Ship Title

Ship Title

Ship Title almost always passes from the shipyard to the ship buyer when the ship is physically completed and ship buyer accepts delivery at the shipyard. Transfer of Ship Title is usually documented with the Builder’s Certificate and Protocol of Delivery and Acceptance that sets out the exact minute when Ship Title transfers.

Generally, prior to the transfer of Ship Title, shipyard has the risk of loss; that risk of loss passes to ship buyer after Ship Title is transferred.

Ship buyer might obtain security in a partially completed ship. One problem with waiting until delivery of the ship would be that ship buyer to the risk that the shipyard’s creditors may seize materials in the shipyard, including ship buyer’s incomplete new ship, as security for their credit claims against the shipyard. To address that risk, ship buyer may sometimes be able to establish security in a partially completed ship and its parts purchased by the shipyard for installation in the ship, depending on the law of the place where the shipyard is located.

In some countries, where such provisions are permitted in Shipbuilding Contract, shipbuilding materials and parts will be identified to the ship upon payment of specific progress payments, and that materials and parts will be marked accordingly.

Shipbuilding Contract for the construction of a ship under United States law is not a Maritime Contract and therefore Shipbuilding Contract is governed by the applicable State Law, which is the state law to which the parties agree in the contract, or as determined in accordance with the conflicts of law provisions of the state where the shipyard is located.

Usually, Ship Buyers (Shipowners) negotiate for the right to place a supervisory team of technical experts at the shipyard and at key subcontractors in order to inspect and check various aspects of the ship while under construction and to attend equipment tests and ship sea trials.

Ship Buyers’ (Shipowners’) preferred Classification Society will review plans, drawings, specifications and inspect the construction at various points before, during and after construction. Finally, Ship Registry where ship buyer (shipowner) intends to register ship will also inspect the ship, usually at delivery. Risk of loss at the shipyard usually follows ship title.

Therefore, if the shipyard retains the Ship Title until the final payment is made, then the risk of loss is on the shipyard. If title to materials or equipment to be installed in the ship is passed to ship buyer prior to final delivery, then in the absence of some other agreement, the risk of loss for such materials and equipment will be on the ship buyer.

Practically, ships under construction are typically insured against loss or casualty damage by a Ship Builder’s Risk insurance policy. When Ship Buyer (Shipowner) has a title interest in materials or equipment identified to or incorporated in the ship, insurance policy may identify ship buyer as an additional insured party as its interests may appear.

Usually, the remedies available for the breach of the Shipbuilding Contract will depend on the specific provisions in the contract. Depending on the type of default, ship buyer may have the right to suspend or cancel the contract, take over a partially completed ship, equipments or parts of that ship on hand at the shipyard, or seek recovery of already paid progress payments from a third party guarantor, among other things.

Shipyard Refund Guarantee is payment protection usually provided by a shipyard to Ship Buyer (Shipowner), commonly in the form of an irrevocable letter of credit from a reputable bank, or a bond from a bonding company, payable upon certain conditions related to a default by the shipyard.

Shipyard Refund Guarantees are commonly required by prudent Ship Buyers (Shipowners).

Purpose of a Shipyard Refund Guarantee is related to the nature of Shipbuilding Contract and payment arrangements. Much of the cost of a new ship goes to purchase by the shipyard of the necessary materials and components such as steel, engines, auxiliary machinery, electronics, shafts and propellers, furniture, paint, and other items.

Progress payments made by ship buyer are used to fund those purchases, so as the construction progresses, Ship Buyer (Shipowner) will have invested a substantial amount into the ship.

Even with the best of shipyards, that ship investment will be at risk, shipyard could fail to complete the ship due to natural disasters, labor issues, or political strife; ship, materials or equipment could be seized as security for the shipyard’s creditors; or some defect in the ship could cause it to fail to meet the contract requirements.

Shipyard Refund Guarantee protects against those risks by ensuring that ship buyer will get a refund of its investment if the shipyard fails to deliver the ship in accordance with the contract terms.

Shipyard Refund Guarantee may be payable purely on the basis of the presentment of a notice by ship buyer to the guarantor that a default has occurred and a failure of the shipyard to dispute the default.

