Cenargo Ltd v Empresa Nacional Bazan de Construcciones Navales Militares SA
| Jurisdiction | England & Wales |
| Judge | Andrew Smith J,Pill,Longmore L JJ,Sir Martin Nourse |
| Judgment Date | 26 March 2002 |
| Neutral Citation | [2002] EWCA Civ 524 |
| Court | Court of Appeal (Civil Division) |
| Date | 26 March 2002 |
[2002] EWCA Civ 524
Court of Appeal (Civil Division).
Andrew Smith J; Pill and Longmore L JJ and Sir Martin Nourse.
Bernard Eder QC (in the Court of Appeal) and Joe Smouha (instructed by Stephenson Harwood) for Cenargo.
Dominic Kendrick QC and Richard Waller (instructed by Sinclair Roche & Temperley) for the shipyard.
The following cases were referred to in the judgments:
Andrews Bros (Bournemouth) Ltd v Singer & Co LtdELR [1934] 1 KB 17.
Boston Deep Sea Fishing and Ice Co v AnsellELR (1888) 39 Ch D 339.
Dunlop Pneumatic Tyre Co Ltd v New Garage Motor Co LtdELR [1915] AC 79.
Elsey v JG Collins Insurance Agencies LtdUNK (1978) 83 DLR 15.
Heisler v Anglo Dal LtdWLR [1954] 1 WLR 1273.
Lindsay & Co v European Grain and Shipping AgencyUNK [1963] 1 Ll Rep 437.
Philips Hong Kong Ltd v Attorney General of Hong KongUNK (1993) 61 BLR 41.
Robophone Facilities Ltd v BlankWLR [1966] 1 WLR 1428.
China Shipbuilding Corp v Nippon Yusen Kabukishi Kaisha (“The Seta Maru”) [2000] CLC 566.
Webster v BosanquetELR [1912] AC 394.
Shipbuilding contract — Buyers alleged deficiency in trailer carrying capacity of ro-ro ferries and breached of speed warranty — Whether contractual terms relating to freight capacity referred to spaces for trailers or actual trailers carried — Whether buyers entitled to liquidated damages — Whether liquidated damages a penalty — Whether right to damages lost on delivery.
These were appeals by the buyers under shipbuilding contracts (“Cenargo ”) and by the shipbuilders from a judgment of Andrew Smith J on the construction of the contractual terms.
The Spanish defendant built two “ro-ro” ferries for the claimant under 1996 contracts. The contracts included a specification and a plan. By art. I.4 each vessel was to have a ro-ro freight capacity of at least 146, 13 metre slots. Article III.5 provided for the payment of liquidated damages if there was a deficiency in trailer carrying capacity. If the actual trailer carrying capacity of the vessel was less than 146 units of 13 metres each the builder had to pay to the buyer as liquidated damages $150,000 for each trailer unit by which the vessel was deficient but excluding the first one. Article X contained a guarantee by the builder of materials, workmanship and design. There were also relevant terms of the specification under the general head of “Main Particulars”.
Cenargo sought payment under art. III.5 alleging a deficiency of ten units in each vessel arguing that art. III.5 provided for payment in the event of the vessels not having the capacity to carry 146 trailers of 13 metres length. Their contention was that the warranty given was that the vessels would actually be able to load (by conventional means) and safely carry 146 trailers of 13m length. The builder argued that the obligation was to provide the right number of 13 metre spaces or slots and did not refer to the number of trailers which could be loaded in practice.
Cenargo maintained that even on the builders' interpretation of the contracts, the vessels did not have the requisite capacity, but had only 140 slots because six slots were obstructed by obstacles to loading and carrying trailers. The builders maintained that the obstacles upon which Cenargo relied were too trivial and too readily remedied to give rise to a claim under the clause; alternatively if, because of the obstacles, Cenargo did have a claim under art. III.5, the clause provided for payment of a penalty (and not liquidated damages), and so was not enforceable. Further Cenargo lost any right to liquidated damages under art. III.5 when it took delivery of the vessels.
Cenargo also claimed under speed warranties in the contracts.
