Shipbuilding and Rig Construction contracts - Delay in Delivery
- Date: 05/05/1998
- Source: Clifford Chance
1. THE PROVISIONS OF THE CONTRACT - AN OVERVIEW
Contracts for the construction of ships or rigs will almost invariably provide that the new building is to be delivered by a certain date. The contract will, again almost invariably, provide for the circumstances in which that delivery date is to be extended. There are typically two situations in which this can happen. Firstly, where the terms of the contract (particularly those relating to the technical aspects of the construction) are modified or varied, normally at the instigation of the buyer; and secondly, where an event of force majeure affects the performance of the builder's obligations.
If the vessel is not ready for delivery on the relevant date (as extended, if appropriate), the contract will need to spell out the legal consequences for the parties. Often the first consequence will be that the builder comes under an obligation to pay liquidated damages at a fixed daily rate (although many contracts may give him a grace period of, say, 30 days before such a provision will bite). This daily rate may escalate as the delay increases. Typically, liquidated damages will be payable for a fixed period of up to 180 days and if the vessel is still not ready for delivery at the end of that period, the buyer will be given a right of cancellation. In addition to this, however, the buyer may be given an independent right of cancellation after a given period (often 360 days) calculated from the original delivery date, even if the delivery period has been extended.
Where delay occurs, therefore, the first step will be to analyse the terms of the contract which govern these matters, so as to understand the relevant legal regime to be applied. Even then, owever, the application of that regime to the facts of the case will often be extremely complex, and much may depend on the nature of the obligations undertaken by the builder, and the overall structure of the contract. For example, if the contract is on an EPIC or turnkey basis, the builder's obligations are likely to be extremely wide-ranging (to design, procure, construct, instal, complete and deliver). By contrast, the duties of the buyer will be relatively limited - primarily to pay the purchase price (although he may of course have wide ranging rights or powers, for example, to review and comment on drawings, attend inspections and to be consulted on such matters as the builder's choice of vendors and builder generated drawings). In a contract of this type, lack of input from the buyer should not generally hold up the builder's progress and it may therefore be difficult for a builder to allege that the buyer's conduct has caused delay to the construction schedule, unless he has actively intervened. At the other extreme are contracts where the builder's obligations are limited to construction work only. Here, the builder's obligations may be dependent upon information such as engineering drawings or equipment specifications being received from the buyer and, in those circumstances, it may be much easier for the builder to argue that the delay is not his responsibility.
2. EXTENSIONS TO THE DELIVERY DATE
If the builder fails to deliver the vessel on or before the original delivery date this will, on the face of it, be a breach of contract. The builder's first line of defence will, however, be to argue that the delays which have occurred are "permissible" delays, the effect of which are to extend the original contractual delivery date. Since clauses dealing with permissible delay are, in effect, exclusion clauses, any ambiguity will usually be resolved against the party relying on them i.e. the builder. As stated above, the most usual events which may have the effect of extending the delivery period are where the scope of work is modified; or where force majeure events occur.
Generally speaking, construction contracts make provision for "modifications" to the original scope of work which the buyers may be entitled to request or require (albeit with consequences as to timing and costs). These are to be distinguished from fundamental changes to the work which may have to be agreed separately and as an independent addition to the original contract.
(i) The structure of a "modifications" clause
The purpose of a modifications clause is to allow the original terms of the contract to be changed (normally in relation to the technical content of the work) either by agreement, or at the buyer's sole option. There are of course a number of reasons why a change may be required. The buyer may simply have changed his mind as to what he wants e.g. a preference for one type of system over another. There may have been technological improvements since the date of the contract which can now be incorporated into the design. Finally, and most importantly, there may have been changes in the requirements of the Classification Societies, the governmental authorities or international conventions to which the project is subject, which necessitate a change in design. The contract may deal with these different situations in different ways.
