Star Polaris LLC v Hhic-Phil Inc.
| Jurisdiction | England & Wales |
| Judge | The Hon. Sir Jeremy Cooke,Sir Jeremy Cooke |
| Judgment Date | 17 November 2016 |
| Neutral Citation | [2016] EWHC 2941 (Comm) |
| Docket Number | Case No: CL-2015–000869 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 17 November 2016 |
[2016] EWHC 2941 (Comm)
IN THE MATTER OF AN ARBITRATION CLAIM
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Sir Jeremy Cooke
sitting as a Judge of the High Court
Case No: CL-2015–000869
Christopher Hancock QC and Socrates Papadopoulos (instructed by Ince & Co) for the Claimant
Luke Parsons QC and Gemma Morgan (instructed by Clyde & Co LLP) for the Defendant
Hearing date: 14th November 10 2016
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. Sir Jeremy Cooke Sir Jeremy Cooke Introduction
This is an Appeal from an Award dated 12 November 2015 ("the Award") of a Tribunal consisting of Mr Michael Collins QC, Mr Richard Siberry QC and Sir David Steel ("the Tribunal"). Permission to appeal was granted on 25th April 2016.
The appeal raises two questions of law, as follows:
i) What is the correct construction of the phrase "consequential or special losses, damages or expenses" in Article IX.4(a) of the shipbuilding contract in issue herein. In particular, does that phrase mean such losses, damages or expenses as fall within the second limb of Hadley v Baxendale 9 EX 341? Alternatively, does the phrase have a "cause and effect" meaning, as held by the Tribunal?
ii) If the Tribunal is right as to the meaning of "consequential or special losses, damages or expenses", on a proper construction of Article IX(4)(a), does diminution in value constitute a "consequential or special loss"?
The background facts and the Award
The Claimant ("the Buyer") set out, in its skeleton argument the following which was accepted as an accurate description of the background facts. STAR POLARIS ("the Vessel") was built by the Defendant ("the Yard") under a contract dated 6 April 2010 ("the Contract") and delivered to the Buyer on 14 November 2011. On 29th June 2012 the vessel suffered a serious engine failure. On 2nd September 2012 the Vessel was towed to STX Gosung in South Korea for repairs.
The Yard denied all liability for the incident. The Buyer commenced arbitration against the Yard contending that the engine failure was caused by the Yard's breaches of contract, and claimed compensation. The compensation claimed by the Buyer included:
i) The cost of repairs to the Vessel;
ii) Towage fees, agency fees, survey fees, off-hire and off-hire bunkers caused by the engine failure.
In addition, at the hearing, the Buyer indicated that it wished to make a claim for diminution in value of the vessel in addition to the claims already made. In the event, for reasons which appear below, the Tribunal determined that such a claim would fail if made.
The Tribunal published its Award on 12 November 2015. That Award was an Interim Final Award and left open various issues of quantum. In summary, the Tribunal's findings, as set out by the Buyer, were as follows:
i) There was a causative breach of the Yard's warranty of quality, because there were weld spatters in the pipework at delivery;
ii) However, the chief engineer was negligent in not reacting to various alarms sooner (and not reducing speed to slow ahead or dead slow ahead at or about 11:31 on 29 June 2012 and not stopping the main engine by 11:46 on 29 June 2012), which negligence broke the chain of causation between the breach and that part of the Buyer's loss that would not have been suffered if the engine had been reduced to slow/dead slow ahead at or about 11:31 on 29 June 2012 and stopped by 11:46;
iii) The list of works necessary to repair the damage that would have been suffered if the engine had been stopped by 11:46 are those set out in para 188 of the Award and the issue as to what work was required to repair the damage is not to be reopened. Such losses are recoverable by the Buyer, but the cost of such works remains to be determined;
iv) As to the Buyer's other claims, by Art IX (4) (a) the Contract excluded liability for " consequential or special losses, damages or expenses" (see generally paragraphs 192–212 of the Award titled " Consequential Loss" and Declaration (B) at page 55 of the Award).
v) "The word 'consequential' was used by the parties in this agreement in its cause-and-effect sense, as meaning following as a result or consequence" (para 209).
vi) As the remaining losses were all losses that were consequential in the above sense, on the true construction of Article IX, they are not recoverable (paras 194 and 205–212).
vii) A claim for diminution in value would also be a claim for consequential loss (para 194).
