Buying a yacht: legal subtleties in technical condition assessment
Theory and practice

Buying a yacht: legal subtleties in technical condition assessment

Eight classic examples of court decisions to avoid mistakes when buying a yacht
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The most common subject of disputes during the purchase of a yacht is its technical condition. This is true not only for yachts purchased in the secondary market (although more so), but also for new yachts that may not meet specifications or have hidden construction defects. Problems may be detected during a yacht survey (in which case the subject of legal disputes is a refund of the deposit already paid and/or compensation for the cost of repair) or after the purchase during the operation of the yacht (in which case it is a refund or compensation for the cost of repair).

In maritime contractual relations English law is widely used, which allows not only to conclude contracts with more flexible terms than in the system of continental law, and in case of disputes to go to the English court known for its impartiality, but also to «learn from mistakes».

Higher court decisions become binding on lower courts and form a modern English law approach to resolving a dispute. Therefore, familiarity with the classical court decisions of the English Maritime Law makes it possible to draw conclusions and avoid many mistakes made by buyers of yachts in the past.

In this article we will look at eight classic cases arising from yacht sales transactions that relate to the technical condition of a yacht during or after the purchase and are subject to English law.

How to protect yourself from buying a yacht in poor condition

The first group of precedents is devoted to disputes concerning the proper condition of the yacht, its «seaworthiness», assurances and guarantees of the seller concerning such condition provided at the moment of sale. In English law such guarantees are referred to as «warranties» or «representations» and may exist either orally or in writing.

The case of EASTER v. PEEK [1932]

The seller and buyer have entered into a sale and purchase agreement for a £1,200 Nordissa yacht. The buyer has paid only half of the value of the yacht and the seller has sued for the remaining £600. In its defense, the defendant stated that when selling the yacht, the plaintiff assured the buyer of its seaworthiness and readiness to enter the Mediterranean Sea immediately after purchase. However, it appeared that the hull of the yacht was substantially damaged. In view of the condition of the yacht, the defendant argued that it was entitled to cancel the agreement because the plaintiff's assurances were not true. In the defendant's view, the plaintiff had «inadvertently misrepresented»the real technical condition of the yacht.

The judge found that the defendant had not proved the plaintiff's misrepresentation. He noted that when purchasing a yacht over 50 years of age, the defendant had to be aware that the yacht was not new and take steps to test its navigability.

The defendant should have properly inspected the yacht, but did not do so.

In view of the above, the judge decided in favour of the plaintiff to recover the underpaid amount.

Conclusion: Ensure that the yacht is in proper technical condition before buying.

Carry out an inspection with an independent professional, either an engineer or a surveyor. The cost of an inspection is incomparably less than the cost of repairing a yacht of poor quality. If it is not possible to hire an independent technician for any reason, you should inspect the yacht yourself.

Case DAWSON v. YEOWARD [1961]

The plaintiff (buyer) bought a yacht from the defendant (seller). The sale and purchase agreement was executed verbally. Before the purchase, the seller assured the buyer that it would be a waste of money to lift the yacht out of the water to check its condition, as a few months ago the yacht had already been lifted out of the water to paint the bottom. It was assumed that no serious defects had been found during the works. The plaintiff conducted a superficial inspection of the yacht and was satisfied with the defendant's assurances that the yacht was in good condition.

A few months after the purchase, serious damage was discovered to the yacht and the plaintiff filed a claim for compensation for the fact that the yacht was in poor condition. The plaintiff asserted that it relied on verbal assurances and guarantees from the seller when purchasing the yacht.

The Court of First Instance upheld the plaintiff by accepting as appropriate evidence: 1) the fact that the defendant had given assurances of the proper condition of the yacht at the time the yacht was sold and 2) the fact that the defendant had violated those assurances.

The defendant subsequently filed an appeal which was accepted by the defendant.

Thus, the words spoken by the defendant about the state of the yacht were considered «mere representations»and were not provisions of the concluded sales agreement. Consequently, the defendant's statement did not constitute a guarantee. However, even if such a guarantee had been properly executed and formed part of the sales agreement, the plaintiff still could not prove that the hull of the yacht had hidden defects at the time of purchase, nor could it prove that the yacht had not been damaged after the purchase, a few months after use.

