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Superyacht Martha Ann

The yacht Martha Ann was built by Lurssen and delivered to her owner in 2008. She was designed by Espen Oeino, with her interior created by Francois Zuretti. Superyacht Martha Ann is owned by US real estate developer Warren E Halle. She was the third in a series of three sistership all built for this same owner. According to a London court document, Mr Halle paid EUR 48 million for the first two yachts (Apoise and St. Nicolas, built under the project names Nemo and Shart). He sold Apoise and St Nicolas and kept Martha Ann. Buyer of the first yacht- Apoise- was David Ritchie, one of the founders of Vancouver-based Ritchie Brothers Auctioneers. Ritchie paid EUR 65 million to Halle. However they ended up in legal proceedings in which Ritchie was ordered to pay USD 525.000 for breach of the purchasing agreement. The yacht Martha Ann was named after Warren Halle’s wife Marta Halle.

Warren E Halle

Warren E Halle is founder of 'The Halle Companies'. The company- based in Maryland - is active in real estate development.  In 1985, Warren Halle purchased his most largest real estate to date; Kingstowne, a 1,300 acre mixed use development in Fairfax County, Virginia. Kingstowne consists of 2.3 million square feet of commercial and retail space and land for 5,500 residential units. A well planned and designed project, Kingstowne is the second largest "PUD" in Northern Virginia.  Kingstowne was a very profitable project. Today, the company still develops Kingstowne.  The Halle Companies own more than 3.2 million square feet of offices, warehouses and retail property. The organization operates in a "hands on" manner with the principals and staff actively involved in the development and operations of its Maryland real estate. Next to the real estate development and construction divisions, the company has a property management firm, Comar Management, and a real estate brokerage firm, Metropolitan Homes. In 2010 Lurssen sued Mr. Halle claiming a commission for a yacht sale. In reaction Mr Halle filed a claim against Lurssen in US Federal Court. The first hearing in went well for Mr. Halle with Lurssen's lead counsel getting disqualified. The parties reached a settlement favorable to Mr. Halle.


yacht Martha Ann - Warren E Halle superyacht Martha Ann Warren E Halle's yacht tender of Martha Ann Lurssen Martha Ann Martha Ann IYCA Halle Companies Halle kingstowne.jpg Warren E Halle's yacht

Source: http://bcjustice.net


superyacht: a private yacht longer than 200 feet; Ritchie refused to allow man to exercise his cruise rights.  


IN THE SUPREME COURT OF BRITISH COLUMBIA   

Citation: Halle v. Ritchie,  

 2008 BCSC 1452  

Date: 20081031
Docket: S066193
Registry: Vancouver

Between:

Warren E. Halle  Plaintiff

And:

David Ritchie  Defendant

Before: The Honourable Mr. Justice Butler

Reasons for Judgment  

Counsel for the Plaintiff Gordon C. Weatherill Amy Nathanson  

Counsel for the Defendant Peter G. Bernard, Q.C. Jennifer Loeb  

Date and Place of Trial: June 16-20, 2008  

Vancouver, B.C.  


[1] Warren Halle, the plaintiff, wanted a superyacht: a private yacht longer than 200 feet. He developed an ambitious plan to obtain a yacht from Fr. Lürssen Werft GmbH & Co. KG (“Lurssen”), one of the most prestigious builders of superyachts. He acquired from Lurssen the rights to three yachts to be built over a period of about five years. His plan was to sell the first two yachts when they were nearly completed and use the profit on those sales to reduce the cost to him of acquiring the third. This action arises out of the sale by Mr. Halle of the Apoise, the first of the three yachts. He sold it to the defendant, Dave Ritchie, by way of an agreement described as the Assignment of Vessel Construction Contract, Design Contract and Related Interests (the “Agreement”). Attached to the Agreement as schedules were the following contracts:

a) Vessel Construction Contract between Mr. Halle and Lurssen, dated September 4, 2003, as amended by Addendum No. 1 dated April 15, 2005;

b) Design Contract between Mr. Halle and Zuretti Interior Designs, dated November 19, 2003; and

c) Addendum No. 2 to the Vessel Construction Contract between Mr. Halle, Lurssen and Mr. Ritchie dated February 24, 2006.

[2] Mr. Halle wanted a “test drive” cruise on the Apoise after its launch so he could determine whether he needed to make refinements to the plans for the next two vessels. Mr. Ritchie agreed that Mr. Halle would receive, as part of the consideration for the sale, ten days’ cruise rights on the Apoise in the Mediterranean Sea during the summer of 2006. However, after the delivery of the Apoise in late April 2006, Mr. Ritchie refused to allow Mr. Halle to exercise his cruise rights. As a result, Mr. Halle commenced this action for damages for breach of the Agreement.

[3] In response, Mr. Ritchie says that Mr. Halle committed a number of breaches that excuse him from making the Apoise available for exercise of the cruise rights. Alternatively, he says that the breaches allow him to set off the damages he has suffered from those breaches against the value of the cruise rights. The main allegation advanced by Mr. Ritchie is that the loose furniture provided with the Apoise was not of superior quality and did not meet the specifications. He also alleges deficiencies with the wheelhouse doors and the helicopter pad. Alternatively, he argues that the term in the Agreement to provide cruise rights is too uncertain to be enforceable.

[4] The following issues are raised by this case:

1. Are there breaches of the Agreement that preclude Mr. Halle from enforcing his cruise rights against Mr. Ritchie?

2. Is the term in the Agreement requiring Mr. Ritchie to provide cruise rights too uncertain to be enforceable?

3. What are the damages Mr. Halle is entitled to for Mr. Ritchie’s breach of the obligation to provide cruise rights?

4. Is Mr. Ritchie entitled to a set off for the amounts he has spent to purchase new furniture and make repairs to the wheelhouse doors and helicopter pad? If so, what is the amount of the set off?

