CHANAKA KUMARASINGHE PARTNER, HFW Offshore Contract Performance and Termination Asian Offshore Support Journal Conference 8 9 September 2015 Singapore
Contract Performance
Continuing with the Contract Despite Difficulties: Options Parties to a contract may wish for it to continue rather than terminate. Broadly, the options include: postponing performance of the contract until a later date; assigning or novating the contract (i.e. 'giving' it to a third party, perhaps an entity within the same group); or renegotiating the terms of the contract.
Contract Termination
Contract Termination Case Study (1/2) A hired a jack-up drilling rig from B to drill a well. During preloading of the rig its legs penetrated the sub-sea soil significantly. Recovery operations resulted in damage and rig was towed for repairs. A terminated the contract for alleged repudiatory breach by B in the negligent operation of the rig in preloading. B accepted that its conduct was negligent but denied that it repudiated the contract. B claimed that A's purported termination was itself repudiatory. B claimed that the terms of the contract precluded any liability on its part for negligent operation of the rig.
Contract Termination Case Study (2/2) "The seriousness of the breach [...], in terms of whether it was repudiatory or not, is judged by the consequences of the breach. In the classic formulation of the test, the question is did the breach go to the root of the contract or did it deprive the innocent party of substantially the whole benefit [of the contract]." The court observed that the contract contained: No date for delivery of the rig; No cancelling date; No "time is of the essence" or mention of "due despatch"; No requirement to arrive anywhere by any particular date; No requirement for completion by a specific or referable date; and No duration for performance.
Range of Losses Covered by LDs? Your Losses Loss of income. Loss of profit. Loss of contract. Loss of reputation. Losses of Other Parties Same as your losses. Loss of production. Extra costs: vessel spread & personnel. Rescheduling.
What is Exactly is 'Your' Loss? A has contract with B. A is part of a group of companies, Group A. B breaches the contract. Sometimes A never actually suffers a real loss. Reality is various companies in Group A suffers loss. If all of this is true: unlikely that Group A companies can recover their losses under contract between A and B.
Key Contractual Clause Exclusion Clause Notwithstanding any to the contrary contained elsewhere in this Contract, neither Party shall be liable to the other Party under this Contract, in tort (including but not limited to negligence), in contract, in equity, by operation of statue or otherwise for any loss of production, loss of product, loss of business, loss of contracts, loss of charter hire, loss of revenue, loss of profits or anticipated profits, loss of opportunity, loss of goodwill or reputation, loss arising from business interruption, losses or claims resulting from failure to meet other contractual commitments or deadlines and downtime of facilities or equipment or any other property, loss of use and any consequential, incidental, indirect, exemplary, special or punitive losses or damages of any kind or character howsoever and whenever arising from or relating to the performance of this Contract whether such claims are based in law, contract, tort, equity or statute (including strict liability) and regardless of whether the Company and/or the Contractor may be wholly, partially or solely negligent or otherwise at fault, and whether or not such losses were foreseeable at the time of entering into the Contract.
The Final Account
The Final Account The dispute has started under the project contract. Does your project contract entitle you to make a demand? When can a demand be made under the guarantee? Is your guarantee expiring soon? Do you feel pressured into making a demand? What does your demand cover refund or performance?
The Final Account After the call is made, the guarantor is likely to be out of the picture. Your contracting party under the project contract will either negotiate with you or start arbitration / court case. One issue will be whether you were entitled to call on the guarantee. Another issue will be whether you, in any event, have losses which are equal to or in excess of the sum recovered under the guarantee.
The Final Account How will the standard offshore exclusion clauses operate to exclude your claims? Principles of recovery under English law. Your contracting party may have counterclaims and set-offs. The end result may be that having made a valid demand under the guarantee, under any subsequent arbitration or court proceedings, you may be ordered to refund the monies paid.
Speaker Profile Chanaka is an English lawyer and specialises in offshore contract negotiation and disputes. He advises a broad range of actors within the offshore sector across a wide spectrum of contracts including offshore construction, PRE-FEED, FEED, EPC, EPCIC, installation, operations, supply, services, logistics, drilling contracts, maintenance, various standard form, amended or bespoke charterparties, FPSO leasing agreements and decommissioning. Chanaka Kumarasinghe, Partner T: +65 6411 5314 chanaka.kumarasinghe@ hfw.com Chanaka joined the London office in 2002 and has been based in the Singapore office since 2005. Chanaka's 10 year experience in this region ensures that he has an unrivaled depth of understanding of the needs of clients within this industry and the business cultures having also handled matters for various clients with their claims in Indonesia, China, Thailand, India and Sri Lanka. He has advised a range of parties on regional issues relating to the recovery of claims, cabotage issues, vessel flagging requirements, logistics contracts, injunctions, shipbuilding contract termination disputes and structuring of charter contracts for offshore operations. Chanaka is also regularly appointed as an arbitrator and he is on the reserve list of arbitrators at the Singapore International Arbitration Centre. He is an accredited mediator and member of the Chartered Institute of Arbitrators. He has represented clients in mediations and arbitrations across the world. Selected experience below: Regularly advising on drafting multiple building / conversion contracts for jack-ups, semi-submersible drilling units, FPSOs and drill ships for owners and yards from various jurisdictions and attending various tender negotiations. Completing contract and risk review for leading US offshore contractor in respect of pollution indemnities and liabilities; and advising on contract management and drafting to minimise exposures to pollution liabilities. Advising leading European FPSO owner and operator on newbuild FPSO in respect of minimising risk in project management and drafting multiple addenda to the project contract (total contract value in excess of US$700 million). Advising a drilling contractor on recovery of claims from oil major consortium partners arising out of multiple drilling contracts and assignments. Acting for yard in contract termination arbitration and securing injunctions against owner's calls of refund bonds. Acting for an offshore contractor in respect of multiple Singapore arbitration proceedings relating to a detention of an offshore vessel by a shipyard, bringing claims for, amongst other things, loss of vessel earnings. Drafting a bespoke time and material costs contract for a leading European FPSO owner and operator for the repair and outfitting of a damaged FPSO. Advising a leading US FPSO owner in respect of the negotiation and drafting of a turret upgrading agreement with a leading Singapore offshore builder.
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