Buyers Beware: Sellers’ Right To Claim For An Unpaid Deposit

Firodi Shipping Ltd v. Griffon Shipping Llc (Griffon) [2013] EWCA Civ 1567

In a judgment handed down in December 2013, the Court of Appeal upheld the decision of Mr Justice Teare in the Commercial Court in Griffon Shipping LLC v. Firodi Shipping Limited. The decision confirms that the sellers' remedy under clause 13 of the Norwegian Sale Form 1993 (NSF 93) where buyers fail to pay the deposit is a claim for the unpaid deposit and they are not limited to a claim for damages based on the difference between the market and contract price of the vessel. This has the effect of dramatically increasing the quantum of the sellers' claim in such circumstances and heralds a departure from the previously held view regarding the operation of clause 13.

The background facts

Clause 13 of the NSF93 provides as follows:

"13. Buyers Default

Should the deposit not be paid in accordance with Clause 2, the Sellers shall 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 for all expenses incurred together with interest."

Clause 2 of the Memorandum of Agreement (MOA) for the sale of the Griffon provided for a 10% deposit (USD2,156,000) to be paid within three banking days from signature of the MOA. The deposit was not paid within time and the Sellers cancelled/terminated the MOA.

The dispute was referred to arbitration in London and the Tribunal held that the Sellers were not entitled to recover the full deposit but were limited to a claim for damages in the amount of approximately USD275,000.

The Commercial Court decision

Leave to appeal was granted and Mr Justice Teare considered the various contradictory decisions made by maritime arbitrators on the true construction of clauses 2 and 13 of the NSF. He concluded that as clause 2 made provision for payment of a deposit as "security for the correct fulfilment" of the MOA, the right to payment of the deposit had accrued under common law before the...