Case No: 2014 FOLIO 785, 786, 787 and 850
Neutral Citation Number: [2014] EWHC 4050 (Comm)
IN THE HIGH COURT OF JUSTICE	 
QUEEN’S BENCH DIVISION 
COMMERCIAL COURT 
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 05/12/2014
Before :

MR JUSTICE LEGGATT
- - - - - - - - - - - - - - - - - - -
 
Between :

ZHOUSHAN JINHAIWAN SHIPYARD CO.LTD
Claimants 
- and -

GOLDEN EXQUISITE INC
GOLDEN EYE INC
DNB BANK ASA
Defendants

And :

ZHOUSHAN JINHAIWAN SHIPYARD CO.LTD
Claimants
- and -
 
GOLDEN EXTREME INC.
GOLDEN EFFORT INC.
Defendants
- - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - -

Michael Nolan (instructed by Wikborg Rein LLP) for the Claimants
Timothy Young QC (instructed by Winter Scott LLP) for the Defendants 

Hearing date: 24 November 2014
- - - - - - - - - - - - - - - - - - - - -
Judgment
Section	Para No.	
Introduction	1	
The contracts	2	
The disputes	6	
The arbitration awards	11	
The appeals	16	
Approach to interpretation	22	
The contractual scheme	27	
Buyer’s breach delays	36	
The right to cancel under Article VIII.3	40	
The presumption against the Buyer benefiting from its own breach	45	
Were the alleged delays ‘”permissible” delays?	57	
The effect of failure to give notice of delay	63	
Conclusion on cancellation	71	
Equitable set-off	72	
Conclusions	78	

Mr Justice Leggatt : 
Introduction
1.	These four appeals from arbitration awards raise questions of interpretation of the cancellation provisions in four materially identical shipbuilding contracts.  The vessels which are the subject of the contracts are known by their respective Yard Hull numbers: J0051, J0052, J0119 and J0120.  In each case the contract was made between Zhoushan Jinhaiwan Shipyard Co Ltd of the People’s Republic of China (“the Yard” or “the Builder”) and a buying company specially created for that purpose (“the Buyer”) which formed part of the Golden Ocean Group.  In each case the Buyer has purported to exercise a contractual right to cancel the contract on account of delay in delivering the vessel.  In each case the Yard has sought to argue that the cancellation was wrongful on the ground that a relevant part of the delay was caused by the Buyer’s own breach of the contract.  The central question raised by these appeals is whether the factual allegations made by the Yard as to the extent and cause of delay, if proved, provide an answer to the Buyers’ claims, or whether on the proper interpretation of the contracts the cancellations were lawful even on the facts alleged.
The contracts
2.	Article I of each contract contained a description of the vessel to be built.  Article II specified the contract price of the vessel and provided for the price to be paid by the Buyer in five instalments, with the final instalment due upon delivery of the vessel.  Article III provided for the contract price to be adjusted in various circumstances.  Relevantly for present purposes, Article III.1(b) required the contract price to be reduced by deducting US$7,000 from the final instalment for each day that the delivery of the vessel was delayed by more than 30 days but less than 210 days after the Delivery Date specified in Article VII.  Article III.1(c) gave the Buyer a right to cancel the contract if the delay in the delivery of the vessel continued for a period of at least 210 days.  This right was expressed in the following terms:
“If the delay in the delivery of the VESSEL continues for a period of two hundred and ten (210) days (being the total “non-permissible” delays and 30 days allowance) after the DELIVERY DATE as defined in Article VII, then in such event, the BUYER may, at its option, rescind or cancel this Contract in accordance with the provisions of Article X of this Contract.”
The phrase “Delivery Date” was defined in Article VII to mean the date stated in that clause or “such later date to which delivery is extended pursuant to the terms of this Contract”.
3.	A further right to cancel the contract for delay in delivery of the vessel was provided in Article VIII.3.  Article VIII is at the heart of the dispute and I will quote it in full:
“1. CAUSE OF DELAY 
If, at any time before actual delivery, either the construction of the VESSEL, or any performance required hereunder as a prerequisite of delivery of the VESSEL, is delayed due to war, blockade, revolution, insurrection, civil commotions, riots, sabotage, lockouts, local temperature higher than 35 degree centigrade, Acts of God or the public enemy, terrorism, plague or other epidemics, quarantines, prolonged failure or restriction of electric current from an outside source, freight embargoes, earthquakes, tidal waves, typhoons, hurricanes, storms or other causes beyond the control of the BUILDER or of its sub‑contractors, as the case may be, the BUILDER shall not be liable for such delay and the time for delivery of the VESSEL under this Contract shall be extended without any reduction in the CONTRACT PRICE for a period of time which shall not exceed the total accumulated time of all such delays, subject nevertheless to the BUYER's right of cancellation under Paragraph 3 of this Article and subject however to all relevant provisions of this Contract which authorize and permit extension of the time of delivery of the VESSEL.   
2. NOTICE OF DELAY 
Within seven (7) days from the date of commencement of any delay on account of which the BUILDER claims that it is entitled under this Contract to an extension of the time for delivery of the VESSEL, the BUILDER shall advise the BUYER by telefax or email confirmed in writing, of the date such delay commenced, and the reasons therefor. 
Likewise within seven (7) days after such delay ends, the BUILDER shall advise the BUYER in writing or by telefax or email confirmed in writing, of the date such delay ended, and also shall specify the maximum period of the time by which the date for delivery of the VESSEL is extended by reason of such delay. Failure of the BUYER to acknowledge the BUILDER's notification of any claim for extension of the DELIVERY DATE within thirty (30) days after receipt by the BUYER of such notification, shall be deemed to be a waiver by the BUYER of its right to object to such extension. 
In the event that the BUILDER shall not comply with the notices required to be sent under this clause, they shall not be entitled to any relief claimed. 
3. RIGHT TO CANCEL FOR EXCESSIVE DELAY  
If the total accumulated time of all delays on account of the causes specified in Paragraph 1 of the Article aggregate to two hundred and twenty five (225) days or more, or if the total accumulated time of all delays on account of the causes specified in Paragraph 1 of the Article and “non-permissible” delays as described in Paragraph 1 of Article III aggregate to two hundred and seventy (270) days or more, in any circumstances, excluding delays due to arbitration as provided for in Article XIII hereof or due to default in performance by the BUYER, or due to delays in delivery of the BUYER's supplied items, and excluding delays due to causes which, under Article V, VI, XI and XII hereof, permit extension or postponement of the time for delivery of the VESSEL, then in such event, the BUYER may in accordance with the provisions set out herein cancel this Contract by serving upon the BUILDER telefaxed, emailed or telexed notice of cancellation which shall be confirmed in writing and the provisions of Article X of this Contract shall apply. The BUILDER may, at any time, after the accumulated time of the aforementioned delays justifying cancellation by the BUYER as above provided for, demand in writing that the BUYER shall make an election, in which case the BUYER shall, within thirty (30) days after such demand is received by the BUYER either notify the BUILDER of its intention to cancel, or consent to an extension of the time for delivery to a mutually agreed future date, it being under stood and agreed by the parties hereto that, if any further delay occurs on account of causes justifying cancellation as specified in this Contract, the BUYER shall have the same right of cancellation upon the same terms as hereinabove provided. 
