This article is written by Aarushi Pandey, pursuing Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho.
Table of Contents
Introduction
The value of a marine vessel is typically in the millions of dollars, with consequential damages for loss of usage easily running into the thousands of dollars every day. As a result, ship repair is a significant undertaking, and all parties must be completely aware of their respective roles in the process. Owners and contractors should understand their contractual rights and liabilities. This article aims to give a brief overview of how to draft ship repair contracts, different types of ship repair contracts, major clauses to not miss out on while drafting such a contract, and contentious disputes along with case laws related to such contracts.
What is a ship repair contract?
Contracts are the result of proposals, acceptance, considerations, and negotiations, and they are finalized by the fulfilment of essential requirements.
A maritime contract is an agreement pertaining to the operations, navigation, maintenance, and repair or provisioning of a vessel. When a contract is made relating to a ship or if the parties are engaged in a trade where transport is through sea then contracts formed are called maritime contracts.
Maritime contracts are regulated by specific laws that govern nautical issues on open water or maritime laws. The rules and procedures which govern the substantive aspect of law or the adjective of maritime law are known as admiralty law. However, the terms admiralty and maritime law are often used interchangeably. The shipping industry is also governed under the rules and regulations framed by the International Maritime Organization (IMO).
A ship repair contract is a type of maritime contract. By the term itself, a ship repair contract includes maintenance, ship conversions, modifications, major and minor damage repairs. It’s the most crucial aspect of the shipping and shipbuilding industries.
International shipping relies heavily on the ship repair business. Ships must be maintained and repaired on a regular basis in order to function correctly. Routine repairs are often carried out by the ship’s crew while a vessel is underway. Major repairs, on the other hand, are conducted by shoreside repair yards due to the particular characteristics of ships like size, complicated equipment, and unavailability of replacement parts. These highly specialized facilities have the requisite experience, equipment, and qualified labour force to resolve ship maintenance issues.
Contracts for marine repairs might be informal or written. There is an implied warranty that the repair will be done in a workmanlike manner if the contract is oral. If the repairer is careless and breaks the warranty, the vessel owner has the right to claim for any foreseeable damages. If the contract is written, the ship repairer will typically utilize a limitation of responsibility clause (sometimes known as a ‘red-letter clause’) that is printed on standard repair contract forms to limit his obligation.
Proper coordination and an intensive bidding process are required for ship repair contracts. The navy, commercial ship owners, and other marine structure owners are typically the consumers for repair services.
Firm Fixed Price (FFP), Firm Fixed Price Award Fee (FFPAF), Cost Plus Fixed Fee (CPFF), Cost Plus Award Fee (CPAF), and urgent repair contracts are all examples of such contracts. When a shipyard is asked for a Request for Proposal (RFP) or an Invitation for Bid(IFB), the repair process begins in the marketing department. The IFB contract is given based on the lowest bid price, whereas an RFP award might be based on a variety of parameters. Under the repair contract, the repair estimate groups prepare the cost estimate and proposal for the repair contract. Labour hours and wage rates, materials, overhead, special service costs, overtime and shift premiums, other fees, facility expenses of money, and the estimated contract price based on these are all included in bid estimates. A manufacturing strategy is prepared as soon as the contract is signed.
What is a major ship repair contract?
Major ship repair contracts are agreements for major ship repair works generally carried out at a ship repair yard. Major repairs are difficult or large-scale repairs that may necessitate the ship to be taken out of service. Most large-scale repairs, particularly those carried out in a ship repair yard, require the supervision of a classification society. The ship must be readied for repair at a deballasting facility for oceangoing ships, notable tankers. The tank must be thoroughly cleaned and its ‘slops’ (greywater and hydrocarbon residues) must be pumped ashore according to environmental regulations. Such contracts can be modified to include ship conversion work.
What is a minor ship repair contract?
Minor ship repair contracts are agreements for minor repair and maintenance operations that can be performed at sea or by the crew when a ship is in port. Minor repairs can be afloat at a commercial berth or anchorage. Such contracts incorporate a clearly stated liability and limitation regime. Such contracts came about to address the need for a contract for small, ad hoc repairs such as a plumber attending to deal with blocked drains, or an electrician to sort out lighting problems, or a carpenter attending onboard. Such contracts can be used by shipowners to conclude written contracts with individuals or subcontractors performing minor repairs who would normally be reluctant to read or sign a longer contract.
