Contract analysis

I. Executive Summary This memorandum analyzes whether Clause 28 of the charter-party bearing reference number NW-TSL-CP-2020-1203, executed on December 3, 2020, constitutes an enforceable liquidated damages provision or an unenforceable penalty under New York law. The analysis has been prepared at the request of the litigation team in connection with our representation of Thalassa Shipping & Logistics SA ("TSL" or "T

Clause 28 provides that upon the Owner's material breach of its maintenance and seaworthiness obligations under Clauses 2 and 6 of the charter-party, the Charterer is entitled to liquidated damages equal to 150% of the aggregate off-hire days multiplied by the daily hire rate of $14,750 per day, subject to a cap of $4,500,000 "for any single continuous period of breach." The clause further recites that the parties ac

II. Background and Relevant Charter-Party Provisions A. The Charter-Party The operative agreement between the parties is a time charter-party on the New York Produce Exchange Form 2015 (NYPE 2015), as amended by rider clauses and addenda negotiated between the parties. The charter-party was executed on December 3, 2020, and bears reference number NW-TSL-CP-2020-1203. The parties to the charter-party are: • Owner: Aeg

Clause 28, titled "Liquidated Damages for Breach of Maintenance and Seaworthiness Obligations," is a rider clause appended to the standard NYPE 2015 form. The relevant text of Clause 28 provides, in pertinent part: 28.1 In the event of a material breach by Owner of Owner's obligations under Clauses 2 and 6 of this Charter-Party with respect to the maintenance, seaworthiness, and operational readiness of the Vessel, C

Clause 2, in relevant part, requires the Owner to deliver the vessel in a seaworthy condition and to maintain the vessel in such condition throughout the charter period. Specifically, Clause 2 provides that the vessel shall be "tight, staunch, strong, and in every way fitted for the service" and that the Owner shall exercise due diligence to maintain the vessel in such condition during the charter period.

Clause 6, titled "Maintenance and Operation," is the more detailed of the two provisions. It requires the Owner to: (a) maintain the vessel in a "thoroughly efficient state of hull, machinery, and equipment" throughout the charter period; (b) ensure compliance at all times with all classification requirements imposed by the Global Maritime Classification Bureau (GMCB), including timely completion of all periodic surv

III. Legal Standard: Liquidated Damages vs. Penalty Under New York Law A. The Two-Part Test Under New York law, the enforceability of a liquidated damages provision is assessed under a well-established two-part test articulated by the Court of Appeals and consistently applied by the Appellate Division and the trial courts. A liquidated damages clause will be upheld as enforceable if two conditions are satisfied:

1. The amount fixed is a reasonable forecast of just compensation for the harm that would be caused by the breach; and

2. The harm caused by the breach is one that is difficult or impossible to estimate accurately at the time of contracting. See Northpoint Holdings v. Purdy Corp., 41 N.Y.2d 354, 365 (1977) (articulating the two-part standard); Kestrel Corporation, 4 N.Y.3d 373, 380 (2005) (reaffirming the test and emphasizing deference to contractual freedom between sophisticated commercial parties); Leasing Serv. Corp. v. Justice, 6

IV. Application of the Two-Part Test to Clause 28 A. First Prong: Reasonable Forecast of Just Compensation The first prong of the New York liquidated damages test requires that the stipulated amount be "a reasonable forecast of just compensation for the harm caused by the breach." This prong is assessed on an ex ante basis — that is, from the perspective of the parties at the time of contracting (December 3, 2020) —

1. The 150% Multiplier The central feature of the Clause 28 formula that may attract scrutiny is the 150% multiplier. The base measure of the formula — off-hire days multiplied by the daily hire rate — represents the direct cost to the Charterer of the lost use of the vessel during the period of breakdown. This is a straightforward and well-recognized measure of the Charterer's primary loss: during off-hire periods,

2. The $4,500,000 Cap The $4,500,000 cap set forth in Clause 28.3 operates as a ceiling on the Owner's liquidated damages exposure. The cap is equal to approximately 27.8% of the total charter value ($4,500,000 ÷ $16,166,000 ≈ 27.8%). This ceiling is a significant factor in the enforceability analysis for several reasons. First, the cap prevents the liquidated damages formula from producing disproportionately large a

3. Relationship to Actual Damages As noted above, the primary inquiry under the first prong is ex ante: the court asks whether the stipulated amount was a reasonable forecast at the time of contracting, not whether it turned out to be accurate after the fact. Nonetheless, New York courts have recognized that the relationship between the liquidated damages amount and actual damages may serve as a useful "reality check

V. Potential Challenges to Enforceability Although the analysis above supports the enforceability of Clause 28, it is prudent to anticipate and assess the potential challenges that could be raised. We address three such challenges below. We note at the outset that Northwind, as the beneficiary of the clause, is unlikely to challenge its enforceability; rather, it is TSL that might consider challenging the clause if t

VI. Impact of the Cap on Enforceability Analysis The $4,500,000 cap set forth in Clause 28.3 warrants further discussion because of its significance in the overall enforceability analysis. The cap serves as an additional safeguard against any finding that the liquidated damages provision is a penalty, and its presence strengthens the enforceability of the clause in several respects. First, the cap demonstrates that t

VII. Comparison with Off-Hire Clause (Clause 11) The interplay between the liquidated damages provision (Clause 28) and the standard off-hire clause (Clause 11) of the NYPE 2015 form merits brief discussion, as it informs the reasonableness of the 150% multiplier and the overall design of the contractual damages framework.

Clause 11 of the NYPE 2015 form provides for the suspension of hire (off-hire deductions) during periods when the vessel is not at the Charterer's disposal due to specified causes, including breakdown of machinery, drydocking, and other events affecting the vessel's operational readiness. The off-hire mechanism operates automatically upon the occurrence of a covered event: once the vessel goes off-hire, the Charterer

Clause 28 operates in addition to the off-hire deductions available under Clause 11. The opening provision of Clause 28.1 expressly states that the Charterer is entitled to liquidated damages "in addition to any off-hire deductions to which Charterer may be entitled under Clause 11." This layered structure makes clear that the liquidated damages provision is designed to compensate for the consequential and incidental

VIII. Relevant Precedent A. Cases Upholding Liquidated Damages Provisions in Commercial Contracts New York appellate courts have consistently upheld liquidated damages provisions in commercial contracts negotiated between sophisticated parties at arm's length, particularly where the damages at issue are inherently uncertain. In JMD Holding Corp. v. Congress Financial Corp., 4 N.Y.3d 373 (2005), the Court of Appeals u