The Law of Yachts & Yachting

Richard Coles, Filippo Lorenzon, Richard Coles, Filippo Lorenzon

• Publisher: Informa Law from Routledge
• Year: 2018
• ISBN:
  9781315456393
• Edition: 2
• Topic: Jura
• Subtopic: Seerecht

Now it its second edition, The Law of Yachts and Yachting is a comprehensive treatise on the law relating to yachts and provides its readers with a thorough analysis of maritime law as relevant to the superyacht sector. Written by a team of leading yachting practitioners and researchers, it covers the legal issues arising during the life of a yacht. The book is written for the legal practitioner, yacht-broker and manager concerned with the operation of professionally crewed yachts including financing, registration, chartering, insurance, compliance and casualty management.

Key Features -

•The only practitioners' book on the area

•It covers all major aspects of yachting law in a single book

• The Law of Yachts and Yachting is highly comprehensive - despite its main focus on contract and tort law, it contains references to public law and international law and practice

•References to case law, English, foreign and international

•Appendices containing essential source materials

The second edition will cover important changes in the superyacht industry such as: the new MYBA Charter Form 2017, the Large Yacht Code (LY3) and the Passenger Yacht Code, both shortly to be consolidated into the new REG-YC, and the coming into force of the Maritime Labour Convention 2006, to name just a few.

CHAPTER 1

Yacht-Building Contracts

1. Introduction

2. The nature of a contract for the construction of a yacht

3. Common terms and conditions of sale

1. INTRODUCTION

[1-001] Introduction. Whether devised for the construction of an oil supertanker or a much smaller—although not necessarily less expensive—superyacht,¹ shipbuilding contracts are rather complex transactions, and the contractual framework under which they are commissioned reflects such complexity. It is very common in the commercial shipping world for the industry to use standard form contracts which the parties may adopt or amend at will. Indeed, for shipbuilding there are a number of standard forms widely used as templates on which individual agreements are negotiated.² Alternatively, shipyards will produce their own forms of contract, based on one or other of the standard form contracts adapted to reflect the yard’s individual policy and practice. When it comes to yachts, the ship- or yacht-builders are usually much smaller than in the commercial shipping world. Moreover, the drive for individuality and the bespoke nature of the larger yacht projects make the use of standard printed forms of contract very rare indeed. As a result, individual yards or their lawyers will usually produce their own draft forms of contract. Such contracts may be presented to the buyer on a take it or leave it basis, particularly in the case of smaller production boats. In other cases, such contracts will be the subject of negotiation and revision by the parties or their respective legal advisors. Some yards may even be willing to negotiate a contract based on a draft submitted by a buyer’s lawyer. In most cases, such yacht-building contracts will stipulate that they shall be governed by the law of the country in which the yacht will be built. In some instances a foreign yacht-builder may be prepared to agree that English law, or another legal system, will apply. The main legal implication of such an individualistic approach is that specialist case law—if any—must be used with extreme care, as it will be based on wording tailor-made for the individual project concerned. Matters of construction and interpretation issues are therefore to be resolved according to the general rules on interpretation of contracts, a classic restatement of which is the Supreme Court decision in Rainy Sky SA v Kookmin Bank.³ In the yachting context, however, difficulties may arise, because the final agreement will invariably make reference to various external sources such as classification societies’ rules and regulations,⁴ flag state regulations such as the Large Yacht Code, or the Passenger Yacht Code, and the all-important technical specifications⁵ where the detailed regulatory requirements for the future yacht and her design are necessarily contained.

[1-002] Scope of this chapter. A full discussion of the legal issues revolving around the general law of shipbuilding contracts is beyond the scope of this work; the reader is referred to the work of Simon Curtis, The Law of Shipbuilding Contracts.⁶ In the following pages the most crucial features of shipbuilding contracts specifically relevant to yacht-building will be dealt with, namely (a) the nature of a yacht-building contract and the legal framework to which it is subject under English law, and (b) the structure and main terms which are usually found in such contracts.