What clauses ‘must’ be included in a ship repair contract?
1. Owners’ work
Owners’ work clause is a basic operative clause that defines that the work performed on the vessel by other parties would be within the parameters of the owners’ work and with due permission of the owners, the liability of which shall be incurred by the owners of the vessel themselves.
Sample:
The owners, or the master and crew, or any subcontractor employed or engaged by the owners, shall be permitted to carry out the owners’ own work on the vessel, subject to a prior written agreement with the contractors, whose consent shall not be unreasonably withheld, provided they comply at all times with the contractors’ safety and environmental rules and provided the owners remain liable for a claim against the contractors. any such work must not obstruct or delay the works in any way.
2. Delivery, redelivery, and acceptance of the vessel
Delivery of a huge vessel is not an easy task as it consumes lots of time, energy and money hence this clause is paramount. A specific date and time for delivery are decided between the parties and in case of cancellation of the delivery, redelivery provisions should also be duly mentioned.
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Delivery
Sample:
The vessel shall be delivered on the delivery date to a safe location nominated by the contractors, safely afloat and, unless otherwise agreed, gas-free and/or inert, free of cargo, slops, sludge, dirty ballast, and any dangerous or harmful to health substances in the structure of the vessel in the way of the works.
Any modifications to the vessel’s delivery date must be immediately communicated to the contractors by the owners.
The parties must sign a delivery protocol stating the time of delivery.
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Contractors’ cancellation
Sample:
If the vessel is not delivered to the contractors by 1500 hours local time on the cancellation date for any reason, the contractors shall have the right to cancel this contract and recover any costs and expenses they have reasonably incurred in the performance of the contract up to the date of cancellation (exercisable no later than 1700 hours local time the same day).
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Owners’ cancellation
Sample:
If the contractors fail to begin the works in accordance with the scope of work within forty-eight (48) hours of the vessel being delivered for whatever reason, the owners shall have the right to cancel this contract within twenty-four (24) hours and shall be entitled to demand immediate redelivery of the vessel without compensation to the contractors, and to recover (a) any sums already paid to the contractors, plus interest at the rate, and (b) all other expenses reasonably incurred by the owners in connection with this contract.
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Redelivery
Sample:
The vessel must be re-delivered to the owners within the contract period without prejudice to guarantee, such inspections, tests, and/or trials as are necessary to determine whether the vessel at redelivery conforms with the requirements of this contract shall be carried out in the presence of the owners’ representative prior to redelivery. The contractors must keep the owners informed of their progress and the estimated completion and redelivery dates.
Defects and defaults in the performance of the works must be documented in a protocol developed by the parties. Unless the owners agree that parts of the works can be completed after redelivery, the contractors shall repair any such flaws and defaults at their expense prior to redelivery.
Without prejudice to the conditions of the guarantee, the parties shall sign a redelivery and acceptance protocol on the date of redelivery, which will designate any works to be completed after redelivery.
3. Financial provisions
It is important to clear out the financial provisions with reasonable rates including the additional incurred prices like tariff including implicit and explicit details of the payment and title of vessel and obligation should be cleared to mitigate any future dispute.
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Price
Sample:
All elements in the scope of work for which a fixed price has been agreed upon are included in the contract price.
If a fixed price has not been quoted for any item in the scope of work and/or additional works, the price will be estimated using the tariff or, if no tariff exists, reasonable rates in the contractors’ yard location.
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Payment
Sample:
The owners shall pay the contract price in the () currency, free of all taxes, bank charges, and exchange control laws, and in accordance with the payment conditions agreed upon or, if no such terms are agreed upon, before redelivery.
The contractors’ bank account will be used to receive payment. Any changes to the account number or details must be in writing and signed by or on behalf of the parties.
If the payment terms agreed to require interim payments prior to redelivery and the owners fail to pay any such sums on the agreed-upon dates, the owners shall pay interest on such outstanding monies at the previously agreed-upon rate. If such payments (including accumulated interest) are not paid within three (3) working days of their due date, the contractors shall have the right to halt work on this contract without incurring liability to the owners until the outstanding sums are paid (including accrued interest). To the extent not otherwise expressly excluded, the contractors shall have the right to collect from the owners all reasonable costs arising from such suspension of work.
If the payment terms agreed to require payments to be made after redelivery and the owners fail to make any such payments, the owners shall pay interest at the rate stated, and any other payment instalments agreed to be paid at a later date shall become due immediately if such outstanding sums (together with accrued interest) are not paid within three (3) working days of their due date.
