Synopsis

Pursuant to a contract of sale (the “Contract”) the respondent seller (the “Seller”) agreed to build and sell to the claimant buyer (the “Buyer”) a 9,400 dwt chemical tanker, the Delivery Date (as defined in the Contract) for which was 1 January. Delivery did not take place by the Delivery Date and the Buyer commenced arbitration as per the terms of the Contract.

In summary, the Buyer contended that its right of rescission accrued six months after the Delivery Date, i.e. after 30 June.

The Seller contended that the construction process and the Delivery Date had been extended by alleged delays in the production of certain drawings by the Buyer.  The Buyer disputed those allegations and contended that in any event they were legally irrelevant because the Seller had failed to give any notices of delay, as required by the Contract. The Seller argued that such notices were not required.

The Contract

The relevant provisions of the Contract were as follows:

“…

ARTICLE V MODIFICATION, CHANGES AND EXTRAS

...

4. BUYER'S SUPPLIED ITEMS

4.1.1

(a) The BUYER and the SELLER have agreed a schedule ... for the delivery of the plans and drawings to which reference is made in Appendix A to this Contract and Annex B to the Specifications … Should any of the said plans and drawings not be delivered to the SELLER on or before the date specified ... then time for delivery of the VESSEL shall be extended by the duration of such delay (which shall constitute a period of Permissible Delay) as may be caused to the construction and delivery of the VESSEL by the delayed delivery of the relevant plan(s) and/or drawing(s). Any dispute as to extension of time for delivery of the Vessel under this sub-article shall be referred to arbitration in accordance with Article XIII.2.

...

4.1.2 The BUYER shall on its own account deliver to the SELLER ... the BUYER’s supplied items as specified in the Specifications in accordance with the time schedule specified in the Specification to meet the building schedule of the VESSEL.

4.2 Should the BUYER fail to deliver to the SELLER any of the items referred to in Article V.4.1.2 above within the time specified in the Specifications, then time for delivery of the VESSEL shall automatically be extended by the period of such delay, provided such delay in delivery of the BUYER's supplied items shall materially affect the building schedule of the VESSEL. Any dispute as to extension of time for delivery of the Vessel under this sub-article shall be referred to arbitration in accordance with Article XIII.2.

4.3 If the delay in delivery of the BUYER's supplied items to which reference is made in Article V.4.1.2 above should exceed thirty (30) days, the SELLER shall be entitled to proceed with the construction of the Vessel without installation of such items in or onto the VESSEL, ...

ARTICLE VIII DELAYS & EXTENSION OF TIME FOR DELIVERY

1. CAUSE OF DELAY

1.1 Should the SELLER be prevented from having constructed and delivered the VESSEL by the date set forth under Article VII.1 owing to Acts of God ... which are circumstances or occurrences which could not be foreseen at the date of signing this Contract and which are beyond the control of the SELLER (each a ‘Force Majeure event’), then and in any such case the delivery of the Vessel shall be postponed by the number of working days of delay incurred by the SELLER in completing or delivering the Vessel in consequence of any of these causes.

Provided however that the SELLER shall not be entitled to rely on any of the causes of delay listed in this Article VIII unless:

(ii) the delay shall impact upon the updated critical path of the VESSEL's construction

2. NOTICE OF DELAY

2.1 Within seven (7) days from the date of commencement of any delay on account of which the SELLER claims that it is entitled under this Contract to an extension of the time for delivery of the VESSEL, the SELLER shall advise the BUYER by telefax confirmed in writing, of the date such delay commenced, and the reasons therefore [sic]. Likewise within seven (7) days after such delay ends, the SELLER shall advise the BUYER in writing or by telefax confirmed in writing, of the date such delay ended, and also shall specify the maximum period of the time by which the date for delivery of the VESSEL is extended by reason of such delay. Failure of the BUYER to acknowledge receipt of the SELLER's notification of any claim for extension of the Delivery Date within four (4) business days after receipt by the BUYER of such notification, shall be deemed to be a waiver by the BUYER of its right to object to such extension. Failure of the SELLER to give the BUYER notice of delay as provided in this Article except for the case of entire power failure or cut-off of the communication facilities and any force majeure event preventing the SELLER from communicating with the BUYER shall preclude the SELLER from claiming extension of the Delivery Date by reason of such failure.

