Firodi Shipping Ltd v Griffon Shipping Llc

An accrued contractual right to an unpaid deposit survives the innocent party’s acceptance of a repudiatory breach. A deposit payable as security for contractual performance is ordinarily recoverable and forfeitable once it has fallen due.

A contractual termination clause does not displace that accrued right unless it uses clear language. A clause permitting cancellation and compensation following non-payment may supplement the seller’s common law remedies rather than replace them. Payment machinery involving a stakeholder or joint account does not alter the parties’ substantive rights after entitlement to the deposit has become unconditional.

The buyers agreed to purchase a vessel under the 1993 Norwegian Saleform. They failed to pay the ten per cent deposit when due and accepted that this was a repudiatory breach. The sellers terminated the agreement and claimed the deposit, which substantially exceeded their damages on the conventional contract-and-market measure.

Arbitrators held that the first limb of clause 13 restricted the sellers to compensation for their actual losses. Teare J reversed that determination in [2013] EWHC 593 (Comm), holding that the sellers could recover the deposit.

The buyers appealed. The central issue was whether clauses 2 and 13 preserved the sellers’ accrued right to recover the unpaid deposit, or confined them to conventional compensatory damages.

1. Appeal dismissed. The sellers acquired an unconditional right to the deposit when it became due. Acceptance of the buyers’ repudiatory breach and contractual cancellation on the following day did not extinguish that accrued right. The sellers could recover the deposit as a debt or, alternatively, claim damages for breach of the obligation to pay it measured by the deposit’s amount.

2. Clause 13 did not prescribe exhaustively the consequences of failing to pay the deposit. Its first limb conferred an express right to cancel without proving that the default was repudiatory. It also clarified the sellers’ entitlement to compensation, but those rights supplemented the remedies available at common law.

3. Clause 2 made the deposit security for correct performance and an earnest of performance. The right to receive it was unconditional and carried the ordinary implication that it could be forfeited upon the buyers’ default. A contract is presumed not to abandon remedies arising by operation of law. Clear express words are required to displace that presumption, and clause 13 contained no such words.

4. In any event, “compensation” in the first limb of clause 13 was broad enough to include compensation for failure to pay the deposit. Its measure would be at least the amount of the deposit. The restrictive approach adopted in Zalco Marine Services v Humboldt Shipping [1998] 2 SLR 536 was rejected because it did not give sufficient effect to the need for clear language before an accrued right could be divested.

5. The provision requiring payment into a joint account presented no obstacle. Payment to a stakeholder does not alter the nature of a deposit or the parties’ substantive rights. Once the sellers’ entitlement had crystallised and the contract had ended, the arbitrators could award the unpaid sum directly without invoking the original payment machinery.

Tomlinson LJ delivered the judgment. McFarlane LJ and Sir Brian Leveson agreed.

1. Court of Appeal (Civil Division): The buyers’ appeal was dismissed. The court affirmed that the sellers could recover the unpaid deposit as an accrued debt or equivalent damages.
2. High Court, Commercial Court: Teare J, in [2013] EWHC 593 (Comm), reversed the arbitrators’ answer to the preliminary issue and held that the sellers were entitled to recover the deposit.
3. Arbitration: The tribunal had held that clause 13 confined the sellers to compensation assessed by reference to their conventional loss and excluded recovery of the deposit.