BAE Jambelí on her way to Ecuador

Ship design and approval of technical plans and drawings during ship construction can be seen as a routine element of shipowner's supervision. However, in practice, the exercise of that power may significantly affect the contractual liability distribution between the shipowner and the yard.

Shipbuilding responsibility

In a paper published on 20 May last year entitled Is the yard responsible for ship design? (link to text) we have attempted to clarify the scope of the subject matter and the obligation to prepare and deliver the ship design ("design") as part of the implementation of the shipbuilding contract.

If, therefore, this is in line with the explicit contractual record or with the general principles of jurisdiction of law (in the case of English law under consideration here), the yard is defined as the party to the contract responsible for ‘design", it remains to determine the scope of mutual rights and obligations related to plans, technical drawings and the entire set of documentation which are already prepared during the implementation of the project in connection with concrete construction and installation work during the construction period.

Regardless of the specific differences in the records, all shipbuilding contracts provide that the shipowner (‘the buyer’) shall be equipped with two contractual rights teams which allow him to monitor and supervise the progress of the construction work on an ongoing basis and their accuracy. On the one hand, the shipowner is entitled to prior approval of the detailed plans, technical drawings and other implementing documentation drawn up by the shipyards during the construction of the ship. On the other hand, the shipowner has the right to designate his inspector (group of inspectors) with the power of permanent presence at the yard, inspection, supervision and approval of contract work.

Approval of plans and drawings

In this study we will address the first group of powers.

Article IV (1) (‘Approach of Plans and Drawings") [translat. "Approval of plans and drawings" of SAJ Form, provides that:

1. The BUILDER Shall Subject to the BUYER Three (3) copies of each of the plans and drawings (...). The BUYER Shall, within fourteen (14) days after receiving thereof, return to the BUILDER One (1) copy of such plans and drawing with the BUYER’S approval or comments written thereof, if any. A list of the plans and drawings to be subject to the BUYER Shall be originally agreed upon the parts hereto.
2. When and if the Representative Shall Have Been Sent by the BUYER to the SHIKYARD, the BUILDER may submit the reminder, (...) of the plans and drawing (...) to the Representative, for its adoption (...) The Approach by the Representative (...) Shall be deemended to be the adoption by the BUYER for the purpose of this Contract.
3. In the event that the BUYER or the Representative Shall fail to return the plans and drawing to the BUILDER within the time limit (...) such plans and drawing Shall be deemed to have been automatically adopted without any comments.

[crying]

1. THE BUILDING/STUFF will submit three (3) copies of each of the plans and drawings (...). THE CONTRACTING AUTHORITY shall, within fourteen (14) days of their receipt, return one (1) copy of such plans and drawings with the Contracting Authority's acceptance or, if any, with its observations. The list of plans and drawings to be submitted to the Contracting Party shall be agreed by the Parties to this Agreement.
2. If, and as soon as the Contracting Party has directed its Representative to the TOWN, the CONSTRUCTIONER/STATION may submit the remainder of the plans and drawings (...) to that Representative for approval (...). Approval by the Representative (...) shall be deemed to be approval by the CONTRACTING Party for the purposes of this Agreement.
3. Where the CONTRACTING Party or the Representative fails to return the CONSTRUCTIONER/CONTENT plans and drawings within the prescribed time limit (...), such plans and drawings shall be deemed automatically approved without any comments."

Kl. 20, NEWBUILDCON form, proposes a much more extensive formula approved by the shipowner/investor (BUYER), plans and projects prepared by shipyards (SELLER).

Article 2 (b) AWES form is the "simplified" formula of Kl. 20 NEWBUILDCON.

Article V (1) «SHIP 2000" form, seems to be a precise, accurate almost duplicate of Kl. 20 NEWBUILDCON. The modifications introduced (understandably, if we consider that this is a model developed by Norwegian shipowner organisations) improve the contract situation of the shipowner/investor.

Article VIII (1)- ‘SHANGHAI" forms („CMAC" form) is a specific, "hybrid" SAJ forms from AWES forms, with a shift of more favourable solutions towards a "stock" (which is not surprising given the authors of this form- Chinese shipyards).

