This was an appeal from an arbitration award pursuant to section 69 of the Arbitration Act 1996. The case concerned a Memorandum of Agreement (the “MOA”) dated 1 May 2010, concluded upon the Norwegian Saleform 1993 (“NSF 1993”). According to clause 2 of the MOA, a deposit of 10% was payable within three banking days of signature; however Buyers failed to pay the said deposit. The Sellers accepted that conduct as a repudiation of the MOA, and they also cancelled the same pursuant to the express contractual right contained in clause 13. The issue to be decided by the Commercial Court was whether the Sellers were entitled to claim payment of the said deposit or they could simply claim the conventional measure of damages; i.e. the difference between contract and market price, which in the case resulted to be a lesser amount than the deposit. Hence the case turned upon the true construction of the NSF 1993.
The relevant terms of the MOA were as follows:
2. Deposit
As security for the correct fulfilment of this Agreement the Buyer shall pay a deposit of 10% (ten per cent) of the Purchase Price within 3 (three) banking days after this Agreement is signed by both parties and exchanged by fax/email. This deposit shall be placed in the Sellers’ nominated account with the Royal Bank of Scotland PLC, Piraeus and held by them in a joint interest bearing account for the Sellers and the Buyers, to be released in accordance with joint written instructions of the Sellers and the Buyers …
13. Buyers’ default
Should the deposit not be paid in accordance with Clause 2, the Sellers shall have the right to cancel this Agreement, and they shall be entitled to claim compensation for their losses and for all expenses incurred together with interest.
Should the Purchase Price not be paid in accordance with Clause 3, the Sellers have the right to cancel the Agreement, in which case the deposit together with interest earned shall be released to the Sellers. If the deposit does not cover their loss, the Sellers shall be entitled to claim further compensation for their losses and for all expenses incurred together with interest.»
The Buyers’ case was that the right to payment of the deposit had accrued before the MOA was terminated, so that they were entitled to claim such deposit either as debt or as damages. However, the arbitration tribunal disagreed and found that, in accordance with the true construction of first limb of clause 13 above –which, in contrast with the second limb, did not provide specifically for forfeiture/recovery of the deposit–, the Buyers’ only right was to compensation.
Teare J, in the Commercial Court, reversed the decision of the arbitration tribunal, allowing the appeal, in the following judgment.