The Hassall Law Guide to Buying a Boat (New Build, Conversion, or Restoration) Vessel

1. Introduction

This Guide is about some of the legal points to consider when buying a boat specifically built, converted, or restored for you and your intended use.

An existing boat can be examined, surveyed, tested and its ownership checked at the Shipping Registry. The applicable law in the UK is our common law, the Misrepresentation Act 1967, Sale of Goods Act 1979 or Supply of Goods and Services Act 1982. Perhaps the Unfair Contract Terms Act 1977.

They have their moments when sold “as is” or “where is” in Hirtenstein and Another v United Marine Limited [2014] EWHC 3537. Waiving a sea trial in Dalmare SpA Union Maritime Limited [2012] EWHC 3537 or those “light bulb moments” as in Jones below.

In recent years common issues to watch for are;

1. Surveying under the water line and sonar checks:
2. Engines, capacity, size, and actual hours used:
3. Electrics:
4. Payments, how and to who:
5. The use of standard terms:
6. Jurisdiction and applicable law (not always the same):
7. Before the contract misrepresentations:
8. Post first build alterations:
9. Moorings or licences not included.

Ordering your new build, or conversion or restoration vessel for work or for pleasure can be a little more challenging.

2. Using a Company, buying the boat owning company or its assets?

Existing vessel or new build. This may possibly be one of the most important purchases you make. Afforded through (a) shared ownership of those 64 parts just like the venetian merchants of old: (b) partnership or “shared ownership”: (c) joint venture: (d) corporate purchase often: (e) alongside a ships mortgage.

It should trigger, if only for tax, thinking about a holding vehicle beyond your personal name. An unexpected jurisdiction or Port of Registration (for a recent yacht example) see the facts in Jones and Ludlow v McCarthy [2022] EWHC 2186 (Ch). A case involved a swop of “The Biggest Buzz” owned by a Welshman through and registered in the British Virgin Islands subject to a mortgage, moored in Spain sold under Spanish contract, resolved in Cardiff.

Your ultimate ownership might be via a “one ship company”. Few will contract with a newly formed company without assets. The new company would normally expect to provide third party guarantees. Their lenders a separate Legal Charge or Ships Mortgage, Fixed and Floating Debenture, Secured Loan Agreement with the company. Directors joining in and/or Subordinate Deeds from the directors who may also have placed funds in the company as part of the build costs.

There are separate issues when existing companies own existing vessels or holding the benefit of contracts for new builds;

1. buying the company or shares in the company:
2. buying and assigning assets like the vessel itself:
3. any Quota or operating licenses needed to run it.

In any of these positions if doing so whilst also being a director or shareholder of the seller. A further specific guide to follow. Though see Assignments below.

3. Successful, Positive Outcomes and Solutions

The lawyer’s task is to enable, through the chosen words, the transaction to proceed on time, within scope accepted prices, limit risks to achieve intended outcomes.

4. That Law

Often a symmetry involving;

1. Our common law:
2. The special rules of Equity which in practice many clients need to have explained. Usually, it produces the same result as the common law would but not always:
3. Statute or Statutory Order. Some are simple codifications of the common law, others like the Misrepresentation Act amount to statutory intervention: then
4. Increasingly and post Brexit issues of overseas rules so far as they affect the new build. With applicable law and jurisdiction.

5. Standard Terms

Purchase and sale is just a contract. Like many areas in life buyer or seller depending upon their bargaining position often want to amend or qualify the common law or statute by seeking to impose its contract terms. These might be; (a) standard to them: (b) by admission into the contract of a trade organizations suggested terms: or (c) an amalgamation or copy of a bit of both. Whilst some are good many are not. There is a risk in not checking, reading, understanding or accepting the salesman’s words “they are just standard terms”.

With land construction that might be on the JCT terms though they are often modified for each job. In shipbuilding the BIMCO Newbuildcon Standard Form. They are often aimed at larger international constructions whilst the British Marine Terms for much smaller works. Many clauses are similar and so decided cases in one type of construction used by analogy.

With restorations or conversion’s, few of these ”standard” terms may truly fit. A bespoke will often be better.