4. DEFINITION OF “PERMISSIBLE” DELAY  
Delays on account of such causes as provided for in Paragraph 1 of this Article excluding any other extensions of a nature which under the terms of this Contract permit postponement of the DELIVERY DATE, shall be understood to be (and are herein referred to as) “permissible” delays, and are to be distinguished from “non‑permissible” delays on account of which the CONTRACT PRICE of the VESSEL is subject to adjustment as provided for in Article III hereof.”
4.	Article X deals with the consequences of a valid cancellation by the Buyer.  In particular, Article X.2 requires the Yard when notice of cancellation is given to refund “immediately to the Buyer the full amount of all sums paid by the Buyer to the Builder on account of the Vessel, unless the Builder disputes the Buyer’s cancellation and/or rescission of this contract by instituting arbitration in accordance with Article XIII.”  If there is such a dispute, the Yard’s obligation to repay the price depends on the outcome of the arbitration.  If the Yard is required to refund the price, it must also pay interest at the rate of 5% per annum if the contract has been cancelled in accordance with Article III.1(c).  There is no obligation to pay interest if the cancellation takes place under Article VIII.
5.	Article XIII provides for disputes to be resolved by arbitration in London in accordance with English law, and by Article XIX the parties agreed that the contract was to be governed and interpreted in accordance with English law. 
The disputes
6.	In each case the cancellation of the contract by the Buyer followed a similar pattern:
i)	The delivery of the vessel was delayed beyond the “Delivery Date” (as defined in Article VII of the contract).
ii)	The Buyer gave notice of cancellation of the contract on a date which was more than 270 days after the Delivery Date.
iii)	Before such notice of cancellation was given, the Yard had not given notice to the Buyer of any delay which the Yard claimed had been caused by a breach of contract by the Buyer (or any other cause for which the Yard was not responsible).
iv)	After notice of cancellation had been given, however, the Yard did make such a claim and alleged that breaches of contract by the Buyer had resulted in delays in the construction of the vessel totalling, variously, not less than 90 days or 100 days depending on the case.
7.	In each case the breaches of the Buyer’s contractual obligations alleged by the Yard were breaches of Article IV of the contract.  That Article makes provision for inspection of the vessel by a supervisor appointed by the Buyer throughout the period of construction.  Article IV.3 includes the following:
“The SUPERVISOR shall have, at all times until delivery of the VESSEL, the right to attend tests according to the mutually agreed test list and inspect the VESSEL, her engines, accessories and materials at the BUILDER's Shipyard, its subcontractors or any other place where work is done or materials stored in connection with the VESSEL. In the event that the SUPERVISOR discovers any construction or material or workmanship which does not or will not conform to the requirements of this Contract and the SPECIFICATIONS, the SUPERVISOR shall promptly give the BUILDER a notice in writing as to such nonconformity, upon receipt of which the BUILDER shall correct such nonconformity if the BUILDER agrees with the BUYER. In any circumstances, the BUILDER shall be entitled to proceed with the construction of the VESSEL even if there exists discrepancy in the opinion between the BUYER and the BUILDER, without prejudice to the BUYER’s right to submit the issue for determination by the CLASSIFICATION SOCIETY or arbitration in accordance with the provisions hereof. The BUYER undertakes and assures the BUILDER that the SUPERVISOR shall carry out his inspections in accordance with the agreed inspection procedure and schedule and usual shipbuilding practice and in a way as to minimize any increase in building costs and delays in the construction of the VESSEL. Once a test has been witnessed and approved by the SUPERVISOR, the same test should not have to be repeated, provided it has been carried out in compliance with the requirements of the CLASSIFICATION SOCIETY and SPECIFICATIONS.”  [underlining added]
8.	In relation to each contract, the Yard has alleged that the Buyer was in breach of the undertaking which I have underlined.  More particularly, the Yard has alleged that:
i)	The Buyer’s supervisor worked very short hours, with the result that the whole inspection process (and with it the construction process) was delayed;
ii)	The Buyer’s supervisor imposed unreasonable requirements, beyond those specified in the contract / specification for the Vessel / Class Rules / regulations / agreed standards / general practices, which led to substantial delay in the construction of the vessel;
iii)	The Buyer’s supervisor delayed unreasonably in returning procedures or drawings of the vessel, without which the Yard was unable to carry out further construction of the relevant items.  
9.	The Yard argues that, on a proper interpretation of the contracts, delays caused by these alleged breaches of contract by the Buyer cannot be relied on in calculating any of the periods of delay specified in Article III.1(c) and Article VIII.3 which entitle the Buyer to cancel the contract.  When such delays are excluded, it follows – if the Yard’s factual allegations are correct – that in each case the cancellation was wrongful and itself amounted to a repudiatory breach of the contract.
10.	If the cancellations were lawful, the Buyer was in each case entitled under Article X to a refund of all instalments of the contract price which had been paid before the cancellation together (potentially) with interest on those instalments from the date of payment to the date of repayment.  If on the other hand the cancellations were unlawful, the Yard was entitled to keep the instalments and re-sell the vessels, crediting the Buyer only with the balance of the proceeds of any such sale after the Yard has recouped its expenses.  Many millions of dollars are, in consequence, at stake in these disputes.  
The arbitration awards
11.	Pursuant to the arbitration clauses in Article XIII of the contracts, the disputes were referred to arbitration in London.  There were four arbitrations but only two hearings.  The arbitrations relating to Hulls J0051 and J0052 were heard together and so also (but separately) were the two arbitrations relating to Hulls J0119 and J0120.
12.	In the arbitrations relating to Hulls J0051 and J0052, the arbitrators were Messrs Baker-Harber and Martin-Clark and Captain Lee.  They issued awards in each arbitration (in materially identical terms) on 7 April 2014 in the form of majority awards published by Messrs Baker-Harber and Martin-Clark accompanied in each case by a dissenting opinion from Captain Lee.  Following applications by both parties under section 57 of the Arbitration Act 1996, further awards were issued on 14 June 2014. 
13.	By these awards, the tribunal decided the following preliminary issues:
“(1)  Did the Builder remain obliged to deliver Hull J0051/J0052 to its Buyer by the Delivery Date of 30 September 2012 and/or is the Builder prevented from claiming any relief, even if the Builder’s allegations that delays to the construction of the Vessel were caused by alleged defaults of the Buyer, as set out in Appendix 2 to the Defence and Counterclaim submissions, were to be established, due to: 
i.	The Builder’s failure to give notice to the Buyer of such delays pursuant to Article VIII.2 of the Shipbuilding Contract and/or
ii.	The Builder’s failure to deliver Hull J0051/J0052 to its Buyer by 28 June 2013 as required by the Shipbuilding Contract.
(2)  If the answer to the above question is “yes”, was the cancellation of the Contract by the Buyer valid with the consequence that the Builder is required to repay to the Buyer or the Assignee Bank the instalments together with accrued interest thereon?
(3)  If the answer to the above question is “yes”, is the Builder entitled to withhold repayment on the basis of the defence of equitable set-off as pleaded?
