In our June 2013 edition of Legalseas, we wrote about the English Court’s consideration of the application of the Sale of Goods Act 1979 (SOGA) to the sale of a second hand vessel and the meaning of “as she was” in the Norwegian Saleform 1993 (Saleform 93) following the landmark decision in Dalmare SpA v Union Maritime Limited, Valla Shipping Limited (Union Power) [2012] EWHC 3537 (Comm).

Following on from the issues raised by the Union Power, below we consider the impact of Michael Hirtenstein, Il Sole Limited v Hill Dickinson LLP (Il Sole) [2014] EWHC 2711 (Comm) in which the Judge expressed his views on the meaning of the words “as is-where is” and whether they are sufficient to exclude the implied terms of SOGA as to satisfactory quality.

The Union Power

As a brief reminder, in the Union Power case the parties entered into an MoA on the Saleform 93 for the Union Power and the vessel was delivered to the buyers on 1 October. On her first ballast voyage the main engine broke down as a result of the failure of the number 2 crankpin.

The buyers sought damages for breach of the implied term as to satisfactory quality implied into the MoA by virtue of section 14(2) of SOGA. The sellers unsuccessfully tried to argue that the words “as she was at the time of inspection” amounted to an “as is-where is” sale and therefore the implied terms in the SOGA as to satisfactory quality were excluded. Although there is a superficial similarity between the two sets of wordings, the Tribunal held that argument was unsustainable because the meanings are different. Accordingly the term as to satisfactory quality was to be implied into the MoA and the sellers were therefore in breach.

On appeal, the Court upheld the Tribunal’s decision. Importantly the Court also went on to consider what the term “as is-where is” would have meant, if it had been incorporated into the MoA. The Judge held that in the absence of any evidence as to customary meaning, the words “as is-where is” were not sufficiently clear to exclude the SOGA implied terms. The Judge felt obliged to recognise the large body of English case law to the effect that, if a party wishes to contract out of the SOGA implied terms, the exclusion must be made abundantly clear in the contract. He went on to express a provisional view that if a contract required a buyer to take a ship as is-where is, the effect was that the buyer had no right to reject the ship on the grounds of breach of an implied term, but would be entitled to claim damages for breach of that term.

The conclusion following this case was that parties wishing to exclude the implied terms of the SOGA should use clear and express wording to do so, and that “as is-where is” may not be enough to achieve this.

This decision was viewed with some surprise by many in the shipping industry as it did not reflect the commercial understanding of what “as is, where is” means in commercial business.

Il Sole

In the Il Sole case, solicitors Hill Dickinson were advising Cayman Islands businessman Michael Hirtenstein in relation to the purchase of a second hand yacht for £3.6m. Hirtenstein, who had planned to propose to his girlfriend on board, bought the yacht in 2010 without a survey or sea trial, but with a warranty on the yacht’s condition from the seller. Within one hour of the yacht’s purchase, its engine suffered a major failure 12 miles offshore.

In the course of his decision, the Judge referred to the Union Power case and expressed a completely different view to Flaux J. on the meaning of the words “as is-where is”. He stated:

I would regard that phrase as self-explanatory. It clearly signified that the Buyer would acquire the yacht in whatever condition the boat was at the time of purchase with no right to complain subsequently if the boat should turn out to have any defect”.

The Judge then referred to the provisional view expressed in the Union Power case, to the effect that the words “as is-where is” did not exclude implied terms, but merely excluded a right of rejection in respect of breach of those conditions. The Judge in Il Sole stated:

In a contract between commercial parties such an interpretation would seem to me to be generous to the Buyer. Drawing such a distinction between the right to reject and the right to damages and treating the words “as is” as excluding the former but not the latter seems to me most unlikely to reflect the expectations of ordinary business people or to be an interpretation that would occur to anyone other than an ingenious lawyer.

As with the Union Power, the Judge’s comments in this case did not form part of the ratio of the decision and as such are not binding. Nonetheless, we now have two Commercial Court Judges adopting different stances on what “as is-where is” means and whether this wording is sufficient to exclude SOGA.

Conclusions

The question remains as to whether “as is-where is” or “as is-where lies” on its own is sufficient to exclude SOGA. While the views expressed in Il Sole indicate that it might be, if parties wish to exclude implied terms as to satisfactory quality, it is important to use clear, express and unambiguous wording to do so.

An alternative method of excluding SOGA is to incorporate an entire agreement clause such as that which is contained in the 2012 version of the Norwegian Saleform. This clause expressly excludes “any terms implied into this Agreement…to the extent that such exclusion can legally be made”. The efficacy of using such a provision to exclude implied terms will, of course, always depend on the other terms in the agreement such as conditions, warranties or representations.

In particular, it is essential that the parties do not dilute the effect of “as is-where is” type wording or other exclusionary clauses by including in the contract express terms as to the condition of the vessel. Where terms are included in the contract which are contradictory to, or otherwise bring into question an exclusion clause, the court will interpret those inconsistencies against the person seeking to rely on them.

This issue will undoubtedly come before the English Courts again, but until we have a binding decision, parties should adopt a cautious approach and use either clear wording or incorporate an entire agreement clause, if the intention is to exclude SOGA.