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	England and Wales High Court (Commercial Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Neon Shipping Inc v Foreign Economic 7 Technical Coporation Co. of China & Anor [2016] EWHC 399 (Comm) (02 March 2016) URL: http://www.bailii.org/ew/cases/EWHC/Comm/2016/399.html Cite as: [2016] EWHC 399 (Comm)

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IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		02/03/2016

Mr Justice Burton:

1. The Respondents as Sellers and the Claimant as Buyer entered into a shipbuilding contract for the design, build and supply of a 57,000 dwt bulk carrier dated 6 December 2006 ("the Contract") governed by English law and containing an arbitration clause. The Claimant alleged that the cargo cranes were faulty. Sea trials of the vessel were carried out after the completion of construction, and the Claimant accepted the vessel without reservation. It was delivered on 12 November 2009. Article XI of the Contract provided for a Guarantee Period of 12 months, which expired on 12 November 2010. No notice of the complaints now made about the cranes was given within that period.
2. The complaint which formed the basis of the claim by the Claimant in the Arbitration, made more than 3 years after delivery, was that, by August 2011, the slew bearings of the cranes were subject to excessive wear; one of the cranes had to be taken out of service due to excessive wear of the bearings after some 1,000 hours of work, and there was excessive bearing wear on the other cranes, such that after replacing the bearings the Claimant's managers took the decision to limit the future operation of the cranes to 27 tonnes on hook and 20 tonnes using grab.
3. Clause 13 of the contractual Building Specification provided by way of "General Description of the Ship" that the vessel was "to be designed and built as a single screw motor driven bulk carrier for normal worldwide service" and Clause 33 "Cargo Handling System" specified the capacity of the deck crane to be as follows: "(for reference only) 30 [tonnes] .. The cranes to be prepared and fitted with all required fittings for working with motor grabs [and] ..to be fully rated for continuous operation".
4. The Defendants denied liability in respect of the alleged defects, and further relied upon Article XI of the Contract, which reads in material part as follows:-

"ARTICLE X1 GUARANTEE"

1. Guarantee

Seller guarantees that Vessel, and all parts thereof that [are] manufactured or supplied by Seller, its sub-contractors and/or vendors under this Contract, will be seaworthy and contractual in all respects, and will be free from all defects which are due to defective design, construction, calculation, material or workmanship (collectively "Guarantee Defects"), upon delivery and for a period of twelve (12) months from the Date and Time of Delivery ("Guarantee Period").

2. Notice of Defects

Buyer shall notify Seller by telex or facsimile promptly after discovery of any Guarantee defects for which claim is made. Buyer's notice shall be followed by a letter setting forth, insofar as is reasonably possible, the full particulars as to the nature of Guarantee Defects and the extent of the damage. Except as otherwise provided below, Seller shall not be under any obligation for a Guarantee Defect unless notice of such Defect was sent to Seller not later than thirty (30) calendar days after the end of the Guarantee Period. Telex notice that a claim is forthcoming will be sufficient compliance with the notice requirements.

…

4. Remedy of Guarantee Defects

(a) Seller shall, at its expense, remedy any Guarantee Defects by repairing or replacing the defective parts or parts at the Sellers Shipyard

(b) If it is impracticable to bring vessel to the Shipyard or any other repair facility of Seller for remedy of Guarantee Defects, Buyer may cause necessary repairs to be made elsewhere suitable for the purpose provided, however, that Seller may furnish, or cause to be furnished, replacements parts or materials, if to do so would not unduly delay the employment of Vessel. Prior to making any such repairs other than by Seller, Buyer shall give telex or facsimile notice (confirmed thereafter in writing) of the nature of the proposed repairs and the scheduled time and place thereof (except in an emergency, but in any event notice shall be given as soon as possible thereafter), and, if practicable, Seller or Class Society shall be given opportunity to verify Buyer's claim of defect under Guarantee.

With respect to any defect covered by Guarantee which is remedied elsewhere than at the Shipyard or in any such facility of Seller, Seller shall pay to Buyer the cost thereof. In the event that the Buyer proposes to make the necessary repairs or replacements elsewhere other than at the Shipyard, the Buyer shall first, but in all event as soon as possible, give the Seller notice in writing or by fax confirmed in writing of the nature of the proposed repairs or replacements and of the time and place such repairs or replacements will be made, and if the Vessel is not thereby materially delayed, or her operation or working schedule is not thereby materially impaired, the Seller shall have the right to verify by its own representative(s) the nature and extent of the defects complained of.

