BIMCO to publish standard refund guarantee to eliminate legal uncertainty
Overview
BIMCO is developing a standard refund guarantee for shipbuilding contracts, including the SAJ and Chinese forms. The current issue is that English law and jurisprudence on guarantees is contradictory, complex and often very difficult to understand from a commercial perspective, and as a result small changes made by negotiators can have wide reaching commercial consequences.
“The aim of the BIMCO refund guarantee is to provide an instrument which removes uncertainties as to what is guaranteed and when the guarantee can be called on, as far as practicable,” says Ian Gaunt, Chairman of the refund guarantee subcommittee and Arbitrator and Past President of The London Maritime Arbitrators Association.
Refund guarantees play a vital role in shipbuilding projects by securing the large advance payments made by the buyer during the construction of the ship.
The BIMCO refund guarantee will be a primary security instrument where the bank pays on demand of the buyer but with appropriate provisions for disputes to be decided by arbitration before payment is made. It will provide the industry with a balanced instrument intended to protect the interests of all parties involved in the project - the builder, the buyer and the bank.
“The focus of our work is to draft a guarantee which will be accepted by the issuing banks, builders and buyers and thus be used as a standard for the industry,” Gaunt says.
To achieve this goal, the subcommittee consists of senior representatives of banks, builders and buyers from ICBC, Hyundai Heavy Industries (HHI) and shipowner Norden.
In practice, refund guarantees are often negotiated by commercial departments who might not be aware of the many legal traps and pitfalls in such a deal. Even small “compromise” changes in the wording of a refund guarantee agreed during commercial negotiations can have significant legal consequences and change the bank’s obligations. The subcommittee has identified this as a major point which the refund guarantee has to address. To help users, the guarantee will be published with explanatory notes which will be comparable to a users’ manual for the form.
Legal expertise on this project is provided by Professor Min Han, Ewha Womans University, South Korea, Richard Lord, QC Brick Court, Chris Kidd, Ince & Co and Sean Gibbons, Stephenson Harwood. The refund guarantee is expected to be available in 2021.
Feedback or a question about this information?
Posted:
16 September 2020
VPS Bunker Alerts
Veritas Petroleum Services (VPS) publish regular Bunker Alerts based entirely on fuel samples and have kindly permitted BIMCO’s Members to access this information.
The Bunker Alerts are not intended to be an evaluation of overall bunker quality in the port or area concerned, but usually highlight a specific parameter within the fuel which has raised a quality issue.
Latest ice reports for members
Latest piracy reports
Latest industry releasable threats
Related publication
eBook explanatory notes for BARECON 2017
This eBook includes a sample copy of the BARECON 2017 contract and the related explanatory notes in the latest version.Related training
Charter Party Workshop Online
- Online, Online
- 27 January, 2025
The Charter Party Workshop (Masterclass) Online is a series of 10 online sessions and combines a range of lecturers on voyage and time chartering with sessions ...
ELSEWHERE ON BIMCO
Contracts & Clauses
All of BIMCO's most widely used contracts and clauses as well as advice on managing charters and business partners.
Learn about your cargo
For general guidance and information on cargo-related queries.
BIMCO Publications
Want to buy or download a BIMCO publication? Use the link to get access to the ballast water management guide, the ship master’s security manual and many other publications.
About a new business partner
We can help members check new business partners. We also help to recover millions of USD (undisputed) funds every year.
