—— Case of Dispute over Ship Materials and Spare Parts Supply Contract between Taizhou Port and Shipping Transportation Co., Ltd. and Taizhou Zhongran Clean Energy Co., Ltd. 

Key Word：Supply contract termination; Equipment value refund; Final settlement; Related litigation; Supply-chain stability

Case Summary:

In October 2015, Taizhou Port and Shipping Transportation Co., Ltd. (hereinafter referred to as "Port and Shipping Transportation Co., Ltd.") entered into a contract with Taizhou Zhongran Clean Energy Co., Ltd. (hereinafter referred to as "Zhongran Co., Ltd."), in which Zhongran Co., Ltd. agreed to provide Port and Shipping Transportation Co., Ltd. with a custom-built ship natural gas auxiliary system. In the same month, Port and Shipping Transportation Co., Ltd. entered into a shipbuilding contract with a third party, Jingjiang Huaxin Ship Repair Co., Ltd. (hereinafter referred to as "Huaxin Co., Ltd. "). During the performance of the contract, Huaxin Co., Ltd. experienced an explosion incident and was ordered to cease production, rendering it unable to continue with the ship construction. Subsequently, Zhongran Co., Ltd. filed a lawsuit with Wuhan Maritime Court seeking the termination of the ship materials and spare parts supply contract with Port and Shipping Transportation Co., Ltd. and requesting compensation for losses. Following the judgment of Wuhan Maritime Court, the ship materials and spare parts supply contract was terminated, and Port and Shipping Transportation Co., Ltd. was ordered to compensate Zhongran Co., Ltd. for its corresponding losses. After the judgment became final and enforceable, Port and Shipping Transportation Co., Ltd. fulfilled its compensation obligation; however, it contended that Zhongran Co., Ltd. was obligated to deliver to it all remaining undelivered equipment under the contract. Consequently, it filed a lawsuit with Nanjing Maritime Court, requesting that Zhongran Co., Ltd. return the equipment.

Judgment:

Upon trial, Nanjing Maritime Court held that, during the construction of the natural gas auxiliary system, while Zhongran had delivered certain equipment to Port and Shipping Transportation  Co., Ltd., it still retained some equipment. Given that Port and Shipping Transportation Co., Ltd. had compensated Zhongran Co., Ltd. for the corresponding losses after the supply contract was terminated, Zhongran Co., Ltd.'s continued possession of certain custom-made equipment was without legal justification. As a result, the court judged that Zhongran Co., Ltd. shall pay Port and Shipping Co., Ltd. the discounted amount equivalent to the value of the undelivered equipment.

Significance:

Shipbuilding is a typical discrete production process. When an unexpected event occurs causing the shipbuilding contract unenforceable, it is of paramount importance to appropriately balance the interests of the shipowner, shipbuilder, and material suppliers. This is crucial for creating a stable, safe, rapid, efficient, and cost-effective shipbuilding industry chain, which plays a vital role in advancing high-quality shipbuilding industry development. In this case, an explosion incident during shipbuilding process rendered the contract between the shipowner and the shipyard unenforceable. Concurrently, the supplier of ship-specific equipment engaged in related litigation with the shipowner. Based on a comprehensive examination of the case facts, the court accurately determined that, following the termination of the ship materials and spare parts supply contract, all clearing and settlement responsibilities between the shipowner and the spare parts supplier were duly ascertained. This led to a substantive resolution of long-standing disputes between the companies. The case holds significant importance in regulating the order of ship materials and spare parts supply markets and creating a stable, fair, transparent, and predictable legal business environment.