Havila Kystruten AS & Ors v STLC Europe Twenty Three Leasing Limited & Anor

Under a contractual break-cost formula, a lessor cannot include a margin that was not payable when termination occurred before delivery. The applicable deposit rate is the highest rate the lessor could obtain by taking reasonable steps to investigate its options with leading banks for the relevant deposit period. The inquiry is objective or quasi-objective, and the lessor’s sanctions-related circumstances do not alter it.

Contractual indemnities for legal costs do not ordinarily cover costs incurred by a lessor in litigation against the lessee where a competent court has finally disallowed recovery of those costs. A prior costs order does not itself preclude a separate contractual claim where that substantive issue was never determined, but proper construction may defeat the claim.

The claimants were lessees under bareboat charters for four vessels. Following earlier proceedings concerning termination events, the court was asked to determine disputed components of the Termination Sums payable on early termination.

The first dispute concerned whether pre-delivery Break Costs included the contractual Margin and whether the deposit-rate limb required the lessor’s actual rate or an objective rate. The second concerned legal costs claimed under the charter indemnities, including costs already addressed by the court’s final costs order of 16 December 2022.

The issues were whether the contractual wording permitted those additions and whether any prior costs determination or related preclusion doctrine prevented recovery.

1. Break Costs. Margin was not included in limb (a) of the Break Costs definition where payment occurred before delivery. The charter treated pre-delivery Prepaid Purchase Price and post-delivery Outstanding Charter Hire Principal as mutually exclusive scenarios. Only interest, subject to the interest-rate floor, was payable in the pre-delivery scenario; adding Margin would contradict the express exclusion of Pre-delivery Margin and the fact that Margin was not then due.
2. The deposit rate under limb (b) was neither the lessor’s unconstrained actual rate nor a purely hypothetical market rate. It was the highest rate the lessor could obtain by taking reasonable steps to investigate its options with leading banks for the relevant deposit period. The inquiry was contextual and objective in discipline. The lessors’ sanctions-related need for longer deposits was immaterial because it would reintroduce subjective circumstances into a time-limited contractual comparison.
3. Preclusion. The final order under CPR Part 44 determined costs qua costs, not the distinct substantive question whether those costs were recoverable under the charter. Accordingly, merger, res judicata and issue estoppel did not apply. The judge noted that Henderson v Henderson abuse might have force, but did not decide the matter on that basis.
4. Construction of the indemnities. Although the legal costs had sufficient factual connection with termination, the parties did not objectively contemplate recovery of costs incurred by a lessor in future litigation against the lessee where a competent court had finally determined that those costs were not recoverable as costs. Clauses 7 and 28.2(b)(vii) and (c)(viii) therefore did not cover the claimed unsuccessful litigation costs. The assessment issue under CPR 44.5 did not arise.
5. Other legal costs were not finally determined. Costs of the action, and advice concerning the impact of sanctions, might be recoverable subject to a contractual nexus and proof that they were reasonably incurred and reasonable in amount. Residual disputes could be determined on paper under the liberty to apply.

This was a first-instance determination arising from earlier proceedings in the same commercial dispute. The judgment refers to an earlier judgment dated 8 December 2022, cited as [2022] EWHC 3166 (Comm), and a costs order made on 16 December 2022. It also refers to a related judgment of Foxton J, [2023] EWHC 131 (Comm).