Riva Bella SA v Tamsen Yachts GmbH [2011] EWHC 1434 (Comm)

[2011] EWHC 1434 (Comm)

Case No 2009 FOLIO 1302

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Date 06/06/2011

Before

THE HONOURABLE MR JUSTICE EDER

Between

RIVA BELLA S.A.Claimant

TAMSEN YACHTS GmbHDefendant

Mr Peter Ferrer and Ms Claudia Wilmot-Smith (instructed by Clyde & Co) for Claimant

Mr Christopher Smith Q.C. and Mr Siddharth Dhar (instructed by Ben Macfarlane) for Defendant

Hearing Hearing dates: 21, 22, 23, 24, 25, 28, 29, 30, 31 March and 5, 6 April 2011.

Judgment

Introduction

[1]These proceedings concern the sale and purchase of a super yacht, the M/Y Namasté (the “yacht”), pursuant to a sale agreement dated 14 May 2008 between the claimant and the defendant (the “sale contract”).

[2]The claimant, Riva Bella S.A, was the buyer (the “buyer”) and is a Luxembourg company set up for the purposes of yacht purchase and charter on behalf of its Japanese beneficial owner, Mr Yoshihiko Suzuki. He did not give oral evidence but his two written statements were put in evidence at the trial.

[3]The defendant, Tamsen Yachts GmbH, is a German company which had commissioned construction of the yacht by a Turkish shipyard, TSMM, in Antalya (the "yard") and was the seller (the “seller”) of the yacht to Riva Bella S.A. Its director and sole shareholder was Mr Heiner Tamsen. Mr Tamsen had previously been a dealer of super cars and ultra-luxury vehicles. Mr Tamsen gave evidence at the trial.

[4]At the date of the sale contract, the yacht was in the course of construction at the yard. Following sea trials, the yacht was delivered to the buyer on or about 25 July 2008. At that stage, as is common ground, the vessel’s documentation was still not complete and at least certain items of work remained outstanding. Nevertheless, the yacht was delivered in her then state in particular because Mr Suzuki was keen to use the yacht to go cruising in the Mediterranean during the summer season.

[5]The buyer now claims damages for breach of the sale contract on the basis of various alleged deficiencies existing at the date of delivery as set out in a Scott Schedule. In addition, the buyer says that the vessel failed to comply with a warranty in the sale contract relating to the speed of the yacht. In particular, it is said that the yacht could only achieve 19 knots whereas the sale contract required a speed of 30 knots plus/minus 10%. The buyer says that although the seller spent almost a year seeking to remedy these defects, it failed to do so and, in the end, the yacht was transferred to a different shipyard (Compositeworks) where repairs were carried out and are continuing at considerable expense. In addition to claims for the cost of repairs and diminution in value, the buyer claims damages for loss of profits or use. The total claims exceed €10 million.

[6]The seller denies any liability on three main grounds. First, the seller says that by accepting the yacht in July 2008 and by signing the Protocol of Delivery and Acceptance ("PDA"), the buyer accepted the yacht in its condition on delivery and necessarily agreed to limit its remedies thereafter to the (valuable) remedies arising under the various warranties it obtained against the yard, save only for the fact that it was agreed that the defendant would supply class documentation and arrange for the propellers to be changed. If there were any defects that would otherwise have been a breach of contract, the seller says that the buyer waived those breaches.

[7]Second, the seller says that, in any event, there were no deficiencies at the date of delivery constituting a breach of contract in respect of which the buyer had any valid claim; alternatively any deficiencies were duly rectified and made good in due course at no cost to the buyer.

[8]In addition, the seller advances certain counterclaims against the buyer in particular(i) crew costs in the sum of € 134,241.50;

(ii) other costs and expenses in the sum of € 145,452.61; and

(iii) the cost of new propellers in the sum of € 81,250.

Factual Background

[9]The yacht was the first of a series of 40m yachts that the seller had commissioned from the yard. Mr Tamsen originally intended to use it as his own personal yacht and as a commercial yacht. He (and his wife) were very much involved in its design. He regarded it as a prototype. There was a short specification and also a detailed technical specification agreed between the seller and the yard although there is no suggestion that the latter was ever shown to the buyer or formed part of the sale contract.

[10]The technical director of the yard was Dr Orhan Celikkol. Originally, it had apparently been the intention of the seller to call Dr Celikkol as a witness. But in the event this did not happen because, as I was told, there was a delay in obtaining the necessary visa for him to travel from Turkey. The seller put his written witness statements in evidence. The Project Manager at the yard was Mr Serkan Filiz.

[11]The construction of the yacht was supervised from the outset on behalf of the seller by Zucker & Partner GmbH (“Zucker”). Mr Stefan Zucker was the director and sole shareholder and gave evidence at the trial as to the technical status of the yacht. They kept a detailed photographic record of the build process and, from 2007 onwards, maintained minutes of project meetings and, on a rolling basis, a detailed “claim list" setting out matters they had observed during construction that required attention.

[12]Mr Tamsen always envisaged that the 40m series of yacht would be classed by the Registro Italiano Navale Classification Society (“RINA”). Initially, the yacht was to be flagged in the United Kingdom but Mr Tamsen subsequently decided to flag the yacht in the Isle of Man. The construction of the yacht was supervised by RINA in compliance with RINA’s new building procedure. The Isle of Man administration was involved from about September 2007 onwards when the decision was first made to flag there rather than in London. The Isle of Man administration first surveyed the yacht in November 2007 and was involved throughout the rest of the construction and indeed after construction until (as appears below) the buyer decided to flag her in Luxembourg instead.

[13]The seller engaged a professional skipper, Capt Chris Dawson, in October 2007 who was involved in the design and build process thereafter. Capt Dawson gave evidence at the trial as to that involvement and also the condition of the yacht and events relating to her registration and re-registration.

[14]On the buyer's side, the claimant company was established in 2007 specifically as a vehicle through which Mr Suzuki could purchase and operate a luxury motor yacht which would be available for his use and for commercial chartering. It was set up by Mr Andre Harpes, a Luxembourg lawyer, on the instructions of Mr Suzuki and Mr Olivier Brunisholz, a Swiss lawyer, who also represented Mr Suzuki. Mr Harpes gave evidence at the trial. A written statement by Mr Brunisholz was put in evidence but he did not give oral evidence.

[15]The structure set up by Mr. Harpes involved another Luxembourg company, Marelux. S.A. (“Marelux”), of which the majority shareholder was Mr Robert Mehrpahl. That structure was intended to operate as follows:- a) Mr. Suzuki’s investment would be introduced via a Swiss company called Euroventure Capital Investments Inc. (“EVC”), represented by Mr. Oliver Brunisholz. b) The buyer’s Board of Directors was made up of Mr. Brunisholz and Marelux. c) Marelux was the nominated sole legal representative of the buyer. d) The yacht would be owned by the buyer, operated by another company, Non Plus Ultra A.G. (“NPU”) (as demise charterer), and managed by Marelux. e) It was a term of the Master Agreement between the buyer, NPU, Marelux and EVC, and in any event a requirement of Luxembourg law, that any yacht owned by the buyer would be registered in Luxembourg. f) Marelux was required to manage the yacht in accordance with the terms of a Management Agreement and subject to the requirement to obtain written approval of the buyer’s Board of Directors for certain matters.

[16]Mr Mehrpahl gave evidence at trial. As stated above, Mr Mehrpahl was the majority shareholder of Marelux which was itself the nominated sole legal representative of the buyer and on the Board of Directors of the buyer although according to Mr Suzuki, Mr Mehrpahl and he have never been in direct contact with each other. Further, Mr Mehrpahl played a crucial role in relevant events acting purportedly on behalf of the buyer. However, it was Mr Suzuki’s evidence that Mr Mehrpahl had colluded with Mr Tamsen to siphon off his money by accepting a very large secret commission paid by Mr Tamsen which Mr Suzuki only discovered at a much later stage from information disclosed by Mr Harpes. Indeed it was Mr Suzuki’s evidence that the actions of Mr Mehrpahl constitute aggravated breach of trust and what he (Mr Suzuki) described as a “chargeable offence”; and that Mr Tamsen’s actions also constituted a criminal offence. I revert to these matters further below. At this stage, it is sufficient to mention that Mr Mehrpahl ceased to act for the buyer at the end of 2009; and that although Mr Mehrpahl was not called as a witness on behalf of the buyer, he was called as a witness on behalf of the seller.

[17]So far as the buyer is concerned, there were two other important individuals who acted on behalf of Mr Suzuki and the buyer and played an important role viz Mr Shinya Sakami and Mr Susumu Moniwa.

[18]At all material times, Mr Sakami was Mr Suzuki’s personal representative and acted as the primary liaison between Mr Suzuki, the buyer and its managers, brokers and agents including importantly Mr Mehrpahl and Mr Tamsen. The evidence before me was that unbeknown to Mr Suzuki, Mr Sakami also received a secret commission. Mr Sakami did not give evidence and there was no written statement from him.

[19]Mr Moniwa was a self-employed individual primarily providing information services in the stock market, the property market and the foreign exchange market. He contracted with EVC in August 2000 and, in that capacity, provided various services to Mr Suzuki who was a customer of EVC. Upon the request of Mr Suzuki, his services were extended to the field of “introduction of scenic wonders and reputed restaurants” as well as the assistance in acquisition and disposition of properties including the yachts referred to below. Mr Moniwa was called as a witness on behalf of the buyer. As appears below, Mr Moniwa also played an important role in liaising with, in particular, Mr Suzuki, Mr Sakami, Mr Harpes and Mr Tamsen. For the avoidance of doubt, there is no suggestion whatever that Mr Moniwa received any secret commissions.

[20]In early 2007, Mr Suzuki purchased a Riva model yacht called “STINGRAY”. In early 2008, Mr Suzuki decided that he wanted to purchase another yacht. He instructed Mr Sakami to conduct a search. The result of the search was the yacht called "Ti Voglio Tanto Bene" (the “TVTB”). Mr Suzuki inspected the TVTB in February 2008. He decided to go ahead with the purchase of the TVTB and instructed Mr Sakami to negotiate the purchase. In anticipation of that purchase, Mr Suzuki transferred the sum of € 16.5 million into the account of Mr Harpes on about 3 April 2008. However, in the event the sale fell through shortly thereafter apparently because there were problems with the paperwork.

[21]The search for a suitable yacht for Mr Suzuki continued. Mr Mehrpahl contacted Mr Zucker to enquire if they knew of any yachts that met the Claimant’s requirements. Mr Stefan Zucker suggested M/Y NAMASTÉ.

[22]At this stage, the yacht was nearing completion at the yard in Turkey and was expected to be launched in June. Until then, Mr Tamsen (and his wife) had still intended to keep her primarily for their own use. However, Mr Mehrpahl spoke to Mr Tamsen on the phone and he (Mr Tamsen) indicated that he would be willing to consider a sale. In the course of that phone call, Mr Tamsen agreed to pay Mr Mehrpahl a commission of 5% out of the purchase price received by the seller. (Pursuant to such agreement, Mr Tamsen duly paid the sum of € 700,000 to Mr Mehrpahl’s personal account on about 28 July 2008 i.e. shortly after the yacht was delivered to the buyer). Mr Tamsen’s evidence was that the payment of such a commission was usual in the trade and rejected absolutely any suggestion that there was anything wrong or otherwise untoward in that regard. Mr Mehrpahl’s evidence was to similar effect. In any event, it was Mr Suzuki’s evidence not disputed by Mr Tamsen or Mr Mehrpahl that he (i.e. Mr Suzuki) was never informed by them (i.e. Mr Tamsen and Mr Mehrpahl) of the payment of any commission to Mr Mehrpahl.

[23]On about 7May, Mr Sakami, Mr Mehrpahl and Mr Harpes visited the yard to inspect the yacht. Mr Sakami reported back to Mr Suzuki who decided to go ahead with the purchase. The contemporaneous documents show that a decision in principle to proceed with the purchase of the yacht was taken on about 9 May. Mr Tamsen sent a first draft of the sale contract to Mr Harpes on the same day. Following further negotiations between Mr Mehrpahl, Mr Sakami, Mr Harpes and Mr Tamsen and the exchange of various further drafts, the board of directors of the buyer approved the purchase of the yacht at a price of € 16.5 million by way of a Board Resolution dated 13 May 2008 signed by Mr Mehrpahl and Mr Brunisholz. It appears that further discussions then took place between Mr Tamsen and Mr Mehrpahl following which the sale contract was signed on 14 May by Mr Tamsen on behalf of the seller and by Mr Mehrpahl on behalf of the buyer. Mr Harpes duly paid the deposit in the sum of € 13,200,000 from the sum of € 16.5 million which was still in his client account following the failed purchase of the TVTB.

The Sale Contract

[24]The sale contract as signed on 14 May 2008 consisted of four separate parts viz a) A document consisting of 5 pages (paged 1-5) headed “Sales Agreement for Tamsen 40m” (the “main agreement”). b) A two-page document (paged 6-7) headed “Sales Agreement for Tamsen 40m – Addendum One (Commercial Cooperation)” (“Addendum 1”). c) A one-page document (paged 8) headed “Sales Agreement for Tamsen 40m – Addendum Two (Financial Considerations)” (“Addendum 2”). d) A document consisting of 41 pages (paged 9-50) headed “Tamsen Yachts, M/Y Tamsen 40m – Short Specification – Prior to Construction” (“Short Specification”).

[25]The main agreement provided in material part as follows:

“1. Purchase and Sale. Buyer agrees to purchase from Seller and Seller agrees to sell to Buyer, upon and subject to the terms and conditions set forth in this agreement, one motor yacht built by TSMM, Antalya (hereinafter referred to as “Manufacturer”) with the following general specifications: ...CLASS: RINA Charter Class (MCA) ...for the purchase price to be paid to SELLER by BUYER in the amount of: SIXTEEN MILLION FIVE HUNDRED THOUSAND (16,500,000) € which price includes the accessories and equipment of the Subject Vessel as presented by the Seller and not being the subject of clause number 9 of the present Agreement. 2. Payment of Purchase Price .....Within two banking days upon signing of this Agreement, the Seller in order to provide a substantial performance guaranty in the delivery of the contractual Documentation as set under the point 3 of this Agreement, will deliver to the Buyer a bank guaranty on first demand for the amount of (ONE MILLION FOUR HUNDRED THOUSAND) 1,400,000€. This Bank Guaranty being valid for six months upon the signature of this Agreement. The costs of this Bank Guaranty have to be supported by the Buyer and paid back to the Seller on first demand. 3. Documentation Seller shall deliver to Buyer the following documents at the time the delivery of title to the Subject Vessel following payment in full of the Purchase Price and remittance of the original Bank Guaranty to the Seller. ...(c) All technical documentations as Three sets of “as built” drawings ... The Interim Class Certificates The Interim International Load Line Certificate The certificates for all materials and equipment items as required by RINA International Tonnage Certificate to be timely delivered by RINA The Stability Booklet to be timely delivered by RINA...” 6. Closing and Delivery The Closing of this transaction shall occur before 1st July 2008, if possible earlier, at a safe berth, safely afloat, in the freezone port of Antalya or according to the Turkish customs instructions for leaving the freezone.” 7. After Sales Service Seller shall cause any defects under his warranty limited to the hull and the superstructure, see clause 8 of the present Agreement, which may affect the safe operation of the Subject Vessel according to RINA standards, valid for commercial yachts, to be corrected and shall have a reasonable time, not to exceed twenty days from date of the notice of defect to complete those defects. 8. Limited Warranty The Subject Vessel is being sold and delivered to Buyer with a Warranty from Manufacturer limited to the hull and superstructure of the Subject Vessel in the form and set forth below. All other manufacturers’ warranties on major equipment, components, accessories and electronics included in the Subject Vessel shall be assigned to Buyer, after receipt of full payment to Seller of all sums due for the purchase of the Subject Vessel. The Warranties expressed herein are the only warranties given (either expressed or implied) in regard to this transaction and the subject vessel. The Buyer acknowledges that: a) The Builder agrees to a five-(5) year’s guarantee on all structural components of the yacht, including the unlikely event of osmosis. b) The Owner or its duly authorised Representative shall notify the Builder as soon as possible and in any event within fourteen (14) Business Days after the discovery of any defect for which a claim is made under this Clause and the Owner’s written notice shall describe the defect in detail. c) The Builder shall not be liable for any defects in the Yacht or the Equipment caused by fire or accident at sea or elsewhere or caused by fair wear and tear, the mismanagement, negligence or wilful neglect on the part of the Owner, its employees or agents or any other person including the Yacht’s officers, crew or passengers..... f) All warranty works that are to be carried out within the Mediterranean Sea and/or within the Black Sea shall be free of any costs for the owner, outside of these borders travel and freight expenses have to be mutually agreed upon.” 9. Extras Any extras or additional equipment or substitutions of equipment, accessories or furnishings ordered or requested by Buyer shall be subject to prior approval of Seller and authorized only by a signed work order for such additional costs to be paid by Buyer as are agreed to by Buyer and Seller. Buyer acknowledges that any extras or change orders shall not delay or extend the time of Closing of sale of the Subject Vessel and such extras or change orders may be completed after closing. 13. Entire Agreement This Agreement states the entire agreement between the parties by all parties as to the subject matter herein and may not be altered, amended or extended beyond its stated term except in writing signed by all the parties to this agreement. 21. Survival Warranties and Representations Each of the warranties and representation made in connection with this Agreement and hereunder shall survive the consummation of the transaction contemplated hereby. 22. Final Agreement This Agreement supersedes all prior agreements and negotiations warranties, and representations between the parties regarding the Subject Vessel and shall be enforced and construed pursuant to the laws of England. 25. Brokers Buyer warrants and represents that it has not utilized the services of any broker except RED LION YACHTING S.A.R.L (Monaco) 26: Attachment: Short Specification List....” ...CLASS: RINA Charter Class (MCA) ...for the purchase price to be paid to SELLER by BUYER in the amount of: SIXTEEN MILLION FIVE HUNDRED THOUSAND (16,500,000) € ...(c) All technical documentations as The Interim Class Certificates The Interim International Load Line Certificate The certificates for all materials and equipment items as required by RINA International Tonnage Certificate to be timely delivered by RINA The Stability Booklet to be timely delivered by RINA...”