(4)  Whether in the light of our decisions on the first, second and third Preliminary Issues, the tribunal should issue an award giving effect to those decisions and, if so, whether it should impose any condition for doing so, and if so, what condition?”
14.	The tribunal (by a majority) gave the answer “yes” to all the questions raised by the first two preliminary issues, save that they held in relation to preliminary issue (2) that the Builder was not required to pay accrued interest on the instalments.  The tribunal (by a majority) gave the answer “no” to preliminary issue (3).  In the light of their decisions on the first three issues, the tribunal issued awards to the effect that:
i)	The Buyer’s cancellation of the contract in accordance with Article VIII.3 of the contract was valid and justified;
ii)	The Buyer’s cancellation of the contract in accordance with Article III.1(c) of the contract was not valid and not justified;
iii)	The Yard was obliged to repay to the Buyer or its assignee the full amount of the instalments advanced by the Buyer;
iv)	The Buyer’s claim for interest failed.
15.	In the arbitrations relating to Hulls J0119 and J0120 the arbitrators were Messrs Baker-Harber, Gaunt and Yang.  The tribunal issued awards on preliminary issues in those arbitrations on 18 June 2014.  The preliminary issues were similar to those in the arbitrations relating to Hulls J0051 and J0052.  The tribunal (again by a majority) gave similar answers to the questions raised, with one exception.  The exception was that, on the question of interest, the tribunal in these arbitrations held that, by virtue of the fact that the Buyer correctly invoked Article III.1(c) (as well as Article VIII.3) as a basis for its cancellation of the contracts, interest was payable on the instalments to be refunded, which the Yard was ordered to pay. 
The appeals
16.	By an arbitration claim form dated 27 June 2014, the Yard applied for permission to appeal under section 69 of the Arbitration Act 1996 on the following questions of law arising out of the awards made in the arbitrations relating to Hulls J0051 and J0052:
i)	On the facts pleaded by the Yard in its Defence and Counterclaim submissions in the arbitration and on a true construction of the contract between the parties dated 16 November 2006 as varied, were the Buyers entitled to cancel the contract and to repayment of the instalments of the price paid by them?
ii)	In particular, on the true construction of the contract, was delay caused by the Buyer’s default or breach of contract “permissible delay” for the purposes of Article VIII.1 of the contract?
iii)	Did Article VIII.2 of the contract require the Yard to give notice to the Buyers of all delays caused by the Buyer’s defaults or breaches of contract, failing which such delays would count towards the period of 270 days’ delay entitling the Buyers to terminate the contract under Article VIII.3?
iv)	Did Article X.2 exclude the Yard’s right to set off its claims for damages against its liability to repay the instalments of the price paid for the vessel?
v)	Is it manifestly unjust that the Buyer’s claim should be enforced without regard to the Yard’s counterclaim?
17.	By arbitration claim forms of the same date, the Buyers applied for leave to appeal against the tribunal’s decisions in these arbitrations that the Buyers were not entitled on the assumed facts to cancel the contract under Article III and so were not entitled to interest on the sums to be refunded.
18.	In August 2014, the parties agreed that each should have leave to appeal in these arbitrations.
19.	The Yard also applied for leave to appeal against the awards made in the proceedings relating the Hulls J0119 and J0120 on the following questions of law arising out of the awards:
i)	On the facts pleaded by the Yard in its Defence and Counterclaim submissions in the arbitration and on a true construction of the contract between the parties dated 17 September 2010 as varied, were the Buyers entitled to cancel the contract and to repayment of the instalments of the price paid by them?
ii)	In particular, on the true construction of the contract, was delay caused by the Buyer’s default or breach of contract “permissible delay” for the purposes of Article VIII.1 of the contract or “non-permissible” delay for the purposes of Article III.1 of the contract?
iii)	What was the consequence of the Yard not giving notice under Article VIII.2 of delays caused by the Buyers’ breaches of contract or defaults (or those of companies under the same control)?
iv)	In particular, was the consequence of not giving such notice that those delays would count towards: 
a)	The period of 270 days’ delay entitling the Buyers to terminate the contract under Article VIII.3; and 
b)	The period of 210 days’ delay after the Delivery Date entitling the Buyers to terminate the contract under Article III.1(c) so that the Yard became obliged to pay interest on the sums refunded.
20.	On 13 October 2014 Cooke J gave the Yard permission to appeal against these awards because of the overlap of the issues with those to be determined in relation to Hulls J0051 and J0052 where the parties had agreed that appeals should take place.
21.	On the hearing of these appeals the Yard has been represented by Mr Michael Nolan and the Buyers by Mr Timothy Young QC.  The facility with which their submissions were advanced has been honed by arguing the issues raised on these appeals not only in the underlying arbitrations but apparently in a string of other arbitrations relating to further shipbuilding contracts in which similar issues have arisen.
Approach to interpretation
22.	The principles applicable to the interpretation of contracts were recently summarised in BMA Special Opportunity Hub Fund Ltd v African Minerals Finance Ltd [2013] EWCH Civ 416 at [24] by Aikens LJ as follows:
“The court's job is to discern the intention of the parties, objectively speaking, from the words used in the commercial document, in the relevant context and against the factual background in which the document was created. The starting point is the wording of the document itself and the principle that the commercial parties who agreed the wording intended the words used to mean what they say in setting out the parties' respective rights and obligations. If there are two possible constructions of the document a court is entitled to prefer the construction which is more consistent with ‘business common sense’, if that can be ascertained. However, I would agree with the statements of Briggs J in Jackson v Dear, first, that ‘commercial common sense’ is not to be elevated to an overriding criterion of construction and, secondly, that the parties should not be subjected to ‘…the individual judge's own notions of what might have been the sensible solution to the parties' conundrum’. I would add, still less should the issue of construction be determined by what seems like ‘commercial common sense’ from the point of view of one of the parties to the contract.”
23.	Mr Nolan submitted that, in each arbitration, the majority of the tribunal misapplied these principles by allowing what they perceived to be a commercially sensible construction to prevail over the meaning of the words used by the parties to record their bargain.  
24.	In order to ascertain the meaning of the words used by the parties to record their bargain, a judge or arbitrator must bring to bear both their understanding of how words are commonly used and their understanding of the purposes which someone using the words in the relevant context could be expected to have.  Where the document to be interpreted is a contract, the assumption made is that the parties to the contract chose its language to express an intention which they shared.  The assumption is also made that the parties were reasonable people with the purposes and values which reasonable parties in their situation who had a shared intention may fairly be supposed to have had.  Necessarily, as Aikens LJ observed, this does not allow a judge or arbitrator to interpret the words used in the light of what would seem like ‘commercial common sense’ merely from the point of view of one of the parties to the contract or from the judge's own point of view. 
25.	Identifying the meaning of the words used, however, and the shared purposes and values which the parties may be taken to have had are not two separate inquiries.  The meaning of all language depends on its context.  To paraphrase a philosopher of language, a sentence in never not in a context.  Contracting parties are never not in a situation.  A contract is never not read in the light of some purpose.  Interpretive assumptions are always in force.  A sentence that seems to need no interpretation is already the product of one.  At the same time the main source from which the shared purposes and values of the parties can be ascertained is the contract they have made.  It is for these reasons that it is a fundamental principle of the interpretation of contracts that the contractual document must be read as a whole.   
