Focus on Refits - Ins and Outs of Yard Contracts

20 October 2009 By Janine Ketterer, By Benjamin Maltby

Some refits can test the validity of Murphy’s Law, which states, "anything that can go wrong will go wrong." Because there is a likelihood that problems may arise, most captains and owners enter into legal agreements with refit yards in order to minimize the drama. However, problems can arise when parties don’t bother to take – or are too cheap to pay for – legal advice.

Many captains are not fluent in legalese. Lawyers for the boatyards write up contracts and oftentimes, captains sign them without comprehending or sometimes even reading what they specify – which can make disputes more likely.

Given the technical nature and complexity of the work normally being undertaken, it can make sense to have a dispute resolution clause in the contract. Some refit yards include these clauses into their contracts automatically in order to force both sides to talk through the issues before it turns into a court case. This can help to preserve a relationship between the involved parties, and keep the refit running closer to schedule, but it can also be a costly procedure, especially where a third party surveyor or expert mediator is brought in.

Benjamin Maltby of Palma-based consultants MatrixLloyd comments, “The most common mistake people make is to see refit contracts as a stick to beat the other side with in the event of something going ‘wrong.’ In fact, rather than things going wrong, the reason why there are disputes is normally because there are genuine misunderstandings on the part of either or both parties. A proper refit contract is not a stick, it’s a roadmap - setting out everyone’s rights, responsibilities and expectations, bearing in mind that we’re all only human and some things may be beyond our control.”

There are some boatyards that do not use formal contracts, only work orders. But beware, these still form legal contracts. It's always advisable that a captain or owner hire a lawyer to look over any agreement with a boatyard prior to signing, as both work orders and more formal contracts can benefit the boatyard rather than the yacht.
If a boatyard comes to you with their “standard contract” there are several clauses and other issues you should be wary of – maybe one or more will form your “standard objection”:

1. Invoices – On occasion, when there is an invoice dispute, work stops, pushing the refit completion back until the issue is resolved. The contract should not allow for such stoppages.

2. Negligence – Some contracts relieve the boatyard of “ordinary negligence,” meaning “gross negligence” must be proven in order for the boatyard to be liable. Simple mistakes may not be considered and the yacht will have to fit the bill.

3. Attorney’s fees – Some yard’s contracts state that the yacht must pay for any attorney fees and so even if the yacht’s underwriter sues the yard, the owner is stuck with the bill. Don’t accept this. Each side should be responsible for paying for their own advice.

4. Dispute resolution – If there is no dispute resolution in a contract, it should be added in order to help avoid issues progessing into litigation. That is quite similar to the situation in a dispute resolution. The contract obliges both parties to discuss their issues with a third party, who will make suggestions as to a possible solution which suits everyone. But neither side is bound to accept what the third party comes up with.

5. Liability insurance – A contract should specifie liability as the same amount as the bill of the refit. If you rack up $10,000 and your $10 million boat is lost in a fire at the yard, the yard is only liable for up to $10,000, leaving you up the creek without a paddle.

6. Warranties – This should be negotiated so that the time period of the warranty is fair to both the yacht and the shipyard. Be sure paint jobs have separate warranties.