The Buyer acknowledges that:

[26]By way of explanation, the reference to “MCA” in clause 1 of the main agreement is an abbreviation for “Maritime and Coastguard Agency”. The MCA is a UK executive agency working to prevent the loss of lives at sea and is responsible in the UK for implementing British and international maritime law and safety policy. However, it is also a short-hand reference to what is commonly referred to as the “LY2” or the “LY2 Code” which is a code of technical standards applicable to large commercial yachts produced by the MCA. There is a major issue between the parties in the present case as to the proper scope and effect of this provision. I revert to this further below.

[27]Addendum 1 contained six main clauses primarily concerned with arrangements agreed between the buyer and the seller in respect of the period following handover of the vessel whereby (amongst other things) the seller would be able to use the yacht as a "demonstrator” for the purpose of demonstrating the yacht to other prospective purchasers of other vessels in the series, in particular during the Cannes and Monaco boat shows in September 2008. Clause 1 provided, in effect, that in consideration of such an agreement, the seller had "reduced the balance payable at the closing".

[28]Addendum 2 provided in material part as follows:

“It is understand [sic] between the parties that there will be an the [sic] increase of time needed for the technical survey and follow up of the after sales works 1… 2 The Seller agrees that the Agreement signed and especially the Addendum One, for the helping hand documented by commercial cooperation, signed, he concedes a commercial discount on the agreed price of 16,500,000€ to reduce the price to be received by the Seller to the net sum of (FOURTEEN MILLION) 14,000,000€ and consequently the Total Sum due at the closing as stipulated under the Sales Agreement clause 2 (d) is reduced from 3,300,000€ to (EIGHT HUNDRED THOUSAND) 800,000€.”

[29]As to the Short Specification, I should mention that the seller’s pleaded case was that that document was not intended to have any binding contractual effect. I revert to this further below. The opening part of the Short Specification provided in material part as follows:

“INTRODUCTION All values below are to set a basic standard goal for the yacht and are to be solidified throughout the construction of the first yacht in accordance with the owner and limitations brought forth from the classification society, the engineers and designers of the project. Final measures as final performances to be stated after the final inspection by RINA. To achieve a quality yacht of proper marine practice and in accordance with owners expectations, at the budget allowed, will be the essential agreement for the yacht.”

The remainder of the Short Specification contained a general description of the yacht and other details including dimensions, tank capacities, performance, major equipment and materials, electrical installation, navigation system, alarm and monitoring systems and entertainment system. In particular, clause 3 provided in material part as follows:

“3 Performance (final figures to be stated by the final report of RINA) Total propulsion power 4800 hp Top speed at light displacement 30 knots ±10 % Economical cruising speed 22-24 knots”

Total propulsion power 4800 hp Top speed at light displacement 30 knots ±10 % Economical cruising speed 22-24 knots”

[30]It is common ground that these documents were signed by Mr Tamsen on behalf of the seller and Mr Mehrpahl on behalf of the buyer or at least purportedly on behalf of the buyer. However, on the evidence before me and in the absence of, in particular, any evidence from Mr Sakami, it is difficult if not impossible to trace through exactly the course of the negotiations which were concluded within a very short space of time, the various iterations of the draft contract or to understand why the sale contract came to be structured in the way set out above, in particular in the form of a main agreement and two separate addenda. For present purposes, it is sufficient to note certain matters which are, at the very least, extremely curious.

[31]First, the price stated in the main agreement was, as I have stated, € 16.5 million. However, at some earlier stage, Mr Tamsen had appointed Camper & Nicholson to assist in the marketing of the yacht. Exactly when this occurred is unclear. In any event, Camper & Nicholson produced marketing material stating a price of € 14 million. Mr Tamsen’s evidence was that this was simply to attract customers in particular with regard to the other yachts in the series. But this explanation was not easy to understand.

[32]Second, the original draft contract sent on 9 May by Mr Tamsen to Mr Harpes and Mr Mehrpahl also stated a purchase price of € 14 million.

[33]Third, shortly thereafter, a decision was taken to split the sale contract into first two and then three parts i.e. what ultimately became the main agreement with two addenda involving an increase in the notional price as stated in the main agreement to € 16.5 million but to agree a reduction back down to € 14 million in a separate addendum.

[34]Fourth, according to the evidence of both Mr Suzuki and Mr Moniwa (which I accept), although they received copies of the main agreement, copies of Addendum 1 and Addendum 2 were never provided to either of them by Mr Harpes, Mr Sakami or Mr Mehrpahl. According to the evidence of Mr Harpes (which I also accept) and as appears from the contemporaneous documents, Mr Harpes only sent to Mr Moniwa a copy of the main agreement. As stated by Mr Harpes: “I did not send the Addendum One and Addendum Two, signed by both Mr Tamsen and Mr Mehrpahl, purportedly on behalf of the Claimants, as these were held by Mr Mehrpahl in his files at Marelux”.

[35]Fifth, the evidence of Mr Harpes was that although the difference between € 16.5 million and € 14 million was described as a “commercial discount”, the reality was that this was used to pay various commissions including € 247,500 to RQR Sarl, Mr Sakami’s operating company, € 860,000 to Mr Sakami personally and over € 600,000 to Mr Mehrpahl personally.

[36]In the course of my pre-reading before the commencement of the trial, I became concerned because although these matters were described and commented on at some length both in the written witness statements and the buyer’s opening submissions, they were not referred to anywhere in the buyer’s pleadings. I raised my concerns at the very beginning of the trial in particular because these matters involved potentially very serious allegations viz that the nominal contract price had been artificially increased to € 16.5 million to allow the payment of secret commissions to Mr Mehrpahl and Mr Sakami. However, in response, I was assured by counsel on behalf of the buyer that insofar as mala fides was concerned, the buyer only relied upon the payment of the 5% commission by Mr Tamsen to Mr Mehrpahl (which was a pleaded issue). Despite this assurance, these matters (in particular the negotiations leading to the stated price of € 16.5 million in the main agreement and the structure of the separate addenda) were explored to some extent in the course of the cross-examination of Mr Tamsen; and on Day 4 of the hearing, an application was made on behalf of the buyer to amend the Particulars of Claim to introduce an entirely new claim to recover the sum of € 2.5 million (i.e. the difference between € 16.5 million and, € 14 million) and the sum of € 700,000 (being the amount of the 5% commission agreed by Mr Tamsen to be paid to Mr Mehrpahl). In the event, I refused that application. The result is that although these matters were the subject of evidence before me, they do not form the subject of any separate monetary claim.

Events after the conclusion of the sale contract

[37]On 15 May 2008, Kreissparkasse Bank provided a Warranty Guarantee no. 150508/OE652-156 in the sum of € 1.4 million to the buyer via Mr Mehrpahl. This was to cover the possibility that the seller failed to provide the contractual documentation on delivery. The final wording of the guarantee provided:

“Your demand for payment must be made in writing and such claim to contain your confirmation that the Seller has not fulfilled his obligation to deliver the contractual documentation according to the terms and condition of the Sales Agreement dated 14th May 2008.”

The guarantee provided that it was valid until 17 November 2008.

[38]On 16 May 2008, Mr Suzuki visited the yard with Mr Sakami and Mr Mehrpahl and they looked over the yacht. This was the first time that Mr Suzuki had seen the yacht. He felt a vague sense of unease as to whether she could be ready by July as the interior and other features were not yet finished.

[39]On 16 May 2008, Niels Hentschel of Zucker informed all parties that the yacht needed to be ready by 30 June 2008 to meet the delivery date and stated that all sea trials needed to be done, all claims dealt with, and all necessary documents issued and handed in including interim class certificates. By 30 May 2008, little progress had been made. Zucker expressed disappointment.

[40]On 1 June 2008 RINA provided the International Tonnage Certificate.

[41]During this period and by early July, it became increasingly apparent that there would be some delay in completing all outstanding work and surveys so as to obtain full class certification and to enable the vessel to be fully registered as a commercial yacht. This gave rise to various discussions between the parties and their representatives. In particular, on 15 July 2008, a meeting took place in Hamburg between Mr Moniwa and Mr Tamsen at which Mr Tamsen proposed a 10 day delay to the delivery which was subsequently accepted by Mr Suzuki.

IOM 1

[42]On 16-17 July 2008, Mr Chris Jones on behalf of the Isle of Man Registry carried out the pre-registration surveys for the yacht. He prepared a list of deficiencies dated 17 July 2008 which were required to be rectified to the satisfaction of the Isle of Man Administration prior to the yacht being issued with a Certificate of Compliance for a Large Charter Yacht and/or registering as a commercial yacht in the Isle of Man. A few days later he produced a further report dated 21 July 2008. That report referred to the fact that the yacht had been constructed under survey by RINA and that there remained a large number of outstanding surveys which required completion prior to the yacht being classed, and attached the list of deficiencies dated 17 July 2008. The report concluded in material part as follows:

“The build state of the yacht at the time of these surveys showed that the yacht was not suitable for registration as a commercial yacht; however the yacht registered as a pleasure yacht in the Isle of Man on 17/07/08.”

I shall refer to this report (including the list of deficiencies) as “IOM1”.

[43]On 17 July 2008, the registration of the yacht as a pleasure yacht was confirmed by a Certificate issued by the Isle of Man Registry. The Certificate shows the estimated speed as 30 knots.

[44]Thereafter, work on the yacht continued. On 22 July 2008 Capt Dawson sent a message to the yard outlining the areas of concern as to why the yacht could not be classed or registered as a commercial yacht.

Protocol of Delivery and Acceptance

[45]It is common ground that a few days later, the yacht was delivered and a Protocol of Delivery and Acceptance (“PDA”) was duly signed by Mr Tamsen on behalf of the seller and Mr Mehrpahl on behalf of the buyer. This purported to confirm that all necessary contractual documents had been received “as described per Sales Agreement”. This was inaccurate. The buyer was provided with most but not all of the documents identified in Clause 3 of the main agreement. In particular, there was no full certificate showing the vessel complied with MCA.

[46]The PDA is dated 24 July 2008. There was a dispute between the parties as to whether the vessel was formally delivered and the PDA signed on that day i.e. 24 July or 25 July. According to Mr Mehrpahl, he signed the PDA in front of Mr Suzuki but this was disputed by Mr Suzuki. In particular, Mr Suzuki says that he only arrived at Antalya on 25 July 2008 (where he met Mr Sakami and Mr Moniwa) and he did not attend the signing of the PDA. The precise date and circumstances in which the PDA were signed are potentially relevant because the seller’s case was (at least as originally pleaded) that by the PDA the buyer acknowledged and accepted delivery of the yacht in its delivered condition at the time of the acceptance and with its documentation as described in the Sales Agreement and in particular clauses 1 and 3 thereof. At the commencement of the trial, the seller conceded that they could not rely upon the PDA so far as lack of documentation was concerned. However, the seller otherwise maintained its position viz. the effect of Mr Mehrpahl signing the PDA on behalf of the buyer was to preclude any other claim by the buyer in particular with regard to the condition of the yacht or speed.

[47]This was disputed by the buyer. In particular, the buyer submitted that the mere signing of the PDA did not have the contractually binding effect alleged by the seller; alternatively, the buyer said that even if that might generally be the case, this was not so here because(i) Mr Mehrpahl did not have the authority, actual or ostensible, to sign the PDA on the behalf of the buyer in relation to the yacht in its then condition and/or

(ii) the seller was aware that Mr Mehrpahl was not acting with the buyer's authority and/or not acting in the buyer's best interests. In support of the latter, the buyer relied upon a number of matters viz. a) Mr Mehrpahl was also acting on behalf of the seller and had received € 700,000 from the seller in relation to this transaction; b) the seller was aware that Mr Mehrpahl was acting in breach of contract and/or fiduciary duty in taking secret profits with the knowledge of the seller and/or that Mr Mehrpahl had a conflict of interest and that he was purporting to act for both parties (though such conflict of interest was only known to the seller); c) on any objective view, the PDA did not represent the true condition of the yacht and the seller was aware of the same; d) the seller and Mr Mehrpahl colluded in the acceptance of the yacht such that it would be unjust to allow the seller to rely on the PDA.

[48]These issues gave rise to a substantial amount of evidence and wide ranging submissions on both sides. However, in my judgment, there is a fundamental flaw in the argument advanced on behalf of the seller. I acknowledge that in certain circumstances, the acceptance of any ship when tendered for delivery by a seller and the signing of a PDA may have the effect to preclude a buyer from rejecting the ship (at least with regard to patent defects) and even to preclude a buyer from claiming damages against the seller. However, in the ordinary course, acceptance will not prevent a claim for damages: see Benjamin, Sale of Goods, 8th Edition, para 12-036. The position might be otherwise where the contract itself provides that acceptance shall preclude a claim for damages. However, there is nothing to this effect in the present sale contract. The position might also be otherwise in circumstances where there is not simply an acceptance of delivery by the buyer or signing of a PDA by the parties but an actual agreement by the parties operating in effect as a contractual variation whereby the buyer agrees, for example, to modify the terms of the contract or to give up any claim for damages. That is theoretically possible albeit a situation which I suppose is unlikely to occur and which would need the clear agreement of both parties. In my judgment, there is nothing in the evidence before me which could properly be regarded as constituting such an agreement. (For the avoidance of doubt, nor was there any evidence which could properly be regarded as giving rise to some kind of estoppel and no such estoppel was alleged).

[49]In the course of final submissions, Mr Smith QC on behalf of the seller relied in particular on paragraph 23 of Mr Mehrpahl’s statement which was in the following terms: "Before the PDA was signed, we conducted sea trials which revealed that, among other matters, the speed set out in the Short Specification was not being achieved by the yacht. Mr Tamsen explained to me and to Mr Suzuki once again why the yacht would, as a prototype, not meet certain performance parameters. I accepted this, as did Mr Suzuki. Mr Tamsen said that in the light of this, and as a goodwill gesture, it would be possible to reconsider the sale, but Mr Suzuki wanted the yacht and had no intention at all to call off the deal. I was therefore instructed by Mr Suzuki and Mr Moniwa to sign the PDA and take delivery of the yacht. I confirmed afterwards to Mr Moniwa that "now the ship is ours” and he was highly satisfied”. I do not accept this evidence for a number of reasons – at least to the extent that Mr Smith QC seeks to rely upon it to support the seller’s case that there was any contractually binding agreement by Mr Suzuki on behalf of the buyer to the effect that the buyer gave up all claims in relation to speed.

[50]First, although there is no doubt that Mr Suzuki was very keen to take delivery and to go cruising, it seems inherently unlikely that he would be willing to give up any contractual rights in respect of a yacht that failed to meet contractual requirements.

