A dispute between a shipyard and the buyers under two shipbuilding contracts was considered by the Commercial Court in the recent case of Jiangsu Guoxin Corporation v Precious Shipping Co.
The parties had contracted for a total of 14 vessels under identical contracts based on the Shipbuilders Association of Japan (SAJ) form. Four vessels were rejected by the buyers (P) due to alleged design defects.
The seller (J) claimed that these rejections were wrongful, and that by leaving these vessels occupying berths at the shipyard P’s actions had caused delays in the launch and construction of two further vessels, Hulls 21B and 22B. P subsequently gave notice to terminate the contracts for Hulls 21B and 22B on the grounds that there had been more than 150 days of non-permissible delay following the agreed delivery dates, but J denied P’s right to do so.
The arbitral decision
The various disputes were referred to arbitration, and amongst other matters the arbitral tribunal was asked to resolve preliminary issues as to whether J was entitled to an extension of the delivery dates for Hulls 21B and 22B. In particular, J argued that during the relevant period the delivery of the vessels had been prevented by P’s wrongful acts, so that the agreed delivery dates were extended under the so-called “prevention principle”. The arbitrators rejected this argument and J appealed to the court.
Contracts subject to implied term
The judge accepted that the contracts were subject to an implied term that neither party should actively and wrongfully prevent the other from performing its obligations under the contract. However, having considered earlier case law, he confirmed that the prevention principle does not apply if the parties have made express provision for an extension of time in the relevant circumstances.
P argued that in this case the situation was covered by the terms of the shipbuilding contracts, particularly Article VIII.1. This set out various causes of delay for which J would not be liable, including force majeure events or “other causes beyond the control of the seller”.
Article VIII.2 required the seller to give notice of any delay arising from one of the specified causes, as a pre-condition of any extension of the delivery date for that cause.
The judge favoured a broad interpretation of Article VIII.1 and concluded that it covered delay caused by the buyers’ acts, such as in the present case. It was not a force majeure clause confined to matters beyond the control of either party. There was therefore no room for the application of the prevention principle, and J was required to follow the notification provisions of the contract in order to claim an extension.