Reed Smith Client Alert

Authors: Charles Weller Philip R. Rymer Robert A. Wilkins

On 10 December, The Court of Appeal upheld the judgment of Mr Justice Teare in Griffon Shipping LLC v Firodi Shipping Limited [2013] 1 Lloyd’s Rep 50, a matter involving a seller’s remedy in the event of non-payment of the deposit under the terms of the Norwegian Saleform 1993 form (NSF 1993), dismissing the appellant Buyer’s appeal, which was heard last month. The appeal arises out of the apparent controversy caused by an amendment that first appeared in the NSF 1983 form and which introduced an additional paragraph to Clause 13, the "Buyers’ default" clause. The amendment appears in the NSF 1993 and NSF 2012 forms. The amendment covers the situation where a buyer has failed to pay the deposit within the time set by Clause 2, the "Deposit" clause, and the contract is thereafter terminated. On appeal, the Buyers said that this amendment had the effect of depriving the Sellers of the ability to recover and retain the unpaid deposit; a remedy which the Court of Appeal had indicated in The "Blankenstein" [1985] 1 WLR 435 would be available where NSF 1966 was used.

The leading judgment was given by Lord Justice Tomlinson, with which Sir Brian Leveson and Lord Justice McFarlane agreed. The judgment does not go much further in substance than that of the judgment of Mr Justice Teare; but does, usefully, provide further confirmation that clear language is required to strip away a party’s common-law rights accrued before termination of the contract. The Court of Appeal found that, far from depriving the Sellers of the rights that were found to be available in The "Blankenstein", the amendment to Clause 13 was intended to supplement the Sellers’ rights by confirming that they had a right to cancel in the event of non-payment of the deposit, and had a right to compensation which was not inconsistent with the Sellers’ claim for the amount of the unpaid deposit. In coming to its decision, the Court of Appeal recognised that it took a different view from that of the Singapore Court of Appeal in Zalco Marine Services v Humboldt Shipping [1998] 2 SLR 536, and from that of the two practitioners’ texts on ship S&P, which support the approach of the Singapore Court of Appeal.

It is a decision which is important for, in particular, the S&P market for second-hand ships, and within which the NSF has become widely considered as the market-choice standard-form contract for the sale and purchase of ships.

Buyers entering into such a Memorandum of Agreement (MoA) (including on the NSF 2012 form) must now do so in the knowledge that if the MoA is terminated because of their breach before the deposit is paid, they may still be liable for the amount of that unpaid deposit rather than just damages based on a contract price versus market-price differential.

The decision may also have wider-ranging importance to other industry and business sectors; and to the extent that a contract draftsman wishes to exclude similar accrued rights, they will need to take care when doing so.

Reed Smith acted for the Sellers, Griffon Shipping LLC. It is understood that the Buyers are seeking permission to appeal to The Supreme Court.

Update: The Buyers have been denied permission to appeal to the Supreme Court. As a result, there is no further recourse for the Buyers and the above Judgment of the Court of Appeal is final.

Client Alert 2013-336