Conclusion: Get written confirmation from the seller of the yacht's seaworthiness and condition.

The seller's verbal assurances about the condition of the yacht are not grounds for entering into a deal. We recommend getting a written assurance of the seller about the proper condition of the yacht. Include the seller's guarantees in the contract of sale so that they can be called upon if defects are found after a certain period of time.

Case PIERCE v. WOOD [1934].

A buyer of a Pat yacht has sued the seller for breach of warranty on the proper condition of the yacht and for damages caused by the breach of warranty. The defendant, in turn, filed a counterclaim to recover the outstanding balance of the value of the yacht.

Under the terms of the contract, the defendant was obliged to deliver the yacht to the plaintiff in another city. Since the defendant was entitled to operate the yacht, he undertook to deliver the yacht personally. During the carriage, the defendant changed course in order to save time and due to weather conditions, and as a result, the yacht hit the bottom three times. During the delivery of the yacht no visible defects were detected, but further inspection revealed significant damage to the hull and other parts of the yacht.

During the hearing of the case the judge paid attention to the fact that it is necessary to determine the moment of the transfer of the ownership of the yacht and to decide whether the agreement to deliver the yacht is an integral part of the sales agreement or it is a separate agreement. Although the terms of the contract provided for the delivery of the yacht, after which the transfer of ownership took place, the judge, after analyzing the evidence presented, concluded that the ownership of the yacht had passed at the time of the transaction and before transportation. This was confirmed by the fact that the plaintiff, after the conclusion of the agreement, actually took possession of the yacht, i.e., acted on behalf of the owner, i.e. took out the insurance cover in his name, spent time on board, purchased fuel for its transportation.

In view of the above, the court ruled that the yacht became non-shipable after the transfer of ownership to the plaintiff, which means that the defendant is not responsible for any damage that occurred during delivery. Consequently, the claim was denied to the plaintiff.

Conclusion: Detail the moment of transfer of rights and obligations and all risks associated with the yacht.

When buying a ship, pay attention to the legal consequences of certain actions in relation to the subject of the transaction. The moment you take ownership must be clearly stated, as must all risks associated with a yacht - such as damage, breakage or destruction of the yacht and its equipment. The terms and conditions of a yacht's survey can also be set out in the sales agreement itself, but there are specifics in this matter which we will discuss further.

Case Brian Henry Austen and Michael Stephen Austen v. Pearl Motor Yachts Ltd [2014].

The yacht Temptation 2, which was purchased from the manufacturer (defendant), ran aground. The event occurred during the two-year warranty period from the manufacturer, about 10 months after the date of purchase.

After the incident, the buyer (the plaintiff) took legal action because the defendant had breached the contract for the construction of the yacht and had not fulfilled its obligation to ensure that the yacht was of proper satisfactory quality. The plaintiff claimed the cost of repairing the yacht, which amounted to approximately £500,000, as well as approximately £75,000 in damages.

The plaintiff's main claim was that the hull material at the stern, where the cracks appeared after the accident, was 7mm thick instead of the 20mm laid down. Thus, the defendant violated the specifications of the construction contract.

The defendant acknowledged that the thinning of the hull material was in violation of the specification, but argued that it was irrelevant in the light of the subject matter of the dispute. That is, even if the yacht had been built to the specification, the hull would still have been damaged by being grounded. Therefore, the plaintiff cannot claim that it suffered damages because of the defendant.

The main objective of the court was to establish whether the yacht would have suffered the same damage if it had been built to specification. However, the issue of the negligence of the plaintiff, who actually operated the boat at the time of the incident, was not considered, as the defendant believed that the issue was irrelevant.

After a detailed examination of the expert opinions, the court concluded that if the hull had been of the thickness specified in the specification, it would not have received the cracks that caused the water to enter. The court ruled in the plaintiff's favour.

Conclusion: If a new yacht is damaged during operation, it is worth checking that it meets the specifications.

If the yacht is new, it is covered by a 1-2 year warranty (some shipyards have up to five years). If the yacht is damaged in the first years of use, check that it meets the declared specifications. If the liability is breached, the manufacturer will have to compensate for the cost of repair.

How to properly specify in the contract the conditions related to the survey of the yacht

The next group of precedents is related to disputes over yacht sale and purchase agreements due to unsatisfactory technical condition of the yacht revealed after the survey of the yacht.

