Pricing, payment and financing for shipbuilding in China

Pricing, payment and financing

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

Pricing is subject to agreement between the parties. Parties can agree either to build a vessel on a fixed-price basis or on a labour-and-cost-plus basis.

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?

If there is a change of circumstances that is: unforeseeable at the time of signing the shipbuilding contract; not caused by force majeure; and not falling within the commercial risks, and if such a change is to such a degree that it will result in obvious unfairness to the builder, or it will result in frustration of the purpose of the shipbuilding contract, the builder can request the court to amend the terms of the shipbuilding contract (including the price).

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

If the shipbuilding contract is entered into or an amendment to the terms of a shipbuilding contract (including price) is made under duress, and entering to the contract or amendment to the contract is contrary to the true intention of the buyer, the buyer can request the court to amend or set aside the contract. However, whether economic duress could be proved to be such a duress before the court will be questionable.

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

Generally, the parties could agree to exclude their rights. However, if the shipbuilding contract is in the standard form supplied by the builder and excludes the major rights of the buyer, such exclusion clause is not valid.

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 particular rules in regard to the form and wording of the refund guarantee. Parties may agree on the form and wording. No permission from any authority is required for the builder to have the refund guarantees issued (normally by its bank).

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

There are no particular formalities in regard to the advance payment guarantees and parent company guarantees. If a Chinese company is providing a guarantee in favour of a foreign company for the payment obligations of another foreign company (for example, if the builder is registered in a jurisdiction other than China), such a guarantee will need to be registered with the relevant branch of the state administration of foreign exchange.

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

The current ship registration rules allow the owner of the vessel under construction to create and register a mortgage over that vessel.