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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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Friday, 13 May 16
COAL CARGOES - SOME RECENT DEVELOPMENTS: SWEDISH CLUB
KNOWLEDGE TO ELEVATE
Indonesia continues to be amongst the world’s major exporters of coal, some 426Mt being traded in 2013 mostly to In ...
Friday, 13 May 16
US WEEKLY COAL PRODUCTION IS RUNNING 33% BELOW THE SAME PERIOD IN 2015 - EIA
COALspot.com – U.S the world’s second largest coal producer has produced approximately totaled an estimated 10.9 million short tons (mm ...
Friday, 13 May 16
DRY BULK SHIPPING MARKET RECOVERY WILL BE A LONG, HARD-FOUGHT BATTLE - HELLENIC SHIPPING NEWS
Anyone who expects a strong rally in dry bulk market rates to end the industry’s downturn will be bitterly disappointed. By contrast – ...
Wednesday, 11 May 16
U.S. FORECAST COAL PRODUCTION IS EXPECTED TO DECLINED BY 150 MMST IN 2016; THE LARGEST DECLINE SINCE 1949 - EIA
COALspot.com: EIA estimates that U.S. coal production in April was 46 million short tons (MMst), a 6 MMst (12%) decrease from the previous month an ...
Wednesday, 11 May 16
MARKET INSIGHT - KATERINA RESTIS
On Saturday 7th May, Riyadh replaced the long-serving oil minister of more than two decades, Ali-Al-Naimi, as part of a major government overhaul, ...
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Showing 2436 to 2440 news of total 6871 |
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- Bhatia International Limited - India
- Carbofer General Trading SA - India
- Interocean Group of Companies - India
- Romanian Commodities Exchange
- TeaM Sual Corporation - Philippines
- GMR Energy Limited - India
- Timah Investasi Mineral - Indoneisa
- Global Business Power Corporation, Philippines
- Singapore Mercantile Exchange
- GN Power Mariveles Coal Plant, Philippines
- Cement Manufacturers Association - India
- Wilmar Investment Holdings
- Tata Chemicals Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Attock Cement Pakistan Limited
- AsiaOL BioFuels Corp., Philippines
- Indogreen Group - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Directorate Of Revenue Intelligence - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Australian Coal Association
- Vizag Seaport Private Limited - India
- Parliament of New Zealand
- Jindal Steel & Power Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Indika Energy - Indonesia
- Sindya Power Generating Company Private Ltd
- Bahari Cakrawala Sebuku - Indonesia
- Orica Australia Pty. Ltd.
- Karbindo Abesyapradhi - Indoneisa
- Global Coal Blending Company Limited - Australia
- Petron Corporation, Philippines
- Goldman Sachs - Singapore
- Anglo American - United Kingdom
- Straits Asia Resources Limited - Singapore
- Leighton Contractors Pty Ltd - Australia
- Merrill Lynch Commodities Europe
- Economic Council, Georgia
- Energy Link Ltd, New Zealand
- Therma Luzon, Inc, Philippines
- Chamber of Mines of South Africa
- Electricity Authority, New Zealand
- SN Aboitiz Power Inc, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Antam Resourcindo - Indonesia
- London Commodity Brokers - England
- Bharathi Cement Corporation - India
- Gujarat Mineral Development Corp Ltd - India
- Aditya Birla Group - India
- European Bulk Services B.V. - Netherlands
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Indian Energy Exchange, India
- Metalloyd Limited - United Kingdom
- TNB Fuel Sdn Bhd - Malaysia
- Indian Oil Corporation Limited
- Global Green Power PLC Corporation, Philippines
- Indonesian Coal Mining Association
- Kohat Cement Company Ltd. - Pakistan
- SMG Consultants - Indonesia
- Coastal Gujarat Power Limited - India
- Essar Steel Hazira Ltd - India
- Bulk Trading Sa - Switzerland
- Australian Commodity Traders Exchange
- Kaltim Prima Coal - Indonesia
- Ministry of Finance - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Renaissance Capital - South Africa
- Sojitz Corporation - Japan
- Ceylon Electricity Board - Sri Lanka
- Grasim Industreis Ltd - India
- Karaikal Port Pvt Ltd - India
- Kumho Petrochemical, South Korea
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- The Treasury - Australian Government
- Samtan Co., Ltd - South Korea
- Central Java Power - Indonesia
- MS Steel International - UAE
- Ministry of Transport, Egypt
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Pipit Mutiara Jaya. PT, Indonesia
- Bukit Makmur.PT - Indonesia
- Oldendorff Carriers - Singapore
- Medco Energi Mining Internasional
- Thai Mozambique Logistica
- Central Electricity Authority - India
- Heidelberg Cement - Germany
- Meralco Power Generation, Philippines
