Stocznia Gdynia SA v Gearbulk Holdings Ltd (Rev 2)

Contractual provisions will not exclude common-law remedies for repudiatory breach unless the contract uses clear words. A clause regulating delay, termination and liquidated damages may operate as a contractual code for those specified events without excluding damages for repudiatory breach outside that code. A contractual termination notice does not necessarily prevent acceptance of repudiation. However, the innocent party affirms the contract where, after termination, it enforces a contractual refund mechanism and obtains payment from a third-party guarantor under rights available only through the contract. Such conduct is inconsistent with acceptance of repudiation.

The claimant shipbuilder appealed from a first final arbitration award concerning three shipbuilding contracts. The defendant purchaser had terminated the contracts after the vessels were not delivered and had recovered its pre-delivery instalments, with contractual interest, under refund guarantees issued by ABN Amro Bank.

The appeal concerned whether the contractual provisions formed a complete code excluding common-law termination rights; whether the exclusion wording barred damages for repudiatory breach; and whether the purchaser’s termination notices and enforcement of the refund guarantees amounted to affirmation of the contracts.

1. Common-law termination rights. Article 10 did not exclude the purchaser’s right to accept the yard’s repudiatory breach. Clear words were required to rebut the presumption that contractual remedies arising by operation of law were retained. The article dealt with specified delay and deficiency events, and its wording did not state that it was exclusive of common-law rights.
2. Damages exclusion. The clause excluding compensation for damages sustained by reason of events set out in Article 10 was confined to the operation of that article. It did not exclude damages for repudiatory breach outside its scope. Extending it to permit the yard simply to abandon construction while limiting its liability to repayment of instalments would flout business common sense.
3. Election and affirmation. Use of a contractual termination mechanism is not, by itself, inconsistent with acceptance of repudiation. The purchaser’s conduct went further. It claimed contractual interest and enforced the refund guarantees, which were available only where it exercised a contractual right to terminate. By obtaining secured payment from the third-party guarantor under those contractual provisions, the purchaser affirmed the contracts and elected against repudiation.
4. The purchaser was therefore precluded from claiming common-law damages for repudiation. The appeal was allowed. The precise form of order was left for submissions.

• Arbitration: Sir Brian Neill’s First Final Award dated 11 September 2007 found that the contracts had been repudiated, that Article 10 did not apply to the repudiation, and that the purchaser was entitled to common-law damages.
• High Court (Commercial Court): On appeal with permission from Cooke J, Burton J allowed the appeal and held that the purchaser’s enforcement of the refund guarantees affirmed the contracts and barred a claim for common-law repudiation damages.