Marcel, Principal Lawyer and Consultant of Vaarzon-Morel Lawyers shares some of his experiences while assisting in boat transactions both in Australia and Overseas alerting the reader to both the practical and legal realities.
Early Advice
Early contact with your lawyer is in itself an important point, as so often clients contact us after the horse has bolted or should I say the boat has sailed. Recently (VMS) assisted a purchaser who was situated in Western Australia (WA) and wanted to but a large Catamaran on the East Coast (EC) of Australia. To our client’s credit, they contacted us before committing to an agreement with a raft of issues from tax, duties and significantly the contract for which we were able to provide a timely advice. Our client was traveling from WA to view the boat and we suggested they inform the vendor that they are looking at other boats, so as to appear not so keen. This would diminish the leverage effect, as the potential leverage point in our client’s case was the mere fact they were flying from WA just to see the one Boat shifted the advantage toward the vendor. Whereas, if there are other Boats to be seen then the purchaser won’t seem so eager to the vendor.
Research
Do your homework on what you want in your next purchase and get a lawyer to do the due diligence on the boat, the vendor or the builder whichever the case maybe. In our recent case, the purchaser was lucky as they found on the net a blog written by the owners that covered pretty much the whole history from launch through the cruising life of the boat. Sifting through the numerous pages our client struck gold there were issues with hatches and halyard tracking within the mast. These issues did not perturb our client from viewing the boat, instead gave our client a greater understanding of the history of the boat and an ability to gauge the vendor’s responses to probing questions. Interestingly, the flip side of this scenario is be careful what you publish online as it may come back to haunt you. In the past (pre-net) the ships log or captain’s memoirs would have taken months if not years to go to print and would have been scrutinised, there in-lies the trap of the instantaneous nature of publishing on social media. Further issues raised in considering this purchase were; delivery and port costs in Sydney; the vendor wanted the purchaser to pay the GST and Import duties as the boat was an Import, additional issues that generally are not part of domestic purchases.
Financial Scrutiny
Due diligence is more commonly considered when purchasing a business and not a boat. While there are consumer protections given by businesses generally in respect to boat purchases many purchases are done privately where no or little protection is given. In these respects, you may want to know if the vendor has good title to sell. Or given the volatility of the boating industry that you are buying from a solvent business. Ultimately, the issue remains that the boating industry is one of the least regulated industries with many potential pitfalls, therefore; it is worthwhile having a forensic look at the vendor.
In one case VMS discovered, for a Singaporean client, that the yacht he was considering to commission was to be built in a shed where the previous business was in the middle of liquidation. And while it appeared our client’s builder was not effected by liquidation immediately, we needed to know that there was enough time to build the Boat before the shed was sold as part of the liquidator’s duties and that any materials including the yacht itself could be distinguished as separate from the business’s liquidated assets. Due to our advice our client was able to ensure both these critical factors considered by all parties and that the relevant protections were put in place.
Taxes and Duties
The payment of taxes and duties is probably as far away from one’s mind when considering a dream purchase but if not considered that dream can soon turn. Generally, speaking GST is not payable in the case of a private sale and is payable where a business is in the business of selling boats. However, the question of GST is much more complicated than described above and herein lies why you need legal advice. The question of duties and taxes becomes even more complicated when importing a boat into Australia as GST may be payable on the boat and the boat insurance. Adding to the confusion import duties may also be payable, however, there are certain circumstances when it is not payable. An example of how confusing the import duty question becomes is where a Boat was purchased in America then sailed to Canada for major reconstruction and refit work. In this scenario ultimately duty was payable due to the Boat being imported from Canada, however the question of how much was where our services became invaluable saving our client thousands of dollars. The lure of buying overseas may be significant, especially when it appears there are real savings to be made however this is not always the case as the following example shows.
