Construction of ships, is an important part of maritime transport and holds a vital importance in international trade. Construction of ships is based on a contractual relationship established between the parties. Shipbuilding contracts, are quite detailed and comprehensive contracts
however, may contain certain legal problems specific to its nature.
In general, it is possible to define a shipbuilding contract as a contract between a shipbuilder and a business owner, whereby the shipbuilder undertakes to build a ship and deliver it to the business owner in return for a price undertaken to be paid by the business owner. The shipbuilding contract appears in two forms in practice. In the first case, the person who wants to have a ship built provides the materials himself and only the execution of the work is left to the shipbuilder.
The contract established in this way is defined as construction with specifications or construction
by undertaking contract in practice. In the second case, the shipbuilder undertakes the construction
of the ship with the laborers at his disposal and the material to be supplied. This is defined as a
lump sum construction contract. Regarding the legal nature of the shipbuilding
contract, although some consider it as a contract of sale and contract of work are prominent, the
Court of Cassation1 defines the shipbuilding contract as a contract of work.
In a Shipbuilding Contract, the characteristics of the ship to be constructed are determined
according to the specific desires and needs of the business owner. In this context, the manner in
which the shipbuilder will construct the ship, the materials to be used, whether the shipbuilder may
use subcontractors, and the speed, weight and other characteristics of the ship to be built are
clearly regulated in the contract. With the establishment of the shipbuilding contract, the shipbuilder undertakes to build a ship in accordance with the contract and to deliver the completed ship to the business owner,
1The 6th Civil Chamber of the Court of Cassation, in its decision dated 11.04.2023 T, 2022/1340 E. and 2023/1397 K., accepted the nature of the shipbuilding contract as a contract of work with the statements “The dispute between the parties arose from the work contract regulated in Articles 355 and following of the Code of Obligations numbered 818, which was in force on the date of the main contract and the protocol dated 04/02/2009.”
while the business owner undertakes to pay a price for the ship and to receive the ship.
If the delivered ship does not meet the conditions and specifications agreed upon in the contract, the shipbuilder shall be liable for a warranty against defects regulated under Articles 474 to 478 of the Turkish Code of Obligations numbered 6098.
Since maritime trade establishes intercontinental interaction, standard rules that will provide general validity in this field and will be called ‘Standart Contracts’ have been created over time.
Nowadays, many shipbuilding contracts are prepared based on the standard contracts formed by regional shipyard associations. There are four standards of standard contracts most commonly used in the shipbuilding sector. These are AWES, SAJ, NSF and NEWBUILDCON standard
contracts. They set examples for the parties and they can be changed and customized if they wish to do so. In addition, all of these contracts contain arbitration or jurisdiction clauses regarding the resolution of disputes arising from the contract, and the applicable law is also included. As such, on the one hand, the establishment of a contract between the parties subject to different legal practices is facilitated, and on the other hand, the way to seek the solution of potential disputes that may arise from the established contract is facilitated. Therefore, there will be no doubt about which law will be applied in disputes arising from a shipbuilding business.
According to the article 24 paragraph 4 of the Law on Private International Law numbered 5718 (“LPIL”) “If the parties have not made a choice of law, the law most closely related to the contract shall apply to the contractual relationship. This law shall be the law of the habitual residence of the obligor of the characteristic performance at the time of the conclusion of the contract, the law of the place of business of the obligor of the characteristic performance in contracts concluded pursuant to commercial or professional activities, or if the obligor of the characteristic performance has more than one place of business, the law of the place of business most closely related to the contract in question. However, if there is a law that is more closely related to the contract according to all the circumstances of the case, the contract shall be subject to this law.” In the light of the aforementioned article, in a shipbuilding contract where one of the parties is Turkish and there is an element of foreignness, if the parties have not decided on the applicable law, the law most closely related to the contract will be applied. According to the relevant article, this law shall be the law of the habitual residence of the characteristic performance obligor at the time of the conclusion of the contract, the law of the place of business, the law of domicile or, if there is more than one place of business, the place of business most closely related to the contract in question. In shipbuilding contracts, it is accepted that the characteristic performance obligor is the shipbuilder who will build the ship. As a matter of fact, according to the opinion of the Court of Cassation, in cases where the performance of one of the parties is only to pay the price, it is accepted that the performance of the other party is the characteristic performance, since this performance is the performance that defines the legal feature of the contract. In this case, the law of where the debtor of the characteristic performance, the shipbuilder’s business is located will be the applicable law.
In conclusion, shipbuilding contracts are a form of contract involving international actors and are of critical importance in maritime trade. In order to increase standardization and ease dispute resolution process, standard contracts have been drafted. In cases where one of the parties is Turkish, Article 24/4 and other relevant provisions of the LPIL shall be applicable.
