Federal Court of Australia
TWW Yachts Sarl v The Yacht “Loretta” (No 2)  FCA 241
DATE OF ORDER:
5 MARCH 2021
THE COURT DECLARES THAT:
1. The plaintiff (the buyer) and the relevant person, Sea Shine (Isle of Man) Ltd (the seller), are bound by an agreement (the contract) comprising:
(a) a memorandum of agreement including addenda 1, 2 and 3 (the MOA) bearing date 16 September 2020 and entered into on 17 September 2020 for the purchase and sale of the defendant, the yacht Loretta.
(b) an agreement made on 13 November 2020 to vary the MOA by the entry into the third version of addendum 4 in the form agreed on 11 November 2020 between David Westwood and Dr Nicholas Valenzia on behalf of the buyer, and Daniel Bender on behalf of the seller, in consideration of the buyer:
(i) providing to the seller evidence of a binding contract for carriage of Loretta by sea from off Brisbane to Mallorca, Spain or another port;
(ii) providing AUD50,000 to Daniel Bender as the buyer’s share of the holding costs for Loretta between 1 November 2020 and 31 January 2021; and
(iii) providing to the seller a copy of addendum 4 signed by the buyer
which consideration the buyer had provided by 14 November 2020 to the seller.
THE COURT ORDERS THAT:
2. The seller and the buyer specifically perform and carry into execution the contract in accordance with its terms as varied in the following orders:
(a) subject to order 2(c), on completion, the buyer will pay USD2,315,000 to the seller in full and final satisfaction of the purchase price (being the amount of the price USD2,750,000 in the contract less USD435,000 representing the value of the consideration that the buyer provided to the seller under declaration 1(b)(i) above, which value was wholly wasted by reason of the seller’s breach of the contract in causing Loretta to be transported from Southport, Queensland to the Special Administrative Region of Hong Kong).
(b) completion will occur on a date agreed by the parties, and failing agreement, a date fixed by the Registrar, simultaneously with delivery of Loretta in international waters off Hong Kong, after the completion of the repairs to the damage that Loretta sustained in transit from Brisbane to Hong Kong notwithstanding the provisions of cll 11 and 12 of the MOA and cl 1.3 of addendum 4.
(c) on or before 12 March 2021, the buyer pay the stakeholder, under cl 25 of the MOA, the deposit of USD300,000 and that sum be applied, subject to order 2(d), on completion as part of the purchase price payable on completion pursuant to order 2(a) and cl 3.2 of addendum 4.
(d) the amount of commission payable to the broker on completion by the seller in accordance with cl 37 of the MOA as agreed to be varied is USD250,000.
(e) under addendum 4:
(i) no further sum will be payable by the buyer as expenses due to the seller under cl 2 of addendum 4
(ii) cll 3.1 and 4.1 of addendum 4, relating to the transport of Loretta from Brisbane, have ceased to have any force or effect in the events that have occurred.
3. The seller pay the buyer’s costs of the proceeding as agreed or taxed, including the marshal’s costs and expenses of arresting, keeping in custody, moving and releasing Loretta.
4. The parties have liberty to apply on 1 day’s notice to the Registrar or to a Judge to fix a date for completion and make such directions as to the steps to complete the contact as are necessary in the circumstances.
5. Three business days after completion and following compliance with order 3, unless the Court otherwise orders, the money, together with interest, that the seller paid into Court pursuant to orders made on 30 December 2020 be released and repaid to the seller.
THE COURT NOTES THAT:
6. The parties agree that they varied the commission referred to in order 2(d) from USD300,000 to USD250,000.
1 Following the delivery of my ex tempore reasons on 11 February 2021 in TWW Yachts Sarl v The Yacht “Loretta” (No 1)  FCA 240 (the principal reasons) for ordering specific performance of the contract for the sale of Loretta, the parties noted that I had yet to deal with the issue of what, if any, amount the buyer, TWW Yachts Sarl, was entitled to claim in respect of the total amount of USD435,000 that it or Saba Shipping Limited had paid DYT Super Yacht Transport in respect of the cancelled cargo contract (I will use the same defined terms as in the principal reasons).
