Sesión 3: Caritas sonrientes

The main duty of the seller is to deliver the ship:

• on time;

• in accordance with the terms of the contract; and

• free of encumbrances.

1.5.3.1.1 Delivery on time

The time of performance is not normally a fundamental term in contract law so that the innocent party’s remedy is normally restricted to claiming damages for any loss that he proves that he has suffered as a result of the delayed delivery. However, there is nothing in principle to prevent parties from agreeing that if the ship is not delivered by an agreed time, the innocent party is entitled to cancel the contract.

Consequently, Clause 14 of NSF 1993 provides that:

“Should the Seller fail to give Notice of Readiness in accordance with Clause 5 a) or fail to be ready to validly complete a legal transfer by the date stipulated in line 61 the Buyers shall have the option of cancelling this Agreement ...”

The buyer may also claim damages for any losses that they have suffered if they prove that the failure to deliver on time was the result of the seller’s negligence and was not caused by circumstances beyond their control. Indeed, it is likely that the buyer could also claim damages in such circumstances even if he chose not to exercise his option to cancel.⁴¹

41 In this regard, the position is similar to the right that is given to voyage charterers to cancel the charter if the ship is not ready to load by an agreed time and date. See Chapter 4.4.3.2.1 (Charterparty Claims).

1.5.3.1.2 Delivery in Accordance with the Terms of the Contract Clause 11 of the NSF 1993 provides that:

“The Vessel with everything belonging to her shall be at the Seller’s risk and expense until she is delivered to the Buyers but subject to the terms and conditions of this Agreement she shall be delivered and taken over as she was at the time of inspection, fair wear and tear excepted. However, the Vessel shall be delivered with her class maintained without condition/recommendation, free of average damage affecting the Vessel’s Class, and with her classification certificates and national certificates, as well as all other certificates the Vessel had at the time of inspection, valid and unextended without condition/recommendation by Class or the relevant authorities at the time of delivery.”

This provision requires the seller to deliver the ship in the same condition as she was in at the time of the earlier inspection subject only to fair wear and tear. However, the precise parameters of the phrase ‘fair wear and tear’ are notoriously difficult to pin down. The phrase refers to the kind of deterioration that is caused by normal trading activity. In normal circumstances, the ship is unlikely to suffer a substantial degree of such damage during the relatively short time between inspection and delivery to the buyers. However, if the vessel is allowed to complete a number of voyages in that period and suffers some degree of grab damage whilst loading and discharging, arguments can easily arise as to whether such damage can truly be said to be ‘fair wear and tear’ which absolves the sellers from liability.

Secondly, the ship’s class status and her status for the purposes of the various compulsory conventions⁴² that regulate maritime safety must remain in an unimpaired condition at the time of delivery.

1.5.3.1.3 Delivery free of Encumbrances

It is a traditional characteristic of maritime law that certain types of claim can follow the ship into the hands of a buyer and make the buyer responsible for those claims notwithstanding the fact that that the claims have been caused by the prior owners.

In such circumstances, the claimant is also entitled to arrest the ship in her new ownership and require the new owner either to pay the claim or to put up security for any judgement that may be rendered against the new owner in due course. If the new owner fails to pay the claim or to put up satisfactory security, the claimant is entitled to apply to the court of the country where the ship has been arrested for

42 For more detailed commentary see Chapter 22.3.1 (Maritime Regulation and Compliance).

an order that the ship be sold so that the proceeds of sale can be used to settle the claim.⁴³ Therefore, it is very important for a buyer to ensure that the ship is free of encumbrances and maritime liens at the time of delivery.

In some countries, the flag state authorities record details of any such claims in a public register and, therefore, the buyer can protect himself to some degree by inspecting such a register before agreeing to buy the ship. However, not all countries operate such a scheme, and it is possible that an encumbrance or maritime lien may have been incurred and remains undetectable in a country pending the arrival and subsequent arrest of the ship in that country in due course. Consequently, the buyer will normally require the seller to confirm that the ship is in fact free of such difficulties.

Clause 9 of NSF 1993 provides that:

“The Sellers warrant that the Vessel, at the time of delivery, is free of all charters, encumbrances, mortgages and maritime liens or any other debts whatsoever. The Sellers hereby undertake to indemnify the Buyers against all consequences of claims made against the Vessel which have been incurred prior to the time of delivery.”

Whilst this clause imposes a duty on the seller to indemnify the buyer, that indemnity may not in fact be of much practical value if the ship is owned by a one-ship company which is then dissolved and the proceeds of sale distributed to its shareholders. Therefore, a buyer will normally wish to have additional security, but the prospects of doing so depend very heavily on the price that is offered, the state of the market and the financial standing of the seller. Nevertheless, the buyer may consider the following:

• request the seller to provide a guarantee of performance from a trusted third party; or

• purchase maritime lien insurance; or

• retain a percentage of the sale proceeds for a period to see whether claims are made.

1.5.3.1.4 Damages

In normal circumstances, the damages that are payable to a purchaser of goods who has not received the goods is the difference between the agreed contract price and the price that he may be obliged to pay to another seller to obtain the same goods. However, since ships are individual, it may not be possible to obtain an exact substitute if the seller fails to deliver the promised ship. Therefore, it may be difficult

43 For more detailed commentary see Chapter 24.4 (Security Enforcement Measures).

for the buyer to prove his exact loss. Nevertheless, unlike shipbuilding contracts, S&P contracts do not normally provide for the payment of liquidated damages in the event of breach.⁴⁴

Should the ship be delivered, but not in the condition specified in the contract, the grounds for complaint are restricted by the fact that, subject to some safeguards, the basic nature of the S&P contract is ‘caveat emptor’, i.e. buyer beware. However, if the buyer can prove that there is a breach, the buyer will normally be entitled to claim damages for the reasonable cost of repairs and for any detention during the period of the repairs.

1.5.3.2 Breaches by the Buyer The main duties of the buyer are:

• to pay the agreed price at the agreed time; and

• to take delivery of the ship at the agreed location and at the agreed time.

In the same way that the buyer is given the right to cancel the contract if the ship is not delivered by the agreed time, S&P contracts normally entitle the seller to cancel if the buyer does not pay the deposit or the balance of the price in the agreed time.

For example, Clause 13 of NSF 1993 provides that:

“Should the deposit not be paid in accordance with Clause 2, 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 in accordance with Clause 3, the Sellers have the right to cancel the Agreement, in which case the amount deposited together with interest earned shall be released to the Sellers. If the deposit does not cover their loss, the Sellers shall be entitled to claim further compensation for their losses and for any expenses together with interest.”

The clause also mirrors the comments made above in Chapter 1.5.3.1.1 in relation to the right of the buyers to claim damages as well as, or instead of, cancelling the contract.

If the buyer fails to take delivery of the ship at the agreed location and at the agreed time, the seller may incur additional costs and expenses such as port dues, additional fuel costs etc., in keeping the ship pending acceptance by the buyers.

The sellers would normally be entitled to recover such costs as damages from the buyers.

44 See Chapter 1.4.4 above.