Design documentation and acceptance procedure

On the date of signature and entry into force of the ship construction agreement, they are annexed to the contract (and form an integral part of it), already defined plans and projects (under the so-called "Specification" etc.). However, this no longer includes detailed project plans and technical drawings, which are drawn up by shipyards during the preparation of the construction programme and during the construction itself. It was therefore necessary to create a contractual procedure for the acceptance of such plans and projects by the shipowner/investor.

In this context, of course, it should be remembered that some of this technical documentation is subject to a separate acceptance procedure for classification societies, etc. It should also be distinguished, "plans and drawings"subject to the acceptance procedure considered here, from the "for example" so-called "workshop drawing" prepared by shipyards on the basis of accepted "plans and projects", by shipyard production teams, for specific construction purposes (not falling under the official contract acceptance procedure).

The justification for such a procedure seems obvious. On the one hand, the possibility of verifying the technical plans and projects prepared by the shipyards, by the shipowner, allows at this early stage, to capture obvious errors and errors that could have far-reaching financial and legal consequences (at the construction stage). Secondly, the shipowner/investor may, at this stage, make minor amendments and changes more in line with the purpose of the unit being built. However, let us stress, here we are talking about the change of "non-interfering" into the essential technical and operational parameters of the built unit, which could affect the price and date of the ship's construction.

In the event of such far-reaching changes, contracts shall introduce a different contractual procedure as defined by ‘modifications"(which will be the subject of a separate study).

Acceptance of plans and party responsibility

The technical-operational pragmatology of the provisions under consideration here, however, "hences" with significant legal difficulties. The key issue to be resolved is whether and to what extent the acceptance by the shipowner/investor (‘BUYER’) submitted by the shipyards of ‘plans and projects’ modifies the rules of liability of the parties to the ship building agreement. For the proper design and construction of the ship.

In principle, English law assumes that "BUYER’S approval of plans and drawing will not apply explicitly upon it financial liquidity for the BUILDER’S additional costs as losses associated with any errors and omission in the same" [translation. "Approval of plans and drawings by the Contracting Authority shall not, in principle, give rise to financial liability on its side for the additional costs incurred by the CONSTRUCTIONER/STACE, including for losses resulting from any errors or omissions contained in such plans and drawings"] (for,Temloc LTD v Errill Properties LTD"[1981] 12 Con LR 109).

Such an initial rule may be subject to significant changes.

The first possible change is due to the general rules of English law. It is referred to as "estoppel by convention" (or so-called "common assessment"). If, therefore, the shipowner/investor ("BUYER") accepts successively translated plans and projects (technical drawings, etc.), confirming their conformity with the contract and technical specifications and if the yard continues to build on such plans accepted by the shipowner, then "The BUYER may in such circuits be "estopped" from demanding later changes to the vessel on the ground that the plans and drawing it has previously applied are not in fact satisfied" [translation. ‘In such circumstances, the CONTRACTING Party may be subject to the principle of estoppel (preclusion), resulting in it being deprived of the right to subsequently request amendments to the ship on the grounds that the plans and drawings previously approved by it are not in fact in conformity with the Agreement’ (for ‘Republic of India v India S.C. Co. Ltd. No. 2" [1998] A.C. 878). In other words, certain, consistent behaviour of the shipowner, participating and actively approving plans and projects, prepared and postponed by the shipyards, can, in the English law system, build a legally binding assumption that the shipowner has confirmed the contractual and technical correctness of the shipowner "plans and drawings", therefore, it is difficult, after such a unequivocal statement of will, to grant him the power to challenge the conformity of such accepted documentation with the possibility to seek compensation for this.

