Stocznia Gdynia Sa v Gearbulk Holdings Ltd

Hearing dates: 23, 24 April 2008

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.

This has been the hearing of an appeal, with the permission of Cooke J, from a First Final Award dated 11 September 2007 by Sir Brian Neill, as Arbitrator, pursuant to the terms (identical save as to dates) of three contracts, the first dated 29 June 2000 (which I shall take as the exemplar), and the second and third both dated 13 February 2001, between Stocznia Gdynia SA (“the Yard”) as builder/seller and Gearbulk Holding Ltd (“the Purchaser”). The Yard agreed to construct and sell three bulk carriers, severally known as Hull 24, 25 and 26, by these three contracts, for repudiatory breach of each of which the buyer now claims damages against the Yard. The Arbitrator was appointed pursuant to Article 12.1 of the respective agreements, and by Article 12.2 each contract was to be governed in all respects by the laws of England. The Arbitrator resolved the issues before him in the First Final Award in favour of the Purchaser, which was represented by Mr Stewart Boyd QC and Mr Vernon Flynn QC. The Yard was represented by Mr Graham Dunning QC and Mr Edmund King. The same Counsel have appeared before me on this appeal, and the arguments have been presented powerfully and persuasively on both sides.

By reference to the first contract as exemplar, the relevant terms are set out below, so far as material:

“2.1 Object of the Contract

In consideration of the mutual covenants herein contained:

* The Vessel shall be designed, built, launched, equipped, completed, outfitted and tested on behalf of the Seller by the Seller's Yard.

* The Vessel shall be delivered to the Purchaser by the Seller free and clear of any liens, charges, claims or mortgages or other debts and encumbrances whatsoever and with clean class and other regulatory certificates.

* The Purchaser agrees to buy, accept, pay for and take delivery of the Vessel where so completed and duly tendered for delivery.

…

3.1 Time and Place

The Seller shall deliver the Vessel to the Purchaser safely afloat at a berth at the seller's Yard on 3 ^rd March 2003 (subject to any permitted extension thereof pursuant to this Contract, the “Delivery Date”).

…

5.2 Unless otherwise agreed upon between the Parties the Contract Price shall be paid by the Purchaser to Seller in five (5) instalments in the manner set out below [i.e. in Article 5.3(a) – (e)]

5.10 Refund Guarantee

(a) The instalments of the Contract Price paid by the Purchaser prior to delivery of the Vessel (being those specified in Articles 5.3(a), (b), (c) and (d)) 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 (to the extent paid by the Purchaser at the time of termination) 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. [An agreed form of which was annexed to the contract as Exhibit E, to be issued by ABN Amro Bank.]

…

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 referred to at (e) in Article 5.3 hereof (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 …

(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”] …

10.2 Deficiency in Speed

…

(b) If a deficiency in actual speed of the Vessel … exceeds two-tenths …of one … knot below the Guaranteed Speed of the Vessel, the Contract Price shall be reduced as follows …

10.3 Fuel Consumption

(a) …if the fuel consumption of the Vessel's main engine … exceeds 177.45 grams per kW hour, the contract price shall be reduced …

10.4 Deadweight

…

(b) the contract price shall be reduced by the sum of $1,000 for each full metric ton of … deficiency in excess of 900 metric tons …

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 [the drop-dead date] …

…

Upon the occurrence of any such event of default the Seller 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 plus the original cost (invoice value) of the Purchaser's Furnished Equipment if any delivered to the Seller.

It is however further expressly understood and agreed upon by the Parties hereto that, if the Purchaser terminates this Contract under this Article, the Purchaser shall not be entitled to any liquidated damages under Article 10.1, 10.2, 10. 3 or 10.4 hereof.”

The yard was in considerable financial difficulty, and none of the three hulls was delivered by the delivery date, or within 150 days thereafter, or by the drop-dead date, or at all. The relevant findings and conclusions of fact of the Arbitrator can be drawn by reference to simply two paragraphs of the award:

“4.6. The financial problems at the Yard had a very serious effect on the performance of the contracts for the construction of the three vessels, Hulls 24, 25 and 26. In addition the construction of Hull 23 was also greatly delayed. Work on Hull 24 ceased in January 2003 and work on Hulls 25 and 26 never progressed beyond the design stage.

…

6.5 … The Yard was unable and indeed unwilling to comply with their terms. At the respective dates of termination the Yard was quite unable to deliver a vessel on the contractual terms. The expiry of the Refund Guarantees was a further indication that the contracts as signed had come to an end.”

The Purchaser sent, in the case of the first and second contracts, notices severally dated 7 November 2003 and 4 August 2004, in materially identical terms, and again I shall only quote the material parts of that relating to the first contract, for Hull 24:

“>Dear Sir

…

The provisions of Article 3.1 of the above Contract provide that the Delivery Date of the Vessel was 3 March 2003. The provisions of Article 10.1(b) provide that if delivery of the Vessel is delayed beyond the Delivery Date by more than 150 days then we will be entitled to terminate the Contract. 150 days from 3 March 2003 was 1 August 2003. Accordingly from that date we have been entitled to terminate the Building Contract pursuant to the provisions of Article 10.1(b).

Further, the provisions of Article 10.1(c) provide that, in the event that the Vessel is not delivered by you to us on or prior to 15 August 2003 then we will be entitled to terminate the Contract. The Vessel was not delivered to us on or before that date and accordingly from that date we also have been entitled to terminate the Building Contract pursuant to the provisions of this Article.

We hereby give you notice that we hereby...