A broken down tanker is subject to a dispute over the Sales Of Goods Act. Greg Standing explains
In bespoke negotiated commercial lease contracts, it may not be unusual for a lessor to attempt to exclude the implied term as to satisfactory quality under s14(2) of the Sale of Goods Act 1977 (SGA).
But is the use of terms such as sold "as she was", or "as is" or "as is, where is" sufficient to achieve this?
In Dalmare SPA v Union Maritime Ltd and another , the sale contract provided that a tanker was to be delivered and taken over "as she was" at the time of inspection, fair wear and tear excepted. The tanker had been inspected by the purchaser and undergone sea trials. However, shortly after delivery, the main engine broke down. In arbitration proceedings, it was held that there had been a breach of the implied term as to satisfactory quality, which was implied into the sale contract by s14(2).
The seller appealed, arguing that s14 did not apply as it was inconsistent with the "as she was" provision in the contract. It argued this phrase was similar to the "as is" or "as is, where is" terminology, the settled meaning of which, it said, was that the buyer took the goods as it found them. The tanker had been sold without any warranty or condition as to quality or fitness for purpose.
Dismissing the appeal, the court found the starting point under English contract law is that s14(2) will be implied. Commercial parties can contract out of the statutory implied term under s55 SGA, but clear wording (or a course of dealing or some binding custom or usage) is required to do so.
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The phrase "as she was" was not sufficiently clear to exclude the implied term. In this instance, these words were part of the obligation to deliver the tanker in the same condition it was in on inspection. That was a temporal obligation which arose, given that a period of time usually elapsed between inspection and delivery. Those words did not say anything about the seller’s obligation as to the quality of the vessel, either on inspection or delivery or generally. Therefore, they did not exclude the implied term as to satisfactory quality.
The court considered the phrases "as is" or "as is, where is". Such phrases may have come through custom or usage in certain trades to have a customary meaning that the goods will be accepted in the condition they are in where they are delivered, thereby excluding any warranty as to quality. However, the court was not convinced that they established some general principle that their use excluded any implied term as to quality. There was no binding authority to that effect.
The implied term as to satisfactory quality had not been excluded and the seller was in breach of that term, entitling the purchaser to damages.
Not a surprising result. Lessors need to draft the underlying wording of the lease carefully to exclude properly any implied terms if that is the intention. Without the use of clear words, the courts are unlikely to find that a purchaser has abandoned such valuable rights.
Greg Standing is a partner in Wragge&Co’s finance litigation team.