Samsung Heavy Industries announced on the 18th that it would cancel two contracts with Russia's Zvezda for the supply of ship equipment and blocks worth 4.8525 trillion won and claim damages. Samsung Heavy Industries stated that it would seek damages from Zvezda for losses exceeding the advance payment already received.

Image of a wind-assisted propulsion system liquefied natural gas (LNG) carrier developed by Samsung Heavy Industries. /Courtesy of Samsung Heavy Industries

Samsung Heavy Industries entered into a contract with Zvezda in November 2020 for the supply of ship equipment and blocks for 10 ice-breaking LNG (Liquefied Natural Gas) vessels. The contract amount was 2.8072 trillion won. In October 2021, it also signed a contract with Zvezda for the supply of ship equipment and blocks for 7 ice-breaking shuttle tankers, with a contract value of 2.0453 trillion won.

After the outbreak of the Russia-Ukraine war in February 2022, when the U.S. and Korean governments implemented sanctions and export controls related to Russia, and Zvezda was designated as a Specially Designated National and Blocked Person (SDN), Samsung Heavy Industries suspended the design process and engaged in mutual negotiations regarding the fulfillment and maintenance of the contracts with Zvezda. However, Zvezda claimed breach of contract against Samsung Heavy Industries in June of last year, notifying the cancellation of the two contracts and demanding the return of the advance payment (a total of $800 million) and payment of delayed interest.

In July of last year, Samsung Heavy Industries applied for arbitration to the Singapore arbitration court to confirm the illegality of the contract termination notified by Zvezda. Samsung Heavy Industries is claiming compensation for direct and indirect damages in court.

Samsung Heavy Industries has informed Zvezda of its intention to reserve the advance payment already received and claim damages for any losses exceeding that amount.

Samsung Heavy Industries said, "The shipowner's illegal termination of the contract is the fundamental cause, and we will strive to clarify the illegality of the unilateral contract cancellation through arbitration and seek appropriate damages."