The mystery of finance lease contract

1 Acquisition of ships

There are roughly two ways for the lessor to acquire a ship according to the characteristics of the ship. The first is to place an order to the shipyard to build the ship according to the requirements of the shipowner, that is, the ship used as the lease is a new ship. The second is to purchase the ship in the second-hand ship sale market according to the requirements of the shipowner, that is, the ship as a lease is a second-hand ship.

The first approach should include the awarding of ship construction contracts to other shipowners. We can often see that ship finance leasing is negotiated after the shipowner has placed an order to build the ship at the shipyard. Since the ship is already under construction but not yet delivered, the shipowner does not need to conclude a separate ship construction contract with the shipyard, but through the contract between the transferee shipowner and the shipyard.

2. Lessor's relationship with shipyard and seller

In practice, although the identity of banks or financial institutions is the lessor, that is, the person who provides the ship to the shipowner, they usually do not participate in the activities related to the selection of ships, the negotiation and negotiation of transactions, the inspection of ships construction or the inspection of ships in the sale and purchase, because banks and others do not have professional knowledge and skills in these issues.

In fact, before the shipowner starts to contact with the shipyard or seller, the shipowner often has already had contact with the shipyard or seller, and some have even concluded a ship construction contract or a ship sale agreement.

In practice, although it is the lessor who enters into the contract with the shipyard or seller and pays the price, since it is the shipowner who ultimately uses the ship, the specific details of the construction or sale of the ship are often determined through negotiations between the shipyard or seller and the shipowner.

But this does not of course mean that the shipyard or the seller is the agent of the lessor, acting on behalf of the lessor in contact with the shipowner. The shipyard or the seller shall not represent the lessor unless authorized to do so. Whether there is an agency relationship between the lessor and the shipyard or the seller shall be determined according to specific facts.

Warranties between the shipowner and the shipowner, given by the shipyard or seller to the shipowner regarding the quality, performance, functionality, etc. of the vessel shall likewise not bind the shipowner.

Branwhitev Worcester Works FinanceLtd is a car hire purchase case in which the lessee owned a Talbot but wanted to exchange it for a Rapier. The car dealer sold a Rapier to the lessee for £430 and acquired the lessee's Talbot car for £130.

The balance is paid by the tenant at £5 per month. The lessee signed the financial company documents provided by the automaker without even looking at them, and there were no numbers in the documents. The dealer entered £649 as the price of the car in the documents signed by the tenant. The total price of the hire purchase, plus other expenses, was £805, with a down payment of £130 and a monthly payment of £18.14.

The finance company bought the Rapier for £649 and paid £519 to the dealer after deducting £130. The finance company signed the hire purchase agreement and sent a copy to the tenant, who ignored it and did not pay.

The finance company repossessed the car and demanded that the lessee pay all the rent. The court rejected the financial company's request on the grounds that there was no valid contract between the financial company and the lessee. The lessee's request for the refund of the deposit was rejected by the court of first instance, and his appeal was also rejected by the Court of Appeal. The case went to the House of Lords, which ruled that the financial firm should return £130.

Lord Morris did not base his ruling on the existence of an agency relationship between the carmakers and the financial firms, but he appeared to treat the money received by the carmakers as if it were money received by the financial firms. LordMorris's view was supported by the majority, but Lord Reid and Lord Wilberforce disagreed. Lord Wilberforce agreed that the finance company should return £130, but said there was an agency relationship between the car company and the finance company.

The above cases involve general equipment financial leasing, and although the general equipment financial leasing and ship financial leasing apply the same law, there should be a more obvious difference between the two. In general equipment financial leasing, the lessee may purchase the equipment through the lessor, or the equipment supplier may also provide financial leasing services while providing the equipment.

In the MercantileCredit case, the sale and purchase transaction was established long before the financial lease. Although there is not necessarily an agency relationship between the lessor and the equipment supplier, there may be an agency relationship between the two.