Australia backs out of contract with French company Naval Group
In 2016, Australia signed a contract with French company Naval Group to supply Australia with 12 diesel-electric Barracuda submarines over a 25 year period. In mid-September 2021, Australia unceremoniously withdrew from its contract with France and signed a new defence treaty with the United Kingdom and the United States. It is argued that the American submarines provide superior capabilities to the French, thereby better meeting the security needs of Australia.
The treaty known as AUKUS, involves Australia purchasing eight nuclear-powered submarines from the United States as well as participating in other activities such as increased intelligence sharing. The aim of the treaty is to improve security in the Asia Pacific as a result of increasing tensions with China.
Naturally, France was upset with Australia. So much so that it withdrew its Ambassador, an unusual move for allies. It is also estimated that the Australian Government may be liable for up to $400 million in compensation for terminating the contract.
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Compensation update & context
Update: Following negotiations after the cancellation, Australia later announced a settlement with Naval Group reported at €555 million (approx. AUD amount at the time), finalising compensation for terminating the program. See Australian Government news and statements on the AUKUS pathway via Department of Defence – AUKUS and background from DFAT.
What AUKUS means (at a glance)
- Nuclear-powered subs: Planned acquisition of US/UK technology with an industrial program in Australia. Overview: Prime Minister media statements.
- Industry & supply chain: Australian firms may participate in defence supply chains. See business.gov.au defence industry and Defence Industry.
- Export controls & compliance: Companies should consider ITAR/technology transfer rules. Guidance via Defence Export Controls.
Contract termination & dispute pointers (general)
- Review termination clauses, default provisions and liquidated damages.
- Preserve evidence: notices, meeting minutes, change requests, and scope/price variations.
- Model cashflow and mitigation steps; consider AFCA or procurement complaint pathways where relevant.
- Seek timely advice on repudiation, frustration, and settlement options.
Need help with a procurement or commercial contract dispute? Explore our civil & commercial disputes and conveyancing services, or call (02) 8806 0866 to speak with a Sydney solicitor.
