Covington Marine Corporation and Others v Xiamen Shipbuilding Industry Company Ltd
| Jurisdiction | England & Wales |
| Judge | THE HONORABLE MR JUSTICE LANGLEY |
| Judgment Date | 16 December 2005 |
| Neutral Citation | [2005] EWHC 2912 (Comm) |
| Docket Number | Case No: 2005 FOLIO 84 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 16 December 2005 |
[2005] EWHC 2912 (Comm)
The Honorable Mr Justice Langley
Case No: 2005 FOLIO 84
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
In an Arbitration Claim:
Mr S. Rainey QC and Mr S. Picken (instructed by Messrs Clifford Chance) for the Claimants
Mr T. Young QC (instructed by Messrs Lovells) for the Respondents
Hearing dates: 7 th and 8 th December 2005
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.
The Hon. Mr Justice Langley:
This is an Arbitration Appeal, under Sections 69(2) and (3) of the Arbitration Act 1996, brought by the Claimants with the permission of Morison J granted on 26 May 2005. Such an appeal has, of course, to be on a question of law arising out of the Award or Awards.
The Claimants were the Buyers and the Respondents the Builders under four shipbuilding contracts executed on 23 February 2003, each for one vessel, a 53,800 DWT bulk carrier, at a price of US$ 17,970,000 per vessel. The Buyers are companies incorporated in the Marshall Islands. They were all managed by Enterprises Shipping and Trading SA ("EST") a company with its principal place of business in Athens. Their brokers were Barry Rogliano Salles ("BRS"). The Builders were founded as a private company in the People's Republic of China (PRC) in 2002. Their brokers were Asia Shipping International ("ASI").
The Buyers made claims for damages for breach of the contracts. They alleged the Builders had repudiated the contracts.
The claims were referred to arbitration. The arbitrators were Anthony Diamond QC, Anthony Hallgarten QC and Mr Philip Yang. The Builders raised jurisdiction issues. They denied that any binding contracts had been concluded. Those issues were resolved in favour of the Buyers in four Awards (one in respect of each contract) dated 11 January 2005. But, to quote from paragraph 178 of the Reasons for Award ("the Reasons"):
"(c) The contracts are not void for uncertainty but the binding effect of the contracts was dependent upon the parties being able and willing to reach agreement on the supplier of the main engines and on their being able and willing to fulfil the other conditions set out in para (b) of Art(icle) 21 within the prescribed time.
(d) The contracts have been automatically rescinded under the provisions of para(graph) (b) of Art(icle) 21 due to the conditions set out in that paragraph not having been met and accordingly the parties have been discharged from their obligations duties and/or liabilities under the contract(s).
(e) The issue of repudiation does not arise and neither party is liable to the other for any loss sustained as a result of the non-performance of the contract(s)."
The Buyers, for those reasons, failed in their claims.
The relevant issues on this appeal all arise from Article 21(b) of the contracts. The wordings of the Articles in the Pioneer and Explorer Contracts were identical. The wordings of the Covington and Washington Contracts were (so far as material) identical save that in the introductory words of paragraph (b) and in paragraph (b)(v) of Article 21 the time periods were stated to be three and six calendar months respectively and not 20 banking days.
The wording of Article 21 in the Pioneer and Explorer Contracts provided:
"21. EFFECTIVENESS OF THIS CONTRACT
This Contract shall become effective from the date of its execution by the parties provided that:
(a) if within Twenty (20) banking days from the date of this Contract the board of directors of the Builder do not approve plans for the construction of a new slipway at the Shipyard or the Builder and the Buyer are unable to reach an agreement granting the Buyer or its nominees options to build additional vessels at the Shipyard on terms acceptable to the Buyer, …….the Buyer may rescind this Contract in its sole discretion;
and
(b) if any of the following conditions are not met in the following order (or such other order as the parties may agree) within Twenty(20) banking days from the date of this Contract, then this Contract shall be automatically rescinded (unless the party to whom performance is then next owed agrees otherwise):
(i) agreement between the parties as to the supplier of the main engine described under Article 1(c)(ii), which the parties shall use their best endeavours to reach within Ten (10) banking days from the date of this Contract;
(ii) receipt by the Buyer of the Letter of Guarantee issued and registered in accordance with Article 10(h);
(iii) receipt by the Buyer of evidence acceptable to the Buyer and the Guarantor of the validity and binding effect of this Contract, the Specifications and the Letter of Guarantee and that all governmental licenses (including without limitation for the exportation of the Vessel) permits, approvals (including without limitation from the State Administration for Foreign Exchange) and consents in relation to the construction, delivery and/or sale of the Vessel pursuant to this Contract and the Specifications and the provision of the Letter of Credit have been obtained;
(iv) receipt by the Builder of the Performance Guarantee issued in accordance with Article 10(i);
(v) receipt by the Builder of the first instalment paid by the Buyer in accordance with Article 10(b)(i), provided that notwithstanding the Twenty (20) day period aforesaid the Buyer shall always have Five (5) banking days after the date of receipt of the original of the Letter of Guarantee within which to make the said payment.