Issue 1. Are there breaches of the Agreement that preclude Mr. Halle from enforcing his cruise rights against Mr. Ritchie?

[5] Mr. Ritchie alleges numerous breaches of the Agreement that he says excuse him from honouring the cruise rights. These alleged breaches include:

(a) Mr. Halle failed to use reasonable efforts to enforce proper performance by Lurssen of the Vessel Construction Contract such that the vessel was not of “high quality” and was delivered late;

(b) Mr. Halle failed to use reasonable efforts to enforce the Design Contract against Zuretti such that the loose furniture delivered was of poor quality;

(c) Mr. Halle failed to ensure that the construction of the vessel was fully and properly supervised;

(d) Mr. Halle failed to have a representative inspect and direct the proper construction of the helicopter pad and the wheelhouse doors, as a result of which Mr. Ritchie incurred significant additional costs;

(e) Mr. Halle failed to ensure that the loose furniture complied with the specifications, and in particular, with the requirement that it be of high quality and be manufactured by name brand furniture manufacturers.

[6] Mr. Ritchie argued that it is unreasonable to require him to provide Mr. Halle with the cruise rights when Mr. Halle has not fulfilled his contractual obligations to deliver a high quality, completed vessel. This argument is founded on the principle stated in G.H.L. Fridman, The Law of Contract in Canada, 4th ed. (Scarborough: Thompson Carswell, 1999) at 566-567:

Generally speaking, non-performance in accordance with the terms of the contract besides being a breach of contract in itself (unless excused on some basis, for example, frustration), precludes the party guilty of such non-performance from enforcing the contract against the other party. Thus, a party who has not performed will be unable to sue the other party for any alleged breach of the contract, for example, non-payment of money due thereunder. If the refusal to pay is by reason of the plaintiff’s failure to perform in the manner contemplated by the contract, for example, the defendant will not be liable.

[7] This statement in Fridman is made in the context of a discussion regarding the interrelationship of conditions imposed by the contract on the contracting parties. The question raised is: when does repudiation by one party entitle the other to treat the contract as at an end and excuse that party from further performance of its obligations?

[8] The difficulty faced by Mr. Ritchie in this case is that there is no suggestion that Mr. Halle repudiated the Agreement. Mr. Ritchie accepted delivery of the vessel. In other words, he accepted that Mr. Halle performed his obligations under the Agreement. On April 26, 2006, Mr. Ritchie’s daughter on behalf of Apoise Ltd., Mr. Ritchie’s assignee, certified that the vessel “has successfully completed the Sea Trials and is in conformity with the terms of the Contract (the Lurssen Vessel Construction Contract of September 4, 2003) and is therefore ready for delivery”. On the same date, Apoise Ltd. agreed to a Protocol of Delivery and Acceptance, certifying that the vessel was “delivered in accordance with the terms of the Contract, subject only to the Minor Non-Conformities set out in the Status List attached hereto”.

[9] Having accepted the vessel, subject only to “minor non-conformities”, there is no basis for Mr. Ritchie to assert that he is excused from performing conditions imposed upon him by the Agreement. He may be able to claim damages if he can prove breaches of the Agreement. This issue is considered later in these reasons. However, he cannot refuse to perform his obligations after accepting the vessel and certifying that it was delivered in accordance with the terms of the underlying Vessel Construction Contract.

Issue 2. Is the term in the Agreement requiring Mr. Ritchie to provide cruise rights too uncertain to be enforceable?

[10] Clause 9 of the Agreement sets out the obligation of Mr. Ritchie to provide cruise rights:

Cruise Rights – The Assignee shall provide the Assignor the chartered use of the Motor Yacht in the Mediterranean Sea for a ten day period during the period July 1, 2006 to August 31, 2006 (such ten day period to be selected by the Assignee in respect of which the Assignee will give to the Assignor 60 days prior notice thereof) at no cost to Assignor during the first Mediterranean cruising season following Assignee’s taking delivery of the Motor Yacht, provided that (a) the cost of all consumables for the charter shall be for the account of the Assignor; and (b) if the availability in the Mediterranean of the Motor Yacht is delayed without the fault of the Assignee, the Assignee shall not be liable for such delay but will cooperate with the Assignor in selecting a mutually-convenient alternative ten day period for the charter. The obligations of this section 9 shall be binding on the Motor Yacht and any party taking ownership of the Motor Yacht.

[11] Mr. Ritchie says that clause 9 is, in essence, a charter party agreement. Normally, a charter party agreement outlines not only the length and location of the charter but also trading limits, responsibility for the master and crew, insurance, fuel, port charges, agency and moorage. In addition, there would normally be provisions regarding liability for customs, immigration, damage to the vessel and injury to crew and guests. There would also normally be provisions regarding the obligations of the parties in the event of cancellation. As none of these matters are considered in clause 9, Mr. Ritchie says that they would have to be negotiated by the parties. As such, he says clause 9 is nothing more than an agreement to agree.

[12] The comparison of the grant of ten days’ cruise rights to a charter party agreement is not sustainable. There is no need to specify trading limits, liability for customs or immigration or the other matters that Mr. Ritchie says were never agreed upon. Mr. Halle was granted the use of the vessel at no cost. Mr. Ritchie remained in charge of the vessel and responsible for it and the crew.

[13] The language in clause 9 is clear and unambiguous. The length of the cruise rights is specified. Clause 9 also specifies the time frame within which the vessel can be used and the location of the cruise. There is no ambiguity, whatsoever, with respect to payment provisions; the use of the vessel is granted “at no cost to assignor” other than the cost of all consumables. The term consumables is not defined in the Agreement. However, it would not be difficult for the parties or, if necessary, a court to determine whether an expense fell within the category of “consumables”. The issues raised by Mr. Ritchie simply do not arise.

[14] The comments of Bull J.A. in Marquest Industries Ltd. v. Willows Poultry Farms Ltd. (1968), 1 D.L.R. (3d) 513 at 517-18, 66 W.W.R. 477 (B.C.C.A.), explain the proper approach to interpretation of contract language and are relevant here:

... [E]very effort should be made by a Court to find a meaning, looking at substance and not mere form,... difficulties in interpretation do not make a clause bad as not being of capable of interpretation, so long as a definite meaning can properly be extracted. ... [I]f the real intentions of the parties can be collected from the language within the four corners of the instrument, the Court must give effect to such intentions by supplying anything necessarily to be inferred and rejecting whatever is repugnant to such real intentions so ascertained.

[15] There is no difficulty in determining the parties’ intentions from clause 9, as drafted. If any issue had arisen regarding the cruise rights, a court would have no difficulty giving effect to the parties’ intentions by supplying anything that was necessary to be inferred. In order to do that, a court may have looked to the Mediterranean Yacht Brokers Association Charter Agreement, the standard form of charter agreement in use worldwide for luxury yachts in the Mediterranean. The term in the Agreement entitling Mr. Halle to cruise rights is enforceable.

Issue 3. What are the damages Mr. Halle is entitled to for Mr. Ritchie’s breach of the obligation to provide cruise rights?

[16] Mr. Halle put a lot of effort into building the Apoise. He was in contact with the shipyard almost on a daily basis and travelled to Germany for meetings for approximately one week every two months. He contracted for the cruise rights because he was anxious to see how the vessel would perform. At the present time, Mr. Halle has no desire to receive ten days’ cruise rights because the opportunity for the test drive is gone. The construction of the other two vessels has been completed. He has sold the second vessel and taken delivery of the third. In these circumstances, Mr. Halle is not seeking specific performance. Rather, he says that he should receive as damages the amount that a member of the public would have paid to charter the Apoise in the Mediterranean for ten days in the summer of 2006.

[17] As the Apoise was not available for charter during that time period, Mr. Halle led expert evidence of what it would have cost to charter the Apoise in the summer of 2006, had it been marketed for charter. Ms. Hines, a member of the Mediterranean Yacht Brokers Association, opined that the Apoise could have commanded a weekly charter rate of 525,000 Euros which equates to 750,000 Euros for ten days.

[18] Mr. Ritchie argues that Mr. Halle has not suffered any quantifiable loss as a result of not receiving the use of the Apoise for ten days. He had the use of his own 140 foot yacht in the summer of 2006. He did not attempt to charter another vessel because he didn’t need or want another vessel. He now has his own 240 foot Lurssen yacht. He says that if Mr. Ritchie is ordered to pay the damages sought, Mr. Halle would receive a substantial windfall. Mr. Halle made a profit of millions of Euros on the sale of the Apoise to Mr. Ritchie. Mr. Ritchie argues that Mr. Halle cannot prove any loss as a result of the breach. In fact, he saved the expense of travelling to Europe and paying for food, fuel and moorage. As a result, he should receive only nominal damages.

[19] In support of this argument, Mr. Ritchie relies upon a number of decisions in construction cases where courts have declined to award the cost of reinstatement or repair to an owner where it is excessive in relation to the diminution in value of the property in question. This was the situation in 514953 B.C. Ltd. v. Leung, 2007 BCCA 114, 64 B.C.L.R. (4th) 76, where the evidence did not establish a diminution in value and the owner had lived in the house for five years without doing the repair work. Mr. Justice Hall quoted at length from the judgment of the House of Lords in Ruxley Electronics and Construction Ltd. v. Forsyth (1995), [1995] 3 All E.R. 268, [1996] A.C. 344 (H.L.), including the following passage at 281-83 (cited at para. 18 of Leung) that sets out the principle relied upon by Mr. Ritchie:

The starting point is Robinson v. Harman (1848), 1 Exch. 850 at 855, [1843-60] All ER Rep 383 at 385, where Parke B. said:

‘The rule of the common law is that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.’

This does not mean that in every case of breach of contract the plaintiff can obtain the monetary equivalent of specific performance. It is first necessary to ascertain the loss the plaintiff has in fact suffered by reason of the breach. If he has suffered no loss, as sometimes happens, he can recover no more than nominal damages. For the object of damages is always to compensate the plaintiff, not to punish the defendant.

…[T]he cost of reinstatement is not the appropriate measure of damages if the expenditure would be out of all proportion to the good to be obtained, and, secondly, the appropriate measure of damages in such a case is the difference in value, even though it would result in a nominal award.

[Emphasis Mr. Justice Hall’s]

[20] Mr. Ritchie argues that the situation here is similar to the construction cases. I disagree. As noted by Hall J.A. in Leung at para. 11, there are two disparate principles in play in the construction cases:

This case throws up a problem that arises not infrequently in these construction cases and is one that has admittedly no easy solution because facts differ so much from case to case. The essential question is: how should a court determine damages in a case of this sort? Running through the decided cases are two sometimes disparate principles from the law of contract. One principle is that the party who suffers from a breach of contact is entitled to be put back into the position he or she would be in if the contract had been performed according to its tenor. But that consideration is always to be balanced against another principle in this area of the law, namely, that a person who suffers damage by reason of a breach of contract is bound to act reasonably to mitigate damages arising from the breach.

