- A dispute arose from a contract for the sale of ships between Hapag-Lloyd (Respondent) and Damon Compania Naviera S.A. (Appellant). Raftopoulos Brothers were involved in negotiating the sale. - The arbitrator found a binding contract was formed on July 8th when sale terms were agreed. However, Appellant argued no contract as no memorandum was signed and deposit not paid. - The court rejected these arguments and found a valid contract. It also found the contract was binding on Appellant through novation when Brothers nominated them. - Respondent was entitled to damages for unpaid deposit under the contract terms. This right was not affected when

1. DAMON COMPANIA NAVIERA S.A.
v
HAPAG-LLOYD INTERNATIONAL S.A.
[1984] 1 W.L.R. 435
By
Muhammad Azrie Johari Bin Jamil
Faculty of Law, University of Malaya

2. Appellant
Respondent
Damon
Compania
Naviera S.A.
Hapag-Lloyd
International
S.A.
Parties
3rd Party
Raftopoulos
Brothers

3. FACTS
• Respondent (Hapag-Lloyd) wanted to sell 3 if their ships and
the Raftopoulos Brother interested on buying it.
• They intended to buy the ships in the name of another
company.
8th July 1977
• The sale price was agreed at US$ 2,365,000.
1st August
1977
3rd & 5th
August 1977
• The brothers communicated to the seller (R) the name of the
Panamanian company (Appellant - Damon) as the buyers.
• The brothers was later appointed as the Directors of the said
company.
• The company (A) and the brothers acknowledge the existence
of the contract.

4. 12th August
1977
15th August
1977
Arbitration
• No memorandum of agreement was signed, nor was the
deposit paid.
• The seller (R) notified the buyers (A) that the agreement had
been withdrawn.
• The dispute was then referred to arbitration.
• The arbitrator found that a concluded contract was made
between the parties and that the seller (R) were entitled to
• US$ 60,000 by way of damages.
• US$ 236,00 as the amount of deposit which they were
entitled to receive from the buyers (A).

5. ISSUES
1) Was there a binding contract?
2) If there was a binding contract, is it binding
upon the Appellant (Damon)?
3) Can Hapag-Lloyd recover the amount of the
unpaid deposit?

6. Was there any binding contract?
The arbitrator concluded that there was a binding contract based on
ground that all the terms and conditions of the sale were agreed
except for the name of the buyer’s company on 8th July 1977.
The counsel for the Appellant (Damon) put forward 2 objections to
the proposition that there was a valid contract.
No memorandum was
signed.
Failure of the buyer to pay
deposit.

7. There was no memorandum signed.
• C.H Rugg & Co. Ltd v Street [1962] 1 Lloyd’s Rep. 364,
McNair J stated:
– “in each case the court has got to make up its mind on the
construction of the documents and on the general surrounding
circumstances whether the negotiations were not to have
contractual force until a formal document was signed.”
• On 8th July 1977, both parties had agreed upon all the
terms of the sale and thus this indicate a valid contract.
• All the indications also showed that the parties did not
intended to be subject to the execution of the
memorandum.
• Thus, the counsel objection was rejected.

8. Failure of the buyer to paid the deposit.
• Counsel for the Appellant contended that the failure of
the purchaser to pay the deposit prevented any
contract from coming into existence. This is because,
deposit is the condition precedent to the formation of
contract.
• Millichamp v Jones [1982] 1 W.L.R. 1422, Warner J.
held that:
– “in a contract for the sale of land, that a deposit should be
paid by the purchaser does not constitute condition
precedent, failure to fulfill which prevents the contract
from coming into existence, but is in general to be taken as
a fundamental term of the contract, breach of which
entitles the vendor, to treat the contract as at an end.”

9. • Portaria Shipping Co. v Gulf Pacific Navigation Co. Ltd.
[1981] 2 Lloyd’s Rep. 180, Robert Goff J. stated that:
– “the obligation to pay the deposit is an essential term of
the contract.”
• The provision for payment of deposit was not a
condition precedent to the formation of the contract
but was a fundamental term of a concluded contract.
• Thus, the failure of the purchaser to pay the deposit
does not prevented the contract from coming into
existence.
• Therefore, there was a valid contract.

10. Was the contract binding upon Damon?
• The Raftopoulos brothers were not buying the ships in
their own name but they would eventually nominate a
company (Damon).
• However, a contract cannot be enforced on Damon
without its agreement.
Was there a novation of the contract in favour
of Damon?
Nomination
of Damon
(1st August )
Acceptance of
repudiation of
the contract by
Hapag-Lloyd
(9th August)

11. Initially, the Raftopoulos brothers have no authority to nominate Damon at
the time of the acceptance.
However, evidence showed that a few after the nomination was made, the
brothers acquired Damon and one of them become the Chairman of the
company.
Therefore, it can be inferred that when the nomination was made, they
had “already made all the necessary arrangements to acquire the company
and knew that they were to become the directors of the company.”

