008] Antons engaged Dawsons to act for it and advise it in relation to the proposed sale, such engagement, including, but not limited to:

(a) providing advice in relation to the terms of the sale; and

(b) drafting documents to record the terms of the sale; and

(c) advising in relation to appropriate measures to be taken to secure Antons interest in the “Zlatno More” pending full payment by SB Co Ltd of the agreed purchase price.

The defendant admitted that the plaintiff engaged it in February 2008 but only to advise in relation to the proposed terms of sale of the vessel to SB Co and to draft or contribute to the drafting of the documents recording the sale.

Duty of care

[7] The same difference was reflected in the pleading as to the scope of the defendant’s duty. The plaintiff alleged that:

At all material times Dawsons owed Antons a contractual and tortious duty to carry out all work in relation to the ‘Zlatno More’ transaction with reasonable care and skill and/or in a way that protected Antons’ interests.

The defendant admitted that it owed the plaintiff a duty to exercise reasonable care and skill in carrying out the terms of its retainer.

Alleged breaches of duty of care

[8] In the original statement of claim dated 24 September 2014 the defendant was said to have breached its duty in three respects:

14. In breach of that obligation Dawsons failed to undertake the work with reasonable care and skill, and/or in such a way that protected Antons’ interest.

Particulars

(a) It failed to include terms in the sale and purchase agreement which properly secured Antons interests in the vessel in the event of non-payment of all or any part of the purchase price; and

(b) It failed to ensure that a properly registrable first mortgage had been provided by SB Co Ltd prior to Antons parting with possession of the vessel; and

(c) On or about 1 October 2008 it authorised the release of monies held/available by way of a letter of credit at a time when it knew, or ought to have known, that no first mortgage in registrable form had been provided by SB Co Ltd.

[9] The defendant denied para 14. However it made several affirmative statements, both with reference to para 14 and in its pleading of contributory negligence on the plaintiff’s part. In summary it contended:

(a) the plaintiff’s principal, Mr Milan Barbarich, took responsibility for negotiating the terms of the transaction with SB Co;

(b) the defendant advised the plaintiff on a number of occasions that the terms of proposed amendments to the original agreement were onerous to the plaintiff and that the plaintiff was not likely to be able to secure an effective security interest in the vessel because SB Co had financed the purchase by borrowing from a Russian bank that would have insisted on holding a first-ranking mortgage; and

(c) the defendant was not able to “ensure” that SB Co provided a registrable mortgage or registered a mortgage over the vessel in favour of the plaintiff before the plaintiff parted with possession of the vessel or at any other time. Under the terms of the agreement as amended, it was SB Co’s responsibility to register a mortgage over the vessel in favour of the plaintiff. The defendant could not “ensure” the mortgage was registered because that could only be done by or with the co-operation of the new owner of the vessel in Russia.

[10] On the issue concerning the obtaining of an executed mortgage prior to the passing of possession of the vessel to SB Co, the following assertions were made:

14(e) ...

(ii) the defendant warned Mr Barbarich in writing on

15 September 2008, the day before he transferred possession

of the vessel to the purchaser, that Mr Barbarich “MUST get the mortgage signed and registered”;

(iii) contrary to the defendant’s advice, Mr Barbarich surrendered possession of the vessel to the purchaser without having the purchaser execute a mortgage in favour of the plaintiff;

19(d) the plaintiff transferred possession of the vessel to the purchaser at the Port of Busan, South Korea, without requiring the purchaser to execute a deed of mortgage, contrary to the defendant’s advice;

[11] With reference to the allegation in para 14(c) the defendant stated:

14(f) It admits that on 1 October 2008 it was instructed by the plaintiff to release monies to the purchaser under the agreement. It says further that the plaintiff knew when it issued this instruction that the purchaser had not yet executed a mortgage in its favour, and that it was aware of the risk it took in doing so.

[12] In the course of the trial on 16 February 2016 I granted leave to the plaintiff to amend its claim to plead para 14 in the following form:³

(a) On or about 1 October 2008 it released monies held in its trust account (namely part of the proceeds of a letter of credit in favour of Anton’s, being the vendor finance funds that Antons had agreed to provide to SB Co) at a time when Dawsons knew that no mortgage in registerable form had been provided by SB Co and in circumstances where Dawsons had advised the plaintiff that it was entitled under the terms of the agreement to, and should take the position with SB Co that, SB Co was obliged to execute a deed of mortgage in registerable form prior to the release of the vendor finance funds; or

(b) It failed to advise Antons to include appropriate terms in the sale and purchase agreement which explicitly provided that:

(i) Upon delivery of the vessel in Busan, SB Co would provide a mortgage in registerable form and that upon the vessel being entered on the Russian Register that mortgage would be registered; and

(ii) That until the mortgage in registerable form was provided, the vendor finance funds would not be advanced; and

(c) It misadvised Antons as to its (Dawsons’) obligation to release the vendor finance funds, advising Antons that it had given an undertaking to do so and there was no legal basis upon which Dawsons could retain the funds.

³ Leave was declined to add a further particular: refer Reasons for Ruling (1) of Brown J.

[13] In view of that amendment, Mr Harris accepted in closing that the

defendant’s limitation defence was confined to particular (b).

Issues

[14] The claim as amended raises the following issues for determination:

1. What was the scope of the defendant’s retainer in connection with the sale of the Zlatno More at relevant times?

2. Did the defendant breach its duty to exercise reasonable care and skill when it allegedly failed to advise the plaintiff to include appropriate terms in the sale and purchase agreement which explicitly provided that:

(a) Upon delivery of the Zlatno More in Busan, SB Co would provide a mortgage in registerable form and that upon the vessel being entered on the Russian Register that mortgage would be registered; and

(b) That until the mortgage in registerable form was provided, the vendor finance funds would not be advanced?

3. Is the cause of action in Issue 2 time-barred?

4. Did the defendant breach its duty to exercise reasonable care and skill when it allegedly misadvised the plaintiff as to its (the defendant’s) obligation to release the vendor finance funds, advising the plaintiff that it had given an undertaking to do so and that there was no legal basis upon which the defendant could retain the funds?

5. Did the defendant breach its duty to exercise reasonable care and skill when on or about 1 October 2008 it released monies held in its trust account (namely part of the proceeds of a letter of credit in favour of the plaintiff, being the vendor finance funds that the plaintiff had agreed to provide to SB Co) at a time when the defendant knew that

no mortgage in registerable form had been provided by SB Co and in circumstances where the defendant had advised the plaintiff that it was entitled under the terms of the agreement to, and should take the position with SB Co that, SB Co was obliged to execute a deed of mortgage in registerable form prior to the release of the vendor finance funds?

6. If the defendant was negligent in the manner alleged, what loss did the plaintiff suffer which was caused by the defendant’s breach of its duty to exercise reasonable care and skill?

7. If the defendant was negligent in the manner alleged, was the plaintiff contributorily negligent in failing to follow the defendant’s advice to incorporate in various documents protection of the plaintiff’s interests in securing payment of the balance of the purchase price?

The facts

History of the Zlatno More

[15] The Zlatno More was built by Volkswerft of East Germany in 1985. It is a

62 metre factory trawler of a vessel type known as “Atlantic 333” of which some

154 vessels were built in East Germany between 1981 and 1994. It undertook an extensive refit in 1996 in Germany at a cost of approximately USD5.9 million.

[16] The vessel was purchased by the plaintiff in Mauritania for USD900,000 in June 2000. It underwent a major refit and a full class survey under the Russian Maritime Register of Shipping (RS) in the Canary Islands between September and December 2000 under the supervision of Mr Graeme Holdaway-Smith, a marine superintendant engaged by the plaintiff.

[17] The vessel began fishing in the South Atlantic and Indian Ocean in January 2001 and operated out of various ports in South Africa fishing in international waters under a Cook Islands High Seas Fishing Permit until December 2003 at which time it went to Mauritius to complete its RS intermediate survey for class in dry dock.

[18] In early 2004 the plaintiff decided to bring the Zlatno More to New Zealand. It departed Mauritius in April and arrived in Lyttleton in late May 2004. The vessel was entered into Lloyd’s Register in August 2004.

[19] Three months after the vessel’s arrival in New Zealand the Minister of Fisheries decided to reduce the Hoki quota substantially which significantly reduced the opportunity for the Zlatno More to fish in New Zealand waters. The plaintiff decided to lay up the vessel until sold unless successfully chartered inside or outside New Zealand. A valuation was obtained from Cunningham Lindsey in November 2004 placing a value on the vessel of USD2.1 million.

[20] In addition to contacting a number of ship brokers to market the vessel, the plaintiff engaged Alexey Babkov of Ocean Projects who developed a marketing proposal and advertised the vessel for sale in Russia. The initial asking price was USD2.7–2.9 million. In the following three years significant interest was registered in the vessel with several conditional offers received in the USD1.8–1.9 million range. However none came to fruition.

[21] From time to time during this period the plaintiff engaged Peter Dawson of the law firm Ocean Law. Sometime in 2007 Mr Dawson left Ocean Law and set up his own practice, Dawson & Associates, and the plaintiff continued to use Mr Dawson in connection with its efforts to sell the vessel and he reviewed a number of the offers received.

[22] By early 2008 the vessel had been tied up at Lyttelton for nearly four years and although an engineer ran up the engines and electronics each week it did not go to sea at all in that period. The annual cost of holding the vessel berthed was considerable. It was during this period that unfortunately the vessel fell out of class.

The original cash-sale agreement with SB Co

[23] In January 2008 Mr Babkov introduced Igor Belik of Alye Parusa, a Russian based company, to the plaintiff. Mr Belik did not speak English and consequently all communication with him was either through Mr Babkov or a translator.

[24] After a satisfactory inspection of the vessel at Lyttleton in February 2008, Mr Barbarich prepared a sale proposal that he sent to Mr Dawson in an email dated

11 February 2008 which stated:

Peter,

I am working on another ZM deal, can you urgently review the draft HOA and amend where appropriate. We are just trying to outline general conditions and not tie the buyer in knots.

regards

Milan

[25] Mr Belik confirmed his interest in purchasing the vessel and advised that the name of the purchaser would be SB Co. Mr Barbarich then instructed Mr Dawson to prepare a sale and purchase agreement. The principal terms of the executed agreement were:

– sale price of USD1,850,000;

– deposit to be paid of USD185,000 five banking days after signing the agreement;

– the balance of USD1,665,000 to be paid by way of an irrevocable letter of credit on 30 May 2008;

– delivery of the vessel would be at the Port of Lyttelton on 30 May 2008 or other agreed date;

– the vessel would be in class with a new five year Lloyds Class survey certificate;

– on signature of the agreement and payment of the deposit the plaintiff would dry dock the vessel at its cost in Lyttelton for the class survey;

– any dispute would be referred to arbitration in New Zealand.

[26] Two agreements for sale and purchase (one in English, the other in Russian) were executed by the plaintiff and emailed to Mr Belik. A copy signed by Mr Belik was emailed to Mr Barbarich on 11 April 2008. Mr Belik then requested an extension of time for the first payment date. This led to a variation, referred to as Annex 1, finalised by the defendant and executed by both parties on 29 April 2008. The deposit of USD185,000 was paid into the defendant’s trust account on

22 May 2008.

[27] Shortly after payment of the deposit Mr Belik submitted a list of requests with reference to the dry docking and asked the plaintiff to accommodate his banker’s request for the agreement to be redocumented in the Norwegian Sale Form (NSF). Mr Barbarich referred that request to Mr Dawson who prepared a draft NSF agreement which included a clause permitting the plaintiff to cancel the contract and forfeit the deposit if the letter of credit was not put up by the date for dry docking which had been arranged for 19 June to 3 July 2008. To Mr Barbarich’s annoyance Mr Belik responded with his own NSF.

The Lloyd’s Class difficulty

[28] The original agreement contained a warranty by the plaintiff to SB Co that at settlement date the vessel would be in class with a new five year Lloyd’s Class Survey Certificate. On signature of the agreement and the payment of the deposit the plaintiff had agreed to dry dock the vessel at its cost in Lyttleton for a class survey.

[29] However on 10 June 2008 the Lloyd’s surveyor advised Mr Barbarich that, as the vessel was currently withdrawn from class, Lloyd’s was not prepared to inspect or re-enter the vessel into Lloyd’s Class unless the vessel would be operated by a New Zealand company under Lloyd’s Register for another five years. This was a significant set-back for the plaintiff with serious implications for the agreement.

[30] On 11 June 2008 Mr Barbarich sent to the defendant a letter which he proposed to send to Mr Belik, seeking the defendant’s thoughts on how the letter could be reworded to avoid immediate cancellation of the contract by SB Co. A letter was duly sent to SB Co which incorporated Mr Dawson’s amendments and proposed three options for the amendment of the sale and purchase agreement:

(a) The plaintiff to sell the vessel in RS Class instead of Lloyds Class;

(b) SB Co operating the vessel through a New Zealand company under

Lloyds Class for four to five years;

(c) a reasonable price reduction on the basis that SB Co purchased the vessel as is with a dry dock inspection ex Lyttleton and SB Co completing RS Class in Busan, Singapore or Kamchatka.

[31] Anxious to preserve the sale if he could, Mr Barbarich contacted the RS Survey Division to apply for the Zlatno More to be entered into RS Class. He asked Mr Dawson to amend the contract to provide for the vessel to be delivered either in RS Class or fully new classed.

The first Christchurch negotiation on 2 July 2008

[32] A meeting was held at the Millennium Hotel in Christchurch on 2 July 2008 for the purpose of renegotiating the contract. In attendance were Mr Barbarich and Mr Babkov for the plaintiff and Mr Belik and Mr Vladimir Kim, Mr Belik’s engineer, for SB Co. It is fair to say that the Lloyds Class warranty breach had placed the plaintiff in a disadvantageous negotiating position. Mr Dawson agreed that from the beginning of July he was starting to see Mr Belik trying to take advantage of the upper hand he held.

[33] The outcome of what he described as a frustrating meeting was detailed in a note prepared by Mr Barbarich which he provided to the defendant and the plaintiff’s directors:

Milan and Alex have finalized but not agreed to a sale on the following terms:-

1. Sale price USD1.85m.

2. 10% deposit held in Solicitors Trust account (USD185,000) to be released to pay the costs of dry – docking in Lyttleton

3. The Class society has carried out part of an Interim survey and has advised that the vessel will be considered for class once it has had thickness tests and shaft removal carried out as part of preliminary survey. The Surveyor will come back two days before the vessel is ready to leave dry-dock to complete the preliminary survey. The scope of works is such that it is too expensive to do in New Zealand and it would take longer.

4. The Purchaser has proposed to take the vessel to Korea for the repair work. The purchaser has agreed to pay for the fuel for the voyage to Korea estimate about USD200,000.

5. The vessel remains the property of Anton’s until arrival in Korea, and delivery of the vessel will occur shortly after arrival in Korea.

6. Antons Trawling Ltd has agreed to offset a maximum USD750,000 from the proceeds of the sale to allow the Purchaser to complete class survey work. The deposit received and used for dry docking in New Zealand will be included in the USD750,000 allowance. The Purchaser will pay for any additional costs incurred in getting the vessel into class.

7. Net Proceeds of USD1.1m (plus interest) will be paid as follows:-

• USD200,000 upon arrival at nominated port of Korea.

