Four companies registered in Bermuda (referred to collectively as Claimant), ordered four ships from Respondent, an Italian shipbuilder. None of the vessels was completed or delivered, each side claiming instead to have cancelled the contracts. The parties were in dispute over which of the cancellations was justified. This dispute was preceded by another dispute, also referred to ICC arbitration under no. 10294, arising out of a similar contract concluded between the same shipbuilder and another company belonging to the same group as the claimant companies in case 10364. In the prior dispute, the shipbuilder claimed compensation over and above the contract price for extra work it alleged had been requested by its customer. As the four subsequent vessels were to be identical to the first vessel, the shipbuilder reiterated its claim of compensation for extra work, which, as in the first case, was rejected. Thereupon, it purported to cancel the four subsequent contracts on the grounds that its customer refused to pay for the extra work. The claimant requested the shipbuilder to proceed with the performance of the four subsequent contracts, but in vain. The claimant purported to cancel those contracts on the grounds that the shipbuilder had wrongfully cancelled them and was late in delivering the vessels.

Quatre sociétés, toutes enregistrées aux Bermudes (et collectivement désignées au singulier comme « Claimant » (demanderesse)), ont commandé quatre navires à la défenderesse, un constructeur naval italien. Aucun des navires n'a été ni terminé ni livré, chacune des parties alléguant avoir résolu le contrat. Le différend portait sur la question de savoir laquelle de ces résolutions était fondée. Il avait été précédé par un autre différend, soumis à l'arbitrage de la CCI sous le n° 10294, né d'un contrat similaire conclu entre le même constructeur naval et une autre société appartenant au même groupe que les sociétés demanderesses de l'affaire 10364. Dans ce précédent différend, le constructeur naval avait demandé un dédommagement, en sus du prix contractuel, pour des travaux supplémentaires commandés selon lui par son client. Sachant que les quatre navires suivants devaient être identiques au premier, le constructeur naval a réitéré sa demande de dédommagement pour des travaux supplémentaires qui, comme dans la première affaire, a été rejetée. Là-dessus, il a prétendu résoudre les quatre contrats suivants au motif que son client refusait de payer les travaux supplémentaires. La demanderesse a sommé le constructeur naval d'exécuter les quatre contrats suivants, mais en vain. La demanderesse a prétendu résoudre les contrats au motif que le constructeur naval les avait résolus sans juste cause et avait du retard dans la livraison des navires.

Cuatro compañías registradas en Bermuda (y referidas colectivamente como "Claimant" (la demandante)), encargaron cuatro buques a la demandada, un constructor naval italiano. Ninguno de los buques se acabó o se entregó, mientras que en cambio cada parte alegaba que había cancelado los contratos. Las partes disputaban cuál de las cancelaciones estaba justificada. La disputa había sido precedida por otra disputa, también referida a un arbitraje ICC con el nº 10294, derivada de un contrato similar concluido entre el mismo constructor naval y otra compañía que pertenecía al mismo grupo que las compañías demandantes en el caso 10364. En la disputa previa, el constructor naval reclamaba la compensación por encima del precio de contrato, por el trabajo extra que alegaba que le había pedido el cliente. Como los cuatro buques posteriores tenían que ser idénticos al primer buque, el constructor naval repitió su reclamación de compensación por el trabajo adicional que, como en el primer caso, era rechazada. Acto seguido, el constructor naval pretendía que se consideraran cancelados los cuatro contratos posteriores con motivo de que el cliente se negaba a pagar el trabajo extra. La demandante reclamaba al constructor naval que siguiera con la realización de los cuatro contratos subsiguientes, en vano. La demandante daba a entender que cancelaba esos contratos en razón a que el constructor naval los había cancelado erróneamente y se retrasaba en la entrega de los buques.

'VII. Respondent's cancellation

51. Prerequisites of cancellation

It is undisputed between the parties that the question as to which party's cancellation was valid is governed by Dutch law. The parties further agree that Contracts [2]-[5] are no longer in existence because those Contracts have been validly terminated. However, there is dispute as to which of the parties lawfully terminated the Contract. Therefore, the parties' cancellations have to be analysed in chronological order.