[51]Second, both Mr Suzuki and Mr Moniwa are emphatic that there was no discussion with Mr Mehrpahl or Mr Tamsen prior to delivery and the signing of the PDA with regard to speed deficiency nor any agreement by Mr Suzuki on behalf of the buyer whereby they authorised Mr Mehrpahl to sign the PDA notwithstanding the speed deficiency and, in effect, to waive any contractual rights. Although Mr Suzuki did not give oral evidence, Mr Moniwa did. In my judgment, he was plainly an honest witness. Nothing emerged in the course of his cross-examination which caused me to doubt the evidence in his witness statement in particular with regard to this topic. Third, Mr Merhpahl’s evidence on this topic was, in my judgment, very unsatisfactory – to say the least. At one stage, he said that everybody accepted that, as a prototype, the yacht would not meet certain performance parameters. But so far as speed was concerned, his evidence in cross-examination was that he told Mr Moniwa as follows:

“….. we didn't reach the speed now in the moment but we will do everything we can do. We change the prop, we change the flaps from the props, the angle, if you put them higher. We tried everything but let us do this when we come back from Monte Carlo from the boat show.”

He continued in cross-examination by agreeing that changing the propellers would solve the problems of the vessel’s speed (“Yes, of course, yes”) and that he was “…sure the boat could reach 25, 26 miles.” This evidence is consistent with a recognition of an existing problem which it was hoped would be solved but inconsistent with any contractually binding agreement that Mr Suzuki on behalf of the buyer was in effect giving up rights with regard to the speed of the vessel.

[52]The fact is that on 24 or 25 July 2008, the seller was already late in delivery of the yacht. Mr Suzuki was very keen to use the yacht to go cruising in the Mediterranean during the remainder of the summer season. The agreement by the buyer to take delivery even though the yacht was not fully classed as a commercial yacht and certain works remained outstanding was certainly a contractual variation but the agreement that was made was no more than a temporary convenience. It did not operate to relieve the seller from the obligation to complete the necessary work to the contractual standard in due course or to absolve the seller from any claim for damages if it failed to do so.

[53]In light of the above, it is my conclusion that the seller’s attempt to rely on the PDA so as to preclude the buyer from claiming damages in relation to speed and the other alleged deficiencies is unsustainable and should be rejected. In my judgment, it follows that it is unnecessary to consider the other issues relied upon by the buyer in particular with regard to Mr Mehrpahl’s authority.

Events following delivery

[54]Following delivery, Capt Dawson continued as captain on board the yacht working for the buyer. Mr Suzuki took the yacht out on daily cruises with his guests sailing from Antalya and returning before evening. Mr Suzuki left the yacht at the end of July. He prepared a list of certain defects which he sent to Captain Dawson.

[55]Thereafter, the yard continued to carry out work on the yacht. However, progress was slow. Sea trials were carried out in early August 2008. On 12 August 2008, Capt Dawson wrote an email complaining to the yard regarding the progress of works. He stated:

“...In respect of the long work list that is still outstanding I understand that very little progress has been made over the last few days ....Please be clear that all the items on the list issued must be completed by the 21st – there is no lee way as to what is acceptable. Nor can the yard be sure that the boat will return to Turkey after the Monaco boat show which appears to be the general understanding in the yard – the new owners may wish to keep the boat elsewhere and undertake minor warranty works away from the yard. ....In addition there are works that are being started that we were not even aware about. The removal of the structural supports in the engine room for RINA has turned that area upside down and we were not aware of this happening. How long will these works take and what other works do you need to undertake for RINA and the Isle of Man to obtain full documentation for the boat....”

RINA 1

[56]On 13-15 August 2008, RINA carried out a survey of the yacht both in their capacity as classification surveyor and on behalf of the Isle of Man. Their findings are set out in a survey report consisting of 5 pages and containing a long list of deficiencies and matters which remained to be tested. The report concluded:

“In order to proceed with the classification of the vessel and statutory certification, the items above are to be fulfilled and submitted to RINA. Please be informed that the Interim Class Certificate cannot be issued without fulfilling the pending items above. We are waiting for the documents as written above and your call for the survey when the vessel is ready.”

This is an important document because many of the deficiencies included in this report formed the basis of the claims advanced on behalf of the buyer in the Scott Schedule. I shall refer to this report as “RINA1”.

IOM 2

[57]Between 19 and 22 August 2008, Mr Jones again surveyed the yacht on behalf of the Isle of Man. The original list of deficiencies contained in IOM1 was marked in manuscript:

“All deficiencies now deleted – 21 August 2008”

. However, a further report was produced with an attached new list of some 33 typed comments and deficiencies. Several of these were deleted in manuscript and apparently signed off by Mr Jones on 22/08/2008. There was also inserted in manuscript an additional item 34 which stated:

"Additional freeing ports to be added in way of focsle bulwark.” The main report concluded as follows: "

The yacht was not considered suitable for registration at the completion of these surveys due to the large number of outstanding deficiencies. The intention therefore is for the yacht to depart the builder's yard on the 24/08/2008 as a pleasure vessel and to continue as a pleasure vessel until the winter of 2008 when it is understood the yacht will return either to the builder's yard or another yard for all guarantee work and clearing of deficiencies." I shall refer to this report including the attached list of deficiencies as “IOM2”.

[58]At the end of August 2008, the yacht then sailed to Cannes with Mr Suzuki and his guests on board. The first attempt at sailing had to be aborted as the yacht was taking on water and she duly returned to the yard. Following repairs, the yacht recommenced the trip to Cannes. After arrival at Cannes, on 7 September 2008, Mr Suzuki and his guests disembarked in order to allow the seller to exhibit the yacht and in order to enable further repairs. They then had a brief further cruising whilst the yacht sailed to Monaco so that the seller could exhibit her there.

[59]On 18 September 2008, the yacht was deleted from the Isle of Man Registry and ownership transferred to the claimant. On 22 September 2008, the yacht changed to the Luxembourg flag as confirmed by a Luxembourg Certificate of Registry. However, the Certificate was expressly stated to be “provisional … ship not authorised to sail”. An addendum was agreed to enable the yacht to undertake the single trip back to the yard for remedial work, a journey that took 14 days because of problems with the main engine. Immediately prior to this journey, a new captain, Captain Guy Schelkens, joined the yacht together with his engineer and chef. All of these individuals sailed with the yacht together with Captain Dawson and the original crew. The yacht arrived in Antalya on 10 October 2008 when Captain Dawson and the original crew left the yacht. A written statement signed by Captain Schelkens was put in evidence but he was not called to give evidence.

RINA 2

[60]On the same date i.e. 10 October 2008, RINA provided an updated survey report. This report identified what it described as “…the remaining remarks still pending to be fulfilled…” It set out a number of items that still required testing and certain deficiencies. Again, this is an important document. I shall refer to it as “RINA2”.

[61]The fact that the yacht was now registered under the Luxembourg flag rather than the Isle of Man presented practical problems with regard to classification and the registration authorities. In that regard, on 21 October 2008, the yard emailed Zucker as to the options regarding the options going forward:

“Rina suggested us two way to follow: Option. Rina will complate (sic) the Load Line certificate and Marpol certificate surveys according to IoM requests and MCA Code. Rina will issue all certificates on behalf of IoM Flag. This will be quite interesting because the flag will be Luxembourg on the same dates. For this reason Luxembourg flag has to give an authorisation to Rina, Rina can issue all certificates on behalf of IoM flag. The Luxembourg flag has to make an email to confirm that Luxembourg flag will accept MCA code, IoM remarks and survey reports. Option Rina will approve all drawings again according to Luxembourg code rules The certificates will be issued on behalf of IoM flag Rina will request 35000 Euros to approve the drawings again Shipyard will charge 5000 Euro for engineerings This process will take 3 months approx.”

Option Rina will approve all drawings again according to Luxembourg code rules The certificates will be issued on behalf of IoM flag Rina will request 35000 Euros to approve the drawings again Shipyard will charge 5000 Euro for engineerings This process will take 3 months approx.”

Shipyard will charge 5000 Euro for engineerings

[62]On 4 November 2008, Zucker informed the Yard that “I have discussed the RINA issue with Robert Mehrpahl and we will from now on proceed like MY Namasté is still under IOM flag (Rina Charter Class and MCA compliance will be issued under IOM – like ordered in the beginning). Robert Mehrpahl ....will order RINA Antalya to hold out a handover survey and reflag the documents after all RINA survey and trials were done”.

The Winterbotham Report

[63]Meanwhile, sometime in October, the buyer had instructed a separate firm of marine surveyors, Winterbotham and Partners, to carry out a survey of the yacht. Winterbotham carried out their survey when the yacht was out of the water in Antalya on 5-6 November 2008 and subsequently provided their report dated 11 November 2008. The report identified various problems and deficiencies which formed the basis of certain allegations in the Scott Schedule and which Winterbotham recommended should be repaired during the warranty work during the winter. The report also commented specifically on the speed of the yacht stating that the original propellers were clearly incorrect and that it seemed unrealistic even with the engines and propellers optimised that the yacht will achieve speeds of 27 knots.

[64]Meanwhile, on 7 November 2008, following a change of propellers, the yard carried out sea trials to test speed. The report of those sea trials dated 13 November 2008 shows that with a displacement of 170 tonnes and a wind of 10 knots, the yacht achieved a speed of 19 knots at 95% engine load.

[65]On 17 November 2008, the seller sent to Mr Mehrpahl a letter outlining the steps to be taken to complete the yacht. On 28 November 2008, Zucker responded to Mr Mehrpahl stating that “RINA Antalya has concluded the classification despite the Luxembourg flag. Now all we need is ‘still’ an official letter to the effect that the Luxembourg flag registry accepts the MCA LY2 code.” On 3 December 2008, Zucker informed the yard that after having spoken with Mr Mehrpahl, it was “agreed that we will issue a draft letter for the LUXEMBOURG agreement of IOM requirements.”

[66]On 3 December 2008, the yard wrote to RINA (enclosing RINA2) stating “As I informed, Luxembourg flag administrator ready to issue a letter to give an exception for following items: - The certification works will be complated (sic) according to the LY2 code - The Luxembourg flag administrator will accept the deficiency list issued by IoM - Flag surveyor will make a final survey after RINA issued all certificates and they will finalise the registration of the boat”

[67]On 15 December 2008, RINA informed the Yard (in response to the email dated 3 December 2008) that “If the Flag, will accept the Owner’s request, we will not have objection. In any case please take note that the Lux code requirements are very different from those required by LY2 (in particular for what concerns the Load Line requirements). If we will receive a letter signed by the Lux Flag where will be clearly indicated that they accept the compliance with LY2, we will issue a class certificate with the follow class notation; C+HULL (BALL) MACH Ych(MCA) Unrestricted only if our surveys may confirm this compliance and if the damage stability will be approved by us. Please take note that the statement of compliance to LY2 is to be issued by the actual flag and not by us.”

[68]On 15 December 2008, Mr Zucker informed the Yard “to avoid misunderstandings, please note that RINA was ordered to state MCA COMPLIANCE – not more expected from RINA CHARTER CLASS”.

[69]Throughout this period and into 2009, Captain Schelkens was in Antalya supervising the work being carried out.

[70]By January 2009, the work was progressing at a slow pace and a dispute arose between the parties as to payment for the works being undertaken which resulted in the work being stopped.

[71]On 9 February 2009, the yacht’s Stability Booklet was approved by RINA.

[72]On 19 February 2009, the Luxembourg flag confirmed that “Taking into account that the RINA Yacht (Charter) Class guarantees to meet international requirements and among those the MCA LY2 Code, I have the pleasure to confirm that provided that the ship fulfils the classification rules and after being surveyed and certified in accordance with the applicable rules, the ship may be registered under the Luxembourg flag.”

[73]The yard subsequently informed Mr Zucker that “The Luxembourg flag not accept IoM acception (sic) with this letter. The signed letter different than the first one. According to this letter RINA not approve the axception (sic) confirmed by IoM. We need to contact with Luxembourg surveyor to solve this problems (sic).”

[74]On 16 April 2009, Joel Mathieu on behalf of the Luxembourg flag stated that:

“Taking into reference the I. of Man document signed by Mr Chris Jones and dated 05.08.2008, our position in regards of the derogation already granted will be: Part 1 Hatch in the forwards; same position – accepted provided that the cover panel can be secured in the open position (ship’s rolling); Dealights (sic): same position –accepted however the end of the sentence referring to the ISM code is to be cancelled; Water freeing area; same position –accepted, however any reference to any further yacht to be cancelled; Height of the bulwark; same position – a portable handrail to be provided, any reference to any further yacht to be cancelled; Storm shutters; same position, plywood shutters accepted Part 2 Bilge water: same position Part 3 – new comment from Luxembourg: In order to garantie (sic) the safety of the ship and due to the limited size of the holes inn (sic) the water freeing areas do not comply with the requirements of the LL66 convention, RINA is requested to restrict the use of the ship to “fair water conditions and to limit the trading area”

. This condition is to be written on the LL66 certificate”. Part 1 Storm shutters; same position, plywood shutters accepted Part 2 Bilge water: same position

Part 3 – new comment from Luxembourg:

[75]On 30 April 2009, the warranty from the Yard was transferred to the buyer. On 14 May 2009 the yacht finally was back in the water after 7 months in dry dock.

[76]By about this time, it appears that the buyer had instructed lawyers, Messrs Clyde & Co. who themselves instructed a new firm of surveyors based in Istanbul, 777 Yacht Group Company (“777 YGC”), on behalf of the buyer to carry out a survey of the yacht. It is not clear when 777 YGC were initially instructed but it appears that they had been on board the yacht during the Monaco boat show in 2008 and had carried out some work previously. Three 777 YGC surveyors (two naval architects and one marine engineer) attended the yacht at the end of May 2009 to carry out the survey. They produced a detailed report dated 28 May 2009 (the “777 YGC May Report”). The report stated:

“The vessel was delivered to the present client and during this period it was clear the vessel did not perform to its contractual speed added to this water leaks were in abundance as well as many non conformities…..The vessel was constructed to a low quality and added to this repaired in a very poor way with little care and attention taken and in most cases the repair is worse than the original state....it seems the yard are not interested in finishing the vessel...the vessel is not seaworthy and will take several weeks before it can go to sea as not only engineering problems but navigation problems require resolving. There has been no real management of the project and the RINA issues need to be resolved. We conclude remove vessel from yard when its sea worthy – take to another area, engage another yard or management team and set up a reasonable work programme...”

On its face, this was a damning report. However, its comments were very general and vague and, although the report was put in evidence and relied upon by the buyer in respect of certain items included in the Scott Schedule, none of the surveyors was called to give evidence with the result, I confess, that I found it extremely difficult properly to evaluate what was stated in the report.

Classification by RINA

[77]On 19 June 2009 the yacht was finally commissioned. On 10 July 2009 RINA issued an interim certificate of class, C () Hull ●Mach Ych (LUX) with geographical restrictions. In addition, on 10 July 2009, various other certificates and other documents were issued including International Trade Line Certificate issued by RINA under the authority of the Luxembourg flag; International Sewage Pollution Prevention Certificate issue by RINA under the authority of the Luxembourg flag; Record of Conditions of Assignment provided by RINA.

[78]On 14 August, there were issued a Minimum Safe Manning Document under SOLAS Convention by the Luxembourg flag and Certificate of Registry issued by Luxembourg flag for yacht as commercial cruise ship (valid 14 August 2009 to 21 September 2009).

[79]At about this time, 777 YGC carried out a further survey and produced a further report dated August 2009 (the “777 YGC August Report”). This was also a very substantial document covering some 85 pages and including numerous photographs. The report stated that it was prepared on behalf of the buyer “...to investigate the current condition of M/Y Namasté in order to set out what repairs or additions need to be made to the yacht to achieve an ocean going yacht with RINA Charter Class with MCA service notation”. It described itself as a “repair spec” based on reports of two naval architecture and marine engineers, two composite experts and an electric expert. On its face, this was again a very critical report. However, many of the comments in the report were again very general and vague and, although this report was also put in evidence and relied upon by the buyer in respect of certain items included in the Scott Schedule, none of the surveyors/experts who were involved in the preparation of the report was called to give evidence. There were further significant difficulties with this report viz(i) it appeared to base at least some of its comments by reference to what it called the “technical specification” which was different from the Short Specification which formed part of the sales contract between the buyer and the seller; and

(ii) the report was, of course, prepared over a year after the yacht was originally delivered to the buyer and, in some respects, it was difficult to know whether the deficiencies identified in the report were the result of some original deficiency at the time of delivery in July 2008 or some incident/lack of maintenance since that date. Again, these matters made it extremely difficult to evaluate what is stated in this report particularly in the absence of its authors.

[80]In August 2009, the yacht proceeded to Compositeworks in La Ciotat France where she has substantially remained ever since. Meanwhile, on 21 September 2009, the Certificate of Registry was issued by the Luxembourg flag for the yacht as a commercial cruise ship (valid 22 September 2009 to 21 September 2010). During her stay in La Ciotat, various works have been carried out including work which is alleged on the part of the buyer to be necessary due to breaches of the sale contract by the seller and forms part of the claims in the Scott Schedule.