The Seller shall, in such case, promptly advise the Buyer by fax, after such examination has been completed, of its acceptance or rejection of the defects as those guaranteed under this Article. In all minor cases the Guarantee Engineer, as hereinafter provided for, shall act for and on behalf of the Seller for such verification. Upon the Seller's acceptance of the defects as justifying remedy under this Article, or upon award of arbitration so determining, or if the Seller neither accepts nor rejects the defects as above provided nor requests arbitration within thirty (30) days after its receipt of the Buyer's notice of defects, the Seller shall pay to the Buyer within forty five (45) days after the expiration of the Guarantee Period in United States dollars for such repairs or replacements a sum equal to the average of the cost of making the same repairs or replacements in the SHIPYARD on a reasonable repair basis (not newbuild basis) among the Builder's Shipyard, Cosco (Nantong) Shipyard Co.Ltd. and Cheng Xi Shipyard (CSSC).

5. Revolving Guarantee

Repair or replacement to Vessel made to remedy any Guarantee Defects shall be guaranteed for an additional period of not more than one hundred eighty (180) days beyond the expiration of the Guarantee Period, unless otherwise mutually agreed upon by the parties hereto, and on the conditions of this Article XI.

6. Limitation of Guarantee and Liability

The guarantee provided in this Article is exclusive for the period after delivery of the Vessel, and Buyer hereby waives all other remedies, warranties, guarantees or liabilities, express or implied, arising by law or otherwise (including without limitation any obligation of Seller with respect to fitness, merchant ability, and consequential damages), whether or not occasioned by Seller's negligence. This guarantee shall not be extended nor altered nor varied except by written instrument signed by Seller and Buyer.

However, the Seller expressly guarantees that the warranty of the maker, if any, for machinery or parts replaced by the Seller within the warranty period will be assigned to the Buyer.

7. Dispute

In case there is any dispute between Seller and Buyer about the question, whether or not a defect claimed by Buyer to be remedied as a Guarantee Defect, is in fact a Guarantee Defect, Seller has to prove that the respective defect is not due to defective design, material or workmanship, and thus does not constitute a Guarantee Defect.

Should the Seller be unable to prove that the respective defect is not due to defective design, material or workmanship, it may nominate a representative of Class a classification society or a respected Institute to be mutually agreed between Buyer and Seller. This judgment should then be considered as the final one.

8. Guarantee Engineer

The Seller may, at the request of the Buyer, appoint a guarantee engineer to serve on the Vessel as its representative for a period of three (3) months from the date the Vessel is delivered. However, if the Buyer and the Seller shall deem it necessary to keep the Guarantee Engineer on board the Vessel for a longer period, then he shall remain on board the Vessel after the said three (3) months, but no longer than twelve (12) months from the delivery of the Vessel.

The Buyer and its employees shall give such guarantee engineer full cooperation in carrying out his duties as the representative of the Seller and on board the vessel.

The Buyer shall accord the guarantee engineer treatment comparable to the Vessel's Chief Engineer and shall provide board and lodgings at no cost to the Seller or the guarantee engineer. While the guarantee engineer is on board the Vessel, the buyer shall pay to the Seller a sum of United States Dollars Two Thousand (US$2,000) per month, the expense of his repatriation to Nanjing, China by air upon termination of his service, the expenses of his communication with the Seller incurred in performing his duties and expenses, if any, of his medical and hospital care in the Vessel's hospital. The Seller and the Buyer shall, prior to delivery of the Vessel, execute a separate agreement regarding the guarantee engineer.

…

10. Assistance

It is understood and agreed by both the Buyer and the Seller that the crews on the Vessel will offer their reasonable cooperation free of charge to the Maker's service engineer for remedy guarantee claims during the guarantee period. The Buyer and crew will not be obliged to make repairs required to remedy guarantee claims without reasonable compensation. Assistance by the Buyer and its crew shall in no way alter or diminish the responsibility or liability of the Seller".

5. Arbitrators were appointed, namely Messrs Mark Hamsher, Christopher Moss and Lindsay Gordon, and the respective cases were pleaded out. The Claimant subsequently sought permission to re-amend paragraph 4 of its Claim Submissions so as to read as follows:-

"The contract further contained the following implied terms by operation of law:-

…

4.3 That the Buyer having expressly or by implication made known to the Seller that the Vessel was to be purchased for a particular purpose, namely utilisation bulk carrier for normal worldwide service including:

4.3.1 the loading, carriage and discharge of heavy cargoes;

4.3.2 continuous use of the Vessel's cranes (including with grabs);

the Vessel would be reasonably fit for such purpose."

6. This amendment was opposed, and it was agreed that the Arbitrators should hear and resolve two preliminary issues on the assumed basis that the amendment would be permitted, and these were (I leave out immaterial passages):-

First Question:

On its true construction, did the Contract contain the implied term as to fitness for purpose alleged by the Claimant in paragraph 4.3 of the re-amended Claim Submissions?