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Title to the vessel
Sample:
The owners retain ownership of the vessel at all times. The contractors shall not authorize or suffer any lien to be created on the vessel as a result of their or the subcontractors’ work, save as provided in the financial provisions.
Before redelivery, the contractors shall be entitled to a possessory lien on the vessel for all payments owing to them on or before redelivery.
4. Liquidated damages for delay
The liquidated damages clause specifies a particular amount of money that will be payable in the event of default attempting to quantify damages on the higher side.
Sample:
If redelivery is delayed beyond the contract period, the contractors accept liability for liquidated damages in the amounts specified for each day of delay, up to the maximum amount specified. If nothing else has been agreed upon, ten per cent (10%) of the contract price will be charged.
5. Liabilities and indemnities
The liability clause will define the onus of each party in case of certain scenarios and the indemnity clause will hold the indemnifying party to be responsible for and cover the loss of the indemnified party in circumstances where it would be unfair for the indemnified party to bear the loss.
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Liability for loss or damage
Sample:
The contractors are only liable to the owners under this contract if the loss or damage was caused by the contractors’ or those for whom they are responsible for carelessness or willful misconduct.
Except as stated under cancellation, guarantee, termination, and sundry provisions, the contractors’ responsibilities arising out of or in connection with this contract, of whatever form and however arising, shall stop with redelivery or, if later, completion.
The owners are only liable to the contractors under this contract if the loss or damage was caused by the owners’ carelessness or deliberate misconduct or those for whom they are responsible.
Any tests, trials, or movements of the vessel shall be at the sole risk and responsibility of the owners, and the contractors shall have no liability to the owners for any loss, damage, or expense incurred as a result of such tests, trials, or movements unless caused by the contractors’ intervention, act, or omission.
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Liability for death or personal injury
Sample:
Regardless of the cause of death or personal injury, and whether or not caused by the negligence of the other party, or those entities for whom the other party is responsible under this contract, each party accepts responsibility and liability for the death or personal injury of its own personnel, and the personnel of those entities for whom they are responsible under this contract.
In the event that the aforementioned personnel or their dependents seek claims for death or personal injury against the party who is not responsible for them under this contract, each party agrees to indemnify and hold the other party blameless in terms of both liability and legal fees. Such accusations must be reported to the other responsible party by the party not responsible. Whether or not the claim(s) is made against it or the other party, the party who is responsible for the claim(s) under this contract shall take over the conduct of the claim(s).
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Third parties
Sample:
Each party agrees to indemnify the other against all claims made against the other party by third parties (those individuals and entities for whom neither party is responsible under this contract) in any way related to this contract, where such claims are caused, or to the extent that they are contributed to, by the indemnifying party’s negligence or willful misconduct, or that of those liable for the indemnifying party’s negligence or willful misconduct.
All investigations and defences of all claims against which the other party is indemnified under liabilities and indemnities, above, as well as all legal procedures arising therefrom, including the indemnified party’s legal fees, shall be borne by the indemnifying party.
6. Limitation of liability
The limitation/exclusion of liability clause limits the liability for breach limiting the quantum damages.
Sample:
- Even in the event of negligence, the contractors’ responsibility arising out of or in connection with this contract shall be limited to the contractors’ total liability.
- Even in the event of negligence, the owners’ responsibility arising out of or in connection with this contract shall be limited to the owners’ total liability.
- Employees, servants, agents, and subcontractors: The restrictions on each party’s responsibility set forth in limitation apply to individuals for whom that party is liable under this contract. Each party further agrees that it will not, and will ensure that those for whom it is responsible do not, circumvent the aforementioned limitations and allocation of responsibility by bringing legal action against the other party’s employees, servants, or agents and that to this extent, each party shall be deemed to be acting as agent or trustee on behalf of and for the other party.
- Nothing in this agreement affects the parties’ right to restrict their responsibility under any current statutory law
- Unless otherwise stated in liquidated damages for delay, neither party’s responsibility to the other shall include any payment for: loss of hire, loss of profit, loss of use or business, or any other comparable direct or indirect losses; or other consequential losses whatsoever.
Arising out of or in connection with the performance or non-performance of this Contract, whether or not such performance or non-performance is due to any breach of contract, carelessness, intentional misconduct, or other faults on the part of either Party or those for whom they are responsible.
