Summary
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.
Factual background
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.
Held
- 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.
- 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.
- 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.
- 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.
The court’s approach to earlier authorities
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Appellate history
- 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.
Appeal route
- This judgment [2008] EWHC 944 (Comm) High Court (Commercial Court)
- Appealed to[2009] EWCA Civ 75Outcomeappeal allowed; cross-appeal dismissed; arbitrator's award restored (unanimous)
Key cases cited
14 authorities cited.
- Sempra Metals Limited (formerly Metallgesellschaft Limited) (Respondents) v. Her Majesty's Commissioners of Inland Revenue and another (Appellants) [2007] UKHL 34
- Dairy Containers Ltd v Tasman Orient Line CV (The Tasman Discoverer) [2004] UKPC 22
- Owners of cargo lately laden on board the ship or vessel "Starsin" and others (Original Respondents and Cross-appellants) v. Owners and/or demise charterers of the ship or vessel "Starsin" (Original Appellants and Cross-respondents) and two other actions [2003] UKHL 12
- Bank of Credit and Commerce International v. Ali and Others [2001] UKHL 8
- Stocznia Gdanska SA v Latvian Shipping Co [1998] 1 WLR 574
- Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd (Ailsa Craig Fishing Co Ltd v Securicor (Scotland) Ltd) [1983] 1 WLR 964
- Photo Production Ltd v Securicor Transport Ltd [1980] AC 827
- Tradigrain SA & Ors v Intertek Testing Services (ITS) Canada Ltd & Anor [2007] EWCA Civ 154
- Dalkia Utilities Services Plc v Celtech International Ltd [2006] EWHC 63 (Comm)
- Antaios Cia Naviera SA v Salen Rederierna AB (The Antaios) (Salen Rederierna AB v Antaios Cia Naviera SA) [1985] AC 191
- George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 AC 803
- HYUNDAI HEAVY INDUSTRIES CO. v. PAPADOPOULOS AND OTHERS [1980] 2 Lloyd's Rep 1
- Modern Engineering (Bristol) Ltd v Gilbert-Ash (Northern) Ltd (Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd) [1974] AC 689
- United Dominions Trust (Commercial) Ltd v Ennis [1968] 1 QB 54
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Cases citing this case
2 later cases · 1 positive · 1 neutral
Most senior citing decisions:
- Phones 4u Ltd v EE Ltd [2018] EWHC 49 (Comm) mentioned
- NG & Anor v Ashley King (Developments) Ltd [2010] EWHC 456 (Ch) applied
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