52. [Respondent]'s cancellation is based on the contention that [Claimant] had wrongfully failed to pay in advance 50% of the extra compensation claimed by [Respondent] for the items of alleged extra work and invoiced to [Claimant]. It is [Respondent]'s case that [Claimant] was thereby acting in serious breach of contract (for the details see para. 22 above). [Respondent] contends that it was entitled to cancel the Contracts under article 6:265 Dutch Civil Code. This provision states (in English translation):

(1) Every failure of one party in the performance of one of its obligations gives the other party the right to set the contract aside in whole or in part, unless the failure, given its special nature or minor importance, does not justify a setting aside of the contract and the consequences thereof.

(2) To the extent that performance is not permanently or temporarily impossible, the right to set the contract aside does not arise until the obligor is in default.

53. In summary, [Respondent] was entitled to cancel the Contracts on the basis of Art. 6:265 Dutch Civil Code if each of the following pre-requisites are met:

[Respondent] had a claim for extra compensation under the Contracts;

[Claimant] was in default with its obligation to pay the extra compensation due to [Respondent];

[Claimant]'s breach of contract was not of minor importance, and the cancellation was not unjustified given the nature of [Claimant]'s breach of contract (see also para. 68 below).

54. [Respondent]'s claim for extra compensation

Therefore it has to be considered first whether [Respondent]-at the date when its cancellation notices were received by [Claimant]-had a claim for extra compensation.

Under Contracts [2]-[5] [Respondent] is entitled to claim extra compensation if [Claimant] requires [Respondent] to perform an item of extra work and if [Respondent] complies with the procedure set out in clause 8. Therefore it is necessary to determine (i) the criteria for extra work, (ii) the steps [Respondent] had to take to comply with the procedure set out in clause 8 of the Contract and (iii) the pre-requisites under which [Respondent] is entitled to extra compensation under the principles of reasonableness and equity even where the procedure in clause 8 has not been followed.

55. Criteria qualifying work as extra work under the Contracts

An item of work has to be qualified as extra if it is neither covered by the Contracts nor by the Specifications or the further enclosures to the Contracts. On the other hand, where the Contract and the Specifications describe certain features of the vessels the work relating to these items is covered by the Contracts and cannot be the basis for a claim for extra compensation. The Tribunal appreciates that very often an item of work cannot easily be allocated to one of those two alternatives. In many cases the Specifications describe certain features of the vessels in general terms only. In other cases the Specifications oblige [Respondent] to optimise the vessels in certain respects.

In these cases the work cannot be qualified as extra on the sole basis that the Contracts do not describe the details of the work. Rather, where the Contracts provide only for certain functions and capabilities of the ships, it is implied that [Respondent] has to take all necessary and reasonable steps to achieve these goals. Similarly, where the Contracts provide for optimisation work [Claimant] could expect [Respondent] to undertake all reasonable efforts to optimise the vessels. To the extent that the work performed by [Respondent] fulfilled these criteria [Respondent] has no claim for extra compensation.

56. [Respondent] has claimed in the proceeding that work done at SMA's [Swedish Maritime Administration] request may be covered by the Contracts but nevertheless give rise to a claim by [Respondent] for extra compensation. However, it is accepted by both parties that the vessel had to be built in compliance with the Swedish flag requirements and that this also entails an obligation on the part of [Respondent] to follow SMA's requests. Therefore work performed on request of SMA is covered by the Contract and not extra. It does not matter whether SMA's interpretation of the applicable rules were correct or more stringent than the interpretation adopted by other national authorities. This risk rests solely with [Respondent] since SMA is not an agent of either contracting party and [Respondent] had agreed to build the vessels in compliance with the Swedish flag requirements.

[Respondent] has raised the argument that even if work performed at the request of SMA has to be regarded as covered by the Contract, [Respondent] is entitled to extra compensation since the parties have not agreed a price for this work. This concept is misconceived because the contractually agreed fixed price covers all work [Respondent] had to perform under the Contracts. This also includes the work performed at the request of SMA.

