International Trade & Shipping law

International Trade
& Shipping
• UTS2612
• 3nd Trimester 2014
 Registration of Ships

http://www.marine.gov.my/jlmeng/Contentdetail.asp?article_id=319&category_id=1&subcategory_id=23&subcategory2_id=7
 Ships
 Definition of vessel:
◦ Section 2 MSO 1952
 includes any ship or boat or any other description of
“vessel” used in navigation.
 “ship” includes every description of “vessel” used in
navigation not propelled by oars.
 What is a Vessel?
• Steedman v. Scofield [1992] 2 Lloyd’s Report 163
◦ Plaintiff was riding a jet ski in the vicinity of
Brighton Pier when he was involved in a collision
with a speed boat. The collision was caused by the
negligence of the first defendant while acting as
servant or agent of the second defendant.
◦ The defendants contended that the law states that
“no action shall be maintainable to enforce any
claim against a vessel or her owners in respect or
loss to another vessel or damages for personal
injuries suffered by any person on board her caused
by the fault of the former vessel….”
◦ Issue: whether a jet ski considered a vessel for the
purpose of navigation?

NO.
 The Gas Float Whitton [1897] AC 337
◦ A boat-shaped gas float, moored in tidal waters to
give light, was held not to be a ship for the
purpose of salvage.
◦ Lord Hersell said, “It was not constructed for the
purpose of being navigated. It was in truth, a
lighted buoy or beacon. The suggestion that the
gas stored in the float can be regarded as cargo
carried by it is more ingenious than sound.”

Used in “Navigation” is dispositive

 What is a Malaysian Ship?
Why is that important?

 Section 2(a) has the meaning given to it in

Part IIA (registry)
◦ Primary provision section 11 which states the
qualification of a Malaysian ship:
 Malaysian citizen
 Corporations which satisfy the following
requirements:
 Incorporated in Malaysia;
 Principal office in Malaysia;
 Management mainly carried out in Malaysia;
 Majority share of the ship
*any conditions set by the Minister
 Section 59(2) – Only ship registered in Malaysia is entitled
to fly Malaysian national ensign.
 No other ship other than a Malaysian ship may engage in
domestic shipping and a person not qualified to own a
Malaysia ship as provided in s 11 cannot charter or
otherwise engage any Malaysia ship for domestic shipping
except under and in accordance with such conditions as the
Minister may direct or prescribe.
 Section 65KA – liability on contravening the prohibition
on domestic shipping.
 Section 61 & 65 – guilty for hoisting Malaysian flag when
not a registered Malaysian ship.
 Section 62 – concealing ship to be of Malaysian
registration is guilty of an offence.
 Section 58A – terminable certificate of registry for small
ships.
 Obligations to register the ship
 Section 12
 Section 12(3) – consequences of not registering ship
 Section 12(4) – not recognized as a Malaysian ship

Exemption
Section 13
Boats: section 475
Section 473A(1) – definition of boat
 Effects of Registration
 Registration of ship has dual effect. It gives an
entitlement to all the privileges, but an owner cannot,
by failing to register, evade duties cast on such vessels.
Apart from the public matters, registration is also
important as proof of title.
 The Bineta [1966] 2 Lloyd’s Rep 419
◦ The ship was sold by the seller to the buyer who did not
pay the purchase price even though he registered him as
the new owner. The seller managed to sell the vessel to a
third party who successfully sought a court declaration
that he was the rightful owner.
Formalities for Registering a ship
under the MSO 1952
 s. 16 – Application for the registration of
Malaysian ship
 s. 17 – Survey and measurement of ship
 s. 18 – Marking of ships
 s. 19 – Rules as to name of Malaysian ships
 s. 20 – Entry of particulars in Register Book
 s. 21 – Evidence on first registry
 s. 22 – Certificate of registry
 s. 23 – Documents to be retained by registrar
 s. 24 – Port of registry
 Sale of Ships
 Provisions of Sales of Goods Act 1957 (SOGA)
are applicable.
A ship is a chattel and it is also considered as part of goods.
s 4 - A contract of sale of goods is a contract whereby the seller
transfers or agrees to transfer the property in goods to the buyer
for a price. There may be a contract of sale between one part-
owner and another. Query? What about CISG?

