Neutral Citation Number: [2010] EWHC 900 (Comm)
Case No: 2009 FOLIO 772
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 29 April 2010

Before :

MR JUSTICE BURTON
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Between :

	Parbulk AS	
Claimant	
	- and -		
	Kristen Marine SA
and
Aurele Trading Inco	

Defendants	

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Duncan Matthews QC (instructed by Watson Farley and Williams LLP) for the Claimant
Nigel Tozzi QC and Sean O’Sullivan (instructed by Norton Rose LLP) for the First and Second Defendants

Hearing date: 14 April 2010
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Judgment

Mr Justice Burton : 

1.	This has been the hearing of the application for summary judgment by Mr Duncan Matthews QC on behalf of the Claimant, Parbulk AS, a Norwegian company, against the First Defendant, Kristen Marine SA, a Liberian company, and the Second Defendant, Aurele Trading Inc, a Marshall Islands company, pursuant to the guarantees signed by them dated 10 October 2007 of the liability of four Special Purpose Vehicles (“the SPVs”), of which the Second Defendant was the holding company, under four Memoranda of Agreement (MoAs) between the SPVs and the Claimant of the same date. 
2.	The background is that the four SPVs became (by novation) party to four shipbuilding contracts dated 21 December 2005 with a Chinese shipyard, being Jiangsu Eastern Shipyard and Jiangsu Holly Corporation, for the acquisition of four handysize bulk carriers (“the vessels”). The Defendants decided to restructure their finance of the project by means of a sale and leaseback transaction entered into with the Claimant, which is controlled by a small group of investors sourced in the Norwegian market by Pareto Private Equity ASA (“PPE”) as arranger. Hence the SPVs entered into the four MoAs to sell the four vessels to the Claimant, and the Claimant at the same time entered into four Bareboat Charters to charter the four vessels back to the SPVs, for a minimum period of five years, with options for a further five years, containing rights for the SPVs to have first refusal to purchase the vessels and options for the SPVs to buy back the vessels (Clauses 37, 41 and 50 of each Bareboat Charter). These were basically on the terms of the BIMCO Standard Bareboat Charter BARECON 2001 Form, but substantially amended, and with additional specially negotiated Clauses 32 to 54 inclusive. 
3.	The entire series of agreements was described as being part of an “en bloc” transaction, as to the four MoAs and the four Bareboat Charters. There were terms of each MoA (with the relevant shipbuilding agreement in each case being attached as “Attachment A”), as follows:
“20. The Buyers’ obligations to buy the Vessel are conditional upon the parties agreeing and concluding a Bareboat Charter for a period of five years plus five optional years and in case the Sellers do not accept delivery of the Vessel under the Bareboat Charter party, the Sellers shall be deemed to be in default and the Buyer may cancel this Agreement in accordance with Clause 14.
21. Cross default
This Agreement is part of an en bloc transaction covering also hulls no JES06C-002, JES06C-003, JES06C-004 (together referred to as the Related Vessels). Should for any reason whatsoever any of the Related Vessels not be delivered under their respective memorandum of agreements or any of the bareboat charterparties for the Related Vessels be terminated as a result of the Sellers default as charterers thereunder, the Sellers shall be deemed in default of this Agreement and the Buyers may at its option (i) terminate this Agreement and the Buyers shall have the rights set out in clause 14 or (ii) the Buyers may at its option take delivery hereunder, but terminate merely the bareboat charterparty for the Vessel. 
22. Attachment A
The Sellers warrant that Attachment A enclosed hereto constitute the full and complete Shipbuilding Contract with specifications and that any changes hereto, except for minor adjustments/alterations/modifications which [do] not effect the purpose or value of the Vessel, or the delivery time or the speed, deadweight, fuel consumption or other characteristics of the Vessel shall be subject to Buyer’s consent.
When the provisions of this Agreement refer to “as per Attachment A” the Buyers shall be deemed towards the Sellers to have the same rights and be entitled to the same claims, damages and otherwise as the Sellers have towards the Builder (and the Sellers as defined in Attachment A) under Attachment A.
The parties will cooperate in good faith with a view to resolving any dispute with the builder, and the Sellers will, if so requested by the Buyers, promptly assign any relevant claim(s) under the warranties given by the Builders under the Shipbuilding Contract.”
4.	The relevant terms, in this respect, of each Bareboat Charter were as follows:
“36. CONDITIONS PRECEDENT
Notwithstanding anything to the contrary in this Charter, the obligations of the Owners to charter the Vessel to the Charterers under this Charter are subject to and conditional upon at the Delivery Date:
36.1 Delivery by the Seller to, and acceptance by, the Owners of the Vessel pursuant to the MOA
46. EVENTS OF DEFAULT 
…
46.2. As this Charter is part of an en-bloc sale-leaseback transaction involving the Vessel and her Sister Ships, an event of Default under a bareboat charter party pertaining to any of the Sister Ships shall constitute an Event of Default of this Charter as well, and Owners may terminate this Charter in accordance with clause 47 herein.
Should for any reason whatsoever any of the Sister ships not be delivered under their respective memoranda of Agreement, the Charterers shall be deemed to be in Default under this Charter, and Owners may terminate this Charter in accordance with Clause 47 herein.”
5.	The sale price receivable by the SPVs under the MOAs totalled US$143.5 million, which was considerably more than the purchase price which the SPVs were required to pay under the Shipbuilding Contracts (totalling approximately US$ 102m). The charter income payable by the SPVs to the Claimant was fixed by subclause 38.1 of each Charter: it was required to be paid on stringent terms, to ensure payment of hire in full without discount, set-off or counterclaim, and despite any contingency, including any possible failure by the Claimant (subclauses 38.4 and 38.5), and all relevant obligations, in respect of maintenance and repairs and insurance, and all rights in respect of operation, and the flag and name of the Vessel, were wholly vested in the SPVs (Clauses 10 and 13). 
