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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, 08 April 16
COASTAL ENERGEN CROSSES GENERATION OF 1068 MW AND EXPORT OF 1004 MW FROM ITS 1200 MW IPP
COALspot.com: Coal & Oil (C&O) Group, an India centric Energy & Infrastructure company announced that their Coastal Energen' ...
Friday, 08 April 16
WEEKLY US COAL PRODUCTION ESTIMATES DIP 5.4% TO 11 MMST
COALspot.com – United States the world’s second largest coal producer has produced approximately totaled an estimated 11 million short ...
Friday, 08 April 16
MINISTER OF ENERGY AND MINERAL RESOURCES OF INDONESIA TO ISSUE REGULATION TO GUARANTEE THE COAL SUPPLY TO ITS 35K POWER PLANT PROJECTS
COALspot.com: In order to guarantee the supply of coal for 35,000 megawatt (mw) coal based power plants ( still in planning stage), the Minister of ...
Thursday, 07 April 16
CHINA STEEL CAPACITY CUTS FACE SOCIAL, FINANCIAL HURDLES - FITCH RATINGS
Fitch Ratings says today that the Chinese government's supply-side reform of the steel sector faces immense social and financial challenges. Th ...
Thursday, 07 April 16
PANAMAX RATES ARE FIRMING IN BOTH HEMISHEPHERES - FEARNLEYS
Capesize
With a great volume our of west Australia, rates were finally moving to upper 3's. and stabilizing towards the middle of the week in ...
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Showing 2486 to 2490 news of total 6871 |
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- Kepco SPC Power Corporation, Philippines
- International Coal Ventures Pvt Ltd - India
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- SN Aboitiz Power Inc, Philippines
- Timah Investasi Mineral - Indoneisa
- CIMB Investment Bank - Malaysia
- Kartika Selabumi Mining - Indonesia
- Miang Besar Coal Terminal - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- PowerSource Philippines DevCo
- Binh Thuan Hamico - Vietnam
- Edison Trading Spa - Italy
- Minerals Council of Australia
- Sical Logistics Limited - India
- OPG Power Generation Pvt Ltd - India
- The Treasury - Australian Government
- European Bulk Services B.V. - Netherlands
- GMR Energy Limited - India
- Parry Sugars Refinery, India
- Orica Australia Pty. Ltd.
- Leighton Contractors Pty Ltd - Australia
- Latin American Coal - Colombia
- Karbindo Abesyapradhi - Indoneisa
- Central Electricity Authority - India
- TeaM Sual Corporation - Philippines
- Bayan Resources Tbk. - Indonesia
- Renaissance Capital - South Africa
- Africa Commodities Group - South Africa
- The University of Queensland
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- Ceylon Electricity Board - Sri Lanka
- Essar Steel Hazira Ltd - India
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- IHS Mccloskey Coal Group - USA
- Holcim Trading Pte Ltd - Singapore
- Indogreen Group - Indonesia
- Aboitiz Power Corporation - Philippines
- Karaikal Port Pvt Ltd - India
- Indian Energy Exchange, India
- PNOC Exploration Corporation - Philippines
- Global Coal Blending Company Limited - Australia
- Heidelberg Cement - Germany
- Barasentosa Lestari - Indonesia
- Riau Bara Harum - Indonesia
- Australian Commodity Traders Exchange
- Indonesian Coal Mining Association
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- Jindal Steel & Power Ltd - India
- Merrill Lynch Commodities Europe
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Energy Link Ltd, New Zealand
- Thai Mozambique Logistica
- PTC India Limited - India
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- ICICI Bank Limited - India
- New Zealand Coal & Carbon
- Simpson Spence & Young - Indonesia
- London Commodity Brokers - England
- Savvy Resources Ltd - HongKong
- Bhoruka Overseas - Indonesia
- Intertek Mineral Services - Indonesia
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- White Energy Company Limited
- Bank of Tokyo Mitsubishi UFJ Ltd
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- Posco Energy - South Korea
- Sree Jayajothi Cements Limited - India
- Global Business Power Corporation, Philippines
- Price Waterhouse Coopers - Russia
- Rashtriya Ispat Nigam Limited - India
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- Sinarmas Energy and Mining - Indonesia
- AsiaOL BioFuels Corp., Philippines
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- Petron Corporation, Philippines
- Gujarat Sidhee Cement - India
- Cement Manufacturers Association - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Toyota Tsusho Corporation, Japan
- Maheswari Brothers Coal Limited - India
- Deloitte Consulting - India
- Borneo Indobara - Indonesia
- Uttam Galva Steels Limited - India
