ZHOUSHAN JINHAIWAN SHIPYARD CO LTD V GOLDEN EXQUISITE INC

[2014] EWHC 4050 (Comm), Queen's Bench Division, Commercial Court, Mr Justice Leggatt, 5 December 2014

Contract (shipbuilding) - Interpretation of cancellation provision - Right to cancel for delay in delivery of hulls - Wrongful cancellation - Buyer failing to perform inspections as stipulated in the contract - Buyer's right to cancel following resulting delays - Presumption of benefiting from own wrong

Contracts for the purchase of four hulls under construction were made between the builder, Zhoushan Jinhaiwan Shipyard Co Ltd of the People's Republic of China and the defendant buying company specially created for that purpose which formed part of the Golden Ocean Group. The contracts specified a right to cancel for the buyer after a delay of 210 days. Within those 210 days, delays resulted in a specified reduction in the purchase price. In each case, the buyer purported to exercise a contractual right to cancel the contract as a result of delay in delivering the vessel. The yard's argument was that the cancellation was wrongful because a relevant part of the delay was caused by the buyer's own breach of the contract, more specifically its inspection obligations. If the cancellations were lawful, the buyers were entitled to a refund of instalments paid and interest thereon. This was the appeal of arbitration awards between the parties, on the question whether the facts alleged by the yard as to the extent and cause of delay were capable of providing an answer to the buyers' purported right to cancel, or whether on the proper interpretation of the contracts the cancellations were lawful even on the facts alleged. The general tenor of the yard's argument was that the majority of the tribunal had misapplied the principles of construction of commercial contracts by allowing what they perceived to be a commercially sensible construction to prevail over the meaning of the words used by the parties to record their bargain.