ABSTRACT
This chapter talks about drafting and interpreting refund guarantees and focuses on the issue of primary versus secondary payment obligations. The rest is mostly about being attentive enough to ensure that the guarantee is fully consistent with the underlying shipbuilding contract and incorporating a few boilerplate provisions. Under English law there are several circumstances in which a guarantee will be automatically released if they take place without the guarantor's approval. In the context of shipbuilding transactions, these include material variation of the shipbuilding contract, and repudiatory breach of the shipbuilding contract by the buyer. The refund guarantee should contain an express governing law clause and specify the forum in which disputes are to be heard. Refund guarantees often provide for disputes to be referred to arbitration in accordance with the shipbuilding contract. A guarantee imposes a secondary payment obligation on the guarantor because it is contingent on the existence of an enforceable underlying obligation of the builder to the buyer.