• 3 payments of USD300,000 (plus interest) payable every six months. The first timeline commences from the 1^st of October. The first payment of USD300,000 to commence on

1^st April 2009 the second payment of USD300,000 (plus interest) six months later, and final payment of USD300,000

(plus interest) within eighteen months of vessel achieving

class.

• Interest owing on the outstanding Principal to be charged at a rate of between 7 & 9% per annum and calculated on a daily basis.

Antons Trawling Ltd is to retain ownership until arrival in Korea and retain a mortgage over the vessel until all sale proceeds have been received. Antons will have marketing rights over the vessels production, for the term of the mortgage.

Peter Dawson is to prepare a Norwegian Sale form encapsulating these terms, Peter the buyers have said it is important that the key terms of the original contract are retained as the buyer had funding approval on the vessel at this level and in class.

We will retain the insured interest on the vessel for its delivery voyage to

Korea.

We will retain mortgage security over the vessel once it has been delivered.

Note to Directors:

Directors need to consider the terms above and decide whether we are prepared to accept the proposal. I have gone around and around to try and improve the deal, but at this stage we are unable to improve on this. I would have cancelled the contract if we had another option ...

[34] The defendant was instructed to prepare an NSF agreement encapsulating the terms and confirming mortgage security over the vessel once it reached Korea. The defendant responded in an email stating:

I will incorporate the terms in a further sale form.

I mentioned Milan that his mortgage would stand behind that of the Russian Bank ($1.85m) financing the deal. So on a forced sale there would likely be no recovery.

It may be useful to get some rights over the catch of the vessel to secure the payments.

Mr Barbarich then contacted Mr Belik, via Alexey Babkov, who orally advised that the plaintiff’s mortgage would be a first mortgage and that the security in place for the bank funding was over other vessels he owned.

Developments in early July

[35] The defendant prepared a memorandum of agreement which included the following clauses:

22. Mortgage

As security for the performance of their obligations under Clause 21 above, Buyers agree to register a first priority ships mortgage over the vessel in favour of Sellers. The Buyers agree that upon delivery of the vessel in Busan, Korea, they shall sign all documents and do all things necessary at their cost to register a first priority ships mortgage on the Russian Register over the vessel to secure the payments referred to in Clause 21 B), C) and D) in a form to be agreed with Seller.

23. Marketing and Sale of Catch

As further security for the performance of their obligations under Clause 21, Buyers agree to Sellers having the first right to market and sell all product caught by the vessel. In order to give effect to this obligation, Buyers will provide to Sellers upon each discharge, a detailed breakdown of all product, by weight and species, whereafter Sellers shall have the right to market and sell the product.

[36] However Mr Dawson had become concerned about the extent to which the transaction had evolved. On 8 July 2008 he sent an email to Mr Barbarich in the following terms:

Milan

Our earlier conversations refer.

In our view, buyers and sellers have moved so far beyond the original contract of 26 March 2008 that the original contract should be regarded as terminated. In particular:

1. Sellers cannot place the vessel into Lloyds class;

2. Buyers have made the purchase conditional upon a hull/thickness inspection;

3. The purchase price has been renegotiated (USD1.85 million down to

USD1.1 million);

4. The payment terms are being renegotiated (staged payments);

5. The port of delivery is being renegotiated.

Buyers have proposed an alternative contract (faxed to us yesterday) which is unacceptable to sellers.

We would recommend that a letter be sent to the buyers formally terminating the contract as follows:

We would refer to our discussions over the past week, and in particular to your alternative proposal received on 7 July 2008. This proposal is unacceptable to sellers. Sellers regard the contract of 26 March 2008 as cancelled and tender return of the deposit, together with accrued interest.

[37] In an email the following day Mr Barbarich proposed a new course of action:

Peter, Alex and Directors,

Things are at standstill and we need to finalise today , i suggest we put three Contracts on the table this morning The claims and insults are getting outrageeous.

1) Letter of cancelling,

2) NSF with agreed prices @USD 1.85 – Repair allowance @ USD 750,000 including d/d cost in NZ. They deliver the vessel but

agreed costa are split as per schedule attached. (not fully agreed) with

Payment as follows

1) USD 200k upon arrival within five days ,

2) USD 200k upon departure from Korea, (after Class received)

3) 3 payments being 250, + 250 + 200 9 6, 12 & 18 months after event.

@6 % interest on payments 3, 4 & 5

3. NSF with Price of USD 1,000,000 cash ex Lyttleton plus d/d costs but not export costs.

Thoughts please. (sic)

[38] Mr Dawson proceeded to prepare a further NSF contract. Mr Barbarich replied that he had just received a proposal from Mr Anton Babkov (the son of Alexey Babkov) who had advised that the plaintiff would be better off to create an amendment to the existing agreement rather than utilise the NSF because a new document would create more problems.

[39] Mr Dawson then provided the proposed variation agreement as a second appendix to the original agreement. However he noted that it was an unsatisfactory way of dealing with the changes because contradictions could result, especially in a translation into Russian. He explained that he would prefer to start afresh with a new agreement.

[40] The state of play at this point was captured in Mr Dawson’s email to

Mr Barbarich of 11 July 2008:

Milan

I refer to our earlier conversation in which you requested our advice as to your legal position on the cancellation on the contract.

The current position is as follows:

1. The contract of 26 March 2008 has not been cancelled;

2. You were unable to place the vessel in Lloyds class, as required by the contract;

3. The parties have entered into an extended period of negotiation, to vary the contract. No variation has yet been agreed;

4. The contract of 26 March 2008 was not conditional upon the vessel entering dry-dock for an inspection;

5. You agreed to place the vessel in dry-dock on the specific understanding that all or part of the costs of dry-docking would be recovered from the deposit held by us for this transaction;

6. Should buyers now withdraw from the contract, we are of the view that you would be entitled to recover any damages suffered by you from the deposit;

7. The measure of damages may be difficult to quantify in that the condition of the vessel has been improved as a consequence of the dry-docking;

8. In order to prevent the release of the funds from our trust account, you would be obliged to seek a court order in terms of which the funds would be attached pending the resolution of your claim.

[41] Mr Belik proffered his own draft of an annex varying the original agreement but which contained no provision relating to the provision of a vendor mortgage.

[42] A further meeting was scheduled for 16 July 2008. At this time Mr Barbarich’s mother was very ill in Auckland and he sent an email to Mr Belik advising that as a consequence Mr Barbarich was unable to come to Christchurch for the proposed negotiation. He indicated that he had requested Mr Dawson to act on the plaintiff’s behalf to finalise the variation to the original agreement.

[43] However Mr Belik was not prepared to meet with Mr Dawson. At this time Mr Belik also sent an email stating that he wished his conditions to be met failing which he indicated that the parties would have to say “good by (sic) to each other”. Confronted with this stance Mr Barbarich attended the meeting in Christchurch on

17 July 2008 with Mr Dawson.

The second Christchurch negotiation: Annex 3⁴

[44] The meeting was long and arduous, running late into the evening. Key points which were agreed upon were:

⁴ The variation negotiated on 17 July 2008 was called Annex 3. There was no Annex 2.

(a) the purchase price was reduced to USD1,100,000 with the difference of USD750,000 to remain with SB Co to pay the cost of having the vessel further surveyed to RS Class;

(b) delivery of the vessel was to take place in Busan, South Korea;

(c) at the time of delivery of the vessel the seller and purchaser were to sign and hand over to each other the Protocol of the Acceptance and Delivery stating the date and time of the transfer of the vessel;

(d) once the Protocol was signed and all relevant documents handed over a first payment of USD200,000 was to be released;

(e) the balance of the purchase price was to be paid by one of the two

options at the buyer’s election:

(i) three payments of USD300,000 every six months; or

(ii) a payment of USD800,000 upon the vessel being entered into

Class;

(f) should any party be in default with any amount due under the agreement, penalty interest of 7 per cent per annum was payable on the overdue amount calculated on a daily basis for the period the amount remained unpaid;

(g) any dispute was to be resolved by Lloyd Maritime Arbitration in

London.

[45] At approximately 3.30 pm that day Mr Dawson provided a marked-up version of Mr Belik’s proposed annex incorporating various amendments suggested by Mr Dawson. Those amendments included the following clause relating to SB Co’s obligation to provide a mortgage (the second clause):

As security for the performance of the Purchaser’s obligations under this agreement, the Purchaser agrees to register a first priority ships mortgage in a form acceptable to Seller over the Vessel in favour of the Seller. The

Purchaser agrees that on or before the Delivery Date, the Purchaser shall sign all documents and do all things necessary at its cost to register a first priority ships mortgage on the Russian Register over the Vessel to secure the payments referred to above in a form to be agreed with the Seller.

[46] However the clause which was included in the document which was finally agreed was in different terms (the third clause):

Immediately upon Registration of the vessel in the name of Buyer on the Russian Register, the Buyer shall do all things necessary and sign all documents to cause a first priority ship’s mortgage in a form to be agreed by the Seller. The mortgage is to be registered over the vessel in favour of the Seller.

[47] It was Mr Dawson’s evidence that he was well aware at the time when the Annex 3 mortgage clause was agreed that its effect was that the plaintiff was not entitled to receive an executed mortgage at the date of delivery of the vessel and that the plaintiff would have an unsecured exposure from the date of delivery until the vessel was registered in the RS and a mortgage in favour of the purchaser was registered. Similarly it was his evidence that Mr Barbarich was also aware of this exposure as a consequence of the advice given by Mr Dawson to Mr Barbarich in the course of the negotiation of Annex 3.

[48] By contrast Mr Barbarich maintained that at the time of the negotiation he had not appreciated the consequences of the third clause and that Mr Dawson had not explained the change made from the form of the second clause. He denied that Mr Belik had insisted on changing the clause and that he (Mr Barbarich) had eventually agreed to do so contrary to advice given by Mr Dawson. That conflict of

evidence is addressed in the context of Issue 2.⁵

[49] In the chronology of various draft documents which followed, a number of attempts were made by Mr Dawson to address the plaintiff’s exposure pending registration.

The third Christchurch negotiation: Annex 4

[50] By the end of July with Annex 3 executed and dry docking completed, the vessel purchase was still conditional on a sea trial. The plaintiff arranged for some

⁵ At [136] to [148] below.

work to be undertaken by local contractors in Lyttleton including the withdrawal and checking of shafts. The sea trial was carried out on 9 August 2008 and Mr Belik confirmed verbally on 10 August that the vessel was accepted but required some repairs to the wheelhouse electronics.

[51] A further meeting was arranged to be held in Christchurch on 11 and

12 August 2008. Mr Barbarich was accompanied by Mr Dawson, Alexey Babkov

and the plaintiff’s financial controller, Mr Neilsen.

[52] In advance of the meeting a proposed further annex was sent by Mr Belik. This proposal was considered by Mr Dawson who suggested certain amendments including the following:

3. As security for the payment of the balance of the purchase price (USD 800,000) the Purchaser will provide the Seller, prior to the Delivery and Transfer of the Vessel, with a Performance Bond/Bank Guarantee from a first class bank, guaranteeing the performance by the Buyer of their obligations.

However Mr Belik would not agree to the inclusion of this term.

[53] Annex 4 was signed by both parties in Christchurch on 12 August 2008. It recorded that the vessel had undergone a sea trial and that SB Co confirmed its acceptance of the vessel. The amount to be paid on delivery was increased from USD200,000 to USD300,000 while the final payment was reduced from USD300,000 to USD200,000.

[54] So far as the details of payment were concerned, Annex 4 stated:

1.2 The amount of USD$300,000 less 50% of the agreed crew costs, will be released by Seller’s solicitor to Seller upon Seller providing the documents specified in paragraphs 9.1–9.13.

...

1.3 The remaining amount of USD1,365,000 less the amounts referred to in paragraphs 3.1 to 3.4 below will be released upon the written approval of the Purchaser and Seller and upon the Seller providing the documents specified in paragraphs 9.1–9.13. ...

[55] With a Russian crew and the plaintiff’s chief engineer the Zlatno More sailed from Lyttleton for Busan, Korea on 14 August 2008 to complete the RS class survey.

The voyage was expected to take approximately three weeks. Mr Belik flew back to

Russia and Mr Kim flew to Korea.

Preparations for delivery of the vessel in Korea

[56] Mr Dawson commenced preparation of the documentation for the handover in Korea which Mr Barbarich was to attend in person. The documents included a Protocol of Delivery and Acceptance, a Deed of Covenant Vessel Mortgage and a Deed of Mortgage. Mr Dawson sent an email to Alex Babkov concerning the registration process which included the following:

Could you please contact the Russian Flag office at the port where the Buyer is to register the vessel and ask them to email to you any documents that they require for the registration of a Mortgage over a vessel. (in English too if available) Most registers have a statutory mortgage document that has to be completed and signed along with the Deed of Covenant of mortgage which sets out the terms of the mortgage. This is the NZ version ... It may be different in Russia.

[57] On 19 August the defendant sent to the plaintiff a letter of engagement in respect of the sale of the Zlatno More in compliance with the Conduct Client Care Rules which had come into force on 1 August 2008.

[58] Mr Dawson’s draft of the Protocol of Delivery and Acceptance contained the

following proposed provision in relation to the execution of the mortgage:

3.1 The Buyer has signed a first priority Deed of Mortgage (the mortgage) (attached marked Annexure A), and will use its best endeavours to register the Vessel in its name as soon as possible and confirm the registration of the Vessel in the name of the Buyer to the Seller by providing the Seller with a copy of the Certificate of Registry of the Vessel.

However Mr Belik did not agree to the document in the form proposed.

[59] On or about 5 September Mr Barbarich sent to Mr Belik an email (translated into Russian) as follows:

Dear Igor,

I am pleased to see that Zlatno More is nearly in Pusan. (sic)

I have nearly completed preparation of all documents but still need to get them translated into Russian

1) Bill of Sale,

2) Protocol of Delivery and Acceptance,

3) Mortgage Document

4) Deed of Covenant

I have all the expense schedules and all other documents that we (sic) I

believe we require for the letter of credit, and to complete our transaction ,

However I will not leave New Zealand for Korea until I have seen the letter of Credit and can confirm that it is satisfactory for the completion of our transaction. So it is urgent that you send me the Letter of Credit for our inspection and approval before I leave.

Please note that I have not booked my air ticket yet but I will only stay three days (3) in Korea.

Please note that I will come by myself and will not bring Alex Babkov or Peter Dawson. We have the services of Peter Dawson’s associates (Maritime lawyers) and HSBC Bank if required.

Please advise when we can expect a copy of the letter of credit.

[60] The Zlatno More arrived in Busan, Korea on 6 September 2008. On Friday,

12 September 2008 Mr Barbarich flew to Busan with the documents prepared by

Mr Dawson for the vessel handover.

The first meeting in Busan

[61] A meeting was held in Busan on 14 September 2008 attended by Mr Barbarich, Mr Belik, Mr Kim and Masha Demyanko, an interpreter. Mr Belik advised that his lawyer was sick in hospital. Mr Belik had objections to both the proposed Protocol of Delivery and Acceptance and the Deed of Mortgage. At the end of that day Mr Barbarich sent an email to Mr Dawson in the following terms:

Peter,

here are my thoughts after todays meet. very stress full arvo, the y do not like Deed of Mortgage and have a very strange idea that they can use all sale documents to register a mortgage with the Harbourmaster. Which seems a common mrthodolgy, I have sent you a document that Belik itched to give me all day , So to resolve this we need to consider some advice from Russia urgently, I think.

