Norwegian Sale Form 1993: what certificates must be provided on delivery? From @incelawBy james tweed • Apr 27th, 2012 • Category: Ince & Co Podcasts by Coracle, Shipping Law
In this podcast we look at the Norwegian Sale Form 1993 and what certificates must be provided on delivery.
Polestar Maritime Ltd v. YHM Shipping Co. Ltd & Anr (Rewa)  EWCA Civ 153
The dispute in this case took place against the background of the world financial crisis in 2008 and a steep decline in the market for second-hand ships. The Rewa had an agreed sale price of US$ 19 million in July 2008, when the Memorandum of Agreement (“MOA”) was signed between the parties. As at 1 October 2008, her value was only about US$ 9 million. In common with many other commercial contracting parties at that time, the buyers in this case sought to extract themselves from what had become a bad bargain by claiming they were entitled to cancel the MOA and have their 10% deposit returned. The Court of Appeal has now upheld the Commercial Court decision in favour of the sellers and confirmed that the buyers were in breach of the sale contract. The buyers have been refused leave to appeal to the Supreme Court.
The judgment of the Court of Appeal is of general importance to the shipping world for the appeal judges’ construction of the wording of key provisions in the Norwegian Saleform 1993, which constitutes a standard form of ship sale and purchase contract frequently used around the world. Furthermore, whilst a new Norwegian Saleform, Saleform 2012, has recently been published by BIMCO, it is expected that disputes will continue to arise under Memoranda of Agreement based on the 1993 version.
The background facts
The parties entered into a sale contract for the bulk carrier, Rewa, on an amended Norwegian Saleform 1993 (“NSF”). The MOA was dated 23 July 2008. The buyers had inspected the vessel for themselves in July 2008 and had also been made aware before they agreed to buy the vessel that the Rewa did not have an International Sewage Pollution Prevention (“ISPP”) certificate as it was required to do by Annex IV of the International Convention on the Prevention of Pollution from Ships (“MARPOL”) from 27 September 2008, nor did it have the requisite modifications to her sewage plant so as to be able to comply with Annex IV.
The relevant provisions of the MOA
Pursuant to the MOA, the “expected time of delivery” was between 20 August 2008 and 30 September 2008 at the sellers’ option and the “date of cancelling” was 30 September 2008 at the buyers’ option.
A key provision was clause 11 dealing with “Condition on Delivery”. Clause 11 provided among other things as follows:
“….the Vessel shall be delivered….with her National/International trading certificates, as well as all other certificates the Vessel had at the time of inspection, valid and unextended at the time of delivery….”
Clause 8 provided that at the time of closing, the sellers were to deliver to the buyers all agreed documents reasonably required by the buyers for the transfer of ownership, registration of the vessel and change of flag to the buyers’ choice. The list of these documents was mutually agreed by the parties on 19 August 2008, by way of an Addendum No. 1 to the MOA, which listed the original “delivery documents” that the sellers agreed to furnish to the buyers. These included a Legal Bill of Sale which would covenant that “….the Vessel is free from all charters, detentions, mortgages, encumbrances, maritime liens and any other debts whatsoever….”.
Clause 14 of the MOA, “Seller’s Default”, provided that “the Sellers shall be granted a maximum of 3 banking days after Notice of Readiness has been given to make arrangements for the documentation as per Clause 8….”.
The parties had expected that the vessel would be delivered in Hong Kong before 27 September 2008, so that the buyers would carry out the necessary work on the vessel’s sewage plant and obtain the required ISPP certificate. In the event, delays caused the sellers to revise their seven-day approximate notice of delivery on 29 September 2008, two days after MARPOL Annex IV came into force. The sellers applied to the authorities of the vessel’s flag state for a dispensation from the requirements of Annex IV, which was granted but not received until the morning of 1 October 2008. In the meantime, the Rewa had arrived at Hong Kong anchorage on 30 September 2008, the last day within the MOA delivery period and had been detained by the port authorities due to the lack of an ISPP certificate. On 1 October 2008, the buyers gave notice of cancellation under clause 14 of the MOA on the grounds that (i) the vessel had no ISPP certificate and (ii) she had been detained contrary to the covenant in the Bill of Sale that she would be free of detentions. The vessel was released on the same day once the dispensation letter from the flag state authorities had been received.
The Court of Appeal decision
In the first instance, the arbitrator found in favour of the buyers that both the lack of an ISPP certificate and the fact of detention contrary to the covenant in the Bill of Sale entitled the buyers to cancel the MOA and have their deposit returned. On appeal to the Commercial Court, the judge disagreed and found in the sellers’ favour. The Court of Appeal was subsequently asked to consider two principal issues, which we summarise below.
What certificates were the sellers obliged to provide when the vessel was delivered to the buyers?
The Court of Appeal rejected the arbitrator’s construction of clause 11 that the vessel’s “national/international trading certificates….” meant those that the vessel needed to trade internationally at the time of completion. That would give rise to considerable uncertainty because there was no definition of which national or international certificates were said to be required. It was unclear whether the relevant “nation” was that of the vessel’s flag, or those nations to which she had traded or might trade under the ownership of the buyers.
Rather, the appeal judges found that the sellers had not been obliged to provide the ISPP certificate on delivery of the vessel. This was an “as was” sale and purchase contract, i.e. the vessel was being sold in the condition (and with the certificates) as she was at the time of her inspection. In the absence of any wording that imposed a duty to provide further certificates that the vessel did not have at the time of her inspection by the buyers, no obligation to provide such further certificates could be found in clause 11. The appeal judges were of the view that much clearer and more precise wording would be needed to create an additional obligation on the sellers that the vessel would have
on board at closing all original certificates needed at that time to make her eligible to trade internationally.
Did the sellers have three banking days from 30 September 2008 to lift the detention of the vessel and deliver the Bill of Sale?
Clause 14 deals with the possible action open to the buyers if the sellers fail to be ready to complete a valid legal transfer of the vessel by the cancelling date of 30 September 2008. Completion of a legal transfer requires the sellers to produce the documents, including the Bill of Sale, needed to enable the transfer to take place. The sellers in this case were obliged to provide a vessel that was free of detention on transfer, pursuant to the covenant in the Bill of Sale. The Court of Appeal, however, agreed with the Commercial Court judge that the wording of clause 14, which allowed the sellers three banking days after notice of readiness has been given to “make arrangements for the documentation set out in clause 8”, covered not only time to provide the relevant documents but also extended to arrangements that the sellers had to make to enable them to tender the documents for the valid legal transfer of the vessel in order to comply with their covenants in the Bill of Sale and also their obligations under the MOA. In the appeal judges’ view, obtaining the release of the vessel from detention was such an arrangement.
The Court of Appeal, therefore, found in favour of the sellers on both points.
The Court of Appeal’s judgment in this case accorded with what would objectively be considered to be the commercial expectations of buyers and sellers entering into a sale contract for a second-hand ship on an “as was” basis. The decision also reflects the importance of construing commercial contracts with a view to providing certainty for future contracting parties.