- Mercator Lines Limited - India
- ASAPP Information Group - India
- Trasteel International SA, Italy
- Formosa Plastics Group - Taiwan
- GAC Shipping (India) Pvt Ltd
- Dalmia Cement Bharat India
- Vedanta Resources Plc - India
- Larsen & Toubro Limited - India
- Bhushan Steel Limited - India
- PNOC Exploration Corporation - Philippines
- Power Finance Corporation Ltd., India
- Siam City Cement PLC, Thailand
- Rio Tinto Coal - Australia
- Price Waterhouse Coopers - Russia
- GVK Power & Infra Limited - India
- Salva Resources Pvt Ltd - India
- Intertek Mineral Services - Indonesia
- Binh Thuan Hamico - Vietnam
- Bhoruka Overseas - Indonesia
- LBH Netherlands Bv - Netherlands
- Commonwealth Bank - Australia
- Kalimantan Lumbung Energi - Indonesia
- Kepco SPC Power Corporation, Philippines
- Bayan Resources Tbk. - Indonesia
- Borneo Indobara - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Petrochimia International Co. Ltd.- Taiwan
- PowerSource Philippines DevCo
- Globalindo Alam Lestari - Indonesia
- International Coal Ventures Pvt Ltd - India
- India Bulls Power Limited - India
- Port Waratah Coal Services - Australia
- VISA Power Limited - India
- Iligan Light & Power Inc, Philippines
- Barasentosa Lestari - Indonesia
- Videocon Industries ltd - India
- Lanco Infratech Ltd - India
- Tamil Nadu electricity Board
- Altura Mining Limited, Indonesia
- Kideco Jaya Agung - Indonesia
- The State Trading Corporation of India Ltd
- South Luzon Thermal Energy Corporation
- Posco Energy - South Korea
- The University of Queensland
- Ind-Barath Power Infra Limited - India
- Independent Power Producers Association of India
- Kartika Selabumi Mining - Indonesia
- ICICI Bank Limited - India
- Makarim & Taira - Indonesia
- Star Paper Mills Limited - India
- Ambuja Cements Ltd - India
- PTC India Limited - India
- CNBM International Corporation - China
- Gujarat Electricity Regulatory Commission - India
- Africa Commodities Group - South Africa
- Savvy Resources Ltd - HongKong
- Baramulti Group, Indonesia
- Sarangani Energy Corporation, Philippines
- Alfred C Toepfer International GmbH - Germany
- Asmin Koalindo Tuhup - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Mjunction Services Limited - India
- Sinarmas Energy and Mining - Indonesia
- Marubeni Corporation - India
- New Zealand Coal & Carbon
- Standard Chartered Bank - UAE
- CIMB Investment Bank - Malaysia
- Eastern Coal Council - USA
- Edison Trading Spa - Italy
- Sree Jayajothi Cements Limited - India
- Agrawal Coal Company - India
- Billiton Holdings Pty Ltd - Australia
- Manunggal Multi Energi - Indonesia
- Planning Commission, India
- Bukit Baiduri Energy - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Georgia Ports Authority, United States
- Rashtriya Ispat Nigam Limited - India
- Jaiprakash Power Ventures ltd
- Deloitte Consulting - India
- Semirara Mining and Power Corporation, Philippines
- Energy Development Corp, Philippines
- Banpu Public Company Limited - Thailand
- Vijayanagar Sugar Pvt Ltd - India
- McConnell Dowell - Australia
- Madhucon Powers Ltd - India
- Malabar Cements Ltd - India
- Latin American Coal - Colombia
- Coalindo Energy - Indonesia
- Maheswari Brothers Coal Limited - India
- Xindia Steels Limited - India
- Siam City Cement - Thailand
- Mintek Dendrill Indonesia
- Toyota Tsusho Corporation, Japan
- Meenaskhi Energy Private Limited - India
- Kapuas Tunggal Persada - Indonesia
- Kobexindo Tractors - Indoneisa
- Semirara Mining Corp, Philippines
- White Energy Company Limited
- Maharashtra Electricity Regulatory Commission - India
- OPG Power Generation Pvt Ltd - India
- Electricity Generating Authority of Thailand
- IHS Mccloskey Coal Group - USA
- Riau Bara Harum - Indonesia
- Mercuria Energy - Indonesia
- SMC Global Power, Philippines
- Sical Logistics Limited - India
- Ministry of Mines - Canada
- Sakthi Sugars Limited - India
- Chettinad Cement Corporation Ltd - India
- Uttam Galva Steels Limited - India
- Pendopo Energi Batubara - Indonesia
- Minerals Council of Australia
- Directorate General of MIneral and Coal - Indonesia
- Bangladesh Power Developement Board
- IEA Clean Coal Centre - UK
- Parry Sugars Refinery, India
- Aboitiz Power Corporation - Philippines
- San Jose City I Power Corp, Philippines
- Orica Mining Services - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Gujarat Sidhee Cement - India
- Thiess Contractors Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Eastern Energy - Thailand
- Simpson Spence & Young - Indonesia
- Indo Tambangraya Megah - Indonesia
- Coal and Oil Company - UAE
- Wood Mackenzie - Singapore
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