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BIMCO ADVISES ON EFFECTS OF COVID-19 ON SHIPYARD CONTRACTS

Tuesday, March 3, 2020 

According to shipowner organisation BIMCO, the spread of the COVID-19 virus is causing significant issues in the shipbuilding industry, but English law, on which most shipbuilding contracts are based, has no general concept of force majeure, and this is a key factor in the relationship between shipyards and shipowners.

BIMCO understands that shipyards are facing disruption to newbuilding, repair and conversion projects due to the impact of the virus on their labour force and the ability of subcontractors to meet their commitments to supply materials and equipment necessary for the completion of such projects.

As a result, shipyards in China, and elsewhere, have sought to invoke the force majeure provisions under their contracts with shipowners because of COVID-19 in order to obtain ‘no fault’ extensions of the delivery dates under these contracts.

This in turn has caused issues for shipowners who are now facing potential delays to the delivery of the vessels that they have contracted to buy, repair or convert, especially where those vessels are for delivery into a specific project or long term charter or the conversion works are linked to compliance with the 2020 low sulphur fuel cap.

Because most contracts are subject to English law, shipbuilding contracts must have an actual force majeure clause for the shipyard to claim force majeure and the burden of proof is on the shipyard.

BIMCO members can find a full article on the BIMCO website that looks at force majeure provisions in standard form shipbuilding contracts and how these might operate in the context of COVID-19.

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