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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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- Rio Tinto Coal - Australia
- Borneo Indobara - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- PTC India Limited - India
- Intertek Mineral Services - Indonesia
- Mercator Lines Limited - India
- Straits Asia Resources Limited - Singapore
- Sree Jayajothi Cements Limited - India
- Aboitiz Power Corporation - Philippines
- Videocon Industries ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Kideco Jaya Agung - Indonesia
- ASAPP Information Group - India
- Savvy Resources Ltd - HongKong
- Cigading International Bulk Terminal - Indonesia
- McConnell Dowell - Australia
- Karaikal Port Pvt Ltd - India
- Riau Bara Harum - Indonesia
- Energy Link Ltd, New Zealand
- New Zealand Coal & Carbon
- Bhushan Steel Limited - India
- Ministry of Transport, Egypt
- ICICI Bank Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Wood Mackenzie - Singapore
- Rashtriya Ispat Nigam Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Xindia Steels Limited - India
- Maheswari Brothers Coal Limited - India
- Planning Commission, India
- Indian Energy Exchange, India
- White Energy Company Limited
- Madhucon Powers Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Eastern Energy - Thailand
- Attock Cement Pakistan Limited
- Globalindo Alam Lestari - Indonesia
- SMC Global Power, Philippines
- SMG Consultants - Indonesia
- The State Trading Corporation of India Ltd
- India Bulls Power Limited - India
- Therma Luzon, Inc, Philippines
- Sakthi Sugars Limited - India
- Australian Coal Association
- Offshore Bulk Terminal Pte Ltd, Singapore
- International Coal Ventures Pvt Ltd - India
- Dalmia Cement Bharat India
- Kobexindo Tractors - Indoneisa
- Parry Sugars Refinery, India
- Bayan Resources Tbk. - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Posco Energy - South Korea
- Directorate General of MIneral and Coal - Indonesia
- Singapore Mercantile Exchange
- Essar Steel Hazira Ltd - India
- Thiess Contractors Indonesia
- Pendopo Energi Batubara - Indonesia
- Salva Resources Pvt Ltd - India
- Meenaskhi Energy Private Limited - India
- Coal and Oil Company - UAE
- The Treasury - Australian Government
- Orica Australia Pty. Ltd.
- Manunggal Multi Energi - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Parliament of New Zealand
- Krishnapatnam Port Company Ltd. - India
- Kumho Petrochemical, South Korea
- Central Java Power - Indonesia
- Goldman Sachs - Singapore
- GAC Shipping (India) Pvt Ltd
- Cement Manufacturers Association - India
- Agrawal Coal Company - India
- Gujarat Electricity Regulatory Commission - India
- Merrill Lynch Commodities Europe
- Pipit Mutiara Jaya. PT, Indonesia
- Wilmar Investment Holdings
- Indian Oil Corporation Limited
- Orica Mining Services - Indonesia
- Aditya Birla Group - India
- Binh Thuan Hamico - Vietnam
- Larsen & Toubro Limited - India
- Kaltim Prima Coal - Indonesia
- South Luzon Thermal Energy Corporation
- Jaiprakash Power Ventures ltd
- Petron Corporation, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Bank of Tokyo Mitsubishi UFJ Ltd
- Anglo American - United Kingdom
- Kohat Cement Company Ltd. - Pakistan
- Billiton Holdings Pty Ltd - Australia
- Port Waratah Coal Services - Australia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- PowerSource Philippines DevCo
- Chamber of Mines of South Africa
- Kalimantan Lumbung Energi - Indonesia
- Trasteel International SA, Italy
- Coastal Gujarat Power Limited - India
- Economic Council, Georgia
- Renaissance Capital - South Africa
- Iligan Light & Power Inc, Philippines
- Bulk Trading Sa - Switzerland
- Medco Energi Mining Internasional
- Vedanta Resources Plc - India
- Indonesian Coal Mining Association
- San Jose City I Power Corp, Philippines
- Leighton Contractors Pty Ltd - Australia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Sarangani Energy Corporation, Philippines