7. Guarantee
The guarantee clause pertains to the guarantee on the works performed by the contractors on the vessel including the liability arising out of such guarantees.
Sample:
- The contractors’ materials and equipment, as well as the Works performed, are covered by the guarantee.
- The contractors are responsible for correcting deficiencies in materials, equipment, and workmanship that exist at the time of redelivery or, if later, completion, provided that notice of such defects is received in writing by the contractors within the number of months following the completion date. If the deficiency has caused damage to the vessel or any portion of it, this responsibility extends to the repair or replacement of any vessel part(s) that have been damaged as a result of the defect.
- In cases where the contractors are liable for defects under the guarantee, the owners shall be entitled to have the work and replacements performed at any yard or workshop other than the contractors’ yard if, in the owners’ reasonable opinion, such work and replacements must be completed promptly and it is not practicable or cost-effective for the owners to bring the work and replacements to the contractors’ yard. In such instances, the contractors’ sole duty shall be to pay or reimburse the actual cost of such work and replacements, provided that, before transferring the vessel to another yard or workshop, the owners shall:
Notify the contractors of their intention to do so and ask for any assistance the contractors may be able to provide to help reduce the cost; use reasonable efforts to ensure that the cost does not exceed the cost of having the same work done at the contractors’ yard.
In such instances, the vessel shall be transported at the owners’ expense and risk to the chosen location, ready in every way for the guarantee work to begin.
When the contractors conduct repairs or renewals in accordance with the guarantee, the contractors must guarantee the repairs or renewals on the same conditions as guarantee.
8. Disruptions
Disruptions (force majeure) clause specifies situations that are outside the control of parties and are unforeseeable, and under which the parties cannot be compelled to perform under the contract.
Sample:
a. When any of the following events cause a delay in the contractors’ performance of the works, the contract period will be extended, provided that the contractors have complied with the disruptions hereunder and have made all reasonable efforts to avoid or minimize the effects such events may have on the performance of the works:
Force majeure events like:
- Acts of God;
- Any request, control, intervention, obligation, or interference by the government; any circumstances deriving from a war, threatened act of war, or warlike operations, terrorist acts, or the repercussions thereof;
- Riots, civil commotions, blockades or embargoes;
- Epidemics;
- Earthquakes, landslides, floods, or other unusual weather events;
- Strikes, lockouts, or other industrial action, but only if of a general nature and not limited to the contractors and/or the subcontractors; or Fire, accident, or explosion (whether in the contractors’ yard or elsewhere), unless caused by the contractors’ and/or subcontractors’ proven negligence.
Other events like:
- Failure of the owners and/or owners’ regulatory bodies to review/approve technical information in a timely manner;
- Suspension of the works pursuant to payment;
- Failure of the owners to deliver the vessel in the condition stipulated in delivery;
- Breach of owners’ representatives;
- Disruption of the works in breach of owners’ work; or
- Late delivery of any products that the owners are required to provide.
b. The contractors must notify the owners in writing within two (2) working days of the occurrence of any incident of delay for which the contractors allege they are entitled to a contract period extension. Failure to do so will preclude the contractors from requesting an extension to the contract period. The contractors must additionally notify the owners in writing (a) within two (2) working days of the end of any event notified under this clause that the event has finished, and (b) as soon as practically possible after (a) the length of the contract period extension requested by the contractors.
9. Termination
The termination clause mentions the circumstances under which the agreement can be terminated including termination for convenience and in case of breach (by default).
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Contractors’ default
Sample:
The owners shall have the right to cancel the contract by giving written notice to the contractors if:
The contractors are deemed insolvent pursuant to termination–deemed insolvency; or without lawful excuse, the contractors fail to perform the works or any substantial part of them for a period of at least five (5) days without lawful excuse, provided that the owners give the contractors at least two (2) days prior written notice of their intention to terminate under termination–contractors’ default, and the contractors fail to remedy within that period; or
The contractors fail to redeliver the vessel in the condition required by the contract by the redelivery termination date, as may be adjusted pursuant to performance and approval of the work–performance of works and disruptions–other events; or
The contractors are liable under the provisions of the contract for damage to the vessel that occurs during the works, and the reasonably anticipated cost of fixing such damage exceeds the contractors’ total liability.