I will talk to you 1^st thing. (sic)

[62] An email from Mr Dawson to Mr Barbarich stated:

I cant see how we can trim the mortgage.... It is down to the bare minimum as it is ...

Mr Dawson then sent an email addressed to both Mr Barbarich and Mr Belik enclosing a specimen deed of covenant, noting that his draft deed of mortgage was based on that document. He made the point that it was widely used in the maritime industry, being a Lloyds of London Press document, and not as complicated as many mortgages that he dealt with. He also provided Mr Barbarich with the name of a Korean lawyer whom his firm had previously engaged.

[63] On 15 September 2008 the ASB advised that it had confirmation that the letter of credit for USD1,665.000 had been received. The letter of credit had been established with a German bank which would release funds to the plaintiff via ASB in Auckland.

[64] Mr Dawson amended the Deed of Mortgage and sent the amended English version to Mr Barbarich in an email dated 11.56am on Monday, 15 September 2008:

Milan

I have amended the Deed and attach same. In order for:

• Your claim for the balance of the Purchase price to have priority over other claims; and

• Certainty on the recovery mechanism on default

You MUST get the mortgage signed and registered. Am still busy with the Protocol.

[65] Approximately half an hour later he sent a further email to Mr Barbarich enclosing the Maritime New Zealand ship registration form SR17. Emails attaching further draft documents were sent at 3.41pm and 5.45pm that day. Mr Dawson sent the marked up version of the amended Deed of Mortgage to the translator on Tuesday, 16 September at 9.46am.

[66] Mr Belik had prepared a document in both English and Russian that authorised the release of the balance of funds the subject of the letter of credit. The English part relevantly provided:

15 September 2008

ZLATNO MORE: REMITTANCE OF THE BALANCE OF LETTER OF CREDIT TO AND IN FAVOUR OF THE BUYER.

We the undersigned,

_{Do hereby authorize Peter Dawson of Dawson & Associates to remit the}

_{balance of the letter of credit in amount}

_{USD, held by Peter}

Dawson of Dawson & Associates, being in respect of the sale and purchase of the FV Zlatno More and total calculations of the both parties’ balance, where Antons Trawling Limited is the Seller and Severniy Briz Co Limited is the Buyer according to the Contract No ATL/SB dated 26^th of March 2008. The remittance must be made within 48 hours from the receipt of proceeds of the letter of credit to the accounts and in amounts as detailed below as the balance of the letter of credit: ...

Settlement of the transaction in Busan

[67] The meeting for the handover of documents was scheduled for the morning of 16 September 2008. Mr Barbarich deposed that he realised that there was no prospect of getting the mortgage translated, reviewed and accepted by Mr Belik by that time. He had prepared a draft completion letter that dealt with the handover of all the official documents that were not part of the Protocol of Delivery Deed.

[68] He said that he telephoned Mr Dawson to discuss how to deal with that situation and that together they decided to add a final paragraph to that draft letter which then read:

We have now completed the signing of the Protocol of Acceptance and

Delivery for the Fishing Vessel Zlatno More

We now need to record the handover of the other official documents that form part of the Contract ASTL/SB.

These documents I list below:

1) * Cook Islands Deletion Certificate plus official Russian Translation

2) Official Russian Translation of the Cook Islands IOPP Certificate

3) Official Russian Translation of the Cook Islands Vessel Safety

Certificate.

4) Official Russian Translation of the Cook Islands Radio Equipment

Certificate

5) * Signed Bill of Sale plus official Russian Translation.

6) * Original stamped Vessel Invoice

7) Original Builders Certificate, and

8) Original Protocol of Delivery including Technical specification.

We require Original copies of items 1, 5 & 6 in order to complete the set of

Documents we need to draw down on the Letter of Credit.

7) We require you to return to us the Original Cook Islands Certificate of Ownership and Encumbrances together with the official Russian translation which we provided to you in Lyttleton New Zealand, as we will also require this document in order that we may draw down the Letter of Credit.

Please acknowledge receipt of the documents 1–8 and the return of the documents in item 7.

I further confirm that we require you to execute a Deed of Mortgage recording the loan between us, and that we will provide you with this Deed with an official translation within 7 days of my return to New Zealand.

[69] At 9.43am on 16 September 2008 Mr Barbarich sent the completion letter and Mr Belik’s authority document to Mr Dawson under cover of an email which stated:

Peter,

My doc and Belik’s for your review

[70] Mr Barbarich stated that he discussed the final paragraph of the completion letter with Mr Dawson again in a further conversation a short time later and that they then revised the wording of that paragraph. Mr Dawson’s recollection of the sequence of events was somewhat different. With reference to Mr Barbarich’s evidence that they had together decided on the original paragraph after discussing how to deal with the mortgage situation, Mr Dawson’s brief stated:

In fact, I advised Milan to include a clause giving Antons the right to withhold release of the letter of credit funds until a deed of mortgage securing the vendor finance had been executed.

[71] It is clear that following the telephone discussion with Mr Dawson, the completion letter was revised to read as follows:

We have now completed the signing of the Protocol of Acceptance and

Delivery for the Fishing Vessel Zlatno More

We now need to record the handover of the other official documents that form part of the Contract ASTL/SB.

These documents I list below:

1) * Cook Islands Deletion Certificate plus official Russian Translation

2) Official Russian Translation of the Cook Islands IOPP Certificate

3) Official Russian Translation of the Cook Islands Vessel Safety

Certificate

4) Official Russian Translation of the Cook Islands Radio Equipment

Certificate

5) Original Builders Certificate, and

6) Original Protocol of Delivery including Technical specification.

We require Original copy of item 1 in order to complete the set of

Documents we need to draw down on the Letter of Credit.

7) We require you to return to us the Original Cook Islands Certificate of Ownership and Encumbrances, together with the official Russian translation which we provided to you in Lyttleton New Zealand, as we will also require this document in order that we may draw down the Letter of Credit.

Please acknowledge receipt of the documents 1 – 6 and the return of the documents in item 7.

I further confirm that prior to release of balance of L/C funds we require you to execute a Deed of Mortgage securing the loan between us, and that we will provide you with an amended deed with a translation tomorrow.

[72] In cross-examination Mr Barbarich acknowledged that the original draft letter at [68] above was a version “that [he] prepared on [his] own and sent to Mr Dawson”. With reference to the final letter at [71] above, he agreed that that was the version “signed after [he’d] discussed the matter with Mr Dawson”. Consequently I accept Mr Dawson’s recollection of events relating to the evolution of the completion letter, namely that the initial version of the final paragraph was Mr Barbarich’s suggestion and that it was Mr Dawson’s advice to replace it with the paragraph which appeared in the letter in its final form.

[73] On receipt Mr Belik placed his signature at the bottom of the letter immediately beneath the following statement:

I acknowledge receipt and delivery of the above documents.

[74] With reference to the payment authority Mr Dawson deposed that he advised Mr Barbarich that the authority should be amended so that the funds were not to be disbursed until after the purchaser had executed a mortgage in the plaintiff’s favour. Consistent with that advice, Mr Dawson drafted an amendment to Mr Belik’s document adding, after the reference to the dollar amount, the phrase “after the

signature of a Deed of Mortgage in favour of Seller”. The amended document was

emailed to Mr Barbarich at 2.43pm on 16 September 2008.

[75] Although he could not recall the detail of his discussion with Mr Dawson concerning the addition of that phrase, Mr Barbarich said that there must have been some further exchange because in a further version sent by Mr Dawson at 5.04pm on

16 September 2008 Mr Dawson’s proposed phrase had been removed. In fact that document was superceded by yet another version in which Mr Belik changed the details of the persons to whom the SB Co share of the funds was to be paid.

[76] The remittance authority ultimately signed by Mr Belik and Mr Barbarich on

16 September 2008 authorised the defendant to remit the amount of the letter of credit of USD1,665,000 as follows:

Anton’s Trawling Limited the amount of USD $442,120 USD:

...

Severniy Briz Co. Ltd. the balance of the letter of credit in the amount of

$1,222,880 USD held by Peter Dawson of Dawson & Associates, being in respect of the sale and purchase of the FV Zlatno More and total calculations

of the both parties’ balance, where Antons Trawling Limited is the Seller and Severniy Briz Co. Ltd. is the Buyer according to the Contract No ATL/SB dated 26^th of March 2008. The remittance must be made within 48 hours from the receipt of proceeds of the letter of credit to the accounts and in amounts as detailed below as the balance of the letter of credit.

After remittance of proceeds Peter Dawson of Dawson & Associates must send bank slips to the address of Severniy Briz Co. Ltd.

...

[77] Settlement of the transaction proceeded and it appears that Mr Barbarich and Mr Belik dined together amicably that evening. While he had not obtained a deed of mortgage as originally anticipated, Mr Barbarich deposed that in the absence of a mortgage deed he felt that he at least had a commitment from Mr Belik to sign the mortgage once it was prepared and translated. He stated that Mr Dawson was happy with that.

[78] Mr Barbarich flew back to New Zealand on Wednesday 17 September 2008. On 19 September 2008 he sent an email to Alexey Babkov advising that he had returned to New Zealand the previous day “with all docs signed, and Mr Beliks agreement to execute Mortgage document”.

[79] On 23 September 2008 Mr Dawson advised the translator that Mr Barbarich had pointed out an error in the previous draft of the mortgage and requested a correction. Later that day the translator emailed a further draft in which she noted that the new name of the vessel, Rybak, was highlighted.

The release of the funds

[80] On 23 September 2008 at 12.35pm an email with the subject heading “ATL/SB Fund allocations” was sent by Mr Barbarich to Mr Dawson which stated: “Peter as per your request”. Mr Barbarich accepted in cross-examination that that email had enclosed the authority document executed on 16 September 2008.

[81] On 25 September 2008 an email was sent on Mr Barbarich’s behalf to

Mr Belik, copied to Mr Dawson, in these terms:

Dear Igor,

I have spoken to Graeme [Holdaway-Smith] this morning and he tells me that you have gone to Moscow.

We have lodged all documents with the bank and they have been received in

Munich.

Please find attached the Mortgage Deed (in Russian & English) that we had discussed in Busan, Korea. Please review carefully and provide me with your comments.

In a further email which referred to the delivery of the letter of credit Mr Barbarich

asked when he could expect Mr Belik’s comment on the mortgage deed.

[82] Mr Belik replied in Russian on 26 September advising that the German bank was remitting funds to New Zealand that day but that his lawyer was still sick in hospital and was expected to remain there until 5 October 2008. Mr Barbarich responded in an email that day stating:

Dear Igor,

1) Thank you for advice about letter of Credit,

2) Re Mortgage Deed, please note we need the document executed as soon as you have registered the vessel.

An email of 29 September 2008 sent on behalf of Mr Belik stated that with reference to the mortgage deed Mr Belik’s lawyer was still in hospital but that Mr Belik promised to hurry him up.

[83] Mr Barbarich and Mr Dawson continued to provide additional documentation required by Mr Belik to enable him to get the vessel into class, including the Deletion Certificate and Bill of Sale and the formalisation of the transfer of the satellite communication system.

[84] At 2.43pm on 29 September 2008 Mr Dawson sent an email to Mr Barbarich and Mr Belik confirming receipt of funds in the following terms:

Milan/Igor

I can confirm receipt of the amount of $1,657,807.77 USD into our USD trust account and will attend to the disbursement thereof in accordance with the instructions already received, namely:

• An amount of USD $442,120 to Antons Trawling Limited; and

• The remaining balance being the amount of USD $1,215,687.77 to

Severniy Briz Co Ltd

Please note that this represents a shortfall of USD 7,192.30 being banks charges as per the attached notification.

My instructions are that these charges are to be borne by the Buyer.

I await your confirmation that the payments can be made in the amounts described above.

[85] At 4.12pm that day Mr Dawson sent an email to Mr Belik noting that the letter of authorisation stated that the balance of the letter of credit was to be made to three separate accounts and seeking urgent instructions as to payment in view of the USD7,192.30 shortfall. The following day at 12.09pm he sent a further email to both Mr Barbarich and Mr Belik as follows:

Igor/Milan

Further to our earlier emails.

In addition to the L/C deductions of USD 7,192.23 referred to earlier our NZ bank (ASB) have deducted a further amount of NZ$7,363.65 from our account for NZ bank charges. We have asked for a breakdown of these charges.

As advised previously, it is my view that these charges are for Buyer’s account, and we will deduct the additional amount of NZ$7,363.65 (approximately USD 4,917.30) from the amount to paid to Buyers.

Please let us have your urgent instructions as to how the remaining funds (USD 1,210,770) are to be allocated to the three accounts that you have provided.

[86] There was a conflict of evidence about a telephone discussion between Mr Barbarich and Mr Dawson at this time concerning the issue of Mr Dawson’s obligation to make payments in accordance with the remittance authority. That question is addressed in the context of Issue 4 below.

[87] On 30 September 2008 Masha Demyanko relayed a response from Mr Belik to Mr Dawson’s inquiry about the distribution of the SB Co funds among the three nominated payees. Mr Dawson replied:

I confirm receipt of your email. I note the new payment instructions. The payments did not go off today and I will amend the payment instruction tomorrow.

Could you please ask Mr Belik to email me a scanned signed authorisation document (copy to Milan) in a similar format to the current authorisation with the amended account and payment details and I will make sure that the funds are remitted tomorrow.

[88] A replacement remittance authority was signed by both Mr Belik and Mr Barbarich dated 30 September 2008 in which the figure of USD1,215,687.77 was substituted for USD1,222,880 and an amendment was made to the SB Co nominated payees. Ms Demyanko emailed the amended authority back to Mr Dawson, requesting that payments be made according to the instruction not later than

1 October 2008.

[89] At 7.13am on 1 October 2008 Mr Barbarich sent an email to Mr Belik and

Mr Dawson in the following terms:

Dear Igor and Peter,

Please find executed ammendment (sic) to the remittance advice as required by Mr Igor Belik.

Peter can you please ensure that this payment is authorised this morning. Best regards

Mr Dawson acknowledged that email in a response at 8.33am confirming receipt of the amended authorisation and stating that he would process the payment that morning. On the same day Mr Barbarich sent a letter to Mr Dawson enclosing for his records “the authorisation of remittance of the balance of the letter of credit”.

[90] At 11.25am on 1 October 2008 Mr Dawson sent an email to Mr Belik, copied to Mr Barbarich, which stated:

Igor

Attached please find our bank’s confirmation of transfer.

Please let us have the signed Deed of Mortgage as soon as possible.

Could you confirm further whether application has been made to the Russian authorities for the registration of the vessel?

Mr Belik did not reply.

The pursuit of payment

[91] Alexey Babkov advised that the Rybak was entered into RS at the Port of

Petropavlovsk-Kamchatskiy on 20 October 2008. The vessel left Busan on

23 October 2008 and consequently the first post-settlement payment of USD300,000 was due 23 April 2009.

[92] Mr Barbarich wrote to Mr Belik on 8 April 2009 expressing concern that SB Co had not complied with the agreement because it had not registered a mortgage in favour of the plaintiff, it had not confirmed that the plaintiff was an “interested party” on the vessel’s insurance policy, and it had not confirmed the date of sailing from Busan. He also attached signed and sealed invoices for the instalment payments of USD300,000 due in April 2009, USD300,000 due in October 2009 and

USD200,000 due in April 2010. On 11 April Belik advised that he would provide a comprehensive response in four to five days.

