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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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Thursday, 19 May 16
AUSTRALIAN IRON ORE CARGOES PUSHED UP THE FREIGHT RATES FOR CAPE THIS WEEK - FEARNLEYS
Cape
It has been a big jump in the freight rates for Cape size this week, says Fearnleys in its latest weekly report. All of the Australian iron ...
Thursday, 19 May 16
DISPUTE OVER VAT ON COAL DRAGS ON, CAUSING DOUBLE-BLOW TO MINERS - JP
The dispute over the value-added tax ( VAT ) mechanism between coal miners operating under third-generation contracts and the Finance Ministry&rsqu ...
Wednesday, 18 May 16
DRY BULK OUTLOOK REMAINS GLOOMY SAYS DANISH SHIP FINANCE, AS SHIPPING NEEDS TO RETHINK BUSINESS MODEL - HELLENIC SHIPPING
Our Shipping Market Review – May 2016 is devoted to the fourth industrial revolution. To understand the truly disruptive nature of the fourth ...
Wednesday, 18 May 16
LONG TERM FUNDAMENTALS ARE SLOWLY IMPROVING FOR THE DRY BULK MARKET - INTERMODAL
As we are approaching the end of the first half of the year, there is a number of market participants over at the dry bulk sector that have started ...
Tuesday, 17 May 16
INDONESIAN COAL PRICE REFERENCE DECLINE AGAIN
COALspot.com: The Indonesia Coal Benchmark Price declined in May 2016.
The Director General of Mineral and Coal of Indonesia, the regulator of ...
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Showing 2426 to 2430 news of total 6871 |
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- Electricity Authority, New Zealand
- San Jose City I Power Corp, Philippines
- Siam City Cement PLC, Thailand
- MS Steel International - UAE
- Central Electricity Authority - India
- Australian Coal Association
- Energy Development Corp, Philippines
- Bhushan Steel Limited - India
- Directorate Of Revenue Intelligence - India
- Sojitz Corporation - Japan
- Pipit Mutiara Jaya. PT, Indonesia
- Straits Asia Resources Limited - Singapore
- Savvy Resources Ltd - HongKong
- Bharathi Cement Corporation - India
- Madhucon Powers Ltd - India
- Timah Investasi Mineral - Indoneisa
- Directorate General of MIneral and Coal - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Attock Cement Pakistan Limited
- Formosa Plastics Group - Taiwan
- IHS Mccloskey Coal Group - USA
- GAC Shipping (India) Pvt Ltd
- Karaikal Port Pvt Ltd - India
- Banpu Public Company Limited - Thailand
- Karbindo Abesyapradhi - Indoneisa
- Orica Australia Pty. Ltd.
- South Luzon Thermal Energy Corporation
- TeaM Sual Corporation - Philippines
- Singapore Mercantile Exchange
- Kepco SPC Power Corporation, Philippines
- Simpson Spence & Young - Indonesia
- Power Finance Corporation Ltd., India
- Renaissance Capital - South Africa
- IEA Clean Coal Centre - UK
- Krishnapatnam Port Company Ltd. - India
- Kideco Jaya Agung - Indonesia
- Kobexindo Tractors - Indoneisa
- Samtan Co., Ltd - South Korea
- Meenaskhi Energy Private Limited - India
- CIMB Investment Bank - Malaysia
- Bulk Trading Sa - Switzerland
- The Treasury - Australian Government
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Australian Commodity Traders Exchange
- India Bulls Power Limited - India
- Star Paper Mills Limited - India
- Tamil Nadu electricity Board
- The State Trading Corporation of India Ltd
- Mintek Dendrill Indonesia
- Makarim & Taira - Indonesia
- Indo Tambangraya Megah - Indonesia
- Wilmar Investment Holdings
- Minerals Council of Australia
- Indonesian Coal Mining Association
- Vizag Seaport Private Limited - India
- Iligan Light & Power Inc, Philippines
- Toyota Tsusho Corporation, Japan
- Planning Commission, India
- Price Waterhouse Coopers - Russia
- Rio Tinto Coal - Australia
- Neyveli Lignite Corporation Ltd, - India
- Billiton Holdings Pty Ltd - Australia
- TNB Fuel Sdn Bhd - Malaysia
- Ceylon Electricity Board - Sri Lanka
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kartika Selabumi Mining - Indonesia
- ASAPP Information Group - India
- AsiaOL BioFuels Corp., Philippines
- Bhoruka Overseas - Indonesia
- Indian Oil Corporation Limited
- Uttam Galva Steels Limited - India
- Port Waratah Coal Services - Australia
- Global Coal Blending Company Limited - Australia
- Indogreen Group - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Metalloyd Limited - United Kingdom
- Semirara Mining and Power Corporation, Philippines
- Semirara Mining Corp, Philippines
- Commonwealth Bank - Australia
- Malabar Cements Ltd - India
- Petron Corporation, Philippines
- Binh Thuan Hamico - Vietnam
- Bukit Asam (Persero) Tbk - Indonesia
- New Zealand Coal & Carbon
- Posco Energy - South Korea
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Orica Mining Services - Indonesia
