Superyachts in Covid-19: new build and refit contracts

Posted: 30/04/2020

During this extraordinary time of global uncertainty arising from coronavirus, political and economic measures are being introduced that affect how we live and work in the short and medium term. This impacts considerably on the yachting industry as a whole, from small craft and racing at Club level to the Olympics/Americas Cup and the superyacht industry.

The immediate priority is health concerns and following the guidance of our governments in limiting the spread. However, these measures are having a considerable impact on businesses and this will affect the wider yachting industry, being for the most part a leisure industry with social interaction at its heart. Many yachting events have already been cancelled or postponed, which will have knock-on consequences for the many businesses supporting this sector. New builds, refits and other projects will inevitably be delayed or even cancelled. The Mediterranean charter season is likely to be limited.

A further concern is that such a slow-down in activity will result in a more serious economic downturn. This may engender payment issues for many businesses, and even sound businesses can run into trouble if others default. It is particularly important for companies to have awareness of legal issues that could affect their ability to trade as part of their crisis management planning so as to better navigate these difficult times.

Existing build and refit contracts should be checked to review whether there are termination or force majeure provisions that apply. One also needs to check the applicable law and jurisdiction provisions in any contract and be aware that the law on these key terms differs from country to country. Key issues that may arise under such contracts are as follows:

• For those with yachts under construction or being refitted it is advisable to review what constitutes a ‘force majeure’ event or ‘permissible delay’ and whether notices have to be given to trigger the rights arising from such provisions.
• Yards may also come under financial pressure as creditors seek to protect their positions against yards, or the physical equipment supplied to yards. Insolvency proceedings against the yard or suppliers may trigger the right to terminate contracts and, if affected, the consequences can be quite serious. The ownership of equipment supplied to a yacht where an owner has paid the yard could still be challenged if suppliers have not been paid and have contracts with retention of title provisions.
• There may be practical obstacles where surveyors simply cannot access yachts to ascertain the condition of the yacht or stage of works to satisfy payment obligations or even class approvals. In this regard some classification societies are working to provide remote survey options.
• If an agreement is reached to stop works it still may not be possible to remove a yacht from a yard and matters regarding continued storage/docking, the ability to attend the yacht and insurance will all have to be considered.
• Yards and suppliers will also want to check whether they have any insurance in place that may cover losses arising from business interruption. A difficulty is that many policies only respond to physical damage, although some policies may be triggered by denial of entry. Such policies should be carefully reviewed.

Difficult decisions may need to be taken and all stakeholders should keep abreast of the latest Government and WHO advice, as this will impact on how contracts will be construed. There may also be changes in local laws that make the performance of existing contracts impossible and this should be monitored closely.

This is also not to say that such contracts should come to an end as parties may want to explore what can be done to mitigate losses or delay performance until restrictions are lifted, even though at this stage the time frame for that is unknown. In short it is far better to review all contracts at an early stage and take proactive steps to consider your position and take appropriate protective steps if necessary.

As a firm we are advising clients on wider issues including employment, immigration and insolvency law and our latest guidance on the legal and practical implications of the coronavirus can be accessed on our hub here, which will be updated regularly with guidance on the issues as they arise with changes in legislation.

This article was published in Superyacht News in April 2020.

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