The Tribunal appreciates that there might be cases where SMA requirements are inconsistent with provisions of the Contract and/or the Specifications. Given the fact that according to the order of precedence set out in clause 1.1 of the Contracts, each Contract prevails over the Specifications in case of inconsistencies, work performed on SMA's request can be regarded as extra work (only) to the extent that there is a clear inconsistency between the SMA requirements and the Specifications or the further attachments to the Contracts.

57. Procedure under clause 8 of the Contracts

According to the contract provisions, [Respondent] is entitled to claim extra compensation for extra work only if the requirements of clause 8 have been fulfilled i.e. following a request by [Claimant] for extra work [Respondent] has to notify [Claimant] that the request would result in extra work and would have an impact on the price and/or delivery time. It is however not a prerequisite for a proper notification that [Respondent] gives an estimate of the price increase unless this is demanded by [Claimant].

In the present case it is of particular importance whether clause 8 of the Contracts requires [Respondent] to notify [Claimant] of extra work prior to the commencement of such work. During the proceeding [Respondent] contended that it is entitled to additional compensation for extra work regardless of whether at the time of notification the work had not yet started, was in progress or had already been finished. However, clause 8 requires [Respondent] to notify [Claimant] in writing "without undue delay". There can be no doubt that the parties intended that [Respondent] should be obliged to notify [Claimant] as soon as possible in order to give [Claimant] an opportunity to consider the possibility of reaching an agreement on the price increase or to decide that it did not wish to proceed with its request for extra work. Therefore, [Respondent] would have been obliged under the Contracts to notify [Claimant] before it started to perform the extra work requested. Consequently, the starting point must be that [Respondent] has no claim for extra compensation if it notified [Claimant] of the extra work after the work had started regardless of whether at the time of notification the work had already been finished or was still in progress.

58. Principles of reasonableness and equity

[Respondent] has claimed that under the principles of reasonableness and equity which form part of Dutch law [Respondent] is entitled to extra compensation for extra work even if the procedure in clause 8 was not followed. In that respect it has to be considered that clause 8 clearly states that where [Respondent] did not properly notify [Claimant] "the Contract remains unchanged". Therefore failing proper notification by [Respondent], [Claimant] is not obliged to pay extra compensation bearing in mind the principle pacta sunt servanda. The Tribunal acknowledges that circumstances may arise which would allow [Respondent] to claim for extra compensation under the principles of reasonableness and equity even if the requirements of clause 8 had not been complied with. However, in applying this concept a reticent approach has to be adopted, taking into consideration the case law of the Dutch Supreme Court and considering also that article 17(2) of the applicable ICC Rules of Arbitration specifically requires the Tribunal in all cases to take account of the provisions of the Contract. In addition it has to be noted that [Respondent] and [Claimant] were both experienced in concluding and implementing shipbuilding contracts and that provisions such as clause 8 are customary in shipbuilding contracts (which as a trade usage is also relevant under article 17 (2) of the ICC Rules). Under these circumstances clause 8 could only be ignored for other compelling reasons. The Tribunal has however not been convinced by the documentary and oral evidence that the relationship between the parties, and particularly the relationship between [the technical directors of Claimants and Respondent] and the attitudes adopted and arguments advanced by [Claimants' technical director] during the work, was such as to make it impossible for [Respondent] prior to the commencement of the work to at least make [Claimant] aware that it would claim for extra compensation for such work.

The Tribunal does not consider it necessary to rehearse the relevant principles of Dutch law, or set out its reasoning in detail, since they will have been analysed fully in the Award in case no. 10294. However, in summary, the Tribunal concludes that, given this background [Respondent] is entitled to extra compensation under the principles of reasonableness and equity only if all of the following requirements are met:

[Claimant] (or its authorised representatives such as [Claimants' technical director]) requests or consents expressly or impliedly to an item of extra work from [Respondent];

[Claimant] (or its authorised representatives) is aware that its request or consent will involve extra work or should reasonably understand that fact;

[Claimant] (or its authorised representatives) is made aware by [Respondent] or must have known of its own accord that the item of extra work concerned will give rise to a claim by [Respondent] for extra payment for such work.