The case of HYAMS v. DOCKER [1968].

The plaintiff bought a Shemara yacht from the defendant. The Sale and Purchase Agreement states that if a surveyor inspects the yacht or its equipment for defects, the plaintiff may give a notice of refusal to buy the yacht due to the defects. Upon receipt of such notice, the defendant agrees to remedy the defects or offer material compensation.

The plaintiff has carried out a survey in which the defects and defects have been identified for an amount corresponding to one-third of the value of the yacht. It then notified the seller that it was withdrawing from the transaction and requested a refund of the deposit. The defendant also carried out a survey which revealed defects estimated at only £100.

Applying to the court, the plaintiff claimed that only he could assess the existence of defects, since it was for him that the condition of the yacht should be satisfactory and the defendant could not dispute the existence of defects. The plaintiff also asserted its full right to cantangulate the contract, as the defendant did not wish to remedy the defects of the yacht identified by the plaintiff.

The court ruled in favour of the defendant, as the plaintiff had been wrong to discover the defects in the boat. The court decided that the plaintiff was not entitled to submit a withdrawal notice, since the condition for submitting the notice was that the defect existed as an objective fact. Moreover, the defendant was unable to eliminate defects that did not objectively exist.

The plaintiff subsequently filed an appeal, but this instance also accepted the defendant's side and the plaintiff was denied the claim.

Conclusion: The condition of a surveyor's examination does not in itself allow the buyer to withdraw from the transaction.

For example, the MOA («Memorandum of Agreement)»form of the Mediterranean Yacht Brokers Association (MYBA) gives the right to file a notice of refusal only in case of serious technical defects of the yacht which significantly affect the general condition of the yacht.

In the case of HYAMS v. DOCKER [1968], the purpose of the design used in the contract was rather to satisfy the buyer's wish to make possible future repairs at the seller's expense, if defects were found, and only as a last resort to withdraw from the contract.

The case of ASTRA TRUST, LTD v. ADAMS AND WILLIAMS [1968]

In the case of ASTRA TRUST, LTD v. ADAMS AND WILLIAMS, the plaintiff (buyer) agreed to buy the Entrancer yacht from the defendant (seller) «provided that the yacht has passed a» satisfactory survey. The sale and purchase agreement was executed verbally.

After the inspection, the surveyor found no significant defects and, in general, the yacht was in satisfactory condition. However, after examining the report, the plaintiff changed his mind about buying the yacht and requested a refund of the deposit, as the technical condition of the yacht did not suit him and then went to court. The defendant, in turn, filed a counterclaim accusing the plaintiff of violating the terms of the agreement.

«The court supported the plaintiff arguing its position that there was no binding agreement between the parties as such, as it should have been concluded and become binding «if» the survey had been carried out satisfactorily, which did not happen». The judge noted, however, that the buyer had the right to decide whether or not the survey was satisfactory to it, and only in the first case would the agreement become binding. However, the dissatisfaction had to be in good faith (lat. - «bona fide»). And in this case it was such, because there was no evidence to the contrary.

Conclusion: If the purpose is to make the completion of the survey a mandatory condition for the transaction, it is reasonable to use the wording «subject to survey in the contract.

In the case of ASTRA TRUST, LTD v. ADAMS AND WILLIAMS [1968] a satisfactory survey of the yacht was the main condition that influenced whether or not the transaction took place.

The wording ««subject to survey»is often used in sales contracts, in which case» the condition for the successful conclusion and continued performance of the agreement may or may not be the occurrence of any other fact. Accordingly, if this fact occurs (or does not occur), the agreement will not be considered concluded and binding on the parties.

The case of DALMARE SPA v UNION MARITIME LTD [2012].

The case concerns the sale of a tanker, but is quite illustrative and is used by the courts in disputes related to yachts.

The contract of sale stated that the vessel was to be delivered in the same condition «as she was at the time of inspection», excluding reasonable wear and tear. However, the ship should have been delivered in its class, extended until 30 September 2009 without any conditions/recommendations, without affecting the class of the ship.

The buyer (the plaintiff) claimed that the seller (the defendant) was in breach of the terms of the contract of sale at the time of delivery of the vessel because he sold the vessel knowingly of poor quality and thus breached the «implied terms»of satisfactory quality under the provisions of the Sale of Goods Act 1979.