Second Question

On the true construction of the Contract and of Article XI in particular, did the 12 month time-bar provision excluding all of the Respondents' liability for claims notified later than 30 calendar days after the end of the Guarantee Period apply:

a) to any and all claims whatsoever made after delivery of the Vessel (as the Respondents contend); or

b) only to claims for defective design, construction, calculation, material and workmanship but not to.. claims that the Vessel was not seaworthy or contractual in all respects. .. (as the Claimant contends)?

7. The Arbitrators answered the First Question "No", and as to the Second Question concluded that the 12 month time-bar provision applied so as to exclude all claims not so notified, including the Claimant's amended claim. This is an appeal under s.69 of the Arbitration Act 1996 brought by the Claimant in respect of both Questions, for which permission was given on paper by Flaux J.
8. In order fully to understand the nature of both issues, it is helpful to characterise the nature of the claims, for the purposes of which the Claimant's case as to the alleged inadequacy of the cranes, by reference to the excessive wear of the bearings, must be assumed in the Claimant's favour.
9. Although, as will be seen, there was in the context of the First Question considerable dispute about the contractual effect and nature of the term alleged (the paragraph 4 term) and as to the incorporation of it into the Contract, it was common ground before me that s.14(3) of the Sale of Goods Act 1979 ("SOGA") was incorporated into the Contract, albeit a shipbulding Contract. It provides as follows:-

"Where the seller sells goods in the course of a business and the buyer, expressly or by implication, makes known.. any particular purpose for which the goods are being bought, there is an implied condition that the goods supplied are reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied, except where the circumstances show that the Buyer does not rely, or that it is unreasonable for him to rely, on the skill or judgment of the seller."

10. It is unfortunate that the pleading, which was not the responsibility of Mr Bright QC (who appeared both below and before me), did not simply make an allegation of breach by reference to an alleged inability of the cranes to comply with the contractual capacity of 30 tonnes, at any rate for continuous operation; or at least make clear that the alleged breach, or failure to comply with purpose, was limited by reference to the contractual capacity of 30 tonnes, i.e, that notwithstanding the wide words of the paragraph 4 term it was not suggested to amount to a contractual obligation, or an express or implied purpose, that the heavy cargoes referred to would exceed 30 tonnes. Mr Bright certainly accepted that his case was and is so limited. I shall return to this below, because it seems to me that much of the argument below, and certainly the rationale of the Arbitrators, in relation to the First Question appears to have been predicated upon the assumption that something other than the contractual specification was expected.
11. At any rate, this claim is said by Mr Bright to constitute a complaint that the vessel was not "seaworthy and contractual" (within Article XI.1) and not a claim that the vessel was not "free from all defects which are due to defective design, construction, calculation, material or workmanship". As will be seen, he submits that Article XI.1, set out above, is bifurcated, and that it is only a claim of the latter kind which is required to be notified within the Notice period of 30 days after the end of the Guarantee Period. The claim which the Claimant seeks to make by its proposed paragraph 4 term, is not one of a defect caused by defective design, construction, calculation, material or workmanship, but of a failing or inadequacy in the cranes, which were supplied by third party suppliers, leading to inadequate performance and unfitness for purpose. Mr Bright showed me the Maker's List setting out the choice of parts including the cargo cranes, and he submits that it will be the Claimant's case that the cranes, as ordered/selected by the Respondents from the suppliers, were simply not up to the job.
12. I shall, as did Mr O'Sullivan QC, who appeared before me with Mr Snook (who appeared below), in his submissions, address the Second Question first, both because it casts light on the nature of the Claimant's claim for the above reason, and also because if the Defendants are found to be correct in respect of the Second Question, that resolves the issue between the parties whatever the answer to the First Question.
13. I have set out Article XI.1 above, but for the purpose of consideration of Mr Bright's bifurcation of it, I set it out again such that it is split between what were described in the course of the hearing as Part I claims and Part II claims, namely that the vessel is not "seaworthy and contractual in all respects"(Part I claims) and that it is not "free from all defects which are due to defective design, construction, calculation, material or workmanship (collectively "Guarantee Defects") upon delivery and for a period of .. 12 months from the Date and Time of delivery ("Guarantee Period") ...Part II claims).

Thus, on Mr Bright's construction, although all Part II claims will also be Part I claims, not least because they will result in the vessel not being contractual in all respects, there will be Part I claims which are not Part II claims.

