Chinese shipyards refuse to pay refunds on late projects
April 30, 2014 Category Logistics, Ports & sea transport
Chinese banks are stuck in a lose-lose legal battle between domestic shipyards and foreign buyers over billions of dollars in refund guarantees that are supposed to be paid out if shipbuilders fail to deliver on time. One in three ships ordered from Chinese builders was behind schedule last year, according to data from Clarksons Research. Although that was an improvement from 36% in 2012, it was well behind rival South Korea, where shipyards routinely delivered ahead of schedule. That means Chinese banks may be forced to pay large sums to buyers if the yards cannot meet contract terms, with little hope of recouping the cash from the yards. China is the world’s biggest shipbuilder, with USD37 billion in new orders received last year alone. Buyers pay as much as 80% of the purchase price up front. Shipyards have filed injunctions against banks in Chinese courts to prevent payouts for late delivery, but buyers usually have a refund guarantee from a bank to ensure their money is returned if the yard defaults. Lawyers say that in many cases, banks did not require shipyards to pledge any specific collateral, leaving them exposed. If banks obey local court injunctions and hold off from issuing refunds, they risk being taken to court by ship buyers in foreign jurisdictions. But if they pay out under the refund guarantee or seek compensation from the shipyard for the loss, bankers say they risk alienating local governments, which can damage the banks’ business interests in the region, the South China Morning Post reports. Nearly all refund-guarantee contracts stipulate litigation must be conducted in a foreign court.
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