6. Dovetailing and Scope

Most new builds, conversions or restoration contracts will involve several constituent parts all with different Scopes. Each capable of misunderstandings. It is better to recognize the potential for error so to avoid it. Linking the connection within each contract;

1. The Ships Architect, or more commonly used word in commercial vessels, its Marine Designer:
2. The Propulsion Designing or installing Engineer:
3. The agreed subcontractors nominated or not their intended tasks and duties and potential liabilities and warranties:
4. The main engine manufacturers of the ship’s engines for guarantees and contact terms:
5. Increasingly the electronics and VMS manufacturer, provider and installer:
6. The Regulatory Authority and in the contract the agreed compliance to satisfy them and if different the:
7. Certifying Authority:
8. The requirements of the chosen Flag State for approval and registration purposes:
9. The chosen Yard (some builders will have more than one Yard in which there may be mdifferent skill levels, jurisdictional obligations or languages used:
10. Communication and assessment of the operating and construction requirements required in the place or port the vessel is planned to work out from: and,
11. If relevant the project manager:
12. Any chosen lenders representatives as they may want to check and approve works. There may be more than one with differing expectations: then,
13. The buyer’s representative so when more than one that one person to call or e mail.

Not taking care can and sometimes does raise issues as where there were four builders within the contract in Hyundai v Pournaras [1978] Lloyds. Repeated in Shanghai below.

7. Misrepresentations and Collateral Warranties

With every contract there are things said and done before a contract which may lead to the contract though not contained in the written words of the contract. These may enable remedies or not. Misrepresentations. Under the Misrepresentation Act 1967 as in Howard Marine & Dredging v Ogden and Sons [1978] 1 Lloyds or at common law as with the yacht in Mason v Wallasea Bay Yacht Station [1939].

Or Collateral Warranties (enforceable if broken). John Helmsing Schiffahrts KG v Malta Drydock Corp [1977] 2 Lloyds 444.

Neither just “sales talk” Ecay v Godfrey [1947] Lloyds (sale of a motor cruiser) which should not be relied upon.

8. Express Terms and Implied Terms

There are in each contract Express Terms or conditions and Implied Terms. Terms expressly in the

contract, incorporated by reference, implied at common law or statute.

Express terms are just terms which go to the root of the contract Photo Production Ltd v Securicor Transport Ltd [1980] Lloyds at page 553. They themselves may rank in importance from very bad if broken to “drop dead” terms McDougall v Aeromarine [1958] 1 WLR 1126. In some contracts labelled “Remedial Breaches” then “Irremediable Breaches”.

Implied terms may by as implied by the common law or to apply “business efficacy” The Lady Tahilla [1967] Lloyds (motor yacht) or “Commercial Sense” the words used in Neon below by statute perhaps the Sale of Goods Act 1979 as amended or the Sale and Supply of Goods Act 1994. Under the 79 Act the start is usually section 54 and 55, then sections 11,12,13 and 14. Neon Shipping Inc v Foreign Economic 7 Technical [2016] EWHC 399.

One type of implied term is work or materials on Quantum Meruit or “payment for what it is worth”. Once common in constructions in days of handshakes. Increasingly difficult to argue as in the cases involving Programmed Total Marine Services v Ships “Hako Endeavour”, “Hako Excel” [2014] FCAFC 134.

It can all be an issue of the interplay between the common law, statutory provision and the express words of the contract which matter both for the partiers, their draftsman and the courts. Newland Shipping v Toba Trading [2014] EWHC 210 (Comm) read Leggatt J from 49 to 54.

Two misunderstandings with mainly pleasure craft contracts are parties outside the UK, so different provisions as between a Consumer Contract or Commercial Contract. Buyers or builders domiciled either within the UK or beyond. Rasbora Ltd v JCL Marine 1977 1 Lloyds (power boat built for not UK resident).

Underneath the main terms are warranties which in shipbuilding contracts often extend beyond the sea trials. Some given by the Yard others by the subcontractors, equipment manufacturers or providers. Often through “Third Party Warranties”.

