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Friday, 20 May 16
SHIPBUILDING CONTRACTS: CAN I CANCEL? SHOULD I CANCEL? - THE SHIPOWNER CLUB
 KNOWLEDGE TO ELEVATE
There are many circumstances in which a buyer of a new-build vessel might want to terminate or cancel their contract with the yard. Perhaps the building work has been delayed. Maybe the market has dropped and the deal which looked like a good one a couple of years ago, when the contract was signed, no longer looks so favourable. Maybe the yard’s performance is lacking and another instalment is about to fall due, which means the buyer will have to decide between paying up and hoping the problems can be put right, or terminating and attempting to recover instalments that have already been paid.
Cancelling contracts isn’t straightforward; there are many traps for the unwary buyer who attempts to bring the contract to an end. If you get it wrong, you might lose the instalments you have already paid or you might face a claim from the yard for damages. Even if you get it right, you might find yourself having to deal with expensive and long running court or arbitration proceedings. This article aims to help you understand some of the pitfalls which face buyers who want to cancel shipbuilding contracts.
Termination, cancellation and rescission – what’s the difference?
Termination
‘Termination’ is a common law right. If a party breaches a condition of a contract or unequivocally communicates (by words or conduct) an intention not to perform, this is called a repudiatory breach. The innocent party can accept the repudiatory breach as terminating the contract and can claim damages. They also have the option of affirming the contract and continuing to perform, provided they have a legitimate interest in doing so.
But watch out! A condition is an important contractual term. If a party breaches a warranty – a less important term and not to be confused with the yard’s warranties regarding the quality of the build – the innocent party can only claim damages. They do not have the right to terminate. If the breach is of an innominate term (neither a condition nor a warranty) then the innocent party can claim damages but may only terminate if the breach goes to the root of the contract.
The contract may also explicitly allow a party to terminate in certain situations.
Cancellation
‘Cancellation’ is a contractual right. The contract may provide that a party may cancel in certain situations which means they can bring the contract to an end. The contract might also set out the consequences of that cancellation.
Rescission
Most standard-form shipbuilding contracts give both parties the right to ‘rescind’ in certain circumstances. Rescind means to bring the contract to an end and revert the parties back to the position they were in before the contract was signed. For example, a shipbuilding contract might provide that if the yard exceed their permissible and non-permissible delays to the delivery date, you can rescind the contract and you will therefore be put back in your original position by the yard, who will refund the installments you have already paid or allow you to claim under the refund guarantees.
Can I rescind?
Many shipbuilding contracts define a number of events which entitle the buyer to rescind. The most common are:
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Delays in delivery beyond a certain number of permissible and/or non permissible delays.
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Failure of the vessel to meet the technical requirements of the contract.
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Insolvency of the yard.
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Total loss of the vessel before delivery.
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Failure to meet certain milestones.
But watch out! If you wish to terminate for the yard’s repudiatory breach, you must be confident that you can prove the yard has breached a condition or has indicated an intention not to perform. This is not always obvious. You also need to be very careful and strictly follow any procedure for rescission or cancellation. If you get it wrong (because, for example, the contract says that you must give ten working days written notice sent by courier to a particular address, and you give five days’ notice and send it by fax), you might find that the yard terminates the contract for your repudiatory breach and brings a damages claim against you!
What are the consequences of rescinding the contract?
Often, shipbuilding contracts provide that if the buyer rescinds, the yard must refund their instalments ‘promptly’ or otherwise start arbitration to suspend that obligation until an award has been published. Once the refund is made, all of the parties’ obligations to each other under the contract come to an end. If the refund is not paid and the yard does not start arbitration, the buyer can claim from the yard’s bank under the refund guarantees.
Can I claim under the refund guarantee?
There are two broad types of guarantee. Under an ‘on demand’ guarantee, the guarantor is the primary debtor and payment is made against a written demand by the buyer certifying that they are entitled to a refund. Provided the documents are in order and the demand is made in good faith, the bank must pay. Under a ‘performance’ or ‘see to it’ guarantee however, the guarantor’s liability is secondary. This means that you must first prove that the yard is liable under the shipbuilding contract before you can claim from the bank.
