Buyer Beware: Is Performance Truly Guaranteed?

Given the current financial climate, some yards may face difficulties financing the building of new orders. With approximately 1,000 ships on order at a value of around $350 billion, refund guarantees could potentially be very relevant in the near future for purchasers of new build vessels.

The judgment handed down in the Sea Emerald v Prominvestbank case in August serves as a timely reminder to purchasers to ensure that refund guarantees issued alongside shipbuilding contracts have been signed by persons acting with full and proper authority to do so.

In this case, the Laskiridis Group contracted to purchase 19 ships from a yard in Ukraine for over US$200 million. The purchase contracts were governed by English law and stipulated that the yard must provide the buyer with a refund guarantee, guaranteeing repayment to the buyer of any sum owed by the builder under the contract.