3. DEFINITION OF PERMISSIBLE DELAY

3.1 Delays on account of such causes as provided for in Paragraph 1 of this Article, and delays falling within the provisions of Articles V.4.2 and V.4.7 above, but excluding any other extensions of a nature which under the terms of this Contract permit postponement of the Delivery Date, shall be understood to be (and are herein referred to as) permissible delays, and are to be distinguished from non-permissible delays on account of which the Contract Price of the Vessel is subject to adjustment as provided for in Article III hereof.

...

ARTICLE XIII DISPUTES

2. EXPEDITED DISPUTE RESOLUTION PROCEDURE

In the event of any dispute or difference arising or occurring prior to delivery to ... the BUYER of the VESSEL being referred to arbitration ... the PARTIES hereby acknowledge that time is of the essence in obtaining an award from the arbitrators on such dispute or difference and the Parties hereby agree that the arbitration shall be conducted according to the following timetable:

...

(iv) The Parties agreed to join together in requesting the resignation of any arbitrator unable to ... produce an award within four (4) weeks of the conclusion of the hearing. ...

(v) Each Party hereby gives up and waives all rights of appeal under section 69 of the Arbitration Act 1996.

...”

The arbitration (hearing certain preliminary issues)

The Buyer’s case

The Buyer argued that the Seller was in breach of its obligation to deliver the vessel by 1 January, unless it (the Seller) could show that the Delivery Date was extended. The Buyer contended that the Seller could not do so because they (the Seller) had failed to give any notices of delay as prescribed by the Contract (article VIII.2).

The Seller’s case

The Seller argued that the Delivery Date had been extended, contending that various drawings were either delivered late (in the first instance) or were revised and that that caused delay to the construction.

There was a clear distinction in the Contract between:

  1. delay which might give rise to an extension only if the Seller claimed an entitlement in that respect; and
  2. delay which operated automatically to extend time.

The former (“i” above) was covered by article VIII.2.1.

Other provisions were relevant to the latter (“ii” above – and what the Seller characterised as an automatic entitlement to delay), in particular article V.4.1 and V.4.2.

As a whole, article V.4 dealt with “Buyer’s Supplied Items” which, by virtue of V.4.1.1(a) included the plans and drawings referred to in Appendix A of the Contract. Article V.4.1.1(a) specifically provided for the effect of delay in the provision of these plans which was, on the Seller’s argument, mandatory and did not depend in any way upon the Seller claiming entitlement to such an extension.

In support of their argument, the Seller relied upon the fact that the provisions in question (article V.4.1.1(a)) were not expressed to be subject to the requirements of article VIII.2.1, and the reference to arbitration in the final sentence of article V.4.1.1(a) reinforced that approach. Furthermore, the Seller argued that their construction was further underlined by article V.4.2 and its use of the word “automatically”.

Held

The Seller’s arguments would be rejected.

Article VIII.2.1 contained a requirement for notice in respect of any delay which was said to entitle the Seller to an extension. That wording appeared to be comprehensive and not limited to certain aspects of the Contract.

On the Seller’s construction of the Contract, the notice provision in article VIII.2.1 would not apply, which would render the Expedited Dispute Resolution Procedure (as defined in the Contract) provided for in articles 4.1.1(a), 4.1.2 and article XIII.2 unworkable.

Furthermore, the Seller’s approach would make the notice provision in article VIII.2.1 redundant, and the express sanction that the Seller might not claim extensions without giving notice would become meaningless.

Comment

The Seller’s approach, if adopted, would lead to an uncommercial and unworkable result.

Firstly, it would be impossible to calculate the amount of any extension of time arising from delayed receipt of drawings. Such evaluation needed to be carried out contemporaneously or its accuracy would be diminished. Furthermore, the Buyer might lose the opportunity to decide for itself whether the delay in provision of drawings would have any impact on the construction. It (the Buyer) would also be deprived of the opportunity to rectify any omissions.

Secondly, if the Seller’s argument were correct, construction of the vessel could proceed without any assessment of the time by which the Delivery Date had been or would be extended and indeed without the Buyer even being told that there was a problem. That would lead to the perverse situation of the Buyer not knowing when the Seller was obliged to deliver, when liquidated damages for delay to delivery would begin to accrue, what would be the price payable and when the right to cancel for late delivery would accrue – a nonsensical position.