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Unformatted text preview: City Research Online City, University of London Institutional Repository Citation: Vasani, A. (2018). Shipbuilding disputes: influence of industry norms on law and contracts. (Unpublished Doctoral thesis, City, University of London) This is the accepted version of the paper. This version of the publication may differ from the final published version. Permanent repository link: Link to published version: Copyright and reuse: City Research Online aims to make research outputs of City, University of London available to a wider audience. Copyright and Moral Rights remain with the author(s) and/or copyright holders. URLs from City Research Online may be freely distributed and linked to. City Research Online: [email protected] City Research Online City, University of London Institutional Repository Citation: Vasani, A. (2018). Shipbuilding disputes: influence of industry norms on law and contracts. (Unpublished Doctoral thesis, City, University of London) This is the accepted version of the paper. This version of the publication may differ from the final published version. Permanent repository link: Link to published version: Copyright and reuse: City Research Online aims to make research outputs of City, University of London available to a wider audience. Copyright and Moral Rights remain with the author(s) and/or copyright holders. URLs from City Research Online may be freely distributed and linked to. City Research Online: [email protected] SHIPBUILDING DISPUTES: INFLUENCE OF INDUSTRY NORMS ON LAW AND CONTRACTS Amar Vasani Doctor of Philosophy (PhD) Thesis City, University of London The City Law School August 2018 2 3 Table of Contents CHAPTER 1: Premise and Approach Page 1.1 – Introduction 14 1.1.1 Chapter Synopsis 17 1.1.2 The Shipbuilding Industry 21 Markets 22 Nations 24 Significance 29 1.1.3 Stages of a shipbuild 32 1.1.4 Types of ship built 35 1.1.5 Scope of term ‘shipbuilding’ 38 1.1.6 Shipbuilding standard-forms 42 1.2 – Methodology & Resources 1.2.1 42 Methodology 43 Definitions 49 Resources 52 Purpose 56 CHAPTER 2: Legal Characterisation of Shipbuilding Page 2.1 – Introduction 59 2.2 – How Legislation deals with shipbuilding contracts 60 2.2.1 Foreign Legislation following suit 2.3 – Case Law characterising the shipbuilding contract 63 65 First Wave 66 Second Wave 72 Third Wave 76 Foreign Case Law following suit 80 2.4 – Alternative characterisations of the shipbuilding contract 87 2.3.1 2.4.1 Alternative characterisations under Case Law 4 87 2.4.2 Alternative ways for Legislation to deal with shipbuilding contracts 99 2.5 – Sui Generis characterisations of the shipbuilding contract 106 2.6 – Unfair Contract Terms Act 1977 111 2.7 – Conclusion 119 CHAPTER 3: Shipbuilding Industry Norms and Perceptions Page 3.1 – Introduction 121 3.2 – Industry norms underpinning the shipbuilding relationship 122 3.2.1 3.2.2 Industry norms underpinning the general construction relationship 127 Industry norms underpinning the offshore construction relationship 130 3.3 – Industry perceptions of the shipbuilder’s role under a shipbuilding contract 133 Sale of Goods: Delivery of the vessel 135 Service-sale ‘hybrid’ 137 ‘Outright’ service 140 3.4 – Conclusion 143 CHAPTER 4: Causes of Dispute Page 4.1 – Introduction 146 4.2 – Party Performance Related Causes 147 4.2.1 Financial Issues 147 4.2.2 Delays 151 Knock-On Delays 153 Vessel Defects and Errors in following Specification 154 Subcontractor Error 157 4.2.4 Novation 158 4.2.5 Opportunism 159 4.2.3 4.3 – Extenuating Causes 164 4.3.1 Force Majeure 164 4.3.2 Frustration 169 5 4.3.3 Market Change 173 4.4 – Future of Shipbuilding Disputes 176 4.5 – Conclusion 179 CHAPTER 5: Remedies Page 5.1 – Introduction 181 5.2 – Judicial Remedies 182 5.2.1 5.2.2 5.2.3 Remedies under the Sale of Goods Act 1979 182 Statutory Lien 183 Right of Stoppage in Transit 184 Right of Resale 185 Action for the Price 186 Debt and Damages Claims 187 Damages for Non-Acceptance 188 Damages for Non-Delivery 190 Damages for Breach of Warranty 191 Remedies under Work and Materials Legislation and General Construction Legislation 193 Common Law and Equitable Remedies 195 Seller’s Right to Repudiate 196 Buyer’s Right to Repudiate 198 Breach of Condition or Warranty 200 Common Law and Contractual Rights to Repudiate 201 Damages for Late Delivery 202 Specific Performance 204 Injunctions 207 5.3 – Industry Influence on Judicial Remedies 209 5.3.1 Tacit Industry Understandings 209 5.3.2 Sui Generis Judicial Remedies 216 5.4 – Contractual Remedies 220 5.4.1 Shipbuilding contractual remedy clauses 222 5.4.2 Market Based 228 6 5.4.3 Risk Allocating 232 5.4.4 Convenient 237 5.4.5 Reflects Industry Wordings 240 5.4.6 Incorporates Goodwill 243 5.4.7 Commercially Justified 248 5.5 – Conclusion 250 CHAPTER 6: Consolidation and Future Research Page 6.1 – Introduction 253 6.2 – Normative conclusions on industry influence and contract characterisation 253 6.3 – Invitations for Future Research 257 6.4 – Closing 