Cancellation of Shipbuilding Contracts: when is it lawful?

Cancellation of Shipbuilding Contracts: when is it lawful?

Any guidance from the courts on the correct approach to the construction of shipbuilding contracts is to be welcomed by the shipping and maritime sector.  The expert shipping Bahamas lawyers at ParrisWhittaker have years of experience advising and representing shipyards and buyers on ship building contracts.

The High Court in London has provided useful guidance in a recent case1 for shipyards and buyers facing the consequences of cancelled shipbuilding contracts following delayed delivery.

What’s the background to this case?

Four cases were heard together by the Commercial Court in London from four arbitration awards concerning the construction and interpretation of cancellation provisions in four almost identical contracts between shipbuilders and their buyers. The buyers had all relied on a contractual right to cancel the contract for delayed delivery of vessels if the total accumulated delay exceeded a certain number of days - but certain categories of delay could not be included in the calculation.

At issue was whether the buyers had done so lawfully – or whether they had contributed to the delays (in which case it was unlawful). The court rejected the claimant’s argument that the cancellation was wrongful because part of the delay was, allegedly, caused by the buyer’s own breach of the contract relating to the inspection of the ship by the buyer’s supervisor. 

In each case, the court decided on the facts and on the true construction of each contract, finding that the buyers had been entitled to cancel the respective contracts (upholding the earlier findings under the arbitration awards).    They were also entitled to full repayment of the instalments of the price they had paid in advance.

What does this mean?

When drafting commercial agreements, any ambiguity concerning the rights of a party to cancel the contract on the basis of delay need to be resolved before the contract is signed, including the issue of giving notice of delays.   Parties to shipbuilding contracts need to take particular note of the contractual terms in the context of potential cancellations under the contract.  It appears the courts will interpret such clauses in accordance to the overall language and true construction of the contract. 

How can we help?

At ParrisWhittaker, our expert shipping and maritime lawyers have won awards for the high quality of their legal advice. With many years’ experience in handling all kinds of maritime and shipping cases – including those relating to cancellation of shipbuilding contracts – the experienced maritime and shipping Bahamas lawyers at ParrisWhittaker are ready to act on your behalf.

1Zhoushan Jinhaiwan Shipyard v. Golden Exquisite Inc. [2014] EWHC 4050 (Comm),