26.	The main particular criticism made by Mr Nolan of the approach of the majority arbitrators is that they imposed their own notion of what might have been a sensible contract to make and/or made the mistake of judging what made commercial common sense from the Buyer’s point of view.  I do not accept that contention.  As I will explain, it is in fact the Yard which relies on assumptions about what arrangements would be commercially sensible which cannot in my view confidently be attributed to the contracting parties.  Furthermore, the interpretation for which the Yard contends is inconsistent with the language of the contract and the purposes to be collected from the document read as a whole.  
The contractual scheme
27.	I think it best to start, as Mr Nolan did in his submissions on behalf of the Yard, by examining the different types of delay provided for in the contract and the consequences of each type of delay.  Mr Nolan submitted that the contract provides for four types of delay.  As I will indicate, the fundamental point on which I do not accept his analysis is that in my view there are only three types of delay contemplated by the contract, and there is no further and separate category of “Buyer’s breach delays”.
28.	Two types of delay are referred to in the contract as “permissible” delays and “non-permissible” delays.  “Permissible” delays are defined in Article VIII.4 as: 
“Delays on account of such causes as provided for in [Article VIII.1] excluding any other extensions of a nature which under the terms of this Contract permit postponement of the Delivery Date ...”  
Such “permissible” delays are then distinguished from “non-permissible delays on account of which the Contract Price of the Vessel is subject to adjustment as provided for in Article III hereof.”  Article VIII.1, to which the definition of “permissible” delays refers, specifies causes of delay beyond the control of the Yard and provides that, where construction of the vessel is delayed due to such a cause, the Yard “shall not be liable for such delay and the time for delivery of the vessel under this Contract shall be extended without any reduction in the Contract Price for a period of time which shall not exceed the total accumulated time of all such delays, subject nevertheless to the Buyer’s right of cancellation under [Article VIII.3]”.  
29.	It is apparent from the definition in Article VIII.4 that, contrary to what might be expected, the two categories of “permissible” and “non-permissible” delays are not exhaustive because they exclude delays which permit postponement of the Delivery Date under terms of the contract other than Article VIII.1.  
30.	Mr Nolan identified a number of such terms under which the Delivery Date may be postponed, as follows:
i)	Articles V.1 and V.2 provide for extensions of the Delivery Date in the case of, respectively, changes in the specifications and plans for the construction of the vessel and changes to the applicable Class requirements.  
ii)	Article V.4 provides for an automatic extension for the time of delivery of the vessel to the extent that delivery is delayed by the failure of the Buyer to deliver on time items which it is the Buyer’s responsibility to supply.
iii)	Article VI.1 provides for the Delivery Date to be extended where delay is caused by the failure of the Buyer’s representatives or supervisor to attend sea trials.  
iv)	Article XI.4(a) provides for the Delivery Date to be postponed for any period during which the Buyer is in default of its obligation (a) to pay an instalment of the contract price, (b) to provide a guarantee of payment or (c) to take delivery of the vessel under the contract.
v)	Article XII.2(b) includes provision for the parties by mutual agreement to proceed with the contract even in the event that the vessel becomes a total loss if they first agree between them a reasonable extension of the Delivery Date and adjustment of other contract terms.
vi)	Article XIII.7 provides for the Delivery Date to be extended if the construction of the vessel is affected by any arbitration.
31.	Mr Nolan referred to delays capable of giving rise to an extension of the Delivery Date under these various provisions as “hotchpotch” delays.  There is a common feature of these delays, which is that they are excluded from consideration when determining whether the Buyer is entitled to reduce the contract price or cancel the contract because of delay in delivering the vessel.  For this reason I prefer to describe them as “excluded” delays. 
32.	As Mr Young QC pointed out, the distinction between permissible delays and excluded delays is also drawn in Article III.1(d).  This provides:
“For the purpose of this Article, the delivery of the VESSEL shall not be deemed delayed and the CONTRACT PRICE shall not be reduced when and if the DELIVERY DATE of the VESSEL is extended by reason of causes and provisions of Articles V, VI, XI, XII and XIII hereof. The CONTRACT PRICE shall not be adjusted or reduced if the delivery of the VESSEL is delayed by reason of “permissible” delays as defined in Article VIII hereof.”
The Articles listed in this clause include all the Articles under which extensions of the Delivery Date on account of excluded delays can occur.
33.	Like permissible delays, therefore, excluded delays result in an extension of the time for delivery of the vessel without any reduction in the contract price.  However, excluded delays are more favourable than permissible delays from the Yard’s point of view.  If the total of all permissible delays accumulates beyond a certain level (either 225 days on their own or 270 days when aggregated with non-permissible delays), they give the Buyer a right to cancel the contract under Article VIII.3.  As I will consider in more detail later, under the terms of Article VIII.3 excluded delays do not count towards these thresholds.  Nor are they taken into account for the purpose of Article III.  There is no provision of the contract which gives the Buyer the right to cancel on account of any excluded delays.  Consistently with this, Article III.1(d), quoted above, deems excluded delays not to be delays to the delivery of the vessel at all.  
34.	There is accordingly a tripartite classification of delays to the delivery of the vessel.  The scheme is one in which permissible and excluded delays can result in an extension of the time for delivery of the vessel without any reduction in the contract price, whereas non-permissible delays do not give rise to any extension of the time for delivery and, if they cause delivery to be delayed by more than 30 days beyond the Delivery Date, result first in a reduction in the price and then, after 210 days, in a right on the part of the Buyer to cancel the contract and recover the instalments of the price paid with interest.  Permissible delays result in an extension of the Delivery Date but nevertheless, if they accumulate beyond a certain point (either on their own or when added to non-permissible delays), trigger a right to cancel the contract, though no interest is payable on the instalments of the contract price which become repayable on such a cancellation.  Excluded delays are not counted as delays for the purpose of any right of cancellation.
35.	I think it plain that these three categories of delay are intended to cover the whole field.  It is natural to expect, and the wording of the definition in Article VIII.4 makes clear, that – once excluded delays are taken out of the picture and deemed not to be delays at all – any delay which is not a “permissible” delay is a “non-permissible” delay, and vice-versa.  
Buyer’s breach delays
36.	How then do delays caused by breaches of contract by the Buyer (which I will call “Buyer’s breach delays”) fit into this scheme?  Some Buyer’s breach delays are excluded delays.  Thus, Article V.4 provides that, if the Buyer fails to deliver to the Yard within the time specified any items which it is the Buyer’s obligation under that clause to supply, “the delivery of the Vessel shall automatically be extended for a period of such delay, provided such delay in delivery of the Buyer’s supplied items shall affect the delivery of the Vessel.”  Further, if the Buyer is in default of any of the three obligations set out in Article XI, “the Delivery Date shall, at the Builder's option, be postponed for a period of continuance of such default by the Buyer”: see Article XI.4(a).  
