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