BEFORE YOU SIGN: The Importance Of Contract Review In Maritime Agreements

Maritime litigators have seen a steady rise in litigants pursuing vessel arrests tied to contractual disputes, and nearly all of them trace back to the same root cause: poorly drafted contracts. The truth is that no matter how well a contract is drafted, there is no guarantee that a dispute will not arise. However, there are best practices to minimize the risk of disputes.

NO ONE-SIZE-FITS-ALL

Maritime operations are complex and subject to a wide range of external factors, such as delays, sanctions, embargos, regulatory requirements, market conditions, and weather conditions. In this context, contractual oversights can become costly.

There is a common misconception that generic contract templates are widely applicable across different types of maritime transactions, and sufficient for any jurisdiction. However, what works in one transaction may be unsuitable in another. Each agreement must be tailored to the specific realities of the vessel, the trade, the countries involved, and the commercial intent of the parties.

In many cases, standard templates are drafted to favor a particular party to the transaction, including choice of governing law and choice of forum clauses. In other cases, governing law and forum clauses may be absent altogether, which can result in additional litigation to determine which courts have jurisdiction, and which country’s law applies. This can take months to resolve and incur legal costs in the thousands.

More importantly, when key clauses are unclear, incomplete, or not balanced, it may make it extremely difficult to obtain redress or deprive the aggrieved party of a remedy altogether.

LESSONS & BEST PRACTICES

Review all contracts carefully:

• Ensure that all key terms are clearly defined: ambiguous terms are the most common source of post-signing disputes.
• Do not sign contracts under pressure to move forward without proper contract evaluation and advice: rushing through negotiation may cause parties to omit key details or necessary operational provisions.
• Verify the flag registration of the vessel involved in the transaction, that the registration is current, and the position of the contracting party in relation to the vessel (owner, agent, etc.): these details become crucial when seeking the arrest of a vessel and incorrect information will complicate the process.

The consequences of a contractual dispute can be significant, including financial loss, disruption of operation, breakdown of commercial relationships, exposure to unintended liabilities, loss of bargaining power, uncertainty, prolonged adversarial proceedings and reputational damage.

An experienced maritime attorney can provide an in-depth contract review that identifies risk, clarifies obligations, and enables parties to negotiate fair terms. This helps parties allocate risks, incorporate effective enforcement mechanisms, and avoid disputes caused by ambiguity.

A carefully reviewed contract may be the difference between a smooth transaction and a costly legal battle.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.