14. Thus Part I claims are not claims of Guarantee Defects, as defined, the Guarantee Period has no relevance to them, the notice provisions in XI.2 and the provisions in XI.4 and 5 as to Remedy of Guarantee Defects and the Revolving Guarantee do not apply to them, and the Assistance provision in XI.10 relating to the guaranteed period is irrelevant to them. Although XI.6 provides that the guarantee is exclusive of all other claims and remedies, the guarantee thus given in respect of Part I claims is unaffected by the notice or other provisions, and is governed by the normal six year limitation period. As set out above, the Claimant's claim in this case is alleged to be a Part I claim and not a Part II claim.
15. There was no disagreement between the parties as to the applicability of both the well-established and the recent authorities on construction of contracts, which are well known. Mr O'Sullivan submitted, and Mr Bright did not demur, that I should consider the issues of construction by reference to (i) the normal meaning of the words (ii) the construction of Article XI.1 in the context of the rest of the Contract (in this context the rest of Article XI) and (iii) commercial good sense – in the sense of the objective understanding and intent of the commercial parties, not what makes for the best commercial bargain.
16. Mr O'Sullivan also addressed me as to the impact on an arbitration appeal of the duty of the Court to pay due deference to the views of commercial Arbitrators with great knowledge and experience of the field, such as those in this case. The Arbitrators expressed their views as follows:-

"43. The Buyers accepted that Article XI.6 was wide sweeping. However, it was their case that it could only apply to "guarantee defects" as defined in Article XI.1 – and that clause distinguished between the guarantee that the vessel would be "seaworthy and contractual in all respects" and "free from all defects which are due to defective design, construction, calculation, material or workmanship". The Sellers, however, argued that Article XI.1 provided only a single guarantee, providing both that the vessel would be seaworthy and contractual in all respects and free from all defects which are due to defective design, construction, calculation, material or workmanship.

44. We considered that splitting Article XI.1. into two completely discrete limbs as the Buyers urged us to do did not represent a true construction of the clause. It was dependent on the comma after "in all respects" which could not, particularly in a contract between parties whose first language was not English, have reflected the objective intention of the parties. As was pointed out on behalf of the Sellers it would have run contrary to the scheme of the shipbuilding contract as reflecting the objective intention of the parties that there should be different time limits for claims based on a breach of the first obligation that the vessel would be "seaworthy and contractual in all respects" and the other obligations; indeed, there would be no time within limit at all applicable to the first limb. Furthermore, if the Buyers were right, they would not be required to give any notices to the Sellers in respect of claims based on an alleged failure to comply with the obligation that the vessel was to be "seaworthy and contractual in all respects". Proceedings could begin at any time, whereas the clear aim of Article XI was that there would be a point in time when the rights and obligations of both parties would be, as counsel put it "ruled off".

45. The practical difficulties of the construction urged on us by the Buyers was their recognition that the first and second limbs of the guarantee were not necessarily mutually exclusive – a claim for unseaworthiness and/or failure to comply with the contract could result from defective design, construction, calculation, material or workmanship. The uncertainties generated by such a possibility would be compounded by the fact that seaworthiness has to be assessed at the beginning of each voyage.

46. The prospect of some heads of claim having a 12 month time limit, and other claims having no time limit at all, and uncertainty as to which category specific claims fell into would be a goldmine for lawyers - and far removed from what the parties stated in their shipbuilding contract and what would have reflected their reasonable and objective intentions.

47. For the above reasons, we had little hesitation in concluding that the 12 month time bar provision of Article X1 applied to any and all claims whatsoever made after delivery of the vessel, including any and all claims with regard to whether the vessel was seaworthy or contractual".

The Arbitrators' reference to "no time limit at all" must obviously be read on the basis of a reference to a six year time limit, as compared with the one year limit specified in Article XI.2, common in the shipping context, but unaccountably not applicable to Part I claims.

Natural meaning

17. Mr Bright submitted that the natural meaning of Article XI.1 was dictated by the use of the defining words "(collectively "Guarantee Defects")." There is no mention of defects in the first part of the clause, and the words in parenthesis must more naturally refer to the defects which are listed immediately before the parenthesis, in the latter part of the clause. It is those defects alone which are then defined as Guarantee Defects and which are governed by the Guarantee Period and form the subject matter of the Notice provision in XI.2. "Seaworthy and contractual in all respects" does not easily fit within the definition "Guarantee Defects". Hence Part I claims relate to the straightforward claims that a vessel is not seaworthy and contractual for some reason other than consequent upon the identified defects, and Part II claims are in respect of Guarantee Defects alone. There is a comma after "in all respects", signifying the end of the general reference to Part 1 claims, the and is disjunctive, and there are in fact thus two separate guarantees in Article XI.1
18. Mr O'Sullivan submits that too much reliance is being placed on a comma. He points out that the draftsman has used a comma, perhaps solecistically after and in other clauses, viz. XI.6 and XII.1 (a). And is not disjunctive. Mr Bright's construction creates complexity in the clause where there is none. The guarantee is that the vessel will be seaworthy and contractual in all respects. The latter part of the clause is simply explanatory of that – as if the word "consequently" or "therefore" were understood – and is making clear that the defects must be contractual. The whole sentence is governed by the last words, such that the contractual obligation vests upon delivery, and is governed by the defined Guarantee Period. In any event, there is no disharmony between seaworthy and contractual in all respects and the defects alleged. There is no room for a contrast between the two. Even Mr Bright accepts that there will be Part II claims which are also Part I claims, and it is in any event difficult to think of a claim which is a Part I claim and not a Part II claim. Mr Bright's example of the selection of parts for incorporation into the vessel to be supplied by a supplier which are not adequate for the job, if such were to be the case here, is a claim of defective design.

