Hyundai Heavy Industries Company v Papadopoulos
| Jurisdiction | England & Wales |
| Judge | Viscount Dilhorne,Lord Edmund-Davies,Lord Fraser of Tullybelton,Lord Russell of Killowen,Lord Keith of Kinkel,To |
| Judgment Date | 01 April 1980 |
| Judgment citation (vLex) | [1980] UKHL J0401-2 |
| Date | 01 April 1980 |
| Court | House of Lords |
[1980] UKHL J0401-2
Viscount Dilhorne
Lord Edmund-Davies
Lord Fraser of Tullybelton
Lord Russell of Killowen
Lord Keith of Kinkel
House of Lords
My Lords,
On the 30th August 1975 a contract was made between Pitria Pride Navigation Co. Inc., a Liberian company, (hereafter referred to as "the Buyer") and the respondent, (hereafter referred to as "the Builder") whereby it was agreed that the Builder should "build, launch, equip and complete" a 24,000 ton deadweight multi-purpose cargo ship "and deliver and sell her" to the Buyer for U.S. $14,300,000. It was a term of the contract that construction of the vessel should proceed continuously from keel laying to delivery.
Article 10 of the contract provided that the price should be paid in five instalments, the first of 2.5 per cent of the contract price i.e. $357,500; the second of the same amount to be paid on the 15th July 1976; the third of 10 per cent of the contract price; the fourth, of 17.5 per cent of the contract price and the fifth and final instalment of 67.5 per cent plus or minus any increase or decrease due to modifications to be paid at least three days prior to the scheduled delivery date of the vessel.
The date stipulated for payment of each instalment was referred to as "the due date" and this litigation arises from the non-payment of the second instalment on the due date.
It was also agreed in Article 10 that:—
"all payments under the provisions of this Article shall not be delayed or withheld by the Buyer due to any dispute of whatever nature arising between the Builder and the Buyer hereto, unless the Buyer shall have claimed to cancel the Contract under the terms thereof or in the case of the last payment, have rejected the vessel."
This provision is indicative of the importance attached to payment of the instalments on the due dates; and the increasing amount of the instalments shows that they were intended to reflect the increasing costs incurred in the building of the vessel.
Article 10 also provided that the payments made by the Buyer prior to delivery of the vessel should constitute advances to the Builder, and that if the contract was cancelled or rescinded otherwise than in accordance with the provisions of Article 11 "the full amount of total sums paid by the Buyer to the Builder in "advance of delivery" should be refunded to the Buyer.
Article 11 stated at its commencement that:—
"The Buyer shall be deemed to be in default under this Contract… in the case of … the second … instalment, if such instalment is not received within the period of 30 days following the due date … or if the Buyer fails to be in punctual, due and full compliance with any of its obligations under this Contract."
It is not necessary in this case to decide whether the Buyer was in default when payment was not made on the due date, the 15th July, or only became in default 30 days thereafter.
The Article then went on to say:—
"In case the Buyer is in default of any of its obligations under this Contract, the Builder is entitled to and shall have the following right, power and remedies in addition to such other rights, powers and remedies as the Builder may have elsewhere in this Contract and/or at law, at equity or otherwise."
It was thus provided that the rights powers and remedies given to the Builder by this Article were to be in addition to and not exclusive of any other rights, powers and remedies he might have in consequence of default on the part of the Buyer.
This Article then went on to provide that if an instalment remained unpaid for more than three days after the due date, the Builder should notify the Buyer of that, and that if the default continued for 7 days after the Builder's notification, the Builder might "rescind" the contract by giving notice of rescission. In the case of the second instalment it was provided that "the seven days notice to cancel this Contract may be given at any time after the twenty-third day following the due date … and shall be effective upon the expiry of the said seven day period if the Buyer is at the expiry of seven day period in default".
The second instalment not having been paid on the due date or thereafter, the contract was cancelled on the 6th September 1976 by notice given by the Builder in accordance with this Article.
This Article stated that on cancellation the Builder should be:—
"entitled to retain the instalments already paid by the Buyer to the Builder which shall be applied to recovery of the Builder's loss and damage including, but not being limited to, reasonable estimated profit due to the Buyer's default and the cancellation of the Contract."