37.	The Yard’s case that the Buyers were in breach of contract, however, is based on Article IV.  Article IV does not contain any provision which causes or permits the time for delivery of the vessel to be extended if the Buyer breaches the undertaking given in that clause as to how inspections will be carried out by its supervisor.  Delay caused by a breach of Article IV is therefore not excluded delay in the sense in which I am using that term (to refer to delays which permit extension of the Delivery Date under a provision of the contract other than Article VIII.1).   Nor is Article IV one of the Articles specified in Article III.1(d), quoted in paragraph 32 above.  The Yard therefore cannot rely on Article III.1(d) to say that delay in the delivery of the vessel caused by a breach of Article IV does not count as delay for the purpose of the provisions in Article III which cause the contract price to be reduced after a delay in delivery exceeding 30 days and which give the Buyer the right to cancel the contract if the delay in delivery continues for 210 days.  
38.	This last point seems to me to be fatal to the Yard’s case in these proceedings.  Unless the Yard could say that the delays in delivery of the vessels allegedly caused by the Buyers’ breaches of Article IV were permissible delays, which the Yard does not contend, it follows that the Buyers were entitled to cancel the contracts in circumstances where the delay had in each case continued for more than 210 days. 
39.	Moreover, even if the delays could be characterised as permissible delays, this would not enable the Yard to avoid the conclusion that the Buyers were entitled to cancel the contracts, since the delay in each case exceeded the length of time which gave rise to a right of cancellation under Article VIII.3.
The right to cancel under Article VIII.3  
40.	As I have indicated, Article VIII.3 provides for a right of cancellation in two circumstances.  The first is where the total of all accumulated permissible delays amounts to 225 days or more.  The second is where the total of all permissible delays and non-permissible delays combined amounts to 270 days or more.  As in each of the instant cases the Buyer cancelled the contract after more than 270 days of delay in delivering the vessel had occurred, the Buyer had on the face of things a right of cancellation under Article VIII.3 whether the delay was permissible or non-permissible delay or a combination of the two.
41.	The Yard disputes that conclusion on the basis of language in Article VIII.3 which excludes certain periods of delay from the computation of time under that clause.  This exclusion is expressed as follows: 
“excluding delays due to arbitration as provided for in Article XIII hereof or due to default in performance by the BUYER, or due to delays in delivery of the BUYER’S supplied items, and excluding delays due to causes which, under Article V, VI, XI and XII hereof, permit extension or postponement of the time for delivery of the VESSEL.”  
On behalf of the Yard, Mr Nolan argued that delays caused by a breach of the Buyer’s obligations under Article IV are delays “due to default in performance by the Buyer” which fall within this exclusion, with the result that such delays do not count towards either of the two periods of delay which trigger the right of cancellation provided for in Article VIII.3.  
42.	On behalf of the Buyers, Mr Young’s primary contention was that the words “due to default in performance by the Buyer” in the exclusion are intended to refer to Buyer’s defaults provided for in Article XI and therefore do not encompass the Buyer’s breaches of Article IV alleged in this case.  Article XI is headed “Buyer’s Default” and provides that the Buyer “shall be deemed in default of its obligation under the Contract” if any of three specified events occurs.  As mentioned earlier, those events are: (a) failing to pay an instalment of the contract price on time; (b) failing to provide a guarantee on time; and (c) failing to take delivery of the vessel when duly tendered.  Mr Young submitted that, just as the reference in the exclusion to “delays in delivery of the Buyer’s supplied items” is an obvious allusion to Article V.4, so the reference to delays “due to default in performance by the Buyer” matches the language of Article XI.
43.	Although I would not attach too much weight to the linguistic parallel on its own, I think that this interpretation does make the best sense of the exclusion in Article VIII.3.  The clear intent of the exclusion, as I see it, is to remove from Article VIII.3 the delays which I am calling “excluded” delays – that is, delays which extend the time for delivery of the vessel under a term of the contract other than Article VIII.1.  As discussed earlier, the scheme of the contract is that such excluded delays do not count as part of any period which gives rise to a right of cancellation, either under Article III.1(c) or under Article VIII.3.  Although there is on any view an element of duplication in the wording of the exclusion in Article VIII.3, interpreting delays “due to default in performance by the Buyer” as meaning delays which extend the Delivery Date pursuant to Article XI is consistent with this scheme and treats the exclusion in Article VIII.3 as equivalent to the exclusion in Article III.1(d), which seems to me to be the logical interpretation.  
44.	I would therefore conclude that, even if the delays alleged by the Yard are classified as permissible delays (or as a mixture of permissible and non-permissible delays), and a fortiori if they were non-permissible delays, the Buyers were entitled to cancel the contracts. 
The presumption against the Buyer benefiting from its own breach
45.	Mr Nolan argued that, if this interpretation of the contract were to be accepted, it would mean that the Buyers are being allowed to profit from their own wrong.  There is a well established presumption that a contract is not to be construed in a way which allows a party to rely on its own breach of the contract in order to obtain a benefit: see e.g. Alghussein Establishment v Eton College [1988] 1 WLR 587.  Mr Nolan submitted that any interpretation of the contract which leads to the conclusion that the Buyer was entitled to cancel by reason of delay which (on the assumption made for the purpose of the preliminary issues in the arbitrations) was caused by its own breaches of the contracts would violate this presumption and must therefore be avoided in the absence of clear express words which compel such a result. 
46.	I of course recognise the force of the general presumption on which the Yard relies. When considering what reasonable parties would be likely to have intended, however, it is necessary to descend from generality and look closely at the specific consequences which would ensue if a particular interpretation is adopted.  When the implications of a breach by the Buyer of Article IV are examined, I do not think it safe to assume that reasonable commercial parties would have intended that such a breach could permit the Yard to postpone the delivery of the vessel.  
47.	Notably, while Article IV.3 of the contracts (quoted at paragraph 7 above) requires the Buyer’s supervisor to give prompt notice to the Yard of any construction or workmanship which does not or will not conform to the requirements of the contract, the Yard is only obliged to correct such nonconformity if it agrees with the Buyer.  To make the position even clearer, the clause continues: 
“In any circumstances, the BUILDER shall be entitled to proceed with the construction of the VESSEL even if there exists discrepancy in the opinion between the BUYER and the BUILDER, without prejudice to the BUYER’s right to submit the issue for determination by the CLASSIFICATION SOCIETY or arbitration in accordance with the provisions hereof.”
It is therefore plain that the Buyer’s supervisor has no power to delay the construction of the vessel.  If the supervisor points out what he thinks is a failure by the Yard to build the vessel in accordance with the contract, it is up to the Yard to decide whether it agrees with the supervisor, in which case it must of course correct the defect, or whether it is disagrees with the supervisor, in which case it is free to ignore him.  If the supervisor is found to have been right by the Classification Society or in an arbitration, the Yard will then have to correct the defect; but that is no less than it would be obliged to do anyway. 
48.	Looking at the allegations of breach made by the Yard (which I have set out at paragraph 8 above), even if it is true that the Buyer’s supervisor worked very short hours, I can see no reason why this should have delayed the construction process.  Whilst the supervisor had the right to attend tests and carry out inspections, there was nothing in the contract which required the Yard to wait for him.  Equally, if the supervisor sought to impose unreasonable requirements beyond those specified in the contract, the Yard had no obligation to comply with them.  As for returning procedures or drawings of the vessel (the third form of alleged breach), the specifications for the vessel were all agreed at the time when the contracts were made and were annexed to the contracts, and I can see nothing in the contract terms which required the supervisor’s approval to be sought or obtained for any procedures or drawings.  