[21] In the present case, there is no issue of mitigation. There was nothing Mr. Halle could have done to mitigate the loss he suffered. The opportunity to use the Apoise in the summer of 2006 was of unique value to him and he bargained to receive that as part of the consideration paid by Mr. Ritchie for the purchase of the yacht.

[22] In the construction cases, where the courts have refused to order the cost of reinstatement, it is because the owner could not show that the home or building purchased had less value than what was contracted for in the agreement. Here, Mr. Halle does not have that difficulty. He contracted to receive monetary consideration (65 million Euros) and non-monetary consideration (10 days’ use of the Apoise) in exchange for assigning the right to acquire the yacht. Mr. Ritchie has only paid the monetary consideration. There is no question that the consideration Mr. Halle received was less than what Mr. Ritchie agreed to pay under the Agreement.

[23] The difficulty in this case is the quantification of the loss. Mr. Ritchie argues that nominal or modest damages should be awarded because the sum required to charter the Apoise, if Ms. Hines’ evidence is to be accepted, is out of proportion to the real loss suffered by Mr. Halle. He says the principle that the assessment of damages must be fair to the defendant as well as to the plaintiff would be violated if that amount is awarded. While I agree that the award should not be based solely on the asking price of a ten day charter of the Apoise, it is one of the factors that must be considered. The proper approach to quantification is to determine, on the basis of all of the relevant factors and circumstances, the amount of monetary damages that will place Mr. Halle in the same situation he would have been in if the contract had been performed.

[24] I have concluded that the amount of money that will place Mr. Halle in that position is $525,000. The factors I have considered in arriving at that conclusion include:

a) The cost to a member of the public for chartering a similar yacht is one possible measure of the value of the loss to Mr. Halle. It represents the high end of the range for the damage award. It is useful as a starting point for consideration of the damage award.

b) The expert evidence of Ms. Hines cannot be accepted without qualification. Her opinion was based on the listed rates, as shown in her report, for the charter of similar yachts in the Mediterranean in 2006. However, she admitted in cross-examination that she did not know what prices were actually paid for the use of any of the yachts in question. The prices were list prices, as opposed to actual charter rates. She also agreed that these yachts are often chartered at a discount. Some reduction to this rate needs to be made because the rate is a list price.

c) Ms. Hines’ opinion that the weekly rate of 525,000 Euros is what the Apoise could have commanded is not persuasive. That rate is higher than the rates for any of the other yachts listed in the table of comparison prices. It was based on her view that “the most sought after yacht is the next newest yacht.” She was of the opinion that the Apoise would have been the “hot” yacht of the season. This is not borne out by the table of comparison rates. There are two Lurssen vessels of similar size, the Northern Star and the Oasis, with rates listed at 450,000 and 395,000 Euros respectively. The Northern Star was built in 2005 and the Oasis was built in 2006. On Ms. Hines’ theory, they, too, should have been hot yachts with the highest prices. However, their asking prices are much lower than the rate suggested for the Apoise. Had the Apoise been available for charter in the summer of 2006, I conclude it would have had an asking price of approximately 450,000 Euros. That is the high end of the range for yachts of a similar size.

d) A 20% commission would normally be paid to the broker, so the owner of the vessel would receive only 80% of the actual charter rate. The value to the owner is a better reflection of the loss that Mr. Halle suffered than the price paid by a member of the public to charter the Apoise. This is because Mr. Halle wanted to use the yacht to assess it as an owner would have done. He wanted to evaluate its performance at sea and assess its level of finish and comfort. In these circumstances, it is appropriate to utilize the value to the owner – in other words, by taking into account the payment of a broker’s commission – as more reflective of Mr. Halle’s loss.

e) Mr. Halle does not say that he lost ten days’ cruising with family and friends in the summer of 2006. His own yacht was available for that purpose. Rather, he says the real loss that he suffered was that he could not take the yacht for a test drive. That is the main component of the loss for which he must be compensated. No evidence was led to show how long it would take to perform sea trials or how long a prospective buyer might want to cruise on a yacht in the Mediterranean to evaluate its performance. However, I conclude that it could easily be accomplished in a cruise of seven days. I note that when the parties entered into their letter of intent, the cruise rights to be granted to Mr. Halle were intended to last only seven days. I find that this confirms my view that a test drive, or evaluation of the vessel, could have been accomplished in that time frame.

f) If Mr. Halle had been able to exercise his cruise rights he would have incurred expenses to do that. These would have included the consumables used for the cruise. The plaintiff estimated the cost of the consumables to be about 5,000 Euros per day, most of which would have been for fuel expense. In addition to the fuel expense, Mr. Halle would have had to fly himself and his family to the Mediterranean to take advantage of the cruise. The amount of damages must be reduced to take into account both of these savings.

[25] In summary, I find that Mr. Halle’s loss, insofar as money can put him in the same position he would have been in had the contract been performed, is something less than the value to the owner of a ten day charter of the Apoise. I have assessed that loss at 325,000 Euros which is the equivalent of approximately $525,000 using the current currency exchange rate. I accordingly award that sum as damages for the breach of the Agreement to provide the cruise rights.

Issue 4. Is Mr. Ritchie entitled to a set off for the amounts he has spent to purchase new furniture and make repairs to the wheelhouse doors and helicopter pad? If so, what is the amount of the set off?

[26] The breaches of the Agreement alleged by Mr. Ritchie are set out at paragraph 5 of these reasons. He says that he contracted to receive a high end, luxury vessel in which he could take a great deal of personal pride. He alleges that the loose furniture was poorly constructed and uncomfortable. It was not the high end, brand name furniture he contracted to receive. In addition, the helicopter pad is alleged to have been improperly finished and the wheelhouse doors are alleged to have been constructed in a fashion that was not seaworthy.