Some terms might equally be incorporated by reference to other terms. For example, payment and signature by a lazy draftsman’s reference to other terms such as the Shipsale 22 Form or the former Norwegian terms.

9. Uncertain Times

For decades contract lawyers talked about Frustration of a contract Fisher Renwick v Tyne Iron Shipbuilders [1920], force majeure and boiler plate terms. Often by reference to decided cases arising out of world wars and the depression. The last few years have reignited the actual need for and the careful use of words in these clauses. With an increasing number of cases arising from lack of materials, lack of labor, increased costs, time delays etc. The courts approach seems to be that the words of the contract are as important as the problem which occurs. Before considering the effect, outcomes and proportionate risk. Any parties “best endeavors” to comply with those terms and the effect need to be considered. Hence if payment is in US dollars to ensure payment in amount and on time so a best endeavor of a similar amount in value in Euros to avoid breaking sanctions rules may overcome a force majeure. Illustrated by MUR Shipping BV v RTI Ltd [2022] EWCA Civ 1406. A charterparty case with payment in US dollars then sanctions and what reasonable endeavors truly mean. In monthly shipments of bauxite from Guinea to Ukraine where RTI was owned by Russian owners.

10. Regulation

Boat designers, owners and builders cannot ignore ever increasing design, build and use regulations. They may change between vessel or construction, place of registration or use. This may be in original construction where your team will need to check the shipyards compliance, the intended country of registration, the regulations in use. Hence care during construction of the requirements of the Merchant Shipping Acts if in the UK and those provisions applicable to your built vessel and its intended use on delivery. Engine size and, for example, if in the intended port of use the vessel must have electric motors not diesel. The usual named UK controllers are Maritime Coastguard Authority, relevant Ships Registry and Classification Societies. The place of us may also have compliance controls perhaps under byelaws.

11. Protocols

Within the vessel construction industry there are protocols intended to stop disputes and enable each side to understand what is expected of them and when. The use of “Protocol” meaning it is an agreed method of conduct between parties within the industry. For example, we have the “Protocol of Delivery and Acceptance”.

12. Bad Deals

“There is an adage that the courts will not rescue a party from a bad bargain. What this means is that even if the drafting of the contract produces a potentially unfair result the courts will be very reluctant to interfere.”

Whilst there is a limited prospect of equitable intervention under the remedy of “rectification”, it is better to expect your deed will be regarded as your bond. Optimares SpA v Qatar [2022] EWHC 2461.

The lesson being check, read, understand or face the risk.

13. Common Clauses amendments and bespoking

Parties: Making clear who the contractual parties are. Those alone unless you particularly write them in. The Contracts (Rights of Third Parties) Act 1999 is almost inevitably excluded though any lender will insist on “step in” rights. In establishing these some thought needs to be taken for the Refund Guarantees so common in current conditions. Nanjing Tainshun Shipbuilding and Jaingsu Syrun v Orchard Tankers [2011] EWHC 164.

Background: Or a short summary behind the contract which might assist a mediator or judge in the event of dispute to better understand the chosen words and why.

Contract Price: The fine terms will usually extend to deal with variations and agreed additions. When payable in what currency and at what stage of the construction? The old cases of Seath & Co v Moore 1886 11 Ap (Campbell went bankrupt) or Reid v MacBeth 1904 AC (steel paid for by the buyer and marked in the name of the ship but still on the railway yard were not the buyers). Recent cases have been about interpreting Price Variation Terms like Braganza v BP Shipping [2015] UKSC 17 on one side requested by the shipyard. From the buyer and the lender delivery of the completed boat or money back. Often through a Refund Guarantees as in the Court of Appeal case of Gold Coast Ltd v Caja de Ahorros del Mediterraneo 2001 EWCA Civ 1806.

Contract Delivery Date and Place of Delivery: In current times containing in advance appreciated, understandable and allowed delay and then unforgivable delay with penalties to match. So, Permissible Delay and Impermissible Delay. Increasingly towards the back of the contract prolongation, disruption, forfeiture and determination provisions.

Certifying Authorities: The build must comply with. Linked to responses if they do not.