The MCA Report

[81]In support of some of the claims in the Scott Schedule, the buyer also relies upon a report carried out by a Mr Cashmore on behalf of the United Kingdom Maritime Coastguard Agency dated 25 January 2010 (the “MCA Report”). That report followed a survey carried out by Mr Cashmore on 19-20 January 2010 whilst the yacht was in La Ciotat. It is described as a “Compliance Assessment Report”. As stated in the report, the survey was carried out for the purposes of a compliance assessment inspection to the Large Commercial Yacht Code (referred to as “LY2”) and, importantly, “…as if the vessel was to be registered as a United Kingdom vessel”. The report sets outs in great detail (over 10 pages) a long list of items which, according to the report, needed to be addressed before the yacht could be issued with a Certificate of Compliance with LY2. The MCA Report is plainly an important document and was heavily relied upon by the buyer; but, in some respects at least, it is not easy to understand or to evaluate. In particular, it was often difficult to know whether Mr Cashmore was simply identifying the relevant standard or, more importantly, saying that the yacht failed to meet a particular standard or did not meet a specific requirement and, if either of the latter, exactly why and what was necessary to remedy the deficiency. Although the MCA Report was put in evidence, it is highly regrettable that Mr Cashmore was not called as a witness in order better to explain what is stated in the report notwithstanding that I was, of course, assisted to some extent by the experts who attended the yacht during a joint inspection shortly before the trial and who gave evidence at the trial.

[82]Finally, I should mention that on 15 March 2011 shortly before the trial, a joint inspection of the yacht was carried out by the buyer’s expert, Mr Richmond of Kerr Gilmour, and the seller’s expert, Mr Lindsay of Hill Robinson. However, at the time of that inspection the yacht was protected for painting of the topsides and access was limited to external areas of the yacht. In addition to their written reports, both experts gave evidence at the trial.

[83]Against that background, I now turn to deal with specific claims advanced by the buyer.

Speed, Rpm and Range

[84]In summary, the buyer’s case was that: i) The effect of the relevant part of clause 3 of the Short Specification was that the seller was contractually obliged to deliver a yacht with a speed at light displacement of 30 knots (+/- 10%). Given the stated tolerance, the seller’s contractual obligation was to deliver a yacht with a speed of at least 27 knots at light displacement. ii) The yacht was not capable of reaching a minimum speed of 27 knots at light displacement and therefore the seller was in breach of the speed warranty. iii) The result of that breach is a diminution in value in the yacht equivalent to 20% of the purchase price of € 16.5 million i.e. € 3.3 million. iv) For the avoidance of doubt, I should mention that the buyer originally advanced a separate claim with regard to the range of the yacht. However, this was abandoned in the course of the trial. Similarly, although the buyer originally alleged a shortfall with regard to rpm, this was subsumed within the claim in relation to speed and, at least by the end of the trial, was not advanced as a separate claim.

[85]In response, the seller submitted that there was no contractually binding speed warranty of any kind. In particular, the seller submitted as follows:- a) First, whilst the Short Specification may have been attached to the main agreement, it was never intended by the parties to be a binding contractual document - at the very least in respect of those performance criteria which the buyer now says were not met including speed. b) In particular, it is clear from the face of the Short Specification itself that it was prepared “Prior to Construction”. The parties cannot have intended that the yacht, being the first in the series, should comply with the Short Specification in every respect. The context in which the Short Specification was attached to the Sales Agreement is relevant: i) Mr Tamsen first sent the Short Specification to Mr Harpes on 10 May 2008, describing it as a document that had not been finalised and which Zucker was still working on. ii) The version of the Short Specification attached to Mr Tamsen’s email of 10 May 2008 does not have the words “Prior to Construction” on the front page (nor does it have any “RINA wording” at page 2). iii) The final draft of the main agreement refers to the Short Specification being attached. By that stage the words “Prior to Construction” had been added on the front page, clarifying that the document was created prior to the construction of the Yacht. iv) Further wording had also been added: in particular on the first page the words “Final measures as final performances to be stated after the final inspection by RINA” were added to the “Introduction”, and “Final figures to be stated by the final report of RINA” were added next to certain of the values set out in the Short Specification - in particular next to the category “Performance.” c) The insertion of the words “Prior to Construction” demonstrates that it was not intended that the Short Specification would have any binding contractual effect. As Mr Tamsen confirmed in his evidence, the Yacht was intended to be a prototype and the first in a series of yachts – as the buyer well knew. His evidence in that regard was not challenged. d) That analysis is entirely consistent with the “Introduction” section to the Short Specification, which provides that:

“All values below are to set a basic standard goal for the yacht and are to be solidified throughout the construction of the first yacht in accordance with the owner and limitations brought forth from the classification society, the engineers and the designers of the project. Final measures as final performances to be stated after the final inspection by RINA.”

To achieve a quality yacht of proper marine practice and in accordance with owner’s expectations, at the budget allowed, will be the essential agreement for the yacht.” e) In particular, i) The Introduction refers to “all values below” in the Short Specification as constituting a “basic standard goal” for the yacht. The use of the word “goal” demonstrates that the “values” set out in the Short Specification were criteria to be aimed for, rather than individual obligations to be met. It is also important to note that the reference is to “all values below”. ii) The recognition that the “values” were to be “solidified throughout the construction of the first yacht” is a clear indication that the values were liable to change during the construction process of the first yacht. That makes it even less likely that the Short Specification was intended to be binding. iii) The Introduction contains the caveat that “Final measures as final performances to be stated after the final inspection by RINA.” Read in its context with the rest of the Introduction, this phrase suggests that the final performance figures set out below in the Short Specification were subject to ongoing review and would only be finalised after the final inspection by RINA. f) The seller’s analysis is also confirmed by the use of the words “final figures to be stated in the final report of RINA”, set out in bold parentheses immediately above each of the figures for “Dimensions/Displacement”, “Tank Capacities” and “Performances.” The obvious meaning of those words was that the figures stated in the Short Specification were not “final figures”, intended to be contractually binding, but were always subject to change. Even if it was hoped that the change would not be great, it was known that it might be. g) In summary, the Short Specification only represented an aspiration, rather than a set of criteria that the seller was obliged to meet. This conclusion was supported by the evidence. Mr Tamsen’s consistent evidence was that he told Mr Mehrpahl from the very first contact that this yacht was a “prototype”, and that many of the items in the Specification would not be met, and that the Specification was not to be taken as binding. This was the position from the very first conversation that they had. Mr Tamsen had a clear and convincing recollection that he explained to Mr Mehrpahl on a number of occasions that the Short Specification was not to be taken to be binding.

[86]These submissions by the seller involved two main limbs. The first is, in effect, that although the Short Specification formed part of the contract, it was not intended to have contractual effect at least in relevant respects. The second is that even if that is wrong, the Short Specification did not on its true construction impose a speed warranty. Although these submissions (at least as presented) overlap to some extent, they are distinct and, in my judgment, need to be addressed separately.

[87]The first limb gives rise to a number of conceptual difficulties in particular because it was accepted on behalf of the seller that the Short Specification formed part of the contract. Given that concession, it seems to me that it was not open for the seller to contend that it was not intended to be contractually binding. In any event, I do not consider that the evidence relied upon by the seller justifies the conclusion that it was not intended to be binding at least in relevant respects. The words “Prior to Construction”, the contents of the “Introduction” and the terms of clause 3 are no doubt important to take into account when considering the proper construction of the Short Specification, but in my judgment they do not of themselves indicate that it was not intended to be binding. Nor do I consider that the fact that the yacht was regarded as a “prototype” necessarily means that the Short Specification was not intended to be contractually binding. On the contrary, it seems to me that such fact is at least equally consistent with an intention to include terms to provide for some basic contractually binding standard even if within some broad parameters. Nor do I consider that the evidence of what Mr Tamsen supposedly said to Mr Merhpahl prior to the contract being signed is of avail to the seller. In my judgment such evidence is inadmissible by virtue of clauses 13 and/or 22 of the main agreement. But even if that is wrong, I am unpersuaded that the general statements as to the likelihood of the yacht meeting certain specifications relied upon by the seller go beyond or otherwise can be regarded as overriding what is found in the Short Specification itself.

[88]On the buyer’s side, reliance was placed on the evidence that Mr Suzuki was seeking to purchase a vessel similar to the TVTB (which it was said had a cruising speed of 30 knots); that he (i.e. Mr Suzuki) was always impressed by speed and that this was one of his main priorities for any new yacht; that speed was also an issue for Mr Tamsen and that he wanted to construct a fast super-yacht; that the design speed was always 30 knots; that when the yacht was registered with the Isle of Man on 17th July the estimated speed was stated to be 30 knots which reflects the seller’s own belief that the yacht would have a speed of 30 knots.

[89]In my judgment, this evidence suffers from similar failings to the evidence relied upon by the seller i.e. it is inadmissible by virtue of clauses 13 and/or 22 of the main agreement. But even if that is wrong, I am unpersuaded that it goes beyond or can override what is in the Short Specification itself.

[90]I therefore turn to consider as a matter of construction the Short Specification. That is not an easy task. The wording is very much “one-off” and is badly drafted. I have already summarised the seller’s main submissions which taken both individually and collectively are, I acknowledge, very forceful. However, in a way these submissions are almost too forceful. In particular, the effect of these submissions is that the seller gave no warranty at all as to the speed of the yacht which strikes me as being inherently unlikely. On behalf of the seller, it is said that this is hardly surprising in particular because this was a prototype. In addition, on behalf of the seller it is said that even if there was no contractual warranty, the buyer would or at least might have a remedy by way of a claim in damages for misrepresentation if the seller did not have reasonable grounds for believing that the yacht could achieve a minimum speed of 27 knots at a light displacement.

[91]At the end of the day, it seems to me that bearing in mind all relevant and admissible circumstances, my task is simply to give effect to the words used in the Short Specification. On that basis, it is my conclusion that clause 3 is to be read as a contractual warranty that the speed of the yacht would be 30 knots +/- 10% at light displacement. In reaching that conclusion, I bear in mind, of course, the totality of the Short Specification including the words in the Introduction and the bracketed words “(final figures to be stated by the final report RINA)”. However, it seems to me that effect is given to these words by recognising the margin of +/- 10% around the 30 knot figure. In other words, the “goal” was a speed of 30 knots and the final figure would have been stated by the final report of RINA but the minimum contractual speed was 27 knots at light displacement. I accept that the words used are not as clear as they could be but it seems to me that this construction gives effect to what I consider to be the objective intention of the parties.

Breach of the speed warranty?

[92]I turn then to the second main question i.e. was there a breach by the seller with regard to the speed of the yacht? In particular, was the yacht not capable of a minimum speed of 27 knots at light displacement and, if so, what was the shortfall?

[93]In addressing these questions, it is to my mind somewhat remarkable that there should be any doubt as to the correct answer. The speed of any vessel is capable of simple measurement. I accept that such measurement is often not completely straightforward and is sometimes subject to different interpretation. However, the present case is extraordinary because of the lack of any proper measurement of the maximum speed of the yacht at light displacement.

[94]In summary, the evidence in chronological order relied upon by the buyer and my conclusions with regard to such evidence are as follows.

[95]First, there is the TSMM sea trial dated 13 November 2008 which records the results of the sea trials on 2 August 2008 and 7 November 2008. It is common ground that the first sea trials (i.e. on 2 August) were unsatisfactory. The yacht’s top speed was recorded as 17.6 knots. This was attributed in part at least to the propellers which were then in place. New propellers were subsequently installed. The (second) sea-trials were conducted on 7 November 2008 with the new propellers. The top speed achieved was 19 knots. This was, of course, substantially below what I have concluded was the minimum contractual speed of 27 knots. However, it appears that these trials were carried out at a displacement of 170 tonnes whereas as shown in the stability book (and as was common ground) the lightship weight for the yacht is 158.8 tonnes. In other words, the trials were not carried out at lightweight displacement but with an additional 11.2 tonnes. Moreover, the results indicate that the trials did not take place at maximum engine power which it is critical to do with a semi-displacement or planing hull. In cross-examination, the buyer’s expert (Mr Richmond) expressed the view that the difference of 11.2 tonnes would not be expected to make such a great difference to the speed but he accepted that there was no way of knowing exactly what the effect could be. Mr Richmond sought to rely upon what he considered to be the indication from TSSM that they thought it would be necessary to reduce the boat weight by 30 tonnes from the 170 tonnes just to get up to 25 knots. However, it is far from clear to me that this was what was indicated by TSSM. Mr Richmond’s evidence was based on the statement by TSSM that “the weight of the boat 30 tonnes more that design weight so the forward part of the boat need to be lighted to reach 25 knots which was calculated at 170 tonnes tones (sic)”. Although TSSM would certainly seem to be saying here that the boat was 30 tonnes more than the design weight, the statement suggests to me that TSSM did not know what reduction in weight was necessary in the forward part in order to reach 25 knots. In any event, Mr Richmond frankly accepted that without actually conducting a trial at 100% engine load at lightship displacement it was not possible to say one way or another what the maximum speed of the yacht is.

[96]The buyer also relied upon the sea trials carried out in June 2009 (i.e. almost a year after delivery) by RINA which the buyer says confirmed that the yacht’s speed was only 19.1 knots at 147 tonnes. Indeed, by the time of closing submissions, reliance on this evidence was the buyer’s primary case. However, both experts agreed that the figure of 147 tonnes was improbably low. The seller’s expert (Mr Lindsay) said that the 147 tonnes was “impossible” because it is less than the lightship conditions as established in the inclining experiment. Mr Richmond said that it was a “very light displacement. I don’t know how they would ever achieve 147.” In my judgment, Mr Lindsay must be correct for the reason which he gives. The result is that the 147 tonne figure must in my judgment be a mistake and it is simply impossible to know what the correct figure should be. The consequence is that I find it impossible to place any satisfactory reliance on these particular RINA speed results in July 2009.

[97]The remainder of the evidence concerning the speed of the yacht was extremely vague and of the most general kind. According to Mr Stefan Zucker, the speed achieved was “far away from the top speed”. However, this was prior to the change of propellers. Mr Mehrpahl expressed the view that “with different engines and with more time available it would have been possible and the speed [would have been] 25-27 knots.” But Mr Mehrpahl was not an expert and the basis for this view was unexplained. The 777 YGC August report refers to a sea-trial being performed on 14 August 2009 where the yacht achieved a top speed of 15.5 knots at 2000 rpm (the full rpm of 2450 could not be achieved); and the authors expressed the view that the “defined performance in specification can never be achieved unless more thrust power is provided (which means changing the main engines and it is definitely not practical)…..” However it is not clear what specification is there being referred to, still less what the authors say the actual shortfall was. Mr Lindsay accepted that it was “overly optimistic” to expect the yacht to make 30 knots but he made no concession as regards the yacht making 27 knots.

[98]This morass of evidence is very unsatisfactory. Doing the best I can, it seems to me that it is probable that the yacht was unable to reach a top speed of 30 knots and that although it is possible that the yacht was unable to reach a top speed of 27 knots perhaps even by a not insignificant margin I cannot say that this was, on a balance of probability, the case. On this issue, the burden of proof is plainly on the buyer and in my judgment it must follow that the buyer’s claim in relation to the speed of the yacht must fail.

Quantum in relation to the alleged breach of the speed warranty

[99]Having regard to my conclusion with regard to breach, it is unnecessary to consider in detail the quantum of the buyer’s claim with regard to speed, or the expert evidence at the trial. However, it is convenient to make the following observations.

[100]First, it is important, in my judgment, to bear in mind that in order to assess what, if any damages might be recoverable, the buyer had to show not merely that the yacht was unable to meet the minimum contractual speed of 27 knots at lightweight displacement but what was the actual shortfall. In my judgment, a proper assessment of the actual shortfall even in approximate terms would be essential in determining any damages to which the buyer would be entitled. The difficulty in the present case is that even if I had been persuaded that the yacht was not capable of reaching a speed of 27 knots it was, in my judgment, quite impossible to determine with any sufficient precision the actual shortfall. For that reason alone, it seems to me that the buyer’s claim for damages faced insuperable difficulties.

[101]Second, there was no liquidated damages clause in the present contract. As advanced in these proceedings, the buyer’s claim for damages was that the result of the breach was a diminution in value of the yacht equivalent to 20% of the purchase price of € 16.5 million i.e. € 3.3 million. This figure was advanced on the basis that it was the mean of the figure of 15%-25% indicated by the buyer’s expert (Mr Beckett). Mr Beckett is CEO of Burgess, one of the top few broking houses in the world and owner of its wholly owned subsidiary, Ocean Style, a broker specialising in the 25-40m yacht market. He highlighted the significance of the yacht’s inability to reach her contractual top speed.