2 It is now necessary to decide that issue, having regard to the changed circumstances making the cargo contract inutile after the seller, Sea Shine (Isle of Man) Limited, as part of the parties’ arrangements to secure her release from arrest, shipped Loretta to Hong Kong.
3 Subsequent to 11 February 2021, the parties informed me, for the purpose of framing the order for specific performance, of the following additional matters, namely that:
they agreed that the commission payable to the broker had been varied and agreed as USD250,000,
when Loretta was being loaded on the ship taking her to Hong Kong, she suffered significant damage, including to her hull. That damage is to be repaired in Hong Kong, at the seller’s expense, before delivery. The shipyard is awaiting the arrival of a critical piece of replacement machinery before Loretta is moved into a dry dock for the repair work necessary to incorporate that item,
at delivery in Hong Kong, the buyer will crew and sail Loretta to the Mediterranean.
The damages issue – background
4 Once Saba Shipping, as ‘yacht owner’, entered into the cargo contract with DYT and paid the deposit of USD135,000 on 13 November 2020, it became bound to pay DYT the balance of the USD405,000 freight by 27 December 2020. That consequence followed from both the terms of cl 10.1 of the cargo contract and DYT’s invoice of 13 November 2020.
5 On 24 December 2020, DYT emailed Gerald Price of Complete Marine Freight, through whom Mr Westwood, a principal of the buyer and the broker, had arranged the cargo contract, asking Mr Price to chase his customer for the balance of the freight that would be due on 27 December 2020. By 28 December 2020, Mr Price told Mr Westwood that DYT was insisting on payment in full of the balance of the freight under cl 10.4 of the cargo contract but, if the yacht owner cancelled, DYT would repay the amount of the freight referrable to the cost of cargo insurance and cradling for Loretta.
6 On 30 December 2020, following the release of Loretta, Mr Westwood sought, through Mr Price, that DYT allow cancellation of the cargo contract and assist the buyer to mitigate any damages, having regard to the present proceeding. DYT held firm that it would claim the dead freight in full pursuant to its rights under the cargo contract. Thereafter, Mr Westwood and Mr Price communicated with DYT in an attempt to persuade it to relent. Mr Westwood gave evidence that he and Dr Valenzia drafted letters that he (Mr Westwood) instructed Mr Price to send to DYT to require it to do its best to mitigate its loss “with the view to how we could mitigate that loss”.
7 On 5 February 2021, Mr Price emailed DYT to seek a receipt for the deposit. He enquired whether DYT had mitigated any loss by filling any space taken by the booking for Loretta before its ship had left Brisbane. Mr Price suggested that, if not, DYT should be able to find another cargo for the ship on its route to Europe via the United States of America.
8 Later on 5 February 2021, DYT responded that it had not found another cargo and that, in the current market situation, it was having trouble filling the ship on the United States/Mediterranean leg as well. However, DYT said that it had done some calculations on its savings on insurance, materials and associated expenses and proposed rebating USD50,000 of the freight. After discussing the position with Mr Price, Mr Westwood instructed Mr Price to reply that that this was not enough, but that Mr Westwood’s client was prepared to pay a total of USD300,000.
9 Later still on 5 February 2021, DYT agreed to rebate the outstanding freight of USD405,000 by USD105,000, and accept the offer of USD300,000 in full settlement of DYT’s claim to the amount due under the cargo contract. On 8 February 2021, Mr Westwood caused TWW London to pay DYT USD300,000 from its trust account.
10 There are two issues for resolution, namely, first, is the buyer entitled to any reduction in the purchase price of USD2,750,000 because of its proffer to the seller of the cargo contract and, secondly, if so, was the settlement of DYT’s claim reasonable, and if not, what sum should be found as reasonable?