6.	In order to provide part of the finance for the price paid by it to the SPVs as above, the Claimant entered into loan terms with its lenders. By a Secured Term Loan Facility Agreement dated 9 October 2007 (“the Loan Agreement”) the Claimant borrowed US$ 129,150,000 from the French bank Calyon SA (“Calyon”). The parties to the agreement were the Claimant, as Borrower, “the Financial Institutions listed in Schedule 1”, being in fact - because there was only one such Bank listed in Schedule 1 in respect of the totality of the US$ 129,150,000 – Calyon, and Calyon as “Agent, Arranger and Swap Bank”. The Loan Agreement provided for interest to be payable on a floating basis, whereas the Claimant’s income was, as set out above, fixed by reference to the charter income under the Bareboat Charter. Accordingly, by subclause 18.15 of the Loan Agreement, the Claimant was required to hedge the interest rate fluctuation risk for the loans for a period of at least three years by entering into with the Swap Bank (Calyon) a Swap Agreement (which was defined in subclause 1.1 as meaning “An ISDA Master Agreement entered into or to be entered into by [Calyon] and [the Claimant], as amended from time to time, and confirmations of the transactions made or to be made thereunder”) and certain transactions thereunder. By subclause 4.1(a) and paragraph 8 of Schedule 2 of the Loan Agreement, the Claimant was obliged, within 20 business days from 9 October 2007, to provide to Calyon the Swap Agreement duly executed by the Claimant and Calyon “together with evidence that the interest rate exposure in respect of the Loans has been fixed for a period of at least 3 (three) years.” The Claimant entered into the ISDA Master Swap Agreement with Calyon on 9 October 2007, and, pursuant to it, on the same day (within the 20 business days), entered into four Swap transactions, each for five years, being the five-year “initial charter period”, pursuant to subclause 37.1 of the Charter, for the full amount of the unrepaid loan. 
7.	By subclause 12(b) of the Charter, it was confirmed that “The Vessel chartered under this Charter is financed by a mortgage according to the Financial Instrument”. It is common ground, both by reference to the definition section at Clause 1 of the Charter and Box 28, but also by reference to Clause 32, to which I shall refer, that this Financial Instrument was, or included, the Loan Agreement. Subclause 12(b) continued:
“The Charterers undertake to comply, and provide such information and documents to enable the Owners to comply, with all such instruction or directions in regard to the employment, insurances, operation, repairs and maintenance of the Vessel as laid down in the Financial Instrument or as may be directed from time to time during the currency of the Charter by the mortgagee(s) in conformity with the Financial Instrument. The Charterers confirm that, for this purpose, they have acquainted themselves with all relevant terms, conditions and provisions of the Financial Instrument and agree to acknowledge this in writing in any form that may be required by the mortgagee(s).”
8.	Clause 32 of the Charter reads as follows in material part:
“32. DEFINITIONS
…
32.1.11 “Loan Agreement” means the loan agreement between the Owner and the Mortgagee in respect of the USD 129,150,000 loan provided for the purpose of financing, in part, the Owners’ purchase of the Vessel and her Sister Ships together with the security documents executed or to be executed in connection therewith;  
…
32.1.14 “Mortgage” means the first priority mortgage against the Vessel executed or to be executed by the Owners in favour of the Mortgagee as security for the Owners’ obligations under the Loan Agreement and the Swap Agreement.
32.1.15 “Mortgage” means [Calyon], as agent on behalf of the banks having financed the Owners’ purchase of the Vessel and [Calyon] as swap bank;
…
32.1.22 “Swap Agreement” means an ISDA Master Agreement entered or to be entered into between the Owners and [Calyon], as amended from time  to time, and confirmations of the transactions relating to hedging of interest exposure under the Loan Agreement or to be made thereunder.”
9.	In the event there was substantial delay by the Shipyards in carrying out their obligations under the respective Shipbuilding Contracts. Given the “en bloc” nature of the transactions, as discussed, I only need to deal with the dates in respect of the first such vessel. The delivery date for such vessel under the Shipbuilding Contract was 31 July 2008, and the cancellation date (by reference to the right of the SPV to cancel after an excessive delay, of 210 days of permissible and non-permissible delay) was 26 February 2009. Clause 5 of the relevant MoA requires as follows (I substitute the relevant dates for the words “as per Attachment A” in the original document):
“5(a) The Sellers shall keep the Buyers well informed of the Vessel’s construction progress and shall provide the Buyers with 15, 10, 7, 5 and 3 days notice of the estimated time of delivery. When the Vessel is in every respect physically and legally ready for delivery in accordance with this Agreement, the Sellers shall give the Buyers a written Notice of Readiness for delivery within 1 day prior to delivery.
(b) The Vessel shall be delivered and taken over safely afloat at a safe and accessible berth or anchorage at Jiangsu Eastern Shipyard, People’s Republic of China. Expected time of delivery: [31 July 2008] … Date of cancelling (see Clause … 14): [26 February 2009].”
10.	No Notice of Readiness was given in respect of the first such vessel by the relevant cancellation date of 26 February 2009. The Clause which has been the centrepiece for this application before me is Clause 14, upon which the Claimant relies to establish its right to give, as it did, notice dated 27 February 2009 that its right to cancel the MoAs had arisen, and, subsequently, on 16 March 2009, notice of cancellation of all four MoAs – there is of course no issue that, if the Claimant was entitled to terminate the first MoA, then, because of the en bloc nature, it was also entitled to do so in respect of the other three. Clause 14 reads as follows (for the sake of easy cross-reference I shall insert numbers before each of the four sentences):
“14. Sellers Default
(1) Should the Sellers fail to give Notice of Readiness in accordance with Clause 5a) or fail to be ready to validly complete a legal transfer by [26 February 2009] the Buyers shall have the option of cancelling this Agreement provided always that the Sellers shall be granted a maximum of 3 banking days after Notice of readiness has been given to make arrangements for the documentation set out in Clause 8. (2) If after Notice of Readiness has been given but before the Buyers have taken delivery, the Vessel ceases to be physically ready for delivery and is not made physically ready again in every respect by [26 February 2009] and new Notice of Readiness given, the Buyers shall retain their option to cancel subject to Clause 5c above. (3) In the event that the Buyers elect to cancel this Agreement the deposit together with interest earned shall be released to them immediately and Sellers shall pay the Buyer their proven expenses including, but not limited to, legal costs and breakage cost with the Buyer’s lenders.
