Swallowfalls Ltd v Monaco Yachting & Technologies S.A.M. and Another

Introduction

This is the unfortunate story of the partial construction of a 71.50 metre long luxury motor yacht known as "Project NATO". The claimant ("Swallowfalls") commissioned the yacht from Monaco Yachting & Technologies S.A.M. ("MYT") as General Contractor but it was always understood that the actual construction work was to be carried out at La Spezia in Italy by Cantiere San Marco SRL ("the Yard"). Swallowfalls is a single-purpose company, incorporated under the laws of the Isle of Man, administered by a Guernsey-based company called Artemis Trustees Ltd and connected to Mr Nathaniel Rothschild.

Under the Construction Agreement of 3 ^rd January 2006 the price of the yacht was €35,231,600 to be paid by 11 instalments due when MYT had achieved what were known as "milestones" on the way to final delivery, with a final 10% due on delivery, which constituted the 11 ^th milestone. Title to the yacht was to be transferred to Swallowfalls on payment of the 5 ^th milestone. The construction agreement contained a London arbitration clause, incorporating the LMAA Rules.

The only clause of the Construction Agreement which needs to be singled out at this early stage of the story is Article 19:-

"19.1 The General Contractor [MYT] shall be deemed to be in default if:

19.1.1 subject always to the provision in this Agreement covering delays to the Production Schedule the General Contractor shall be in material breach of a term or terms of the Agreement … and that breach continues for forty-five (45) days following receipt by the General Contractor of a notice from the Buyer requesting that the breach be remedied; or

[Various provisions relating to insolvency, which do not include grace periods]

19.1.6 anything analogous to the preceding Articles of 19.1.2 to 19.1.5 occur in respect of the Builder, which, if capable of being remedied, are not remedied to the reasonable satisfaction of the Buyer within forty-five (45) days, or where alternative suitable arrangements to have the Vessel constructed or completed elsewhere have not been made within forty-five (45) days and fully implemented within a further sixty (60) days thereafter;"

We do not know the terms of the sub-contract between MYT and the Italian Yard but MYT had difficulty in meeting their obligations under it and it became clear to Swallowfalls that, if they were going to get their yacht, they would have to provide interim finance to MYT in advance of payment becoming due under the 3 ^rd and 4 ^th milestones. So a First Amendment came into existence dated 26 ^th October 2007 by which Swallowfalls agreed to pay €3,372,000 and MYT agreed to repay that sum from the payments due to it on the achievement of milestone 4 or, if the milestone had not been reached by 30 ^th April 2008, by some other means on that date. It was also agreed that Swallowfalls would pay the sums, available under this facility, directly to MYT's suppliers and sub-contractors. A further agreement was that title to the yacht would be transferred to Swallowfalls within 30 days. The second defendant, Mr Peter Landers, the Chairman and Managing Director of MYT, provided a personal guarantee for sums outstanding under this First Amendment.

MYT did not repay the loan by 30 ^th April or at all. Nor did it transfer title to the vessel within 30 days or at all.

By a Second Amendment of June 2008, Swallowfalls agreed to provide a more substantial loan facility of €33,803,980 (to include the previous facility) in advance of certain milestones being achieved and such funds were likewise to be provided directly to MYT's suppliers and sub-contractors. By Article 3.4 as and when the relevant milestone had been achieved and the Stage Certificate for that milestone had been counter-signed by Swallowfalls' Technical Advisor, the loan amount would be reduced by the amount of the relevant instalment. A formal loan agreement ("the 2008 Loan Agreement") was attached to the Second Amendment and Mr Landers provided a second guarantee. Article 2.5(a) of the 2008 Loan Agreement provided:-

"The Loan and Interest shall be repaid by the Borrower; (1) within thirty (30) days from receipt of a demand letter by the Lender, (2) upon termination of the Agreement or the Loan Agreement or (3) the earlier of the expiration of the Term hereunder … or the date of the Stage Certificate for instalment 11 under the Agreement."

