Jiangsu Guoxin Corporation Ltd (formerly known as Sainty Marine Corporation Ltd) v Precious Shipping Public Company Ltd

JurisdictionEngland & Wales
JudgeMr Justice Butcher
Judgment Date30 April 2020
Neutral Citation[2020] EWHC 1030 (Comm)
Date30 April 2020
Docket NumberCase No: CL-2018-000797, CL-2018-000798
CourtQueen's Bench Division (Commercial Court)

[2020] EWHC 1030 (Comm)

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

IN THE MATTER OF THE ARBITRATION ACT 1996

AND IN THE MATTER OF APPLICATIONS UNDER

SECTION 69 OF THE ARBITRATION ACT 1996

AND IN THE MATTER OF TWO ARBITRATION CLAIMS

Royal Courts of Justice, Rolls Building

Fetter Lane, London, EC4A 1NL

Before:

Mr Justice Butcher

Case No: CL-2018-000797, CL-2018-000798

Between:
Jiangsu Guoxin Corporation Ltd (formerly known as Sainty Marine Corporation Ltd)
Claimant
and
Precious Shipping Public Co. Ltd
Respondent

Andrew Stevens and Gideon Shirazi (instructed by Campbell Johnston Clark Ltd) for the Applicant

Roderick Cordara QC, Adam Board and Andrew Dinsmore (instructed by Watson Farley and Williams LLP) for the Respondent

Hearing dates: 18 March 2020

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.

Mr Justice Butcher Mr Justice Butcher
1

There are for determination two appeals by the Claimant, to which I will refer as ‘the Seller’, brought pursuant to s. 69 Arbitration Act 1996, permission having been granted by Teare J. The appeals arise out of two partial final awards which are dated 20 November 2018 (‘the awards’), made by tribunals consisting of Michael Baker-Harber, Ian Gaunt and Simon Gault (‘the tribunal’).

2

These appeals relate to disputes as to two vessels, Hulls 21B and 22B, which the Seller had contracted to build pursuant to shipbuilding contracts made with the Respondent, to which I will refer as ‘the Buyer’, dated 26 February 2014 (‘the SBCs’). The SBCs were, as far as is material for these appeals, in identical terms.

The Contracts

3

The SBCs are on amended SAJ forms. They contain a number of terms which are of relevance to the determination of the issues on these appeals. In the Appendix to this judgment I have set out the most germane.

Factual Background

4

The dispute in relation to Hulls 21B and 22B arises in the context of 11 arbitrations between the Seller and the Buyer concerning a series of 14 bulk carriers of SDARI 64k design which were to be designed and constructed by the Seller in China. All the shipbuilding contracts in respect of the 14 hulls were agreed in late 2013 or early 2014.

5

After the first two hulls, 09B and 10B were delivered, the Seller tendered 17B, 18B, 19B and 20B, but they were rejected by the Buyer. The Buyer contended that all the ships had been designed and/or built in a defective manner, such that they were susceptible to stern tube bearing failures under navigation. The Seller says that the rejection of hulls 17B – 20B was unlawful, including because any design defect in respect of the stern tube bearing had been rectified before tender of those hulls. The awards under appeal do not deal with the merits of that dispute. What is significant for present purposes, however, is that the Seller contends that the rejection and cancellation of those hulls, which it contends was wrongful, resulted in their being left at the Seller's yard, occupying berths there, and delaying the launch and construction of Hulls 21B and 22B.

6

The contractual Delivery Date for Hulls 21B and 22B was 31 August 2015. On 29 January 2016, 151 days after the contractual Delivery Date, the Buyer stated that it was terminating the contracts for Hulls 21B and 22B under Article III. 1 and Article VIII.3 of the SBCs by reason of the lapse of more than 150 days of ‘non permissible delays’. The Seller treated this as a repudiatory breach which it says that it accepted on 3 February 2016, thereby, on any view, bringing the contracts to an end.

The Dispute in Outline

7

This led to disputes which have been referred to arbitration. The Seller's case has been:

(1) That the ‘prevention principle’ applies. It contends that time was set ‘at large’ as a result of what it contends was the unlawful rejection of hulls 17B-20B, which had resulted in the occupation of berths at the yard and the delay of Hulls 21B and 22B, and constituted an act of wrongful prevention on the part of the Buyer; and/or

(2) That there had not been 150 days of ‘non permissible delay’ by the time of the Buyer's purported termination. It contends that construction was delayed and, to the extent relevant, it is entitled to an extension of time, due to (i) late payment by the Buyer of instalments of the Contract Price; (ii) investigations and modifications in relation to the stern tube bearing issue; and (iii) the effect of the cancellation of the contracts for hulls 17B-20B.

