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Forum bulletin

Two Icebreakers Disappeared in Court

April 02, 2010

Baltiysky Zavod hurled back penalty payment for delay in handover of two icebreakers. The plant proved there was no contract for construction.

The Arbitral Court of Saint-Petersburg and the Leningrad Region published judgment of nolle prosequi brought by FGUP Rosmorport against OAO Baltiysky Zavod (affiliate of the United Shipbuilding Corporation under control of the Senator Sergey Pugachev).

Rosmorport acted as a customer of a state contract for construction of two large icebreakers to the amount of about RUR 6 bln. The plant commissioned icebreakers with a one-year delay, so Rosmorport required payment for delay of RUR 380 mln. The common arbitrator logic is that when drawing up a contract, Rosmorport did not stipulated details of vessel designs.

“In essence, at the moment of signing the contract, the customer did not understand what icebreaker is to be constructed,” is said in the judgment. Furthermore, the first icebreaker was delivered under a handover deed 11 day prior to final project documentation approval. On theses grounds, the court declared the contract frustrated and relieved the Baltiysky Zavod of responsibility for failure to deliver on time. So, Rosmorport cannot advance defect claims against the plant. Rosmorport disagrees with judgment and intends to appeal it. There are no comments on the part of the plant.

“Every lawyer knows that if project parameters are not agreed in construction contracts, the contract may any time be upheld,” says the managing partner of Duvernoix Legal Law Office Egor Noskov who often supports state contracts. According to him, many contracts are annulled on these grounds but it is the first so large order held invalid.

The General Director of FGUP Arsenal Design Bureau Mikhail Sapego says that in recent years public clients started to pay more attention to legal issues but in 2004 when Rosmorport contracted Baltiysky Zavod the situation differed. On the condition of anonymity, one of the shipbuilding experts says that in the industry Russian plants win tenders from foreign yards even when setting prices 25% higher. Specialists advice public clients not to ignore foreign partners which respect legal issues and own liabilities.

By 2015, the state intends to construct over 100 vessels for servicing ports. The cost of the programme is over RUR 51 bln of that RUR 27 are to be assigned for icebreaker construction by order of Rosmorport.

Source: Delovoy Peterburg

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