ENFORCEABILITY OF LIQUIDATED DAMAGES CLAUSES

In Azimut-Benetti Spa (Benetti Division) v Healey [2010] EWHC 2234 (Comm), [2010] All ER (D) 18 (Sep) Mr Justice Blair considered whether a clause in a Yacht Construction Contract that required the purchaser to pay 20% of the purchase price in the event that the contract was lawfully terminated by the builder was a penalty clause and therefore unenforceable. Blair J considered arguments and points of law that are common to orthodox construction contracts and held that where both parties had the benefit of expert representation in the conclusion of the contract and the terms, including the liquidated damages clause, were freely entered into such clauses will generally be enforced. Further, he added that ‘in a commercial contract of this kind, what the parties have agreed should normally be upheld’.

Dr Hamish Lal, Partner, Jones Day

The facts

The claimant, Azimut-Benetti SpA, was 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 was wholly owned by the defendant who had guaranteed Shoreacres’ obligations under the Yacht Construction Contract. The price was €38m payable in instalments, and the scheduled delivery date was 30 November 2011.