|Stocznia Gdanska S.A. v. Latvian Shipping Co. and Others continued|
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Faced with this authority, Mr. Glennie submitted first that your Lordships were not bound by that decision, on the ground that the view on the construction of the contract expressed by Viscount Dilhorne and Lord Fraser of Tullybelton was not shared by Lord Edmund Davies. Like Clarke J., however, I do not so read the opinion expressed by Lord Edmund Davies. Mr. Glennie next invited your Lordships' House to depart from the decision of the majority in that case, in exercise of the power under the Practice Statement. I however consider that it would not be appropriate to do so, having regard to the recent date of the decision and the reasoning of the majority.
Mr. Glennie advanced a number of particular arguments in support of the latter submission. He relied on the fact that contracts for the manufacture and sale of chattels had been characterised as contracts for the sale of goods for the purposes of, for example, the now repealed section 4 of the Sale of Goods Act 1893. I do not, however, consider that these cases are directly in point, since they do not address the particular question under consideration in the present case. He referred in particular to the decision of your Lordships' House in Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd.  A.C. 32, in which a contract for the supply by the respondents of special machinery to be manufactured by them was treated as an ordinary contract for the sale of goods. However, the fact that the relevant contract involves the manufacture of the goods by the supplier does not necessarily mean that the manufacture constitutes part of the contract consideration; and it was held that on the facts of that case, in which incidentally the only advance instalment of the price was payable with the order, the contract was simply one of sale. Finally, Mr. Glennie referred to certain academic criticisms of the decision in the Hyundai case; but these seem to be directed not so much to the conclusion that the construction of the vessel constituted part of the contractual consideration, as to the consequences of the rule that, for money to be recovered on the ground of failure of consideration, the failure must be total. This rule has been subject to considerable criticism in the past; but it has to be said that in a comparatively recent Report (Law Com No.121 (1983) concerned with Pecuniary Restitution on Breach of contract) the Law Commission has declined to recommend a change in the rule, though it was there considering recovery by the innocent party rather than by the party in breach. I for my part am unpersuaded by matters such as these to exercise the power under the Practice Statement to depart from the decision in the Hyundai case.
For these reasons, I am unable to accept the argument of the buyers on this point.
The disposal of the appeals
In the light of my conclusions on the three central issues, I now turn to consider the disposal of the appeals. I shall first consider the two actions separately, together with the decision of Longmore J.; and I shall then turn to consider the decision of Colman J. in relation to both actions.
The first action
I have already recorded that, on the pleadings before your Lordships, the first action relates only to the contract for vessel 1. It appears, however, that it has been treated as applicable to the contract for vessel 2 as well (I assume by reason of an amendment). I shall therefore proceed on the same basis.
First of all the Court of Appeal was, for the reasons I have given (with which I understand all of your Lordships agree), wrong to allow the buyers' appeal from Clarke J. It follows that the order made by them in this action under Order 14A should be set aside, and the summary judgment granted by Clarke J. in respect of the second instalments of the price for vessels 1 and 2 should be restored.
Furthermore, since the yard was entitled to, and did, rescind the contracts for these two vessels under clause 5.05 the Court of Appeal was right to order (as they did) damages in respect of these two contracts to be assessed under that article, and indeed (your Lordships were informed) the yard asked for such an order to be made. However, Longmore J., in striking out the yard's particulars of damage in respect of these contracts, proceeded on the basis of certain observations made by Staughton L.J.  2 Lloyd's Rep. 132, 138 in his judgment, when he said:
It was on the basis of Staughton L.J.'s statement that the regime in clause 5.05 displaced the common law rights of the yard that Longmore J. struck out the yard's particulars of damage. I have to say however that, in my opinion, this statement of Staughton L.J. is too sweeping. In the first place, as I have already indicated, clause 5.05 did not have the effect of divesting the yard of its right to recover instalments of the price which had already accrued due. But in addition it was, in my opinion, open to the yard to argue that, on a true construction of clause 5.05, the yard's right to recover damages (recognised in clause 5.05(2)) may in certain circumstances refer to damages on the measure recoverable at common law. Such an argument could, for example, be advanced on the basis that (a) the yard's "full right and power" to sell the vessel under clause 5.05(2) was (contrary to the opinion expressed by Staughton L.J.) no more than a power of sale and as such not mandatory; and (b) on the facts of the case the appropriation of the two keels from vessels 1 and 2 to the two vessels subsequently constructed by the yard for Lorient Maritime did not constitute a sale of vessels 1 and 2, uncompleted, to Lorient Maritime within the meaning of clause 5.05(3)(ii). On this basis, the yard can argue that clause 5.05(3) and (4) had no application, and that it can simply fall back on clause 5.05(2) to claim damages measured on a common law basis. It follows that Longmore J. was misled by this sweeping, and therefore misleading, statement of Staughton L.J. into striking out the yard's particulars of damage in respect of these two contracts. If he had not been so misled, he should have allowed the yard to plead its damage on a common law basis, if it thought fit to do so. It follows that the order of Longmore J. in respect of these two contracts made in reliance on that statement should also be set aside.