Exclusion or Exemption: Or “not my fault” or we “agree my risk” limitation clauses. With these there is a clear distinction between jurisdiction and/or law of the contract. In the UK the commercial buyer as opposed to the Consumer under Unfair Contract Terms Act 1977 and the still applicable Unfair Terms in Consumer Contracts. Main builder might want to exclude the work of the employers chosen nominated sub-contractor. For new builds Cammell Laird v Manganese Bronze [1934] AC. Recognizing this and similar predate the statutory intervention.

Regulatory Authorities: Who’s expectations must be designed into the contract?

Plans and Drawings: Agreed and then only to be changed on service of notices and why?

Insurance during work and before delivery: Of what and buy who, for who’s benefit?

Intended flag state and vessel registration: Which may determine the quality and contents of the construction.

Liquidated Damages: Anticipating things can go wrong, it is better to agree the appropriate remedy if they do. Including whether that remedy is in addition or instead or separate from any common law or statutory rights for breach Digital Capital v Genesis Mining Iceland [2021] EWHC 2462. They avoid the otherwise inevitable claim of Recission. In law a starting point is often the House of Lords case of British Glanzstoff [1913]. A case about delay so like the common times. Shipyards often cannot work to time as the engines have not arrived or the boat is below the intended speed, uses too much fuel or for some reason fails the MCA inspection requiring design changes. The clauses are equally important to any lender or provider of Guarantees and their termination rights. It seems they are better made clear than implied. One point being when the rights expire i.e. before or after delivery. Recent guidance is in Triple Point Technology Inc v PTT Public Company Ltd [2021] UKSC 2. These clauses cannot be a punishment or “in terrorem” but a remedy requiring commercial justification. There are many cases on this point. Amongst the many there is a “Prevention Principle”. Jerram Falkus Construction v Fenice Investments [2011] EWHC 1935. That was a case over a JCT, but the principle is the same. Involving a true expected level of loss based upon affixed daily allowance or per diem. For fishermen that might be loss of fishing. For a pleasure yacht use or loss or rental income.

Modification Proposals: With a system to request and consider. Many will involve time, costs, in the UK and the MCA re assessment.

Ownership of Vessel, Material and Transfer: Most new vessels will be built within the shipbuilder’s yard requiring payments in stages. There will be materials and specialist equipment installed along the way. Much of which will be subject to retention of title clauses until that supplier has been paid (Aluminium Industries v Romalpa [1976]). Resulting in the “Romalpa” clauses now common. The risk needs to be insured in some way and until delivery. Considering what happens if either builder or buyer run into difficulties Seath & Co v Moore [1886] HL or through frustration Fisher Renwick v Tyne Iron Shipbuilding [1920] 3 Ll.

Force Majeure Events: “This term is used with reference to all circumstances independent of the will of man, and which it is not in his power to control” McCardie J Lebeaupin v Crispin. Better to set out what events will fall within and those outside the contract. Alongside Frustration, Repudiation, Determination provisions (see para 9).

Remedies: At a time when all sides are content it is time to fear the worst. Agree if there is a breach what each sides remedy will be. If you can level obligations with acceptable solutions rather than ask a court to do it for you. These can be split between; (a) buyers’ remedies Hyundai v Pournaras [1978] 2 Lloyds: and (b) builders remedies Admiralty Commissioners v Cox & King [1927] (motorboat built later than agreed). Separately or collectively considering the roles of the other parties such as the architect. The “Step In” rights to who and what extent? One common method, just like any other significant contract, is for the parties to agree.

Sea Trials: Have both a practical and legal importance. They are the buyer’s big chance to check and test often before final payments. At a venue where any problem can be identified and fixed. If that opportunity is ignored in a rush to get out to sea it is that much harder for lawyers to get works done or recover. A new boat purchase is not the same as buying a new car which has in prototype then trials before offered to the buyer. For the risks of ignoring the right to a sea trial Dalmare SpA v Union Maritime Ltd [2012] EWHC 3537.

Subcontractors: These may be selected as they have skills and chosen by the parties. Appointed by the builder or specially by the employer or nominated contractors.

