Participation and ownership
Restrictions on foreign participation and investment
Is the shipbuilding industry in your country open to foreign participation and investment? If it is open, please specify any restrictions on foreign participation.
The shipbuilding industry in Singapore is open to foreign participation and investment. There are no restrictions on foreign participation.
Government ownership of shipbuilding facilities
Does government retain ownership or control of any shipbuilding facilities and, if so, why? Are there any plans for the government divesting itself of that participation or control?
The government of Singapore, through its investment holding company, Temasek Holdings Limited, holds the majority stake in three publicly listed companies owning major shipyards in Singapore: Sembcorp Industries Limited, Keppel Corporation Limited and Singapore Technologies Limited. The reason for this is that shipbuilding and ship repair provide significant employment opportunities and also constitute a strategic industry. To the best of our knowledge, there are no plans for the government to divest itself of such participation or control.
Key contractual considerations
Are there any statutory formalities in your jurisdiction that must be complied with in entering into a shipbuilding contract?
Choice of law
May the parties to a shipbuilding contract select the law to apply to the contract, and is this choice of law upheld by the courts?
The parties to a shipbuilding contract may select the law to apply to the contract, and this choice of law will be upheld by the Singapore courts on condition that such law is not against public policy in Singapore.
Nature of shipbuilding contracts
Is a shipbuilding contract regarded as a contract for the sale of goods, as a contract for the supply of workmanship and materials, or as a contract sui generis?
Shipbuilding contracts are regarded both as contracts for sale and purchase and as contracts for the supply of workmanship and materials.
Is the hull number stated in the contract essential to the vessel’s description or is it a mere label?
The hull number stated in the contract is essential to the vessel’s description.
Deviation from description
Do ‘approximate’ dimensions and description of the vessel allow the builder to deviate from the figure stated? If so, what latitude does the builder have?
Approximate dimensions and description of the vessel allow the builder to deviate from the figure stated. The builder has a latitude of about 5 per cent.
Guaranteed standards of performance
May parties incorporate guaranteed standards of performance whose breach entitles the buyer to liquidated damages or rescission? Are there any trade standards in your jurisdiction for coating, noise, vibration, etc?
Parties may incorporate guaranteed standards of performance, the breach of which would entitle the buyer to liquidated damages or rescission.
Do statutory provisions or previous cases in your jurisdiction give greater definition to contractual quality standards?
No. Statutory provisions and case law in Singapore have not given greater definition to contractual quality standards. However, previous decisions that deal with general good practice in shipbuilding will guide the court or the arbitration tribunal on such matters.
There are no trade standards in this regard in Singapore.
Where the builder contracts with the classification society to ensure that construction of the vessel leads to the buyer’s desired class notation, does the society owe a duty of care to the buyer, or can the buyer successfully sue the classification society, if certain defects in the vessel escape the attention of the class surveyors?
The classification society owes a duty of care to the buyer and the buyer can successfully sue the classification society if certain defects in the vessel escape the attention of the class surveyors.
Have the flag-state authorities of your jurisdiction outsourced compliance with flag-state legislation to the classification societies? If so, to what extent?
The flag-state authorities in Singapore have fully outsourced compliance with flag-state legislation to the following classification societies:
- the American Bureau of Shipping;
- Lloyd’s Register of Shipping;
- Bureau Veritas;
- DNV GL;
- the Korean Register of Shipping;
- the China Classification Society;
- Registro Italiano Navale; and
- Nippon Kaiji Kyokai.
Registration in the name of the builder or the buyer
Does your jurisdiction allow for registration of the vessel under construction in the local ships register in the name of the builder or the buyer? If this possibility exists, what are the legal consequences of this registration?
Singapore does not permit registration of a vessel under construction with the Maritime and Port Authority of Singapore (MPA) in the name of the builder or the buyer until the builder’s certificate in favour of the party intending to register the vessel, the tonnage attestation and the class attestation are issued.
Title to the vessel
May the parties contract that title will pass from the builder to the buyer during construction? Will title pass gradually, upon the progress of the vessel’s construction, or at a certain stage? What is the earliest stage a buyer can obtain title to the vessel?
The parties may contract that title will pass from the builder to the buyer during construction. The issues of whether title passes gradually upon the progress of the vessel’s construction or at a certain stage and the earliest stage a buyer can obtain title to the vessel will depend on the terms of the shipbuilding contract.
Passing of risk
Will risk pass to the buyer with title, or will the risk remain with the builder until delivery and acceptance?
