If a man orders a ship to be built, what exactly will he get for his money? In Hyundai Heavy Industries Co. Ltd. v. Papadopoulos [1980] 2 Lloyd’s Rep. 1 the House of Lords considered an action on a guarantee of all payments due to a shipbuilder from the customer for a particular ship. The customer’s guarantor argued that no payment was due because the shipbuilding contract had been terminated and with it any right to payment of instalments that had already fallen due. In particular, the guarantor relied on a rule, apparently accepted by the House (pp. 5–6 and 13), that in the case of sales of land and of goods, when there has been a total failure of consideration, termination of the contract also terminates any claim for “accrued rights”. But, said the House, the case before us is not within the rule: here there has been no total failure of consideration (see below), and here there is no sale of goods.

On whether a shipbuilding contract is a contract of sale Viscount Dilhorne said (p. 5):

“The contract price included ‘all costs and expenses for designing and supplying all necessary drawings for the Vessel …’. It was a contract which was not simply one of sale but which, so far as the construction of the vessel was concerned, resembled a building contract”.

Similar observations were made by Lord Fraser (p. 12). No case was cited by either Judge. Nor was there anything remarkable which might have distinguished this particular contract: it is not abnormal for the builder to be responsible for design, see, for example, art. IV-1 of the Shipbuilding Contract of the Shipowners Association of Japan (SAJ). Nor is it remarkable that the cost of inspection and testing should be part of the price—something that impressed Lord Fraser—see, for example, art. 4 of the Shipbuilding Contract of West European Shipbuilders (AWES).

What was remarkable is that their Lordships in Hyundai v. Papadopoulos did not hear citation of the words of Diplock, J., as he then was, in McDougall v. Aeromarine Ltd. [1958] 3 All E.R. 431, 436; 2 Lloyd’s Rep. 343, 355–356:

“it seems well settled by authority that although a shipbuilding contract is in form a contract for the construction of the vessel, it is in law a contract for the sale of goods”.

He cited Reid v. MacBeth & Gray [1904] A.C. 223. Their Lordships might also have heard the words of Romer, J., in Re Blyth Shipbuilding and Dock Co. [1926] Ch. 494, 499 that the contract of shipbuilding before him