(4) Should the Sellers fail to give Notice of Readiness by [26 February 2009] or fail to be ready to validly complete a legal transfer as aforesaid they shall make due compensation to the Buyers for their loss and for all expenses together with interest 6 months Libor + 2% if their failure is due to proven negligence and whether or not the Buyers cancel this Agreement.”
11.	The Claimant’s deposit was returned to it, but it now claims, pursuant to Clause 14, its “proven expenses including, but not limited to, legal costs and breakage cost with the Buyer’s lenders”. These fall into two categories:
i)	The sums flowing from the cancellation of the Loan Agreement and the breaking of the Swap Agreements (“swap costs”). The Loan Agreement was terminated by Calyon on 18 March 2009 by virtue of the termination of the MoAs (subclause 19.11), and the Swap Agreements on 19 March 2009 by virtue of the termination of the Loan Agreement (subclause 5(b)(v), 6(b) and Schedule Part I(h)(ii) of the ISDA Master Agreement). The notice by the Claimant dated 27 February 2009, referred to in paragraph 10 above, concluded by stating that, in the event that it cancelled the MoAs, there would be a claim pursuant to Clause 14 and that:
“As you know, we have hedged our interest rate exposure under the Calyon SA loan advanced to us to finance the ship purchases. We understand that the breakage costs that would be payable if those swap transactions were terminated today would likely be in the region of US$ 14m. That is a figure that may fluctuate upwards or downwards in the current market conditions.”
The cost which has eventuated, and which has been paid by the Claimant to Calyon, was calculated in accordance with the provisions of the ISDA Master Agreement, and this is agreed as a calculation at either US$ 15,185,647 (Claimant’s calculation) or US$ 14,335,647 (US$ 850,000 less) (Defendants’ calculation) or US$ 14,833,631 (the Claimant’s reworking of the Defendants’ calculation). 
ii)	Other expenses are claimed (“out of pocket expenses”). Of these, an arrangement fee payable to PPE of US$ 2,870,000 is not claimed as part of this application, leave to defend being conceded in this regard by the Claimant. The balance then consists of a commitment fee of US$ 567,076 payable to Calyon pursuant to Clause 21.1 of the Loan Agreement, an arrangement fee payable to Calyon pursuant to Clause 21.2 of the Loan Agreement in the sum of US$ 774,900 and other expenses totalling US$ 521,105 (after deduction of an erroneously included invoice for NOK 5206.88), less admitted savings of US$ 880,664, making a total net claim of US$ 982,307.
12.	The Claimant seeks judgment in those sums: alternatively judgment and an interim payment on account of those sums. The claim is put alternatively on the basis of a claim in debt, in which case I can award whatever sum, if any, seems to me to be indubitably due, or a claim for damages for breach of the guarantees to be assessed, and an interim payment on account of such damages. Mr Tozzi QC and Mr O’Sullivan, who have appeared on behalf of the Defendants, have not taken any point as to whether such judgment would be for debt or for damages, nor any point, if the latter were the case, as to the absence of a formal application for interim payment pursuant to Parts 25.6 and 25.7. Their case is that there is an arguable defence to the totality of the claim and that, if judgment is to be entered for damages to be assessed, there is no sum which the Court can be satisfied is bound to be due to the Claimant. There was no issue between the parties that, for the purposes of Part 24, or, if it arises, Part 25, the Claimant must show that the Defendant has no real prospect of successfully defending the claim or any quantified sum; the evidential burden is upon the Defendant to raise a defence, but once it be raised, it is for the Claimant to show that such defence has no realistic prospect of success. Mr Tozzi raised a number of defences (some by proposed draft amendments to the Defence already served), which were addressed by the Claimant in its evidence and by Mr Matthews in his submissions, and I shall address them in turn.
13.	The Construction Issue (1). This submission was that the construction of Clause 14 of the MoAs is (arguably) such that the provision relied upon by the Claimant as to its remedy, as set out in sentence (3) of the Clause, does not arise pursuant to the option to cancel contained in sentence (1) of the Clause (failure to give Notice of Readiness), but only that in sentence (2) (default after Notice of Readiness given). 
14.	Penalty Clause (2). It is pleaded in paragraph 21.3 of the Defendants’ Defence that Clause 14 is an unenforceable penalty. This was not pursued by Mr Tozzi at the hearing.
15.	Claimant Better Off (3). Also not pursued by Mr Tozzi was a contention, seemingly put forward by the Defendants, that the Claimant could not pursue wasted costs where it could not show a loss of profit, and indeed might have been preserved from a loss. Resorting, somewhat unusually, in a witness statement to citation of cases, Mr Buss, on behalf of the Claimant, referred, unanswerably, to a decision of Hutchison J in CCC Films (London) Ltd v Impact Quadrant Films Ltd [1985] QB 16, derived from Lord Denning MR in Anglia Television Ltd v Reed [1972] 1 QB 60, that a plaintiff claiming damages for breach of contract has an unfettered choice whether to claim loss of profit or wasted expenditure. 
16.	Breakage cost (4). Mr Tozzi submits that the swap costs claimed (arguably) do not fall within the definition in Clause 14 “breakage cost with the Buyer’s lenders”. 
17.	Proven Expenses (5). Insofar as the Claimant contends that, if the swap costs are not breakage cost with the Buyer’s lenders, then they are, by virtue of, or notwithstanding, the eiusdem generis rule, “proven expenses”, the Defendants contend they are, or are arguably, not so.
18.	Remoteness/Unreasonableness (6). Mr Tozzi contends that it is necessary for the Claimant to establish for recovery of sums pursuant to Clause 14 that they were foreseeable (ie not too remote) and reasonably incurred, and that the swap costs were (arguably) neither so foreseeable nor reasonably incurred.
