How to identify a suitable yard legal column

legal column
in this section
• Choosing a yard
• Identifying risks
• Refusing re-delivery
How to identify
a suitable yard
The refit of a superyacht requires thorough preparation
and planning — from both a commercial and legal
perspective advises Justin Turner
When searching for a yard it’s vital that you find one with appropriate experience, capacity and financial stability
Most superyachts are
likely to undergo a refit after a
few years’ service. The owner
may want to modernise the
vessel, perhaps by renewing
interiors or updating navigation
or other equipment, but maybe
more structural modifications
of the yacht are planned. In any
event, it is crucial to identify
the precise scope of work to
be undertaken and, where new
designs are to be implemented
into an existing structure, to
ensure that careful consideration
is given to the interface between
old and new materials.
2 Choice of yard
When planning a refit,
identifying the right shipyard
for the work is a paramount
consideration. In recent years
new players have entered the
market challenging established
European and North American
shipyards, often offering
competitive prices and
attractive re-delivery windows.
While this means more
choice for owners, it also
involves an increased number
of issues to consider when
determining where to refit.
The owner will need to know
www.SUPERYACHTBUSINESS.net | SEPTEMBER 2011
that his chosen shipyard has
the experience, capacity and
financial stability to take on,
plan and effectively manage
the project. It is, therefore,
important for the owner’s team
to carry out effective due
diligence. A good starting point
is to ask for (and follow up)
references in order to confirm
the reputation of a potential
contractor and to research
recent projects to identify
whether these were completed
on time and within budget. The
focus is likely to be on technical
questions, for instance, to
establish whether the yard has
the required workforce, plant
and machinery or whether (and
to what extent) work will have
to be subcontracted. Depending
on the type of work, it may also
be important whether the dock
or quay at the shipyard is (or
can be) covered.
Logistics will also need to
be taken into account, such
as accessibility (whether the
shipyard is located close to an
airport is often an important
consideration) and the facilities
available to the yacht’s crew
during the refit.
The willingness of the
shipyard to assist with
transport and obtaining any
necessary visas for crew
members should also be
ascertained, together with
understanding how the shipyard
goes about its business — for
instance discussing HSSE issues
and how much work the crew can
carry out itself during the refit.
The owner will also want to
understand the financial drivers
both by identifying mark-ups
and overhead charges in order
to understand the shipyard’s
profit and agreeing suitable
milestones for the payment
schedule. In this context it is
also important to confirm the
position regarding tax and duty.
All taxes and duties relating to
the shipyard’s supply should
be included in the contract
price but clarification may be
required in relation to items of
owner’s supply (and local tax
advice may be necessary).
Managing the risks
Essentially, the risks of the
shipyard’s non-performance can
be grouped into commercial,
credit and technical risks.
The principal consequences of
shipyard non-performance for
the owner will be an exposure
to unexpected costs and loss
of the use and enjoyment of the
yacht for longer than expected.
The commercial risks
comprise true ‘performance’
risks, i.e. the possibility that the
yard will fail to re-deliver the
yacht to its owner on time or
(more rarely) fail to complete
certain aspects of the refit
at all. Credit risks include the
possibility that the shipyard will
become insolvent before the
yacht is re-delivered. Technical
risks include, for instance,
the risk that the shipyard will
deliver deficient workmanship
or incorporate materials of
inferior quality into the yacht.
It is important to address
these risks adequately both in
due diligence on the shipyard
and in any resulting contract.
In order to mitigate the
commercial risk, the contract
should, as said above, clearly
define the project workscope. This is usually done
by reference to detailed
is the re-delivery. The contract
should clearly specify the
circumstances under which
the owner is entitled to refuse
re-delivery of his yacht if he is
not satisfied that the shipyard
has met the contractual
requirements and usually
provides for the shipyard to
pay liquidated damages for
any unauthorised delay in redelivery.
Credit risks are often
addressed by firm negotiation
of the payment milestones
and provision of security
by the shipyard. The risk
of the shipyard becoming
insolvent should always be
considered and the contract
should provide for the owner
“Owners need to be aware
of the challenges raised by
refits. Time spent on due
diligence is well spent”
technical specifications which
are incorporated into the refit
contract. The project timeline is
also an important consideration
— it should be realistic and the
contract must be clear as to
which circumstances entitle the
yard to an extension of time.
Another aspect which
deserves particular attention
to be able to terminate his
obligations and remove
the yacht where a defined
insolvency event befalls the
shipyard. This is not always
straightforward as local
insolvency law will be relevant.
There are important matters
to consider in assessing
the technical risks, given
Regulatory considerations
It is clearly important
to define in the contract
the rules and regulations
(most importantly class
requirements) which must be
complied with.
In this regard, the impact
that the refit might have on
the yacht’s classification
certificate or any flag state
certificates must be taken
into account as the addition
of new equipment may
have consequences for the
compliance of the yacht, both
in terms of vessel certification
and safe manning. For
example, alteration to the
hull structure or machinery
may alter the tonnage,
affect stability or statutory
fire safety requirements.
Re-surveying or remeasuring
may be required to ensure
continued compliance but
it may also affect crew
certification and thus the
ability of some individuals to
work on the yacht.
It is, therefore, advisable to
involve the yacht’s flag state
and classification society
early on in the project in order
to identify any aspect of the
refit likely to have an impact
on the yacht’s certificates.
justin
turner
Justin Turner is a partner
in the specialist shipping
law firm Curtis Davis Garrard
LLP and leads the firm’s
superyacht practice. He
specialises in
commercial
shipping and
has particular
expertise in
shipbuilding,
conversion and
repair and sale
and purchase
issues. Justin
is routinely
involved in the
negotiation,
drafting and management
of shipbuilding contracts
for most types of vessels,
including superyachts.
CDG’s superyacht team
also includes Superyacht
Business legal contributors
Ellen Sofie Løkholm, Louise
Elmes and Andreas Silcher.
w Contact: [email protected]
cdg.co.uk
the dramatic effect poor
workmanship can have on both
the value and the owner’s use
and enjoyment of the yacht.
A key part of the owner’s
project management will be the
appointment of a representative
to supervise the refit. This
may be the captain of the
yacht but in more complex and
extensive refits this can be an
external supervisor specifically
employed for the project.
The shipyard’s post-delivery
warranty is also important — it
should be extensive and have
a duration of at least twelve
months.
Owners and their advisers
need to be aware of the
particular challenges raised by
refit projects, but time spent
conducting thorough due
diligence on the shipyard (and
on good planning) invariably
proves to be time well spent at
the end of the day. SEPTEMBER 2011 | www.SUPERYACHTBUSINESS.net 3