[102]The thrust of Mr Beckett’s evidence was that many clients look for a yacht capable of speeds of 28-30 knots and the shortfall in speed alleged by the buyer limited the appeal of the yacht. Moreover, he considered that the fact that the yacht was designed to achieve 30 knots makes it a “compromise without upside of the slower yacht.” In particular, the high performance MTV engines fitted with the aim of allowing the yacht to reach 30 knots are likely to require more diligent maintenance and have a higher fuel consumption than other engines.

[103]There is no doubt that Mr Beckett was an impressive witness. He had much more experience than the seller’s expert, Mr Price of Hill Robinson, and was generally much better placed to assess the market value of yachts. However, there were inherent difficulties with his evidence. In particular, Mr Beckett originally suggested a figure of 25% by way of diminution in value on the assumption that all of the buyer’s claims succeeded i.e. the 25% figure applied to everything. On this basis, that figure would seem to be very excessive in any event if one is considering only the buyer’s allegations with regard to speed. The seller’s expert (Mr Price) originally stated that there would be no, or at least no significant, diminution in value if the vessel had only been able to achieve 19 knots. However, in cross-examination he accepted that in such a case if a potential buyer has discovered that the yacht has originally been designed to achieve a speed of plus or minus 30 knots there would probably be some negotiations resulting in a reduction in price of between 5%-10%.

[104]Third, even taking Mr Beckett’s range (15-25%) or the buyer’s suggested mean figure of 20% of this range at face value, it is important to note that these were not based upon any comparables or other “hard” evidence. As Mr Beckett accepted they were little more than looking into a “crystal ball.” Likewise Mr Price’s view was that any attempt to quantify any diminution in value as a result of the yacht’s top speed being (say) 15.5 knots rather than 30 knots was “subjective”. Of course, that is not necessarily fatal to an assessment of damages and the quantification of the buyer’s claim but it highlights the inherent difficulties in the way of the task.

[105]In any event, it seems to me that the flaw in the figure advanced by the buyer (i.e. 20% diminution in value based on the mean of Mr Beckett’s range of 15-25%) is that it is based on an assumption that the top speed was 15.5 knots or, at most, 19 knots and, for the reasons set out above, such assumption is unjustified or at least, unproven. The figure of 5-10% accepted by Mr Price in cross-examination was similarly based on an assumption of a top speed of 19 knots and therefore suffers from the same flaw.

[106]For all these reasons, the conclusion I have reached is that the buyer’s claims relating to speed (including rpm) must be rejected.

Class and Flag

[107]Under this head, the buyer’s main complaint is that the yacht was not LY2 compliant on delivery. This reference to “LY2” is somewhat confusing because it is not a term that is expressly contained in or referred to in the sale contract. It is therefore necessary and important to explain what it means and the nature of the issues which arise in relation to this important part of the buyer’s case.

[108]The starting point is to recognise the different roles that class and flag play in relation to the certification of large commercial yachts. The role of a classification society is to classify and to certify vessels according to rules published by the society. The role of the flag is to enable the owner to register (and thereby prove) ownership of the vessel (and encumbrances). Flag states that are parties to various international conventions also undertake to ensure that vessels registered with them (and flying their flag) comply with relevant conventions. In some cases, compliance is checked by flag. In others, the process of checking is delegated to the vessel’s classification society.

[109]For the purposes of the present case the most important conventions are the Load Lines Convention 1966, SOLAS and STCW 1978. All of these conventions contain provisions which apply to large commercial yachts but which, prior to 1997, many yachts had significant difficulty complying with. This led to (amongst others) the MCA developing a Code of Practice for the Safety of Large Commercial Sailing and Motor Vessels. This code was notified to the IMO as being (as was permitted) an equivalent arrangement under the provisions of the three conventions mentioned above. Thereafter, large yachts which complied with the code did not have to comply with the equivalent provisions of the three conventions.

[110]The code was revised in 2006. The revised code is generally referred to as LY2 or the LY2 Code. A number of different flag administrations have adopted the code and, in particular, yachts registered in the Isle of Man are required to comply with its provisions in order to be registered as commercial yachts. Each different flag administration employs its own surveyors to carry out some of the surveys necessary to ensure compliance with the code. Each also delegates some of the surveying to class.

[111]Importantly, section 3.2.2 of the LY2 Code expressly provides for individual flag administrations to be able to grant exceptions or to apply equivalent standards.

[112]Not all flag states adopt LY2. Of particular relevance to this case is the fact that Luxembourg does not. It applies instead “Technical Rules Applicable to ships of 24 metres and above with less than 500gt tonnage, and carrying a maximum of 12 passengers” (LTR).

[113]In the present case, the sale contract signed by the parties was silent as to flag. However, it is common ground that prior to the sale and to the knowledge of the buyer the yacht was (at least originally) going to be registered in the Isle of Man.

[114]As already noted, the sale contract did not refer expressly to the LY2 code. However, the sale contract did expressly provide that class was to be RINA Charter Class (MCA).

[115]In essence, the buyer says that this term in effect imposed an obligation on the seller that the yacht would on delivery comply objectively with the LY2 code and that such compliance can be tested in a vacuum without regard to the class or the flag of the vessel in question. This explains, for example, the buyer’s reliance on the MCA Report referred to above. In particular, the buyer submits that the report shows that the yacht did not in fact comply with LY2 in a number of significant respects and, to that extent, the seller was in breach of the sale contract.

[116]The seller’s case is that this approach is false. In particular, the seller submits that the provisions of LY2 cannot be viewed in isolation: what matters is not LY2 as some abstract code but LY2 as applied by the class (or possibly the flag) in question. Thus, so far as the present case is concerned, the seller submits that the crucial question is whether the yacht complied with LY2 as applied by RINA (or possibly the Isle of Man). The fact that the MCA acting on behalf of the United Kingdom might itself have taken a different view is, says the seller, irrelevant.

[117]In my judgment, the seller’s submissions are to be preferred for a number of reasons.

[118]First, it seems to me that the seller’s approach is in accordance with the express words of the sale contract: the reference to “MCA” appears in the context of the identification of the vessel’s class i.e. RINA Class.

[119]Second, it seems to me that such approach is the more consistent with the general background to the LY2 code which was or must be regarded as common knowledge in this industry.

[120]Third, it seems to me that it derives strong support from the scheme of the applicable RINA Class Rules. In particular, the RINA rules applicable to charter yachts are divided into 6 parts. Part A deals with classification and surveys, part B with hull, part C with machinery, electrical installations and automation and part D with materials and welding. Part E then deals with safety rules and part F deals with additional class notations. The relevant part for the purposes of this dispute is part E. Part E contains the full text of the various safety codes issued by the flag administrations whose flag the yacht is intended to fly. Part E therefore contains the full terms of the LY2 code (referred to as MCA). It also, however, contains the full terms of the codes issued by other flag states as equivalent provisions under the conventions. If a commercial yacht registered in Luxembourg is classed with RINA the appropriate class will, therefore, be RINA Charter Class (LUX) (or more correctly Ych (LUX)). If a commercial yacht registered in the Isle of Man is classed with RINA the appropriate class will be RINA Charter Class (MCA) (or Ych (MCA)). Importantly, however, the same would be true of a yacht on the British registry - she would also be classed RINA Charter Class (MCA) (or Ych (MCA)), but the crucial difference is that whilst RINA would be involved in both, the Isle of Man would be responsible for certifying compliance with the LY2 code in the former case and the MCA (now known simply as Ensign) in the latter. It would be for the Isle of Man administration to decide on any exceptions or equivalent standards in the former, and for Ensign in the latter.

[121]Further, it is quite clear from the terms of LY2 itself, from the approach of the Isle of Man flag administration and from the RINA rules, that RINA cannot itself certify compliance with LY2. Even when a yacht is classed with RINA it is for the flag state administration to decide whether or not the yacht complies albeit that such determination may be based on surveys by class acting in effect, as delegates on behalf of the flag.

[122]Fourth, a contrary conclusion would, at best, seem to be problematic and, at worst, give rise to commercial uncertainty if not the potential for complete havoc. As already noted, section 3.2.2 of the LY2 Code expressly provides for individual flag administrations to be able to grant exceptions or apply equivalent standards. Further, even a cursory glance of the provisions of the LY2 Code reveal that many are not rigid but depend, as one might expect, on the particular view of the surveyor or administration concerned regarding what (for example) is “safe” or “proper” with regard to particular items in question. In my view, the contract would be unworkable if the buyer could change class or flag and then assert a contractual non-compliance because of a different view taken by a later different surveyor or administration.

[123]The result, in my judgment, is that (as submitted by the seller) if the yacht had been delivered with RINA Class C ✠ HULL ● MACH Ych (MCA) she would have complied fully with the terms of the sale contract, even if it could be established or might be shown that the yacht did not in fact comply (or might not comply) with the strict requirements of LY2 as they might have been applied or interpreted by a different flag administration.

[124]The difficulty in the present case is that (as is common ground) the yacht did not in fact ever obtain such class notation. However, the seller submits that the only reason the yacht was not classed C ✠ HULL ● MACH Ych (MCA) when she was delivered in July 2008 was because the process of surveying and certification had not yet been completed and various deficiencies which had been observed had not yet been corrected. Mr. Suzuki was, however, keen to take delivery and go cruising. She was therefore (and by agreement) registered as a pleasure yacht (which did not require her to be classed as a commercial yacht) and delivered on the basis that she was in any event going to be returned to Turkey in the autumn - meaning that the process of surveying and certification could have been completed then.

[125]The seller’s case is that the yacht could and would have received class notation C ✠ HULL ● MACH Ych (MCA) when the Yacht was returned (as agreed) to Antalya for post delivery work during the winter of 2008 and that the only reason she did not is because the buyer decided to re-flag in Luxembourg before the process was complete.

[126]In these circumstances and in the light of my conclusions in relation to the proper construction of clause 1 of the main argument, the relevant question is whether or not there remained in existence any difficulties which would have prevented the yacht from obtaining the relevant “RINA Charter Class (MCA)” notation on the assumption that the yacht had continued to be registered with the Isle of Man administration.

[127]I consider below each of the particular deficiencies relied upon by the buyer. However, before doing so, it is convenient to set out a number of relevant observations.

[128]First, in my judgment, the best evidence of the class and flag approach to compliance with the RINA Rules (and those parts of the LY2 Code required to obtain RINA Charter Class) are the RINA and Isle of Man lists identified above. In other words, if an issue concerned the flag or class surveyor at the time of the first survey, it must be assumed that it would have appeared on either list (or both). Both experts agree with that proposition. The converse is, importantly, equally true. The absence of various matters from either the RINA lists or the Isle of Man lists would at least generally be fatal to any suggestion that further (alleged) deficiencies were present between July and October 2008.

[129]Allied to that proposition is the fact that in my judgment (as I have already indicated) the LY2 Code is not interpreted in a vacuum but is applied by each individual flag state according to its own interpretation. Thus, at the risk of repetition, the relevant question is not whether the yacht was LY2 compliant in the abstract, but with LY2 as it was, and was going to be (before the Claimant re-flagged), applied by the Isle of Man flag administration.

[130]Second, not every item on the RINA or Isle of Man list can properly be said to be a “deficiency” with the yacht, such that it can be said that the yacht failed to meet RINA Charter Class standard or comply with the relevant provisions of the LY2 Code. For example, many items identified by the RINA or Isle of Man surveyor simply require systems to be tested: the lists do not say anything about whether the systems passed or failed those tests. Close attention must therefore be paid to what precisely the buyer says the LY2 defect is. Where the only complaint is that at the time of the list a system had not yet been tested, that allegation does not necessarily assist the buyer because the presence of such an item on the RINA or Isle of Man list says nothing about whether or not the system was subsequently tested successfully. This is particularly important when considering the costs claimed on the Scott Schedule (either incurred or estimated) in respect of the alleged LY2 or RINA Charter Class “defect”.

[131]Third, where an item is identified on the first RINA or Isle of Man list, (i.e. RINA 1 or IOM 1) but is not subsequently identified on the following RINA or Isle of Man list (i.e. RINA 2 or IOM 2), the proper conclusion is, in my judgment, that the particular item in question must have been “closed out” to the satisfaction of the class or flag surveyor. Again, both experts agreed with that proposition.

[132]Fourth, there is evidence that by November 2008, RINA had completed its surveys and was satisfied that the yacht complied with the LY2 Code. It is common ground that on the change of flag from Isle of Man to Luxembourg, Luxembourg employed a surveyor (Mr Joel Mathieu) but that their surveyor did not attend the yacht, he delegated the surveys to RINA. In an email dated 28 November 2008, Mr Zucker wrote to Mr Mehrpahl in the following terms:

“It was indeed complicated (and took some time) but now things are rolling! RINA Antalya has concluded the classification despite the Luxembourg flag. Now all we need is ‘still’ an official letter to the effect that the ‘Luxemburg Flag Registry’ accepts the MCA LY2 code. I therefore assume that this should not pose a problem. Can you chase this up and have such a letter sent to us as soon as possible as a pdf?”

[133]The seller submits there is no reason to doubt that Niels Hentschel of Zucker & Partner (who wrote this letter) was telling the truth. In particular, the seller submits that the obvious meaning of this email is that RINA had “concluded” the classification according to the LY2 Code –which the yacht had met by that stage - and that all that was left was to obtain confirmation from the new flag state that it would accept the LY2 Code in order to register in Luxembourg (which it is now common ground that Luxembourg eventually did).

[134]Standing alone, this email is in my judgment weak evidence and a very poor foundation to prove the seller’s case that RINA had, by the end of November 2008 in effect concluded that at least so far as RINA was concerned the yacht complied in all respects with the LY2 Code. In particular, this was not evidence from RINA itself, there was no signed statement from Mr Hentschel confirming the truth of what he said in the email or the circumstances in which he was able to state what is set out in the email; and Mr Hentschel did not give evidence at the trial. Nevertheless, I accept that it provides some assistance in considering the buyer’s case.

[135]Fifth, the yacht did obtain a commercial certificate: RINA Charter Class (LUX). There are three related aspects to this point: i) Luxembourg agreed to accept the yacht onto their registry if she was LY2 compliant. ii) The Luxembourg LTR Rules are at least as stringent as the LY2 rules interpreted by the Isle of Man. iii) The delay in obtaining the RINA Charter Class (LUX) certificate was due to the change of flag, and the restriction imposed by Luxembourg (albeit the Defendant say it is strictly irrelevant) was only imposed because Luxembourg applied a stricter interpretation than the Isle of Man in relation to freeing ports.

Acceptance of LY2

[136]Importantly, as the buyer’s own expert witness (Mr Richmond) accepted in his first report, Luxembourg was prepared to accept the yacht onto their registry without a detailed flag survey, provided that she was LY2 compliant. Thus, it was the seller’s case that the fact that the yacht obtained RINA Charter Class (LUX) must have meant that she met the standards required by the LY2 Code. This aspect was explored in some detail with Mr Richmond. His evidence was to some extent contradictory but at the end of the day I am satisfied that Mr Richmond accepted(i) the Luxembourg authorities were prepared to accept the yacht on the registry as long as she was LY2 compliant and

(ii) if the yacht had not been LY2 complaint the position was or at least appeared to be that they would not have accepted her on their registry.

[137]The only real response advanced by the buyer to this part of the seller’s case was in effect to say that regardless of the fact that Luxembourg agreed to accept the yacht onto its registry if she was LY2 compliant and did in fact accept the yacht on to its registry, nevertheless the Luxembourg authorities in fact applied not the LY2 code but the LTR Rules. This would or at least could be important if the LTR Rules were less stringent than the LY2 Code. This was explored in the course of the expert evidence. Although no detailed comparison was carried out or even attempted in the course of the trial, I recognise that some at least of the individual provisions of the LTR and LY2 codes did or might differ to some extent in terms of their specific wording. However, I also accept the evidence of the seller’s expert, Mr Lindsay, that the standards applicable under both Codes are very similar. In my judgment there is no basis on the evidence before me to conclude that the LTR Rules as applied by the Luxembourg authorities in fact or in application are less stringent in relevant respect than the LY2 rules as applied by the Isle of Man administration.

Impact of change of flag

[138]The final aspect of this point that must be borne in mind is the impact of the Claimant’s decision to change flag to Luxembourg (which had always been its intention) on the entire classification and registration process, and the reason for the sailing restriction imposed by Luxembourg.

[139]Mr Zucker’s evidence provided a useful explanation of the circumstances in which the yacht was classed and flagged. He was particularly involved at the beginning of the process, and confirmed that RINA were involved in the build process “from day one.” He also explained, from his perspective, the clear advantages that flagging the yacht in the Isle of Man held over other jurisdictions.

