Introduction
The purchase of a second-hand yacht or commercial vessel is a serious undertaking and is not carried out lightly. The buyer will try to obtain a thorough technical understanding of the state of the vessel prior to committing, while the seller will strive for the best price, preferably without facing claims after delivery of the vessel.
Often, the parties will agree to the sale of the vessel under “as is where is” conditions, where the vessel is delivered as it was at the time of inspection by the buyer, fair wear and tear excepted.(1) Although the seller hopes to be protected by such a clause against claims by the buyer for a (hidden) defect, this may not be the case. Recent case law confirms that although such a clause is taken into consideration, other (factual and technical) circumstances will often be considered when deciding on a buyer’s claim.
On 2 June 2021(2) the Rotterdam Court dealt with a buyer’s claim for damages based on the alleged non-conformity of an inland waterways vessel built in 1961, despite the existence of an “as is where is” clause between the parties. It was alleged that, at the time of the sale, the engine was defective (oil leakage) and the electricity supply was not compliant. The buyer claimed damages, including repair costs, assessment costs and compensation for idle time.
The starting point for the court was that the vessel should be in conformity with the contract (article 7:17(1) of the Dutch Civil Code (DCC)). In line with these requirements, a buyer may expect certain characteristics, taking into account the nature of the vessel, normal use, foreseen particular use and statements made by the seller about the vessel. However, the requirements are not mandatory, so parties can deviate from this general rule.
The question arises of whether the parties have agreed to a deviation of the general rule. An important element in this respect is the interpretation of the “as is where is” clause. The doctrine applied when interpreting a contract pursuant to Dutch law is known as “Haviltex” and is developed in case law by the Supreme Court. Summarising the text of the contract (the linguistic meaning) may not be decisive, and importance is also given to the meaning both parties could have reasonably attributed to the provisions in the given circumstances, and what they could reasonably expect from the other in the given circumstances. The sale brochure of the vessel, information provided by seller during the sales process and the contract in its entirety may be relevant in this respect. In previous case law, this led to a variety of interpretations of “as is where is”: that parties had agreed on a full exoneration against claims;(3) that parties had only agreed that the vessel could not be modified after inspection and prior to the delivery to the buyer by the seller;(4) and that the buyer has an increased investigation duty.(5)
The Rotterdam Court ruled, however, that solely based on the wording of the contract, including the wording “as is where is”, “as seen” and “with all visible and hidden defects”, it was clear that the seller’s obligation was to deliver a vessel regardless of any hidden or visible defects, and that the buyer could not complain of any defects.
Nevertheless, the court considered that a buyer’s complaint could be made if the contract allows it. Next to the wording on “as is where is”, the contract also included the wording that the vessel would be delivered “in a working condition”. The court subsequently applied the Haviltex doctrine to interpret what the parties had meant. For the court, the relevant facts included that: both parties were experienced in the maritime industry; a broker was involved; and an inspection had been carried out by the buyer as well as an expert. The court combined these facts with the contractual wording that the buyer was accountable both visible and hidden defects and cannot claim any consequential damages or guarantee. The court then concluded that “in a working condition” did not mean that a guarantee had been granted.
However, the court then considered whether the alleged defects would have precluded the statement that the vessel was delivered “in a working condition”. The court concluded that this was not the case, because the alleged defects did not prevent the vessel from sailing.
As a last resort, the buyer argued that the contract was entered into under the influence of an error and would not have been concluded had there been a correct assessment of the facts (article 6:228 DCC). If such an error had been made as a result of relying on information provided by the seller, or from not knowing information that the seller should have provided, the contract might have been nullified or modified by the court. However, the court decided on the facts of the case, chiefly because it was not proven that the seller had withheld information and, therefore, the relatively high threshold had not been met. Interestingly, despite previous court of appeal decisions, the court did not consider that the “as is where is” clause could also lead to the conclusion that the error remains the buyer’s responsibility. This is especially the case if the buyer has neglected to perform a survey of the vessel.
Even if an “as is where is” provision is interpreted to the effect that no guarantee is given, it is not easily accepted as an exoneration of the seller against any and all claims by the buyer. The seller therefore remains exposed to alleged claims and a technical and factual debate. However, it seems to be clear that – at the very least – the buyer has a more extensive obligation to investigate the condition of the vessel. The duty to investigate is subject to debate and its interpretation may differ depending on the information provided by the seller prior to the sale. The outcome of the entire discussion may also be different when consumers are involved, owing to mandatory consumer protection and because it may be a circumstance relevant to the interpretation of the contract.
To prevent legal uncertainty and lengthy proceedings for both the seller and the buyer, clear drafting of the sale agreement is key. This implies clear drafting of not only the (entire) contract but also the sale brochure, any emails exchanged and the (notarial) deeds to transfer title. Depending on what is commercially feasible and negotiated, parties should consider including a full exoneration of the seller, or alternately find a “middle” way. For example, key items to be guaranteed by the seller should be addressed as well as the state in which the vessel is to be delivered. Furthermore, if the parties agree on an exoneration for the benefit of the seller for (hidden) defects, this should also be clearly written down.
Thus, both the seller and the buyer are advised not to rely on the wording “as is where is” given the continued uncertainty over its definition.
Endnotes
(1) For example, article 11 of Saleform; article 21 of Memorandum of Agreement, Mediterranean Yacht Brokers Association.
(3) Court of Appeal Leeuwarden, 2 August 2011, RI 2011/92.
(4) Court of Appeal Den Haag, 6 September 2007, S&S 2009/104.
(5) Court of Appeal Arnhem-Leeuwarden, 24 March 2020, S&S 2020/67.
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