Sale of Vessel – Implied terms as to satisfactory quality


Pursuant to a Memorandum of Agreement (“the MOA”) on the Norwegian Saleform 1993 (“Saleform 93”) the sellers agreed to sell the buyers a vessel [1].

Clause 11 of the MOA provides that “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 extended to 30 September 2009 without condition/recommendation, free of average damage affecting the Vessels class. The Vessel's continuous survey cycles of machinery are to be as per current machinery continuous status attached hereto (attached "A"). Her International, National, Class and Trading Certificates clean, valid until 30 September 2009, except ISSC and SMC to be valid at time of delivery only,”

The buyers inspected the vessel and carried out an underwater survey (which revealed no bottom damage affecting class). They also, through their agents, inspected the class records. However, they failed to pick up a reference in the class records referring to damage to the no.1 crankpin of the main engine.

About a month after delivery, as the vessel departed to load a cargo of diesel, the main engine broke down due to failure of no.1 crankpin bearing. The buyers contended that the sellers were in breach of the MOA “either because the ovality was “average damage affecting class” within clause 11 (a contention which the tribunal rejected) or because there was a breach of the implied term as to satisfactory quality implied into the MOA by virtue of section 14(2) of the Sale of Goods Act 1979 (“SOGA”) as amended.” The Tribunal held that the implied term as to satisfactory quality was to be implied into the MOA.

On appeal, the Court dismissed the sellers’ application and concluded that the first sentence of clause 11 of the MOA does not exclude the implied term as to satisfactory quality and that the sellers were in breach of that implied term.

Point to note - The Court also inter alia agreed with buyers’ counsel submission that section 14 implied terms will apply to English law contract of sale as to any other, unless the parties have contracted out of section 14 by either expressly contracting out [2], or by a clear and unequivocal statement of an alternative regime as to quality which was wholly inconsistent with the section 14(2) implied term as to satisfactory quality, such as an entire agreement clause.


Reference:
[1] DALMARE SpA v (1) UNION MARITIME LIMITED, (2) VALOR SHIPPING LIMITED
[2012] EWHC 3537
[2] as in the case of the detailed clause considered by Cooke J in Air Transworld Ltd v Bombardier Inc [2012] EWHC 243 (Comm); [2012] 1 Lloyd’s Rep 349

Comments

navya said…

Thanks for sharing, I will bookmark and be back again
Ship Building
April 16, 2013 at 4:47 PM
Post a Comment

Popular posts from this blog

Letter of Intent

Updated 12 April 2022 A letter of intent (LOI), also called term sheet, expression or indication of interest in the commercial sectors is an informal offer or recap of the parties’ position on how they would proceed on a business proposal or venture. In the shipbuilding and offshore industry, where discussions on technical, commercial and legal matters leading up to a formal contract are complex and lengthy, letters of intent (LOIs) will often be used as prelude to the formation of a formal contract. Thus, LOIs will be used:   ·        Where the scope of work has been identified, but there are still outstanding items like selection of main engine suppliers, financing, guarantees, and board approvals that need to be finalised.   ·        At other times, LOI may be signed on condition that the parties will enter into a shipbuilding contract after the buyer’s bid for a shipbuilding project is successful, or where...
Read more

Liquidated Damages in Shipbuilding Contract

Penalty or Liquidated Damages? Liquidated damages are the predetermined estimate of loss to one party when the other party has delayed or failed to meet some contractual deadline or achieve certain performance criteria. Its purpose is to provide for adequate compensation to the Buyer while ensuring that the Seller is not unreasonably penalized. In a typical shipbuilding contract, it is common to see liquidated damages clause for delay delivery. This will be computed on a time basis (daily, weekly or monthly) e.g. US$5000 per day of delays or based on a percentage of the contract e.g. 0.2% of the contract price for each day of delay etc. Usually, it will be capped at 10% of the contract price. The parties may agree to a grace period (of between 7 to 21 days) before the liquidated damages become operative. Sample Text: “If the Vessel is not completed and delivered to the Buyer by the Contractual Delivery Date or the Revised Delivery Date then subject to the provisions of su...
Read more

Shipbuilding : The Pre-Contract Phase

The inception of a shipbuilding project is usually preceded by a buyer’s visit to a selected shipyard for discussion and to assess its capability. The itinerary during such a visit will normally include an opening meeting, followed by a yard tour, and commercial and technical discussions. Before the visit, it is common for shipbuilders to prepare a shipyard information memo. The buyer will usually provide the shipbuilder with a meeting agenda and draft a confidentiality agreement, also known as a non-disclosure agreement (NDA ) .     The purpose of the NDA is to ensure that the shipbuilder maintains the secrecy of business and technical information supplied by the buyer for the purpose stated in the NDA. The elements of such NDA should comprise (a) the purpose of the agreement, (b) the definition of confidential information, (c) information excluded from confidential treatment, (d) the recipient’s obligations, (e) retention of title to information supplied, (f) the duration of...
Read more