Does recovery of monies under refund guarantee preclude buyer from claiming damages at common law?


Stocznia Gdynia SA v Gearbulk Holdings Ltd [2008] EWHC 944 (Comm), ([2009] EWCA Civ 75.

Seller agreed to construct three bulk carriers for the Buyer but failed to deliver the same by its delivery date or within 150 days or by the drop-dead date as stipulated under the shipbuilding contracts. The Buyer recovered monies plus interest from the Refund Guarantor (which has issued refund guarantee to secure instalment payments on behalf of the Seller) in accordance with the provisions of the contracts and further claimed damages at common law. 

Clause 10 of the shipbuilding contracts provides that the Buyer shall not be entitled to claim any other compensation and the Seller shall not be liable for any other compensation for damages sustained by reason of events set out in this Article and/or direct consequences of such events other than liquidated damages specified in this Article.

Clause 10.7 provides that “Upon termination of this Contract by the [Buyer] in accordance with the provisions of Article 10 or any other provision of this Contract expressly entitling the [Buyer] to terminate this Contract, the Seller shall forthwith repay to the [Buyer] all sums previously paid to the Seller under this Contract, together with interest accrued thereon calculated at the rate of 1 month LIBOR per annum from the respective date(s) of payment of such sums until date of refund plus the original cost (invoice value) of the [Buyer’s] Furnished Equipment if any delivered to the Seller.”

In his First Final Award arbitrator rejected the Seller’s submissions and held that at the time each of the contracts was terminated the Seller was unable and unwilling to perform the contract and had repudiated it. Article 10 did not exclude any of the rights that would otherwise arise by operation of law, either the right to treat the contract as discharged on the grounds of repudiatory breach or the right to recover damages for the loss of bargain. He also rejected a separate argument that Buyer had by its conduct affirmed the contract. Accordingly, he found in favour of the Buyer.

On appeal from the Arbitration award, the questions before Commercial Court were:

Whether Article 10 is a contractual code which excludes all rights of termination in respect of the events that occurred (“the first issue”).

Whether the exclusion clause in Article 10 of the contract excludes any claim for damages in respect of what has occurred (“the second issue”).

Whether the termination of the contracts pursuant to and in reliance upon the contractual termination provisions (coupled with the claim in each case made upon [the bank] under the refund guarantee) precludes the Buyer from subsequently claiming to have terminated at common law (“the third issue”).

It was held that there was no clear words ”to rebut the presumption that [the Purchaser] retained its common law rights arising for a repudiatory breach and that, in the light of the fact that there was such repudiatory breach,… the Purchaser was not precluded by Article 10 from accepting such repudiation..” Clause 10 does not extend to exclude or limit liability in respect of damages for repudiatory breach.  The Buyer, having affirmed the contracts and recovered monies plus interest from the Refund Guarantor in accordance with the provisions of the contracts is precluded from claiming damages at common law

This decision has now been reversed by the Court of Appeal. 

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