59. Items of extra work

Applying the principles developed above the Tribunal concludes that of the items claimed by [Respondent] only the following items fulfil the requirements constituting "extra work":

Container type and stowage to the extent that [Respondent] claims extra compensation on account of changing the container type from ISO1 to EURO: This is extra work because the parties had contractually agreed on a frame spacing of 821 mm allowing the stowage of ISO1 containers only.

Life boat repositioning: This is extra work because the parties had initially agreed on a life boat positioning different from the one finally fitted to the vessels (even though this may have been an SMA requirement).

Extension of superstructures (part of the position "stabilising tank repositioning"): The parties agree that the extension of superstructures was necessitated by the life boat repositioning. Thus, it is extra work.

Fire detection points (included in item "additions to the electric plant"): The additional fire detection points requested by [Claimant] were not provided for in the Contracts.

Main switchboard (included in the item "additions to the electric plant"): The Contracts provided for a bolted main switchboard only and not for a welded switchboard which was finally fitted to the vessels.

High pressure washing equipment (included in item "additions to the electric plant"): The addition of start/stop panels for the high pressure washing system was not covered by the Contracts. In addition, it was the owner's (i.e. [Claimant]'s) task to purchase this equipment.

Addition of 4 FW valves (included in the item "remote control"): These valves were not covered by the Contracts and are therefore extra.

Internal/external communications: [Claimant] had requested additions to the internal and external communications system of the vessels which are not covered by the Contracts and its Specifications.

Provision store: On request of [Claimant] [Respondent] performed modifications to the provision store which are not covered by the contracts.

Owner furnished equipment: In ICC Case No. 10294 the parties have agreed that the purchase and supply of the radio equipment was [Claimant]'s task. Therefore the supply of wireless radio equipment claimed by [Respondent] under this item is not covered by the Contracts.

Torquemeter installation: The Contracts and the Specifications do not provide for torquemeters on the propeller shafts. Moreover, in ICC case no. 10294 [Claimant] has admitted that it had asked [Respondent] to install the torquemeters, which is therefore extra work.

Exhaust gas cleaning (included in item "Various items", by the parties also referred to as item no. 2.5.11): The installing of a catalytic exhaust gas cleaning equipment (SCR) is not provided for in the Contracts but was requested by [Claimant] after conclusion of the Contracts. It is therefore extra work.

Soft starter: In ICC case no. 10294/AER [Claimant] has admitted that this is an item of extra work and [Claimant] has agreed to regard its submissions in case no. 10294 as pleaded also in the present Arbitration.

Aft mast to the extent the aft mast was to be made of hot galvanized steel instead of mild steel: This is extra work because the Specifications provide in section 3.14.1 that the aft mast was to be made of mild steel.

Recessed lighting (included in item "Various items"; in ICC Case No. 10294 also referred to by the parties as item no. 2.6.5): The arrangement of further recessed lighting on board was agreed between the parties after the contracts had been concluded and is therefore extra work.

60.The work relating to all further items claimed by [Respondent] to be extra work cannot give rise to a claim for extra compensation regardless of whether the procedure in clause 8 was followed. These items do not fulfil the criteria for extra work for the following reasons:

61. A further prerequisite for a claim by [Respondent] for extra compensation on account of the items of extra work analysed in para. 59 above is that [Respondent] had notified [Claimant] in accordance with clause 8 of the Contracts. [Respondent] contends that such notification was given by sending to [Claimant] the letters and corresponding invoices mentioned in paragraph 19 above, for advance payment of 50% of the extra compensation claimed. In that respect it has been noted that clause 8 requires [Respondent] to specify the work it considers to be extra. In other words, the notification must be specific enough so as to allow [Claimant] to ascertain the work for which [Respondent] claims extra and as a result to allow [Claimant] to examine itself whether this work is really extra and if so whether it wants to proceed with its request to perform such work. [Respondent] did not put forward any other evidence of notification to [Claimant] whatsoever, in the absence of which, the question of the said letters and invoices is decisive. Therefore, it has to be analysed for each item of extra work whether it was covered by an invoice from [Respondent] and whether the respective invoice item was specific enough:

Container type: According to [Respondent] this item was covered by invoice no. 207 (hull [2]), invoice no. 208 (hull [3]), invoice no. 266 (hull [4]) and invoice no. 296 (hull [5]). In these invoices [Respondent] mentions a different container type. The parties had only ever discussed ISO1 and EURO containers. Therefore [Respondent]'s reference to "the different type of containers" was specific enough.