Article 2.6 further provided that the term of the loan facility was to be "up to and including 01 September 2009". All sums lent were therefore (on the face of it) repayable on or within 30 days of a demand and, in any event, on 1 ^st September 2009. In the event of any claim or dispute the English court was to have exclusive jurisdiction.

By a Third Amendment of 1 ^st May 2009 Swallowfalls agreed to release monies held by way of Refund Guarantee. MYT for their part agreed (again) to transfer title to the vessel within (this time) 60 days and agreed to pay liquidated damage of €50,000 per month if they did not do so.

It is, however, the Fourth Amendment of 3 ^rd November 2010 which is the most pertinent agreement for the present case. Not only had the loan not been paid by 1 ^st September 2009 or title to the yacht transferred but by this time a serious dispute had arisen between MYT and the Yard relating to late payment of sums due from MYT and sums charged by the Yard to MYT because construction was taking too long and "late stay charges" were supposedly accruing. This dispute was settled by a Tripartite Agreement between Swallowfalls, MYT and the Yard. Swallowfalls agreed to provide yet more additional funds to MYT partly for the late stay charges and partly as "Working Capital". By the Fourth Amendment it was also agreed that this sum would be rolled into the loan facility and that a new loan agreement ("the 2010 Loan Agreement") would be made in the form attached to the Fourth Amendment, which also provided (by Article 3.9) that then 2010 Loan Agreement was to replace the 2008 Loan Agreement. Mr Landers signed a Third Guarantee.

MYT further agreed (again) to transfer title in the yacht to the Buyer of the yacht and abandon their right to a lien in respect of the purchase price which had been granted by Article 6.1 of the original Construction Agreement. The price was moreover increased to €41,687,210.

Matters still proceeded unhappily and on 9 ^th July 2011 Mr David Larkin of Swallowfalls gave MYT a contractual notice that MYT were in material breach of the Construction Agreement, the Fourth Amendment and the Tri-Partite Agreement. Mr Landers responded on behalf of MYT on 2 ^nd September 2011 by refuting the allegations and on 5 ^th September by giving notice of arbitration under the Construction Agreement and the Tri-Partite Agreement and appointing Mr Ian Gaunt as MYT's arbitrator. MYT identified four particular disputes:-

i) Swallowfalls' delays in respect of buyers' variation requests;

ii) Swallowfalls' failure to have a buyers' representative at the Yard;

iii) Swallowfalls' failure to countersign stage certificates so as to enable the loan to be repaid by MYT; and

iv) Swallowfalls' failure to provide some or all of the agreed Working Capital.

Swallowfalls riposted by appointing Mr Christopher Hancock QC as their arbitrator for the disputes in respect of MYT's claims and their own cross-claims. We have been told that MYT's claim in the arbitration has now been dismissed as MYT have not given security for costs. The arbitration is, however, still alive for the purpose of Swallowfalls' cross-claims.

Swallowfalls then on 19 ^th December 2011 precipitated these proceedings by giving notice under clause 2.5(a) of the 2010 Loan Agreement (which I set out below) that the loan was immediately due and payable in the sum of €15,699,864.21. They also exercised their right under Article 19.2.2 of the Construction Agreement to replace MYT as General Contractor and complete the construction by their own nominee. It seems that, in the event, construction has halted and the yacht is still at La Spezia in an uncompleted condition.

Swallowfalls then issued an application for summary judgment for repayment of the loan. On 4 ^th July 2012 Walker J gave judgment in favour of Swallowfalls against the appellants on the issue of the construction of clause 2.5(a) of the 2010 Loan Agreement and adjourned the balance of the summary judgment application to a hearing to be fixed. MYT now appeal paragraphs 1 and 2 of the order of 4 ^th July 2012 under appeal notice 2013/0708.

At the re-fixed hearing on 15 ^th February 2013, save as regards the summary judgment granted to Swallowfalls on the issue of construction by the order of 4 ^th July 2012, Walker J dismissed Swallowfalls' application for summary judgment. He also dismissed Swallowfalls' application for an interim payment and stayed the proceedings pending resolution of MYT's cross-claim for breach of implied terms of the 2010 Loan Agreement (which he found to exist) as to Swallowfalls' obligation to co-operate with...