Firodi Shipping Ltd v Griffon Shipping LLC
| Jurisdiction | England & Wales |
| Judge | Sir Brian Leveson,Tomlinson,McFarlane L JJ. |
| Judgment Date | 10 December 2013 |
| Court | Court of Appeal (Civil Division) |
| Date | 10 December 2013 |
Court of Appeal (Civil Division).
Sir Brian Leveson, Tomlinson and McFarlane L JJ.
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.
The following cases were referred to in the judgment:
Damon Compania Naviera SA v Hapag-Lloyd International SA (The Blankenstein)WLR[1985] 1 WLR 435.
Hall v BurnellELR[1911] 2 Ch 551.
Gilbert Ash (Northern) Ltd v Modern Engineering (Bristol) LtdELR[1974] AC 689.
Samarenko v Dawn Hill House LtdELR[2013] Ch 36.
Zalco Marine Services v Humboldt Shipping[1998] 2 SLR 536.
Shipping Contract Sale of ship Norwegian Saleform 1993 Deposit Buyer failed to pay agreed 10 per cent deposit within three banking days of signing memorandum of agreement Seller accepted buyer's conduct as repudiatory and exercised contractual right to cancel and claim compensation Conventional measure of damages of difference between contract and market price less than deposit Right to payment of deposit had fallen due before contract terminated Seller entitled to recover deposit as debt or damages.
This was an appeal from a decision of Teare J ([2013] EWHC 593 (Comm); [2013] 1 CLC 741) that where the buyer under a contract on the Norwegian Saleform 1993 had failed to pay the deposit within the time limited by cl. 2, and the contract was thereafter terminated, the seller was able to recover and retain the unpaid deposit.
The claimant seller agreed to sell the mv GRIFFON to the defendant buyer for US$22m and the parties executed a memorandum of agreement based on the Norwegian Saleform 1993 (NSF 1993). Clause 2 of the MoA required a 10 per cent deposit to be paid within three banking days of signature. The deposit was not paid. The seller accepted the buyer's conduct as a repudiation and/ or exercised its contractual right under clause 13 of the contract to cancel the agreement and claim compensation. Clause 13 provided that (i) 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; (ii) 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. The buyer accepted that the failure to pay the deposit was a repudiatory breach. The damages recoverable by the seller on the conventional measure of the difference between contract and market price were said to be US$275,000.
An arbitration tribunal decided as a preliminary issue that the seller was not entitled to recover the deposit, but was restricted to its claim in damages. That accorded with two practitioners' texts on ship sales (Sale of Ships (2nd edn) by Strong and Herring and Ship Sale and Purchase (6th edn) by Goldrein, Hannaford and Turner), and the decision of the Singapore Court of Appeal inZalco Marine Services v Humboldt Shipping[1998] 2 SLR 536. However, it had been held in a previous London arbitration that, where the deposit had fallen due for payment, but had not been paid, before the agreement was terminated, the seller was entitled to the deposit either in debt or damages. There were thus conflicting decisions of London maritime arbitrators as to the true construction of clauses 2 and 13 of NSF 1993.
Teare J allowed the seller's appeal from the arbitrators, holding that the seller was entitled to recover the deposit.
The buyer appealed arguing that the right to receive the deposit had not been unconditionally acquired by the seller, because the NSF 1993 (unlike the NSF 1966) demonstrated by its terms that the deposit was neither payable nor, a fortiori, forfeitable if unpaid before termination of the contract.
Held, dismissing the buyer's appeal:
1. The right to cancel given by limb 1 of clause 13 of the MoA was not dependent upon proof that failure to pay the deposit on time was repudiatory in nature. Limb 1 conferred on the seller a valuable contractual remedy over and above the remedy which it already enjoyed at common law. The express contractual rights afforded by limb 1 might never be exercised, not least because the seller might rely on its common law right to accept the buyer's repudiatory breach as terminating the contract. The existence of the prospective contractual rights afforded by limb 1, exercisable in the event of a failure to pay the deposit on time, could have no bearing on the proper characterisation of the parties' rights and obligations in the period between signature of the contract and the expiry of the time within which the buyer had promised to pay the deposit. It followed that limb 1 of clause 13 was of no relevance to the proper characterisation of the rights and obligations to be spelled out of clause 2.
2. The deposit was, as clause 2 of the MoA provided, security for the correct fulfilment of the agreement. It was an earnest of performance. The right to receive the deposit was plainly not conditional on the contract being performed by the seller, nor could it sensibly be regarded as in any other sense conditional. Limb 1 of clause 13, whether looked at in isolation or read together with limb 2, could have no effect on the proper construction and effect of clause 2. When the buyer failed to pay the deposit, the seller was invested with an accrued right to receive and thus to sue for the deposit as an agreed sum forfeitable in the event of failure by the buyer correctly to fulfil the agreement. Limb 1 of clause 13 did not deprive the sellers of the accrued right to sue for the deposit. The rights unconditionally acquired by the seller prior to termination survived the termination. The judge was right that the seller retained the right to sue for the deposit as an agreed sum which it could recover in debt. Alternatively, the seller had an accrued right to sue for damages for breach of the obligation to pay the deposit, the measure of which was the amount of the deposit. In any event the word compensation in limb 1 of clause 13 was apt to embrace recovery by the seller of compensation for failure by the buyer to pay the deposit, the measure of which, by analogy with the position at common law, would be at least the amount of the deposit itself. (Damon Compania Naviera SA v Hapag-Lloyd International SA (The Blankenstein) [1985] 1 WLR 435applied. Zalco Marine Services v Humboldt Shipping[1998] 2 SLR 536doubted.)
Tomlinson LJ:
1. 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.
2. 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...
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