OS Private Purchase Pitfalls
The purchaser beware principle was no less evident in the purchase of a privately owned and sold, second-hand 50-foot luxury cruiser from the US, advertised online at a bargain basement price. While the purchaser appeared to do everything to ensure the purchase and delivery were successful by flying to the USA; speaking to the Boat’s owner; organising a survey and taking the cruiser for sea trials; the purchaser was not aware of his legal exposure due to the private nature of the deal. Several weeks later the Boat appeared to arrive intact and was craned into the water. Yet when the engines were started and the throttle set to full forward, the engine roar couldn’t hide the fact that the cruiser remained stubbornly stationary. The owner was understandably crushed by this turn of events and his bargain boat had to be towed to the slipway for inspection. An expert immediately identified the problem; sometime between the test drive in the States and the arrival of the cruiser in Sydney, both 5 bladed twin propellers had been switched with propellers that had fewer blades, were smaller and thus completely ineffectual. The owner, now unable to pursue the US vendor was also not aware of any other persons who may have had access to the Boat and would have to fork out over $30,000 to get the Boat going again.
The main difficulty that confronted the cruiser owner in taking legal action was that he was the importer of the Boat limiting any potential recourse to the party who removed the propellers, a task almost impossible to prove, as the props could have been changed at any time between sea trials and Sydney. A further sting in the tail came when it was realised that the shipping insurance was limited to the loss while the Boat was being shipped. The reality was that he had no legal recourse available due to the private nature of the sale highlighting the importance of understanding what consumer protection is and is not available.
Whose Law?
While it may seem over the top, knowing where and what law will be applied to a claim or litigation is vital and can be the difference between affording legal recourse or not. Jurisdictional clauses limit legal action to a single state or jurisdiction and these clauses, more often than not preference the vendor and make legal action by the purchaser in their preferred jurisdiction extremely difficult if not impossible due to the practical realities of running such a matter. This clause is generally found toward the back of the contract and is easily overlooked. Additionally, depending on what and is agreed between the parties and when this inconspicuous clause may be the deal breaker.
The effect of a jurisdictional clause can be seen when viewed against the background of a complex weave of shipping agreements, a storm our client found himself having to weather prior to getting legal advice. Naively, signing an agreement with the shipper which included the jurisdictional clause that all legal action was to be taken in the State of California, the agreement also included a term stating that the yacht would be delivered ex-Newcastle, Australia. Unfortunately, the reality was very different as the shipper had no intention of delivering the Boat to Newcastle as he had previously entered another agreement with the charter party of the ship to deliver the Boat to Sydney. And to make things worse, against the written instruction of our client, the mast was shipped separately to the yacht. The logistical nightmare that this scenario caused for our client became apparent as he realised he would have to; deal with two separate parties in Australia when discharging both the yacht and mast from the ships; need two separate trucks to transport both the yacht and mast to Newcastle as the ships would arrive at different times; and incur double the costs in this process.
When our client had contacted us to see what legal recourse he had against the shipper, it was precisely when final payment was due to the shipper as the yacht and mast were already in transit. The legal reality for our client was, while the shipper may have breached the agreement, this first agreement was completely separate to a second agreement between the shipper and charter party, who’s only concern, would be that the yacht and mast be discharged in a timely manner. The result was that our client was forced to pay the shipper the balance owing in order to gain access to the two Bills of Lading, being evidence of ownership. Armed with these Bills, the yacht and eventually, most were discharged at Sydney for trucking to Newcastle. After the storm clouds had cleared and our advice considered, on balance it was decided not to pursue the shipper due to the cost and impediments created by the jurisdictional clause that limited all legal actions to the State of California.
While it is not foreshadowed every purchase or sale of a boat will end up in some sort of legal stoush, prevention is better than a cure. At the very least seeking early legal advice could at the very least save you some expenses that were not foreshadowed such as taxes or duties and in the worst case provide you with a contract that is enforceable. A significant point that is often not considered when using a lawyer in boat
transactions is that not only are legal issues canvassed but having a third independent impartial opinion can provide a rational voice in what sum may say is often an irrational purchase.