Az Ltd entered into an agreement with Blud to completely rebuild a ship to Blud’s specification for a total contract price of £7 million. However, just before completion, Blud informed Az Ltd that, due to the downturn in the world economy, he no longer needed the ship. Az Ltd immediately started an action against Blud for breach of contract. However, in the week before the case was to be decided in the court, Az Ltd sold the ship for the same amount of money that they would have received from Blud.

Az Ltd also entered into a contract to build a new ship for Cam for a total cost of £25 million. The contract terms provided that the total price was to be paid in 12 instalments and, in the event of Cam failing to make a payment, gave Az Ltd the right to terminate the agreement and claim an amount equal to 20% of the total contract price as damages. Any amount paid over the 20% was required to be returned to Cam.

Cam failed to make the first instalment payment, but refused to pay the damages as set out in the agreement on the grounds that they were excessive.