‘Complex production yachts’, as we can refer to them here, are often so advanced that they have more points of similarity with their custom sisters than ever before, and include those such as the excellent yachts built by Riva, Sunseeker, Sanlorenzo or Cyrus. They are testimony to the advances of production yacht building. Historically, the smaller, simpler yachts had smaller and simpler contracts. Often they were bought on very standard terms published by the builders and very little could go wrong. The situation today is somewhat different.
Three or four years ago, I sat down with a senior executive of a yacht builder who specialised in fibreglass production yachts. Very quickly, a brouhaha about my approach to the contract enveloped the proceedings in the way that a mother of the bride would react at being told that her plans for her only daughter’s wedding, for which she had meticulously prepared for 20 years, were to be ignored in favour of a ‘quickie’ at the legendary Graceland Wedding Chapel on 619 South Las Vegas Boulevard.
It is not unusual for production yacht builders to act like indefatigable brides’ mothers. This is how they negotiate. They will say there is only one way to approach the contract of a new yacht built by a production yacht builder. The builder will try to convince and cajole you that the way that they have done it for 20 years is the way that they have always done it, and the way that it should be done going forward, and that there is no other way of proceeding. To be fair to the builder, the quicker they get a signature on a piece of paper, the happier the builder is. One can’t criticise the builder for trying, and often succeeding. And, to be fair, there is a certain kind of yacht that is just pushed out like a cube of ice from an IKEA rubber ice-cube tray.
Those are true production yachts: Simple and straightforward, with simple and straightforward contracts. You get what you pay for, and the contract reflects this. In those contracts, you need to be certain just who is selling the yacht; who is buying the yacht; how much you are paying and when ; how it will perform and what you are getting for your money. This is achieved by way of a short specification attached to the contract, detailing when and where you are taking delivery.
Check the law and jurisdiction clause and seek the guidance of a lawyer qualified to advise in that jurisdiction. However, what do you do when the yacht is not custom or semi-custom and is frankly not really a simple ice cube?
The difference between a custom yacht or semi-custom yacht and a production yacht is the degree of personalisation possible on the yacht. ‘Custom’ means your imagination is your limit. ‘Production’ means, effectively, fabrics and finishes are your playground. But look behind the choices you are and aren’t allowed make; ultimately a complex production yacht is still a luxury seagoing ship. The issues which are important to an owner, namely speed, noise, vibration, range, quality of finish, quality of materials are the same, regardless if the yacht is a fully custom Feadship or a complex production yacht. To paraphrase José Mourinho, for each new owner, a yacht does not come out of a bottle, it is a ‘special one’.
Few owners don’t feel a numbing pain in the pit of their stomachs on discovering a fault in their yacht that they can do little about. I remember a client sitting with me on the aft end of his yacht as he placed a coin on the dining table when the yacht was moored up and stable, and I watched the coin roll gently, but purposefully from one end of the table to the other, aided only by gravity. Then, there was the series of production yachts whose lazerette door didn’t quite fit until a major redesign was implemented. Things, sometimes quite fundamental things, go wrong and there is absolutely no reason why you should sign a short form ‘take or leave it’ contract that leaves you exposed .
As a bare minimum, in a contract for a complex production yacht you should see the following.
1. Subject of the contract
This is what the contract is about. This sets out a brief description of what you are buying and references the specification and the general arrangement, which is to be attached to the contract. A word on the specification: this should be as detailed as possible and should also be reviewed and negotiated by your – absolutely necessary – project manager. The specification should be stress tested as much as the contract.
2. What am I buying?
The contract should also clearly set out the yachts’ ‘guaranteed particulars and characteristics’, for example length, beam , draught, displacement, type and number of main engines, max speed, maximum range at a particular speed, passenger and crew berths.
3. Regulations
There must be a clear statement as to the choice of the classification society that will follow the build and the flag state to whose regulations the yacht will be built. Your project manager will guide you on the choice of class notation, and whether the yacht is to be MCA Large Yacht Compliant or not. I would add here that you as an owner must ensure you have irrevocable access to all class and flag correspondence and survey reports.
4. Key decisions
Dates as to when choices must be made and agreed timeframes within which the buyer and builder must respond to each other.
5. Price and payment
On price and payment, never accept date-triggered payment dates. It must be a realistic event, which must be approved by the buyer. Failing approval by the buyer, approval must come from the classification society.
6. Buyers’ supplies
If there are to be buyers’ supplies, who insures and stores these and when are they to be delivered?
7. Change orders
There must be a clear modification procedure. You must agree that no changes take place without a written approval procedure, which sets out the impact on the build, in terms of price and delivery date and the suspension of works pending approval of modifications.
8. Security for your instalments
You must have security for your instalments. The best solution is bank refund guarantees that your lawyers and bankers must be happy with. Progressive title transfer in Italy should not be viewed through English common law spectacles. Our Italian colleagues differ as to what it gives you. Does it give you any kind of title interest? If your title is challenged you will be dragged into an Italian litigation process, regardless of whether or not you have English law and jurisdiction in the contract.
9. Owner’s representative
Your project manager must be given free access to the yard and the subcontractors. There should be a clear statement detailing those the builder can speak to and those that the owner’s project manager can speak to. The communication chain must be clear and it should be reduced to writing.
10. Insurance
Be clear on the yacht’s insurance during the build; if you don’t have refund guarantees, make sure that the yard’s insurer pays back your instalments if the yacht goes up in flames during the build or sinks on sea trials.
11. Sea trials
The sea trials procedure must be clearly set out. When should the builder tell your project manager that the sea trials are to happen? Who will be onboard during the sea trials? What happens if sea trials fail? What happens in the event of a termination of the contract as a result of failed sea trials?
12. Accepting delivery
The process of delivery – what documents must the builder give the buyer, and vice versa? How is the final payment made? What kind of defects can the yacht be delivered with?
13. Performance warranties
Complex production yacht builders hate these. Noise, vibration, speed, range, paint or gelcoat quality – there should be agreement as to the acceptable range of variance and the consequence failing to perform. The builder should be given the opportunity to fix, but ultimately the sanction is contract termination.
14. Force majeure
If this is to be an English law contract, be careful to agree a specific force majeure clause, with agreed events, which can be described as force majeure incidents.
15. Post delivery warranties
Make sure the guarantee you get, which for private yacht owners must, by European law, be two years, applies to the work of the builder and the builder’s sub-contractors. Be careful not to give away your rights to raise a claim for latent defects. Some lawyers have that little surprise present in their armoury.
16. Law and jurisdiction
As an English lawyer, I am always going to favour English law and jurisdiction. It is what I know and understand, and probably has the most developed law on ships and shipbuilding. Many owners and builders favour English law, because it tends to be a jurisdiction independent of either party (unless you are a UK buyer or builder), and has certainty of outcome.
But, and this is a huge ‘but’, there are circumstances when, despite an English law and jurisdiction clause, local law will take priority, particularly in relation to the title of the yacht and insolvency rules applying to the builder. Always go for arbitration and not the English courts. Firstly, arbitration is private and confidential, and, secondly, you have a reasonable chance that the builder and owner can appoint an independent decision maker who has a good working knowledge of yachting. The English commercial courts are not always reliable.
It was said by George Bernard Shaw that Britain and America were two countries separated by a common language, but the reality of today is that British English and American English are unnervingly interchangeable. Ten years ago, one could have said that production yachts and custom yachts occupied the same water but were essentially different.
Perhaps it is time to recognise that advances in technology come with advances in complex vessels; production yachts and custom yachts are now more closely related and, by extension, greater responsibility and higher owners’ expectations should be recognised.
This article does not constitute legal advice.