Mihail Tartsinis v Navona Management Company
| Jurisdiction | England & Wales |
| Judge | Mr Justice Leggatt |
| Judgment Date | 19 January 2015 |
| Neutral Citation | [2015] EWHC 57 (Comm) |
| Docket Number | Case No: 2011 FOLIO 1547 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 19 January 2015 |
[2015] EWHC 57 (Comm)
Mr Justice Leggatt
Case No: 2011 FOLIO 1547
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
David Peters (instructed by Watson, Farley & Williams LLP) for the Claimant
Robert Bright QC & Peter Stevenson (instructed by Swinnerton Moore LLP) for the Defendant
Hearing dates: 8–10 & 15 December 2014
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
| Section | Para No. |
| Introduction | 1 |
| Interpretation and rectification | 8 |
| A. INTERPRETATION | 14 |
| Genesis of the transaction | 15 |
| The Share Transfer Agreement | 22 |
| The subsequent dispute | 29 |
| The interpretation issues | 33 |
| Was the fleet value final or provisional? | 35 |
| Admissible background facts | 40 |
| The relevant IFRS | 44 |
| Implications for the interpretation of the Agreement | 47 |
| Is the value in the Delivery Date Accounts conclusive? | 56 |
| Navona's evidential problem | 69 |
| Conclusion on interpretation | 79 |
| B. RECTIFICATION | 82 |
| Relevant legal principles | 83 |
| Standard of proof | 84 |
| Subjective and objective intentions | 87 |
| Mr Tartsinis | 103 |
| Mr Lentoudis | 109 |
| Mr Nikolaou | 110 |
| The initial negotiations | 115 |
| The conflicting evidence | 124 |
| Findings on key points in dispute | 127 |
| The sequence of events | 145 |
| Conclusions | 158 |
Introduction
In this case the English Commercial Court is asked to interpret a contract for the sale of shares in a company which owned a fleet of ships. The shares were sold by two Greek businessmen, Mr Mihail Tartsinis and Mr Antonis Nikolaou, to Navona Management Company ("Navona"), a company incorporated in the Marshall Islands which is represented and controlled by a third Greek businessman, Mr Kriton Lentoudis. The contract was made in Athens where all three of the protagonists live. The contractual document was drafted by a Greek lawyer. The document, entitled "Share Transfer Agreement", is however written in the English language and provides that it shall be interpreted in accordance with English law and that "all disputes hereunder shall be submitted to the exclusive jurisdiction of the Courts of England and Wales".
The dispute which has arisen concerns the price payable for the shares. The shares in question represented 40% of the issued share capital of Newport Holdings Limited ("Newport"), another company incorporated in the Marshall Islands. Before the sale, Mr Tartsinis and Mr Nikolaou each owned 20% of the shares of Newport; the other 60% of its share capital was owned by Navona, which after the sale therefore owned all the shares of Newport. Newport in turn owned all the shares of Global Oceanic Carriers Limited ("GO Carriers"), a Jersey company which had five wholly owned special purpose subsidiaries incorporated in the Marshall Islands which each owned one ship. Those five ships formed the GO Carriers fleet.
At the same time as selling their shares in Newport to Navona, Mr Tartsinis and Mr Nikolaou purchased (through a special purpose company) one of the ships in the GO Carriers fleet, called the mv "GO Patoro". The Share Transfer Agreement was executed on the same date (23 February 2011) as the closing of the sale and purchase of the "GO Patoro" – a date referred to in the Share Transfer Agreement as the "Delivery Date".
Under the Share Transfer Agreement Mr Tartsinis and Mr Nikolaou sold their shares in Newport (the "Shares") for a price "equal to 40% of the NAV [i.e. "net asset value"] of GO Carriers". Payment for the Shares was to be made in two stages. A "Provisional Purchase Price" based on a provisional calculation of 40% of the NAV of GO Carriers was payable on the Delivery Date (and was set off against the price of the "GO Patoro"). The second stage of payment involved adjustment of the Provisional Purchase Price of the Shares "upwards or downwards following the final determination and settlement of the NAV of GO Carriers following the issuance of the audited accounts of GO Carriers" for the period ending on the Delivery Date. (I will refer to these accounts as the "Delivery Date Accounts".) The dispute between the parties is about exactly how this mechanism for adjusting the price of the Shares was to operate and, in particular, whether it was intended to apply to the valuation of the fleet which was the main component of the NAV of GO Carriers or whether the fleet valuation used to determine the Provisional Purchase Price was intended to be a final figure not subject to adjustment in the same way as the other elements of the NAV of GO Carriers.