Important risks arising from this concept "common law", for the shipowner/investor ("BUYER"), may be eliminated by a clear record of the contract which "expressis verbis" provides that acceptance by "BUYER", plans and drafts/drawings, does not alter the responsibilities and responsibilities of the parties provided for in the agreement. Yes, for example, Kl. 20 (f) NEWBUILDING clearly states that "The BUYER’S adoption or deemitted approval on any Plans and Drawing Shall not affect the obligation of the BUILDER to design, construct and deliver (...) the Vessel in compliance with (...) Contract; nor Shall It Diminish the BUILDER’S responsibility in respect of its obligations under the Contract nor Shall It Constitute any acceptance by the BUYER of any responsibility for any defect in the vessel" [translation. "Approval or deemed to have been approved by the Contracting Party for any Plans and Drawings shall not affect the obligation of the CONSTRUCTIONER/CONTENT design, construction and delivery (...) A ship in accordance with the... Agreement; nor does it restrict the liability of the CONSTRUCTIONER/CONTENT for the performance of its obligations under the Agreement, nor does it constitute any acceptance by the CONTRACTING AUTHORITY for any defects in the Ship."]

The effectiveness of this provision has been the subject of consideration on "Cenagro Ltd v Empresa Nacional Bazan de Contraucciones Navales Militares S.A.." [2001] All. E.R. (D) 223 (Jan.). In this regard, the relevant contract record provided for: "the (...) adoptions and/or inspections (of plans and drawing) do not dimnish the BUILDER’S responsibility for the construction of the VesseI" [translation] Any approval and/or inspection (plans and drawings) shall not restrict the liability of the builder/STUFF for the construction of the Ship." In the established facts, there was no doubt that the shipowner/investor (BUYER) had fully accepted ‘plans and drawing"confirming their compliance with the contractual and technical terms of the ship building agreement. Built on the basis of the documentation accepted by the shipowner, the ship did not meet all the operational and technical parameters provided for in the agreement. However, the High Court had no doubt that ‘(...) contractual language (...) prevented the operation of an estoppel defence as this would be inconsistent with the parties’ expressed intention that adopt of the plans would not alter the ship builder’s responsibility to guarantee the (...) capacity of the vessel" [translation. "(...) the contractual provisions ... excluded the possibility of an estoppel charge effectively, as this would be contrary to the clearly stated intention of the Parties that the approval of the plans would not affect the liability of the CONSTRUCTIONER / DISTRIBUTIONER for guaranteeing... the Ship's capabilities".

Role of the approval procedure in the shipbuilding agreement

This analysis leads to the conclusion that the contractual procedure for the approval of plans and projects in the ship building contract has a significant but clearly defined legal function. On the one hand, it is an instrument for the ongoing supervision of the shipowner/investor of the design and construction process, allowing early detection of errors and the introduction of limited technical corrections. On the other hand – under English law – acceptance itself (including the so-called deemed approval) the plans and drawings shall not in principle transfer design or construction responsibility to the shipowner, nor exempt the yard from the obligation to design and build the ship in accordance with the agreement and the agreed technical specifications.

At the same time, it has been demonstrated that contract practice and case law common law disclose the real tension between the technical pragmatics of the ship building process and the legal consequences of the party's behaviour. In particular, the consistent and undisputed acceptance of the design documentation by the shipowner may, in the absence of appropriate contractual clauses, lead to the creation of an estoppel by convention, which limits its powers to subsequently contest the conformity of the project with the contract.

This risk can only be effectively eliminated by precise, unambiguous contractual provisions, which expressis verbis prejudges that approval of plans and drawings does not affect the yard's responsibilities or assume any liability for ship defects by the shipowner. The analysis of standard forms of shipbuilding contracts (SAJ, NEWBUILDCON, AWES, SHIP 2000, SHANGHAI/CMAC) and case law confirms that the effectiveness of such an exemption depends solely on the clarity and precision of the contractual language used.

Presentation of the next part

In the next study, attention will be paid to the contractual procedure for approval of plans and drawings in implementing practice, in particular:

• the importance of time limits for submitting comments and the consequences of their failure to comply;
• Legal consequences "deemed approval" under construction,
• the relationship between the approval of the documentation by the shipowner and the parallel acceptance procedures of classification societies,
• the distinction between "plans and drawings" covered by the formal contract procedure and the workshop documentation (workshop drawings),
• practical dispute risks arising from improper management of the acceptance process.

Part II will therefore be devoted to the operational and process dimension of the approval of project documentation, from the perspective of the liability of the parties to the ship building agreement and the management of contractual risk during the course of the project implementation.