Neon Shipping Inc. v Foreign Economic 7 Technical Coporation Company of China and Another
| Jurisdiction | England & Wales |
| Judge | Mr Justice Burton |
| Judgment Date | 02 March 2016 |
| Neutral Citation | [2016] EWHC 399 (Comm) |
| Docket Number | Case No: CL-2015-000722 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 02 March 2016 |
[2016] EWHC 399 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Burton
Case No: CL-2015-000722
Robert Bright QC (instructed by Waterson Hicks) for the Claimant
Sean O'Sullivan QC and Sean Snook (instructed by Wikborg Rein) for the Defendants
Hearing date 11 February 2016
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.
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.
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".
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.
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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.
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