Lifeboat repositioning: According to [Respondent] this item is covered by invoice no. 209 (hull [2]), invoice no. 210 (hull [3]), invoice no. 267 (hull [4]) and invoice no. 297 (hull [5]). In these invoices [Respondent] claims an advance payment of [sum of money] per vessel for "steel preparation and modifications to hatches, stairs, railings, manholes, various reinforcement etc". It is not possible to derive from this wording that [Respondent] claims extra compensation for the repositioning of the life boat. Therefore the aforementioned invoices cannot be regarded as notification in the sense of clause 8 of the Contracts.

Extension of superstructures: [Respondent] claims that this item is included in the same invoices as the lifeboat repositioning. Here again it was not possible for the recipient of the invoices to conclude that [Respondent] claims extra compensation for the extension of the superstructures. Therefore the invoices did not satisfy the requirements of clause 8.

Fire detection points / main switchboard / high pressure washing equipment: According to [Respondent] these items are included in the work dealt with as "additions to the electric plant". [Respondent] further contends that the work is covered by invoice no. 236 (hull [2]), invoice no. 247 (hull [3]), invoice no. 277 (hull [4]) and invoice no. 307 (hull [5]).

However, these invoices refer to "modification of electric cable ways, number and type of cables with consequent modification of the structures" whilst "additions to the electric plants" were invoiced separately by invoices no. 217 (hull [2]) and no. 218 (hull [3]). It is common ground that the parties have agreed on the items invoiced by invoices no. 217 and 218 and that [Claimant] has paid the agreed extra compensation for these items. Also, for hulls [4] and [5] it is undisputed between the parties that an extra compensation of [sum of money] per vessel was agreed and included in the contract price for works relating to "electric plants". This is evidenced by the parties' Minutes of Meeting no. 8 (dated 23 April 1996, ref. 3618 in ICC case no. 10294) and [Claimant]'s telefax to [Respondent] of 2 October 1997.

In this situation it was not possible for [Claimant] to realize that [Respondent] intended to claim extra compensation for further work relating to the electric plant in invoices no. 236, 247, 277 and 307. Therefore the procedure of clause 8 was not followed for these items.

Addition of 4 FW valves: According to [Respondent] this item is covered by invoice no. 234 (hull [2]), invoice no. 245 (hull [3]), invoice no. 275 (hull [4]) and invoice no. 205 (hull [5]). Indeed, these invoices refer to the addition of remotely controlled valves. Therefore [Claimant] was notified in compliance with clause 8 of the Contracts that the work covered by this item was extra.

Internal/external communications: According to [Respondent] this item is included in invoice no. 235 (hull [2]), invoice no. 246 (hull [3]), invoice no. 276 (hull [4]) and invoice no. 306 (hull [5]). However, these invoices related to "accommodation furnishing and bridge arrangement: increase of shipyard standard e.g. wider windows, more window wipers, defrosting system and heated glass for all windows". It was not clear to a recipient of these invoices that [Respondent] claimed extra compensation for the modifications of the internal/external communication systems. The said invoices generally refer to the increase of the shipyard standard and lists examples which do not include the details of the work claimed under this item. Therefore [Respondent] has failed to give a sufficiently specified notification under clause 8.

Provision store: According to [Respondent] this item is covered by invoice no. 232 (hull [2]), invoice no. 243 (hull [3]), invoice no. 273 (hull [4]) and invoice no. 303 (hull [5]). In these invoices [Respondent] claimed extra compensation for "provision refrigerated stores". Therefore [Respondent] has sufficiently notified [Claimant] under clause 8 of the Contracts.

Owner furnished equipment: According to [Respondent] this item is included in invoice no. 235 (hull [2]), invoice no. 246 (hull [3]), invoice no. 276 (hull [4]) and invoice no. 306 (hull [5]). Reference is made to the Tribunal's comments relating to the same invoices in relation to the item "internal/external communications". The invoices did not (not even generally) mention owner furnished equipment. Therefore [Respondent] has not notified [Claimant] in accordance with clause 8 of the Contracts.