But watch out! Refund guarantees will not always respond to every event by which the contract is brought to an end. For example, if the refund guarantees require a valid rescission under a particular provision of the contract that does not necessarily mean that the bank must pay if you terminate for the yard’s unrelated repudiatory breach. If you can’t claim under the refund guarantees, think carefully about how you will enforce your claim against the yard.
Can I recover other losses?
Even if you get your instalments back, you might have also suffered other losses such as expenditure thrown away as a consequence of the ending of the project (called ‘reliance loss’) or, if you need to find an alternative vessel and the market has risen, the difference between the contract price and the market price of an equivalent newbuilding (called ‘loss of bargain’).
But watch out! It is usual for shipbuilding contracts to exclude such losses and limit the yard’s obligation to repayment of the pre-delivery instalments plus interest. It is possible to terminate for the yard’s repudiatory breach and claim damages as well as exercising your contractual right to rescind and claim repayment of your instalments of the contract price. This was decided by the Court of Appeal in Stocznia Gdynia S.A. v. Gearbulk Holdings Ltd (2009). However, this decision has been criticised and the relationship between contractual and common law rights is a complicated and developing one.
Should I rescind or terminate?
Ultimately, the decision to bring the contract to an end is the nuclear option. As well as irreparably damaging your commercial relationship with the yard, you might find yourself on the receiving end of expensive litigation if you get it wrong, and sometimes even if you get it right. As well as working out whether a right to rescind or terminate has arisen, you also need to consider carefully whether you can claim under the refund guarantees to recover your instalments and whether you can obtain the evidence needed to prove your other losses. For example, you might need expert evidence on market prices if you want to claim for loss of bargain.
Sometimes, terminating a contract is the best, or only, option. However, the law of shipbuilding is complex and fraught with ambiguities and the sums at stake are often large. Ending the contract is a drastic step and good legal advice is essential before you make the decision to terminate or rescind.
Source: The Shipowner Club (By Helen McCormick, Associate Director, CTRL Marine Solutions Ltd) | Hellenic Shipping News
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Monday, 30 May 16
BCI ENDING AT 830 POINTS, DOWN 4.6 PER CENT W/W
COALspot.com: The Baltic Exchange, tracking rates for ships carrying dry bulk commodities decline this week. The freight market was weak this past ...
Friday, 27 May 16
PET-COKE IMPORTS TO FACE PRESSURE IN INDIA
COALspot.com: An Indian environmental activist moved the National Green Tribunal seeking ban on the use of all forms of petroleum coke, also called ...
Friday, 27 May 16
US COAL PRODUCTION ROSE 2.9% WOW, ACCORDING TO EIA
COALspot.com – U.S the world’s second largest coal producer has produced approximately totaled an estimated 11.7 million short tons (mm ...
Thursday, 26 May 16
GIANT ORE CARRIERS SET TO PLAY A BIGGER ROLE IN THE GLOBAL SHIPPING FLEET: CHINA EMBRACES VALEMAXES - RICHARD SCOTT
Another phase of the giant ships era is approaching. Chinese shipowners placed orders recently for 30 huge ‘valemax’ ore carriers. Thes ...
Wednesday, 25 May 16
MEDIATION AS A WAY TO RESOLVE DISPUTES IN THE SHIPPING INDUSTRY - LANA JACOBS
KNOWLEDGE TO ELEVATE
The shipping market is currently experiencing a serious recession with the Baltic Dry Index and Baltic Capesize Index bot ...
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Showing 2416 to 2420 news of total 6871 |
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- Leighton Contractors Pty Ltd - Australia
- Asmin Koalindo Tuhup - Indonesia
- European Bulk Services B.V. - Netherlands
- The State Trading Corporation of India Ltd
- Posco Energy - South Korea
- Carbofer General Trading SA - India
- Orica Australia Pty. Ltd.
