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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, 08 June 16
THE DRY BULK MARKET KEPT MOVING SIDEWAYS LAST WEEK; SECOND HAND PURCHASES MOVING NORTH - INTERMODAL
Once again its Posidonia time and the biannual exhibition takes place during a very warm June here in Athens, as if the performance of the dry bulk ...
Tuesday, 07 June 16
CS COAL INDEX ROSE FOR SECOND STRAIGHT WEEK
COALspot.com: Average 5000 GAR coal index of Indonesian origin was up 0.38 percent week over week to averaging $39.16 per ton this past week, shows ...
Monday, 06 June 16
BDI GAINED ON A STRONGER DEMAND FOR CAPESIZE SHIPS
COALspot.com: The Baltic Exchange, tracking rates for ships carrying dry bulk commodities rose this past week on a stronger demand for Capesize ves ...
Friday, 03 June 16
DRY BULK VESSEL DELIVERIES COULD BE LESS THAN 50 MILLION DWT IN 2016, AS OWNERS DELAY OR CANCEL NEWBUILDING ORDERS
The dry bulk market has been caught between a rock and a hard place over the course of the past couple of years, as on one hand demand has plunged, ...
Friday, 03 June 16
U.S WEEKLY COAL PRODUCTION SLIDES 1.3% - EIA
COALspot.com – U.S the world’s second largest coal producer has produced approximately totaled an estimated 11.5 million short tons (mm ...
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- Pipit Mutiara Jaya. PT, Indonesia
- Iligan Light & Power Inc, Philippines
- Indonesian Coal Mining Association
- Jindal Steel & Power Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Kartika Selabumi Mining - Indonesia
- IHS Mccloskey Coal Group - USA
- CNBM International Corporation - China
- Chettinad Cement Corporation Ltd - India
- GAC Shipping (India) Pvt Ltd
- Kapuas Tunggal Persada - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Cigading International Bulk Terminal - Indonesia
- Africa Commodities Group - South Africa
- Jorong Barutama Greston.PT - Indonesia
- Bhushan Steel Limited - India
- Agrawal Coal Company - India
- Aditya Birla Group - India
- Ind-Barath Power Infra Limited - India
- SN Aboitiz Power Inc, Philippines
- Asmin Koalindo Tuhup - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Bahari Cakrawala Sebuku - Indonesia
- Kaltim Prima Coal - Indonesia
- Chamber of Mines of South Africa
- Kumho Petrochemical, South Korea
- Parliament of New Zealand
- Bayan Resources Tbk. - Indonesia
- Kobexindo Tractors - Indoneisa
- CIMB Investment Bank - Malaysia
- The State Trading Corporation of India Ltd
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- Mjunction Services Limited - India
- VISA Power Limited - India
- Central Electricity Authority - India
- Coalindo Energy - Indonesia
- Edison Trading Spa - Italy
- Maharashtra Electricity Regulatory Commission - India
- Wood Mackenzie - Singapore
- Directorate Of Revenue Intelligence - India
- AsiaOL BioFuels Corp., Philippines
- Cement Manufacturers Association - India
- Romanian Commodities Exchange
- Parry Sugars Refinery, India
- Ambuja Cements Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Medco Energi Mining Internasional
- Intertek Mineral Services - Indonesia
- Economic Council, Georgia
- Uttam Galva Steels Limited - India
- Kideco Jaya Agung - Indonesia
- Binh Thuan Hamico - Vietnam
- Energy Development Corp, Philippines
- GVK Power & Infra Limited - India
- Xindia Steels Limited - India
- South Luzon Thermal Energy Corporation
- Timah Investasi Mineral - Indoneisa
- Bank of Tokyo Mitsubishi UFJ Ltd
- Sindya Power Generating Company Private Ltd
- IEA Clean Coal Centre - UK
- ASAPP Information Group - India
- ICICI Bank Limited - India
- Baramulti Group, Indonesia
- Heidelberg Cement - Germany
- Sakthi Sugars Limited - India
- Eastern Energy - Thailand
- Manunggal Multi Energi - Indonesia
- Sojitz Corporation - Japan
- India Bulls Power Limited - India
- Kepco SPC Power Corporation, Philippines
- Power Finance Corporation Ltd., India
- Bhoruka Overseas - Indonesia
- Global Business Power Corporation, Philippines
- Merrill Lynch Commodities Europe
- Karbindo Abesyapradhi - Indoneisa
- London Commodity Brokers - England
- Marubeni Corporation - India
- Simpson Spence & Young - Indonesia
- Thai Mozambique Logistica
- Savvy Resources Ltd - HongKong
- TeaM Sual Corporation - Philippines
- Siam City Cement - Thailand
- Georgia Ports Authority, United States
- Tamil Nadu electricity Board
- European Bulk Services B.V. - Netherlands
- Therma Luzon, Inc, Philippines
- Ministry of Mines - Canada
- Electricity Generating Authority of Thailand
- Straits Asia Resources Limited - Singapore