261 APPENDICES Page Fig. 1 – Interaction between the shipping sub-markets and the global economy 263 Fig. 2 – Percentage of global ship launches undertaken by Europe, Japan, Korea, China and the rest of the world (1902 – 2015) 264 Fig. 3 – Number of global orders and completions, and orderbook size (2017) 265 Fig. 4 – World’s five largest shibuilders by orderbook in $US billions (March 2016) 266 Fig. 5 – Newbuilds delivered in major shipbuilding countries by ship type, in 000’s of gross tons (2016) 267 Fig. 6 – South Korean orderbook by ship-owner’s nationality (June 2015) 268 Fig. 7 – Japanese orderbook by ship-owner’s nationality (June 2015) 269 Fig. 8 – Chinese orderbook by ship-owner’s nationality (June 2015) 270 Fig. 9 – Classification of commercial ship types by function and freight carried 271 Fig. 10 – Classification of ship types by build complexity and design sophistication 272 Fig. 11 – Construction contract dispute causes 273 7 Fig. 12 – Force Majeure events included under standard-form shipbuilding contracts 274 BIBLIOGRAPHY 276 8 City, University of London Northampton Square London EC1V 0HB United Kingdom T +44 (0)20 7040 5060 THE FOLLOWING PARTS OF THIS THESIS HAVE BEEN REDACTED FOR COPYRIGHT REASONS: Figures 1-11........................................................................................................ pp. 263-273 Academic excellence for business and the professions 9 10 Acknowledgements This thesis could not have been written without support from the following people. My academic supervisors, Jason and Anthony, who guided and nurtured my research, as well as going beyond the call of duty to support me pastorally. The staff at The City Law School including Mauro, Kate and Hilary, who led me through the doctoral process. My grandparents, aunties, uncles, cousins and nephews, who were always on hand to provide me with encouragement when I needed it. My mentor and former manager Mike, who inspired me to follow my dreams and apply for postgraduate study. My friends and colleagues, who were always willing to lend both an ear and a helping hand. And last but certainly not least my mother, father and brother. For always being there to give me a pat on the back or a shoulder to cry on. For championing my education above all else, supporting me both financially and emotionally. And for never asking for, or expecting, anything in return. 11 12 Abstract Disputes continue to beset English law governed shipbuilding contracts to this day, despite the fact that English law’s characterisation of the shipbuilding contract and relationship have been established since the late 19th Century. For English law to develop such that shipbuilding disputes do not occur in future, this thesis argues that lawmakers and judges must give due regard to shipbuilding industry norms. In order to do so, this thesis will firstly demonstrate that there is a disparity between how English law characterises all shipbuilding contracts and relationships, and the variety of shipbuilding contracts, relationships and projects found in the industry. It is thus argued that reconciliation of this void between law and industry is contingent upon the law having regard for industry norms. This thesis will then examine the causes of shipbuilding disputes, before exploring the judicial remedies available to parties following dispute – both if shipbuilding contracts continue to be characterised as sale of goods provisions under English law, and if legislators decide otherwise. The context of remedies will in turn be used to demonstrate how industry norms can influence both the judicial remedies issued by judges and arbitrators, and the contractual remedy clauses which parties insert into their contracts to resolve or mitigate shipbuilding disputes. 13 Chapter 1 PREMISE AND APPROACH 1.1 – Introduction Counsel in the sale of goods case of Balmoral Group Ltd v Borealis (UK) Ltd1 asserted that within the English law2 of contract lies two worlds. Firstly that of industry parties, a world which includes their contracts, contracting relationships and norms.3 Secondly that of the law,4 and how it characterises the contracts and contracting relationships of industry parties. It is possible for there to be a mismatch between these two worlds, which may hold true for the context of shipbuilding. Here, there appears to be a mismatch between the law’s homogenous characterisation of all shipbuilding contracts5 (and the contracting relationships6 between buyer and shipbuilder under them), and the heterogeneous shipbuilding contracts and contracting relationships (between buyer and shipbuilder) actually found in the shipbuilding industry. It is therefore arguable that when characterising shipbuilding contracts, when characterising the shipbuilding relationship between buyer and shipbuilder, and also when providing remedies in the wake of shipbuilding disputes, ‘contract law should proceed on the basis of a more enriched understanding and appreciation of actual [industry] practices’.7 This argument 1 [2006] 2 CLC 220 (Com Ct) The term ‘English law’ in this thesis refers to the legal system governing England and Wales. 