The question of when risk will pass depends on the terms of the shipbuilding contract. If the issue is not addressed in the shipbuilding contract, the risk will pass with title.
May a shipbuilder subcontract part or all of the contract and, if so, will this have a bearing on the builder’s liability towards the buyer? Is there a custom to include a maker’s list of major suppliers and subcontractors in the contract?
A shipbuilder may subcontract all or part of a contract. It will not, however, have a bearing on the builder’s liability towards the buyer. There is a practice to include a maker’s list of major suppliers and subcontractors in the contract.
Must the builder inform the buyer of any intention to have certain main items constructed in another country than that where the builder is located, or is it immaterial where and by whom certain performance of the contract is made?
In the event title to the vessel passes to the buyer progressively, the builder must inform the buyer of its intention to have certain main items constructed in another country as it would have an impact on the security to be granted by the buyer to its financiers. Shipbuilding contracts may also specify that the vessel has to be constructed at the builder’s yard located in, say, Singapore and at no other location.
Pricing, payment and financing
Fixed-price and labour-and-cost-plus contracts
Does the law in your country have different provisions for ‘fixed-price’ contracts and ‘labour-and-cost-plus’ contracts?
Singaporean law does not have different provisions for fixed-price contracts and labour-and-cost-plus contracts. However, shipyards must be prepared to construct specific vessels on a turnkey basis or on cost-plus terms. This is typical in the construction of offshore vessels.
Does the builder have any statutory remedies available to charge the buyer for price increases of labour and materials despite the contract having a fixed price?
The builder does not have any statutory remedies available to charge the buyer for price increases in labour and material, despite the contract having a fixed price.
Retracting consent to a price increase
Can a buyer retract consent to an increase in price by arguing that consent was induced by economic duress?
Depending on the facts of the situation, a buyer may be able to retract consent to an increase in price by arguing that consent was induced by economic duress. English common law principles relating to economic duress can be of assistance in Singapore.
Exclusions of buyers’ rights
May the builder and the buyer agree to exclude the buyer’s right to set off, suspend payment or deduct certain amounts?
The builder and the buyer may agree to exclude the buyer’s right to set-off, suspend payment or deduct certain amounts. In practice, however, if the buyer exercises these rights and if this causes a delay in the delivery of the vessel, it is usual for the shipyard to obtain security by way of a banker’s guarantee and to deliver the vessel.
If the contract price is payable by the buyer in pre-delivery instalments, are there any rules in regard to the form and wording of refund guarantees? Is permission from any authority required for the builder to have the refund guarantees issued?
There are no rules with regard to the form and wording of refund guarantees. No permission is required from any authority.
Advance payment and parent company guarantees
What formalities govern the issuance of advance payment guarantees and parent company guarantees?
The guarantees must be in writing. For parent company guarantees, it would be prudent to obtain the resolutions of the board of directors of the parent company approving the issuance of the guarantee.
Financing of construction with a mortgage
Can the builder or buyer create and register a mortgage over the vessel under construction to secure construction financing?
A mortgage over a vessel under construction can only be created if the vessel is registered with the MPA and title to the vessel vests with the mortgagor (see question 12). However, depending on who has title to the vessel (under construction), the builder and the buyer may create a charge over the vessel as constructed. In the event the builder or the buyer (as the case may be) is a Singapore incorporated company, such a charge must be registered with the Accounting and Corporate Regulatory Authority of Singapore within the time period stipulated in the Companies Act.
Default, liability and remedies
Liability for defective design (after delivery)
Do courts consider defective design to fall within the scope of poor workmanship for which the shipbuilder is liable under the warranty clause of the contract?
It depends on who takes design responsibility under the shipbuilding contract. If responsibility for designing vests with the shipbuilder and a defective design affects the vessel’s performance, then the shipbuilder will be and can be held liable under the warranty clause of the shipbuilding contract.
Remedies for defectiveness (after delivery)
Are there any remedies available to third parties against the shipbuilder for defectiveness?
Unless its application is expressly excluded by the terms of the shipbuilding contract, the Contracts (Rights of Third Parties) Act provides in essence that a third party may directly enforce a term of a contract where either the contract expressly provides that it may or the contracting parties intend that such third party should be entitled to do so. The third party must ‘be expressly identified in the contract by name, as a member of a class or as answering a particular description but need not be in existence when the contract is entered into’.
Except as stated, there are no remedies available to third parties against the shipbuilder for defects.
