Legal matters

A contract is not one-sided and should be balanced to include clauses beneficial to both parties. Understanding the thinking behind this balanced formation of a contract and the importance of standard boiler-plate clauses may assist you in instructing your lawyer when drafting a contract for purchase.

Fine print

In essence, a contract is a form of insurance that should benefit all parties, enunciating the wishes of both parties and, importantly, describing the parties’ negotiated compromises. The terms need to describe the parties’ obligations, and there must be clear pathways to resolving disputes. Generally, when providing advice, consideration is given to governing law and jurisdiction clauses – these clauses must benefit the client.

This benefit flows in several ways, such as cost, familiarity and certainty, as follows.

Cost

Best-case scenario is that a dispute is held in the country or state where the client is based. Often this is not the case, however, with the vendor or builder dictating to their advantage.

A possible midway point could be a neutral territory where all parties feel pain in terms of cost. This may encourage all parties to resolve disputes before they end in court, as running a court case plus the costs of travel and accommodation in another country may be considerable.

Familiarity

This provides your client with some degree of confidence as the dispute would be held where the language and culture of the country and its legal systems are known.

Certainty

Certainty is achieved by the client recognising the law and the court system, and generally understanding the processes involved to resolve the dispute. It cannot be assumed that every country has the same legal system or process, and language barriers in highly technical settings, such as the marine and legal industries, can be challenging to navigate.

Below is a typical example of governing law and jurisdiction clauses that can benefit the purchaser if negotiated well. In one case that comes to mind, our firm negotiated and redrafted a new build contract for a superyacht in Eastern Europe. The original clauses were to the builder’s benefit, who rejected using Australian law and its court system. They were, however, amenable to using UK law and the court system.

Governing law and jurisdiction

This Agreement shall be governed by, construed and enforced in accordance with the laws of England, United Kingdom.

All parties consent to the exclusive jurisdiction of its courts and agree to a venue in London, United Kingdom. Any judgment so obtained may be enforced in any location or jurisdiction where a party, any of its assets, or the Vessel may be found. In this scenario, if a dispute needs to be resolved in the UK courts, both parties will bear the additional costs.

Most importantly, familiarity and certainty are the big winners for our client. However, before any dispute reaches the UK courts, this contract includes a comprehensive dispute resolution process using a UK-based system.

There is an interplay between the governing law and jurisdiction clauses that directly relate to a dispute resolution clause. In cases where the sale or build is in your country of domicile, the dispute clause should refer to a mediator appointed by, for example, a law society in the state that relates to the governing law. However, if the build is overseas, a robust dispute-resolving process in line with the governing law can be considered a lifeline when a dispute arises.

In the example we have used, we sought to have any disputes resolved through mediation first, using the London Court of International Arbitration (LCIA). The typical clause below sets out the initial processes.

Dispute resolution

A dispute relating to this Agreement that cannot be resolved by negotiation between the parties within fourteen (14) days of either party giving notice to the other party that a dispute has arisen shall be submitted to mediation in accordance with the LCIA Mediation Rules. These Rules are deemed to be incorporated by reference into this clause.

Failing settlement of that dispute by mediation within twenty-eight (28) days after that, the dispute shall be submitted by any party for final resolution by arbitration by one (1) arbitrator conducted remotely in the English language and in accordance with the LCIA Rules. The Rules are deemed to be incorporated by reference into this clause. Unless expressly prohibited by the mediator or arbitrator, the mediation or arbitration must be conducted remotely, taking the benefit of any current technology readily available to both parties and the mediator or arbitrator, such as telephone or video conference. The winning factor for all parties in relation to the above is that both time and cost can be minimised by using technology such as video conferencing.

However, what happens if the sale or build has to be stopped through no fault of either party but rather due to circumstances out of their control? The contractual clauses for the purchase or build of a vessel overseas typically raise commercial questions such as securing exchange rates and the cost of build and delivery, to name just three in a long list of questions. Usually, little consideration is given to the sleeper clause and, for many years, natural disasters have been the prevailing cause of enlivening this clause, as described below.

Force majeure

Under this Agreement, Force Majeure means any cause arising from or attributable to acts, events, nonhappenings, omissions, accidents or Act(s) of God beyond the reasonable control of the Vendor, Builder or the Purchaser (including, but not limited to strikes, invasion, war, fire, explosion, sabotage, government acts or regulations). Both parties agree that the time scales agreed to under this Agreement may be reasonably extended in the event of a Force Majeure.

However, with the war in Ukraine developing every day, it can be assumed this clause will have been awoken as, potentially, 17 boatbuilders will have been directly affected by these events. Where contracts are in place that include the sleeper clause, boatbuilders will be able to enforce the clause, which will allow the builder to cease construction.

The war in Ukraine is not only decimating the country and its people, it will have a devastating effect on the economy and the ability of industries such as boatbuilding to fulfil contractual obligations, possibly for years to come.

The importance of a well-considered and drafted contract cannot be overstated. Whether there is a need to resolve disputes between parties or provide relief from actions that impact the ability to complete a contract, such as war, the importance of the lawyer’s role to consider and advise a client on all these issues remains paramount.

vaarzonmorelsolicitors.com.au

Ocean’s resident legal expert Marcel Vaarzon-Morel, a professional lawyer and director of Vaarzon-Morel Solicitors, specialises in the marine industry and maritime law.

Ocean Media takes no responsibility for the views held in this article. Readers are encouraged to obtain their own advice particular to their individual situation.