Samsung Heavy Industries terminates US$3.5Bn contracts with Zvezda, seeks compensation

The combined contracts, valued at approximately US$3.5Bn, cover the supply of hull blocks and related equipment for 10 icebreaking LNG carriers and seven icebreaking shuttle tankers.

In disclosures made on 18 June, SHI announced its intention to retain the previously received advance payment of US$800M and pursue damages from the Russian client for losses exceeding this amount. The company is actively pursuing compensation for both direct and indirect damages through ongoing international arbitration proceedings in Singapore.

Timeline of events

Zvezda placed the two orders with SHI in 2020 and 2021. According to SHI, between 2022 and 2024, the design work was suspended following the outbreak of the Russia-Ukraine war and the subsequent sanctions and export control measures imposed by the US and South Korean governments on Russia. Additionally, Zvezda was designated as a specially designated national.

During this period, SHI indicates it engaged in negotiations with Zvezda regarding the continuation and enforcement of the contracts.

In June 2024, while negotiations were still underway, SHI states Zvezda unilaterally alleged SHI’s contractual non-performance and issued a termination notice for the vessels. Zvezda also demanded the return of the US$800M advance payment, along with accrued interest for the delay.

One month later, SHI filed for arbitration with the Singapore International Arbitration Centre, seeking to confirm the “unlawfulness” of Zvezda’s contract termination notice.