Ship shape contract term

Posted: 14th January 2013

In a decision of wide significance, a commercial judge has ruled that the satisfactory quality provisions contained within section 14(2) of the Sale of Goods Act 1979 were not excluded by a contractual provision that a mercantile vessel was sold ‘as she was’ at the time the buyer inspected her.

A range of checks and surveys were carried out on the vessel by the buyer’s agents prior to its sale for US$7million. However, they failed to pick up on a fault which caused the vessel’s engine to break down shortly after the purchase. The seller was found to have breached the contract of sale by arbitrators and ordered to pay damages to the buyer.

TankerIn a case which was acknowledged to raise an issue of general public importance, the seller, on appeal to the Commercial Court, pointed to a term in the sale contract which stated that the vessel was to be ‘taken over as she was at the time of inspection’ and argued that the arbitrators were wrong to find that section 14(2) was not thereby excluded.

However, in dismissing the appeal, the court ruled that, on a true interpretation of the contract, the seller’s obligation was to deliver the vessel in the same condition as she was when inspected. The ‘as she was’ provision was not equivalent to the ‘as is’ term commonly found in sale contracts and was not inconsistent with the requirement of satisfactory quality implied by section 14(2).

In an obiter dicta, Mr Justice Flaux went on to express the view that ‘as is’ clauses should be read down so as to exclude a buyer’s right to reject goods, whilst leaving the right to claim damages for breach of the implied terms as to description, satisfactory quality and fitness for purpose unaffected.