- Bukit Baiduri Energy - Indonesia
- PNOC Exploration Corporation - Philippines
- Antam Resourcindo - Indonesia
- Ministry of Transport, Egypt
- Anglo American - United Kingdom
- The University of Queensland
- Energy Development Corp, Philippines
- Eastern Energy - Thailand
- India Bulls Power Limited - India
- Pendopo Energi Batubara - Indonesia
- SMG Consultants - Indonesia
- London Commodity Brokers - England
- Jindal Steel & Power Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- GMR Energy Limited - India
- McConnell Dowell - Australia
- Trasteel International SA, Italy
- Globalindo Alam Lestari - Indonesia
- Maheswari Brothers Coal Limited - India
- Parliament of New Zealand
- Meralco Power Generation, Philippines
- Australian Coal Association
- Bayan Resources Tbk. - Indonesia
- Toyota Tsusho Corporation, Japan
- Therma Luzon, Inc, Philippines
- Coalindo Energy - Indonesia
- Sree Jayajothi Cements Limited - India
- Marubeni Corporation - India
- Indian Energy Exchange, India
- Ceylon Electricity Board - Sri Lanka
- Krishnapatnam Port Company Ltd. - India
- Vizag Seaport Private Limited - India
- Goldman Sachs - Singapore
- Cigading International Bulk Terminal - Indonesia
- OPG Power Generation Pvt Ltd - India
- Borneo Indobara - Indonesia
- Manunggal Multi Energi - Indonesia
- Central Java Power - Indonesia
- Mercator Lines Limited - India
- Coal and Oil Company - UAE
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Tata Chemicals Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Deloitte Consulting - India
- Dalmia Cement Bharat India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bhatia International Limited - India
- Bangladesh Power Developement Board
- Eastern Coal Council - USA
- Latin American Coal - Colombia
- Formosa Plastics Group - Taiwan
- Kapuas Tunggal Persada - Indonesia
- Malabar Cements Ltd - India
- Standard Chartered Bank - UAE
- New Zealand Coal & Carbon
- Energy Link Ltd, New Zealand
- Semirara Mining Corp, Philippines
- Madhucon Powers Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Indo Tambangraya Megah - Indonesia
- Indogreen Group - Indonesia
- Vedanta Resources Plc - India
- Kalimantan Lumbung Energi - Indonesia
- Edison Trading Spa - Italy
- Attock Cement Pakistan Limited
- Chettinad Cement Corporation Ltd - India
- International Coal Ventures Pvt Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Interocean Group of Companies - India
- South Luzon Thermal Energy Corporation
- Bulk Trading Sa - Switzerland
- Independent Power Producers Association of India
- Gujarat Electricity Regulatory Commission - India
- Planning Commission, India
- Billiton Holdings Pty Ltd - Australia
- Kepco SPC Power Corporation, Philippines
- Ind-Barath Power Infra Limited - India
- Indian Oil Corporation Limited
- Mercuria Energy - Indonesia
- Price Waterhouse Coopers - Russia
- MS Steel International - UAE
- San Jose City I Power Corp, Philippines
- Directorate Of Revenue Intelligence - India
- ASAPP Information Group - India
- Bharathi Cement Corporation - India
- Jaiprakash Power Ventures ltd
- Commonwealth Bank - Australia
- White Energy Company Limited
- Ministry of Finance - Indonesia
- Minerals Council of Australia
- Electricity Generating Authority of Thailand
- TeaM Sual Corporation - Philippines
- Port Waratah Coal Services - Australia
- Samtan Co., Ltd - South Korea
- Karaikal Port Pvt Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Romanian Commodities Exchange
- Medco Energi Mining Internasional
- IEA Clean Coal Centre - UK
- Electricity Authority, New Zealand
- Vijayanagar Sugar Pvt Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Thiess Contractors Indonesia
- Bhushan Steel Limited - India
- Thai Mozambique Logistica
- Xindia Steels Limited - India