- Indogreen Group - Indonesia
- Semirara Mining Corp, Philippines
- Wilmar Investment Holdings
- PNOC Exploration Corporation - Philippines
- Gujarat Electricity Regulatory Commission - India
- Siam City Cement PLC, Thailand
- Miang Besar Coal Terminal - Indonesia
- LBH Netherlands Bv - Netherlands
- Interocean Group of Companies - India
- Goldman Sachs - Singapore
- Metalloyd Limited - United Kingdom
- Maheswari Brothers Coal Limited - India
- Mercator Lines Limited - India
- Ministry of Transport, Egypt
- Meralco Power Generation, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Ministry of Finance - Indonesia
- Pendopo Energi Batubara - Indonesia
- Indika Energy - Indonesia
- Riau Bara Harum - Indonesia
- Trasteel International SA, Italy
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Vedanta Resources Plc - India
- Sinarmas Energy and Mining - Indonesia
- Thiess Contractors Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- The Treasury - Australian Government
- Toyota Tsusho Corporation, Japan
- Indian Energy Exchange, India
- Standard Chartered Bank - UAE
- Commonwealth Bank - Australia
- Australian Commodity Traders Exchange
- Attock Cement Pakistan Limited
- Altura Mining Limited, Indonesia
- Singapore Mercantile Exchange
- Orica Mining Services - Indonesia
- Aboitiz Power Corporation - Philippines
- Port Waratah Coal Services - Australia
- Independent Power Producers Association of India
- Minerals Council of Australia
- Directorate General of MIneral and Coal - Indonesia
- San Jose City I Power Corp, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Borneo Indobara - Indonesia
- Energy Link Ltd, New Zealand
- Global Green Power PLC Corporation, Philippines
- PowerSource Philippines DevCo
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- TNB Fuel Sdn Bhd - Malaysia
- GN Power Mariveles Coal Plant, Philippines
- Tata Chemicals Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Mintek Dendrill Indonesia
- OPG Power Generation Pvt Ltd - India
- Meenaskhi Energy Private Limited - India
- Bharathi Cement Corporation - India
- Gujarat Sidhee Cement - India
- Electricity Authority, New Zealand
- Bukit Baiduri Energy - Indonesia
- SMG Consultants - Indonesia
- Dalmia Cement Bharat India
- Madhucon Powers Ltd - India
- SMC Global Power, Philippines
- McConnell Dowell - Australia
- Anglo American - United Kingdom
- Sree Jayajothi Cements Limited - India
- Sical Logistics Limited - India
- Price Waterhouse Coopers - Russia
- Alfred C Toepfer International GmbH - Germany
- Neyveli Lignite Corporation Ltd, - India
- Rashtriya Ispat Nigam Limited - India
- Leighton Contractors Pty Ltd - Australia
- Samtan Co., Ltd - South Korea
- Central Java Power - Indonesia
- PTC India Limited - India
- Global Coal Blending Company Limited - Australia
- Mercuria Energy - Indonesia
- Coal and Oil Company - UAE
- PetroVietnam Power Coal Import and Supply Company
- Indo Tambangraya Megah - Indonesia
- Salva Resources Pvt Ltd - India
- Essar Steel Hazira Ltd - India
- Eastern Coal Council - USA
- New Zealand Coal & Carbon
- Australian Coal Association
- Orica Australia Pty. Ltd.
- Carbofer General Trading SA - India
- Oldendorff Carriers - Singapore
- Grasim Industreis Ltd - India
- Star Paper Mills Limited - India
- Jaiprakash Power Ventures ltd
- Holcim Trading Pte Ltd - Singapore
- Kalimantan Lumbung Energi - Indonesia
- Larsen & Toubro Limited - India
- MS Steel International - UAE
- Bangladesh Power Developement Board
- Vizag Seaport Private Limited - India
- Banpu Public Company Limited - Thailand
- Bhatia International Limited - India
- White Energy Company Limited
- Makarim & Taira - Indonesia
- The University of Queensland
- Renaissance Capital - South Africa
- Petron Corporation, Philippines
- Deloitte Consulting - India
- Planning Commission, India
- Karaikal Port Pvt Ltd - India
- Sarangani Energy Corporation, Philippines
- Indian Oil Corporation Limited
- Rio Tinto Coal - Australia
- Lanco Infratech Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Billiton Holdings Pty Ltd - Australia
- Antam Resourcindo - Indonesia
- Malabar Cements Ltd - India
- GMR Energy Limited - India
- Globalindo Alam Lestari - Indonesia
- Formosa Plastics Group - Taiwan
- Barasentosa Lestari - Indonesia
- Videocon Industries ltd - India
- International Coal Ventures Pvt Ltd - India
- Bulk Trading Sa - Switzerland
- Latin American Coal - Colombia
- Posco Energy - South Korea
- Bukit Makmur.PT - Indonesia
- Coastal Gujarat Power Limited - India
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