Samsung Heavy loses big arbitration, vows an appeal
The Korean shipbuilder said Monday that it will appeal the decision.
According to a filing Monday, the London Court of International Arbitration ruled in favor of Stena in recognition of the shipper’s right to terminate the contract.
The deal in question involved a June 2013 contract for the construction of a semi-submersible drilling rig by Samsung Heavy for Stena. Payments were to total $720 million, and Samsung received 30 percent of that amount, or $215 million, in a pre-delivery installment.
The due date was initially set for March 2016, but the delivery to Stena was never made. Samsung Heavy claims the Swedish shipper’s “repeated requests for design changes and excessive demands” delayed construction.
On June 2017, Samsung Heavy asked Stena for an extension of the timeframe and additional costs. Instead of accepting the offer, the Swedish company canceled the contract and sought arbitration from the London court for the recovery of the pre-delivery installment and costs related to the delay. The 463.2 billion won includes both.
“The arbitration ruling leaves a precedent where a shipper can intentionally delay construction when the market situation is bad and terminate the contract,” Samsung Heavy said in a Monday statement. “We plan to embark on procedures to appeal to a high court in London.”
Drilling rig ships are used to drill oil or gas wells offshore. They are high in demand when oil prices are high. However, international oil prices took on a downturn from late 2014 when prices dipped from roughly $100 per barrel to as low as $40 per barrel the following year. Oil prices have not fully recovered since then.
Samsung Heavy won a similar case last year against Pacific Drilling, a U.S. company. Pacific Drilling canceled a 2013 contract for a drilling ship, claiming there was a delay in the delivery. The London arbitration court ruled in favor of Samsung Heavy, which argued the completion was made on time, and ordered Pacific Drilling to compensate the Korean shipper $318 million.
As the latest ruling could be a bad precedent for Samsung, KB Securities Analyst Jeong Dong-ik said the company’s appeal would be aimed at “preventing similar rulings in the future and compensate for losses.”
According to its Monday statement, Samsung Heavy will provision an additional 287.7 billion won on its 2020 books. The company had initially provisioned 192.5 billion won in its 2020 statement ahead of the ruling. Samsung said costs for the drilling rig that Stena originally ordered was already covered as the ship was sold off to an unidentified European company for $500 million in 2018.
BY SONG KYOUNG-SON [firstname.lastname@example.org]