Norwegian Sale Form - Indemnity for Pre-Delivery Claims

August 2000

(Sea Venture Volume 19)

In ''Sea Venture'' Vol.18 a comparison was made between key provisions of the Norwegian Sale form (''NSF'') 1987 (still commonly used in the industry) and NSF 1993. Recently, in Rank Enterprises Ltd. and Others v Gerard¹ the Court of Appeal has interpreted Clause 9 of NSF 1987 regarding the indemnity for pre-delivery claims. Although the wording of Clause 9 in NSF 1987 and 1993 is not identical, the decision is likely to apply equally to agreements on NSF 1993 since the relevant phrases also appear in the later version.

The case concerned the sale of three vessels to the claimant buyers in April 1997. The sale agreements were on NSF 1987 of which clause 9 provided:

".... the Sellers warrant that the vessel, at the time of delivery, is free from all encumbrances, mortgages and maritime liens or any other debts whatsoever. Should any claims which have been incurred prior to the time of delivery be made against the vessel, the Sellers hereby undertake to indemnify the Buyers against all consequences of such claims....."

Among the issues for the court to decide at first instance were the following:

1. what was the meaning of the words in Clause 9 NSF: ''should any claims which have been incurred prior to the time of delivery be made'';

2. what was the meaning of ''claims against a vessel'';

3. whether ownership claims fell within NSF Clause 9.

Toulsen J held that:

1. The phrase ''should any claims which have been incurred prior to the time of delivery be made'' should be read ''should any claims in respect of liabilities which have been incurred prior to the time of delivery be made''. If it had been intended that the seller should indemnify the buyer in respect of claims other than those in respect of which liability had been incurred prior to the time of delivery, clear words would have been required.

2. A claim against a vessel must involve a demand which carries with it a real and present threat of seizure of the vessel. However, it is not necessary for proceedings to have been issued or an order of arrest obtained before there can be said to be a claim against the vessel.

3. Ownership claims cannot be categorised as falling outside or within the meaning of ''claims''. Each case will be dependant on its own facts. In this case, an ownership dispute placed one of the vessels under a real and present threat of arrest bringing the claim within the meaning of clause 9.

The Buyers appealed on the following issues:

1. Whether the indemnity in Clause 9 relates only to claims in respect of which the sellers are actually liable.

2. What is the meaning of claims ''against'' a vessel.

The Court of Appeal held that:

1. The judge at first instance had taken too limited a view of the scope of the second sentence of Clause 9; that sentence addressed claims made, the exposure to which stemmed from pre-delivery events, whether the liability asserted by such claims might prove to exist or not.

2. ''Claims made against the vessel'' in the second sentence of clause 9 referred to demands or assertions of rights which must be made against the vessel but this did not mean that the vessel must actually have been arrested or an arrest order obtained.

3. For a claim against the vessel there must be a demand which carried with it a real and present threat of seizure of the vessel. A buyer is just as entitled to an indemnity in respect of adverse consequences suffered when dealing with a claim or demand arising from pre-delivery events (involving a real and present threat of seizure of his vessel) as he would be in dealing with more formal procedural steps.

It would seem, therefore, that the indemnity applies in respect of the adverse consequences of all claims generated by pre-delivery events. The application is not to be considered as restricted to actual liabilities only.

¹[2000] 1 Lloyd's Rep 403