The Commercial Court handed down judgment on 14 March 2025 in Chugga Chugg Pty Ltd v Privinvest Holding SAL [2025] EWHC 585 (Comm).
The dispute arose under a guarantee by which the Defendant (a Lebanese company whose primary beneficial owner was Mr Iskandar Safa) secured its former subsidiary shipyard’s performance under a contract for the construction of a luxury motor yacht for the price of €99.5m.
In an LMAA arbitration (midway through which the shipyard entered insolvency and ceased to participate), the tribunal found that the shipyard’s purported termination and non-performance of the contract was wrongful, and that the Claimant’s subsequent termination of the contract was valid. Before the tribunal rendered its award, the shipyard’s German insolvency administrator accepted the Claimant’s proof of debt in the insolvency.
The Claimant subsequently brought a claim under the guarantee, clause 2 of which provided that:
“If an alleged breach or termination is uncontested by the Builder, we shall procure performance or pay as required, on first demand being made by the Owner. If the alleged breach or termination is contested by the Builder, we shall procure performance or pay as required against presentation of both (a) a final unappealable award in favour of the Owner … and (b) a written demand by the Owner…”
Mrs Justice Dias DBE reached the “clear conclusion” that the Defendant was unable to relitigate the shipyard’s liability. While the guarantee was not found to be a demand guarantee, clause 2 embodied “a contractual agreement between the parties as to how [the shipyard’s] underlying liability is to be established” following an approach “seen in the line of reinsurance cases reflected in Hill v Mercantile & General Reinsurance Co plc, [1996] 1 WLR 1239”. In its practical effect, the guarantee thus became “almost indistinguishable from a conditional demand bond”.
The Court rejected the Defendant’s argument that the shipyard’s withdrawal from the arbitration meant that neither of the requirements in clause 2 that a breach be “contested” or “uncontested” was met. In circumstances where an arbitration was on foot, a breach remained “contested” unless accepted by way of an admission binding on the tribunal. Moreover, the requirements created a purely binary distinction, and the parties could not “sensibly have contemplated leaving an undefined and potentially contentious middle ground”.
Dias J further found that the Claimant could establish the shipyard’s liability de novo, there having been no legitimate basis for the shipyard’s purported termination:
- The Defendant’s case fell “at the first hurdle” since “critically” the Claimant did not “unconditionally” terminate the contract on a call in April 2020, such that the requirement of a clear and unequivocal renunciation was not satisfied.
- Even on the “hypothesis” that the Claimant “had previously renounced”, it was “impossible to say” that an unequivocal renunciation persisted by the time of the shipyard’s purported termination in June 2020, the Claimant having made repeated statements that it intended to perform, which “inevitably” raised “a degree of equivocation”.
- Had it been necessary for the Court to decide, it would have found that the shipyard affirmed the contract, having failed to reserve its rights until the end of May 2020.
At [135], the Court clarified the effect of the principle that an innocent party has reasonable time to decide whether to terminate following a repudiatory breach:
“The innocent party’s conduct must be looked at as a whole and cannot be artificially carved up into separate components. Thus it does not necessarily have carte blanche to do whatever it likes for a reasonable period on the basis that no conduct during that time can be regarded as affirmatory. Rather it seems to me that the correct approach is to assess whether conduct is affirmatory bearing in mind that it may be taking place at a time when the innocent party cannot reasonably be expected to have reached a decision.”
The full judgment can be found here.
Tim Akkouh KC and Sebastian Mellab appeared for the Claimant, instructed by James Stacey, Corrina Virtanen, Harriet Saunders and Charlotte Lazarowicz of Slaughter and May.
