Pleon Limited v Leonis Yachting Limited (“The Maltese Falcon”)

This judgment determines an appeal on a point of law under section 69 of the Arbitration Act 1996 (“the Act”) in relation to an arbitration award dated 26^th April 2024 (“the Award”). The appeal is brought with the permission of the Court, by Order of Andrew Baker J dated 26 July 2024.

The Maltese Falcon (“the Yacht”) is one of the largest masted yachts in the world. The Yacht was sold by the Claimant (“Pleon”) to the Defendant (“Leonis”). The contract for sale was in the form of a Memorandum of Agreement dated 18 February 2022 (“the Agreement for Sale”) on an amended Mediterranean Yacht Brokers Association form, with Addenda.

Delivery under the Agreement for Sale was on 7 April 2022, a date reached after extensions by the Addenda. By an “Agreement for Access”, annexed to the Third Addendum to the Agreement for Sale, Leonis agreed that, having purchased the Yacht from Pleon and taken delivery, it would grant Pleon use of and access to the Yacht for the 61 days from 20 April 2022 to 20 June 2022. There was no ‘hire’ charge for this use and access.

During the period of Pleon’s use and access, and whilst under sail for the Adriatic, the starboard generator of the Yacht suffered a breakdown. This immobilised the Yacht and cut short the use and access period from and including 9 May 2022.

By the First Addendum to the Agreement for Sale, Pleon agreed to permit Leonis to inspect all documents relating to the construction, registration, classification, maintenance, repair or improvement of the Yacht and any documents relating to the Yacht’s compliance with class or flag.

Clause 26 (as replaced) of the Agreement for Sale provided for a sea trial of a maximum of four hours’ duration prior to 7 March 2022. Clause 27 (as replaced) provided an option for Leonis to carry out a condition survey.

As summarised by the arbitration tribunal (“the Tribunal”), under Clause 27 Leonis could issue a written notice after the sea trial and condition survey requiring Pleon to make good any defects that would have affected the operational integrity of the Yacht or her machinery or rendered the Yacht unseaworthy. In the event, Leonis served no written notice requiring any defects as defined by the Agreement for Sale to be made good.

Clause 21 of the Agreement for Sale provided in part:

“[The Yacht] shall be delivered safely afloat … in the same condition (fair wear and tear excepted) and outfitted as at the time of the Sea Trial, if any, and the Condition Survey…”.

Clause 34 of the Agreement for Sale stated that the following were excluded:

“… every representation, condition, warranty or other undertaking whether expressed or implied by statute, common law, custom or otherwise howsoever in relation to [the Yacht], fault or errors in her description or her quality or her fitness, for any particular purpose…”

Further, Clause 36 of the Agreement for Sale contained a form of ‘entire agreement clause’. (The Tribunal unanimously concluded that Clauses 34 and 36 of the Agreement for Sale did not apply to Addendum Three or the Agreement for Access. Pleon sought and was refused permission to appeal on the Tribunal’s construction of Clause 34.)

Dealing with the use and access that Pleon was to enjoy for a period after delivery of the Yacht to Leonis under the Agreement for Sale, the Agreement for Access provided in part:

“2.

AGREEMENT

2.1.

[Leonis] makes [the Yacht] available for the use of [Pleon] for the Term subject to and upon the Terms of the Addendum Three to the [Agreement for Sale] …. [Pleon] accepts [the Yacht] for Use subject to the said Addendum Three to the [Agreement for Sale] ….

…

For the purposes of this appeal, the key clause is Clause 3.3 of the Agreement for Access. The issue is whether there is to be implied into the Agreement for Access a term that Leonis’s obligations were:

“conditional on the [Yacht’s] hull and machinery on delivery under [the Agreement for Sale] having been properly maintained”.

On this appeal, a number of decisions were referred to but the decisions principally cited and discussed in the course of written and oral argument were the decisions of the Supreme Court in Marks and Spencer plc v BNP Paribas Securities Services Trust Company [2016] AC 742, generally, but especially at [15]-[31] per Lord Neuberger and USDAW v Tesco Stores Ltd [2025] ICR 107, again generally but especially at [34]-[36] per Lord Burrows and Lady Simler, and [98]-[106] per Lord Leggatt. The latter decision came after the Award in the present case.

The Tribunal asked itself whether “without the term, the contract would lack commercial or practical coherence” (Marks and Spencer plc v BNP at [21]). That formulation was later to be tested by Lord Leggatt in USDAW v Tesco Stores Ltd at [105].

The Tribunal found that the period between delivery to Leonis and the commencement of the period of access by Pleon was too short “to effect any transformative maintenance”. The Tribunal further wrote:

“However, what was striking in this reference was that the short 12 or 13 day gap (depending on how the days were counted) between delivery by Pleon under the [Agreement for Sale] and delivery by Leonis under the [Agreement for Access] was used up with the demands of re-registration and the need to sail from Malta to Corfu; that meant that in practical terms it was not possible for Leonis to deliver the [Y]acht under the [Agreement for Access] in a condition that was materially different from that in which the [Y]acht had been delivered to them under the [Agreement for Sale]. To all practical intents and purposes the rights and obligations of the parties were the same as though the two deliveries were to take place simultaneously.”