I add in parenthesis that the same applies to Longmore J.'s decision to strike out the particulars of damage in respect of the contracts for vessels 3-6; but this is of no moment because (for reasons which will appear) the Court of Appeal should never have ordered that damages in the case of those contracts should be assessed under clause 5.05.
The second action
The conclusion of the Court of Appeal, and the reasoning on which it was based, is to be found in the judgment of Staughton L.J.  2 Lloyd's Rep. 132, 139. His conclusion was that the yard could not recover any of the second instalments of the price, because it subsequently treated the contracts as repudiated, i.e. it purported to rescind the contracts under clause 5.05. Since, however, it is my opinion (shared by all of your Lordships) that rescission under clause 5.05 did not divest the yard of its right to recover instalments of the price which had already accrued due, it follows that this conclusion of the Court of Appeal cannot stand. In the alternative, however, Staughton L.J. concluded that the yard could not recover the second instalments of the price under the contracts for vessels 3-6, because they had not been joined on the berths where the vessels were being constructed. With that conclusion, I agree; and, as I have already indicated, I am content to uphold the decision of the Court of Appeal, not only that the yard's appeal from Waller J. should be dismissed, but that judgment should be entered against the yard on this point under Order 14A.
However, the Court of Appeal went further and ordered that the yard's damages in respect of these four contracts should be assessed under clause 5.05. With all respect, this cannot be right; because, if the second instalments of the price did not fall due, the yard had no right to rescind these contracts under clause 5.05. This was, I understand, appreciated by both Longmore J. and Colman J., though Longmore J. at least felt himself bound by this order of the Court of Appeal. It follows that this part of the Court of Appeal's order must be set aside.
The setting aside of this part of the Court of Appeal's order has repercussions on the judgment of Longmore J. He struck out the yard's particulars of damage in respect of these four contracts on the ground that they did not comply with the Court of Appeal's order that damages be assessed under clause 5.05 (see page 15 of his judgment). His decision to do so must therefore fall with the Court of Appeal's order on this point, and so must likewise be set aside.
The decision of Colman J.
I wish to preface my consideration of this aspect of the case with the observation that, in the light of what I have already said, the proceedings in both actions appear to have gone seriously awry. Before the Court of Appeal there were simply two appeals from decisions on applications for judgment under Order 14. In the case of the first action, all the Court of Appeal needed to do was to dismiss the buyers' appeal from the summary judgment ordered by Clarke J. In the case of the second action, all they needed to do was to dismiss the yard's appeal from the order of Waller J. giving the buyers leave to defend; though they could, having examined the point of construction in depth, have entered (as they did) judgment for the buyers under Order 14A. In the latter event, the remainder of the two actions should simply have gone to trial, on the yard's claim for damages under clause 5.05 in the first action, and on the yard's claim for damages for anticipatory repudiation in the second action. If so, the parties' cases in both actions should have been fully pleaded out in the ordinary way, taking account of the orders made for disposing of part of each action. As it is, instead of the remainder of the actions going to trial on the merits, they have become lost in procedural points, many of which have, through no fault of Longmore J. and Colman J., been decided on a false basis.
It is against this background that I turn to consider Colman J.'s judgment, and I shall do so first with particular reference to the grounds on which he refused leave to the yard to amend its points of claim in the second action to claim damages on the basis of anticipatory repudiation. As I have already recorded, he did so on three grounds, viz.: (1) that the claim for damages for anticipatory repudiation was bound to fail; (2) that, since the Court of Appeal had given judgment for damages to be assessed under clause 5.05 ("at least as regards hulls 1 and 2"), it was too late to introduce a different allegation of liability; and (3) application of the well-known principle in Henderson v. Henderson (1843) 3 Hare 100, 114-115, per Wigram V.C. The latter two of these grounds assume a prior adjudication on liability; and, on the basis that your Lordships decide to set aside the Court of Appeal's order that damages be assessed in respect of these four contracts under clause 5.05, there will have been no such adjudication in respect of these contracts other than that the yard was not entitled to rescind them under that article. It is true that, in relation to the second ground, Colman J. introduced the qualification "at least as regards hulls 1 and 2," obviously because he appreciated that the Court of Appeal's order for assessment of damages under contracts 3-6 appeared to have been made on an erroneous basis; but he made no such qualification to his conclusion on the third ground. It follows that the basis of the second ground (if applicable) and the third ground will, so far as those four contracts are concerned, disappear.
