Keppel Corporation has been granted an interim injunction by the Singapore Court to restrain any payment or receipt of money under a US$126.6 million standby letter of credit (L/C) it had provided in favour of an unnamed customer in relation to an historical rig contract with its Keppel Offshore & Marine subsidiary.

The case centres on disputes over the validity of certain foreign exchange fluctuations and contractual cost escalation formulas in a contract entered into by an entity that is 75 per cent owned by Keppel O&M.

Questionable validity

This majority Keppel-owned entity had provided a US$126.6 million standby L/C in favour of the customer to repay amounts received by the entity and calculated based on the contractual formula.

Singaporean conglomerate Keppel disclosed that on 12 September, following a decision by the relevant government authority that the contractual formulas were invalid, the customer sought to call on the standby L/C.

Counsel for the conglomerate said that Keppel considers this decision is still subject to possible modification and is not final, the call was premature, and it therefore applied for the injunction in the local court to prohibit payment on the standby L/C.

Decision challenged

The Keppel O&M entity has issued a legal challenge against the decision of the relevant government authority but its parent company has nevertheless made a provision in its accounts for the full amount payable under the standby L/C.

Keppel has said it is unable to disclose the name of the customer or the amount of the potential claims in view of commercial sensitivity.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.