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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, 01 June 16
INDIA'S COAL IMPORTS IN APRIL 2016 DECLINED 15% Y/Y; COAL INDIA INCREASED COAL PRICES BY 6.2%
Coal India has approved raising weighted average coal prices by 6.2 per cent over the current price for both regulated and non-regulated sectors.
...
Wednesday, 01 June 16
ZERO SUPPLY TO FUEL GROWTH IN THE DRY BULK MARKET SAYS BIMCO PRESIDENT
The dry bulk market could become profitable again in 2019 – but only if a series of extremely tough and sustained measures are taken by shipo ...
Wednesday, 01 June 16
MARKET INSIGHT - LINOS KOGEVINAS
In another page from this year’s oil drama, oil has, after a series of gains, rebounded to ~$50 / barrel and immediately stopped climbing. &n ...
Tuesday, 31 May 16
CS50 INDONESIA COAL INDEX UP 0.28% COMPARED WITH A WEEK AGO
COALspot.com: Average 5000 GAR coal index of Indonesian origin was up 0.28 percent week over week to averaging $39.01 per ton this past week, shows ...
Monday, 30 May 16
BORYEONG POWER PLANT TO IMPORT HALF A MILLION TONS OF BITUMINOUS COAL
COALspot.com: South Korea’s state-owned utility Korea Midland Power (KOMIPO) issued a new tender for 500,000 Metric Tons of Bituminous Coal T ...
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Showing 2411 to 2415 news of total 6871 |
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- Wilmar Investment Holdings
- SN Aboitiz Power Inc, Philippines
- Bukit Baiduri Energy - Indonesia
- Merrill Lynch Commodities Europe
- Indogreen Group - Indonesia
- MS Steel International - UAE
- Gujarat Mineral Development Corp Ltd - India
- Trasteel International SA, Italy
- Savvy Resources Ltd - HongKong
- Directorate Of Revenue Intelligence - India
- Chamber of Mines of South Africa
- Gujarat Sidhee Cement - India
- Bangladesh Power Developement Board
- Altura Mining Limited, Indonesia
- Eastern Coal Council - USA
- Bank of Tokyo Mitsubishi UFJ Ltd
- Parry Sugars Refinery, India
- Dalmia Cement Bharat India
- Baramulti Group, Indonesia
- CIMB Investment Bank - Malaysia
- Tata Chemicals Ltd - India
- Meenaskhi Energy Private Limited - India
- London Commodity Brokers - England
- VISA Power Limited - India
- Essar Steel Hazira Ltd - India
- Ministry of Transport, Egypt
- Rashtriya Ispat Nigam Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Lanco Infratech Ltd - India
- PowerSource Philippines DevCo
- Billiton Holdings Pty Ltd - Australia
- Directorate General of MIneral and Coal - Indonesia
- White Energy Company Limited
- Sakthi Sugars Limited - India
- McConnell Dowell - Australia
- Maheswari Brothers Coal Limited - India
- Posco Energy - South Korea
- Iligan Light & Power Inc, Philippines
- Attock Cement Pakistan Limited
- Georgia Ports Authority, United States
- Pendopo Energi Batubara - Indonesia
- Heidelberg Cement - Germany
- Sindya Power Generating Company Private Ltd
- Madhucon Powers Ltd - India
- Thai Mozambique Logistica
- Coal and Oil Company - UAE
- TeaM Sual Corporation - Philippines
- Orica Australia Pty. Ltd.
