Firodi Shipping Ltd v Griffon Shipping Llc
| Jurisdiction | England & Wales |
| Judge | Lord Justice Tomlinson,Lord Justice McFarlane,Sir Brian Leveson |
| Judgment Date | 10 December 2013 |
| Neutral Citation | [2013] EWCA Civ 1567 |
| Date | 10 December 2013 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2013/0983 |
[2013] EWCA Civ 1567
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION, COMMERCIAL COURT
Mr Justice Teare
Royal Courts of Justice
Strand, London, WC2A 2LL
Sir Brian Leveson
President of the Queen's Bench Division
Lord Justice Tomlinson
and
Lord Justice McFarlane
Case No: A3/2013/0983
Michael Coburn QC and Charlotte Tan (instructed by Holman Fenwick Willan LLP) for the Appellant
David Bailey QC and Marcus Mander (instructed by Reed Smith LLP) for the Respondent
Hearing date: 23 November 2013
Approved Judgment
The Norwegian Saleform, more properly the Norwegian Shipbrokers' Association's Memorandum of Agreement for sale and purchase of ships, is the most commonly used form of contract for the sale and purchase of second hand tonnage. First issued in 1966, it has since been revised in 1983, 1986/7, 1993 and 2012. It makes provision for the parties to choose the governing law and seat of arbitration, English law and London and the law of New York and New York being the two express albeit not exclusive choices provided by the form. English law and London arbitration is commonly the parties' choice as it was in this case.
This appeal raises what the judge below, Teare J sitting in the Commercial Court, described as a controversial issue as to the construction of provisions in the 1993 Revision, which I shall refer to as "NSF 1993". It concerns Sellers' remedy in the event of non-payment of the deposit. An amendment to the form was made in the 1983 Revision which introduced an additional paragraph to what had hitherto been the single paragraph Clause 13 which bears the rubric "Buyers' default". The amendment was carried through into the 1993 and indeed the 2012 form. It concerns the situation where Buyers have failed to pay the deposit within the time limited by Clause 2 and the contract is thereafter terminated. It is said that this amendment had the effect of depriving Sellers of the ability to recover and retain the unpaid deposit, a remedy which this court clearly indicated would be available where NSF 1966 is used — see Damon Compania Naviera SA v Hapag-Lloyd International SA ("The Blankenstein") [1985] 1 WLR 435. Two London arbitrators, Mr Ian Kinnell QC and Mr John Tsatsas, accepted this argument but Teare J did not. I have no doubt that the judge was right.
The judgment the subject of this appeal, [2013] EWHC 593 (Comm), is reported at [2013] 1 Lloyd's Rep 50. The judge set out the facts and set the scene for the debate so succinctly and completely that there is no point in my doing other than reproduce the relevant paragraphs of his judgment, which I do below:-
"2. The relevant facts may be shortly stated. On 28 April 2010 the Claimant Sellers (the "Sellers") agreed by way of an email recap to sell the mv GRIFFON to the Defendant Buyers (the "Buyers") at a price of US$22m. On 1 May 2010 the Memorandum of Agreement ("MOA") based upon NSF 1993 was signed. A deposit of 10%, some US$2,156,000, was payable within three banking days of signature, that is, by 5 May 2010. The deposit was not paid by 5 May 2010. On 6 May 2010 the Sellers accepted the Buyers' conduct as a repudiation of the MOA and/or cancelled the MOA pursuant to an express contractual right to do so and thereby brought the MOA to an end. The Buyers accepted that their failure to pay the deposit was a repudiatory breach (see paragraph 31 of the Award).
3. The damages recoverable by the Sellers on the conventional measure of the difference between contract and market price were said to be US$275,000, that is, very substantially less than the deposit.
4. The preliminary issue determined by the arbitration tribunal was expressed in these terms:
"Is the effect of the Contract and/or the MOA such that, by reason of the failure by Buyers to pay the deposit in accordance with Clause 2 of the Contract and/or Clause 2 of the MOA, Sellers, having been entitled to, and having terminated the Contract and/or the MOA on 6 May 2010, may recover the amount of the deposit as a debt, or by way of damages."
5. So the question was whether the Sellers could recover the deposit or could only claim damages in a lesser sum. There is no dispute that if the deposit had been paid the Sellers would have been entitled to retain the deposit, even though it would have exceeded the recoverable damages.
6. The relevant terms of the MOA are as follows:
"1. Purchase price USD 22,000,000 …less 2% total commission.