19.	Quantum (7). As to the swap costs, the Defendants contend that, if they are otherwise recoverable, there is an arguable dispute as to the amount of US$ 850,000 (see paragraph 11(ii) above) and that the out of pocket expenses are not recoverable because:
i)	They are required, for the purposes of Clause 14, to, and do not, result from the cancellation.
ii)	They include ‘establishment’ costs, on the basis that the Claimant contends that it is entitled to recover, as wasted costs, all the costs expended in the setting up of the Special Purpose Vehicles, which was especially for this abortive transaction, and the Defendants contend that such costs are in any event not recoverable under Clause 14.
iii)	The sums claimed are not proven, or are not evidenced or proved sufficiently, for the purposes of Part 24 and/or an interim payment pursuant to Part 25.
20.	As set out above, Defences (2) and (3) are not pursued. As for the Construction Issue (1), this seems to me to be unarguable, and was not vigorously pursued by Mr Tozzi. It is quite plain that the only sensible, practicable and commercial construction of Clause 14 is that both the two forms of cancellation, those referred to in sentences (1) and (2), result in the available remedy set out in sentence (3). Not only is there, in my judgment, no conceivable reason for sentence (3) only applying to sentence (2), but that would leave sentence (1) without consequence, and, at the very least, there would need to be, as Mr Tozzi conceded, an implied entitlement for the Buyer to recover the deposit, which would thus for some reason not be expressed. The conclusion that the remedy in sentence (3) must be applicable to both forms of cancellation in sentences (1) and (2) is further emphasised by the fact that sentence (2) itself is clearly dependent upon sentence (1), in that, the option to cancel having been defined in sentence (1), sentence (2) provides that the “Buyers shall retain their option to cancel” in the events prescribed in that sentence. Sentence (3) then follows naturally upon the continued availability of that remedy, and plainly is not exclusive only to the second option to cancel. In my judgment it is clear that, in these circumstances, namely cancellation where there was a failure to give Notice of Readiness, the remedy, relied upon by the Claimant, contained in sentence (3) arises.
21.	Defences (4), (5) and (6) must all be examined against the background of the facts of this particular case; as to the two construction arguments because they must be addressed taking into account the factual matrix, and, for obvious reasons, the arguments as to remoteness and unreasonableness similarly fall to be so considered. I can dispose briefly of two matters which have seemed to me not to be material in the arguments between the parties. First, the Claimant has characterised what occurred here as essentially a financing transaction by the Defendants, while the Defendants have denied this and asserted that they did not require the purchase price paid by the Claimant to fund their acquisition of the Vessel under the Shipbuilding contracts. I do not see this as an issue which I need to resolve. What is entirely plain is that, as between the Claimant and the Defendants, this was a straightforward sale and leaseback. For whatever reason they needed the money, the Defendants obtained a capital sum from the Claimant upon selling the Vessel to the Claimant, but it was, it seems to me, essential for them that they effectively retained the ownership in those Vessels, which was secured by the contemporaneous leaseback, with all material rights in relation to the Vessels retained by, or returned to, them, coupled with appropriate options to repurchase. The Claimant was substantially borrowing monies in order to fund its purchase of the Vessels, but was then receiving a guaranteed income stream from the Defendants, by way of the charter rate, and, because that charter rate was a fixed rate, it was covering the risk of a floating interest rate on the monies it had borrowed by entering into the swap transactions. 
22.	The Claimant pleaded in its particulars of claim, at paragraph 16, that the hedge was a “commercial necessity of the sale and leaseback of the Vessels”. The Defendants have put this in issue, relying on expert evidence, primarily from a shipping finance expert Mr John Simpson, that there could have been other ways to hedge their risk, and the Claimant has responded that the averment in paragraph 16 was an immaterial averment – that it was not necessary to establish it for the purpose of the Claimant’s case. I agree that this too is not an issue which needs to be resolved for the purpose of addressing the defences raised by the Defendants, and hence the prospects of success of the Claimant’s case. The issue is whether the swap losses were (arguably) too remote or unreasonably incurred, so as not to be recoverable pursuant to Clause 14 of the Agreement.
23.	Mr Tozzi’s submissions by reference to the facts, and to Defences (4), (5) or (6), with which I am now dealing, can be set out as follows:
i)	Swap costs or losses are not breakage cost. The Defendants rely upon the view of Mr Simpson that such breakage cost would be specific cancellation charges or fees payable to a lending bank if a loan were cancelled or did not proceed because of non-delivery of the Vessel, sometimes referred to as a “drop-dead fee”. 
ii)	The swap losses did not arise out of the Loan Agreement, but from the ISDA Master Agreement and the Swap Agreements governed by it.
iii)	They were not breakage cost with the Buyers’ lenders because the costs, although paid to Calyon, were paid to it as the swap bank and not as the lender. It was, it is said, a coincidence that the bank and the swap bank or agent were in this case the same party.
iv)	The Claimant relies upon the existence and wording of subclause 47.3.3 of the Bareboat Charter. This reads as follows: 
“47. OWNERS’ RIGHTS ON TERMINATION
...
47.3 If the Owners pursuant to Clause 47.1 hereof give notice to terminate the chartering by the Charterers of the Vessel, the Charterers shall pay to the Owners on the date of such termination (the “Termination Date”) or such later date as the Owners shall specify:
…
47.3.3 all costs, expenses, damages and losses incurred by the Owners and recoverable by law as a consequence of this Charterer having terminated prior to the expiry of the agreed Charter Period (including, but not limited to, loss of charter hire income, all expenses incurred in recovering possession of, and in moving, laying-up, insuring and maintaining the Vessel … and all financing break funding costs incurred in relation to any early termination of any interest rate swap transaction entered into by the Owners in connection with the financing of the Vessel).”
