BAE Systems, Britain's largest defence contractor, is taking the Sultan of Brunei, one of the world's richest men, to court over a $1bn dispute involving an order for three naval ships.
The dispute centres on a lucrative export order, estimated to be worth over £600m ($1.13bn), to build three offshore patrol vessels for the Royal Brunei armed forces.
The contract was agreed several years ago and BAE, headed by Mike Turner, the chief executive, launched the first ship to much fanfare in January 2001. The other two ships have since also been completed.
However, all three remain moored at BAE's Scotstoun yard on the Clyde, as the Sultan has refused to accept them because they allegedly fail to meet his specifications.
"Anyone who flies over the Clyde can see the ships just sitting there, not doing much," said one executive last night.
Talks to resolve the dispute have been taking place for almost a year. It is understood that a date has now been set for the case to be heard at the International Court of Arbitration in Paris.
"We are currently in arbitration and consequently cannot discuss the issue," a spokesman for BAE confirmed last night.
Senior defence industry executives believe that in this instance the deficiency may not lie in BAE's expertise at shipbuilding or flaws with the ships themselves. They believe the Bruneians may lack the correctly trained personnel needed to run the highly sophisticated vessels.
The 95m long ships, which are equipped with Exocet and Sea Wolf missiles, are meant to be used for maritime policing, anti-aircraft, surface and submarine warfare, as well as naval gunfire support.
BAE has never disclosed the financial terms of the contract but industry analysts estimate that each ship would be worth well in excess of £200m, making the total contract worth over £600m.
Executives close to the process said last night that a formal resolution to the dispute could still be months away. However, arbitrated awards are not subject to appeal.
The Sultan is one of the world's absolute rulers. However, in his birthday speech last year he announced that he wanted to give Brunei's 350,000 people more say in the oil-rich country's affairs.
Brunei, on the north coast of Borneo, has one of the world's highest per capita incomes because of its oil and gas resources. No one was available for comment yesterday at the Brunei embassy in London.