[27] Mr. Ritchie claims an equitable set off or counterclaim of the damages that he suffered as a result of these alleged breaches of the Agreement. There is no doubt that the alleged breaches all arise out of the construction or design of the yacht under the Agreement, so if Mr. Ritchie is able to succeed with the claims, it is proper to set off the damages against the amount owing to Mr. Halle: Johnny Walker Bulldozing Co. v. Foundation Co. of Canada Ltd., [1997] B.C.J. No. 988 (S.C.).

Furniture

[28] The loose furniture on the Apoise was custom manufactured by Greenline Yacht Interiors (“Greenline”), a company located in Dubai. Greenline also manufactured and installed the built-in furniture and woodwork.

[29] Mr. Halle entered into the Design Contract with Zuretti in November 2003. Thereafter, Zuretti was intimately involved in all of the design work for the interiors of the yacht. Pursuant to clause 11 of the Design Contract, Mr. Halle could use Zuretti to purchase the loose furniture or Mr. Halle could purchase those items himself. Mr. Halle chose the latter route, however Zuretti was actively involved in selecting Greenline to be the furniture manufacturer. Zuretti also selected the style of each piece of furniture as well as the fabrics, wood and wood finishes.

[30] Early on in the project, Greenline was chosen to construct the built-in furniture and woodwork. The decision to use Greenline for the loose furniture was made in the summer of 2005 by Mr. Halle, with the assistance of Zuretti, after having received price quotes from various suppliers. They learned that some of the suppliers could not meet the delivery dates. In addition, they were pleased with the work Greenline had done on the interior fit out of the Apoise. The decision was confirmed when Mr. Halle accepted a negotiated price quote of 650,000 Euros for the loose furniture at about the same time that the letter of intent was signed by the parties.

[31] In November 2005, Mr. Ritchie spent two or three days at Lurssen’s facilities looking at the Apoise, examining the plans and specifications, and negotiating with Mr. Halle. At the end of his stay the parties signed the letter of intent. During that visit, Mr. Ritchie reviewed the May 2005 version of the interior specifications. In the Cabin by Cabin section of the specifications, there were photos depicting what was proposed for some of the loose furniture. These photos did not make it into the final specifications, presumably because the parties knew they were only there to provide a guideline for Zuretti. There was also a listing of the furniture items that included, in some cases, the name of the anticipated manufacturer or supplier. Many of the pieces listed the supplier as “E.G. Cody”, a Florida furniture retailer for yachts. In some cases, there was an indication that a piece of furniture would be the “same as …” followed by the name of a manufacturer. As a result of viewing that document, Mr. Ritchie believed that the furniture would be manufactured by the brand name manufacturers listed, or that it would be purchased at E.G. Cody.

[32] The specifications relevant to the furniture are clauses 101, 102 and 153, which state as follows:

101 General Intent – ... The Interior Designer (I.D.) is selected, appointed and remunerated by the Owner. ... All decor materials, loose furniture, fittings, accessories, hardware etc. will be selected from (sic) the Interior Designer. The description of the materials given in this and the following paragraphs is the basic decoration included in the contract and will be the guideline for the Interior Designer. ... The internal finishes are to be of the highest marine quality whilst providing durable surfaces and easily preserved. They will provide luxurious environment to the Owner as well as his Guest. The finishes will nevertheless be also functional as far as this can be brought in accordance with the luxury requirement.

102 Soft Furnishings – … All soft furnishings will be applied as chosen by the interior designers. Only material of superior marine quality is to be used on board.

All material to be used and all work to be carried out will be of high quality and standard suitable for a yacht and in keeping with the best practice in yacht interiors.

153 Sofas, Armchairs and Ottomans – …All custom made sofas should be large and very comfortable and are to be made in accordance with the best workmanship expected to be found in yacht interiors.

[33] There was conflicting evidence as to when Mr. Ritchie learned that Greenline was actually manufacturing and supplying all of the loose furniture. He attended, for a few minutes, a meeting in January 2006 where he learned that some of the loose tables were being supplied by Greenline. Mr. Halle’s evidence as to Mr. Ritchie’s involvement at that meeting was not credible. I accept Mr. Ritchie’s evidence that he did not understand until later that Greenline was supplying all of the furniture. However, I do not have to decide when he learned that the furniture would not be purchased at E.G. Cody, or manufactured by brand name suppliers. This is because Mr. Ritchie cannot sustain a counterclaim for misrepresentation or breach of contract based on the fact that Greenline supplied the furniture.

[34] Clause 12(j) of the Agreement provides, in part, as follows:

All prior statements, understandings, representations and agreements between the parties, oral or written, relating to the Motor Yacht (including the November Agreement) are superseded by and merged in this Agreement, which alone fully and completely expresses the agreement between them in connection with this transaction.

[35] Mr. Ritchie’s understanding as to the manufacturer or supplier of the furniture, whether based on his review of the May 2005 specification book or otherwise, is not relevant. The question is whether the Agreement required Mr. Halle to purchase the furniture from E.G. Cody or name brand manufacturers. The answer to that question is clearly, “No”. Pursuant to clause 101 of the Specifications, the listing of the materials is simply the “guideline for the Interior Designer…” The Interior Designer had the ability to select the loose furniture, as he wished, based on the guidelines set out in the specifications. That is what occurred.

[36] Further, Addendum No. 2 to the Vessel Construction Contract dated February 2006, and agreed to by the parties, provides as follows at clause 4.2:

4.2 The Assignee [Mr. Ritchie] agrees to accept, and be bound by, all approvals, including plan approvals, decisions and requests made by Mr. Halle, or by the Purchaser’s Representative or the Designer on behalf of Mr. Halle, pursuant to or in connection with the Shipbuilding Contract prior to the date of this Addendum No. 2.