- Pendopo Energi Batubara - Indonesia
- Barasentosa Lestari - Indonesia
- Georgia Ports Authority, United States
- Rashtriya Ispat Nigam Limited - India
- Aboitiz Power Corporation - Philippines
- PTC India Limited - India
- Central Java Power - Indonesia
- Sree Jayajothi Cements Limited - India
- Eastern Energy - Thailand
- Jaiprakash Power Ventures ltd
- Xindia Steels Limited - India
- Alfred C Toepfer International GmbH - Germany
- Latin American Coal - Colombia
- Globalindo Alam Lestari - Indonesia
- The University of Queensland
- Bukit Baiduri Energy - Indonesia
- CNBM International Corporation - China
- Asmin Koalindo Tuhup - Indonesia
- Ministry of Transport, Egypt
- Videocon Industries ltd - India
- McConnell Dowell - Australia
- European Bulk Services B.V. - Netherlands
- Vedanta Resources Plc - India
- Trasteel International SA, Italy
- SN Aboitiz Power Inc, Philippines
- Manunggal Multi Energi - Indonesia
- Electricity Generating Authority of Thailand
- Bhatia International Limited - India
- Deloitte Consulting - India
- Maharashtra Electricity Regulatory Commission - India
- Gujarat Sidhee Cement - India
- Leighton Contractors Pty Ltd - Australia
- Intertek Mineral Services - Indonesia
- White Energy Company Limited
- Romanian Commodities Exchange
- Africa Commodities Group - South Africa
- Coastal Gujarat Power Limited - India
- Borneo Indobara - Indonesia
- Merrill Lynch Commodities Europe
- Jindal Steel & Power Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Bangladesh Power Developement Board
- Edison Trading Spa - Italy
- Parliament of New Zealand
- Cigading International Bulk Terminal - Indonesia
- Anglo American - United Kingdom
- Maheswari Brothers Coal Limited - India
- Antam Resourcindo - Indonesia
- OPG Power Generation Pvt Ltd - India
- Sindya Power Generating Company Private Ltd
- Sical Logistics Limited - India
- Sakthi Sugars Limited - India
- Carbofer General Trading SA - India
- Goldman Sachs - Singapore
- Bayan Resources Tbk. - Indonesia
- Marubeni Corporation - India
- Vijayanagar Sugar Pvt Ltd - India
- Oldendorff Carriers - Singapore
- Global Green Power PLC Corporation, Philippines
- Therma Luzon, Inc, Philippines
- Parry Sugars Refinery, India
- Economic Council, Georgia
- Siam City Cement - Thailand
- SMC Global Power, Philippines
- LBH Netherlands Bv - Netherlands
- Mercuria Energy - Indonesia
- Medco Energi Mining Internasional
- Lanco Infratech Ltd - India
- Energy Link Ltd, New Zealand
- Standard Chartered Bank - UAE
- Kaltim Prima Coal - Indonesia
- Aditya Birla Group - India
- PetroVietnam Power Coal Import and Supply Company
- Agrawal Coal Company - India
- Heidelberg Cement - Germany
- Cement Manufacturers Association - India
- London Commodity Brokers - England
- Essar Steel Hazira Ltd - India
- Coal and Oil Company - UAE
- Meralco Power Generation, Philippines
- Salva Resources Pvt Ltd - India
- Grasim Industreis Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Wood Mackenzie - Singapore
- Gujarat Mineral Development Corp Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Thiess Contractors Indonesia
- International Coal Ventures Pvt Ltd - India
- Chamber of Mines of South Africa
- Altura Mining Limited, Indonesia
- Gujarat Electricity Regulatory Commission - India
- PNOC Exploration Corporation - Philippines
- Sinarmas Energy and Mining - Indonesia
- ICICI Bank Limited - India
- Tata Chemicals Ltd - India
- PowerSource Philippines DevCo
- Holcim Trading Pte Ltd - Singapore
- Dalmia Cement Bharat India
- Petrochimia International Co. Ltd.- Taiwan
- Coalindo Energy - Indonesia
- GMR Energy Limited - India
- Thai Mozambique Logistica
- Kapuas Tunggal Persada - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Ambuja Cements Ltd - India
- Eastern Coal Council - USA
- GVK Power & Infra Limited - India
- Kumho Petrochemical, South Korea
- Interocean Group of Companies - India
- Sarangani Energy Corporation, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Independent Power Producers Association of India
- Global Business Power Corporation, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- SMG Consultants - Indonesia
- Mjunction Services Limited - India
- Ind-Barath Power Infra Limited - India
- Ministry of Finance - Indonesia
- VISA Power Limited - India
- Mercator Lines Limited - India
- Larsen & Toubro Limited - India
- Chettinad Cement Corporation Ltd - India
- Indian Energy Exchange, India
- Riau Bara Harum - Indonesia
- Baramulti Group, Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Ministry of Mines - Canada
- Kohat Cement Company Ltd. - Pakistan
- Indika Energy - Indonesia
- Bukit Makmur.PT - Indonesia
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