Torquemeter installation: According to [Respondent] this item is included in invoice no. 209 (hull [2]), invoice no. 210 (hull [3]), invoice no. 267 (hull [4]) and invoice no. 297 (hull [5]). These invoices only deal with steel preparation and modifications to various steel items and make no reference whatsoever to torquemeter installation. Therefore [Respondent] has not complied with the procedure of clause 8 of the Contracts.

Exhaust gas cleaning: According to [Respondent] this item was covered by invoice no. 229 (hull [2]), invoice no. 240 (hull [3]), invoice no. 268 (hull [4]) and invoice no. 298 (hull [5]). These invoices make reference to "pipes standard modification (moulding treatment etc.)". The Tribunal finds that it was not possible for [Claimant] to derive from these invoices that [Respondent] claimed extra compensation for the installation of a catalytic exhaust gas cleaning equipment. Therefore the procedure of clause 8 was not followed.

Soft starter: According to [Respondent] this item is included in invoice no. 236 (hull [2]), invoice no. 247 (hull [3]), invoice no. 277 (hull [4]) and invoice no. 307 (hull [5]). However, these invoices deal with modifications of the electrical cable ways and do not mention the soft starter. Therefore the procedure of clause 8 of the Contracts was not followed by [Respondent] for this item.

Aft mast (to be made of hot galvanized steel instead of mild steel): According to [Respondent] this item is included in invoice no. 209 (hull [2]), invoice no. 210 (hull [3]), invoice no. 267 (hull [4]) and invoice no. 297 (hull [5]). These invoices refer to steel preparation and modifications to hatches, stairs, railings, manholes and various reinforcements but do not indicate that additional compensation is claimed for the use of hot galvanized steel instead of mild steel as provided in the Specifications. Therefore the prerequisites of clause 8 of the Contracts are not met with regard to this item of extra work.

Recessed lighting: According to [Respondent] this item is included in invoice no. 209 (hull [2]), invoice no. 210 (hull [3]), invoice no. 267 (hull [4]) and invoice no. 297 (hull [5]). These invoices deal with steel preparation and modifications but do not mention recessed lighting. The Tribunal finds that it could not have been clear to [Claimant] that the steel modifications for which [Respondent] claimed extra compensation included modifications to the lighting. Therefore, [Respondent] has not complied with clause 8 of the Contracts for this item.

In summary, [Respondent] gave [Claimant] sufficient notice only for the change of the container type, the addition of the 4 FW valves and the provision store.

62. To the extent that [Respondent] did not properly notify [Claimant] of extra work it cannot base its claim for extra compensation on the principles of reasonableness and equity. A minimum requirement for the application of these principles is that [Claimant] was aware or must have reasonably been aware of the extra work performed or to be performed by [Respondent] and giving rise to a claim for extra payment. It is not sufficient that [Claimant] requested the work. There must be additional facts supporting the contention that [Claimant] actually knew or should have known that the work performed at its request was treated by [Respondent] as extra work. Given the very vague and general and to some extent even misleading nature of the invoices such additional facts have not been established by [Respondent].

63. For the three items of extra work which [Respondent] did properly notify to [Claimant], the question remains whether [Respondent] gave its notification "without undue delay" as required by clause 8 of the Contracts. As outlined above, under clause 8 of the Contracts [Respondent] had to give the notification prior to the start of the work because otherwise [Claimant] would have no possibility to decide whether it wished to go ahead with the performance of the requested extra work. It is undisputed between the parties that the construction of hull no. [5] never started. Therefore [Respondent]'s notification for this vessel was given in time to the extent the work does not include the preparation of drawings (which is not clear). Other than hull [5], the vessels [2]-[4] were in different stages of construction when [Respondent] gave its notices of cancellation. [Respondent] has not presented any evidence that the letters with corresponding invoices had been sent to [Claimant] before the above items of extra work were performed after the invoices had been sent to [Claimant].

