The Mecklenburger Schiffswerf GmbH (MSG), based in Rostock (Mecklenburg), has recently completed an order to build two engines for a pair of large Russian river cruisers (M/S Vladimir and M/S Mikhail) – each engine costs €1 million. The vessels, which are being refitted in St Petersburg, will shortly re- enter service as passenger vessels on the St Petersburg to Moscow and Kiev to Yalta cruise routes.

?The buyer is Novgorodny Finance, which is an English registered limited company (it has just one small office in London), which acts as the finance company for the business empire of the Russian oligarch Dmitri Borodin, who controls it. Dmitri lives (for most of the year) in London. Novgorodny plans to lease the refitted cruisers to Volga Cruises, a Russian company operating a holiday business on the Russian and Ukrainian river systems. Volga Cruises is also controlled by Dmitri Borodin, who is its Chairman/CEO.

?The contract to build the engines between MSG and Novgorodny contains the following jurisdiction terms:?

“In the event of a dispute between the parties arising out of or in connection with the terms of this contract, the courts of England and Wales shall have jurisdiction unless, within 30 days of being notified of a dispute, the party notified elects to refer the dispute to binding arbitration.

?If a dispute is referred to arbitration under this clause, the arbitration shall be resolved by a panel of three arbitrators, sitting in Stockholm, under the rules of the Arbitration Institute of the Stockholm Chamber of Commerce”.?

There is no express term on the law applicable to the agreement — although you have been told that MSG assumed that English law applies.?

MSG has no contractual relationship with Volga Cruises. However, MSG’s managers were aware at the time of the contract with Novgorodny Finance that Volga Cruises would be taking delivery of the engines. Dmitri Borodin told the managing director of MSG, Werner Gustrow — at a face to face meeting in London before MSG signed the contract — that Volga Cruises badly needed both vessels back in service soon and so would pay promptly on delivery.?

MSG delivered the engines for the ‘Vladimir’ and the ‘Mikhail’ to St Petersburg three months ago in good condition but until today has heard nothing more from Novgorodny or Volga Cruises, and has not been paid.?

Werner Gustrow received a letter in the post this morning on the letterhead of Novgorodny Finance, signed by Dmitri Borodin as Novgorodny chief executive. It says that, due to the poor and worsening security situation in the Crimea, Volga Cruises will no longer sail from Kiev to Yalta. Accordingly, Novogorodny Finance will only be able to lease a single vessel, the Mikhail, to Volga Cruises and will therefore only be paying MSG for one of the two engines.

Fortunately Werner Gustrow has good contacts in the river transport industry. MSG’s latest engines, such as the ones built for Novgorodny, can power even the largest river vessels at a speed of up to 18 knots. Herr Gustrow has therefore already managed to find a buyer for the ‘spare’ engine. The Austrian state-owned Donauschiffverkehrsgesellschaft (DSVG) in Vienna has agreed to buy the ‘spare’ engine to be fitted in its boat the ‘MariaTheresia’, to be used on DSVG’s scheduled daily Danube passenger and cargo service from Vienna to Bratislava and Budapest.

However, DSVG requires MSG to pay for installing the engine in the Maria-Theresia. The conversion/installation will cost an estimated €200,000. But, more importantly, DSVG is only willing to pay €750,000 for the engine. Werner Gustrow does not think he can get a higher price given the circumstances, although he has not extensively advertised the spare engine for sale.?

Questions: 1) Claims against Novgorodny Finance?

Do you think that MSG has a good contractual claim against Novgorodny Finance (or anyone else) for payment in full for both engines? If you are unsure, what further information might you need to get to be certain??

When preparing your presentation please also cover:?

? where should MSG assert its claim? What further information might be needed to make this decision??

? under what law do you think the claim will be decided??

? how will you enforce any decision requiring payment from Novgorodny (and against whom)??

2) Claims against Volga Cruises: does the DSVG contract make a difference??

Do you think that MSG has any (non-contractual) claim against Volga Cruises? If so, on what basis??

How and where would you try and enforce any claim against Volga??

Does the contract to sell the second engine to DSVG make any difference to the outcome of a claim against Volga?