March 22, 2016

In the March 2016 issue of
Long Island Boating World magazine,
Tim covers legal issues that can arise between a vessel owner
and shipyard or boatyard in a major marine project. The article,
Conversion of Commercial Vessel into Luxury Yacht Results in
Legal Action
, conversion of a commercial vessel into a luxury
yacht results in a complex lawsuit...

I have a friend who enjoys combing through marine classified
ads for retired commercial vessels. She’s a bit of a dreamer,
talking of converting tugs and fishing trawlers whose best days
are behind them into yachts with character. I can understand her
inspiration after seeing the impressive lines on some of these
vessels. But I caution her that such endeavors have the potential
to go through money like water. They can open the door to many
legal woes, by virtue of their sheer scale. These projects often
involve contracts with lots of fine print, complex work
specifications, and the inevitable and costly modifications and

Yes, it could be exciting to own a tugboat that served the Army
Corps of Engineers when John F. Kennedy was in the White
House. And one could be encouraged after seeing steel-hulled
workhorses from the 1960s selling for the same prices as
trailerable center consoles. But $30,000 for a 65-foot retired
workboat is nothing compared to the costs of repowering,
strengthening structural components, and possibly removing
toxic substances. These projects are often in a very different
league than brightening up the appearance of a vintage Chris-
Craft over the course of a couple of winters.

A lawsuit in federal court involving conversion of a crew boat into
a luxury yacht might serve to illustrate some of the legal woes
that can materialize in a very large scale conversion. A group of
businessmen purchased the 131-foot vessel, originally built in
1974, for $680,000. They entered into a contract with an Alabama
shipyard for $4,500,000 to refurbish, rehabilitate, overhaul, and
outfit the aluminum crew boat. It was hoped that the yacht
emerging at the other end of this transition would be worth about
$10,000,000, with the potential to bring $75,000 to $150,000 a
week in the high-end charter business.

Starting out of the box with an existing vessel, rather than
building from the keel up, would seem like an approach that
would save considerable money. But things got off to a difficult
start and legal problems soon followed. There were delays with
the drawings. Additionally, the drawings sometimes needed
revisions. Another design firm was brought in to work with the
shipyard’s in-house engineer. More than a year into the fifteen
month contract, things were still up in the air as to how many
staterooms and heads the yacht would have.

Ultimately, the cost of the project reached a total of around
$9,400,000. The vessel owners stopped paying the shipyard’s
invoices. The shipyard sued them to establish a lien on the
vessel. The vessel was then arrested, with the shipyard being
designated as substitute custodian. The vessel interests filed for

The bankruptcy court didn’t accept the vessel interests’
complaints about the performance of the shipyard. With the
exception of a few charges, the court deemed the shipyard’s
time and material charges to be consistent with the terns of the
contract. However, the bankruptcy court felt the shipyard
breached its duty as custodian of the vessel. The shipyard had to
launch the vessel so that other boats could be moved. Sitting in
salt water for three months, problems ensued with the former
crew boat. Water in the bilge caused plywood panels to become
moldy and brand new mechanical components to exhibit rust.

This resulted in the shipyard being denied custodial fees. This
offset its claims for money owed on work already performed. In
the end, what started out as a well conceived plan to turn a
commercial vessel into a luxury yacht wound up in court with
both sides suing each other. Yes, there are many projects of this
scale that run smoothly without legal hitches. But it shows that
when expensive shoreside facilities and skilled manpower are
involved in large and complex marine projects of this nature,
revisions and delays have the potential to grow into serious legal

Ref: Horizon Shipbuilding, Inc. v Blyn II Holding LLC, Civil Action
No. C-12-60 United States District Court, Southern District of
Texas, Corpus Christi Division

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