8

The Buyer's position has been that:

(1) The SBCs provide a complete code of the circumstances in which the Seller was entitled to claim extensions of time. The relevant contractual machinery had never been exercised to extend time, and therefore the Seller was not entitled to an extension, even if (which the Buyer denied) it would otherwise have been entitled to such an extension.

(2) There is no room for the ‘prevention principle’ on the facts of these cases.

The Awards

9

The parties agreed that the tribunal should exercise its power under s. 47 Arbitration Act 1996 to make a partial final award on certain preliminary issues. The parties ultimately agreed on two of those issues, and the tribunal had to resolve the other two, which were as follows:

(1) ‘Was the Seller entitled to extend the Delivery and/or Cancellation Date in circumstances where it failed to and/or did not operate, and/or exercise any relevant contractual machinery (including Article XI of the SBC)?’ This was referred to as ‘the Second Issue’.

(2) ‘Is there any scope for the application of the prevention principle in light of the express terms of the SBC (including relevant arguments on implied terms)?’ This was referred to as ‘the Third Issue’.

10

As the tribunal recorded, the parties had agreed that these questions should be answered ‘leaving aside any issues as to variation of the SBC and on the assumption that no evidence as to matrix’ was admitted at that stage. It is also pertinent to note here that the Seller's position is that, while the so-called ‘Second Issue’ asks whether there can be any extension of Delivery and/or Cancellation Dates ‘where it failed to and/or did not operate and/or exercise’ any relevant contractual machinery, it does not accept that no such machinery was operated. It says that that was not a matter which was included within the preliminary issues. What was in issue was whether there could be extensions irrespective of whether any contractual machinery was operated. I accept that that accurately reflects what was and was not to be decided by the tribunal in the awards, which, as I have said, concerned preliminary issues.

11

The awards commenced by a consideration of the ‘prevention principle’, by reference to certain authorities to which I will refer below. The tribunal then considered the ‘Third Issue’. As it said, the Seller accepted that there was no room for the application of the ‘prevention principle’ if the contract provides for an extension of time in respect of the relevant events. It identified the relevant events for the purposes of the ‘Third Issue’ as being the allegedly wrongful cancellations of hulls 17B-20B and resulting occupation of berths which delayed the launch of Hulls 21B and 22B. It then considered whether, assuming that the wrongful cancellations and resulting berth occupation were ‘beyond the control of the Seller’, that would be a cause falling within Article VIII.1. It concluded that it was. In reaching that conclusion, the tribunal considered that the contract considered in Zhoushan Jinhaiwan Shipyard Co Ltd v Golden Exquisite Inc [2014] EWHC 4050 (Comm) by Leggatt J was, in the relevant respects, in materially different terms from the SBCs, and that if that decision was not distinguishable it was, in this respect, wrong. The tribunal found that, as a result, by virtue of Article VIII.4, any delays caused by the Buyer's wrongful cancellation and occupation of the berths (assuming it was beyond the Seller's control), was a permissible delay for which the Seller would be entitled to an extension of time if it had operated the contractual machinery for claiming one. The tribunal also considered that such a delay would be excluded from the calculation of both the 150 and 180 day periods after which the Buyer was entitled to cancel the SBCs under Article III.1(c) or Article VIII.3. On this basis there was no room for the application of the ‘prevention principle’.

12

In relation to ‘the Second Issue’ the tribunal found that this embraced a number of sub-issues, namely:

(1) Whether a failure to serve a notice under Article VIII.2 allows the Buyer to ignore permissible delay in the calculation of the cancellation date.

(2) Whether service of a notice under Article VIII.2 is a condition precedent to any extension of time under Article V.1 or Article XI.4(a).

(3) If not: (i) in case of a modification under Article V, if no agreement is reached as to the extension of time for delivery, whether the Seller is prevented from claiming any such extension of time; and (ii) in case of a default by the Buyer, whether the Seller needs to do anything in order to postpone the Delivery Date under Article XI.4(a).

13

In relation to these points, the tribunal's reasoning and conclusions were as follows:

(1) In relation to the first sub-issue, that the notice provision in Article VIII.2 applies when the Seller claims that it is entitled to an extension of time for delivery under Article VIII.1. The tribunal said, in paragraph [67] of the awards: ‘We do not think that the parties can possibly have intended that the notice provision in Article VIII.2 should not apply just because the delay fell within Article VIII.1 and was therefore a...

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