[37] The decision to purchase all of the loose furniture from Greenline was made prior to February 2006. The purchase of the loose furniture was made pursuant to the Interior Specifications that were part of the Design Contract. All of the work under the Design Contract was performed in connection with the Shipbuilding Contract. Accordingly, the decision to hire Greenline to build and supply the loose furniture is one of the decisions and requests made by Mr. Halle, or by the Designer on behalf of Mr. Halle, that Mr. Ritchie is bound to accept.

[38] Mr. Ritchie should not be surprised that there were design and furnishing decisions made that he is bound to accept. There were hundreds of “owner supply” items required to complete the interior furnishings. Mr. Halle, with Zuretti, had to make countless design decisions and choices. Mr. Ritchie was receiving a complete vessel where all of those decisions regarding furnishings and design had been made by others. He knew that he was taking an assignment of Mr. Halle’s “right, title, benefit and interest in, to and related to” the Shipbuilding Contract, the Design Contract and the yacht itself. He contracted to stand in Mr. Halle’s position. This gave him the ability to enforce through Mr. Halle, rights against contractors and suppliers, including Lurssen, Zuretti and, perhaps, Greenline. However, he was not in a position to say that the furniture should have been purchased from someone else, just as he couldn’t say that the yacht should have been built by someone else.

[39] Mr. Ritchie’s complaints about the furniture were detailed in the evidence given by Jeff McElheran. Mr. McElheran is the owner and operator of McElheran’s Fine Furniture, an Edmonton furniture store where Mr. Ritchie had shopped in the past. After taking possession of the yacht, Mr. Ritchie arranged for Mr. McElheran to visit the yacht and look at the furniture. It was the first time Mr. McElheran had been on a yacht. He had no previous experience in buying or selling marine furniture. Mr. Ritchie asked Mr. McElheran to select replacement furniture for the loose furniture that he did not like. Mr. Ritchie purchased the replacement furniture from McElheran’s at a cost of $507,655.71. It was the largest sale McElheran’s has ever made.

[40] The problems with the furniture detailed in Mr. McElheran’s report included:

a) the tailoring was poor;

b) the frame construction was of poor quality;

c) the seating suspension was a simple web design;

d) the pitch of the seating was too vertical; and

e) the cushioning was too hard.

[41] Mr. Ritchie was present in Germany when the Greenline furniture and mattresses arrived for installation in the yacht. He was disappointed with the quality and spoke with Kornelius de Keizer, who was employed by Mr. Halle as the owner’s representative at the Lurssen shipyard. The first complaint related to mattresses provided by Greenline. Mr. Ritchie found them to be unacceptable. They were rejected and ultimately replaced with mattresses that Mr. Ritchie approved.

[42] Though Mr. de Keizer was called as a witness by Mr. Halle, he had loyalties to both parties. At the time of trial, he was employed by Mr. Ritchie as owner’s representative on a refit project on the Apoise that Mr. Ritchie was undertaking in Spain. Mr. de Keizer was an excellent witness.

[43] When it became evident that Mr. Ritchie was unhappy with the furniture, Mr. de Keizer advised him that Mr. Halle was holding a 300,000 Euro holdback with regard to the Greenline contract. Mr. de Keizer suggested that Mr. Ritchie compile a list of the problems with the furniture and require Greenline to remedy the problems. Mr. Ritchie responded that he was not interested in using the holdback to require Greenline to fix the furniture problems. Rather, he wanted to finish the yacht and get it ready to sail. He said that the furniture was, “OK for now,” but he would replace it later. Mr. de Keizer believed this was an imprudent step to take. He raised the subject numerous times with both Mr. Ritchie and his captain, who was also present in Germany. Mr. de Keizer thought it would be a missed opportunity if the holdback was released without requiring Greenline to fix the problems that Mr. Ritchie found with the furniture. He mentioned this on several occasions to Mr. Ritchie. However, Mr. Ritchie was adamant; he wanted to finish the yacht and deal with the furniture issue later. As a result, the furniture was accepted and placed on the Apoise. In June 2006, following Mr. Ritchie’s acceptance of the yacht, the holdback was released to Greenline.

[44] Mr. Ritchie argues that he is able to succeed with his counterclaim even though he accepted delivery of the furniture. He says that where a contractor discharges his obligations imperfectly, as opposed to not discharging his obligations at all, a claim to remedy defects can be brought.

[45] In the circumstances of this case, Mr. Ritchie cannot succeed with the counterclaim for the furniture. There are two reasons for arriving at this conclusion. First, he is not arguing that the contract for the supply of the furniture was discharged imperfectly. Rather, he is claiming that it wasn’t discharged at all. He is seeking damages for the cost of replacing virtually all of the furniture. The fact that he accepted delivery in accordance with the terms of the Agreement and paid the full purchase price does preclude him from making this claim. Mr. Ritchie signed the Final Stage Certificate and the Protocol of Delivery and Acceptance, subject only to the Minor Non-Conformities set out in an attached list. The list of Minor Non-Conformities does not specify any problem with the loose furniture. In other words, Mr. Ritchie accepted that the Apoise, including the loose furniture, was delivered in accordance with the terms of the Agreement. He cannot now say that he is entitled to replace all of the furniture.

