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.

Solution: Read the Shipbuilding Contract as a whole to ensure clarity and uniformity

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