Guarantee Periods in Shipping Contracts

Guarantee Periods in Shipping Contracts

The court has clarified important issues relating to guarantee periods in the context of fitness for purpose in a shipping contract dispute.  The expert maritime and shipping lawyers at top Bahamas law firm ParrisWhittaker have many years’ experience advising clients on shipping disputes.

What’s this case about?

The defendant1 was a shipyard which delivered a 57,000 DWT bulk carrier to the claimant buyers.   Under the contract, there was a guarantee period of 12 months from delivery.  Three years after the date of delivery, bearings in the cranes on the vessel were subject to excessive wear, and the buyers needed to limit their operative use.

The buyers claimed the costs of the repair and replacement from the defendant on the basis of what they argued was an implied term in the contract that the vessel must be fit for purpose, and the vessel had been delivered in breach of this implied term. 

At arbitration proceedings, the arbitrators rejected the buyer’s argument that the contract contained such an implied term.  The 12-month time guarantee period applied, and the buyer’s claims that were not notified before the expiry of the guarantee period, were excluded.

What happened at the High Court?

The High Court agreed with the arbitrators’ decision.  It found that the 12-month guarantee period was very clearly set out, such that all claims following delivery of the vessel to the claimant had to be notified within that period.

Importantly, the court considered the wider question of whether implied fitness for purpose obligations can be implied into shipbuilding contracts by the Sale of Goods Act 1979 where a vessel is built for use in a standardised trade that is well-known to, and understood by, both the buyer and the builder.  The Court took the view that in the ordinary course of events, the fitness for purpose terms would be implied into the contract.  However, where express terms (such as the 12-month guarantee period in this case) are inconsistent with such an implied term, the express terms would take precedence. The claimant therefore also failed in that respect.

What does this mean?

Parties to shipping contracts should take note that a clearly worded guarantee period will take precedence over implied terms relating to, for instance, fitness for purpose in a shipping contract.  The parties must, therefore, understand the specific terms of the contract - and the limits to which they can bring claims should problems arise. 

Care should therefore be taken when negotiating contracts, particularly on the part of the buyer, to ensure their business interests are protected.  Problems with goods can arise long after 12 months has expired, and negotiating a longer guarantee period in some cases may prove commercial advantageous.

How can we help?

We advise and represent shipping and maritime clients with their commercial contracts, including issues relating to limitation periods and guarantee periods.  If you have a shipping dispute and need to take action, or defend a claim against you, contact the expert shipping lawyers at ParrisWhittaker for urgent advice and representation.

1 Neon Shipping Inc. v. Foreign Economic 7 Technical Corporation Co. of China and another [2016] EWHC 399