What 'Delay' Counts Towards Cancellation?

With tumbling oil prices and projects being mothballed or cancelled, knock-on effects are to be expected. Offshore contractors with vessels or rigs under construction in yards are less likely to be tolerant of construction delays than they would otherwise be, and may consider cancellation. The recent Commercial Court decision in Zhoushan Jinhaiwan Shipyard Co Ltd v Golden Exquisite Inc & Others [2014] EWHC 4050 provides a timely look at cancellation rights in the context of delay.

Facts

In Zhoushan, the buyer had purported to exercise its right to cancel under a series of materially identical shipbuilding contracts, on account of periods of accumulated delay in delivery. Article VIII.3 of the contract permitted the buyer to cancel if the total accumulated delay exceeded a certain number of days, but certain categories of delay could not be included in the calculation. One of the excluded categories was for delays "....due to default in performance by the buyer". The court recognised that, in each case, the cancellation of the contract by the buyer followed a similar pattern:

The delivery of the vessel was delayed beyond the "delivery date" (as defined in Article VII of the contract) The buyer gave notice of cancellation of the contract on a date which was more than 270 days after the delivery date (being the relevant period of accumulated delay giving rise to a right to cancel under Article III of the contract) Before such notice of cancellation was given, the yard had not given notice to the buyer of any delay which the yard claimed had been caused by a breach of contract by the buyer (or any other cause for which the yard was not responsible) After notice of cancellation had been given, however, the yard did make such a claim and alleged that breaches of contract by the buyer had resulted in delays in the construction of the vessel totalling, variously, not less than 90 days or 100 days depending on the case The yard argued that the cancellation was wrongful because part of the delay was, on its case, caused by the buyer's own breach of the contract, namely that during construction, the buyer had breached its obligations relating to the inspection of the ship by the buyer's supervisor (under Article IV). Essentially, the yard complained that the supervisor worked too slowly and sought to impose unreasonable requirements on the build.

If the cancellations were lawful, the buyer would be entitled, under Article X, to a refund of all...