Alternatively, Shipyard Refund Guarantee may require a final arbitration award or similar proof. Prudent ship buyers commonly review the terms of Shipyard Refund Guarantee closely to ensure that its payment terms are certain, irrevocable, and efficient, and do not require extraordinary processes to obtain a refund.

Ship Buyer (Shipowner) might force shipyard to deliver a ship. Rights of ship buyer will depend on the law chosen in the Shipbuilding Contract.

Generally, in USA under state law, Ship Buyer (Shipowner) would have to seek an injunction from a court to force a shipyard to deliver a ship. Shipyard will typically have a mechanic’s lien on the ship to the extent of the outstanding payments it is owed.

An injunction may be difficult to obtain given the probable need for ship buyer to show that an injunction is necessary based on a showing that it cannot be adequately compensated with monetary damages. Shipyards’ have some rights on default of ship buyers. Ship buyer’s responsibilities under the Shipbuilding Contract are usually a few.

Notwithstanding, like Ship Buyer (Shipowner), shipyard may have the right to suspend or cancel the Shipbuilding Contract. Shipyard often has the right to retain paid progress payments, finish the ship and sell it to a third party, although usually with a requirement to reimburse ship buyer if the resale price otherwise makes shipyard whole.

Under current laws in United States, a ship mortgage can only be recorded to secure a lien against the ship once the ship is completed and delivered. Ship buyers in the United States usually protect their interest in partially completed ships, equipment and parts purchased for the ship by shipyard by filing financing statements covering such property under the Uniform Commercial Code. United States Maritime Law Association has in the past proposed that Congress amend the applicable statutes to make it possible for a ship mortgage to be filed on a partially completed ship.

Meanwhile, cautious Ship Buyer (Shipowner) may insert contractual language requiring that materials, parts, and equipment purchased for use in the ship under construction be identified to the ship once the corresponding progress payment has been made.

Ship Buyer (Shipowner) can insure against risks to, or related to, the ship while under construction. Ship owners, as well as lenders and builders, can purchase shipyard’s risks insurance coverage for the risks of physical loss or damage to a ship during construction, testing and trials as well as third-party liability risks during that period of time. The extent of losses covered will depend upon the terms of the policy. In general, the broader the shipyard insurance coverage, the greater the cost of insurance, so ship buyer will have to evaluate the costs and benefits of the insurance coverage.

What is Ship Title?

A “Ship Title” usually refers to the legal document that proves ownership of a vessel or ship. It’s similar to a car title in that it provides proof that a person or entity legally owns the ship. This document is necessary when buying, selling, or otherwise transferring ownership of a ship.

The ship title typically includes information such as the ship’s name, the official ship number, the port of registry, a description of the ship, and the name and address of the owner.

Note that different countries might have different systems for managing ship ownership, and the specific details of what a ship title includes can vary. It’s also important to note that for larger commercial ships, the ownership can often be more complex, involving various stakeholders and complicated financial structures.

In addition to proving ownership, ship titles also play a crucial role in securing marine mortgages. A ship owner can use the vessel as collateral to obtain a loan. In this case, the lender will have a lien on the ship title, providing them with a security interest. If the borrower defaults on the loan, the lender can enforce their lien and seize the ship to recover their losses.

There’s also a concept of “clear title” in the context of ship ownership. A clear title is one that is free of liens or any other encumbrances that could limit the owner’s rights. When buying a ship, it’s essential to ensure that the title is clear to avoid potential legal complications.

In terms of the process of transferring a ship title, it generally involves the seller signing over the title to the buyer, who then registers the change of ownership with the appropriate authority, often a national registry or maritime organization. This process can sometimes involve paying fees or taxes.

There can be serious legal consequences for misrepresentations on a ship title. For instance, if a seller falsely claims that the title is clear when it actually has a lien against it, they could face fraud charges.

A ship title is a critical legal document in the world of maritime trade and ownership. It’s crucial for proving ownership, securing financing, and ensuring the legal transfer of vessels from one party to another. It’s always recommended to seek legal counsel when dealing with ship titles to ensure all procedures are correctly followed.