[140]In fact, the clear evidence of Mr. Zucker was that it would have been easy for the yard to comply with RINA Charter Class (and the technical items on the Isle of Man deficiency list) and that the “MCA issues” were complied with quickly. In particular, when he was shown the second Isle of Man list dated 22 August 2008, he was certain that the yacht would have addressed the points made by the RINA and Isle of Man surveyor in a few weeks, and that any delay in doing so was to be attributed to the (Claimant’s) decision to change the flag to Luxembourg.

[141]It was suggested to Mr Zucker that the reason that the class registration issues were ongoing post-July 2008 was because the seller was seeking to obtain RINA and LY2 compliance. But his evidence (which I accept) was that this was emphatically not the case.

[142]Mr Zucker’s recollection of the difficulties caused by the change of flag is supported by the documents. In particular, in an email dated 21 October 2008, the yard addressed the issue of the change of flag state. The yard identified two alternatives regarding the change of flag from Isle of Man to Luxembourg:(i) for RINA to complete the certification process per the Isle of Man requests and the MCA code (which would require authorisation from the Luxembourg Administration); or

(ii) start the entire approval process from scratch and approve all the drawings according to the Luxembourg Code. This latter option would cost € 40,000 and take 3 months.

[143]The decision was made to pursue the first option – but by 17 January 2009, RINA had still not received the necessary confirmation from the Luxembourg flag that it would apply the LY2 code. It was only by February 2009 that RINA received that confirmation.

[144]The buyer’s own expert, Mr Richmond, confirmed that the change of flag to Luxembourg would have caused confusion and delay:

[145]Subsequently, by email dated 16 April 2009, the new surveyor for the new flag administration imposed a different (stricter) requirement to that applied by the Isle of Man (in relation to freeing ports), and on that basis imposed a sailing restriction.

Conclusion

[146]Accordingly, i) By November 2008 (and in any case by July 2009 at the very latest), all of the matters on the RINA and Isle of Man deficiency lists had been rectified. By that stage, the yacht met the physical (albeit not the documentary) requirements of “RINA Charter Class (MCA)”. ii) The only reason the yacht was not registered as a commercial yacht and classed “C ✠ HULL ●MACH Ych (MCA)” is that the buyer decided to register her in Luxembourg instead. iii) In fact, she was registered as a commercial yacht and still classed with RINA, the only difference being the notation LUX (for Luxembourg) instead of MCA. The restriction imposed by the Luxembourg flag was only imposed because Luxembourg has a different requirement than the Isle of Man in this respect.

The Scott Schedule

[147]Aside from the allegations as to speed, the buyer’s remaining pleaded breaches of contract were set out in a Scott Schedule. Initially these involved in excess of 150 separate complaints. However, both before and during the trial, many of these complaints were abandoned. Nevertheless, for convenience, the original numbering was retained. These complaints divide into four categories: i) An allegation that the yacht was delivered without RINA Charter Class (MCA) or Interim Class Certificates and was ‘unable to comply with the requirements of the LY2 Code.’ In the Scott Schedule this allegation is headed “Alleged failure to comply with the requirements of the LY2 Code.” ii) An allegation that the yacht was not equipped with her specified gangway. iii) An allegation that the yacht was not seaworthy, in that she allegedly suffered from a substantial water ingress. That is the only pleaded allegation of lack of seaworthiness. iv) An allegation that the yacht was not constructed in accordance with the standards of proper marine practice applicable to large luxury yachts. The relevant part of the Scott Schedule is Section 3 (items 73 to 154).

[148]The buyer seeks to recover for costs that it claims to have incurred as a result of each of these alleged breaches of contract. In that regard the buyer relies in particular upon the Compositeworks invoice dated 27 May 2010. The buyer also claims damages in respect of work which it says remains to be done and relies in that regard upon the three-page Compositeworks budget estimation dated 22 December 2010, which was compiled by reference to the MCA Report dated 19/20 January 2010.

[149]Before turning to the specific allegations of breach as set out in the Scott Schedule, there are two preliminary points I should mention.

[150]First, I should say something about the claimant’s evidence which was, in my judgment, deeply unsatisfactory at least in general terms. The claimant relied principally on certain parts of the reports that I have already referred to viz the lists produced by RINA and the Isle of Man, the Winterbotham Report, the 777 YGC Reports and the MCA Report. But none of the authors who produced these lists/reports was called to give evidence at the trial and, as I have already said, the evaluation of such lists/reports was, at the very least, problematic. Nor did the buyer call Captain Schelkens whose oral evidence would almost certainly have been very helpful.

[151]A good illustration of these difficulties is the buyer’s claim with regard to the wheelhouse windows which I consider below. The buyer’s case, based principally on a brief comment in the MCA Report was that these windows did not comply with LY2 because they were “tinted”. One might be forgiven for wondering how it comes about that the resolution of such an issue ends up for determination in the Commercial Court.

[152]The technical experts, who gave evidence, did their best and gave me much assistance for which I should express my thanks. But they were often unable to assist because of the inadequacy of the primary evidence and the fact that their very recent joint inspection was so restricted. In considering the buyer’s specific allegations as set out in the Scott Schedule, I was very conscious of the possibility that some may well have been justified at least in part. But this is not enough. In order to succeed the burden is on the buyer to prove its case on a balance of probability. The buyer’s claims have to be determined on the evidence before the Court. It is pointless to speculate whether the buyer might have succeeded on any particular point with more or better evidence.

[153]Second, I should mention a point raised by the seller with regard to clause 8 of the main agreement which I have already quoted in full. In essence, the seller submitted that the effect of clause 8 was to exclude any claim for damages by the buyer for breach of the main agreement or Short Specification (other than in relation to the allegation that the yacht did not comply with LY2). In particular, the seller relied on the sentence in clause 8:

“The Warranties expressed herein are the only warranties given (either expressed or implied) in regard to this transaction”

. I do not agree. In my view, clause 8 is not concerned with potential claims for breach of contract by the buyer of express terms of the sale contract. At the very least, it seems to me that the clause is ambiguous and, as an exceptions clause, it should be construed against the seller.

Alleged failures to comply with the ‘LY2 Code’

[154]I have already stated my general conclusions with regard to this category of the buyer’s claims. In large respect those conclusions are determinative of most, if not all, of the individual claims falling within this category. Notwithstanding and again at the risk of some repetition, it is convenient to deal with each of the remaining claims in turn and to state, albeit briefly, my specific conclusion with regard to each particular claim.

Items 5 and 6: Aft Garage Door

[155]It is convenient to deal with these two allegations together. The pleaded allegation at item 5 is “The water tightness of the aft garage door to be checked. Leakages have been noted.” The pleaded allegation at item 6 is “The operation of the garage door to be tested.” The total amount claimed is US$21,242 and € 8841.50 based on the invoice from Compositeworks,

[156]Both these allegations in effect adopt and follow the wording which appears in RINA1 items 5 and 6. According to RINA2, the watertightness of the aft garage door was subsequently checked but leakages were found and, again, the garage door was required to be tested. There does not appear to be any further direct evidence of testing as such; and it is true that, as relied upon by the buyer, the Winterbotham Report refers (in November 2008) to garage door leaks although the precise nature and extent of such leaks are unknown.

[157]However even ignoring for present purposes(i) the evidence of Captain Dawson (which on this point I found unclear and unsatisfactory) and

(ii) the email from Mr Hentschel referred to above, it seems to me probable that any significant leakages which may have existed were dealt with during the warranty work by the yard as referred to in Captain Shelkens’ Warranty Works List dated 18 March 2009. In the covering email to that document, Captain Schelkens wrote to (amongst others) Mr Moniwa “Dear everyone, warranty works are proceeding on board Namaste in Antalya. The main works are done in the garage.” Indeed, the buyer’s own expert accepted that, at least in relation to the garage, the works referred to in the RINA defects list had been rectified. This conclusion is further supported by the RINA Report for First Entry Survey dated 19 June 2009 which confirmed that all openings below the free board deck were watertight. The buyer’s expert accepted that that meant that when RINA tested the yacht the garage door was watertight. He also accepted that RINA had surveyed all aspects of the garage door and were happy with it. In reaching this conclusion, I have borne in mind the comments in the 777 YGC May Report and the 777 YGC August Report but for the reasons stated above, I found that material of limited assistance and I do not consider that there is anything in those reports in relevant respect which was sufficient to compel a different conclusion.

[158]For all these reasons, the conclusion I have reached in respect of these items is that they were, in effect, dealt with probably by March 2009 if not before and that RINA were happy with the water tightness and operation of the garage door at least by the time they came to issue their report in June 2009.

[159]For the avoidance of doubt and as accepted by the buyer’s expert, none of the work claimed for in the Compositeworks invoice for items 5 and/or 6 relates to the pleaded deficiencies (even if they relate generally to the garage door). In cross-examination of the seller’s expert, it was suggested for the first time that the real defect was the lack of safety valves in the hydraulic pistons of the aft garage door. Although that was not a pleaded allegation, the seller’s expert stated that those valves would not affect the operation of the door and, in any case, the LY2 Code did not require such valves. He was not challenged on that opinion.

[160]For all these reasons, the claim for these items should be dismissed.

Item 18: Escape

[161]This allegation relates to the category “Escape” and encompasses a tripartite allegation:(i) the engine room escape hatch is to be insulated;

(ii) escape hatches are to be provided with emergency lights; and

(iii) the laundry escape is to be provided with a ladder. These were all identified as deficiencies in RINA 1 and said by the buyer to be outstanding. The total amount claimed is an estimated € 49,000.

[162]The buyer relied in particular on certain comments in the MCA Report. However, I do not consider that such comments whether generally or specifically assist the buyer. In my judgment, the fundamental difficulty with the buyer’s case is that all of these items had been closed out by the time of the RINA 2 list (given that they did not re-appear on that list) – save for a requirement that the engine room escape hatch had to be labelled. That conclusion was accepted by the buyer’s expert. Accordingly, the engine room escape hatch must have been insulated and type approved, the escape hatches must have been provided with emergency lights and the laundry escape must have been provided with a ladder, by the time of the second RINA survey in October 2008.

[163]Further, as regards the laundry escape ladder, there is indisputable pictorial evidence that the laundry escape was provided with a ladder. The buyer’s expert’s suggestion that the ladder may have been too short was mere speculation – and he accepted that it must in any event have been of a sufficient length for RINA to have subsequently classed the Yacht.

[164]In any event, the estimated sums claimed for future costs in this item bear no relation whatsoever to the pleaded defects (as the buyer’s expert also admitted). Accordingly, it is my conclusion the claim for this item should be dismissed.

Item 19: Fixed Fire Fighting System

[165]The pleaded allegation is simply that service reports are to be provided for a fixed fire fighting system and for buttons to be labelled and instructions to be provided. The amount claimed is an estimated sum of € 64,000.

[166]The pleaded allegation follows the wording in RINA 1. Again, in support of this complaint, the buyer also seeks to rely upon the MCA Report. However, quite apart from the general difficulties with that report which I have already mentioned, it does not seem to me that the comments in the MCA Report regarding the FM200 system of themselves establish any relevant breach of the LY2 Code. In any event, what in my judgment is important is that the original requirements in relation to this item identified in RINA, must have been rectified and “closed out” shortly thereafter. Moreover, these items must have been closed out in order for the yacht to obtain classification – as the buyer’s expert admitted. In particular: a) The 31-page RINA First Entry Survey specifically records and approves the plan for the water fire extinguishing system, and notes that the service reports for the FM200 system are an annual requirement. b) The RINA First Entry Survey also specifically records that there is a water fire extinguishing system in the garage and an FM 200 system in the engine room and in garage. c) The buyer’s expert accepted that RINA would not have signed off on these items if they were not “perfectly in order”. ii) Finally it is important to note that whilst the pleaded claims relates essentially to documentary matters, the buyer seeks to recover the sum of € 64,000 to install an FM 200 system in the engine room and garage – but there is an FM200 system in each location. The evidence shows that the future costs claimed bear no relation to the pleaded deficiencies (or indeed to any LY2 deficiencies) – as the buyer’s expert readily admitted.

[167]For these reasons, this claim should be dismissed.

Item 23: Live Saving Appliances

[168]This pleaded claim relates to the category “life saving appliances” identified in RINA 1.The total amount claimed is an estimated sum of approximately € 400,000. Of this sum, the largest single item is € 280,000 in respect of a “rescue boat and laundering appliance”.

[169]In my judgment, this claim should be dismissed for the following reasons: i) A number of items on RINA 1 within this category were in effect closed out by RINA 2, specifically, the provision of rocket parachute flares, emergency lighting in the areas described therein and the embarkation ladder issue. This was accepted by the buyer’s expert. ii) With respect to items such as the lifejackets and lifebuoys, there is no reason to suspect that the yacht sailed without those critical items – as the buyer’s expert admitted. Captain Dawson’s evidence in that respect, (which I accept) was very clear. iii) Certain of the costs claimed for do not appear on the RINA list at all (specifically, the claim for life raft stowage and a general alarm). Therefore they bear no relation to the pleaded claim.

[170]As regards the rescue boat, compliance with LY2 had been delegated by the Isle of Man to RINA. The requirement imposed by RINA was that if it was placed in the garage it should be capable of being launched within 5 minutes and that the operation of the launching was to be checked. It is common ground that there is a rescue boat on board. However, there is no documentary evidence to confirm that it had been tested and accepted to comply with LY2.

[171]However, Captain Dawson again gave persuasive evidence (which I accept) that the operation of the rescue boat launching system had been tested, by him and his team, on a number of occasions. He obviously had a good recollection of this issue.

[172]Captain Dawson explained that the launching system was changed on the yacht. Originally, there were two moving parts: first, the garage door would open, and secondly, the platform that sloped into the water could be lowered or raised. After warranty works, the platform was fixed in the down position and the only moving part was the garage door – with both tenders on separate launch trays. Essentially therefore, the speed of launching depended on how quickly one could open the garage door. Captain Dawson explained that a similar system operated on the Ta Ti (the Namaste’s sister ship) and that he could open the garage door on that vessel within two or three minutes by hand and simply push the rescue tender into the water.

[173]It was suggested by the buyer’s expert that it would not have been possible to launch the rescue boat in 5 minutes. But that was in my view mere speculation on his part – he had not actually tried to operate the launching appliance, and simply suggested (from looking at the mechanisms) that it would be “unlikely to be achievable”. However, Captain Dawson’s evidence was to the contrary. He explained how he tested and opened it within 5 minutes. I accept that evidence.

[174]As stated above, the buyer also sought to derive some assistance for its case from the marking in the RINA Checklist which indicates that the rescue boat was “not seen.” But that argument is, in my judgment, of no avail, for the reasons explained by the seller’s expert (Mr Lindsay) in his expert evidence. Simply put, the alleged defect relates to the launching operation of the rescue boat. The fact that the RINA surveyor had not seen the rescue boat at the time of the survey tells one nothing about that question. In support of its case, the buyer also relied upon the MCA Report which concluded that the yacht was required to be supplied with a rescue boat available for immediate use and which could not be located in a garage or lazarette below the freeboad deck. The MCA Report also required that the yacht was to be provided with a davit or crane to launch the rescue boat. On this basis, the buyer submitted that the rescue boat that is in fact on board was not approved or accepted by the MCA as being LY2 complaint. For reasons stated above, I do not consider what is stated in the MCA Report as relevant for these purposes. There is no doubt that, for the purposes of LY2, RINA were content with the existing rescue boat and arrangements for its storage, subject only to the question of whether it was capable of being launched within 5 minutes.

[175]For all these reasons, this claim should, in my judgment, be dismissed.

Item 35: Freeing Ports

[176]The pleaded allegation is that “the water freeing arrangements on the foredeck is to be arranged as per approved drawing.” This is an item identified on both RINA 1 and the Isle of Man lists. The amount claimed is approximately € 45,000 being the cost of 6 scuppers installed per RINA class recommendations (on the buyer’s case) and the cost of main deck stern water drains. As regards the latter cost (€ 4,990), it is clear that that item has no relation whatsoever to the alleged defect, given that it is not on the foredeck. That analysis was accepted by the Claimant’s expert.

[177]As regards the former claim, for the cost of 6 scuppers, the seller’s case is that it is not liable for those costs because the extra freeing ports were clearly additional requirements of the Luxembourg flag state. Those costs are therefore solely attributable to the buyer’s decision to change flag states from the Isle of Man to Luxembourg.

