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