However, the defendant insisted that the vessel was sold «as it was at the time of inspection», i.e., as it was at the time of inspection on a particular date and under actual conditions «as is». In English law, the design «as is where it» implies that the buyer accepts the boat in its current state at the time of purchase, whether good or bad, and bears all risks associated with its technical condition, including obvious and hidden defects. And since the boat is sold on the terms «as is where it is», the implied condition of satisfactory quality under the provisions of the English Sale of Goods Act is automatically excluded from the agreement.

The first instance upheld the plaintiff and rejected the defendant's arguments, holding that the implied condition of satisfactory quality of the goods under the provisions of the English Sale of Goods Act was an integral part of the agreement and the defendant had breached this condition of the agreement and the plaintiff's claims must be fully satisfied.

However, the defendant appealed and insisted that the design «as it was at the time of inspection» was analogous to the design «as it was», and the plaintiff had purchased the vessel in the condition in which it had been seen during the inspection, without other assurances from the defendant as to the quality or suitability of the vessel for the plaintiff's use.

The questions thus brought before the court were whether the wording «as it was at the time of inspection»used in the contract was the same as the construction «as it is» and whether the use of the construction «as it is the» automatic ground for not applying the implied condition of satisfactory quality under the provisions of the English Sale of Goods Act.

Having studied the case file, the appeal upheld the first instance and ruled that in this case the use of the design «as it was at the time of inspection» was not the same «as where it was due» to the defendant's obligation to extend the class of vessel and to deliver the vessel without damage affecting the validity of the class of vessel. Accordingly, the defendant is not relieved of the implied condition of an agreement on satisfactory quality of the goods under the provisions of the English Sale of Goods Act.

With respect to the second question, the court held that it was» not necessary to examine it further as it was no longer recognized «as a design «as it was», but one of the judges expressed a separate position and admitted that the matter could still be agreed upon by the parties in other transactions individually. In the individual opinion of the judge, the use of the design «as is where it is» depriving any buyer of the possibility of refusing to buy the vessel, but not preventing the buyer from recovering damages from the seller due to the poor quality of the vessel. However, it should be noted that the position of this judge is different from many other precedents and established practice.

Conclusion: Clearly define the terminology of the contract and make sure that both parties interpret it in the same way.

This precedent illustrates how important clarity of contract terminology is. If the parties use a construction established in English law and want to make full use of its mechanism, it is necessary to record this condition in the contract in writing as clearly as possible.

Another important aspect is that both parties must have the same understanding of the meaning and results of the language to avoid misunderstandings and possible disputes.

The case of Michael Hirtenstein & Others v. Hill Dickinson LLP [2014].

In this case, the plaintiff (buyer) purchased a Candyscape yacht from the defendant (seller) whose engine broke down an hour after the deal was completed. The parties entered into a sale and purchase agreement under MYBA with certain modifications. Features of the deal were the shortest possible time from the start of negotiations to clowning (a few days) and the condition of selling the yacht using the construction «as is, where is».

As emphasized by the court, the purchase of a yacht on such terms meant that the plaintiff would purchase the yacht in any condition it was in at the time of purchase and would not be entitled to claim any defects later. The judge referred, among other things, to the judge's preliminary conclusion from the previous case (that the construction «as is where it is» deprived of the right to withdraw from the transaction but gives the right to recover damages) and noted that such an interpretation of the construction «as is where it» is likely to fail to meet the expectations of the parties entering into a transaction with such a clause.

Conclusion: The design as is, where it is in the contract of sale deprives the buyer of the right to make claims regarding the condition of the boat after the purchase.

In the case of «as is, where is», most often the implied condition of satisfactory quality will not apply.

Such a design is often used for the purchase of auction yachts with large discounts, which are generally not «in good condition». There are, however, some economic resonances to buying such yachts, read more in this article.

In conclusion, English law is a reasonable choice of applicable law for contractual relationships in the field of yachting. In order to take full advantage of it when drafting contracts, it is necessary to take into account not only our usual rules of law, but also established English jurisprudence. Choose legal advisers with extensive experience in English law contracts, which will help you to understand all the nuances and specifics.





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