The English High Court decision in Griffon Shipping LLC and Firodi Shipping Ltd [2013] EWHC 593 (Comm) see Norwegian Saleform Dispute – Damages v Deposit?
The background to the dispute was that the parties entered into a Memorandum of Agreement (MOA) on the Norwegian Saleform 1993. The MOA provided for a deposit of 10% (US$2,146,000) to be paid within three banking days of signing the MOA. The Buyers did not pay the deposit and the Sellers cancelled the MOA in reliance on the Buyers’ repudiatory conduct in failing to pay the deposit and claimed the deposit. The Buyers position was that any losses should be assessed on the conventional measure of the difference between contract and market price of the vessel - US$275,000.
The dispute was arbitrated. The tribunal concluded that the only right under the MOA was a claim for “compensation” and not the deposit. However, on appeal to the High Court the matter was decided in favour of the Sellers who were entitled to the deposit as a debt, or by way of damages. The Buyers appealed that decision.
The relevant clauses of the MOA were:
“2. Deposit
As security for the correct fulfilment of this Agreement the Buyer shall pay a deposit of 10% (ten per cent) of the Purchase Price within 3 (three) banking days after this Agreement is signed by both parties and exchange by fax/email. This deposit shall be placed in the Sellers’ nominated account with the Royal Bank of Scotland PLC, Piraeus and held by them in a joint interest bearing account for the Sellers and the Buyers, to be released in accordance with joint written instructions of the Sellers and the Buyers ...”
“3. Payment
The said Purchase Price … shall be paid … on delivery of the vessel …”
“13. Buyers’ default
Should the deposit not be paid in accordance with Clause 2, the Sellers have the right to cancel this Agreement, and they shall be entitled to claim compensation for their losses and for all expenses incurred together with interest.
Should the Purchase Price not be paid in accordance with Clause 3, the Sellers have the right to cancel the Agreement, in which case the deposit together with interest earned shall be released to the Sellers. If the deposit does not cover their loss, the Sellers shall be entitled to claim further compensation for their losses and all expenses incurred together with interest
The Court of Appeal Decision
The Buyers position was that the right to receive the deposit had not been unconditionally acquired by the Sellers because the deposit was neither payable nor forfeitable if unpaid before the termination of the contract.
In this respect clause 2 did not actually provide in express terms for forfeiture and in fact, said nothing about what would happen in the event that the Buyers failed to pay the deposit. Moreover, clause 13 contained two limbs ie what happens if the deposit is not paid and what happens when it is paid, and that in the former case the remedy is compensation for their losses assessed on the basis of the difference between the contract price and the market price – “…shall be entitled to claim compensation for their losses and for all expenses incurred…“
Tomlinson LJ did not agree. The first limb of clause 13 merely provides the Sellers with an express contractual right exercisable in the event that the deposit is not paid. Thus, on the expiry of the time limit in which the Buyers had to pay the deposit, the Sellers accrued the right to receive and then sue for the deposit which by clause 2 was payable as “an earnest of performance”. That is the deposit was an agreed sum that was forfeit if the Buyers failed to fulfill the agreement, and the Sellers right to that sum ie the deposit – either by of a debt or as damages - was not lost as a result of their decision to terminate the MOA.
The Buyers’ appeal was therefore dismissed.
It is noteworthy that since clauses 2 and 13 of the amended NSF 2012 are identical to the same clauses in NSF 1993. As a result the decision in The Griffon ought to apply to the NSF 2012. In contrast the Singapore Sale Form (“SSF”) seeks to address the issue.
Article by Jo Cullis
