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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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Wednesday, 25 May 16
DRY BULK SNP MARKET DISPLAYS SIGNS OF STRENGTH - GEORGE ILIOPOULOS
Only a couple of weeks away from the world’s most prominent maritime event, the market for tankers displays an evident lack of confidence in ...
Tuesday, 24 May 16
WEEKLY CS COAL INDICES NEGATIVE FOR ALL TYPES OF COAL EXCEPT 3800 GAR COAL
COALspot.com: Average 5000 GAR coal index of Indonesian origin was down 0.10 percent week over week to averaging $38.90 per ton this past week, sho ...
Monday, 23 May 16
A PERFECT STORM FOR INDONESIAN STEAM COAL EXPORTS - CLARKSON RESEARCH
Indonesia is the world’s leading steam coal exporter, accounting for over 40% of global seaborne steam coal exports since 2010. However in 20 ...
Monday, 23 May 16
THE PANAMAX INDEX WAS UP 17 POINTS W/W
COALspot.com: The Baltic Exchange, tracking rates for ships carrying dry bulk commodities rose this week.
The freight market was firm and all ...
Friday, 20 May 16
U.S COAL PRODUCTION FOR THE WEEK ENDED 14 MAY TOTALED 11.4 MMST; UP 3.8% W/W
COALspot.com – U.S the world’s second largest coal producer has produced approximately totaled an estimated 11.4 million short tons (mm ...
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- Pipit Mutiara Jaya. PT, Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Salva Resources Pvt Ltd - India
- Binh Thuan Hamico - Vietnam
- The State Trading Corporation of India Ltd
- Australian Commodity Traders Exchange
- San Jose City I Power Corp, Philippines
- Vedanta Resources Plc - India
- Central Electricity Authority - India
- Sical Logistics Limited - India
- European Bulk Services B.V. - Netherlands
- Eastern Coal Council - USA
- Rashtriya Ispat Nigam Limited - India
- Attock Cement Pakistan Limited
- Australian Coal Association
- Formosa Plastics Group - Taiwan
- Borneo Indobara - Indonesia
- Dalmia Cement Bharat India
- Medco Energi Mining Internasional
- Planning Commission, India
- Bank of Tokyo Mitsubishi UFJ Ltd
- SMG Consultants - Indonesia
- Ministry of Transport, Egypt
- Kartika Selabumi Mining - Indonesia
- Videocon Industries ltd - India
- Bhushan Steel Limited - India
- Rio Tinto Coal - Australia
- Economic Council, Georgia
- IHS Mccloskey Coal Group - USA
- Mjunction Services Limited - India
- Minerals Council of Australia
- Neyveli Lignite Corporation Ltd, - India
- Sojitz Corporation - Japan
- GAC Shipping (India) Pvt Ltd
- OPG Power Generation Pvt Ltd - India
- GMR Energy Limited - India
- Bharathi Cement Corporation - India
- Chamber of Mines of South Africa
- Intertek Mineral Services - Indonesia
- TeaM Sual Corporation - Philippines
- Commonwealth Bank - Australia
- Holcim Trading Pte Ltd - Singapore
- Thai Mozambique Logistica
- Miang Besar Coal Terminal - Indonesia
- Mercator Lines Limited - India
- Makarim & Taira - Indonesia
- Port Waratah Coal Services - Australia
- Independent Power Producers Association of India
- SMC Global Power, Philippines
- Sindya Power Generating Company Private Ltd
- CIMB Investment Bank - Malaysia
- Samtan Co., Ltd - South Korea
- Bhatia International Limited - India
- Metalloyd Limited - United Kingdom
- Kumho Petrochemical, South Korea
- Xindia Steels Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- International Coal Ventures Pvt Ltd - India
- Coastal Gujarat Power Limited - India
- Cigading International Bulk Terminal - Indonesia
- Baramulti Group, Indonesia
- Kapuas Tunggal Persada - Indonesia
- Toyota Tsusho Corporation, Japan
- Offshore Bulk Terminal Pte Ltd, Singapore
- Therma Luzon, Inc, Philippines
- Coal and Oil Company - UAE
- Grasim Industreis Ltd - India
- Antam Resourcindo - Indonesia
- Indian Energy Exchange, India
- Karbindo Abesyapradhi - Indoneisa
- PTC India Limited - India
- Semirara Mining Corp, Philippines
- Indo Tambangraya Megah - Indonesia
- Central Java Power - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Orica Mining Services - Indonesia
- Deloitte Consulting - India
- Savvy Resources Ltd - HongKong
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Coalindo Energy - Indonesia
- Jaiprakash Power Ventures ltd
- Trasteel International SA, Italy
- Wilmar Investment Holdings
- Oldendorff Carriers - Singapore
- Edison Trading Spa - Italy
- Indogreen Group - Indonesia
- VISA Power Limited - India
- Billiton Holdings Pty Ltd - Australia
- Uttam Galva Steels Limited - India
- Georgia Ports Authority, United States