I turn next to the first ground on which Colman J. refused the yard leave to amend its points of claim in the second action to claim damages on the basis of anticipatory breach, viz. that the action was bound to fail. His decision on this ground led to the remarkable conclusion that the yard, whose complaint was that the buyers were admittedly refusing to perform these contracts, was not only left without a remedy, but was denied the right to present its case at trial in the ordinary way. In my opinion, this conclusion must to some extent have been coloured by the facts that (1) Longmore J. had already struck out the yard's particulars of damage (on the basis of an order of the Court of Appeal which should never have been made), and (2) Colman J. concluded (on the basis of the same erroneous order), that the yard was in any event precluded from claiming damages for anticipatory breach on at least the third ground for his decision. It was, in my opinion, this unusual state of affairs which led him to consider the whole substance of the yard's case for damages for anticipatory repudiation in the second action, involving findings on a number of issues of fact and law, as an appropriate matter for final disposal on an application for leave to amend the pleadings instead of allowing it to go to trial in the usual way.
Before your Lordships it was proposed that this House should, in effect, hear an appeal from Colman J.'s judgment in place of the Court of Appeal, before whom such an appeal is already pending. I must confess to being reluctant to leapfrog the Court of Appeal in such a case as this. I prefer to approach the matter on the realistic basis that Colman J.'s decision to dispose of the second action in the way he did found its origin in an erroneous decision of the Court of Appeal, which led Colman J. mistakenly to believe that the substance of the yard's claim in this action should be disposed of on an application for leave to amend; and that on that basis your Lordships' House should set aside his decision in toto so far as it relates to the second action. If that is done, full consideration can in particular be given at the trial to the yard's substantial argument, which was outlined before your Lordships by Mr. Cordara for the yard, that the buyers' anticipatory repudiation of the contracts for vessels 3-6 should be regarded as a repudiation of a continuing nature and so could, despite the yard's unsuccessful attempt to invoke the right of rescission under clause 5.05 in respect of these contracts, subsequently be accepted by the yard as a ground for terminating the contracts and claiming damages for their breach. That this argument is of a substantial nature is fortified by Sir Gunther Treitel's Note on the present case in (1998) 114 L.Q.R. 22; I wish to add that the point in question did not arise for consideration in The Kanchenjunga  1 Lloyd's Rep. 39, a case relied upon by Colman J. in his judgment. Full consideration can also be given at the trial to the question when, on the evidence, the anticipatory repudiation occurred--a potentially important question which, on the submissions advanced before your Lordships, appears to be in contention.
If the second action had been allowed to take its ordinary course on the issue of anticipatory repudiation, and the yard had included in its points of claim in the first action an alternative claim for damages for anticipatory repudiation, I doubt if any attempt would have been made to strike such an allegation out. Obviously, there are substantial arguments which the buyers would wish to advance against such a claim which may be fatal to it, in particular that clause 5.05, if applicable, provides an exhaustive code which excludes any claim for damages for anticipatory breach--a point on which Colman J. however declined to express any view. But the buyers would simply have raised these matters in their Points of Defence and, on the issues so identified, the point would (if it proved to be relevant) have been disposed of at the trial with (I suspect) relatively little extra argument. In these circumstances, and bearing in mind that the whole question of anticipatory repudiation will have to be explored in depth in the second action anyway, common sense suggests that the yard should be allowed, if it wishes, to raise the point by way of amendment in the first action. For these reasons, I would set aside the judgment of Colman J. in relation to the first action also.
In the result, the two actions should now return to the Commercial Court, to resume their ordinary course. In both actions the yard should now be allowed to amend its pleadings to set out the basis or bases on which it claims damages, and the buyers will, of course, be free to respond in the normal way. It is to be hoped that, when the outstanding issues have been duly defined, these two actions can, if not settled, be resolved at a trial with reasonable expedition.
If these proposals for the disposal for the actions are acceptable to the remainder of your Lordships, submissions should be invited from the parties on the matter of costs.
