Liens on the Vessel
Usually the contract provides expressly for two liens on the vessel: (a) one in favor of the builder/seller for the unpaid portion of the contract price; and (b) the other in favor of the buyer. The two liens are usually mutually exclusive, in the sense that the owners lien covers the yacht, materials and equipment provided for the project, up to the stage for which the purchase price has been paid. On the other hand, the yards lien extends to all materials not yet paid for by the buyer.
Yacht-building contracts usually provide for the yard to maintain a builders risk insurance policy to be issued by first class insurers, often to be approved by the buyer. The yard may be contractually required to ensure that the policy names both the yard itself and the buyer as beneficiaries under the policy, according to the progression of their respective interests in the yacht. General liability insurance, fire, theft and other types of insurance cover required by local legislation may also be required of the builder.
The builder qua seller warranty is usually expressly provided for in the contract, partly because of the importance attached to remedial cooperation in this area of shipping law, partly for the purposes of avoiding the difficult situations which reliance on sections 13, 14 and 15 of the Sale of Goods Act may lead to. In general terms, the seller has an express right to cure any defects in construction, workmanship or material provided by the yard itself, provided any such defect manifests itself within a specific period of time. Usually, such warranty excludes defective design–unless the design was provided directly by the yard, improper or reckless use of the yacht or any fault attributable to ordinary “wear and tear”. Consequential damages, such as loss of hire or image, are usually expressly excluded. Drafting exclusion clauses is a fine art and some contracts may exclude expressly “any other defect of any kind whatsoever”, or even go as far as to expressly exclude any term implied by contract and law, including sections 13, 14 and 15 of the Act.
Class and the Involvement of Classification Societies
The contract will invariably require the builder to build the yacht in full compliance with all applicable laws, rules, standards and regulations of the flag state, the Large Commercial Yacht Code (LY2) and in conformity with the agreed class rules of a named classification society.
Certification and its technical background require the independent expertise of a class surveyor, normally from a classification society member of the International Association of Classification Societies (IACS). Yacht-building contracts will in most cases provide for a class surveyor to be appointed by the yard to perform regular surveys of the yacht during the progression of the construction project. Unsurprisingly, within the scope of their various tasks and duties, classification societies may make mistakes that can cause damage either to the shipowner or to third parties. The extent of their liability in such events will vary, depending on the type of survey that has been performed. The type of survey agreed in the building contract is mainly of a non-statutory character and hence regulated by agreement between the society appointed and the yard. However, the duty of the yard is that of providing a vessel which is in class and in compliance with all relevant safety legislation. There are two main issues which may arise in this respect: (i) the liability of the classification society for negligence, and (ii) an unexpected variation of class or flag requirements. These issues will be dealt with in turn.
(i) The Liability of the Classification Society
The issue of liability of classification societies vis-à-vis third parties and the state administration on whose behalf it issues statutory certificates, is beyond the scope of this chapter. What may be of interest here is the liability of the surveyor for negligence vis-à-vis the yard on one hand, and the owner on the other. As far as the liability vis-à-vis the yard is concerned, the service contract between the Classification Society and the yard contains express duties, liabilities, exclusions and limitations. These will be enforced by the courts.
The second issue is that of modification of such legal and class requirements during the building process. Who bears liability for any design or construction changes due to intervening legislation is a matter of contract. If the contract provides for the vessel to be delivered in compliance with all norms in force at the time of delivery, whether the yacht was individually designed or not will have no effect on the builders duty. More commonly, however, the contract for the building of individually designed yachts would provide for a complete code for the allocation of costs as a result of intervening legislation and class requirements. Any such term will be given effect.
Inspections, Delivery and Acceptance
The contract usually provides for representatives of the buyer and the architect to have the right to inspect the yacht during all phases of the construction. However, such inspection does not constitute acceptance of any stage of the project. When the yacht nears completion, however, such inspections become more crucial for the buyer, who, together with the architect and the yacht master, is given the opportunity to assist in the trials of the yacht and her equipment. Upon completion of the sea trials, the seller has a duty to correct any defects in the construction of the yacht and any nonconformity with the specification. Following such corrections, however, the yacht is usually deemed to have been completed in conformity with the contract description. Formal delivery and acceptance will usually follow.
The draft LY3 Code and the Maritime Labor Convention
Of major concern, currently, is the effect that the provisions of the Maritime Labour Convention 2006 will have on yacht-building contracts with regard to the accommodation areas for crews on all yachts on which professional crews are employed. Once the Convention has come into force, it will require the construction of all yachts commenced after that date to comply with the minimum accommodation requirements laid down in the Convention. The likely result will be the increase of the overall area provided for crews, with a corresponding decrease in space available for a yacht owner and guests. The MLC requirements can be found in the draft text of the Large Commercial Yacht Code (LY3), which is currently under consultation in the industry. The provisions of the proposed LY3 will not directly affect yacht-building contracts, but the requirements of the Code will have a major impact on design and specification of vessels in the future.These will be dealt with in future editions of this work, once the LY3 is in force.
If you like what you read, please subscribe to this blog by completing the form. If you want to help more, start by following us on Twitter, on Google+ and like our page on Facebook. You don’t know what good things may happen. To lighten your day, check our pins on Pinterest, we can be friends there too. Oh, and if you need a really good looking blog attached to your site, or just for fun, or to express your feelings more competitive, read this Own Your Website offer! Thank you very much.