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Recent decisions in Shipbuilding law

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Marine-ClydeCo-0690_800_450_90_s_c1_c_cThere have been encouraging recent signs that the market for newbuild vessels may be improving, especially given, for example, recent reports of significant orders for LNG carriers. However, more pessimistic forecasts of 2015 orders, the fall in the price of oil and continued depression in freight and hire rates means that yards remain under pressure financially and from Buyers.

Several decisions across the offshore, shipbuilding and yachtbuilding sectors in the last year highlight the continuing tendency of Buyers to rely heavily on their contractual rights (especially where an order may have become unattractive following a drop in market rates for hire and freight) and in some cases to push those rights to, or even beyond, their limits.  The English courts have tended in these cases to adopt a robust line under the contracts and have often been prepared to enforce provisions that allow Buyers to terminate and claim repayment of instalments. Accordingly, shipyards must be careful to avoid straying into positions where they are at risk of any breach of the shipbuilding contract.

PART I – Termination and extensions of time

The courts have provided guidance on the rights of the Buyer to terminate, and on the ability of the yard to avoid termination, in two key decisions from 2014, most recently in Zhoushan Jinhaiwan Shipyard Co Ltd v (1) Golden Exquisite Inc. (and others) [2014] and in Bluewater Energy Services BV v (1) Mercon Steel Structures BV (and others) [2014] EWHC 2132.

Zhoushan Jinhaiwan Shipyard Co Ltd v (1) Golden Exquisite Inc (2) Golden Eye Inc (3) DNB Bank ASA: Zhoshan Jinhaiwan Shipyard Co Ltd v (1) Golden Extreme Inc (2) Golden Effort Inc.

This case concerned the cancellation of several materially identical shipbuilding contracts in which both the termination by the Buyer and response from the Builder gave rise to similar arguments. Leggatt J was required to consider the extent to which arguments arising out of various alleged defaults by the Buyer could be used to defeat contractual rights of termination exercised by the Buyer.

Please see to this pdf  link to read the full update.



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