On 25 April 2024, a judgment of the District Court of North Holland 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:RBNHO:2024:1789).
Presented facts
The client ordered a yacht from shipyard Conyplex (Contest Yachts) in June 2021. The contract stipulates that delivery of the yacht must take place by 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 is seeking 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.
Court considerations
The court considers that the client’s correspondence in December 2021 is only aimed at a mutual amendment or termination of the contract, which means that no unilateral termination of the contract by the client occurred in December 2021.
The court also believes that at the time of the rescission in March 2022, it was sufficiently clear that the yard could not fulfil its obligation to deliver the yacht on time due to the ban on delivery of luxury goods to persons in Russia. Given the nature of the restrictive measures imposed by the European Union, it was foreseeable that they had not been in place for a short period of time, making fulfilment of the yard’s delivery obligation at the time of rescission at least temporarily impossible. This allowed the client to proceed to rescind the contract despite any force majeure on the yard’s side and despite the fact that the agreed delivery period had not yet expired. The client’s reliance on rescission was also not deemed unacceptable according to standards of reasonableness and fairness because the restrictive measures imposed by the European Union were an unforeseen event for both parties.
On the amount to be refunded by the yard, the court deducts the costs already incurred by the yard in execution of the contract until its rescission and which cannot be undone. The yard’s claim for payment of missed revenue is rejected as that claim does not relate to work performed in execution of the contract.
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, not only for the Russian party but also for the European party. The European sanctions regulations do contain provisions aimed at protecting European parties from claims by Russian parties under contracts affected by the sanctions (see Article 11 of Council Regulation (EU) No 833/2014 and Council Regulation (EU) No 269/2014). However, it is questionable whether such a provision would protect the yard against the present claim for restitution (as opposed to, for example, a claim for damages). It does not follow from the judgment whether the yard invoked such a provision.
Yacht construction contracts usually contain an exhaustive list of grounds for termination as well as a clause waiving other (statutory) grounds for termination, such as rescission. This may, for example, also limit the right to termination in case of force majeure. However, such clauses do not always hold up in the case of a consumer purchase. It does not follow from the judgment whether the contract contained a termination clause that deviates from the law.
We have extensive experience in drafting contracts for yacht construction, 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.
