One of the world’s largest shipbuilders, Samsung Heavy Industries has announced that it will take legal action against Russia’s largest shipyard, Zvezda, after the cancellation of two major shipbuilding equipment supply contracts worth a total of 4.85 trillion Korean won (around $3.54 billion).

The South Korean shipbuilder is also seeking damages through international arbitration.

According to Samsung, the contracts were unilaterally cancelled by Zvezda in June 2024. The Russian shipyard informed Samsung of the termination and requested the return of the advance payments made under the agreement.

In response, Samsung filed for arbitration in Singapore in July 2024, challenging the legality of Zvezda’s termination and aiming to confirm that the decision was not valid under the agreed terms.

The now-cancelled deals were signed in 2020 and 2021 and involved the supply of parts and steel hull blocks for 10 icebreaking liquefied natural gas (LNG) carriers and 7 icebreaking shuttle tankers. These specialised ships were meant to support Russia’s Arctic energy transportation routes.

However, complications began after Russia’s invasion of Ukraine in 2022. Following the war, the United States imposed sanctions on several Russian entities, including Zvezda. This significantly affected the execution of international contracts.

Samsung and Zvezda had reportedly been in discussions to resolve the issue as the geopolitical situation worsened.

Despite the talks, Samsung said Zvezda suddenly claimed that the Korean shipbuilder had defaulted on its contractual obligations and decided to cancel the agreement without mutual consent.

Samsung, on its part, rejected this claim and withheld about $800 million in advance payments, citing its right to protect company interests.

As the war continued and uncertainties around the contracts continued to grow, Samsung eventually decided to terminate the agreement from its end and proceed with a lawsuit and arbitration to claim damages.

The company said the decision was necessary due to rising concerns over the feasibility of carrying out the project and to defend its legal and financial interests.

The shipbuilder made the announcement in a regulatory filing on June 18, emphasising that Zvezda’s actions were an illegal breach of contract.

Reference: Reuters

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