Griffon Shipping LLC v Firodi Shipping Ltd

Under a ship sale agreement, a deposit payable as security for performance ordinarily becomes an unconditional accrued right when its payment falls due. Subsequent termination for repudiatory breach does not retrospectively extinguish that right. Clear words are required to exclude it. A cancellation clause dealing with non-payment may confer an additional right to compensation without replacing the seller’s accrued right to recover the deposit. A buyer should not improve its position by refusing to pay security which would have been forfeited had it been paid.

The sellers agreed to sell the vessel mv GRIFFON under a Memorandum of Agreement based on the Norwegian Saleform 1993. The buyers failed to pay the 10 per cent deposit by the contractual date. The sellers accepted that failure as repudiation and cancelled the agreement.

The arbitration tribunal held that clause 13 restricted the sellers to compensation for loss. The sellers appealed under section 69 of the Arbitration Act 1996. The central issue was whether the deposit remained recoverable after termination or whether clause 13 substituted a damages remedy.

1. The appeal was allowed. The preliminary issue was answered Yes: the sellers could recover the deposit as a debt or by way of damages.

2. Clause 2 described the deposit as security for correct fulfilment. The deposit was therefore distinct from a part-payment of the price and was intended to be forfeited if the buyer failed to perform.

3. The deposit became payable before termination. Accrued contractual rights are not lost by subsequent termination following repudiation. Whether a payment is unconditional or conditional upon performance depends on construction of the contract and its purpose.

4. Clause 13 contained no clear words excluding the accrued right to payment. Its cancellation and compensation provisions were additional to the right to claim a deposit already due. The first limb addressed an unpaid deposit; the second assumed that the deposit had been paid and provided for its release.

5. The expressio unius presumption did not require a different construction. If the wording were ambiguous, the construction consistent with business common sense was preferred, since a buyer should not benefit by refusing to pay the deposit.

6. Alternatively, the reasoning of the majority in Damon Compania Naviera v Hapag-Lloyd International, the Blankenstein supported recovery of the deposit as damages. The tribunal had erred in law.

• High Court (Commercial Court): appeal under section 69 of the Arbitration Act 1996 allowed; the tribunal’s answer was reversed and the preliminary issue answered Yes.