[93] Later in April Mr Barbarich received a lengthy communication from Mr Kim which asserted that SB Co had encountered numerous mechanical and equipment failures since leaving Busan and that the vessel was very unstable because of a high degree of windage and its engines were weak. Mr Kim stated that there were problems concerning the mortgage and that Mr Belik, who was said to be in Moscow trying to raise a loan of USD300,000 to pay the plaintiff, was seeking more time to pay the first instalment.

[94] Also in April Mr Dawson made contact with Jurinflot, an international law firm with its main office in Moscow, to assist with getting the mortgage registered. Ms Chugunova of Jurinflot who gave evidence for the plaintiff provided advice concerning the basic requirements for registration of a ship’s mortgage and indicated that it could take up to three months from when the documents were submitted to the registration authority for the mortgage to be registered.

[95] Mr Barbarich wrote again to Mr Belik on 2 May 2009 expressing extreme concern about SB Co’s failure to comply with the contract. He wrote separately in response to the communication from Mr Kim stating that he did not understand why SB Co had experienced the various claimed problems. He reminded Mr Belik that the plaintiff had offered to send at the plaintiff’s cost a New Zealand Fishing Master, who was familiar with the operation of the technical and fishing equipment, on the first voyage to assist the crew to become properly familiar with the operation of the vessel’s systems.

[96] By May 2009 the plaintiff, assisted by Mr Dawson and Jurinflot, was contemplating arresting the vessel in order to force Mr Belik to execute and register the mortgage. However the vessel could only be arrested when it returned to port and, because it could be at sea for six months, refuelling and discharging its catch at sea, it could be a significant period before it entered port.

[97] On 27 May 2009 Ms Chugunova advised Mr Barbarich that SB Co had appointed a lawyer, Mr Voron, and she advised the plaintiff to apply to a Russian court for orders requiring SB Co to execute a mortgage. Mr Barbarich emailed Mr Belik saying that he did not want to proceed with legal action but would be forced to do so if Mr Belik did not communicate with him. He noted that while Mr Belik had sought more time to pay, he had not put forward a proposal. On

9 June 2009 Mr Barbarich sent an email to Mr Belik suggesting that, if he could not afford to pay for the vessel, then perhaps he should sell it, and advised that he had received a strong inquiry from a Korean company. Mr Belik did not respond.

[98] On 21 September 2009, with the Rybak still at sea, Jurinflot advised that Mr Belik had appointed a new lawyer, Ms Maranova, who informed Jurinflot that she was not aware of the grounds of the plaintiff’s claims. A meeting was arranged for the beginning of October.

The Master Bank mortgage

[99] On 22 September 2009 Ms Chugunova advised that the Russian financial institution, Master Bank, who had registered a mortgage over the vessel on

3 June 2009 had contacted Jurinflot proposing a meeting. The defendant responded with an email which included the following:

I imagine the first point we need to establish is how much does Belik/SB

owe the bank?

We understood that he had provided the bank with other security and that

Zlatno More/Rybak was not required as security.

I have discussed the matter with Milan and we would suggest that the following options be proposed to the bank at your meeting once you can establish the above:

1. That the bank increase their loan to Belik and pay the full

amount outstanding to Anton’s;

2. That the bank pay the current arrears (USD300,000) and secure the second and third payments to us with a Performance Bond (Guarantee).

We are aware through industry sources that the Rybak is catching well and we cannot understand why Belik is not meeting his obligations under the sale contract.

It is possible that the bank may agree to the above in order to avoid any litigation, the outcome of which would include our client’s mortgage obtaining a priority ahead of that of the bank.

[100] Ms Chugunova met with Master Bank in Moscow on 24 September 2009 who advised that it had provided a credit line of USD1,850,000 to SB Co on the basis of an undertaking by SB Co to grant it a mortgage over the vessel. The mortgage registered in favour of Master Bank was not a newly-created obligation of SB Co but an old one originating from the 2008 loan facility.

[101] Ms Chugunova then sought advice from Mr Dawson concerning the

distribution of funds from the defendant’s trust account:

The preliminary outcomes of [the Master Bank] meeting lead us to assumption that within the court proceedings the issue of Letter of Credit will be rather acute, and it will have the impact on the mortgage registration as well, meaning that depending on that issue we’ll have to decide if we are supposed to persist on registration of the mortgage and keep negotiating with the Bank in this respect or we should move on to monetary claims to SB directly.

At present it would be really helpful if you could prepare a legal opinion describing the nature of the trust account used in funds flow for sale-purchase transaction of Rybak. How were you empowered to distribute the funds from that trust account (i.e. contractual link to ATL? Sort of instructions? Other grounds?)

Mr Dawson’s interim response was that the defendant had disbursed the funds under

written instruction from SB Co in accordance with Annex 4 of the contract.

[102] In response to Mr Barbarich’s inquiry whether Master Bank had indicated if it would oppose the registration of another mortgage over the vessel, Ms Chugunova advised:

... According to the Bank there is a clause in there loan/mortgage agreement with SB imposing a ban on any consequent mortgages of the vessel (meaning Mr. Belik agreed to make Annex 3 with ATL and undertook to register a mortgage knowing that there is no way how he was going to do it taking into account that clause in the Bank covenant). We may proceed trying to persuade the bank to waive that ban in favour of ATL taking into account the circumstances. Another aspect is that this ban remains valid till the mortgage contract creating the mortgage with such a ban for subsequent encumbrance is still in force.

[103] A tripartite meeting including Master Bank was arranged in Moscow for

29 September 2009 but Mr Belik did not attend, sending only Ms Maranova who was apparently very aggressive and initially declined to engage at all in the presence of the Jurinflot representatives. Her stance was that SB Co had paid all that it owed to the plaintiff.

Proceedings in Russia and London

[104] In October 2009 the plaintiff established tracking of the Rybak and recognised that the vessel would be required to enter port in the following four to six weeks as the weather conditions would become too difficult for a vessel of its size.

[105] Antons had to decide whether to pursue legal proceedings against SB Co in Russia or to commence the London arbitration process provided for under the contract. Ms Chugunova advised that a Russian court might decline to hear the claim because the parties had chosen a specific foreign forum for resolution of their disputes. SB Co had apparently made it clear to her that it would take the jurisdictional point. She noted that the Russian court had jurisdiction to require Antons to put up security while the vessel was under arrest: if security was ordered, it would be in the amount of at least half the claim.

[106] With the assistance of Jurinflot, Antons commenced proceedings in the Kamchatka courts in September 2009 seeking to compel SB Co to comply with its obligation to register a mortgage over the vessel. The Rybak arrived in Kamchatka on 12 November 2009. Ms Chugunova reported that Jurinflot successfully obtained interim measures restricting the movement of the vessel and what could be done with it. Even Master Bank was prevented from enforcing its mortgage until the plaintiff’s dispute was resolved.

[107] The plaintiff decided to pursue arbitration proceedings in London. Because Mr Belik did not respond to its request to appoint an arbitrator, the plaintiff applied to the High Court in London for an arbitrator to be appointed. The application could only be served through the UK Foreign Process Office and the plaintiff ’s English solicitors advised that this could take one to two years. Service was ultimately effected in October 2010.

[108] While the plaintiff attempted to keep the vessel at Kamchatka, SB Co opposed the claim in the Kamchatka courts on the basis that it owed nothing because it had paid the letter of credit funds in full to the plaintiff’s solicitor.

[109] Having successfully obtained interim relief preventing the vessel from leaving port, the plaintiff then suffered a series of set-backs in the Kamchatka courts. An attempt to arrest the vessel failed in January 2010. A second attempt failed in May 2010, as did a first appeal, a second appeal, and a third appeal.

The plaintiff abandons its recovery attempts

[110] In February 2011 the plaintiff was advised by its English solicitors that it was now free to apply to the High Court for an arbitrator to be appointed. However during 2011 it became reluctant to commit further funding and by the end of 2011 recovery efforts had effectively ceased.

[111] On 20 November 2012 the defendant sent an email to Mr Barbarich enquiring whether any decision had been made in respect of the Zlatno More and asking whether its file should remain open. On 10 December 2012 it sent a further email advising that it would be closing its file in the near future. It appears that nothing further transpired until shortly prior to the service of this proceeding.

Issue 1: What was the scope of the defendant’s retainer?

[112] As noted earlier⁶ the defendant admitted that it was engaged by the plaintiff in July 2008 to advise in relation to the proposed terms of sale of the vessel to SB Co and to draft documents recording the terms of sale. But it denied that it was engaged to advise in relation to appropriate measures to be taken to secure the plaintiff’s interest in the Zlatno More pending full payment of the agreed purchase price.

[113] However as the hearing unfolded the dispute relating to the scope of the retainer reflected in the pleadings faded in significance. While rejecting the plaintiff’s “full service” concept as adding nothing to the analysis, the defendant accepted that the scope of the retainer was not recorded in writing and that it evolved

_{as the transaction progressed.}

⁶ At [6] above.

[114] At the commencement of the engagement Mr Barbarich had contemplated a reasonably straightforward transaction, reflected in his email to Mr Dawson on

11 February 2008.⁷ However as difficulties were encountered, especially consequent

upon the implications of the vessel having fallen out of class, Mr Barbarich called on

Mr Dawson for assistance more frequently.

[115] Mr Gresson described the extent of professional involvement as appearing “to reach its crescendo” in the July 2008 negotiation in Christchurch. I agree that the intensity of Mr Dawson’s involvement at that time was very significant, he having agreed to represent the plaintiff’s interests at the negotiation although Mr Belik refused to agree to that course.⁸

[116] Mr Dawson’s involvement continued during the negotiation of Annex 4 and as advisor and strategist while Mr Barbarich was in Busan for the settlement of the transaction. That involvement continued in October when the funds were released and subsequently in connection with the determined attempts to recover the unpaid sum.

[117] The thoroughgoing nature of Mr Dawson’s involvement is reflected in a passage of evidence in which he gave three reasons for the frequency of their communications:

In the documents that we exchanged the documents were tracked and in the context of discussing the proposed changes to the documents I would have spoken to Milan or taken him through the details of the changes. Secondly, given the context of the transaction I would have had frequent discussions with him about the implications of the changes and thirdly Milan phoned me frequently – and I mean frequently – unusually. He phoned me more than most clients would normally phone me, so any development or any discussion or any interaction that may have happened would prompt a call from him to me so we spoke many times on any particular day around the transaction, especially at key points.

[118] While Mr Harris contended that Mr Dawson’s involvement sat at different

points on the spectrum⁹ of engagement at different stages in the transaction, suffice to say that at all times relevant to the three heads of claim I find that the defendant

⁷ _{At [24] above.}

⁸ _{At [43] above.}

⁹ Mr Gresson described a spectrum of involvement by a solicitor ranging from a “cuckoo clock”, where a solicitor is called upon from time to time, to a solicitor who is truly running the transaction.

was retained to provide advice and assistance in relation to the evolving transaction and, as the defendant accepts, owed a duty of care to the plaintiff to exercise reasonable care and skill in doing so.

Issue 2: Was there failure in the defendant’s advice on Annex 3?

[119] The particular of breach of duty at para 14(b) alleged:

The defendant failed to advise [the plaintiff] to include appropriate terms in the sale and purchase agreement which explicitly provided that:

(a) Upon delivery of the Zlatno More in Busan, SB Co would provide a mortgage in registerable form and that upon the vessel being entered on the Russian Register that mortgage would be registered; and

(b) That until the mortgage in registerable form was provided, the vendor finance funds would not be advanced

[120] The focus of this allegation concerns the negotiation of Annex 3 at the second

Christchurch negotiation on 17 July 2008.¹⁰

[121] The context to that negotiation was as follows:

(a) the plaintiff had discovered that the vessel had fallen out of class;¹¹

(b) at the first Christchurch negotiation the transaction had changed to a vendor-financing with a mortgage security;¹²

(c) Mr Dawson had drafted an initial mortgage clause (the first clause)¹³ but he considered that the plaintiff should withdraw from the transaction;¹⁴

(d) although Mr Dawson considered that it was preferable that the new arrangement be documented in a fresh agreement,¹⁵ he agreed to draft

¹⁰ _{At [44] to [48] above.}

¹¹ _{At [22] and [29] above.}

¹² _{At [33] above.}

¹³ _{At [35] above.}

¹⁴ _{At [36] above.}

¹⁵ At [39] above.

the proposed variation agreement as a second appendix. It contained a clause very similar to the first clause;

(e) Mr Belik then supplied a different draft of the second appendix which did not contain a mortgage clause at all.¹⁶

[122] Although Mr Barbarich had appointed Mr Dawson to act on the plaintiff’s behalf at the second Christchurch negotiation, Mr Belik would not agree. Consequently both Mr Barbarich and Mr Dawson were present at the meeting on

17 July 2008.¹⁷ During that afternoon Mr Dawson provided an amended mortgage

clause (the second clause).¹⁸

[123] Mr Stolberger, who was the plaintiff’s maritime expert, considered that if the form of the second clause had been adopted, then there would have been a clear obligation on SB Co to deliver a signed mortgage at the time of settlement and delivery of the vessel. Mr Gresson, a maritime expert called by the defendant, also considered that the wording of the second clause was adequate.

[124] However Mr Stolberger considered that the third clause did not refer to the provision and execution of the mortgage but at best recorded an obligation on SB Co to register a mortgage. In his brief he stated:

5.9 ... In my opinion any reasonable and prudent practitioner would have strongly advised a seller against contracting on that basis and recommended that the drafting be tightened to, at the very least, make it clear than an executed mortgage in registerable form was to be provided on settlement, with mortgage registration to be effected immediately upon registration of the ship in the name of the new owner.

5.10 Faced with a client considering entering into a document in the form of Annex 3, and in particular including the [third clause], in my opinion a reasonable and prudent practitioner would have warned ATL explicitly and in writing that in entering into Annex 3:

...

(e) the provision of a valid ship mortgage was essential to

_{protect the ATL’s position;}

¹⁶ _{At [41] above.}

¹⁷ _{At [43] above.}

¹⁸ At [45] above.

(f) the Mortgage Clause in particular was ambiguous and unclear and that on the face of it ATL was arguably accepting that SB Co would only be obliged to provide the ship mortgage at some point following registration of the vessel in SB Co’s name on the Russian Ship Register;

(g) that there would be a gap between the date and time of delivery and transfer of title to the vessel to SB Co and the time at which the mortgage would be provided and registered;

(h) that following transfer of title and until provision and registration of the ship mortgage, ATL would accordingly be unsecured for the outstanding balance of the purchase price and reliant only on the honour of SB Co to complete registration of the vessel and to execute and register a valid and enforceable ship mortgage; and

(i) that there was a potential risk that SB Co would fail to honour its commitment to provide a first priority registered ship mortgage;

[125] Mr Gresson agreed that the third clause differed from the second clause on the timing of the obligation to provide the mortgage. He also recognised that the third clause was unsatisfactory in its drafting.

