Refit contracts for super yachts: 5 points to consider

If you are a shipyard manager, yacht captain or owner’s rep with responsibility for negotiating large value yacht refit contracts, there are clauses which jump out at you – primarily price, payment terms, quality and timescale. However, there are other clauses which should not be overlooked because they can become critical further down the line if there are issues with the refit. I outline below 5 key points which I suggest anyone looking at a refit contract should consider.  Reach out to me if you require more information or assistance.

1. Dispute resolution clauses:

Most standard form contracts used in yachting will contain a version of a dispute resolution clause to prevent the parties from rushing to court in the case of a disagreement. This will often state that in the event of a disagreement the dispute will proceed to mediation, determination or arbitration, or a combination of these (commonly determination, followed by mediation, followed (if unsuccessful) by arbitration).  In this blog I will only address arbitration clauses. Mediation and determination will be addressed in future blogs.

If the dispute resolution clause contains an arbitration provision, disputes will proceed at first instance to an arbitration panel to be decided, instead of a local court. There is no prescribed format for a dispute resolution clause, but the more precisely it defines the arbitration criteria, then the less likely it is that the clause itself will become a subject of dispute. An arbitration clause should state where the arbitration will be seated (see below), the procedural rules which will apply to the arbitration (see below) and how the arbitrators are to be appointed, if the procedural rules or the law of the seat do not mandate this.

It should also state what procedure should be adopted if one of the parties refuses to engage in the process. This is commonly that a single arbitrator would be appointed by the Claimant party if there is no response from the respondent within a certain time frame.

In order for this dispute resolution clause to have most clarity the following additional 4 points should also be considered.

2. Law of the contract:

The choice of law is not necessarily incorporated within any dispute resolution clause, most commonly it will have its own separate home within the contractual framework, however this is very much relevant to any dispute that does arise. The contractual choice of law is not automatically determined by the location of the yard, the flag of the vessel or the UBO (ultimate beneficial owner) of the yacht. In fact, the law of the contract is often negotiated between the parties. So, for example, it may be a German owned yard, a Cayman flagged vessel at a facility in Germany for an American UBO, but the parties may opt for English law as the law of the contract.

This is an important choice to make because it means how the contract is formed and interpreted will be conducted under the provisions of the national chosen law. For various reasons (such as the fact that the parties are used to contracting in a particular law, and are more familiar with the way that a particular legal system operates) a national law maybe favoured over the law of the locality of the facility. This does not have to be, and often is not, the same as the law of the seat of arbitration, see below.

3. The seat of an arbitration:

The choice of seat will determine the law governing the arbitration. The seat decision has an effect on what, if any, rights of appeal there might be and much of the procedural law informing the process of arbitration - what statue and case law are applicable from the locality of the seat. If there is an English seat (London most commonly), the Arbitration Act 1996 would apply. But again, as with choice of contract law, the seat does not need to be the locality of the yard. The seat can and should be agreed between the parties prior to contracting. Lawyers will often favour a particular seat due to familiarity with its procedural law. London is one of the most favoured international seats, and there are many reasons for this, language and well-trodden legal clarity being two of the main ones.

It should be noted that the seat does not determine where the physical location of the hearing itself is conducted, it is only the applicable law. The actual hearing (if one was needed) could be held anywhere, including online. However, if the seat is not stated clearly in the contract then the default would likely be the locality of facility. If there is uncertainty surrounding the seat which cannot be agreed between the parties, then it is likely that this could itself be left for the arbitral tribunal to determine as a preliminary issue. This will mean that there is an extra layer of argument with associated costs – another reason it is important to make the provisions clear by stipulating a seat.

4. The procedural rules of the arbitration:

In an arbitration clause is also useful to state which arbitration bodies rules will be used. Commonly in international marine arbitration, the LMAA (London Maritime Arbitration Association) terms are used, but there are a great number of others, with most seats having something equivalent. If this is not stipulated then, again this is something that could be the cause of further argument during any proceedings. Best to be clear from the beginning and stipulate which procedural rules would apply!

5. Enforcement of an award by an arbitration panel:

Whether or not it is a court or an arbitration panel that determines the outcome of any dispute you obviously need to be able to enforce this decision. The 1958 New York Convention provides for mutual recognition of arbitral awards between member states provides this security for arbitral awards. Nearly all countries (a total of 172) have signed the convention including all EU countries and the US.  This makes enforcing an international arbitration award much simpler and easier to enforce outside of the country in which it was awarded than it might be to enforce an equivalent award from a national court. There is no such widely accepted international agreement (yet) that applies to national court awards. This does not need to be stipulated in the applicable contract, but is an important consideration when deciding whether an arbitration clause is suitable for inclusion in the contract.