Zhoushan Jinhaiwan Shipyard Company Ltd v Golden Exquisite Inc. and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Leggatt |
| Judgment Date | 05 December 2014 |
| Neutral Citation | [2014] EWHC 4050 (Comm) |
| Docket Number | Case No: 2014 FOLIO 785, 786, 787 and 850 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 05 December 2014 |
[2014] EWHC 4050 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Leggatt
Case No: 2014 FOLIO 785, 786, 787 and 850
Michael Nolan (instructed by Wikborg Rein LLP) for the Claimants
Timothy Young QC (instructed by Winter Scott LLP) for the Defendants
Hearing date: 24 November 2014
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.
| Section | Para No. |
| Introduction | 1 |
| The contracts | 2 |
| The disputes | 6 |
| The arbitration awards | 11 |
| The appeals | 16 |
| Approach to interpretation | 22 |
| The contractual scheme | 27 |
| Buyer's breach delays | 36 |
| The right to cancel under Article VIII.3 | 40 |
| The presumption against the Buyer benefiting from its own breach | 45 |
| Were the alleged delays '"permissible" delays? | 57 |
| The effect of failure to give notice of delay | 63 |
| Conclusion on cancellation | 71 |
| Equitable set-off | 72 |
| Conclusions | 78 |
Introduction
These four appeals from arbitration awards raise questions of interpretation of the cancellation provisions in four materially identical shipbuilding contracts. The vessels which are the subject of the contracts are known by their respective Yard Hull numbers: J0051, J0052, J0119 and J0120. In each case the contract was made between Zhoushan Jinhaiwan Shipyard Co Ltd of the People's Republic of China ("the Yard" or "the Builder") and a buying company specially created for that purpose ("the Buyer") which formed part of the Golden Ocean Group. In each case the Buyer has purported to exercise a contractual right to cancel the contract on account of delay in delivering the vessel. In each case the Yard has sought to argue that the cancellation was wrongful on the ground that a relevant part of the delay was caused by the Buyer's own breach of the contract. The central question raised by these appeals is whether the factual allegations made by the Yard as to the extent and cause of delay, if proved, provide an answer to the Buyers' claims, or whether on the proper interpretation of the contracts the cancellations were lawful even on the facts alleged.
The contracts
Article I of each contract contained a description of the vessel to be built. Article II specified the contract price of the vessel and provided for the price to be paid by the Buyer in five instalments, with the final instalment due upon delivery of the vessel. Article III provided for the contract price to be adjusted in various circumstances. Relevantly for present purposes, Article III.1(b) required the contract price to be reduced by deducting US$7,000 from the final instalment for each day that the delivery of the vessel was delayed by more than 30 days but less than 210 days after the Delivery Date specified in Article VII. Article III.1(c) gave the Buyer a right to cancel the contract if the delay in the delivery of the vessel continued for a period of at least 210 days. This right was expressed in the following terms:
"If the delay in the delivery of the VESSEL continues for a period of two hundred and ten (210) days (being the total "non-permissible" delays and 30 days allowance) after the DELIVERY DATE as defined in Article VII, then in such event, the BUYER may, at its option, rescind or cancel this Contract in accordance with the provisions of Article X of this Contract."
The phrase "Delivery Date" was defined in Article VII to mean the date stated in that clause or "such later date to which delivery is extended pursuant to the terms of this Contract".
A further right to cancel the contract for delay in delivery of the vessel was provided in Article VIII.3. Article VIII is at the heart of the dispute and I will quote it in full:
"1. CAUSE OF DELAY
If, at any time before actual delivery, either the construction of the VESSEL, or any performance required hereunder as a prerequisite of delivery of the VESSEL, is delayed due to war, blockade, revolution, insurrection, civil commotions, riots, sabotage, lockouts, local temperature higher than 35 degree centigrade, Acts of God or the public enemy, terrorism, plague or other epidemics, quarantines, prolonged failure or restriction of electric current from an outside source, freight embargoes, earthquakes, tidal waves, typhoons, hurricanes, storms or other causes beyond the control of the BUILDER or of its sub-contractors, as the case may be, the BUILDER shall not be liable for such delay and the time for delivery of the VESSEL under this Contract shall be extended without any reduction in the CONTRACT PRICE for a period of time which shall not exceed the total accumulated time of all such delays, subject nevertheless to the BUYER's right of cancellation under Paragraph 3 of this Article and subject however to all relevant provisions of this Contract which authorize and permit extension of the time of delivery of the VESSEL.
