Olena Bokareva
October 2014
Ship acquisition
• New building - shipbuilding contract
• Second hand ship – sale contract
• Ship demolition
Ships for sale
Ex. Karin, Marta
Price: EUR 750 000
Finnish general cargo vessel classified by RINA in January 2014. Built in 1988. 2627 DWT.
Currently trading the Baltic Sea.
Sale of ship
• Ships are ”goods”, a chattel within the meaning of
s. 61 of the UK Sale of Goods Act 1979
• S. 2(1) a contract of sale of goods is a contract by
which the seller transfers or agrees to transfer
the property in goods to the buyer for a money
• S.2(5) where under a contract of sale the transfer
of the property in the goods is to take place at a
future time or subject to some condition later to
be fulfilled the contract is called an agreement to
Contractual terms
Conditions – fundamental term of the contract; a breach of condition entitles the
other party to refuse to perform a contract or return the goods, damages can be
Warranties – not a fundamental term, in case of breach, th eparty is entitled to
damages only
Intermediate terms – the efeect of non-performance depends on the nature and
consequences of the breach
Express or implied terms (s.12, 14)
– An implied term on the part of the seller that in the case of a sale he has a
right to sell the goods, and in the case of an agreement to sell he will have
such a right at the time when the property is to pass.
– the goods are free, and will remain free until the time when the property is to
pass, from any charge or encumbrance not disclosed or known to the buyer
before the contract is made, and
– the buyer will enjoy quiet possession of the goods except so far as it may be
disturbed by the owner or other person entitled to the benefit of any charge
or encumbrance so disclosed or known.
– there is an implied term that the goods supplied under the contract are
reasonably fit for that purpose (14(3))
Condition or warranty?
• S.11 (3) Whether a stipulation in a contract of
sale is a condition, the breach of which may
give rise to a right to treat the contract as
repudiated, or a warranty, the breach of which
may give rise to a claim for damages but not
to a right to reject the goods and treat the
contract as repudiated, depends in each case
on the construction of the contract; and a
stipulation maybe a condition, though called a
warranty in the contract
• Hedley Byrne Rule
– Duty of care in the making of statements during a precontractual negotiative situation
– He sho possess special knowledge or skill and makes a
representation to another on the strength of it with
the object of inducing that other to enter into
contract with him is under a duty to use reasonable
care to see that his representation is correct and that
advice, information or opinion given is reliable.
• Misrepresentation Act 1967
Parties rights and obligations
• S. 27 It is the duty of the seller to deliver the
goods, and of the buyer to accept and pay for
them, in accordance with the terms of the
contract of sale
Passing of property
• S. 17 and 18 of the Sale of Goods Act 1979
• Property passes when intended to pass.
• Where there is a contract for the sale of specific or
ascertained goods the property in them is transferred to
the buyer at such time as the parties to the contract intend
it to be transferred.
• For the purpose of ascertaining the intention of the parties
regard shall be had to the terms of the contract, the
conduct of the parties and the circumstances of the case.
• It is vital to determine the time of passing of property
(indicates when the risk passes from seller to buyer)
Passing of risk s.20
• Unless otherwise agreed, the goods remain at the
seller’s risk until the property in them is transferred to
the buyer, but when the property in them is transferred
to the buyer the goods are at the buyer’s risk whether
delivery has been made or not.
• But where delivery has been delayed through the fault
of either buyer or seller the goods are at the risk of the
party at fault as regards any loss which might not have
occurred but for such fault.