 2nd hand ship procedure

 Formation of contract
1. Negotiation stage
2. Inspection
3. Conclusion of contract
*standard form of S&P is the Norwegian Sale Form 1993
http://www.freehill.com/articles/MLP233/SALEFORM_2012.pdf
 1. Negotiation Stage
 When deposit to be paid – 10% in security
 Fundamental term = condition
 Breach = forfeiture of deposit
 The Ranger [1970] 1 Lloyd’s Report 32

2. Inspection Stage
By a buyer & Classification Society
• Buyer
• Inspection when vessel is dry docked.
• Clause 4 of Norwegian Sale Form.
http://www.freehill.com/articles/MLP233/SALEFORM_2012.pdf
 Classification Society
◦ Functions as “Puspakom” of the ships.
◦ Produces license of fitness.
◦ Normally appointed by a seller.
 Morning Watch [1990] 1 Lloyd’s Report 147
◦ Cannot have 2 conflicting reviews.
 Nichalaus [1996] App Case 211
http://www.puspakom.com.my/en/index.html
 The Morning Watch [1990] 1 Lloyd’s Report 147
◦ It centered round whether Lloyds owed a duty of care not
to cause pecuniary loss to persons other than the owner of
Morning Watch who were likely to rely on a Lloyds survey.
Morning Watch had been surveyed by a Lloyds surveyor
who issued an Interim Certificate to owners who then
advertised her for sale, saying she had "passed current
special survey".
◦ The buyers, to whom the Interim Certificate was not
shown, claimed the survey was negligent.
◦ Acknowledging lack of precedent as to whether a
classification society surveyor owes a duty of care not to
cause pecuniary loss by survey to persons other than
owners and that Lloyds accepted that it foresaw that
purchasers might be influenced by the classification status
of a vessel when deciding on purchase, Phillips J (as he
then was) held (at 557) that the forseeability test was
satisfied as the surveyor knew that his survey was being
done for purposes of sale.
3. Conclusion Stage

 Passing of risk when property is passed.

◦ Seath & Co v Moore (1886)11 App Case 350
 the risk of loss might pass before delivery, but the
ownership would not pass until delivery was made
 Bill of sale is executed by a stamp duty.
Shipbuilding
 Shipbuilding Contracts
 The parties should aim to reach agreement on
each of the main commercial issues before formal
contractual documentation is prepared (possibly
by the Buyer and Builder entering into a non-
binding form of letter of intent).
 Standard Form are AWES and SAJ
◦ SAJ = Shipbuilders’ Association of Japan
◦ AWES = Association of European Shipbuilders and
Ship Repairers
http://www.sajn.or.jp/e/about/index.htm
http://www.ssa.org.uk/
http://www.hilldickinson.com/PDF/Shipbuilding%20contracts.pdf
Specification
 Most important issue to address.
 Address spares and equipment to be provided with
the ship.
 In addition to technical issues, other matters that
are likely to affect the specification are as follows:
◦ intended use of the ship (i.e. commercial or non-
commercial)
◦ trading patterns
◦ classification required and Classification Society
appointed
◦ choice of flag and flag state requirements
Contract Price
 most commercial arrangements the price
agreed will be fixed and the Builder will bear
the risk of any increased costs of construction
 Builder may seek provision for the price to be
varied in certain circumstances, which might
include:
◦ changes to take account of variation in the cost of
core construction materials (such as the price of
steel); and
◦ changes to take account of variations to exchange
rates. This may particularly be the case for European
or Far Eastern yards which quote prices in US Dollars
but whose expenses are likely to be incurred in local
currency.
 North Ocean Shipping Co. Ltd v Hyundai
Construction & Co Ltd and Anor [1979] QB 705
◦ A letter of guarantee was jointly and severally
provided by three Greek individuals to the Korean
shipbuilders to guarantee payment by a Liberian
ship-owner for the construction of a ship. The letter
stated that the guarantors would “irrevocably
guarantee the payment in accordance with the
terms of the shipbuilding contract all sums due or
become due by the ship-owner to the shipyard.

◦ Under the terms of the shipbuilding contract, the

shipbuilders could cancel the contract, retain money
already paid and to claim for damages in the event
of a default in the payment of the second instalment.
There was such a default and the shipbuilders
cancelled the contract in accordance with the
shipbuilding contract.
 ◦ On appeal to the House of Lords, the guarantors
contended that the effect of the cancellation of the
contract by the shipbuilders destroyed their rights to
recover under the second instalment payment and
replaced it with a remedy in damages.
◦ The House of Lord was not persuaded and held that
the notice of cancellation of the contract by the
shipbuilders did not affect the ship-owner’s liability
for payment of the second instalment as it was a
liability arising before the rescission. Hence, the
guarantors remained liable to pay the second
instalment under the guarantee for the ship-owners’
default in payment that instalment.

