Reed Smith Client Alert

Type: Client Alerts

Until 13th December last year, the English courts had never specifically considered the relationship between Norwegian Saleform and the English Sale of Goods Act. The point has now been considered by Mr Justice Flaux in Dalmare SpA v Union Maritime Ltd and another (the Union Power) [2012] EWHC 3537(Comm), 2012 Folio 764.

In this case, the vessel "Calafuria" (renamed "Union Power") was sold on Saleform 93 terms which included the standard wording in lines 218 and 219 "she shall be delivered and taken over as she was at the time of inspection, fair wear and tear excepted". The main engine broke down within 5 weeks of delivery as a result of an existing defect in the main engine’s crank pin bearing.

The Sale of Goods act 1979 (as amended by the Sale and Supply of Good Act 1994) provides (at section 14(2)) that "Where the seller sells goods in the course of a business, there is an implied term that goods supplied under the contract are of satisfactory quality." This "warranty of quality" provision is explained in section 14(2B)(a) as including "fitness for all the purposes for which goods of the kind in question are commonly supplied." However, the Act permits the statutory "warranty of quality" to be excluded (section 55). The question before Mr Justice Flaux, therefore, was whether the words "as she was" in line 218 of NSF 93 were sufficient to exclude the warranty of quality implied by section 14 of the Sale of Goods Act, as amended.

Briefly, the sellers contended that the words in line 218 had the same effect as the words "as is, where is" commonly used in ship sale and purchase. The buyers, on the other hand, contended, firstly, that they had no such meaning and that, secondly, even if they did, the words "as is, where is", did not have the effect of excluding the warranties in section 14 of the Act sufficiently to satisfy the requirements of section 55.

English law accepts that the sale of a ship is a sale of goods for the purposes of the Sale of Goods Act, and that accordingly the warranties applied by that Act apply to ship sales. The Court agreed with established law that clear language must be used in order to exclude the statutory implied terms. After a lengthy review of relevant case law, it concluded, in relation to the first issue, that the use of the words "as she was" in line 218 merely recorded the requirement that the vessel be delivered in the same state as at the time of inspection, fair wear and tear excepted. They did not exclude the terms implied by the Sale of Goods Act. Certainly, they did not have the same impact as (possibly – see below) words such as "as is, where is".

Mr Justice Flaux then went on to consider the second issue - whether words such as "as is" had the effect of excluding the Sale of Goods Act’s implied warranties. Since his views were not directly related to the principal issue in question, they do not have binding effect, although they are likely to have persuasive value should the issue ever arise in the future. His provisional view was that, while the words would prevent a buyer from rejecting the vessel on the grounds that it did not conform to the statutory warranty, they also did not exclude the buyer’s right to claim damages for its breach, unless it is expressly excluded.

This problem does not apply in relation to Norwegian Saleform 2012, which contains the words (at lines 407 and 408) "Any terms implied into this Agreement by any applicable statute or law are hereby excluded to the extent that such exclusion can be legally made.". However, if sellers wish to make an "as is, where is" sale and prefer to use Saleform 93 (or even 87) they would be well advised to include similar words in their contracts.

 

Client Alert 2013-005