South Korean shipbuilding giant Hanwha Ocean has become embroiled in an international arbitration dispute following the cancellation of orders for ice-class liquefied natural gas (LNG) carriers intended for Russia’s Arctic LNG 2 project. In addition to substantial arbitration claims filed by the shipowners, Hanwha Ocean faces separate claims for damages from LLC Arctic LNG 2, the charterer of the vessels.
Hanwha Ocean recently disclosed via the Korea Exchange that it had received a request for arbitration filed with the Singapore International Arbitration Centre (SIAC) by LLC Arctic LNG 2—the project owner of Russia’s Arctic LNG 2—seeking damages.
According to arbitration documents, LLC Arctic LNG 2 alleges that Hanwha Ocean breached “Step-In Agreements” related to a previously terminated shipbuilding contract, with an initial claim amount of approximately 1.37 trillion KRW (about US$1 billion).
The arbitration dispute between Hanwha Ocean and LLC Arctic LNG 2 involves three ice-breaking LNG carriers. Hanwha Ocean had previously initiated arbitration proceedings against the vessel owners at the Singapore International Arbitration Centre. Although the disputes stem from the same batch of vessels, Hanwha Ocean faces two separate international arbitration cases due to differences in the claimant entities and the contractual bases involved.
The origins of these arbitration proceedings date back to October 2020, when Daewoo Shipbuilding & Marine Engineering (now Hanwha Ocean) signed contracts with three Russian shipowners—Elixon, Azoria, and Glorina—to build three 172,500 cbm Arc7 ice-breaking LNG carriers. The total contract value was disclosed at approximately US$850 million, with all vessels originally scheduled for completion and delivery by July 31, 2023.
However, the escalation of the Russia-Ukraine conflict and the imposition of severe Western sanctions on Russia led to serious issues regarding contract performance between the Russian shipowners and the shipyard (then Daewoo Shipbuilding & Marine Engineering). Consequently, the shipyard announced the termination of the shipbuilding contracts for the ice-breaking LNG carriers in May, July, and November 2022, respectively.
Several months after the cancellation of their shipbuilding contracts, three Russian shipowners initiated arbitration proceedings at the Singapore International Arbitration Centre in May 2023, citing Hanwha Ocean’s termination of contracts for the construction of three ice-breaking LNG carriers; they demanded that Hanwha Ocean fulfill the contracts and pay damages of up to 1.159 trillion KRW (approximately US$ 862 million at current exchange rates).
The original arbitration proceedings between Hanwha Ocean and three Russian shipowners are currently ongoing, with the parties continuing to exchange written submissions and evidence through the first half of 2026. In other words, the dispute remains unresolved, even though four years have passed since the initial shipbuilding contracts were terminated and more than three years have elapsed since the shipowners initiated arbitration.
While the original arbitration remains pending, LLC Arctic LNG 2—the project operator and charterer of the three ice-breaking LNG carriers—has filed a new arbitration claim against Hanwha Ocean. As LLC Arctic LNG 2 was not the direct party that ordered the vessels, it could not initiate arbitration against Hanwha Ocean under the shipbuilding contracts; instead, it based its claim on Hanwha Ocean’s alleged breach of a separate intervention agreement.
An intervention agreement is an arrangement allowing a third party to step into a contract and exercise certain rights when the original contracting parties fail to properly fulfill their obligations. Reportedly, LLC Arctic LNG 2 claims that Hanwha Ocean infringed upon the rights granted to it under such an agreement during the process of terminating the shipbuilding contract with the shipowner.
According to arbitration documents, LLC Arctic LNG 2 is seeking approximately 1.3703 trillion KRW (about US$ 1 billion) in damages from Hanwha Ocean—an amount equivalent to 22.2% of Hanwha Ocean’s consolidated net assets of 6.175 trillion KRW (projected for the end of 2025). However, as the arbitration notice does not yet specify the particular items of damage or the basis for calculation, this figure remains a preliminary estimate.
In response to an arbitration case of this magnitude, Hanwha Ocean stated that it would constitute an arbitral tribunal and submit its defense in accordance with the rules of the Singapore International Arbitration Centre; while pursuing a robust legal defense, the company also intends to seek an amicable settlement. Hanwha Ocean noted that the claimed amount could change during the subsequent arbitration proceedings; nevertheless, the company continues to face significant potential financial risk.
Regarding the arbitration initiated by LLC Arctic LNG 2, industry insiders commented: “As the dispute with the original shipowner remains unresolved, the charterer has initiated arbitration based on a separate contractual relationship, requiring the legal issues of each case to be examined individually. However, given that disputes stemming from the same batch of vessels and the same project are ongoing, it appears unlikely that the legal uncertainties surrounding Hanwha Ocean’s Russia-related operations will be eliminated in the near term.”
Regarding the arbitration initiated by LLC Arctic LNG 2, industry insiders commented: “As the dispute with the original shipowner remains unresolved, the charterer has initiated arbitration based on a separate contractual relationship, requiring the legal issues of each case to be examined individually. However, given that disputes stemming from the same batch of vessels and the same project are ongoing, it appears unlikely that the legal uncertainties surrounding Hanwha Ocean’s Russia-related operations will be eliminated in the near term.”