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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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Monday, 30 May 16
BCI ENDING AT 830 POINTS, DOWN 4.6 PER CENT W/W
COALspot.com: The Baltic Exchange, tracking rates for ships carrying dry bulk commodities decline this week. The freight market was weak this past ...
Friday, 27 May 16
PET-COKE IMPORTS TO FACE PRESSURE IN INDIA
COALspot.com: An Indian environmental activist moved the National Green Tribunal seeking ban on the use of all forms of petroleum coke, also called ...
Friday, 27 May 16
US COAL PRODUCTION ROSE 2.9% WOW, ACCORDING TO EIA
COALspot.com – U.S the world’s second largest coal producer has produced approximately totaled an estimated 11.7 million short tons (mm ...
Thursday, 26 May 16
GIANT ORE CARRIERS SET TO PLAY A BIGGER ROLE IN THE GLOBAL SHIPPING FLEET: CHINA EMBRACES VALEMAXES - RICHARD SCOTT
Another phase of the giant ships era is approaching. Chinese shipowners placed orders recently for 30 huge ‘valemax’ ore carriers. Thes ...
Wednesday, 25 May 16
MEDIATION AS A WAY TO RESOLVE DISPUTES IN THE SHIPPING INDUSTRY - LANA JACOBS
KNOWLEDGE TO ELEVATE
The shipping market is currently experiencing a serious recession with the Baltic Dry Index and Baltic Capesize Index bot ...
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Showing 2416 to 2420 news of total 6871 |
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- Sindya Power Generating Company Private Ltd
- Toyota Tsusho Corporation, Japan
- Coastal Gujarat Power Limited - India
- Indian Oil Corporation Limited
- Meralco Power Generation, Philippines
- Agrawal Coal Company - India
- Maheswari Brothers Coal Limited - India
- VISA Power Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Attock Cement Pakistan Limited
- Xindia Steels Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Goldman Sachs - Singapore
- Parliament of New Zealand
- Karbindo Abesyapradhi - Indoneisa
- Simpson Spence & Young - Indonesia
- Petron Corporation, Philippines
- Sree Jayajothi Cements Limited - India
- LBH Netherlands Bv - Netherlands
- Economic Council, Georgia
- GAC Shipping (India) Pvt Ltd
- Metalloyd Limited - United Kingdom
- Ministry of Finance - Indonesia
- Energy Link Ltd, New Zealand
- Riau Bara Harum - Indonesia
- The University of Queensland
- Commonwealth Bank - Australia
- Ceylon Electricity Board - Sri Lanka
- San Jose City I Power Corp, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Rashtriya Ispat Nigam Limited - India
- GMR Energy Limited - India
- Indogreen Group - Indonesia
- PowerSource Philippines DevCo
- IEA Clean Coal Centre - UK
- TeaM Sual Corporation - Philippines
- Aboitiz Power Corporation - Philippines
- Uttam Galva Steels Limited - India
- Leighton Contractors Pty Ltd - Australia
- Kartika Selabumi Mining - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Merrill Lynch Commodities Europe
- Alfred C Toepfer International GmbH - Germany
- Indian Energy Exchange, India
- European Bulk Services B.V. - Netherlands
- Wood Mackenzie - Singapore
- Billiton Holdings Pty Ltd - Australia
- Oldendorff Carriers - Singapore
- Port Waratah Coal Services - Australia
- Meenaskhi Energy Private Limited - India
- Therma Luzon, Inc, Philippines
- Ministry of Mines - Canada
- The Treasury - Australian Government
- Banpu Public Company Limited - Thailand
- Samtan Co., Ltd - South Korea
- Deloitte Consulting - India
- Aditya Birla Group - India
- Romanian Commodities Exchange
- Star Paper Mills Limited - India
- Timah Investasi Mineral - Indoneisa
- Interocean Group of Companies - India
- Posco Energy - South Korea
- Australian Coal Association
- Power Finance Corporation Ltd., India
- Carbofer General Trading SA - India
- IHS Mccloskey Coal Group - USA
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Australian Commodity Traders Exchange
- Bharathi Cement Corporation - India
- Siam City Cement PLC, Thailand
- Semirara Mining Corp, Philippines
- Tamil Nadu electricity Board
- Vizag Seaport Private Limited - India
- CNBM International Corporation - China
- Borneo Indobara - Indonesia
- PTC India Limited - India
- Trasteel International SA, Italy
- Singapore Mercantile Exchange
- Gujarat Electricity Regulatory Commission - India
- Orica Mining Services - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Makarim & Taira - Indonesia
- Chamber of Mines of South Africa
- Sical Logistics Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Mintek Dendrill Indonesia
- Kumho Petrochemical, South Korea
