Stocznia Gdynia SA v Gearbulk Holdings Ltd
| Jurisdiction | England & Wales |
| Judge | Ward,Smith,Moore-Bick L JJ |
| Judgment Date | 13 February 2009 |
| Neutral Citation | [2009] EWCA Civ 75 |
| Docket Number | Case No: A3/2008/1320 |
| Court | Court of Appeal (Civil Division) |
| Date | 13 February 2009 |
[2009] EWCA Civ 75
Before : Lord Justice Ward
Lady Justice Smith and
Lord Justice Moore-Bick
Case No: A3/2008/1320
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
Mr. Justice Burton
QUEEN'S BENCH DIVISION (COMMERCIAL COURT)
Mr. Stewart Boyd Q.C. and Mr. Vernon Flynn Q.C. (instructed by Ince & Co) for the appellant
Mr. Graham Dunning Q.C. and Mr. Edmund King (instructed by Eversheds LLP) for the respondent
Hearing dates : 21 st and 22 nd January 2009
Lord Justice Moore-Bick :
Introduction
In 2000 and 2001 the appellant, Gearbulk Holdings Ltd (“Gearbulk”), entered into contracts with the respondent, Stocznia Gdynia S.A. (“the Yard”), for the construction of six 'Fleximax' vessels for delivery on various dates between 2001 and the end of March 2004. A separate contract was signed in relation to each vessel, but in all material respects they were in the same form. The present appeal is concerned with three of those contracts, namely, those relating to the vessels identified by the Yard as Hulls 24, 25 and 26.
In the event none of the three vessels in question was delivered. Some steel cutting was carried out in relation to Hull 24, but work on the vessel stopped in January 2003. No construction work of any kind was carried out on Hulls 25 and 26. Between June and October 2003 there were discussions between the parties, but they were inconclusive and on 7 th November 2003 Gearbulk wrote to the Yard terminating the contract in respect of Hull 24. It then exercised its right to recover under a bank guarantee the first instalment of the price which it had paid on signing the contract, together with interest at the agreed rate.
On 4 th August and 30 th November 2004 Gearbulk took similar steps to terminate the contracts relating to Hulls 25 and 26 respectively and to recover the first instalments of the price paid in respect of those two vessels. The terms of the letter terminating the contract for Hull 25 were in all material respects identical to those of the letter written in relation to Hull 24. The letter written in relation to Hull 26, however, was different and it will become necessary at a later stage to refer to the terms of all these letters in a little more detail.
Following the termination of the contracts a dispute arose between Gearbulk and the Yard. Gearbulk asserted that it was entitled in each case to recover damages for the loss of its bargain. The Yard said that because Gearbulk had exercised a right to terminate given by the contract its remedy in each case was limited to the recovery of the instalments of the price in accordance with the contract and nothing more. The dispute was referred to arbitration in accordance with the terms of the contract. The parties appointed Sir Brian Neill as sole arbitrator.
The contracts
It is convenient at this point to refer in more detail to the terms of the three contracts. Since they were materially identical it is sufficient to refer to the contract for Hull 24, the most important parts of which for present purposes provided as follows:
“ARTICLE 5
TERMS OF PAYMENT
…
5.2 … the Contract Price shall be paid by the Purchaser to Seller in five (5) instalments in the manner set out below.
5.3 …
(a) Five (5) per cent … within seven (7) Banking Days from the Purchaser having received an executed Refund Guarantee
(b) Five (5) per cent … within seven (7) Banking Days of the date on which the Seller has given notice to the Purchaser of commencement of the steel cutting …
(c) Ten (10) per cent … within seven (7) Banking Days of the date on which the Seller has given notice to the Purchaser of commencement of the keel laying of the Vessel …
(d) Twenty (20) per cent … within seven (7) Banking Days of the date on which the Seller has given notice to the Purchaser of successful launching of the Vessel …
(e) Sixty (60) per cent … shall be paid to the Seller upon delivery of the Vessel …
5.7 Purchaser's Default
The Seller shall be entitled, but not bound, to declare the Purchaser in default where the Purchaser
(a) fails to pay to the Seller any instalment of the Contract Price when the same is due for payment..
(b) is declared … insolvent or bankrupt …
(c) fails to take delivery of the completed Vessel within three (3) Banking Days of when she is duly tendered for delivery by the Seller.