The Tribunal concluded by a majority (Ms Sarra Kay and Mr Mark Hamsher; Sir Bernard Eder dissenting) that the term was to be implied as qualifying Leonis’s obligations under Clause 3.3 of the Access Agreement:

“… in the light of the practical impossibility of Leonis delivering the [ Y]acht under the [Agreement for Access] in a condition other than in which she had been delivered to them under [the Agreement for Sale] …”

The majority explained:

“A failure to maintain all the complicated machinery on the “MALTESE FALCON” would not have been obvious during the condition survey and sea trials and so, without that qualification, “the contract would lack commercial or practical coherence” and therefore [the term] was properly to be implied. For the same reason it would have been the obvious but unexpressed intention of the parties that Leonis’s obligations under clause 3.3 were conditional on the hull and machinery of the [Y]acht having been properly maintained. …”.

The italics are as in the original.

The majority considered it to be noteworthy:

“… that if the [Agreement for Access] is considered together with the [Agreement for Sale], then the practical impossibility of Leonis carrying out no more than minimal maintenance between the two deliveries means that without a qualification of the absolute obligation contained in clause 3.3 of the [Agreement for Access]… “the contract would lack commercial or practical coherence”.”

They asked, rhetorically:

“With notional simultaneous delivery, could it have been the objective intention of the two parties that Leonis should have been obliged to perform the [Agreement for Access] to a higher standard than Pleon had had to perform [the Agreement for Sale] when physically it was not actually something within Leonis’s potential control?”

In his dissenting opinion, Sir Bernard Eder did not agree that the term was to be implied.

Sir Bernard reasoned that the wording of Clause 3.3 was “clear and unambiguous i.e. the clause imposes on Leonis an absolute obligation that the [Y]acht shall be “in full working order” and “seaworthy”.”

He added:

“I fully recognise that there is a sharp mismatch between that obligation and the prior obligation on Pleon under [the Agreement for Sale] to deliver the [Y]acht in an “as is” condition.

… I fully accept that, from a commercial point of view, there is a very powerful argument that it would be unreasonable for Leonis to accept delivery of the [Y]acht in an “as is” condition yet undertake the immensely stringent absolute obligation that the [Y]acht would be “in full working condition” and “seaworthy” shortly thereafter as at the date when the [Y]acht was made available under the [Agreement for Access].”

However, in Sir Bernard’s view, the Agreement for Access “can and does work perfectly well without any implied term.”, and nothing warranted introducing the term. As he saw it, the implied term “… plainly contradict[ed] the express term in clause 3.3 of the [Agreement for Access].”

He continued:

“I do not accept the possible argument that, in truth, there is no contradiction – but merely a qualification. At the risk of repetition, my view is that clause 3.3 is clear and unambiguous. The suggested implied terms would have the effect of rendering the obligations imposed by clause 3.3 in certain circumstances inapplicable which amounts to a contradiction or inconsistency with the express terms.”

I acknowledge the clarity of the express words in Clause 3.3 of the Agreement for Access, “shall be … in full working order and … shall be seaworthy”.

The word “absolute”, used by all members of the Tribunal, is not itself used in the Clause. Rather, in the present case “absolute” describes a proposed conclusion about the words used.

It may be said that the standard set by the words used is unqualified. But that is not the question on the appeal. The appeal concerns the question whether (force majeure apart) a qualification to the circumstances in which that standard would apply is “necessary” (in the sense explained by the decisions in this area) for the agreement between the parties to have business efficacy.

There are examples of the Courts concluding that clear contractual words admit of qualification as a matter of interpretation or through implication. These include cases where a contract speaks of a discretion to be exercised by a party to the contract or a related person, or of right of a party to the contract to make a determination: note for instance Braganza v BP Shipping Ltd [2015] UKSC 17; [2015] 1 WLR 1661 and the line of trader bonus cases from Clark v Nomura International [2000] IRLR 766 onwards, and also Equitable Life Assurance Society v Hyman [2002] 1 AC 408, considered by Lord Leggatt at [107]-[108] in USDAW v Tesco Stores Ltd (above).

The present case is quite unlike those, but the point that qualification is possible, even where express words are clear, is sufficiently made by the example. Mr Steven Berry KC, appearing with Mr John Robb for Leonis, put the point shortly and neatly in oral argument: “[s]o just the label “absolute”, whether applied in the contract itself or in authorities … does not exclude limitations”.

In the present case, at delivery under the Agreement for Sale, the contractual possibilities were that the Yacht was seaworthy or was unseaworthy. There was a risk that the Yacht would be unseaworthy, but she might be seaworthy. Clauses 21 and 34 of the Agreement for Sale, and the provision for the sea trial and the option for a condition survey, show this.

