Adyard Abu Dhabi v SD Marine Services
| Jurisdiction | England & Wales |
| Judge | The Hon. Mr Justice Hamblen,The Hon Mr Justice Hamblen |
| Judgment Date | 11 April 2011 |
| Neutral Citation | [2011] EWHC 848 (Comm) |
| Docket Number | Case No: 2009 Folio No. 1361 & 1622 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 11 April 2011 |
[2011] EWHC 848 (Comm)
The Honourable Mr Justice Hamblen
Case No: 2009 Folio No. 1361 & 1622
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Matthew Reeve and Ruth Hosking (instructed by Clyde & Co) for the Claimant
Adam Constable QC and Lucy Garrett (instructed by Ince & Co) for the Defendant
Hearing dates: 28 th February, 2 nd– 4 th, 7 th–11 th, 14 th–16 th, 23 rd March 2011
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
The Claimant ("Adyard") is a small to medium-sized shipyard operating from a site on the Abu Dhabi shoreline. The Defendant ("SDMS") is a commercial supplier of services to the public sector. Under a private finance initiative with the UK Government, in December 2007 SDMS entered into a 15 year output contract for the delivery of marine port services and moorings and navigational services for the Royal Navy and its entitled customers. In this capacity SDMS contracted for 32 new-builds and, through its prime subcontractor ("Serco"), supervised the construction projects.
The dispute between the parties concerns whether or not SDMS was entitled to rescind two shipbuilding contracts ("the contracts") entered into on 14 December 2007 for the construction by Adyard and purchase by SDMS of two 50m Moorings and Special Operations Support Vessels, Hulls 10 and 11 ("the vessels"), for a price of $14,837,000 and $13,932,000 respectively.
Under the contracts, Hulls 10 and 11 were to be ready for sea trials by 30 September and 30 November 2009 respectively. The contracts included at Article II, clause 3.3 a right on the part of SDMS to rescind in the event that the vessels were not ready for sea trials by the contractually agreed dates.
It was common ground that the vessels were not ready for sea trials by those dates. SDMS purported to exercise its right to rescind by letters dated 7 October 2009 (Hull 10) and 1 December 2009 (Hull 11). By Article X, clause 2.1, unless Adyard commenced proceedings, it was obliged to refund to SDMS all the instalments of the price previously paid to it. Adyard issued these proceedings on 15 October 2009 (Hull 10) and 14 December 2009 (Hull 11).
In the proceedings Adyard claims that SDMS was not entitled to rescind because it was prevented from completing the vessels for sea trials by SDMS's acts and/or it was entitled to an extension of time to the sea trials date for both vessels. Adyard asserts that it was delayed by various new design items which were imposed by the UK Maritime Coastguard Agency ("MCA") or instructed by SDMS in June/July 2009. By the time of the trial the relevant design items ("the design items") had been narrowed down to the following:
(1) A change from watertight hinged to watertight sliding doors at frames 5, 12, 36 and 49.
(2) The need for watertight valves and hot air vent arrangements at frame 36.
SDMS disputed Adyard's claim as a matter of contractual entitlement, disputed that these items were variations (save in relation to the door at frame 12) and disputed that they caused any delay. SDMS's position is that it was entitled to rescind and is entitled to the return of the price paid.
Relevant provisions of the contracts
The main provisions of the contracts of relevance are:
"ARTICLE I – DESCRIPTION AND CLASS
1. Description
1.1 The vessel … shall be designed, constructed, launched, equipped, completed and delivered by the Builder in accordance with the provisions of this Contract and the specifications and General Arrangement Plan which contemporaneously herewith have for the purposes of identification been signed by each of the parties hereto and which are made an integral part hereof (which specifications and General Arrangement Plan are hereinafter respectively called the "specifications" and "Plan" and together are called the "Specification".
….
3 Classification, Rules and Regulations
3.1 The Vessel, including its machinery, equipment and outfittings, shall be designed and constructed in accordance with the rules, being in force as at the date of this Contract, including any alterations and modifications published on or before the date of this Contract and coming into force during the shipbuilding period as provided in Article V Clause 2 of this Contract, and under the survey of the Classification Society…
3.2 The Builder's obligation will include that the Vessel shall be delivered as stated in the Specifications. This will include, but not be limited to the installation of the following equipment, supplied and installed by the Builder according to the Specifications and applicable rules and regulations…
3.3 Decisions of the Classification Society as to compliance or non-compliance with the classification requirements shall be final and binding upon the parties hereto.