A. ... It’s grammatically unsatisfactory.

Q. It doesn’t have an object.

A. No, no.

Q. So you’re trying to infer its meaning?

A. Yes. I think the gist of it I think is clear but as a piece of drafting it’s

average.

Q. The gist as you see it – and I’m not asking for an interpretation, but what do you mean by the “gist”?

A. Well, the gist is that a mortgage is to be registered at some point when the first priority ship mortgage has been drawn up and agreed by the seller.

[126] The plaintiff criticised the first clause as being inappropriate because it was the type of clause suitable for a conventional transaction where a vessel is already on a register and a transfer of title and registration of a mortgage can occur contemporaneously. Mr Dawson accepted that the first clause was inappropriate for the transaction but he justified it as being an early draft that preceded a range of negotiations.

[127] However it was Mr Dawson’s view that in the second clause the second sentence qualified the first sentence so as to make it clear that the mortgage documents were to be signed on or before delivery. He described that as a subtle difference from the first clause. When it was put to him that the second clause did not achieve anything different from the first clause he said:

A. No, the way in which the clause is drafted suggests that the purchaser should sign the documents prior to delivery and if you were to insert a comma, for example, after “cost” then that would then clarify whether the point of, clarify the point of time by which the documents had to be signed and separated from the registration of the vessel.

Q. So you’re saying [the second clause] captured a two-stage approach to the mortgage?

A. Yes, it anticipated the signature of the mortgage documents prior to delivery, once the vessel was registered those documents would be lodged with the registrar.

[128] Mr Dawson’s brief described the circumstances which culminated in the adoption of the third clause in this manner:

70. The negotiations were extremely difficult. Belik aggressively negotiated every clause, giving no ground to Milan. Milan became so frustrated at one point that he walked out. I insisted that we broke out every now and again to have some time to ourselves. I repeatedly voiced my discomfort with the way the negotiations were progressing and the fact that Belik was continuing to extract concessions to the disadvantage of Antons. Milan wanted to stick with it, despite his frustration at continuing to give ground. The breach of the Lloyds Class warranty had left him in a weak position, as I had warned him earlier.

71. I advised that the contract include a clause requiring the purchaser to sign all documents and do all things necessary to register a first priority ship’s mortgage on or before delivery of the vessel [the second clause]. I also advised that the contract give Antons the first right to market and sell product caught by the vessel as “further security for the performance” of the purchaser’s obligations.

72. At Belik’s insistence, and contrary to my advice, Milan eventually agreed that a mortgage would not have to be provided until the vessel was registered in the name of the new owner [the third clause]. My advice that Antons have rights over the vessel’s catch was also not accepted by Milan when Belik resisted it.

[129] The quality of Mr Dawson’s recollection was not as vivid as that final paragraph suggests. His lengthy cross-examination included the following exchange:

Q. Because there’s no indication whatsoever that any of Belik’s sticking points involved the terms of the mortgage in your file note or in the run up to the meeting, is there?

A. Not on the documents, no.

Q. And you’ve said that you actually cannot recall six years on exactly

what Belik said about the mortgage?

A. I can’t recall exactly what he said but the fact that the compendium clause that I recommended inserting earlier was cut back significantly it’s final, the final form that we see here suggests to me that there must have been a detailed discussion about the clause.

Q. That’s not recorded at all in the contemporaneous file note that you

made?

A. It’s not, but I didn’t recall – didn’t record everything that transpired

during that day. It was a very, very pressured, heated day. Q. Understood.

A. There was a lot going on and in fact there were a whole lot of formatting, typing and translation issues also that we were trying to grapple with at the same time. Milan was typing it on his computer as I recall. There was a translator involved and there was a lot of to-ing and fro-ing between the parties as to how the final form of annexe 3 should appear, so ...

Q. The form or the substance? A. Both.

[130] Shortly prior to that passage Mr Dawson acknowledged the difficulty in the phrasing of the third clause:

Q. Now that clause doesn’t make grammatical sense but Mr Gresson has said that before the last sentence after the word “seller” you need to insert the words “to be provided”. Do you accept that in order for the clause to make any sense?

A. Yes.

Q. Did you pay close attention to the drafting of this clause, Mr Dawson?

A. I did.

[131] I questioned Mr Dawson concerning the point in time at which he appreciated the implications of the third clause for the plaintiff:

Q. ... What I’m interested in knowing is when did you realise that [the third clause] presented a significant problem for Antons?

A. Sir, that would have been prior to annexe 4. It would have been between the signature of annexe 3 and documents at annexe 4 because in annexe 4 I attempted to introduce a clause that would assist Antons.

Q. So it follows from that answer, I think, that the implications of this somewhat curiously worded clause weren’t immediately apparent to you at the, in the intense negotiating phase?

A. Sir, they would have been apparent to me at the time because it’s an obvious area where the client would have given away a significant position. I don’t think it’s something that dawned on me over time.

Q. So what did you do, how did the clause get tabled?

A. In the context of the discussion I don’t recall a specific discussion around the clause because, as I recall, how the meeting went there was, we went through the document clause by clause and word by word in some cases. So each clause was tortly (sic) negotiated and examined, we went through the document.

Q. So you focused closely on the clause?

A. Yes Sir, particularly in the context of my having suggested the insertion of the earlier wording and that being removed the, there would have been a focus, a particular focus on that clause but I don’t recall the specific discussion.

Q. Well you didn’t hear his evidence but Mr Gresson commented that

the clause is grammatically unsatisfactory.

A. It is Sir but I suspect that’s in the context of the late night and the pressure of those negotiations and the various people handling the document that was the final outcome.

Q. What was it supposed to say?

A. That, “Immediately upon the registration of the vessel the – in the name of the buyer and the Russian Register the buyer shall do all things necessary and sign all documents to cause a first priority ship’s mortgage in a form to be agreed by seller to be executed.

[132] With reference to paragraph 72 of his brief I asked Mr Dawson about the advice which he said he had given to Mr Barbarich:

Q. So when you say “contrary to my advice”, where and when was the

advice given?

A. Sir, I can’t recall specifically giving the advice to Milan in the context of that discussion but as I said the clause being cut down from what the original drafting was to where it is suggests to me that I gave that advice at the time.

Q. Looking back with the events that have followed, your [attempts] to improve the position and Mr Belik not being attracted by the lure, so

to speak, is it really your position that the die was cast once the clause was agreed in those terms?

A. Yes, Sir.

Q. Are you able to point to any evidence of advice you gave to

Mr Barbarich of that nature?

A. No, I’m afraid not, Sir.

[133] The plaintiff submitted that the terms of the third clause did not address the issue of the timing of execution and provision of a mortgage by SB Co. At the same time, however, (presumably with an eye to its other causes of action) it adopted the stance that the third clause did in fact confer on it the right to require execution of the mortgage before the release of the funds. The key paragraphs in the closing submission stated:

2.7 The clause is silent as to the timing of execution/provision and deals only with registration. Antons says that, properly construed against the matrix of the fact in which the agreement was negotiated, the clause – while inelegantly drafted – did give it a right to require execution (but not registration) before the release of funds at the very latest otherwise this was an unsecured loan. Dawsons never advised Antons that it was committing to advance money when it had no security in its hand. That would have been an extraordinary position that it would have warranted explicit advice, not simply an observation that the company was committing to “onerous terms”.

2.8 The reason that advice was not given is that it was not Mr Dawson’s view. Antons says that everyone – Belik, Barbarich and Dawson himself proceeded on the basis that the mortgage clause would be executed on delivery. Mr Dawson’s attempts to say that he developed an “alternative strategy” to push for execution on delivery in circumstances where he had concluded and allegedly advised Antons it was not entitled to that is unconvincing and should be rejected.

[134] For the defendant it was contended that the Court could not be satisfied that Mr Dawson had failed to advise Mr Barbarich of the nature of the concession involved in agreeing to Annex 3. The point was made that it would be odd for a maritime lawyer of Mr Dawson’s experience, having identified the issue from the outset and incorporated suitable terms in his draft, to allow a material change to be made without explaining it to the client sitting next to him. It was also emphasised that Mr Barbarich acknowledged that Mr Dawson repeatedly voiced his discomfort with the way the negotiations were progressing and the fact that Mr Belik continued to extract concessions to the plaintiff’s disadvantage.

[135] It was never suggested for Mr Dawson that the form of the clause changed from the second clause to the third clause at some point subsequent to his involvement but prior to the finalisation of Annex 3. The possibility that Mr Dawson was aware of the change to the clause and of its significance but elected not to alert

Mr Barbarich can be safely discounted for the reasons discussed below.¹⁹

[136] Hence there are only two practical conclusions available. One possibility, as asserted by Mr Dawson, is that he recognised the problem with the third clause and so advised Mr Barbarich who proceeded to accept the clause contrary to Mr Dawson’s advice. The other possibility is that neither Mr Dawson nor Mr Barbarich was alive to the negative implications of the amended clause at the

time of the negotiation.²⁰

[137] I consider that the second conclusion is the more likely for several reasons. First, the transaction had evolved into an unusual state with the vessel having fallen out of class and a vendor-financing component having been introduced. Mr Dawson accepted that his first proposed clause was inappropriate for the transaction.²¹

[138] Secondly, the negotiation was by all accounts stressful and wearying with Mr Belik litigating apparently every clause.²² In fact Mr Dawson relied on the state of that difficult environment in his explanation for the third clause being grammatically unsatisfactory.²³

[139] Thirdly, and significantly in my view, when I asked Mr Dawson directly to identify the point at which he realised that the third clause presented a significant problem for the plaintiff, his initial response was:

Sir, that would have been prior to annexe 4. It would have been between the signature of annexe 3 and the documents in annexe 4 because in annexe 4 I attempted to introduce a clause that would assist Antons.

¹⁹ _{At [149]–[152] below.}

20. However contrary to the submission at [133] I doubt that Mr Belik was unaware given his commitment to Master Bank noted at [102].

²¹ _{At [126] above.}

²² _{At [128] above.}

²³ At [131] above.

It was only when I drew to his attention the implications of that answer that he changed tack and claimed that the significance of the problem would have been apparent to him at the time of the negotiation itself.

[140] Fourthly, had Mr Dawson been focused on the revised form of the mortgage clause, given my assessment of him as a precise man, he would not have signed off on a clause which it is accepted did not make grammatical sense. The unsatisfactory structure of the clause itself, quite apart from its contractual implications, suggests to me that it was not the subject of close scrutiny at the time.

[141] Fifthly, if, as he claimed, Mr Dawson had advised Mr Barbarich of the downside to the third clause and if Mr Barbarich had proceeded to ignore that advice, then I am confident that Mr Dawson would have recorded both the fact of the advice and the client’s election to decline to follow it. However there is no record of any such advice having been given.

[142] Of moment with reference to the absence of a record of any such advice is a four page handwritten note dated 17 July 2008 which was made by Mr Dawson progressively during that day. The file note records several matters discussed at the meeting. Two significant points emerged from his cross-examination by Ms Meechan QC.

[143] First, the only reference to a mortgage appears to be in the phrase “no bank mortgage” on the third page. After initially suggesting that that phrase reflected that Mr Belik was refusing to provide a mortgage over the vessel, Mr Dawson resiled from that proposition and agreed that the phrase conveyed Mr Belik’s reaffirmation

of his earlier advice that there was no existing mortgage over the vessel.²⁴

[144] Secondly, Mr Dawson acknowledged that there was no reference in his notes to Mr Belik pushing back on the mortgage term proposed by Mr Dawson. When Mr Dawson accepted that he could not recall a specific discussion about the mortgage clause but nevertheless maintained that Mr Belik “would have pushed

_{back” on the mortgage clause, the following exchange occurred:}

²⁴ At [34] above.

Q. No, I don’t want you to say “he would have”. I really don’t want you to try and hypothesise. If you don’t recall that’s fine. It’s a long time ago. But I’ve taken you through a file note which you said you made sequentially through the course of the day and there’s no reference to any issue with the mortgage as you proposed, was there?

A. I don’t recall the conversation around the mortgage clause.

[145] In combination those several matters lead me to conclude that neither Mr Barbarich nor Mr Dawson appreciated at the time of the intense and exhausting negotiation that there had been a significant change to the mortgage clause which was disadvantageous from the plaintiff’s perspective. In my view Mr Dawson was negligent in failing to identify the significance of that change and consequently in failing to advise Mr Barbarich about it.

[146] The mortgage clause in its three variations concerned a complex and unusual scenario and I accept that Mr Barbarich would have been dependent on Mr Dawson’s advice in comprehending its consequences. I agree with the plaintiff’s submission that the following observation of Salmon LJ in Sykes v Midland Bank Executor & Trustee Co Ltd is particularly opposite in the present case:²⁵

... Mr Price has argued that this leaps from the page and that it would be plain to any educated man. I am afraid I do not agree. I think that any layman might easily miss its full implication, particularly if his attention was not drawn to it by the solicitor to whom he had taken the draft lease for advice.

[147] I find that Mr Dawson’s first response to my question at [131] reflected what actually occurred. At some point between the execution of Annex 3 on 18 July 2008 and the third Christchurch negotiation in mid-August when Annex 4 was agreed, Mr Dawson realised the problem that the third clause presented.

[148] Thereafter he seized upon every opportunity to endeavour to retrieve the position, in particular by:

(a) proposing that Annex 4 should include a term that SB Co provide a performance bond/bank guarantee;²⁶

²⁵ _{Sykes v Midland Bank Executor & Trustee Co Ltd [1971] 1 QB 113 (CA) at 126.}

²⁶ At [52] above.

(b) proposing that the Protocol of Delivery and Acceptance should state that SB Co had signed a mortgage with a copy annexed;²⁷

(c) proposing an amendment to the remittance authority.²⁸

Unfortunately all those attempts were stymied by Mr Belik.

[149] The plaintiff contended that Mr Barbarich was not privy to what it described as an “alternative strategy”.²⁹ While recognising that Mr Dawson did propose a banker’s bond as an alternative security, it submitted that there was no evidence that he did so because he had concluded, and advised the plaintiff, that the mortgage clause was unsatisfactory.

[150] It argued that, if that was Mr Dawson’s view, he kept it to himself.

Mr Dawson denied that in cross-examination:

Q. So is it your position that as Mr Barbarich, Milan is about to go to Busan he needed to attempt to deploy another strategy to try and get the mortgage ahead of it actually being able to be registered?

A. Yes.

Q. And when do you say you had this discussion with Milan about this alternative strategy of getting the mortgage, even though he wasn’t entitled to it?

A. Again, I had a number of many conversations with Milan backwards and forwards over the time of that settlement, and whilst he was in Busan conversation would have occurred within the context of those discussions. But I don’t recall the specifics.

Q. But I’m talking now as he’s preparing to go to Busan and your evidence to His Honour is he wasn’t entitled to get the mortgage before he parts with possession of the money. Surely if this alternative strategy to be deployed you would have mentioned it with the various drafts of the mortgage or deed of protocol that you were sending through.

A. In hindsight, yes, I should have flagged that particular issue.

However, there was a lot going on and a lot of exchanges and phone

_{calls, and I didn’t.}

²⁷ _{At [58] above.}

²⁸ _{At [74] above.}

²⁹ At [133] above.

[151] The defendant drew attention to Mr Barbarich’s acknowledgement that Mr Dawson’s proposal for Annex 4 was an attempt to improve the plaintiff’s security position subsequent to the outcome of Annex 3. It was Mr Harris’ submission that, if it was correct to call this a strategy or a scheme, then Mr Barbarich was “in on it”.

