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Shipbuilding Guarantees: Anti-Discharge Provisions and the Purview Doctrine

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  In shipbuilding contracts there will inevitably be variations to the specification, plans, drawings, delivery date, and the contract price.   Whether such variations can discharge the guarantor’s obligation under related payment or refund guarantees will depend on whether such guarantees are a traditional or a demand guarantee. With regard to traditional guarantee, it was held in Holme v Brunskill   [1] , that any material variation of the underlying contract without the surety’s consent will discharge the surety from liability under the guarantee, except where it is self-evident that the alteration is insubstantial or beneficial to the surety. This is also because the liability of the debtor and surety under a traditional guarantee are co-extensive. In contrast, the rule will not apply to a demand guarantee, which is payable without proof or condition, independent of the underlying contract and can simply be activated by a demand made on the bank. To circumvent the rule in Holme v
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The Nature of Refund or Payment Guarantees in Shipbuilding Projects

  In order to   manage  counter-party risks in shipbuilding contracts ,  most buyers will require a refund guarantee from the shipbuilder to secure repayment of instalments  when the buyer terminates the contract lawfully.     On the other hand, where the payment terms are heavily end-loaded or where the buyer is a special purpose company without substantial assets, shipbuilders will require a payment guarantee from the buyer. Such guarantees may be issued by banks, financial institutions, insurers and at times, the parent company of the parties.   Such guarantees could either be traditional or demand guarantees, and this will depend on its language as a whole in its particular commercial context. (Per LJ Popplewell at para 34 in  S hanghai Shipyard Co. Ltd V Reignwood International Investment (Group) Company Limited [ 2021] EWCA Civ 1147 ).     A guarantor’s liability under a traditional guarantee is secondary and is dependent upon the liability of the principal debtor. (i.e. an under
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Letter of intent revisit

A letter of intent (LOI), also called a term sheet, expression, or indication of interest in the commercial sectors is an informal offer or recap of the parties’ position on how they would proceed on a business proposal or venture. In the shipbuilding and offshore industry, where discussions on technical, commercial, and legal matters leading up to a formal contract are complex and lengthy, letters of intent (LOIs) will often be used as the prelude to the formation of a formal contract. Thus, LOIs will be used:   ·         Where the scope of work has been identified, but there are still outstanding items like the selection of main engine suppliers, financing, guarantees, and board approvals that need to be finalized.   ·         At other times, LOI may be signed on condition that the parties will enter into a shipbuilding contract after the buyer’s bid for a shipbuilding project is successful, or where the parties intend to bid for a project jointly. (The intent of such LOIs is to secu
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