Shipbuilding Law Blog

The object of a refund guarantee in shipbuilding is to ensure that Buyer can get their money back (usually from a bank) in the event that the shipbuilding contract is rightfully cancelled by Buyer. However, this assurance at best is tentative as the right to the money is not absolute. Recent examples in shipbuilding cases where call on refund guarantees failed include invalid demand ( Sea-Cargo Skips As v State Bank of India [2013] EWHC 177 ) and lack of authority (actual, ostensible or by ratification) to sign refund guarantees on the bank’s behalf ( Sea Emerald SA v Prominvestbank) . In Sea-Cargo Skips As v State Bank of India , a demand on the refund guarantee issued in connection with a Shipbuilding Contract was held to be deficient. The guarantee required a statement from the Buyer that: “(A) that the vessel or the construction thereof is delayed with more than 270 days as set out in the contract article IV 1 (E) which entitles the buyer to cancel the contract

A recent decision by the English Commercial Court provides clarity on Sellers’ remedy in the event of  Buyers’ default in payment of the deposit. Pursuant to a Memorandum of Agreement (MOA) based on  Norwegian Saleform NSF 1993, Sellers agreed to sell the MV GRIFFON to the Buyers at a price of US$22m. 10% deposit amounting to US$2,156,000, was payable within three banking days of contract signing. Buyers defaulted in the payment of the deposit and the Sellers accepted the Buyers' conduct as a repudiation of the MOA and cancelled the same. The damages recoverable by the Sellers on the conventional measure would be the difference between contract and market price, and in this case, US$275,000, which is, substantially less than the deposit of US$2,156,000. The Arbitration Tribunal had to decide whether the Sellers could recover the deposit or could only claim damages for the lesser sum. It was common ground that if the deposit had been paid the Sellers would have been entitled