Penalty clause and force majeure

Tandrin Aviation Holdings Ltd v Aero Toy Door LLC and another [2010] EWHC 40 (Comm) 19 January [2010] All ER (D) 111 (Jan); NLJ 29 January p143

The claimant (T) applied for summary judgment against the first respondent (D) or an order striking out its defence. The claimant had agreed to sell to D an executive jet aircraft for US$31.75m. The aircraft sale agreement was governed by English law and contained a non-exclusive English jurisdiction clause. D paid a US$3m deposit to the second respondent (E) as escrow agent. Both the deposit and the balance of the purchase price were due to be paid to T on delivery of the aircraft. Once the aircraft had been manufactured, T completed its purchase of the aircraft from the original vendor, paid a total of about US$26.5m for the aircraft and took delivery of it. However, D failed to participate in the pre-delivery contractual procedures and in alleged breach of contract failed to accept T’s tendered delivery of the aircraft or pay the balance of the purchase price. T purported to exercise its contractual right to terminate the agreement on the grounds of D’s alleged breach, the consequence of which was according to the agreement that the deposit became payable to T as liquidated damages for the breach. However, D failed to instruct E to pay the deposit to T. D submitted that the provisions of the aircraft sale agreement which provided for T to retain the deposit in the event of failure by D to take delivery amounted to a penalty clause and it was also entitled to rely on the force majeure clause in the agreement because of the ‘unanticipated, unforeseeable and cataclysmic downward spiral of the world’s financial markets’.