The seller’s submissions on freight
11 The seller argued that the buyer had not suffered any loss under the cargo contract because the buyer was not, and Saba Shipping was, the contracting party for the carriage. The seller contended that there was no evidence that the buyer had any rights or interest in, or liability under, the cargo contract, and that, accordingly, it could not recover any sum in respect of it. Moreover, the seller submitted, the evidence of the negotiations between DYT and Mr Westood, through Mr Price, was documentary, and no witness had explained the rationale for the offer of USD300,000, so that there was no evidence that the settlement was a reasonable compromise in the circumstances.
Should the purchase price be reduced? Consideration
12 I reject the seller’s argument. In my opinion, once the yacht owner, as defined, entered into the cargo contract with DYT, it was bound to perform it by paying the freight of USD540,000 in full. The cancellation occurred because the seller breached the contract, as varied (by not completing and instead transhipping Loretta to Hong Kong), leaving the buyer in the position in which it had arranged for the cargo contract, in performance of the conditions of the variation agreement made on 13 November 2020.
13 The buyer could assign its right to Loretta under the contract before completion pursuant to cl 41. Here, both the buyer and the seller knew that their controlling minds were Mr Affara and Mr Fung respectively, and that Mr Affara was contemplating that he or Saba Shipping would become the assignee of the buyer under cl 41.
14 The buyer’s performance of the variation agreement required it to demonstrate that it had entered into a binding contract with a carrier to carry Loretta from off Brisbane to the Mediterranean. Under the cargo contract, the definition of “yacht owner” included “any person or party owning or entitled to the possession of the Yacht” (see my principal reasons at ). The definition of “yacht owner” in the cargo contract reflected the well understood operation of contracts for the sale of goods involving carriage by sea, where property in the goods can pass at any stage of their transit. Moreover, I infer that Mr Westwood caused Saba Shipping to enter into the cargo contract on behalf of the buyer on Mr Affara’s instructions.
15 Saba Shipping was not the legal owner of Loretta on 13 November 2020, but then nor was TWW Monaco, the buyer. That was because the seller was still her legal owner since the contract had yet to be completed. However, because of the operation of the definition of “yacht owner” in the cargo contract, Saba Shipping contracted with DYT, as agent for any person who was or would be, relevantly, the legal or beneficial owner of Loretta, during the term of the cargo contract, in circumstances where both the contract and the cargo contract contemplated that her ownership may change during that term. On 13 November 2020, it was apparent to the parties to the contract (the buyer and the seller), including Mr Bender, that Saba Shipping had entered into the cargo contract as agent for the buyer at the direction of Mr Affara, as the controlling mind of the person with the beneficial interest in the rights of the buyer under the contract and of Saba Shipping.
16 Lord Wilberforce, giving the majority’s opinion (for himself, Lord Hodson and Lord Salmon) in New Zealand Shipping Co. Ltd. v A M Satterthwaite & Co. Ltd. (The Eurymedon)  AC 154 at 167C–E explained how the law of contract can adapt to the practicalities of a commercial relationship:
If the choice, and the antithesis, is between a gratuitous promise, and a promise for consideration, as it must be in the absence of a tertium quid, there can be little doubt which, in commercial reality, this is. The whole contract is of a commercial character, involving service on one side, rates of payment on the other, and qualifying stipulations as to both. The relations of all parties to each other are commercial relations entered into for business reasons of ultimate profit. To describe one set of promises, in this context, as gratuitous, or nudum pactum, seems paradoxical and is prima facie implausible. It is only the precise analysis of this complex of relations into the classical offer and acceptance, with identifiable consideration, that seems to present difficulty, but this same difficulty exists in many situations of daily life, e.g., sales at auction; supermarket purchases; boarding an omnibus; purchasing a train ticket; tenders for the supply of goods; offers of rewards; acceptance by post; warranties of authority by agents; manufacturers' guarantees; gratuitous bailments; bankers' commercial credits. These are all examples which show that English law, having committed itself to a rather technical and schematic doctrine of contract, in application takes a practical approach, often at the cost of forcing the facts to fit uneasily into the marked slots of offer, acceptance and consideration.