In the case of changes which are requested by the buyer, a typical structure might be that the modifications will only be carried out if all of the consequences (both as to delay and cost) are agreed. This is clearly most favourable to the builder, since it means that he is not obliged to carry out the additional work unless there is agreement on these issues. Some contracts do however provide (i) that the builder is obliged to comply with the buyer's request; (ii) he must set out his views as to the price and delay consequences of doing the work; (iii) if no agreement is reached as to what the consequences of the change are, the builder will still be obliged to do the work but will have to prove (by arbitration as a last resort) the additional cost and delay caused as a result.
The position where the modifications are necessitated by a change in the applicable rules and regulations may be more complex. Generally speaking, there will usually be a provision in the contract that each party must notify the other as soon as it becomes aware of such a change. The builder's obligation to carry out the additional work requested can then be triggered in a number of ways. The buyers may have to request the modification under a procedure similar to the above; or the builder may come under an automatic obligation to carry out the relevant changes regardless of whether a request is made. Again, the clause may have to spell out the consequences for delay and cost. One of the reasons why "compulsory" changes may have to be dealt with differently is that they may impact on other terms of the contract. The builder's obligation to design and build a ship or rig will normally include an obligation to comply with the rules and regulations in force at the time of the contract signing; but the builder may also be under an obligation to deliver the vessel with certain certificates in order. Where there have been changes in the rules or regulations which were in force at the time of the contract which have not been incorporated into the construction process, the builder may be in difficulty in complying with the second of these obligations.
(ii) What constitutes a modification?
Whether or not a particular change constitutes a modification for the purpose of the modification clause is probably the single most frequent cause of dispute under a construction contract. Resolution of such a dispute may involve defining the original scope of work; analysing the consequences on the original schedule of what may appear to be, in themselves, relatively minor changes; and assessing the impact of a change in rules or regulations on the original scope of work (particularly where the change is one of interpretation only). The answer to this question can however be of crucial importance. Firstly, if the change requested falls outside the scope of the "modification" clause, the builder may be entitled to treat it as a request for a new contract so that he can decide whether, and if so on what terms, he is prepared to comply. Secondly, and following on from this, there may be issues as to whether the original contract terms apply to the new work. Thirdly, if the modification clause does apply there may be detailed provisions as to the pricing formula and the effect of the work on the original delivery date.
It is well established that a request for additional work will not qualify as a variation if carrying out the variation would result in it being impossible to trace the original work contracted for, or if the work is of a kind totally different from that originally contemplated. In Blue Circle Industries Plc -v- Holland Dredging Company (UK) Ltd (1987) 37 BLR 40, Holland agreed to execute certain dredging works in Lough Larne, Eire. At the same time, discussions were taking place concerning the use of the dredged material to form an island to be used as a bird sanctuary, and Holland subsequently agreed to carry out this work as well. An issue arose as to whether the agreement to construct the island was part of the original contract (as being a contractual variation of it) or an entirely separate agreement. The Court of Appeal held that the creation of an artificial island was wholly outside the scope of the original dredging contract.
This principle is clearly correct as far as the fundamental obligations under the contract are concerned. For example, the builder of an oil tanker should not be obliged to comply with a variation order to build a cruise ferry instead. But in many cases, the distinction is far less easy to draw and there is significant room for different opinions. Indeed in Blue Circle -v- Holland the Court of Appeal reversed the decision of the High Court on this point.
Where the nature of the contract as a whole is not undermined, however, it will be a question of construction of the modification clause itself as to whether a particular request for change falls within its scope or not. In McAlpine Humberoak Ltd -v- McDermott International Inc  CILL 747, McAlpine agreed to fabricate four pallets for McDermott for the weather deck of the Hutton TLP, at a contract price of £890,330. The contract contained a clause which dealt with how changes to the contract which were initiated by McDermott were to be dealt with, and set out a formula for calculating the compensation to which McAlpine would be entitled if none could be agreed. There was significant delay in delivery of the pallets and in the event only two were actually delivered. McAlpine put forward a claim for over £3.5 million as being either sums due under the contract, or damages for breach. They contended that drawing revisions, variations and late responses to technical queries by McDermott had destroyed the substratum of the contract.
