The Griffon: The Deposit Or Compensation? What Can A Seller Claim When The Buyer Fails To Pay The Deposit?

Griffon Shipping LLC v. Firodi Shipping Ltd (The Griffon) [2013] EWHC 593 (Comm)

The recent decision of Mr Justice Teare in this case heralds a departure from the previously held view that under clause 13 of the standard form Norwegian Sale Form 1993, where a buyer fails to pay the deposit under a memorandum of agreement, an innocent seller's claim is limited to compensation for its losses. In this case, the Court concluded that a seller is in fact entitled to claim the deposit in such circumstances.

The background facts

Griffon Shipping LLC, as Sellers, entered into a memorandum of agreement ("MOA") with Firodi Shipping Ltd, as Buyers, for the purchase of the MV Griffon. The MOA was on a standard Norwegian Sale Form 1993 ("NSF 93"). Pursuant to clause 2 of the MOA, a deposit of 10%, (US$2,156,000) was due to be paid within three banking days of signature of the MOA. The MOA was signed but the deposit was not paid within the three banking days. On the following day, the Sellers accepted the Buyers' conduct as a repudiation of the MOA and/or cancelled the MOA.

Clause 13 of the NSF 1993 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."

The damages recoverable by the Sellers, being the difference between the contract and market price of the vessel, were said to be US$275,000, substantially less than the deposit of over US$2 million which had not been paid.

Arbitration proceedings were commenced and the Tribunal was asked to consider as a preliminary issue whether the Sellers could recover the deposit or whether they could only claim damages in the lesser sum. The Sellers argued that the right to payment of a deposit had accrued before the MOA was terminated and accordingly, the Sellers were entitled to claim the deposit either as a debt or as damages for breach of contract. The Buyers argued that in the event of non-payment of the deposit...