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BIMCO standard form refund guarantee for shipbuilding contracts


Refund Guarantees secure repayment to the buyer of the pre-delivery instalments paid under a shipbuilding contract (an “SBC”) in the event of termination of the SBC due to builder’s default or insolvency or the total loss of the ship under construction. Having the benefit of a refund guarantee is therefore of key importance to the buyer under a shipbuilding contract.

Even though refund guarantees are vital in shipbuilding projects, a widely used universal form for refund guarantees has not yet been introduced. With the introduction of its standard refund guarantee form in 2021 (the “BIMCO Refund Guarantee”), BIMCO has sought to introduce a form that can be widely adopted and used in conjunction with both standard form and bespoke SBCs.

The general nature of the BIMCO Refund Guarantee

The drafting committee for the BIMCO Refund Guarantee consisted of members from the legal sector, as well as representatives from shipowners, shipyards and banking institutions. The aim with the new form was, in the words of the drafting committee’s chairman Ian Gaunt, “to strike a fair balance between the interests of shipbuilders, their bank, and shipowners”.

The BIMCO Refund Guarantee is, as is generally the case with refund guarantees, an on-demand primary security instrument, meaning that a claim under the guarantee is not contingent upon a claim first having been made against the builder. However, buyers should be aware that the BIMCO Refund Guarantee can arguably not be described as a “true” on-demand guarantee because the guarantor is not obliged to make payment under the guarantee if the amounts claimed are disputed and subject to legal proceedings. In that case the guarantor is only obliged to make payment 30 days after the dispute has been finally determined by the arbitration tribunal or court under the SBC. This is not unusual in the context of refund guarantees, but is an important feature of the BIMCO Refund Guarantee to be aware of.

Particular clauses in the BIMCO Refund Guarantee

The BIMCO Refund Guarantee is drafted to be effective from the date on which the builder has received payment of the first instalment under the SBC.

The guarantor’s liability under the guarantee will automatically increase upon further instalments being received by the builder under the SBC. This avoids the need for separate refund guarantees to be issued for each subsequent instalment paid under the SBC. A maximum liability for the guarantor is however intended to be specified in the BIMCO Refund Guarantee and this should therefore be in an amount covering all instalments under the underlying SBC.

Pursuant to clause 4 of the BIMCO Refund ­Guarantee, the guarantee will remain in force until the first to occur of either (i) delivery of the vessel under the SBC, (ii) ­payment to the buyer by the builder or the refund ­guarantor of all sums guaranteed under the refund ­guarantee, or (iii) a specific date to be agreed and inserted in the refund guarantee on a case by case basis. In order not to defeat the purpose of the refund ­guarantee, it is essential to ensure that the specific date falls a ­sufficient number of days after the date on which the buyer would be entitled to terminate the SBC for delayed delivery. In this context, the buyer should carefully ­consider the SBCs allowances for extension of the delivery date for permissible delay and similar provisions.

The buyer should also ensure that the issuance of the refund guarantee is a condition precedent to payment of the first instalment under the relevant SBC and furthermore that the SBC requires the specified date in the refund guarantee to be extended if delivery of the vessel under the SBC has not occurred a certain time in advance of the original specified date.

The BIMCO Refund Guarantee states that it shall not be affected by any indulgence or delay allowed to the builder or any amendments to the SBC. However, where material changes are made to the SBC, such as changes to the delivery or termination date and the amount/number of the instalments, it is recommended to obtain legal advice before such changes are made to ensure they do not result in the guarantor becoming entitled to reject payment under the guarantee.

It is not unusual for refund guarantees to be assigned to the buyer’s financiers and clause 8 of the BIMCO Refund Guarantee allows for the assignment of the ­guarantee to “financiers who are financing the purchase price of the Vessel” without the consent of the refund guarantor and to any other assignee (with the consent of the refund guarantor which shall not be unreasonably withheld).

Pursuant to Clause 9, the BIMCO Refund Guarantee is drafted so as to be governed by English law with the forum for disputes being either arbitration in London or the High Court of England and Wales. Having English law as the default option for the BIMCO Refund Guarantee is a sensible choice as the majority of SBCs between international parties are also governed by English law. If the governing law is changed, the buyer should obtain legal advice on local requirements that might need to be ­satisfied in order for the guarantee to be validly enforced. In any event it is advisable to verify (and potentially obtain a legal opinion on) the enforceability of the guarantee in the place of registration of the guarantor.


The introduction of the new BIMCO Refund Guarantee form is to be welcomed and could provide useful assistance to parties in the complex area of guarantees. It is however important to consider any specific guarantee in the context of the underlying SBC in order to ensure that the terms between the BIMCO Refund Guarantee and the relevant SBC are consistent. It is also advisable to consider any changes to the standard terms carefully and to seek local advice to ensure the enforceability of the guarantee against the guarantor.

Profile image of Andreas Fjærvoll-Larsen
Andreas Fjærvoll-Larsen
E-post afl@wr.no
Profile image of Mads Ødeskaug
Mads Ødeskaug
E-post mod@wr.no

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