The Judge held that the contract had been frustrated, mainly because of the number and the scope of the variations ordered and the issue of numerous revised drawings. He therefore awarded McAlpine a quantum merit. The Court of Appeal however concluded that the contract had not been frustrated. It held that there was machinery in the contract for dealing with adjustments to the price where a change to the scope of work was required. Indeed, the contract expressly provided that the receipt of drawings constituted "change instructions" for the purpose of the variations clause. It could not therefore be said that that contractual machinery had been displaced and the doctrine of frustration could not apply. This was on its face, a fairly extreme case. The original contract was based on 22 `Approved for Construction Drawings' ("AFC"), on the basis of which the McAlpine had tendered. McAlpine's case was that the main cause of delay was the issue of many revised AFC drawings after the contract had been placed. There were 22 new issues (with 45 drawings in the first issue alone). In addition, it was said that McDermott had failed to answer technical queries promptly and had also issued 83 variation orders in all. Part of McDermott's case was that this was all quite normal in the North Sea oil construction industry. The Court of Appeal concluded that, despite the extent of the changes, the contract remained a contract for the construction of the pallets, and the contractual mechanism for dealing with modifications had to apply to these matters.
The case also contains some instructive observations as to how delay claims should be analysed. The Court of Appeal found that, on the evidence, McAlpine did not come near to proving that the delay in delivery was due to the causes which they had alleged, nor could they justify the costs which they claimed. McDermott, by a close analysis, traced the impact of every drawing revision so as to show that the revisions to the AFC drawings had had no real knock-on effect on progress. The Judge had dismissed this approach as:-
"a retrospective and dissectional reconstruction by expert evidence of events almost day to day, drawing by drawing, TQ by TQ and weld procedure by weld procedure, designed to show that the spate of additional drawings which descended on McAlpine virtually from the start of the work really had little retarding or disruptive effect on its progress."
The view of the Court of Appeal, however, was that this was just what the case required. Thus, it is clear that the burden must be on the party alleging delay to establish that a given period of delay was caused by the event on which he relies. It is not enough to say, for example, that a delay in finalising AFC drawings caused a delay in delivery if, say, shop drawings (usually the next stage after AFC drawings) were issued in accordance with the original schedule. Furthermore, it would not be enough to prove that a change order for, say, a different type of watertight door had led to a delay in the installation of those doors - it must be shown that the delivery date itself was affected by this particular cause.
(b) Force Majeure
Generally speaking, English law does not recognise the concept of "force majeure" as giving rise to a defence to the performance of a contract. The contract may of course be "frustrated" by events which, through no fault of the parties, render performance either impossible or radically different from the thing contracted for. That, however, is a quite different principle which is beyond the scope of the present article! In order to rely on "force majeure" therefore, there must be a force majeure clause in the contract, and the scope and effect of a force majeure event will depend upon what that clause says.
In Lebeaupin -v- Crispin  2 KB 714 Mr. Justice McArdie said:-
"This phrase "force majeure" has been introduced into many English commercial contracts within recent years. It is employed not only with increasing frequency, but without any attempt to define its meaning or any effort to co-ordinate the phrase to the other provisions of documents ..."
For better or worse, this comment is no longer entirely true. Force majeure provisions have tended to become more and more lengthy, complex and elaborate. A typical clause will now provide that, if the construction or delivery of the vessel, or performance of the contract, is delayed by certain specific events (which may be as many as 30 in number), the delivery date is to be extended for a period of time not exceeding the total accumulated time of delay due to the event in question. There is also often a sweeping up provision to the effect that "any other cause of delay beyond the reasonable control of the builder" shall count as force majeure.
