Azimut-Benetti SpA (Benetti Division) v Healey
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE BLAIR |
| Judgment Date | 03 September 2010 |
| Neutral Citation | [2010] EWHC 2234 (Comm) |
| Docket Number | Case No: 2010 FOLIO 164 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 03 September 2010 |
[2010] EWHC 2234 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Before: Mr Justice Blair
Case No: 2010 FOLIO 164
Ms Sara Cockerill (instructed by Holman Fenwick Willan LLP) for the Claimant
Mr N.G. Casey (instructed by Clyde & Co LLP) for the Defendant
Hearing date: 9 th August 2010
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.
MR JUSTICE BLAIR:
This is an application by the claimant, Azimut-Benetti SpA, for summary judgment under a guarantee. The claimant is a luxury yacht builder based in Italy. By a Yacht Construction Contract dated 25 September 2008, the claimant agreed to construct, and an Isle of Man special purpose company called Shoreacres Ltd agreed to purchase and take delivery of, a white 60 metre yacht with a hull number FB256. Shoreacres is wholly owned by the defendant. The price was €38 million payable in instalments, and the scheduled delivery date was 30 November 2011. The defendant gave his personal guarantee also dated 25 September 2008. The defendant resists this claim for summary judgment under the guarantee on the basis that the liquidated damages clause upon which the claimant sues in the contract with Shoreacres was a penalty, so that there is no liability on which the guarantee can fasten. The claimant maintains that the defendant does not have an arguable case in that regard; alternatively it argues that by the terms of the guarantee the guarantor is liable even if the clause is unenforceable, and the principal debtor is not, or that an estoppel arises. That is the first issue which I have to decide. The claimant has an alternative claim for the first instalment of the price which had fallen due under the contract at the time of termination. The defendant contends that having elected to sue on the liquidated damages clause, the claimant should not be entitled to summary judgment for the first instalment. That is the second, and only other, issue raised by the defendant by way of defence.
Before coming to the evidence, it is convenient to set out the clause on which the claimant relies, and which is in contention as a penalty clause. Clause 16 of the Yacht Construction Contract dated 25 September 2008, and in particular clause 16.3, provided as follows:
“16. Termination by Builder
16.1 In addition to such rights as it may have at general law the Builder may suspend construction of the Yacht and/or terminate this Contract at any time by written notice to the Buyer:
(a) if the Buyer fails to pay any sum due and owing under this Contract within forty-five days after the due date;
…
16.3 Upon lawful termination of this Contract by the Builder it will be entitled to retain out of the payments made by the Buyer and/or recover from the Buyer an amount equal to 20% of the Contract Price by way of liquidated damages as compensation for its estimated losses (including agreed loss of profit) and subject to that retention the Builder will promptly return the balance of sums received from the Buyer together with the Buyer's Supplies if not yet installed in the Yacht.”
Subject to a letter which the defendant sought to adduce at the hearing, the evidence consists of witness statements by the parties' respective solicitors. This shows that the parties' relationship began with a letter of intent made on 11 October 2007 pursuant to which the buyer (the defendant's purchasing vehicle was at that time a company called GSE Investments Ltd) paid a returnable deposit of €500,000. Matters appear to have gone quiet for a time, and much of the subsequent evidence consists of email negotiations between the builder and the buyer of another similar yacht with a hull number FB250. There is no connection between the buyer of FB250 and Shoreacres Ltd or the defendant Mr Healey. The name of the buyer of FB250 has not been disclosed by the claimant, though it is a reasonable inference that the buyer is Russian. Though the transactions are unconnected, and these negotiations so far as admissible are seemingly irrelevant, it is a fact that both Shoreacres and the buyers of FB250 used as English solicitors the firm of Shoosmiths, and also used the same yacht brokerage, namely Viare s.a.r.l The claimant's case is that this overlap is relevant as regards discussions over the liquidated damages clause that took place in due course.
