The case was disclosed by Hanwha Ocean on 3 September, two days after the arbitration was filed. According to the company’s market disclosure, Arctic LNG 2 is seeking damages for alleged breach of “Step In Agreements” relating to shipbuilding contracts that Hanwha Ocean had terminated. The claim was stated at KRW1.3703 trillion, calculated from an initial US$1 billion demand.
The disclosure also makes clear that the damages case is not yet fully particularised. Hanwha said the US$1 billion figure had been presented in the notice of arbitration without a detailed breakdown and that Arctic LNG 2 considered its ultimate claim could exceed that amount. The company said the claim would be refined through the arbitration process and that it intended to respond under the applicable SIAC procedures while continuing efforts toward an amicable resolution.
The dispute adds a significant new chapter to the contractual fallout from sanctions affecting Russia’s Arctic energy projects. Reuters reported on 8 September that the claim relates to LNG tanker construction arrangements connected with Arctic LNG 2, a major Russian LNG project led by Novatek.
The dispute sits behind a cancelled fleet of icebreaking LNG carriers
Hanwha Ocean, formerly Daewoo Shipbuilding & Marine Engineering, had been involved in a programme to construct six Arc7 icebreaking LNG carriers for the Arctic LNG 2 project. Reuters reported that three vessels had been ordered for Russia’s Sovcomflot and three for Japan’s Mitsui O.S.K. Lines.
The Arc7 vessels were designed for the unusually demanding operating conditions associated with Russia’s Arctic LNG trade. They formed part of a broader logistics chain intended to move cargo from the Arctic LNG 2 project, which Reuters said had a planned annual production capacity of 19.8 million metric tons.
Sanctions materially disrupted that structure. Hanwha cancelled the Sovcomflot-related shipbuilding contracts, while Arctic LNG 2 itself became subject to US sanctions. The project began production in late 2023, but sanctions constrained access to the specialised shipping capacity required to move LNG from the Arctic and complicated the commercial arrangements surrounding the project.
The new arbitration is therefore not occurring in isolation. It is part of a wider chain of disputes and commercial consequences created when long-term shipbuilding, chartering, financing and project arrangements collide with sanctions imposed after the contracts were already in place.
Why the “step-in agreements” are central
One of the most important aspects of Hanwha’s disclosure is the way the claim is framed. Arctic LNG 2 is not described simply as claiming damages under the terminated shipbuilding contracts. Instead, the disclosed basis is an alleged breach of separate step-in agreements connected with those contracts.
Step-in rights are commonly used in complex projects to allow a project company, financier, charterer or another stakeholder to assume or protect contractual rights if the original contracting party can no longer perform or if a specified trigger occurs. The exact function of the agreements in the Arctic LNG 2 structure will depend on their wording, which has not been made public in the materials reviewed by MLB.
But the legal significance is broader. A party may have a contractual right, or consider itself legally compelled, to terminate a primary agreement because of sanctions while still remaining exposed under a collateral document. Guarantees, assignments, direct agreements, financing arrangements and step-in instruments can survive or operate differently from the underlying contract. That is why sanctions-related exits from major maritime projects often require a document-by-document analysis rather than a single decision on the main shipbuilding or charterparty contract.
Sanctions compliance does not automatically eliminate contractual exposure
The case is a useful reminder that sanctions compliance and contractual liability answer different questions. A company may consider termination necessary to comply with applicable sanctions, banking restrictions or export-control rules, but that does not automatically establish that every contractual consequence of the termination disappears.
In a dispute of this kind, the tribunal may ultimately have to examine not only the wording of the relevant agreements but the sanctions landscape at the time the contracts were terminated, the parties’ notices and communications, any force-majeure or sanctions clauses, the scope of the step-in mechanism and the loss allegedly caused by the termination.
The disclosed US$1 billion figure should also be read carefully. It is an asserted claim, not an award or finding that Hanwha breached any agreement. Hanwha’s disclosure expressly states that the amount was presented without detailed particulars and may change as the arbitration develops.
SIAC will provide the procedural framework
The arbitration is being administered by SIAC, one of Asia’s major international arbitration institutions. The current SIAC Rules 2025 came into force on 1 January 2025 and govern the procedural framework for arbitrations commenced under those rules where applicable.
Hanwha said its next steps would include constitution of the tribunal and submission of its response. Beyond that, much of the proceeding is likely to remain confidential unless further information appears through company disclosures, court proceedings or enforcement steps.
For listed companies, however, major arbitration can still generate public information because securities rules may require disclosure of claims that are financially material. Hanwha’s filing notes that the KRW1.3703 trillion claim corresponds to 22.2% of the company’s consolidated equity at the end of 2025, explaining why the arbitration entered the public record even though the underlying dispute is private.
The enforcement question may eventually be as important as the merits
If the case reaches a final award, any enforcement strategy would have to be considered against the same sanctions backdrop that helped generate the dispute. A successful claimant must still identify assets, choose enforcement jurisdictions and consider whether sanctions or payment restrictions affect the practical ability to receive funds.
That is particularly relevant in disputes involving sanctioned Russian energy projects. Arbitration can determine contractual rights, but it cannot by itself remove regulatory restrictions that may apply to payment, asset transfers or dealings with designated entities.
What maritime businesses should take from the case
For shipowners, yards, financiers and charterers involved in sanctions-sensitive projects, the dispute illustrates why an exit analysis must cover the entire contractual architecture. It is not enough to identify whether one shipbuilding contract can be terminated. The parties also need to understand what happens to step-in rights, guarantees, assignments, charter arrangements, refund guarantees, financing documents and dispute-resolution clauses connected with that contract.
The other lesson is evidential. Where a party relies on sanctions as part of the basis for termination, the contemporaneous record matters: which sanctions applied, what licences or exceptions were available, what banks and insurers were prepared to do, what notices were given and whether alternative performance was realistically possible.
Those questions will be central to many maritime disputes arising from the restructuring of Russian trade. The Arctic LNG 2 claim is likely to be watched closely because of its size and because it sits at the intersection of shipbuilding, project logistics, sanctions and international arbitration.
Sources
- Hanwha Ocean market disclosure, 3 September 2026.
- Reuters, “Russia’s Arctic LNG 2 seeks $1 billion in damages from South Korea’s Hanwha”, 8 September 2026.
- Singapore International Arbitration Centre, SIAC Rules 2025.
Source note: Maritime Legal Business prepared this article from the company disclosure and public reporting identified above. The allegations are unproven, the underlying step-in agreements are not public in the sources reviewed, and the stated claim amount is not a determination of liability. This article is for general informational purposes and does not constitute legal advice.