2. THE NATURE OF A CONTRACT FOR THE CONSTRUCTION OF A YACHT

[1-003] The nature of shipbuilding contracts: the traditional view. A shipbuilding contract is one directed towards the regulation of a substantial and complex construction project involving the supply of workmanship and materials. The final product, however—the ship—is a chattel not excluded from the definition of “goods” provided for in the Sale of Goods Act 1979⁷ and, under English law, the traditional view is that shipbuilding contracts are in fact agreements to sell⁸ future goods⁹ by description¹⁰ subject to the Act and, most importantly, its implied conditions.¹¹

[1-004] Recent variations. This proposition, however, should be handled with care, as it has been doubted twice by the House of Lords in more recent years.¹² In the last of these cases, Stocznia Gdanska SA v Latvian Shipping Co,¹³ the shipyard rightly terminated the contract and sued the buyer for payment of the first two instalments of the purchase price due at the time of rescission. The buyers claimed that no property in the ship had ever passed to them under the rescinded contract, and therefore the total failure of consideration made the instalments not due. Refusing to depart from the Hyundai precedent, Lord Goff asked himself the following question:

“Is the contract in question simply a contract for the sale of a ship or is it rather a contract under which the design and construction of the vessel formed part of the yard’s contractual duties, as well as the duty to transfer the finished object to the buyers? If it is the latter, the design and construction of the vessel form part of the consideration for which the price is to be paid. [ … ] I am satisfied that the present case falls into the latter category.”¹⁴

It seems, however, that the fact that the ship has to be designed by the builders is not enough, in principle, to disqualify the shipbuilding contract from being one for the sale of future goods by description and to qualify the contract as a hybrid;¹⁵ the better view appears to be that the parties to the contract, in the exercise of their freedom, may include the design and building processes as further preparatory stages for the delivery and transfer of the property on the ship, and should be remunerated as provided for in the contract.¹⁶ These further obligations are usually well catered for by the contract and, it seems, should not affect the categorisation of the contract as one for the sale of future goods by description to which the Sale of Goods Act 1979 applies.¹⁷

[1-005] Are yachts any different? In the market there are three principal types of yacht, namely: (a) production boats; (b) custom-built boats; and (c) semi-custom boats. Yachts under 24 metres in length are usually constructed of glass reinforced plastic (GRP) and occasionally built of wood or aluminium, but such yachts are normally built as part of a series to a standard design, and possibly with optional features in much the same way as a luxury car. Many volume builders of motor and sailing yachts produce production boats that are well in excess of 24 metres (79 feet) in length and venturing into superyacht territory.¹⁸ As one approaches the 40–50-metre (130–164-foot) limit, quality boats will usually be constructed out of steel rather than GRP, and in other instances of aluminium or composite fibre, or a combination of the two. At the high end of the spectrum, custom-built yachts are built for customers on a one-off basis, and are either designed in-house by the shipyard, or by a specialist architect employed directly by the owner.¹⁹ A semi-custom design is a halfway measure whereby a client opts for a standard production design, which is customised with a limited degree of original design work. Given the very individual context in which superyachts are designed and built, yacht-building contracts may be thought to be different from their commercial shipping counterparts, but, on further examination, this does not appear to be the case. If the buyer appoints its own designer²⁰ and then has the yacht built at a yard of its choice, then the contract with the yard will definitely have the nature of a purchase agreement. By the same token, if the yard provides individual design services, the contract will be one of a mixed nature, not unlike that under consideration in the Stocznia Gdanska SA case above. Whether the design element is an interconnected but separate professional service contract, which may attract terms implied by statute and/or the common law and survive termination or rescission of the building contract, will simply depend on the terms of the individual agreement concerned.

[1-006] Applicable law and nature of the contract. It should be noted that certain jurisdictions classify shipbuilding contracts, and hence their yacht counterpart, as construction contracts instead, and therefore the choice of law applicable to the agreement is crucial. Choice of law clauses may expressly choose the law of a given country²¹ or can be less straightforward, making reference to the law of a place which has a particular connection with the contract at stake.²² A further layer of difficulty in the yachting context is that yachts are not always built entirely in one yard. While the hull may be built from scratch in one place, the masts, engines and other machinery are almost always provided by third parties and only assembled in the yard where the hull is built. It is not uncommon for the yacht then to be removed from the yard and taken elsewhere for fitting-out and the all-important interior design, furnishing and finish. When this happens, the fittings of the finished yacht may have been designed, built and installed by independent contractors under separate contracts to which different laws may well apply. It would seem that this should not affect the nature of the contract for building the yacht itself, although it may well affect the remedies available for defects, which may vary substantially across jurisdictions. Where independent contractors are engaged to undertake certain aspects of the fitting-out, such contractors will usually be employed as subcontractors of the yard. In most cases a building contract will give a buyer the right to approve in advance the appointment of major subcontractors. In some circumstances a buyer may prefer to have a direct contractual relationship with the contractor, in which case the yard will treat such work as an owner-supplied item and it will therefore fall outside the scope of the shipbuilding contract.

[1-007] A sale of future goods by description: legal consequences. The main legal consequence of the fact that English law categorises a yacht-building contract as one for the sale of future goods by description²³ is that the 1979 Sale of Goods Act is applicable to such agreements.²⁴ A f...