Shipbuilding cancellations: ‘Permissible delays’, written notice, and the prevention principle

6 May, 2020

On 30 April 2020, the Commercial Court handed down judgment in Jiangsu Guoxin Corporation v. Precious Shipping Public Co Ltd [2020] EWHC 1030 (Comm), a decision on two arbitration appeals as to the interplay between: ‘permissible delays’, written notice clauses, and the prevention principle in two shipbuilding contracts on amended SAJ Forms (“SBCs”).

The appeals, on preliminary issues of law, arose out of two SBCs for the construction of bulk carriers in China.  These two hulls were part of a series of ships to be constructed for the same buyers.  In the event, four earlier vessels in the series were rejected by the Buyers on grounds of alleged design defects.  It was, however, contended by the sellers that: (i) the rejected vessels occupied berths that delayed the construction of the two ships at issue; (ii) further delays had been caused by alleged modifications and delays to the payment of instalments; and (iii) the sellers were entitled to an extension of the delivery dates, even if no written notices of delay had been given prior to cancellation of the SBCs.

The appeals were heard remotely by Butcher J. due to the COVID-19 pandemic (with counsel by telephone), a procedure the Judge found to have been “highly effective”.  The Court dismissed the appeals, finding that there was “no room for the application of the ‘prevention principle as a result of the occurrence of such delays” in the context of these SBCs.

The judgment provides welcome insights on a number of issues that may be encountered in shipbuilding disputes.  It also includes a detailed analysis of the cancelation provisions in the SAJ Form, differing on a number of points from the approach of Leggatt J. in Zhoushan Jinhaiwan v. Golden Exquisite [2014] EWHC 4050 (Comm).  Three points of interest are noted here.

  • First, the Court held that the ‘permissible delays’ clause in Article VIII.1 of the SBCs was not a force majeure provision.  In particular, the expression, “delay[s] due to… causes beyond the control of the Seller or its sub-contractors” was to be given its natural and wide meaning, and included delays within the control of the buyer but not the seller (i.e. acts of prevention).  This conclusion differed from the view expressed by Leggatt J. in Zhoushan.
  • Secondly the Court considered that, even if it was wrong as to the scope of Article VIII.1, then the written notice clause in Article VIII.2 of the SBCs would still apply to require the seller to give contemporaneous notice as to the start, end, and duration of any delays on account of which it sought an extension of time (including acts of prevention).  This decision also differed from the view expressed by Leggatt J. in Zhoushan.
  • Thirdly, the Court considered that the scheme of the SBCs as a whole, including: (i) the customary division of ‘permissible’, ‘non-permissible’ and ‘excluded’ delays; and (ii) an express term covering delays due to “default in performance by the Buyer”, was intended to cover any and all of the relevant types of delay.  It followed that there was no scope for the prevention principle to operate, given its juridical nature as an implied term.  On this point, the Court followed and approved similar observations in Zhoushan.

Roderick Cordara QC and Adam Board, instructed by Andrew Ward and Emily Sadie of Watson, Farley & Williams LLP, acted for the successful respondents.

The judgment is available here.