17 In my opinion, the correct approach to the current problem is to recognise that the buyer proffered the cargo contract as part of the consideration moving from it to the seller under the variation agreement. Even though the buyer was not a named party to the cargo contract, the buyer fell within the definition of ‘yacht owner’ under it and that contract was one that the buyer procured so as to perform the variation agreement.
18 The buyer altered its position on 13 November 2020, at the seller’s request, by providing evidence of the binding cargo contract to tranship Loretta from off Brisbane at the time of completion. The seller’s subsequent conduct was calculated to render the cargo contract into an albatross of liability around the buyer’s neck. That was because the buyer could do nothing useful with whatever arrangements it had made to perform the cargo contract, and would be likely exposed under those arrangements to further liability to DYT or to Saba Shipping.
19 As I have identified above, the only entity that could be the yacht owner at the time that the cargo contract was made was the buyer because it had contractual rights to obtain (as it did at trial) an order for specific performance of the contract. It could have chosen to nominate Saba Shipping as the new owner on completion under cl 41, or it may have been able to assume Saba Shipping’s rights under the cargo contract. However, TWW London paid the deposit of USD135,000 for the freight and, commercially, the buyer’s interest in Loretta was, for the purposes of the purchase of Loretta, under Mr Affara’s control. The seller wanted evidence, as part of the consideration for the variation agreement, that the buyer not only had the means, but also a definite contract, to transport Loretta from off Brisbane to Mallorca. The buyer tendered performance in the form of the cargo contract, which, by 16 November 2020, Mr Bender had accepted (see –,  of my principal reasons). I infer that Saba Shipping entered into the cargo contract at the buyer’s request.
20 Equity will relieve against unconscientious conduct of a vendor that helps to lull a purchaser into a belief that completion could occur later than the time stipulated in the agreement: Tanwar Enterprises Pty Limited v Cauchi (2003) 217 CLR 315 at 335–336 – per Gleeson CJ, McHugh, Gummow, Hayne and Heydon JJ. In such a situation, equity can provide a remedy of an order for specific performance. Specific performance of a contract can be ordered on conditions imposed by the court even if no unconscientious conduct occurred: Harvela Investments Ltd v Royal Trust Company of Canada (C.I.) Ltd  AC 207 at 227D–228D per Lord Diplock (with whom Lord Fraser of Tullybelton and Lord Edmund-Davies agreed on all issues as well as with Lord Templeman), at 236F–237E per Lord Templeman (with whom Lord Bridge of Harwich agreed on this issue). Lord Diplock said (at 227D–E):
Just as damages at common law for breach of contractual obligations are intended to put the party not in breach in the same position, so far as money can do so, as if the contractual obligations had been performed by the other party, so too the equitable remedy of specific performance is intended to put both parties in the same position as if their respective contractual obligations had been timeously performed by both of them. This finds expression in the maxim “equity treats as done that which ought to have been done.”
21 The liability of Saba Shipping to DYT under the cargo contract was, of course, not a direct liability of the buyer. However, the buyer tendered the cargo contract as part of its performance of the variation agreement, and the seller accepted that tender as performance. That occurred in the context of the seller’s knowledge of the relationship between Saba Shipping, Mr Affara and his nomination of the buyer as his vehicle to enter into the contract with the right to assign under cl 41 at completion in international waters.
22 The seller pleaded that the buyer was not a party to the cargo contract and therefore that the cargo contract was not relevant. However, the seller raised no such issues contemporaneously in November 2020. To the contrary, Mr Bender, who was fully aware of the commercial relationship between Saba Shipping, Mr Affara and the buyer, not only did not raise any concern that the cargo contract was with Saba Shipping, but, having examined it, saw it as complying with the conditions that he had set on 13 November 2020 in entering into the variation agreement and as meeting those conditions, as I found in my principal reasons. That is why, on 16 November 2020, Mr Bender told Mr Westwood that, provided the signed version 3 was the final position, he (Mr Bender) would “take it to the Boss” (see – of my principal reasons). As I explained, by that conduct Mr Bender accepted the buyer’s proffer of performance by the tender of a signed version 3, the cargo contract (as made) and the payment of the AUD50,000 so as to make the variation agreement binding. The signatures of Mr Fung, or “the boss”, on version 3 was part of the seller’s obligations to perform the variation agreement.
