In Stocznia Gdynia SA v Gearbulk Holdings Ltd – Lawtel 13.2.09 the Court of Appeal considered whether a purchaser under a shipbuilding contract who exercised a contractual right to terminate on the seller's default was limited in the compensation he could recover to the repayment of the instalments paid.
It was held that the relevant provision of the contract, Article 10, did not displace the right to treat the contract as repudiated. The primary purpose of Art.10 was to provide an agreed measure of compensation for breaches of contract by way of delay in delivery and deficiencies in capacity and performance which, although important, did not go to the root of the contract. The parties had also agreed that there was a point at which the delay or deficiency was so serious that it should entitle the purchase to terminate the contract. They had to be taken to have agreed that at that point the breach was to be treated as going to the root of the contract. In those circumstances the right to terminate the contract could not sensibly be understood as anything other than embodying the parties' agreement that the purchaser had the right to treat the contract as repudiated, with the usual consequences.
It was wrong to treat the right to terminate in accordance with the terms of the contract as different in substance from the right to treat the contract as discharged by reason of repudiation at common law.
Article 10 did not exclude the right to recover damages for loss of bargain in the event of termination by the Purchaser.
By choosing to terminate the contract pursuant to Art.10 the purchaser did not lose its rights to treat the contract as repudiated and to recover damages for repudiation.
A person who exercised a contractual right of termination which arose on the other party's breach was not inevitably prevented from treating the contract as discharged and recovering damages for the loss of his bargain. The exercise by the purchaser of its right to recover instalments of the contract price under Art.10 did not involve an election on its part to affirm the contract. There was no inconsistency in recovering instalments of the price under Art.10 and recovering damages for loss of bargain at common law.