2. Deposit
As security for the correct fulfilment of this Agreement the Buyer shall pay a deposit of 10% (ten per cent) of the Purchase Price within 3 (three) banking days after this Agreement is signed by both parties and exchange by fax/email. This deposit shall be placed in the Sellers' nominated account with the Royal Bank of Scotland PLC, Piraeus and held by them in a joint interest bearing account for the Sellers and the Buyers, to be released in accordance with joint written instructions of the Sellers and the Buyers ………
3. Payment
The said Purchase Price ……..shall be paid …….on delivery of the vessel……..
13. Buyers' default
Should the deposit not be paid in accordance with Clause 2, the Sellers shall have the right to cancel this Agreement, and they shall be entitled to claim compensation for their losses and for all expenses incurred together with interest.
Should the Purchase Price not be paid in accordance with Clause 3, the Sellers have the right to cancel the Agreement, in which case the deposit together with interest earned shall be released to the Sellers. If the deposit does not cover their loss, the Sellers shall be entitled to claim further compensation for their losses and for all expenses incurred together with interest."
7. The Sellers' case was that the right to payment of the deposit had accrued before the MOA was terminated and accordingly the Sellers were entitled to claim the deposit either as a debt or as damages for breach of contract. The Buyers' case was that in the event of non-payment of the deposit the Sellers, on the true construction of the MOA and in particular Clause 13 thereof, were only entitled to claim "compensation for losses" and not the deposit.
8. The arbitration tribunal preferred the Buyers' case. It held, by an award dated 9 July 2012, that the Sellers were not entitled to recover the deposit but were restricted to their claim in damages. This was the remedy provided by the first limb of Clause 13.
9. The issue decided by the arbitration tribunal is controversial as the following history shows:
(i) In the NSF 1966 the equivalent of Clause 13 read as follows:
"Should the purchase money not be paid as per clause 16 the sellers have the right to cancel this contract in which case the amount deposited shall be forfeited to the sellers. If the deposit does not cover the sellers loss they shall be entitled to claim further compensation for any loss and for all expenses together with interest at the rate of 5 per cent. per annum."
(ii) It is to be noted that NSF 1966 did not contain the first limb of Clause 13 in NSF 1993 which dealt expressly with the non-payment of the deposit. The effect of NSF 1966 was considered in Damon Compania Naviera v Hapag-Lloyd International, the Blankenstein [1985] 1 WLR 435. In that case the deposit was due "on signing". But the MOA was never signed and so no deposit was paid. The sellers claimed the amount of the deposit. The Court of Appeal held that there was a binding contract (notwithstanding that the MOA had not been signed) and, by a majority, that the sellers were entitled to damages for the buyers' repudiation of the contract, the measure of damages being the amount of the deposit; see pp.449–452 per Fox LJ and p.457 per Stephenson LJ. Robert Goff LJ dissented on this point. He held that the sellers were entitled to damages for their loss of bargain, namely, the difference between the contract and market price of the ship, which was less than the amount of the deposit. However, he accepted that if the deposit had fallen due before the contract had been terminated the sellers could claim the deposit in debt; see p.456–7.
(iii) Clause 13 was amended in 1983 (before the decision of the Court of Appeal in the Blankenstein) to include the first limb regarding the non-payment of the deposit. The explanatory note produced by the Norwegian Shipbrokers' Association and published by BIMCO did not disclose any particular reason for the addition of the first limb; see the text of the note in Sale of Ships 2 nd.ed. by Strong and Herring at appendix 2 p.325. The new form of Clause 13 was repeated in NSF 1987 and read as follows:
13 Buyers' default
Should the deposit not be paid as aforesaid, the Sellers shall have the right to cancel this contract and they shall be entitled to claim compensation for their losses and for all expenses incurred together with interest at the rate of 12% per annum.
Should the Purchase Money not be paid as aforesaid, the Sellers have the right to cancel this contract, in which case the amount deposited together with interest earned, if any, shall be forfeited to the Sellers. If the deposit does not cover the Sellers' losses, they shall be entitled to claim further compensation for their losses and for all expenses incurred together with interest at the rate of 12% per annum."
(iv) NSF 1987 was considered by the Court of Appeal of Singapore in Zalco Marine Services v Humboldt Shipping [1998] 2 SLR 536. As in the Blankenstein the contract came to an end before the deposit fell due and the seller again claimed the deposit as damages but the Court of Appeal held that the sellers' only remedy was for "compensation" pursuant to the first limb of Clause 13 which was to be assessed on the conventional...
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