The contract did not state what was to happen with regard to rights which had accrued prior to cancellation. I do not think that this express provision relating to instalments already paid, which was perhaps thought necessary in view of the obligation under Article 10 to refund all such instalments if the contract was terminated otherwise than under Article 11, throws any light on the consequences of cancellation with regard to instalments which had become due and had not been paid.
That Article also gave the Builder if he cancelled the contract in accordance with its provisions, the right either to complete or not to complete the vessel and to sell her in either a complete or incomplete state. It contained detailed provisions as to the application of the proceeds of sale if the Builder decided to sell her and provided that if, after compensating the Builder, there was any balance left, that should be paid to the Buyer.
Contemporaneously with this contract the appellants (hereafter referred to as "the Guarantors") gave the Builder the following guarantee:—
"In consideration of your entering into the Shipbuilding Contract… with Pitria Pride Navigation Co. Inc., Liberia ('the Buyer') we hereby jointly and severally irrevocably guarantee the payment in accordance with the terms of the Contract of all sums due or to become due by the Buyer to you under the Contract, and in case the Buyer is in default of any such payment, we will forthwith make the payment in default on behalf of the Buyer.
Our liability under this guarantee shall cease upon delivery of the Vessel or upon the previous assignment (with your consent) by the Buyer to a third party of this Contract upon terms that the assignee shall adopt to the exclusion of the Buyer all rights and obligations of the Buyer towards you under the Contract."
Payment of the second instalment not having been received, the Builder on the 14th March 1978 issued a writ against the guarantors claiming the sum of U.S. $420,879.95, the amount of that instalment and interest thereon as provided by the contract. Lloyd J. gave judgment for the Builder under Order XIV. The Buyer's appeal to the Court of Appeal was dismissed on the 6th October 1978. On the 17th May 1978 Hyundai Shipbuilding & Heavy Industries Co Ltd v. Pournaras [1978] 2 Lloyd's Rep. 502 had come before a differently constituted Court of Appeal. In that case the contracts were similar in all material respects to that in this case; guarantees were given in the same terms and there had been default in the payment of instalments in consequence of which the Builder had treated the contracts as repudiated and had accepted the repudiation.
Roskill L.J., with whose judgment Stephenson L.J. agreed, said that in his view the true meaning of the guarantees was that if the Buyer did not pay on time, the guarantors would pay. To hold otherwise was in his opinion to fly in the face of the obvious commercial purpose of the guarantees. He rejected the argument that once the contracts had come to an end, liability to pay instalments which had become due and had not been paid ceased and was replaced by a claim not in debt but in damages. In his opinion the ending of the contracts did not free the Buyer from the obligation to pay the instalments liability for the payment of which had already accrued, and did not free the guarantors from liability under the guarantees.
The two main differences between that case and this are, first, that in that case the Builder did not invoke Article 11 but treated the non-payment of instalments by the Buyer as entitling it to treat the contracts as terminated and in the present case the Builder had cancelled under Article 11; and, secondly that in that case the writ was issued against the guarantors before the repudiation was accepted whereas in this case it was issued after the cancellation.
Mr Curry for the appellants contended that that case could on these grounds be distinguished from the present case, and if that were not so, that the decision in that case was wrong. He conceded that prior to the cancellation on the 6th September neither the Buyer nor the guarantors had any answer to a claim for payment of the second instalment due on the 15th July, but he contended that the effect of cancellation by the Builder was to relieve the Buyer of the obligation to pay that instalment. Cancellation meant that that instalment was no longer due and not being due from the Buyer, the guarantors were not under any liability to pay it. Cancellation meant that the Builder was deprived of his accrued right to payment of the second instalment either from the Buyer or under the guarantee.
If this argument is well founded, one curious consequence would appear to be that the very ground for cancellation was destroyed by the act of cancellation.
The first question for consideration appears to me to be, Does cancellation of the contract under Article 11 or the acceptance of a repudiation destroy accrued rights?
In this...
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