England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		11th July 2000

1. This is an arbitration appeal under the old law, brought with the leave of Mr. Justice Morison, given as recently as 23rd June. The matter was expedited, and heard in one day on Friday 7th July. Consistent with this speedy approach, I am giving this oral judgment almost immediately.
2. It is an enormously complex dispute with huge sums at stake. It concerns a contract for the conversion of a bulk carrier into a pipe laying vessel. The Owners of the vessel terminated the contract on the grounds of default by the shipyard (the Builder), and took it elsewhere to be completed. The Owners claim some £250 million for the additional work, and the Builder counterclaims some £84 million. There have already been a number of major hearings, and the proceedings have generated no fewer than seven Interim Awards to date. The Tribunal consists of two long standing and highly experienced maritime arbitrators, and a retired mercantile Judge. Between the three of them they have unrivalled experience and expertise in dealing with heavy disputes of this nature, both generally, and specifically with shipbuilding contracts. The true flavour and complexity of the case can be seen from the length and detail of the skeleton arguments deployed before me, and the various references to the transcripts of the hearings before the Tribunal at which both sides were insistent I should look during the oral argument.
3. As will be apparent from my reference to seven Interim Awards, the Tribunal has taken the case in tranches. It is the only possible approach to a case of this size. The problem with such a necessarily piecemeal approach is that since the Tribunal has not rendered its decisions on questions of principle all at once, it has been open to the parties to sift through the Tribunal's Interim rulings, and to seek to pick and choose between various bits of them.
4. The appeal before me related primarily to the true construction of Article 37.1(e) of the contract, which provides:-

"The OWNERS shall have the right ........ by giving NOTICE to the BUILDER to terminate the CONTRACT if the BUILDER:-

............

e) fails, neglects, refuses or is unable during the course of the WORK to provide sufficient materials, equipment, services or labour to perform the WORK at the quality specified and at a progress rate deemed sufficient by the OWNERS to provide a reasonable assurance that the WORK shall be completed in accordance with the CONTRACT provisions."

In short, this requires an assessment by a reasonable Owner of the failings of the Builder in relation to the progress rate. Morison J. gave leave in relation to paragraph 4(a) of the Sixth Interim Final Declaratory Award, and paragraphs 32 to 39 and 41 of the underlying Reasons. Before identifying the issue which arises before me, it is necessary first to see what the Tribunal also decided in the same (and in a previous) Award.

5. In the same Sixth Declaratory Award, the Tribunal also declared that the parties were bound by the construction placed by it on Article 15.9 of the contract in paragraph 45 of the Reasons for the Third Award, and further that the assessment by the Owners relevant to termination rights under Article 37.1(e) had to be made by reference to the contractual date for delivery as extended by the time claimed in any disputed variation Orders then extant.
6. This was a victory for the Builder. The effect of this ruling was that the Builder was entitled to all the extra time claimed, without regard to the question of whether or not such claims would be rejected or cut down in any subsequent arbitration. It eliminated that future contingency from any factual assessment. The Owners are stuck with that ruling, not least because they sought leave at the time to appeal against paragraph 45 of the Third Award, and were rightly refused leave.
7. I should record here that in my judgment, contrary to the submissions made to me by Mr. Hunt QC on behalf of the Builder, it is clear that in paragraph 45 of the Third Award the Arbitrators were indeed saying that the time allowed when calculating whether the Owners were entitled to terminate or not would have to include the time claimed under any such disputed variation order, regardless of the eventual outcome of such dispute. That meaning is inherent in the word "claimed".
8. In paragraph 3 of the Sixth Award, the Tribunal declared that by virtue of two particular disputed variation orders, the End Date for the purposes of Article 37.1(e) was extended from the original contractual delivery date to 16th August 1996. The Tribunal then went on to hold in paragraph 4(a) (the holding subject of this appeal) that this End Date could not be extended beyond 16th August 1996 by any of the matters pleaded in paragraphs 100 to 104 of the Builder's Statement of case. Their reasoning is contained in the paragraphs of the Award which I have identified above, and in respect of which leave was given.
9. This ruling under appeal was in its turn a victory for the Owners. It eliminated from the factual assessment the future contingency (which would or might have operated against the Owners) of anticipated future variation orders or disputed variation orders. It also has an important case management consequence. The unfortunate Tribunal are faced with a further major hearing of this massive case, due to start on 2nd October 2000 and to run until Easter 2001. The ruling precludes the preparation and calling of what would no doubt be substantial evidence on these future contingencies. The Tribunal, sensibly if I may say so without being patronising, took the initiative in December 1999 by giving provisional views on a number of topics including this one, which led to the ruling now under appeal.

