Shipbuilding Contract Dispute between Y Shipyard of China and G Shipping Company of England.
In August 2014, the British G Shipping Company and Y Shipyard signed a shipbuilding contract, under which G Company bought one 67-meter tug from Y Shipyard. According to the shipbuilding contract, the tug shall be delivered to the buyer in 18 months after the contract become effective. During the performance of the shipbuilding contract, the building of the tug was postponed for more than 3 months. G Company wanted to cancel the shipbuilding contract and requested Y Shipyard to return the three instalments for a total of 18 million US dollars and interest of 700,000. US dollar. Y Shipyard does not accept the owner’s cancellation and does not agree to return the installment that has been received. G Company formally call for the payment through Bank of China in accordance with the letter of guarantee. The Bank of China shall repay the installment in accordance with the terms of the guarantee if there is no arbitration raised by the parties. In this context, in order to prevent risks in a timely manner, Y Shipyard officially filed an arbitration with the London Maritime Arbitration Commission by using the arbitration payment clause in the letter of guarantee, thereby suspending the Bank of China's payment to Company G under the letter of guarantee. Since the case involved London arbitration, we worked with the British Barristers in London to propose a “arbitration-driven negotiation” strategy to Y Shipyard. In this case, although the Y shipyard had implemented the extension of the project, there was a breach of contract, but it was not possible to win the case. In the process of contract implementation, G Company signed two supplementary agreements with Y Shipyard in order to promote the project process, and another one was still in the process of negotiation before the cancellation. According to the agreements, G Company paid the Y shipyard in advance for procurement of the key equipment for shipbuilding. These three supplemental agreements are decisive for Y Shipyard. In English Contract Law, there is an "estoppel" principle that if a party of the contract relies on the other party's express or implied statement and fulfill the contract accordingly, the statement party may not deny the promise. The performance of Y Shipyard is based on the belief that the shipowner has been negotiating with the shipyard to purchase equipment and will not cancel the contract, thus concentrating the shipyard resources to build the tug. In such circumstance, the owner proposes to cancel the contract is in violation of the estoppel principle. In the arbitration, we made a response based on this principle, and safeguarded the contractual interests of Y Shipyard. Eventually, the two parties settled the case and Y Shipyard was able to save nearly $3 million.