On termination, the owners shall pay any part of the contract price that relates to the works performed up to the date of termination. However, the owners may set off against such payment (a) any sums payable pursuant to liquidated damages for delay, and (b) any losses and/or claims not otherwise excluded which they may suffer by reason of the termination. To the extent that (a) and (b) exceeds the contractors’ total liability, the owners shall be discharged from their obligation to pay an equivalent sum out of any unpaid part of the contract price. Following that, the owners shall have the right to withdraw the vessel from the contractors’ yard without hindrance or interference from the contractors or those for whom they are accountable, notwithstanding the provisions of financial provisions–title to the vessel.
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Owners’ default
Sample:
The contractors shall have the right to cancel the contract by giving the owners written notice if:
The owners are deemed insolvent pursuant to termination–deemed insolvency; or
without lawful excuse, the owners (a) fail to pay any sums due under the contract for a period of five (5) days provided that thereafter the contractors give the owners at least two (2) days prior written notice of their intention to terminate under termination–owners’ default, and within that period owners fail to remedy the breach, or (b) clearly indicate their intention not to perform the contract; or the contractors’ property is damaged during the works for which the owners are liable under the contract conditions, and the reasonably estimated cost of fixing the damage exceeds the owners’ total liability.
The contractors shall be entitled to recover any unpaid portion of the contract price that relates to the works performed up to the date of termination, as well as (a) any losses or liability to subcontractors and others they may incur as a result of the termination, except as otherwise excluded, and (b) their reasonable costs of accommodating the termination, pending payment of (a) their reasonable costs of accommodating the vessel, although both (a) and (b) are subject to the owners’ total liability at all times.
Any other claims the Parties may have against each other will be unaffected by the termination.
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Deemed insolvency
Sample:
Either party shall be deemed insolvent as the “insolvent party” if it:
(a) Becomes subject to a voluntary agreement with its creditors, or is placed under administration, or is liquidated (otherwise than for the purposes of amalgamation or reconstruction); or
(B) Any of the insolvent party’s property or assets are encumbered, or a receiver is appointed over any of the insolvent party’s property or assets; or
(C) The other party reasonably believes that any of the events listed in (a) or (b) above is about to occur in relation to the insolvent party and is not reasonably assured of its continued creditworthiness and/or is not furnished with sufficient guarantees following notification to the insolvent party.
10. Insurance
The insurance clause outlines the risks assumed by either party detailing exactly the risks the insurer is liable for paying and defining the scope of the coverage.
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Contractors’ insurances
Sample:
The contractors shall effect and maintain ship repairers’ liability insurance at no cost to the owners, providing coverage for any loss or damage for which the contractors may be held liable to the owners under this contract, and shall, upon the owners’ request, make copies of insurance certificates and policies to provide evidence and details of cover immediately available to the owners.
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Owners’ insurances
Sample:
The contractors shall effect and maintain ship repairers’ liability insurance at no cost to the owners, providing coverage for any loss or damage for which the contractors may be held liable to the owners under this contract, and shall, upon the owners’ request, make copies of insurance certificates and policies to provide evidence and details of cover immediately available to the owners.
Case laws relevant to ship repair contracts
Federated States of Micronesia v MT HL Achiever (I) (30 August 1995)
Admiralty: The defendant’s vessel in a rem action cannot be moved to a new location. The defendant’s vessel was docked in Chuuk, and the FSM wanted to move it to Pohnpei because the surveillance vessel that was protecting it needed repairs, and ship keeper fees in Pohnpei were lower. The FSM has filed a motion to have the temporary restraining order overturned.
Decision: The court ordered that the temporary restraining order be lifted. The defendant vessel cannot be transported from Chuuk State without a court order.
Held: There is no possibility of transfer because the Admiralty Act does not allow for it. Because jurisdiction and venue are so linked, the outcome of relocation in an in rem forfeiture of the defendant’s vessel is unknown.
Donald Pickering & Sons Enterprises Ltd v Karim’s Ltd (6 February 1997)
Admiralty: The possibility of remedy in an in rem lawsuit does not need the filing of a maritime lien. Plaintiffs claimed they were not paid for work done on two vessels and obtained arrest warrants for the defendants. The defendant owner responded by requesting that the warrants be dismissed, saying that the plaintiffs lacked a maritime lien and hence were not entitled to the vessels’ arrest.
Decision: The motion of the defendant was denied.