- ICICI Bank Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Sree Jayajothi Cements Limited - India
- Renaissance Capital - South Africa
- Madhucon Powers Ltd - India
- Heidelberg Cement - Germany
- Tata Chemicals Ltd - India
- Standard Chartered Bank - UAE
- Globalindo Alam Lestari - Indonesia
- Romanian Commodities Exchange
- Agrawal Coal Company - India
- Power Finance Corporation Ltd., India
- Simpson Spence & Young - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Asmin Koalindo Tuhup - Indonesia
- Riau Bara Harum - Indonesia
- The Treasury - Australian Government
- Posco Energy - South Korea
- Kalimantan Lumbung Energi - Indonesia
- PNOC Exploration Corporation - Philippines
- Altura Mining Limited, Indonesia
- Bulk Trading Sa - Switzerland
- Aboitiz Power Corporation - Philippines
- Banpu Public Company Limited - Thailand
- Africa Commodities Group - South Africa
- Alfred C Toepfer International GmbH - Germany
- Sarangani Energy Corporation, Philippines
- LBH Netherlands Bv - Netherlands
- Ministry of Finance - Indonesia
- Indika Energy - Indonesia
- Wood Mackenzie - Singapore
- Kaltim Prima Coal - Indonesia
- Global Business Power Corporation, Philippines
- Sinarmas Energy and Mining - Indonesia
- ASAPP Information Group - India
- Latin American Coal - Colombia
- PetroVietnam Power Coal Import and Supply Company
- Straits Asia Resources Limited - Singapore
- IEA Clean Coal Centre - UK
- Marubeni Corporation - India
- Global Green Power PLC Corporation, Philippines
- New Zealand Coal & Carbon
- Price Waterhouse Coopers - Russia
- MS Steel International - UAE
- Larsen & Toubro Limited - India
- McConnell Dowell - Australia
- Thiess Contractors Indonesia
- PowerSource Philippines DevCo
- Kobexindo Tractors - Indoneisa
- SN Aboitiz Power Inc, Philippines
- Electricity Generating Authority of Thailand
- Petron Corporation, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Siam City Cement PLC, Thailand
- Orica Australia Pty. Ltd.
- Meralco Power Generation, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Energy Development Corp, Philippines
- Vizag Seaport Private Limited - India
- Mintek Dendrill Indonesia
- Anglo American - United Kingdom
- Singapore Mercantile Exchange
- Electricity Authority, New Zealand
- Mercuria Energy - Indonesia
- The University of Queensland
- Indonesian Coal Mining Association
- Ambuja Cements Ltd - India
- White Energy Company Limited
- GN Power Mariveles Coal Plant, Philippines
- Kideco Jaya Agung - Indonesia
- Parliament of New Zealand
- Maheswari Brothers Coal Limited - India
- Essar Steel Hazira Ltd - India
- Aditya Birla Group - India
- GVK Power & Infra Limited - India
- Tamil Nadu electricity Board
- Chettinad Cement Corporation Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Pendopo Energi Batubara - Indonesia
- Interocean Group of Companies - India
- Bhoruka Overseas - Indonesia
- Iligan Light & Power Inc, Philippines
- Star Paper Mills Limited - India
- Bukit Makmur.PT - Indonesia
- Global Coal Blending Company Limited - Australia
- Ministry of Mines - Canada
- India Bulls Power Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Gujarat Sidhee Cement - India
- Meenaskhi Energy Private Limited - India
- Manunggal Multi Energi - Indonesia
- Sakthi Sugars Limited - India
- Lanco Infratech Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Bayan Resources Tbk. - Indonesia
- Ind-Barath Power Infra Limited - India
- Karaikal Port Pvt Ltd - India
- CNBM International Corporation - China
- Directorate Of Revenue Intelligence - India
- Merrill Lynch Commodities Europe
- Semirara Mining and Power Corporation, Philippines
- Kepco SPC Power Corporation, Philippines
- Bukit Baiduri Energy - Indonesia
- Barasentosa Lestari - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Energy Link Ltd, New Zealand
- Malabar Cements Ltd - India
- South Luzon Thermal Energy Corporation
- TNB Fuel Sdn Bhd - Malaysia
- Krishnapatnam Port Company Ltd. - India
- Leighton Contractors Pty Ltd - Australia
- Bangladesh Power Developement Board
- Indian Oil Corporation Limited
- Eastern Energy - Thailand
- Bahari Cakrawala Sebuku - Indonesia
- Timah Investasi Mineral - Indoneisa
- Carbofer General Trading SA - India
- Goldman Sachs - Singapore
- Bukit Asam (Persero) Tbk - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- London Commodity Brokers - England
- Parry Sugars Refinery, India
- Siam City Cement - Thailand
- Jindal Steel & Power Ltd - India
- Cement Manufacturers Association - India
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