49.	In these circumstances, given what seems to me to be the lack of any contractual power on the part of the Buyer’s supervisor to delay the construction of the vessel, I can see no obvious reason why the parties should have agreed that a breach of the Buyer’s undertaking in Article IV.3 would in any circumstances permit the Yard to postpone delivery of the vessel.  At any rate I am not persuaded that commercial common sense – as opposed to what might seem like commercial common sense from the point of view of the Yard – demands an interpretation which has that result.  
50.	Such an interpretation would, furthermore, if it is to be credited as a possible interpretation, need somehow to be shown to fit into the contractual scheme.  The Yard’s case as to how it does so is that, in addition to the three categories of permissible, non-permissible and excluded delays, there is a fourth type of delay provided for in the contract – namely, Buyer’s breach delays.  That contention, however, seems to me to face at least four major objections.
51.	The first is that all the Buyer’s breach delays identified by Mr Nolan apart from delays caused by breaches of Article IV are excluded delays.  If there is a fourth category of delay, therefore, it would not be a general category but would be limited to one particular species of Buyer’s breach delay.  I can see no logic, rhyme or reason in treating delay caused by breaches of Article IV as a special category of delay all on its own.
52.	The second objection is that, whereas the contract provides for the Delivery Date to be extended on account of delay caused by other breaches by the Buyer, the contract does not provide for the Delivery Date to be extended, or to be capable of being extended, on account of a breach of Article IV.  That in itself raises a strong inference that the parties did not intend a breach of Article IV to permit such an extension.  
53.	A third objection is that the definition of permissible delay contained in Article VIII.4, as discussed earlier, seems to me to leave no room for any category of delay other than the three types which I have identified.  
54.	A fourth objection is that, if a breach of Article IV permits late delivery on a sui generis basis, it does so not only without any provision of the contract which says so but without any requirement on the Yard to give notice of the delay and its consequences.  As Mr Young showed, the contract wording is replete with provisions requiring any extension of the Delivery Date to be communicated and agreed between the parties (or ascertained by arbitration).  Furthermore, the operation of the cancellation clauses depends on the parties knowing where they stand.  Those provisions depend for their efficacy on the parties being able to calculate with precision and know at any given time how many days of (i) permissible delay and (ii) non-permissible delay have occurred.  The parties could no doubt have made a contract which left them each to perform their own calculation and then argue about the causes of delay after a cancellation has occurred.  However, they have tried to avoid such an anarchic situation.  Instead, they have adopted a scheme which provides for notices to be given and agreement reached, or any dispute resolved by arbitration if necessary, whenever an event occurs which the Yard wishes to say justifies an extension of the time for delivery.  It would be wholly illogical to attribute to the parties the intention that one category of delay – being one particular kind of Buyer’s breach delay – uniquely falls outside this scheme.
55.	Mr Nolan submitted that it was not necessary to have a notice requirement for delays of the kind alleged by the Yard in these cases because the Buyer would know if fault of its supervisor had caused delay and could in any case, if unsure of the Yard’s position regarding any such delay, ask the Yard before seeking to exercise a right of cancellation.  In my view, both these arguments are bad.  It is common ground that delay is only relevant insofar as it has an impact on the delivery of the vessel.  Even if the Buyer was aware that the Yard was complaining about its supervisor’s conduct (which cannot be assumed), the Buyer would not know what effect, if any, such defaults were said to have on the critical path for construction, unless told.  Nor has any reason been suggested which could conceivably explain why the parties might, uniquely among all kinds of delay, have chosen to leave delay of this kind for the Buyer to have to inquire into.  Putting such an onus on the Buyer would furthermore create a wholly unsatisfactory situation where, if the Yard did not respond to an inquiry or gave a non-committal response, the Buyer would be left in limbo.  I agree with the observation of Hamblen J in relation to a similar suggested anomaly in a similar shipbuilding contract in Adyard Abu Dhabi v SD Marine Services [2011] EWHC 848 (Comm) at para 255 that it is inherently unlikely that the parties would have intended there to be such a limbo.  
56.	All these reasons combine to render untenable, in my view, the Yard’s contention that delay resulting from a breach by the Buyer of Article IV is in a special category of its own which enables it somehow to be treated in the same way as excluded delays even though Article IV is not mentioned in Article III.1(d) or in the exclusion in Article VIII.3 and there is nothing in Article IV which permits such delay to be relied on to justify any postponement of the time for delivery of the vessel. 
Were the alleged delays “permissible” delays?
57.	In my view, the only contention reasonably available to the Yard to support a case that delays caused by breaches of Article IV were capable of extending the time for delivery of the vessel is that such delays were “permissible” delays.  For the reasons given, this contention, even if correct, would not on the facts make the cancellations unlawful.  The consequence would be that the Buyers were entitled to cancel the contracts under Article VIII.3, though not under Article III(1)(c).  The practical significance of this is the Buyers would not in that event be entitled to interest under Article X on the instalments of the contract price which had to be repaid.
58.	Different conclusions were reached on the question whether the relevant delays were permissible delays by the two arbitral tribunals.  In the arbitrations relating to Hulls J0051 and J0051 the tribunal held that, on the assumed facts, the delays were permissible delays giving rise to a right to cancel under Article VIII.3 but not under Article III.1(c).  The Buyers are appealing on this point.  There is no similar appeal by the Buyers from the awards made in the arbitrations relating to Hulls J0119 and J0120, as the tribunal in those arbitrations decided that the relevant delays were to be treated as non-permissible delays so that the Buyers were entitled to cancel the contracts under Article III.1(c).
59.	Whether the delays in question were “permissible” delays depends on the proper interpretation of Article VIII.1.  As discussed, “permissible” delays are defined in Article VIII.4 as delays on account of causes provided for in Article VIII.1 (leaving aside excluded delays).  Article VIII.1 sets out a list of particular causes ending with the words “or other causes beyond the control of the Builder”.  Taken at face value, that phrase would include a breach of contract by the Buyer.  Somewhat ironically, however, it was the Yard’s argument that, despite the apparent width of those words, the clause should not be construed as including Buyer’s breach delays, while the Buyers argued that such delays are included.  
60.	On behalf of the Yard, Mr Nolan pointed out that the long list of causes set out in Article VIII.1 conspicuously does not include breach of contract by the Buyer.  Rather, all of the listed causes have the character of force majeure events in the sense of “supervening events which arise without the fault of either party and for which neither of them has undertaken responsibility”: see The “Kriti Rex” [1996] 2 Lloyd’s Rep 171, 196.  Mr Nolan relied on the principle of interpretation known as “ejusdem generis” – that, where a list of particular items is followed by general words, the general words should be construed as limited to things of the same kind as the specified items.  The main justification for this principle, as identified in Lewison, The Interpretation of Contracts (5th Ed, 2011) at para 7.13, is the presumption that words have not been used unnecessarily; for if the general words are given an unrestricted meaning, the specifically enumerated items are surplusage.  Mr Nolan submitted that, in circumstances where all the particular causes listed in Article VIII.1 are causes beyond the control of both parties and for which neither one of them has undertaken responsibility, the words “other causes beyond the control of the Builder” should be read as referring only to other causes of a like kind.  
