Stocznia Gdanska SA v Latvian Shipping Company and Others
| Jurisdiction | England & Wales |
| Judge | Staughton,Rose,Hutchison L JJ. |
| Judgment Date | 28 March 1996 |
| Court | Court of Appeal (Civil Division) |
| Date | 28 March 1996 |
Court of Appeal (Civil Division)
Staughton, Rose and Hutchison L JJ.
Angus Glennie QC and Karen Maxwell (instructed by Lawrence Graham) for the owners.
Roderick Cordara QC and Vernon Flynn (instructed by Ince & Co) for the yard.
The following cases were referred to in the judgment:
Attica Sea Carriers Corp v Ferrostaal Poseidon Bulk Reederei GmbH (“The Puerto Buitrago”)UNK [1976] 1 Ll Rep 250.
Clea Shipping Corp v Bulk Oil International Ltd (“The Alaskan Trader”) (No. 2)UNK [1983] 2 Ll Rep 645.
Hyundai Heavy Industries Co Ltd v PapadopoulosWLR [1980] 1 WLR 1129.
Nishina Trading Co Ltd v Chiyoda Fire & Marine Insurance Co LtdELR [1969] 2 QB 449.
Rover International Ltd v Cannon Film Sales LtdWLR [1989] 1 WLR 912.
White & Carter (Councils) Ltd v McGregorELR [1962] AC 413.
Contract — Agreement for construction and delivery of ships — During construction buyer sought to renegotiate price and certain terms — Failure to pay second instalment when due — Rescission of contract by builder — Whether buyer bound to pay second instalment — Whether buyer entitled to recover first instalment — Shipbuilder renumbered first two hulls twice — Claim for keel laying instalments under further four contracts although only two keels actually built — Whether shipbuilder entitled to summary judgment.
These were two appeals, one against an order for summary judgment made by Clarke J ([1995] CLC 956) and the second in which leave to defend was granted by Waller J, in RSC, O.14 proceedings claiming instalments due under a shipbuilding contract.
The plaintiff shipbuilder (“the yard”) entered into contracts in standard form with the second defendant shipping company (“the owners”), by which the yard agreed to design, build, complete and deliver six refrigerated cargo vessels. The owners were wholly owned by the first defendant. The contracts for the hulls of the first two vessels, which were identical in material respects, provided by cl. 5 for payment in four instalments. After paying the first instalments the owners sought to renegotiate the contracts, expressing an intention to proceed with all six contracts but unable at that time to pay for them. The owners” proposal of a reduction in the purchase price and a delay in delivery dates was unacceptable to the yard. Construction of the vessels continued. When the owners failed to pay the second keel laying instalments due under the contracts for hulls 1 and 2, the yard gave notice to the owners of the rescission of those contracts. The yard sought payment for the keel laying instalments with interest. The owners refused payment on the basis of total failure of consideration under art. 5 of the contracts, relying on the principle in White and Carter (Councils) Ltd v McGregorELR [1962] AC 413 or alternatively sought a set off.
The yard was granted summary judgment under RSC, O.14 in the sum of $11,055,600 with interest by Clarke J, who held that the yard had a subsisting right to the unpaid second instalments after they had treated the contracts as brought to an end by the owners' breach. The owners appealed.
In the second action, between the yard and the owners only, the yard claimed the second instalment of the price for each of the vessels 3 to 6. In fact only the two original keels had been built. They were each renumbered twice to produce the keels for which the second instalments were claimed. The yard gave notice of the dates when each keel was laid and of the subsequent notice treating the contract as repudiated. In each case the prior contract was treated as repudiated before the keel laid under that contract was re-used for another. No attempt was made by the yard to deceive the owners by this process. The yard applied for summary judgment for the keel laying instalments of the last four hulls and for damages in respect of all six vessels. Waller J gave the owners unconditional leave to defend. The yard appealed.
Held, allowing the owners' appeal and making the declaration sought under O.14A; and allowing in part the yard's appeal:
1. Where a contract required continuous work towards an end product, at common law there was only partial failure of consideration if the contract were treated as at an end upon non-payment of one instalment of the full price.
2. Clause 5.05 of the contracts, which provided for payment in instalments, made no express provision where instalments were due but unpaid and the contract had been treated as repudiated, but empowered the yard to sell the vessel. The proceeds of sale were to be distributed, taking into account that instalments already paid were retained by the yard. The owners would receive the balance.
3. Clause 5.05 was mandatory, and required a sale to be carried out according to the detailed procedure set out. The owners then obtained an indefeasible right to such share of the proceeds as the clause conferred on them, the yard's common law rights being displaced by the clause. No further keel laying instalments were accordingly recoverable by the yard. (Hyundai Heavy Industries Co Ltd v PapadopoulosWLR[1980] 1 WLR 1129distinguished).
4. An instalment once paid was irrecoverable under the cl. 5.05 regime. The owners therefore had no claim to the return of the first instalments.
Staughton LJ: The plaintiffs are a shipbuilding company in Poland. I shall call them the yard. On 11 September 1992 they made six contracts to build ships for the second defendants (“the owners”), a Liberian company wholly owned by the first defendants, Latvian Shipping Co of Riga. The contracts provided for the application of English law and for arbitration in London. It would seem that the parties have since agreed to dispense with arbitration and come straight to the commercial court. That reminds me of Nishina Trading Co Ltd v Chiyoda Fire & Marine Insurance Co LtdELR[1969] 2 QB 449, a case between two Japanese companies where Lord Denning MR said (at p. 460):
“We much appreciate the confidence thus placed in these courts and will do our best to deserve it.”
Unfortunately the dispute raises legal issues of some difficulty, and we could not give the parties an answer without some fairly elaborate argument.
The contracts were for refrigerated vessels at a price of $27,639,000 each. It was to be paid in four instalments — (a) five per cent after receipt of the yard's bank guarantee as provided in the contract, (b) 20 per cent after the laying of the keel, (c) 25 per cent after launching, and (d) 50 per cent upon delivery and acceptance. The first instalment was paid in respect of all six vessels. Then there came a...
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