Azimut-Benetti SpA (Benetti Division) v Darrell Marcus Healey
Citations:  EWHC 2234 (Comm);  1 Lloyd’s Rep 473;  TCLR 7;  CILL 2921;  CLY 565.
The claimant was a yacht-maker. The defendant contracted the claimant to make a yacht. He provided a personal guarantee for the price, which was payable in instalments.
The contract entitled the claimant to pause construction of the yacht if the defendant failed to pay. If the claimant paused construction in these circumstances, the defendant would be liable to pay 20% of the contract price under a liquidated damages clause. If the defendant had already paid money over that amount, the claimant would refund it. Another clause specified that if the main contract was found invalid for any reason, the defendant would still be liable under the guarantee.
The defendant failed to pay the first instalment. The claimant claimed 20% of the contract price under the liquidated damages clause. He sought summary judgment for this amount. The defendant argued that the clause was void under the penalty rule. He therefore argued that the matter should be allowed to proceed to full trial, so the claimant should not get summary judgment.
The claimant sought to admit evidence relating to negotiations for a second yacht which were ongoing at the time he signed the contract for the first yacht. The defendant had tried reduce the liquidated damages figure to 10% for the second contract. However, the claimant refused and provided detailed calculations for why 20% was an appropriate estimation of his likely losses. He argued that this showed that the clause was not a penalty clause. The claimant also argued that if the clause was a penalty, the defendant would still be liable under the personal guarantee.
- Were the negotiations surrounding the second yacht admissible as evidence?
- Was the term a penalty clause?
- If the clause was a penalty, could the defendant still be liable under the personal guarantee?
The High Court granted the claimant’s application for summary judgment. The negotiations for the second yacht were admissible as evidence that the clause was not a penalty clause. The clause was commercially justifiable and clearly not a penalty clause. However, if it had been a penalty clause, the defendant would not have been liable under the personal guarantee.
This Case is Authority For…
While negotiations in another contract can be admissible as ‘inherent circumstances’ relevant to the contract in issue, ‘matters negotiated in one transaction [cannot] simply be transposed into the other merely because the agents concerned happened to be the same.’
Factors relevant to whether a clause is a penalty clause include:
- Whether the clause imposes obligations on both parties;
- The commercial justifiability of the clause;
- Whether the clause was specifically negotiated by parties with the benefit of expert advice.
A claimant cannot indirectly enforce a penalty clause by relying on guarantees in collateral contracts.
This case applies the old test for determining whether a liquidated damages clause is a penalty clause: whether it is not a genuine pre-estimate of the claimant’s likely losses. This test is no longer good law, having been replaced by the test in Cavendish Square Holding BV v Makdessi  AC 1172.