[152] I agree with the tenor of the defendant’s contention. I find that reasonably soon after Mr Dawson became cognisant of the problem in the period between the execution of Annexs 3 and 4, he alerted Mr Barbarich and began his endeavours to address the perceived problem. It is not credible in my view for those various proposals to have been pursued without Mr Barbarich appreciating their significance. It is also apparent from Mr Barbarich’s email to Mr Belik of 26 September 2008 that Mr Barbarich recognised that the mortgage deed might not be executed until after

registration of the vessel.³⁰ But whether Mr Barbarich knew or not is not material to

the finding as to the defendant’s negligence.

[153] However, while I find that the plaintiff has established this head of its claim,

the defendant takes the point that this aspect of the plaintiff’s claim is time-barred.

Issue 3: Is the cause of action in Issue 2 time-barred?

[154] It was common ground that the limitation defence is governed by s 4(1)(a) of the Limitation Act 1950 which states:

4 Limitation of actions of contract and tort, and certain other actions– (1) Except as otherwise provided in this Act, the following actions shall not be brought after the expiration of six years from the date on which the cause of action accrued, that is to say,–

(a) Actions founded on simple contract or on tort: ...

[155] The proceeding having been filed on 26 September 2014, it was also common ground that the critical date for consideration under s 4 is 26 September 2008.

[156] The plaintiff’s claim invoked both a contractual and a tortious duty of care.³¹

The contractual cause of action accrued on the date of the breach of the contract, irrespective of whether damage occurred. However the concurrent tortious claim

³⁰ _{At [82] above.}

³¹ At [7] above.

accrued only at the point when the plaintiff suffered loss or detriment by reason of the breach of the duty owed.

[157] It was the defendant’s case that in respect of both bases of claim the cause of action had accrued by the date that Annex 3 was executed on 18 July 2008 at which point, to borrow the defendant’s phrase, the transaction had gone off the rails irretrievably. The defendant’s defence was based squarely on the leading authority

on the accrual of a cause of action in negligence, Davys Burton v Thom.³²

[158] In Davys Burton solicitors negligently failed to ensure that a prenuptial agreement was executed in accordance with the statutory requirements. After separating from his wife Mr Thom discovered that the agreement under which the matrimonial home was to remain his separate property was invalid. He contended that he did not suffer damage until the Family Court declared the agreement unenforceable or, at the latest, when the couple moved into the house.

[159] The Supreme Court held that he had suffered damage, and that time therefore commenced to run, when the plaintiff entered into the prenuptial agreement. The Court reasoned that he had suffered quantifiable loss on entering into the agreement because he had obtained a flawed or damaged asset, namely an unenforceable agreement, even though the full extent of the damage would only become apparent at a later date after the marriage failed.

[160] Adopting the reasoning in Davys Burton, the defendant contended that the cause of action in negligence accrued when the plaintiff obtained contractual rights less valuable than the rights that would have been obtained if it had been competently advised during the July 2008 negotiation in Christchurch. It submitted that by executing Annex 3 the plaintiff became committed to selling the vessel on terms that did not adequately protect its interest in the unpaid balance. Hence it was said that the claim arising out of the failure to provide adequate advice as to the terms of Annex 3 was statute-barred because the plaintiff suffered damage at the point of entering into the agreement without the protection of a clause that it should

_{have insisted upon.}

³² Davys Burton v Thom [2008] NZSC [65][2008] NZSC 65; , [2009] 1 NZLR 437.

[161] The plaintiff sought to distinguish Davys Burton, reasoning that the entry into an agreement expressive of rights, such as the relationship property agreement in Davys Burton, is different from the situation where the parties enter into an agreement that provides for future performance of obligations in exchange for benefits.

[162] It argued that Mr Thom was “blighted” from the point when he entered into the agreement, being then financially worse off to the extent that his “personal balance sheet” did not contain an asset that it should have, namely an entitlement to his house as separate property. The immediate consequences of the solicitors not performing their duty was an appreciable (though difficult to quantify) loss.

[163] The plaintiff argued that its position was different, drawing attention to the categorisation (by Lord Hoffmann in Law Society v Sephton & Co) of cases where various kinds of damage had been suffered.³³ As Wilson J noted in Davys Burton,³⁴

Lord Hoffmann placed in the “benefits and burdens” category some cases where, in a transaction which has benefits as well as burdens, loss is suffered only when it is possible to say that on balance the claimant is worse off.³⁵

[164] The plaintiff proceeded to refer to the observation of Brennan J in Wardley

Australia Ltd v State of Western Australia quoted by Lord Hoffmann:³⁶

... If the plaintiff acquires no benefit, the loss or damage is suffered when the event occurs. At that time, the plaintiff’s net worth is reduced. And that is so even if the quantification of that loss or damage is not then ascertainable. But if a benefit is acquired by the plaintiff, it may not be possible to ascertain whether loss or damage has been suffered at the time when the burden is borne – that is, at the time of the payment, the transfer, the diminution in value of the asset or the incurring of the liability. A transaction in which there are benefits and burdens results in loss or damage only if an adverse balance is struck.

[165] In reliance on that analysis, the plaintiff submitted:

4.5 The “adverse balance” was not struck in this case until Anton’s no longer had its hands around the thing of value (the LC funds) that “replaced” the asset on its balance sheet that the [Zlatno More]

³³ _{Law Society v Sephton & Co [2006] UKHL 22, [2006] 2 AC 542.}

³⁴ _{Davys Burton v Thom, above n 32 at [42].}

³⁵ _{Law Society v Sephton & Co, above n 33 at [21].}

³⁶ Wardley Australia Ltd v State of Western Australia [1992] HCA 55; (1992) 175 CLR 514 (HCA) at 536.

represented. At that point, and only at that point, Antons became financially worse off. Up until that point it had a valuable thing (the money) that represented the benefit it was to receive in return for the burden of transferring ownership of the vessel. At the point on

1 October 2008 when the mortgage money was released, Antons went backwards. In contract, Mr Thom had gone backwards the

_{moment he signed the relationship property agreement.}

...

4.11 It is not simply a matter of laying Thom v Davys Burton over the top of that finding and saying “the agreement is the problem and as it was signed in July/August 2008, the claim was out of time”: The Court must look to the nature of the agreement. If, as in this case, the agreement was not one that conferred or captured rights or obligations “immediately” but provided for the performance at some point in the future, loss is not suffered until that onerous financial obligation is performed. In this case that onerous financial obligation was paying away the LC funds when no mortgage was in place. Until Antons performed that obligation, it had not suffered a financial detriment.

[166] So far as the “adverse balance” proposition is concerned, in Sephton Lord Hoffmann pointed to an important distinction in the context of the “benefits and burdens” category of cases, saying:³⁷

... It is only necessary to observe that in such bilateral transactions the answer to the question of whether damage has been suffered may be different according to whether the liability is for the consequences of the defendant not performing his duty or (as is usual in claims for misrepresentation) the consequences, or some of the consequences, of the plaintiff entering into the transaction. If the liability is for the difference between what the plaintiff got and what he would have got if the defendant had done what he was supposed to have done, it may be relatively easy, as Bingham LJ pointed out in D W Moore & Co Ltd v Ferrier [1988] 1 WLR

267, to infer that the plaintiff has suffered some immediate damage, simply because he did not get what he should have got. Thus in Knapp v

Ecclesiastical Insurance Group plc [1997] EWCA Civ 2616; [1998] PNLR 172, where the plaintiff

paid a premium for a voidable fire insurance policy because his insurance broker had failed to disclose material facts, the Court of Appeal held that he had suffered immediate damage because he “did not get what he should have got”, namely a policy binding on the insurers.

[167] Referring to the cases noted by Lord Hoffmann and to some others as well, in

Davys Burton Elias CJ described them as cases where the plaintiff, through the negligence of the defendant, did not obtain the rights he should have obtained or had

³⁷ Law Society v Sephton & Co above n 33 at [21].

imposed on him liabilities or obligations that should not have been imposed. After reviewing the circumstance of those cases she concluded:³⁸

... In all these cases, immediate quantifiable damage arose even though further damage arising from the flawed transactions remained contingent. Such further contingencies “only [go] to quantum ... and [do] not affect the fact that [the] damages were suffered on [the date of the breach of duty] ... because [the plaintiff] did not get what she should have got”. In Sephton, Lord Walker described cases such as these (in terms earlier used by Saville LJ in First National Commercial Bank plc v Humberts (a firm)) as transactions where the plaintiff suffered quantifiable loss “then and there” because he should have had greater rights or lesser obligations and instead ended up “with a package of rights less valuable than he was entitled to expect”.

[168] I consider that the claim in Issue 2 falls into the category described by Elias CJ and Lord Hoffmann where immediate damage was sustained. Because of the negligence of the defendant in relation to the negotiation of the terms of Annex 3, the plaintiff’s package of rights was less valuable than it was entitled to expect because it could be required to surrender possession of the vessel without obtaining the mortgage security which it was originally intended that it should have.

[169] In my view the fact that funds were to be received via the letter of credit is a red herring so far as concerns the plaintiff’s contractual obligation to hand over possession of the vessel without obtaining an executed mortgage in return. That obligation was incurred in July 2008 when Annex 3 was executed. The fact of the receipt and holding of funds (which were required to be disbursed in a particular manner) did not defer the incidence of the plaintiff’s contractual disadvantage until the date of disbursement of those funds.

[170] Consequently because damage was suffered in July 2008, which was earlier than the critical date of 26 September 2008, I find that the defendant’s limitation

_{defence succeeds.}

³⁸ Davys Burton v Thom above n 32 at [21].

Issue 4: Was there failure in the defendant’s advice on release of funds?

[171] The third particular of breach of duty at para 14(c) alleged:

[The defendant] misadvised [the plaintiff] as to its (the defendant’s) obligation to release the vendor finance funds, advising [the plaintiff] that it had given an undertaking to do so and that there was no legal basis upon which [the defendant] could retain the funds

[172] This allegation relates to the telephone conversation noted at [86] above shortly prior to Mr Dawson’s release of the funds in the manner directed in the remittance authority at [76] above.³⁹

[173] The evidential foundation for this claim was at para 9.19 of Mr Barbarich’s brief:

The letter of credit funds of USD 1,665,000 (less bank fees) were paid into

Peter’s Trust Account on 29 September 2008. Peter called me on or about

29 September as he required me to issue an instruction/authorisation to Dawson Law to pay the funds received from the L/C to the accounts nominated by Belik. In our discussion I asked him whether we had to pay the funds away to Belik as we did not have a signed Deed of Mortgage. Peter advised me that he had given an undertaking to pay the funds away and there was no legal basis to hold onto the funds and the funds had to be released. As result of this discussion I reluctantly instructed Peter in writing to release the funds. There was no discussion of the consequences of this action if Belik did not sign or register a mortgage. If Peter had advised me that we had no protection whatsoever, then I would not have given an instruction to release the funds.

[174] Mr Dawson’s brief did not expressly acknowledge the fact of a telephone conversation with Mr Barbarich on this issue. The relevant portions of his brief read:

105. The letter of credit funds were paid into my trust account on

29 September. I wrote to Milan and Belik confirming receipt and seeking confirmation that I was to disburse the funds in accordance

with their earlier joint instruction.

...

108. Milan emailed me early on 1 October instructing me to ensure that payment was made that morning. I received a similar instruction from Belik. I attended to the transfer as instructed.

³⁹ In a judgment dated 16 May 2016 ([2016] NZHC 980) I declined the plaintiff ’s application for

leave to adduce further evidence in relation to this aspect of the claim.

109. Milan suggests in his evidence that he “reluctantly” instructed me to make payment, despite the fact that the mortgage had not been signed, because I had told him he had no choice (paragraph 9.19). He says that he would not have instructed me to release the funds if I had advised him that Antons “had no protection whatsoever”.

110. I was disappointed to read these statements from Milan. I do not recall him expressing reluctance and he did not ask me to delay payment until the mortgage was finalised. He was keen for the funds to be released promptly so that he could begin paying down the substantial debts that Antons had incurred in getting the transaction to this point.

[175] However in cross-examination he acknowledged that there would have been a discussion in which he advised Mr Barbarich that Mr Dawson held the authorisation and that he was going to release the funds in terms of that authorisation. While acknowledging that he did not need any further authorisation than that set out in the remittance authority, he explained that he emailed Mr Barbarich to request confirmation that he could remit the funds in terms of the authorisation.

[176] When asked why he had made that request, his response was that it was out of an abundance of caution. His recollection is captured in the following exchange:

Q. So coming back, then, to the reason why you’ve called Milan, to make doubly sure, you say, and are you saying that at no point did Mr Barbarich say to you, “Are you sure you have to? We haven’t got the mortgage.”

A. I don’t have a recollection of that particular discussion. All I recall, and I’ve searched – I’ve tried to go over this time and time again, as you’d imagine.

Q. Sure.

A. The abiding recollection I have is the pressure and the urgency of getting those funds released. I don’t recall having a conversation with Milan around undertakings or reluctance to release the money. My recollection was, let’s go ahead and finish it. This was a culmination of a long series of very, very traumatic events for him and for, and the challenges implicit in advising him as a lawyer. So we got to a point where he wanted the monies released and the transaction brought to a head.

[177] When tested on this episode in cross-examination Mr Barbarich acknowledged that there was no email or other contemporaneous note to support his contention that he gave the instruction reluctantly but he stated that the conversation

was “etched in his brain”. He said that when he informed Mr Dawson of his reluctance to provide the confirmation because the mortgage had not been provided, Mr Dawson’s exact words were:

Well its too late. I’ve already given an undertaking”.

[178] He said that he felt very sick to be told that the money had to be paid out and that he was not desperate for the plaintiff ’s share of the funds although it would have been nice to have them. When it was suggested to Mr Barbarich that his email of

1 October 2008⁴⁰ was not one that he would send if he was feeling sick about the

money being disbursed without receiving the mortgage, he replied:

In hindsight, no but I trusted Peter Dawson’s opinion.

[179] Mr Barbarich accepted that at this point in time he knew that: (a) Mr Belik had the vessel;

(b) the mortgage was the only security for the loan; (c) the mortgage was not yet signed;

(d) the money was about to be paid away without the mortgage in place; (e) there was no other protection for him at that point.

[180] In those circumstances, where Mr Dawson had effectively opened the door to the issue by seeking Mr Barbarich’s further confirmation, I accept that it is likely that Mr Barbarich did pose the question (in his words): “can we hold the money?” In my view it would have been surprising if he had not done so.

[181] I accept the defendant’s contention that Mr Barbarich was motivated to obtain

the plaintiff’s share of the funds, a point corroborated by his email of

1 October 2008.⁴¹ Nevertheless the fact that Mr Barbarich did express at least some level of concern at the situation is evident from Mr Dawson’s answers to my

_questions:

⁴⁰ _{At [89] above.}

⁴¹ At [89] above.

Q. Now, at the time that the funds were released you explained that you contacted Mr Barbarich as [it] were to get confirmation that they should be released, a sort of a, I think you said, double ...

A. Out of an abundance of caution.

Q. Yes, thank you. And if he said yes then that’s all done and dusted.

What would you have said if he’d said no?