[178]The chronological history of this issue may be summarised as follows: i) On 21 July 2008, item 3 of IOM 1 stated “Two (2) additional freeing ports are to be provided in way of the fore deck & starboard sides.” ii) On 5 August 2008, RINA wrote to the Isle of Man providing the administration with the details of the forewell and side deck freeing ports. Chris Jones of the Isle of Man Administration asked Alper Tek of RINA whether those details required any comment from the Isle of Man Administration. Alper Tek responded as follows: “if the remarks…are accepted by your side with an exemption certificate, we are able to issue the Loadline Certificate as soon as we issue the Class Certificate. Otherwise, shipyard has make modifications for the remarks.” iii) Chris Jones responded to that message by saying that in respect of both the fore well and side deck freeing ports the Isle of Man Administration “can accept the as fitted arrangement.” iv) Subsequently, in IOM 2, item 3 from IOM 1 was crossed out by Chris Jones, signed by him, and dated 22 Aug 2008. No additional requirement for freeing ports was imposed. Therefore, at this stage there was no requirement for additional freeing ports. v) Chris Jones then changed his mind on or around 11 September 2008, and a new item 34 was added in manuscript to IOM 2 on 12 September 2008: - “Two additional freeing ports of sufficient area to be provided in way of the focsle bulwark to permit adequate draining of the focsle deck area.” vi) The yard completed that request before the end of November 2008. This was confirmed by Dr Celikkol. Subsequently, the yard sent an email to Zucker dated 31 December 2008, which stated: “The water freeing ports of the Namaste were based on MCA approval and as you know with some minor changes that the MCA surveyor asked for were finished. MCA has now been changed to Luxembourg and accordingly 12 new freeing ports will be required for approval (see on attached drawing)…” vii) There followed a period in which RINA began to liaise with the new flag state. RINA wrote to the Luxembourg surveyor regarding the change of flag, and referred him to “previously accepted items” from the Isle of Man. RINA asked Luxembourg for “your interpretations and acceptance letter as Lux flag so that we can issue the Class certificate.” viii) The response from the Luxembourg flag, dated 16 April 2009, clearly indicates that the new requirements for freeing ports arose directly as a result of the change of flag. That message stated that there was a “New comment from Luxembourg” –which imposed a restriction because “the water freeing areas do not comply with the requirements of the LL66 Convention.” ix) Accordingly, a restriction was imposed on the ICLL 1966 Conditions of Assignment. Those Conditions themselves attach the 16 April 2009 document as part of the Conditions – which shows that the Luxembourg Flag applied a stricter requirement to the freeing ports. This analysis was supported by the seller’s expert.

[179]In light of the above, it seems to me that the broad thrust of the seller’s case is correct. In particular, both RINA and the IOM were content with the arrangement of the water freeing arrangements on the foredeck at least once the two additional freeing ports referred to in item 34 of IOM 2 were provided towards the end of November 2008. The requirement for further additional freeing ports was imposed subsequently as a result of the change of flag and the Luxembourg authorities adopting a stricter standard. Exactly why this was so remains obscure but in my judgment this is irrelevant for present purposes. Accordingly, this claim must, in my judgment, be dismissed.

Item 41: Emergency Escape Ladders

[180]The pleaded allegation is that the “emergency escape ladders are to be lengthened.” This is based on item 9 of IOM 2. The buyer also relies in this context on the MCA Report. The amount claimed is approximately € 1500. There is no direct evidence that the ladders were in fact lengthened. However, the short point here is that if that had remained an outstanding issue, RINA would not have classed the yacht in July 2009. The fact that RINA approved the escape plan is good evidence that the ladders were lengthened. Although the buyer’s expert appeared to agree with that view, he sought to suggest that the ladders were not in fact of the appropriate length (at least for Isle of Man LY2 purposes). However, in my judgment the fallacy of such suggestion is that (as Mr Richmond fairly accepted) there was no specific length requirement in LY2 and that different people could have different views about the appropriate length of ladder.

[181]Accordingly, given that RINA made no complaint about the length of the ladder when the yacht obtained classification in July 2009, it seems to me that this claim must be dismissed.

[182]In any event, the costs claimed in respect of this item are said to be those included in item 18 and clearly bear no relation to the pleaded allegation (which includes sums claimed in respect of “emergency lighting”). The buyer’s expert agreed with that.

Item 42: Door Locks

[183]The pleaded allegation was that door locks on emergency escape routes had to be removed or altered to allow escape. This is based on item 10 in IOM 2. The buyer also relied on certain comments in the MCA Report. The total amount claimed is estimated at € 2000.

[184]The estimated cost of € 1000 each for the door locks and guest cabin escape route locks seems on any view excessive. However, in my judgment, the short answer to this claim is that RINA did not have a problem with the locks as fitted, given that they approved the escape plan for the yacht. However, even if that were not correct, the obvious answer is to simply remove the locks. There should be no cost incurred in relation to that (or a very minimal cost).

[185]Accordingly, in my judgment the claim in respect of this item should be dismissed.

Item 43: Galley Doors

[186]The pleaded allegation relates to the replacement of power operated galley doors with doors of an approved type. This is based on item 11 of IOM 2. The buyer also relies on the MCA Report. The amount claimed is estimated at € 4000.

[187]IOM 2 identifies a long term and a short term solution to the issues with the sliding doors. In the long term the existing doors are to be replaced: see IOM 2, item 11 (v). But the flag administration expressly agreed that this could be deferred until the yacht’s next refit; and it was Mr Lindsay’s evidence that this would not affect the fact that she was LY2 compliant in the meantime. In the short term, the Isle of Man made various suggestions such as the provision of a means to prevent closing whilst passing through and reducing the speed of operation. It was unclear on the evidence before me whether such steps were taken. Captain Dawson’s evidence on this point was equivocal.

[188]On behalf of the seller, it was submitted that the fact that(i) the Yacht obtained certification in July 2009 must mean that there was no outstanding issue in relation to this item; and

(ii) even if the required work was not carried out it is clear that the Isle of Man authority was content with the as built arrangement provided the doors were used in manual mode only (see item 11(vi)) and Captain Dawson said that these doors did not present any problems for him. However, it seems to me that the latter was only a short-term expedient and that the position of the IOM was that the doors would ultimately have to be replaced in order to be LY2 complaint. I accept that it is odd that this does not appear to have been addressed when RINA ultimately issued its certificate in June 2009. However, given what I consider was the position of the IOM and the fact that these doors were not replaced, it seems to me that this item ought to be allowed.

Item 48: Pilot Ladders

[189]The pleaded allegation is that a pilot ladder is to be provided with fixing points on both port and starboard sides at main deck level. This is based on item 16 of IOM 2. The buyer also relies upon the MCA Report. The claimed cost is approximately € 800. As submitted by the seller, it seems to me that this item must have been closed out as an issue, given that the embarkation ladder issue was clearly closed out and (as the buyer’s expert accepted in cross examination) the embarkation ladder would satisfy the requirement for a pilot ladder.

[190]Accordingly, the claim in respect of this item should be dismissed.

Item 51: Signage

[191]The pleaded allegation is “IMO signage to be used for the stowage of all safety items”. This was based on item 19 of IOM 2. However, although this item was not formally abandoned, the buyer did not advance any separate cost claim. Accordingly, it seems to me that the proper course is simply to dismiss it.

Item 67: Fire Protection for the Garage

[192]The pleaded claim states “Fire protection for the Garage is not acceptable.” The amount claimed is an estimated cost of € 63,000.

[193]There are a number of points to make in relation to this claim: i) First, although there is some overlap with item 19 above, this complaint is based not on the Isle of Man or RINA lists but solely on the MCA Report. Therefore, neither the Isle of Man nor RINA considered the issues raised in item 67 to be worthy of comment in their various lists. Further, there is the point again, that the yacht was in effect subsequently signed off by RINA and although the buyer says this was for LTR not LY2 purposes there is no suggestion that there is in relevant respect, any difference in the relevant standard. Given my general conclusions above as to the proper construction of the main agreement, this claim must be dismissed for that reason alone. ii) Second, the buyer’s case is inconsistent with the Isle of Man’s approach, because the Isle of Man suggested that petrol should be stored in the garage rather than in the locker. That clearly meant that the Isle of Man did not believe that the fire protection for the garage was not acceptable. Mr Richmond (the buyer’s expert) candidly accepted that that must be the case. iii) Third, and in any case, the estimated sum claimed is wholly vague and unsupported by any particulars or any proper explanation or evidence. It is based on the three-page Compositeworks estimate without any appropriate costing or explanation for why an estimate of € 63,000 is justified.

[194]Accordingly, in my judgment the claim in respect of this item should be dismissed.

Item 70: Wheelhouse Windows

[195]This is one of the more extraordinary of the claims in the present case. The pleaded claim states “The wheelhouse windows are tinted and this is not acceptable.” The amount claimed is the estimated cost of replacing the windows viz € 132,000. It should be noted that, as with item 67, this allegation is not based upon any defect identified on the Isle of Man or RINA defect lists.

[196]Rather, the buyer relies primarily upon the MCA Report which refers to the relevant part of the LY2 Code, viz “5.5 Windows 5.5.8 Side and front windows to the navigating position should not be constructed of polarised tinted glass (see section 18.2.3.) 18.2 Bridge Visibility18.2.1 Navigation bridge visibility should comply with SOLAS Chapter V. Vessels under 45m in length should comply as far as reasonable and practicable.

18.2.2 Windows may be inclined from the vertical plane provided that, where necessary appropriate measures are taken to avoid adverse reflections from within.

18.2.3 Windows to the navigating position should not be of either polarised or tinted glass (see 5.5.8) Portable tinted screens may be provided for selected windows.” On this basis the MCA surveyor reported:

“Wheelhouse windows are tinted and it is understood that navigation is difficult by night”

. As I have already stated, the MCA surveyor did not give oral evidence and it was therefore impossible to test his evidence that the wheelhouse windows were tinted or the buyer’s assertion on the basis of that evidence that they were unacceptable.

[197]Notwithstanding the views expressed by the MCA surveyor, there are in my judgment a number of other fundamental problems with this claim: i) First, the evidence of Captain Dawson was that the issue of tinted windows in the wheelhouse was specifically discussed with the RINA and Isle of Man surveyors, who approved the glass that was installed. “Q.…Yes, the wheelhouse windows, Captain Dawson. It has been suggested that they are tinted and that that is not acceptable to the MCA. Can you assist his Lordship in relation to that issue please. A. The wheelhouse windows were discussed at an early stage before installation with the surveyors and I can specifically remember having a number of samples which were shown to the surveyors of which they selected one which was acceptable. Q. When you say the surveyors, could you be clear who you mean? A. That would have been the RINA surveyors and the Isle of Man surveyors. Q. Is the glass that was eventually fitted the glass that they selected? A. That's correct, yes. Q. As far as you are aware did those gentlemen have the opportunity to visit the wheelhouse when the windows were installed, after they had been installed? A. Yes, absolutely. They must have been on board after they were installed. Q. Did either the RINA surveyor or the Isle of Man surveyor ever raise any concern about the wheelhouse windows? A. Not at all, no. They were acceptable.” Q. When you say the surveyors, could you be clear who you mean? Q. Is the glass that was eventually fitted the glass that they selected? ii) Second, Captain Dawson’s evidence is corroborated by that of Mr Zucker, who said, in examination in chief:

“In general, wheel house windows shall not be tinted and, according to my memory, they were not tinted. At least as far as those windows are concerned which are in the front. I'm not absolutely sure if and, if so, to what extent, the side windows might have been tinted, but there was a surveyor on board either from the class, from RINA, and from the Isle of Man, the flag state. Both of them looked through the windows and none of them complained about the windows. So the windows, to my understanding, have never been an issue.”

I accept that evidence of Captain Dawson and Mr Zucker. Given my general conclusions as to the effect of clause 1 of the main agreement, it seems to me that it must follow this claim must fail. iii) Third, the RINA Checklist required express confirmation (at item 18(2)) that the “Wheelhouse windows are not made of polarized or tinted glass and are equipped by wipers” – and in fact the RINA Checklist expressly confirmed that fact (i.e. that the wheelhouse windows were not made of tinted glass) with an “X” next to item 18(2). If the wheelhouse windows had been an issue for RINA, the Yacht would not have achieved classification in July 2009.

Q. Is the glass that was eventually fitted the glass that they selected?

[198]Accordingly, in my judgment the claim for this item should be dismissed.

Item 143: Bulwark Railing

[199]The pleaded allegation is that the height of the bulwark forward of the weather deck is less than 1000mm. This is based on item 4 of IOM 1. The buyer also relies on the MCA Report and 777 YGC May Report. The claim is for the estimated cost of replacement said to be € 15000.

[200]As I say, this was certainly included as a deficiency in IOM 1. There is no direct evidence that the railing was replaced or upgraded. However, there is no doubt that this item was crossed off the list by Mr Jones of the Isle of Man. An email confirming Mr Jones’ acceptance of the arrangement was sent to the Luxembourg flag and it would appear that they specifically agreed it. On this basis, it seems to me that the IOM considered that there was no relevant non-compliance with LY2 and having regard to my general conclusions with regard to clause 1 of the main agreement that is a sufficient answer to this item of complaint.

[201]Accordingly, the claim in respect of this item should be dismissed.

Alleged Breach of the Specification: Item 76: The Gangway

[202]The pleaded allegation is:

“The gangway is too short”

. The claimed cost is for a new gangway which was installed as a cost of € 96,506.

[203]In relation to the gangway, the Short Specification in fact provides as follows:

“Retractable Stern Gangway ... OPACMARE ... 4.5 meter hydraulic”

[204]It is not in dispute that the yacht is fitted with a hydraulic retractable stern gangway manufactured by Opacmare, which is in fact more than 4.5 m long. Rather, the buyer’s case is in fact that the gangway was installed in such a manner that it does not extend sufficiently far from the stern of the yacht when it is deployed. It is common ground that when the gangway is deployed it extends approximately 1.5 m from the stern of the yacht. The thrust of the buyer’s complaint is that this is insufficient with the result, says the buyer, that the yacht would have to be moored very close to the quay (with the consequent risk of impact damage in a case of a strong swell) or those using the gangway would have to “leap over” to get on and off the yacht.

[205]Thus although the buyer accepts that the gangway itself was longer than the stipulated length of 4.5m, nevertheless the buyer submits that there was a breach of the obligation in the Short Specification which provided as follows:

“To achieve a quality yacht of proper marine practice and in accordance with owner’s expectations, at the budget allowed, will be the essential agreement for the yacht.”

In effect, the buyer alleges that the seller’s obligation was to construct a “quality yacht in accordance with proper marine practice” which (says the buyer) included fitting the specified gangway in such a way that it extended a reasonable length beyond the stern of the yacht so that it was fit for its intended purpose.

[206]The seller submits that the claim is wholly without merit for the following reasons: i) First, it is not open to the buyer to argue for a gangway of more than 4.5m. In effect, the seller says that the gangway complied with the Short Specification. ii) Secondly, the buyer’s complaint really comes down to the fact that it wishes it had ordered a yacht with a differently designed mounting arrangement for the gangway. It is a requirement for the specification or design of the yacht to be changed, which is not a matter for which it can hold the seller liable. iii) Thirdly, the gangway issue appears to have originated out of a request by Captain Schelkens (who did not come to give evidence) for the gangway to be lengthened, on the basis (so he says) that this was required for seaworthiness and as a basic standard for a quality yacht. However, there is no consensus that a gangway extending only 1.5m is inadequate or makes the yacht unseaworthy. This is a purely personal and subjective matter and cannot form the basis of a claim against the seller and there was little if any evidence of any real problems in practice. In support of the foregoing, the seller relied on the evidence of Mr Tamsen to the effect that there was never a problem in practice with the gangway provided the yacht was moored sufficiently close to the quay; that he had “hundreds, thousands of people walking on and off and nobody had to jump”; and that that the real problem was that Captain Shelkens did not moor the yacht properly because he was “quite a lazy guy”.

[207]The seller also relied on the evidence of Captain Dawson who expressed the view that the length of the gangway was perfectly normal, adequate for a yacht of this type and did not affect its seaworthiness.

[208]However, when the seller’s expert (Mr Lindsay) came to give evidence, he accepted that the gangway was short and that he would normally expect it to be longer.

[209]I fully recognise that the concept of what is “proper marine practice” with regard to a luxury yacht is extremely vague. However, on the basis of the evidence of Mr Lindsay (which I accept) it seems to me that the buyer is, on balance, justified with regard to this complaint.

[210]However, I do not accept the quantum of the claim as advanced by the buyer which was for the cost of a replacement gangway. On the evidence before me, I am not satisfied that this was necessary or reasonable.

[211]The evidence of Mr Lindsay was that it would probably be realistic to construct a small removal extension for the gangway to increase the effective reach; and that this would probably cost € 30,000 maybe less. On behalf of the buyer it was suggested that this would be unusual for a luxury yacht. Mr Lindsay’s answer (which I accept) was that “it is not common common but it is not unknown”. In my judgment, even if such extension is not “common common”, it would be sufficient to address the particular complaint in the circumstances of the present case. On this basis, doing the best I can, it seems to me that an award of damages in the sum of € 30,000 in respect of this item would be appropriate if not generous.