61.	The contrary argument, advanced by Mr Young on behalf of the Buyers, is that the phrase “force majeure” does not appear in clause, nor are there any words which expressly limit its application to causes beyond the control of both the parties.  To the contrary, the clause refers to “causes beyond the control of the Builder” and not “causes beyond the control of the parties”.  Mr Young submitted that the words used should be interpreted literally as including causes beyond the control of the Builder which are not also beyond the Buyer’s control because they are matters for which the Buyer has undertaken contractual responsibility.  
62.	In my view, the better interpretation of Article VIII.1 is that contended for by Mr Nolan.  I have reached that view principally because, as discussed above, Buyer’s breach delays are dealt with elsewhere in the contract.  In so far as they are intended to permit postponement of the Delivery Date, specific provision is made to that effect.  There is thus no need to read or attempt to read Article VIII.1 as encompassing Buyer’s breach delays.  If it did, it would moreover produce duplication in relation to delays caused by breaches of Article V.4 or Article XI, as there would then be two different regimes in the contract which provide for an extension of the time for delivery of the vessel in those cases.  A further reason for construing Article VIII.1 as not including Buyer’s breach delays is that permissible delays, when they reach a certain point, give rise to a right of cancellation of the contract.  As Mr Nolan rightly emphasised, there is a presumption against a construction which would as a general matter permit the Buyer to rely on delay caused by its own breach to justify cancellation of the contract.  Admittedly, delays due to breaches of the contract by the Buyer other than breaches of Article IV are specifically excluded from the computations of delay in Article VIII.3.  But a construction which does not treat such delays as permissible delays at all seems to me to be preferable.  I conclude that Buyer’s breach delays do not fall within the scope of Article VIII.1.
The effect of failure to give notice of delay
63.	Even if that is wrong, however, and Buyer’s breach delays are potentially within the scope of Article VIII.1, I consider that the Buyers are correct in their submission that the Yard is not entitled to treat the delays alleged in these cases as permissible delays in circumstances where no notice of them was given as required by Article VIII.2.  
64.	Article VIII.2 imposes a requirement that, where the Yard claims that any delay entitles it to an extension of the time for delivery of the vessel, the Yard must give written notice of the delay and the reasons for it within seven days from the date of the commencement of the delay.  No such notice was given by the Yard.  The consequence of this is stipulated in the last sentence of Article VIII.2:
“In the event that the BUILDER shall not comply with the notices required to be sent under this clause, they shall not be entitled to any relief claimed.”
65.	On behalf of the Yard, Mr Nolan argued that the words “any relief claimed” relate solely to extending the time for delivery of the vessel, which is what the earlier part of the clause refers to.  Thus the failure to comply with the notice requirement in Article VIII.2 means that delay due to a cause provided for in Article VIII.1 does not give rise to an extension of the Delivery Date pursuant to Article VIII.1; however, such delay is still classified by Article VIII.4 as permissible delay (unless it is excluded delay). 
66.	In my view, there are at least three problems with this argument.  The first is that, if the Yard’s interpretation were correct, delay in delivery could occur which the Buyer reasonably supposed to be the Yard’s fault because no notice of any cause allegedly beyond the Yard’s control had been given.  To take a hypothetical example, suppose that a few days delay in the construction of the vessel occurred due to power cuts (“restriction of electric current from an outside source”) which were outside the Yard’s control; however, no notice of these delays was given under Article VIII.2 and the Buyer was not aware that the delivery date had been affected.  Suppose that the Yard subsequently failed to deliver the vessel on time.  If the Buyer then served a notice of cancellation after 210 days of what it reasonably understood to be “non-permissible” delay had elapsed, it could find itself wrong-footed by an allegation of the kind which has been made in the present cases that part of the delay was “permissible” – so that the cancellation was in fact a wrongful repudiation of the contract.  An interpretation which allows this would seem to defeat the purpose of the notice requirement. 
67.	A second problem is that, if delay of which the required notice has not been given still counts as permissible delay even though it does not entitle the Yard to an extension of the Delivery Date, there would appear to be no purpose either in the mechanism in Article VIII.1 for extending the Delivery Date or in the notice requirement.  So far as I can see, the Yard’s interpretation would render both of those provisions pointless since the effect of permissible delay on the Buyer’s rights of cancellation (and right to an adjustment of the contract price) would be exactly the same as if those provisions did not exist.  
68.	A third problem with the Yard’s interpretation is that it does not accord with what Article VIII.2 says.  Article VIII.2 does not say that, unless the notice requirement is complied with, the Yard shall not be entitled to an extension of the time for delivery of the vessel.  Rather, the words used are much broader: the Yard shall not entitled to “any relief claimed”.  To ascertain the scope of these words, it is necessary to look back at the wording of Article VIII.1.  Article VIII.1 provides that, where delay due to a cause beyond the control of the Builder occurs, “the Builder shall not be liable for such delay and the time for delivery of the vessel under this Contract shall be extended without any reduction in the Contract Price …” (emphasis added).  The point of the words I have emphasised is that delays in construction are prima facie the responsibility of the Builder, unless they are excused by a provision of the contract.  The basic default position under the contract, in other words, is that delay is “non-permissible” unless a term of the contract classifies it as permissible (or, in the case of excluded delays, deems it not to be delay at all).  
69.	The natural reading of the last words of Article VIII.2 which remove the Yard’s entitlement to “any relief claimed” is that they are intended to deprive the Yard of the exemption from liability for delay provided for in Article VIII.1 as well as preventing the time for delivery of the vessel from being extended.  Accordingly, in the event that the Yard does not give notice under Article VIII.2 that delay has commenced which the Yard claims is due to an event falling within Article VIII.1, the result is not only that there is no extension of the Delivery Date under that provision but also that the Yard remains liable for the delay.  In other words, the delay constitutes non-permissible delay.
70.	I add that, although not stated expressly, I think it clear from the conjunction and inter-relationship of the two clauses that the notice requirement in Article VIII.2 applies only to delay which the Yard claims has resulted from a cause provided for in Article VIII.1.  Thus, unless a cause of delay comes within Article VIII.1, there is no requirement on the Yard to give notice of the commencement of such delay under Article VIII.2.  
Conclusion on cancellation
71.	I conclude that even if (contrary to my view) Buyer’s breach delays fall within the scope of Article VIII.1, the Yard cannot claim that the delays which occurred in these cases were permissible delays in circumstances where no notice was given in accordance with Article VIII.2.  The delays were therefore non-permissible delays which, by the time that cancellation occurred, had given rise to the right to cancel the contract both under Article III.1(c) and under Article VIII.3.  As the cancellations were in accordance with Article III.1(c), it follows that under Article X the Buyers are entitled to interest at the stipulated rate on all instalments of the contract price which they have paid until the date of repayment.  
Equitable set-off 
72.	The last issue is whether the tribunals were entitled to reject the Yard’s claim to be entitled to set off its counterclaim for damages in respect of the Buyer’s alleged breaches of contract against the instalments of the contract price repayable to the Buyers.  This issue is the subject of an appeal only in relation to Hulls J0051 and J0052.  There is no appeal from the equivalent decision that no set-off was available in the proceedings relating to Hulls J0119 and J0120.