The most recent exposition of the principles which apply in construing this type of clause can be found in Channel Island Ferries Ltd -v- Sealink (UK) Ltd.  1 Lloyd's Rep. 323, in the Court of Appeal. The parties had each operated ferry services between the United Kingdom mainland and the Channel Islands. They subsequently entered into a joint venture agreement so as to replace the two separate operations with one combined service, in which the parties would have an equal interest. The new company was to be named British Channel Island Ferries (BCIF). Each of the parties to the joint venture was to make available to BCIF certain vessels on bareboat terms, to enable BCIF to crew the vessels offshore. The agreement also provided that, if it was beyond the control of Sealink to make available either of their specified vessels on bareboat charter, they could make available substitute vessels. Following signing of the agreement, industrial action was taken by the crews of Sealink's nominated vessels. It was a term of the settlement of the strike that Sealink would not operate bareboat charters and offshore service conditions. Channel Island Ferries ("CIF") rejected Sealink's proposals to offer the nominated vessels or substitutes to BCIF on time charter terms. The main issue for present purposes was whether Sealink were protected by a force majeure clause which excluded each party from liability in the event of non-fulfilment of any obligation arising under the contract by reason of, inter alia, strikes and any accident or incident of any nature beyond the control of the relevant party.
Sealink's case was that the strike prevented compliance with the joint venture agreement; that the strike led inevitably to the agreement with the unions which thereafter prevented compliance, or alternatively, that that agreement was an incident beyond the control of Sealink. Sealink's arguments failed at first instance before Mr Justice Hirst, whose decision was upheld in the Court of appeal. Lord Justice Parker set out the following principles:-
(i) It is for the party relying on a force majeure clause to bring himself squarely within that clause;
(ii) In most cases that can only be done by showing either legal or physical impossibility;
(iii) Strikes may collapse suddenly, however adamantly one side may be asserting that it will not give way;
(iv) A party must not only bring himself within the clause, but must show that he has taken all reasonable steps to avoid its operation, or mitigate its results;
(v) Sealink's attitude had been throughout (and remained during the course of the trial), that they were not obliged to supply substitutes on bareboat charter, but were entitled to tender substitutes on time charter;
(vi) If that were not so, they were contending that the joint venture agreement was void for mistake; and
(vii) There was in fact no evidence that they had made any effort to provide alternatives on bareboat charter.
As there was no evidence of any attempt whatever by Sealink to search for or tender vessels on bareboat charter, he concluded that Sealink's argument must inevitably fail. In order to succeed, they would have had to show that, if they had found alternative vessels and tendered them on bareboat charter, they would have been unable in effect to do so (presumably on the basis that union action would have meant that the tender could not have been put into effect).
This approach is equally applicable to a force majeure clause in a building contract, and there is no doubt that it imposes an extremely high burden on a builder attempting to establish that a force majeure event has caused delay. The case appears to go significantly further than simply identifying the proximate cause of the delay -it must in addition be shown that there were no reasonable steps which could have been taken by the builder to avoid or mitigate the impact of the force majeure event. It is therefore not possible to take a simple "shopping list" approach to the construction of a force majeure provision, and to identify whether an event which has caused delay appears in the list. The investigation must go much further and ask the question whether the event, or the consequences of it, were capable of being avoided; i.e. what steps were taken and what steps should have been taken.
Having looked at the two situations in which an extension may be obtained, it is necessary to look at a number of factors which may apply to the operation of extension provisions generally.
Firstly, as has been seen from the McAlpine case, before even considering the contractual provisions relating to extensions to the delivery period, complex factual investigations may need to be undertaken to ascertain the precise cause of the delay itself. This can often be a difficult task, particularly where a large number of concurrent activities are taking place on site all of which impact on each other, and all of which require different degrees of input from the builder, the buyer and their respective agents and sub-contractors. Project management analysis techniques may be brought into play to identify the critical path of the project, in order to establish the operative cause of any particular delay.