Held: It is a common misconception that if there is no maritime lien, there is no right to continue in rem. When the vessels are beneficially held by the defendant who requested the work, and the money owing by the debtor pertain to “maritime debts”, even if such debts are not capable of giving rise to maritime liens, an in rem action may be launched against the vessel. The court cited common law precedent that has been enshrined in statutory authority, citing the Administration of Justice Act 1956 as applied to the High Court of Fiji, which expressly places ship repairs in the category of “maritime debts” properly brought within the purview of the Admiralty division; and Section 3(4) of the Act, which provides that in rem actions may be brought against a ship where the owner of the vessel is not present.
Chandra v Kiribati Shipping Services Ltd (4 February 2010)
Admiralty: In rem action—procedure for in rem action in the absence of a maritime lien. A payment owed for electrical repairs and upkeep to a vessel was sought by the plaintiff. The plaintiffs requested that the vessel be impounded.
Decision: An arrest warrant has been issued for the vessel.
Held: The claim for repairs could not be considered a maritime lien, according to the court. The court relied on legislative requirements to support the in rem suit. The High Court of Fiji’s in rem jurisdiction is drawn from Section 21 of the High Court Act Cap 13. The High Court of Fiji has jurisdiction over a claim for the construction and repair of a vessel under Section 1(1) of the Administration of Justice Act. No warrant of arrest is issued before an affidavit stating the parties and the basis of the claim is filed, according to the High Court (Admiralty) Rules. The plaintiff was able to show a valid right to recover amounts due and owing pursuant to a contract, and so established a claim on which a man arrest order might be based, according to the court.
Captain & Crew of the MV Voseleai v Owners of the MV Voseleai (28 October 1994)
Admiralty: Action in rem- action in rem for crew wages- security for vessel release.
For repairs, the ship sailed from Honiara to Suva. The Master and crew filed an action in rem for unpaid salaries and allowances 10 months after her arrival. The vessel’s owner filed a motion to have the arrest warrant dismissed, stating that the crew’s conduct was illegal and in violation of the Shipping Act.
Decision: The crew’s actions were legal, and the court had jurisdiction; the vessel was ordered to be released upon payment of a $25,000 bond.
Held: The Supreme Court Rules and British Admiralty law supported action in rem for the pay of the crew on that vessel, according to the court. In terms of the vessel’s release, the court determined that the ship must be released only once the plaintiff’s claim is secured. The plaintiff has the right to demand as much security as is necessary to cover his reasonably best arguable case, and it is the plaintiff’s responsibility to define that amount after an application for vessel release has been submitted.
Capek v The Yacht ‘Freja’ (23 April 1980)
Admiralty: The substance of the action must be derived from the statement of claim, not from the affidavit supporting the arrest. The plaintiff was suing for supplies given to the defendant’s vessel. The defendant raised the issue of whether the in rem suit was lawfully based. The plaintiff indicated in the affidavit supporting the vessel’s detention that the claim was for work done on the yacht. The plaintiff’s claim was based on supplies provided to the vessel in the statement of claim.
Decision: The right action is to issue a writ.
Held: The Admiralty Courts Act of 1840, 1861 established power of ‘action in rem’ in the case of a claim for necessaries provided to a foreign ship. The Act, on the other hand, does not create a right of ‘action in rem’ in connection to shipping repairs and equipping. The substance of the plaintiff’s claim will be determined by the particulars of the Statement of Claim, not by the information provided in the affidavit filed for the vessel’s arrest. (New Guinea Cocoa (Export) Co Pty Ltd v Vedbaek, Owner of MV ‘Aya Trigon’ [1980] did not follow this rule.)
Baobab Industries Ltd v Owners of the Yacht ‘Jubilant’ (19 August 2009)
Admiralty: In rem action—procedure for taking action in rem when there is no maritime lien. No practice of limiting the duration of arrest orders. The plaintiff must deposit an amount into the court to reimburse the charges and expenses of the Admiralty Marshal for the arrest. The plaintiff claimed to have performed repairs on the vessel and demanded money. The plaintiffs filed an ex parte motion for the arrest of the boat under the High Court’s Admiralty jurisdiction.
Decision: A warrant has been issued for the arrest of the yacht.
Held: The plaintiffs have a valid claim for contract repairs. The court disregards the prior ruling in Star Marine Ltd v Nambuk Fisheries Company Ltd. (2002), which limited the arrest warrant to seven days. The plaintiff must do more than offer a promise to indemnify the Admiralty Marshall, according to the court, and must deposit a sum into the court to cover charges and expenditures related to the arrest.
