Clyde & Co

The small print

Tim Schommer asks whether standard contractual frameworks are always the right fit

Clyde & CoA growing number of superyachts are being added to the global fleet every year, but capacity for new builds is running low and the waiting list is getting longer. At the same time, many second-hand yachts change ownership every year. As a consequence, major refit projects become more and more frequent.

The most common way of agreeing upon a contractual framework with regard to refit projects is to use a pre-drafted standard contract. Standard contracts aim to speed up the process of agreeing upon a contractual framework. Depending on who issued the draft, they also claim to reflect the current industry standard.

Standard contracts provide a contractual framework which contains stipulations for the majority of issues that might arise during the course of a refit project. However, the parties usually have to add certain particularities to the contract to cover exceptional circumstances. Hence, it is not unusual that the use of the standard contract will not be possible without agreeing on certain amendments.

In the past few years refit yards and their customers have had to adapt to extraordinary circumstances – the corona pandemic and disruptions of supply chains.

As a consequence, parties have become more alert to extraordinary events which might impact the project.

Not only for this reason the parties of a refit contract should ensure that certain aspects which are of exceptional importance are reflected in the contract. For example, delay can cause problems in case the yacht is offered for charter after the scheduled completion of the refit project

Therefore, each party should make sure that they understand exactly what is agreed upon in case of delay and what the consequences of such a delay might be. Can the shipowner claim damages from the refit yard if and when the charterer has a claim under the charter party? Does the legal position change in case a contractual penalty rather than liquidated damages is agreed upon? Does the refit contract differentiate between permissible and non-permissible delay? Which scenarios exactly are governed by the force majeure clause?

Another issue that should be looked at closely is that of warranties. Not only the scope of warranty works but also the circumstances under which these have to be completed. What is the timeframe? Does the yacht have to return to the same yard? Under which circumstances can the yacht be repaired at another shipyard and who takes over the costs? Under which circumstances is the customer entitled to further damages in the context of warranty rights? How do warranty rights differ from a guarantee?

Furthermore, refit yards and their customers need a clear understanding of the dispute resolution mechanism with regard to technical as well as non-technical issues. Where do proceedings need to be initiated? How long will it take for a judgement to be issued? What are the costs? How can the judgement be enforced? Are there better ways to find a solution than to litigate?

Often, extensive refit projects are too complex for everything to go as planned. Therefore, special attention should be given to a careful drafting of the contract. After all, both parties have one goal in common: to avoid a legal dispute.

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