This was however, the Defendants assert, a provision of the Charter which (by virtue of the condition precedent in subclause 36.1 of the Charter) was only to become unconditional upon the delivery of the Vessel pursuant to the respective MoA. The different wording used in Clause 14 of the MoA, Mr Tozzi submits, suggests that there is not intended to be any such recovery in relation to financing break funding costs relating to any interest rate swap transaction, if the termination occurs prior to delivery and the satisfaction of the condition precedent for the Charter.
v)	Insofar as the Claimant contends that, if (contrary to its contentions) the swap costs are not comprehended within breakage cost with the Buyers’ lenders, then they would be a similar kind of cost, not expressly set out as an exemplar, but nevertheless within the definition of “proven expenses”, eiusdem generis with the examples which are given, Mr Tozzi submits the contrary. This is, he submits, for two reasons. First, as set out above, there is a deliberately chosen different form of wording in the MoA than that adopted in the Charter. Secondly, he puts forward a submission by reference to a further construction of Clause 14, though one which is not the same as, and to some extent is inconsistent with, that addressed in paragraph 20 above. This contention is that sentence (3) of Clause 14 addresses the remedy of cancellation provided for up to that stage within the Clause, together with provision for limited expenses. Sentence (4) then provides for “due compensation to the Buyers for their loss and for all expenses”, where there is the necessary proof not only of default by the Seller, but also of negligence. Mr Tozzi submits that the expenses provided for in sentence (3) must be more limited, lesser, than those provided for in sentence (4), and thus submits that such losses as the swap losses now sought to be compensated may fall within the definition of expenses within sentence (4), but not within the definition of proven expenses in sentence (3). I should say immediately that I do not accept that this construction is arguable. It seems to me obvious that sentence (4) is intended to give an entirely different remedy. It is not dependent upon there having been cancellation (as is made expressly clear at the end of the sentence). It is also necessary for the Buyers to prove negligence by the Sellers. If such negligence is proved, then a wider measure of damage can be recovered, and not just expenses but loss can be recovered, e.g. loss of profit, which would plainly not fall within the ambit of sentence (3). Whereas I agree that sentence (3) is dealing with the consequences of cancellation, while sentence (4) is not, there is in my judgment no justification whatsoever for any difference in the definition of expenses. If sentence (3) applies, then the deposit is recoverable together with proven expenses. If sentence (4) applies then, provided negligence is proved, irrespective of cancellation, the Buyers can recover “their loss … and all expenses.”
24.	With the exception of my rejection of this construction argument, I shall return to address Mr Tozzi’s case in respect of sentence (3), in due course, but against the background, as discussed of the factual matrix, which I must now consider, in the context of Mr Tozzi’s submissions with regard to remoteness and reasonableness. 
25.	His first submission with which I must deal is that, before the Claimant can recover pursuant to Clause 14, it must establish, and at least arguably has not established, that the losses/expenses are foreseeable and reasonably incurred. This is not a proposition with which Mr Matthews agrees. He submits that Clause 14 constitutes an indemnity clause, and that all that is necessary for him to recover is to prove causation,. I was referred by both Counsel to Smith v South Wales Switchgear Co Ltd [1978] 1 WLR 165 and to the Eurus [1998] 1 Lloyd’s 351. I found the Court of Appeal decision in the Eurus, and in particular the judgment of Staughton LJ of most assistance. Staughton LJ, with whom Auld LJ and Sir John Balcombe agreed, concluded that, in the case of a true indemnity, all loss suffered which was attributable to a specified cause could be recovered whether or not it was in the reasonable contemplation of the parties. I note that the insurance cases, such as Re London County Commercial Reinsurance Office Ltd [1922] 2 Ch 67 were not addressed.
26.	However the clause in that case was found not to be such an indemnity, and Clause 14 in this case seems even less of a candidate: it does not in terms specify, for example, that all expenses can be recovered. I conclude that it is at least arguable that the provision relied upon in Clause 14 does not amount to an indemnity of the kind referred to by Staughton LJ. 
27.	In those circumstances I turn to consider, by reference to Mr Tozzi’s contentions, the facts of this case:
i)	There is no evidence that the Defendants at the time were supplied with a copy of the Loan Agreement or the ISDA Master Agreement or the underlying Swap Agreements. Mr Kyparissis, an independent shipping consultant to the Defendant companies, says in his witness statement as follows:
“8. … I was aware that the Bareboat Charters referred to swap agreements, but I had no idea what the swap agreements entailed. I also did not know what the provisions of the Loan Agreement were.
9. I had multiple and frequent discussions with both Mr Fuglesang and Mr Heidenreich up until the MoAs and Bareboat Charters were signed and at no point did either of them discuss with me the details of the Loan Agreement or the Swap Agreement or the Swap Contracts. Further, at no time did either [of them] state that they would expect the Sellers to compensate [the Claimant] in the event that the Vessels were not delivered to it and as a result they suffered losses under the Swap Agreement or any kind of hedging arrangements.”
Mr Matrapazidis, another consultant to the Defendants, in his witness statement says:
“16. … I recall that I received the Bareboat Charters and commented on issues arising, but I do not recall having noticed or given any particular consideration to the terms relating to swap agreements and hedging transactions.”
ii)	The Defendants say that they did not know or expect that the Claimants would enter into swap agreements before delivery of the Vessels. Mr Maniatakis, the Chief Financial Officer of the Defendants, in his witness statement states:
“7. … Clause 32.1.22 of the Bareboat Charters refers to swap agreements “entered or to be entered into”. There is certainly no indication in the Bareboat Charters of the timing when the swaps would be entered into. Based on my experience and knowledge of swap agreements in shipping transactions, I thought that the words “to be entered into” in the context of the Bareboat Charters meant that any Swap Contracts, if entered into at all, would be entered into only after the delivery of the Vessels to Parbulk. It is therefore not correct as Mr Buss alleges at paragraph 36(a) of his statement that “several provisions in the Bareboat Charters demonstrate ... an awareness on the part of the MoA sellers that Parbulk was exposed to losses in respect of the hedging arrangements.” At no time did Parbulk indicate when it intended to enter into any swap agreements or that this would be prior to delivery of the vessels. On this basis, we did not know that Parbulk was exposed to any losses whatsoever in respect of hedging arrangements.”