Secondly, even if part of the delay is caused by matters which fall within the extension clause, what happens if this occurs after the original delivery date has passed. The buyer will argue that the builder should not be entitled to claim a further extension in respect of events which have occurred after the original delivery date, by analogy to the charterparty concept of "once on demurrage, always on demurrage"; that is to say, once the builder is in breach of his contractual obligations to deliver on time, he should not be permitted to rely on contractual exceptions which would not have affected his performance at all if he had finished when he was supposed to have done. The extent to which this concept applies to building contracts is open to doubt, and will in the end be a matter of construction of the particular words used. To the extent that it is possible to generalise at all, a court would probably be inclined to the view that where, for example, a force majeure event occured after the original date but still within the contractual period as extended by earlier "permissible" delays, then the builder will be protected. However, were the same force majeure event to occur at a time when the builder was already in breach of contract, the court would be less likely to hold that he was entitled to a further extension, unless there were clear words to this effect.
Finally, any clause relating to extensions to the delivery period will almost always require detailed notices to be given in order to invoke its provisions. For example, a force majeure clause will normally provide that the builder must notify the buyer within a specified time after the date of such an occurrence of any delay on which he intends to rely as force majeure. Modification provisions also normally set out a detailed timetable for responses and agreement following a request by the buyers for a modification to be made. Again, although this is a matter of construction of the words used, time limits should generally be strictly adhered to and, if they are not, the right to claim an extension to the delivery date will often be lost.
If the builder fails to deliver on or before the original delivery date, or any extension to it ascertained in accordance with the above rules, he will be in breach, and the contract may provide for specific remedies such as liquidated damages or cancellation. It there is no provision for liquidated damages, damages will be recoverable in accordance with the usual principles of law relating to causation, remoteness and foreseeability. Plainly, the builder may seek to argue, in return, that the buyer is himself responsible for the delay so that, even if this has not extended the delivery period, it should still affect the buyers' right to damages. While these issues will generally have to be assessed in accordance with the general principles of law applicable to all contractual claims, there are certain remedies which may be specifically provided for in a building contract which merit special mention.
(a) Liquidated Damages
The typical structure of a liquidated damages provision is that it will only operate where delivery in fact takes place, and the buyer's entitlement to liquidated damages will be operated by way of a deduction from the purchase price. The liquidated damages provision will, in addition, only bite when permissible delays (i.e. those extending the delivery period) have been exhausted, plus, normally a 30-day grace period. There will then be a cap on the period of time for which liquidated damages can run - typically 180 days from expiry of the 30-day grace period. At that point there is usually a right of cancellation. It is of course also well established that a liquidated damages provision will only be upheld by the courts if it is not a penalty provision; thus, it must be a genuine pre-estimate of loss arising from the breach.
Difficulties arise in applying a liquidated damages provision where the buyer is himself in whole or in part responsible for the delay. It is now a well established rule of construction that, where the buyer has contributed to the delay, then (unless the contract provides expressly or by implication for an extension of the delivery date) the liquidated damages clause will not operate at all and damages at large must be claimed (if of course they are otherwise recoverable and can be proved). This is the case even if it is possible to quantify which part of the delay has been caused by which party. Furthermore, the rule is probably applicable even if the buyers' conduct in causing the delay did not itself amount to a breach of contract (for example, where extra work is ordered which makes it impossible for the contract to be performed in the stipulated time). In the CAPE HATTERAS  1 Lloyd's Rep. 518, Mr Justice Staughton described this principle as being one which "though at first sight somewhat implausible, is soundly based in law".
The rationale appears to be that liquidated damages begin to accrue as soon as the original delivery date passes. If, however, the buyers' conduct has prevented delivery by that date, the builder's obligation to deliver by that date also ceases to apply. In the circumstances, there is no point from which the liquidated damages can run so that the entire liquidated damages regime becomes inapplicable. However, the builder may still be in breach in respect of the delay for which he is himself responsible and damages at large can therefore be claimed for that part of the delay, if that is not otherwise inconsistent with the contract.