Reading as a whole

19. Mr Bright's case is straightforward. The whole of Article XI applies only to the Guarantee Defects. The Claimants are not making a claim by reference to a Guarantee Defect, so that the Guarantee Period and the Notice provision do not apply, nor the provision for remedy of Guarantee Defects. Article XI.6, which provides for the guarantee to be exclusive, does not rule out the Claimant's claim that the vessel was not fit for its purpose, because this is a Part I claim which is not governed by the requirement for notice. There will not be, and is not, a dispute between the Buyer and the Seller otherwise governed by Article XI.7 as to whether a defect claimed by the Buyer to be remedied is a Guarantee Defect (with the onus of proof that it is not a Guarantee Defect being upon the Seller), because the Claimant here does not allege that there is a Guarantee Defect, so that Article XI.7 has no impact. The Guarantee Engineer referred to in Article XI.8 may still be appointed, but will only stay on board for a maximum of 12 months, and therefore would be, and in this case would have been, of no relevance to this claim, and since Article XI.10 refers to Assistance in respect of remedying guarantee claims (not Guarantee Defects), then it would be available, but only for 12 months, again irrelevant in this case.
20. Mr O'Sullivan submits that Mr Bright's contentions are untenable. It is not sensible to consider that the so-called Part I claims appear in Article XI.1 (and by implication in Article XI.6) but are nowhere otherwise dealt with in the Article. The natural meaning of Article XI.2 is that it applies to any and all claims within Article XI.1, and similarly so for the detailed (and apparently mandatory) provisions of Articles XI.4 and, consequentially, XI.5. Article XI.6 makes little sense if it is construed as providing that the guarantee is exclusive, and that all other remedies (i.e. save the express remedy provided by XI.4) are excluded, and yet the Buyer is being left with its ordinary common law rights and remedies for a 6 year period for its Part I claim (if and insofar as it can be understood, on any particular facts, what it is, and how it falls to be distinguished from a Part II claim). The XI.7 dispute provision can only be read as relating to a dispute about whether there is a Guarantee Defect or not, i.e. one requiring remedy (with the Buyer asserting and Seller denying it), and is not apt to deal with whether a claim is a Part I claim or a Part II claim, dispute about which (very likely to occur) would thus not be provided for at all. The Guarantee Engineer (XI.8) and the Assistance (XI.10) are plainly geared to the Guarantee Period, and leave no room for any alleged claims falling outside XI.2 and XI.4.

Commercial Sense

21. Mr Bright submits that there is nothing uncommercial about there being a notice period in respect of any claim which the Seller itself can put right and no notice period in respect of a matter which may relate to a claim against a Third Party. There is no presumption that there will be a shorter period than the ordinary common law limitation period in a shipbuilding contract. In practice in any event if the claim is known about within the 12 month period, it is inevitable that the Buyer will take the precaution of giving notice (and the Arbitrators were not asked to deal with any question of latent defect).
22. Mr O'Sullivan submits that it is wholly unrealistic to consider that the contracting parties could be required, or would be able, to make a distinction between a Part I claim and a Part II claim (or a decision as to whether it is a Part I claim which is not also a Part II claim) in order to decide whether the Article XI procedure applies. In any event he submits that there is no such distinction, and that if there was some doubt as to whether a contractual claim was in respect of one of the identified kinds of defects, then it would in any event be covered by the Article XI procedure, by virtue of the contractual in all respects wording.
23. I prefer the submissions of Mr O'Sullivan, and agree with the conclusions of the Arbitrators:

i) The Claimant's submissions must in the end depend upon there being a real dichotomy between two different kinds of claims. It seems to me to be a difficult and unnecessary task to characterise failures of performance or defective selection of parts as not amounting to any one of the other specified defects. Notwithstanding Mr Bright's fall-back argument that in case of doubt notice would and should be given in any event, it seems to me that any sensible adoption of his argument must involve at least the possibility of an understanding at an early stage as to whether the complaint was or was not a Part I claim (and not a Part II claim). It seems to me likely to be in practice impossible for anyone at an early stage, and before the facts are fully known, to reach a view as to what the cause of the defect was. It would seem to me to be purely fortuitous if, on his case, it turned out to be a Part I claim and hence the Seller did not need to have given notice.