Mr Matrapazidis, in paragraph 18 of his witness statement, goes further:
“18. I certainly would not agree with Mr Buss that it was clear from the Bareboat Charters that Parbulk would be entering into the Swap Agreement. Further, there is no reference to swap agreements or hedging transactions in the MOAs. If there was any suggestion whatsoever at any time that the intention was for potential losses under transactions of a speculative nature, such as the Swap Agreement entered into by Parbulk, to be covered by the Sellers, I would have insisted that a specific cap on the Sellers’ liability be written into the contractual documentation.”
iii)	The Defendants contend that it was unreasonable of the Claimant to enter into the Swap Agreement before delivery of the Vessel and satisfaction of the condition precedent as set out in subclause 36.1 of the Charter: this is because the Claimant knew, or ought to have known, that delivery would be delayed, and, indeed, might be delayed up till, and perhaps past, the cancellation date. The Defendants point to the Minutes of a Board meeting of the Claimant, dated 9 October 2007, in which it is recorded that “the Charterer in this sale leaseback deal … has already informed [the Claimant] that the scheduled deliveries will be delayed, however the length of these delays are uncertain.” The recommendation was that “the start of the forward swap agreements should be pushed a further three months from scheduled delivery date due to the uncertainty in the delivery dates.” 
Mr Simpson suggests, in paragraph 5.2 of his report, that “when such transactions (i.e. a sale and bareboat charter back) involves Chinese newbuildings for delivery (or possibly non-delivery) at an uncertain future date, I consider that buyers would normally be reluctant to commit themselves to interest rate swaps”. 
iv)	Mr Simpson further relies on an alternative method of hedging. In paragraph 3.4 of his report, he describes a “swaption” as being “an option to enter an interest rate swap. A ‘payer swaption’ gives its purchaser the right, but not the obligation, to enter into an interest rate swap at a preset rate within a specific period of time. The swaption buyer pays a premium to the seller for this right.” Mr Simpson expresses the view, at paragraph 4.2 of his report, that “If any form of hedging was carried out, a swaption would be the preferred reasonable choice in such circumstances, given its flexibility. The lending bank would normally have no problem with a swaption being used to meet its requirement for hedging, providing the strike price chosen resulted in sufficient cash flow being available to meet the bareboat charter obligations”. He concludes, in paragraph 5.2 of his report, that buyers “would normally use swaptions which offer more flexibility and the ability to benefit from a fall in interest rates before delivery”. 
28.	The Claimant is said to have acted unreasonably (a) in not acquiescing in the agreement which the Defendants reached with the Shipyards for an extension of the delivery dates (in the case of the first Vessel from 26 February to 31 May 2009) and/or (b) in not cancelling the Loan Agreement and the concomitant swap transactions earlier than they did, for example, at the time when, in October 2008, they notified the Defendants, (by email of 3 October), that the breakage cost of the swap agreements was at that stage US$ 6,200,000. Mr Tozzi is driven to accept the difficulty of these two arguments. Quite apart from the fact that, between 3 October 2008 and 26 February 2009, the breakage cost might have reduced, the second argument is met by what seems to me the unanswerable point, made by Mr Matthews, that the earliest contractual date for cancellation was 26 February 2009, and there is no duty on a contracting party to accept an anticipatory repudiation (see e.g. White & Carter (Councils) Ltd v McGregor [1962] AC 413). The first argument appears to fall foul of the express term in the first paragraph of Clause 22, set out in paragraph 3 above, that any change to the Shipbuilding Contract, and in particular the delivery time, required the Claimant’s consent. It seems to me unarguable that the Claimant would be in breach of the obligation to co-operate in good faith with a view to resolving any dispute with the Builder if it declined to accept such a delayed delivery date, and in particular that it could be held in breach of such duty if it declined to vary the terms (in particular Clause 5(b)) of the MoA itself. In fact, even in the draft Amended Defence produced for the purposes of this application, no such case of breach of Clause 22 is sought to be made by the Defendants. 
29.	I turn to consider the relevant facts not so far considered in terms, by reference to Mr Matthews’ submissions:
i)	Paragraph 46.2 of the Charters (set out in paragraph 4 above) spells out that there was an “en-bloc sale-leaseback transaction”, consisting of four MoAs and four Charters, all executed simultaneously on 10 October 2007 (the Loan Agreement and the ISDA Master Agreement having been executed on 9 October 2007). The charters-back were integral to the sales: one could not operate without the other. 
ii)	The Defendants plainly knew the nature of the Claimant’s financing of the transactions. The Loan Agreement was expressly referred to in the Charters (whether or not “discussed” with Mr Kyparissis). I have referred, in paragraph 8 above, to (i) the express definition of the Loan Agreement as being “for the purpose of financing, in part, the Owner’s purchase of the Vessel” in Additional Clause subclause 32.1.11 (ii) the reference to the Loan Agreement and the Swap Agreement in subclause 32.1.14, and (iii) the reference to Calyon’s dual capacity in subclause 32.1.15, with (iv) the definition of the ISDA Master Agreement in subclause 32.1.22 and “confirmations of the transactions relating to hedging of interest exposure under the Loan Agreement made or to be made thereunder” – “thereunder” plainly meaning under the ISDA Master Agreement. I cannot accept Mr Matrapazidis’ assertion that it was not clear from the Charters that the Claimant would be entering into the Swap Agreement (see paragraph 27(ii) above). There is then (v) the provision in subclause 47.3.3 for the reimbursement to the Claimant in the event of termination of the Charter of “all financing break funding costs incurred in relation to any early termination of any interest rate swap transaction entered into by the [Claimant] in connection with the financing of the Vessel.” Mr Matrapazidis asserts, in the same paragraph of his witness statement, that, if there had been any suggestion whatever of recoverability of any such losses, he would have “insisted that a specific cap on the Seller’s liability be written in to the contractual documentation”, but, as the Defendants point out, he did not insist on any such cap in relation to subclause 47.3.3.