3 Catherine Mitchell, Contract Law and Contract Practice; Bridging the Gap Between Legal Reasoning and Commercial Expectation (1st edn, Hart Publishing 2013) 1 4 [2006] 2 CLC 220 (Com Ct) 322 (Clarke J) 5 In this thesis, the law’s ‘characterisation’ of a contract means what the law considers the contract’s legal ‘nature’ to be. [Simon Curtis, The Law Of Shipbuilding Contracts (4th edn, Informa 2012) ch pt 1; William Cecil and Fiona Cain, ‘England & Wales’ in Arnold J van Steenderen (ed), Getting The Deal Through Shipbuilding 2017 (6th edn, Law Business Research 2017) 26; Aleka MandarakaSheppard, Modern Maritime Law and Risk Management (2nd edn, Informa 2009) ch 10 s 2; Aleka Mandaraka-Sheppard, Modern Maritime Law Volume 2: Managing Risks and Liabilities (3rd edn, Informa 2013) ch 7 s 2.] 6 The law’s ‘characterisation’ of a contracting relationship in this thesis refers to whether the law shapes the relationship as an ‘arm’s length’ or a ‘cooperative’ one (these terms being defined in Section 1.2). 7 Catherine Mitchell, Contract Law and Contract Practice; Bridging the Gap Between Legal Reasoning and Commercial Expectation (1st edn, Hart Publishing 2013) 3 2 14 forms the paradigm surrounding this thesis, hereinafter referred to as its ‘overarching theoretical paradigm’. Out of this emerges the ‘overarching theoretical question’ of this thesis, namely: To what extent should shipbuilding industry norms influence the characterisation of shipbuilding contracts and relationships, and the remedies available or offered in the wake of dispute? The answer to this overarching theoretical question will be argued to lie on a scale consisting of three markers. The first marker is the regulated stance, under which ‘legislative and administrative activity…directly controls contract behavio[u]r’.8 Here, the law (through judicial practice, legislation or both) is required to offset the deficiencies of contracts in regulating shipbuilding relationships.9 The law is thus ‘a method of channelling contractor behaviour, setting standards and providing incentives for maintaining stable, long-term relations’.10 Consequently, under this stance industry norms have very little influence on characterisation of contracts and contracting relationships, nor on the remedies offered in the wake of dispute. The second marker is the liberal11 stance. This stance allows shipbuilding law to be shaped to some extent by the industry, since the shipbuilding remedies administered by the law, and also the legal characterisation of shipbuilding contracts and relationships, are influenced by industry norms. The law on shipbuilding, and the shipbuilding industry, would thus coexist with one another. This stance was taken by Lord Mansfield when he argued that ‘England’s commercial law had to develop as business practice developed, and had to recognize business custom and usage’.12 Richard E Speidel, ‘Contract Law: Some Reflections Upon commercial Context And The Judicial Process’ [1967] Wisconsin Law Review 822, 823 9 Catherine Mitchell, Contract Law and Contract Practice; Bridging the Gap Between Legal Reasoning and Commercial Expectation (1st edn, Hart Publishing 2013) 8 10 Catherine Mitchell, ‘Contracts and Contract Law: Challenging the Distinction Between the ‘Real’ and ‘Paper’ Deal’ (2009) 29(4) Oxford Journal of Legal Studies 675, 688 11 The term ‘liberal’ here merely refers to the freedom which shipbuilding contract parties have to shape their contracting relationships, rather than referring to liberalism in a political sense. Thus, use of the term is confined to the shipbuilding relationship context, rather than being used to define the parties’ political views and ideals. 12 Bruce L Benson, ‘The Spontaneous Evolution of Contract Law’ (1989) 55(3) Southern Economic Journal 644, 654 8 15 ‘[S]ince contract is concerned essentially with the facilitation of market operations’,13 there remained a need for ‘laws which reinforced rather than superseded business practice’.14 The third marker is the neo-liberal15 stance, an offshoot of the liberal stance. Predicated upon the assumption that ‘[industry] parties…can fend for themselves’,16 the neo-liberal stance views the role of law as simply to enforce contractual terms ‘as written’17 and set ‘the outer limits of permissible behaviour’.18 ‘[Industry] parties may design their relationships as they wish-subject to a few important exceptions, such as the prohibition on illegal contracts’.19 Under this stance therefore, industry norms will have a great deal of influence on the characterisation of contracting relationships and contracts, as well as on the remedies awarded following dispute. Accordingly, this thesis will explore the extent to which shipbuilding industry norms should influence shipbuilding law – both in terms of the characterisation of shipbuilding contracts and relationships, and also in terms of the remedies awarded after a shipbuilding contract has entered into dispute. John N Adams and Roger Brownsword, ‘The Ideologies of Contract Law’ (1987) 7(2) Legal Studies 205, 207 14 Bruce L Benson, ‘The Spontaneous Evolution of Contract Law’ (1989) 55(3) Southern Economic Journal 644, 648 15 The term ‘neo-liberal’ here merely refers to the freedom that shipbuilding contract parties have to shape their contracting relationships, rather than referring to neo-liberalism in a political sense. Thus, use of the term is confined to the shipbuilding relationship context, rather than being used to define the parties’ political views and ideals. 