In the context of a contractual dispute over the $37.5 million sale of two large gas plants, the Commercial Court has ruled that the seller is entitled to retain $7.5 million in instalments remitted by the buyer before it defaulted on payment of the balance.The seller was also entitled to recover as a debt the further sum of $20 million which had fallen due prior to termination of the contract.
The gas plants had been effectively kept in mothballs for almost four years pending resolution of the various disputes between the parties and all attempts to dispose of them to a third party had failed. The buyer had agreed to pay the purchase price in instalments but, after the first $7.5 million was paid, no further instalments were forthcoming and, in the circumstances, the seller terminated the contract.
It was argued by the buyer that it had been a condition of the payment of instalments that the contract would not be rescinded prior to completion and that the various sums were therefore not due and payable. It was also submitted that the gas plants were worth substantially more than the contract price and that the seller had therefore suffered no loss. It was additionally argued that forfeiture of the $7.5 million paid by the buyer prior to termination would amount to an illegitimate penalty.
However, the court ruled that, on a proper interpretation of the agreement, the seller was entitled to keep the $7.5 million and to recover the $20 million that should have been paid by the buyer prior to rescission. The court directed that any further sums that might in the future be realised on re-sale of the gas plants should be placed in court or otherwise secured pending further order as to the proper disposal of such monies.