“In recent years, as the global economic recovery momentum has weakened, trade frictions between major countries in the East and West have intensified.
The combination of the global economic crisis, the OPEC production reduction agreement, and the shipping sulfur limit order have resulted in sluggish growth in international maritime trade and bleak crude oil trade volume.
This has caused the oil shipping market to bottom out, with freight rates in a long-term slump and new ship prices continuing to fall.
In this environment, the performance of global shipping companies has been greatly affected, and a large number of shipbuilding orders have been canceled.
Among them was John Frederiksen, the Norwegian shipping king.
The international crude oil transportation company ‘Searill’ under his name is the plaintiff in this lawsuit against our party, ‘Bincheng Shipyard’.”
Director Zheng was in front of the projector, introducing the case to Lin Haitang and other lawyers in the conference room with a solemn expression.
“Bincheng Shipyard was established in 2006 and is a holding subsidiary under the name of the client, Bincheng Shipbuilding Industry Group.
Bincheng Heavy Industry holds 51% of the shares, and Samoa's Shengmao Investment holds 49%, which is a joint venture.
In 2013, Bincheng Shipyard and Searill Company signed a shipbuilding contract for eight VLCCs (very large crude carriers) with a displacement of more than 300,000 tons, with a total contract price of up to 6 billion RMB.
In order to deliver this huge order on time, Bincheng Shipyard used almost all shipbuilding stations to complete the shipbuilding task.
By the end of 2017, the shipyard had advanced a total of about 4 billion yuan in shipbuilding payments, and six of the oil tankers under construction were nearly completed and were about to enter the delivery stage.
It was also at this time that Searill began to cancel shipbuilding orders globally due to poor performance and falling new ship prices."
Director Zheng opened the next ppt.
"The problem lies in the way they cancel orders.
Searill first announced without warning that it would unconditionally cancel orders for 6 VLCCs that were about to be completed, dealing a heavy blow to Ben Thanh Shipyard.
However, due to the contract, Bincheng Shipyard can only bite the bullet and continue to complete the remaining two orders.
At the beginning of this year, Searill once again proposed to cancel the order for the seventh VLCC.
Bincheng Shipyard finally gave up its illusions, decided to suspend cooperation with the other party and stop losses in time, and actively requested to cancel the eighth VLCC.
I thought this negotiation could be reached, but I didn't expect that the other party firmly refused to cancel it.
In desperation, Bincheng Shipyard could only continue construction at a loss.
Not long ago, Searill, which originally made a solemn promise never to cancel the order for the eighth ship, went back on its word again.
What is even more unexpected is that Searill not only canceled all orders, but also sued Bincheng Shipyard on the grounds that it could not deliver the ship on time, demanding the return of 10% of the deposit and the payment of relevant interest..."
"This is so shameless!" A male lawyer present finally couldn't help but cursed.
As a Chinese, every lawyer present felt angry when he heard that his own company was being tricked one after another by foreign companies.
I have worked hard for a good shipbuilding order for 5 years, but now not only can I not get the final payment, but even the deposit may be taken back. This is a complete loss of money!
What’s even more irritating is that the other party is obviously deliberately trying to get into Bincheng Shipyard’s mentality by repeatedly canceling the order, with the purpose of making them voluntarily breach the contract and recover the 10% deposit.
Faced with this extreme pull, Bincheng Shipyard is undoubtedly in a dilemma.
Keep building it, who will you sell it to? It will probably further increase your losses.
If you don’t build it, then you will comply with others’ wishes and even the deposit will be taken back...
"This kind of behavior that does not respect credibility and maliciously creates commercial traps is indeed shameless, but the problem is that subjective judgment cannot determine objective facts.
The key to the problem is... everything in business behavior must be based on contracts.
Although the other party's approach is unethical, it must be said that every step of the way accurately utilized the terms of the contract signed by both parties."
Director Zheng said helplessly.
At this time, a middle-aged man wearing square glasses spoke with a bitter look on his face.
"Alas! Yes, if you want to blame, we can only blame us for being eager for success when we signed the contract and failing to carefully evaluate the potential risks of this cooperation... This is all our fault..."
The man who spoke was in his fifties, but his hair was half white, and he looked haggard and old for his age.
He is Feng Liang, deputy director of Bincheng Shipyard, and he came here specially to assist the law firm in sorting out the case.
"Director Feng, don't blame yourself too much. After all, you didn't sign this contract." Director Zheng consoled him.
“Although I didn’t sign it, our entire management is responsible for causing the current situation!
We feel ashamed when we think that thousands of employees in the company cannot even pay their wages!"
Lin Haitang looked at the deputy director who looked remorseful and asked with some confusion.
"Director Feng, I have checked the information. As far as I know, the general payment process of the shipyard is roughly divided into five nodes - contract entry into force, start of construction, loading on the slipway, undocking, and delivery of the ship.
Normally, buyers will give a 20% advance payment at every step.
Why did the shipyard only receive a 10% deposit when the contract was signed, and even the remaining 90% of the balance was paid in one lump sum when the ship was delivered? This does not seem to be consistent with common sense."
Everyone present also nodded. After all, no matter how you look at it, this kind of contract is simply an overbearing clause for the seller.
The construction period of a VLCC is at least two to three years. During such a long time, no one knows whether it will encounter unexpected changes, and the shipyard will undoubtedly bear huge risks.
Some conspiracy theorists began to wonder, maybe some decision-makers were cheating?
Feng Liang smiled bitterly when he heard this.
"It's normal that you don't know the inside story. In fact, this kind of contract was not uncommon in the industry under the general environment at that time."
He sighed.
“After the 2008 economic crisis, the consequences of overcapacity began to appear, and the shipbuilding industry was one of the hardest hit areas!
Coupled with the sluggish global ship market caused by the economic crisis, my country's shipbuilding industry has generally found it difficult to find orders.
But without orders, how can we feed so many employees?
As a result, after the entire industry fell into a downturn, buyers began to occupy an absolute dominant position in ship transactions.
The payment terms you just mentioned were completely unavailable to us under the circumstances.
In order to grab international orders, we need to pay 10% in advance, and then we will borrow money from the bank to advance production, and then we can only get the remaining 90% of the balance when the ship is delivered.
This was a common practice in the industry at the time.
Due to the harsh external environment, domestic shipbuilding companies even experienced a business with an advance payment of only 1%.
Our Lilan is even lower than the cost price.
But even if we are losing money and making a profit, we have to bite the bullet and accept the order. After all, survival is our top priority.
At this time, if a company is willing to give you a large order of 6 billion, and even allow you to earn about 10% of Lilan, can you resist the temptation?
Even if it were me, I would probably have gritted my teeth and signed the contract..."
That’s how it turns out…
"Everyone, let me tell you the truth, due to the large amount of advance payment for the project, our liquidity has long been exhausted, and we are saddled with a huge debt of more than 2 billion.
If we lose this lawsuit again, it will be even worse, and I am afraid that the only way out is bankruptcy.
Director Zheng, everyone, for the thousands of employees in the factory, as well as their children and parents...
Everything... is up to you!"
Director Feng bowed slightly to everyone with a tired look on his face.