12/03/2020

Nobiskrug GmbH v Valla Yachts Ltd – QBD

Nobiskrug GmbH v Valla Yachts Ltd – QBD (Comm Ct) (Sir Ross Cranston, sitting as a High Court Judge) [2019] EWHC 1219 (Comm) – 14 May 2019

Restitution – Shipbuilding contract – Buyer making additional payments to subcontractors to enable contract to proceed – Builder disputing liability to pay subcontractors – Buyer claiming to recover payment from builder under contract and in restitution – Arbitrators determining that builder was liable to buyer – Whether arbitrators erred in law

Nobiskrug GmbH (“the Builder”), were contracted by Valla Yachts Ltd (“the Buyers”) to build a super yacht. The contract stipulated that the builder was to “plan “plan, execute, organise and project manage the Works in order to achieve the Target Delivery Date”. The Builder was contractually responsible for management of subcontractors.

A dispute arose during the works as to payment of subcontractors. Subcontractors threatened to stop work unless their invoices were paid, and one subcontractor started legal proceedings. The Builder denied liability to pay the subcontractors on the grounds that there was no direct payment clause in the contract. The Buyers, in order to avoid disruption and delay, made payments to subcontractors, with express reservation of rights to recover the payments from the Builder. The Buyers referred the matter to arbitration to recover the substantial sums paid to the subcontractors.

The Arbitral Tribunal found, overall, for the Buyers. The Tribunal rejected the Buyers’ claims under the Contract, or in restitution, but found in their favour overall looking to the reservation of rights and finding that the Builder had provided poor management. This latter was a breach of contract.

The Builder was given permission to appeal under s69 Arbitration Act in relation to the following question:  “In relation to payments made by the Purchaser to third party Suppliers, whether, where the Purchaser has failed to establish that the Builder was under a liability to make payment to the Suppliers, the Purchaser is entitled to recover those sums from the Builder in restitution, solely on the basis that it made those payments subject to a reservation of right.”

Cranston J noted that the Tribunal had found that the Builder was in breach of its contractual project management obligations and that this had put the Buyers in considerable difficulties. The Court held that a reservation of rights would not entitle the Buyers to reimbursement for a payment voluntarily made, unless there was a grounds on which the Builder were obliged to reimburse. There was a plausible argument that the Builder was unjustly enriched at the Buyer’s expense. However, the issue of restitution was complex and had not been fully addressed on the face of the Award. The Tribunal had failed to address whether the Builder’s failings had caused the subcontractors additional costs. The Tribunal had also said that the Buyer would need to show that the project management failures were the cause of its loss, but had not returned to this issue. The Court stressed that the presumption under s69(7) was in favour of remission. The appeal was thus allowed and the Award remitted to the Tribunal for further consideration.