2. NOTICE OF DELAY
Within seven (7) days from the date of commencement of any delay on account of which the BUILDER claims that it is entitled under this Contract to an extension of the time for delivery of the VESSEL, the BUILDER shall advise the BUYER by telefax or email confirmed in writing, of the date such delay commenced, and the reasons therefor.
Likewise within seven (7) days after such delay ends, the BUILDER shall advise the BUYER in writing or by telefax or email confirmed in writing, of the date such delay ended, and also shall specify the maximum period of the time by which the date for delivery of the VESSEL is extended by reason of such delay. Failure of the BUYER to acknowledge the BUILDER's notification of any claim for extension of the DELIVERY DATE within thirty (30) days after receipt by the BUYER of such notification, shall be deemed to be a waiver by the BUYER of its right to object to such extension.
In the event that the BUILDER shall not comply with the notices required to be sent under this clause, they shall not be entitled to any relief claimed.
3. RIGHT TO CANCEL FOR EXCESSIVE DELAY
If the total accumulated time of all delays on account of the causes specified in Paragraph 1 of the Article aggregate to two hundred and twenty five (225) days or more, or if the total accumulated time of all delays on account of the causes specified in Paragraph 1 of the Article and "non-permissible" delays as described in Paragraph 1 of Article III aggregate to two hundred and seventy (270) days or more, in any circumstances, excluding delays due to arbitration as provided for in Article XIII hereof or due to default in performance by the BUYER, or due to delays in delivery of the BUYER's supplied items, and excluding delays due to causes which, under Article V, VI, XI and XII hereof, permit extension or postponement of the time for delivery of the VESSEL, then in such event, the BUYER may in accordance with the provisions set out herein cancel this Contract by serving upon the BUILDER telefaxed, emailed or telexed notice of cancellation which shall be confirmed in writing and the provisions of Article X of this Contract shall apply. The BUILDER may, at any time, after the accumulated time of the aforementioned delays justifying cancellation by the BUYER as above provided for, demand in writing that the BUYER shall make an election, in which case the BUYER shall, within thirty (30) days after such demand is received by the BUYER either notify the BUILDER of its intention to cancel, or consent to an extension of the time for delivery to a mutually agreed future date, it being under stood and agreed by the parties hereto that, if any further delay occurs on account of causes justifying cancellation as specified in this Contract, the BUYER shall have the same right of cancellation upon the same terms as hereinabove provided.
4. DEFINITION OF "PERMISSIBLE" DELAY
Delays on account of such causes as provided for in Paragraph 1 of this Article excluding any other extensions of a nature which under the terms of this Contract permit postponement of the DELIVERY DATE, shall be understood to be (and are herein referred to as) "permissible" delays, and are to be distinguished from "non-permissible" delays on account of which the CONTRACT PRICE of the VESSEL is subject to adjustment as provided for in Article III hereof."
Article X deals with the consequences of a valid cancellation by the Buyer. In particular, Article X.2 requires the Yard when notice of cancellation is given to refund "immediately to the Buyer the full amount of all sums paid by the Buyer to the Builder on account of the Vessel, unless the Builder disputes the Buyer's cancellation and/or rescission of this contract by instituting arbitration in accordance with Article XIII." If there is such a dispute, the Yard's obligation to repay the price depends on the outcome of the arbitration. If the Yard is required to refund the price, it must also pay interest at the rate of 5% per annum if the contract has been cancelled in accordance with Article III.1(c). There is no obligation to pay interest if the cancellation takes place under Article VIII.
Article XIII provides for disputes to be resolved by arbitration in London in accordance with English law, and by Article XIX the parties agreed that the contract was to be governed and interpreted in accordance with English law.
The disputes
In each case the cancellation of the contract by the Buyer followed a similar pattern:
i) The delivery of the vessel was delayed...
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