2,051
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Andrew Stevens and Gideon Shirazi (instructed by Campbell Johnston Clark Ltd) for the Claimant, Jiangsu Guoxin
Roderick Cordara QC, Adam Board and Andrew Dinsmore (instructed by Watson Farley and Williams LLP) for the Respondent, Precious Shipping
'''Background'''
The two appeals related to disputes as to two vessels, namely Hulls 21B and 22B, which the Seller, Jiangsu Guoxin, had contracted to build pursuant to shipbuilding contracts in respect of fourteen hulls made with the Respondent, Precious Shipping as “Buyer”, dated 26 February 2014 (“the SBC’s”) on amended Shipbuilders Association of Japan (SAJ) forms- see Appendix for wording of the key terms of the SAJ form. After the first two Hulls in the series had been delivered, the Seller tendered the next four vessels (Hulls 17B-20B) but these were rejected by the Buyer, due to alleged design defects. The Seller said that the rejection of the four hulls was unlawful as any design defect - in respect of the stern tube bearing - had been rectified before the tender. The Seller contended that the unlawful rejection of those four hulls had resulted in them being left at the Seller’s yard, occupying berths there and delaying the launch and construction of Hulls 21B and 22B.
151 days after the contractual delivery date for Hulls 21B and 22B, the Buyer stated that it was terminating the contracts for those Hulls under Article III.1 and Article VIII.3 of the SBCs on the basis that the delay exceeded the 150 days of ‘non-permissible delays’ allowed under the SBCs. On 3 February 2016, the Seller accepted the Buyer’s termination as a repudiatory breach and the disputes were referred to arbitration.
'''Decision of the High Court'''
The Judge accepted that it was an implied term of the SBCs that neither party should actively and wrongfully (in the sense of being a breach of contract or independently wrongful) prevent the other from performing its obligations under the contract). Following the decisions in North Midland Building and Multiplex v Honeywell cases - see footnotes for case references - the prevention principle is not an overriding rule of public or legal policy. It will not apply if the contract has provided for an extension of time in the relevant event(s). Further, even in circumstances in which it might be applicable, there is no reason why the parties should not contract out of some or all of its effects.
The judge considered whether there was scope for the application of the prevention principle in regard to the delay allegedly caused by the Buyer’s wrongful termination of the four hulls and the consequent occupation of the berths necessary for the construction of the relevant vessels. The Court held that the wording in Article VIII.1 (which defined permissible delays) - “other causes beyond the control of the SELLER or of its sub-contractors” was wide enough to cover this cause of delay and that express provision had been made for an extension of time in such a case. Therefore, the prevention principle could not be applied.
The Seller also contended that the Buyer was in default in failing to pay the third, fourth and fifth instalments of the purchase price and hence, the Seller was entitled to a day-by-day extension of time under Article XI.4 without the requirement to do anything else to postpone the delivery date. The Court rejected this argument and found that the Seller had to communicate to the Buyer that it was exercising its option to postpone the delivery date (which did not have to be by way of notice under Article VIII.2). Given the fact that there had been no such communication, the appeals were dismissed.
'''Comment'''
This decision makes clear that if the shipbuilding contract contains a provision for an extension of time which covers the delay in question, it will be almost impossible for the Seller or yard to rely on the prevention principle in respect of that delay. It is noted here that the wording of the definition of permissible delays in the SBC, such as Article VIII.1 of the SAJ form, is very important in determining whether the yard would be able to rely on the prevention principle since, as in this case, the definition is most likely wide enough to include delays caused by the Buyer. On the other hand, another popular form used for newbuilding contracts such as BIMCO’s NEWBUILDCON, may give more possibility for the prevention principle to apply due to the more restrictive nature of clause 34(a)(i)(10), [please put the text of this provision into a footnote] which might not include some delays by the Buyer. This recent decision also highlights the importance of complying with the notice requirements under the SBC – such as the notice to be provided to the Buyer for a time extension claim by the yard under Article VIII.2 of the SAJ form.
Footnotes:
North Midland Building Ltd v Cyden Homes Ltd [2018] EWCA Civ 1744
BIMCO NEWBUILDCON
34(a)(i)(10) any other cause of a similar nature to the above beyond the control of the Builder or its Sub-contractors
If the total accumulated time of all non-permissible delays on account of the causes specified in Paragraph 1 of the Article III aggregate more than One Hundred and Fifty (150) days, or if the total accumulated time of all permissible days on account of the causes specified in Paragraph 1 of this Article and all non-permissible delays as described in Paragraph 1 of Article III aggregate to One Hundred and Eighty (180) days, 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 on the SELLER telefaxed or e-mailed notice of cancellation in writing and the provisions of Article X of this Contract shall apply.
…
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 Contract 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.