Upon such rescission, the parties hereto shall be immediately and completely discharged from their obligations, duties and/or liabilities under this Contract without incurring any liability whatsoever to each other.
Article 21(a) is not material. The Buyers agreed not to rely upon it. Article 1(c)(ii) provided:
"(ii) The main propelling unit will consist of MAN B&W 6S50MC-C having a maximum continuous rating of 9480 kW (metric unit) at 127 R.P.M. Speed at C.S.R. (90% MCR) of main engine output with fifteen percent (15%) sea margin on the design draft (moulded) of 12.00 meters with clean bottom and wind force not exceeding Beaufort scale 2 under calm sea shall be not less than 14.5 knots (the "Guaranteed Speed")."
Article 10(h) provided:
"(h ) LETTER OF GUARANTEE
As security for the due performance of its obligations under this Article 10, the Builder shall deliver, or procure that there is delivered, to the Buyer the original of an irrevocable and freely assignable letter of guarantee, in a form reasonably acceptable to the Buyer and the Guarantor, issued by the Bank (the " Letter of Guarantee") together with confirmation in writing from the Bank of due registration of the letter of Guarantee with the State Administration for Foreign Exchange. All expenses in issuing, registering and maintaining the Letter of Guarantee and all charges or expenses relating to a refund made under this Contract shall be borne by the Builder.
If for whatsoever reason the Letter of Guarantee ceases to be in full force and effect, the Buyer shall be entitled to rescind the Contract in accordance with the provisions of Article 12 hereof."
The obligations of the Builder under Article 10 were to refund sums paid by the Buyer prior to delivery of the vessel in the event that the Buyer was entitled to rescind the Contract. I shall refer, as the parties did, to this Guarantee as the Refund Guarantee.
Article 10(i) provided:
"(i) PERFORMANCE GUARANTEE
As security for the second, third and fourth instalments due in accordance with Article 10(b), the Buyer shall deliver, or procure that there is delivered, to the Builder an irrevocable letter of guarantee (the "Performance Guarantee") in a form reasonably acceptable to the Builder and the Bank issued by an international first class bank (the " Guarantor") acceptable to the Builder and the Bank within five (5) banking days of the Buyer's receipt of the Letter of Guarantee."
Article 19(b)(i) required the buyers to pay a first instalment of 5% of the contract price five banking days after the date of receipt by the buyer of the original Letter of Guarantee referred to in Article 10(h).
The Arbitration Application, which led to the grant of permission to appeal, raised three "questions of law":
"(i) whether there was an agreement as to the supplier of the main engine between the parties arising out of the parties' exchanges of 18 and 19 March 2003 for the purposes of Article 21(b)(i) of the contracts;
(ii) whether, if there was no agreement as to the supplier of the main engine, notwithstanding that the [Builder] had decided for commercial reasons not to perform the contracts in any way whatsoever from 19 March or after 20 March 2003, conduct which of itself was found by the arbitrators to be capable of being repudiatory of the contracts, the [Builder] was entitled to rely upon that absence of agreement as to the supplier of the main engine and to invoke Article 21 as rescinding the contracts;
(iii) whether, if had there been agreement on the supplier of the main engine under Article 21(b)(i), it was open to the [Buyers] on the true construction of Article 21 to extend time to Xiamen for the provision of the refund guarantees under Article 21(b)(ii) of the contracts and to treat Xiamen's refusal to take any steps to provide the refund guarantees, pursuant to its decision not to perform the contracts in any way from 19 March, as repudiatory."
It is to these three questions that the...
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