Pricing, payment and financing for shipbuilding in Canada

Pricing, payment and financing

Does the law in your country have different provisions for ‘fixed-price’ contracts and ‘labour-and-cost-plus’ contracts?

No.

Does the builder have any statutory remedies available to charge the buyer for price increases of labour and materials despite the contract having a fixed price?

No. This is usually addressed in the change provisions of the contract.

Can a buyer retract consent to an increase in price by arguing that consent was induced by economic duress?

A Canadian contract may be voidable where consent was induced by economic duress. In determining whether there was undue duress, influence or coercion, the court will consider the relationship between the parties, the circumstances at the time duress was alleged and the subsequent conduct of the party claiming duress. In this respect, the party alleging duress may be considered to have ratified the agreement if it continues without protest after the duress has ended. Where a party considers itself to be under economic duress, it would be prudent to note that any agreement is under protest and to assert any related claim at the earliest possible opportunity.

May the builder and the buyer agree to exclude the buyer’s right to set off, suspend payment or deduct certain amounts?

Yes. However, it would be unusual in a Canadian shipbuilding contract for a buyer to entirely forgo all of these rights.

If the contract price is payable by the buyer in pre-delivery instalments, are there any rules in regard to the form and wording of refund guarantees? Is permission from any authority required for the builder to have the refund guarantees issued?

There are no statutory or other types of rules with respect to the form or wording of refund guarantees. Refund guarantees issued for Canadian shipbuilding contracts generally follow the standard international forms of guarantees. Permission is not required from any authority for the builder to have refund guarantees issued.

What formalities govern the issuance of advance payment guarantees and parent company guarantees?

There are no formal requirements for issuance of advance payment guarantees and parent company guarantees. However, some provinces’ laws require third-party payment guarantees to be in writing, and in practice such guarantees are always in writing. There is no requirement that guarantees be signed under seal or notarised, though this often forms part of the due diligence undertaken by the party requiring the guarantees in order to assist in confirming authority and authenticity. In most cases, the party requiring the guarantees will also require further proof of authority in the form of appropriate resolutions and review of the constating documents of the issuer.

Can the builder or buyer create and register a mortgage over the vessel under construction to secure construction financing?

The owner of a vessel under construction, which may be the builder or the buyer, may temporarily record the vessel in the Canadian Register of Vessels by filing a Form 15, description of vessel under construction with the registrar. Recording is necessary in order to permit a builder’s mortgage to be registered. The registrar will assign a record number to the vessel. A builder’s mortgage may then be registered against the vessel by the owner filing a Form 16, builder’s mortgage. Depending on the contractual and financing arrangements, the owner could be the builder or the buyer. The statutory form of builder’s mortgage provides only limited information about the mortgage, and typically references a deed of covenants or other form of agreement where comprehensive terms and conditions are contained. The latter document is not filed with the registry.