A. Sir, I would have had to, I would have not released the money at that point and I would have sought some advice as to what remedies we would have in the event of Belik challenging that decision not to release the money, you know, by way of an injunction or by way of some form of legal remedy to prevent the release, formally prevent the release of the money but at that point I would have thought that the prospects of an injunction succeeding would have been difficult given the wording of annexe 3.

Q. Notwithstanding [the completion letter at [71] above.] A. Notwithstanding that Sir.

Q. But your evidence is that Mr Barbarich wasn’t in the least concerned

about release of the funds?

A. Sir, I don’t recall him expressing that degree of concern. It’s a long time ago and I’ve searched my recollection and I can’t recall that degree of reluctance being expressed.

I found it significant that Mr Dawson twice referred in that last answer to “that degree” of concern and reluctance.

[182] However I further accept that, Mr Barbarich having asked the question, Mr Dawson proceeded to explain to him that that was not an option because of the terms of the remittance authority signed by both buyer and seller. I doubt that Mr Dawson used the word “undertake” but even if he did, it was no more than a description of the obligation which he considered the remittance authority imposed upon him. It is not the plaintiff’s case that Mr Dawson represented to Mr Barbarich that, separate from and additional to what the remittance authority required of him, Mr Dawson had also given some form of undertaking to Mr Belik.

[183] Accordingly I find that a telephone conversation took place between

Mr Dawson and Mr Barbarich on 30 September 2008 prompted by the request for confirmation in the final paragraph of Mr Dawson’s email of 29 September 2008.⁴²

⁴² At [84] above.

In that conversation Mr Barbarich asked the question in [180] above and Mr Dawson explained that there was no legal basis for holding the funds.

[184] More than likely Mr Dawson made the point that the amendment, which he had proposed in his email of 16 September 2008 as a basis for retaining the funds until a mortgage was provided,⁴³ had not been included in the remittance authority. Mr Barbarich, who is a very competent and pragmatic businessman, recognised then that there was no alternative to the funds being disbursed.

[185] Was Mr Dawson negligent in giving such advice? In my view the advice which he gave was correct and that he was obliged to comply with the directions in the jointly-signed remittance authority. However, even if there was room for debate on that issue, it does not follow that the advice which he gave was negligent.

[186] Mr Harris emphasised that a solicitor is not to be judged by the standard of a particularly meticulous and conscientious practitioner. The test is what the reasonably competent practitioner would do having regard to the standards normally adopted in the profession.⁴⁴ He drew attention to the observation of Blanchard J in Simperingham v Martin:⁴⁵

It has to be remembered that the standard of performance expected of solicitors is that of a reasonably competent solicitor in the circumstances of his or her retainer... the question is what a reasonably competent solicitor should have done as a minimum.

[187] Mr Harris submitted that the fact that a solicitor makes a professional judgment that, in retrospect and on detailed analysis, might be argued to have been erroneous, is not sufficient for liability to attach. It will be negligence only if the judgment is one that a reasonably competent solicitor could not make.⁴⁶ As the House of Lords stated in Saif Ali v Sydney Mitchell & Co,⁴⁷ a distinction is drawn between:

... an error that was so blatant as to amount to negligence and an exercise of judgment which, though in the event it turned out to have been mistaken, was not outside the range of possible courses of action that in the

⁴³ _{At [74] above.}

⁴⁴ _{Midland Bank v Hett Stubbs & Kemp [1979] Ch 384 at 403.}

⁴⁵ _{Simperingham v Martin HC Auckland CP 316/93 19 October 1994 at 18–19.}

⁴⁶ _{Simperingham v Martin CA 5/95 2 June 1995 at 13 (Gault J).}

⁴⁷ Saif Ali v Sydney Mitchell & Co [1980] AC 198 (HL) at 221.

circumstances reasonably competent members of the profession might have chosen to take.

[188] For Mr Dawson it was submitted that it was seriously doubtful that the plaintiff had a sound legal basis to withhold payment and that different practitioners, acting reasonably, could have come to different views. I accept that submission. It is supported by the evidence of the plaintiff ’s expert, Mr Stolberger:

Q. At 5.33 you say that it was, “Reasonable and appropriate for

Dawsons to have declined to have released the funds?”

A. I do.

Q. Would it be fair to say that you reach your conclusion somewhat tentatively in that you consider the matter finely balanced?

A. Yes, that’s what I’ve said in my brief.

Q. But to put it colloquially you might call it something of a line ball call?

A. I think it would have been reasonable in the circumstances for

Mr Dawson to have refused to pay out the funds.

Q. Is that decision one that would call for a careful and fine judgement? A. Yes.

Q. And a weighing or balancing of the factors that you have identified? A. Yes.

Q. Would you accept that there is room for a practitioner acting with reasonable care and skill considering those matters to have come down on the other side of the line?

A. This is against the background where a mortgage was to have been provided to secure the loan.

Q. A difficult decision, the proposition that I’m putting to you is that different practitioners exercising reasonable care and skill in all the circumstances of this case might reach a different conclusion about whether there was a basis to withhold the funds at that time, you would have to acknowledge this?

A. I’d have to accept that.

[189] Mr Gresson did not consider that Mr Dawson had failed to meet his duty to the plaintiff at this point in the transaction and emphasised that Mr Dawson was in receipt of an unambiguous instruction to release the funds. The following extract from his cross-examination highlighted his view that there was no contractual

provision upon which Mr Dawson could purport to rely as a justification for declining to release the funds in the face of the remittance authority:

A. Well, in this particular case the contractual documents didn’t address that and so in not releasing or had he not released the money to what part of the contractual documents other than the broad obligation in annexe 3 was Mr Dawson’s refusal to release going to be referable? That’s the difficulty he had. I think Mr Stolberger acknowledges that he was in that predicament.

Q. And in those circumstances, are you saying that he found himself in that predicatment of releasing the funds because the agreement had not been drafted properly?

A. The agreement didn’t address the mortgage. Annexe 4 doesn’t mention it amongst the relevant documents and in that respect it was clearly deficient.

Issue 5: Was there failure in the defendant’s release of funds on 1 October 2008?

[190] The first particular of breach of duty in para 14(a) alleged:

On or about 1 October 2008 [the defendant] released monies held in its trust account (namely part of the proceeds of a letter of credit in favour of [the plaintiff], being the vendor finance funds that [the plaintiff] had agreed to provide to SB Co) at a time when [the defendant] knew that no mortgage in registerable form had been provided by SB Co and in circumstances where [the defendant] had advised the plaintiff that it was entitled under the terms of the agreement to, and should take the position with SB Co that, SB Co was obliged to execute a deed of mortgage in registerable form prior to the release of the vendor finance funds.

[191] This is an allegation of negligent action unlike the alleged omission to provide advice or the provision of negligent advice the subject of Issues 2 and 4 respectively.

[192] While the plaintiff’s closing submissions interwove points relating to Issues 4

and 5, its case on this allegation is captured in the following paragraphs:

2.19 The last allegation of breach of the failure to use reasonable care and skill to protect Antons’ interests focuses on the point at which the LC funds were released. A client who is party to a transaction predicated on the fundamental point that a borrower is not entitled to mortgage money until the mortgage has been executed can reasonably expect their solicitor not to release those funds. Mr Barbarich was reinforced in that reasonable expectation in his exchanges with Mr Dawson whilst in Busan – the advice to amend the remittance instruction and vary the delivery letter.

...

2.25 The bottom line is that Dawsons should never have released the LC funds in circumstances where Antons had not been provided with the underlying security. In those circumstances there was every legal basis on which to withhold funds – the purchaser had simply not earned the right to require payment of them.

[193] The plaintiff’s submission did not attempt to tie the allegation to a particular term in the contractual arrangements. Indeed on close analysis para 14(a) does not so allege. Rather it pleads that the defendant took a step, namely the release of the funds, (a) with particular knowledge and (b) in particular circumstances comprising the nature of legal advice allegedly given by the defendant to the plaintiff.

[194] So far as the former is concerned, clearly Mr Dawson knew that SB Co had not provided an executed mortgage when the funds were released. With reference to the pleaded circumstances, Mr Harris carefully analysed the evidence concerning the content of the advice provided by Mr Dawson to Mr Barbarich in Korea in September 2008. He noted that it would be odd for Mr Dawson to have advised that the plaintiff could “take a position” on the issue if he was simultaneously advising that the plaintiff enjoyed a contractual right.

[195] However, irrespective of advice that may have been given at an earlier time, the key point on this head of claim in my view is whether or not Mr Dawson had an obligation to disburse the funds. Mr Harris framed his argument in this way:

213. The payment of 1 October will be actionable if the funds were paid out in circumstances where SB Co did not have a legal entitlement to them. That involves assessing the contractual position at that time. The advice given on 15/16 September is simply not relevant context against which to judge whether the action of making payment was itself a breach of duty.

214. Paragraph 14(a) is unworkably flawed. No plausible allegation of breach can be constructed by bolting the advice allegedly given in Korea to the action of making payment on 1 October.

215. Furthermore, regardless of the device given in Korea, Dawson did not breach his duty of care by paying out the funds. The so-called “no money no mortgage” principle that first emerged in the cross-examination of Mr Gresson was not part of the flawed contractual arrangements between Antons and SB Co.

216. At the time the funds were paid out, no enforceable obligation on SB Co to provide an executed mortgage had yet fallen due for performance. There was nothing in Annex 3 or Annex 4 calling for provision of the mortgage prior to the distribution of funds. The completion letter did not alter the formal contractual position.

I agree with that analysis.

[196] Even if one was to read the reference in para 14(a) to the defendant’s alleged advice as to contractual entitlement as an allegation of contractual entitlement in fact, there would appear to be only two candidates upon which reliance might be placed: the third clause and the final paragraph of the completion letter.

[197] It was certainly the original intention that the plaintiff would receive mortgage security over the vessel when it was delivered.⁴⁸ Notwithstanding the views of Mr Stolberger and Mr Gresson, I consider that there is scope for debate as to whether such an entitlement would have been conferred under either the first or second clauses.

[198] However in my view no such entitlement was conferred by the third clause. The intended meaning of that clause was explained by Mr Dawson in evidence.⁴⁹

That is essentially the same as what Mr Gresson described as the “gist” of the clause.⁵⁰ The clause did not state that a mortgage was to be provided prior to the distribution of funds.

[199] On this point I share the view of Mr Gresson:

Q. When you look at the [third clause] do you say that it is clear that Antons would not have to advance the money until it got its mortgage?

A. No I don’t, I don’t think it’s clear ... but this clause makes no reference about one half of that swap it simply talks about the security, it says nothing about the money so it would be hard to gain any guidance or draw any information from it about when and if you had to pay the money over, it just doesn’t deal with that.

[200] So, to the extent that the plaintiff’s case on this aspect of the claim hinged on the proposition referred to earlier⁵¹ that the third clause, while inelegantly drafted, did confer a right to require execution of a mortgage at the very latest before the release of funds, I do not accept the submission. If that were the case, it would not

_{have been necessary subsequent to the signing of Annex 3 to make the several}

⁴⁸ _{At [33] above.}

⁴⁹ _{At [131] above.}

⁵⁰ _{At [125] above.}

⁵¹ At [133] above.

attempts to secure such a position earlier referred to⁵² or to include the revised paragraph in the completion letter.⁵³

[201] Mr Barbarich clearly placed significant hope on the final paragraph of the completion letter. It will be recalled that on his return to New Zealand in September 2008 he told Alexey Babkov of Mr Belik’s agreement to execute the mortgage.⁵⁴ In cross-examination he was asked about that email:

17. ... Does the email there record the basis on which you left things with Belik in Korea –

A. Yes.

17. – namely that you secured his agreement to execute a mortgage in due course?

A. It was in a countersigned completion letter.

Mr Barbarich confirmed that that letter was the completion letter.⁵⁵

[202] Mr Dawson stated that in the course of the telephone discussion relating to that final paragraph he would have advised Mr Barbarich that the contractual position already agreed was reflected in Annex 3 and that the inclusion of the additional paragraph in the letter would not have improved the plaintiff ’s contractual position.

[203] Given that at the same time he had recommended the amendment to the remittance authority which would have been effective to protect the plaintiff’s position, I incline to the view that his evidence reflects what occurred. However the issue is not what Mr Dawson said the final paragraph in the letter achieved but what it in fact achieved.

[204] I agree with the defendant’s submission that that paragraph did not alter the

contractual position in Annex 3. I consider that the nature of that paragraph was fairly described by Mr Gresson:

⁵² _{At [148] above.}

⁵³ _{At [71] above.}

⁵⁴ _{At [78] above.}

⁵⁵ At [71] above.

A. I – there are circumstances where you give advice to a client knowing that they can’t insist on something or it won’t change the contract but it might cajole or persuade or coerce the other side into adopting a position that is less unfavourable to your client. So, you know, there’s a spectrum of possibilities. I don’t think you would say that unless its 100% sure that it’ll work you wouldn’t bother, but if there’s – you know, there are some things that clients will ask you to do and you know they’re just pointless and they’re not going to achieve anything so you might not. This probably sits somewhere along that spectrum.

[205] I do not consider that the fact of Mr Belik’s signature on the letter advances

the plaintiff’s case. As the defendant submitted:

(a) the purpose of the letter was to record the handover of “other official documents” forming part of the contract;

(b) the letter does not purport to be a variation or amendment to the contract;

(c) the manner in which the letter was signed can be contrasted with the contractual execution formalities (with the affixing of company seals) of the contemporaneous payment authority.

[206] The penultimate paragraph of the letter requested Mr Belik to acknowledge receipt of six listed documents. His signature appears directly beneath a statement acknowledging receipt and delivery of the documents referred to in that letter. In my view the fact of his signature is not to be construed as an acceptance by Mr Belik of a new contractual term which was merely expressed as a confirmation by the plaintiff of a requirement on the plaintiff’s part.

Issue 6: What loss was caused by the defendant’s failure?

[207] Although I have upheld the limitation defence in respect of the claim in Issue 2 and I have found against the plaintiff on Issues 4 and 5, in the event that I am in error I turn to consider the issue of loss, albeit not as comprehensively as I would if I had found in the plaintiff’s favour.

[208] It was common ground that questions of causation and loss were to be assessed by reference to the two step analysis in the methodology settled in the Court of Appeal’s decision in Benton v Miller & Poulgrain.⁵⁶ On the first step, which involves determining how the plaintiff would have acted, the plaintiff bears the burden of proof on the balance of probabilities. The second step, which involves assessing the uncertainties as to the reaction by other parties to the plaintiff’s actions,

is determined on the loss of a chance principles.

[209] As the Court of Appeal stated in Benton:

[49] Applying this approach to the case at hand, uncertainties as to how Mr Benton would have acted had proper advice been given are to be dealt with on an all or nothing basis and decided on the balance of probabilities while uncertainties as to Mrs Benton’s conduct fall to be determined on loss of a chance principles.

[50] In making a “loss of chance” assessment, broad judgments are called for. At one end of the spectrum, very low probabilities are unlikely to be reflected in an award of damages. So if the chance of avoiding an adverse event is as low as say one in ten, a Court will probably reject the claim rather than fix damages at ten per cent of the cost to the plaintiff associated with those adverse events. At the other end of the spectrum that approach is sometimes, but not always, adopted. So a 90 per cent chance of avoiding an adverse event may result either in complete recovery of all losses associated with that adverse event (on the theory that the chance of not avoiding those losses was sufficiently speculative to be able to be ignored) or alternatively a discount of ten per cent for contingencies.