Liquidated damages clauses
If the contract contains a liquidated damages clause or a penalty provision for late delivery or not meeting guaranteed performance criteria, must the agreed level of compensation represent a genuine link with the damage suffered? Can courts mitigate liquidated damages or penalties agreed in the contract, and for what reasons?
The agreed level of compensation must be a genuine pre-estimate of the loss. If not, the courts can strike down such liquidated damages or penalties clause.
Preclusion from claiming higher actual damages
If the building contract contains a liquidated damages provision, for example, for late delivery, is the buyer then precluded from claiming proven higher damages?
Yes, the buyer is precluded from claiming proven higher damages for that head of claim (ie, for late delivery). The shipbuilder usually will not take responsibility contractually for consequential damages.
Are the parties free to design the force majeure clause of the contract?
Yes, parties are free to design the force majeure clause of the contract. However, being an exemption clause, it will be interpreted strictly.
Is certain ‘umbrella’ insurance available in the market covering the builder and all subcontractors of a particular project for the builder’s risks?
Yes, construction all-risks insurance is available in the market covering the builder and all named subcontractors of a particular project for the builder’s risks.
Disagreement on modifications
Will courts or arbitration tribunals in your jurisdiction be prepared to set terms if the parties are unable to reach agreement on alteration to key terms of the contract or a modification to the specification?
In the event that dispute resolution is taken through the Singaporean courts, this will be left to the builder and the buyer to resolve - the Singaporean courts will not be prepared to set terms. However, if dispute resolution is conducted by arbitration and if the shipbuilding contract gives the arbitrators the power to set terms, then the arbitration tribunal can set the terms if the parties are unable to reach agreement.
Acceptance of the vessel
Does the buyer’s signature of a protocol of delivery and acceptance, stating that the buyer’s acceptance of the vessel shall be final and binding so far as conformity of the vessel to the contract and specifications is concerned, preclude a subsequent claim for breach of performance warranties or for defects latent at the time of delivery?
It will not preclude a subsequent claim for breach of performance warranties or for defects latent at the time of delivery. Such claims will be subject to the statutory limitation of claims under Singaporean laws governing limitation.
Liens and encumbrances
Can suppliers or subcontractors of the shipbuilder exercise a lien over the vessel or work or equipment ready to be incorporated in the vessel for any unpaid invoices? Is there an implied term or statutory provision that at the time of delivery the vessel shall be free from all liens, charges and encumbrances?
Suppliers or subcontractors of the shipbuilder may exercise a lien over the vessel or work or equipment ready to be incorporated in the vessel for any unpaid invoices, provided they have possession over the equipment or work. Such claims are possessory in nature. There is an implied term that at the time of delivery, the vessel shall be free from all liens, charges and encumbrances.
Reservation of title in materials and equipment
Does a reservation of title by a subcontractor or supplier of materials and equipment survive affixing to or incorporation in the vessel under construction?
A reservation of title by a subcontractor or supplier of materials and equipment will not survive affixing to or incorporation in the vessel under construction, as it will be difficult to identify the work or equipment after it is integrated into the construction.
Third-party creditors’ security
Assuming title to the vessel under construction vests with the builder, can third-party creditors of the builder obtain a security attachment or enforcement lien over the vessel or equipment to be incorporated in the vessel to secure their claim against the builder?
Third-party creditors of the builder may be able to obtain a security attachment or enforcement lien over the vessel or equipment to be incorporated in the vessel.
Subcontractor’s and manufacturer’s warranties
Can a subcontractor’s or manufacturer’s warranty be assigned to the buyer? Does legislation entitle the buyer to make a direct claim under the subcontractor’s or manufacturer’s warranty?
A subcontractor’s or manufacturer’s warranty may be assigned to the buyer if there is no express restriction on such assignment. There is no legislation that entitles the buyer to make a direct claim under the subcontractor’s or manufacturer’s warranty. In practice, such warranties are usually for one year and construction of the vessel can take longer than one year after delivery of the equipment to the shipyard. It is more common to rely on the contractual warranties between builder and buyer.
Default of the builder
Where a builder defaults in the performance of the contract, is there a legal requirement to put the builder in default by sending an official notice before the buyer’s remedies begin to accrue? What remedies will be open to the buyer?
There is no legal requirement under Singaporean law to put the builder in default by sending an official notice if there is no such requirement under the terms of the shipbuilding contract.
The usual remedy will be a claim for damages. Specific performance may be ordered where the buyer can prove that damages will not be an adequate remedy. All this will also depend on the shipbuilding contract. The buyer may also seek to remove the vessel to another yard (if the buyer has title to the vessel under construction), and complete the construction.