23 In Consort Express Lines Ltd v J-Mac Pty Ltd (No 2) (2006) 232 ALR 341 at 352 –, I summarised the principles for the assessment of damages for breach of contract. Relevantly, the damages recoverable from a breach of contract are limited to those that fairly and reasonably can be considered as arising naturally, or in the usual course of things, from the breach, that would have been in the reasonable contemplation of both parties at the time they entered into the contract, as the probable result of the breach: Hadley v Baxendale (1854) 9 Exch 341 at 354: 156 ER 145 at 151; Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653 at 658 per Gibbs CJ, 667 per Wilson, Deane and Dawson JJ and 672–673 per Brennan J.
24 In determining the balance payable by the buyer at completion under the orders for specific performance, it is entitled to be credited with the value of its wasted performance comprising the cargo contract. That value consists of the expenditure that both the buyer and seller contemplated, when making the variation agreement, would be the natural and probable result of the performance of the cargo contract, including, should that occur, any cost of its cancellation.
25 I am of opinion that the practical approach here, where Mr Affara, to the seller’s knowledge, controlled the buyer and Saba Shipping in relation to the contract, the variation agreement and the cargo contract, is to give effect to the obvious commercial intention of the parties in the circumstances: The Eurymedon  AC at 167C–E. Accordingly, the value of the buyer’s performance of the variation agreement by the tender of the cargo contract, which the seller rendered nugatory by transhipping Loretta to Hong Kong, must be assessed and deducted from what the buyer must pay to complete the contract.
Was the settlement with DYT reasonable
26 The evidence as to the negotiation of the settlement between DYT and Mr Westwood, on behalf of the buyer and or Saba Shipping, was mainly documentary. I accept Mr Westwood’s evidence that he proposed the payment of USD300,000 on the basis that DYT had tried to mitigate its loss but had been unable to secure alternate freight and had moved from claiming the whole amount due. He said that he made that offer of a full and final settlement in the knowledge that DYT’s ship had left Brisbane without a substitute cargo, but that it was still possible that a booking could occur to load when the vessel discharged other cargo in Mexico or Florida before sailing to Europe.
27 At the time that the variation agreement was made, a reasonable person in the position of the seller would have understood that, if the seller breached that agreement or the contract as varied, the buyer or person whom the buyer had asked to contract for the carriage under any contract for the shipment of Loretta to Spain or anywhere else, such as the cargo contract, would be liable to the carrier for freight or damages in respect of the unused space to carry her at the stipulated time, namely in the second half of January 2021. The reasonable person would also have understood that a contract, like the cargo contract, would be likely to require the shipper (or yacht owner), who would or may be the ultimate named assignee of the buyer’s right to assign under cl 41 of the contract, to pay an initial substantial deposit and later the balance of the freight, or a significant part of it, if the contract were not performed.
28 The seller did not identify any term of the cargo contract, including the wide definition of ‘yacht owner’, that was unusual or not to be expected in a commercial agreement for the carriage of a specialised cargo that had to be loaded at sea on a sail-on, sail-off specialist ship.
29 The buyer, in settling DYT’s claim for freight, had the onus of showing that the settlement was a reasonable one: Unity Insurance Brokers Pty Limited v Rocco Pezzano Pty Ltd (1998) 192 CLR 603 at 608–609  per Brennan CJ, 612–613 – per McHugh J, 653–654 – per Hayne J. Their Honours said that this question is assessed objectively by reference to the material that the parties to the settlement had available to them at the time.