3.4 The Vessel shall further comply with the applicable rules, regulations and requirements of other regulatory bodies referred to in the Specifications applicable to this type of vessel including in each case any alterations and modifications published on or before the date of this Contract and coming into force during the shipbuilding period so as to enable the Vessel to be registered under the UK flag. The Buyer shall give reasonable assistance to ensure that the Vessel can be registered under the UK flag where appropriate. All such rules, regulations and requirements shall be complied with without conditions/recommendations.
ARTICLE II – CONTRACT PRICE AND TERMS OF PAYMENT
…
3 Terms of Payment
3.1 The Contract Price shall, subject to other provisions in this Article, become due and payable by the Buyer to the Builder by instalments as follows:-
…
(e) Sea Trials Instalment:
The Sum of… (US$ 1,820,806) being… (12.3%) of the Contract Price shall be due within five (5) Business Days after the Builder certifies that the Vessel is ready in all respects for sea trial which shall be achieved by the thirtieth of September two thousand and nine (30/09/2009) and payable in accordance with Clause 4 of this Article II.
(f) Delivery Instalment:
The sum of… (US$741,850) being… (5%) of the Contract Price shall be paid upon Delivery in accordance with Article VII of this Contract. The parties shall try to agree on any adjustments to be made to the Contract Price hereunder before Delivery…
3.2 In the event that the parties fail to agree on the adjustments to the Contract Price before Delivery the disputed amount shall be submitted for resolution to the High Court of England and Wales in accordance with Article XIV. No such submission to Court proceedings shall have the effect of extending or postponing the Delivery Date of the Vessel and, while such proceedings are continuing, the Builder will deliver the Vessel and the Buyer shall take delivery of the Vessel subject to the Buyer or the Builder, as the case may be, providing security in the form of a bank guarantee issued by a first class European bank, satisfactory to the Buyer, or to the Builder, as the case may be, in the form attached hereto as Appendix A for the disputed amount of the adjustments to the Contract Price.
3.3 If the Builder fails to complete either of the stages contained in Clause 3.1(c) or (e) by the dates specified therein, then the Buyer may, at its option, rescind this Contract in accordance with the provisions of Article X hereof, provided always that, to the extent that any delays are caused by the Buyer's default or any Permissible Delay, that period shall be extended to the same extent.
…
ARTICLE V – MODIFICATIONS
1 Modifications of Specifications
1.1 The work to be performed by the Builder under this Contract can be modified and/or changed by written request from the Buyer, provided that the Buyer shall first agree in writing, before such modifications and/or changes are carried out, to such adjustments as are reasonably required by the Builder in the Contract Price, the Delivery Date and other terms and conditions of this Contract occasioned by or resulting from such modifications and/or changes.
1.2 Such agreement and any modification or change to this Contract, may only be effected by exchange of letters signed by the authorised representatives of the parties hereto or by fax or by email containing scanned letters signed by the authorised representatives of the parties hereto, followed up by receipt of the original letters manifesting agreement of the parties hereto which shall constitute amendments to this Contract and/or the Specifications.
…
2 Change in Class Requirements
2.1 In the event that, after the Effective Date of this Contract, any requirements as to class, or as to rules and regulations to which the construction of the Vessel is required to conform are altered or changed by the Classification Society or the other regulatory bodies authorised to make such alterations or changes, the following provisions shall apply:-
…
(b) if such alterations or changes are compulsory for the Vessel, the Builder, unless otherwise instructed by the Buyer, shall thereupon incorporate such alterations or changes into the construction of the Vessel, provided that the Buyer shall first agree to reasonable adjustments required by the Builder in the Contract Price, Delivery Date and other terms and conditions of this Contract and the Specifications occasioned by or resulting from such alterations or changes.
(c) if such alterations or changes are not compulsory for the Vessel but the Buyer desires to incorporate such alterations or changes into the construction of the Vessel, then, the Buyer shall notify the Builder in...
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