Warranties: Many types including the builders’ warranties, those of the sub-contractors, then the Performance Guarantee Warranties for the builders to be sure they will get paid. The common guaranteed liability clauses often require instant notification of fault. Clear wording needed for all Shanghai Shipyard v Reignwood Int [2021] EWHC Civ 1147. Main third parties like the Bank will want to ensure they can “step in”.

Buyers and Builders Modifications: Clauses to say why and what would be allowed in advance. They may change or be determined by the parties and the nature and reason behind the construction of the vessel. Each construction change should trigger a need to check the construction and safety requirements and costs, so contract wording to enable.

Guarantees: Increasingly wanted by different participants. The Builder or Yard to ensure they will get paid on time. The buyer to ensure those stage payments have rights for the money and items paid for. This can extend to the subsidiary parties to the contract and the warranties given. So, the construction or “fix it” guarantees. In which there will be thought of “repairable” problems, requirements which must “absolutely and unconditionally” be observed and what happens if they are not. Recently considered with the “performance guarantee” issued by parent company to buyer in Shanghai Shipyard v Reignwood [2021] EWCA Civ 1147. Often mentioned by reference in the main contract they perhaps should be part of the full package so all can understand the importance, risk and expectations. Interpreting these guarantees may well involve consideration of what they are given and for what. In the poor workmanship of the subcontractor triggering claims as in Black & Veatch Corp v Kazstroyservice Global BV [2021] EWHC 2104 (QB).

Assignments: These can often apply each way and extend to subcontractors. The issue is who can assign what rights or obligations to who and in what circumstances? The notion behind this is you may choose a particular ships designer or engineer or a particular yard where the skill levels are understood and no others. That yard may be content to work for a particular buyer at that price but not a replacement. In times like the present lawyers argued this out in Linden Gardens Trust Ltd v Lenesta Sludge Disposals [1994] 1 AC 85 (look at the date and when the cases events occurred). A return to “clear words” to assign and on what, a main contractor and sub were considered referring to Linden Gardens in Energy Works v MW High Tech Projects 18 [2020] EWHC 2537.

14. Conversions and Restoration’s

Whilst in London they deal in large tanker conversions. Around the coast older boats for new purposes. Restoration to changing types of fishing activity. New engines and new I.T. for different purposes. There is for bigger jobs a BIMCO Repair 2018 form but the terms do not seem to work for these smaller jobs. Consequently, individual contracts for specific purposes and the points listed above to consider.

15. Mistake

There is a world of difference between the common understanding of making a mistake and the legal level required to seek relief due to a mistake. “Non est Factum” or not my deed is a hard test to meet. The law of mistake in contract has needed revision of years. Since Bell v Lever Brothers [1932] and more recently The Great Peace [2002] EWCA12.

16. Entire Agreement Clauses

Are common in commercial contracts. The intention is to avoid “side deals” or “promises” along the way possibly limiting the allegation of Misrepresentation. It is perhaps as a result that in new builds it is common for there to be a clear variation, construction changes and additions provisions. If not in the contract, then the likelihood is that it is not enforceable.

17. Good Faith

Since the Napoleonic Code there is a notion in the EU of contract acts of “Good Faith”. Whilst there is such a notion in the Companies Act 2006 and within fiduciary duties under the law of Trusts, there has only been a very limited existence in Anglo-Saxon contract law unless made express in the contract. Even if such a duty is inserted in the contract it will be limited and dependent on very clear words. Bates v Post Office Ltd [2019] EWHC 606 and Candey Ltd v Bosheh [2022] EWCA Civ 1103. Recent cases merely confirm that made clear years ago through Interfoto Picture Library v Stiletto [1966] 1 AER at 352-53 and Walford v Miles [1992] 2 AC 138.

This Guide may be just your starting point to recognize the problems of the past to ensure your successful outcome.

Contact David Hassall LLM MSc (a former Cadwallader student) or Charlotte Hassall LLM (Maritime Law Southampton), MSc

email to [email protected]

No guide is any substitute for specialist advice on a specialist job and as such the above is offered

without acceptance of liability. David Hassall LLM MSc, Solicitor.

14.2.23
Copyright of the above is in the name of Hassall Law.