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No extensions of time for delivery in shipbuilding contracts for buyer-induced delay

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Jiangsu Guoxin Corporation Ltd (formerly known as Sainty Marine Corporation Ltd) v. Precious Shipping Public Co. Ltd [2020] EWHC 1030 (Comm)
This recent judgment reinforces some important points concerning the prevention principle, notice requirements for time extensions, and the effect of design modifications and non-payment of instalments under an amended SAJ form. The Court found, on an appeal from an arbitration award, that neither the prevention principle applied nor would the yard be entitled to extensions of time for buyer-induced delays where it had failed to serve appropriate notices or exercise other relevant contractual provisions.

The background facts

The Seller had entered into a series of shipbuilding contracts with the Buyer for the construction of 14 bulk carriers. The Buyer accepted delivery of hulls 09B and 10B, but rejected hulls 17B-20B due to alleged defects. The Seller contended that the rejection of those hulls was wrongful and, although the merits of that dispute did not arise in relation to the appeal, contended that the rejected hulls subsequently occupied berth space within the yard which resulted in delay to the construction of two further hulls (21B and 22B), both on amended SAJ forms (the “SBCs”). 

The Seller failed to deliver the further two hulls by the contractual delivery date and, 151 days later, the Buyer terminated the SBCs pursuant to contractual rights to do so by reason of a lapse of more than 150 days of ‘non permissible delays’. The Seller treated the cancellations as repudiatory, which it purported to accept. 

The arbitration awards

The parties referred their disputes to arbitration and, in the wider context of 11 references concerning the 14 bulk carriers, the tribunal made two partial final awards on preliminary issues for hulls 21B and 22B, finding against the Seller’s position that: 1) it was entitled to an extension of time even if notices or other contractual provisions had not been served or exercised; and 2) the prevention principle applied such that the Buyer had not been entitled to terminate the SBCs at the time that it had done so. 

The Commercial Court decision

The Court considered: 1) whether the prevention principle applied; 2) the extent to which notices were required in order to entitle the Seller to extensions of time; 3) the effect of modifications to the vessel’s design; and 4) what was required in order to entitle the Seller to an extension of time for non-payment of instalments. 

1. The ‘Prevention Principle’

The Court summarised the central issue as being whether the result of the delay, allegedly occasioned by the Buyer’s wrongful termination of the previous contracts and wrongful occupation of the berths, was a permissible delay falling within the scope of Article VIII.I and the words “other causes beyond the control of the SELLER or its sub-contractors”. If it was, then the contract made adequate provision for extensions of time for such delay and the prevention principle would not apply. The Seller, on the other hand, contended for the narrower construction favoured in Zhoushan Jinhaiwan Shipyard Co Ltd v Golden Exquisite Inc [2014] EWHC 4050 (Comm), (which concerned a similarly worded SAJ form), that only delays outside the control of either party were included. If this was correct, then no contractual provision granting an extension of time would exist for such a delay and so the prevention principle ought to apply.

After considering the contractual provisions and contrary to the decision in Zhoushan, the Court held that Article VIII.I was not confined to events which fell outside the control of either party, and the words “other causes beyond the control of the SELLER…” were wide enough to capture the Buyer-induced delays providing such matters were outside the control of the Seller or its sub-contractors. 

On the Court’s reasoning, therefore, Article VIII.I gave adequate provision for extensions of time for the delay, and so the prevention principle did not apply. 

2. Notification of Delay under Article VIII.2

On the basis that the Court found the delay fell within Article VIII.I, it was clear that the notice regime within Article VIII.2 was applicable in order to claim an extension of time.
However, the Court also concluded that even on the assumption the narrower construction of Article VIII.I was adopted, and that there could be cases of Buyer-induced delay which did not fall either within it or within any of the more specific regimes in the SBCs, the language of Article VIII.2 was wide enough to apply to such delays. This finding, again, differs from that in Zhoushan

3. Modifications under Article V

The Seller contended that it had agreed to carry out modifications to the design of the vessels for which no agreement had been reached as to extensions of time for delay. The Seller further submitted that, as construction of the vessels had been delayed as a result of the modifications, it was entitled to an extension of time whether or not it had issued notices under Article VIII.2 or otherwise. 

The Court disagreed, and concluded that the contract made provision for the parties to agree in writing any adjustments in the delivery date necessitated by such modifications and, should the parties fail to reach agreement, the Seller would not be obliged to carry out the modifications. The modifications clause did not, therefore, contemplate a request for an unagreed extension of time following a modification and did not provide for a notification regime relating to such a request. The Court commented, however, that it would conceivably be open to the parties to agree an ad hoc arrangement for an extension of time outside the specific terms of the SBCs. 

4. Buyer’s Default in Instalment Payments

The Seller alleged that the Buyer was in default for non-payment of the third, fourth and fifth instalments of the purchase price, and it was therefore entitled to a day-by-day extension of time under an express contractual provision. The Buyer contended that in order to be entitled to an extension of time the Seller must serve a default notice as required under the contract and that, further, the Seller must exercise its 'option' to extend time for delivery. The Court did not consider that a notice was a prerequisite for postponement of the delivery date, but held that the Seller must nonetheless exercise its ‘option’ expressed in the contract by communicating its decision to postpone. This communication, however, did not have to be by way of notice under Article VIII.2. 

Comment

The decision differs in a number of key respects to the Court’s decision in Zhoushan, which concerned similar issues. Further, although the Court accepted that a term as to non-prevention would be implied, the decision nonetheless demonstrates a continued judicial reluctance to apply the prevention principle in shipbuilding contracts, particularly where the contract contains a complete code to deal with delays, including provisions dealing with claims for time extensions. 

Lastly, and in light of the current Covid-19 pandemic, the decision is a timely reminder for shipyards of the importance of paying particularly close attention to and comply with extension of time provisions including notice requirements to avoid claims for additional time (and costs) being barred.

Chris Kidd

Chris Kidd Head of Shipbuilding and Offshore Construction, Joint Head of Energy & Infrastructure, Partner

Joshua Thomson

Joshua Thomson Associate

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