Ravennavi Spa v New Century Shipbuilding Company Ltd

An option agreement may impose a continuing obligation to offer earlier delivery where the specified contingency occurs during the currency of the resulting contract. However, a later contract containing an entire agreement clause and comprehensive provisions governing delivery and payment may replace that obligation and deprive it of legal effect. The court should construe commercial agreements by their natural and ordinary meaning, but must also consider whether the rival construction is workable alongside the later contractual scheme. Where full argument has been heard and no material factual matrix remains to be investigated, construction issues may appropriately be determined as preliminary issues.

Ravennavi SpA exercised an option granted by New Century Shipbuilding Company Ltd for the construction of two oil tankers. The option agreement required earlier delivery positions to be granted if the shipyard found a possibility of bringing delivery forward. Formal shipbuilding contracts were subsequently entered into, containing specified delivery and payment dates, an arbitration clause and an entire agreement clause.

The buyer alleged that the shipyard had failed to offer earlier delivery dates. The shipyard challenged service out of the jurisdiction and sought a stay under section 9 of the Arbitration Act 1996. The court directed that two construction issues be determined as preliminary issues: whether the option agreement created a continuing obligation, and whether the later contracts excluded it.

1. Preliminary determination. The court was entitled to determine the construction issues as preliminary issues. Full argument had been heard, no material factual matrix evidence had been identified, and determination would avoid wasted costs and further court time.
2. Construction of the option agreement. Read in isolation, clause 4(ii) imposed an obligation on the Yard to offer earlier delivery dates whenever the stated possibility arose during the currency of the shipbuilding contract. The clause contained no temporal limitation ending on exercise or expiry of the option. The absence of a period for acceptance could be addressed by implying a requirement that the Buyer respond within a reasonable time.
3. Effect of the later contracts. Article XIX.4 of the shipbuilding contracts provided that they contained the parties’ entire agreement and superseded prior agreements concerning their subject matter. Applying the approach explained in Inntrepreneur Pub Co v East Crown Ltd [2000] 2 Ch 611, the clause deprived prior contractual promises of legal effect where they concerned the same subject matter.
4. The later contracts comprehensively regulated delivery, payment instalments and related dates. Continuing clause 4(ii) would be unworkable alongside those provisions, particularly because no corresponding mechanism existed for accelerating payment. Article VII.1, permitting earlier delivery only with the Buyer’s consent, did not preserve a continuing obligation to offer earlier delivery.
5. The second preliminary issue was therefore determined against the Buyer. The court was to hear further argument on the form of order and consequential directions.