Be careful when you sign.

 Payment
 Most cases the first instalment of the purchase price will
be payable before construction starts.
 Subsequent instalments will then become due following
completion of particular stages of construction with a final
instalment due on delivery.
 Shipbuilding contract will, almost without exception,
include a liquidated damages provision setting out the
agreed damages payable to the Buyer as a result of any
delay in delivery of the ship or as a result of its failure to
comply with certain aspects of the specification.
 The inclusion of such a clause is generally to be
recommended and has advantages for both parties as it
means that:
a) the Buyer will not be required to prove its loss in order
to claim the liquidated damages referred to; and
b) the Builder will not be liable for unlimited losses
which it will not be able to quantify or insure against.
 Risk & Title
 Title to the completed ship should obviously pass to
Buyer upon completion and payment of the delivery
instalment
◦ Re Blyth Shipbuilding & Dry Docks Co Ltd. [1926] CH
494
 Bearing in mind the hybrid nature of a shipbuilding contract, even
if the ship is uncompleted, the property in it (but not the
materials which have not been appropriated to her) may, in some
circumstances, pass to the buyer, if the parties have clearly
stipulated it in the contract.

Pollock M.R provided the cogent standard: “These worked materials, although
worked up and suitable for placing into the vessel at the appropriate time and
accepted, it may be, by the surveyor, have yet taken their place and become so
inextricably a part of the vessel as to have satisfied the meaning of the word
“appropriated”
 Ship’s Class
 A Classification Society acceptable to the Buyer
should be utilised and the exact class notation
required should be clearly set out as part of the
specification.
 The Builder normally covers the costs of the
Classification Society during construction.
http://www.myscm.com.my/index1.htm

https://www.gov.uk/vessel-classification-and-certification
Remedies of Builder
 If the buyer cannot fulfil the payment, the
builder may:
a) exercise his possessory lien;
b) resell as a result, exercising his lien;
c) exercise a common law right of
stoppage in transit; and
d) sue for the price
 Refusal to accept delivery will entitle the shipbuilders to
claim for the usual damages and retention of all the progress
payments and deposit under the shipbuilding contract.
◦ The Diana Prosperity [1976] 2 Lloyd’s Rep. 60
 A Japanese tanker company planned to build 50 tankers of
80,000 tons each, to be delivered from 1975, and to obtain
financing for the construction, it granted time charter for the
first vessel to the defendant company. The vessel was sub-
chartered to the plaintiff company.
 The relevant charter contained the following clause: “. . . to be
built by Osaka Shipbuilding Co. Ltd. and known as Hull no. 354
until named and shall have a deadweight of about 87,600
tons.”
 The vessel was actually constructed in another yard at
Oshima and not in Osaka as the shipbuilders could not handle
vessels above 45,000 tonnes. The Oshima yard was 50%
owned by the Osaka shipbuilders.
 The vessel Diana Prosperity was due to be delivered on
Apr. 1, 1976, but the plaintiff company refused to accept
delivery on the ground that the vessel they had
chartered had been built by a different company.
 At the Commercial court, Mocatta J.,who used to be a
competent admiralty lawyer decided that the plaintiff
company and the tanker owners were not entitled to
refuse delivery.
 His decision was upheld by the Court of Appeal. Lord
Denning, MR, said: “… the description "built by the
Osaka CO. Hull No. 354" could not be regarded as a
strict condition precedent which was to be exactly
fulfilled and it was sufficient that the vessel to be
delivered would be in substance the vessel described in
the charters.”
Remedies of Buyer
a) seek specific performance (s. 57 SOGA); or
 Behnke v. Bede Shipping Company, Ltd [1927] 1 K.B. 649
◦ It was a sale of a very old ship, but refitted with new boilers and
an engine to comply with German regulations. The sale was
confirmed with a telegraphic acceptance by the sellers’ brokers.
The sellers tried to sell the vessel to other interested parties,
but their revocation came after acceptance. The seller refused to
provide instructions regarding the payment of deposit and
repudiated the contract with the buyer.
◦ The German buyers brought an action against the sellers,
seeking a court declaration that there was a binding contract
and a Court order for a specific performance of the contract.
◦ The Court held that the contract was enforceable and ordered a
specific performance.
b) sue for non-delivery