Norwegian Saleform Contracts: Implied Terms Of Satisfactory Quality And Fitness For Purpose And Right To Reject Delivery

The purpose of this talk is to consider whether the conditions

of satisfactory quality and fitness for purpose implied by the Sale

of Goods Act 1979 apply to Norwegian Saleform and other contracts

for the sale of second-hand tonnage and if so what is their effect.

I will also consider in what circumstances buyers have a right to

reject tender of delivery whether under the express or any implied

terms.

Despite the number of decided cases involving the Norwegian

Saleform, there appears to be surprisingly little discussion of the

above questions even though many cases have involved allegations

that might be thought to have raised issues that could have been

argued on the basis of implied terms.

Express terms of Norwegian Saleform concerning condition of

the ship (clause 11 of NSF '87 and '93)

Class maintained free of recommendations

The requirement that the vessel be class maintained free of

recommendations began life as an additional clause commonly added

to NSF '66. In The Buena Trader [1978] 2 Lloyds Rep

325, the Court of Appeal held the clause to be satisfied as long as

the vessel was in class without recommendations even if the vessel

suffered from defects of which the sellers were aware that, had

they been notified to the classification society, would have

resulted in class being withdrawn or a recommendation imposed.

Obligation to inform class of defects coming to attention of

sellers

As a consequence of the decision in The Buena Trader,

NSF '83 and '87 added an obligation on the part of the

sellers to notify class of matters coming to their knowledge prior

to delivery which upon being reported to class would lead to the

withdrawal of the vessel's class or to the imposition of a

recommendation. This obligation does not, however, appear in NSF

'93 though it is often added as an additional clause.

Disputes arose as to whether the sellers' obligation to

notify arose in relation to defects coming to their knowledge from

the date of the contract, the last class inspection, buyer's

inspection or some other date. These issues were resolved by

The Niobe [1995] 1 Lloyd's 579 in which the House of

Lords held that there was no time limit as to when sellers became

aware of a notifiable defect. The obligation was one that sellers

undertake has been fulfilled before the date of the contract and

will be fulfilled up to the date of delivery.

Free of average damage affecting class

This rather odd phrase which only became part of the standard

form in NSF '93 (previously being a common additional clause)

was held by Goff J in The Alfred Trigon [1981] 2 Lloyds

333 to mean damage affecting class which had been caused by a peril

ordinarily covered by insurance. It did not, therefore, cover

defects arising through wear and tear and general old age. This

interpretation was also adopted by Bingham J in The Star of

Kuwait [1986] 2 Lloyds 641 and by Leggatt J in The Great

Marine [1990] 2 Lloyds 250.

Condition as at time of inspection, fair wear and tear

excepted

The obligation to deliver the vessel in the same condition as

she was when she was inspected by the buyers fair wear and tear

excepted has not given rise to much difficulty of interpretation

but factual issues can arise as to what in fact was the condition

of the vessel at the time of inspection and whether damage was due

to fair wear and tear.

Defects not covered by clause 11 of NSF '87 and

'93

The collection of obligations that has accumulated over the

years and now forms clause 11 of NSF '93 does not necessarily

ensure that the buyer takes delivery of a seaworthy ship free from

defects. In particular the following would not amount to a breach

of clause 11:

Damage affecting class caused by a peril not ordinarily covered

by insurance, e.g.: damage to the main engine caused by burning of

bad fuel but not involving crew negligence.

Defects pre-existing buyer's inspections, e.g.: a latent

defect that results in a breakdown or breach of watertight

integrity shortly after delivery.

A characteristic of the vessel that makes it unsuitable for the

use intended by buyers even if such intended use and unsuitability

is known to sellers.

There are, therefore, matters that are not covered by the

express terms of the NSF which could well give rise to a claim

under the implied terms of satisfactory quality or fitness for

purpose if they were applicable. Also many claims brought under the

express terms of NSF could give rise to an alternative (and

possibly simpler) claim under the implied terms.

Absence of legal decisions on applicability of Sale of

Goods Act implied terms

There are a number of legal decisions in which one might have

expected the issue of Sale of Goods Act implied terms to be raised.

These include:

The Alfred Trigon (supra) which involved

leaking tank tops (due to wear and tear) that required extensive

repairs before class could be confirmed.

The Buena Trader (supra) which involved wear

and tear damage which it was alleged the sellers were aware would

affect class.

The Star of Kuwait (supra) which involved an

amended NSF which provided for the vessel to be "free of

average damage or defects affecting class". The argument was

as to whether the word "defects" were qualified by

"average". Bingham J held it was not.

The Great Marine (supra) which involved a

claim in respect of a damaged propeller. The issue was whether it

was average damage and whether it affected class.

The Andreas P [1994] 2 Lloyds 183 which involved

severely corroded top wing tanks and defective anchor and chain.

The issue was whether a recommendation had been imposed. It was

held that there had in respect of the topside tanks in respect of

which the surveyor informed his head office that he was imposing a

recommendation but not in respect of the anchor and chain which he

merely noted in his own file.

As far as I am aware, the only case in which the implied terms

of merchantability and fitness for purpose have been discussed is

in the old case (not NSF) of Lloyd del Pacifico v Board of

Trade [1929] 35 Lloyds 217. In that case it was held that even

if the terms were to be implied there was no breach on the facts

and the terms were in any event excluded by a clause providing that

the vessel "shall be taken with all faults and errors of

description without any allowance or abatement."

It may be that no Sale of Goods Act implied terms argument was

raised in any of the above cases save Lloyd del Pacifico

because of an express provision excluding such terms. The standard

NSF '87 and...