Wuhan Ocean Economic & Technical Cooperation Company Ltd & Ors v Schiffahrts-Gesellschaft "Hansa Murcia" MBH & Co KG

Where a contract imposes a unilateral obligation but specifies no time for performance, a term requiring performance within a reasonable time may be implied when necessary to give the contract its intended commercial effect. The assessment of reasonable time is ordinarily factual. A term concerning important third-party security is innominate where breach could, in some circumstances, deprive the other party of substantially the whole benefit of the contract. However, a delay is not repudiatory merely because security is temporarily uncertain. Where the contractual arbitration mechanism automatically preserves the security whenever arbitration is commenced, the security is not legally imperilled by the shortness of time before expiry. The tribunal therefore erred in treating the failure to procure a permanent extension as repudiatory, and the appeal succeeded.

The claimants appealed under section 69 of the Arbitration Act from an interim final arbitration award on a preliminary issue arising from a shipbuilding contract. The contract required the buyers’ instalments to be protected by a bank refund guarantee. An addendum required the sellers to extend that guarantee but did not state the time for doing so.

The tribunal implied an obligation to procure the extension within a reasonable time. It found breach after the sellers failed to obtain the extension by a date before expiry, and held that the breach became repudiatory, entitling the buyers to terminate. The central issue was whether the tribunal had erred in law in treating the buyers’ security as imperilled despite the guarantee’s provision for automatic extension when arbitration was commenced.

1. Appeal allowed. The tribunal’s answers were: question 1, no; question 2, yes; question 2(a), yes; and question 2(b), no. Remission was unnecessary because the correct conclusion on repudiatory breach was inevitable.
2. The addendum contained no express time limit for procuring the extension. A temporal limit therefore had to be implied. The term requiring procurement within a reasonable time was necessary to give the agreement its intended commercial meaning, having regard both to the contractual silence and to the buyers’ need for reliable third-party security. The term was sufficiently certain. The tribunal’s finding as to what constituted reasonable time was a finding of fact and was not open to challenge under section 69 once the implied term was established.
3. The obligation was an innominate term. The refund guarantee was a financial cornerstone of the transaction, and failure to provide it for a sufficiently long period could deprive the buyers of substantially the whole benefit of the contract. It was therefore not confined to damages as a warranty, although every breach would not be repudiatory.
4. The tribunal correctly identified the test for repudiatory breach but failed to apply it consistently with its own finding that commencement of arbitration, whenever it occurred, automatically extended the guarantee. The buyers could commence arbitration after the stated expiry date, thereby preserving the guarantee while taking advice and deciding whether to terminate or pursue a claim. The security was consequently not truly imperilled by the limited time remaining, and the temporary nature of the arbitration-triggered extension did not alter that conclusion.
5. The sellers’ failure to obtain the contractual extension by 28 June was therefore not repudiatory. The buyers’ termination was not justified on that basis.

• High Court (Commercial Court): appeal under section 69 of the Arbitration Act from an interim final arbitration award on a preliminary issue. The appeal was allowed.