Shipyard wins battle but loses the war
Shipbuilding
contracts comprise the Agreement, the Specifications, Drawings, Plans
and other attachments. Frequently, there may be conflict between the respective
documents.
To
address such conflict, a clause (usually a boilerplate) ensures that in the event of a
conflict or ambiguities between the documents, the Agreement will prevail over
the Specifications and so on in that order. Parties in shipbuilding contract
transaction take comfort in the erroneous belief that this clause is the
solution to such conflict. This is far from reality.
One can
either choose to work towards clarity with a competent front-end team or leave uncertainties
to the litigation lawyers later. Experience has shown that while such a provision
may be useful in providing clarity to minor discrepancies, failure to provide
clarity in the various contract documents prior to the contract execution can often
lead to unwelcome disputes, acrimony and loss of future business.
Salient
example: Owner gave notice that they wanted to send a vessel for dry-dock
warranty inspection prior to expiry of warranty period. They pointed out that in
the Specifications; all dry docking expenses (a substantial amount) were for
Shipyard's account. Shipyard denied liability.
Warranty
provision in the Shipbuilding Agreement provides inter alia that that liability
for all other expenses, not expressly set out in the warranty clause, inclusive
dry-docking and others were excluded.
The
Agreement and the Specifications were in conflict on the issue of dry-docking
expenses. A perusal of Shipyard’s price estimates revealed that dry-docking
expenses were not accounted for.
A flurry
of volatile exchanges took place before an exasperated Owner finally abandoned
their claim in respect of the dry docking expenses. Shipyard had won the battle
but lost a client and repeat orders.
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