Barthélemy Holdings, LLC v Duet Group Ltd

A contractual budget warranty requiring a budget to be prepared on a prudent and reasonable basis is not an absolute guarantee of the eventual construction cost. Requirements that the budget identify all relevant costs and contain prudent estimates are manifestations of that overarching obligation. Damages require comparison with the reasonable budget that should have been prepared.

A global claim for all cost overruns remains subject to ordinary principles of causation and loss. Where multiple independent causes contributed to the loss, the claimant must prove the recoverable loss; otherwise, individual items may be claimed if properly evidenced. A contractual specification must be sufficiently detailed and implementable. General design aspirations and later drawings not agreed by the warrantor do not form part of it.

Barthélemy Holdings LLC invested in the development of a hotel in Saint-Barthélemy. Under an investment agreement, Duet Group Ltd guaranteed obligations of Duet Trust and Fiduciary Services SA, including warranties concerning the hotel specification and budget. The hotel ultimately cost substantially more than the warranted budget.

BH claimed damages for breach of warranty, together with various additional costs. Duet denied liability and advanced a counterclaim based on BH’s acquisition of security and assets following foreclosure of a related villa loan. The principal issues concerned the meaning of the specification and budget warranties, the recoverability of global or individual cost overruns, alleged duties of co-operation and non-interference, and the discharge of the guarantee.

1. Principal claim. Judgment was entered for BH against Duet, subject to the sums awarded below. The court rejected BH’s primary global claim based on the difference between the total actual cost and the warranted budget.
2. Budget warranties. Clause 38.2 imposed the overarching requirement that the budget be prepared on a prudent and reasonable basis. Clauses 38.3 and 38.4 were specific manifestations of that requirement. Clause 38.3 required the relevant costs to be identified and quantified, but did not guarantee the eventual costs. The proper measure was the difference between the warranted budget and the reasonable budget which should have been prepared.
3. Global claims. The principles discussed in Lily v Mackay [2012] EWHC 1773 were an application of ordinary causation and loss principles, not a special rule for construction contracts. BH failed to establish its global loss because numerous independent causes contributed to the overruns, including later design changes, project-management failures and workmanship issues.
4. Specification. The Specification comprised the 2013 Drawings and Permit Drawings. The Design Notes, SMD Letter and SMD Drawings were not incorporated. They were either too general or incomplete, or had not been agreed by DTFS. The court defined the relevant Brochure Quality by reference to the stated facilities and features, effective competition with the island’s comparable hotels, a smart-casual ambience and an appropriate international design.
5. Individual items. The court awarded €3,491,987.31 for specified breaches and costs, including beachfront works, FFE, collectivity requirements, kitchen equipment, defective work, prior scope changes, overspend and SMD’s fee. It also awarded €423,165.35 admitted by Duet, €153,521 for the Villa Costs Claim, and £85,000, US$1,002,382.67 and €741,501.03 under the Colony Costs Claim.
6. Counterclaim. The Villa Loan Counterclaim failed. BH had not caused DTFS’s default under the separate villa loan and owed no contractual duty to assist DTFS in negotiating with the lender. The authorities concerning prevention of performance did not support the broader duty alleged. The conspiracy claim consequently lacked unlawful means. The equitable surety principle in Watts v Shuttleworth (1860) 5 H&N 235 did not apply, and clause 23.3.4 preserved the guarantee.
7. DTFS was ordered to indemnify Duet as guarantor.