Awakening the Sleeper Clause
If your purchasing a boat or considering a new build is there a need for a contract to protect your interests, considering often it sits in the bottom draw not to see the light of day. VMS’s principal lawyer considers this question in light of dispute resolution and war in the Ukraine.
Different Types of Clause
A contract for the purchase or build of a vessel is made up several groups of clauses. Amongst these is a group known as ‘Boiler Plate’ clauses, in essence standard clauses such as Governing Law, Jurisdiction and Dispute Resolution Clauses that are relied on when an issue arises between the parties. Included in this group is also the Force Majeure clause, I have coined as ‘The Sleeper’ which provides guidance when a contract cannot be fulfilled through no fault of the parties.
In times of peace both parties rely upon this clause in respect to such issues as naturally occurring disasters or commercial matters out of their control. However, now The Sleeper is being woken for all the wrong reasons, war in Ukraine.
Balanced Clauses Save Money
A contract is not all one sided and should be balanced to include clauses that are beneficial to both parties. By understanding the thinking behind this balanced formation of a contract and importance of standard ‘Boiler Plate’ clauses this may assist you in instructing you lawyer.
In essence a contract is a form of insurance that should benefit all parties. It should enunciate the wishes of both parties and importantly describe the parties’ negotiated compromises. The terms need to describe the parties’ obligations and there must be clear pathways to resolving disputes.
Generally, when providing advice consideration is given to Governing Law and Jurisdiction clauses in that it’s important to have these clauses benefitting the client. This benefit flows in several ways such as: cost, familiarity, and certainty.
Cost
In the best-case scenario, a dispute is held in the country or state a client is based. But often this is not the case with the vendor or builder dictating to their advantage. However, a midway point could be neutral territory where all parties feel the pain in respect to cost. To some degree this may add emphasis to all parties resolving disputes before they end up in court as the cost of running a court case plus all the other costs of travel and accommodation in another country may be considerable.
Familiarity
Provides your client with some degree confidence, as the dispute would be held where the language and culture of the country and its legal systems are known.
Certainty
Is achieved by the client recognising the law, the court system and generally understanding processes involved to resolve the dispute. It cannot be assumed that every country has the same legal system or process and language barriers in highly technical settings such as the marine and legal industry can be difficult to navigate.
The clause below is a typical example of a Governing Law and Jurisdiction clauses that if negotiated well can benefit purchaser. In one case that comes to mind our firm negotiated and redrafted a new build contract for a Superyacht in Eastern Europe. The original clauses were to the benefit of the builder who in turn rejected using Australian law and its court system however; they were amenable to using UK law and their court system.
Governing Law & Jurisdiction
This Agreement shall be governed by, construed and enforced in accordance with the laws of the England, United Kingdom. All parties consent to the exclusive jurisdiction of its courts and agree to a venue in London, United Kingdom. Any judgment so obtained may be enforced in any location or jurisdiction where a party, any of its assets, or the Vessel may be found.
In this scenario if a dispute needs to be resolved in the UK courts both parties will bear the additional costs but most importantly familiarity and certainty are the big winners for our client. However, before any dispute reaches the UK courts, this contract includes a comprehensive dispute resolution process uing a UK based system.
Dispute Clauses
There is aninterplaying with the Governing Law and Jurisdiction clauses that directly relates to a Dispute Resolution clause. In cases where the sale or build is in your country of domicile the Dispute clause should refer to a mediator appointed by, such as, a Law Society in the state that relates to the Governing Law.
However, what if the build is overseas, then a strong dispute resolving process in line with the Governing Law can be considered a lifeline when a dispute arises. In the example we have used we sought to have any disputes resolved through mediation first using, The London Court of International Arbitration (LCIA). The typical clause below sets out simply the initial processes.
Dispute Resolution
A dispute relating to this Agreement which cannot be resolved by negotiation between the parties within fourteen (14) days of either party giving notice to the other party that a dispute has arisen shall be submitted to mediation accordance with the LCIA Mediation Rules, which Rules are deemed to be incorporated by reference into this clause and failing settlement of that dispute by mediation within twenty-eight (28) days thereafter, the dispute shall be submitted by any party for final resolution by arbitration by one (1) arbitrator conducted remotely in the English language and in accordance with under the LCIA Rules, which Rules are deemed to be incorporated by reference into this clause.
Unless expressively prohibited by the mediator or arbitrator then the mediation or arbitration is to be conducted remotely taking the benefit of any current technology readily available to both parties and the mediator or arbitrator such as telephone or video conference.
Costs and Time Minimised
The winning factor for all parties in relation to the above is the fact that time and costs can be minimised by using technology such as video conferencing. However, what happens if the sale or build has to be stopped through no fault of either party but due to circumstance out of their control.
The contractual clauses for the purchase or build of a vessel overseas typically raises commercial questions such as securing exchange rates, cost of build and delivery just to name three of a very long list of questions. Typically, little consideration is given to the Sleeper clause and for many years now natural disasters have been the prevailing cause of enlivening this clause as described below;
Force Majeure
Under this Agreement “Force Majeure” means any cause arising from or attributable to acts, events, non-happenings, omissions, accidents or Act(s) of God beyond the reasonable control of the Vendor, Builder or the Purchaser (including, but not limited to strikes, invasion, war, fire, explosion, sabotage, government acts or regulations).
Both parties agree that the time scales agreed to under this Agreement may be reasonably extended in the event of a Force Majeure.
However, with the war in the Ukraine developing every day it can be assumed this clause will have been awoken, as potentially seventeen boat builders will be directly affected by these events. Where contracts are in place and these include The Sleeper clause boat builders will be able to enforce the clause that for all intensive purposes will allow the builder to cease construction. The war that Putin has orchestrated is not only devastating the country and the people but will unfortunately have a devastating affect on the economy and the ability for industries such as boat building to fulfil contractual obligations possibly for years.
The importance of a well considered and drafted contracted cannot be overstated. Whether there is a need for resolving disputes between parties or providing relief from actions that impact on the ability to complete a contract such as war, the importance of the role of the lawyer to consider and advise a client on all these issues is paramount.