Samsung Heavy Industries Wins International Arbitration on Drillship Contract Termination... To Receive $320 Million Compensation
[Asia Economy Reporter Kim Hyewon] Samsung Heavy Industries has won an international arbitration related to the termination of a drillship contract, increasing the likelihood of receiving compensation.
The London Arbitration Tribunal in the UK ruled on the 15th (local time) that the liability for damages related to the termination of the drillship contract lies with the US-based Pacific Drilling (PDC), Samsung Heavy Industries announced on the 16th. The tribunal ordered PDC to pay Samsung Heavy Industries approximately $318 million (about 369 billion KRW) in damages.
Samsung Heavy Industries stated that in 2013, it received an order from PDC for one drillship worth $517 million and constructed it normally, but in October 2015, PDC claimed schedule delays and notified contract termination. Samsung Heavy Industries viewed this as an unfair contract termination and applied for arbitration.
A Samsung Heavy Industries official said, "When the client’s management became difficult due to changes in market conditions, they deliberately delayed the construction process, unfairly terminated the contract, and tried to pass the losses onto the shipbuilder, which was a wrongful act that has now been stopped." At that time, Samsung Heavy Industries had received $180 million as an advance payment. This ruling means the remaining contract amount must also be paid.
Samsung Heavy Industries explained, "PDC may appeal to the UK High Court, so future developments are uncertain, but the possibility of reversing the already established bad debt provision of $112 million (about 135.2 billion KRW) has increased."
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In a disclosure, Samsung Heavy Industries stated that since PDC completed restructuring under Chapter 11 of the US Bankruptcy Code in January 2019 and has limited capacity to pay compensation, it is difficult to predict the impact on profits and losses.
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