December 20, 2013

Sale & Purchase Under the Norwegian Saleform: Seller’s Right to Sue for Unpaid Deposit

The use of deposits is an ordinary incident of commercial life and shipping is no exception. Every buyer knows that, once he has entered into a contract which provides for a deposit and does not perform it, he will be liable to pay that deposit (or lose it if already paid).

The buyers in Griffon Shipping LLC v Firodi Shipping Limited [2013], however, sought to take advantage of a provision of the Norwegian Saleform 1993 (NSF93) in order to avoid the obligation to pay the deposit.

Background

The sellers agreed to sell the MV “GRIFFON” to the buyers for USD 22 million on NSF93 terms. The Memorandum of Agreement was signed on 1 May 2010, and the 10% deposit (of USD 2,156,000) was payable on 5 May 2010. The buyers failed to pay. The sellers therefore terminated the contract for repudiatory breach and sued the buyers for the deposit. The buyers argued that the sellers were not entitled to the deposit, but only to damages representing the loss of the value of the vessel in the intervening period which was said to be USD 275,000. That argument was made on the basis of NSF93 clause 13:

“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”

The buyers’ argument was that the first part of the clause referred to damages but not the deposit, whereas the second part of the clause referred to both. Accordingly, the sellers could retain the deposit if paid but, if the deposit was not paid, they would be limited to compensation for whatever loss they could prove.

Further information

If you would like further information on any issue raised in this update please contact Miranda Karal and Simon Jackson

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