If the Yacht was in fact unseaworthy at the time of sea trial and any condition survey, and the parties still proceeded to delivery, under the Agreement for Sale the risk that the Yacht was unseaworthy at delivery to Leonis was, in the present case, with Leonis as buyer and not Pleon as seller. Once that is recognised, it is possible to understand from Clause 3.3 of the Agreement for Access that the parties had decided that when use and access was then given to Pleon under the Agreement for Access, the risk that the Yacht was unseaworthy remained with Leonis.

If the matter is considered through the lens of the contractual purpose of Clause 3.3 of the Agreement for Access (see USDAW v Tesco Stores Ltd, above at [106] and [110] per Lord Leggatt), the purpose was to allocate risk. In his oral argument in reply, Mr Alexander Gunning KC, appearing with Mr Jamie Hamblen for Pleon, rightly summarised this case as about “seeking to identify who bore the risk of what.”

Understood in this way, in the present case there is no lack of business efficacy and there is no room for the implied term.

Drawing on the explanation by Bowen LJ in The Moorcock (1889) 14 PD 64 at 68, in the present case no implied term is needed “… to make each party promise in law as much, at all events, as it must have been in the contemplation of both parties that [each] should be responsible for in respect of [the] perils or chances [of the transaction]”. The parties had dealt with that by the express terms they agreed, and these left the risk of unseaworthiness plainly enough with Leonis if in fact Leonis had purchased an unseaworthy Yacht and she remained unseaworthy when use and access was then provided to Pleon.

Leonis acknowledged that “it is always theoretically possible that contractual responsibility for a state of affairs can rest on party A rather than party B” but responded that “the Tribunal was entitled to find that the [Agreement for Access] would nevertheless have lacked business efficacy [original emphasis] if Leonis undertook responsibility for something which as a matter of practical sense and justice was entirely under Pleon’s control”, “and which Leonis had no opportunity to do anything about”. No error of law, it was argued, was committed by the Tribunal in coming to that conclusion.

As to that, although a factual assessment is involved, and the assessment by the Tribunal deserves weight (consider CVLC Three Carrier Corp v Arab Maritime Petroleum Company [2021] EWHC 551 (Comm); [2022] 1 All ER (Comm) 839 at [21] per Cockerill J), the conclusion that a term is or is not to be implied remains one of law. Leonis developed an argument that where the law would imply a term if it was obvious (in the sense that it “went without saying”) then a finding by the Tribunal that the term was obvious was a finding of fact conclusive of the question whether a term was to be implied. In my judgment that argument does not sufficiently recognise that the finding that a term was obvious, sufficient to justify the implication of the term, is part of the question of law.

Mr Berry KC developed an argument in these terms:

“So we have a proximate cause of a breakdown caused by Pleon’s negligence, the seller of the ship, and we are not suing them for damages for that… because that right is excluded. They are suing us for damages, for something proximately caused by their own negligence, and on the fact findings of the tribunal, they’re suing us in circumstances where it was impossible for us to do anything about … it and impossible to comply with the seaworthiness obligation because of their own negligent failure to maintain. How can that be right? It cannot, and so the issue in this case really can be put as follows: can a party of Pleon’s position sue for the consequences of unseaworthiness caused by its own negligence about which the prospective defendant could do nothing?”.

An example pressed by Mr Berry KC for Leonis was this:

“Just as it would be absurd to allow a charterer to rely on an off-hire event caused by something for which he is responsible, so here it would be absurd to allow Pleon to sue Leonis”.

As to this, whatever might be the case with a different contract or in a different context, where (as here) Pleon had not agreed in the Agreement for Sale that the Yacht it delivered was a Yacht whose “… machinery had been properly maintained”, negligence is not to the point; responsibility to Leonis in relation to maintenance had not been taken by Pleon.

Mr Berry KC referred to Clause 34 of the Agreement for Sale to say that there is no allocation of risk to Leonis of improper maintenance; it is just, he said, that Leonis cannot sue Pleon for it. However, in the present case, in Clause 3.3 of the Agreement for Access, Leonis went on to choose to promise Pleon that Pleon would enjoy the use and access that came with a seaworthy Yacht. Leonis took the risk of making that promise and the promise was not honoured.

In the circumstances, there is no absence of business efficacy or presence of absurdity if the parties should choose in the Agreement for Access that Leonis, not Pleon, would be left with a financial consequence were the Yacht unseaworthy when Leonis was due to give use and access to Pleon. This is so even if the reason for that unseaworthiness was because the machinery had not been properly maintained by Pleon before the Yacht was sold and delivered to Leonis.

Although for reasons that, respectfully, are not identical with those of the majority or the minority of the Tribunal, the appeal is allowed.

I will consider the appropriate form of relief with Counsel once this judgment has been considered by the parties.