Brown’s Bay Resort Ltd v Pozzoni

A contractual clause requiring a “penalty fee” for an interruption caused by breach does not limit common-law damages unless the contract, read as a whole, indicates that the fee is a substitute for those damages. A description of the payment as a penalty fee, without reference to damages or a sum in lieu, points to an additional charge. It is unnecessary to decide whether that additional charge would itself be unenforceable as a penalty. A trial judge may assess lost earnings from straightforward oral evidence without documentary records where the absence of records is explained and the evidence is accepted as reliable. An appellate court should not interfere without a legal basis.

Brown’s Bay Resort Ltd leased part of its Antigua resort to Mr Pozzoni to operate a restaurant and bar. After the company committed a repudiatory breach, Mr Pozzoni accepted the breach and claimed damages. The lease contained a clause requiring the responsible party to pay a US$4,000 “penalty fee” if the contract was interrupted.

Michel J held that the clause did not restrict damages. The Court of Appeal of the Eastern Caribbean Supreme Court agreed and awarded damages for lost restaurant earnings and related expenditure. Before the Privy Council, the company argued that the clause was either liquidated damages or a cap, and challenged the evidential basis for the lost-earnings award.

Lord Hodge delivered the judgment of the Board.

1. Appeal. The appeal was dismissed. The Board advised Her Majesty accordingly.
2. Construction of clause 19. The clause referred to a “penalty fee” payable when a breach caused an interruption. The wording did not refer to damages, liquidated damages, or a sum in lieu of damages. Read in the context of the lease as a whole, there was no sufficient indication that the fee was intended to replace the ordinary common-law remedy. It was therefore an additional contractual charge, not a limitation or substitute for Mr Pozzoni’s damages claim. The distinction suggested by the words “interruption” and “terminated” was noted but left undecided.
3. Penalty issue. The Board did not need to decide whether imposing the fee in addition to damages would itself be unenforceable as a penalty under the approach discussed in Cavendish Square Holding BV v El Makdessi [2015] UKSC 67. Whether enforceable or not, the fee was not a substitute for damages and formed no part of the claim.
4. Lost earnings. The trial judge was entitled to accept Mr Pozzoni’s evidence of average monthly earnings as a measure of likely earnings in the following season. The evidence was straightforward and was accepted as reliable. The absence of documentary records had been explained, and BBR had neither sought further particulars nor disclosure of the relevant records and computer files. The Board agreed that the Court of Appeal had no legal basis for interfering with that factual assessment. Hawkins v Woodhall [2008] EWCA Civ 932 was materially different because the evidential deficiencies there were unexplained or unsupported.
5. Contractual approach. The Board adopted the established approach to contractual construction summarised in Arnold v Britton [2015] UKSC 36; [2015] AC 1619.
6. The Board was minded to order BBR to pay the costs of the appeal in accordance with normal practice, but invited written submissions within 14 days on whether a different order was appropriate.

1. Privy Council. In [2016] UKPC 10, the appeal was dismissed. The Board invited submissions on costs.
2. Court of Appeal of the Eastern Caribbean Supreme Court (Antigua and Barbuda). By judgment dated 16 September 2014, the court upheld the conclusion that clause 19 did not restrict the damages claim. It construed the clause as addressing interruption followed by resumption, rather than termination following acceptance of repudiatory breach, and awarded EC$92,587.02.
3. High Court of Justice. Michel J, in a judgment dated 7 June 2010 corrected on 28 June 2010, treated clause 19 as an agreed penalty rather than a pre-estimate of damages and held that damages were not restricted by it.