- Makarim & Taira - Indonesia
- Ministry of Transport, Egypt
- Mintek Dendrill Indonesia
- Billiton Holdings Pty Ltd - Australia
- San Jose City I Power Corp, Philippines
- Vedanta Resources Plc - India
- Vizag Seaport Private Limited - India
- Interocean Group of Companies - India
- Trasteel International SA, Italy
- Jaiprakash Power Ventures ltd
- Wood Mackenzie - Singapore
- Coalindo Energy - Indonesia
- MS Steel International - UAE
- Siam City Cement PLC, Thailand
- VISA Power Limited - India
- ASAPP Information Group - India
- The State Trading Corporation of India Ltd
- Energy Development Corp, Philippines
- Mercator Lines Limited - India
- SMC Global Power, Philippines
- Tata Chemicals Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Directorate Of Revenue Intelligence - India
- Maharashtra Electricity Regulatory Commission - India
- Bahari Cakrawala Sebuku - Indonesia
- Parliament of New Zealand
- Agrawal Coal Company - India
- Singapore Mercantile Exchange
- Goldman Sachs - Singapore
- Tamil Nadu electricity Board
- Alfred C Toepfer International GmbH - Germany
- Rio Tinto Coal - Australia
- Vijayanagar Sugar Pvt Ltd - India
- Sakthi Sugars Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Kalimantan Lumbung Energi - Indonesia
- Kumho Petrochemical, South Korea
- TNB Fuel Sdn Bhd - Malaysia
- GAC Shipping (India) Pvt Ltd
- Neyveli Lignite Corporation Ltd, - India
- Kapuas Tunggal Persada - Indonesia
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- Power Finance Corporation Ltd., India
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- Altura Mining Limited, Indonesia
- Lanco Infratech Ltd - India
- Bhushan Steel Limited - India
- Kideco Jaya Agung - Indonesia
- Globalindo Alam Lestari - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Bukit Makmur.PT - Indonesia
- Indo Tambangraya Megah - Indonesia
- Electricity Authority, New Zealand
- Medco Energi Mining Internasional
- Commonwealth Bank - Australia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Metalloyd Limited - United Kingdom
- Economic Council, Georgia
- Bukit Baiduri Energy - Indonesia
- Orica Mining Services - Indonesia
- Madhucon Powers Ltd - India
- Eastern Coal Council - USA
- Baramulti Group, Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- IEA Clean Coal Centre - UK
- Aditya Birla Group - India
- Straits Asia Resources Limited - Singapore
- Romanian Commodities Exchange
- Bangladesh Power Developement Board
- Therma Luzon, Inc, Philippines
- Pendopo Energi Batubara - Indonesia
- CNBM International Corporation - China
- Siam City Cement - Thailand
- Samtan Co., Ltd - South Korea
- Meralco Power Generation, Philippines
- Global Green Power PLC Corporation, Philippines
- Port Waratah Coal Services - Australia
- Oldendorff Carriers - Singapore
- Salva Resources Pvt Ltd - India
- Electricity Generating Authority of Thailand
- Sindya Power Generating Company Private Ltd
- LBH Netherlands Bv - Netherlands
- Sojitz Corporation - Japan
- Xindia Steels Limited - India
- Bulk Trading Sa - Switzerland
- Chettinad Cement Corporation Ltd - India
- Krishnapatnam Port Company Ltd. - India
- GVK Power & Infra Limited - India
- Malabar Cements Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Indika Energy - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Eastern Energy - Thailand
- Indian Oil Corporation Limited
- Marubeni Corporation - India
- Asmin Koalindo Tuhup - Indonesia
- Anglo American - United Kingdom
- Georgia Ports Authority, United States
- Bhatia International Limited - India
- Iligan Light & Power Inc, Philippines
- Thiess Contractors Indonesia
- Independent Power Producers Association of India
- Semirara Mining Corp, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Chamber of Mines of South Africa
- Star Paper Mills Limited - India
- Cigading International Bulk Terminal - Indonesia
- SMG Consultants - Indonesia
- Ministry of Mines - Canada
- Dalmia Cement Bharat India
- Formosa Plastics Group - Taiwan
- Ministry of Finance - Indonesia
- Coal and Oil Company - UAE
- McConnell Dowell - Australia
- Videocon Industries ltd - India
- Banpu Public Company Limited - Thailand
- Larsen & Toubro Limited - India
- Carbofer General Trading SA - India
- India Bulls Power Limited - India
- Kobexindo Tractors - Indoneisa
- Antam Resourcindo - Indonesia
- Australian Coal Association
- Grasim Industreis Ltd - India
- Coastal Gujarat Power Limited - India
- Planning Commission, India
- Meenaskhi Energy Private Limited - India
- Mjunction Services Limited - India
- Petrochimia International Co. Ltd.- Taiwan
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