NANJING TIANSHUN SHIPBUILDING CO LTD V ORCHARD TANKERS PTE LTD

[2011] EWHC 164 (Comm), Queen's Bench Division, Commercial Court, Mr Justice David Steel, 11 February 2011

Arbitration - Shipbuilding contract - Arbitration clause requiring sellers to commence arbitration within 30 days in order to dispute cancellation by buyers - Whether clause permitted legal proceedings after expiry of 30 days

Under a shipbuilding contract dated 8 November 2006 the sellers agreed to sell the buyers a vessel. This provided that: the contract price was payable by way of instalments (article II.3); the instalments were advances, so in the event of cancellation the instalments were repayable with interest (article II.6); the sellers were to provide a bank guarantee as security for repayment (article II.6A); the agreed delivery date was to be extended in the event of force majeure events and/or permissible delays (article VIII); and in the event of delay in delivery beyond the permitted contractual limits, the buyers were entitled to terminate the contract (article III.1). If there was termination by the buyers, the sellers had the right to dispute such termination by instituting arbitration within 30 days of such cancellation. The buyers paid four instalments and then gave notice of termination due to delay in delivery. The sellers disputed the right to cancel but did not commence arbitration within the 30 day period. Arbitration was commenced out of time, and the buyers contested the jurisdiction of the arbitrators. The sellers' response was that failure to comply with time limits did not bar the right to dispute the cancellation but merely barred the remedy to be obtained by way of an arbitration award. The court held that the contractual provisions were to be construed as meaning that a failure to commence arbitration within 30 days meant that the right to dispute termination was barred. The court could see no commercial purpose in granting the sellers an option either to institute arbitration within 30 days or, failing that, to institute litigation after 30 days but within six years. The cases showed that the court would, in the absence of clear meaning, favour "claim barring" rather than "remedy barring".