Havila Kystruten A.S. v Abarca Companhia De Seguros, S.A.

A contractual financing requirement must be construed from the language used, read in its contractual and factual context. A requirement for a written, committed statement from a lender may require a commercial commitment to lend without requiring executed facility documentation, unless the contract clearly says otherwise.

Where a termination clause requires good-faith negotiations and a conclusion that no alternative financial arrangement is available, termination does not arise merely because financing was late or the other party lacked confidence in it. A later financing commitment may remain relevant.

Express conditions stating that an addendum is null and void if specified conditions are unmet may remove accrued payment obligations and termination rights. Refund security may operate as a conditional or demand bond. Reliance loss may include instalments paid to the party in breach, subject to credit for value received.

Havila contracted with Hijos de J. Barreras SA, the Yard, for two passenger vessels. The contracts were amended by Addenda 7 to 9, addressing financing, refund security, payments, construction changes and termination rights.

The Yard purported to terminate in November 2019 because Havila had allegedly failed to provide sufficient financing evidence and had failed to make further payments. Havila rejected the termination and later terminated the contracts itself, relying on repudiation, delay and insolvency provisions. Havila also claimed against Abarca under insurance bonds securing repayment of instalments.

The principal issues were whether the Yard had acquired a contractual termination right; whether Addendum 9 created enforceable payment obligations; whether Havila validly terminated; whether the bonds responded; and whether the Yard could recover damages.

1. Construction of Addendum 7. The phrase written, committed statement required a written statement from the financing institution expressing a commercial commitment to lend. It did not necessarily require executed loan or facility documentation. The clause created one obligation, rather than separate requirements that financing legally exist and then be evidenced.

2. GTLK’s letter of 16 July 2019, provided to the Yard on 22 July, satisfied that requirement. It confirmed that the relevant approvals had been obtained and that only satisfactory transaction documentation remained.

3. The termination mechanism required the parties to meet and negotiate in good faith, and to reach the specified conclusion that no alternative financial arrangement was available from Havila. The parties had not reached that conclusion. Financing through GTLK was capable of being an alternative arrangement, and the Yard’s continuing conduct was inconsistent with the necessary conclusion.

4. The Yard was therefore not entitled to terminate under Addendum 7. In any event, on alternative assumptions, the Yard had waived any termination right by failing to exercise it within a reasonable time while continuing negotiations and pursuing Addendum 9.

5. Addendum 9 became null and void and was deemed non-written when its conditions were not satisfied within the stipulated time. That wording removed any accrued obligation to make the Second Additional Payments and any related termination right.

6. Havila validly terminated. The Yard’s purported termination was repudiatory. The Yard’s position made it clear that construction would not resume, so it was established beyond reasonable doubt that the vessels would not be completed within 180 days of their delivery dates. The Yard’s application for judicial dissolution constituted commenced proceedings for the purposes of Article XII.3, and later non-admission did not retrospectively invalidate Havila’s notice.

7. Havila could recover the instalments as reliance loss caused by the Yard’s repudiation, subject to any credit for value received. Recovery was not confined to cases of total failure of consideration.

8. The insurance bonds were conditional or demand bonds. Abarca’s obligation arose on production of the documents specified in the bonds, without Havila having separately to establish the Yard’s underlying liability to Abarca. The bonds also covered an obligation to repay the instalments arising by way of damages following common-law termination.

9. The Yard’s damages claims failed. Its termination notice adopted a sequence of contractual grounds and relied on common-law repudiation only alternatively. The alleged breaches were not conditions or repudiatory breaches. Addendum 7 § 2.5.3 would in any event have excluded damages arising from circumstances entitling the Yard to terminate under that provision.

10. The claim succeeded and the Yard’s claims failed. The court reserved submissions on outstanding matters and the precise form of relief.