30 Here, the yacht owner or Saba Shipping was faced with the facts that it had entered into the cargo contract on 13 November 2020, paid USD135,000 as a deposit and was liable to pay the balance of USD405,000 due on 27 December 2020 for the carriage of Loretta that was to commence in the period between 10 and 25 January 2021. The cargo contract expressly provided that the freight, whether paid or payable, was fully earned on entry into it (cl 10.1: see  of the principal reasons). There was no suggestion that the yacht owner had any right to cancel the cargo contract, or to be relieved of its obligation to pay the USD405,000 outstanding, if it no longer wished to have Loretta carried as cargo on the voyage.
31 From 20 November 2020, the seller had placed the buyer (and Saba Shipping, which the seller knew from the terms of the cargo contract was nominated as the yacht owner) in a position of uncertainty as to the seller’s willingness to perform the contract. On 30 December 2020, the parties’ negotiations resulted in Loretta’s release from arrest on the basis that the seller would take her to Hong Kong (see my principal reasons at ). Thereafter, DYT demanded payment of the balance of the freight. As noted above, Mr Westwood was seeking to persuade DYT to compromise its claim, with little success, until DYT informed him, on 5 February 2021, that it had not found a replacement cargo for its ship which had by then left Brisbane. DYT then offered a rebate of USD50,000. Mr Westwood countered with a rebate of USD105,000, which DYT accepted, leaving the yacht owner liable to pay DYT USD300,000.
Was the settlement reasonable? Consideration
32 In Banco de Portugal v Waterlow & Sons Ltd  AC 452 at 506, Lord Macmillan stated the following principle, that is also reflective of common sense:
Where the sufferer from a breach of contract finds himself in consequence of that breach placed in a position of embarrassment the measures which he may be driven to adopt in order to extricate himself ought not to be weighed in nice scales at the instance of the party whose breach of contract has occasioned the difficulty. It is often easy after an emergency has passed to criticize the steps which have been taken to meet it, but such criticism does not come well from those who have themselves created the emergency. The law is satisfied if the party placed in a difficult situation by reason of the breach of a duty owed to him has acted reasonably in the adoption of remedial measures, and he will not be held disentitled to recover the cost of such measures merely because the party in breach can suggest that other measures less burdensome to him might have been taken.
33 In my opinion, on the evidence, Saba Shipping and the yacht owner (including the equitable interest in Loretta that the buyer had as the party to the contract and the variation agreement) had no defence to any action for the balance of the freight of USD405,000 at the time of the settlement. By 5 February 2021, DYT’s ship had sailed and DYT had not found a substitute cargo for any stage of the cancelled voyage. However, there was still the possibility of DYT finding a substitute cargo in Mexico or Florida.
34 Importantly, the seller did not suggest that some other course, bargaining strategy or circumstance existed which Mr Westwood, the yacht owner or Saba Shipping could have deployed in negotiating with DYT for a lesser compromise figure. Nor does any better course suggest itself. They were placed in a difficult situation by the seller’s breach of the contract. They adopted a reasonable position in seeking to extract as much of a discount from DYT as appeared possible from a weak bargaining position.
35 I am satisfied that the settlement of the claim under the cargo contract for USD300,000 was commercial and reasonable; indeed, it appeared to be a good outcome achieved from Saba Shipping’s and the yacht owner’s weak bargaining position.
36 The value of the consideration that the buyer tendered, in the form of the cargo contract, should be treated as crystallised by the settlement, and be credited towards payment of part of the price payable for Loretta under the contract. That is because that value was fixed at USD435,000 by the settlement of the yacht owner’s liability under the cargo contract. After the seller’s breach, by removing Loretta to Hong Kong, the cargo contract could never be utilised for the purpose for which the seller had requested it. Loretta could not be carried on DYT’s ship under the cargo contract because the seller had made that impossible.
37 Thus, since the buyer gave consideration in the form of procuring the cargo contract, that the evidence establishes is worth USD435,000, but which cannot now be used for the purposes for which the parties agreed, the seller should give credit by a concomitant reduction in the price payable for Loretta on completion.
38 For the reasons above and in my principal judgment, on 5 March 2021 I made an order for specific performance of the contract that allowed the buyer credit for the USD435,000 that Saba Shipping and the buyer, as yacht owner under the cargo contract, had to pay DYT.