Dutch Yards May Need to Rethink Contract Structures
Rotterdam-based law firm AKD said a recent decision of the Dutch courts means that shipyards in The Netherlands may no longer be able to rely on the right to retain a vessel while awaiting payment for work done. As a result of this unexpected decision, shipyards could be forced to completely rethink their strategy on obtaining security, at a time when money remains tight in the shipping industry.
The dispute before the Gelderland Court involved two tankers under construction at the Markerink yard in the Netherlands. Upon completion of building, it was the intention of Rijndec Quality Control to transfer ownership of the vessels to two separate affiliated companies, Rijndec Trading and Rijndec Shipping. The contracts for the completion of the building were signed by Rijndec Trading and Rijndec Shipping, not by Rijndec Quality Control. The project was financed by ING Bank, which held mortgages on both vessels.
After some time, it transpired that Rijndec Trading and Rijndec Shipping were no longer able to meet their financial obligations towards Markerink, whereupon the yard exercised a right of retention on the vessels and sought judgment against Rijndec Trading and Rijndec Shipping for a total amount of approximately 1.85m Euros. Soon thereafter, ING Bank and Rijndec Quality Control found a buyer for the ships, and maintained that, since the yard was never going to be able to recover the amounts due from Rijndec Trading and Rijndec Shipping, the vessels ought to be released.
The Gelderland Court agreed, holding that the yard was guilty of abusing the right of retention because it had no prospect of being paid by the debtors.
AKD partner Haco van der Houven van Oordt said, “It has until now been common practice that a yard is able to exercise a right of retention on a vessel on which it has performed work, until it has been paid. Even if a ship goes to public auction, the yard commonly maintains the right of retention - similar to a lien - and the buyer has to pay the yard all amounts due before being able to take possession of the vessel.
“Now, this surprising decision of the Gelderland Court will set alarm bells ringing for yards that do not have claims against the actual owners of vessels. Those yards, which have often relied on the right of retention, may be forced to reconsider their whole approach to such contractual structures. Of course this is currently only a single ruling from the lower court, but it is most definitely a step in the wrong direction for local shipyards at a time of continuing economic uncertainty.”