The starting point for this proposition is the 19th Century case of Holme -v- Guppy (1838) 3 M and W 387. Builders had agreed to do certain work in connection with the construction of a brewery within the space of 4
This principle was applied by the Court of Appeal in Dodd -v- Churton  1 QB 562. The question was whether the building owner in that case could recover from the builder liquidated damages for breach of a contract to complete certain works within a stipulated time. The owner had (as it appears he was entitled to do under the contract) ordered extra work beyond the original work described in the specification, which had the result that the project took more time. Lord Esher MR relied on the principle set out in Holme -v- Guppy that, where one party to the contract is prevented from performing by the act of the other, then he was not liable in law for that default. If the building owner, by giving orders for extra work, had rendered it impossible to complete the work by the specified date, he had deprived himself of the right to claim liquidated damages.
This has been applied in a modern context in the CAPE HATTERAS, referred to earlier. In that case, a vessel was put into a shipyard in Las Palmas for repair work. The vessel owner failed to pay for the repairs and the yard made a claim. The owners then counterclaimed liquidated damages for the Yard's delay in completion of the work. It appears that at one stage while the vessel was in the Yard, the Yard had attempted to send the crankshaft to a yard at Barcelona for repair, but the owners complained that this had happened without their approval and required the crankshaft to be brought back. This was done. The crankshaft was nevertheless subsequently taken to Barcelona and in fact repaired there. It was held that the conduct of the owners in requiring the crankshaft to be returned without repair had delayed the overall progress of the repairs covered by the contract. Mr Justice Staughton held that the principle established by the authorities, that no liquidated damages for delay can be claimed if completion was in part delayed by the conduct of the employer, applied.
"If completion by the specified date is prevented by the fault of the employer, he can recover no liquidated damages unless there is a clause providing for an extension of time in the event of delay caused by him. The contractor has been prevented by the employer from doing that which he (the contractor) had undertaken to do; and the courts will not make another and different contract for the parties, providing for an extension of time, if the parties have not chosen to do so for themselves".
Dodd -v- Churton was considered and approved by the House of Lords in Trollope and Colls Ltd -v- North West Metropolitan Regional Hospital Board  1 WLR 601; and both Holme -v- Guppy and the CAPE HATTERAS were referred to by the Court of Appeal in McAlpine -v- McDermott with no suggestion that they do not represent the modern law.
(b) Rights of cancellation
The buyer will often have two contractual rights of cancellation, (usually referred to as "rescission" although cancellation is a more accurate description). The first may be exercisable after delivery has been delayed for say 180 days beyond the delivery period, as extended by taking into account the permissible delays/extensions. As has been seen, this right often forms an integral part of the liquidated damages provisions described above. The second (which is less common than the first) will be exercisable on the expiry of a given period after the original delivery date, irrespective of whether any of the delay was permissible or not. This latter provision is therefore designed to constitute a fall back provision so that, after a certain time, the buyer may cancel even if the builder is not responsible for the delay. In addition, of course, the buyer may be entitled to terminate the contract on the grounds of repudiatory breach where the builder has been guilty (in breach of contract) of prolonged delays which go to the root of the contract. Where it is permissible to do so, the buyer may prefer to rely on repudiatory breach rather than simply exercising a right of cancellation since, where the buyer simply cancels, he may be unable to claim damages for delay; but where he terminates by reason of a repudiation, he may also be entitled to claim damages in respect of his losses. The precise relationship between these two remedies may, however, give rise to difficulty. The builder may argue that, where delay has accrued for reasons specified in a cancellation clause, the remedy is contained in that clause and excludes the right to terminate for repudiatory breach altogether (unless perhaps his conduct goes further, and evinces an intention not to be bound by the contract at all).
