Penalty Clause In Boatbuilding Contract

[nemofound]

A friend of mine is getting a boat built in Thailand and the boatbuilder is now seriously late. My friend is now trying to seek advice how to settle things with the builder as he has difficulties communicating with him.

My question is that if the contract has a clause "Date of completion no later than XXX from the date of the deposit. Penalty for late completion xxx per week thereafter", how valid is that in Thailand? Does anyone have any experience dealing with these kind of matters? If the builder refuses to deduct the penalty amount from the final payment and will not hand over the boat or the construction stops what are the options for a customer?

What about chances fighting this in the court? How long will it take and how much could it possibly cost? The contract should be otherwise valid, checked by a lawyer.

[AussieFarang]

You are refering to Liquidated Damages and your friend would need to be able to prove that the delay has caused him to incurr costs that are equal to the amount that he is claiming in damages.

Court option could cost you more than you are able to recover depending on the circumstances.

Maybe a trusted third party negotiation is best just to complete the contract, your friend gets the boat, the builder gets paid and the delay and lack of accountability or enforceability at law in a good lession to us all about doing business in a place like Thailand.

[thaihome]

If the contract refers to them as a “penalty” not liquidated damages then technically they are enforceable even if no actual cost was incurred due to the delay. This is a very gray contractual area and not just in Thailand, but any country where the commercial code requires actual damages to be able to collect liquidated damages. As an example, Malaysia has similar laws. I don’t think this is in any way unique to doing business in Thailand.

The problem with penalty (or liquidated damages) clauses is though they are put into contracts to motivate the parties to complete on time, when projects are delayed, the penalties become counter-productive very quickly as the penalty becomes larger then the cost of finishing the project or what the contractor would get for finishing.

I do agree that some re-negotiations involving someone that can communicate with both parties to get the project completed and have both parties happy is the way to go.

TH

Edited June 23, 2009 by thaihome

[Mai Krap]

If your friend is having problems communicating most likely its not a professional business he is dealing with. In that case it is highly unlikely that the situation will ever be resolved satisfactorily for them. If they are not on location during the build its normal for a Thai business to take other projects and mothball old ones till they feel like getting to it. The only case I know of where a westerner actually kept funds for a penalty during a work contract involved a bond and five years of court cases, the total was about 500,000 TB on a 5,000,0000 TB Project and included death threats and many sleepless night for the friend.

Building boats in Thailand is doable but its almost always better to be on the ground with the build, hands on. There are also some guy that build and have boats for sale but the prices will not be local as they are built on spec for export.

Can you give a few details without revealing the name of the builder? What city? Fiberglass, steel, or wood? What kind of boat? How much money are you talking about?

[citizen33]

I thought that Thaihome gave a pretty good analysis. Penalty clauses are one of the so-called neo-classical contracting tools and often appear in contracts that also specify arrangements for agreed arbitration. If the parties are relying on the courts to enforce the penalties, the outcome is unpredictable.

[Mai Krap]

I thought that Thaihome gave a pretty good analysis. Penalty clauses are one of the so-called neo-classical contracting tools and often appear in contracts that also specify arrangements for agreed arbitration. If the parties are relying on the courts to enforce the penalties, the outcome is unpredictable.

In other words the contract may or may not be worth the paper it is written on.

[nemofound]

The only case I know of where a westerner actually kept funds for a penalty during a work contract involved a bond and five years of court cases, the total was about 500,000 TB on a 5,000,0000 TB Project and included death threats and many sleepless night for the friend.

Can you give a few details without revealing the name of the builder? What city? Fiberglass, steel, or wood? What kind of boat? How much money are you talking about?

We are talking about 10 meter fiberglass boat worth about 1 million baht. I don't want to reveal the builder until the project is finished as I'm well aware of the possible damage it might cause for the negotiations.

I know of one notorious boat yard in Pattaya which has managed to scam many westerners which have been allured by cheap prices but the project has never finished or the product has been just useless but somehow I think my friend does have a chance with his builder. I've seen the contract and I couldn't see any loop holes that the builder could use.

[jackdanielsesq]

I am in the process of building a 25m all-alloy powerboat. Would appreciate pm, as I dont need the aggro either.

BR>Jack

PS I would go with friendly arbitration everyday.

Entirely without prejudice.

[Amdesign]

We are talking about 10 meter fiberglass boat worth about 1 million baht. I don't want to reveal the builder until the project is finished as I'm well aware of the possible damage it might cause for the negotiations.

1M THB for 10m boat? Amazing, this is a price of 6-7m bare boat, no engines...

But You are not a champion. I know 2 guys who ordered 10m 'boat' for 800,000 THB. They have got hull and deck moldings joined together, moldings got only 2 layers of glass mat. After all, they had to invest another 2M THB to make it float, but still the boat does not perform.

FYI: good FRP boat prices:

6m - about 600,000...1,000,000 THB

8m - about 1,500,000-2,000,000 THB.

10m - about 3,000,000-4,000,000 THB

Prices without engines!

I know of one notorious boat yard in Pattaya which has managed to scam many westerners which have been allured by cheap prices but the project has never finished or the product has been just useless but somehow I think my friend does have a chance with his builder. I've seen the contract and I couldn't see any loop holes that the builder could use.

Yes, there are few of them here with big mouths, excellent websites and... poor quality. Some of these 'boatbuilders' never built anything before! Check launching record before making a decision.

Edited July 25, 2009 by Amdesign

[nemofound]

I know 2 guys who ordered 10m 'boat' for 800,000 THB. They have got hull and deck moldings joined together, moldings got only 2 layers of glass mat. After all, they had to invest another 2M THB to make it float, but still the boat does not perform.

Check launching record before making a decision.

Excellent advice for the people bitten by boatfever in Thailand. I've seen the latest pics of the project and the boat looks good on the outside, but I'm not sure if my friend ever checked out the launching record of the yard in question. What I'm waiting for is the moment the boat is launched. Actually quite scared of that to be honest

It's not a speedboat so performing isn't THAT important but still I'm really worried about does the builder actually know much about boatbuilding. There so many things that can go wrong.

[Amdesign]

It's not a speedboat so performing isn't THAT important but still I'm really worried about does the builder actually know much about boatbuilding. There so many things that can go wrong.

For sure, for custom project there will be some minor problems after launching. It is normal - equipment should be tested and adjusted. Those are technical issues and could be cleared by builder.

Big problem can happen once boat is overloaded during construction, has wrong trim, does not deliver the speed, structure is weak, etc. etc. Those issues are serious, only good design and supervision of construction can help.

Another issue on choosing boatbuilder in Thailand: make sure the boats on builder's website are really built by this builder! Many newcomers just 'borrow' images from Internet, I can name some of them. Ask reference on actual launching record from marina, industry experts or association.

Edited August 13, 2009 by Amdesign

[Amdesign]

Enjoy:

http://concordiayacht.blogspot.com/2009_08_01_archive.html