SHIP SALES AND PURCHASES Olena Bokareva Lund October 2014 Ship acquisition • New building - shipbuilding contract • Second hand ship – sale contract • Ship demolition Ships for sale Carissa 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 consideration • 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 sell 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 claimed 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 Representations • 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. Remedies • 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) Stages • • • • Negotiations Contract Inspection 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 country 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 ship? – – – – Freight rates Age (a ship loses 5-6% of its value each year) Inflation Expectations 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 Agreement • 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 Encumbrances • 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 payments”) – 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 Remedies Builder • Possessory lien • Stoppage in transit • Resell the ship • Sue for the price Buyer • 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