Difficulty will also arise when the buyer seeks to exercise rights of cancellation, but where he has himself contributed to the delay. In these circumstances, it might be said that, if he cancels, he is benefiting from his own wrongful conduct which, in accordance with well settled principles, he may not be entitled to do so. For example, in Roberts -v- Bury Commissioners (1870) LR 5 CP 310, a builder contracted to build certain works for a client. The client had power to suspend the progress of the work, or to add to the work originally contemplated. The client delayed in providing original plans to the builder, and subsequently made considerable additions. The client subsequently terminated the contract on the grounds that the builder was not making sufficient progress, and the builder sued. The builder's argument that his failure to make progress was caused by the delays and defaults of the client succeeded. It was held that the plaintiffs' failure to perform was excused since it had been caused by the defendants' breach of contract. In such a case, the question therefore arises: does the Dodd -v- Churton principle (discussed above in relation to liquidated damages) have any application here, so as to exclude the buyer's rights of cancellation altogether? There are no reported cases which expressly deal with the issue, but it is submitted that a court would be unlikely to hold that the buyer's right of cancellation would be lost completely. If, for example, the buyer has given credit for the delays which he has himself caused, and he has therefore made due allowance for those delays by postponing the exercise of his right of cancellation accordingly, it is at least arguable that he would not then be taking advantage of any delay occasioned by his own breach. Again, at the end of the day, this will depend on the wording and structure of the cancellation clause in question.
Where the question of exercising a right of cancellation is in issue, a number of practical issues must also be addressed by both parties. Firstly, who is entitled to exercise the right of cancellation? It is common as part of the buyer's financing package for the building contract, or specific rights under it, to be assigned to the financing bank. When any right of cancellation is exercised in these circumstances, consideration should be given as to whether it should be exercised by the buyer, or the bank, both of them together, or one of them with the authority of the other.
Secondly, building contracts often contain a provision which permits the builder to call on the buyer to elect whether a right of cancellation will be exercised or not. If not, provision will then be made for the parties to agree a revised delivery date. Such a clause has the benefit of giving the builder some certainty, but the service by the builder of a notice under that provision will usually involve acceptance of the fact that a right of cancellation has arisen and the builder may of course be reluctant to take this step.
Thirdly, the time at which a right of cancellation falls to be exercised clearly requires careful consideration. It involves an assessment by the buyer of the length of any permissible delays to which the builder may be entitled as a consequence of modification works or force majeure events; and also an assessment of any periods of delay for which the buyer himself might bear responsibility. If he cancels too early, then he may himself be in repudiatory breach. However, it is possible that a wrongful cancellation may not amount to a repudiation if it can properly be regarded as an action taken in reliance on the contract, and not as a refusal to be bound by it. For example, a cancellation coupled with a statement that the buyer is ready and willing to perform if the cancellation is unjustified, may not amount to a repudiatory breach (see Woodar Investment Development Ltd -v- Wimpey Construction UK Ltd  1 All ER 571). Precisely how far this doctrine can be relied upon is very unclear, particularly when the practical result of exercising the right is to bring the contract (or at least work under it) to a halt for the foreseeable future.
Finally, most shipbuilding contracts provide that on any cancellation by the buyer, the builder is to refund all advance instalments already paid by the buyer. Most contracts also provide for the builder to put up a guarantee from a bank, guaranteeing the repayment of those instalments in these circumstances. However, the builder's and the bank's obligations to repay will usually not be triggered if the builder has commenced arbitration proceedings. In that case, the validity of the guarantee may be extended until a certain period (say 30 days) after the final award has been given in the arbitration, and the guarantee willl then be triggered by presentation of the award.
p months from the date of the contract. They were obliged to pay liquidated damages of £40 per week for each week of delay beyond 31 August, to be deducted from the price. The client was unable to give the builders possession of the property for four weeks after the date of the agreement. There then followed some delay which was the fault of the builder. The work was completed five weeks late. It was held that the client was not entitled to deduct any sum in respect of the delay pursuant to the liquidated damages clause. Baron Parke stated "there are clear authorities, that if the party be prevented, by the refusal of the other contracting party, from completing the contract within the time limited, he is not liable in law for the default". Thus it was clear that the builder was excused from performing the agreement contained in the original contract as a result of the clients' refusal to allow possession. Damages were therefore at large in respect of the period for which the builder was responsible.
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