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 country or can be less straightforward, making reference to the law of a place with a particular connection with the contract at stake.
A further difficulty is that yachts are not always built entirely in one yard. While the hull may be built 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 a different law 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.
Yacht Building Conditions: Conditions, warranties and innominate terms
The most obvious obligation imposed on the seller by any sale contract is the duty to deliver exactly the promised goods, specifically the yacht. However, the extent of the precision with which the seller has to perform this basic obligation and the remedies of the buyer for breach of such duty vary, according to the nature of the contractual term at stake. In most of European countries and the Americas, contractual terms relating to the goods are in fact considered, either by express choice of the parties, by the relevant market and/or by the law, as being so crucial to the trade concerned that their breach gives the buyer the option of refusing to take delivery of the yacht and terminating the contract.
Traditionally, contractual clauses have been classified in three different categories:
(a) warranties, the breach of which entitles the innocent party to a claim in damages;
(b) conditions, the breach of which gives the innocent party the further option to bring the contract to an abrupt end; and
(c) intermediate (or innominate) terms, whose breach may afford the innocent party the right to terminate provided he can prove that the breach in question went to the root of the contract concerned. Given the draconian effects that this classification may have on the whole transaction, it is crucial for both buyer and yard to be able to identify which terms of their contract are conditions and which are not.
Here you have a video from an English yard:
Unbelievably, I’ve seen a few years ago a similar yacht built in less than three months by only two people, the master carpenter and an aide. It was in Turkey, and the only down part is that the care on detail wasn’t so keen as above 😄
[To be continued: Stay tuned for Part 3!]
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