[46] Second, when Mr. Ritchie declined to provide Mr. de Keizer with a list of the problems with the furniture and declined to use the holdback in dealing with Greenline, I find that he confirmed his acceptance of the furniture. He knew that if Mr. Halle released the holdback to Greenline, Mr. Halle would be notifying Greenline that the furniture was acceptable. Mr. Ritchie also knew that by giving up the holdback funds, Mr. Halle would lose the only security he held that could be used to compel Greenline to fulfill its contract commitments. In these circumstances, Mr. Ritchie’s suggestion that he had no involvement in Mr. Halle’s decision to release the holdback funds has no merit.

[47] Mr. Ritchie cannot assert that Mr. Halle breached the Agreement with regard to the furniture when he knowingly caused Mr. Halle to indicate his acceptance of the furniture to the manufacturer. In addition, by prompting Mr. Halle to release the holdback funds, he caused Mr. Halle to change his legal position with Greenline to Mr. Halle’s prejudice.

[48] Given the decision I have arrived at, it is not necessary to consider in any detail the alleged problems with the furniture as specified by Mr. McElheran. However, I should indicate that I do not accept the opinion evidence offered by Mr. McElheran. There are two reasons for rejecting his opinion evidence. First, he has no background, experience, training or expertise in the manufacture or sale of marine furniture. Accordingly, his opinion as to whether the loose furniture met “the highest marine quality” or “the best workmanship expected to be found in yacht interiors” can be accorded no weight. These were the standards set out in the specifications that the furniture had to meet. Given the lack of probative expert opinion, I cannot conclude that the furniture, as delivered, failed to meet the specifications.

[49] Second, Mr. McElheran’s opinion was anything but impartial. He obtained the largest single sale in the history of his business by selling replacement furniture to Mr. Ritchie. For each piece of furniture that was found to be unacceptable, Mr. McElheran sold a replacement piece to Mr. Ritchie. In these circumstances, I found his evidence to be of little value.

[50] Before leaving this issue, I want to comment on the alleged failure by Mr. Halle to use reasonable efforts to enforce proper performance by Lurssen and by Zuretti of their obligations under the Vessel Construction and Design Contracts. Mr. Ritchie also alleged that Mr. Halle failed to ensure that the construction of the vessel was properly supervised. There was no evidence led to establish these allegations. To the contrary, Mr. de Keizer was in attendance at the shipyard on a constant basis from January 2005 onwards overseeing the construction of the vessel as Mr. Halle’s owner’s representative. It was evident that his input, expertise and oversight were valued by both Mr. Halle and Mr. Ritchie. As noted earlier, Mr. Ritchie thought enough of him to hire him as his own owner’s representative. There is no merit to the allegations of a failure to supervise or a failure to ensure that the underlying contracts were properly performed.

[51] In addition, the claim that the Apoise was delivered late cannot be sustained. It was delivered and accepted well ahead of schedule.

Helicopter Pad

[52] The Apoise was constructed so that the upper deck could be used as a pad for a helicopter to touch down and take off. Specification 1210 provides, in part:

The upper deck aft shall be reinforced for helicopter touchdown landing but there shall be no provision for long term storage or for re/de-fueling.

The Builder shall… not be obliged to provide the approval of the classification society or any other authority in respect of the operation of a helicopter.

[53] The deck was properly reinforced, so it was constructed in accordance with the specifications. Mr. Halle decided early in the project that he wanted only a “touch and go” helicopter pad rather than one to be approved by a classification society (such as Lloyds). Mr. Ritchie did not understand that the helicopter deck would not be properly classified as such by Lurssen in the course of the construction. He was disappointed to learn this at the time of delivery.

[54] He cannot succeed with the claim he is advancing for the cost of making changes to the upper deck to facilitate its use as a helicopter pad. The upper deck of the Apoise was constructed according to the specifications.

Wheelhouse Doors

[55] The vessel was constructed with the wheelhouse doors hinged improperly. The hinges were on the aft door frame, the door frame closest to the stern of the yacht, rather than on the forward door frame. As a result, if the doors were opened at sea, they could be forced wide open by the winds and could allow water into the wheelhouse. All witnesses agreed this was incorrect. When this was discovered in approximately January 2006, Lurssen was asked to correct the error. The doors were reinstalled at a cost of $89,305.62. Lurssen refused to absorb the repair cost. Consequently, Mr. Ritchie had to pay the additional cost.

[56] Mr. de Keizer gave evidence that the Lurssen representatives agreed that the way the doors were installed was “stupid”. Mr. de Keizer was of the view that the vessel was not seaworthy with the doors installed backwards. However, Lurssen refused to pay for the repairs because the doors were installed according to the drawings. The drawings were approved by Mr. Halle. He admitted that he made a mistake when he failed to pick up on the error in the drawings.

[57] The parties attempted to get Lurssen to pay for the error by involving Lloyds, the Classification Society, who had to approve the vessel as seaworthy. Lloyds reviewed the issue, but decided that the incorrect installation of the doors did not affect the seaworthiness of the Apoise because the doors were a sufficient height above water level. As a result, Lloyds issued its approval of the yacht. When the approval was issued by Lloyds, Lurssen maintained the position that it had no obligation to fix the doors because it had built the Apoise according to the approved drawings and the vessel was approved by Lloyds as seaworthy.

[58] If Mr. Halle had not assigned his rights to the Apoise to Mr. Ritchie, he would have had to pay for the cost of correcting the wheelhouse doors once he took delivery of the vessel. When Mr. Ritchie took delivery of the vessel with the doors installed backwards, he stood in the shoes of Mr. Halle. Accordingly, he must pay the cost of the repair unless there is a provision in the Agreement that he can rely upon to require Mr. Ritchie to correct the doors.

