BIMCO publishes new standalone Refund Guarantee for Shipbuilding Contracts
Overview
A buyer’s payment instalments are at risk under a shipbuilding contract until the shipyard delivers the ship. To safeguard against the risk of the shipyard defaulting or becoming insolvent it is common practice to cover this risk with a refund guarantee issued by a bank. BIMCO’s Documentary Committee has adopted a clearly worded standalone refund guarantee that will assist parties in their shipbuilding projects.
Refund guarantees are complex legal documents and must meet the requirements of the issuing banks. BIMCO, in close co-operation with legal and commercial experts, banks and shipyards, has developed a standard refund guarantee which can be used with all widely used standard forms of shipbuilding contracts such as NEWBUILDCON, the SAJ form and Chinese forms.
“We have aimed to strike a fair balance between the interests of shipbuilders, their bank, and shipowners. There has been some evolution in terms of English Law in recent years in constraining these instruments and now they are almost invariably regarded as on demand guarantees rather than secondary guarantees. So, you do not have to prove your case and you do not have to prove the breach of the shipbuilding contract,” says Ian Gaunt, LMAA Arbitrator, who chaired the Refund Guarantee drafting committee.
The objective has been to create an instrument that provides much needed legal certainty and protects the interests of all parties involved in a newbuilding project. The Refund Guarantee has been written as clearly and concisely as possible and it is hoped that this approach will appeal to the market.
The other members of the drafting committee were David Lan (ICBC), Insu Chung (Hyundai Heavy Industries), Professor Min Han (Ewha Womans University), Klaus Vilstrup (Dampskibsselskabet NORDEN A/S), Yu Yang (Innomarine) Richard Lord, QC (Brick Court Chambers), Chris Kidd (Ince Gordon Dadds LLP) and Sean Gibbons (Stephenson Harwood LLP).
The Refund Guarantee for Shipbuilding Contracts is available on SmartCon.
A PDF copy of the Refund Guarantee for Shipbuilding Contracts together with explanatory notes can be downloaded free of charge from the BIMCO website.
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