Remedies for protracted non-performance
Are there any remedies available to the shipowner in the event of protracted failure to construct or continue construction by the shipbuilder apart from the contractual provisions?
A protracted failure to construct or continue construction by the shipbuilder may entitle the buyer to claim that the contract has been frustrated by breach. If successful in such claim, the buyer can recover monies paid to the builder on the basis of a total failure of consideration.
A protracted failure to construct or continue construction can also be a fundamental breach of contract by the builder that will entitle the buyer to terminate the construction and claim damages from the builder for breach of contract.
Would a buyer’s contractual right to terminate for the builder’s insolvency be enforceable in your jurisdiction?
Yes, a buyer’s contractual right to terminate the shipbuilding contract for the builder’s insolvency would be enforceable in Singapore.
Judicial proceedings or arbitration
What institution will most commonly be agreed on by the parties to decide disputes?
The Singapore Chamber of Maritime Arbitration and the Singapore International Arbitration Centre are commonly agreed on. The Singapore High Court also has specialised judges to deal with shipbuilding contract disputes.
Buyer’s right to complete construction
Would a buyer’s contractual right to take possession of the vessel under construction and continue construction survive the bankruptcy or moratorium of creditors of the builder?
This question has not yet been determined by a Singaporean court. Where an insolvency proceeding or a moratorium of proceedings is in place, further proceedings against the Singapore builder may be restrained or stayed by the court, and hence cannot be proceeded with except with the leave of court. The enforceability of the buyer’s contractual right to take possession of the vessel under construction will usually take into account the exact wording of the contractual term. Generally, where the buyer has title to the partly constructed vessel, it is arguable that the buyer’s right to take possession of the uncompleted vessel survives the insolvency or moratorium of creditors of the Singapore builder, and an application can be made to the Singapore court for leave to commence or continue legal proceedings against the Singapore builder to enforce its rights under the shipbuilding contract. However, if the title to the uncompleted vessel vests in the builder, which is commonly the case, it can be expected that it will be more difficult for leave of the Singapore court to be obtained for the buyer to enforce its right to take possession of the uncompleted vessel as the buyer is an unsecured creditor, unless a valid admiralty writ in rem has been issued by the buyer in respect of the uncompleted vessel before the insolvency proceeding or moratorium are in place, such that the buyer thereby qualifies as a secured creditor against the Singapore builder. If the builder is subject to insolvency or restructuring proceedings in other jurisdictions, the Singapore court may restrain or stay Singapore legal proceedings against the builder on application of the builder, pending the outcome of the foreign insolvency or restructuring proceedings, as Singapore has adopted the UNCITRAL Model Law on Cross-Border Insolvency.
In your jurisdiction, do parties tend to incorporate an ADR clause in shipbuilding contracts?
Yes, parties do tend to incorporate an ADR clause in shipbuilding contracts.
Default of the buyer
Where the buyer defaults in the performance of the contract, what remedies will be available to the builder? What are the consequences of the builder’s cancellation of the contract?
The remedies would usually be specified in the shipbuilding contract. These would include the right of the builder to rescind the shipbuilding contract, to sell the vessel by public auction or by private treaty and, in the event of a shortfall between the sale price recovered by the builder and the construction cost under the shipbuilding contract, to recover such shortfall from the buyer.
Contract forms and assignment
Standard contract forms
Are any standard forms predominantly used in your jurisdiction as a starting point for drafting a shipbuilding contract?
The Shipbuilders’ Association of Japan and the Association of European Shipbuilders and Shiprepairers forms are predominantly used.
Assignment of the contract
What are the statutory requirements for assigning the contract to a third party?
Under Singaporean law, only rights and benefits can be assigned, not liabilities and obligations. There are no statutory requirements for assignment of a contract to a third party. In the event of a contractual prohibition against assignment, the consent of each counterparty to the contract must be obtained prior to the assignment. There is no requirement for an assignment to be in the form of a tripartite agreement - it can be in the form of a deed entered into by the assignor in favour of the assignee. Such an assignment is perfected by the service of the notice of assignment on the other contracting parties. The original contract is not discharged by the assignment and the assignee does not assume all rights and obligations ab initio.
In the event that the rights, benefits, liabilities and obligations under a contract are to be transferred by one party to another, such transfer can be effected by way of a novation agreement, to be executed by all the original parties to the contract and the new transferee. The new transferee can assume all rights and obligations under the contract ab initio if the novation agreement expressly provides for it.