iii)	I have set out in paragraph 27(iv) above Mr Simpson’s description of swaptions, and his preference for them. I would however have to be satisfied that it is arguable that no reasonable party in the shoes of the Claimant would have done as it did, namely securing its risk as between a fixed and floating rate, by an agreement on 9 October, before entering in to the four sets of agreements on 10 October, rather than purchasing a swaption (“Unreasonableness 1”). I have referred to what Mr Simpson says, in paragraphs 4.2 and 5.2 of his report, in paragraph 27(iv) above, which does not go anywhere near that far, as Mr Matthews has pointed out. However, in paragraph 5.3 of his report, he continues:
“I believe strongly that [the Claimant] should not have hedged by means of interest rate swaps, given the circumstances of the transaction, and this was an unreasonable course of action.”
iv)	As set out in paragraph 27(iii) above, the Defendants assert that the Claimant knew when it entered into the transaction of the risk of delivery running past the cancellation date. Apart from the Board minute referred to above, the only other contemporaneous document is an email from the Defendants to the Claimant, dated 3 October 2007, when, in response to an email of 27 September from the Claimant indicating that it was in the process of signing the Loan Agreement and other commercial documents and enquired of progress on the Vessels, the Defendants’ indication was of delivery in about December 2008, and yet, seven days later, they were prepared to enter into an agreement retaining the cancellation date of 26 February 2009. Once again, the Defendants would need to draw upon Mr Simpson to establish an arguable case for unreasonableness (“Unreasonableness 2”), and the highest that Mr Simpson puts it is, as set out in paragraph 5.2, recited in paragraph 27(iii) above, that Buyers would “normally be reluctant to commit themselves”.
30.	However, Mr Matthews’ challenge to the arguability of Unreasonableness (1) and (2) does not stop there. Both in that regard and in relation to remoteness, he relies upon the terms of the Loan Agreement. I have referred to subclause 18.15 in paragraph 6 above. This required the Claimant to hedge the interest rate fluctuation risk for the loans by entering into the ISDA Master Agreement, and transactions thereunder, with Calyon. Mr Tozzi, in paragraph 48 of his skeleton argument, submits that the Claimant needs to show that this was a requirement insisted upon by Calyon, but more significantly, he submits, in paragraph 63 of his skeleton, that the requirement in subclause 18.15 “could have been satisfied by any hedging instrument”. However, this ignores two significant provisions in the Loan Agreement, subclause 4.1(a) and paragraph 8 of Part 1 of Schedule 2 (also referred to in paragraph 6 above). It was a condition precedent of the Loan Agreement that, within 20 business days from the date of the Agreement, i.e. by 29 October 2007, the Claimant had to execute a Swap Agreement with Calyon and otherwise evidence that “the interest rate exposure in respect of the loans has been fixed for a period of at least 3 years”. Thus a swaption would not have been compliant with the Claimant’s obligations under the Loan Agreement (“the hedging obligations”).
31.	The Defendants say that they did not know the terms of the Loan Agreements or the underlying ISDA Master Agreement. The Defendants’ evidence, which I have set out above, is somewhat equivocal. I have already addressed Mr Matrapazidis’ unpersuasive evidence. Mr Maniatakis says that the Claimant did not “indicate when it intended to enter into any swap agreements” and “on this basis” the Defendants did not know the Claimant was exposed. However, Mr Matthews relies on subclause 12(b) of the Charters. I have set out this subclause at paragraph 7 above. Mr Tozzi submits that this is only a deeming provision, and that the Defendants are only deemed to know the contents of the Loan Agreement for the purposes there set out. However, I do not accept that the provision is simply relevant for the purposes of such deeming. The question is whether it was reasonably foreseeable that the Claimant would enter into a swap agreement which fixed the interest rate exposure in respect of the loan. Mr Matrapazidis says he “does not recall having given any particular consideration to the terms relating to swap agreements and hedging transactions”. The Defendants knew of and had available to them the Loan Agreement containing the hedging obligations – which they only had to ask for if indeed they did not have a copy, and which they were required to study for the purposes of “acquainting themselves” with the terms with which they were confirming, by subclause 12(b), that they had become acquainted. When this is taken together with the express provision of subclause 47.3.3 of the Charter, which further put them on notice, I am entirely clear that the Claimant’s entry into the hedging arrangements was indeed reasonably foreseeable, and hence not too remote. Compliance with the hedging obligations also cannot, in my judgment, be characterised even arguably as unreasonable, and I am unpersuaded that it matters how such requirement came about, i.e. whether it was insisted on by Calyon, or that the arrangements the Claimant entered into were in fact for the full 5-year initial term, rather than the “at least 3 years” of the hedging obligations. 
32.	I turn to Defences (4) and (5), relating to the meaning of sentence (3) in Clause 14. I am quite satisfied that the words used in Clause 14 – “breakage cost with the Buyers’ Lenders” – are, as submitted by Mr Matthews, simply a shorthand way of addressing the same nature of loss set out in Clause 47.3.3 of the Charter, as opposed to being something different and more limited:
i)	Sentence (3) was a special addition to the standard form to deal with the particular facts of this case. We are not here concerned with the construction of a standard form.
ii)	Although the syntax is a little eccentric, so is that of Clause 47.3.3 – “all financing break funding costs”: but the sense of both is clear.
iii)	There is, in my judgment, no reason why there should be a different recovery upon termination of the MoAs, as compared with upon termination of the Charters, when both were integral parts of the same en bloc transaction, particularly where there was in fact the 20-day fixing obligation provided for in the Loan Agreement.
iv)	I am satisfied that the swap losses were breakage cost in respect of the financing arrangements by the Claimant, being the sums that the Claimant had to pay out to Calyon as a consequence of the early termination of those arrangements. It is said to be a ‘coincidence’ (paragraph 23(iii) above) that Calyon was both lender and swap agent, but this becomes insignificant once it is recalled that this is not a standard but a special clause: it was in fact the case that Calyon was both, as was clear from the Loan Agreement, and once again there is no ground in my judgment for any distinction from the terms of Clause 47.3.3 which are clearly wide enough to subsume any role played by Calyon as lenders. In any event, in my judgment, the use of the word “with” in the phrase “breakage cost with the Buyers’ Lenders” is wide enough to cover arrangements of an ancillary kind such as a swap transaction, and is not limited to breakage cost of the loan made by the Buyers’ Lender.
v)	If I were wrong that the swap costs were comprehended by breakage cost with the Buyers’ Lenders, then I would accept Mr Matthews’ alternative submission that they were in any event comprehended by proven expenses, with its definition by reference to “including, but not [being] limited to” the examples there set out. I have already rejected, in paragraph 23(v) above, Mr Tozzi’s argument that the definition of proven expenses in sentence (3) was in some way limited by sentence (4). If, for some reason, these swap costs in this case were not breakage cost with the Buyers’ Lenders, whether because of the precise role of Calyon or because they arose from an ancillary agreement and not from the Loan Agreement itself, I am satisfied that they are sufficiently close to the example given as to be eiusdem generis, and thus fall within the definition of proven expenses. 