Mr Tartsinis, who is the claimant in this action, contends that on the proper interpretation of the Share Transfer Agreement the final determination of the value of the fleet, along with all the other assets and liabilities of GO Carriers, was agreed to be based on the value stated in the Delivery Date Accounts. That value is substantially higher than the value of the fleet mentioned in the Share Transfer Agreement, which on the claimant's case was only provisional. If this case is correct, a further sum of over US$6m is due to Mr Tartsinis from Navona.
Navona's primary case is that, on the proper interpretation of the Agreement, the fleet value mentioned in it, unlike the other elements of the NAV of GO Carriers, was a final figure not subject to adjustment. Alternatively, if the fleet value was subject to adjustment, Navona contends that the figure stated in the Delivery Date Accounts is incorrect and that there is in fact a substantial adjustment of some US$2.3m due in its favour. In the further alternative Navona asks the court to rectify the Agreement to reflect what it says was the common intention of the parties that the fleet value would not be subject to adjustment.
A complicating feature of the case is that, when the action was begun, Mr Nikolaou whose position as a seller is identical to that of Mr Tartsinis was also a claimant. However, Mr Nikolaou later abandoned his claim and at the trial was called as a witness by Navona.
Interpretation and rectification
I have mentioned that, as well as arguments about the interpretation of the Share Transfer Agreement, there is a claim for rectification. The potential need for such a claim comes about because of two distinctive features of the rules of English law governing the interpretation of contracts.
The first is that, in deciding what a contract means, English law does not attempt to identify what the parties actually understood or intended the language used in the contract to mean. Instead, the law adopts an "objective" approach to interpretation. As Lord Hoffmann might have said, I do not think that the extent to which this is so is always sufficiently appreciated. It is not simply that a court, in interpreting a contract, has no window into the minds of the parties and must therefore necessarily draw inferences about what the parties were using the language of the contract to mean, adopting the standpoint of a reasonable observer. What the parties to the contract actually meant, or whether they had any pertinent subjective intention at all, is irrelevant to the task of interpretation. Rather, the court identifies the meaning of the language used by assuming that the parties were reasonable people using the language of the contract to express a common intention. As Lord Wilberforce said in Reardon Smith Line Ltd v Hansen-Tangen (The "Diana Prosperity") [1976] 1 WLR 989, 996:
"When one speaks of the intention of the parties to the contract, one is speaking objectively … and what must be ascertained is what is to be taken as the intention which reasonable people would have had if placed in the situation of the parties."
A second important feature of the applicable rules of English law is that evidence of what was said during the negotiation of the contract is not admissible for the purpose of interpretation. One reason for this is that such evidence is generally of no help in ascertaining the objective meaning of the document. Even where such evidence could potentially bear on that meaning, however, it is not admissible: see Chartbrook v Persimmon Homes [2009] 1 AC 1101, 1120–1, para 41. Evidence of the subsequent conduct of the parties is also inadmissible to interpret a contract: see e.g. James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC 583.
These rules have many advantages. Such advantages include: (i) enabling a party to predict with a reasonable degree of certainty when entering into a contract how its provisions will be interpreted, without having to probe or be concerned about whether the other party shares this understanding or with trying to lay a favourable paper trail in pre-contractual correspondence; (ii) enabling a lawyer advising a party, or a judge or arbitrator required to interpret the contract, to do so on the basis of relatively little information and without the need for an extensive and expensive factual inquiry; and (iii) respecting the autonomy of the contracting parties by treating them as rational agents who have chosen the words of their document to give appropriate expression to their bargain. There are some cases, however, in which the application of these rules would lead to injustice. In particular, that is potentially so in circumstances where the parties to the contract had a common intention or understanding when they made the contract as to what it meant which was different from the objective meaning of the contractual document as ascertained in...
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