Stocznia Gdynia SA v Gearbulk Holdings Ltd

Factual and Procedural Background

In 2000 and 2001, the Appellant, Company A, entered into contracts with the Respondent, Company B, for the construction of six vessels to be delivered between 2001 and March 2004. The appeal concerns three contracts relating to vessels identified as Hulls 24, 25, and 26. None of these vessels was delivered: some initial work was done on Hull 24 but stopped in January 2003, while no construction was carried out on Hulls 25 and 26. Following inconclusive negotiations, Company A terminated the contracts for each hull between November 2003 and November 2004 and sought to recover instalments paid under bank guarantees.

A dispute arose concerning whether Company A was entitled to damages for loss of bargain or was limited to recovering instalments paid. The dispute was referred to arbitration, with a sole arbitrator appointed. The arbitrator found in favor of Company A, holding that the contracts had been repudiated by Company B and that Company A was entitled to damages beyond mere recovery of instalments. Company B sought leave to appeal, which was granted. The appeal was heard by a judge, who allowed the appeal in part, holding that Company A was precluded from claiming damages at common law due to affirming the contracts and recovering monies under the refund guarantees. Company A was granted permission to appeal the judge’s decision, and Company B cross-appealed on other issues.

Legal Issues Presented

1. Whether Article 10 of the contract constitutes a complete code excluding all rights of termination in respect of the events that occurred.
2. Whether the exclusion clause in Article 10 excludes any claim for damages relating to the circumstances of the case.
3. Whether termination of the contracts pursuant to the contractual termination provisions, coupled with claims under the refund guarantee, precludes the buyer from subsequently claiming to have terminated at common law.

Arguments of the Parties

Appellant's Arguments

• Company A argued that Company B repudiated each contract, that repudiation was accepted, and that Company A was entitled to recover damages for loss of bargain under ordinary legal principles.
• Company A contended that exercising contractual termination rights did not preclude a claim for damages for repudiation.
• Company A submitted that the contractual provisions, including Article 10, did not exclude the right to treat the contract as repudiated or to recover damages for loss of bargain.
• Company A maintained that recovering instalments under the refund guarantee did not amount to affirming the contract.

Respondent's Arguments

• Company B contended it had not repudiated the contracts and that Company A had not accepted any repudiation for Hulls 24 and 25.
• Company B argued that Company A’s termination was pursuant to contractual rights under Article 10, which precluded treating the contracts as repudiated.
• Company B submitted that Article 10 excluded any claim for damages beyond recovery of instalments paid under the contract and refund guarantees.
• Company B contended that by exercising contractual termination rights and recovering monies under the refund guarantees, Company A had elected to affirm the contracts and thus was precluded from claiming damages for repudiation.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by examining the nature of the contracts, which involved future goods with detailed performance specifications and included rights to terminate for breaches such as delay and deficiencies. It emphasized that the term "terminate" generally refers to discharging future obligations due to breach, commonly repudiation.

The court rejected the Respondent’s submission that Article 10 constituted a complete code excluding common law termination rights. It found that Article 10 primarily provided for liquidated damages for less serious breaches and a right to terminate for serious breaches that go to the root of the contract. The court held that the contractual right to terminate and the common law right to treat repudiation as discharging the contract are effectively identical in this context.

Regarding the exclusion of damages for loss of bargain, the court reasoned that the introductory paragraphs of Article 10, which limit damages to liquidated damages, apply only to the payment of liquidated damages and not to termination. Since termination prevents delivery and the final instalment from becoming payable, no liquidated damages are payable on termination, implying that common law damages remain available.

The court analyzed the effect of Company A's exercise of contractual termination rights and recovery under refund guarantees. It rejected the argument that such actions amounted to an election to affirm the contracts and thus precluded damages claims for repudiation. The court distinguished the present case from the precedent cited by the Respondent (UDT v Ennis), emphasizing that the contracts intended the repayment obligations to survive termination and that termination operated as discharge with the usual consequences of repudiation.

The court further rejected the submission that Company A had to elect exclusively between recovering instalments under the contract and damages at common law, concluding that the contract did not intend to limit remedies in this manner. The remedy under Article 10.7 was an additional one, not exclusive.

Finally, the court considered whether Company A’s letters terminating the contracts constituted acceptance of repudiation. It held that clear and unequivocal communication of intention to treat the contracts as discharged suffices, and the letters met this standard. Consequently, the arbitrator’s finding of repudiation acceptance was upheld.

Holding and Implications

The court ALLOWED THE APPEAL, set aside the judgment of the lower court, and restored the arbitrator’s award.

The holding confirms that contractual termination rights which correspond to common law repudiation do not exclude the right to claim damages for loss of bargain. Exercising contractual termination rights and recovering instalments under refund guarantees does not amount to an election to affirm the contract or preclude damages claims. This decision clarifies the interplay between contractual termination provisions and common law rights in complex commercial contracts for future goods, affirming that parties retain valuable remedies unless explicitly and clearly excluded by contract. No new precedent was established beyond the application of these principles to the facts.