The judge held that the stipulation of 13 metres referred to the length of the spaces to be provided and not the length of the vehicles to be accommodated within them and thus that the builders' interpretation was to be preferred. In deciding whether there had been a breach of the warranty as to capacity and whether liquidated damages were payable, the position had to be considered at the date of delivery. Two spaces which could not be used for safety reasons without modifications were part of the vessel's capacity. Four spaces which could only be made available after alterations which, although not prohibitively expensive, involved rearrangements and modifications were not part of the capacity of the vessels. Since the modifications were necessary to provide that additional capacity, the vessels were each deficient by four spaces when delivered, having the capacity to carry 142 trailers only. Accordingly Cenargo was entitled to liquidated damages of $450,000 in respect of the capacity of each vessel. Article III.5 was not a penalty clause. Under the contractual scheme it was not an ingredient in Cenargo's right to liquidated damages that it should make a claim on delivery. The builders' obligation to pay liquidated damages accrued on delivery whether they were claimed then or not. The contracts did not provide that such accrued rights ceased on delivery. There was no breach of the speed warranty in respect of one vessel after the speed achieved in trials was adjusted in respect of wind, waves and shaft power. In relation to the other vessel, the contractual speed tests did not permit adjustment of the results for rudder angle or drift angle. Adjustment for displacement was permitted. The agreed corrected speed after adjustment for wind and waves was less than the guaranteed speed and the builder was liable to pay $180,000 in liquidated damages accordingly.
Both buyers and builders appealed on the carrying capacity issues.
Held, dismissing the buyers' appeal and allowing the builders' appeal:
1. The judge was right for the reasons he gave that the phrase “146, 13 metre slots”, in the primary article of the contract itself (art. I.4), was more easily read as referring to the length of the slot rather than to the length of whatever it was that was to be put into the slot. The fact that it was said to be a measure of “RoRo freight capacity” did not make it any the less likely that the obligation was to provide a slot of the length of 13 metres. The words chosen to describe the capacity bore the meaning ascribed to them by the builders.
2. Contrary to the judge's view there was not a true dichotomy between trailer carrying capacity on the one hand and safety equipment on the other. The question which the judge ought to have asked himself was whether the absence of the contractual number of spaces on the date of delivery amounted to a failure of carrying capacity on that date. If the right number of spaces could have been made available at modest cost, it would be difficult to say that there was a breach of the warranted capacity, whereas, if there was an inherent difficulty about providing the contracted number of spaces on board the vessel as constructed, no doubt a breach of art. I.4 could be proved and liquidated damages under art. III.5 would be payable. The issue was not whether the builders provided the right number of spaces, but whether they delivered a vessel which had the relevant freight capacity, viz. a vessel which was capable of providing the right number of spaces. On the facts the six spaces could be made available and the fact that they were not available was a deficiency of design or workmanship. The vessel had the capacity at delivery of providing 146 13-metre spaces and there was no breach of art. 1.4 of the contract and no claim could arise under art. III.5 for liquidated damages.
3. If there was a breach of art. I.4, the true loss of the buyers could not have been intended to be covered by the liquidated damages clause. A sum might be regarded as penal if it might have become due on a trifling breach, even though the breach which actually occurred was a serious one, and one for which the sum could be regarded as a genuine pre-estimate. The courts would do their best to avoid invalidating fair contracts by construing the contract so as to make the sum payable only on major breaches, for which it was a valid pre-estimate. The phrase “major breaches” referred to breaches of contract giving rise to substantial loss of the kind contemplated by the liquidated damages clause. On that basis even if there was a breach of art. I.4 of the contract to the extent of an inability on the part of the vessel to provide six required slots, the loss resulting from that breach was not intended to be covered by the liquidated damages clause. (Webster v BosanquetELR[1912] AC 394applied.)
4. If there had been a good claim under art. III.5, it would not have been barred by virtue of the fact that art. II provided for liquidated damages to be calculated, determined and paid on delivery. The only barring clause was art. X.5 and that, as the judge held, was not apt to bar claims for breaches of express contractual obligations.
HIGH COURT JUDGMENT
(30 January 2001)
Andrew Smith J:
1. Cenargo Ltd are a company in the Cenargo group who own and operate “Ro-Ro” and other vessels. They were represented before me by Mr Smouha. The group were founded in 1979 by the present chairman, Mr Hendry, and now own or control some 15 vessels. These proceedings are in respect of two Ro-Ro ferries built with hull numbers 287 and 288 and named MV Dawn Merchant and MV Brave Merchant. The Dawn Merchant and the Brave Merchant are two of four sister-ships, the others being Northern Merchant (hull 289) and Midnight Merchant (hull 290). I understand that there are disputes about these other two ships, but I am not concerned with those disputes. The claims that come to trial before me concern the capacity of the two vessels, the Dawn Merchant and the Brave Merchant, to carry trailers and the speed of the vessels. Other claims about the vessels were brought by the claimants in these...
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