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'Wriggle room' warning on yard newbuild contracts

London: Following a recent London arbitration award in a shipbuilding dispute between a Greek owner and Chinese yard, law firm Lawrence Graham has warned owners to be extra careful in their communication when contracting new ships.

'In a hot market, shipowners want ships quickly,' says partner Mike Lax. 'Some shipyards take advantage of that by wriggling out of contracts and reselling early building slots at higher prices to new buyers. If the shipbuilding contract has been correctly drawn up, the law is generally on the side of the owner, but ... getting damages after the event and after a lengthy and costly dispute is no substitute for getting the right ship at the right time.'

Lax therefore advises 'Before signing contracts, try to ensure that there is a minimum of wriggle room. Leave as few items as possible open which can affect the effectiveness of the contract and be very clear about the exact timings by which certain items must be completed.' Dealings should be in writing, he adds, in a very clear, timely, well-documented and open fashion, both through brokers and direct.

The arbitration judgement in Covington Marine Corp v Xiamen Shipbuilding illustrated, according to Lax, 'how the attitude of the owner and the clarity of its communications with the yard can ultimately affect the interpretation of the law covering the contract - in the owner's interest.'  [06/07/06]

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