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Golden Ocean-Britbulk deal heading for legal dispute

14583 fcras 1/7 2009 21:00

Tony Gray - onsdag 1 juli 2009

A $360m ship sale deal between Golden Ocean and the failed Britbulk group of companies looks set to slide into a morass of litigation

John Fredriksen’s Golden Ocean agreed to sell six newbuilding panamax bulk carriers to Britannia Bulk Finance, which is now in administration under the supervision of the UK courts, for $60m apiece in November, 2007.

The vessels, under construction at India’s Pipavav Shipyard, were originally contracted at a price of $35m each, yielding Golden Ocean a handsome net profit of almost $130m.

Golden Ocean says that Britannia has made a downpayment of $12m on each vessel, with the remainder of the purchase price payable on delivery of the vessels.

But the outcome of this transaction is clouded not only by Britannia’s descent into administration, but also by the fact that the yard has, according to Golden Ocean, failed to meet the agreed delivery dates for the first two vessels.

Britannia has the right to cancel the purchase agreement on each newbuilding if the delivery date on that particular vessel is “delayed beyond Golden Ocean’s cancellation date for delayed delivery in the underlying construction contract.”

In a prospectus relating to a share issue, Golden Ocean says it has established that Britannia has no assets other than its rights under the memoranda of agreement relating to the purchase of each of the six panamax bulkers.

As a result, Golden Ocean believes Britannia will be unable to meet its obligations under these agreements.

Therefore, the Oslo-listed company contends that it is entitled to terminate the agreements and apply downpayments towards losses incurred as a consequence.

In contrast, Golden Ocean says the administrators — individuals in the firm of BDO Stoy Hayward — appear to hold that “delays in the delivery dates at Pipavav may entitle Britannia to terminate the memoranda of agreement and claim a refund of the downpayments made”.

Although accepting there may be doubts about Pipavav’s ability to deliver the first two vessels on time, Golden Ocean believes the last four vessels will be handed over before cancellation dates kick in.

Golden Ocean says it has “repeatedly” offered the administrators terms for cancelling the agreements which include a refund of “a substantial part” of the downpayments.

But it claims the administrators have neither been willing to accept these proposals nor offered any of their own.

“In view of this, it is the company’s current view that it is more likely than not that this situation will develop into one or several legal disputes.”

While the relationship with Pipavav has not escalated to a dispute, Golden Ocean says the delay in the agreed construction programme is “a matter of concern”.

Golden Ocean added: “The company still believes that the yard will be able to deliver the vessels within the terms of the shipbuilding contrasts but is considering available alternatives if this should not prove possible, whether in relation to all or just some of the contracts.”

There was no response to inquiries from BD Stoy Hayward at the time of going to press.