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Second-hand ships must be of satisfactory quality. Sale of Goods act. @incelaw

By • Feb 14th, 2013 • Category: Ince & Co Podcasts by Coracle, Shipping Law

Maritime Law Podcast from Coracle Online and international law firm Ince & Co

In this podcast: Second-hand ships must be of satisfactory quality pursuant to Sale of Goods act

Dalmare SpA v. Union Maritime Ltd and Valor Shipping Limited (Union Power) [2012] EWHC 3537 (Comm)

The Commercial Court, on appeal from an arbitration award, has decided that a term that a second-hand ship be of “satisfactory quality” was implied into a second-hand ship sale and purchase contract. The contract, a Memorandum of agreement (“MOa”), was based on the norwegian Sale Form 1993 (“nSF 93”), and
the term as to satisfactory quality was implied by virtue of s.14(2) of the Sale of Goods act 1979 (“SGa”).

The new norwegian Sale Form 2012 expressly excludes all implied terms at clause 18, with the words “Any terms implied into this Agreement by any applicable statute or law are hereby excluded to the extent that such exclusion can legally be made”. Nonetheless, the present decision has important
implications for ship-owners who may have sold or bought second-hand ships on the nSF 93. The judgment also has wider contractual implications extending beyond ship sale and purchase because the judge expressed a provisional view on the scope of the words “as is where is”, which appear frequently in contracts for the sale and purchase of goods generally.

the background facts

The buyers purchased the ship from the sellers pursuant to an MOA based on the nSF 1993 dated 4 September 2009. Clause 11 of the nSF 93 provided that she was sold “as she was at the time of inspection, fair wear and tear excepted”. The buyers inspected the ship on 18 august 2009 and also inspected the class records. The ship was delivered to the buyers on 1 October 2009. In early november of that year, the ship’s main engine broke down during a ballast voyage. The arbitration tribunal found that the breakdown was due to a defect in a crankpin in the main engine. The buyers commenced arbitration proceedings, alleging among other things that there had been a breach of the term as to satisfactory quality implied into the MOa by virtue of s.14(2) of the SGa. The sellers denied that any SGa terms were to be implied into the MOa and argued that the terms of clause 11 were inconsistent with the SGa implied terms in that the ship was sold “as she was” and thus excluded by s.55 of the SGa. The tribunal found in favour of the buyers.

The sellers appealed.

The Commercial Court decision
The primary issues for the court were whether:
1. the words “as she was” had the same meaning as “as is” or “as is where is” or similar phrases appearing in other cases relating to the sale of ships or other goods (the sellers argued that such phrases meant that the buyers took the goods as they found them with no warranty or condition as to quality or fitness for purpose); and
2. whether such words were inconsistent with the SGa, so that the implied term as to satisfactory quality was excluded.

Noting that there was no previous decision directly on the point, Mr Justice Flaux held that the words “as she was” did not exclude the implied term as to satisfactory quality under the SGa. Implied terms are conditions and clear words are needed to exclude them (see the Court of Appeal decision in The
Mercini Lady [2011] 1 Lloyd’s rep 442), whereas the words “as she was” were capable of more than one interpretation, and so they could not operate as an exclusion clause.

So the answer to (1) was no. The words “as she was”, in their context in clause 11 of the nSF 93, did not in the judge’s view have the same meaning as the free-standing words “as is where is” in a sale contract. Rather, the expression “as she was” in clause 11 was part of a provision recording the obligation to
deliver the vessel in the same condition as she was when inspected. Those words did not however have any bearing on what the sellers’ obligations were, either on inspection or on delivery, as regards the quality of the vessel. They did not therefore exclude the s.14(2) SGa implied term as to satisfactory quality.
Given his finding on (1), the judge did not need to express a concluded view on (2), namely whether “as is” provisions would effectively exclude the SGa implied terms. However, the judge indicated that he would have decided that the effect of the expressions “as is” or “as is where is” was not to exclude the
right to claim damages for breach of implied terms, but only to exclude the right to reject the ship.

Comment

Some may consider this decision to be surprising and contrary to market expectation. nonetheless, the decision is not subject to appeal. Therefore, ship-owners who sell second-hand ships in the future should consider using the nSF 2012, which contains a clause 11 similar to that in the nSF 1993 but which
additionally expressly excludes all implied terms at clause 18.

In addition, the relevance of this decision extends beyond ship sale and purchase to the exclusion of the SGa terms in all contracts for the sale and purchase of goods generally. If parties wish to exclude the SGa terms, very clear and unequivocal exclusion clauses are required.