ii) I consider that bifurcation of Article XI.1, so as to create a category of claims which is to be excluded from the rest of Article XI is wholly artificial. In any event I am far from clear why the final words of the clause ("upon delivery and for a period of 12 months) should only attach themselves to Part II claims and not to Part I claims. If this is intended to address a defect which could not reasonably have been diagnosed within the 12 month period, i.e. some kind of procedure to address latent defects, then there would have been a completely separate structure and set of definitions. I cannot help feeling that, to use a suitably nautical phrase, the argument is constructed as a tabula in naufragio for a Buyer who has not given notice.

iii) I am unpersuaded in any event by the existence of a Part I claim which has no 'label' (as Mr O'Sullivan described it) or definition, and yet to which for some reason no notice period is applied, and to which the careful procedure of remedying defects in XI.4 is inapplicable. I see no commercial or other justification for there being (in effect sub silentio) two different schemes.

24. Accordingly I would have given the same answer to the Second Question as was given by the Arbitrators, and as to the third question of law before me namely "whether the 12-month time-bar provision in Article XI of the Contract applies to any and all claims whatsoever, or only to claims for defective design, construction, calculation, material and workmanship", I answer that it applies to "Any and all claims whatsoever".
25. The result is that the Arbitrators' decision must be upheld, but I proceed to deal with the First Question, not only because (in the event articulated before me as two questions of law) it is now before me, but also because I am told by Mr Bright that the answer will have relevance to other disputes between the parties in cases where in fact notice was given.
26. I have set out in paragraph 6 above the First Question, which the Arbitrators answered in the negative. It can be seen that the Question before the Arbitrators was formulated by reference to the issue whether the Contract contained the paragraph 4 term, i.e. that proposed to be the subject of re-amendment, set out in paragraph 5 above. Before me by way of appeal what was one Question for the Arbitrators has been formulated as two questions, and no longer by reference (on the face of it) to the paragraph 4 term, but as more general questions of law namely:

(1) Whether s.14(3) of the Sale of Goods Act 1979 ("SOGA") is inapplicable to a shipbuilding project in which the vessel is built for use in standardised trades, or whether s.14(3) applies in any case where goods have been ordered for their normal purpose?

(2) Whether, for the purposes of s.55(2) SOGA, a clause containing a general description of the goods to be sold can be regarded as inconsistent with the implied terms provided in s.14 SOGA?

27. I set out in paragraph 5 above the paragraph 4 term, and noted that it was not actually drafted by Mr Bright. Nevertheless it was that term which he supported in argument before the Arbitrators. He accepted before me that it could not stand alone as pleaded, but would require clarification or limitation, namely that it was always subject to, and limited by, the terms of the contractual specification in paragraph 13, which I have set out in paragraph 3 above, i.e. the normal worldwide service and the heavy cargoes said to be the particular purpose for which the bulk carrier was required, and did not expect, anticipate or require performance by the cranes with a capacity of more than 30 tonnes with normal working. This would obviously require later assessment of the facts in relation to such questions as (i) whether more than 30 tonnes was loaded and (ii) whether the operation was overly continuous.
28. It is apparent from the Arbitrators' Award, as will be seen, that this limitation was not made clear by the Claimant below; otherwise, for example, the whole context of the second question of law before me by reference to s.55 of SOGA would not have arisen. I only need to refer, by way of example, to three paragraphs of the Award to illustrate this point:

"20. In paragraph 3.4 of the defence submissions, the Sellers expressly denied that the Buyers had expressly or by implication made known to them any particular requirements for or intended use of the vessel beyond that which had been provided by the express terms of the shipbuilding contract. They pleaded that the parties had entered into a detailed written shipbuilding contract containing the requirements and specifications for the vessel. They argued that if the Buyers had specific requirements as to the capacity of the cranes other than those actually specified, such intention would have been clearly expressed in the contract.

21. In paragraph 14 of the reply submissions the Buyers responded as follows:-

"The requirements referred to were necessarily implicit in the fact that the Contract was for the building of a large handymax bulk carrier which was expressly required to be supplied with cranes fitted for grab working up to 30t SWL and fully rated for continuous operation".

22. In other words, as was emphasised on behalf of the Sellers at the hearing, there was no suggestion that the Buyers had made known any particular requirements over and above those identified in the contract in express communications to them, the Sellers; the alleged purpose was only made known implicitly as a result of the express terms of the shipbuilding contract."

As set out above, Mr Bright makes clear to me that he is not in fact contending for any particular requirements over and above the 30 tonne capacity identified in the Contract.

29. Equally, just as Mr Bright has accepted that the argument, or at any rate the emphasis of the argument, before me has been different from that before the Arbitrators from the Claimant's point of view, so too the Defendants did not adopt before me a position the same as that which was at least understood to be the Defendants' case by the Arbitrators. Whatever may have been submitted by Mr Snook below, and I shall return to that, Mr O'Sullivan accepts before me as basic law that SOGA, and in particular s.14(3), applies to a shipbuilding contract, so that, just as the answer to the second question of law, as formulated before me, relating to s.55 SOGA seems to have become non-contentious, so too has the answer to the first question of law as formulated before me.
30. The Arbitrators recorded in the first sentence of paragraph 23 of their Award that: "the Sellers did not challenge the Buyers' case that the Sale of Goods Act 1979 applied to the shipbuilding contract". So far so good. But Mr Snook appears to have relied upon a passage in the Law of Shipbuilding Contracts (4^th Ed) by Simon Curtis which captured the imagination of the Arbitrators. It reads as follows:

"Section 14(3) will not, however, normally assist the purchase of a new building in a quality dispute. The subsection is designed to cover the situation in which the goods are required for a specific purpose made known to the seller before the contract is signed; it is as such likely to be inapplicable in the overwhelming majority of shipbuilding projects, in which the vessel is built for use in standardised trades which are well known to, and understood by, both the buyer and the builder."

This the Arbitrators quote with approval in paragraph 24 of their Award. They note that Mr Curtis referred to the first instance Scottish case of Britain Steamship Co Ltd v Lithgows Ltd [1975] S.C. 110 (Lord Maxwell) at 120, which they set out in full in the next paragraph of their Award, followed by their conclusions in relation to both Mr Curtis's views and the dicta of Lord Maxwell:

"25. Simon Curtis referred to the Scottish case of Britain Steamship Co. Ltd. v. Lithgows Ltd. In that case the purchasers under a new building contract sued the shipbuilders alleging that a purpose for which the vessel was required was to deliver the stipulated engine output on a continuous basis and that this did not happen because of constant breakdowns. Lord Maxwell declared:-

"…I read this as meaning, and almost throughout the pursuers' counsels' argument I understood them as saying, that the "purpose" relied on was the purpose of having a bulk carrying vessel with an engine capable of 16,800 b.h.p. and 110 r.p.m continuously, that is to say that the horse-power and the rpm were an element in the "purpose". If this is the case made, in my opinion, it is plainly irrelevant. Commercial men do not buy ships for the "purpose" of getting a machine which will produce a particular power or speed of operation. They may require that their ship's engine shall have a particular power or speed of operation because that is what they believe is required in order that the ship may fulfil its purpose, but the horse-power and speed of operation are themselves matters of quality, not "purpose". I do not think that this point is capable of elaboration, but I think that it is very clear".

26. Mr Bright, on behalf of the Buyers, argue that Simon Curtis's statement of the law was simply wrong. However, there will not be many lawyers in London who can match Simon Curtis's practical experience of shipbuilding contracts gained over many years.

27. Although we were technically not bound by the decision of a Scottish Court, we could not but be struck by the emphatic terms in which Lord Maxwell expressed himself."

31. Mr Bright attempted to stem the flow with reference to such cases as Preist v Last (the hot water bottle case) [1903] 2 KB 148, so as to emphasise the existence of an implied term of fitness for purpose, not to speak of The Mercini Lady [2011] 1 Lloyd's Law Rep 442 (sale of gasoil on standard FOB terms), Air Transworld Limited v Bombardier Inc [2012] 1 Lloyd's Law Rep 349 (Aircraft) and The Union Power [2013] 1 Lloyd's Law Rep 509 (especially at paragraph 24) (Ship sale on the Norwegian Sale Form), in all of which such implied term was established. Mr O'Sullivan does not now take issue with any of that, but it did not impress the Arbitrators:

"28 For the sake of completeness, we should say that we did not consider that the above conclusions were weakened in any way by the case of Preist v. Last or, given that we were dealing with a detailed shipbuilding contract, the other cases analysed in paragraph 11-055 of Benjamin's Sale of Goods. "

Mr Bright points, so far as a detailed contract is concerned, to the detailed contract in Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441, cited by Benjamin in that very paragraph, incorporating the implied term.

32. What Mr Snook was submitting is apparent from paragraph 23 of the Award, the first sentence of which I have already set out in paragraph 30 above, but the Arbitrators continue:

"However, they argued that there were three reasons [the third is not pursued before me] why s.14(3) could not have the effect argued for in this shipbuilding contract as agreed for by the Buyers. Firstly, they said that the express terms of the contract can only establish matters of quality and not fitness for purpose. Secondly, if necessary, it was their case that the implied term argued for was inconsistent with the express terms of the shipbuilding contract and would therefore be excluded under s.55 of the Act ".

33. The second argument stems from the way in which, as I have pointed out, Mr Bright was seemingly putting the case below (notwithstanding the paragraph of the Claimant's reply submissions cited in paragraph 21 of the Arbitrators' Award set out in paragraph 28 above). This is apparent from paragraph 32 of the Award which reads:

"The Sellers accepted that the vessel had to be structurally capable of carrying and withstanding the dynamic forces of the operation of the 30 tonne cranes but there was no suggestion that the structure of the vessel did not comply with those requirements. However, they argued that any more onerous and specific requirement was inconsistent with the express terms that had been agreed."