The Yard submitted that this description did not fully reflect the Award, nor the Tribunal's decision because the Tribunal made it clear in the Award that they were construing the phrase consequential and special losses as part of Article IX of the Contract and the phrase had to be understood in that context. The Yard maintained that the Tribunal had held that the Yard's responsibility under the Guarantee provisions of Article IX was limited to the repair of defects (due to defective materials, design error, construction miscalculation, and/or poor workmanship) and to physical damage caused thereby, whilst financial loss consequent on physical damage was excluded. The Tribunal, in its Award, emboldened the second and third sentences of Article IX.4(a) construing the phrase in the context of the Article as a whole.
The contract.
Under the terms of the Contract, the Yard agreed to construct and sell, and the Buyer agreed to buy, the Vessel, a Capesize bulk carrier subsequently named " STAR POLARIS". The Contract provided, inter alia, as follows:
"ARTICLE IX
1. Guarantee of Material and Workmanship
The Builder, for the period of twelve (12) months from the date of delivery of the VESSEL to the BUYER, guarantees the VESSEL and all parts and equipment thereof that are manufactured or furnished by the BUILDER under this CONTRACT or its Subcontractors or its suppliers against all defects which are due to defective materials, design error, construction miscalculation and/or poor workmanship, provided such defects have not been caused by perils of the sea, rivers or navigation, or by normal wear and tear, overloading, improper loading or stowage, fire, accident incompetence, mismanagement, negligence or wilful neglect by the BUYER or by alteration or addition by the BUYER not previously approved by the BUILDER, unless such an event was caused by an act or omissions of the BUILDER.
The BUILDER will be responsible for all machinery or parts of machinery and all constructions which are supplied by sub-contractors and will guarantee the above mentioned for a period of twelve (12) months on the basis as laid down in this Paragraph…
2. Notice of Defects
The BUYER or its duly authorized representative will notify the BUILDER in writing by facsimile or email as soon as possible after discovery of any defect for which a claim is to be made under this guarantee.
The BUYER'S written notice shall include full particulars as to the nature of the defect and the extent of the damage caused thereby, but excluding consequential damage as hereinafter provided …
3. Remedy of Defects
(a) The BUILDER shall remedy, at its expense, any defects against which the VESSEL is guaranteed under the Article, by making all necessary repairs or replacements at the SHIPYARD, if reasonably practicable or elsewhere as provided for in herein below.
(b) In any cases, removal of the VESSEL to the location at which the repair or replacements are to be effected, shall be at the BUYER's risk and expenses. If it is impractical (which shall include, but not limited to, an emergency) to bring the VESSEL to the SHIPYARD, the BUYER may cause the necessary repairs or replacements to be made elsewhere which is deemed by the BUYER with the consent of the BUILDER which shall not be unreasonably withheld, and shall not be conditioned and shall be promptly responded to, to be suitable for the purpose, provided that, in such event, the BUILDER may forward or supply replacement parts or materials to the VESSEL, under the terms described in sub-paragraph (c) below unless forwarding or supplying thereof to the VESSEL would impair or delay the operation or working schedule of the VESSEL. In the event that the BUYER proposes to cause the necessary repairs or replacements to be made to the VESSEL at any shipyard other than the SHIPYARD, the BUYER shall first (but in all events as soon as reasonably possible) give the BUILDER notice in writing by email or by facsimile of the time and place such repairs will be made, and if the Vessel is not thereby delayed, or her operation or working schedule is not thereby impaired, the BUILDER shall have the right to verify by its own representative(s) the nature and extent of the defects complained of. The BUILDER shall, in such case, advise the BUYER by email or facsimile within seven (7) business days, after such examination has been completed, of its acceptance or rejection of the defects as ones that are covered by the guarantee herein provided. Upon the BUILDER's acceptance of the defects as justifying remedy under this Article, or upon award of the arbitration so determining, the BUILDER shall compensate the BUYER an amount equal to the cost of making the repairs and/or replacements. Furthermore, the BUILDER shall compensate the BUYER for any documented expenses incurred by the BUYER in the process.
…
4. Extent of BUILDER's Liability
(a) After delivery of the VESSEL the responsibility of the BUILDER in respect of or in connection with the VESSEL or this CONTRACT shall be limited to the extent expressly provided in the Paragraph 4 of this Article. Except as expressly...
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