Under pressure. Duress and non-contractual waiver.

In London Arbitration 33/22 a shipyard claimed in London arbitration for the balance under a final repair invoice and the shipowners claimed for breach of contract and delay in completion of the repairs.  A principal issue was whether the shipowners were entitled to make such claims due to the fact that their agent had signed a final agreed invoice in the sum of US$1,712,222 which contained the following waiver:

“Owners are accepting this invoice unconditionally and in full and final settlement of the repairs of [the vessel] in [the yard]. It is expressly stated that repairs carried out and completed to fill (sic) satisfaction of Owners/Representatives/Their and no (sic) any claim/losses can be raised. The warranty as per article 12 from the contract remains in full.”

Article 12 of the ship repair agreement provided that the yard “guarantees the quality of the performed repair works and of the materials and equipment used for the repairs, for a period of 3 (three) months counting as from the date of the completion of the repairs and re-delivery of the vessel” and went on to provide “In any event, the SHIPYARD’S liability for all and any guarantee repairs shall not exceed 10 % of the price of the repairs under this Agreement.” Article 13.4 provided “The yard shall in no case be held responsible for any indirect damages, incl. due to loss of charter or loss of earnings of the vessel.”

Owners paid the first instalment of the invoice and the vessel left the yard the following day, but did not pay the second and third instalments which came due one month and two months later.

At the hearing one of owners’ witnesses, one of the owners’ witnesses, the technical manager at the vessel’s managers, gave evidence that in final negotiations the yard had agreed to a 10 per cent discount but he was then presented with a settlement agreement which included the waiver in dispute. He was told that if he did not sign the vessel would not be permitted to sail and could be delayed for months and was given one hour to decided. He concluded that there was no alternative but to sign. The tribunal accepted his evidence. He had been given authority to agree the final invoice without a waiver, but the yard’s insistence on including a non-contractual waiver in the final invoice was unlawful, and therefore amounted to illegitimate pressure, as was the threat to refuse to allow the ship to sail by exercising a non-contractual lien with no common law basis. It was not realistic for the owners to have been expected to make an urgent application to the Commercial Court for an order to release the vessel, or commence arbitration proceeding for an expedited order.

Owners were therefore entitled to bring their counterclaims which mostly succeeded albeit at lower amounts. However, their claim that because of the delay of 62 days in completion of the repair works, they lost the opportunity to trade the vessel in a rising market was rejected. The parties did not intend to include loss of hire or loss of earnings as a consequential loss. The owners had included a penalty of US$12,000 per day in Article 12 which covered their direct losses because of delay. If loss of earnings was covered under clause 13.4, there would be no need to include a penalty for delay.

The yard was awarded the sum of US$852,222.22 (the balance under the final invoice) less US$396,449.21 on account of owners’ counterclaim, giving a sum due of US$455,773.01.

The yard claimed interest under Article 10 of the repair contract which provided for interest at 0.1 per cent per day, effectively 36.5 per cent per annum and owners argued that it should be struck out as penal.

Although the tribunal accepted that the general commercial practice was for interest rates to be at least 10 per cent above the national base rate, the rate of 0.1 per cent per day was excessive and should not be applied to any sum due to the yard.

Exercising its discretion under s.49 of the Arbitration Act 1996, section 49, the tribunal awarded interest at the rate of 4.5 per cent per annum compounded at three-monthly intervals upon the sum of US$455,773.01 due under the final invoice after deduction of owners’ counterclaims, from 30 days after the date of the final invoice until final payment.

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Professor Simon Baughen

Professor Simon Baughen was appointed as Professor of Shipping Law in September 2013 (previously Reader at the University of Bristol Law School). Simon Baughen studied law at Oxford and practised in maritime law for several years before joining academia. His research interests lie mainly in the field of shipping law, but also include the law of trusts and the environmental law implications of the activities of multinational corporations in the developing world. Simon's book on Shipping Law, has run to seven editions (soon to be eight) and is already well-known to academics and students alike as by far the most learned and approachable work on the subject. Furthermore, he is now the author of the very well-established practitioner's work Summerskill on Laytime. He has an extensive list of publications to his name, including International Trade and the Protection of the Environment, and Human Rights and Corporate Wrongs - Closing the Governance Gap. He has also written and taught extensively on commercial law, trusts and environmental law. Simon is a member of the Institute of International Shipping and Trade Law, a University Research Centre within the School of Law, and he currently teaches at Swansea on the LLM in:Carriage of Goods by Sea, Land and Air; Charterparties Law and Practice; International Corporate Governance.

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