Alleged lack of Seaworthiness

[212]The only pleaded breach of the alleged implied term of seaworthiness is that the yacht suffered from a substantial water ingress into the garage. That is the same issue covered by items 5 and 6 of the Scott Schedule, and, for the reasons set out above, the claim in relation to this item should also be dismissed.

Alleged breach of ‘large luxury yacht’ standards

[213]This last category of claims advanced by the buyer are all founded on the provision which I have already quoted above i.e.:

“To achieve a quality yacht of proper marine practice and in accordance with owner’s expectations, at the budget allowed, will be the essential agreement for the yacht.”

The thrust of these claims is that the seller was in breach because the yacht failed to meet the standard of a “large luxury yacht”.

Item 73: Poor Stainless Steel

[214]The allegation is that “stainless steel in all areas very poor quality.” This was based primarily on certain comments in the 777 YGC May Report. The claim is made up of 5 separate items totalling approximately € 20,000.

[215]In my judgment, these comments provide a very slender basis for advancing the present claim particularly in the light of my own comments generally with regard to this report.

[216]In response, the seller relied in particular on the evidence of Mr Zucker who confirmed that so far as he was concerned what the yard made was of good quality. As he stated, if there had been any corrosion when the yacht was surveyed by 777 YGC in 2009 this could have been due to lack of proper maintenance in the seawater environment or contact with other materials.

[217]Five individual costs under the category “stainless steel works” are claimed in respect of this alleged breach under the Compositeworks invoice dated 27 May 2010. However, it is very difficult to see how any of these relate to the alleged breach of contract: i) Galley and hob stainless steel plates–the buyer provided no evidence to support its claim that this piece of work is related to the alleged deficiency with the stainless steel. The buyer’s expert had to accept that he had no idea what was actually replaced, or why. ii) Engine room extra floor board – on any view, (as accepted by the buyer’s expert) that is not a problem with the quality of stainless steel in the yacht. iii) Stainless steel works – that is the only description of the work claimed for. It is impossible to say what that work related to, or why those costs were incurred, as the buyer’s expert also accepted. iv) New stair lights –the invoice appeared to suggest that the costs incurred were for replacing chrome lights with stainless steel lights. Whether or not that is in fact the case, it is clear that the replacement of those lights was not caused by defective stainless steel. v) Mirror polishing two doors – there is no evidence that the cost claimed in this regard had anything to do with allegedly defective stainless steel. The buyer’s expert had to accept that he simply did not know why those areas had to be polished.

[218]For these reasons, the claim in respect of this item should be dismissed.

Item 87: Tender Launching System

[219]The pleaded claim is that the tender launching system was untried and of poor construction. The buyer seeks the costs of an overhaul of that system in the sum of € 51,005 based upon the invoice from Compositeworks dated 27 May 2010.

[220]Again, this claim is based upon the 777 YGC May Report. My general comments with regard to the value of this report are particularly pertinent with regard to this claim. The main difficulty is that there was no other useful evidence to support this claim or to explain the basis of the complaint.

[221]By contrast, the seller relied upon the evidence of Captain Dawson who explained that the tender launching system as built worked perfectly well. His evidence was that although the garage was modified, this was in the sense that the platform that sloped downwards was fixed in a down position and then both tenders were simply pushed out on launch trays into the water. The buyer’s expert accepted that this arrangement would not make the launch process more difficult that it originally was.

[222]In any event, the yacht was used in 2008, 2009 and 2010, and therefore the tender system must have worked. Moreover, it appears that this system was worked on as part of the warranty works. In my judgment, there was insufficient evidence to support this claim. Furthermore, these costs were unreasonably high, for the reasons given by the seller’s expert, Mr Lindsay.

[223]For these reasons, the claim in respect of this item should be dismissed.

Item 92: Lockers

[224]The allegation is that the hinges and seals on lockers needed to be rectified. The basis of this complaint is to be found in the 777 YGC August Report. Originally this item included a claim for € 10,896 but this was abandoned by the buyer in the course of the hearing. The remaining amount claimed is € 4,484 based on the Compositeworks invoice in May 2010. However, the claim is noteworthy for the absence of any other evidence in its support. The invoice simply says that hinges have been “upgraded.” In the absence of any further explanation, this does not seem to justify the buyer’s claim. For these brief reasons, the claim in respect of this item should be dismissed.

Item 98: Cracks in the Teak Deck

[225]The alleged breach of contract relates to the teak deck. The thrust of the allegation is that numerous cracks had to be repaired. The amount claimed is for the replacement of a total of 27 linear metres of teak planks at a cost of € 11,716.

[226]In support of this claim, the buyer relied upon the 777 YGC August Report and the description of the work carried out in the Compositeworks invoice.

[227]Mr Zucker’s recollection was that the teak deck was of good general quality.

[228]Captain Dawson’s recollection was that the teak deck was of high quality and fixed with very high quality adhesives and sealants. He also considered that it was normal to have planks replaced due to minor cracking, and that 27m was not an unusual amount to have to replace.

[229]In any event, as Mr Lindsay (the seller’s expert) convincingly explained, it only requires a small crack (of one or two centimetres) to require replacement of an entire length of teak stave (average length 3 metres). Thus, the buyer cannot simply rely on the length of teak replaced as indicative of a defect in quality.

[230]As stated above, the costs are claimed on the basis of an invoice dated May 2010 - almost two years after delivery – and as Mr Lindsay explained, if the teak had been defective, it was more likely than not that any fault would have been revealed sooner than that. Moreover, any issue with the teak deck after delivery appear to have been addressed as warranty works. In any event, of the sum claimed, approximately 50% relates to what is expressly described as damaged planks – which could have nothing to do with the quality of the teak, and may have been caused by something else in the nearly two years since delivery took place.

[231]For these reasons, the claim in respect of this item should be dismissed.

Item 104: Hydraulic Systems

[232]The buyer alleges that various leaks had to be rectified in respect of the hydraulic systems (stabilizers and thrusters). In support of this claim, the buyer relies upon the Winterbotham Report and the 777 YGC Reports. Once again my general comments with regard to the reliance placed by the buyer on these reports are particularly pertinent. The total amount claimed is approximately € 65,000 based on work done at Compositeworks and their invoice dated May 2010.

[233]Work done in respect of stabilizer leaks was clearly warranty work that was addressed at the Yard in 2008/2009: as appears from the Warranty Works List. There is no mention in that document of work in respect of the hydraulic system – which one would have expected if leaks had been or were occurring. It also appears that the stabilizers were fixed under the manufacturer’s warranty, as Mr Moniwa accepted in cross-examination, although he went on to say that the problem continued.

[234]It was extremely difficult to discern exactly what work was done at Compositeworks and why. The invoice itself does not appear to relate to the rectification of any particular leaks but instead appears to relate to a complete overhaul. The reasons for this work are something of a mystery. The view expressed by Mr Richmond was that one would not expect this kind of overhauling in 2010 i.e. less than 2 years after delivery. Similarly, Mr Lindsay was of the view that such overhaul was “premature”. In my view, this does indicate that there must have been something wrong. However, it is in my judgment quite impossible to say on a balance of probability that any defect was due to any systems being substandard on delivery. It seems equally possible that the overhaul was necessary because of some operational failure since delivery. I simply do not know. Unfortunately, there was no evidence from the buyer to assist in this regard. It is possible that Captain Schelkens might have been able to assist. But his statement did not provide any real assistance and he was not called to give evidence.

[235]Moreover, I am satisfied that the PTO costs claimed for in this item (€ 13,880) have nothing to do with leaks. There was no mention of the PTO in the Winterbotham Report and there is no evidence that this work was at all related to the issues identified in the Winterbotham Report (as the buyer’s expert accepted).

[236]For these reasons, the claim in respect of this item should be dismissed.

Item 132: Paint Coating

[237]The allegation is that the paint coating in the way of the bathing platform required repainting. The buyer relies upon the Winterbotham Report. There are two items in respect of which the buyer seeks to recover: an item in the Compositeworks invoice dated May 2010 called “Paint job” (€ 59,663), and an item called “Paint job extras” (€ 11,940). There is no way of knowing from that invoice itself whether those sums relate to the alleged breach of contract - as the buyer’s expert eventually accepted. On the contrary, according to Mr Lindsay’s evidence (which I accept) it seems that a large part of the claimed amount relates to something other than the bathing platform.

[238]In any event, Captain Dawson’s evidence (which I also accept) was that damage to the paint work in this area was unsurprising; it was explicable as a natural consequence of the inevitably extensive use of the garage and bathing platform. There is nothing in the evidence to persuade me that there was any need to paint in this area due to painting being substandard on delivery.

[239]For these reasons, this claim should be dismissed.

Item 133: Anchor Pockets

[240]The alleged breach of contract is a failure of the anchors to locate correctly in their pockets. The cost claimed is for anchor chain stainless steel tubes in the sum of € 20,900.

[241]The evidence with regard to this item is somewhat vague. As Captain Dawson accepted in evidence there was a problem in that the anchors did not always locate correctly in the anchor pockets. It seems that the problem was intermittent. It is referred to in the Winterbotham report. On behalf of the seller, it was submitted that if the anchors were “sticking”, the likelihood is that this would have been dealt with by the yard when the warranty work was carried out; and there was evidence that some work was done on this problem in March 2009. It is possible that this work may have alleviated the problem. I do not know. However, as Mr Lindsay accepted, the jamming of the anchors even intermittently was potentially a serious problem. As he said “if they do jam, you have to rectify it, there is no two ways about it.”

[242]Although the evidence is not entirely satisfactory, I am (just) persuaded that this complaint is probably justified.

[243]As to quantum, it was Mr Lindsay’s evidence that the amount alleged by Compositeworks for this work (in particular the labour charge of € 14,000) was excessive. He suggested knocking the labour in half which would reduce the claim to about € 14,000. However, the labour charge related to the cost of a certified welder and although that charge may well be high or even very high it does not seem appropriate to knock it down for that reason alone without further information which is unavailable.

[244]For these reasons, on balance, I am persuaded that this claim be allowed in the full sum of € 20,900.

Item 154: Associated Costs

[245]The buyer claimed approximately € 100,000 under this head. However, it was agreed between the parties that since any award under this head would necessarily depend upon my conclusions with regard to the other items claimed in the Scott Schedule, determination of this claim should be deferred. Accordingly, I say no more about this claim. Conclusion

[246]For these reasons the following claims in the Scott Schedule are allowed: i) Item 43 – Galley Doors: € 4,000 ii) Item 76 – Gangway: € 30,000 iii) Item 133 – Anchor Pockets: € 20,900 However, all the other claims up to and including item 153 in the Scott Schedule are dismissed. As noted above, the claim under item 154 is deferred for the time being. In addition, I also defer the buyer’s claim for what was described as “additional costs” including € 56,748.68 as surveyor’s fees and € 32, 704 as fees paid to Class. In the light of my conclusions with regard to the items claimed in the Scott Schedule, it seems to me better that these are dealt with if necessary in due course at the same time as item 154.

Quantum

[247]In addition to the specific claims in relation to speed and as set out in the Scott Schedule the buyer advanced two further substantial claims, viz a claim for diminution in value and loss of chartering income. The claim for diminution in value was on the basis that the yacht failed to achieve LY2 compliance. This was calculated at 20% of € 16.5 million i.e. € 3.3 million. The claim for loss of chartering income was based on a figure of EUR 140,000 per week during the 2009 season and 2010 seasons. There was no claim advanced for the 2008 season.

[248]Given my conclusions with regard to the items claimed in the Scott Schedule it seems to me that the buyer’s claim for diminution in value must fail. To the extent that I upheld the buyer’s claims, the appropriate compensation is to award the figures indicated above. I did not understand the buyer to suggest otherwise. Although I heard expert evidence with regard to the diminution in value, such evidence is academic in the light of the conclusions which I have reached and I say nothing further about it.

[249]Likewise, I heard certain expert evidence from Mr Beckett and Mr Price with regard to the buyer’s claim for loss of charter income. I should mention that an issue arose as to whether the named claimant, Riva Bella S.A., could itself claim in respect of any loss of income because it had demise chartered the vessel. However, in the light of the conclusions I have reached with regard to the buyer’s substantive claims in the Scott Schedule, it seems to me that this aspect of the buyer’s claim is also academic. In particular, my tentative conclusion is that the three items which I have upheld in the buyer’s favour could not be said to have been the proximate cause of any loss of chartering income and, at this stage, I propose to say nothing further about this part of the buyer’s claim. However, it seems to me that I should at least give the buyer an opportunity to consider its position in the light of my conclusions. Accordingly, I propose to defer any further consideration of this part of the buyer’s claim. If necessary, it can be dealt with in due course at the same time as item 154 and the claim for additional costs referred to above. The Counterclaim Crew Costs

The Counterclaim

[250]The seller counterclaims the sum of € 134,241.50 in respect of crew costs pursuant to Addendum 1. This claim was originally conceded by the buyer. In final submissions the buyer sought to withdraw that concession on the basis that the crew were not actually employed by the claimant itself. However, in my judgment, this is irrelevant for the purposes of Addendum 1. Accordingly, I allow this claim in full.

Other Costs and Expenses

[251]The seller also counterclaims € 145,452.61 in respect of other costs and expenses in providing services and equipment for the yacht as requested by the buyer.

[252]This sum is broken down as follows: i) € 117,547.27 – as accessory set-up costs. These costs include items such as jet skis, diving equipment, crew clothing, bedding, cutlery, decorative items, tools and other equipment. ii) € 19,889.54 - items charged to the seller’s credit card in June to August 2008 which are attributable to the buyer’s overheads for the yacht. iii) € 5,485.39 –phone bills paid for by the seller for the amount of the buyer in the period June to October 2008. iv) € 2,530.41 – crew insurances paid by the seller for the period July to October 2008.

[253]These items were supported by the evidence of Mr Tamsen, which evidence was not challenged in cross-examination. On behalf of the buyer, it was suggested that some at least of these items were in effect “gifted” by the seller to the buyer. Although there was some evidence by Mr Moniwa to this effect, it was emphatically rejected by Mr Tamsen. In the event, as I understood, this point was not pursued by the buyer, although for the avoidance of doubt I would have rejected it in any event.

[254]The only other point raised by the buyer by way of defence was by reference to clause 9 of the main agreement which I have already quoted above. In essence, it was said that there is no evidence that any of these items were the subject of a “signed work order”, that they are therefore included in the price and irrecoverable. This point was not pleaded by the buyer and not explored in evidence. It was only raised on the very last day of the trial in the course of the buyer’s final submissions. If this point were going to be raised, this should in my view have been done much earlier. In any event, it seems to me that the point is not a good one. In my judgment, the wording of the clause does not prevent recovery in circumstances where the equipment and services are not only requested but are (as they were here) in fact provided and accepted.

Sea Trials

[255]The counterclaim in respect of the sea-trials was abandoned by the seller.

Propellers

[256]It is common ground that the propellers of the yacht were damaged after delivery of the yacht to the buyer in July 2008. It is also the unchallenged evidence of Mr Tamsen that the seller paid € 81,250 for new propellers. There is thus no dispute that(i) the original propellers were damaged after delivery; and

(ii) the seller paid for new propellers. The buyer sought to defend this claim on the basis that the yacht was registered in the seller’s name at the time of the accident when the original propellers were damaged. However, it seems to me that this is irrelevant to the seller’s claim.

[257]The more difficult point relates to the quantum of the claim. It is, as I understand, common ground that the new propellers were installed with a view to or at least in the hope of increasing the speed of the yacht. On this basis, it would seem that the seller incurred the cost of the new propellers in any event. Therefore, it seems to me that, at most, the seller lost the value of the undamaged old propellers. However, there was no evidence before me as to what such value was nor whether there was any residual value in the old propellers on the assumption that they had not been damaged. In such circumstances, it seems to me that the seller’s counterclaim under this head must fail.

Conclusion

[258]In summary: i) I uphold the buyer’s claims in respect of item 43: galley doors (€ 4,000), item 76: gangway (€ 30,000), item 133: anchor pockets (€ 20,900) in the total sum of € 54,900. ii) I defer the buyer’s claims in relation to item 154, additional costs and loss of profit/income (if any). iii) I dismiss the buyer’s claims in relation to speed/rpm and the buyer’s other claims in relation to class and flag. iv) I uphold the seller’s counterclaims in respect of crew costs (€ 134,241.50) and other costs and expenses (€ 145,452.61); but dismiss the seller’s claim in relation to the propellers.

[259]Counsel are requested to seek to agree an order including interest and costs.

Cited in 1 later judgment

Saga Cruises BDF Ltd & Anor v Fincantieri SPA 2016