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Shipping and the Law in the recent and current market

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  1. Shipping and the Lawin the recent and current market “Dealing with market collapse – renegotiating or cancelling the distressed shipbuilding contract” Simon Curtis Senior Partner, Curtis Davis Garrard LLP, London Naples, Monday 24 October 2011

  2. Dealing with market collapse • A TEN YEAR ROLLERCOASTER RIDE The Up Cycle Consistently increasing shipbuilding prices in the period to mid-2008 Rapid development of additional shipbuilding capacity The Down Cycle Post 2008 collapse in newbuilding values Drying up of credit and then demand

  3. Dealing with market collapse • SHIPBUILDING CONTRACT LAWYERS Have seen a decline in the number and value shipbuilding projects BUT... A big rise in demand for help with “distressed” projects

  4. Dealing with market collapse • BOTH SHIPBUILDERS AND OWNERS ARE EXPERIENCING SUBSTANTIAL ECONOMIC DISTRESS Shipowners are seeking to renegotiate or cancel contracts Shipbuilders seeking to enforce agreements and generally to preserve economic value

  5. A distressed newbuilding – purchaser options? • A DECLINE IN NEWBUILDING VALUES WILL NOT ASSIST THE PURCHASER There is no entitlement in English law for the shipowner to seek a release from, or adjustment of, the contract terms by reason of market collapse or disruption There is normally no right to claim “force majeure” Shipbuilding contracts do not provide for a sharing of financial “pain”

  6. A distressed newbuilding – purchaser options? • THE OWNER’S OPTIONS – SHIPBUILDER DEFAULT The Shipbuilder’s default (late delivery or where the vessel fails to meet minimum performance parameters) may enable the shipowner to cancel or renegotiate the contract But this is a dangerous game unless the default is clear - London courts and arbitrators often reluctant to allow owners to “play the market” if the vessel is largely compliant

  7. A distressed newbuilding – purchaser options? • THE OWNER’S OPTIONS – NO SHIPBUILDER DEFAULT The shipowner’s position is obviously much weaker. A successful outcome depends more on commercial factors, including • The existence of long-standing relationship with the shipbuilder • The extent of the instalments of the price paid by the shipowner at the time of the renegotiation.

  8. A distressed newbuilding – purchaser options? • KEY FACTORS IN ANY RENEGOTIATION Confidentiality essential Delivery deferral easier to achieve than price reduction Contract cancellations are easier to negotiate when part of multi-ship newbuilding order

  9. A distressed newbuilding – purchaser options? • AND ALWAYS HIRE A GOOD LAW FIRM !

  10. Shipping and the Lawin the recent and current market “Dealing with market collapse – renegotiating or cancelling the distressed shipbuilding contract” Simon Curtis Senior Partner, Curtis Davis Garrard LLP, London Naples, Monday 24 October 2011