If you've set up a special purpose vehicle (SPV) for a project, the recent court judgment in Winch Design Ltd -v- Carl Le Souef & Somnio Superyachts [2025] EWHC 120 (Comm) may be directly relevant to you.  The case serves as a useful reminder that, even with an SPV in place, the proper structuring of your contracts is crucial.

[1] Using special purpose vehicles: Setting up an SPV for a project is common, as is having ‘service companies’ sitting within the corporate group structure to hold certain types of contract. 

This judgment is a useful reminder that, even if you have set up such an entity, you must nevertheless structure your contracts to ensure the intended rights and obligations sit with the SPV / intended company.  In this case, on the proper construction of the contract, the obligation in question (liability for a rather large debt) was found to sit with a private individual (Mr Le Souef) and not the SPV which had been set up especially for the project.  

On the facts in this case this may not be surprising as the contract was in Mr Le Souef’s name. While the contract was clear and unequivocal on this, Mr Le Souef and Somnio (the SPV) sought to argue (without success) that an overly rigid view of the entities involved would flout business common sense as the debtor (Winch Design) knew Somnio had been set up to be an SPV for the project, and was the owner of the relevant contract IP, and in fact earlier invoices had been raised by Winch Design to Somnio; “it would flout business common sense for the parties then to have deprived Mr Le Souef of the benefit of separate legal personality otherwise implied by the use of a corporate vehicle.”  Whilst it is not always determinative that a party is named in the contract as a counterparty, in this case the Court determined that any objective bystander (which is the test here) would conclude that Le Souef was the intended party to the contract, and there was insufficient evidence to contradict this position.

[2] When a debt becomes due, and drafting contractual payment schedules: This judgment also illustrates a trap for the unwary regarding payment schedules.  While it is often assumed that payment becomes due on delivery of the goods or services, it is entirely possible to provide for something else.  

In this case, there was an underlying commercial rationale for the payment terms to be drafted to provide for specific tranches of payment by specific dates. Those dates were expressed to be “geared to progression of…the timetable”.  The timetable did provide for specific outputs by certain target dates, but the timetable itself was expressed to be a non-binding estimate.  The Court was convinced by the commercial reasoning behind structuring the payment terms in this way: Winch needed to assemble and resource a team of designers for the ongoing design work under the Contract. Therefore, a commitment was necessary to avoid incurring significant overhead costs over an extended period without payment. As such it rejected Mr Le Souef’s argument that payment ought not to be due until some of the outputs had been delivered. 

[3] The contractual position as drafted:  The judgment also illustrates the difficulty of arguing for ratification of a contract based on common mistake, and the court’s wariness of self-serving witness evidence:

  1. The court would not order rectification of the contract to make Somnio the contracting party. There was no evidence that the parties held a common intention that Somnio should be the contracting party when contracting; in fact, it was logical that Mr Le Souef could have been the contracting party. 
  2. Mr Le Souef’s witness account of a dinner with a Non-Exec Director of Winch in which he allegedly promised to not demand payment until Somnio obtained third party funding, was given little evidential weight.  The Court stated – as has been orthodox in recent years – that where witnesses disagree on their recollection (the NED disagreed with Le Souef’s account) the Court will have particular regard to checking the account of each witness “against the contemporaneous documents and events and against the inherent probabilities or otherwise of their respective accounts”.  As has also become common for judges: the Court specifically cited the judgment in ‘Gestmin’, which warns about the fallibility of witness memory. For more information on the fallibility of memory, please see the blog produced by Andrew Walls and Stacie Bourton.

Summary

In light of the above, on the proper interpretation of a contract, it was determined that the design company (Winch Design) was entitled to an order stating that the businessman (Mr Le Souef) owed it three quarters of a million pounds in unpaid invoices. On the proper interpretation of the contract: (1) Le Souef, rather than the SPV created for the project, was the actual contracting party; and (2) that debt had become due (and interest had started accruing) even though the outputs had not been delivered. 

For wider interest, the case concerned one of the largest superyachts ever, at almost 225 meters in length with multiple onboard residences with a build cost of over €500M…if it ever gets built. 

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This article was written by Lloyd Nail, a senior associate in our Dispute Resolution Team.  Lloyd is a dispute resolution lawyer specialising in complex systems, decision-making, and risk, often in high-pressure environments, with a particular focus on procurement law (including procurement litigation), health & safety (in particular complex system failures), and transport (including complex systems risks and contract issues).