Stocznia Gdanska SA v. Latvian Shipping Co and Others

LORD GOFF OF CHIEVELEY

My Lords,

    This appeal arises out of proceedings relating to six shipbuilding contracts dated 11 September 1992, each for the construction of a single refrigerated vessel (commonly known as a reefer vessel). The appellants, Stocznia Gdanska S.A., who are the plaintiffs in the proceedings, are Polish shipbuilders who contracted to build the ships for Latreefers Inc., a Liberian company which is a wholly owned subsidiary of Latvian Shipping Co. In substance, therefore, the dispute is between Polish shipbuilders and Latvian buyers. There were in fact five defendants in all in the proceedings, Latvian Shipping Co. being the first defendants, and Latreefers Inc. being the second defendants; but Latreefers Inc., as parties to the shipbuilding contracts, are the sole respondents to the present appeal. I shall for convenience refer to the appellants as "the yard" and to the respondents as "the buyers."

The shipbuilding contracts

    Under each of the contracts, the yard undertook (see clause 2.01) to "design, build, complete and deliver" the vessel, property in the vessel not passing to the buyers until delivery (see clause 11.01). The price (see article 4) was U.S.$27,639,000 each for vessels 1 to 3; originally the price for each of vessels 4 to 6 was U.S.$28,839,000, but this was later increased to U.S.$29,119,000. Article 5 is entitled "terms of payment." Provision was made in clause 5.02 for the price to be paid in four instalments. Broadly speaking these were as follows: (a) five per cent. within seven banking days after receipt by the buyers of a bank guarantee to be furnished by the yard; (b) 20 per cent. within five banking days after the yard had given notice to the buyers of keel laying (defined in the clause as meaning that "the first and second sections of the vessel's hull have been joined on the berth where the vessel is being constructed"); (c) 25 per cent. within five banking days after the yard had given notice to the buyers of the successful launching of the vessel; and (d) the balance of 50 per cent. upon delivery of the vessel. Clause 5.05, which lies at the heart of the present case, provided for the rights of the parties following default by the buyers in the payment of any amount due under instalments (b), (c) or (d). Article 6 made provision for supervision by the buyers during the period of building. By clause 12.01, the contracts were to be governed by English law.

    I shall now set out the text of clause 5.05 in full. I have, like the Court of Appeal, numbered the four paragraphs of the clause, in which the yard…