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The importance of legal contract negotiation : the case of the French-Australian submarine crisis

08/04/2022

Shipping Law

In September 2021, against all expectations, Australia cancelled its order for 12 conventional (non-nuclear) submarines from France, more precisely from Naval Group. To date, Australia estimates that it will have to pay the sum of 3.7 billion euros to reimburse, among other things, the costs of the manufacturer Naval Group. Despite the very large sums involved, the Australians seem to have considered that their geostrategic interests take precedence over everything else.

What is happening between France and Australia ?

The reason for this unilateral breach of contract had been motivated by Prime Minister Scott Morrison in favour of American or British models, in the framework of the Aukus¹ agreement concluded with the two Anglo-Saxon powers. It should be noted that this historic agreement concluded in 2016 for the construction of 12 naval vessels by France was estimated at over 55 billion euros

This termination “for convenience” was foreseen in the contract…it gives rise to the reimbursement of costs incurred and to come, linked to the physical “demobilisation” of the infrastructures and IT systems as well as to the reclassification of the employees of Naval Group and of the 375 SME and ETI subcontractors, 35 of which were French and had settled in Australia within the framework of the programme.

NAVAL group had indicated in September that it had achieved 840 million in turnover with the Australian programme since 2016. Since then, the group has undertaken to “unravel” everything it had put in place to pilot the programme: repatriating its French employees installed in Australia and vice versa, returning a building intended to house the Australian teams in Cherbourg, the group’s submarine industrial HQ, cutting the IT networks, but also laying off its Australian salaries who had joined its local subsidiary.

So far, according to the Australian Deputy Secretary of Defence, Tony Dalton, “the exact amount is not yet clear as negotiations with Naval Group are ongoing” and the discussions, which “are taking place in a constructive atmosphere”, are expected to be concluded by the end of June, the end of the Australian fiscal year.

When negotiating a commercial contract of this size, but also of a lesser size, it is important to foresee in a very precise manner the conditions of termination of the contract (at the initiative of one or other of the parties or with a common intention) as well as the amount of penalties due, reimbursement of advanced expenses or other.

The Stream Team will assist you in negotiating the clauses of your commercial contract in order to anticipate and foresee the risks of abrupt termination or voluntary termination.

Contact our dedicated team: Mathieu Croix, Fabien d’Haussy, Alexandre Besnard and Ingrid Bourdonnais for more information.


1. AUKUS (an acronym for Australia, United Kingdom and United States) is a tripartite military alliance formed by Australia, the United States and the United Kingdom. It was made public on 15 September 2021 and aims to counter Chinese expansionism in the Indo-Pacific1. This alliance is the successor to ANZUS, but excludes New Zealand, which refuses access to its waters to nuclear ships under a nuclear-free zone policy implemented in 1984.

Shipping Law

  • About the author

    Mathieu Croix

    Avocat au Barreau du Havre
    Partner

  • About the author

    Fabien d'Haussy

    Avocat au Barreau de Marseille
    Partner

  • About the author

    Alexandre Besnard

    Avocat au Barreau de Paris / Solicitor of England & Wales
    Partner

  • About the author

    Ingrid Bourbonnais

    Avocat au Barreau de Marseille - Docteur en Droit
    Associate

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