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MOAs - Recent Issues

David PitlargePartner

Marine, Trade & Energy

1. Introduction: S&P Market

Current issues:

– S&P Market

– Case law: condition on delivery; the right to claim in full deposit

– New forms (SSF 2011 and NSF 2012)

2. Condition on Delivery

The scenario:

•Ship purchased with defects – to what extent can buyer claim?

•“Claim”: damages or a right of rejection, or both.

3. Condition on Delivery

• Conventional ways of claiming:

• The words of the contract:– Not as was when inspected

– Not Class maintained

– Not free of average damage affecting Class

• Misrepresentation

4. Condition on Delivery

The problem:

•Substantial defects do not necessarily trigger liabilities under the NSF wording itself.

•Misrepresentation could be an answer: but various obstacles.

5. Condition on Delivery

• Sale of Goods Act 1979:

– S.14(2) Implied terms that goods are of satisfactory quality

– S.14(2A)What the “reasonable person” regards as satisfactory, in view of price and all other relevant circumstances

– S.14(2B)State and condition: other aspects, fitness for purpose, safety, durability

6. Condition on Delivery

• Sale of Goods Act:

– S.55 Exclusion of implied terms

– S.55(1) “Where a right duty or liability would arise…by

implication of law, it may… be negatived or varied by express agreement, or by the

course of dealing … or by usage...”

7. Condition on Delivery“The Union Power [2012] EWHC 3537

•Facts: 1994 built tanker; sold 2009; NSF, 93; crankpin bearing failed; ovality in crankpin

•Material term:“taken over as she was at the time of inspection” (NSF ’93, cl. 11)

•Issue: Did S.14(2) apply? Was it negatived?•Decision: S.14(2) applied: “as she was” (or

even “as is/where is”) does not disarm S.14(2)

•Reaction: Some hostility and concern

8. Condition on Delivery

Looking forward from the Union Power

•SSF 2011: “free from damage affecting class” – no reference to average damage.•NSF 2012

– Current/anticipated usage

– Entire agreement clause: is it sufficient?

– “any terms implied… by any statute are hereby excluded to the extent they can legally be made…”

9. Condition on Delivery

• Entire agreement clause NSF 2012 (cl. 18) – S.14(2) term is a condition

– See the “Mercini Lady” [2011] 1 Lloyd’s Rep 442 – clear words needed to exclude conditions.

– Set against this, Transworld Limited -v- Bombardier Inc. [2012] EWHC 243 – “condition” not mentioned.

10. The Deposit

• In the event of the failure to pay the deposit, and the Buyer not proceeding with the contract, can the Seller claim the full deposit, or is his claim limited to actual losses?

11. The Deposit• Starting point: Buyers’ default clause (e.g. NSF ’93

cl.13)

“Should the Deposit not be paid… the Sellers have the right to cancel this Agreement, and they shall be entitled to claim compensation for their losses and for all expenses incurred together with interest.”

“Should the Purchase Price not be paid… Sellers have the right to cancel this Agreement, in which case the deposit, together with any interest earned, if any, shall be released to the Sellers.”

12. The Deposit

• But, consider the following:

2. “ Deposit

As security for the correct fulfilment of this Agreement, the Buyers shall pay a deposit of 10%... within 3

banking

days after this Agreement is signed…”

13. The Deposit

• Assume Sellers’ losses are significantly smaller than the deposit.

• General assumption in certain quarters that Sellers’ rights are limited to their actual losses.

14. The Deposit

• On these terms, Court currently favours Sellers: Griffon Shipping LLC -v- Firodi Shipping Limited [2013] EWHC 593

– Sellers’ right to claim the deposit as a debt

– Clause 13 does not deprive Sellers of that right – there are implied terms to this effect

– Courts’ construction more consistent with business common-sense

15. The Deposit

• Looking forward – NSF 2012 is not an answer to this: material terms are the same.

• SSF 2011 does, however, deal with the situation“[Sellers]… shall be entitled to claim compensation for their losses and expenses (but with no automatic right to compensation in the amount of the deposit.)”

For further information please contact:

David Pitlarge - Partner Hill Dickinson

Direct Dial +44 (0)20 7280 9251

Email david.pitlarge@hilldickinson.com

Fax +44 (0)20 7283 1144

Website www.hilldickinson.com