UK: The Smart Contracting Bulletin January 2013

Last Updated: 11 January 2013
Article by Chris Kidd and Phillippa Hook

"As is" sales of rigs and vessels – sellers (and buyers) beware!

English Commercial Court decides second hand units have to be of satisfactory quality and fit for purpose

Much debate has centred around whether sales of rigs or vessels using or based on the Norwegian Saleform 1987 or 1993 exclude the obligation on the seller to ensure that the vessel is of satisfactory quality and fit for purpose pursuant to the Sale of Goods Act 1979, as amended ("SOGA"). A recent decision of the Commercial Court in London clarifies the position.

This commentary looks at the recent case of Dalmare SpA v. Union Maritime Limited and Valor Shipping Limited ("Union Power") [2012] which, to the surprise of many, has determined that implied terms of quality and fitness for purpose under SOGA do apply to the sale and purchase of second hand rigs and vessels using or based on the unamended Norwegian Saleform 1987 and 1993.

Background

The sellers agreed to sell a 1994 built motor tanker to the buyers for US$7 million in accordance with a Memorandum of Agreement (the "MOA") on the Norwegian Saleform 1993 ("Saleform 93"). The vessel was found to be in satisfactory condition both on pre-delivery inspection and in a survey conducted on delivery. However, about a month after delivery, the main engine broke down only some 30 hours into a voyage due to the failure of a crankpin bearing in the main engine. On investigation the crankpin was found to be significantly undersized and oval.

The buyers commenced arbitration and successfully contended that there was a breach of the implied term as to satisfactory quality implied into the MOA by virtue of section 14(2) SOGA. The sellers appealed to the Commercial Court in London.

Issue

Clause 11 of the MOA stated, "The Vessel shall be delivered and taken over as she was at the time of inspection, fair wear and tear excepted. However, the Vessel shall be delivered with her class maintained... without condition/recommendation, free of average damage affecting the Vessel's class..."

SOGA implies terms about quality and fitness into English law contracts for the sale of goods in the course of a business. Section 14(2) provides that there is an implied term that the goods supplied under the contract are of satisfactory quality. However, the implied terms may be excluded under section 55 of SOGA, either by express agreement or because an express term in the contract is inconsistent with a term implied by SOGA.

The question in issue was whether a term of satisfactory quality was implied into the MOA by SOGA? The judge addressed this as two separate questions:

  1. was clause 11 in the MOA equivalent to an "as is, where is" basis of contract, assuming that phrase has the effect of excluding the SOGA implied terms?; and
  2. if the answer to the first question was that clause 11 is equivalent, does "as is, where is" exclude the implied terms in accordance with section 55?

As both the tribunal and judge stated, the issue whether SOGA implies terms as to quality and fitness for purpose into Saleform MOAs is one which has arisen many times in London arbitrations but, surprisingly, is an issue which has never previously been addressed directly by the English Courts.

The Commercial Court expressly confirmed that SOGA applies to contracts for the sale of second hand vessels.

Judgement

The judge concluded that "as she was" in clause 11 of the MOA was not capable of bearing the same meaning as the phrase "as is, where is". He agreed that the tribunal was right to conclude that the words "as she was" created an obligation to deliver the vessel in the same condition as when she was inspected and went on to say that those words say nothing about what the Sellers' obligations are, either on inspection or delivery, as regards the quality of the vessel. Consequently they did not exclude the implied term as to satisfactory quality under section 14(2) of SOGA.

The judge further determined that conditions of class are separate to the quality of a vessel and found the additional clause 11 requirements that the vessel be delivered with her class maintained and free of average damage were not inconsistent with the implied terms under SOGA such that the latter were excluded; the class obligations do not impinge on the obligation to deliver a vessel of satisfactory quality imposed by SOGA, notwithstanding that this may well impose obligations on the Sellers to deliver the vessel in a better condition than on inspection. The judge therefore found in the Buyer's favour.

The judge did not therefore need to decide the second question in issue but nevertheless expressed a provisional view that, for a number of reasons, there is considerable force in the argument that the words "as is" are not expressly inconsistent with the statutory implied terms so as to exclude them pursuant to section 55 of SOGA. He did not think, however, that this would lead to a right to reject the vessel. In most cases it would only permit a claim in damages for breach of the implied terms.

Implications

This decision has a wider impact beyond the sale and purchase of conventional vessels and is of importance to the energy and offshore industries where the sale and purchase of second hand rigs and vessels are very often carried out using the Norwegian Saleform or a contract based on the 1987 or 1993 versions. Parties will need to consider expressly and clearly contracting out of the SOGA implied terms, failing which the vessel will need to comply with those terms on delivery in addition to any specific requirements in the contract.

Parties may also like to bear in mind that the 2012 version of the Saleform removes any issues about implying the statutory terms as to fitness for purpose and quality by expressly excluding their application thereby confirming the "as is" nature of the sale.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions