New draft of the Maritime Navigation Law

On November 3 2006 the Council of Ministers presented the draft Maritime Navigation Law to Parliament. The new regulation will:

• update the rules governing the maritime sector;
  
   
• reflect the provisions contained in the relevant international maritime conventions applicable in Spain; and
  
   
• repeal, among other things, the provisions of Book III of the Commercial Law so that the regulatory system of the maritime sector is in line with the current maritime traffic and environment.

This update focuses on shipbuilding contracts and ship sale and purchase agreements under the draft law.

Shipbuilding Contracts

Spanish scholars and courts have traditionally discussed the legal nature of shipbuilding contracts; both have regarded this type of contract as a contract for works governed by the provisions of the Civil Code, as opposed to the sale of a future asset.

Articles 158 to 166 of the draft law regulate shipbuilding contracts for the first time by providing a simple definition of this type of contract and highlighting the fact that the parties are free to decide its content. Pursuant to the new regulation, shipbuilding contracts must be in writing and may be filed in the shipping section of the Register of Movable Assets, thus producing legal effects towards third parties. Shipbuilders are liable for hidden defects arising up to one year after delivery of the vessel, provided that they could not have been detected on delivery of the vessel.

Furthermore, the draft law provides for a three-year limitation period from delivery of the vessel for the buyer to initiate any actions deriving from a breach of the shipbuilding contract.

Ship Sale and Purchase Agreements

At present, second-hand ship sale and purchase agreements are negotiated by using pro-forma documents (eg, the Norwegian sale form) that have been developed by various bodies (eg, the Baltic and International Maritime Council). By inviting all parties to participate, an attempt is made to address all the relevant issues in a large-scale transaction involving the vessel.

However, the purchase of ships in Spain is currently governed by the Commercial Law (Articles 575 to 584) and - on a subsidiary basis - by the provisions of the Civil Code. The draft law expressly refers to ship sale and purchase agreements (Articles 167 to 171) and provides, among other things, that the seller will be liable for any hidden defects discovered within three months of the material delivery of the vessel. Notice of such defects must be served by the buyer within five days of their discovery. Buyers have a six-month statutory period (running from the date on which notice was served) to initiate actions arising from hidden defects.

The new regulation has merely codified what is usual practice in the market. Therefore, the new legal regime has not altered the system of rights and liabilities for this type of transaction.

This article was originally edited by, and first published on, www.internationallawoffice.com - the Official Online Media Partner to the International Bar Association, an International Online Media Partner to the Association of Corporate Counsel & European Online Media Partner to the European Company Lawyers Association.