• Buyer
– Damages for non-delivery
• Seller
– Possessory lien
– To resell the goods
– Stoppage in transit
Ship is under charter
• A buyer is not bound to perform a charter
• But he must not employ the ships in violation
of the chatrerparty (the charterer may apply
to the court for an injunction)
Completeion (closing meeting at which transfer
of the bill of sale with other documents and
payment takes place)
• Under British law is the buyer is foreigner, the bill
of sale is signed in the present of a notary public
and has a stampt of the consulate of the buyer’s
Ship sale practice
• Ship broker – most sale and purchse transactions
are carried through shiprokers
• To value ships is a routine task for a ship broker
• Price dynamics – what determines the value of a
Freight rates
Age (a ship loses 5-6% of its value each year)
Standard forms
• The Norwegian sale form
• The Nippon sale form
• The Singapore sale form
Deposit and payment
• 10 % of the purchase price on signing
memorandum of agreement, s. 2 of the
Saleform 2012
• The deposit shall be released in accordance
with joint written instructions of the parties
• Payment – s. 3 on delivery of the vessel, but
no later that 3 banking days after the date
that notice of readiness has been given
Inspection of a ship
Usually before the negotiations
Superintendents or consultant surveyors
A ship might be far away on a tight schedule
Several phases of inspection, Saleform 2012,s.4
– The buyers have inspected and accepted the vessel’s
classification records
– The buyers shall have the right to inspect the vessel’s
classification records and declare whether same are
accepted or not
Place and time of delivery
• Date and place (notice of readiness)
• Cancelling date – if the vessel is not ready by
the delivery date, the seller shall notify the
buyer in writing.
• The buyer has an opition to cancel the
• If the vessel become a total loss before
delivery, the deposit must be returned an dthe
Agrement becomes null and void
Drydocking/Divers Inspection
• S. 6 Saleform 2012
• For the costs of buyers, a diver is approved by
the classification society prior to the delivery
of the vessel
• The sellers at their cost make the vessel
available for the inspection
Spares, bunkers and documentation
• S. 7 and 8 Saleform 2012
• The sellers shall deliver the vessl to the buyers
with everything belonging to her on board and
on shore
• S. 9 Saleform 2012
• The sellers warant that the vessel , at the time
of delivery , is free from all charters,
encumbrances, mortgages and maritime liens
or any other debts
• The sellers undertake to indemnify the buyers
against all consequences of claims made
against the vessel
Law and arbitration
Saleform 2012, s. 16
a. English law
Arbitration in London
b. US Law
Arbitration in New York
c. law of another country
Shipbuilding contracts
• About 300 major shipyards
• Some specialises in one particular type of ships,
others in various types
• Complex negotiations, a broker is appointed (612 months)
– Price (the most important, paid in a series of ”stage
– Specification of the vessel
– Terms of the contract
– finance
• Sale of a standard design
Fujian Mawei Shipbuilding Ltd.
Oasis of the Sea
Formation of the contract
Contract is more detailed (70-80 pages) – written or oral
The sale of future goods
An agreement to sell, S. 18(5)(1)
Where there is a contract for the sale of unascertained or
future goods by description, and goods of that description
and in a deliverable state are unconditionally appropriated
to the contract, either by the seller with the assent of the
buyer or by the buyer with the assent of the seller, the
property in the goods then passes to the buyer; and the
assent may be express or implied, and may be given either
before or after the appropriation is made.
• The property passes when the ship is built
• BIMCO Newbuilcon standard contract 2007
Builder’s obligations
• Builder – not responsible if the ship is build
according to buyer’s specification
• Use of material fit for building
• Skills and knowlegde expected of a shipbuilder
• Safety requirements
• Destruction of a ship – no party is a fault –
general contract law
• Delay – can be provided in the contract
• Possessory lien
• Stoppage in transit
• Resell the ship
• Sue for the price
• Seek specific performance
• Sue for non-delivery
• S.34 Buyer’s right of examining the goods.
• Unless otherwise agreed, when the seller tenders delivery of goods to the
buyer, he is bound on request to afford the buyer a reasonable
opportunity of examining the goods for the purpose of ascertaining
whether they are in conformity with the contract [and, in the case of a
contract for sale by sample, of comparing the bulk with the sample.].
s.35 acceptance – is accepted, the right of rejection is lost, the buyer’s
remedies to redress if faults are discovered)
• Risks of partial or total destruction
• The risk of bankruptcy of either party
• Insurance covers
Demolition of ships
Ship scrap yard
Demolition market
• Important part of a shipping business
• Customers – scrap yards (India, Pakistan,
Bangladesh, China)
• Prices – about $400 ltw
• Simplified contract prepared by brokers
• BIMCO Demolishcon 2001