33.	For these reasons I do not conclude that Defences (4), (5) and (6) are arguable or have any reasonable prospect of success. I turn to (7) Quantum. I have referred, in paragraph 11(i) above, to the three different figures put forward. All three are very substantial because, unfortunately, the swap transactions, based upon hedging fluctuation in interest rates, coincided with the worldwide credit crisis in the autumn and winter of 2008. The Claimant asserts both that its calculation is correct and that it is entitled to receive that sum, because that is what it in fact paid to Calyon. In the light of my conclusion set out in paragraph 25 above that Clause 14 is at least arguably not an indemnity clause in the Eurus sense, I conclude that I have to be satisfied that the sum paid by the Claimant to Calyon was properly due. The Defendants’ expert in swap transaction calculations, Dr Fitzgerald, arrived at the sum of US$ 850,000 less, but that was at a time when he was working without sight of Calyon’s detailed breakdown, which Calyon was not initially willing to make available. The Claimant’s derivatives expert, Mr Brown, has suggested that Dr Fitzgerald used incorrect amortisation schedules, and did a reworking of Dr Fitzgerald’s figures, which reduced the differential to US$ 352,016.45. Dr Fitzgerald however does not accept that he used incorrect amortisation schedules, and has indicated that the difference between himself and Mr Brown results from their using what are described as different ‘day count conventions’, as exemplified in the respective exhibits to each report. Particularly given that there must be a trial as to quantum, by reason not least of the Claimant’s concession as to the arguability of the arrangement fee payable to PPE (see paragraph 11(ii) above), I agree with Mr Tozzi that the reason for the difference between the figures arrived at by Dr Fitzgerald and Mr Brown cannot properly be explored on an application for summary judgment and/or that I cannot be satisfied that the additional US$ 850,000 or indeed US$ 352,016.45 will be found due. 
34.	With regard to the out of pocket expenses, the issues are set out in paragraph 19(i), (ii) and (iii) above. So far as the contention set out in (i) is concerned, I am satisfied that it is not necessary for the Claimant to prove that the losses were the consequence of the cancellation itself. The impact of the cancellation was to render the transaction abortive, and in my judgment the Claimant is then entitled to recover, apart from its deposit, the proven expenses – including legal costs, specifically provided for – relating to the entering into and performance of the transaction, insofar as now wasted. 
35.	The Claimant has broken down its claim, in an attachment to its solicitor’s letter of 10 September 2009, into three categories called “Establishing cost”, “Operating cost” and “Financial cost”. As set out in paragraph 11(ii) above, there are included three fees, the one payable to PPE, which is conceded for the purpose of this application, and the two fees payable to Calyon pursuant to Clauses 21.1 and 21.2 of the Loan Agreement, which I am satisfied are recoverable by the Claimant (indeed little if any argument was addressed to those two sums). As to the balance of “Establishing cost”, there are two items, for Registry fee in the sum of US$ 431 and “Lawyers (up to June 2008)” in the sum of US$ 163,404. There are itemised Operating cost and Financial cost and the off-set of US$ 880,664 referred to in paragraph 11(ii) above. 
36.	With regard to issue (ii) in paragraph 19 above, the Claimant asserts that it is entitled to all the wasted costs of establishing the SPVs, on the basis that they were only set up for the purpose of the now aborted transaction. I consider that it is arguable that not all such costs are recoverable, and that, on analysis, it is only the costs of operating the SPVs with a view to their participation in this transaction which can be said to be recoverable: and in any event, Mr Tozzi submits that some part of the expenses or losses may be those of the shareholders rather than the SPVs themselves. Insofar as the categorisation is of “Lawyers (up to June 2008)”, that may suggest that at any rate some of the invoices (all of which are exhibited, but none of which have been fully examined for the purposes of this hearing), fall to be apportioned in any event, but the Claimant is to some extent hamstrung by its own description of the entirety of them as “Establishing cost”. 
37.	As for issue (iii), it is clear that the costs must be proven for the purposes of the agreement, and proved for the purposes of Part 24 judgment and/or Part 25 interim payment. The Claimant asserts that it has produced the invoices and that the sums have been paid. The Defendants submit that, rather as on an assessment of legal costs, not all of the items or amounts may be found to be recoverable, such as the small invoice which has already been conceded by the Claimant to have been incorrectly included in the sum of NOK 5206.88, referred to in paragraph 11(ii) above. 
38.	I regard my task as not dissimilar from the role of a judge making an interim costs order on account of an eventual assessment of those costs. Leaving aside the three fees, the “Establishing cost” is claimed as US$ 163,835, which after deduction of the erroneous NOK invoice converted to US$ 1,019 makes US$ 162,416: the Operating cost is (before off-set) US$ 263,534.21, and the minor Financial costs (again before off-set) are US$ 94,676. I propose to award 50% of those sums, in an approximate total of US$ 260,000. To that there fall to be added the two fees to Calyon totalling US$ 1,341,976, and then the admitted off-set of US$ 880,664 subtracted, arriving at a total for out of pocket expenses of US$ 721,312.
39.	Accordingly I award judgment to the Claimant on liability, that is resolving all the issues of liability in favour of the Claimant, but leaving open the issues in respect of quantum as to the proper calculation of the swap costs and the proper calculation, reasonableness and causation with regard to the out of pocket expenses (save for the two fees payable to Calyon) and I order payment to the Claimant in the sums of US$ 14,335,647 and US$ 721,312.