- India Bulls Power Limited - India
- Commonwealth Bank - Australia
- New Zealand Coal & Carbon
- CNBM International Corporation - China
- Energy Link Ltd, New Zealand
- AsiaOL BioFuels Corp., Philippines
- GN Power Mariveles Coal Plant, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Uttam Galva Steels Limited - India
- Deloitte Consulting - India
- Videocon Industries ltd - India
- Electricity Authority, New Zealand
- Global Coal Blending Company Limited - Australia
- LBH Netherlands Bv - Netherlands
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Jaiprakash Power Ventures ltd
- Renaissance Capital - South Africa
- Global Green Power PLC Corporation, Philippines
- Bhatia International Limited - India
- SMC Global Power, Philippines
- Kartika Selabumi Mining - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Power Finance Corporation Ltd., India
- Ministry of Finance - Indonesia
- Australian Coal Association
- Asmin Koalindo Tuhup - Indonesia
- PNOC Exploration Corporation - Philippines
- Carbofer General Trading SA - India
- Metalloyd Limited - United Kingdom
- Tamil Nadu electricity Board
- Vijayanagar Sugar Pvt Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Grasim Industreis Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Formosa Plastics Group - Taiwan
- Barasentosa Lestari - Indonesia
- GVK Power & Infra Limited - India
- Straits Asia Resources Limited - Singapore
- Indika Energy - Indonesia
- Vedanta Resources Plc - India
- Sree Jayajothi Cements Limited - India
- Africa Commodities Group - South Africa
- Kalimantan Lumbung Energi - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Price Waterhouse Coopers - Russia
- Independent Power Producers Association of India
- Toyota Tsusho Corporation, Japan
- Bayan Resources Tbk. - Indonesia
- Makarim & Taira - Indonesia
- Chettinad Cement Corporation Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Mercator Lines Limited - India
- Romanian Commodities Exchange
- Bhushan Steel Limited - India
- Meralco Power Generation, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Alfred C Toepfer International GmbH - Germany
- Standard Chartered Bank - UAE
- Bhoruka Overseas - Indonesia
- Anglo American - United Kingdom
- Oldendorff Carriers - Singapore
- The State Trading Corporation of India Ltd
- Port Waratah Coal Services - Australia
- Gujarat Electricity Regulatory Commission - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bulk Trading Sa - Switzerland
- Banpu Public Company Limited - Thailand
- Orica Mining Services - Indonesia
- Ind-Barath Power Infra Limited - India
- Latin American Coal - Colombia
- Semirara Mining Corp, Philippines
- Larsen & Toubro Limited - India
- Antam Resourcindo - Indonesia
- Xindia Steels Limited - India
- The University of Queensland
- IEA Clean Coal Centre - UK
- Timah Investasi Mineral - Indoneisa
- Eastern Energy - Thailand
- Kumho Petrochemical, South Korea
- Siam City Cement PLC, Thailand
- European Bulk Services B.V. - Netherlands
- Wood Mackenzie - Singapore
- Parliament of New Zealand
- Central Electricity Authority - India
- Goldman Sachs - Singapore
- Sarangani Energy Corporation, Philippines
- PTC India Limited - India
- Therma Luzon, Inc, Philippines
- Holcim Trading Pte Ltd - Singapore
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- South Luzon Thermal Energy Corporation
- Ministry of Mines - Canada
- Indonesian Coal Mining Association
- Mjunction Services Limited - India
- Electricity Generating Authority of Thailand
- Vizag Seaport Private Limited - India
- Sical Logistics Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bharathi Cement Corporation - India
- Sinarmas Energy and Mining - Indonesia
- Ambuja Cements Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Edison Trading Spa - Italy
- Samtan Co., Ltd - South Korea
- Mercuria Energy - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Rio Tinto Coal - Australia
- Planning Commission, India
- ICICI Bank Limited - India
- Economic Council, Georgia
- Ceylon Electricity Board - Sri Lanka
- Aboitiz Power Corporation - Philippines
- San Jose City I Power Corp, Philippines
- Kohat Cement Company Ltd. - Pakistan
- OPG Power Generation Pvt Ltd - India
- Manunggal Multi Energi - Indonesia
- Salva Resources Pvt Ltd - India
- Petron Corporation, Philippines
- Malabar Cements Ltd - India
- Coastal Gujarat Power Limited - India
- Aditya Birla Group - India
- Jindal Steel & Power Ltd - India
- Indian Oil Corporation Limited
- Simpson Spence & Young - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Australian Commodity Traders Exchange
- IHS Mccloskey Coal Group - USA
- Indian Energy Exchange, India
- Agrawal Coal Company - India
- Kaltim Prima Coal - Indonesia
- International Coal Ventures Pvt Ltd - India
- Sojitz Corporation - Japan
- Leighton Contractors Pty Ltd - Australia
- Bukit Makmur.PT - Indonesia
- Borneo Indobara - Indonesia
- Thiess Contractors Indonesia
- GMR Energy Limited - India
- ASAPP Information Group - India
- SMG Consultants - Indonesia
- GAC Shipping (India) Pvt Ltd
- Global Business Power Corporation, Philippines
- Indo Tambangraya Megah - Indonesia
- Minerals Council of Australia
- Cement Manufacturers Association - India
- Kepco SPC Power Corporation, Philippines
- Siam City Cement - Thailand
- Medco Energi Mining Internasional
- Karbindo Abesyapradhi - Indoneisa
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Coalindo Energy - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Mintek Dendrill Indonesia
- Marubeni Corporation - India
- Semirara Mining and Power Corporation, Philippines
- Central Java Power - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Riau Bara Harum - Indonesia
- Kobexindo Tractors - Indoneisa
- Intertek Mineral Services - Indonesia
- Globalindo Alam Lestari - Indonesia
- Interocean Group of Companies - India
- Singapore Mercantile Exchange
- Kideco Jaya Agung - Indonesia
- Star Paper Mills Limited - India
- The Treasury - Australian Government
- Energy Development Corp, Philippines
- Karaikal Port Pvt Ltd - India
- Binh Thuan Hamico - Vietnam
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