Defect in Yacht Building Contract

Defect in Yacht Building Contract

Baris Erkan Celebi

Notions of ship and yacht are easily distinguishable from each other in practice, but legally they seem interchangeable. This is despite the fact that the notion of “yacht” is technically quite different from “ship” and that this difference is of vital importance with respect to the subject of yacht building contracts and the buyer’s justified expectations therein.

This book’s purpose, therefore, is to integrate the already-existing information and sources about ships and shipbuilding contracts. Turkey’s place as one of the world’s leading countries in yacht building sector. Turkey’s place in the world yachting sector and the yacht’s place in Turkey’s economy and the books in “law of yachts” in foreign jurisdictions point out to the necessity of examining yacht building contracts as separately from ship building contracts.

The scope of this book, as evident in its title, includes the definition of yacht, definition of a yacht building contract and defect in yacht building contract. In this book, aspects of independent contractor agreement, the parties thereof and the obligations of the said parties have been briefly examined; whereas only one of the obligations, liability against defect, has been thoroughly discussed. During this examination, many references have been made to sources on ships, however these references have been made as “yachts” insofar as the referred aspects of the ships could also be applied to yachts.

In this respect, the notions of “yacht” and “ship” have been distinguished from one another both technically and legally, and a legal definition of “yacht” have been suggested. In short, a yacht is a maritime vehicle which was built for personal use, is used for travel an pleasure, and is relatively small to cargo and passenger ships. On the other hand, while a ship is a broad and general notion which includes yachts with respect to the Turkish Commercial Code, it is different from the notion of yacht with respect to the Turkish Code of International Registry of Ships, maritime sector and building contracts which are the subject of this book.

Yacht building contracts and shipbuilding contracts, as widely agreed upon in the doctrine, are independent contractor agreements. The parties of this contract are the shipbuilder (contractor) and the employer (yacht buyer). The obligations which the parties undertake under independent contractor agreement generally apply to yacht building contracts as well. However, a yacht building contract is an agreement which includes a lot of technicalities, is usually drafted as pre-prepared forms governed by foreign laws, and includes warranty clauses which are sui generis contracts. In fact, many legal systems which usually govern pre-prepared forms, by which yacht building contracts are drafted, define yacht building contracts as contracts of sale. Therefore, yacht building contracts include many contractual obligations and debts that are not stipulated by legislations.

Another matter which needs to be discussed is the validity of the contractual obligations and the limitations thereof in the eyes of the Turkish law. This is because the provisions of the pre-prepared yacht building forms are drafted on the assumption that the principle of freedom of contract is as extensive as in Anglo-Saxon legal system. However, under Turkish law, the freedom of contract may be restricted by various concerns such as public order, ethics and the protection of the weak party. The best example to this would be the clauses which either directly limit the liability of the shipbuilder or indirectly restrict it by means of eliminating some of the selective rights of the employer. Whereas the validity of such clauses under Turkish law is controversial, the different schools of thought and our opinion on the matter have been explained.  

Finally, this book examines the notion of defect, its types, its occurrences in yacht building contracts and the parties’ rights and obligations against defects. According to the type of defect, aside from the employer’s legal rights such as the right to claim discount, the right to demand repair, the right to withdraw from the contract and the right to claim damages, there are other contractual rights which often take the places of the aforementioned rights, such as the right to claim liquidated damages and penalty clauses.