Jiangsu Guoxin Corporation Ltd (formerly known as Sainty Marine Corporation Ltd) v Precious Shipping Public Co. Ltd
Posted on: 30 April 2020
In a judgment handed down on April 30, Watson Farley & Williams acted for the successful party on an appeal to the English Commercial Court on key questions concerning SAJ Form shipbuilding contracts (SBCs). The seller appealed LMAA awards on two SBCs on points covering the prevention principle, notices, modifications and non-payment of instalments. Watson Farley & Williams acted for the buyer in the arbitrations and the appeal, and was successful at both stages.
Background
There are 11 arbitrations between the parties concerning amended SAJ form SBCs for a series of 14 bulk carriers. Four vessels were rejected by the buyer on the basis of design defects. The seller contended that this rejection was unlawful and resulted in the vessels being left at its yard in China, wrongfully occupying berths there and delaying the launch and construction of two further vessels (Hulls 21B and 22B). These two vessels were due to be delivered on 31 August 2015 but no delivery was made. 151 days later the buyer stated it was terminating the relevant SBCs for delay. The seller treated that notification as a repudiatory breach and the resulting disputes concerning Hulls 21B and 22B were referred to LMAA arbitration.
“This judgment provides welcome clarity on a number of issues which often arise under shipbuilding contracts.”
The tribunal issued partial final awards on preliminary issues concerning the seller’s position that it was entitled to extensions of time to the delivery dates under the SBCs and that the prevention principle applied such that the buyer was not entitled to terminate the SBCs at the time it had done so. The buyer was successful in those awards. The seller appealed under section 69 of the Arbitration Act 1996.
The appeal was heard by Butcher J. The hearing was conducted remotely due to the Covid-19 pandemic in a manner found by the judge to have been “highly effective”. The judge approached the dispute in four sections: (a) did the prevention principle apply; (b) what notices were required for extensions of time to the contractual delivery dates; (c) what was the effect of modifications to the vessels’ design; and (d) what was required for extensions of time due to non-payment of instalments by the buyer.
The prevention principle
The starting point was that there was an implied term in 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”. However, Butcher J confirmed that the prevention principle can be of wider application than breach of such implied term.
The judgment gives a whistle stop tour of currently relevant jurisprudence on the prevention principle (North Midland Building Ltd v Cyden Homes Ltd², Multiplex Constructions (UK) v Honeywell Control Systems³ and Adyard Abu Dhabi v SD Marine Services⁴). The conclusion is clear. If a buyer wrongfully prevents the seller from delivering on time, the seller is unlikely to be bound by the strict requirements of the contract as to time. However, the parties can contract out of the effect of the prevention principle, for example by providing for agreed extensions of time on the happening of certain events.
It must be borne in mind that this case was a section 69 appeal on arbitration awards on preliminary issues. The judgment is therefore somewhat abstract in that there were no findings of fact that the buyer had caused delay, but rather mere allegations by the seller that the buyer had caused certain types of delay. The judgment therefore concentrates on the meaning and effect of the contracts.
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