All Engineering (Fiji) Ltd v Owners of Bulou and Barge Pro Dive II (25 November 2009)
Admiralty: Despite the lack of a maritime lien, action in rem is possible. The complainant had not been compensated for the vessel’s repairs. The defendant admitted to being in debt but requested a time extension. The defendant requested that the vessel be impounded.
Decision: The application has been approved.
Held: The court concluded that despite the lack of a maritime lien, a vessel repairer has action in rem against the vessel, citing Donald Pickering & Sons Enterprises Ltd v Karim’s Ltd (6 February 1997) and Baobab Industries Ltd v Owners of the Yacht “Jubilant” (19 August 2009).
Contentious disputes pertaining to ‘negligence’ and ‘limited liability’ in ship repair contracts
Tony D’aquisto Et Al. V. Campbell Industries, Civ. No. 31084(December 20, 1984)
Admiralty: Recoveries for improper vessel repairs that resulted in lost fishing time and, as a result, the fishermen’s portion of the catch. The fishermen filed a lawsuit against Campbell, alleging that Campbell negligently rebuilt the vessel, causing them to lose pay. Campbell was sued by the vessel’s owners for negligent repairs, breach of contract, and breach of guarantee. Campbell demanded payment for the repairs it had completed.
Decision: Campbell was awarded summary judgment by the trial court. The fisherman has filed an appeal.
Held: Paul Eugene Overton, the trial judge, concluded that an exculpatory clause in the owners’ contract with Campbell was legitimate and enforceable. Although the jury found Campbell negligent and in violation of the contract, they only awarded the owners nominal damages ($1) for each cause of action. Based on a poll of the jurors done before their release, Judge Overton ruled that as to the negligence cause of action, “the jurors did not follow the law; thus, the verdict was contrary to the court’s directions,” and that the owners should take no action. An appeal is now underway in this case.
MP Leasing Corp. v. Colonna’s Shipyard, Inc., Civil Action No. 2:07cv273 (April 3, 2008)
Decision: The motion to dismiss implied warranty of workmanlike performance is denied and the motion to dismiss negligence/gross negligence on the claim of gross negligence is denied in part and granted in part.
Held: A contractor in admiralty is bound by a warranty to carry out ship repairs in a workmanlike manner. [Ryan Stevedoring Co. v. Pan-Atlantic Steamship Corp.(1956); American Export Lines v. Norfolk Shipbuilding Drydock Corp.(4th Cir. 1964); Tebbs v. Baker-Whiteley Towing Co.(4th Cir. 1969)]
Although the warranty of workmanlike service does not offer the repairer a guarantee of results, it is fairly broad and has been used to determine culpability in cases when repair projects have been completed incorrectly. [Little Beaver Enterprises v. Humphreys Railways, Inc.(4th Cir. 1983)]
Clauses that purport to limit a party’s legal liability are closely construed, and in order to be given effect, they must explain clearly the intent of all parties whose liability is affected by the agreement. [Nathaniel Shipping, Inc. v. General Elec. Co.(5th Cir. 1991)]
Contract terms must be construed in such a way that each part of the contract is given effect and no part of the contract is rendered meaningless. [Goodman v. Resolution Trust Corp. (4th Cir. 1993)]
Defendant’s view of the indemnification provision is clearly at odds with the preceding provision, rendering it worthless. The court concludes that the clear language in this contract is insufficient to disclaim all duty under the implicit assurance of workmanlike service when seen as a whole.
A shipowner has a cause of action under maritime law, whether he sues in a contract for a breach by a party with whom he has a contract for the vessel’s repairs, or in tort for negligent fulfilment of the maritime contract. [Newport News Shipbuilding Drydock Company v. United States (4th Cir. 1955); Todd Shipyards Corp. v. Turbine Serv., Inc. (5th Cir. 1982); Alcoa S.S. Co. v. Charles Ferran Co. (5th Cir. 1967)]
A ship repairer may be held accountable in a contract for failing to fulfil expressly assumed obligations or failing to uphold an implied assurance of workmanlike performance attached to admiralty contracts. [La Esperanza De P.R., Inc. v. Perez Y Cia. De Puerto Rico, Inc. (1st Cir. 1997)]
Defendant also mentions examples in which the vessel owner and the vessel repairer are not related. Because this is a case involving the repair of a vessel, maritime law applies, and the negligence claim will not be dismissed.
