Having spent over 16 years with Reed Smith, a global law firm with offices in the US, Europe, Middle East and Asia, Thor Maalouf explains how to address risks in superyacht construction contracts.

Feadship’s Project 710; Photos: Feadship

In the evolving landscape of superyacht construction, cutting-edge technologies are increasingly taking centre stage as a means to reduce carbon emissions. Innovations such as enhanced propeller design, hull optimisation, heat pumps and the integration of contra-rotating thrusters for propulsion, exemplified by projects like Feadship’s Project 710, are pushing the boundaries of traditional yacht building.

While these advancements hold great promise for a more sustainable future, the allocation of risk associated with these novel designs becomes a critical consideration in the shipbuilding contract stage.

In a yacht-building contract, the burden of design risk typically falls upon the builder. This is often explicitly stipulated in the contract terms, reflecting the industry norm. In the absence of such an agreement, the builder’s fundamental commitment to manufacturing and selling the yacht implies an inherent obligation.

This obligation extends to ensuring that the design not only facilitates safe operation but also aligns with the performance criteria outlined in the contract. Moreover, the yacht will be built in accordance with a detailed technical specification; to that extent, making design an integral facet of the workmanship guaranteed by the shipyard during the construction process.

However, when a yacht is intended to be built based on a design formulated by the buyer or a third-party supplier – especially if it involves cutting-edge, decarbonising technologies – it may not be automatically assumed that the builder bears the risk associated with this design. In such cases, the contractual framework must explicitly address and clarify the distribution of design risks.

In the event of post-delivery issues arising from yachts incorporating innovative designs, recourse can be sought through warranty claims against the builder. It’s worth noting that different warranty periods might apply to various technology components, underscoring the importance of a clear and comprehensive contractual arrangement.

The complexities introduced by new technologies could necessitate continued trials and testing regimes post-delivery, potentially involving holdbacks of the price until the yacht’s performance is thoroughly validated.

Moreover, maintenance regimes for specific components may be managed by suppliers other than the shipyard. This implies that beyond the construction phase, ongoing responsibilities and liabilities associated with the performance of innovative technologies may extend to various entities involved in the supply chain.

Therefore, the intricate web of relationships in the superyacht construction process demands meticulous contractual language to delineate these responsibilities and mitigate potential disputes.

In conclusion, as the superyacht industry embraces new and experimental technologies to meet environmental goals, the importance of addressing design risks in shipbuilding contracts cannot be overstated.

Clear contractual provisions, warranty mechanisms and ongoing testing protocols are indispensable tools in managing and mitigating the complexities associated with the incorporation of cutting-edge technologies in superyacht construction.

Note: Reed Smith’s Trading Straits podcast, titled ‘Decarbonization Technology: Risks in Superyacht Construction and Financing’, delves into these complex issues. The podcast serves as a resource for stakeholders in the industry, offering insights into the legal and contractual considerations surrounding the adoption of innovative technologies in superyacht construction. By exploring the challenges and opportunities presented by the integration of decarbonising technologies, the podcast provides an understanding of the risks involved and strategies to navigate them effectively.

THOR MAALOUF

Having joined Reed Smith as a Trainee Solicitor in 2007, Maalouf is now a partner in the company’s Transportation Industry Group. A global law firm with over 30 offices around the world, Reed Smith has about 3,000 employees including over 1,700 lawyers. Maalouf advises on all aspects of commercial Shipping and Maritime law, in particular Charterparties, Bills of Lading, Shipbuilding Contracts, Luxury Yacht Charters, Charters for Project Cargo, and contracts for shipping and freight services including multi-modal transport and logistics. As a member of Reed Smith’s shipping practice, she advises clients on how to reach pragmatic and commercial solutions to disputes, while she also has in-depth experience of mediation, litigation in the English Courts and LMAA arbitration. Maalouf enjoys triathlons, sailing and being a Girl Guide leader, having served in the Army Reserves for several years.

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