Buying a New Build?
The acquisition of a new build vessel is an aspiration for many fishermen and can represent the most expensive purchase they will ever make. It is therefore important that like the ship, the contract entered into for the transaction is absolutely watertight.
Important issues have to be addressed. For example, what will happen if the builder gets into financial difficulty and cannot complete the vessel? Will the buyer’s instalments be secured by a refund guarantee issued by the builder’s bank so that these are repaid on demand in such an event? Will the buyer have a proprietorial right to the partly constructed hull? And what happens to materials approved by the buyer for the ship but not yet incorporated into it?
The contract documentation must deal with these matters and clearly set out the intention of the buyer and builder. For instance, if ownership of materials is to pass to the buyer before completion, unambiguous language should be used, specifically stating the stages and requirements of appropriation.
Other issues also arise. The builder may wish price escalation clauses to be included in the contract, by which any extra expense incurred by the builder as a result of increases in the cost of labour and materials or changes to the vessel specification requested by the buyer is passed on. For those representing the buyer’s interest, careful drafting of such clauses is necessary. Their width must be restricted with clear words designating cut-off points.
In the course of the build, events beyond the builder’s control may occur causing a delay in the delivery of the vessel, for example fire, extraordinary weather conditions and energy shortages. Consequently, the builder will wish to limit his liability for any such delay by virtue of an exclusion clause in the contract. This is understandable, but a prudent buyer will have the right to elect to cancel the contract if the delay exceeds a certain period.
Other matters which the contract should agree are the scope of sea trials, responsibility for the rectification of defects and the buyer’s right to request particular sub-contractors for the design, manufacture or supply of any equipment or services for the vessel / build.
These are just some of the considerations which have to be borne in mind when entering into a shipbuilding contract. If you have any queries in this regard and wish to take advice, please contact either Graham Jones or Angus Easton, or call 01224 632464.