12. The brothers had nominated Damon with the ultimate object of novating the
contract with Damon as the purchaser.
On 3rd and 5th August, the brothers send telex stated that “Damon still
expected to perform the contract”
Since the brothers later acquired the company, and by authorising the telex,
the brothers must be taken as accepting and ratifying the contract on behalf
of Damon.
The contract is then binding upon Damon.

13. Can Hapag-Lloyd recover the amount of the
unpaid deposit?
Clause 2
There must be a payment by the purchaser of a deposit of 10%
of the purchase money “on signing this contract”.
Clause 13
If the purchase money is not paid, the vendors may cancel the
contract and forfeit the deposit.
2 matters must be considered
What rights did Hapag-Lloyd
have under the contract in
relation to the deposit?
What was the effect upon
those rights if the acceptance
of the repudiation?

14. What rights did Hapag-Lloyd have under the contract in
relation to the deposit?
• Upon the contract being entered into on 8th July
1977:
– The parties become bound to sign the memorandum of
agreement, which incorporate the agreed terms, within
reasonable time.
– The purchaser become bound, upon signing the
memorandum, to pay the deposit.
• Therefore, Hapag-Lloyd and Damon was bound to
sign the memorandum and that Damon was required
to pay the deposit upon the signing of the
memorandum.

15. • Prior to 15th August 1977 (the date when HapagLloyd repudiate the contract), Damon is bound to
sign the memorandum but they did not do so.
• A reasonable time for the signing of
memorandum by Damon had expired since there
has been 10 days since the nomination if Damon.
• Therefore, prior to 15th August, Hapag-Lloyd was
entitled to maintain and action for damages
against Damon for failure to sign the
memorandum and that the damages recoverable
must include the value of the right to recover and
retain the deposit.

16. • The buyer is entitled to be placed in the same position
as if the contractual obligation had been performed.
• If the obligation had been performed, Hapag-Lloyd
could have sued Damon in debt for the amount of
deposit and therefore, it should be reflected in the
damages recoverable for the breach of obligation.
• Thus, to allow a claim for damages for failure to sign
the memorandum, in an amount equal to the amount
of the deposit, is to place the Hapag-Llod in the
position which it would be in if Damon had complied
with the obligation to sign the memorandum.

17. What was the effect upon those rights of the
acceptance of the repudiation?
• McDonald v Dennys Lascalled Ltd. (1933) 48
C.L.R. 157, Dixon J stated that:
– “when a party to a simple contract, upon breach
by the other party of a condition of the contract,
choose to treat the contract as no longer binding
upon him, the contract is not rescinded from the
beginning. Both parties are discharged from the
further performance of the contract. The contract
is determined so far as it is executory only and the
party in default is liable for damages for its
breach.”

18. This is not a case where the contract was rescinded because of
something affecting its formation but it was put an end by Hapag-Lloyd
because breach of contract by Damon.
Because of Damon failure to sign, Hapag-Lloyd suffered damage due to
the deposit was not payable.
Clause 13 also provided that if the purchase money is not paid in
accordance to Clause 16, the deposit shall be forfeited to the sellers.
Therefore, if the buyers were in default and refused to complete the
contract, the deposit might be forfeited.

19. • Dewar v Mintof [1912] 2 K.B. 373, in allowing the claim for
damages for failure to pay the deposit, Horridge J held that:
– “The defendant could not put himself in a better position by
refusing to pay the deposit that if the deposit had in fact been
paid, in which case it could be retained by the seller …”
• The right of the vendor to forfeit the deposit is not
dependent upon the completion of the purchase but the
right arises out of the breach.
• Thus, when Hapag-Lloyd accepted the repudiation, they
were entitled to a vested right to sue Damon for damages
for breach of its obligation to sign the memorandum and
that the measure of damages is the amount of the deposit.
• The appeal was dismissed.

20. OPINION
• I agree with the decision that there was a binding contract and that
the failure of the Appellant (Damon) to sign the memorandum had
breached the contract which then entitled the Respondent (HapagLloyd) to claim for damages especially the deposit.
• The purpose of deposit is to protect Hapag-Lloyd against the event
which actually happened, which was the failure by Damon to
complete the contract.
• The right of the deposit arise the moment the contract is formed.
Thus, if it is proven that the contract is bind upon the parties, the
buyer is obliged to pay the deposit.
• Regardless whether the contract was fully performed or not,
deposit must be paid and the right to forfeit will depends on which
parties cause the breach of the contract.