China Ocean Industry Group Loses Arbitration over Four Ships

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London Maritime Arbitrators Association has ruled against Hong Kong-based shipbuilding company China Ocean Industry Group in an arbitration proceeding in relation to the construction of four ships, ordering the shipbuilder to refund over USD 112 million to an unnamed customer.

The arbitration procedure was launched in August 2018, after the company failed to reach a deal with the customer over delayed deliveries of four ships.

According to the arbitration ruling, the customer was entitled to rescind or cancel the shipbuilding contracts, and as such, the client in question in entitled to repayment of made installments in full, plus interest, bringing the total refund value to USD 112.1 million.

What is more, the group has been ordered to bear the costs on indemnity basis as well as arbitration award costs totaling in approximately USD 732,000 (GBP 577,885). China Ocean Industry Group said it plans to settle the payment from bank financing.

As a result of the decision, on January 3, 2019, the company, Jiangxi Shipbuilding and Jiangsu Yangzi Xinfu Shipbuilding Co entered into a framework agreement for the acquisition, construction and onward transfer of one of the four vessels which has been rescinded by the customer.

Under the terms of the deal, the vessel will be put on sale on an as-is basis by way of public auction with a starting price of USD 8 million.

Yangzi Xinfu Shipbuilding, an indirect subsidiary of Yangzijiang Shipbuilding, agreed to bid USD 8 million for the vessel. Should the bid price exceed USD 8 million, Yangzi Xinfu Shipbuilding would not be obliged to place any additional bids.

“Should Yangzi Xinfu Shipbuilding succeed in the bid and upon completion of the construction of the rescinded vessel, the group shall enjoy a first right to repurchase the rescinded vessel from Yangzi Xinfu Shipbuilding at USD 16 million together with interest at 12% per annum,” the group said.

China Ocean Industry explained that the arrangement is in line with the cooperation framework between the group and Yangzijiang Shipbuilding, which enables Jiangzhou Shipbuilding to reorganize its shipbuilding business and to deal with the vessels under the shipbuilding contracts which have been cancelled or rescinded to minimize the financial impact on the group.

In total, the yard has faced hurdles in timely delivery of seven vessels.

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