16 Frankel Tamar, ‘The Legal Infrastructure of Markets: The Role of Contract and Property Law’ (1993) 73 Boston University Law Review 389, 393 17 Robert E Scott, ‘The Death of Contract Law’ (2004) 54(4) University of Toronto Law Journal 369, 381 18 Catherine Mitchell, ‘Obligations in Commercial Contracts: A Matter of Law or Interpretation?’ (2012) 65(1) Current Legal Problems 455, 472 19 Frankel Tamar, ‘The Legal Infrastructure of Markets: The Role of Contract and Property Law’ (1993) 73 Boston University Law Review 389, 398 13 16 1.1.1 Chapter Synopsis This chapter will introduce the shipbuilding industry and shipbuilding contracts, before explaining the approach taken in writing this thesis and also the purpose of the thesis. Each subsequent chapter will contribute to answering the overarching theoretical question at its heart. Chapter 2 will assess how the shipbuilding contract and relationship are characterised by English law. Sections 2.2 and 2.3 will look at the entrenched characterisation of the shipbuilding contract, both legislatively and in case law. Since the late 19th Century, English law has characterised the shipbuilding contract as a sale of goods contract – governed by the Sale of Goods Act 1893,20 and latterly the Sale of Goods Act 1979.21 These pieces of legislation characterise the relationship between buyer (ship-owner) and seller (shipbuilder) as one operating at arm’s length, because any deviation from the original agreement by one party entitles the other to exercise his rights under the statute without any prior discussion. More recently however, the English courts have very occasionally decided shipbuilding dispute cases with alternative characterisations in mind. As explored in Section 2.4, this has been done through declaring that a shipbuilder’s obligations under a shipbuilding contract predominantly lies in the newbuild’s construction (as per a work and materials or building contract). Additionally, the English courts have sometimes indicated that the shipbuilding relationship is underpinned by cooperation, rather than operating at arm’s length. Section 2.5 will then argue that, because the Supreme Court in PST Energy 7 Shipping LLC v OW Bunker Malta Ltd22 characterised bunker shipping contracts as sui generis contracts (in light of their peculiarities and also those of the bunker industry), the same treatment might be appropriate for shipbuilding contracts in light of their own peculiarities and those of the shipbuilding industry. 20 Sale of Goods Act 1893. Sale of Goods Act 1979. 22 [2016] UKSC 23 21 17 Chapter 3 will assess shipbuilding industry perception and norms, by recourse to clauses in standard-form shipbuilding contracts, clauses in specially drafted shipbuilding contracts and also to the information on shipyard websites. This assessment will be made in two ways. Firstly, Section 3.2 will set about proving that, whilst English law characterises all contracting relationships (such as shipbuilding relationships) as those operating at arm’s length, some industry shipbuilding relationships deviate from this – with the parties instead choosing to cooperate with one another. Accordingly, whilst the law considers shipbuilding relationships to be homogeneous, in reality the norms underpinning shipbuilding industry relationships vary. On one hand, parties to shipbuilding contracts to build standardised vessels often choose to base their agreement on an industry issued standard-form (such as those listed in Section 1.1.6).23 Because the vessel’s design is mature,24 the buyer can simply sign the standard-form as printed and leave the shipbuilder to his own devices25 – an arm’s length relationship which matches that prescribed at law. On the other hand, parties to shipbuilding contracts to build bespoke vessels26 (often governed under specially drafted contracts) are likely to be in regular discussion to ensure that the buyer’s requirements for his vessel are correctly met. The relationship is therefore underpinned by cooperation, which deviates from the arm’s length characterisation of the shipbuilding relationship at law. Then, Section 3.3 will set about proving that, whilst English law characterises shipbuilding contracts as sale of goods contracts27 under whic...
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  • Fall '14
  • George Leloudas
  • Common Law, shipbuilding industry, Shipbuilding Contracts

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