Their objective was no doubt so far as possible to shorten these unwieldy proceedings (and thus to save costs), by eliminating from them areas of enquiry which would never arise at all as part of their eventual decision. It is now for me to decide whether on this particular point the Tribunal was correct in law, on the true construction of the contract.

10. Mr. Hunt QC submits that on the true construction of the contract the reasonable person in the position of the Owners must at the time he makes his assessment under Article 37.1(e), take into account all matters known to the Owners which could or might extend the End Date beyond 16th August 1996 (or which could affect the date of physical completion) and make his decision whether to terminate accordingly. Mr. Hunt then comments that this is "not a simple exercise". In my judgment this description is a gross underestimate of the complexities involved in such a factual inquiry. Whilst I accept that Article 37.1(e) contemplates that the reasonable Owner must make some assessment as to the future, the simple words of Article 37.1(e) do not suggest that such a convoluted enquiry was contemplated by the contract.
11. The Owners' short answer to the appeal is that the Arbitrators have consistently taken the contractual delivery date from Article 15, and that the construction adopted by the Arbitrators in paragraph 45 of the Third Award (and re-iterated in the Sixth) folds all the admissible contingencies into the disputed variation orders. There is thus no scope for any further indeterminate extensions of the delivery date under Article 37.1(e) by reasons of anticipated future variation orders or disputed variation orders.
12. Mr. Hunt complains that this answer misrepresents his case. In this context he launched a vigorous attack on a number of paragraphs in Mr. Swainston's Skeleton Argument, in particular 17 and 21.b. I reject all these criticisms. In paragraph 17 (with which 21.b is entirely consistent) Mr. Swainston records the Tribunal as holding that there was no scope for any further indeterminate extension of the delivery date in respect of future possible variation order requests and disputed variation orders. That is precisely the issue which is identified by the Tribunal in the first sentence of paragraph 32 of the Sixth Award. The Arbitrators then discuss it at length in the succeeding paragraphs, culminating in a rejection of the Builder's submissions in paragraph 41.
13. Since that is the issue identified, I proceed without hesitation on the basis that it reflects the submissions made to the Tribunal at the time by both sides. I have no reason to suppose that this Tribunal did not accurately summarise the arguments put to them at the time. What is relevant here is the case advanced before the Arbitrators, not any subsequent subtleties which may have been introduced into it.
14. Next, Mr. Hunt submits that the Arbitrators' decision in paragraph 4(a) of the Sixth Award was contrary to paragraph 3.54 of the Fifth Award. This process of picking through the Tribunal's previous reasoning to find a point of contradiction is made doubly unattractive by the following circumstances. When the alleged inconsistency contained in paragraph 3.54 was raised with the Tribunal on 2nd March 2000, the Chairman responded by saying "The completion of the work, not the end date" by way of explanation. In his written skeleton argument, Mr. Hunt characterised this as a "subsequent interpretation" of the wording of paragraph 3.54. During the oral hearing before me, he did not shrink from making the submission that I should not take the Chairman's explanation at face value.
15. Whilst there might be extreme cases in which a Judge of the Commercial Court would look askance at an arbitrator's attempt to explain away some inconsistent reasoning, this case does not even remotely begin to fall into such a category. I unhesitatingly take the Chairman's explanation at face value, not least because it is clear to me from the context and sense of paragraph 3.54 that the Tribunal is indeed in that last sentence talking about the date when the work will actually be physically completed, and not the contractual delivery date.
16. Turning now to the construction point itself, Mr. Hunt says that the construction of Article 37.1(e) adopted by the Tribunal was both artificial and too restrictive. In seeking to demonstrate the artificiality of the Tribunal's approach, he however took a factual hypothesis (that at termination the Owners were intending to issue a variation order which would extend the delivery date by a further three months) which he accepts bears no relation to the facts of this case. I find the attempt to test the principle at stake by using an example which is frankly fanciful itself an artificial exercise.
17. As to the restrictive nature of the interpretation, of course it is restrictive. It eliminates from consideration imponderables which would lead to uncertainty. I would echo what the Tribunal say about uncertainty in paragraph 38 of their Reasons. Further, the interpretation given by the Tribunal restricts the ambit of the permissible debate under Article 37.1(e). In a complex contract of this kind, this is a virtue and not a vice.
18. Finally, and most importantly, the Arbitrators' interpretation obeys the axiomatic principle that contracts must be construed as a whole. As they say in paragraph 35, "the contract provisions" referred to in Article 37.1(e) include those that provide for that date to be extended (i.e. Articles 15.2 and 15.9). The assessment to be made by the reasonable Owner is to be made by reference to the contractual delivery date, together with any disputed variation orders which have been issued by the date the assessment has to be made (where the Owners have the disadvantage of having to give credit for the time claimed regardless of the outcome). The Arbitrators then go on to say

