The smart contracting bulletin: energy and offshore industry — November 2012

The Smart Contracting bulletin is aimed at professionals in the energy and offshore industry worldwide. Its purpose is to highlight relevant issues and offer guidance on how to avoid or minimise these risks.

It is hardly news that the current shipping market is extremely difficult, and shipyards have not been spared from this brutal market. Yards that were once flush with orders are still reeling from a wave of cancellations and a decrease in orders that put a number in critical financial situations. Worryingly, this appears to have prompted a number of distressed yards, particularly in China and India, to take the unusual step of applying for court orders preventing their own banks from making payment under the refund guarantees that secure a buyer’s pre-delivery instalments or stopping the buyers from claiming under those refund guarantees.

Yards undertaking large scale EPC contracts such as the construction of newbuilds are typically larger and less prone to distress. Nevertheless, it is a trend that those contemplating new buildings of any sort should be aware of particularly in this industry where the cost of the average new build is high, as is the risk of disputes…

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