The term “hurt intentionally inflicted or caused by gross or wanton negligence” has been defined as “injury willfully inflicted or caused by gross or wanton negligence.” (Todd Shipyards Corp)
Nathaniel Shipping, Inc. v. General Elec. Co.(5th Cir. 1991)
This case presents some fascinating considerations about ship repairers’ liability. The main question on appeal in the Nathaniel case was whether a ship owner’s claim against a negligent subcontracted repairman with whom it had no contractual relationship would be precluded by the Supreme Court’s economic loss concept, which was established in 1986 in its East River decision.
Fact: During a cruise, a thrust block in the main engine of a vessel that absorbs the action of the ship’s propeller shattered. A repair facility was hired by the vessel’s owner to replace the block. The job was subcontracted to a subcontractor who did not perform its duties in a professional manner. The shipowner was forced to incur additional costs as a result of the extensive remedial repairs that were required, including the loss of the vessel’s usage for 56 days.
Decision: The shipowner was granted $229,342 in damages by the trial court, the majority of which was for economic losses. The shipowner could not be reimbursed for the vessel’s loss of use, according to the Fifth Circuit Court of Appeals, which overruled the trial court. The ruling was based on the Supreme Court’s broadening of the economic loss notion along the East River. A product manufacturer has no duty under tort law to prevent a product from injuring itself, according to the judgement in the East River case. Only economic losses occur when a product’s failure to perform adequately causes harm. To recover simply economic losses, only contract concepts can be applied (as opposed to personal or property harm). Parties are, of course, allowed to employ warranties or disclaimers to allocate risks and liabilities in their contracts.
A petition for review was submitted in the Nathaniel case, stating that the economic loss approach should not be expanded to account for ship maintenance contract conflicts. It is claimed that if the idea is expanded, the long-standing implied warranty of workmanlike performance connected with maritime service and repair contracts will be terminated. If this happens, the only method for a shipowner to avoid financial losses related to ship repairs is to establish formal contracts with all repair contractors and demand contractual warranty protection from them all.
‘Commercial morality’ and the ‘doctrine of unconscionability’ in ship repair contracts
Repairing a ship is famously costly. Both ship owners and ship repairers have discovered the importance of meticulously preparing repair contracts. Marine engineers are frequently involved in the negotiations of these contracts, which are often reached after weeks or months of meticulous planning, pricing, and negotiating.
In most cases, courts do not intervene when one party to a contract makes a terrible bargain with the other. When a shipowner and a shipyard, for example, reach a clear understanding of the cost of repair, the court is unlikely to sympathize if one party feels unfairly treated at the conclusion of the engagement.
The doctrine of unconscionability is an exception to the general norm that courts do not intervene with contracts. This doctrine holds that a contracting party can be released from its responsibilities if the agreement is unconscionable, or if the bargaining process was unethical. The concept is an odd blend of trade and morality, which can make for strange bedfellows.
A recent British Columbia Supreme Court decision involving a West Coast shipyard and pleasure vessel gives an important example of how the court used the doctrine of unconscionability to protect a party who did not negotiate a fair contract. The court found the $4,500/day lay day penalty to be outrageous and dismissed the shipyard’s claim, substituting it with a $350/day charge.
The following is how the court summarized the standard for whether a contract was conscionable: First, proof of inequity in the parties’ positions resulting from the weaker party’s ignorance, need, or anguish, leaving the weaker party in the power of the stronger, and second, proof of considerable injustice in the bargain obtained by the stronger. Once these characteristics are established, the burden of evidence changes to the stronger party, who must demonstrate that the deal is fair, just, and reasonable in order to keep his agreement. The criterion is whether the transaction as a whole deviates significantly from community standards of commercial morality to warrant cancellation.
Conclusion
Negotiating and drafting a ship repair contract like any other contracts is a crucial step and plays an important role in determining the fate of future disputes in case it arises by any chance. The rationale behind drafting a watertight contract is to better prepare for plausible future disputes or disagreements thus every possible contingency should be properly outweighed. The contract must be narrow enough to cover predictable scenarios and interests of contracting parties but also broad enough to justify unprecedented issues that may arise. BIMCO has revised and updated versions of its two standard ship repair contracts: REPAIRCON, for major work; and MIN REPCON, for minor repair work which can be downloaded and used as a checklist for a perfect draft.
References
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