SALE AND PURCHASE OF VESSELS: WHERE TRANSACTIONS COME UNSTUCK
Peter Dawson, director at Dawson & Associates, recently presented to delegates at the New Zealand Maritime Transport Association Conference in Wellington, diving into vessel sale and purchase agreements – in particular common areas where parties can encounter significant difficulties.
Dawson & Associates is a firm which regularly deals with vessel sale and purchase matters, for sellers and buyers alike. Despite the existence of well established and mutually understood principles and clauses, it is surprising at how poor many contracts are, especially given the value, complexity, and risk sitting underneath many of these transactions.
Offers to Purchase
A signed “Offer to Purchase” is not a letter of interest, and it is not a placeholder. In New Zealand law, it is a binding contract between buyer and seller, and sometimes the broker as well. Buyers commonly approach their lawyer saying they’ve “just signed the offer” and paid a deposit and only now can the lawyers “have a quick look at it”. These transactions normally involve significant sums of money and represent a major investment for buyers. The time to get advice is before the contract is inked – not after.
Letters of Intent
In parallel to executed offers to purchase, letters of intent (LOI) are increasingly common in sale and purchase matters. These documents are often drafted with vague language, are often expressly non‑binding, and yet frequently involve deposits changing hands. They create uncertainty at precisely the moment when both parties need clarity. If parties are committed enough to sign LOIs and pay deposits, then they are serious enough to sign a proper sale and purchase agreement, conditional on survey, sea trial, title and due diligence. That way, everyone knows exactly where they stand and more importantly, what happens if the deal falls over.
Skinny Contracts and Broker Precedents
When parties move away from established forms such as the BIMCO Shipsale, MYBA, NSF, or other such contracts in the larger transactions, the quality of drafting becomes highly variable. Many brokers have contracts they’ve used for years. In fairness to them, they’ve often survived unchallenged, however with the growth of AI there is a risk they will become unstuck. Transactions where the buyers, sellers and brokers all assumed the contract was “standard”, until something went sideways, carry significant risk when they discover the document does not actually deal with the problem in front of them.
Increased use of AI can help in drafting contracts, but without expert advice and experience looking over it, there is every risk that there will be a significant gap in the text that is not discovered until it is too late.
The Role of Brokers
One of the most overlooked areas in contracting is clarifying the role of the broker. As buyer or seller, ask yourself - Who is the broker acting for? Buyer or seller? On what terms is the deposit held? Who controls it if there is a dispute? International forms like MYBA deal with this explicitly by appointing the broker as stakeholder, with clear rules around how funds are held and released. Just as importantly, the broker’s engagement should actually be documented. Make sure the broker’s commission agreement is agreed upon as part of the suite of documents around the contract; better still make sure that it is directly referred to by the contract, even if the exact terms are contained within a separate agreement.
Identify the Seller
It is critically important that identity and standing of the seller be clarified early in the contracting process.
This issue arises frequently in sales involving foreign‑owned or foreign‑flagged vessels. The owning entity may be an offshore company that has quietly fallen out of good standing because annual filings or fees were not maintained or has shareholders that may not be directly involved in the transaction. Buyers and brokers should insist on several documents:
current certificate of vessel registration
certificate of vessel survey
transcript of the vessel’s register showing ownership and registered security interests, and related documentation
Most reputable registries will provide this information relatively easily. The cost of checking is trivial compared to the cost of discovering later that title was defective.
Mortgages, Security Interests and Nasty Surprises
Closely aligned with the risk of unclear identity and standing of the seller is the risk of undisclosed mortgages or security interests.
A register or PPSR transcript will reveal registered ship mortgages, but it won’t always capture every competing interest. Contracts should deal expressly with how securities are discharged at settlement, and what happens if they aren’t. It is not about legal perfection, but rather eliminating traps before money changes hands.
Most contracts encounter difficulties not because of bad faith between parties, but rather because the paperwork did not anticipate predictable problems. To best minimise this risk, it is strongly recommended that buyers and sellers alike use a well‑structured contract, clarify the roles of the various parties, and deal upfront with title, security interests, and tax. Crossing these bridges early should not be regarded as slowing deals down, but rather ensuring that they can be completed safely. Uncertainty favours no one except the lawyers who have to clean up afterwards!
Dawson & Associates are expert in vessel sale and purchase matters, and regularly advise clients in all aspects of the contracting process from initial negotiations to the transfer of title and delivery of the vessel. If you are looking at selling or purchasing a vessel, or have any questions about the process, please contact Peter Dawson on +64 27 229 9624 peter@maritimelaw.co.nz, Troy Stade on +64 27 368 6730 troy@maritimelaw.co.nz.