The Griffon flies to the Supreme Court: long-standing decision on the Norwegian Saleform to be reviewed

In a dispute regarding the recovery of unpaid deposits under clause 13 of the Norwegian Saleform 2012, the Buyers have been granted a ‘leapfrog’ appeal to the Supreme Court on the question of whether the long-standing Court of Appeal judgment in The Griffon was correctly decided.
  

Background

Oktan Energy & V/L Service SP. Z.O.O (the “Buyers”) entered into contracts based on the often-used Norwegian Saleform (“NSF”) 2012 with Maersk Tankers Singapore Pte Ltd (the “Sellers”) for the sale of two vessels (the “MOAs”). The Buyers did not pay the deposits into the specified account by the contractual deadline. The Sellers cancelled the MOAs, relying on clause 13 which entitled them to terminate the MOAs and ‘claim compensation for their losses and for all expenses incurred together with interest’.

The Sellers commenced arbitration, and were awarded the full value of the unpaid deposits irrespective of their actual loss. The Tribunal relied on the longstanding Court of Appeal decision in Firodi Shipping Ltd v Griffon Shipping LLC [2013] EWCA Civ 1567 (“The Griffon”), in which it was held that the NSF 1993 (which contained the same clause 13 as the 2012 edition) allowed a seller to recover an unpaid deposit irrespective of the actual loss suffered by reason of the termination of the sale contract.

The Buyers appealed to the High Court under section 69 of the Arbitration Act 1996. The question of law to be determined was: "On the termination of the relevant sale contract due to Buyers' repudiation and/or its cancellation pursuant to Clause 13, can Sellers recover the deposit irrespective of their actual losses?" The appeal was dismissed because The Griffon was binding on the High Court.

The Buyers also applied to the High Court under section 12 of the Administration of Justice Act 1969 for permission to make a ‘leapfrog’ appeal directly to the Supreme Court on the question of the whether The Griffon was correctly decided. Permission was granted, and the hearing has been listed for April 2027.
  

The Griffon: a closer look

The parties entered into an MOA based on the NSF 1993. The buyers failed to pay the deposit, and the sellers terminated the MOA. Clause 13 stated:

“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.”

Following an arbitral award in the buyers’ favour but a High Court judgment against them, the buyers ultimately appealed to the Court of Appeal.

The sellers argued that their right to payment of the deposit had accrued before the termination of the MOA, and that they were therefore entitled to a sum equal to the deposit, either as debt or damages.

The buyers argued that clause 2 of the NSF 1993 (which contained the obligation to pay the deposit) did not expressly provide that the deposit would be forfeit if the buyers failed to pay it. Clause 13 then dealt with the circumstances in which the deposit would be forfeit, and it consisted of two limbs: (1) where the deposit is ‘not paid in accordance with clause 2’; and (2) where the purchase price is not paid. The buyers argued that this structure demonstrated an intention that, where the MOA is terminated prior to payment of the deposit, the sellers are to be compensated by loss of bargain damages (i.e. the difference between the contract price and the market value), which were calculated as being only around 10% of the value of the deposit. The sellers could not say that they had “unconditionally acquired” the right to receive the deposit.

The Court of Appeal dismissed the buyers’ appeal, holding that Clause 13 provided a “valuable contractual remedy” that was in addition to the sellers’ rights at common law, and had no bearing on the proper characterisation of the parties’ rights and obligations in the period between execution of the MOA and the deadline for paying the deposit. The sellers’ right to cancel under limb 1 of Clause 13 was not dependent on the sellers proving that the buyers’ failure to pay the deposit on time was repudiatory in nature, and the sellers could choose to terminate at common law instead of relying on Clause 13 if they so chose.

Under Clause 2, the deposit is the “security for the correct fulfilment of the MOA”, and the sellers’ right to the deposit accrued three days after execution of the MOA, which right survived the termination of the MOA. The first limb of Clause 13 could have no effect on the proper construction of Clause 2, and was not intended to exclude the sellers’ right to recover the deposit. In any event, the word “compensation” in Clause 13 included compensation for the buyers’ failure to pay the deposit which would be at least the amount of the deposit itself.
  

Comment

The Griffon has attracted both support and doubt over the years since the judgment was handed down. Most recently, it was discussed in the judgments of the High Court ([2023] EWHC 3220 (Comm)) and the Court of Appeal ([2024] EWCA Civ 719) in King Crude Carriers SA v Ridgebury November and Ors. In that case, the buyers failed to provide the required KYC documents for the first two MOA contracts, and the signed escrow agreement for the third contract, with the result that the escrow account which was to receive the deposits could not be opened. The buyers therefore could not and did not pay the deposits, and the sellers terminated the MOAs. The case centred on the issue of whether the doctrine of ‘deemed fulfilment’ of conditions precedent, which is a principle of Scottish law, also had force under English law.

The Griffon was cited with approval in the Court of Appeal judgment, which overturned the judgment below, as authority on the nature of a deposit and what the position would have been if the buyers had fulfilled the condition precedent. The buyers reserved the right to argue that The Griffon was incorrectly decided, but that submission formed part of an alternative case which it was not necessary for the Supreme Court to rule on.

Lord Justice Tomlinson, who gave the leading judgment in The Griffon, said that he was aware that his judgment departed from the views expressed by two key practitioners’ texts, Sale of Ships (2nd edition) and Ship Sale and Purchase (6th edition), as well as the Singapore Court of Appeal in Zalco Marine Services v Humboldt Shipping [1998] 2 SLR 536, but he considered that those authorities had not “in [his] respectful view…sufficiently grappled with the point that clear language would be required to divest the Sellers of a right accrued before termination”. It appears that we shall shortly see whether the Supreme Court agrees – or not.