The Arbitrators' conclusion is shortly set out in paragraph 35 of their Award:

". . . What about the more general argument that the express terms were inconsistent with the implied term? We concluded that, as argued by the Sellers, they were inconsistent with the express terms and they therefore fell foul of s.55 of the Sale of Goods Act 1979."

34. The Arbitrators did not identify with which express term or terms of the contract the implied term was inconsistent, though the answer can be derived from Mr Bright's case as it was understood by them to be.
35. As for the first argument, this was accepted by the Arbitrators, after their rejection of Preist v Last and their upholding of Mr Curtis and Lord Maxwell:

"38. Although the Sellers failed on their third argument, we accepted that, on the bases of their first two arguments, the shipbuilding contract did not contain the implied term alleged by the Buyers in paragraph 4.3 of the draft re-amended claim submissions.

39. In his written skeleton argument addressing the second question, Mr Snook on behalf of the Sellers wrote:-

"The parties entered into an exhaustively detailed and comprehensive agreement, running to some 252 pages with many hundreds of clauses. The suggestion that the parties omitted some fundamental point of substance is misconceived. Instead, the facts of this case demonstrate that the default position applies, namely that no further terms should be implied into the Contract."

40. Although that argument was forensic and the preliminary issues in the shipbuilding contract had to be considered by reference to the principles established in English law, nevertheless it was a comment that supported our conclusion. Shipbuilding contracts are very lengthy and detailed documents. We are confident that both objectively and subjectively the parties would have been surprised if, at the conclusion of their negotiations, they were told that their contract was not comprehensive and very specific additional terms (albeit ones whose practical meaning was not clear) had to be implied into the contract."

36. It is quite apparent, particularly from that last paragraph, that, as indeed was to be expected, given the wording of the First Question before the Arbitrators, set out in paragraph 6 above, they were reaching their conclusion in the light of the suggestion that the paragraph 4 term (not clarified or limited below by Mr Bright as he has done here) was incorporated in the contract. They could, and perhaps did, reach their conclusion on that basis alone. However:

i) The passage in Mr Curtis's book seems to have been heavily relied upon, and is not supported by either Mr Bright or Mr O'Sullivan before me. It seems to me that perhaps what Mr Curtis meant was that reliance upon the implied term was unlikely to be necessary in a shipbuilding contract which makes express provisions for a specification which is agreed by both parties to be applicable to the purpose for which the vessel was required. But I cannot agree that, as formulated, the passage correctly states the law, and indeed it would be inconsistent with authority such as the cases referred to by Mr Bright, and set out by me above.

ii) Whereas the decision in Lord Maxwell's case was no doubt correct on the facts, again it may be that the learned Judge was saying little more than that the purpose for which a vessel is bought is to be operated in accordance with its specification, so that "a particular power or speed of operation", if warranted by the terms of the contract, will only then form part of the purpose for which, expressly or impliedly, it is purchased. The particular purpose for which the vessel was bought here was so that it could operate as a bulk carrier for normal worldwide service in accordance with its specification. The parties might perhaps be surprised (paragraph 40 of the Award) about a paragraph 4 term, but not if it was clarified as Mr Bright has now done.

37. The real problem was that both the Claimant and the Defendant below, and therefore the Arbitrators, lost sight of the limited issue which was in fact before them, namely whether the particular implied term (the paragraph 4 term) as pleaded (and not clarified or limited) was incorporated into the contract. If an implied term within s.14(3) of SOGA had been formulated which on its face was consistent with, and indeed put into effect, the terms of the specification, then the result should, and almost certainly would, have been different. There is no need, for the purpose of s.14 (3) for there to be a particular purpose identified, as indeed the very words of the statute ("whether or not there is a purpose for which the goods are commonly supplied") make clear. "Normal use" is sufficient (Benjamin at 11-55), but of course normal use in accordance with the contractual specification.
38. In those circumstances, with regard to the two questions of law before me with regard to this issue, I can answer the first, as Mr Bright wishes me to do, "The latter", and with regard to the second question, the answer would be "It depends".
39. In the somewhat unusual circumstances of this case, I would, in relation to the first and second questions of law, have probably remitted the matter to the Arbitrators, so that they could give an answer to their first question, but only after and in the light of the clarification which Mr Bright has put before me, which resolves the problems which the Arbitrators plainly had, as is clear from paragraph 22 of their Award, which I have set out in paragraph 28 above.
40. However, in the light of my conclusion as to the third question of law before me, there is no point in my doing so, and I consequently dismiss the appeal.