- Jindal Steel & Power Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Ambuja Cements Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Bhoruka Overseas - Indonesia
- Global Coal Blending Company Limited - Australia
- Bangladesh Power Developement Board
- Neyveli Lignite Corporation Ltd, - India
- Rio Tinto Coal - Australia
- Kapuas Tunggal Persada - Indonesia
- Marubeni Corporation - India
- Jaiprakash Power Ventures ltd
- Formosa Plastics Group - Taiwan
- Eastern Coal Council - USA
- CIMB Investment Bank - Malaysia
- Sinarmas Energy and Mining - Indonesia
- Coal and Oil Company - UAE
- Salva Resources Pvt Ltd - India
- Edison Trading Spa - Italy
- Africa Commodities Group - South Africa
- Medco Energi Mining Internasional
- Kideco Jaya Agung - Indonesia
- Intertek Mineral Services - Indonesia
- Coalindo Energy - Indonesia
- Kaltim Prima Coal - Indonesia
- Straits Asia Resources Limited - Singapore
- Indo Tambangraya Megah - Indonesia
- Grasim Industreis Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Tata Chemicals Ltd - India
- South Luzon Thermal Energy Corporation
- Central Java Power - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Globalindo Alam Lestari - Indonesia
- International Coal Ventures Pvt Ltd - India
- MS Steel International - UAE
- London Commodity Brokers - England
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Electricity Generating Authority of Thailand
- Eastern Energy - Thailand
- Parry Sugars Refinery, India
- Mercuria Energy - Indonesia
- Energy Development Corp, Philippines
- ASAPP Information Group - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- GVK Power & Infra Limited - India
- New Zealand Coal & Carbon
- Kobexindo Tractors - Indoneisa
- Renaissance Capital - South Africa
- PNOC Exploration Corporation - Philippines
- Mercator Lines Limited - India
- The State Trading Corporation of India Ltd
- Electricity Authority, New Zealand
- Manunggal Multi Energi - Indonesia
- Heidelberg Cement - Germany
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- AsiaOL BioFuels Corp., Philippines
- Siam City Cement - Thailand
- Bhushan Steel Limited - India
- Karaikal Port Pvt Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Bayan Resources Tbk. - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Larsen & Toubro Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Ind-Barath Power Infra Limited - India
- Planning Commission, India
- Iligan Light & Power Inc, Philippines
- Directorate Of Revenue Intelligence - India
- White Energy Company Limited
- Essar Steel Hazira Ltd - India
- McConnell Dowell - Australia
- Latin American Coal - Colombia
- Mjunction Services Limited - India
- Thai Mozambique Logistica
- Sojitz Corporation - Japan
- Sakthi Sugars Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Minerals Council of Australia
- Indonesian Coal Mining Association
- Global Green Power PLC Corporation, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Orica Australia Pty. Ltd.
- Altura Mining Limited, Indonesia
- Global Business Power Corporation, Philippines
- Central Electricity Authority - India
- Dalmia Cement Bharat India
- Pendopo Energi Batubara - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Bank of Tokyo Mitsubishi UFJ Ltd
- Semirara Mining and Power Corporation, Philippines
- India Bulls Power Limited - India
- Ministry of Transport, Egypt
- SMC Global Power, Philippines
- Chettinad Cement Corporation Ltd - India
- Lanco Infratech Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Thiess Contractors Indonesia
- Cement Manufacturers Association - India
- Bulk Trading Sa - Switzerland
- Krishnapatnam Port Company Ltd. - India
- OPG Power Generation Pvt Ltd - India
- ICICI Bank Limited - India
- Bukit Makmur.PT - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Kepco SPC Power Corporation, Philippines
- Independent Power Producers Association of India
- Bhatia International Limited - India
- Vedanta Resources Plc - India
- Barasentosa Lestari - Indonesia
- Gujarat Sidhee Cement - India
- Sarangani Energy Corporation, Philippines
- Wilmar Investment Holdings
- Georgia Ports Authority, United States
- Standard Chartered Bank - UAE
- SN Aboitiz Power Inc, Philippines
- Indika Energy - Indonesia
- Antam Resourcindo - Indonesia
- Videocon Industries ltd - India
- Anglo American - United Kingdom
- Madhucon Powers Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Baramulti Group, Indonesia
- Savvy Resources Ltd - HongKong
- Price Waterhouse Coopers - Russia
- SMG Consultants - Indonesia
- Binh Thuan Hamico - Vietnam
- Malabar Cements Ltd - India
- Bukit Baiduri Energy - Indonesia
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