There was an issue between the parties as to how far the content of the negotiations is admissible, but the question was effectively resolved during the hearing, by reference to a passage in Murray v Leisureplay plc [2005] IRLR 946 at [52], in which Arden LJ said:
“Lord Dunedin in the Dunlop case makes the point that, although the issue is one of construction, the court is not confined to the terms of the agreement and may look at the “inherent circumstances of each particular contract, judged of as at the time of the making of the contract, not at the time of the breach …” (at page 87). In my judgment, the inherent circumstances to which the court may have regard extend beyond those which may be adduced in evidence for the purposes of determining the true interpretation of the agreement under the well known test in the Investors' Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896. But the purpose of adducing that evidence is not so that the parties can demonstrate that they agreed to opt out of the remedies regime provided by the common law but rather that the reasons that they had for doing so constitute adequate justification for the discrepancy between the contractual measure of damages and that provided by the common law.”
This passage was applied in General Trading Company (Holdings) Ltd v Richmond Corporation Ltd [2008] 2 Lloyd's Rep 475 at [124] (Beatson J), and the defendant accepts this approach for the purpose of this hearing. The argument between the parties has been what, if anything, the negotiations demonstrate as regards the parties' reasons for agreeing clause 16.3 as contemplated in this passage. I should say that I accept the defendant's submission that the mere assertion by or on behalf of the builder that the clause was a genuine pre-estimate of damage does not in itself advance matters.
Factually, so far as clause 16.3 is concerned the position is as follows. On 20 March 2008, the Russian lawyers acting for the buyer of FB250 provided draft amendments to the contract in respect of that yacht reducing the percentage payable by way of liquidated damages from 20% to 10% of the contract price. Shoosmiths were copied in, but clearly in their capacity as solicitors for the buyer of FB250. On 31 March 2008, Holman Fenwick and Willan (HFW), the solicitors acting for the builder, responded rejecting the proposed amendment on the basis that 20% of the contract price was a genuine pre-estimate of the builder's loss. That email was not copied to either Shoosmiths or Viare.
On 16 April 2008, the Russian lawyers acting for the buyers of FB250 responded with a “Discrepancy Report” which stated that, “we'd insist on 10% for 20% sounds unreasonably high”. That email was copied on the same day to Shoosmiths, who made it clear that despite the involvement of the Russian lawyers, they remained involved in the transaction, and asked to be copied in with subsequent communications. Again, this was in relation to, and only to, FB250.
On 2 May 2008, HFW reverted as follows:
“20% is a genuine pre-estimate of the Builder's loss and the Buyer needs to understand that this clause provides, not just compensation for the Builder, but also an immediate refund of the rest of the Buyer's money.
The alternative, should the current clause be unacceptable, is to revert to the more conventional model whereby the Builder completes and sells Yacht to someone else; realises its actual loss; and then accounts back to the Buyer for any excess remaining. In this scenario the Builder will retain the Buyer's instalments for a very long time, particularly if there has to be an arbitration.”
At this point, Viare entered the negotiations, again acting in relation to FB250. It told the builder that its clients felt that the clause was too onerous, and a figure of 10% was again suggested. This was rejected by the builder by email of 15 May 2008 (neither were copied to Shoosmiths) which states:
“As already discussed with Sergei in the past we once again stand by our figure of 20% as this is the minimum it would cost Benetti to resell the ship in case of the client terminating the contract. On top of the cost of resale we would have all of the costs due to borrowing the money from the bank, depreciation of the yacht and depreciation of the yacht due to the fact that it is tailored on [a]n other client i.e. modifications to apply to the boat to be resold. This … is a very firm point in our contracts.”
It was shortly thereafter that negotiations in relation to FB256 came back to life. On 21 May 2008, Shoosmiths emailed HFW to the effect that it was instructed to proceed with the completion of that contract. The latest version at that time was one sent as long ago as 30 October 2007. On 22 May 2008, Viare emailed to the effect that since the deal had to be concluded within a short time scale, “we should use the same build contract (save minor details) for FB250 and FB256”. Shoosmiths responded shortly afterwards saying that it was using the October 2007 draft “and making changes to that agreement which will conform to a great extent to the one we are discussing on FB250”. HFW responded to the effect that the builder would prefer to...
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