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FAQ regarding New building contracts

17 July 2015


1 When does the ship’s title pass from the builder to the owner? Can the transfer in question be arranged differently by the parties?

The title of a newly built ship is illustrated through the issue of a certificate of the builder, in other words, a certificate signed by the builder of the ship containing a true account of the ship’s particulars as well as the name of the person on whose account the ship was built, and if there has been any sale, the bill of sale under which the ship, or share therein, has become vested in the owner. As ships are moveable objects, it is considered that during the pass of the title from the shipbuilder to the shipowner, there must be a simultaneous ‘physical’ delivery of the ship by the former to the latter.

Hence, the absolute title in a ship is transferred by means of a builder’s certificate (and bill of sale, where applicable), and the physical delivery of such a vessel to the owner.

2 What are the formalities which need to be in compliance with for a valid refund guarantee?

In the present, there are no statutory requirements applicable in Cyprus for refund guarantees issued by shipbuilders to shipowners to be valid, other than the general legal requirements for the underlying shipbuilding contracts to become effective in the first place.

3 Which are the remedies in domestic courts to force the delivery of the ship when the yard refuses to do so?

The person or legal entity who had requested the build of the vessel (shipowner) may refer to the national courts and pursue the grant of a ‘specific performance’ order forcing the shipbuilder to physically deliver the vessel to the applicant. Specific performance is, however, a discretionary power of the court is provided on the grounds of the Common’s Law doctrines and Law of Equity, and is applicable in cases where any alternative remedies are not available.

4 Who maintains the cause of action and who bares the liability in cases where the ship is defective and damage results? Would such a claim lie in contract or under product liability against the shipbuilder?

An owner may apply to the court against the shipbuilder for defects to his/her vessel, both under the shipbuilding contract in question, predominantly in the basis of the relevant warranty clause contained therein, and, under certain circumstances, the implied provisions of the law on the domestic Sale of Goods Act.

In a sale/purchase of a newly built ship that continues under the shipbuilder’s warranty, and where such warranties are assigned to the purchaser, with the builder’s consent, then such purchaser would stand in the same legal position as the original shipowner against the builder in relation to these warranty claims. Where such warranties are not applicable, then considering that the rule of ‘privity of contracts’ applies in Cyprus, the purchaser would have been estopped to pursue a claim against the shipbuilder, but only against the seller of the ship, and would be based upon the terms of the contract of sale of the vessel between them. Frequently, this is a memorandum of agreement (MOA) based on the Norwegian Sales Form.

Pantelis Vorkas

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