[210] Consistent with the Benton approach the plaintiffs acknowledged that in order to recover the losses claimed, the plaintiff must establish on the balance of probabilities, first what the plaintiff would have done if it had received proper advice from the defendant and secondly what the ultimate outcome would have been in terms of the transaction.

[211] The defendant submitted, and I agree, that the counterfactual analysis can be conveniently divided into the alleged failure of advice (Issue 2) and the alleged

_{breaches based off the 1 October 2008 payment (Issues 4 and 5).}

⁵⁶ Benton v Miller & Poulgrain [2005] 1 NZLR 66 (CA).

Counterfactual analysis for Issue 2

[212] The first question is whether, if he had been properly advised as to the implications of the third clause, Mr Barbarich would have refused to sign off on Annex 3.

[213] The defendant argued that Mr Barbarich would have compromised his position, as it claimed that he did throughout the negotiations. In particular it contended that the counterfactual could be tested by considering what occurred subsequently in the Annex 4 negotiations. The point was made that, while appreciating that Mr Dawson was promoting a new security in an attempt to improve the plaintiff’s security position, Mr Barbarich chose not to insist on a new or improved security at that time.

[214] This is a finely balanced issue. At the Christchurch negotiation Mr Barbarich was under considerable emotional stress with his mother ill in hospital in her final days. I accept that if it was possible to keep the transaction on foot he would have wished to do so. That said, he is a competent businessman who, if made fully aware of the potential risks, would act to preserve the plaintiff’s position as best he could.

[215] On the assumption that he was clearly advised as to the potential downside of the third clause, I incline to the view that he would not have agreed to a scenario where the plaintiff had, as it described in its submissions, an “unsecured loan”.⁵⁷ I consider that if he had been given unequivocal advice as to the implications of parting with possession of the vessel without obtaining the security originally envisaged, he would have declined to agree to the change substituting the third clause.

[216] What would Mr Belik have done if Mr Barbarich had refused to move on the terms of the mortgage clause? Mr Belik had put arrangements in place with Master Bank which, contrary to his earlier response to Mr Barbarich,⁵⁸ required the provision of a mortgage over the vessel. It is one thing to promise to provide a mortgage which one does not intend to provide. It is a different story to actually

_{execute a mortgage in circumstances where an existing funding arrangement}

⁵⁷ _{At [133] above.}

⁵⁸ At [34] above.

precludes the granting of subsequent mortgages.⁵⁹ I am also mindful that prior to the meeting Mr Belik had sent the message threatening to say goodbye,⁶⁰ although I view that conduct as a manifestation of his negotiating style.

[217] However, Mr Belik had secured what he likely viewed as a very good deal with a significant effective price reduction consequent upon the difficulty the plaintiff had encountered with the vessel having fallen out of class. While I am conscious that I have not had the opportunity to observe and hear Mr Belik, my assessment is that in order to maintain that deal he would have taken what he would have seen as a calculated risk. Hence I consider that, faced with intransigence on the plaintiff’s part, Mr Belik would have relented on the form of the mortgage clause in order to preserve the deal.

[218] It does not follow however that that would have necessarily been a positive outcome for the plaintiff. Recognising that the second clause conferred the obligation on the purchaser to effect registration of the mortgage, my suspicion is that Mr Belik would have planned to ensure that the Master Bank mortgage was registered first.

[219] While running the risk of annoying Master Bank by failing to observe the restraint on further mortgages, I consider that Mr Belik would likely have reasoned that Master Bank could be managed provided its mortgage had priority and that a mortgage in favour of the plaintiff would be practically ineffective provided the Master Bank mortgage was registered first.

Counterfactual analysis for Issues 4 and 5

[220] Issues 4 and 5 both focus on the point at which the proceeds of the letter of credit were to be disbursed.

[221] Mr Dawson’s evidence was that he had no recollection of Mr Barbarich making an inquiry of him.⁶¹ However my conclusion is that Mr Barbarich did make

_{an inquiry}⁶² _{and that Mr Dawson explained that there was no legal basis for holding}

⁵⁹ _{At [102] above.}

⁶⁰ _{At [43] above.}

⁶¹ _{At [176] above.}

⁶² At [180] above.

the funds.⁶³ However Mr Dawson also stated in evidence that, if Mr Barbarich had refused to provide the confirmation he sought, then Mr Dawson would not have released the funds.

[222] With reference to the first Benton question, the plaintiff’s contention was that Mr Barbarich would have “sat tight” had he been properly advised at that point, namely to the effect that the plaintiff could and should require the provision of a mortgage in registerable form before the funds were disbursed.

[223] I agree that that is what Mr Barbarich would have done. Furthermore Mr Dawson’s own evidence indicates he would have acted similarly had Mr Barbarich refused confirmation to proceed to disburse the funds.

[224] What would Mr Belik have then done? By this point he already had possession of the vessel but he still needed to obtain the funds that he had negotiated to receive under Annex 3.⁶⁴ In order to obtain release of those funds I consider that he would have acted in a similar fashion to that suggested in the context of the Issue 2 counterfactual, namely that he would have reluctantly provided a mortgage. However, again, that would not necessarily be a positive outcome for the plaintiff if

Mr Belik pursued the strategy of favouring Master Bank in the registration process.

“Loss of chance” assessment

[225] The plaintiff’s case in opening pointed to two satisfactory outcomes via two alternative “channels” which it suggested SB Co might have navigated:

(a) acceding to a request for an executed mortgage;

(b) declining to provide a mortgage but adopting option 2 in Annex 3 by paying a lump sum of USD700,000.00.⁶⁵

[226] The plaintiff argued that if SB Co had gone down channel 1 but then defaulted, the plaintiff would have been forced to take action to recover the debt but

_{would have been able to do so with the benefit of an enforceable mortgage. Relying}

⁶³ _{At [183] above.}

⁶⁴ _{At [44].}

⁶⁵ At [44] above.

on the evidence of Mr Holdaway-Smith⁶⁶ and Mr James Lewis, an experienced marine valuer, the plaintiff contended that the vessel would have realised a figure between USD1,800,000 and USD1,900,000 on a sale in Korea or Russia in 2009. Channel 2 would have provided a return of USD700,000.

[227] The defendant challenged Mr Lewis’s evidence for the reason that his valuation was based on a willing buyer/willing seller transaction whereas a forced mortgagee sale by auction was the contemplated consequence. It also challenged his expertise to opine on values in the relevant territory.

[228] Mr Andrew Smith, a deep-sea fishing skipper with prior knowledge of the Zlatno More called by the defendant, considered that a mortgagee sale in Russia would have been an extremely difficult proposition with a very limited pool of potential buyers. On the issue of value he said:

A. If I placed the value of the Zlatno More in Russia under a mortgagee sale I think I said in my brief of evidence right at the end it would be anywhere from scrap value to half of its value, which I’ve always valued the vessel about 1.5 million so it would be from about two to

300,000 to $US750,000. It would be in that range. That is my view.

[229] The plaintiff’s closing submission on the recovery prospects observed:

5.9 What would the ZM have realised had she been sold? What would it have cost in terms of legal fees to get to the point of Antons being able to sell her? There can be no emphatic answer – there never can be in a hypothetical situation. But it is submitted that the plaintiff has established to a high degree of probability that it would have recovered at least the balance of the purchase price of USD800,000.

[230] The potential flaw in that analysis lies in the assumption that the plaintiff would have had the first call on the proceeds of a sale. However as the plaintiff acknowledged in closing, the position of Master Bank had to be factored into the contractual mix. Noting that the Zlatno More was registered on the Russian register as Petropavlovsk in October 2008, the plaintiff contended that, as it would have held an executed mortgage, it could have immediately registered the mortgage at that

_{point and, as first to register, it would have “beaten Master Bank to the mark”.}

⁶⁶ See [16] above.

[231] Of course that submission assumed that the plaintiff had knowledge of a competing mortgage security and that it, rather than the defendant, assumed responsibility for the registration process.

[232] Naturally the defendant painted a much more gloomy picture. It argued that any competition between the plaintiff and SB Co for priority, whether based on registration dates or other legal avenues in Russia, would have been challenging and expensive with no assurance of a satisfactory outcome. It was said that SB Co could be expected to vigorously contest the plaintiff ’s attempt to enforce its mortgage, reference being made to SB Co’s engagement of lawyers to advance spurious arguments throughout 2009 and 2010.

[233] The point was also made that the interim orders which Jurinflot succeeded in obtaining⁶⁷ did not bring Mr Belik to the negotiating table. So far as the channel 2 proposition was concerned, the defendant noted that SB Co was in default of its Master Bank loan by mid-2009 so the prospects of SB Co exercising the election to take option 2 of Annex 3 was unlikely in the circumstances.

[234] I have surmised in both counterfactuals that a mortgage would have been provided and the transaction would have proceeded. Beyond that point it is not easy to predict what the ultimate outcome would have been. Indeed, immediately following the passage from Benton above,⁶⁸ the comment was made that when assessing damages there are limits to the hypothesising which is appropriate.

[235] The plaintiff’s contention assumes that as a first registered mortgagee it would have had first claim on the proceeds of a mortgagee sale of the vessel. The defendant disputes that and contends that enforcing the mortgage in the circumstances would have been fraught with all manner of difficulties with little prospect of a substantial recovery in the end.

[236] Whether the plaintiff made any recovery, and if so what, would turn on a number of imponderables including:

⁶⁷ _{At [106] above.}

⁶⁸ At [209] above.

(a) the resolution of priority between the plaintiff and Master Bank; (b) the amount of SB Co’s indebtedness to Master Bank;

(c) the amount able to be obtained on a sale of the vessel.

[237] My view is that, because of the fact of the prior Master Bank mortgage and the potential for Mr Belik to manipulate the registration sequence in Russia, the probability of the plaintiff being able to enforce its mortgage in priority to Master Bank would not have been high. In exercising the broad judgment which a loss of chance assessment involves, I would estimate it as no more than 40 per cent.

Issue 7: Was the plaintiff contributorily negligent?

[238] The first amended statement of defence asserted that any damages should be reduced under s 3 of the Contributory Negligence Act 1947 to reflect the fact that any losses by the plaintiff were the result of the plaintiff’s own fault in the following respects:

(a) the plaintiff’s principal, Mr Milan Barbarich, negotiated the terms of the transaction directly with the purchaser;

(b) the defendant advised the plaintiff on a number of occasions that: the terms of the proposed amendments to the 26 March 2008 agreement were onerous to the plaintiff; it was unwise to sell the vessel on the terms proposed; the plaintiff was not likely to be able to secure an effective security interest in the vessel because the purchaser had financed the purchase by borrowing from a Russian bank that would have insisted on holding a first ranking mortgage; and there was a serious risk of the purchaser defaulting on paying the balance of the purchase price in circumstances where the plaintiff would have little or no effective legal remedy;

(c) the plaintiff did not heed the advice of the defendant [in (b) above] and instead chose to proceed with the transaction on terms that left it exposed to the risk of loss if the purchaser defaulted;

(d) the plaintiff transferred possession of the vessel to the purchaser at the Port of Busan, South Korea, without requiring the purchaser to execute a deed of mortgage, contrary to the defendant’s advice;

(e) the plaintiff authorised the defendant to release monies to the purchaser on 1 October 2008 when it knew that the purchaser had not yet executed a mortgage in its favour and that the purchaser’s obligation to pay the balance of the purchase price was not yet effectively secured.

[239] The defendant accepted that it carried the onus of proof of fault on the part of the plaintiff. It submitted that it is a question of fact whether the plaintiff acted reasonably in the circumstances, to be determined on common sense principles.

[240] In resisting the defendant’s contention, the plaintiff’s stance was that it may have struck a deal with SB Co that was of limited commercial advantage in terms of price but that did not amount to negligence. Specifically with reference to Mr Dawson’s repeated warnings about the onerous nature of the deal, the plaintiff said:

3.5 The advice given by Mr Dawson was only ever in the most general terms. If he had said: “You are committing to a mortgage arrangement which will require you to surrender your vessel and pay over the mortgage money before you get an executed mortgage agreement” – and Antons then proceeded with the transaction, essentially taking the position that it didn’t care, there would be a basis for a finding of contribution – in fact the proper finding there would be no causative negligence.

[241] I accept the plaintiff ’s rejection of the allegation that it was contributorily negligent. The unrealistic nature of this second affirmative defence is highlighted in the final observation of the defendant’s submissions on the issue:

253. Antons’ fault had a high degree of causative potency because it was at fault at the three most critical junctures – finalising Annex 3, delivering the vessel in Korea, and instructing Mr Dawson to pay payment.

[242] This proposition is flawed because it is underpinned by the defendant’s view

of matters which I have rejected, namely:

(a) the contention that, contrary to Mr Dawson’s advice, Mr Barbarich agreed that a mortgage did not have to be provided until registration;⁶⁹

(b) Mr Barbarich would have been justified in declining to hand over possession of the vessel in Busan;

(c) Mr Barbarich did not make inquiry of Mr Dawson whether the funds could be held back.⁷⁰

⁶⁹ _{At [128] above.}

⁷⁰ At [180] above.

[243] The criticisms levelled at the plaintiff are not of the contributory-fault kind but assume a factual basis which I have not accepted. Indeed the second contention, concerning the delivery of the vessel in Busan, appears to be founded on the proposition in (d)⁷¹ that it was somehow possible for Mr Barbarich to “require” SB Co to execute a deed of mortgage, an assertion which can be contrasted with the claim in para 14(e)(iii) of the defence⁷² that Mr Barbarich surrendered possession “without having” SB Co execute a mortgage.

[244] Ironically it was the plaintiff, not the defendant, who maintained the position that the third clause conferred the right to require execution of the mortgage before the release of funds.⁷³ Indeed the defendant’s closing submission stated that it was understood to be common ground that Annex 3 was executed in terms that did not adequately protect the plaintiff’s interests as lender.

[245] The defendant’s submission was somewhat muted in comparison with the pleading, stating:

251. Antons delivered the vessel to SB Co in Korea without taking reasonable steps to obtain an executed mortgage before doing so, despite the weak contractual position Antons was in having breached its Lloyds Class warranty and agreed to the Annex 3 terms. Mr Barbarich failed to take reasonable care by seeking local advice in Busan (saying that he was too busy) and by failing to delay his return date after Belik raised queries with him about the mortgage and delivery protocol.

[246] Given the contractual position resulting from Annex 3 I do not view those actions as a failure to take reasonable steps to obtain a mortgage amounting to contributory negligence.

Disposition

[247] Although the plaintiff established that the defendant was negligent in the manner considered in Issue 2, the defendant’s limitation defence has been successful.

_{The plaintiff failed in its claims the subject of Issues 4 and 5.}

⁷¹ _{At [238] above.}

⁷² _{At [10] above.}

⁷³ At [133] above.

[248] Consequently the plaintiff’s claim fails and the defendant is prima facie entitled to costs. Counsel preferred to address costs in memoranda. Accordingly the defendant is to file a costs memorandum by 13 June 2016 and the plaintiff is to file a

_{response by 4 July 2016.}

_{Brown J}

Solicitors:

Vlatkovich McGowan, Auckland

Gilbert Walker, Auckland