"It would in our view be a surprising construction of [Article 37.1(e)] to construe it so that the assessment had to be made by reference to possible anticipated future extensions of the contract date that might or might not be made at any time in the future, together with any disputed variations orders that might be issued in the future."

I agree.

19. Mr. Hunt said that all the Builder sought "at this stage" was the opportunity to argue on the evidence at the hearing due to begin on 2nd October the issue of extensions beyond the End Date. That is not how his Claim Form is drafted. The relief sought is to substitute for paragraph 4(a) of the Award a declaration that "as a matter of law the End Date is to be extended beyond 16th August 1996" (my emphasis) in the defined circumstances set out. Nor would it be correct for me to approach the case on this basis. Leave to appeal having been granted, it is for me to decide without fudging whether the Arbitrators were right or wrong in law in the construction they gave to the contract. I say this leaving aside altogether the consideration that the arbitral process would hardly be assisted by compelling the Arbitrators to hear all the evidence on these issues, and yet leave unresolved the utility of such an exercise in relation to the contract properly construed.
20. The Arbitrators construed the contract as a whole, entirely consistently with both their previous and concurrent rulings as to the nature of the assessment to be made under Article 37.1(e). Their restrictive construction makes perfect commercial sense, establishes certainty, and gives the Builder the benefit of the time claimed under any outstanding disputed variation orders. I have read and re-read the Tribunal's reasoning in paragraph 32 and following and I can see nothing wrong with it, nor with paragraph 36 of which particular criticism was made. I refrain from making any more detailed comment about their reasoning than I have already done, lest anything I say now may be construed as a gloss and cause difficulties for the Tribunal in the future.
21. For the sake of completeness I should mention that a separate challenge was made to paragraph 39 of the Award. This deals with the irrelevance under Article 37.1(e) of information given by the Owners about the probable dates of supply of equipment supplied by the Owners themselves. As Mr. Hunt's skeleton argument accepted, the only express contractual obligation undertaken by the Owners relates to the delivery of equipment itself, not to information about delivery. In his oral submissions he confirmed that any obligation about the supply of accurate information must rest on an implied term. This must of course be a correct concession. If the End Date under the contract is to be extended by reference to allegedly misleading information given by the Owners, this can only be achieved by a term of contract itself. The Tribunal were rightly not minded to imply a term of such far-reaching effect into a commercial contract of this complexity. In paragraph 39 the Tribunal point out the clear limits of the express contractual obligations. They conclude that

"Accordingly whatever the effect in other respects of inaccurate or even misleading advance information as to the probable date of delivery of equipment or information, it will not affect the contractual date for delivery of the vessel or be relevant to an assessment under Article 37.1(e)." (my emphasis added).

Thus if the Builder has a complaint about misleading information it cannot be pursued by this route. Again I agree with the Tribunal's analysis.

22. Accordingly this appeal fails and is dismissed.