Hyundai v. 'Saibos'

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DMC/S&T/25/01
Hyundai Heavy Industries v. M/V Saibos
US Federal Court for the Northern District of Alabama: 163 F. Supp. 2d 1307, 2001 W.L. 1149040: June 20, 2001
Case note contributed by Healy & Baillie LLP, New York, Attorneys Glen Oxton and Brian P. Devine
VESSEL CONSTRUCTION CONTRACTS: MARITIME CONTRACTS: ADMIRALTY JURISDICTION: MARITIME LIENS: SHIP DELIVERED TO OWNERS: KEY EQUIPMENT STILL TO BE ADDED: SHIP A ‘PROPOSED VESSEL’ NOT AN ‘EXISTING VESSEL’: STATUS TO BE JUDGED WHEN CONTRACTS CONCLUDED, NOT WHEN CONTRACTS PERFORMED

Summary
In this case, a newbuilding, which had been delivered to and accepted by its owners, was held not to be a vessel even though it had sailed from Korea to Mobile, Alabama under its own power, since equipment essential to its commercial purpose as a pipe-laying vessel had not yet been installed. The question whether the contract for the installation of this equipment was to be regarded as a construction contract rather than a maritime contract had to be based upon the status of the newbuilding at the time the contracts were entered into, not at the time the services were rendered to the vessel pursuant to the contract.

DMC Category Rating: Confirmed

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Facts
The owners contracted to build a deep water pipe laying vessel in Korea (the "SAIBOS"). The owners contracted separately with AmClyde Engineered Products Co., Inc. ("AmClyde") for the construction and installation of the J-Lay tower on the vessel. The J-Lay tower weighed 2,000 tons and cost several million dollars. The vessel could not lay pipe in deep water without the J-Lay tower. AmClyde in turn subcontracted most of the construction work for the J-Lay tower. The claimants, Hyundai Heavy Industries, were one of those sub-contractors.

The vessel was built in Korea, underwent sea trials, received a certificate of interim class (subject to testing of the J-Lay tower), was christened, delivered to and accepted by its owners. The SAIBOS then sailed under her own power from Korea to Mobile, Alabama, with the incomplete J-Lay tower aboard as cargo. The balance of the components for the J-Lay tower were to be supplied and installed on the SAIBOS by AmClyde after her arrival in Mobile. Prior to completion of this work, AmClyde filed for bankruptcy. Hyundai and AmClyde’s other subcontractors then arrested the vessel in Mobile, asserting maritime liens for equipment and services provided to the vessel pursuant to their contracts with AmClyde.

Judgment
The court held that Hyundai had contracted to work on a proposed vessel rather than an existing vessel. Therefore, their contracts were non-maritime construction contracts instead of maritime contracts for the repair of a vessel. Applying a 1919 decision of the U.S. Supreme Court, the court said that a newbuilding becomes a vessel when it is both completed and launched; and a vessel is not completed until it is in a condition to function as intended. Here, the vessel could not operate as intended until the J-Lay tower was installed and operational.

Moreover, the court held, following existing authority, that the characterization of Hyundai’s contracts as maritime or non-maritime had to be made based upon the newbuilding’s status at the time the contracts were entered into and not at the time the goods and services were provided. Thus, their completion and furnishing of the tower after the SAIBOS’ launching and delivery were not controlling since Hyundai had entered into their subcontracts almost a year earlier.

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Comment
This decision illustrates the difficulties that arise under the American rule that vessel construction contracts are not maritime contracts, are not within the admiralty jurisdiction and that, therefore, no maritime lien arises upon their breach.  

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