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TRANSFER AND SURVEY VESSELS HINTS & TIPS
As the Hull and the Humber Port seems set for ever increasing transfer and survey vessel activity, solicitor Andrew Oliver sets out his hints and tips for those building, repairing and operating such vessels based on anonymised real life experience.
NEW BUILDS
Ensuring the build contract is watertight is essential. It is important for the buyer, the bankers and the yard.
Generally, there are two models of contracts which are distinguished by how ownership of the vessel under construction is dealt with. In the first model, ownership of the vessel and its constituent parts becomes the buyer’s on signing of the contracts and payments of the first stage payment. The advantage here is that should the yard experience financial difficulties its administrators cannot claim the part built hull as an asset of the yard. The contract should also provide for the buyer having power to enter the yard and either complete the vessel themselves and/or remove it for completion elsewhere. The yard is generally protected by it having a lien over the vessel for any unpaid proportion of the works.
It is essential that advice is taken well in advance of the terms of the build contract being agreed and signed, and that any bank that may be called upon to finance the build is also comfortable with the terms of the build contract.
REPAIR AND CONVERSION
Again, a contract is essential to any repair and conversion project and should set out the scope of the work. The most frequent disputes which arise relate to additional works; there should be a clear procedure for agreeing to such works including provisions as to the related cost and their impact on the timing of the vessel’s redelivery. They should also stipulate as to whether the additional works should be paid for at the time they are incurred or as part of the final payment for the vessel.
The contract should also agree who is responsible for issues such as health and safety and vessel security. This is especially the case when the owners may have their own crew remaining on board during the works.
Additionally, if any of the works are being subcontracted then how are the liabilities of those subcontractors dealt with? Will the owner have a right of action directly with the subcontractor or will they have an action against the yard? The general rule is that a person can only sue somebody who he has contracted with, although there are exceptions that allow this general rule to be broken. If warranties are issued by subcontractors or the supplies of components, for example an engine manufacturer, there should be provision in the contract for these to be assigned in favour of the owner. Similarly, such issues as intellectual property rights in designs and drawings should also be dealt with in the contract. Many of these issues also apply to build contracts.
OPERATION
Perhaps the most important tip here is to ensure that any safety management system operated by owners is robust, simple to operate and accepted by all. It is also essential that it is regularly reviewed.
The alternative model is where the title to the vessel passes to the buyer on delivery - advantageous to the yard if using the vessel as security for their business. Many yards, especially those overseas, will mortgage the part built hull to raise funds to build the vessel. In such circumstances the buyer’s position is protected by a refund guarantee from the yard’s bank guaranteeing repayment of stage payments made should the yard experience difficulties.
With either form of contract it is also advisable that a term is included that allows for the buyer to be able to assign the benefit of the contract to its bank. The buyer's bank cannot take a mortgage over the ship until it is built so must fund alternative security if it is advancing monies for stage payments. Allowing the assignment of the build contract effectively gives the bank a mortgage over the contract and allows the bank to take over the contract should the buyer become insolvent.
If there is an incident, then the investigating authorities will also be keen to ensure that the owners have regularly audited the safety management system’s operation and effectiveness. It is inevitable that accidents will happen, but it may be that the prosecution that arises is not actually from the facts of the incident but from the investigating authority’s investigation relating to the operation of that system. Certainly, we have experience of prosecutions arising from such issues as the owner’s poor auditing and review of their safety management system, and not the facts of the accident.
As always, time and money spent insuring contracts and systems are legally sound and operating correctly may seem a waste of resources at the time. However, the writer has assisted many clients who dearly wish they had contacted him earlier, and before things had gone seriously wrong.
Andrew Oliver Andrew Jackson Solicitors
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www.windenergynetwork.co.uk
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HULL & HUMBER SPOTLIGHT ON
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