INTA NAVIGATION LTD V RANCH INVESTMENTS LTD

[2009] EWHC 1216 (Comm), Queen's Bench Division, Commercial Court, Mr Justice Teare, 5 June 2009

Ship sale – Contract for the sale of a hull under construction on Norwegian Sale Form terms gave buyer right of first refusal to a second hull – Contract for the sale of second hull concluded on terms other than Norwegian Sale Form – Construction of first refusal clause – Whether buyer’s right to first refusal was a right to buy on NSF terms at alternative price

Hull 271, a crude oil tanker under construction, had been sold by G to WK on Norwegian Sale Form terms. The contract also contained a clause 25 giving WK right of first refusal in respect of Hull 272. Hull 271 was then sold by WK to C under an agreement on substantially the same terms but clause 25 was modified to reflect a shorter notice period from WK to C of G’s decision to sell Hull 272. G agreed a contract of sale with a third party for Hull 272 which was on novation terms (thus requiring the yard’s consent) rather than NSF terms. The price for the hull when sold on novation terms was slightly lower, allowing G to realise a smaller profit, but to do so immediately rather than in connection with delivery. C sought to exercise its right to buy the hull from WK (and WK from G). The sale fell through and C accepted the repudiation of the contract of WK and claimed damages (as did WK from G). The matter went to arbitration. The tribunal held that valid contracts of sale had been concluded for Hull 272 between G and WK and WK and C respectively. Those contracts were on the terms of the MOA for Hull 271 which, being NSF terms, did not require the yard’s consent as a condition precedent. The seller under each contract was therefore in breach of contract in stating that it was unable to proceed with the sale because of the refusal of the yard to consent to the novation and each seller was to pay damages to its buyers. Teare J held that the tribunal had erred in so holding. The first refusal clause specified that the sale recap should be enclosed with the notice to the buyer of the sale. That being so, it could not be said that just because the first hull was purchased on NSF terms the buyer had an immutable right to purchase also the second one on the same terms. The price was a function of the contract terms and there could not be a right to buy at the lower price on the less onerous terms. The buyers’ argued construction of the sale contract gave a commercially unreasonable result.