Case Note: Griffon Shipping LLC v Firodi Shipping Ltd. [2013] EWHC 593

An important decision for the ship sale and purchase market has confirmed that buyers entering into a standard form Memorandum of Agreement (MOA) (on Norwegian Sale Form (NSF) 1993 terms and similar, e.g., the 2012 terms) do so in the knowledge that they may be liable for the amount of the (unpaid) deposit, if the MOA is then terminated as a result of the buyers' breach. Revision to the standard form MOA will be necessary in order to avoid such possible result.

On 21 March 2013, Mr Justice Teare handed down judgment in Griffon Shipping LLC v Firodi Shipping Ltd. [2013] EWHC 593, on the claimant Sellers' successful appeal (under section 69 of the Arbitration Act 1996) of an arbitration award dated 9 July 2012. Reed Smith acted for the Sellers. The Award sought to determine a preliminary issue, as follows:

"Is the effect of the contract and/or MOA [a standard NSF 1993 form] such that, by reason of the failure by Buyers to pay the deposit in accordance with Clause 2 of the MOA, Sellers, having been entitled to, and having terminated the Contract and/or MOA on 6 May 2010, may recover the amount of the deposit as a debt, or by way of damages."

Mr Justice Teare, in reaching his decision that, given the qualifying factual scenario, such a question could (and should) be answered in the affirmative, considered well-known texts on ship sale and purchase ("Sale of Ships," 2nd. ed., by Strong and Herring and "Ship Sale and Purchase," 6th. ed., by Goldrein, Hannaford and Turner), as well as authorities that have provided debate for the past three decades (see the Singapore Court of Appeal decision in The Anna Spiratou [1998] 2 SLR 536, which considered the NSF 1987, and the well-known earlier English Court of Appeal decision in The Blankenstein [1985] 1 WLR 435, which considered the effect of the NSF 1966).

In brief, the Sellers' case was that the right to payment of the 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 in accordance with Clause 2 of the MOA:

2. Deposit - As security of 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 [Bank] and held by them in a joint interest bearing account for the...