Clause 27 of the MYBA Memorandum of Agreement is particularly problematic. We explain why
by Federico Santini*
Writing in this magazine a few years ago, I looked at the MYBA Memorandum of Agreement (also known as the “MYBA MOA”) which is a form of contract for the sale and purchase of second-hand yachts approved by the MYBA (Mediterranean Yacht Brokers Association) and is the most widely-used contract in the international yachting market. As I explained then, the MOA is fairly complicated. It falls under English law, and is composed of a first part (corresponding to the first two pages) with a description of the yacht and the special terms agreed between buyer and seller, and a second part with standard clauses which set out the rights and obligations of both parties, and the general terms of sale.
I am now going to focus on Clause 27, which covers the Condition Survey and is the most complicated and problematic part of the MOA, since its application often causes disputes between buyer and seller. Once the sea trial has been satisfactorily completed, buyers can haul the yacht out and have a complete inspection by specialists of their choice. This Condition Survey must be carried out no later than the date agreed on in Clause 9 of the MOA. Compliance with this timeframe is essential, and it can only be changed by agreement in writing by both parties. The Condition Survey is the buyer’s only chance to see if there are faults, defects or malfunctioning parts on the yacht, its equipment or machinery. Once the sale is completed, the buyer will have no right to make a claim against the seller under warranty or for damages in relation to faults, defects or malfunctioning parts that are subsequently identified.
The Condition Survey is the buyer’s only chance to see if there are faults, defects
or malfunctioning parts on the yacht, its equipment or machinery. Once the sale
is completed, the buyer will have no right to make a claim against the seller under warranty or for damages in relation to faults, defects or malfunctioning parts
that are subsequently identified.
The following issues arise from an analysis of the clause:
– carrying out the survey is at the discretion of the buyer: if the buyer does not take up the chance to do so within the term specified in Clause 9, it will be assumed that the yacht has been accepted;
– the buyer shall bear all costs relating to this (hauling out, moving, launching) along with the costs of the marine surveyor and engine technicians, and also for any oil analysis requested;
– the buyer shall appoint a marine surveyor, whose normal job is surveying yachts with similar specifications and value;
– defects identified in writing by the seller prior to the signing of the MOA shall be considered as accepted, and the buyer will therefore not be allowed to claim anything for those defects after the survey is carried out;
– only defects that have a negative impact on the operational integrity of the yacht or its machinery or systems, or which render it unseaworthy, can give rise to a request for remedy, whether through a reduction in price or even cancellation of the sale itself: purely aesthetic or cosmetic defects that do not affect the integrity of the vessel are thus excluded.
(27) CONDITION SURVEY
The BUYER may at his/its own cost place ashore and/or open up the VESSEL and her machinery for the purpose of completing a Condition Survey no later than the date shown at Clause (9) herein, time being of the essence in this respect.
(a) If on completion of the Condition Survey any defects in the VESSEL or her machinery have been found other than those disclosed to the BUYER in writing prior to the date of this Agreement and thereby accepted by the BUYER, the BUYER may within seven days of completion of the Condition Survey give to the SELLER or the BROKER(s) either:
(i) written notice requiring the SELLER forthwith either to make good any or all of the defect(s) and/or alternatively to make a reasonable and sufficient reduction in the Sale Price to enable the BUYER after completion of the Sale to make good the same. All agreed items of work shall be completed by the SELLER without undue delay in all the circumstances and shall be carried out so as to satisfy the expressly specified requirements of the BUYER’s Surveyor in respect of defect(s) mentioned in the Surveyor’s Report and notified to the SELLER, in which case the Completion Date shall be extended by such period as the SELLER and the BUYER may agree to allow the remedial works to be completed; or (ii) written notice of his/its rejection of the VESSEL identifying in that notice the defect(s). If the BUYER shall serve written notice under Clause (27) (a) (ii) then this Agreement shall be deemed terminated and the terms and conditions of Clause (29) shall apply. (b) If the BUYER shall serve written notice under Clause (27)(a)(i) above and if after seven days of service of such notice one or a relevant combination of the following circumstances applies:
(i) the SELLER has not agreed in writing to make good without delay any defect(s) specified in such notice; or
(ii) the BUYER and SELLER have not agreed in writing as to the amount by which the Sales Price is to be reduced; or
(iii) the SELLER and the BUYER do not agree the period within which the remedial works are to be completed.
Then this Agreement shall be deemed terminated and the terms and conditions of Clause (29) herein shall apply.
A defect shall be regarded as a defect for the purposes of this Clause (27) if an officially appointed Marine Surveyor (to be defined as a Marine Surveyor whose day-to-day business is occupied with the surveying of vessels of a similar quality to and value of the VESSEL) shall have certified in writing that the defect(s) affect(s) the operational integrity of the VESSEL or her machinery or her systems or renders the VESSEL unseaworthy. For the purposes of any time limits herein, the survey shall be deemed to be completed immediately following completion of the physical inspection by the Surveyor.
For the avoidance of doubt, the period of the Condition Survey and the completion thereof shall not depend on the production or provision of any written report by the Surveyor to the BUYER.
The BROKER(s) is/are not responsible for any errors or omissions of the Surveyor, although the BROKER(s) may have suggested a choice of surveyors and may have been made responsible for the engagement of the Surveyor selected by the BUYER”.
Once the sea trial has been satisfactorily completed, buyers have the right to have the yacht hauled out and
to have a complete inspection carried out by specialists
of their choice no later than the date agreed on in Clause 9
of the MOA.
Where defects of this sort are found and are duly certified in writing by the surveyor, the buyer essentially has three options, which are listed at Clause 27 (a) parts (i) and (ii): these are 1) to require the seller to make good the defects at their own expense prior to completion of the sale; 2) to ask for a reasonable reduction in the price to enable the buyer to do the same after the sale is completed; or 3) to reject the vessel. Whatever course of action is taken, the decision must be notified in writing to the seller within 7 days from the completion of the survey, otherwise the vessel is to be considered as accepted. Up to that point, the clause is fairly clear and devoid of particular pitfalls. But the second part of Clause 27 (b) (i) (ii) and (iii) isn’t so clear and has the potential, in my opinion, to create conflict, especially if one of the parties does not behave in a correct and reasonable manner.
I especially refer to cases when point (i) is applied. This specifies that the MOA is terminated if the seller does not give written agreement that they will pay to correct the defects that have been identified, or if the parties don’t agree in writing to reduce the price, or the timeframe for finishing the work. The automatic nature of this part of the clause (whereby lack of agreement = termination of contract) clearly lends itself, when subjected to a strict interpretation, to giving sellers far too easy a way out should the buyer’s request, although correct and fair, not be to their liking. For the contract to be cancelled, sellers merely have to reject the request, or simply not reply to the buyer within the seven-day deadline. Absurd situations can, and do, occur. In one case, a buyer who failed to get any reply to their request for a price reduction because of defects that had been promptly notified, wrote to the seller just before the expiry of the seven-day deadline to revoke the request, and to inform them that the sale would proceed at full price. The seller then replied that there was no provision in the MOA for the revocation of a request, and so the contract was cancelled regardless. That outcome is not at all reassuring, and clearly seems unfair as it is highly detrimental to the interests of the buyer. In my opinion, this part of Clause 27 is incomplete as it leaves a gap that could perhaps be filled with a provision to cover disagreements on the nature of the defects, or on how much the sale price should be reduced. A third-party technical expert could be given the binding power to establish what the issues affecting the yacht are, and what is a reasonable amount to reflect that in the final sale price.
(A problematic clause – Barchemagazine.com – September 2022)