Pricing, payment and financing

Fixed-price and labour-and-cost-plus contracts

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

There are no statutes or regulations with different provisions for fixed-price or labour-and-cost-plus contracts. The parties are free to agree on how to calculate price based on the two different methods. In shipbuilding contracts, it is most common to agree to fixed-price contracts, while labour-and-cost-plus is more commonly seen in offshore construction contracts. Ship 2000 provides for a fixed price that is adjusted in accordance with agreed variation orders, with any adjustment made to the final instalment.

Price increases

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?

The clear starting point under Norwegian law is that if the parties have agreed a fixed price, then there are no statutory remedies available to the buyer to increase the price. There is a narrow exception in section 36 of the Contracts Act, which allows a party to request that a clause or contract is revised if it is deemed ‘unreasonable’ or ‘contrary to good business practice’. However, the courts rarely apply this provision, in particular in respect to contracts that have been entered into between professional parties.

Retracting consent to a price increase

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

If an agreed price increase is made under economic duress, then there are provisions in the Contracts Act that could render the agreement invalid. However, there is a high threshold for establishing economic duress.

Exclusions of buyers’ rights

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

The parties are free to agree to exclude or limit the buyer’s rights and remedies such as a right to set off, suspension of payment or a right to deduct certain amounts.

Refund guarantees

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 requirements with regards to the form or wording of a refund guarantee. No permission or approval from any authority is required in order for the builder to have the refund guarantee validly issued.

In order for the refund guarantee to be treated as a guarantee and be enforceable as such, the wording must clearly state the guaranteed obligation or obligations and when the guarantee becomes due. The format and wording is usually in line with international banking practice, and the refund guarantees will commonly be issued by way of a SWIFT (Society for Worldwide Interbank Financial Telecommunication) message.

Advance payment and parent company guarantees

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

There are no specific statutory requirements pertaining to advance payment guarantees or parent company guarantees. The beneficiary would, however, be well advised to make sure that the corporate requirements are fulfilled. This would include verifying that the issuing company has obtained all necessary corporate approvals and resolutions and that the person executing the guarantee is authorised to act on behalf of the company.

Financing of construction with a mortgage

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

The party that holds title to the vessel while it is under construction can enter the vessel in the Norwegian Shipbuilding Register. This would allow such party to create and register a mortgage over the vessel under construction. See also questions 12 and 13.