The Tribunal notes that [Claimant] has disputed that the work for which [Respondent] claimed extra payments has been performed at all. Nevertheless, the Tribunal could not base its conclusions on the hypothesis that the extra work has never been performed. It is undisputed between the parties that at the time when the cancellation notices were given the construction of hulls [2]-[4] was in progress and the drawings for hull [5] had been prepared. In that situation therefore it would have been up to [Respondent] to present evidence as to the exact state of the work on hulls [2]-[5] at the time when [Respondent] notified [Claimant] under clause 8. However, it is not necessary for the Tribunal to decide on this issue because [Respondent]'s cancellation was also wrongful for other reasons which are analysed in the following.

64. Was [Claimant] in default of payment?

A further prerequisite of [Respondent]'s right to cancel the Contracts is that [Claimant] was only in default of paying for the extra compensation due for the items of extra work. Therefore the first question in this context is whether [Respondent]'s claim for extra compensation was due. Clause 8.1 of the Contracts provides that 50% of the price increase attributable to extra work shall be paid by [Claimant] "on the date of confirmation of the modifications requested or agreed".

It is undisputed between the parties that no express confirmation was given by [Claimant]. However, [Respondent] contends that [Claimant] had impliedly confirmed the extras for hulls [2]-[5] by accepting the delivery of hull [1]. This concept is misconceived. Hull no. [1] was accepted by another legal entity, namely [company in Claimant group]; moreover, [Claimant] had expressly asked [Respondent] to clarify its claim for extra compensation with respect to hulls [2]-[5]. The correspondence is summarized in para. 19 above. [Respondent] had not given further details to [Claimant]. Finally, [Claimant] had not accepted that the items in question are extra work in respect of hull [1]. Therefore, [Claimant] neither expressly nor impliedly gave the confirmation required under clause 8.1 of the Contracts for hulls [2]-[5].

65. In the alternative, [Respondent] has contended that [Claimant] had withheld its confirmation in bad faith. According to [Respondent] [Claimant] must have been aware of the serious financial situation of [Respondent] at the time the advance payment for the extra work was claimed. It is not necessary for the Tribunal to decide whether indeed [Claimant] had such knowledge. In any event, the invoices sent by [Respondent] to [Claimant] were in many cases not clear enough. As reflected by the examples given in para. 61 above in many cases [Respondent] did not substantiate sufficiently the nature and type of work for which extra compensation was claimed. Moreover, the amount claimed on account of individual items of alleged extra work consists of round figures and these have not been explained. Also, [Claimant] has rightly pointed to the fact that in some cases the amount of [Respondent]'s claim for extra compensation for hulls [2]-[5] differed substantially from the amount claimed for hull [1] although it must be assumed that the work was identical. For example, [Respondent] has claimed considerably more costs for hull [2]-[5] for the increased power of the diesel generators and the items "details and steel preparation", "thermal oil system" and "hull bilge system". On the other hand [Respondent] claimed considerably more for the remote control and the provision stores for hull [1] than for hulls [2]-[5] although the work appears to be identical.

These examples show that [Claimant]'s request for further details as to the nature of the work covered by the invoices and the basis for [Respondent]'s calculation of the extra compensation was justified. [Respondent] did not sufficiently respond to [Claimant]'s request. In its letter to [Claimant] of 12 November 1998 [Respondent] merely took the stance that the invoiced work had been requested by [Claimant] but has failed to give any further details.

Therefore [Claimant] cannot be said to have withheld the confirmation under clause 8.1 in bad faith. Consequently [Respondent]'s claim for extra compensation for the items which can be considered as extra work never became due. As a further consequence [Claimant] was not in default of paying the extra compensation to [Respondent].

66. Minor importance and nature of breaches of contract

Even if it were assumed that [Respondent] had a due claim for extra compensation for the items summarized in para. 61 above and if it were further assumed that [Claimant] was in default of paying the extra compensation, [Respondent] would still not be entitled to cancel the Contracts. As clarified in para. 52 and 53 above a party is only entitled to cancel a contract under article 6:265 Dutch Civil Code if the other party's breach of contract is not only of minor importance. In the present Arbitration [Claimant]'s failure to pay extra compensation to [Respondent] was only of minor importance had it been a breach of contract.

