Ukraine/Russia: how this may impact shipbuilding contracts

News / / London

As developments in Ukraine unfold, the international response to the situation is evolving on a daily basis.

In recent articles, we have reported on sanctions that have been introduced (read herehere and here) as well as the potential implications for shipping contracts (read here).

This article focuses on the particular implications that the shipbuilding industry may face, especially as more sanctions are imposed and adopted against Russia (including by countries with large shipbuilding industries). The impact of financial restrictions and, in particular, Russian banks being frozen out of the SWIFT international payment system (through which payments relating to shipbuilding contracts are often made) is likely to have a significant effect on the shipbuilding industry and its supply chain. 

Indeed, the web of international restrictions raises a number of important issues for parties involved in shipbuilding contracts to consider, including:

  • Force Majeure and Permissible Delay: whether any recent events may be caught by the force majeure mechanism in the shipbuilding contract and/or entitle the shipbuilder to claim permissible delay. For example, it is not unusual for force majeure events to include events that have occurred or will occur in the coming weeks and months. Consideration would need to be given to whether such an event has arisen and what the requirements are for relying on this.
  • Illegality: whether performance of the shipbuilding contract would be illegal under local law and, if so, what effect this would have on a shipbuilding contract that is subject to English law.
  • Frustration: whether recent events mean that the performance of the shipbuilding contract is impossible, such that parties can potentially rely on the doctrine of frustration to be discharged from the shipbuilding contract.
  • Buyer’s failure to pay or take delivery: whether Russian banks being excluded from the SWIFT payment system could affect a buyer’s ability to make payment or take delivery of a ship under a shipbuilding contract and what implications this may have on the parties’ position under the shipbuilding contract.
  • Rights to suspend and/or terminate: indeed, whether a delay or failure by the buyer in making payment under the shipbuilding contract (or taking delivery) would entitle the shipbuilder to suspend construction and/or terminate the shipbuilding contract, and call upon any guarantees provided by or on behalf of the buyer. Where a buyer terminates for excessive force majeure delay issues may also arise as to whether performance guarantees remain effective.
  • Change in law clause: whether the shipbuilding contract contains a change in law clause that a party can rely on, in the event that a change in law makes it impractical or impossible for a party to perform the shipbuilding contract, and what the consequences of relying on such a clause would be.

A party’s ability to rely on any of the above points in relation to existing contracts will, of course, depend on the specific circumstances and the particular wording of the shipbuilding contract. It is, however, important for the parties to bear these points in mind when considering the implications of recent (and future) developments, especially as a number of these potential rights/issues may not arise until a later point in time. For those negotiating new contracts, additional protections may need to be incorporated in addition to those typically included in contracts to date.

If you have any queries concerning the above, please contact the authors or your regular Ince contact.
Chris Kidd

Chris Kidd Head of Shipbuilding and Offshore Construction, Joint Head of Energy & Infrastructure, Partner

David Choy

David Choy Managing Associate

Related sectors:

Related news & insights

News / One-off pilot error did not render port unsafe

21-03-2023 / Maritime

In this charterparty dispute, the arbitral tribunal rejected the Owners’ claim for damages for breach of the safe port warranty in a time charterparty, after a laden bulk carrier grounded at the entrance to the port of Chaozhou, China, while under compulsory pilotage. It also held that the vessel was unseaworthy, in breach of Article III.1 of the Hague Rules, due to lack of proper charts, but found on the facts that this was not causative of the grounding.

One-off pilot error did not render port unsafe

News / UK’s Electronic Trade Documents Bill progresses through Parliament

15-03-2023 / Maritime

On 15 March 2022, the UK’s Law Commission published its report, with draft legislation, for the legal recognition of electronic trade documents. One year later, the Electronic Trade Documents Bill introduced to the House of Lords is at the Report stage of the legislative process.

UK’s Electronic Trade Documents Bill progresses through Parliament

News / Court declines further adjournment of contempt application against sanctioned defendant

07-03-2023 / Maritime

In the recent case of PJSC National Bank Trust v. Boris Mints, the Court confirmed that sanctioned entities have a fundamental right of access to the English courts. In this case, the Court has made it clear that a defendant will not be permitted to delay any legitimate proceedings against him beyond what is reasonable on the basis that his sanctioned status may prevent him getting a fair trial.

Court declines further adjournment of contempt application against sanctioned defendant

News / Court finds hold reinspection should have been arranged with reasonable diligence

01-03-2023 / Maritime

On appeal from an arbitration award, the Court has agreed with the tribunal that there should be an implied term in the charterparty regarding the charterers’ obligations to arrange for a hold reinspection after a failed inspection. However, it has disagreed with the tribunal’s conclusion on whether this implied term had been breached.

Court finds hold reinspection should have been arranged with reasonable diligence

News / Admiralty Court tackles crossing rule head on

24-02-2023 / Maritime

This is the first collision case since the Supreme Court decision in the Ever Smart, in which the Admiralty Court has applied the crossing rules. This article discusses the Court's decision, which is unusual because of the finding of 100% liability against one vessel.

Admiralty Court tackles crossing rule head on

News / Maritime Autonomous Surface Ships (MASS) – the work continues

24-02-2023 / Maritime

The international maritime industry is increasingly developing and relying on various levels of automation both onshore and on board. The IMO is leading the way forward and, among other things, has been taking a leading and proactive role in the introduction of commercially operated ships in autonomous mode.

Maritime Autonomous Surface Ships (MASS) – the work continues