The activity of Chinese shipbuilders continues unabated and exactly on the issue concerning the time required for the construction of vessels, English courts have recently asserted the right of the buyers to cancel  a shipbuilding contract in case of delayed delivery of the vessel by the yard.

In particular, in the Zhoushan Jinhaiwan Shipyard vs Golden Exquisite Inc case 1, four shipbuilding contracts were examined in which the buyer exercised its right to cancel the contract due to an excessive delay in the delivery by the shipyard.

The aforementioned shipbuilding contracts provided the right of cancellation if the yard had delayed beyond a certain number of days (270) the delivery of the vessel. However, a contractual clause provided that delays due to the buyer’s breach of contract should not count towards the delay thresholds.

In the case at issue:

  • the delivery term was not respected  by the yard;
  • after 270 days from the contractual delivery date, that is the days of delay after which the right to cancel was provided, the buyer gave notice of cancellation to the yard;
  • before the buyer’s notice of  cancellation, the yard never claimed delays caused  by the buyer’s breach of contract;
  • following the request for cancellation of the contract, the yard alleged, instead, that the delay in the delivery was caused by the buyer’s breach of contract.

More specifically, because of the delayed delivery, the buyers requested the cancellation of the contracts and claimed the refund of the instalments already paid, plus interests calculated at the rate agreed for the period between the date of payment and the date of refund.

In arbitration, the courts considered valid the reasons of the buyers.

The yard challenged the arbitration award before the Commercial Court, reasserting that the delayed delivery of the vessels was to be attributed to the buyer. Indeed, the supervisor appointed by the buyer did not timely provide the yard with the necessary documentation for the continuation of the works, contributing to the delay in the delivery.

In particular, according to the yard, in light of the time lost due to the supervisor’s breach, the contractual terms to request the cancellation of the contracts (270 days) had not accrued and therefore the buyer’s request for cancellation was unlawful.

In the yard’s view, the buyer breached Article IV (“supervision and inspection”) of the shipbuilding contracts, pursuant to which the intervention of a supervisor should not have prejudiced the contractually established deadline for the delivery of the vessel.

The Commercial Court rejected the arguments raised by the yard, affirming that the shipbuilding contracts expressly provided the cases in which an extension of time for delivery was allowed because of the buyer’s breach of contract (by way of example, the case in which the buyer had not made the due payment on time) and the alleged buyer’s breach of contract at issue was not included therein.

Moreover, the Court maintained that, according to the shipbuilding  contracts’ provisions, the yard was not obliged to wait for the documentation of the supervisor appointed by the buyer and so it could and should have fulfilled its obligation within the contractually agreed deadline.

By this judgment, the Commercial Court clarified that only certain categories of delay attributable to the buyer’s conduct imply the right of the yard to object to the request for cancellation for delayed  delivery  of  the  vessel  and  that  such categories of delay must be interpreted by way of limitation.

This judgment reminds us the importance of paying attention to shipbuilding contracts’ clauses ruling the terms and conditions based on which the buyer may cancel the contract and the yard may challenge  the contract’s  cancellation, ascribing the delay to the buyer.

However, in the light of this judgment, that limits the right of the yard to challenge the contract cancellation only to the cases expressly provided for in the contract, case law seems undoubtedly in favour of buyers.