On 31 October 2024, a judgment of the Amsterdam Court of Appeal was published in a dispute concerning a rescission of a contract for the construction of a yacht invoked by a client residing in Russia because an agreed delivery date became unfeasible due to European sanctions (ECLI:NL:GHAMS:2024:2766).
Facts presented
The client ordered a yacht from shipyard Conyplex (Contest Yachts) in June 2021. The contract stipulates that delivery of the yacht must take place on or before the end of April 2023. In December 2021, the parties correspond about a possible suspension of the project due to the corona pandemic. On 31 March 2022, the client rescinds the contract due to the ban imposed by the European Union earlier that month on the delivery of luxury goods such as yachts to persons in Russia, which would prevent the yard from fulfilling its obligation to deliver the yacht by the end of April 2023.
The client seeks a refund of the payment already made minus the costs incurred by the yard in executing the contract until its rescission. The yard considers that the client had already terminated the contract in December 2021, rendering the subsequent rescission ineffective, and claims the agreed contract price minus the costs saved by the yard, which claim it estimates exceeds the payment already made by the client.
After assuming jurisdiction in an interim judgment (see ECLI:NL:RBNHO:2023:6013), the district court granted the client’s claim in a final judgment (see ECLI:NL:RBNHO:2024:1789). We have previously covered the latter judgment (see here).
Court considerations
Contrary to the district court, the court of appeal considered that the client’s letter of 7 December 2021 does qualify as a termination of the contract because the client wanted to end the contract anyway. He required a refund of the deposit and wanted to conclude a new agreement in two years. The client’s intention to terminate the contract is reaffirmed in a later letter from his lawyer. This was not altered by the fact that in subsequent communications, the yard did not accept the termination outright. Indeed, given the unilateral nature of a notice of termination, it is not required that the other party accept the notice, the court of appeal said.
Given that the contract was terminated, the subsequent rescission of the same had no effect, and the yard became entitled under Dutch law to compensation of the agreed contract price minus saved costs. The yard argues that the contract sum of €1,460,000 consists of a 20% profit portion of €292,000 and that of the 80% cost portion it had already incurred €53,400 in engineering costs. Accordingly, the yard believes it is entitled to a termination fee of €345,400, of which €53,400 remains unpaid after setting off the down payment previously received from the client.
Because the client did not dispute the alleged profit portion or engineering costs, the court of appeal granted the yard’s claim. As a result, the client not only lost the down payment but was also ordered to pay a further €53,400.
Lessons learned
This case shows that the immediate effect of the European sanctions regulations regarding Russia on pre-existing contracts can lead to certain issues. However, questions about, for instance, the applicability of protective provisions contained in those regulations for the benefit of European parties (see Article 11 of Council Regulation (EU) No 833/2014 and Council Regulation (EU) No 269/2014) did not arise in this case because the court already qualified a corona-related letter from the principal from 2021 as a termination of the contract.
It remains to be seen whether the yard manages to collect the awarded amount from the Russian-based client. Enforcement of a Dutch judgment in Russia will not be particularly easy. This case underlines a yard’s interest in a carefully chosen payment schedule and a sufficient down payment. As a result, the yard in this case managed to limit its ‘damage’.
We have extensive experience in drafting yacht construction contracts, and litigating such contracts on behalf of shipyards and clients. We have also been involved in several construction projects affected by European sanctions. If you have any questions about the content of such contracts or options to terminate or avoid their termination, please feel free to contact us.
