TRADING TERMINOLOGY
she also be delivered in satisfactory quality. This raises the possibility that, in some cases, it might be possible for a buyer to argue that even though the goods complied with all expressly defined contractual specifications, they were not of satisfactory quality. For such a situation to arise, there would need to be some serious problem with the goods that did not impact on any of the contractually defined specification parameters.
‘Off Spec’‘ Sales Another area for concern is where goods
are sold ‘off spec’. In such cases, there is no contractually defined quality standard and the implied term as to quality needs to be excluded through the use of appropriate express words. The view expressed by the court in the Union Power case is that a simple reference to the sale being “as is” may not be enough. In particular, the court postulated the possibility that the inclusion of such words may mean that the buyer will no longer be able to reject goods that are of unsatisfactory quality but will retain a right to bring a claim for damages.
Top Tips There are a number of practical considerations
that in-house counsel in commodity trading companies should take way from the Union Power case. Firstly they need make their traders aware that their view of the world about what short hand phrases such as “as is” mean is not necessarily universally shared and this can have important implications for a contract going forward. Secondly, if the parties want to exclude the SOGA implied term as to satisfactory quality, the best and most secure way of doing this is to ensure that the contract contains express words which specifically deal with the point. Thirdly, if goods are sold to a contractually defined standard, the quality specifications need to be as complete as possible and, in particular, they need to cover all quality parameters that are seen as being relevant. A short-hand reminder for these issues might
be – “does it do what it says on the tin?” Using the right words up-front might make all the difference later. •
Marko Kraljevic is a partner in the trade & commodities group at Clyde & Co, a global law firm focused on the core sectors of
aviation, energy, infrastructure, insurance, marine, and trade.
www.clydeco.com
The Arbitration
The buyers argued that the sellers were in breach of the MOA 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 sellers denied that any SOGA terms were to be implied into the MOA and argued that the vessel was sold “as she was”. The tribunal held that the implied term as to satisfactory quality
was to be implied into the MOA, that the sellers were in breach of that term and the buyers’ claim succeeded in full.
The High Court The sellers applied for and obtained permission to appeal. During
the appeal, the judge noted that this question had arisen many times in London arbitrations but had never been addressed directly by the English courts. The question was approached in two stages: first, to determine whether the MOA was, in fact, an “as is” or “as is, where is” contract and, if so, whether the term “as is” or “as is, where is” is sufficient to exclude section 14(2) of SOGA. The judge referred to these as the ‘narrow’ and ‘wider’ issues respectively.
The ‘Narrow’ Issue The judge made it clear that the correct starting point is that
the section 14 implied terms will apply to a contract for any English Law contract for the sale of goods, unless the parties had expressly contracted out of those implied terms bearing in mind the requirements of S.55(2) which states that: “An express term does not negative a term implied by this Act unless inconsistent with it.” In this context, the Judge pointed out that clear language must be used in the contract if the statutory implied terms which are conditions of the contract of sale, not mere warranties, are to be excluded. Adopting this approach, the judge concluded that the words “as she was” in the first sentence of clause 11 are merely a necessary part of a sentence which is recording the obligation to deliver the vessel in the same condition as she was when inspected. In other words, they are part of a temporal obligation which arises because, usually, there will be a period of time of weeks or even months between inspection and delivery. However, those words tell one nothing about what the sellers’ obligations are, either on inspection or delivery, as regards the quality of the vessel. Hence they do not and cannot exclude the implied term as to satisfactory quality under section 14(2) of SOGA. One of the arguments advanced by sellers was that this was
contrary to market expectation at to the way second hand vessels are bought and sold. The judge expressed doubt as to whether the market spoke with one voice on that issue, noted that he had not been provided with any evidence of market practice.
The Wider “as is” Issue The judge then went on to express a provisional view on the
‘wider’ issue. He noted that there have been no English cases that have considered in terms whether the phrase “as is” is inconsistent with the statutory implied terms under SOGA and indicated that, if he had to decide this point, it would have been his view that the “as is” provision should be read down to exclude the right to reject the vessel for defects apparent at the time of inspection but to leave the right to claim damages for breach of implied terms under SOGA unaffected. He added the caveat that this was not a definitive conclusion
on this point and it was open to the parties to rely on evidence regarding custom or market meaning which might impact on this interpretation. That said, the views expressed by the judge are of considerable interest and are relevant to all sales of goods contracts, not merely contracts for the sale of second-hand ships.
March 2013 43
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