Shipbuilding contract

Shipbuilding contract, which is the contract for the complete construction of a ship, concerns the sales of future goods, so the property could not pass title at the time when the contract is concluded. The aim of shipbuilding contract is to regulate a substantial and complex project which the builders and buyers assume long-term obligations to other and bear significant commercial risks.

Shipbuilding contract is a non-maritime contract and not within the Admiralty jurisdiction because it is insufficiently related to any rights and duties pertaining to sea commerce and/or navigation. The property passes to the buyer when the ship has been completed. To avoid difficulties, provision can be made for the property to pass in stage in the process of development and construction. It is different from most hire-purchase agreements where the seller has ownership of the property until the payment of the final installment.

Under the Sale of Goods Act 1979, this kind of agreement to sell ‘future’ goods may be a sale either by description or by sample. The sale of new building ship, which is large manufacturing project, is obviously undertaken by description. It is a condition to comply with the agreed description when performing the contract.

Shipbuilding contract are constructed within the framework of standard contract forms amended by the contractual parties to meet their particular requirements. The choice of form will be based on the influence of trade association which the builders belong to.

There is no requirement that a shipbuilding contract should be concluded in writing, it will be also legally enforceable in oral provided that necessary formal elements are present. The main terms of an agreement, such as expenditure, timescale and risks involved in shipbuilding, are better to record in written form.

In order to create an enforceable agreement, the essential elements for an agreement to form a legally binding contract must be presented, they are:

Where all these elements are present, a legally binding contract comes into effect. Otherwise, if any of the elements are missing, there is no legally binding contract.

The duty of a builder is to complete the new building ship in accordance with the design and specification given by the buyer. He must ensure the materials he uses are fit for the purpose required and must carry out the building works with general standard of skills expected for a shipbuilder since the buyers rely on the builder’s skills and judgment when contract is being performed. He should also comply with the safety requirement laid down in the Merchant Shipping Act.

Within the shipbuilding contract, the risk does not pass from builder to buyer until delivery of the completed ship. It is suggested that builder should take out an insurance cover before the delivery of ship.

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Wikipedia