73.	In its Defence and Counterclaim submissions in the arbitrations, the Yard’s counterclaim has been stated in the following terms:
“The Buyer’s aforesaid breaches of the Contract have resulted in damage to the Builder in putting the Buyer into the position in which it was (on this hypothesis) entitled to and did exercise a contractual right of termination, such damages being the amount of profit which the Builder would have made if the vessel had been built, delivered and paid for, alternatively in the amount of the expenditure incurred in performance of the Builder’s obligations under the Contract.”
Mr Nolan explained that he did not draft this statement of case and would prefer to put the counterclaim in terms that the Buyer’s breaches of the contract caused the Buyer to become entitled to cancel the contract which in turn caused the Yard to become liable to repay the contract price.  The Yard has suffered loss in this amount less any sum which it may recoup by selling the vessel in mitigation of its loss.  
74.	It seems to me that a difficulty for the Yard, however the counterclaim is formulated, is that an essential step in the chain of causation between the Buyer’s alleged breaches of contract and the Yard’s loss is the Buyer’s valid exercise of a contractual right to cancel the contract.  Since the counterclaim only arises on the hypothesis that the cancellation was lawful, it involves the contention that the Buyer is liable to compensate the Yard in damages for loss which the Yard has suffered as a result of the Buyer’s lawful exercise of a contractual right.  Although the issue is not one which has been directly raised on these appeals, I am unable to see how such loss can properly be recovered by the Yard.  It is not sufficient in order to render such loss recoverable for the Yard to show that, but for the Buyer’s previous failure to perform certain of its own obligations, the Buyer would not have been in a position where it had a right to cancel the contract.  It seems to me difficult avoid the conclusion that the chain of causation was broken and that the effective cause of the Yard’s losses was the Buyer’s exercise of its right of cancellation. More fundamentally, in circumstances where the delay which entitled the Buyer to cancel was, as I have held, non-permissible delay, I cannot see that it is open to the Yard to claim, for this purpose or any other, that the cause of the cancellation was delay due to the Buyer’s breaches of contract rather than being the fault of the Yard.  The Yard’s counterclaim therefore appears to me to be misconceived.  If that is right, no question of set-off arises.
75.	Assuming, however, that it is wrong, I see no basis for interfering with the tribunal’s findings that the test for an equitable set-off was not met.  That test is whether the cross-claim is “so closely connected with [the claim] that it would be manifestly unjust to allow [the claimant] to enforce payment without taking into account the cross-claim”: Federal Commerce & Navigation Co Ltd v Molena Alpha Inc (The ‘Nanfri’) [1978] 2 KB 972, 975; Geldof Metaalconstructie NV v Simon Carves Ltd [2011] 1 Lloyd’s Rep 517 at para 43(vi).  In each case the tribunal applied the correct test and Mr Nolan rightly accepted that its finding that the requirement of “manifest injustice” was not satisfied was a value judgment akin to the exercise of a discretion.  The court could only interfere with such a finding if it were shown either (i) that it was premised on an error of law or (ii) that it was one which no reasonable arbitrator could reach: see Pioneer Shipping Ltd v BTP Tioxide Ltd (‘The Nema’) [1982] AC 724, 742.  Neither is the case here.
76.	Mr Nolan argued that the majority arbitrators erred in failing to recognise the injustice that will result from the fact that the Buyers are special purpose companies with no assets apart from their rights under the contracts who will not be worth pursuing if no set-off is allowed.  However, this argument was expressly considered by the arbitrators who found that any risk arising from the creditworthiness of the Buyers was one which the Yard had knowingly assumed when it entered into the contracts and did not in these circumstances give rise to any manifest injustice.  It cannot be said that this view involved any error of law.  On the contrary, it seems to me that the existence or otherwise of a right of set-off must in principle depend solely on the nature of the claim and cross-claim and their relationship to each other and cannot depend on the counterparty’s solvency or financial worth.  In commercial dealings a contracting party who is concerned about the ability of the counterparty to discharge a potential liability should seek security or otherwise accept the financial risk.  In an appropriate case it might be possible to obtain a freezing order to prevent the counterparty from disposing of assets (including assets derived from payments made under the contract) pending determination of a cross-claim.  But it would in my view be wrong in principle to permit a party to withhold on account of a cross-claim a payment that it would have been obliged to make if it had not taken a counterparty credit risk.  Mr Nolan was unable to point to any authority which would support a different conclusion.  
77.	The Yard’s appeal on this issue must therefore fail.  I add, however, for completeness that I do not agree with the tribunal’s alternative finding that any right of set-off was excluded by the wording of Article X.2 which obliged the Yard to refund “immediately to the Buyer the full amount of all sums paid by the Buyer”.  The requirement to repay the “full amount of all sums paid” merely specifies the sum of money which the Yard is obliged to pay and the word “immediately” merely specifies when the payment falls due.  Neither phrase can properly be interpreted, in my view, as saying anything about rights of set-off, let alone as doing so with the clarity that would be required to exclude such a right.
Conclusions
78.	For the above reasons, my answers to the questions raised on the appeals are as follows:
i)	On the facts pleaded by the Yard in its Defence and Counterclaim submissions in the arbitrations and on a true construction of the contracts between the parties, the Buyers were in each case entitled to cancel the contract and to repayment of the instalments of the price paid by them.
ii)	On the true construction of the contracts, delay caused by the Buyer’s breach of Article IV of the contract as alleged in these arbitrations was not “permissible delay” for the purposes of Article VIII.1 of the contract but was “non-permissible delay”.
iii)	Article VIII.2 of the contract did not require the Yard to give notice to the Buyers of delays caused by the Buyer’s breaches of Article IV of the contract alleged in these cases because such delays did not fall within the scope of Article VIII.1.  Alternatively, the consequence of failing to give such notice is in any event that the delays cannot be treated as permissible delays.  The delays were non-permissible delays which as such counted towards (a) the period of 270 days’ delay entitling the Buyers to terminate the contract under Article VIII.3 and also (b) the period of 210 days’ delay after the Delivery Date entitling the Buyers to terminate the contract under Article III.1(c) so that the Yard became obliged to pay interest on the sums refunded.
iv)	Article X.2 did not exclude the Yard’s right to set-off its claims for damages against its liability to repay the instalments of the price paid for the vessel.
v)	It is not manifestly unjust that the Buyer’s claim should be enforced without regard to the Yard’s counterclaim.
79.	In the light of these conclusions, I dismiss the Yard’s appeal and allow the Buyers’ appeal against the awards in relation to Hulls J0051 and J0052.  In each of these cases the Final Award of the tribunal dated 14 June 2014 will be varied by deleting the word “not” in paragraph 20(B) of the Award and replacing paragraph 20(E) by the words “the Buyer’s claim for interest succeeds”.  The awards will be remitted to the tribunal for reconsideration and calculation of the interest to be awarded.
80.	In relation to Hulls J0119 and J0120, I dismiss the Yard’s appeal and confirm the tribunal’s awards dated 18 June 2014.