…
5.9 In the event of such termination by the Seller due to the Purchaser's default as provided for in this Article, the Seller shall be entitled to retain and apply the instalments already paid by the Purchaser towards the Seller's recoverable loss and damage and at the same time the Seller shall have the full right and power either to complete or not to complete the Vessel and to sell the Vessel at a public or private auction … provided that the Seller is always obliged to mitigate all losses and damages due to any such Purchaser's default …
The proceeds received by the Seller from the sale and the instalments already paid and retained shall be applied by the Seller … as follows:
First, in payment of all reasonable costs and expenses of the sale of the Vessel.
Second, if the Vessel has been completed, in or towards satisfaction of the unpaid balance of the Contract Price, or if the Vessel has not been completed, in or towards the satisfaction of the unpaid amount of the cost incurred by the Seller prior to the date of sale on account of [the] construction of the Vessel …
Third, the balance of the proceeds, if any, shall belong to the Purchaser and shall forthwith be paid over to the Purchaser by the Seller.
5.10 Refund Guarantee
(a) The instalments of the Contract Price paid by the Purchaser prior to delivery of the Vessel … shall be in the nature of advances to the Seller. In the event that the Purchaser shall exercise its right to terminate this Contract pursuant to any of the provisions hereof, the Seller shall forthwith refund to the Purchaser the aggregate amount of such instalments … together with interest thereon at the rate of 1 month LIBOR per annum.
(b) It is a fundamental term of this Contract that the Seller's obligation to make such refund of any of the pre-delivery instalments, with interest, shall be secured under and pursuant to the Refund Guarantee issued in favour of the Purchaser…
…
ARTICLE 10
DELAY in DELIVERY and DEFICIENCIES: SELLER'S DEFAULT
The Contract Price of the Vessel shall be adjusted by way of reduction in the event of any of the contingencies set out in this Article. Such adjustment shall be effected by way of reduction of the amount of the delivery instalment of the Contract Price … (it being understood by the Parties that any such reduction of the Contract Price shall [be] by way of liquidated damages and not by way of penalties).
The Purchaser shall not be entitled to claim any other compensation and the Seller shall not be liable for any other compensation for damages sustained by reason of events set out in this Article and/or direct consequences of such events other than liquidated damages specified in this Article.
In case the total amount of liquidated damages claimed by the Purchaser under this Article exceeds five per cent (5%) of the Contract Price, the Purchaser's right to liquidated damages shall be limited to such amount equal to and not exceeding five (5) per cent of the Contract Price as specified in Article 4.1 of this Contract.
10.1 Delay in Delivery
(a) In the event that delivery of the Vessel should be delayed beyond the Delivery Date, the Contract Price shall be reduced as follows
(i) no adjustment shall be made for the first thirty (30) days …
…
(v) the maximum reduction of the Contract Price pursuant to this Article 10.1(a) shall not exceed … $930,000
(b) If the delay in delivery of the Vessel shall comprise a period of more than one hundred and fifty (150) days beyond the Delivery Date then the Purchaser may, at its option, terminate this Contract.
(c) Without any prejudice to, and separately from, the foregoing, the Purchaser shall also be entitled, at its option, to terminate this Contract in the event that, for any reason whatsoever, the Vessel shall not have been delivered to the Purchaser hereunder on or prior to 15 August 2003 … [the “drop dead date”]
…
10.6 Seller's Default
The Purchaser shall also be entitled, but not bound, to declare the Seller in default and terminate the Contract:-
(a) if there is a major breach by the Seller of its obligation hereunder to proceed with the construction of the Vessel, such that, in the reasonable opinion of the Purchaser (supported by the opinion of the Classification Society), the Vessel cannot be completed and delivered to the Purchaser on or before the date specified in Article 10(1)(c) hereof …
(b) …
Upon the occurrence of any such event of default the [Purchaser] shall be entitled to terminate this Contract with the consequences hereinafter provided.
10.7 Effect of Termination
Upon termination of this Contract by the Purchaser in accordance with the provisions of Article 10 or any other provision of this Contract expressly entitling the Purchaser to terminate this Contract, the Seller shall forthwith repay to the Purchaser all sums previously paid to the Seller under this Contract, together with interest accrued thereon calculated at the rate of 1 month LIBOR per annum from the respective date(s) of payment of such sums until date of refund …
It is however further expressly understood and agreed upon by the Parties hereto that, if...
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