Michael Hirtenstein & Others v. Hill Dickinson LLP [2014] EWHC 2711 (Comm)

It will be recalled that in the case of Dalmare SPA v. Union Maritime Ltd (Union Power) [2012] EWHC 3537 (Comm)the Commercial Court, albeit in obiter comments, expressed the surprising and contentious view that the words “as is where is” were likely not sufficient to exclude from a sale contract the implied terms of satisfactory quality and fitness for purpose under s.14 Sale of Goods Act 1979 (“SGA”). 

Those terms will be implied into sale of goods contracts (including ship sale contracts) entered into in the course of a business, but their inclusion is excluded if a term in the contract is inconsistent with the implied term (s.55 SGA). In Union Power, the Court commented that, if it had been required to decide the point, it would have found the words “as is” were not inconsistent with the implied terms to the extent of excluding them, that they were sufficient only to exclude a right to reject the goods, and would not exclude a claim for damages for breach of the implied terms.

This decision was surprising, given that market understanding has long been, in the context of ship sale and purchase and otherwise, that the terms “as is” or “as is where is” require a buyer to take a ship in the condition and state in which she is to be found at the point in time defined in the contract, all faults included, without any warranty as to quality or condition (see The Morning Watch [1990] and The Brave Challenger [2003]).  Such a meaning would appear manifestly inconsistent with the inclusion of the s.14 implied terms.

The decision in Union Power therefore had potentially wide-ranging implications, notwithstanding the obiter nature of the comments.

Michael Hirtenstein & Others v. Hill Dickinson LLP

In Hirtenstein, the Court has now endorsed the traditional meaning of the words. The case arose following the purchase of a luxury yacht that suffered a major engine breakdown only an hour after delivery under the sale contract. The sale, on an amended MYBA form MOA, was on terms that she was sold “as is where is” save for certain specific warranties. 

In this case, the parties all appeared to have a common understanding as to what “as is where is” means: that the yacht was to be purchased in her existing condition, be that good or bad, with no recourse against the Seller for any subsequently discovered faults.  The Court further commented that it “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…”

The Court further dealt with the notion put forward in Union Power that the words “as is” do not by themselves exclude the implied terms but could only exclude a right of rejection, commenting that “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.”

Comment

The case therefore supports the view that the terms “as is” or “as is where is” are terms of art when it comes to contracts for the sale of goods, that such terms are inconsistent with any further right of recourse in respect of the condition of the goods, and that they are therefore inconsistent with the implication of warranties under s.14 SGA. That said, Union Power is still authority for the (also perhaps surprising) proposition that the words “as she was” in s.11 of the Norwegian Sale Form (“NSF”) 93 are not the same as “as is where is” and do not of themselves exclude the SGA implied terms. Therefore, anyone selling a vessel on that form of MOA must include a specific term excluding statutory or other implied terms, such as is found in NSF 2012 and the standard amendment to the MYBA form. We suggest it would also be good practice to include an explicit exclusion of warranties in any contract intended to be on truly “as is where is” terms.