67. This is corroborated by the fact that the extra compensation claimed by [Respondent] on account of the items which the Tribunal finds to be extra work is only a very small proportion, comprising less than 5% of the Contract price, even if the amounts claimed by [Respondent] (and disputed by [Claimant]) are taken as a basis.

68. Moreover, clause 3.d of the Contracts provides that [Claimant] in case of any dispute concerning payment under the Contracts is entitled to take delivery of the vessels against payment of the undisputed amount and issue of a bank guarantee or other adequate security for the disputed amount. This provision shows that a dispute concerning payment does not necessarily give rise to a right of cancellation. Given that contractual framework [Respondent]'s contention that [Claimant] was under a duty of loyalty to pay the invoices for extra work in due course and that failure to do so would entitle [Respondent] to cancel the Contracts cannot be sustained. The Tribunal acknowledges that [Respondent] had to pre-fund the costs for extra work. However, [Respondent] would have been entitled to refuse the performance of extra work unless [Claimant] paid the 50%. [Claimant] would not have been able to force [Respondent] to perform such work before the parties had agreed on the extra costs in that respect. As far as, however, [Respondent] had decided to start the extra work before an agreement had been reached, it took on the risk of pre-funding the costs for the work since it could not request the submission of security under clause 3.d of the Contract before delivery. Consequently, non-payment by [Claimant] could not, given its nature, justify the cancellation of the Contracts by [Respondent].

69. Conclusion on [Respondent]'s cancellation

In summary, [Respondent] had no right to cancel the Contracts. To the extent that [Respondent] actually had a claim for extra compensation, this claim was not yet due. In any event [Claimant]'s failure to pay the extra compensation for the items which are extra work is only of minor importance and the nature of such failure did not justify the cancellation.

VIII. Claimant's cancellation

70. Claimants' cancellation of the Contracts [2]-[5] is based on the contention that [Respondent] was acting in serious breach of the Contracts because [Respondent] purported to improperly terminate the Contracts and discontinued the work on the vessels. For hulls [2] and [3] [Claimant]'s cancellation is additionally based on the contention that [Respondent] was late in the delivery of the vessels.

The first contention (serious breach of Contracts) could give rise to a right of [Claimant] to cancel the Contracts under Article 6:265 Dutch Civil Code, quoted in para. 52 above.

Under Dutch law, when it is decided, such as in the present Arbitration, that the purported cancellation of a contract, such as [Respondent]'s cancellation . . ., was not justified, this cancellation is invalid, with the result that the party who had purported to cancel the contract, such as [Respondent] in the present case, continued to have an obligation to perform the contract, and this party will then have wrongfully failed to do so, and be liable for breach (see i.a. the textbook Asser-Hartkamp, Verbintenissenrecht, i.e. The law of obligations, Part II, 1997, p. 506).

The second contention (delayed delivery) could give rise to a right of cancellation under clause 12.b of Contracts 1549 and 1550.

71. Right of cancellation under Article 6:265 Dutch Civil Code

As established above [Respondent] had no right to cancel the Contracts and [Respondent]'s attempt to cancel was itself a breach of the Contracts.

72. Since [Respondent]'s cancellation was invalid, the Contracts were still in existence when [Claimant] requested [Respondent] to complete the vessels within the contractual timeframe. Notwithstanding subsequent reminders by [Claimant] . . . [Respondent] did not fulfil this claim of [Claimant] for specific performance.

This breach of contract was not of minor importance because [Respondent] actually stopped any further work on the vessels and prevented the [Claimant] supervisors from inspecting the construction of the hulls.

73. [Respondent] had no right to refuse to carry out the work on hulls [2]-[5]. [Respondent] only had a claim for extra compensation in respect of a very few items, this claim was not yet due and [Respondent] would only have been entitled to withhold the work of the items of extra work in question but not the further work on the vessels. Finally, [Claimant] was under no obligation to financially assist [Respondent]. The Tribunal has not been made aware of any other reasons that could be an obstacle against [Claimant] cancelling the Contracts given the nature of [Respondent]'s failure.

74. Consequently, [Claimant]'s cancellation of the Contract was justified and valid.'