- Carbofer General Trading SA - India
- Banpu Public Company Limited - Thailand
- Antam Resourcindo - Indonesia
- Indo Tambangraya Megah - Indonesia
- Mjunction Services Limited - India
- PNOC Exploration Corporation - Philippines
- Siam City Cement - Thailand
- MS Steel International - UAE
- GVK Power & Infra Limited - India
- CIMB Investment Bank - Malaysia
- LBH Netherlands Bv - Netherlands
- IEA Clean Coal Centre - UK
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Toyota Tsusho Corporation, Japan
- Barasentosa Lestari - Indonesia
- TeaM Sual Corporation - Philippines
- Global Coal Blending Company Limited - Australia
- Formosa Plastics Group - Taiwan
- Kepco SPC Power Corporation, Philippines
- Electricity Generating Authority of Thailand
- PetroVietnam Power Coal Import and Supply Company
- Gujarat Sidhee Cement - India
- The University of Queensland
- Global Business Power Corporation, Philippines
- Chettinad Cement Corporation Ltd - India
- Metalloyd Limited - United Kingdom
- Semirara Mining Corp, Philippines
- Australian Commodity Traders Exchange
- Jindal Steel & Power Ltd - India
- Bukit Baiduri Energy - Indonesia
- Star Paper Mills Limited - India
- Indika Energy - Indonesia
- European Bulk Services B.V. - Netherlands
- Thai Mozambique Logistica
- Sojitz Corporation - Japan
- Kapuas Tunggal Persada - Indonesia
- Eastern Coal Council - USA
- Power Finance Corporation Ltd., India
- Bhatia International Limited - India
- Price Waterhouse Coopers - Russia
- Bahari Cakrawala Sebuku - Indonesia
- Mercuria Energy - Indonesia
- IHS Mccloskey Coal Group - USA
- Neyveli Lignite Corporation Ltd, - India
- Holcim Trading Pte Ltd - Singapore
- Commonwealth Bank - Australia
- Ambuja Cements Ltd - India
- Africa Commodities Group - South Africa
- Malabar Cements Ltd - India
- Standard Chartered Bank - UAE
- SN Aboitiz Power Inc, Philippines
- Timah Investasi Mineral - Indoneisa
- Independent Power Producers Association of India
- Tata Chemicals Ltd - India
- CNBM International Corporation - China
- Semirara Mining and Power Corporation, Philippines
- Meralco Power Generation, Philippines
- Simpson Spence & Young - Indonesia
- Mintek Dendrill Indonesia
- Latin American Coal - Colombia
- Petrochimia International Co. Ltd.- Taiwan
- Grasim Industreis Ltd - India
- OPG Power Generation Pvt Ltd - India
- Bangladesh Power Developement Board
- Gujarat Mineral Development Corp Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Edison Trading Spa - Italy
- Bukit Makmur.PT - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Uttam Galva Steels Limited - India
- VISA Power Limited - India
- Alfred C Toepfer International GmbH - Germany
- Heidelberg Cement - Germany
- Bhoruka Overseas - Indonesia
- Romanian Commodities Exchange
- Lanco Infratech Ltd - India
- Makarim & Taira - Indonesia
- Interocean Group of Companies - India
- Bharathi Cement Corporation - India
- Oldendorff Carriers - Singapore
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Minerals Council of Australia
- Ministry of Mines - Canada
- Marubeni Corporation - India
- Ind-Barath Power Infra Limited - India
- Sical Logistics Limited - India
- Altura Mining Limited, Indonesia
- Directorate Of Revenue Intelligence - India
- Vizag Seaport Private Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Siam City Cement PLC, Thailand
- Sindya Power Generating Company Private Ltd
- Indogreen Group - Indonesia
- London Commodity Brokers - England
- Ministry of Finance - Indonesia
- Electricity Authority, New Zealand
- Kartika Selabumi Mining - Indonesia
- GMR Energy Limited - India
- Sinarmas Energy and Mining - Indonesia
- Coalindo Energy - Indonesia
- Samtan Co., Ltd - South Korea
- Georgia Ports Authority, United States
- Energy Development Corp, Philippines
- Global Green Power PLC Corporation, Philippines
- Central Electricity Authority - India
- Baramulti Group, Indonesia
- Deloitte Consulting - India
- Tamil Nadu electricity Board
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