Seoul: Samsung Heavy Industries Co. announced Wednesday the termination of ship equipment contracts valued at 4.85 trillion won (US$3.54 billion) with Russia's Zvezda Shipbuilding Complex, citing a unilateral breach of contract by the Russian shipyard.

According to Yonhap News Agency, the contracts, which were signed in 2020 and 2021, involved the provision of essential ship parts and modules for the construction of 10 icebreaking liquefied natural gas (LNG) carriers and seven shuttle tankers. Zvezda informed Samsung Heavy of its intent to cancel the agreements in June 2024, attributing its decision to U.S. and European sanctions that have complicated ship construction activities due to the ongoing Russia-Ukraine conflict.

The Russian shipyard also requested the reimbursement of US$800 million in advance payments, along with related interest. Samsung Heavy, disputing the validity of the cancellation, initiated arbitration proceedings with the Singapore International Arbitration Centre in July 2024 and engaged in settlement discussions.

Samsung Heavy disclosed in a regulatory filing on Wednesday that it has chosen to formally terminate the contracts and pursue damages. The South Korean firm has communicated to Zvezda its intention to retain the $800 million already paid and to seek compensation that surpasses this amount.

"This issue stems fundamentally from the client's unlawful contract termination," a company official stated. "We will fully commit to proving the illegality of the cancellation through arbitration and seek appropriate damages."