LORD LLOYD OF BERWICK
The appellants are a Polish shipbuilding company. They are the plaintiffs in an action brought against the Latvian Shipping Co. of Riga under six contracts dated 11 September 1992 for the construction and delivery of six refrigerated vessels (or "reefers") at a price of $27,639,000 each. The initial instalment of five per cent. of the price was duly paid on all six vessels, and work began on hulls 1 and 2. Unfortunately freight rates for reefer vessels began to fall. By October 1993 the buyers were seeking to renegotiate. There was a meeting between the parties on 26 October in the course of which the buyers asked for a 20 per cent. reduction in the price. By letter dated 3 December the buyers wrote that they still wanted to take delivery of all six vessels, but this might be impossible in the current state of the market.
Meanwhile work on hulls 1 and 2 was proceeding. On 3 December 1993 the yard gave notice that the keel of hull 1 had been laid, thus triggering the second instalment of 20 per cent. of the price. But the buyers did not pay that instalment within five banking days as they were obliged to do under the contract. So on 7 January 1994 the yard issued a writ (the first action) in which they claimed, inter alia, the sum of £5,527,800 as the second instalment on hull 1. The keel of hull 2 was laid on 9 March 1994. But again the buyers failed to pay the second instalment on time.
Thereafter events took an unusual course. The plaintiffs abandoned work on hulls 1 and 2, renumbering the existing hulls 3 and 4, and giving two fresh keel-laying notices on 14 and 15 April respectively. They then abandoned hulls 3 and 4 (having done no further work in the meantime) and renumbered the same hulls 5 and 6. They gave two further keel-laying notices on 13 and 17 June respectively. On 29 April 1994 they issued a fresh writ (the second action) in which they claimed keel-laying instalments in respect of vessels 3-6, totalling $22,831,200, even though they had only laid two actual keels.
In due course the yard issued a summons under Order 14. At first the claim for summary judgment was confined to the keel-laying instalments on hulls 1 and 2. The summons came before Clarke J. In a careful and lengthy judgment (a number of different points were raised by way of defence) the learned judge held that the buyers had no arguable defence to a claim for the keel-laying instalments on vessels 1 and 2. But he went on to point out that the position might be very different with regard to hulls 3-6. He proved to be right, at least in the short run. For in a subsequent judgment given on 23 November 1995, Waller J. held that the buyers did, indeed, have an arguable defence in respect of the keel-laying instalments on hulls 3-6, on the ground that those instalments had never fallen due.
But the plaintiffs had a second string to their bow. They claimed summary judgment in respect of all six contracts with damages to be assessed. But Waller J. held that the plaintiffs could not succeed in that claim on the pleadings as they stood. So in respect of the claim for damages, he gave unconditional leave to defend in respect of all six vessels.
Both judgments were then appealed to the Court of Appeal. The buyers appealed against Clarke J.'s judgment. The plaintiffs appealed against the judgment of Waller J. The Court of Appeal allowed the former appeal, and "for the most part" dismissed the latter. I shall come back to Staughton L.J.'s reasons a little later. But in broad terms, the court held that the plaintiffs were not entitled to claim the keel laying instalments on hulls 1 and 2 as an accrued debt under the contract. The plaintiffs' sole remedy was to claim damages under the detailed provisions of clause 5.05 of the contract. Accordingly the court set aside the summary judgment in favour of the plaintiffs in respect of hulls 1 and 2, and further ordered that damages be assessed in accordance with clause 5.05 in respect of all six vessels.
The plaintiffs now appeal to the House of Lords. But in the meantime the decision appealed against has spawned a succession of further proceedings. On 3 October 1996 Longmore J. held that the claim for damages in the first action had been incorrectly formulated in accordance with clause 5.05, as ordered by the Court of Appeal. As for hulls 3-6, he held that if the claim was to succeed, the second action would have to be "reconstituted." For there was no allegation in the points of claim that the plaintiffs had ever accepted the buyers' conduct as a repudiation of the contract. This led to an immediate application for leave to amend the points of claim. The application came before Colman J. on 6 March 1997. He refused leave to amend on the ground that it was now too late for the plaintiffs to change course. In any event the proposed amendment disclosed no reasonable cause of action. The plaintiffs have appealed to the Court of Appeal against both these judgments. Neither appeal has been heard. No doubt the Court of Appeal are awaiting the outcome of the appeal before your Lordships.
Despite the procedural tangles in which the parties have become enmeshed (each side at one time or another having changed course through 180 degrees), the basic issues are relatively simple. I consider first the yard's claim in respect of hulls 1 and 2.