Reed Smith partner Thor Maalouf and senior associate Romain Farnoux explain the complexities of the contracting stage of constructing a superyacht and where the responsibilities lie between builders and owners.
Continue Reading Assessing the risk factor
Shipbuilding
Ship finance without a ship? Addressing the risks of newbuild financing
“It is good that I make you build, of this ship which shall sail on the sea, the hull, the decks and the mast, and then on a sunny day, like on a wedding day, I have you dress her of sails and gift her to the sea.”
Whether it is, as for Antoine de Saint-Exupéry, a result of one’s poetic nature, or for more prosaic purposes, there are a variety of reasons for ordering new vessels. Some shipowners do so to satisfy their specific trading needs or to take advantage of more favourable credit and tax opportunities while others want to make the switch to new fuels and technology, take advantage of market rates as they repeatedly set new all-time highs or to expand or diversify activities; and sometimes for a combination thereof. From cruise ships to containerships, tankers, and bulk carriers, and offshore vessels, shipowners are always on the lookout for financial partners to assist with the capital needs associated with newbuilds. Various forecasts anticipate that the shipbuilding market will grow over the next few years, off the back of the industry effort towards green shipping and the ever growing appetite for seaborne trade.Continue Reading Ship finance without a ship? Addressing the risks of newbuild financing
Buyer beware: Pre and post delivery issues under Shipbuilding Contracts
The global order book for new vessels has been hit by the economic fall out of the pandemic, associated supply chain issues, over-supply and reduced demand in sectors such as offshore. However, with a globally ageing fleet and an increasing demand for greener and more efficient vessels, the shipbuilding market is expected to recover and grow at a rate of 5.7% between 2021-2026.[1] This blog looks at some of the risks posed to a buyer under a shipbuilding contract (“SBC”) both prior to and after delivery of the vessel.
Continue Reading Buyer beware: Pre and post delivery issues under Shipbuilding Contracts
Financing risks of vessel modification outside the United States
Recent developments
Whilst there is much in the news at the moment about the relaxing of the Jones Act in the aftermath of the recent (and on-going) hurricanes, we consider the financing risks of vessel modification outside the United States:
The United States Jones Act limits the transportation of merchandise by water between points in the United States in vessels built in the United States, documented under the U.S. laws, and owned by the U.S. citizens. Any vessel which is later rebuilt outside the United States will lose its coastwise trade endorsement.
A vessel is deemed to be built in the U.S. only if all major components of the hull and superstructure are fabricated in the U.S. and the vessel is entirely assembled in the U.S. (46 CFR 67.97). Prior to any work being performed on a U.S. flag vessel eligible for coastwise trading, a vessel owner must submit an application to the U.S. Coast Guard National Vessel Documentation Center (the “NVDC”) seeking determination whether the proposed work would jeopardize the vessel’s coastwise trade eligibility. NVDC regulations at 46 C.F.R. § 67.177 set out a comprehensive scheme for determining whether work done abroad constitutes foreign rebuilding, namely, the two-pronged test – the “major component test” (46 C.F.R. § 67.177(a)) and the “considerable part test” (46 C.F.R. § 67.177(b)). Under a recent Foreign Rebuild Determination Letter by the NVDC, a third element – the “cumulative effect test” – has been added to the other two tests.
Continue Reading Financing risks of vessel modification outside the United States
Shipbuilding Contracts – Limitation Periods and Sale of Goods Act
In Neon Shipping Inc. v. Foreign Economic 7 Technical Corporation Co. of China and another [2016] EWHC 399 (Comm) the Commercial Court dealt with an appeal from London arbitrators in a dispute arising out of a shipbuilding contract (“SBC”).
The time bar issue
The SBC provided in Article XI that:Continue Reading Shipbuilding Contracts – Limitation Periods and Sale of Goods Act
Bank ordered to honour refund guarantees despite foreign court orders prohibiting payment
The Claimant Buyers brought proceedings against the Defendant Bank under refund guarantees issued by the Bank in support of two shipbuilding contracts between the Buyers and Sellers. Pursuant to the contracts, the Claimant had paid instalments on terms that they would be refunded if the contracts were cancelled. When the ships were not delivered on…
Court of Appeal finds that money paid by a bank under an on demand performance guarantee was not held on trust for the bank by the recipient
Reed Smith (Charles Weller) recently acted for the successful Respondents in Wuhan Guoyu Logistics Group Co Ltd v Emporiki Bank of Greece SA [2013] EWCA Civ 1679.
The Respondents were sellers under a shipbuilding contract. The Applicant was the buyers’ bank. When the buyers refused to pay an instalment due under the…
Court of Appeal holds that a payment guarantee issued in respect of an instalment due under a shipbuilding contract was an “on-demand” bond
Reed Smith (Charlie Weller) has represented the successful Appellant in Wuhan Guoyu Logistics Group Co Ltd v Emporiki Bank of Greece SA [2012] EWCA Civ 1629. The Court of Appeal held that a payment guarantee issued by a bank in respect of an instalment due under a shipbuilding contract was in the…