[59] Not surprisingly, the Agreement does not contain any provision that requires Mr. Halle, independent of Lurssen, to ensure that the vessel as delivered was seaworthy or properly constructed. The parties anticipated that it would be sufficient to require Mr. Halle to ensure that Lurssen fulfilled its obligations under the Vessel Construction Contract. Mr. Ritchie’s claim here must be based on a breach by Mr. Halle of other obligations in the Agreement.

[60] Pursuant to Clause 5(a) of the Agreement, Mr. Halle was required, from February 24, 2006 until completion, to use “commercially reasonable efforts to enforce against [Lurssen], for the benefit of [Mr. Ritchie], all of the obligations” of Lurssen under the Vessel Construction Contract. This included the diligent completion of the Apoise to the standards of care and quality “in accordance with best mega-yachtbuilding standards and practices and the standards, practices, requirements and recommendations of the Classification Society”. After February 24, 2006, Mr. Halle was not able to get Lurssen to effect or pay for the repair. However, there was no evidence that he, Mr. de Keizer or others in his employ did not use commercially reasonable efforts to try to get Lloyds to recommend the repair or Lurssen to make the repair to the doors.

[61] Pursuant to Clause 5(i) of the Agreement, Mr. Halle was required “to indemnify, hold and save harmless [Mr. Ritchie] against and from any and all expenses, costs, damages, suits, actions, or liabilities arising or growing out of …” Mr. Halle’s breaches of the Agreement. However, even if Mr. Ritchie could prove a breach of the Agreement that might fall within this provision, he is met by a limitation on that indemnity obligation: “…provided however that the indemnity in this subsection (5)(i) shall not extend to any expenses, costs, damages, actions, suits or liabilities arising out of any actions or failures to act of [Lurssen or Zuretti] … or any decisions of [Mr. Halle] or [his] agents or employees as to the design and construction of the Motor Yacht.” The difficulty for Mr. Ritchie is that his claim arises either out of decisions of Mr. Halle or his agents or employees made in relation to the design and construction of the Apoise, or out of Lurssen’s actions or failure to act. Either way, clause (5)(i) is of no assistance to Mr. Ritchie.

[62] There is no other provision in the Agreement that is of assistance to Mr. Ritchie. Accordingly, he must bear the cost of repairing the wheelhouse doors.

Costs

[63] The Agreement contains a provision that entitles either party to recover “reasonable attorneys’ fees” in the event the party prevails in a proceeding it commenced as a result of a breach of the Agreement. Clause 12(l) provides as follows:

In the event that at any time the Assignor or Assignee shall institute any action or proceeding against the other relating to this Agreement or any default hereunder, then and in that event the prevailing party in such unappealable action or proceeding shall be entitled to recover from the other party its reasonable attorneys’ fees which shall be deemed to have accrued on the commencement of such action or proceeding and shall be payable whether or not such action is prosecuted to judgment.

[64] Both parties argued that the Agreement entitles the successful party to recover, in lieu of costs, his reasonable attorneys’ fees. Mr. Halle has been substantially successful on the issues relating to alleged defaults under the Agreement. However, I have concluded that it is premature to order that Mr. Halle is entitled to recover his reasonable attorneys’ fees and I decline to make that order.

[65] A similar issue has arisen in litigation concerning the right of a landlord to recover its actual legal costs when claiming a tenant is in default under the lease between the parties. This issue arose in P & T Shopping Centre Holdings Ltd. v. Cineplex Odeon Corp. (1995), 3 B.C.L.R (3d) 309, 56 B.C.A.C. 52. In that case, the lease contained a covenant that entitled the landlord to claim its “complete legal costs as a result of any default” by the tenant: P & T at para. 7. When the landlord succeeded in the action, it sought special costs under the provision in the lease. Madam Justice Southin found that the landlord’s remedy was to issue a demand for the legal costs and then bring an action against the tenant if the costs were not paid. She concluded as follows at paras. 23 and 24:

If the Court ought not to order special costs, and I do not think it should, should the Court make any order as to costs? Again, my answer is "no". The respondent has its contractual remedy. It has no need of assistance from this Court. If the respondent, however, wishes to abandon its rights under the covenant, it would be entitled to the usual order for the party and party costs awarded to a successful respondent.

Thus, there will either be no order as to costs in this Court or an order for party and party costs of both appeal and cross-appeal to the respondent. It is for the respondent to elect which it shall be.

[66] In B.U.K. Investments Ltd. v. Pappas, 2002 BCSC 161, Goepel J. arrived at the same result.

[67] Mr. Halle is in a similar position here. He has a contractual remedy which he can elect to follow. If he decides to pursue the contractual remedy, he can demand payment once the appeal period has passed. If the amount is not paid, he can bring an action on the Agreement. If he makes that election, he is not entitled to an order for costs in this proceeding. Alternatively, if he abandons his contractual claim, he can elect to have an order for costs at Scale B.

Summary

[68] In summary, I have concluded as follows:

1. Mr. Halle is not precluded from enforcing his cruise rights against Mr. Ritchie.

2. Clause 9 of the Agreement is enforceable.

3. Mr. Halle is entitled to recover damages of $525,000 from Mr. Ritchie for breach of the obligation to provide cruise rights.

4. Mr. Ritchie is not entitled to a set off for the amounts he has spent to purchase new furniture, repair the wheelhouse doors or make changes to the helicopter pad.

5. If Mr. Halle abandons his contractual claim for reasonable attorneys’ fees he can elect to have an order for costs at Scale B. Otherwise, he is not entitled to a claim for costs.

“Butler J.”   




 


 


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Superyacht Martha Ann, owned by US real estate developer Warren E Halle

Martha Ann in Antibes

Warren E Halle ordered 3 yachts and sold the first 2

She has a custom built tender

The yacht is built by the famous yacht builder Lurssen