- Wood Mackenzie - Singapore
- Binh Thuan Hamico - Vietnam
- Altura Mining Limited, Indonesia
- Riau Bara Harum - Indonesia
- Aboitiz Power Corporation - Philippines
- Agrawal Coal Company - India
- Kumho Petrochemical, South Korea
- Sindya Power Generating Company Private Ltd
- Kobexindo Tractors - Indoneisa
- Neyveli Lignite Corporation Ltd, - India
- Global Business Power Corporation, Philippines
- The Treasury - Australian Government
- Orica Mining Services - Indonesia
- Uttam Galva Steels Limited - India
- AsiaOL BioFuels Corp., Philippines
- Global Coal Blending Company Limited - Australia
- GVK Power & Infra Limited - India
- Chamber of Mines of South Africa
- Kideco Jaya Agung - Indonesia
- Ambuja Cements Ltd - India
- Merrill Lynch Commodities Europe
- Karbindo Abesyapradhi - Indoneisa
- Essar Steel Hazira Ltd - India
- Grasim Industreis Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Georgia Ports Authority, United States
- Indika Energy - Indonesia
- Ministry of Mines - Canada
- Global Green Power PLC Corporation, Philippines
- Metalloyd Limited - United Kingdom
- Siam City Cement - Thailand
- Timah Investasi Mineral - Indoneisa
- Kaltim Prima Coal - Indonesia
- Indonesian Coal Mining Association
- CIMB Investment Bank - Malaysia
- Intertek Mineral Services - Indonesia
- Baramulti Group, Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kartika Selabumi Mining - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Makarim & Taira - Indonesia
- SMC Global Power, Philippines
- IHS Mccloskey Coal Group - USA
- Sarangani Energy Corporation, Philippines
- Aditya Birla Group - India
- Barasentosa Lestari - Indonesia
- Petron Corporation, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Africa Commodities Group - South Africa
- PTC India Limited - India
- Semirara Mining and Power Corporation, Philippines
- Coastal Gujarat Power Limited - India
- Simpson Spence & Young - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- PowerSource Philippines DevCo
- Gujarat Sidhee Cement - India
- Sakthi Sugars Limited - India
- VISA Power Limited - India
- Rashtriya Ispat Nigam Limited - India
- Bukit Makmur.PT - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- CNBM International Corporation - China
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Economic Council, Georgia
- GAC Shipping (India) Pvt Ltd
- Central Electricity Authority - India
- Cement Manufacturers Association - India
- Bhoruka Overseas - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Banpu Public Company Limited - Thailand
- Offshore Bulk Terminal Pte Ltd, Singapore
- ICICI Bank Limited - India
- Meenaskhi Energy Private Limited - India
- Power Finance Corporation Ltd., India
- Straits Asia Resources Limited - Singapore
- Kohat Cement Company Ltd. - Pakistan
- Miang Besar Coal Terminal - Indonesia
- Sojitz Corporation - Japan
- Tamil Nadu electricity Board
- Bukit Asam (Persero) Tbk - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Iligan Light & Power Inc, Philippines
- Parry Sugars Refinery, India
- Rio Tinto Coal - Australia
- Australian Commodity Traders Exchange
- Savvy Resources Ltd - HongKong
- Mintek Dendrill Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Salva Resources Pvt Ltd - India
- Singapore Mercantile Exchange
- Sical Logistics Limited - India
- Wilmar Investment Holdings
- Lanco Infratech Ltd - India
- Star Paper Mills Limited - India
- Heidelberg Cement - Germany
- Larsen & Toubro Limited - India
- Videocon Industries ltd - India
- Oldendorff Carriers - Singapore
- Siam City Cement PLC, Thailand
- SN Aboitiz Power Inc, Philippines
- LBH Netherlands Bv - Netherlands
- Renaissance Capital - South Africa
- Mjunction Services Limited - India
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